Great chefs find things in the style, presentation and technique used in a meal that the ordinary diner never sees. Great musicians hear things that casual listeners completely miss. CEOs evaluate other CEOs much differently than the popular press or the general population. In mainstream thinking, the absolute success of the company determines the CEO’s success. It doesn’t matter how she got there; results count and nothing else does. CEOs, by contrast, recognize that markets, circumstances and luck factor into the equation in a big way. Warren Buffet once said that he likes to invest in businesses that can be run by a ham sandwich. CEOs won’t give another CEO credit for being a ham sandwich no matter how successful her business becomes.
When you start a company, the decision about which market to pursue comes early and lasts a very long time. If you start out building automobiles, you won’t likely pivot over to become an online advertising network. As a result, the CEO’s job is to optimize the company in the current market or move to an adjacent market. Some CEOs find themselves unopposed in gigantic markets while others face brutal competition in smaller markets. A CEO who achieves a good outcome in the latter case might do a far better job than a CEO who achieves a great outcome in the former.
This is why among CEOs, people like Reed Hastings, CEO of Netflix, and Bill Campbell, former CEO of Intuit, rank far higher than their counterparts who ran bigger and more valuable companies like Jack Welch, former CEO of General Electric.
Alfred the Great
In the last decade, the CEO that I admired most was Alfred Chuang. Alfred, also known as the “A” in BEA, began his career at BEA as the company’s Chief Architect. An irrepressible leader, Alfred was soon promoted to run all of engineering. In that role, he championed the acquisition of a little known company named Weblogic. When Alfred presented the acquisition to BEA’s board of directors, one prominent board member said: “if you think that this company is going to pay $150M for a company with $150K in revenue, you are out of your f&%!$n’ mind.” Alfred, a man long on courage, remained steadfast in his position and completed the acquisition.
Now personally responsible for the aforementioned massive risk, Alfred volunteered to leave his position as Vice President of Engineering and Chief Technology Officer to be the General Manager of the then tiny Weblogic division in the crowded, nascent Application Server market. Over the next several years, Alfred thrashed the competition and grew Weblogic into the category leader. He then grew Application Servers into the most important new category in enterprise infrastructure software since the Relational Database. As a direct result, Weblogic became the bulk of BEA’s revenue and profits and the Weblogic brand became more important than the BEA brand. Alfred’s tiny, expensive acquisition became the company and the company became great. In recognition of his phenomenal vision and execution, BEA named Alfred its new Chief Executive Officer in October 2001.
By revolutionizing the enterprise computing market with the Application Server category, Alfred generated ferocious competition from industry behemoths: IBM, Oracle, Sun, HP, and the new, powerful open source movement. Typically, in an intensely competitive enterprise software business, it is extremely difficult to fund important new products, as every nickel must be deployed to win the core category. This challenge proves even more difficult when the company is publicly traded and must satisfy quarterly earnings expectations. I remember watching with great admiration when Alfred, running BEA in this exact situation, redeployed more than half the resources on the dominant application server to new, strategic efforts. Only an elite CEO would dare make that kind of bet. And the bet paid off. Despite incredible head winds, BEA kept growing and kept leading the category.
In the end, being a publicly traded company proved to be the company’s Achilles heel. Impatient and shortsighted shareholders forced Alfred to sell BEA to Oracle in January of 2008 for $8.5B. On the surface, an excellent outcome, but in 2012 Oracle will exceed that number in annual revenue from the BEA product family. Sometimes only weak-kneed investors can defeat a great CEO.
The New Company
Being a competent CEO requires great knowledge: knowledge of the products, the people, the market, and the competition. Acquiring this type of knowledge can be both grueling and humbling. It does not exist in boardrooms, executive off-sites or high-level customer meetings. It lives at the bottom of the company’s hierarchy where the work gets done. It lives in the code base, the individual contributors and customers who directly use the products. Most previously successful CEOs attempt to cheat this process by quickly assembling a team of people to tend to the details. So how would Alfred, coming off a role managing thousands of people, billions of dollars in revenue, and achieving an $8.5B outcome, go about starting a new company? He’d start by dusting off his compiler and architecting the first product. That’s what a CEO’s CEO does.
The transition from today’s web back-end architectures to tomorrow’s cloud computing will result in profound benefits. Specifically, application developers will be freed for the first time ever from the physical constraints of the infrastructure enabling them to develop radically better solutions. Over time, every existing application will be rewritten to take advantage of the cloud and these benefits. In addition, an incredible new class of never-before-possible applications will be developed.
So, when Alfred Chuang, the greatest CEO of my time, told me he was building a completely modern cloud-based platform for enterprises, it did not take me long to invest. I am honored and humbled to be the newest investor and board member for Magnet, Alfred’s new company.