Reversal of fortune Featured

7:00pm EDT December 31, 2006

When someone gets a new job, most people are happy for that person, and congratulatory greetings abound, but that didn’t happen for John S. Chen.

Instead, his friends laughed at him.

After working in Germany for some time, Chen returned to the United States to become chairman, president and CEO of Sybase Inc., a data management software company. But at that time, in 1998, the company was in major trouble.

While at a venture capitalist dinner party, he reunited with some old friends who got a great laugh at the news of what their friend was taking on. “Boy, this guy must be pretty bad!” they joked with Chen. “He can’t find a decent job, to work for Sybase! ”“Isn’t that company in trouble?” “They’re dying, right?”

Although the company was sinking fast, Chen was not deterred. He knew he had nothing to lose, so he began a series of plans, all to align with his single goal for his first year as the top dog: Make money. “The most obvious thing that can restore confidence is if you make money,” Chen says. “That involved a lot of tough choices one has to make, a lot of unpopular choices.”

The right people
Chen’s journey to turn around Sybase began with finding the right people, which proved a difficult task during the dot-com era when people were leaving faster than you could say IPO.

“Everybody walked around here thinking they should be a millionaire in the Silicon Valley,” Chen says. “All you have to say is, ‘We have an S-1 on file, and we’re going to be IPO any minute now,’ and you have a bunch of people joining you, mostly wearing jeans and sandals.”

With the turnstile of employees constantly moving, Chen recognized the difficulty he faced.

“If you have so many people turning over, you really cannot put a plan together that has any prayer of being successful because once you put the plan together, people take off, and you have to reset it and do it again,” he says.

To alleviate frequent changes, Chen devised a threefold blueprint of his management team. One-third of his team would consist of Sybase people from before his time because they could help him save time by exposing all the skeletons in the closets.

The next third consisted of people who understood how he thought and whom he trusted to quickly execute based on his past experiences with them.

To form the final third, he found new people from other successful companies such as Apple, Oracle and HP who could generate new ideas within the company.

When looking for executives who would stick around for the long haul, he searched for people willing to root for the underdog and try new ideas. He also needed people who were not easily discouraged and who were capable of working with a team.

“At a time where everything was kind of broken everywhere we looked, it was kind of laughable,” says Chen. “Not because someone did something stupid intentionally, but when things are not well, everything starts looking pretty funny and stupid.”

He says he needed a sense of humor to laugh things off so he could focus on solving the underlying problems. Motivation came from the fact that most people, both internally and externally, had already written Sybase off.

“Other people may have rung the death bell too soon, and I kept making sure people were focused on not just letting conventional wisdom drag us down,” says Chen. “We have nothing to lose. We might as well get committed and move forward, because if you second-guess anything, we’re going to run out of time.”

With no time for that employee turnstile to keep revolving, every potential executive interviewing with Sybase also interviewed with Chen, even if he or she would not ultimately report to him. The reason was simple: Chen had a brutally honest message for anyone considering joining his efforts.

“It’s worse than you think,” he says. “They look at me and say, ‘Boy, I thought I was meeting you for a pep talk.’”

Chen wanted to make it crystal clear to interviewees that the job would not be easy, and he had no time for the negativity and resentment that would be created by misleading them, so he refused to sugarcoat a thing.

“If I sweet-talk you into coming here, and you find out nothing got connected, everybody is busy updating their resumes, you’ll look at me and say, ‘You’ve got to be kidding. I don’t know what I’m getting myself into. I’ve got to get out of here.’ “If you come in and say, ‘Everything is broken, but I know how to fix things,’ and you have that attitude, then this is a great place for you.”

The right plan
With management in place, Chen was ready to re-establish Sybase’s credibility and illustrate its longevity plans to critics. But this proved difficult with Sybase’s extremely limited resources, as revenue dropped from $1.01 billion in 1996 to $868 million in 1998, while the net loss increased from $79 million to $93 million in that same timeframe.

In an early management meeting, Chen sat down with his team and told everyone, “Don’t ask me for the strategy, because we don’t have any muscle to execute it. Even if I had the perfect miracle, we just can’t execute it, so let’s pretend there’s one magic bullet out there somewhere. We don’t know if we’ll be successful at it, but let’s make a run at it, and we’ll die trying.” Chen and his team developed a three-year plan to keep everyone focused on staying afloat, but the key was finding what Sybase’s one magic bullet was.

Chen predicted it was mobility, and everybody laughed as, at the time, the market was only a few hundred million dollars. Despite the skeptics, he felt he was on to something and plunged forward.

“It was difficult to convince people that this was not just branch out into Never Never Land and never return again,” Chen says.

He constantly explained the benefits and possibilities of mobility to both employees and customers so that everyone understood where they fit in to the equation.

During this time of new product direction, Chen also sought out an aggressive track to keep customers, which would at least maintain revenue, and, he hoped, grow it while also easing employees’ worries.

Chen and his team devised a 24/7 support program for customers to connect with a human any time of day, any place in the world.

During the next six months, Chen also visited more than 300 customers around the world.

“They finally realized, here’s a company that would like to fight their way back,” Chen says. “It was very important at the time that I go out and that my management team go out and see these customers all around the world because they needed a face to relate to, whether they believed it or not.”

Chen also capitalized on the fact that many of Sybase’s clients were in mission-critical fields, where switching to another company would be challenging, so he kept communication open and honest, yet upbeat, to prevent the thought of switching companies from creeping into his customers’ minds.

He and his managers each personally called 10 customers at each quarter’s conclusion so they could communicate Sybase’s financial progress.

On top of these efforts, most of Sybase’s customers were preoccupied with the anxiety surrounding Y2K, so it bought the company additional rebuilding time.

The right acquisitions
Mix all these ingredients together, and the financials started falling into place. In 1999, Chen’s first full year as CEO, the company turned its $93 million net loss in 1998 into a $62.5 million profit, but growth does not stop with one good year.

With one solid year under his belt, Chen was ready for Sybase to become a market leader, and he began looking outside the company at what he could buy to aid the cause. Since early 2000, Sybase has successfully acquired and integrated more than nine companies, but leading up to Chen’s arrival, the company had made several acquisitions that brought more problems than help into the organization.

“At the time, each of them looks rather interesting and probably strategically correct, but in hindsight, the ability to digest and integrate that was not there,” says Chen. “So a good thing became a bad thing, and one thing led to another, so we started losing money, losing market share and losing people.”

Because of the previous acquisition problems, Chen wanted to ensure the company was not buying for the sake of buying, so he put purposeful procedures in place.

“We have a view of what the market looks like, and we try to have a view of what the market looks like for the next three years, and then we map that into our own capabilities, and then we decide what the gaps are,” Chen says. “Once we decide where the gaps are, we let engineering have one crack at it filling the gaps.”

If the engineering team cannot devise it, then he seeks to acquire a company that has or that can. Chen says there are some areas that Sybase has no prayer of filling, in which case an acquisition fills the void without letting the engineering team work on it first.

When looking at what to acquire, Chen has a disciplined approach and methodology. The company has to fit a certain financial profile in that it can lose money for the first 12 months but must grow after that. This factor rules out companies that Sybase may overpay for and receive little return on.

Once a deal is made, Sybase retains the engineers and sales channel but lets legal, finance and human resource staff go. Then it focuses on maintaining engineering talent and intellectual property protection and facing any other challenges that arise. Chen says it’s easy to communicate his vision for Sybase with its newest members.

“We don’t let a lot of uncertainty hang around,” he says. “Since we only acquire companies based on strategic direction, it’s easy to explain to the acquired company and their employees how they fit in to the vision. Since they’re already in the business, they can see it. As we got bigger and bigger, they said, ‘OK, Sybase does have a commitment, and they know what the plan is, and yes, it’s a lot bigger than us.’

“This is why you can’t randomly acquire companies. ... All the acquisitions are adding a piece to the puzzle, to our No. 1 in mobility.”

The right future
Chen’s original plans for Sybase are paying off, as the company posted 2005 revenue of $818.7 million and an $85.6 million profit, compared to an operating loss of $25.5 million in 2001.

To keep the numbers moving upward, Chen says the company continues to look a few years out and determine where profits will come from based on market shift predictions. He says that keeping a conservative to pessimistic view allows the team to clearly identify potential changes and how Sybase can fit into those changes.

He is confident in Sybase’s future and position as an industry leader, but he knows continued progress is not a casual stroll.

“I don’t think the bumpiness will ever go away in this industry,” Chen says. “I focus on: Is the company fundamentally strong? Do I have the technology and the talents? Do I have a good vision? Do I have customers that like us? Do I have enough cash to weather the storm?

“You check off all these as yes, then you have a fundamentally strong company. Then the bumps and bruises are just part of the journey.”

That journey has been a challenging one for Chen, but those difficult choices early on have paid off. Beyond the dramatic bottom line turnaround, 80 of the Fortune 100 companies now use Sybase’s technologies.

"We have the DNA of the company to make money,” Chen says. “The company scales and reacts very quickly, whether we’re in good times or bad. We have never looked back, and we’ve never lost money ever since. There is some goodness that came out of the whole thing, but it has been a long-term struggle.”

HOW TO REACH: Sybase Inc., www.sybase.com