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CEO Spotlight: Massood Zarrabian, OutStart
By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search
Angel Mehta: What was your entry point into the high tech industry?
Massood Zarrabian: It was with a co-op program with Computervision. I was doing my MBA and they had me on for a 90-day term, at the end of which they said, “Hey, you’re a pretty good employee, why don’t you stay on with the company?” I told them I would, but an MIT grad with half an MBA is worth more than three bucks an hour… which is what they were paying me, if you can believe that. They agreed. So I got a raise to five bucks an hour with a Manager’s title…
Angel Mehta: A fifty percent raise? Great negotiating job… [Laughing]
Massood Zarrabian: Right. They also sponsored me to become a permanent resident, though I ended up getting a green card via my mother anyway. Anyway, the job with Computervision involved managing what is now called the QA function. So that was my start into the high tech world.
Angel Mehta: How did you come to be CEO of OutStart?
Massood Zarrabian: When I was at BroadBase, Bob Davoli from Sigma Partners actually approached my friend Dan Kossmann a couple of times to run OutStart. In January of 2001, about 30 days after the Servicesoft-Broadbase merger was finalized, Bob Davoli was aggressively going after Dan. So Dan came to me and asked me to do some due diligence on the opportunity – I think because he was hoping I would come up with some reasons to NOT join OutStart, so he’d have good reasons to give to Bob Davoli. Bob is a very aggressive investor, when he believes in something, as you know.
I did the due diligence on OutStart and found good technology, a wide open market, lots of white space…and it was backed by one of the top investors in the world… so I couldn’t come up with one reason NOT to join the company. I told Dan, “You’re not going to find an opportunity like this again – join them while you can. “At the end of the conversation, I made a comment like, “It’s too bad I’m still at Broadbase because I’d take this opportunity myself if I could. ”So Dan phoned Bob Davoli and told him what I said. At which point, Bob Davoli called me and said, “If you want the job, it’s yours…”
So, Dan and I came to OutStart together.
Angel Mehta: I find it interesting that you would agree to join OutStart in March of 2001. This was probably one of the worst economies in American history…OutStart was a true early stage vendor at that time, which made it 10 times harder to sell anything. Companies were just not doing technology projects. So what was so compelling about OutStart that you would ignore all that?
Massood Zarrabian: My thinking was, if you have good investments in good products you ought to be able to at least survive. And when things improve, you ought to be able to hit doubles, triples and home runs. We knew that no IPO’s were going to happen for a while – the market had crashed. But I’m of the view that human beings are very resilient. When things get tough, they actually reach a lot deeper and leverage their personal history, their experience, their passion, their emotion, and their brain a lot more than when times are easy. Tough times push you to do things that you otherwise thought were impossible. I believe that you actually focus on building great companies much better when times are tough.
So I wasn’t afraid of the economy. Of course, the downturn lasted much longer than I thought it would. But still, we were able to build a business in the one of the toughest markets of all time – and we’re proud of it. If you look at the way the company is managed today, from a financial controls and administrative perspective, it’s run incredibly well. This company can make 30%, 40% profit before taxes at a run rate of $10m to $12m in revenue. Very few companies can do that. We looked at the cash as our own money…the joke around here, actually, is that Massood spends money at home more freely than he would spend money at OutStart.
Angel Mehta: Tell me how you create a culture of financial discipline…I know a lot of CEO’s and entrepreneurs in particular struggle with how to do that, because every expenditure can seem important and you’re under pressure to grow…
Massood Zarrabian: You have to communicate the message of financial responsibility to every layer of the organization. It can’t just be the managers who embrace it – it has to be the whole company. Put it this way: at one time there was a rule at OutStart that if you want to buy any piece of equipment, you have to get my approval -- even if you wanted to buy a $20 headset. It was a way of trying to get people to understand that financial responsibility is very, very important.
Angel Mehta: It’s funny that you mention that because I was talking to a CEO in Silicon Valley last week who said that his employees used to criticize how tightly he controlled expenditures in 2002, until they looked around one day and realized that they were the only company still alive in the category. All of their competitors had burned through their cash and went out of business. I remember Warren Buffet saying, “A good manager doesn’t just randomly wake up one morning and decide to cut costs…” – it was supposed to be a given that costs would be controlled.
Massood Zarrabian: Yes! I used to tell people that when we created our core values, we purposely did not put anything in there about making a profitable company. Why? Because profit for a company is like blood in a body. You don’t suddenly wake up one morning and say, ‘Today I think I need blood in my body.’…unless you’re very sick. Blood is in the body is a GIVEN - a healthy person just has it. Profit is the same way. It is the life of a company -- you have to accept it as a premise, not as an objective. Profit is supposed to be a given -- it’s not something you should have to turn into a commercial or an end goal.
Angel Mehta: Has this always been your philosophy?
Massood Zarrabian: No I didn’t always have that mentality. I learned the mentality actually in the late 70’s early 80’s when Computervision was just taking off and our stock was doubling all the time and people were just buying the stuff. Then we decided to fuel the growth by spending more money, doing more products, doing a whole bunch of random things. So what happened? In 1985, we hit a wall. The company laid off 1200 people out of 4000 total employees. I started reflecting on how we got to that kind of nightmare and the conclusion was, you know, we just went crazy. We forgot about focus. We forgot about how to run a business.
What happened to so many companies after the bubble burst was not a new thing. It has happened before…it is a cycle that repeats. So it’s a lesson I’ve learned several times.