When the market went in the tank it was a dark day for everyone. It was one of those things that when you talked to people prior to the collapse most people could tell things were not right. It was a typical conversation at the dinner table or while you were at the bar with friends or strangers.   How do you explain all the silly ads you saw on MSNBC.com or other websites, things to the tune of “Get a $500,000 loan today, no money down and no interest payments for 6 months”. Not to mention anyone could get these loans.  

When it hit it hit fast and hard and every CEO of every major company became an expert, including Microsoft’s Steve Ballmer.  Steve really got into reading about the Panic of 1873 and the economic collapse that started with the bankruptcy of a Philadelphia a banking firm, Jay Cooke and Company.  I can understand the correlation (Lehman Brothers?), but in my view all the collapses (junk bonds, dotcom, housing market’s etc..) I have witnessed are due to a failure to follow basic business principles.  The number one priority being your cash inflows must exceed your cash outflows.  However in the United States we have a gold rush mentality that stems back to the San Francisco gold rush of 1849.  We all believe we can be rich, we all believe we can be famous.  Whenever a rush presents itself Americans will run towards the light at the end of the tunnel, even if they do not know where they are going.

When the economy tanked I am sure everyone can attest that business. basically came to a halt.  In the world of information technology budgets were frozen and any grand plans of expansion were put on the  back burner.  Since I was selling into IT any chance of a large deal being done went to nil.  At Microsoft the reaction of senior leadership was not confusing to say the least.  I remember our COO Kevin Turner quoting his idol Sam Walton. Kevin (KT) came from Wal-Mart.  Sam told Kevin early on in his career, “Kevin, during an economic downturn there are those who participate and those who do not.  The latter always gain market share”.  I really liked that quote.  I thought at the time Microsoft was going to use its cash to keep business moving forward, to be aggressive when others were pulling back, to grow our share.   By the next morning Microsoft began contracting it’s business.

Following KT’s motivational speech everything was being cut across the organization.  Now KT’s method of leadership is old school and driven by fear.  Those beneath him are treated like line managers.  The word at the top is followed not challenged.  Over the next several months he would travel the globe and visit the field offices, sit in executive meetings and always say ” we are not participating in this economy”.  Every manager above me would say “Hans you need to grow share, now is our time to win”.  These were the echo’s of KT filtering down to the field reps.  Do not challenge, just do.

The reality at Microsoft was everything went into cost cutting mode.  Any travel all of a sudden needed manger approval.   There was no entertainment budget to take clients to dinner.  The idea of taking share was being supported by spreadsheets, and a lot marketing that stretched the bounds of reality.  How Vista can save you money?  We had a bunch of supporting marketing material for that scenario, if you can call it that.  We had internal Sharepoint Portals with a bunch of how Microsoft can save you money type scenarios.  In alignment with what KT was hearing and what we in the field were hearing – every CIO, Director, Manager, Developer in IT were all saying the same thing, “Help us save money immediately”.  I read through the scenarios and never used one of them because I did not believe I would be able to defend any of them in front of a customer.  Signing a Microsoft Enterprise Agreement was not fitting the request.  Some of our competitors were able to excel in this environment.  In the enterprise space VMWare certainly had the right message at the right time.  With their virtualization technology they could tell CIO’s maximize the utilization of the hardware you have rather than increase data center space and increase energy costs.  It also fit in nicely with many of the “green IT” initiatives that have become so popular in the industry.  Another company I think made a lot of headway during this time was SalesForce.com, outsourced hosting of your CRM environment.  Saves you money and it’s useful.  Microsoft is now offering hosted Microsoft CRM.  Better late to the party than never.

Not everything was bad I do think that the crisis gave Microsoft a lot of opportunities to look internally at business practices and see where money was being spent and where could we be more efficient in how we spent our money.  I know Wall Street was thoroughly impressed with how much we were able to cut.  I don’t think Wall Street saw how crippled we were internally.

In my opinion what Microsoft should have done here was go after Oracle and say “Buy SQL Server and we will help fund the migration”.  It would have cost a lot in the short run but in the long run I think would have increased not only SQL Server sales, but Windows Server, Sharepoint Server, Dynamics  etc..To do that type of initiative at would have taken courage at the top.  It would have hit the companies share price, but in the long run I believe the company would have won more business and helped the overall health of the organization.  In today’s world those type of leaders are hard to come by.   We could have looked at other competitors the same way.

I doubt what I have laid out here is much different from any other company at the time.  I am sure every sales rep in America could sit down with me over a beer and commiserate over the challenges one of the greatest economic collapses in American history.  I guess the shear historian in me will remember the fear and panic that came  over every company in America.  At a time when corporate America needed strong leadership it seemed sorely lacking.  To be clear in my opinion this was not the fault of a few companies facing bankruptcy, but a potential complete meltdown of the US financial system.  A friend recently told me that George Bush and John McCain had warned about this scenario before it happened.   So did I.  As I said leaders show courage in the face of public opinion.   Politics aside the best quote out of the financial disaster came from a Wall Street lackey who when asked by a reporter “Didn’t you all see this coming ?” replied “Sure, but when you are at a party having a good time..”  Don’t worry there will be more parties in America, more gold rushes, it’s like leading a horse to water. The question at my old company is will the leaders rise up and see the challenge before them and the opportunity it presents or will they do what the shareholders tell them.

Good Night and Good Luck,

Hans Hoffmann April 21, 2010