Confessions of a Control Freak Sales are up 117%. The stock is up 400%. So why is Tom Siebel trying to loosen up? Because he loves his customers, of course!
(FORTUNE Magazine) – One afternoon earlier this year Tom Siebel, CEO of Siebel Systems, was sitting in the plush offices of a big customer in New York City when he discovered a problem. The customer had bought millions of dollars' worth of Siebel's e-business software but was having trouble installing the stuff. Cries for help such as this are not uncommon at Siebel Systems, which sells complex software packages that often require lots of customized tweaking. Siebel, who founded his eponymous company seven years ago, knew exactly what to do. As soon as he got back to his San Mateo, Calif., headquarters, he dispatched a trusted senior executive to fly to New York and stay until the issue was resolved to the customer's satisfaction.
At least that's what Siebel thought would happen. But several days later when he strode into the conference room adjacent to his office for the company's regular Monday morning management meeting, Siebel was surprised to find the executive sitting there calmly drinking her coffee. She explained that instead of going to New York, she'd conducted a conference call with the customer and dispatched one of her people there. Normally imperturbable, Siebel grew red-faced and unleashed a fusillade of disapproval. "I told you to go to New York and deal with it, not set up a conference call and delegate it," he thundered. Siebel then excused the executive from the meeting so she could book her flight.
Like most stories about Tom Siebel, this one portrays the protagonist as a man who acts swiftly and decisively for the good of his company, and with utter disregard for social niceties. Siebel, the 47-year-old CEO, is not exactly the most popular person you'll ever meet. He has a reputation in the software industry, indeed throughout Silicon Valley, for a self-assuredness that often comes across as arrogance. "The 'A' word comes up a lot when people bring up Tom," admits Gary Kennedy, who hired Siebel fresh out of business school to work at Oracle. If you happen to work for Siebel (currently 5,200 people do), his management style can seem intolerably Prussian. He doesn't hold hands, stroke egos, or spend time building consensus. "Running a business is a fundamentally rational process," Siebel says squarely. "We unemotionally put things on the table, look each other straight in the eye, and state the facts." If employees are offended by this perfunctory management style, then they're probably not right for Siebel Systems. Employees who perform are rewarded; those who don't are disposed of. Nearly everyone at Siebel is given a rank within each department, and every six months Tom Siebel lops off the bottom 5%. Siebel is intense, competitive, and driven: Several people I talked to say he's the most intense, competitive, and driven person they know. Many people also say he's brilliant.
His results bear that out. Few high-tech CEOs can match his sustained success. Siebel Systems sells software that helps large companies manage sales staff, customer service, and call centers. For the past five years its revenues, mostly from corporate giants like Sun Microsystems and British Telecom, have increased roughly 100% a year. The company was at the top of FORTUNE's Fastest-Growing Companies list last year; this year it ranks third. Every quarter, without fail since he took the company public in 1996, Siebel has not just met Wall Street analysts' increasingly ambitious expectations but exceeded them. No wonder Siebel's stock rose more than 400% in the past year. In a move that should pump up future revenues, Siebel Systems signed a deal last fall with IBM whereby the computer giant will not only become a big customer but also sell Siebel's products with its own. And in an industry in which product delays and hollow promises are so common they've spawned a name--vaporware--Siebel Systems has released new versions of its product every spring like clockwork.
Even more amazing, Siebel Systems is the only U.S. enterprise-software company to accelerate past $1 billion in revenues without running off the rails. Oracle, Informix, PeopleSoft, Sybase, and Baan have all had to clean up wreckage at some point. Oracle had an accounting scandal in 1993, which resulted in a $100,000 fine by the Securities and Exchange Commission and shareholder suits that cost Oracle $24 million to settle. Informix, too, was reprimanded for accounting shenanigans. PeopleSoft management fell into disarray. Siebel, meanwhile, is growing by leaps and bounds--analysts expect the company to do $1.6 billion in sales this year and plans to double its work force within the next 12 months. But the leaps are controlled and the bounds rigidly choreographed. Tom Siebel does not improvise. His style may not win the hearts of his employees, but he may be just the sort of disciplined and dispassionate manager a company like Siebel Systems needs. Or at least needed. The pitfall for control freaks like Tom Siebel is not knowing when to loosen up and delegate. To his credit, Siebel seems to recognize that. He has hired a chief operating officer and is letting deputies make decisions once reserved for his signature. This summer he made another break: He left others in charge while he took a four-week vacation at his Montana ranch.
You could almost say that Tom Siebel has been preparing for that vacation since he started the company seven years ago. Unlike other Silicon Valley CEOs, who fancy themselves cultural revolutionaries in business garb, Siebel set out to create a company of lock-step uniformity where the rules matter more than who is in charge. Nothing is too insignificant to merit a rule. So it is decreed that every one of Siebel's 100 offices around the world will have medium-blue carpeting and off-white walls. All desktops will be gray, the furniture honey maple, and the cubicle-to-office ratio four to one. When you walk around Siebel Systems' headquarters in San Mateo, no matter what the day or which big customer is demanding a project that afternoon, the offices will be neat and orderly. There will be no pizza boxes or Coke cans lying around because Siebel forbids employees to eat at their desks. It's not professional. Also not professional are employees playing foosball or assaulting each other with Nerf guns. There are no weekly beer busts or spontaneous parties involving tequila drinks. Office and cubicle decor is not subject to personal inspiration. Cartoons on your door or large Limp Bizkit posters are not allowed. A picture of your kids or boyfriend is okay, but six? The answer is no.
What really gives Siebel the distinction of being the most un-Silicon Valley CEO in Silicon Valley is his insistence on a dress code. Yes, a dress code. Untouched by the enthusiasm for business casual, Siebel mandates that employees who deal with customers, which amounts to about half the work force, dress "professionally" at all times. There are no written guidelines, but everyone knows that for men this means a crisp suit and a tie and for women it means pants or skirt suits and--gasp!--pantyhose. Siebel is aware of how horribly old-fashioned this seems, but he says he doesn't care, because it impresses customers. "When people get off the plane from Munich or New York, they think they're in an environment that looks and is professional. Then they go to other companies, and there's Nerf balls in the hall and people are wearing jeans. They come back and buy our products," he says. If all that makes Siebel Systems a stiff, unfun place to work, too bad. "We go to work to realize our professional aspirations, not to have a good time," says Siebel. "We could be having encounter groups and yoga classes, and I could play the guitar in the rock & roll band at the company picnic. Instead we're just trying to create good products, satisfied customers, and loyal employees. I think we're doing that."
Which brings us back to the story of the chastised executive, the one who sent a deputy to placate the important New York customer. Sure, Siebel was riled because the executive had disobeyed his orders, but what really got to him was that an employee--a Siebel person--had cut corners with a customer. "I'm out there every day spending 60% of my time with customers just to set an example," he says. "The management team has to set an example." For Tom Siebel, his business is all about the customer. Behind all the picky rules there is this inarguable logic: Keep the customer satisfied, and you will grow.
Tom Siebel grew up in an upper-middle-class suburb of Chicago, the penultimate of seven children. He attended a military academy for high school because his father, who'd attended a similar school, thought it would be a good experience for young Tom. Fiercely independent even at 15, Tom didn't love his dad's choice. Ironically, given how he now runs his company, Siebel hated all the military rigamarole--wearing a uniform, doing formations, and marching to chapel once a week. He considered leaving, but stuck it out, marking what appears to be one of the few times in his life that Tom Siebel bowed to another person's will. He went on to the University of Illinois, where he studied history. When he graduated in 1975, he had no idea what he wanted to do. His dad, a Harvard-educated lawyer, would have loved to have him go into the law, but Tom was pretty sure he didn't want to do that. So he did what he felt like doing at the time, which was getting in his white Ford pickup and driving west.
After a week on the road, Siebel found himself in Idaho. He ended up staying for six months working on a ranch, cutting hay and herding cattle for $6.50 an hour and falling in love with ranching life and the great outdoors. When he decided it was time to get a real job, Siebel moved back to Chicago, got a job at a trade-book publishing company, and enrolled at the University of Illinois to get his MBA. He had a hunch that computing was going to be central to the future of business, so he started hanging around the labs at the university's computer science school. There, he says, he "came alive," often staying until 4 a.m. After graduation in 1983 he was immediately hired by Oracle, then a startup with about 40 people selling database software.
Gary Kennedy was Siebel's boss then, and remembers the first time he realized Siebel wasn't just another smart kid. He had hired Siebel to work in Oracle's Chicago office as a presales rep, which meant that when sales reps went out on calls, Siebel would customize the demo, set up the computer in some conference room, and run the software. Siebel worked for one sales rep whom Kennedy judged to be a pretty mediocre salesman, but who nonetheless was closing lots of deals. After accompanying this rep and Siebel on a couple of sales calls, he realized why. "Tom was basically selling the product for him," explains Kennedy, who would probably be considered Siebel's mentor if Siebel were the sort of person who had mentors. "He's an unbelievably good salesman." Unlike most sales reps, Siebel understood technology--his master's thesis had the breezy title "Performance Evaluation of Concurrent Controlled Algorithms in Distributed Database Systems." Even more unusual, he could translate the mumbo jumbo into terms almost anybody could understand. Siebel quickly became a star at Oracle, closing accounts in one-third the time normally required and earning the distinction of top salesperson in 1985.
Having made it into the top echelon of Oracle, Siebel got the itch to run his own show. He had an idea for a company based on a piece of technology he'd conceived of and used internally at Oracle to help sales reps communicate with one another about customer accounts. Siebel approached Oracle CEO Larry Ellison about commercializing the software, but Ellison, Siebel says, wasn't interested. At the time, this kind of software--programs that help companies manage their customer relationships--was viewed as puny, niche stuff. The big deal back in the early '90s was enterprise resource planning software. Big corporations were spending millions installing big, hairy back-office systems that were supposed to get their manufacturing and accounting systems running more efficiently. Siebel felt that eventually all these companies would tap out on ERP and want to buy--and keep on buying--more of his kind of software. So after a brief stint as the CEO of a multimedia software company, he launched Siebel Systems in 1993.
Almost from the beginning, Siebel seems to have known exactly how he wanted to run his business--and not just what color to paint the walls. Before writing a single line of code, he and his co-founder, Pat House, also an Oracle veteran, went out and talked to customers about what kind of products they wanted. That was revolutionary. Most software companies are created by engineers designing a product that people with marketing and sales savvy then go out and hawk. Siebel thought that was stupid. Why not please the customer from the get-go, he reasoned, since happy customers buy more software? Siebel came to this logic at Oracle where, he says, he learned a great deal about how not to run a business. Siebel's well-documented dislike of Ellison is palpable. "Oracle was about any means justifying the end. You could say anything or do anything," Siebel says. He promised himself that his company would not leave customers in the lurch.
To keep that promise, Siebel devised a system that both measures his employees' responsiveness to customers and encourages their ongoing solicitude. Every six months a Palo Alto firm called Prognostics collects data from between 400 and 500 of Siebel's 2,500 customers and reports in detail how satisfied they are with specific departments and individuals. The results are used to decide how much Siebel employees will make in bonuses and commissions. Sales reps, for instance, don't get their full commission until a year after a sale, and then only if their scores are up to par. If that isn't enough to drive the customer-is-always-right point home, employees are surrounded by other reminders. All the "artwork" on the office walls comes from customer ads or annual reports. And every conference room is named after a Siebel customer. "The cornerstone of our corporate culture is that we are committed to do whatever it takes to make sure that each and every one of our customers succeeds," says Siebel.
The result is that Siebel Systems gets higher customer-satisfaction scores than other enterprise-software companies. Siebel says the Prognostics surveys show that 99% of Siebel's customers are happy--a figure some analysts question, estimating that the truth is probably closer to 80% to 90%. But customers do come back--50% of Siebel's revenue comes from repeat business. "They [Siebel employees] have very good listening skills. They come in, hear what we need, and then go off and build it quickly," says Rob Baxter, CIO at Honeywell's industrial control unit.
So if Siebel comes off as arrogant, he has reason. According to AMR Research, his company has 18% of the market for so-called customer relationship management (CRM) software, while his nearest competitor, Clarify, which is owned by Nortel Networks, has a 5% market share. Lots of competitors are gunning for Siebel, but none are closing in yet. As Siebel predicted, big companies are now less interested in the monster ERP software that Oracle and SAP make. Those developers have buttressed their product lines with customer-management applications, but analysts rate their products inferior to Siebel's and don't regard them as significant threats yet. Another concern in the long term is Web startups like Salesforce.com, a 1 1/2-year-old company started by Marc Benioff, another Oracle alum. Benioff sells sales force automation software that competes with Siebel's, but offers it as a monthly Web-based service, saving companies the time and money that they would spend installing a bulky application on their computers. The threat from Salesforce.com is still nascent: The startup has won small and midsized companies as customers but has yet to pry loose Siebel's hold on larger companies.
The competition on both sides of Siebel Systems proves one thing: Tom Siebel was right about his idea. When he started his company, he had no doubts whatsoever that it would be successful. But the demand outstripped even his considerable expectations. Since 1996 the market for the products Siebel Systems sells has grown more than 50% a year.
Getting to know Tom Siebel isn't easy. When asked about himself, he steers the conversation back to more comfortable topics, such as what a remarkable company he runs. Even his top executives don't know much about him personally. Pat House, who has worked side by side with Siebel for seven years and who you'd think would know him the best, has no idea whether Siebel's parents are still alive (his mom is) or where any of his brothers and sisters live (in the Midwest mostly). Siebel's not surprised at all. "It never comes up," he says. "On a professional level, we're as close as colleagues can get, but we're not involved in each other's personal or social lives." It works the other way too. Siebel knows very little about his executives' non-Siebel activities and seems to like it that way. "You don't come in and swap stories with Tom about your vacation," says one exec. During a lunch with his top lieutenants shortly before the company's recent second-quarter earnings call with Wall Street analysts, CFO Howard Graham, who plans to leave Siebel Systems in a few months, happens to mention that he intends to manage a vineyard in Saratoga, Calif. Siebel is momentarily intrigued by this information: While Graham announced his intention to retire back in January, it never occurred to Siebel to ask what he was doing next.
Still, it turns out that Tom Siebel is not all business. I get a glimpse of this when I visit him on his ranch in Montana, where he's taking that four-week vacation. He bought the place--a stunningly beautiful 77,000-acre swatch of Western ruggedness, with 3,200 Black Angus cattle and not one but three rivers running through it--for $23 million three years ago. Now it's his retreat. Friends who've visited him have been surprised by how little he works there. Granted, he joins a conference call at least every other day with folks in San Mateo, but otherwise Siebel spends his days riding horses, fly-fishing, and hanging out with his family. Sometimes he even sits and does nothing for a while. On the day I arrive, he has just returned from a morning of steer roping, a skill he and his wife, Stacey, whom he met at Oracle, have committed themselves to learning this summer. Wearing Wrangler jeans and cowboy boots, Siebel looks nothing like the sober taskmaster his employees see careering through the offices in a Brioni suit. When Stacey beats him in another round of steer roping later in the afternoon (six steers to one), Siebel even manages to laugh at himself. "I'll never hear the end of this," he says, grinning.
When you see this side of Siebel, you begin to understand why he hasn't suffered the fate that so commonly befalls CEOs with an imperial manner and overabundance of opinions on everything--in other words, control freaks. Those executives often have a hard time delegating responsibility as their organization grows. They cling to their ideas and push aside helpful criticism until they or their company collapses under the weight of their own pride. But Siebel, believe it or not, has managed to change. Last year the no-yoga-in-my-back-office CEO even decided to put day-care centers in all offices with more than 200 people. He has also loosened his grip over many company details. "I used to be the classic meddling entrepreneur who was convinced that I could do every job in the company better than everybody else, and I needed to demonstrate that," he says, in a rare moment of self-reflection.
Siebel hasn't exactly embraced democracy, but he realized that if he continued to micromanage, the company would eventually grind to a halt. So when he hired Paul Wahl, an ex-SAP executive in May 1999, Siebel gave his new COO considerable authority. Wahl oversees the people in product marketing, sales, engineering, and professional services departments who used to report to Siebel. The selection of Wahl as COO was itself a departure from Siebel's usual unilateral decision-making. Siebel insisted that Wahl meet with 12 top executives, each of whom had to give a thumbs up before the 48-year-old German software executive could be hired. "The bringing on of a COO is one of the most difficult transitions for a CEO to make. A lot of CEOs muck it up by trying to be too involved. But that hasn't happened with Paul," says James Gaither, a partner at law firm Cooley Godward and a Siebel Systems board member. Recently, Siebel has made a few other moves. Last year there were just four people at the company who could authorize new hires; now there are nine. Before, Siebel himself had to approve corporate expenditures over $10,000. Now he lets Wahl and Graham, soon to be replaced by former Excite@Home CFO Ken Goldman, approve expenditures up to $50,000. Anything over $50,000 still goes through Siebel.
The recent reforms, however, haven't changed the company's fundamental character. To succeed at Siebel, one must be smart, fastidiously focused on details, thorough, and in all likelihood a workaholic. Siebel thinks nothing of leaving a voice-mail question for one of his senior VPs and expecting the answer within an hour. Nor is it uncommon for Siebel, who still delights in going on customer sales calls, to meet with a prospective customer on Friday and promise a proposal by Monday. "How many other companies are going to be able to do that?" says one employee. "That's part of the reason we win so many deals. We turn on a dime." Another characteristic of the Siebel Systems work force: It's anti-prima donna. "There's never been a single meeting where an executive represented his or her interests or those of his or her department over the interests of the company," says Siebel. "If that happened, I'd probably end the meeting."
Given the pressures at Siebel Systems, the sober gestalt of the whole place, and the job-hopping in Silicon Valley, you'd think that more people would leave. But they don't. Siebel's annual turnover rates are lower than the Valley average (about 13%, compared with 15% to 20%). It's true that Siebel employees could easily get jobs where they'd have greater authority, lower dry-cleaning bills, and the chance to bring their dog to work. But they choose to stay. The competitive types who thrive at Siebel seem to like the challenge of working for a company that's growing so fast, where their results are quantitatively measured and rewarded. Other people might be tempted to leave were the stock not on such a tear. One employee told me he'd thought of leaving Siebel, but stayed for the sake of his unvested stock. "I think we have eight more quarters of exceptional growth that no other company can match with the same risks," the employee reasons. "This is the closest thing you can get to a sure thing."
As I was finishing this story a joke e-mail crossed my desktop. It was a summary of a real e-mail campaign soliciting the support of prominent technology types for a nuclear-disarmament initiative. "See if you can match the responses below with the three people above," the e-mail read. The names were Tom Siebel, former Stanford president Donald Kennedy, and eBay executive Jeff Skoll. And the responses were (1) "Great! This is an important effort and I'll be glad to add my name"; (2) "Count me in. I'm so convinced that America's nuclear policy is off the rails"; and (3) "Please remove me from your mailing list." The punch line, of course, was that the terse message came from Tom Siebel.
But can you blame him? After all, who has time to save the world from nuclear missiles when you're sitting at the helm of a company growing 117% a year? "There are people who think I'm God's gift to technology, and then there are people who think I'm the world's biggest S.O.B.," muses Siebel, when I bring up the e-mail. (He adds, in his defense, that he'd been barraged with those e-mails for months.) In the next 12 months, if all goes according to plan, Siebel will add 5,000 employees to the Siebel tribe, land hundreds of happy new customers, open up two million square feet of new office space (complete with day care), and probably acquire a few companies. Siebel says it's all toward the endgame of "building one of the world's great companies." He has always wanted to be No. 1, you see, and everybody knows nice guys just don't finish first.
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