When Dana Kammersgard added CEO to his title in March 2006,
there were plenty of challenges to overcome.
Besides lacking experience in the governance aspects of being a
small public company, his chief financial officer resigned. And that
wasn’t all.
“We had a class-action lawsuit alleging securities fraud filed
against us, and in April 2006, a large customer announced that they
were awarding a significant piece of business to a competitor,”
Kammersgard says. “Over the course of my first five months in the
CEO’s chair, I got five year’s worth of experience.”
Kammersgard had served as both president and chief technical
officer of Dot Hill Systems Corp. prior to assuming the CEO’s chair
following the retirement of his partner and his fellow co-founder
of Artecon, a predecessor company to Dot Hill.
While some CEO responsibilities were new to Kammersgard,
managing through the extreme competition in the technology storage business was not. There’s been considerable consolidation of
firms within the industry, and margins in the business tend to be
thin while revenue growth is slow because of lengthy selling
cycles.
Although the company was profitable from 2003 through 2005,
Dot Hill’s bottom line reversed direction, and the company went
into the red just as Kammersgard took the helm.
He says that he had no choice but to re-position Dot Hill in order
for the firm to become profitable again. He calls his quest “the
quiet revolution” because the company didn’t need to be rebuilt,
just refocused.
To accomplish the initial steps, Kammersgard prioritized
attracting new and different customers, acquiring a new senior
leadership team capable of competing in a volume-driven business
and maintaining the firm’s low-cost operating model while improving margins, with the goal of once again delivering a profit for
shareholders.
Spreading risks
In 2002, after a selling cycle that lasted 18 months, Dot Hill was
awarded a new contract from existing customer Sun
Microsystems that was eventually estimated to be worth $10 million to $30 million in annual revenue to the firm. With so many eggs
in one basket, the high-risk, high-rewards business of enterprise
customer relationships had a roller-coaster effect on the entire
company when the deal was won, and then subsequently lost.
“Having the benefit of hindsight over the past year, there’s nothing I would do differently now,” Kammersgard says. “There’s an
entire generation of storage companies that failed to win a big customer and didn’t survive. You don’t have any financial viability and
you aren’t a player in this business unless you win a big customer.
“So winning Sun Microsystems was absolutely the right thing
to do, taking 18 to 24 months to make the business partnership
successful was absolutely the right thing to do, but it’s the nature
of the beast that things change. So having one customer make up
such a large part of our portfolio of business is no longer absolutely the right thing to do.”
At its peak, Sun Microsystems was 88 percent of Dot Hill’s revenue. Today, it is 77 percent. Kammersgard says that he knew he would always need large customers to achieve market share and
brand prowess, but diversifying Dot Hill’s customer base would
leave the firm less vulnerable in the event of customer loss. In
addition, securing more second- and third-tier customers would
provide the added benefit of shorter and less complex selling
cycles and higher margins.
In order to demonstrate to his team that winning new revenue is
vital to repositioning the firm, Kammersgard says that he spends
30 to 40 percent of his time out on the road in front of customers.
Having face-to-face time with customers allows you to build client
relationships, but it also affords you a better understanding of their
needs.
In addition, all of his executive team spend extensive time with
customers. Kammersgard credits much of the firm’s success in
adding 14 new original equipment manufacturer customers during
the past year to listening to customers’ suggestions, focusing on
solving their problems and the teamwork of his new senior leadership team.
He says that his best practice is to assemble his management
team following customer visits to download information and to
create a pipeline of customer feedback and ideas.
In fact, it was a customer’s suggestion that Kammersgard says
resulted in a decision that paid big dividends.
“We had a customer who demanded that we move our manufacturing offshore to China,” Kammersgard says. “I had always been
predisposed to manufacture domestically, but the customer convinced me to outsource. The decision to offshore our manufacturing has resulted in better margins, as well as better control over
our costs, and we’ve been able to develop a new client offering in
the contract manufacturing space.
“We’ve also been able to secure an additional new strategic customer relationship. Over time, we believe we’ll be able to leverage
this new capability into additional new client agreements, and it
will give us better control of our costs and profits. None of that
would have happened, if I hadn’t listened to our customer.”
Focusing on the customer
While losing a major contract was a blow, Kammersgard says
that he has been able to salvage the strategic engagement
model that was designed for the Sun Microsystems contract
implementation and leverage the model with the firm’s new
OEM customers. That change has resulted in faster new contract implementations and realizing additional revenue more
quickly.
“Instead of just signing the contract with a new customer and
walking away, we developed a holistic approach to working
with our new OEM customers,” Kammersgard says. “We have
a peer-to-peer relationship for every aspect of sales and marketing. We make joint sales calls together, we work trade
shows together, and we develop case studies together. What
we found is that we can do a much better job of selling our
products because we know our products better than our partners do. So we are right there, side by side with our customer’s
sales representative, presenting to the end user. This has
resulted in a much faster revenue ramp.”
Kammersgard says that in the past, Dot Hill was more focused
on developing new technology and believed that engineering
could be the driving force behind the firm’s success. Today, he
says that he has learned that developing new technology is a
requirement for business achievement but not necessarily a differentiator. Without customers, even the best technology will
not guarantee success.
“I used to think that once we made the sale, we were done,”
Kammersgard says. “What I’ve learned is that you have to put
in even more effort once you’ve received a signed contract in
order to get the most from the opportunity.”
The power of teamwork
Kammersgard says Dot Hill is like a 23-year-old start-up.
“We’re quick and agile, and we’re not paranoid like a company
that’s been around a long time, but we have the advantage of having more seed money available to us,” he says.
“To foster that type of culture, we need to hire people who have
the right personality for our firm, which is low on politics and high
on inclusion.”
Kammersgard says that having an agile company is the right posture for a firm in such a competitive industry, where success is
often driven by the need to make technological changes quickly
while rapidly adapting to customer suggestions and requirements.
With thin margins, the company must also run a high-performance environment where everyone has to stretch because there
are fewer people to do the work.
He says the key is having a senior management team that is
selected for its high bandwidth and the ability to work as a cohesive team. Since taking the CEO position, Kammersgard has hired
a new CFO, a new executive vice president of operations and a
new senior vice president of engineering. Finding the right people,
in most cases, required starting with a large number of candidates.
“When we need to hire a senior executive, we’ll do a nationwide
search, and we may start with as many as 30 to 50 candidates,”
Kammersgard says. “We’ll do lots of interviews, and everyone on
the team is involved. Having interviews with so many different
team members is good for us and for the candidate so both sides
can assess the fit. Eventually, we’ll narrow the choice down to two
or three candidates that we think will fit in to our environment and
from there, I’ll make the final selection.
“We also need great teamwork to get the most from such a small
team, and we needed to integrate new executives this past year
and build our executive team,” he says. “So we hired an outside
facilitator to help with team development, and we go on an off-site
team-building excursion every year — like a river-rafting trip. The
adversity that we’ve faced has also helped develop our team, and
now, I think we’re stronger than ever.”
Kammersgard says that he relies on cross-functional teamwork
among managers and staff members to help drive productivity, so
he requires everyone on the team to know each other’s jobs. That
requirement has helped raise the bar on productivity, which helps
maintain a low cost-to-sales ratio.
He says that he’s learned major lessons from making several key
new hires to Dot Hill’s management team since becoming CEO.
“Increasing sales is all about having the right team with the right
product to sell,” Kammersgard says. “We have a phenomenal head
of sales and marketing who has really been responsible for our
plan to acquire new OEM customers and our change in focus away
from engineering to customers, but we almost didn’t hire him. We
had made an acquisition, and we had already decided to keep our
existing sales VP when we met with Phil, who was with the company we were acquiring. After listening to Phil present his business
plan, I started thinking that maybe we were keeping the wrong guy.
What I learned from that scenario is to always keep an open mind
about these kinds of things; if there’s a better candidate out there,
then you need to make a move.”
Prior to becoming the chief executive officer, Kammersgard had
also been acting as the chief operating officer for Dot Hill in addition to his formal role as president of the firm. Initially, he tried to
continue performing all of his former duties along with his new
CEO responsibilities, but he soon discovered that he couldn’t be
both tactical and strategic at the same time without something suffering.
“When I hired new heads of engineering and operations and
could finally focus on the CEO role, I was surprised to find how
much I wasn’t getting done,” Kammersgard says. “I’ve learned that
you can’t have success as a CEO without having the right team
around you and that when you try to do everything yourself, you
leave gaps that don’t get covered.”
Under Kammersgard’s leadership, much has been achieved in
his quest to reposition Dot Hill, but he’s the first to admit that
there’s more work to be done. Dot Hill’s net revenue was $239
million in 2006, the same as it was in 2004, and many of the new
customers are still developing a revenue stream. Following a
lengthy and expensive investigation, although not settled, the
firm has been able to put the class-action lawsuit behind it, and
Kammersgard says that he feels positive about the future under
his new senior leadership team.
“Although we’ve had a relatively volatile 2007, we’re making
good progress, and there’s a lot of positive momentum,”
Kammersgard says. “There’s stuff that happens that you just can’t
control. When you’re in the trenches working every day, it’s hard
to look up and see the progress.”
HOW TO REACH: Dot Hill Systems Corp., www.dothill.com