NetApp - Dave's Blog

NetApp Future History from 2003

This is an unusual blog entry because instead of telling a short story in 700 words, I'm releasing a twenty-page strategy document that I wrote in late 2003.

I call it a "future history", because I wrote it in the past tense, as if it were a history of NetApp focusing on the period from 2003-2007. My goal was to describe as accurately as possible what we needed to accomplish over the next few years, and I thought that writing in the past tense, as if it had already happened, would help make the vision more real for people.

This paper started as a whine. I was confused about NetApp's vision and strategy, and I figured if I was confused, then many others probably were as well. Late 2003 was a confusing time. We were just reaching $1 billion in revenue for the second time. The first time had been about 3 years earlier, in 2001, at the end of the dot-com boom. And then the tech crash pummeled us back down to $800 million. It didn't feel like a 20% drop. We had been doubling annually for many years, so our whole planning process was focused on reaching $2 billion. Going from the $2 billion we expected down to $800 million was traumatic.

For the three years after the crash, we had a clear mission: Get back to where we had been—reach a billion again, with a reasonable profit margin. But when we succeeded, it wasn't clear where to go next. Before the crash, our goal had always been to double, but after a three-year struggle to return to a billion, doubling annually didn't seem reasonable. This is what triggered my whining, and I started asking lots of questions throughout Dan's staff. What could we hope to accomplish? Given the market situation, what did we need to accomplish?

This paper is the result of my questions, and we shared it with every employee at NetApp. Some people were concerned about being so open with our strategy, but I am convinced that a culture of openness and inclusiveness has helped fuel our success. Three years later, I'm proud to say that we have achieved most of the goals that we set. The paper set out a $2.5B goal for this fiscal year, which ends in April 2007, and most analysts predict that we will exceed that. The run-rate of our last quarter is well over that, so we have declared victory and moved on.

I am sharing this Future History publicly because I think it is an interesting case study for people to see how we put this vision together, and what we thought we were trying to accomplish. Please keep in mind that this is three-year-old strategy, so don't assume that everything in here came true! On the other hand, a surprising amount did, which shows the power of being clear about your vision as a company, and sharing it as broadly as possible with your employees.

NetApp Meets Monopoly and SimCity

Every year we get our top 100-200 people together for a three day Senior Leaders Offsite. The specific goals are different each year, but the general idea is to help people understand our high-level vision and strategy so that they can run their piece of the company more effectively.

Lately Dan’s staff has been working on our strategy to reach $6 billion and beyond, so this year’s goal was to help everyone understand the key success factors and pitfalls that we foresee over the next several years. We could have spent hours on stage with PowerPoint slides explaining our beliefs in gory detail, but we thought that letting people play a computerized business simulation of NetApp would give them a much more visceral understanding of the strategy. Think of it as NetApp meets Monopoly and SimCity.

Each team consisted of five people making the same sorts of decisions as our executive staff. Should they cut investment in new products to fund marketing? Should they increase the direct sales force or sign up more resellers? There were also confounding events like product delays and competition from disruptive startups. (We didn’t build the model ourselves – we worked with a company that specializes in business simulations.)

I didn’t get to play, since I helped design the game, but it was fascinating to watch and coach. I worked with one team that was trying to understand why their revenue had fallen behind, despite strong investments in new products. They had slashed their direct sales force, hoping to replace it with resellers, but they didn’t take into account the time it takes for new resellers to get up to speed. Because of the product investments, the few customers they did have were extremely satisfied. We could have PowerPointed till we were blue in the face about the tricky balance between direct and indirect channels, but nothing brings a lesson home like watching your market share plummet as a result of a bad decision.

Part of what made the simulation so interesting is that the teams weren’t competing against the computer, but against each other. There are no “right answers”, because what works best depends on what the other teams do. If you invest heavily in brand awareness, that might give you an advantage, unless everyone else does the same.

Early in the game, I noticed that engineers argued for more product investment, and sales people pushed for channel programs and marketing, but that changed as the game wore on. One sales VP told me, “My table didn’t have any engineers, so we completely underinvested in product development. Lots of sales people but nothing to sell.”

By the end, the discussions were much more balanced. Given that our goal was to help people understand the big picture, what made me happiest was hearing how much the arguments at all of the tables sounded like the arguments we have in Dan’s executive staff meetings.

NetApp Values

After my blog on company values, one reader asked for a link to NetApp's values statement. There you go.

When Dan joined NetApp, the first value he focused on - long before we had an explicit, written list - was Trust and Integrity. At the end of his first staff offsite meeting, Dan said, "I want everyone to rank our candor. You know each other better than I do. Did people say what they really believe? Did you? I won't ask you to explain your score, but I'm going to go around the room, and I want everyone to give a grade from one to five - five is good - on how candid you think we were with each other during this meeting."

NetApp had gotten to be a pretty political place before Dan joined, and that was something he wanted to quash. He didn't mind at all if people disagreed with each other - that is a healthy part of finding the best path forward - but he wanted us to do it in the open, to each other's faces.

We went around the room, and the average score was two, maybe two-and-a-half. Dan didn't beat us up, and he didn't ask for details; he just said, "I see we have some work to do. This is something that's important to me."

The value Create a Model Company represents our explicit choice to build a company that would have a long-term presence in the market. Many entrepreneurs plan to "flip" their startup, to invent some intellectual property and quickly sell it to a large corporation. There's nothing wrong with that, but you should be clear about what you are doing. If you are building a startup to flip, you would probably focus 100% on the technology, and on getting that first product out the door. Little need to spend time on corporate values or long-term relationships with customers.

I remember Tom Mendoza's reaction to the first draft of our values. Dan had convinced his staff to spend time at an offsite to discuss our values and write them down, and Tom said, "These are all so touchy-feely. Trust, Customers, Integrity, Teamwork - I certainly can't disagree with any of them - but where does it say that we spend our time doing stuff that matters, and not just sitting around feeling good about each other?"

That's when we added Go Beyond and Get Things Done! to the list. Tom always drives people to action and I love that our written values reflect his passion about this.

In the end, a company's true values are what employees actually believe and how they actually behave, not some list on a piece of paper. Written values can be destructive and lead to cynicism if they don't align with belief and behavior, but if they do, then they can help reinforce the values, especially with new employees.