Financial Director: You spent many years at Compaq UK in charge of an enormous subsidiary of, effectively, a manufacturing company, albeit the biggest one in a fast-moving industry. What are the key things that you took, as an FD, from your experience there?
Howard Rosen: When I joined Compaq in 1985 it was a tiny, unknown startup: not yet two years old in America, just a few months old in Europe. We had one product, no distribution channel and certainly no brand name.
We took risks and grew the business to $1bn in nine years – faster than any other company in Britain. It was great fun – the industry was exciting, the company was exciting, being successful was exciting. But the paradox was that by the time we reached $3bn (year 14) the very scale and complexity had reduced the fun – by then I had a department of 300 people and my time was consumed with meetings and routines; it felt very hard to make a significant difference to the company. But it was a truly unique opportunity to go from startup to $3bn within the same organisation and the personal evolution that that required: from hands-on to delegated to departmental to divisional management – from no staff to 300 staff.
FD: Many IT companies are experiencing odd financial results. For example, Dell has recently missed estimates and Compaq itself has had its downs since the Digital acquisition. What are the key financial drivers in the IT industry, and what should IT FDs be doing to cope with such big fluctuations?
HR: I guess all industries go through a life-cycle; the computer industry has been through its wild growth phase and is now nearing maturity – growth has slowed and it is increasingly difficult to differentiate the products.
So the game is increasingly about supply-chain management, logistics and well-managed product transitions; for FDs that means grinding away at the cost base and working capital, especially inventory.
FD: AltaVista presumably moved on to your radar after the Digital deal (it was created by DEC). As Compaq UK FD, how did AltaVista in particular (and dot.coms in general) appear to you then? How has your view changed now you’re at the company?
HR: AltaVista was indeed developed by Digital, which became part of Compaq, but at that stage it was a US-based phenomenon, so I never came across it directly in my role as FD of Compaq UK. However, I looked enviously at the dot.com world as it showed all the characteristics I had so enjoyed at Compaq in the early years – rapid growth, unwritten rules, limitless potential: a land-grab underway. AltaVista particularly appealed due to its well-known but underdeveloped brand in Europe – and it is exactly as I had imagined: great fun!
FD: What are the financial drivers at AltaVista? What’s the core business model?
HR: AltaVista’s core is to produce the biggest and freshest index of content on the Internet, through our unique search technology. Now we are leveraging that position into local language, local index, local content sites across Europe – we have already launched sites in English, French, German, Swedish, Italian and Dutch since setting up AltaVista Europe last September. The business model is to use the massive traffic to these sites to generate revenues from advertising and e-commerce activity.
FD: Seeing all these dot.com companies float at (in some people’s view) vastly inflated prices must be interesting from your seat at a wholly-owned subsidiary. What’s your view on the sky-high valuations placed on dot.coms?
HR: All through history new industries have been regarded as overvalued initially: railroads, electricity companies, car companies, computer companies.
I clearly remember the pundits being amazed when Microsoft reached a valuation of $50bn in the early 1990s but now it is worth 10 times that – so was it overvalued then? I don’t think so. And the Internet is a fundamental change at least as significant as those industries. Having said that, there will be failures and some individual stocks I think are vastly overpriced – you have to spot the winners.
FD: What are the key differences between running the finances at a “real-world” operation such as Compaq UK and a “virtual” organisation such as AltaVista?
HR: In many ways it is very similar – evaluating investment opportunities, building the business plan, delivering the business plan, monitoring performance, cash management, risk management, financial reporting etc. But it is great not having to make things, warehouse things and ship things.
FD: Now you’re getting to grips with what drives these dot.coms, what advice would you give to other FDs who are trying to plan an Internet strategy? In financial terms, what are the biggest benefits and pitfalls?
HR: Well, the window is already closing. The days of being able to build a new world-scale dot.com brand from scratch are fast evaporating – or, it is getting mighty expensive, at least. The early investment phase requires increasingly deep pockets and courage, especially as existing companies in most industries are learning how to leverage the Internet themselves.
The biggest thing I have learned (or more precisely, re-learned) is the need for speed – since many of the rules remain unwritten, it is more sensible to launch and then modify than it is to plan and plan with the delay that brings.