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Growing Pains

[whitespace] Marimba
Space Case: Employees at companies such as Marimba, in Palo Alto, remember the overcrowding of the early days, but prefer life after 'hypergrowth' help.

Christopher Gardner



'Hypergrowth' firms proliferate by helping high-tech companies accommodate fast-and-furious expansion

By Lauren Barack

KIM POLESE KNEW her company had outgrown its space when the crashing sound of pool balls filtered into her sales meeting. "Our break room was next to the conference room, and I would send memos telling people not to play pool on days we saw clients," says the 36-year-old CEO of Marimba, one of the valley's newest success stories. She laughs, remembering. "But sometimes, people wouldn't get the message."

The company's courtyard bungalows in Palo Alto, formerly a dentist's office, had housed 25 people semi-comfortably when Marimba first started. But within a year, the space had become little better than a holding pen. Employees putting in 12-, 14- and sometimes 20-hour days coding software had to scramble for places to grab a nap. "I'd come in in the morning and find a couple of people crashed out on the pool table," Polese says.

Now two years old, Marimba has survived its initial growth spurt to make a new variety of "push" technology--one that allows clients to send and manage software updates over the Internet. Marimba broke into the market with its flagship product Castanet, which puts a computer server on autodrive--updating software or data automatically.

The product launched to immediate applause, and Marimba exploded. The company grew to 100 employees and recently moved to bigger digs in Mountain View. "We've still got that small-company feel," Polese says. "But we're still looking to grow--bigger, faster, more and sooner."

Growing--and growing fast--is what most Silicon Valley startups pray for. Venture capitalists want a return on their capital. Employees want to see that their stock options--and the marathon hours they invest--are worth something. And CEOs are anxious to become the valley's next hot commodity. They fantasize about turning their ideas into companies like Marimba.

The key to this success--making money and sticking around--is riding a "hypergrowth" period and surviving. And that takes more than luck, according to Stuart Phillips, a venture capitalist with US Venture Partners in Menlo Park. "That takes planning."

Located on Sand Hill Road--the Rodeo Drive for VCs--Phillips' office is just down the street from Kleiner, Perkins, Caufield and Byers, one of Marimba's key investors.

Even with its glamorous address, Phillips' office is little more than an enclosed cubicle. A message board almost covers the length of the space, his desk the width.

Phillips crosses his legs, pointy black cowboy boots on his feet. At 10:30am, he's already guzzling a Diet Pepsi while he plays with the half-dozen computer gadgets within arm's reach and gushes over his calendar computer--a calculator-sized gizmo that plugs into his desktop computer and instantly updates his schedule. "Everyone in the valley's using this," he says. "You make a meeting, and they pull these out. I've almost convinced my wife to get one."

Phillips loves his toys, and they aren't all high-tech. His latest is a Beech Bonanza--a single-engine, low-wing, six-seater plane the 39-year-old bought last year to get to business meetings in San Diego and Seattle. "It's cheaper than horses," he says, with a half-grin.

Quick Cash

SPENDING MONEY WISELY is precisely Phillips' job. He sits on the boards of directors of all of the companies that he and his firm invest in. "We bring in more than money," he boasts. As a venture capitalist, he makes decisions about who's a good financial risk and who's not. He then acts as an adviser, helping young companies fill in needed talent and coaching them as they grow into the "hyper" realm.

Managers inexperienced with growth can present a problem, he says, because they react instead of planning for rapid change. That can quickly lead to a company's failure, he says. "You need to plan for hypergrowth in advance," he says. "Otherwise life gets truly ugly."

Gary Steele calls this brand of ugliness a "trauma." The CEO of Netiva, a 2-year-old software startup, has seen his company jump from 17 employees to 41 in the past six months. That has created an unusual problem.

After shipping the first product last June, he hired employees in sales and marketing. All were women. "There were three stalls in the men's bathroom," Steele says, "but only one in the women's. They were standing in line to use the bathroom. It became a productivity issue."

Steele considered opening the men's bathroom to everyone, "but there was a certain set of employees who said they wouldn't feel comfortable," he says. And spending $100,000 to expand the women's bathroom didn't make sense for the company's bottom line.

"So we moved," Steele says. "The first thing we looked at were the bathrooms. I think people thought we were strange."

Now with triple the stall space, Steele can focus on his latest challenge: maintaining the frenetic pace as his startup continues to grow. "The trick is, how do you get people to start sprinting?"

For some companies, it's not employees that need the boost, but the market.

Tessera, a San Jose company that develops technology for microchip packaging, is a 9-year-old granddaddy in the world of startups. It has an A list of licensees--Intel, Texas Instruments, 3M and Hitachi--and the product has quickly become an industry standard. Yet that security was in question, says Tom Di Stefano, the company's founder and current vice president of marketing.

Two years ago, Tessera did an inventory of available "flex" materials--thin polymide fused with copper lines, which are the backbone of Tessera's product. "There was a fear that we would--and could--run out of supplies," Di Stefano says. "Absolutely."

So Tessera founded a magazine, Chip Scale Review, and even a trade show, Chip Scale International, to promote the flex-materials business. "It's a chicken-and-egg thing," Di Stefano says. "We had to build a marketplace for our supplies to ensure that we could build our product."

Di Stefano, 55, expected the success of chip-scale packaging but is amazed that a small company such as Tessera brought it to market. Larger companies such as IBM had ignored the technology, spending years working on other models such as multi-chip packaging, "which is more expensive," Di Stefano says.

A 19-year veteran of IBM, he knew he had a jump-start on the bigger boys, and he knew chip packaging would have to be made at a lower cost for it to succeed. His hunch proved right, and Tessera finally expects to show a profit this year.

The Best Teacher

FINDING A PRODUCT that solves a problem is one of Phillips' golden rules. And Tessera's tactic to ensure a supply of materials for its products folds right into the venture capitalist's warning to plan ahead. It's a lesson learned from his own experience.

Phillips spent 10 years working as an engineer and developing products for Tandem and Cisco before joining US Venture Partners last July. Both are companies famous for their rocket growth, and for their endurance.

Cisco appears rock-solid in its success. Having gone public in 1990, the company is now the third-biggest on NASDAQ and in 1997 earned more than $6 billion in revenue.

Cisco's core products, switchers and routers, are the plumbing that lets computers access the Internet. But in recent years, the company has had to focus on its own plumbing--flexibility and space for its growing field offices.

Marina van Overbeek is one of three strategists at the company overseeing "Workplace@Cisco"--the cute company catch phrase for redesigning workspaces. It's based on timesharing. Instead of building enough desks for everyone, employees work in a shared space while they're in the office. Personal space is banished to a small carrel--similar to the stack room in a library, says the chipper van Overbeek, who gives credit for the plan to CEO John Chambers' dictum to manage expenses. "We need to be frugal," she says, "in order to keep growing at the same rate."

She reports that in the past two years Cisco has grown "really, really fast"--from 4,500 people to more than 12,000. Its internal directory is too large to be printed and is now on the corporate intranet for easier updating. "And sometimes the workspaces are outgrown before they're completed."

That keeps van Overbeek constantly traveling to offices in Amsterdam, Paris and London to supervise construction. Though each one is different, she's quick to explain. "It's not a cookie-cutter approach," she says. "People on the East Coast, for example, need a place for coats."

Worrying about where people put their coats is a level of stress Marimba can only dream of at this point. Not yet public, and with more than $18 million in venture capital, Marimba has a long road before profitability, Polese says. It's survived an initial growth spurt, and she wants to ensure it survives more.

For her, that means keeping the tight-knit group in constant communication and finding release for her frenzied employees. There are basketball games, pizza parties and movie nights, complete with amateur film reviewers who critique flicks like Children of the Lost City and Pulp Fiction. "That was a good one," Polese says. And there are still pool games--though few people need to crash on the table anymore.

The company's still enjoying a hypergrowth period and recently released an updated version of its first product, Castanet. But the market is hardly the same as it was two years ago. Now there are nearly 30 companies peddling Marimba's technology, and analysts speculate that the company could be ripe for a buyout. Polese is firm when she says she plans to take the company public, with her riding at the helm.

That decision may not be hers alone. Phillips says everyone must be in agreement about where a company is going: board of directors, CEOs and venture capitalists. "You want a consensus that everyone's heading for the same place," he says. "You don't want to railroad anyone."

Polese feels secure. With the backing of one of the more prestigious venture capital firms, the company has "balance," she says. "When we need them, they're there," she says, but adds: "You want to be driving your own company."

It's clear she's the lead driver at Marimba, following the rules and making a few of her own. And that's fine too, Phillips says. "Really, there are no rules," he grins. "Or people like me would be out of a job."

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From the February 5-11, 1998 issue of Metro.

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