Chapter 5 - Afternoon April Fools Day, 2003 - Episode 3Listen to podcast
It’s 1:00 PM and the hackoff.com executive staff is assembling for a hastily-called meeting in the hackoff boardroom. Donna is in Larry’s usual seat in the middle of one side of the table. Dom Montain is on her right. As they come in, Aaron Smyth, newly-appointed CFO Lew Marigold, Frank Folger, and Eve Gross take seats across the table from Donna and Dom. Eve is seated between Folger and Smyth and dwarfed by them although she sits up very straight on the back of her chair with her back slightly bowed. Marigold is next to Smyth.
All except Donna and Marigold have laptops open in front of them. They are connected to the corporate LAN by WiFi so they can access the Web and their email as they meet.
“Thanks for coming on short notice,” Donna says. “I know this is a difficult day and this meeting will have to be short because Frank, I think, you have an interview with Detective Cohen at 1:45.”
“Right,” Frank says. “What’s he like? Aaron, anything special I’m supposed to say or not say?”
“Well,” says Aaron the lawyer, “you don’t have to say anything. In fact, you can leave the interview at any time. You do have the right to be represented by an attorney. However, if you do decide…”
“Don’t you represent me?” asks Frank.
“I represent you as far in your corporate role. For example, if you killed Larry as part of your corporate duties…”
“I didn’t kill Larry,” says Frank, not amused.
“If you killed Larry as part of your corporate duties,” continues Aaron, “then I would represent you in your corporate role. However, if you killed him in your personal role or killed him in your corporate role but were being prosecuted personally, and there was likely to be a divergence between your personal interests and the corporate interests—”
“For Christ’s sake,” interjects Donna, “cut it out Aaron. Just tell Frank whether he needs to get a lawyer or not. Dom and I were interviewed without lawyers.”
“With all due respect,” says Aaron, “I can’t. This is a decision each of us — including me — needs to make on his or her own. These interviews are informal and are not sworn — you can’t be indicted for perjury for anything you say in them — but they are recorded and anything you say can be held against you. Investigators tend to think of people who immediately ask for a lawyer as more hostile but, for anyone who didn’t kill Larry — which I assume includes all of us since he apparently committed suicide — it shouldn’t really matter what the investigator thinks. But there shouldn’t really be any need for a lawyer. I cannot accompany you in these interviews since I am in the same class of ‘everybody is a suspect until we find the murderer or conclude formally that it was suicide’ as the rest of you.”
“Thanks a lot,” says Frank. “That really clears things up.” He doesn’t sound grateful.
“Let’s get on with the meeting,” says Donna. “We have a lot to cover. We know the company was in trouble before Larry died, the stock price has been awful. It’s held up surprisingly well today…”
“It’s up to one-point-fifty-five,” says Eve looking at her PC.
“Hey, boss, the Street likes you,” says Frank the salesman, cheering up some.
“Yeah,” says Donna, “we’ll see how much they love me. Okay, first of all…”
“Excuse me,” Aaron says. “Shouldn’t we ask Joanie to join us? She hasn’t usually been in our meetings, but she did report to Larry and presumably now reports to Donna and I’m assuming HR issues are among those we have to deal with.”
“Are we worried about Larry’s benefits?” asks Frank bitterly.
“Aaron, good idea; give her a call,” says Donna, ignoring Frank. “We’ll keep going, though. First of all, as I was saying, Dom has agreed to withdraw his resignation. We all know Larry probably would have apologized and tried to convince him to stay…”
“We do?” ask Lew Marigold and Frank in chorus.
“He probably would have asked him to stay and he would have been wrong if he didn’t,” continues Donna. “Dom has been essential to our past success and he’s essential to the future. In fact, although his duties remain largely the same as CTO, I will propose to the board that he be promoted to EVP.”
“Glad you’re staying, Dom,” says Eve. “Donna, are we gonna need PR on the promotion?”
“The Board hasn’t approved the promotion yet so let’s ready an announcement for later release. Aaron, I assume you’re taking down the action items.”
“Right,” says Aaron, who wasn’t but starts typing now.
Joan Johnson, HR VP, comes into the room without saying anything and sits next to Lew Marigold. She doesn’t have a laptop with her but has a pad to take notes. She is a very tall woman, taller than Marigold and almost as tall as Folger. She has a thin face but an open smile and appears to be the oldest person in the room.
“Second,” says Donna ignoring the interruption, “you all know that the board has approved Lew as acting CFO. We are going to do a search for a permanent CFO — could be Lew if he likes the job and is good at it; but we need to do the search.”
Lew isn’t sure where to look. “Congratulations, Lew,” says Eve. “I’m sure you’ll be great. We’ll need to get a picture of you for the officers’ page on the website.”
“Right,” says Donna abruptly. “So Lew may be ‘acting’ but he is the CFO; he’s got to sign the Sarbanes-Oxley certifications and work with the auditors. So you all need to give him the same accurate information you gave me. And he needs to take the same ‘no bullshit’ approach I did. Right Lew?”
“Right,” says Lew tentatively.
“Customers,” Donna says. “Frank, how are customers gonna react? What do we have to do for them? How do we keep them with us or even improve their perception of us?”
“Well,” answers Frank, “I think we ought to think about special compensation for sales for the next quarter or two.”
“CUSTOMERS,” says Donna. “I said CUSTOMERS, not greedy salesmen.”
“It’s the feet on the street who shape the customers’ perceptions,” says Frank undeterred. “The sales force is going to be apprehensive about what Larry’s death means to them. We want to reassure them and—”
“Frank, we’ll talk about that when we talk about all HR issues,” says Donna. “Now I want to talk about customers.”
“All of us in sales have more of our compensation tied to short-term results than anyone else,” persists Frank. “The best way—”
“Then do your fucking jobs and sell and stop WHINING,” says Donna. “That’s the “best way” to get paid. Is that simple enough for you to understand? Now what about the customers? Can anyone talk about them?”
“I’ve been looking at the sales figures,” Lew says tentatively.
“A disproportionately large percentage of the sales of the Managed Service are to the equity customers.”
“Tell us something we don’t know,” says Donna. Then, softening slightly: “I know you haven’t been in these meetings, so you don’t know that we’ve been over those numbers lots of times. Our overall sales look okay since we can book revenue from the equity customers, but cash is declining quickly.”
“Maybe you already have discussed this, too,” Lew continues, “but to make matters worse, we’re paying cash commissions on the equity ‘sales’ and spending real dollars in the NOC to monitor their sites...”
“So now you want to stop paying commissions,” Frank challenges. “That’s a great way to help sales morale.”
“We’re not talking about sales morale,” Donna warns. “Go ahead, Lew.”
“So looked at strictly from a cash point-of-view,” Lew says, “the equity ‘sales’ not only don’t get us cash, they COST us cash.”
“And?” asks Donna.
“I don’t know,” says Lew. “That’s just what the numbers say.”
“If we force them to be cash customers,” says Donna, “we have to give their equity back. Of course, if we’ve already written off the value of it, we don’t have to take another write-off. But we’d have to write off some of it. And we’d have to make sure they DO convert to cash and don’t just drop the service. After all, some don’t have any cash, but they’re a significant part of our sales.”
“We’ve been here a million times before,” says Frank. “Larry understood that we’d wreak the company if we screw these customers. That’s why we haven’t wasted time on this.”
“Larry’s dead,” says Donna. “And even Larry made mistakes. This might have been one of them.”
“This is a great plan if you want to crater sales,” says Frank.
“We’re losing cash on every sale we make to these guys,” says Lew. “We’d actually lose less cash if we made fewer sales.”
“Our stock price’ll crater if sales go down,” says Frank.
“How much further down can it go?” asks Dom.
“If it goes below a buck, NASDAQ’ll delist us,” reminds Aaron, the lawyer.
“There are two separate issues here,” says Donna. “One is: cut the loss from customers with worthless equity who are never going to convert to cash. Two: we need to make customers who HAVE cash upgrade to cash payments. In both cases, what works is to give them notice of discontinuation and tell them that they can only get monitored service and upgrades AFTER they convert to cash.”
“I don’t think we can do that contractually,” says Aaron. “I don’t think we can discontinue service without giving six months’ notice of discontinuance.”
“Okay,” says Donna. “No question this is gonna hurt reported sales this quarter; Frank is right about that. Question is: What will that do to the stock price and do we get delisted? If we get delisted, do we care? Stock still trades. Do we have to worry about another hostile with a low stock price? I’ll talk to Barcourt & Brotherson about that. But my guess is the Street’ll cut us some slack this quarter if they believe this is the necessary step to get cash flow positive and a good sign from new management. I think we will need to show some results in the third quarter, though. Something to show management knows what it’s doing and is on the right track.”
“With six months notice,” says Aaron, “they’ll still be entitled to a free ride next quarter.”
“We can come up with something to hurry them along,” says Donna. “Maybe some incentive to convert before the deadline — a lower price or something. We could tell them they can’t have the Managed Service until they convert to a cash basis. Aaron, can we do that?”
“I think so,” says Aaron, “but I’ll have to check the contracts.”
“You do that.”
“I think this whole idea stinks,” says Frank. “We’re betting the company and we’re gonna lose.”
“Look,” says Donna, “it’s your job to sell them the Managed Service. iHudson bought; it’s starting to move.”
“They don’t WANT the Managed Service,” says Frank. “They’ve been doing fine with just software protection. They don’t see any need for the Managed Service.”
“You know, Frank,” says Donna, “it’s a good thing you don’t sell life insurance. You’d be telling me nobody would buy it if they haven’t already died, because they don’t see any need. It’s your job to MAKE them see a need. They know what happened to antihack’s customers. They gonna wait for that to happen to them?”
“It’s not enough,” says Frank and grumbles some more but inaudibly.
“This is one of the times that Larry would’ve put the gun to his head,” says Aaron. “He would’ve spun the cylinder and said ‘you bet your life’. Or, if he thought the idea was brain-dead, he’d have said ‘time for the exit strategy’. I’m glad there’s no gun in this conference room. This is an enormous risk.”
“It’s too bad there’s no Larry in this conference room,” says Frank. “We’re making an enormous mistake.”
“Anyone else feel that way?” asks Donna. When no one responds, she asks Eve: “How do we handle this from a positioning point of view? We differentiated the company to the investment community based on the equity-customer strategy. Now we’re throwing it overboard.”
Eve says: “I’ve been thinking about that. This is, in some sense, a perfect opportunity to reposition. Larry’s dead; we have to deal with that anyway. It’s natural for new leadership to have a new vision. And times have changed; the bubble has burst. We know Larry didn’t quite change with the times — of course, we don’t SAY that. He was the right guy for a different time. Now we position Donna as the right woman for THIS time; the person who understands that cash is now king — or maybe queen. And, to keep continuity for the sake of customers, we build up Dom’s role as the genius who can produce the best anti-hacker software. He’s been here all along in that role and our surveys do show that the customers respect our product.”
“But people think of Larry as the guy who confessed to ‘Gotcha’ and went to jail for it,” says Aaron. “He’s the one we positioned as understanding the hacker threat because he WAS one.”
“Well, that’s something we work,” says Eve. “Now that everybody understands the danger from hackers, maybe you don’t need the visionary with the warning so much. Now we need solid execution. We continue to get that on the financial side from Donna, and from Dom on the technical side. I think this message’ll fly.”
“Put it together,” commands Donna.
“What about employees?” asks Joan Johnson, the HR VP.
“What about them? Won’t the same message work for them?” asks Donna. “They have stock, too.”
“They’re worried,” says Joan. “They were coming into my office worried even before Larry shot himself, and now they’re freaked out. Most of them know the company is burning through cash. They think less about their stock than they do about just having jobs and whether they’ll get paid.”
“So,” says Donna, “they should like the message of concentrating on real cash, reducing the burn rate, and getting profitable. We should accent that part of the message to them.”
“They’re going to think that ‘reducing the burn rate’ is code for ‘reducing’ head count,” says Joan. “That’ll scare them even worse.”
“Can’t have it both ways,” Donna says. “If we’re going to have a real profitable company with good jobs, we may shed some jobs getting there. That’s just the way it is. What do you think we should do?”
“I think YOU’VE got to talk to them,” Joan says. “Go out and walk the halls and talk to them individually. Larry never did that; he just liked talking to people in groups. If you talk to them one-on-one, they’ll feel better.”
“What am I going to tell them ‘one-on-one’? Can’t tell them our new strategy before we announce it or we violate Reg FD. Can’t tell them that they’ll all keep their jobs, because it isn’t true. What do you want me to say to them?”
“Just listen,” says Joan. “It works for a while. Tell them you don’t know all the answers yet; that won’t surprise them. Ask them what worries them. Ask them how they’d get the company profitable. Pretend to listen to the answers. It’s good management.”
“Okay,” says Donna. “We have the beginning of a plan. Aaron, make sure there are dates and owners for the action items: only one owner for each item. We’ve gotten into some bad habits of unclear accountability lately.”
“Boss,” says Frank, “can I talk to you after my interview with the detective? We’ve got to talk about the sales force.”
“Yeah,” says Donna, “but don’t come back to me with another plan to increase commissions. Better start thinking about how your guys can live on the REAL sales they make — no more cash commissions for ‘equity’ sales.”