Industry legends share their toughest decisions
Over the last three decades, chief executives at major technology companies in the government market have made critical decisions against a backdrop of a sea of changes: the impact of Sept. 11, 2001, rapidly accelerating advances in technology, and the enormous growth of government IT spending.
It is said that hindsight is 20/20 vision. Washington Technology asked five former top executives to reflect on key decisions they made, how those decisions affected their companies, and what lessons they took away from those decisions.
Given the clarity offered by the passage of time, are there any decisions that they have second thoughts about or that they would like to have back? On the other side of the coin, what decisions did they make that may have seemed perilous at the time but in the final analysis turned out to be the right ones?
In the following sections five former chief executives — Charles Rossotti, Joseph Kampf, Dendy Young, Daniel Young and Tony Barclay — talk about critical decisions they made during their time at the top:
Charles Rossotti, former chief executive of American Management Systems
Rossotti co-founded American Management Systems in 1970 and served at various periods as president, CEO and chairman until 1997, when he became commissioner of the Internal Revenue Service. Against an initial capital investment of $300,000, the company’s annual revenues had soared to nearly $1 billion by the time he departed for the IRS. During his tenure as chief executive, in 1979, AMS became one of the first technology services firms to offer shares to the public.
Despite the company’s extraordinary record of growth, Rossotti has reservations about his decision to keep a tight rein on AMS’s business with the federal government.
“During the 1980s and early ‘90s, we could have grown the federal business faster,” he said. “Our strategy was always to try to keep a balanced mix of business by sector and generally that meant the federal business ran around 35 percent of the total revenue. People always thought AMS was more of a federal business but it was actually more diversified from the very beginning. We thought that was the right thing to do.”
There was another reason. As a public company, AMS’s business decisions were held to account by its investors -- and 20 years ago they were skeptical about doing business with the government.
“The public market didn’t like federal business,” Rossotti said. “They had this conception that it was bad business, low margins. We were always getting a lot of advice from our outside investors, and even our own board. [They would ask] why do you have all this federal business?”
As a result, AMS restrained its federal business by taking a tough line on pricing. “We tried to maintain the highest possible margins and go for the best quality business we could, which is fine up to a point, but it also meant that there was a lot of business that we couldn’t touch in the federal sector,” he said. Meanwhile, other technology companies began to see their government business expand rapidly, he added.
Looking back, “had we pushed the federal business harder over a long period of time...our whole business would have been bigger and our federal business would have been a lot bigger,” Rossotti said. “When the downturn in the private market came, around 2000, that would have held the company in good stead. We would have been smarter to damn the torpedoes on some of that [investor] advice and grow the federal business faster.”
Charles Rossotti is senior advisor at the Carlyle Group in Washington.
Next: Joseph Kampf
Joseph Kampf, former CEO of Anteon International Corp.
In the summer of 2001, Anteon, a privately held government technology services firm, was up for sale. “A lot of big, Tier One players came to the table,” said Kampf. “We were in the [sale] process for probably three months, over the summer and into September. The bid date for the deal was September 10.” The next day, of course, the world was rocked by the terrorist attacks of September 11.
“Everything went silent for a few weeks,” he said. “No one could move around the country, no one had meetings, no one knew what the implications were, people were contemplating the enormity of what had happened.”
Against an uncertain future, Kampf cancelled the sale of Anteon and decided to take the company public. It was “absolutely” a risky decision, he said. “The decision was based on what [we thought] Anteon could accomplish under this new, emerging threat.”
In March 2002, with revenues running at about $750 million, Anteon went public. About four years later, the company’s revenues had rocketed to $1.7 billion. “It was a great outcome for us,” Kampf said. “It was a good decision not to sell and it was a good decision to take the company public. I think [the rise in revenues] was consistent with what happened with [the Defense Department] in the national security space over the next four or five years. Anteon became very successful.”
In 2006, Kampf made another major executive decision: to sell Anteon. “General Dynamics approached me and suggested that they wanted to acquire the company,” he said. “Anteon was performing well but my perception was that the market was going to turn again and I didn’t think Anteon would have as spectacular a future as it had a past so I decided to pursue the deal.”
The decision turned out to be “exactly the right one,” Kampf said. “The market has turned down dramatically. Most of the companies that were around when Anteon was sold are worth a lot less now than they were five years ago.”
Joseph Kampf is a co-founder of CoVant, a private equity partnership in McLean, Va., and serves as its chairman and CEO.
Next: Dendy Young
Dendy Young, former CEO of GTSI
Young’s says his personal philosophy is “have no regrets.” And that applies to decisions he made during his 1996-2006 tenure as CEO at GTSI Corp., a government systems integrator and services provider. Actually, there is one exception, he says. Human Capital.
“The only times I’ve varied from that [no regrets] philosophy have been when there are people involved,” he said. More specifically, Young has second thoughts about some executive hiring decisions he made at GTSI. One instance of a hire gone wrong occurred early in his days as CEO at GTSI when he was looking for a vice president of sales.
“There was a time when it was very difficult to hire people,” he said. “They didn’t want to work for GTSI. The reseller industry was going through turmoil on the commercial side. A lot of people thought resellers were a dying breed. Dell had just hit the market and was doing it direct so there was a lot of pressure on the reseller community. The perception was that resellers are bad.”
In addition, the company itself was struggling financially, compounding the perception problem.
“All of the sudden, I couldn’t find a vice president of sales,” Young said. “I exhausted my Rolodex and hired an expensive headhunter and he exhausted his Rolodex.” The headhunter told Young: “I know what you want. Those people are out there. But none of them want to come work for you.”
Nevertheless, they selected two “less than stellar” candidates and decided to hire the better of the two. It was a mistake. “I knew within 30 days, maybe 60 days, that the relationship wasn’t going to work out,” he said. “But I was so desperate to have somebody in that position that I kept him for much longer than I should have. It was hard because I didn’t have a lot of choice. I was under pressure from all sides. I was trying to rebuild a company that was in trouble in the first place. So I probably should have held and continued looking [for a sales executive] but at the time it seemed as though I needed anything to help me out of the bind.”
The impact of the decision was that Young’s effort to rebuild the company stalled. “It wasn’t until I hired the second or third one after that that I got somebody really good and [that hire] helped me to take the company to greater heights,” he said. During Young’s decade as CEO of GTSI, the company’s revenues grew to more than $1 billion from $400 million.
Dendy Young is managing partner of McLean Capital LLC, a private equity firm.
Next: Daniel Young
Daniel Young, former vice chairman and CEO of Federal Data Corp.
Young started working for FDC in 1976 and became president and COO in 1985. “We always thought that being small and nimble with some really smart people could build a business,” he said. “That was the premise on which the company was built. That worked out very well over time.”
But being small had its liabilities. “When you’re a small company like we were, if you didn’t recover from a mistake, it could be catastrophic,” Young said. He learned this lesson big time when a decision to team with another small company on a government contract brought some unexpected consequences and cost the company a considerable amount of money.
In 1987, FDC bid with a company that designed TEMPEST-tested computers on a contract to provide portable computers to the National Security Agency. “TEMPEST was the standard that NSA had developed to ensure that computers would not emit signals that could be detected by the enemy,” Young said. “To become TEMPEST-tested you had to have certification from NSA.”
The other company was comprised of former NSA employees who formed their own firm and developed the TEMPEST-tested products, he said.
FDC and the company, as the subcontractor, won the contract and started delivering the computers to NSA. “We delivered quite a few and it was a very successful program,” Young said.
One day, however, Young got a shock. He received a letter from the government accusing FDC of fraud and asking for $38 million in damages. “At this time, the company was very small,” he said. “We didn’t know what $38 million was.”
What happened was that the subcontractor had made modifications to the computer without FDC’s knowledge, claiming that the changes had been approved by NSA. The government countered that the modifications had not been approved NSA. It was a situation that threatened to destroy FDC.
“The net effect was that our banks foreclosed our loans and said we had to pay all of our obligations within 30 days,” Young said.
As it turned out, FDC was able to negotiate a settlement, paying the government $1.2 million for its expenses. “We worked our way out of it,” Young said. “We were exonerated after we paid the $1.2 million but it made us such good cash managers that we paid off all of the loans within about 45 days and from then on we became a better company as a result of this adversity.”
For Young, the message was don’t do business with people you don’t know well. “Never let your subcontractors or a partner talk directly to the customer without you involved,” he said. “You’ve got to maintain control of the people you work with and have an extremely close relationship with the customer.”
When FDC was acquired by the Carlyle Group in 1995, Young became president and CEO of the company. FDC was sold to Northrop Grumman in 2000, ending Young’s long association with the company.
Daniel Young serves on the boards of NCI Corp. and GTSI Corp. and is an advisor to the Knowledge Consulting Group in Reston, Va.
Next: Tony Barclay
Tony Barclay, former CEO of Development Alternatives International
Among Washington’s government contractors, DAI is company that marches to the beat of a different drummer.
Former CEO Barclay describes DAI as “a consulting company started by intellectually curious, idealistic people who wanted to solve the world’s deep-rooted development problems.” Founded in 1970, the employee-owned company didn’t start with the classic ingredients that most businesses would have place, such as a business plan and a defined capital structure.
When Barclay became CEO in 1999, DAI’s worldwide business had been expanding steadily but the basic business infrastructure necessary to its operations hadn’t grown with it. “We didn’t have any of the support and communications systems that would seem obvious,” he said. “We had to retrofit those necessary parts of a business onto a company that in some respects was coming to terms with its own growth.”
Barclay decided that it was critical for DAI to look for expertise at the executive level from outside the company. “Not many people [at DAI] had a financial management background or professional human resources background, to name two areas we needed work in,” he said.
DAI’s unique employee culture — portrayed by Barclay as “strong, inclusive, can-do, let’s get smarter, learn by doing”— was a powerful force in the company. In making hiring decisions, Barclay assumed that DAI’s culture would “rub off” on new executives brought in to upgrade the company’s support systems. It didn’t work out that way. Cultures, mindsets and personalities clashed, impeding Barclay’s goal of upgrading DAI’s business processes and systems. "Several executives hired from the outside in the early 2000s got some important things done, but the cultural fit never took hold, and they moved on," he said.
“There’s a real challenge in taking people who are very structured in their thinking and very rule-based into a company that can live within the rules but is very often solving problems right out on the edge of the box,” he said.
Subsequently, Barclay became a more discriminating judge when he sought executive talent from outside the company. He looked for senior executives who could serve as change agents, but who also would find DAI’s mission and culture intellectually stimulating and motivating. “It really was an issue of fit,” he said. “I didn’t look as hard for that in a couple of those hiring decisions as I should have. That’s a big takaway.”
Tony Barclay is an independent director of DIA and serves on its board.