The Hottest CEO In Tech Steve Bennett has led Intuit through one of the industry's most spectacular makeovers. Now he's aiming to conquer the last untapped market in software.
(Business 2.0) – He was about to meet his new boss--and he didn't have good news for him. A seven-year veteran of software maker Intuit, Larry King Jr. had been running the company's payroll outsourcing business for only a few months when Steve Bennett was hired as CEO. The operation was a mess. It was losing money. Its technology was outdated. Execution was grindingly slow, and nothing was documented. The Intuit management team had thrown tough problems at King before, but he had no illusion that this would be an easy fix. Neither, he decided, would the new chief. He encouraged Bennett to tour the operation.
After his walk-through, Bennett sat down in King's office. The Intuit vet braced himself. "Larry, let me tell you something," Bennett began. "I've had 23 years of GE experience, and I can tell you that your operation is a classic, classic process-excellence need."
King gazed at Intuit's new leader. Bennett, then 46, looked like a casting agent's idea of a modern CEO: tall, tanned, trim, blue-eyed. His demeanor was authoritative but informal, almost folksy. And King hadn't the faintest idea what the man was talking about.
"OK," he said. Then a pause. "What's process excellence?"
The tale of Steve Bennett and Intuit is the story of one of the most successful makeovers in recent corporate history. It is also--in its opening scenes, at least--a comedy of mutual incomprehension. Some of that, perhaps, was inevitable. Bennett had spent his entire career at General Electric and was steeped in its culture of results and its near-religious faith in process excellence (basically shorthand for the so-called Six Sigma quality-control techniques used by GE and others). When he parachuted into the top job at Intuit in January 2000, he landed in a $900 million Silicon Valley institution that still ran as haphazardly as a startup. But the newcomer soon made himself understood. In Intuit's troubled payroll business, for example, Bennett dispatched a Six Sigma consultant who helped King double revenues in two years. And during the next 40 months, he remade an indecisive, complacent organization into one of the most spectacular performers in the industry.
Consider the numbers. Since August 2000, the beginning of Bennett's first full fiscal year as CEO, Intuit's revenues have expanded annually at double-digit rates. Operating profits have jumped between 40 and 50 percent each year, and operating margins widened steadily from 14.6 to 22.4 percent. That would be robust performance in a growing market. In the midst of the worst tech crash in living memory, it's positively stunning. The stock market certainly seems to think so: As of early May, Intuit had become the eighth-largest software company on the planet in terms of market capitalization, ahead of far-higher-profile companies such as BEA Systems, PeopleSoft, and Siebel Systems.
While Bennett is barely known outside Intuit's Mountain View, Calif., headquarters, that is beginning to change. "You'd have to call Steve Bennett one of the top tech managers out there," says David Farina, an analyst with William Blair & Co. (which has done no recent investment banking business with Intuit). "Look at the numbers. They're pretty incredible." William Sahlman, professor of entrepreneurial management at Harvard Business School and coauthor of an HBS case study on Intuit, compares Bennett to eBay's Meg Whitman. And then there's Scott Cook, the 50-year-old tech pioneer who co-founded Intuit 20 years ago and is now chairman of its executive committee. He has more at stake in his company's continued prosperity than anyone, and he fairly gloats when describing the man he hired. "He may well be the best new CEO in America," he says.
For all its problems, the company Bennett inherited in January 2000 came with two important strengths: a fiercely loyal customer base and three of the most powerful brands in retail software: Quicken, the personal finance program that is all but synonymous with Intuit, has 15 million active users and owns 73 percent of its market. TurboTax holds 81 percent of its market. And QuickBooks, the accounting program for small businesses, has an 84 percent share.
All are legacies of Cook, who insisted from the start in 1983 that Intuit's products be designed for nontechies. A graduate of the marketing department of Procter & Gamble, Cook made a fetish of usability: In an episode that has risen to the status of Intuit creation myth, Cook tested the original Quicken on a bevy of Junior Leaguers, because they were the least tech-savvy people he could think of. Intuit managers followed customers home from stores to watch them install Quicken. They cold-called them from product registration cards to ask for suggestions on improving the software. As they drove to work, they listened to tapes of customer service calls.
Cook insisted that his programmers incorporate what they learned into future versions. He called it "customer-driven innovation," and it made Intuit software dominant wherever it competed. Customer-driven innovation is why TurboTax leads users through a nonthreatening "interview" rather than forcing them to confront tax forms directly. And it's why QuickBooks's user interface resembles a checkbook rather than traditional double-entry bookkeeping--because most small-business owners are not trained accountants. "Eleven years later some traditional accounting software companies still tell me we're doing it wrong," Cook laughs.
By the late 1990s, however, customer-driven innovation was no longer enough. Listening obsessively to customers, after all, doesn't necessarily alert you to new markets. Internally, the customer-friendly culture had congealed into a feel-good, consensus-hobbled management style that shied away from hard choices. Employees of the time describe the atmosphere as "nurturing." (In fact, one of Bennett's CEO predecessors, the popular Bill Campbell, was nicknamed Coach.) But there were few incentives to excel. The compensation system, more appropriate to a government bureaucracy than a tech company, made little distinction between top performers and deadwood, awarding almost everyone the same annual raise. "We were slow and indecisive," Cook recalls. "We weren't tough." In late 1999, when Campbell's replacement washed out, Cook went looking for a new CEO.
Bennett was not an obvious candidate. While Jack Welch's GE is legendary for exporting CEO-caliber execs--Home Depot's Robert Nardelli and 3M's Jim McNerney, to name just two--Bennett had zero software experience. "I'm not a technology guy," he says without apology. Then there was the culture thing: In 23 years at GE, he had fully internalized its relentless drive, its emphasis on accountability, and the let's-measure-everything philosophy of Six Sigma; Cook knew that Bennett would hit laid-back Intuit like a locomotive. To complicate matters, Bennett held the choice job of executive VP at GE Capital, and just days before Cook's headhunter called, he had gotten the biggest raise of his career.
Still, Bennett found he couldn't turn Intuit down. He liked the strength of the company's brands, which fit with the Welchian principle of competing only in businesses where you can be No. 1 or 2. He also saw the offer as a chance to prove to himself that he could thrive outside the GE hothouse. "I wanted to see if I was more than a one-trick pony," he says. For his part, Cook was unconcerned by Bennett's slender tech experience and the Kulturkampf he would undoubtedly set off. In fact, he saw those as advantages. He wanted someone to shake things up.
That's exactly what he got. In his first six weeks on the job, Bennett visited dozens of locations, addressed the bulk of Intuit's 5,000 or so employees, and had one-on-one conversations with, by his reckoning, at least 100 of the company's top executives.
The exchanges were often eye-opening. In one early meeting, Bennett reviewed budget proposals from a parade of department heads. The first told him that the department had spent $15 million last year and needed $17 million next year. The head went on to describe how the additional $2 million would be spent. "So I asked what they spent the $15 million on, and the person didn't know," Bennett says incredulously. "I thought, this executive has a problem. But every one of them gave me the same answer. They didn't know." Zero-based budgeting, a bedrock practice at GE, was apparently as foreign to Intuit's culture as Samoan slap dances.
Two months into his tenure, Bennett used his first public appearance, a Wall Street analysts meeting, to alert Intuit employees that things were going to be different. "I stood up and said, 'With our brands and customer base, we should be doing much, much better,'" he recalls. "'We're underperforming.'" The reaction? "They thought I was smoking dope," he says. "The mind-set was, 'Let's budget 10 percent, grow 11 percent, and aren't we great?' We should have been growing 20 or 30 percent."
Bennett's first task was to jolt his new colleagues into expanding their definition of the possible, to engender what he calls "bullet-train thinking." (The phrase comes from the creative problem-solving that arose when Japanese engineers were challenged to build a train that could go from Tokyo to Osaka in three hours instead of six.) A few weeks later, at a meeting of the company's top 200 executives, Bennett got his chance. He presented a document titled "Steve's Dream for Intuit," a set of highly ambitious growth targets for revenues, profits, stock price, and other yardsticks. Rich Walker, head of Intuit's accountant services group, was one of those present. "My first reaction was 'Oh, my God, how are we going to do that?'" he recalls. "The next reaction was 'Oh, my God, wouldn't that be great?'"
Before the dream could become reality, of course, a lot of cozy Intuit practices had to become history. Within weeks of his unnerving meeting with the department heads, Bennett had trashed Intuit's old budget system; today execs with P&L responsibility must justify every dollar they plan to spend. He replaced the old system of guaranteed raises with a pay-for-performance model. He laid off 60 employees at money-losing Quicken.com and sold weak units. He also increased the number of execs who report directly to him from 8 to 20, seeing that as a way to drive change directly and, incidentally, keep himself from micromanaging. Any CEO with 20 direct reports, after all, has no choice but to delegate. "I work maybe 50 or 60 hours a week," he says. "There are other things I want to do with my life." (Like golf; a 3.7-handicap player, Bennett got in 102 rounds last year.)
Bennett--along with a trusted handful of GE executives he lured to Intuit--also began to push process excellence (PE), a commitment to customer satisfaction built on Six Sigma surveying and quality-control techniques. Six Sigma is rare at software companies (see "Why Techies Don't Get Six Sigma," opposite), and it led at first to much head-scratching at meetings with Bennett's lieutenants. Tom Allanson, hired from GE to run Intuit's consumer tax group, spent three months of energetic, acronym-laden whiteboarding with his staff before they worked up the nerve to tell him they had no idea what he was talking about. Allanson dumped the jargon and started over from scratch.
With some of the firm's software engineers, bemusement gradually turned to resentment. A key issue is that coders must submit their work weekly to PE review, a violation of the princely status most Silicon Valley engineers are accustomed to. Some grumble that reviews are a wasteful bureaucratic burden; one, who wished to remain anonymous, recently claimed that colleagues have talked of resigning once the economy picks up. "It stopped being fun working here," this programmer said.
Most other Intuit employees have come around, however, as they've begun to see the payoff of Bennett's disciplined approach. One of the most fervent converts is Larry King. Now fully clued in to the meaning of process excellence, King saw Six Sigma help make his payroll division one of Intuit's stars. When Bennett came onboard, it took King's unit 45 days to get a new customer up and running. Using Six Sigma to analyze the operation, King mapped out every step of his unit's order process, filling dozens of yellow stickies that he later pasted on a conference room wall. He and his team then tossed every one that wasn't life-or-death essential on the floor. Two-thirds of the stickies ended up on the pile, and King had a clear vision of how to streamline order fulfillment. Now, Intuit payroll customers wait just 7 days for service. "This has changed me as a manager for the rest of my life," King says.
Similar cubicle conversions popped up all across the company. Intuit's accountant services group used Six Sigma customer survey techniques to price new products. "Before," Walker says, "we'd have sat in a room and come up with informed guesses." The new process, he says, yielded "uncannily" precise predictions of how variously priced packages would sell.
Many around Intuit also found themselves won over by Bennett's direct managerial style. Dan Gilbert, chairman of former subsidiary Quicken Loans, recalls being frustrated by the old regime's continual groping for a strategy. "There was a lot of vagueness at Intuit," he says. Gilbert eventually bought the business back from the company, but not before coming to appreciate Bennett's leadership. "No bullshit, right to the point," he says. "Frankly, Steve Bennett was our kind of guy."
Firing up the troops is one thing, but Intuit desperately needed to start growing again, and Bennett had a plan. "When Steve came in, he said the QuickBooks group was a slow-growing unit and a giant opportunity, and we should be growing much faster," Cook recalls. The evidence, as it happened, had been staring Intuit in its customer-focused face: The standard version of QuickBooks is designed for companies with fewer than 20 employees, yet 5 to 10 percent of its most loyal users were larger--some had as many as 200 employees. In fact, more of them used QuickBooks than brands of software intended for companies their size.
As Bennett looked closer, he realized there was room for more than just an expanded version of QuickBooks. Many small businesses still run with pencil and paper, and of those that embrace PCs, few have moved beyond spreadsheets or simple accounting programs. Intuit estimates that North American small businesses, which it defines as companies with fewer than 250 employees, will buy $7 billion in business software and $11 billion in related services this year. Analysts expect double-digit growth for years to come. In an era when corporate IT budgets have been squeezed dry, this was a rare thing: an expanding market for business software.
Even so, by mid-2001, Intuit had made no move to capitalize on it. The executives in the small-business group dithered over the business model, organizational design, partnerships, and so on--even as Microsoft, Oracle, and SAP announced that they were entering the market. Losing patience, Bennett went looking for a replacement to run the group. He soon found one in a former colleague, 20-year GE veteran Lorrie Norrington, whom he lured away with the help of a $750,000 signing bonus and a $5 million interest-free relocation loan.
In her new job, Norrington took all of a month to announce, essentially, that Intuit intended to become the SAP or Oracle of small business. The company would offer software and services for a wide variety of enterprises, from the smallest shops to those with a couple hundred employees. Intuit would help not just with accounting but also with payroll and benefits, keeping track of customers, and managing computer systems. It would also customize its software for specific kinds of businesses, like accountancies or construction firms. The initiative, she explained, would be called "Right for My Business."
Norrington first turned her attention to QuickBooks. With nearly 3 million users, the accounting program was the obvious beachhead for a push deeper into the small-business market. Bennett had already ordered up a new version--QuickBooks Enterprise Solutions--for businesses with more than 20 employees. Within 18 months, Norrington added 13 more "flavors," and by the end of this year, QuickBooks will have sliced the accounting market 25 ways, with special editions for the smallest small companies and larger small companies, and specific versions for retailers, distributors, contractors, and nonprofits.
In another example of bullet-train thought, Intuit agreed to open QuickBooks's source code to independent software developers. The developers write highly specialized applications for specific businesses; with an open interface, they can easily tie their programs into QuickBooks and other Intuit software, creating a kind of small-business enterprise-resource-planning package. To recruit developers, Bennett, Norrington, and Cook have been stumping conferences, including Intuit's first-ever QuickBooks developers conference, held in November near San Francisco. One of the roughly 6,500 companies actively developing applications is Clip Software in Ijamsville, Md. Some 8,000 landscape maintenance outfits use Clip to streamline tasks such as scheduling fertilizing and making estimates on new jobs. CEO Dave Tucker explains his partnership with Intuit this way: "We don't want to write general ledger or payroll applications. Intuit can do that."
To serve the largest and richest companies in their target audience, Bennett and Norrington have begun acquiring small companies that make fully integrated suites of business applications for specific industries. The packages, which Intuit sells for as much as $100,000 per customer, now cover property management, the public sector, construction, and distribution, and there are plans to buy as many as six more in different industries.
These acquired companies get the full PE treatment. "The day we started with Intuit, our process-excellence person started with us," says Michael Potts, the former CEO of the Flagship Group, a Denver software firm Intuit bought in June 2002. Like most small software companies, Flagship had never given a thought to business process. Now Potts can't imagine life without PE. For example, he had assumed that when Flagship lost bids, it was because the customer preferred the winner's technology. But the new PE czar ran a survey of lost clients and found that the decisive factor was actually price. "If you'd asked me a year ago, I'd have said I knew all this," Potts says with a grin. "But I didn't really."
Other software companies, of course, have no intention of allowing Intuit to become the SAP or Oracle of small business. SAP and Oracle themselves, as it happens, have announced plans to offer scaled-down versions of their software for small businesses. Microsoft, however, is the most formidable competitor. Although QuickBooks drove Microsoft accounting programs like Profit (1993) and Finance Manager (2001) off the field, the world's largest software company is nothing if not relentless. Gates & Co.'s $1.1 billion acquisition in 2001 of Great Plains Software, which caters to businesses with up to 1,000 employees, shows just how serious Microsoft is. At the moment, its sweet spot is among clients somewhat larger than Intuit's. But the two are converging on clients in the middle, and when they do, Microsoft will be fierce competition.
On the other hand, Bennett has turned Intuit into a serious competitor itself. The company is now much more agile, driven by 6,800 (mostly sincere) converts to process excellence. But the decisive weapons in any competition with Microsoft may well be the ones Bennett inherited.
To understand why, consider Lone Star Doughnuts, a Houston company that runs seven Krispy Kreme shops and distributes to 350 hospitals, grocery stores, and other outlets. As it expanded, it outgrew QuickBooks a couple of years ago and went looking for something new.
At that time, says Jason Gordon, Lone Star's CFO, Great Plains software seemed his best choice, since it easily handled the number crunching. But it cost $85,000, required consultants to install, and would force Lone Star to retrain the six people who would have to use it. Then, just before signing the purchase order, Gordon heard that Intuit was about to introduce a heavier-duty version of QuickBooks known as Enterprise Solutions. As soon as it was ready, he bought it. "I just plugged it in and was ready to go." No consultants, no retraining. And it cost just $3,500.
In this arena, Intuit's brands remain the ones to beat. The products' reputation for friendliness has apparently survived the flap caused by a copy protection feature introduced on TurboTax this year. "Customer-driven innovation is our heart, and strategic and operational rigor is our brain," Bennett says. "This company once had lots of heart but no brain. By combining the two, we can perform at a much higher level." And now no one at Intuit wonders what he means.
Eric Nee has covered the Valley for 19 years.