The world according to Tom Siebel

Tom Siebel picks up a sheet of paper and begins reading out loud: "We're SAP. We dominate the most important category of enterprise software. We intend to control all the enterprise software our customers use. We will select a handful of partners to work with. If our partners cross us, we will crush them into dust."

The chairman and chief executive of customer relationship management vendor Siebel Systems stops reading and, for a man accused of never smiling, actually laughs. "I didn't write this, OK?"

He says he's quoting Hasso Plattner, co-chief executive of rival software company SAP, to illustrate how differently Siebel approaches the enterprise software market.

"We saw that there was a big opportunity out there, so we set out to build what we call an ebusiness ecosystem," claimed Siebel. "We have hundreds of companies that we partner with very actively - from systems integrators and training providers, to other software companies."

His belief is that the 14,000 partners complement Siebel's 8000 full-time staff and ultimately help deliver better customer service.

Some of the company's partners compete with Siebel, but it's apparently not a big deal. "If one of my customers says that they want to buy a product configurator from Oracle or Trilogy then that's not a problem," insisted Siebel. "I've taken the reverse approach of those companies that want to keep every penny the customer spends for themselves. If our customers want to work with Oracle, I'll make certain our products work together."

Understanding that businesses want functionality more than they want the simplicity of a single supplier is the key to his success, he said.

Since Siebel Systems' flotation in 1996 - three years after Siebel sat down with co-founder Pat House and mapped out a master plan to dominate front-office software - the business has experienced phenomenal growth.

Revenues topped $1.79bn last year, an increase of 121 per cent over 1999 figures. Cash and investments totalled nearly $1.6bn last year, compared with $685m a year earlier. Unsurprisingly, Fortune named Siebel Systems the third fastest-growing company in the US.

The bigger picture

From Siebel's point of view, that's good, but it's not the whole story. "We're the fastest-growing software company in the history of the world," he boasted.

Even the current US economic downturn isn't cramping the company's style too much. "Last quarter was a $2.25bn business, which was a compound annual growth rate of 84 per cent" he said. "I think we will continue to grow substantially greater than the economy, and grow substantially more than the market." The aim is to gain market share, and the company will do whatever it takes to make sure that happens, according to Siebel.

But not everything the company does is driven by profit. The $2bn spent since 1998 on acquisitions hasn't helped the company's revenue figures. The shopping spree began with the purchase of Scopus Technology for $461m in 1998 and went on to include Janna Systems, OpenSite, Paragren and OnLink.

"None of our acquisitions had any meaningful revenue by our standards, and there was no significant top-line growth from buying them," admitted Siebel. "What we were interested in was the expertise, the customer relationships and the alliances they had."

He shrugs off the suggestion that some customers were less than happy with the way some of the technologies acquired by Siebel Systems worked together.

"You're talking about Scopus, I guess," he said, suggesting it's something he's heard before. "What we did there was to completely rewrite the product to the extent that it doesn't exist any more. We're doing the same thing with Janna. Our model is that when we buy these companies, we end the life of the product. We re-purpose it and write it into our product so that the old product disappears. I can't think of a way in which they could be more tightly integrated."

Siebel is also untroubled by the raised eyebrows at his company's purchase of auction specialist OpenSite for $500m. The price tag seemed inflated for a software startup with revenue of just $8m and debts of $12m.

"You have to understand where the market was at that time," he explained. "OpenSite was the leading provider of auction systems and could have gone public for half a billion dollars instead of selling itself to us. We're generally known as a company that's exceptionally conservative and price sensitive in our acquisitions strategy."

Money matters

Indeed, Siebel has a reputation for being careful with his cash. Now 47, he launched Siebel seven years ago. By investing his own money, persuading early employees to take stock options for 18 months in lieu of salaries and renting "crummy" (a favourite word) offices in East Palo Alto, former murder capital of the US, he launched the company without any venture capital. Independently wealthy, he had already amassed a small fortune.

Back in the 1980s, Siebel was employee number 40 at another fledgling software company called Oracle. Within seven years he had progressed from software engineer to the company's top-performing salesman, and became general manager of direct marketing. He left in 1990, the first year that Oracle missed earnings estimates.

With several million dollars of vested stock options, Siebel went on to become chief operating officer and chief executive of multimedia software maker Gain Technology. When that was acquired by Sybase, Siebel reportedly pocketed $10m.

Finding himself an unemployed millionaire, Siebel's mind turned to an internal sales automation system he had designed and built during his time at Oracle. While he believed that the product could sell commercially, Oracle chief executive Larry Ellison did not. Ellison has been trying to make up for his lack of foresight ever since, claimed Siebel, by waging war on his former employee's company.

"You know, Larry Ellison has been committed to putting me out of business for about nine years," he said. "In terms of applications software, I believe we're two, maybe three times bigger than Oracle, so if he's going to do it, he'd better do it quick."

Siebel doesn't seem to take any of this personally, and is generous in his praise for his would-be business nemesis. "Larry is an exceptionally talented manager, one of the great chief executives in the business, a great visionary and a maker of insanely great technology," he said.

Nevertheless, Siebel is critical of Ellison's business practices, claiming that the Oracle chief's "win-at-all-costs attitude, questionable ethical standards and unusual strategy of blaming customers for problems" were instrumental in Siebel's decision to leave the company in 1990. "I learned how to run my business by observing what Oracle did badly and doing the opposite," he explained.

Core values

The company Siebel created is centred on the values of business ethics, fiscal responsibility and corporate professionalism, and he said that they are stamped throughout the company. He pointed to a booklet on the desk called Siebel Core Values and said: "Of all the literature you might look at, this is the most important."

The booklet was written by 70 of the company's original employees who were given three days offsite to come up with a description of the Siebel Systems culture.

The result was the four cornerstones of business the Siebel way. "First there's our focus on customer satisfaction. We regard it as a privilege to serve our customers and we make their satisfaction our priority," said Siebel.

"Second, we comport ourselves with the highest levels of business ethics and professional courtesy and have zero tolerance for legal or ethical breaches. Third, we have a bias for action and fourth, professionalism is built into everything we do. That's the way we dress, the way we treat guests, the way we treat customers, the way we build products."

This means that Siebel employees have ditched the relaxed Silicon Valley dress code, and are usually suited and booted. Siebel himself, always immaculately turned out, believes that wearing a sharp suit reflects the company's dedication to excellence and quality.

He bristles when reminded of press coverage that suggests he's a control freak. "I'm in the customer service business," he explained. "I don't mind dressing a little bit more formally out of respect for the customer. The message I'm trying to send to my employees is that they're in that business too."

The net effect is that Siebel claims some of the highest levels of customer satisfaction in the industry: recent internal reports show that 95 per cent of customers plan to purchase further products from the company.

"Something's obviously working, in that case," he said. "But to portray this company as a bunch of mindless automatons, cogs in a machine, or robots that come to work every day, is wrong. There's a whole building over there filled with engineers in jeans."

The wheat and the chaff

Siebel does engage in some controversial employment practices, however, most notably the annual cull of the bottom five per cent of the company's workforce.

"Many well-respected, well-managed companies such as General Electric and IBM rank their employees and take out the bottom 10 per cent once a year," said Siebel. "Do you think that makes [General Electric chairman and chief executive] Jack Welch a bad guy? Is it because he wants to make people homeless or because he thinks: 'Gee, who can I fire today?'. I don't think so."

Of his own company's annual cull, Siebel said: "These are all good people but for some reason there isn't a good fit between some of them. Jack Welch thinks the best thing for General Electric is to counsel those people out of the business, and we do exactly the same."

The 400 people 'counselled' out of their jobs each year might not like the practice, but Siebel isn't about to lose any sleep. "Sure, it might sound unusual in Silicon Valley, but it's also unusual to run a profitable business here," he pointed out.

"It's unusual not to have table football, it's unusual to see people dressed professionally, it's unusual not to allow people to have Labradors in the room when you're conducting an interview. We might be unusual, but the principles and management philosophies we use have built some of the world's greatest companies," he said.

So what's next for Siebel Systems? "There are areas in market automation that could allow us to fill our product line, and we're thinking about vertical niches," said Siebel. Most notable among these is the public sector - an area where Siebel is determined to extend his company's presence.

"In the long run it'll be our largest vertical market," he said. "There's local government, the Post Office, the US Post Office, tax, social security, veteran administration. E-government will be a big, big business for us and we're going after it very deliberately."

For the man himself this means more hours in the office, but he doesn't see that as a hardship. Given an estimated $500m fortune, he'd be forgiven for leaving the industry and devoting more time to his family. Not likely.

"I'm not motivated by money, and I'm fortunate to have the best job in the IT business," he said. "I have enormously productive partner relationships and customer relationships. Involvement in this company has been, and continues to be, the professional experience of a lifetime."