By Bruce Hadley, SoftwareCEO
In 1998, the year that CEO Tim Bigelow founded Performance Software, the company did $330,000 in revenues.
By the end of 2002, sales were $7.1 million. Five-year revenue growth was 1,625 percent, strong enough to land the Phoenix-based company in the #88 spot on the current Inc. 500 list of fastest-growing companies in America.
Sales cooled off last year, to $6 million. In 2004, however, revenues will grow by 20 to 30 percent over 2003, Bigelow says; that would put them at least even with 2002, and perhaps 10 percent over their $7.1 million high-water mark.
At its previous peak in 2002, Performance had 39 employees; they're currently at 45, and 36 of those are developers. That unusually high percentage of techies should give you a clue: Performance Software is in the business of building custom software systems on a project basis.
"Our focus is on the development of software in highly regulated markets," Bigelow says. "Avionics, military, financial—anything that requires a high level of documentation and verification. 100 percent of our revenues are from custom development."
When your entire bet is riding on custom development, you have to be good at development—that's obvious. But the part that many custom developers leave out is delivery —and that's where Performance stands apart from the crowd: The company prides itself on the fact that 96 percent of all its projects are delivered on time.
"A key element for us, from day one, was our ability to go in and deliver on promises we made," Bigelow says. "Our entire business model revolves around our ability to develop software quickly and efficiently—what I call operations excellence."
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In our recent conversation, Bigelow focused on the six items that he says are required "must-haves" for any software company looking to create highly-productive software teams.
Development "must-have" #1: Hire high-performance people
"I know, it sounds kind of obvious, but it's still an important point," Bigelow says.
"You need to select people who have a natural talent for performance. Try to bring people in who have demonstrated past performance and efficiency. This doesn't necessarily mean Ph.D.s; you want people who can roll up their sleeves and get a product done on time."
The best way to find these hotshots, Bigelow says, is through your current crew. "The best indicator of performance is peer-based," he says. "Bring in people that your existing people have worked with and can vouch for."
Failing that—if you don't already have high-performance people on staff—Bigelow says you'll have to fall back on checking references, reading between the lines, and asking each candidate's references specific questions related to performance.
For example, Bigelow will ask each reference, "Would you categorize this person as one of the top performers on your last software team, or was he more middle-of-the-road?"
"What you want to hear," Bigelow says, "is that without a doubt, this person was in the top 10 percent. If it isn't obvious that this person is getting gleaming references, it's likely that you're into some other situation; I'd be cautious."
Performance Software first tries to find new talent through its internal employees, though it does not pay "bounties" for referrals. If the existing staff doesn't turn up any candidates, the company typically turns to what Bigelow calls "normal recruiting practices: local PR, job postings on our Web site, and newspaper ads."
By far, the best of these practices has been PR, he says: "People read that article—it's usually something about our growth—and they assume that if we're growing, we must be hiring."
Job candidates at Performance meet first with the team manager, and then do a follow-up interview with the company's program director. "We don't use any tests," Bigelow says. "We rely on the interviews to get a gut feel as to whether this person would fit in, then work on checking references."
With this emphasis on top performers in your development group, will you breed too much independence, we wondered? Does Performance Software have difficulty with "cowboy" programmers?
"We don't see that here, because not only are we looking for production, they have to work cohesively as a team," Bigelow says. "It's no good having a cowboy who's going to pull down the rest of the team; by definition, they're not a top performer."
Development "must-have" #2: Define and develop a high performance culture
"This means that first you have to figure out what kind of culture you need," Bigelow says. "At our company, it's a culture where we have team managers who put their people first. We take care of our people, which enables them to be more focused on getting the job done and taking care of our customers.
"Our culture revolves on bringing on top performers and giving them an environment where they can succeed. We look for all employees to have three talents: technical ability; teamwork; and delivering customer satisfaction, which means they're able to interface well and relate well to the customer."
Performance Software goes to great lengths to keep that spirited culture and sense of teamwork alive. "Recently we held our annual 'PS Holiday,'" Bigelow says. "We did it on Martin Luther King Day this year, because kids are out of school then and they could join us.
"The entire company went up to Sedona for the weekend. We spent some time hiking, spent Saturday and Sunday in a hotel, then hosted a dinner on Sunday night, where we gave out funny awards—and we include everyone's families in all of this."
One each for Mr. and Ms. Wonderful "to recognize those employees who always have a rosy outlook no matter how bad things are," Bigelow says.
The Darwin Award, handed to "the person who's inflicted the most harm on himself in past years, during activities outside of work," Bigelow says.
A Queer Eye for the Straight Guy award given to someone who's shown a personal style or flair in the last year. "That went to one of our project leads who got a new haircut and is looking kind of stylish," Bigelow says. "People have been giving good-natured grief about it."
Performance Software picked up the tab for one night in the hotel and the entire dinner. Participation was well over 100 people—and this from a company with just 45 employees.
"We also do a Christmas dinner, and we do a Thanksgiving potluck at the company," Bigelow says. "Usually everyone brings in dishes, but this year our programs director and his wife cooked the meal for the entire company."
The company also organizes half-day outings at a nearby lake, bowling outings, go-kart racing, and more. These events are often organized by individual employees, but Performance's HR manager handles the company-wide events.
Development "must-have" #3: Insure proper training and adequate mentoring
"Instead of letting people figure out on their own what needs to be done, it's more efficient to put just-in-time training in place," Bigelow says.
"We make sure there are always experienced team members who can bring in new people. New employees here always have someone they can pair up with to understand the particulars of the project.
"In your first week on the job, you'll be assigned to a project and we'll start giving you work tasks as fast as possible. We figure the best way to learn is to work on the project—not sitting in a cube and reading all this documentation before you get started on real work
Other than a two-hour new-employee orientation process, Performance doesn't enroll new hires in online or classroom training. "We don't send new hires to classes; we get them on a task, and make sure they have a mentor."
The mentorship program isn't formalized, Bigelow says, but the company tries to spread around the assignment of mentors: "We like to use people who've been with the company for awhile."
Development "must-have" #4: Build innovative tools that make your job easier
"On every project, we spend some time trying to figure out how innovation could reduce cycle time," Bigelow says.
"Right now we have a particular individual who's very talented at writing tools. We put him on the project ahead of the development team, if possible, or right on the beginning. His mandate is to figure out where portions of it could be automated.
"He isn't just a tools person; he needs to have a firsthand knowledge of what needs to be done on the project. He needs to be tied into the people who are doing the work, or sometimes he's doing some of the work himself.
"So, even though he's a great tools-builder, he's more than that; he's also a critical resource on projects. I guess the best way of putting it is that he has relevance."
These time-saving tools aren't merely a way to reduce project time; they become an integral part of Performance Software's sales pitch. "We developed one tool that allowed for automated testing on an embedded systems project," Bigelow says.
"Once the test scripts were written, they could be run in batch mode against a new build; previously, it was always run manually. This gave us a least a 50 percent savings, which passes along to the customer. We can reduce cycle time and pass those savings on—that's part of our value statement."
Development "must-have" #5: Optimize project methods and processes
"The focus here is on realizing that every software project can be a little different," Bigelow says, "and you need to optimize for the unique characteristics of that project. If you have too much process in place, it's just like throwing money away.
"Often, you'll get this advantage with a small team of experienced personnel. Because they've been on these projects time and time again, they have a gut feel of what's required, and what isn't, and they work that against what the customer wants.
"It's a feedback loop; if, given all the constraints, what would be the most efficient way to get this done? Again, it's based on familiarity with past projects.
"For instance, in aviation software there are different levels of certification. At the highest level, the documentation and testing is much more rigorous than it is at the lower level.
"Thus, if there's a requirement to develop software at a lower level, you're throwing money away to create unneeded documentation—you don't need to build it in.
"Part of the challenge here is understanding what level of documentation is needed, and the second part is understanding the best way to get to that level."
With each new project, the questions—and the answers—will vary, but getting to those answers quickly is what optimization is all about.
Is it best to take an iterative approach, or more of a waterfall method, where most requirements are pounded out ahead of time? Is the code being reused from another project? When is hardware available for lab tests?
"There are no hard and fast rules," Bigelow says. "You've got to use past experience."
Development "must-have" #6: Focus on accurate weekly metrics and standardize project planning
"If you have multiple projects going, you want them all to use a standard baseline," Bigelow says.
"Also, all projects should have timelines in place, and you should be tracking them carefully. Without that, you have no way to know when things go wrong, and no way to reward people when things are going superbly.
"In our project plans, we divide the timeline into multiple tasks, and then weekly we look at how many are getting completed. You can roll all those up to what we call an earned valued that represents what percent complete the project is."
Interestingly—and perhaps another example of the innovative tools we talked about with "must have" item #4—Performance Software doesn't use Microsoft Project or other vendors' tools for this task.
"We use internal tools that we developed for planning and calculation," Bigelow says. "We found it to be far more accurate than Microsoft Project."
Is one "must have" more "must" than the rest?
OK, that's a great list, we said; but what if you had to zero in on just one? Which of these six has made the biggest difference for Performance Software?
"I think the one that stands out the most is #5—optimizing project methods and processes," Bigelow says. "Nowadays, clients are demanding great efficiencies. In down times there's a real focus on costs.
"Our development productivity is improved by all six items in my list, but the one where we have the most room for growth is in developing new methodologies to reduce cycle time, because we can pass those savings on to our customers."
Is outsourcing a cure for development productivity?
With such a proportionately large number of developers, Performance Software's labor costs must be high, we said; is there a temptation to outsource some of that work, perhaps offshore?
"The real pressure is that we have to reduce costs," Bigelow ways. "Software is so expensive to develop, yet the end customer is expecting their product to get cheaper and cheaper. Unlike hardware, it's not getting cheaper and cheaper each year—but that's what customers want to see.
"We've talked with a couple of outsourcing companies, but currently have no plans. We've gained enough efficiency internally that we can compete pretty well.
"We pay our people above average salaries, and that's always the way we've done it. We look at survey results from EE Times, Salary.com, and other sources to get our benchmarks. My belief is that you pay people over the norm, and you'll get great results."
Bigelow says Performance is "at average" on benefits, but he rattled off a fairly impressive list of perks: The company pays for health, dental, life, and short- and long-term disability insurance; the only thing missing there is vision.
In addition, employees all participate in a company-supported pension plan. "Some kind of retirement plan is a must," Bigelow says.
OK, enough on development; what about sales and marketing?
"We have a couple of lead-generation mechanisms," Bigelow says.
"First, we attend trade shows. We don't do booths, but we do a lot of walking around to visit other people's booths. We'll strike up conversations, find out about their products, and let them know, 'Hey, we could build that for you.'
"Second, we do cold calling—though I call it warm calling, because these are calls where you know somebody who knows somebody. We're usually calling into a market where we want to be. Our best growth has been through referrals from other customers."
An example of this "warm" approach is with government agencies, where Performance has done lots of project work. "We've sold to the government via partnerships with other companies," Bigelow says.
"Typically, we're being hired by a subcontractor to the U.S. government. Often, they're doing a big software-hardware program, and we're coming in to help them out; we're a sub to them.
"They've done all the hard stuff: bidding on proposals, negotiating contracts. It's very difficult to get into these without a partner; going on your own is going to be a tough road to hoe. I'd always recommend going in with a partners."
Future plans and the failure of flip-it philosophy
Like many surviving entrepreneurs, Bigelow makes it clear that hyperactive growth is only one measure of his company's success.
"My focus at this point is building a company that has real value," he says. "I started this when there was this get-rich-quick, flip-it attitude, where eyeballs mattered more than quality. My emphasis was on providing real value and building relationships.
"We're looking at some adjacent markets—medical devices and financial, for example—and we're doing the market analysis at this point.
"As far as exit criteria, I don't know. We have no plans to get money, go public, or get bought. I know that, realistically, only one of 150 companies does the IPO route successfully.
"I guess the company will grow to the point that we'll decide that somebody else should be CEO. But, I'm 35; there's time. The focus now is to continue to grow and provide new value."