Teaching survival skills to a technology startup

In October, when Wall Street was already wallowing in the financial crisis, many in the technology industry still thought they might be insulated from the worst of it.
Sequoia Capital, the venture capital firm that backed Google, Yahoo and YouTube, scared them straight when it hastily gathered the CEOs of the 100 American companies in its portfolio for a stark wake-up call that rocked Silicon Valley as well as startups elsewhere.

The venture capitalists showed a slide show titled "R.I.P. Good Times" that began with a graphic photo of a dead pig with a butcher knife jabbed in its head. For startups, they said, it would be the survival of the quickest — the quickest to cut costs and get profitable.

Dave Hersh, the CEO of Jive Software, arrived at the meeting knowing he would have to make cuts. He just didn't know how deep and painful they would have to be. In the coming month, dozens of startups laid off about 1,000 people, scrapped new projects and hunkered down. Several closed for good.

Hersh had already been planning layoffs. After the Sequoia meeting, he decided, Jive would have to fire more people and overhaul its sales tactics to persuade strapped companies to buy software.

'Poster child'

The changes Jive has made since the Sequoia meeting illustrate the ways in which young technology companies have slashed costs and narrowed their focus in an effort to stay alive. "Jive is the poster child. They nailed it," said Jim Goetz, the Sequoia partner who is on Jive's board. In the quarter ending in March, Jive booked higher revenue than any quarter in its history and plans to start hiring again.

In the fall, though, Sequoia's message particularly stung Jive because it had been profitable until last year. Jive, which is based in Portland, Ore., was founded in 2001 by two University of Iowa students, Matt Tucker and Bill Lynch. Its Jive Social Business Software uses Web 2.0 tools like profile pages, forums and blogs to help companies create social networks for employees or customers.

Unlike many startups, Jive had been profitable since Day 1. Its software had good reviews in the trade press, and high-profile customers like Warner Bros., Oracle and Nike bought it. Jive had raised $15 million from Sequoia in August 2007 and tripled its staff.

Then, at the beginning of last year, Jive started to stumble. It rushed to market a version of the software that was full of problems. It made bad hires in its rush to expand. Meanwhile, companies were cutting their software budgets. Jive lost money for the first time.

"Candidly, some of the discipline and frugality that had been part of the culture began to disappear," Goetz said.

Seven days after the Sequoia meeting, Hersh laid off 25 of Jive's 150 full-time employees and several contractors. They included underperforming salespeople and three executives who lacked the skills to build a company past the startup phase, Hersh said. He scrapped an instant-messaging project and let go of the engineers on the team.

"Once you get this slap in the face of what's really going on out there, you realize you have to make changes immediately," Hersh said. "It was like going through a breakup — it's tough at first and then it's much better."

That same afternoon, he called the remaining employees to the office's open meeting space that Jive calls "Whoville." Hersh first put up a slide with the names of the laid-off employees. He figured the remaining employees would not look around the room wondering who was missing and would thus concentrate on what he had to say. He detailed everything the company had done wrong. He borrowed from Sequoia's presentation and told the staff that Jive needed to conserve cash, make swift and deep cuts and invest based on results instead of ahead of them, as they had when they overhired.

'Kind of numb'

"Everyone was kind of numb, distracted," said Dennis Deveny, a field sales director at Jive. "I got the vibe that Dave was near tears."

After the upheaval at Jive, the buttoned-up Hersh promised employees that if they sold $8 million worth of software in the fourth quarter, he would commemorate it with a tattoo.

They succeeded, and on a rainy January afternoon, he called a tattoo artist into the office break room, drank a glass of Scotch, rolled up his gray dress pants, stuck his ankle out and braced himself while the tattooer inked a Roman numeral eight, designed by the same employee who had created the company logo.

Since then, he said, other tattooed people often strike up conversations with him about their tattoos' meanings. Most say theirs depict the cycle of life, Hersh said. "I'm like, 'We hit quota!' "

BY Claire Cain Miller
Source:The New York Times

Copyright 2009 The New York Times Company.



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