Interesting Stuff:
Someone posted this link on Yahho Cntr message board about an interview conducted by The Red Herring Online with Centura's CEO Scott Broomfield
herring.com
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CENTURA'S TURNAROUND PLANS
We interview Scott Broomfield on his plans for the once-haughty database software company.
By Owen Thomas
January 30, 1998
We normally cover startups; call this case a startover.
If ever a company needed turning around, it's Centura Software. In December, the board of the database tools company, based in Redwood Shores, brought in Scott Broomfield, a principal at consultancy Hickey & Hill, to revive the company. While Centura is still doing $60 million in yearly sales, its stock is in the gutter; it faces heated competition from companies like Pervasive Software, Sybase, and Oracle; and it has major financial hurdles it will run into next month.
Centura began life in 1984 as Gupta Corporation, a company whose founder, Umang Gupta, graced The Red Herring's cover surfing the client-server database wave. Things got gnarly for the company when Visual Basic and other new products started eating up its application development tools market; its market problems were capped by an accounting debacle that resulted in audits of its 1993, 1994, and 1995 fiscal years and an accompanying shareholder lawsuit, settled in September 1996 for $15 million in payments and litigation expenses.
Mr. Gupta handed over the reins in December 1995 to chief operating officer Scott Inman, a 21-year IBM veteran who came to Centura from Ingram Micro. While Mr. Inman was charged with restoring the company to profitability, the company didn't stay in the black long; the company tried to enter the Web middleware market through a merger with Infospinner, a Dallas-based startup, but Mr. Gupta, still a major shareholder, torpedoed the deal, and the companies ended a distribution agreement in November 1997.
Centura's situation is undoubtedly dire; according to documents filed with the Security and Exchange Commission, the company has a $10 million note with Computer Associates which comes due in March 1998. The note is convertible to Centura common stock; that must have seemed a much better deal when the note was signed in 1995, with shares trading around 10, than it is now, where $10 million will buy two-thirds of the company's outstanding shares, which now trade at 1. The company is also in trouble with Nasdaq for not meeting listing requirements, having been bumped to the SmallCap market; Mr. Broomfield must meet a February 27 deadline to bring Centura into compliance with the board's rules.
Can this company be saved? Former investors and Wall Street analysts had nothing kind -- or printable -- to say about Centura, but the company retains a loyal customer base. Larry Perlstein, an analyst with San Jose-based research firm Dataquest, expressed guarded confidence in Centura's products to The Herring in November. "Centura has some strong products now in the development tools and embedded databases spaces," said Mr. Pearlstein. "Staying focused on its vision can only help to make it more successful." (Embedded databases are used outside of the familiar environment of PCs -- in the consumer devices that Sun is targeting with Java, for example.)
Under Mr. Broomfield's two-month tenure, the company has already taken some steps back from the abyss, winning a large account with Deutsche Bank for its development tools and securing a $5 million line of credit to boost liquidity; he's also brought experienced executives to the company, namely John Bowman, also a principal at Hickey & Hill, as chief financial officer and Kathy Lane, whose background includes Harman Interactive and Chipsoft, as vice president of marketing. We spoke to Mr. Broomfield recently on what else it would take to resuscitate Centura.
One hell of a database
The Red Herring Online:
You've got quite a project on your hands.
Scott Broomfield:
Nothing that we haven't seen before.
The Herring:
And yet Hickey & Hill hasn't done many software manufacturers in the past, has it?
Mr. Broomfield:
We've done a couple of game manufacturers -- Starpath and Epyx. There's not any personal software in John Bowman's background; my background is more operations than marketing. The third person in our team is Kathy Lane, our marketing expert. She comes out of the software business.
I look for what's common, and what's unique. The uniqueness in the software industry is that you have to answer one question before you ever step in -- are there products at competitive parity or better?
Once you are behind, in the technology cycle, you can never turn the crank.
The Herring:
Did that prompt the move away from middleware?
Mr. Broomfield:
We looked at the company, and concluded that its
middleware strategy wouldn't work. The very first
day I interviewed, [former CEO] Sam [Inman] told
me that he was not the guy to fix this company. The
wind had gone out of his sails when the bomb hit the
Infospinner merger. Accordingly, the board asked
us to come in.
Their charter was pretty simple: tell us what you think of the middleware space, tell us what you'd do if Centura weren't in the middleware space, and tell us how you would do it.
The Herring:
What's in it for you?
Mr. Broomfield:
We have very low cash compensation; we'll take it in stock.
When we drew up our plan for running Centura, we really analyzed the company, every nook and cranny; we'd been having side conversations with customers. And they said we should go back to our databases. We love them, we love your tools.
The Herring:
So you have some customer loyalty going for you; still, how is Centura going to regain traction in the marketplace?
Mr. Broomfield:
We're getting everyone recharged around the fact that we have one hell of a database, and one hell of a tool.
Ann Winblad [of Hummer Winblad Venture Capital] said a few years back that when Powersoft came to her, and she analyzed what it wanted to do, she looked at Centura and decided that Centura had great products, but didn't know how to market them.
Visual Basic is pretty strong. Its next generation is going to be pretty slick. We just want to make sure that there's enough headroom in our tools that people can do the kind of things they want to do.
We sold Deutsche Bank the first fully encrypted database. If you want something that provides fully encrypted electronic data interchange (EDI), we'll have it up and running.
Automatic Data Processing worked a year and a half with Delphi to get its database working; Delphi's chief information officer was fired. Then we came in, and ADP's tool was up and deployed in six months, with 300,000 seats nationwide. ADP has reupped its contract.
The Herring:
Centura's financial problems must be casting doubts on its prospects, though. How are you dealing with that?
Mr. Broomfield:
I have to address the viability of the company, knowing that we have negative net worth, knowing that we owe $10 million to Computer Associates in a note that comes due in March.
Am I in excruciatingly detailed discussions with Computer Associates? Yes.
The Herring:
What about the $5 million line of credit you just arranged?
Mr. Broomfield:
I don't need the money. I have positive cashflow [from operations]. I didn't have that before; I have that today.
I need to fix the Computer Associates' note; I need to work on the capital structure. The marketplace is beating us up so badly over us not being viable that I need to bulletproof our balance sheet.
[Obtaining credit] doesn't mean that we've done a turnaround. That just means you've pulled your financial levers.
The first point of rebuilding credibility is viability. One part is financial viability; the other is strategic viability. What's hard is to make sure you've got the right strategy. The second is executing. The third piece is that you deliver products when you say you will. The next piece is about positioning. This company was leaderless in the marketing domain for years, as far as I can tell. The last piece is consistency, so customers can say, this is a good company to work with, they understand me.
It's not about pushing code. It's about adding value; it's about customer response, solving their problems. I'm not a rocket scientist; I am a Peter F. Drucker guy.
The Herring:
One of the markets you're targeting is embedded databases. Isn't that hotly contested at present?
Mr. Broomfield:
We talk about Pervasive, we talk about Sybase, we talk about Oracle, and we talk about our buddy up in Redmond. Here's the deal: Microsoft isn't playing in the embedded space. I'm not saying there's not a threat here; if it bundles some things with the OS, it could really be a threat.
If Oracle made some strategic moves, I've got contingency plans. Oracle could do some things in the embedded market, but I don't think it will. Its whole strategy is designed around Fortune 500, big iron, CIO sales.
Sybase is a more interesting competitor. I think SQLAnywhere is a really interesting product, a good product. I think it will be formidable. I'd like to be number one -- but if I'm number two in a market that's exploding in growth, I won't be a $60 million company. I'll be much bigger.
On every benchmark we've run against Pervasive, we win. They win in some really tiny spaces. We think Pervasive has exactly the right channel of distribution, going after the independent software vendors. You're going to get a Baan, you're going to get a PeopleSoft -- you're going to get a hit after a while.
We win on a total cost of ownership basis. And that's what Kathy Lane is going to tell people. We love the Pervasive distribution model, and we're going to emulate part of it. We've got a better product, though.
Is this a competitive space? Yes. But is it a space that's not going to have a huge battle between Redmond and our neighbor in Redwood Shores? No.
The Herring:
Has it been hard to recruit people to Centura?
Mr. Broomfield:
It's tough. When Netscape announced its layoffs, I put a call in to Jim Barksdale's office; there were 300 companies who made that same call.
One of the advantages I have is that I don't have anywhere near the mammoth infrastructure that Sybase or Oracle have. Where they want to hire 300 or 400 top engineers, I have to hire 10. We're also seeing engineers return to the company who left because the company was turning to middleware. And with my stock sitting down around 1, I'm almost like a startup, and can offer startup-like rates of return.
The Herring:
Speaking of your stock, what of your troubles with the Nasdaq board? You've been moved temporarily to the SmallCap market, and your status is under review next month.
Mr. Broomfield:
Effective at the end of February, new listings requirements kick in. Over the years, the Nasdaq had kind of turned into a buddy club. And if you knew somebody, you could get someone to give you a waiver. Well, that blew up too many times, so the Nasdaq decided to clean up their act. And these new regulations go into effect this year. There are 1,400 companies that are in jeopardy.
The one test that we wouldn't meet is the profitability test for the last 12 months. There's as much liquidity in the SmallCap market as there is in the Big Board. But if I go over to the OTC market's pink sheets, the competition gets to nail my coffin shut.
I have balls. I love doing what I do. Centura's parking lot is now full until 8 at night; it used to empty out by 4:30. These people see we have a chance. I use the Viking analogy: you land on the beachhead and you burn the ships -- because you want your troops to fight hard.
The Herring:
How long do you plan to be in the fight?
Mr. Broomfield:
I've got a long-term commitment with the board of directors -- two years.
The Herring:
Is that usual for Hickey & Hill?
Mr. Broomfield:
No, this is a little bit longer than most, because I saw a longer-term opportunity.
What I see here is a company that's got a lot of opportunity, has a lot of work in front of it, a lot of rebuilding to do with its channels and its customers. But I see all the right signals.
Understand that turnaround is not about one quarter's worth of profitability. Any idiot can do that. It's about structuring it to provide long-term value. It's not a startup, so you can't spend money and lose money like a startup. You've got to convince the markets that you're viable.
A turnaround is not binary. It's analog. Companies are not either in trouble or healthy. There's a continuum of health. You have to assess where you are. Look at Al Dunlap, who turned around Scott Paper and is now at Sunbeam; the thing about Al is that he doesn't go into companies that are in crisis. He goes into companies that are at crossroads.
I play in a slightly different space. I play somewhere between conflict and crisis. That's where Centura was. And the only real difference between conflict and crisis is how much time you have.
The Herring:
What are the popular myths about turnarounds?
Mr. Broomfield:
It depends on industry. When Gil Amelio was at National Semiconductor and thinking about taking on Apple, we went down and talked with his number two guy, George Scalise. Our view was that he needed to do something major, major with the company. I think that's where Gil failed. You can't just tweak the cost structure or lay people off.
I don't get a golden parachute here. If they want to fire me, I'll just walk out the door. My only reward is the stock. I was a little disappointed when Mr. Amelio walked out of Apple with $10 million.
When Ray Lane went into Oracle, and the stock was at $4, I bought stock! I thought these guys could fix it.
What happened at Oracle was a turnaround. What happened under Gil's watch at Apple was not a turnaround. And I want what happens at Centura to be a turnaround. |
