Climbing the hill Featured

8:00pm EDT July 26, 2007

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