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| Home - CEO Spotlight - Aug 06 Issue |
CEO Spotlight: Dave Mitchell, webMethods, Inc.
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Angel Mehta: What else have you focused on since taking over as CEO?
Dave Mitchell: Good, old-fashioned fiscal discipline. One of the first things we moved to do when I came in was benchmark the different aspects of our cost structure, to understand where we stood relative to other software companies that were between $200m and $1b in revenue. We looked at what the best software companies were doing, and then at what the worst software companies were doing - and set targets around doing more of what the best ones did and less of what the worst ones did.
Angel Mehta: Common sense… but not always common practice.
Dave Mitchell: Right. In many areas, we saw huge opportunity for improvement. Our R&D spend was approximately 23-24% of total revenue. The best in class metrics said we needed to be closer to 15-17%. Our sales and marketing spend was essentially spending $1 for our sales and marketing costs for every dollar of license, so there was no leverage in the sales engine. Our G&A was unusually high, probably 13-14%, and it really clarified for us why the stock price and the valuation of the company were relatively depressed to the market peer group. Ultimately, the market knows what it's doing and isn't going to reward a company that looks unhealthy relative to its peers.
At the same time, you don't want to 'improve" the business purely by cost-cutting. You know this very well, Angel - the biggest expense in a software company is people. So it's easy to get profitable in the short-term by just cutting a bunch of people. But that doesn't allow you to grow in terms of innovation…it doesn't allow you to address future market demand. We had to improve our cost structure without hurting our chances to dominate what we think is going to be a huge IT sector opportunity in SOA.
Angel Mehta: So if it wasn't just about laying people off, how did you go about cutting expenses? What were some of the areas that money was being wasted on?
Dave Mitchell: Across the board… travel, for example. We mandated a 15% reduction in travel - and you know what, we still have growing pipelines. The cost of our facilities was out of whack… we were signed up to pay rent that was way too high. We consolidated our headquarters in Fairfax into one building, as opposed to multiple buildings. That saved us a few million dollars a year, and you know what else? It improved communication and collaboration! For example: I moved our Japanese office down 40 floors in the tallest building in Japan, and we saved $400 000 a year just by doing that! Just one example, my Japanese office, I removed the organization down about 40 floors in the tallest building in Japan and we saved $400,000 a year by doing that.
On the R&D side, we couldn't cut headcount - it would kill innovation. So we opened an Indian R&D center where we could get the same productivity at a lower cost. In marketing, we became more disciplined about what tradeshows we were going to attend and sponsor, and so on. In sales, we realized that we didn't need one sales engineer for every sales person - it was overkill. A good sales person doesn't need an SE on every call!
Angel Mehta: It's really interesting when you talk about common-sense cost cutting tactics, like moving out of high rent areas, or consolidating offices… What is it do you think that allowed a company like webMethods or any company, to get to the point where they have those unnecessary expenses to begin with? What advice would you have for other chief executives to ensure that expenses don't get out of control like that?
Dave Mitchell: Well, first of all, you need to hire a world-class CFO who questions everything. The CFO is your check against mindless spending. But you also need to train every level of the organization, managers to individual contributors, to understand about being resistant to a lot of the exuberance around certain hype cycles. When we grew up as a company, it was in one of the hottest times in the public market and we were getting money thrown at us from every direction -- in many cases when we didn't even need the money. But our advisors and investors kept pushing the pedal forward…"get growth, get growth, get growth, get bigger, get bigger, get bigger. We'll figure out the profit thing later!" I think that was just a very naïve way to run the business. Hindsight, of course, is 20/20, right?
Angel Mehta: Let's talk about the transition issue… it's interesting to me, because I remember chatting with Phil Merrick maybe a year before you took over… and there didn't seem to be any indication that a transition was in the works. Take me through some of the challenges that were associated with it at webMethods and how you handled it.
Dave Mitchell: The reality is there's not a lot of interesting things to say on this topic because the corporate governance side of the organization was extremely well run. The succession plan was put in place long before Phil ever decided he wanted to take a step back. There was no interesting conflict or drama to gossip about because Phil and I got along great; we have a wonderful relationship that goes back to the beginning of the company. I wasn't some new guy off the street that nobody knew who was stepping in to make a whole set of radical changes.
David Mitchell is President and CEO of webMethods. David's leadership is a critical component of the company's dominant position in the integration software market. Since joining webMethods in 1997 as Vice President of Sales, David managed almost every aspect of webMethods" business, including the global sales organization, marketing, industry solutions, business development, and global services operations. For interview feedback, contact David at dmitchell@webmethods.com
Angel Mehta is Managing Director of Sterling-Hoffman, a retained executive search firm focused on VP Sales, VP Marketing, and CEO searches for enterprise software companies and lead investor in http://www.softwaresalesjobs.com, the # 1 site for software sales jobs. Angel can be reached for feedback at amehta@sterlinghoffman.net
 
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