Notes from our Strategy & Growth Roundtable with Dave Hitz

By: Adrian C. Ott

I had the opportunity to interview Dave Hitz, co-founder and Executive VP of NetApp recently for the Harvard Business School Association of Northern California's Strategy Roundtable.

Dave is one of the few people on the planet that can say that he started and grew a business from zero to more than $3 billion today - quite an accomplishment. In addition, NetApp is an extraordinary company as it was rated at the #1 Best Company to Work for by Fortune Magazine in 2009.

Dave provided incredible insights about his experience as an entrepreneur and the risks that come along with starting a business. Here are some the highlights of our conversation.

When asked about taking risks to start a company, he advised:

The risk of the upside failing is actually not that bad, it's the risk of the bad things on the downside that people should focus on instead. He gave an example of his decision to start NetApp instead of pursuing his MBA. His rationale was that to get an MBA you remove yourself from the workforce for two years and pay a lot of money to a school. After two years, you graduate and get a job; about the same upside you would get if you stayed in the workforce. (not a huge upside.)

On the other hand, starting NetApp would also take him out of a paid position but the upside was huge. He surmised that if it didn't fly, the worst thing that could happen was that he would have lost some income and time out of a paid job. He could still return to a paying job. "But I would have learned a lot." Key point: the downside risk was not that bad, and the upside was huge.

For anyone person thinking about or starting a business during a downturn, he said:

"I have three words of advice that I think should be the guiding principle for somebody trying to get into business and the three words are: 'good enough considering'. I think a lot of customers out there, whatever it is they were thinking they would do, their plans are different and they are going to choose something that is 'good enough considering' instead of whatever they were going to choose."

On hyper-growth, Dave said:

"One of the things we learned in hyper-growth, it is next to impossible to install any kind of business process, business system, IT solution that was likely to last for 3 years and the reason for that was that most IT solutions are not designed to scale by a factor of ten. The difference between a ten million dollar company's processes, structure, business and a hundred million dollar - it's really different - and it is different again from a hundred million to a billion."

He went on to say, "So few companies grow that quickly. There's not really a market for products that will scale that much so you have to keep throwing the old one away and you get used to stuff being broken… We would do new hire training and I would tell people,' Look, everything around us is broken, here is the reason, it's a sign of success and you might as well get used to it'."

Elaborating on 'broken stuff' during hyper-growth he referenced the metaphor:

"A stitch in time saves nine would seem to imply that if you see something broken you should fix it…Suppose you have twenty stitches but only one of them is going to come undone and you don't know which one, now the math says you can fix them all and that took you twenty stitches or you can wait and see which one broke and it only took you nine; sometimes it's better just to let stuff break, figure out what broke and fix it as long as it's a low enough percentage of things that are going to be so badly broken that you actually need to fix it. ..in that kind of a hyper-growth, you just can fix everything."

Expanding on hyper-growth, he added:

"You can get to $100 million basically instantly, from $100 million to $1 billion it looked like the best you could do was double per year, and then after a billion it seemed like it slowed down to about 50% per year...in general, if you're growing your employee base, is the best you can do."

When asked about any regrettable past mistakes, Dave advised:

"I have a big belief that the thing you do starting out is a good thing for its time, just like the business system that you put in and it was good enough for three years and then you have to rip it out and put in another one but that doesn't mean it was a bad idea. So a lot of the decisions I've looked at were problematic but we survived them and I think if we just spend a whole lot more on that something we would have lasted another year but that would have been money from when we were really little and didn't have that much money and maybe we would've gone under and so I'm very hesitant to second guess the kind of success that we've had."

I'd like to thank Dave for sharing his interesting experiences and stories.