Monday, March 4, 2002 - Page updated at 12:00 AM

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Survivors: Big shifts in strategies keep tech firms afloat

Seattle Times technology reporter

F5 Networks

Where: Seattle

CEO: John McAdam

Employees: 500

What it does: Internet traffic-management products

SafeHarbor Technology

Where: Satsop, Grays Harbor

CEO: Brian Sterling

Employees: 175

What it does: Web-based graphical self-help for companies

Where: Seattle

CEO: Tim O'Mara

Employees: 6

What it does: Web site for mountaineering enthusiasts

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John McAdam wasn't hired as a turnaround CEO, but two weeks into his job at F5 Networks, it seemed to be his chief role.

In January 2001, the Irish-born businessman inherited a company that had just missed quarterly revenue projections by 40 percent. In order to bring the company's spending in line with shrinking prospects, he fired 100 employees.

"You can do it with an iron fist," McAdam says of the changes that ensued, which have helped push F5's stock price up 182 percent in the past year to $22. "That works initially, but people stop listening."

If the technology community once revered companies with expensive stocks, that adulation is now reserved for another breed: the survivor.

F5 Networks and other local companies such as SafeHarbor Technology and represent enterprises that have done more than subsist on venture capital, and have reinvented themselves amid sharp contraction. They are the George Foremans of business: No longer in boxing form, they swapped to selling brand-name grills.

"It is very hard to switch strategy," said Suresh Kotha, a University of Washington business professor of strategy and e-commerce. "The reason is partly because you've set up your skills to go after a particular market segment. You have to rethink the whole business model."

In the case of F5, the Seattle-based company made its name selling software that manages Internet traffic for Web sites. In fiscal year 1999, it posted $27 million in revenue. That number quadrupled to $108 million the following fiscal year.

Much of those sales, however, represented business from the low-hanging fruit of the dot-com boom. By the first quarter of 2001, when cash-starved start-ups began tumbling, its own revenue dropped so steeply that it missed internal forecasts by $16 million or 40 percent.

F5 shifted its focus to Fortune 1000 clients, trying to hold down expenses, cut inventory and reduce the time it takes to collect payments, while it rebuilt its business.

Warren Boeker, a UW business professor of strategy, said such moves are difficult because it requires more sophistication to sell to larger companies.

"They're going to be a more demanding customer," he said. "They're going to ask the harder questions that a less sophisticated dot-com customer may not think of asking."

Whereas 80 percent of F5's customers used to be dot-coms, 90 percent of its business now comes from clients such as Nokia, Fidelity, Microsoft and NTT DoCoMo.

With a more diversified customer base, the company said it should lose 4 cents to 6 cents a share on revenue of $27.5 million to $29 million in the current quarter. That compares with $27.1 million in revenue and a 40-cent-a-share loss a year ago.

Flexibility is key

Mark Ippolito, who runs The Synergy Works, a Seattle-based sales consulting business, said the turn-around phenomenon is unique to companies with flexible cultures.

"It's one thing to look at a product or service and be able to modify it or mend it to meet the current market environment," said Ippolito, former vice president of sales at Getty Images. "But it's another thing to have the will to really do it."

As if to acknowledge such challenges, WSA, a Washington-based technology trade group, added the "Reinvention Award" category this year to its annual awards ceremony. QPass, a online micro-payment company whose revenue was slashed in half after losing its largest client, won this year.

"We just try to be timely," said WSA spokeswoman Lori Seabright. "We felt adding this (award) was significant."

Satsop, Grays Harbor County-based SafeHarbor, which builds Web-based graphical self-help for companies, sought to prove its business model on the plethora of dot-coms that existed when it started in 1998.

"Our strategy was to do business, cut our teeth with less-demanding environments, then make the transition to selling to large companies," said co-founder and President Bo Wandell.

It turns out, the market did it for them. The company lost 28 of its 32 dot-com clients (or 90 percent of its revenue), most of it between October 2000 and April 2001.

The company cut its staff from 240 to 175, while attempting to grow in sophistication so its service would appeal to more demanding Fortune 1000 clients.

The company has since replaced its revenue with larger corporate clients such as American Airlines, Adobe, Washington state government and Washington Mutual. "What we have done here is build a revenue stream twice," Wandell said.

Wandell said one of the company's most important investments was building a campus-like atmosphere. When East Coast clients drive to Satsop, a depressed fishing and timber community, they are relieved to see the headquarters, which resembles something out of Silicon Valley.

While Wandell would not release specific numbers, he said revenue has increased 30 percent in the past year and the company is forecasting a profit early next year.

As if to not repeat the same mistakes of exuberance, he added a caveat:

"We may change that date," Wandell cautioned. "In this particular market, it's extraordinarily difficult to predict the behavior of large corporations. Contract negotiations become more complex. You have to go to higher levels to get final approvals."

Starting over

If Seattle is filled with tech companies climbing uphill, there are those who are willing to start from the beginning. Again.

Mike O'Donnell, who founded and later handed over control of, bought back the company's technology assets in April after it floundered., a mountaineering Web site, purchased by Quokka Sports in early 2000, has also been picked out of bankruptcy by its original founders, Skip Franklin, Greg Prosl and Chris Helms.

Tim O'Mara, the new chief executive officer, said several hundreds of thousands unique visitors kept visiting the site, even after they stopped adding new content.

"(The founders) thought, 'Geez, there's a big audience and they're very loyal,' " O'Mara said. "There's probably a business there."

The company has six employees, working out of a small Pioneer Square office. They're in the middle of raising the first round.

O'Mara said they're trying to diversify their business and build recurring, more predictable revenue. Right now, for instance, they're kicking around the idea of a subscription plan: $30 a year for access to special discounts from retail and service partners.

"We're figuring out ways to focus our resources on satisfying the needs of our audience," O'Mara said, "and to take those lessons learned and build a great product. We just need to run it as a smarter, tighter business."

Monica Soto may be reached at 206-515-5632,


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