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| Home - CEO Spotlight - Dec 05 Issue |
CEO Spotlight: John McNulty, Secure Computing
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Angel Mehta: Once a company reaches the size of Secure, obviously the question of whether the company is going to survive stops being an issue, it's more about reaching the next plateau. Are you able to rely purely on the market's natural expansion to achieve your growth targets, or are there key priorities that have to be taken care of it get to the next level?
John McNulty: Relying on the market's natural expansion is enough to build a very good company, and we've already done that. When I came in the door in '99, we had 15 products. One of the first things we did it in the first 60 days was identify that we were going to jettison 12 of those products in the appropriate fashion. We didn't leave the customers high and dry but by the end of year we were able to get out of those 12 products. We focused on the three that we have today. They've each have had, at this point, seven releases (minimum), and every release made them better and more competitive. Along the way we think we've grown about two and a half times faster than the market over the last six years. While, that comes to growth of over20% per year over the last 6 years that's not fast enough to build something truly significant. That's where acquisitions come in.
Angel Mehta: I assume you took Secure through a series of 'reinvention" programs to trigger the turnaround… what were the key changes you had to make inside Secure to get it to the state that you're in today?
John McNulty: The first and probably the most important for staying alive was cutting down and focusing the resources we had on three products rather than 15 -- that was #1. I mean, you had many people associated with the products that reached the end of their product cycle. We took the head count in '99 from about 360 to about 290. The reason we didn't go a whole lot lower is because I felt like we had an absolutely outstanding group of people that we wouldn't get back if we let them go. It was probably wiser to hang on to them and carry the incremental cost rather then let them go. So that was a transition period and we got through that pretty nicely.
A second issue we had to correct: in 1999, Secure Computing was a 100% direct sales organization, which was not viable at the price points we were selling at. At the same time, we couldn't just switch to the channel automatically because our products weren't ready. So we went on attack which dictated that we had to make the products easier, faster, more channel ready and friendly, easier out of the box to install and support. Understand, the core technology was great, but the products weren't ready for primetime with the channel. We were losing the race against products that were technologically inferior, but were much faster and easier to install and support. So, getting our products ready for the channel and then building the channel out was a huge transition - and a huge milestone when we finally achieved it.
In the beginning of 2004, we said we were going to be 100% through the channel with the exception of 50 named accounts and those are the special ones that we've sold to historically and don't want to lose direct contact with us, huge corporations that have long standing relationships with us. We push everything else through the channel today. We might get involved with the channel partner in making the sale, but the channel partner is going to do the fulfillment and that transition was a milestone for the company. Since we've made the shift, the channel has performed marvelously. In the last quarter it represented 84% of our revenue.
Angel Mehta: What advice would you have for other CEOs who are trying to make similar shifts in their company strategy? I think many software companies struggle with this issue of the direct sales force being way too expense (expensive) to maintain.
John McNulty: You're totally right… it really is and frankly the security segment is probably a microcosm of the rest of the technology space, in particular the software space. In the security space, you have 40+ public companies and over 750 private companies. Those companies have some great technology, but you know what? Technology only gets you 30% of the way. A channel to market… having a channel that works is at least 40% of the solution, and the rest are the people, timing, and luck - that's the last 20 or 30%.
You've seen it before: companies with mediocre technology winning due to a great channel, and companies with great technology failing abysmally because they couldn't get the channel right. So the most basic piece of advice I have is…
Angel Mehta: Pay more attention to the channel? [Laughing]
John McNulty: Yes! Too many companies focus purely on the technology. Don't short the channel - it is more critical than the product you're bringing as far as the success equations go. Now once you've made the decision to focus on building a great channel, consistency is critical. If you talk to the channel partners in the security space, they are very consistent in the way they see the world. They all say the same things: they want to deal with fewer partners. They have too many items on their line card right now but they know they have to continue to expand the breadth of their offerings to their customers. They all want to do that with FEWER partners. If there's ever a question of fairness, we err on the side of the channel. We want them to look at us as an absolute pure definition of the word 'partner" -- partner in the sense that 'we can't be successful unless they are and vice versa.'
Angel Mehta: You're in the middle of an acquisition now with Cyberguard. Clearly it is a major integration challenge. What are some of the most critical problems that you're having in integrating them right now?
John McNulty: The most critical problem is getting through the SEC process. Actually, we haven't gotten through yet. We're still waiting -- it's been a very time-consuming process. As luck would have it, the workload on the examiners that we have is significant and we suffered as a result with submitting information and then having to wait. I don't blame them; it's just bad timing. A lot of activity going on, so we're not into the integration phase at this point hopefully we will be in soon and get on with the integration.
The key to this transaction is really the people involved. The Andy Grove of Intel has often said "Your key assets goes down the elevator every night" - It's about those people. Technology companies have great products but the great products are a result of those people. What their customers bought are the results of those people. So the key to measuring the success of that transaction will be us keeping the engineers and sales people from Cyberguard happy. Making them feel, from Day 1, that they are now part of a bigger and better organization as a result of that combination and are an equal members with every other employee of the Secure Computing team. So that's what we're really going to focus on. You only get one chance to make a first impression, right? Well we need to make sure that from day 1, our interactions with the new employees leave great first impressions.
Angel Mehta: How much time do you, as CEO, spend worrying or thinking about the actual cultural at the lower levels of Secure or Cyberguard? Are there material actions or initiatives that you personally take on to address cultural issues?
John McNulty: Absolutely. In fact, I teach a Secure Computing culture class. It really revolves around our value system and the way we work. I'll teach that in the first few months probably 15 or 20 times to groups within Cyberguard and hopefully within the first year teach it in front of every new employee we have as a result of the transaction.
Angel Mehta: It's said that as a company grows, it loses its entrepreneurial edge. Speaking of culture, is the entrepreneurial personality frowned upon inside a company of the size of a Secure or even a larger company like Intel? How do you as a CEO respond to executives or middle managers who are prone to acting without going through the right channels? Can an entrepreneur personality survive in a company like Secure?
John McNulty: I think so, I really think so, and it's important that they do. An entrepreneur is someone that, in my mind, is going to make mistakes and if he's wrong begs for forgiveness. The people who don't make mistakes don't make decisions… I always say 'the last perfect person was crucified." As part of the culture class I teach, along with other members of the senior team, we teach that if you wait until you have a 100% of the information, it's too late. If you have somewhere over 51% of the information and it is all pointing in the same direction and not conflicting then act upon it. You also have to have a sense of judgment that says if this goes all wrong, how bad can it be? If you can create a horrendous problem for the company and our shareholders don't be very quick to pull that trigger and go seek advice and counsel. If the situation is different and it goes all wrong and it's going to set us back two weeks, go for it because that's the way you make progress. So absolutely entrepreneurs can survive and I think you need a culture that encourages people to take changes, to take risks and sometimes they're going to fail. But so what?
John McNulty is Chairman and CEO of Secure Computing. He has over 30 years" experience in the hi-tech industry. Before joining Secure Computing, John served as senior vice president sales, services and business development at Genesys Telecommunications Laboratories, Inc. Prior to Genesys, John was with Intel Corporation, where in his last position he was director of marketing and business development for the enterprise server group, which he launched. For article feedback, you can contact John at: john_mcnulty@securecomputing.com
Angel Mehta is Managing Director at Sterling-Hoffman, a retained executive search firm focused on VP Sales, VP Marketing, and CEO searches for enterprise software companies. He can be reached for feedback at: amehta@sterlinghoffman.net
 
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