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How Siebel found its groove

If only people had listened to Tom Siebel during the wild and crazy dot-com days of the 1990s. His advice now: Become the market leader, but not at the expense of profit.

    Ah, if only people had listened to Tom Siebel during the wild and crazy dot-com days of the 1990s.

    Speaking to a group of Wharton and Harvard alumni earlier this month in San Francisco, Siebel gave some advice on how to run a successful company: "Focus on profit." And how do you do that? "Just figure out how much revenue comes in, and then spend less than that."

    As several people in the audience frantically scribbled down his words, Siebel added: "Keep it simple. Become the market leader, but not at the expense of profit." And cash is still king.

    If he makes it all sound easy, that may be because Siebel, founder and CEO of Siebel Systems, a provider of customer relationship management (CRM) software, hardly seems to have missed a step since 1993, when he founded the company with $50,000 and some used furniture stashed in an unglamorous East Palo Alto, Calif., office.

    Today, Siebel Systems, relocated to San Mateo, Calif., has revenue of $1.8 billion and 8,000-plus employees who work out of 136 offices in 34 countries. Fortune magazine recently ranked Siebel Systems second among the "100 Fastest Growing Companies."

    Just figure out how much revenue comes in, and then spend less than that. Siebel laid out the goals that he says he has adhered to since the beginning, including employee ownership of the company. When Siebel Systems was founded, Siebel said, "employees were given the option of taking their salary in cash or stock. They all chose stock." Allowing employees to reap the benefits of their work was "my Marxist dream," Siebel joked. The company's employees owned 85 percent of the company when it went public in 1997. (Siebel owns the other 15 percent.)

    None of the funding came from venture capitalists because, according to Siebel, he already had what VCs could offer him. "We didn't need money, connections or product development help," he said. Siebel and co-founder Pat House also weren't interested in giving up any control of their new business.

    Nor did Siebel just stumble upon the CRM market. Since companies were already buying information-technology products for human resources, supply-chain management and manufacturing, the opportunity was clear. "It was unlikely that companies would not buy customer service solutions," he said.

    Buy them they did. Siebel Systems now has a family of e-business applications software that automates the sales and customer service operations of large corporations, including clients such as IBM, Deutsche Telekom, Lucent Technologies, Chase Manhattan Bank, Charles Schwab, Yahoo, Microsoft and Kellogg's. The software allows companies to distribute customer information to call centers, reseller channels, direct-sales teams, and retailer and dealer networks. Web-based versions of the CRM software are also available.

    Where to focus
    When asked the question foremost on the audience's mind--what budding entrepreneurs should do today to copy his success--Siebel responded that they should follow their dreams. And now is the time. The world in general, and Silicon Valley in particular, are the same as in the early 1990s, when Siebel Systems was founded. "For Rent" signs are up in office buildings and talent is cheap.

    A focus on shareholders is not the answer, Siebel said. Concentrate on fundamentals. "Building a great company is about building great products," he said. "Focus on satisfying your customers, becoming a market leader, and being known as a good corporate citizen and a good place to work." Everything else follows.

    "Hire people smarter than yourself," Siebel also urged. Each person should be significantly smarter than the CEO in his or her particular area. The CFO should be better at managing finances than the CEO, and the head of marketing should be better at marketing than the CEO.

    Smart people aren't enough, however. Make sure the whole management team is aligned, Siebel said. "I can't tell you how many times I have seen management teams where each person is on a different page," he said.

    Hire people smarter than yourself. He even gave a plug to selling, suggesting to his listeners that "sales is often an overlooked opportunity." Not only does a sales position give a really strong understanding of the revenue side of a company, Siebel said, but it is often the fastest track to the top.

    One of the company's largest growth areas has been government agencies, including the Social Security Administration, the IRS and the U.S. Postal Service, which sees the need to increase customer satisfaction to remain competitive. The company has also grown through a series of acquisitions and partnerships. On Dec. 17, for example, a partnership was announced between Siebel and Digital Motorworks, a leading provider of automotive information-management products, in which Siebel will supply software and services for the automotive industry.

    Not always painless
    Not that there haven't been some challenges along the way. Recently, giant Oracle, whose database service is used by Siebel Systems, decided to compete with the company in the business-software market, including CRM packages. So far, according to a report in BusinessWeek online, Siebel remains the market leader, with 28 percent market share in 2000 compared with Oracle's 6 percent.

    According to a report Dec. 18 in CNET, the company's stock has lost 55 percent of its value since the beginning of 2001, but has outperformed its peers in the Standard & Poor's Computer Software Index by 52 percent. In a sign of the recession's impact on Siebel Systems, Tom Siebel announced last July that he was voluntarily giving up his $1 million salary.

    As one might guess from the emphasis on customer service, the company pays more than lip service to the behavior and attitude of its own employees. "We are very focused on this idea of corporate culture," Siebel said, noting that right from the beginning the team communicated a specific vision. "We have seen a lot of pathological corporate cultures (in Silicon Valley)" that have tended to develop as a secondary result of market success. Siebel, however, never bought into the idea of high-flying executives with corporate jets or "employees dressed in jeans playing ball in the hallways and engaging in e-mail wars."

    In its place, he noted, is an unwavering commitment to customer satisfaction and the highest level of professional courtesy and respect for customers, employees, partners and the community. Customer satisfaction levels are audited externally, and compensation is directly tied to those measures.

    As the company grew rapidly, Siebel said, he felt the need to formally articulate the corporate culture so that all employees would share the same values and vision. To accomplish this, he created the Founder's Circle. This 70 people in the group are not necessarily all founders, but rather people "who can drop everything and get the job done." This designation is the highest recognition given by Siebel Systems to its employees, and Siebel said the door to his office is always open through this group. The Founder's Circle meets on a regular basis to formulate the company's goals and strategy and to ensure that the corporate culture supports the achievement of these goals.

    When asked which markets to enter today, Siebel cited opportunities in enterprise application integration (EAI) and employee relationship management (ERM). EAI is still a large unsolved problem, he said, adding that "someone will devise an elegant yet simple solution that will allow all applications to communicate." He also believes there is a large need for ERM products and that this market will someday be bigger than the CRM market.

    Finally, the trend toward miniaturization and nanotechnology will continue. One day soon, he predicted, we will have communications devices in our bodies. "This is the most scary technological innovation I can think of," he said. Can you imagine an ad for a cooling drink being zapped to your cell phone when you perspire? Now that would be CRM with a vengeance.

    To read more articles like this one, visit Knowledge@Wharton.

    All materials copyright © 2002 of the Wharton School of the University of Pennsylvania.