Building a Better Veritas

In his case, the 42-year-old Bloom, who came to Veritas in November 2000, has knocked apart the very core of the company, overhauling its management team, ripping out its marketing plan and rearchitecting its product portfolio. To be sure, the work has created somewhat of a mess at the company, a world leader in clustering, storage management and disaster-recovery software. For example, after discovering that it incorrectly handled some complex accounting involving a $50 million deal with AOL, Veritas will have to restate financial results for fiscal years 2000 and 2001.

No one wants to start off a year restating earnings. But it is a necessary evil if the company is serious about reaching its goal, which is to become the next $5 billion independent software company. Generating that much revenue in a single year is something only Microsoft, Oracle and SAP have done. Many who once were on track to reach such a milestone got upended for one reason or another. In the case of Novell, for example, it was an overreliance on a single product line. Lotus, meanwhile, failed to exit productivity applications in time to save its infrastructure business, which has since stalled. As for BEA, it erred by miscalculating the number of people who would actually have use for a sophisticated Internet applications server. Now Siebel is struggling with sales growth after reaching the $2 billion plateau.

While some have made significant bets on markets with limited upside, Veritas does not depend too heavily on any one product and has not been blinded by shifting market trends. Instead, it has focused on software with defensible value and broad appeal. For example, its data backup and recovery software, which protects data stored on corporate systems the world over, is used by 86 percent of the Fortune 500, according to Veritas. Further, its clustering software can save enterprise users money regardless of the type of machines they use, the software they run or the data they possess.

On the surface, at least, Veritas has many of the attributes required to make it big. Real big. It has award-winning technologies, a seemingly limitless potential base of customers and no real direct competitor hell-bent on taking it down no matter the consequences. It also has strategic allies throughout the industry. That includes companies considered to be the cream of the crop in solution-provider circles and the vendor community. Among others, Veritas has established revenue-producing partnerships with HP, IBM, Microsoft and Sun, just to name a few.

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So what's the problem? In a word, infrastructure. Simply put, Veritas was not built to be a $500 million software company, let alone a $5 billion one. When Bloom took over, for instance, company revenue was already at $1.2 billion, despite relying on an archaic back-office system and an over-taxed workforce. It was apparent that some overhauling was seriously needed. Painfully obvious, in some cases. When it became known late last year that then-CFO Kenneth Lonchar overstated his educational credentials by fabricating for himself an MBA he never earned from Stanford University, Bloom had little choice but to send him packing. Likewise, when Bloom discovered the accounting treatment on the aforementioned AOL deal was mishandled, he was forced to take dramatic action for the good of the company. Although the restatement of the earnings dating back to 2000 and 2001 involves only a relatively modest sum of money,it will increase 2000 losses by 1.1 percent and reduce 2001 losses by 1.2 percent,the mere act embarrassed Veritas and saddened Bloom.

"Along with [firing] our CFO, it is the hardest thing I have ever done professionally," he tells VARBusiness.

Undaunted, Bloom continues unabated in his quest to overhaul the company, which he says is nearly complete. He's already tasked his engineers to transform their software portfolios into something called the Veritas Adaptive Software Architecture, which recasts its point solutions into a software platform. And just last month, the company completed the single-largest product launch in its history while naming a new vice president of partner sales. The appointment of Michael Sotnick follows by a few months the hiring of new CFO Edwin Gillis and the appointment of new chief marketing officer Jeremy Burton. Still pending is the possible appointment of an additional leader in sales. After that, Bloom believes he will have largely completed the transformation of Veritas from a promising upstart bursting at the seams to a stable pillar of the software community worthy of the mantle "Next Great American Software Company."

Building On Its Lead

With 2002 sales of $1.5 billion, Veritas is the industry's eighth-largest independent software company. Because its growth rate is greater, it's poised to overtake Siebel for the No. 7 spot.

For the three months ended Dec. 31, 2002, sales at Veritas grew 10.9 percent to $405 million. Although sales for the year grew just 1 percent to $1.5 billion, the rate of growth was better than the growth of Compuware, Oracle or Siebel. Closer to home, Veritas is growing faster than most of the companies with which it competes, including two of its closest rivals,EMC and CA. Veritas continues to grow despite focusing on software some of its best allies, including HP, IBM, Microsoft and Sun, develop. That's because its software solutions let users manage nearly all of their storage systems from one central location, no matter the make of the hardware they use. Being a neutral force in a world of partisan storage product manufacturers is an "ideal" business, Bloom says, "and we love it."

Building a business around that premise, however, has not been easy. For starters, Veritas has to spend significant sums to make sure its partners don't develop software that obviates the need for its own solutions. Veritas also has to invest in new areas to make sure it is not overly dependent on any one product. That kind of spending erodes the company's efficiency. With approximately 5,500 employees, Veritas' sales per employee are $272,727. In contrast, Microsoft's are $560,000.

Moreover, Bloom says head count is likely to grow, much as it has throughout the recession. So, too, are other costs. For example, Veritas has hiked R&D spending as a percent of revenue of late to 19 percent, up from just 16 percent a few quarters ago. In addition, Veritas has completed the first phase of a two-step buildout of its engineering facilities. That added 466,000 square feet of office space to its Milpitas, Calif., workplace. To help pay for those investments, Veritas has looked at other aspects of its business to save money. Last month, the company took a $100 million charge to help pay for the consolidation of several real-estate sites. After it is complete, the effort could save the company as much as $14 million annually.

Those efforts aside, it's clear that Veritas' future depends on sales growth, both inside and outside the channel. Today, Veritas' business is evenly split between direct and indirect sales. Bloom says he has no feeling one way or the other on whether indirect sales grow as a percent of revenue, as long as they simply grow. Direct sales also have to grow for Veritas to reach its goals. Services sales, too.

Today, services account for nearly one-third of the company's business and are growing faster than license sales, which stalled in the fourth quarter. Despite that, channel conflict remains in check, experts note. For example, Gartner researcher Adam Couture discovered something interesting about Veritas and its partners in late 2002 while completing a study on the storage-services market. At the end of a small survey, he threw in an open-ended question that asked VARs which storage-software company they thought would fare best in 2003. The overwhelming majority answered, "Veritas" without prompting. While noting the results were hardly scientific, Couture believes the outcome makes some sort of statement, at the very least. "When it comes to beauty contests in storage management, Veritas is the hands-down winner," he says.

Fans In the Channel

A number of solution providers report that Veritas' technologies are playing an increasingly strategic role in solutions portfolios. Take World Data Products, a Minnetonka, Minn.-based Veritas Premier partner, which sells a modest amount of Veritas software, but is, nonetheless, making the company's software one of its strategic platforms. And it's not alone.

"We've become unabashed fans," says Hank Johnson, vice president of infrastructure solutions at Stonebridge Technologies, Dallas. "On a basic level, the company has recognized past deficiencies and improved things like serial key codes and order-processing. It has also linked sales authorization to certification, and on a more strategic level, proved that it's more than a supplier of point solutions and a true platform in itself." Distributors are on board as well: Pat Collins, senior group vice president of sales and marketing at Ingram Micro, considers Veritas a strategic partner.

For two consecutive years, VARs have heaped praise on Veritas. In both VARBusiness' 2001 and 2002 Annual Report Card (ARC) surveys, Veritas came out on top in the storage-management software category, beating the likes of CA, EMC, HP and Tivoli. One reason: sales momentum. Last year, for example, 96 percent of VARs surveyed said they expected their Veritas sales to increase or remain the same this year compared with last. (Nearly two-thirds of VARs alone said they anticipate an increase.)

Drilling down into the data reveals that partners love the company when it comes to product innovation, presales support and other areas. In those categories, Veritas' scores were first-rate. In fact, partners said their loyalty to Veritas was nearly as high as any of the 80 companies examined in the study. Beneath the solid showing, however, there were some weaknesses. For example, partners don't believe the company is communicating effectively. Nor is its e-business portal for partners very competitive. Most revealing, however, is the simple fact that for all its technical prowess and marketing savvy, the company's solution-provider program doesn't match up with the best in the business.

But don't expect wholesale changes just yet. Neither Sotnick, who replaced former vice president of channel sales Don Foster last month, nor Julie Parrish, senior director of channel marketing and longtime 3Com channel architect, are looking to make dramatic changes to the Veritas channel program for the time being. That's not to say they won't make modifications,just not sweeping ones. The reason: Sotnick genuinely believes partners are generally pleased with Veritas. In addition to the company's ARC wins, for example, he points to a recent study completed by NFO Prognostics for Veritas. It found that 94 percent of VARs surveyed recommend Veritas to their customers more often than any other brand. Granted, the study was paid for by Veritas and included only 138 resellers, all of whom were Veritas loyalists. But the veracity of the study notwithstanding, Veritas rightly believes it has fans within the channel. Turning them into top performers, Sotnick believes, is now job No. 1.