Successful? Try, Try Again

Dec. 21, 2004
Dave Duffield built two software firms before hitting it big with PeopleSoft.

If at first you succeed, try again. And if you succeed a second time, go ahead--try once more. It seems fitting that Dave Duffield, the software entrepreneur whose career has recreated that saying in spades, is out to recreate the software business itself. The third high-tech business Duffield founded, PeopleSoft Inc., has built a reputation for software designed for average business people--rather than programmers--to use. Its also by far the most successful of the three ventures, with a market capitalization of about $7.5 billion and 18-fold appreciation in its share price since the company went public five years ago. President, CEO, and chairman of PeopleSoft, Duffield had already succeeded in starting two mainframe-software companies--Information Associates and Integral Systems Inc.--before launching PeopleSoft in 1987 in what was a major gamble on the then-inchoate market for client/server applications. He came up with the name PeopleSoft when he realized the systems he was building were to be used by vastly larger numbers of employees than in the past and thus would have to be easier to use. "In the 1980s, 80% of the software was in the hands of the MIS group," says Peggy Taylor, senior vice president for application development and customer services at PeopleSoft in Pleasanton, Calif. "Now 80% of software is in the hands of users--in the hands of the people, so to speak." Duffield, who began his high-tech career with IBM Corp. as a marketing representative and systems engineer and who today is worth more than $2 billion, has been known to make personal visits to customer sites to fix bugs in his companys software. In fact, CEOs, CIOs, and others at many of PeopleSofts 1,900 customer sites have met him--though usually under more uplifting circumstances than a troubleshooting episode. "Hes been out here meeting with us on-site," says Roy Vasher, general manager of information systems at Toyota Motor Mfg. North America Inc. in Erlanger, Ky. Indeed, Duffield is strikingly low-key in his manner--unusually so for the CEO of a leading software company. "Hes more modest and diffident, not arrogant like some CEOs of high-tech companies," says Ron Codd, senior vice president and CFO. "Hes not a Larry Ellison," Codd adds, referring to what many perceive as a more arrogant style on the part of the founder and CEO of Oracle Corp., PeopleSofts chief West Coast-based combatant in the enterprise-resource-planning software wars. By contrast, Duffield prefers to let his products and those who work for him do the talking. Clearly, some customers like it that way. "Its refreshing not to get the hard sell," says Toyotas Vasher. "Duffield lets the product and the people speak for themselves. Im very impressed with his management style." When they evaluate PeopleSoft business applications, one factor stands out in the minds of customers--flexibility. The software can be amended to suit a particular companys methods of operating. "Flexibility is a key thing with PeopleSoft," says Vasher. "It seems the whole company is willing to be flexible. Its a way of operating for them. And its also reflected in their whole product line. That flexibility allows a large company like ours to adapt the product to our business needs." Toyota passed over PeopleSofts arch-rival, SAP AG, which has been criticized for systems that do the opposite, requiring companies to change their business processes to fit the software. That claim doesnt seem to have held SAP back any, if at all. As of 1996, the latest year for which figures are available, the Walldorf, Germany-based software giant was in the lead with 28.2% of the enterprise-applications market, according to research firm International Data Corp. (IDC), Framingham, Mass. That compares with Oracles 8.9% and PeopleSofts 7.3%. With 1996 revenues of $450 million, PeopleSoft was roughly one-fifth the size of SAP, which had $2.4 billion in sales. But Duffield has vowed to catch up. Judging from current growth rates of both firms, the challenge seems doable. PeopleSoft sales in the last couple of years have been expanding at a 100% clip, compared with SAPs growth rate that has ranged between 40% and 60%. Whats more, although market-share figures werent yet available for last year, "1997 may have been the year that PeopleSoft overtook Oracle, making PeopleSoft No. 2 behind SAP," says Judy Hodges, research manager for applications and information access at IDC. Duffields penchant for flexibility extends to other aspects of the business as well. When the company ran short of cash to fund development of new software for manufacturing in 1994, Duffield knew he needed to think creatively. He did some benchmarking and found that the biotech industry had tapped venture-capital firms for funds to support research. PeopleSoft created a joint venture with Norwest Venture Capital Management Inc. whereby the latter put up the cash, and the software firm was responsible for the development effort. PeopleSoft later bought out Norwests share and ultimately purchased Red Pepper Software as the core for its new manufacturing system, but the off-balance-sheet financing demonstrated that the company wasnt tied to traditional means of raising capital. PeopleSoft made its name with its flagship product, PeopleSoft HR for managing human resources, later adding accounting, distribution, and manufacturing packages. Companies such as Ford Motor Co. bought the HR software to keep track of employees, employee records, benefits, training, and succession plans. Four years ago, Fords HR managers realized the company needed to replace a hodgepodge of older personnel systems when executives tried to set up a meeting of the companys top 1,800 executives. "We literally didnt know who they were," said Mike Method, operations manager in charge of Fords global HR database project, speaking at a PeopleSoft customer conference. "We had to tell our executives we didnt know who all our people were nor how to get in touch with them." Another problem was the lack of a worldwide set of common systems and processes to connect HR activity to support the companys 100,000 salaried employees. As Method put it, "On a global basis we had nothing--it was literally nonexistent." The new PeopleSoft-based global human-resources database became Fords first global client/server-based system, running on servers from Sequent Computer Systems Inc. and using an Oracle relational database. Ford, which in the past had depended largely on home-grown systems created internally, had such a positive experience with PeopleSoft, according to Method, that the company is considering packaged software for other parts of the business. "Ford has never been good on buying purchased systems, but were getting better at it," he added. Another PeopleSoft customer, Ann Arbor, Mich.-based Dominos Pizza Inc., ordered the works, including inventory management, order fulfillment, manufacturing, accounting, and HR. Dominos likes the idea of a single, unified system thats tied together so that everyone, in effect, is tasting information from the same corporate pie. "We felt that the most critical functionality was the ability to have a fully integrated, workflow-driven order-fulfillment process," wrote James Krasner, vice president for supply-chain management at Dominos Pizza Distribution, in an article in the fall issue of Supply Chain Management Review. The goal, Krasner explains, is for the companys managers to have "complete, real-time visibility to the entire portion of the supply chain that we manage." Krasner says a key reason Dominos selected PeopleSoft for its core system to manage the supply chain for its 4,300 U.S. stores was the software companys culture. "We feel strongly about the close cultural and visionary fit between Dominos and PeopleSoft," he says. Again, every ounce of PeopleSofts corporate culture that both employees and customers experience can be traced to the pervasive influence of the founder. "Dave epitomizes the culture of PeopleSoft," says Taylor. "He sees himself as the monitor of the corporate culture." "All other things being equal, our customers choose PeopleSoft because they like us and because they trust us," Duffield wrote in last years annual report. "Increasingly we have found that our customers dont choose a software product. They choose a software company--one they will closely partner with for the next 20 years and beyond." From the start--albeit his third one--Duffield knew the kind of company he wanted to create. It would be focused around the idea of serving the customer first. All else would follow, Duffield believed. "He believes strongly in leadership by example and spends a lot of time with customers," says Codd. Duffield is serious about wanting to hear from customers. "Heres my e-mail address," he told a recent gathering of 7,000 people representing companies that use PeopleSoft. "If youre having problems and your account representative hasnt responded, I want to hear from you." When George Still, managing partner at Norwest Venture Capital in Palo Alto, Calif., first met Duffield in 1989 while helping set up the companys only round of venture-capital funding, the CEO handed him a book on customer service. "This is what were all about," Duffield told him. "Read it." Comments Still, a board member who continues to be a significant shareholder in the software firm, "PeopleSofts main focus is on an uncompromised level of customer support." The commitment hasnt gone unnoticed; PeopleSoft claims that 99% of its customers renew their software licenses. Besides instilling a culture where service is paramount, Duffield has served as the chief visionary for the company and its products. At the same time, he has been a tireless promoter of the notion that the companys people are a unique and strategic asset. In terms of a management style, what that translates into is consensus-based decision-making. While Duffield makes it clear hes the boss, he never rams his ideas down the throats of the other four members of the operating committee, who actually run the business. Shouldering the bulk of responsibility for daily operations are Taylor; Codd; Duffields brother Al Duffield, senior vice president for operations; and Aneel Bhusri, senior vice president for product strategy. "As an organization, we really are run by consensus," Codd says. Duffield also believes in having fun, evidence of which can be seen and heard most days at PeopleSofts new sprawling headquarters in Pleasanton, Calif., about an hours drive east of San Francisco. Some employees, such as Baer Terkell, head of the companys Internet efforts, live in places like Berkeley and drive up in leather jackets aboard Harley-Davidson motorcycles. Others play in a band called The Raving Daves, a play on their fearless leaders name. Duffield himself often comes to work in a sweater and slacks or jeans, golf shirt, and Nikes. Its also a culture that embraces youth and enthusiasm. The average age of employees is 29. "Its a young, vibrant, exhilarating culture to work in, and as a result, PeopleSoft has experienced very little personnel turnover," says Norwests Still. "Dave has focused a lot of his energies on creating an environment where individuals can have fun and learn and grow," he says. Similar to the belief of a fellow CEO and competitor in the enterprise software trade, J.D. Edwards & Co. founder Ed McVaney, who absolutely forbids office politics, Duffield detests internal squabbling and backbiting among employees. "Dave cant stand politics," says PeopleSofts Taylor. "Anytime he sees it, hell squash it." Duffield admits he fired a pair of people for this reason. "I saw what that kind of attitude could do to a company, and it made me want to leave." Much of the "charge" others get from working around Duffield is simply his enthusiasm rubbing off. "I fell in love with programming in college," he says. Adds brother Al, "Daves always been a techie. And thats good that the leader of your company can understand technology." The son of a Bell Labs missile engineer and a schoolteacher, Duffield earned a degree in electrical engineering and an M.B.A. at Cornell University. In 1964 he went to work for IBM, where he was assigned to the Xerox Corp. and University of Rochester accounts. He cut his computer teeth on FORTRAN and the IBM 360 mainfame. Next, working with an IBM colleague, Duffield began marketing software to colleges to help them schedule final exams. "Colleges shipped us their punch cards or magnetic tape with their courses and the students, and we ran it on the University of Rochesters mainframe." Weary of working for Big Blue, in 1968 Duffield went off on his own to start Information Associates with a partner, John Robinson. They developed a new payroll system and paid the University of Rochester to use its computer. The company prospered, creating various custom-designed systems for colleges. Later Duffield and Robinson parted ways, each taking a portion of the business. Duffield then formed Integral Systems in 1972, focusing on human-resources, payroll, and benefits applications for higher education. In many instances, creating a major HR and payroll system for a large university took Integral workers an entire year. Restless again, in 1979 Duffield created an offshoot of Integral called Business Software Co. to commercialize Integrals HR and benefits systems for private companies. He managed both companies simultaneously under the Integral name. By that time, Integral, with a staff of more than 200, had become one of the leaders in the market for mainframe-based HR systems, along with competitor Tesseract Corp. Integral, which had been paying Stanford University to use its mainframe, had become sufficiently successful to purchase its own IBM machine. Duffield saw an opportunity in the making when IBM was readying its new database, DB2. Within a year, Integral had created software to run on the new database, and the new product soon represented half of the companys new business. Next, Duffield tried to push the company to come out with PC-based systems, but the CEO he had hired to run things (so Duffield could focus on new-product development) wanted to stick with the mainframe products. "I said, Im quitting," Duffield says. Then, with Integral cofounder Ken Morris, now PeopleSofts senior vice president and chief technology officer, joining him, the pair founded PeopleSoft on May 1, 1987. Duffield funded the company with his own money, mortgaging his house to raise part of the capital. "The companys strategy was a very high-risk bet," says Al Duffield, also an IBM and Integral veteran. "The client/server architecture wasnt even called that back then." PeopleSoft also made a big gamble then on Microsoft Windows as a platform for its software, eschewing IBMs competing OS/2. The first customer to buy the new software, a human-resources system that ran on a network of personal computers, was Eastman Kodak Co. "With a clean sheet of paper and no [mainframe] customers, we were free to fully exploit this new technology," Duffield says. "All the other competitors wanted to preserve their old products. We didnt have to think about migrating 4,000 companies over to this new technology." Some competitors, he says, such as the former Dun & Bradstreet Software, which was purchased in November 1996 by Geac Computer Corp. Ltd. of Toronto, "underestimated the difficulty of rewriting these old systems to client/server." Even for his third time around, Duffield found growing a young software company was no picnic--unless its the kind where you invite the bull for some wine. Financing was often "hand to mouth," Codd says. Duffield found himself putting in outrageously long hours. "I remember writing the Canada tax module at home over the Christmas holidays in 1989," he recalls. That level of commitment to the company and its customers wreaked havoc on his home life. "For the first three years at PeopleSoft, I had no time off, not at Christmas, not at New Years, not at Thanksgiving." And PeopleSoft stumbled, sometimes big. The third version of its flagship human-resources package contained such major problems that "it blew up in our faces," Duffield admits. "Our customers told us this was an unacceptable quality of product." PeopleSoft had similar problems with its Release 5.0 of the financial package. The founder attributes the software glitches to growing pains. "Those problems resulted from growth and a need to get products to customers when promised. But now with 1,900 customers, you put out a bad product and you will spend a year bailing water. After those problems, we put a release-process model in place," Duffield adds. The idea is to backstop any wild pitches in the software before its turned loose on the corporate world. Despite its unparalleled success, major challenges loom ahead. For one thing, the company has yet to make much of a dent in the manufacturing-applications business. "They were late to market with their product," observes IDCs Hodges. "They have very few manufacturing sales to date. They really need to work much harder at seeking business in the manufacturing sector." Despite stiff competition, Hodges believes PeopleSofts manufacturing package will be a success. With two software firms behind him and a third in its fullest bloom, the 57-year-old Duffield lately has been turning some of his energy toward scoring some points off the software court. A year ago he became one of the largest donors in Cornells 133-year history, giving $20 million to his alma mater for a technology center. Closer to home, he established the Duffield Family Foundation to help fund zoos and animal-protective agencies. And, yes, the Duffield clan does indeed practice what the foundation preaches, taking in occasional strays. The current complement consists of three canines, down from a high of five. So whats next? Is there a fourth software company in Dave Duffields future? In the manner of a clever politician protesting hes not running, Duffield says not. "I couldnt envision ever not being a part of PeopleSoft," he says. "Today my entrepreneurial itch is fulfilled." Uh, come again, Dave. "Today"?

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