Just Managing: Weathering the Storm

Phil Merrick, CEO of WebMethods, is one of those level-headed entrepreneurs who thrives in both good times and bad. His software company has so far weathered the Internet storm because it's delivered value to its customers, even as Merrick had to go through the song and dance of selling WebMethods' merits to venture capitalists and the public markets.

While other companies rushed to cash in on quick ideas, and have been pummeled by shifts in the market, Merrick has managed to grow WebMethods, maintain its stock price and take advantage of market changes. He did this by keeping a careful eye on his company's product, its customers and the company culture.

It's been a particularly good time lately for Webmethods, which uses the XML standard to create business-to-business software to link the systems of large corporations. During the past year, the company has grown from 200 employees and $25 million in sales to 750 workers and more than $250 million in top-line revenues. It has more than 500 clients, most of them among the world's largest corporations. Its stock, which crested during last year's Internet mania at $336 per share, has settled in at about $80 per share, giving the company a market cap of more than $4 billion.

But it hasn't always been like this. Five years ago, Merrick founded WebMethods with his wife and a business partner in the garage of his house. A native Australian who came to the U.S. in 1990 with one suitcase and $1,500 in cash, Merrick was a technological zealot who believed in the promise of a wired world. WebMethods was launched based on the idea that, over time, companies would use the Internet as a platform upon which they could connect their systems with one another at a fundamental level to achieve unprecedented efficiency.

But the company's first 18 months were, as Merrick describes them, brutal. "We did all that stuff that entrepreneurs did before people began throwing gobs of money at them," including running up credit card debt, re-mortgaging the house, with just $31 in the bank to pay his small staff, he says. Ultimately, WebMethods was saved by an infusion of cash from an angel investor.

When the business finally began to take off, Merrick was confronted with a new challenge: What kind of a company did he and his team want to create?

Merrick had no formal training as a manager. He and his peers based their management philosophy on "counter-example," trying to avoid the practices that they felt dehumanize and don't motivate workers, tactics they had been subjected to in the past. They approached creating the company culture from the employee perspective, coming up with initiatives that range free sodas and Friday lunches, to making it clear that employees don't have to spend their lives at work to get ahead. The employee culture they created has been successful: WebMethods has a retention rate of 98 percent and to date has had no layoffs.

Merrick has never denied that WebMethods was fortunate enough to benefit from the high-flying stock market that turned south in April. During the boom times, WebMethods tapped its capital to acquire a competitor, Active Software (ASWX), for $1.3 billion.

WebMethods employees, including Merrick, say they have never been motivated by stock valuation alone. Unlike Silicon Valley stars who spent their IPO winnings on expensive toys, Merrick rewarded himself for WebMethods' spectacular market debut with vanity plates for his Honda Civic.

"We try to filter out people who are in it just for the money," he said.

WebMethods bases its strategic decisions on three simple questions: First, what problem does any given proposal solve for customers? Second, where is the leverage (that is, how can a given solution be delivered consistently, repeatedly and in a way that is scalable)? Finally, how can the impact of any given proposal be measured? Merrick says producing actionable metrics enables WebMethods to adjust its practices for maximum impact.

Merrick says his challenge today is to evolve from a managerial role to that of a leader. He says the transition hasn't been easy, but he has turned to veterans from the company's board of directors for guidance.

"Understanding that I had to make this progression was a revelation to me," he says.

There's a simple moral to the WebMethods story: Companies that deliver value to their customers can sail through rough waters.

One gets the sense that WebMethods would have raised sufficient capital to stay viable regardless of external circumstances, and that it would have created the same culture no matter what conditions it faced. Such unyielding practices help guarantee enduring success.

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