Perspectives: A Conversation with CEO Walter Scott

Reflections on Moving Through the Expansion Stage

Walter Scott is CEO of GFI Software. GFI Software provides Web & Mail Security, Archiving, Backup & Fax, Networking & Security and Hosted solutions software for small- to medium-sized businesses. GFI Software has offices in the U.S., UK, Australia, Romania, and Malta.

 

Prior to joining GFI Software, Scott was CEO of Acronis, a provider of scalable storage management and disaster recovery software, where in three years he increased revenues from less than $20 million to approximately $120 million for 2008. Prior to joining Acronis, he was CEO of Imceda Software where he executed a combination of leadership and marketing strategies that resulted in a successful sale of the company to Quest Software for $61 million. Walter also was instrumental in Embacadero’s successful IPO in 2000. He started his career in sales with Banyan Systems where he contributed to the growth and success that led to Banyan’s IPO.

 

We recently spoke with Scott about his experiences at Imceda and Acronis.

 

Please provide a brief overview of Imceda and Acronis.

Both Imceda and Acronis are in the $14B storage management market. Both were single-market/single-code base product focused companies with great technology and momentum. Imceda was just 20 people in Australia with under $800K a quarter in revenue. We grew the business to over $4M a quarter in just five quarters and became both cash flow and EBITDA profitable during the process. Acronis was under 300 people, with fewer than 20 people outside of Russia. Acronis was doing about $4M a quarter when we took over. We grew this to almost $30M a quarter in 12 quarters.

What were the primary challenges each of these companies were facing when you came aboard?

Both companies, although performing well, were not optimized for sales and marketing. We built efficient inside sales teams, developed a lead generation engine, maximized SEO, established reseller and distributor relationships, and opened up new emerging or under invested in markets. Both companies needed consistent goals that did not change when a big deal came into the sales pipeline or a sales rep screamed for a new feature of the day. Both companies needed to build systems to gather data to make better business systems.

What were the key things you did at each of these companies that made them so successful?

• We had the trust of the board and the management team
• We kept the founders involved, which kept the spirit alive
• We strategically added to the product portfolio
• We were in a market that was growing – it is always easier to take more pie from the table when the overall pie is getting bigger versus having to take it away from someone else.

 

Were there areas you stayed extremely focused on throughout the expansion stage?

We focused on being in the right markets at the right time. Being too early to market is just as bad as being too late. In our sales model, we needed to have products that people wanted to buy versus products that we had to sell. We also supported our products and made it easy for customers to do business with us. With low average selling prices (under $1,000), this is critical. I am amazed at how difficult some companies make it for customers and partners. Understanding the difficulties that a simple price change can have for a distributor is a big deal.

 

Were there any people who made a major impact?

The boards of Imceda and Acronis had common people. My VP of Marketing at my last three companies was my first boss when I got into high-tech 20 years ago, my VP of Sales has been with me for 15 years, and my CIO was a customer for 10 years. We all have common goals of building things, growing companies, making money, and working hard/playing hard.

Were there areas where you got lucky?

I’m lucky I have people who have moved with me to help in new adventures. I was lucky with Acronis that I had a distracted competitor that was not executing in R&D or sales and marketing. I was lucky that VMware changed the market’s view of the backup market by getting IT people to see a computer as one big file. I was lucky we had a market downturn with Imceda where people were concerned about saving on the costs of tape and disks.

What about your financial strategy?

We focused on everything – how many people came to the website, where they came from, how many of them downloaded the software, to how many purchased. When you understand your sales cycle, cost per lead, and conversion ratios, budgeting becomes much easier. As for raising money, it takes time. I say find what you need and get it in one shot. A good CEO knows when to call it quits in a particular product, product line, or market.

What are some of the mistakes you’ve learned from?

1. Very few momentum companies fail because of sales and marketing; they fail because of development. Scaling a development team is significantly more difficult than scaling a sales team. Making the right people and process investments in R&D is critical. A great sales person can deliver two or three times the amount that a good one can, but a great developer can deliver 500 times more value than a good one.

2. As a company grows, the founder’s roles, priorities, tasks, and techniques to perform those items change daily. Founders are generally different than operators and the role of the growth CEO is not to fight every battle, but to help the founder and the existing team adapt to growth.

3. The American way of software business works only in America and a few other markets. I have had material organizations in Russia, Australia, France, Germany, Malta, Scotland, Britain, Canada, Romania, and the U.S. If you think there are differences among people from New York, San Francisco, and Houston, the differences between Russia and Malta are 20 times greater.

Please expand on your experiences as an international CEO.

In momentum companies, technical founders tend to be more introverted. You have to assess the skills of the founder and their understanding of world markets. Certain things just are not going to work in certain markets. For example, a Scandinavian company isn’t going to have success acquiring a German company that grew by being on the phone all day, because Germans don’t use the phone like Scandinavians do. Furthermore, you might have the greatest product in Australia, but France already has a French alternative product. Founders and CEOs can’t believe that sales are magic – selling is a process and can be learned to a point, but you have to have a realistic understanding of the markets.

I also caution new international CEOs 1) to have a clear understanding of the real costs of labor in foreign countries and 2) not to view developers like factory workers. The software industry is a creative profession. Developers are like artists and hiring and retaining artists is difficult. Money is important but not a motivator or the most important thing. Creative people care about the people they work with, like to control their own time, take responsibility for their own tasks, and use their own judgment to decide what techniques they’ll use to accomplish those tasks. They require a unique management skill set. Find and then keep the best people you can – there is a creative element that you just can’t teach.

In my own experience, I’ve been very fortunate to learn from a few great Russian CEOs and founders. Building a network of other international CEOs is really important.

 

How do you keep your people aligned?

Consistency as a senior manager is important. I would rather have people focus on what is the right decision then wonder how I am going to react. Rewarding effort and results after the fact are important. You also have to have reasonable expectations of people. Your management team can’t expect everyone to have the same goals as they do – you can’t expect people to do more than they are capable of. There are some great books on this topic that I wish were available when I got into business. Drive by Daniel Pink and Linchpin: Are You Indispensable? by Seth Godin are both terrific.

Describe your personal style of management.

I am a very in the weeds, analytical manager. A lot of CEOs don’t get their hands as dirty as they should during the expansion stage. I say get on the phone, get the raw data, trust – but verify. Too many CEOs want to manage the business, not run the business. I am very hands-on – I do everything from sign the checks to track our numbers on Google Analytics to order processing. I also try to create a culture where it is great when people disagree, provided they can explain why.

Any words of advice to senior managers of young technology companies?

1. Having a consistent rule of ethics is critical. Teaching each group that if they have to ask themselves if something is ethical, then it most likely is not, sets a good framework.

2. Understand the value of using venture capital. VCs have amazing networks that can be used again and again, and they are better at finding exits and getting higher multiples because they have sold or IPO’d more companies. They are excellent in helping with corporate structure and keeping the management team from having rose-colored glasses. They are not operators and lack the skill set and/or time to focus on day-to-day operations. If you are looking for the VC to act as part of the management, you are making a mistake. If you are looking for an advisor or trusted guide, then you are ready to work with one.

3. You can’t motivate people – your job is to keep them motivated. Look for people who do what needs to be done without it being their responsibility. You can waste a lot of time trying to convert a B player to an A player – they have to have the motivation.

4. In a pure play software business over 60% of your expenses are headcount and real estate. Get those expenses correct and the rest of the budget process becomes easy.