By Tina Singh,
CEO of Investor Network
and Jenny M. Sakhrani,
CFO of Philosopher’s Stone
Five years ago QLogic Corporation was facing a run rate of $45-50 million a 13 cent loss for the quarter ending 6/95 and $500,000 in cash and a market capitalization of $25 million. Today QLogic enjoys a run rate of $362 million, an astonishing 70% growth rate for the past two years. The company earned $0.28 for the quarter ending 3/01 (this does not take into account the 3 splits in the past five years), $380 million in cash and a market cap of $5 billion. The credit for this transformation can be accredited to Chairman and CEO H.K. Desai. At a recent TiE meeting, Mr. Desai shared some of the secrets of his success with an audience of investors and entrepreneurs.
One of the key factors to success is formulating a plan and sticking with it regardless of the distractions and influences that may come along. In June 1996 Desai. in conjunction with his management team, formed the five guiding principles for QLogic going forward. He communicated these principles to the staff and made sure that they adopted them on a day-to-day basis.
Invest in a niche market-created focus; without focus you cannot succeed
1. Total Customer focus - Many firms claim to focus on customer service but Desai used this principle to change the culture of the company. As a demonstration of his customer focus, Desai always took calls from customers, but avoided calls from board members when he was busy.
2. “A customer is the bread and butter of the company but the board member will always be around if you are making them money”, explained Desai.
3. Emphasize execution - Desai conducted meetings with engineering, marketing and sales departments to co-ordinate and communicate the interlocking schedules
4. Invest in new technology - Desai emphasized the importance of engineering. Shortly after starting at Q-Logic, he fired the heads of Marketing, Sales, and Operations to release enough capital to hire additional engineers. You don’t need sales and marketing if you don’t have the product. He assures us that he rehired those positions within 9 months once the product was ready for sale.
5. Don’t forget your employees - communicate the focus and the game plan to the employees each step of the way. One way Desai accomplishes this is by holding monthly “all-hands” meetings. Another tactic is offering incentives to key employees. In fact during the first year of the turnaround he gave 48% of the annual profit in incentives to key employees.
Another key to the appreciation of the stock price is Desai’s ability to manage and meet Wall Street analysts’ earnings expectations. Desai notes that honesty with analysts is key to maintaining shareholder value.
Once the turnaround was in place, the next focus became growth. Not surprisingly, he sat down with his management team to determine the principles for acquisition.
1. Must expand out market.
2. Has to be a technology advantage or complement.
3. Never grow the revenue base through same product - don’t gain market share in product already dominated by Qlogic.
4. Acquisition must have limited effect on P&L.
5. Lock-up the employees for 3-4 years.
Desai noted that he does not have an MBA and has never taken a management course but has applied what he has learned from being a sports junkie. Sports teaches teamwork, leadership, and focus - important tools to running an effective business.
QLogic is based in Aliso Viejo, CA and with 15 years of diverse storage experience, QLogic is the only company that provides end-to-end connectivity for the SAN. They are committed to delivering and servicing open-standard, SAN infrastructure solutions that can be tailored to complement the diverse requirements of OEMs, systems integrators and resellers.
Desai’s parting advice for the entrepreneurs today:
1. Focus on your product.
2. Don’t sell yourself short.
3. Be Frugal - Do not spend money unless you absolutely need to.