Sanju Bansal: 'Turnarounds are possible with strong guiding hand'
PITTSBURGH Sanju Bansal knows what it takes to build a successful company and then rebuild it again.
Bansal, co-founder, vice chairman and chief operating officer of MicroStrategy in McLean, Va., was the keynote speaker at a recent reception to mark the first anniversary of the Pittsburgh Chapter of The Indus Entrepreneurs. He presented a compelling story about how MicroStrategy executives skyrocketed to success and were later forced to make some tough decisions to ensure continued growth.
"We started MicroStrategy with no revenue in 1989 and were a consulting firm for the first four or five years. We had very slow growth and had a chance to incubate and build a culture," said Bansal. "We started in a recession and 1990 and 1991 were not good years. In 1991, the phone didn't ring at all and it was a tough time to get the company off the ground. A lot of entrepreneurs today are relaying similar experiences."
Bansal said his business intelligence company was formed to provide tools to help clients sort through their database information to make better decisions regarding sales, marketing, finance, human resources and other issues. MicroStrategy's infancy was built on the simple philosophy that "you are what you eat."
"If you eat big fish, you become a big fish," he said. "We decided early on that we were going to solve the toughest problems for the biggest companies in the world."
MicroStrategy leaders are proud to say they built their company on sweat equity with no venture capital, often working 80 to 100 hours per week. The company went public in 1998 with a market cap of about $500 million, culminating almost a decade of tireless effort.
However, although Bansal and his colleagues ran a tight ship with stringent fiscal and management controls, they got a bit carried away by investing in other companies when the dot-com boom hit in the late '90s.
MicroStrategy followed its vision of creating a dot-com subsidiary to deliver real-time consumer data.
"We poured about $80 million into the subsidiary to get it off the ground and in about 24 months, (and) we signed $70 million to $80 million in contracts," said Bansal. "We had a good concept, reasonably good execution and a lot of people signed up. Deutsche Bank signed a $50 million contract with us and Ameritrade signed a $20 million contract with us."
By March 2000, MicroStrategy had a market cap of about $24 billion and had several billionaires in the company, including Bansal. The company also had about 2,400 employees and was involved in three businesses the dot-com subsidiary, enterprise software and the services industry.
"We thought it was a good time to do a secondary so we called Goldman Sachs and they asked how much we wanted to raise," said Bansal. "We were thinking about $1 billion or $2 billion and they took us on the road."
While pitching the MicroStrategy story to major funds in Milwaukee, Bansal received a surprising call from his chief financial officer. He was informed that the company's auditors were pleased with MicroStrategy's revenue streams.
However, they wanted company leaders to restate some of their revenue from current to future periods, which would reduce the reported revenues by at least $30 million per year.
"This was pre-Enron. We were the first high-profile company to go through a revenue restatement," said Bansal. "We agreed after a week of debate and debate is a kind word to restate our revenue."
The restatement caused the company's market cap to plummet about two-third in two days, sparked extensive shareholder litigation and forced MicroStrategy leaders to rethink their business.
Over the next 17 months, MicroStrategy raised more than $175 million to keep the company going, cut 60 percent of its staff, spun off the dot-com subsidiary and hired a new CFO, chief technical officer, senior vice president of sales and senior vice president of marketing.
The experience has given Bansal insight to provide entrepreneurs with tips for managing their business during a tough economy. Today, MicroStrategy has about 850 employees and more than 1,600 customers.
Bansal's last piece of advice to his audience: "Turnarounds are possible with a strong guiding hand. The key is to stay on your game. There's light at the end of the tunnel. A recession is a perfect time to start your company because there's time to bake a good culture."