The Fresh Prince Of Software A second home in Hawaii, friendships with Colin Powell and Deepak Chopra, holiday parties for 700--life is good when you're Marc Benioff. He sells a boring product yet lives like a rock star. Then again, he learned from the best: his former boss Larry Ellison.
(FORTUNE Small Business) – Buy a ticket to the Tibet House benefit concert at New York's Carnegie Hall, and you'll find Marc Benioff next to David Bowie and Uma Thurman. Attend a lecture by the Dalai Lama and there's Benioff again--squeezed between former Senators and movie stars. Pick up the newspaper and you'll read about how he dropped $100,000 to rent out Pac Bell Park, or about the time San Francisco's mayor rallied for charitable contributions and Benioff wrote the biggest check in town. His recent holiday party featured Polynesian dance troupes and an invitation list of 700. He counts among his friends an A-list crowd including Steve Jobs (who Benioff says gives him business advice), Deepak Chopra (who invited him to his daughter's wedding in New Delhi), and Colin Powell (who sends him personal note cards). In Benioff's office is a framed photo of him with President Bush, to replace the ones of him with Bill Clinton and Al Gore up during the last administration. When he's not socializing, Benioff, 38, practices yoga or retreats to his oceanfront villa in Hawaii with his girlfriend, Lynne Krilich, and his golden retriever, Koa (which means "spiritual warrior" in Hawaiian), where they swim with pods of dolphins. "I like interspecies communication," he says.
That kind of fabulous rock-star lifestyle is even more noteworthy when you contrast it with the dullness of Benioff's profession. He founded a company called Salesforce.com that sells cheap software over the web. Technically it's known as customer relationship management (CRM) software, and even he concedes it's "mundane." CRM products are designed to help sales staffs track leads, follow deals through the pipeline, and forecast revenue. What makes Benioff's version different is that it's delivered entirely over the web. No packaging, no discs to install--the product is 100% virtual. A company can sign up with Salesforce.com and be running within hours. Another plus: It costs an average of just $65 per month, per user--far cheaper than many competing products, which can cost millions. Benioff must be doing something right. At a time when most tech businesses are suffering, he's managed to put together a client list of about 6,000 companies, including divisions of Nokia, Cigna, and GE. Just three years after its founding, Salesforce.com says it has already surpassed $50 million in revenue, and Benioff expects it to hit $100 million this year. The company just turned a profit, and there's talk of a public stock offering sometime soon.
Oracle CEO Larry Ellison has called this kind of software the "next big thing," but that plug makes more sense when you consider that Ellison, 58, is Benioff's former boss and was the first investor in Salesforce.com. (He gave Benioff $2 million to start the company.) In fact, Benioff is almost Ellison's alter ego. They worked together at Oracle, the database software company, for 13 years, during which they sailed to the Mediterranean on Ellison's yacht, visited Japan during cherry blossom season, spent Thanksgiving together, and even double-dated. Although Benioff takes great pains to distinguish himself from Ellison, saying, "I don't consider myself like Larry," he does admit that "Larry was very inspiring to me as an entrepreneur." The two surely seem to share more similarities than differences. Both are natural leaders, tall, technologically gifted, impossibly driven, and utterly arrogant. Ellison recently spent about $85 million to fund an America's Cup challenge and insisted on steering the yacht during qualifying races. Benioff, meanwhile, also seems to have no problem with shyness. In dozens of interviews with friends and colleagues who know both men, they were described with the identical words: brilliant, insecure, fun, egotistical, dynamic, tenacious, vainglorious, charming.
Given those similarities and their long friendship, it's surprising to find that the two rarely speak anymore. They had a falling-out in 2000, when Oracle started selling a product similar to the one offered by Salesforce.com. "He gave our ideas to the Oracle group," Benioff says, explaining his decision to kick his former boss and longtime supporter off the board at Salesforce.com. Although Ellison still owns 4% of the company, making him one of its largest shareholders, he no longer has any direct involvement. Worse, he's spent more than $50 million to back one of Benioff's direct competitors, a startup called NetLedger. Ellison, through an Oracle spokeswoman, declined repeated requests for comment.
Now that he no longer has his corporate godfather, Benioff's life has gotten interesting. With promising technology, a pile of riches, and an outrageous personal style, is he destined to be the next Larry Ellison? Or is he merely a junior-varsity version, a talented self-promoter who'll end up running a decent-sized company but nothing of the size and scope of his mentor?
All his life Benioff knew he would end up in the software business. At 14 he spent hours at RadioShack teaching himself how to use a computer. In high school he designed Atari computer games with names like Crypt of the Undead and Escape From Vulcan's Island. The money he made paid for a new Toyota Supra and put him through college. The day after graduating from the University of Southern California he started at Oracle, where he took orders coming in through the 800 number. Benioff was a star salesman and rose quickly to become one of Larry Ellison's favorites. At 23, he was the company's Rookie of the Year. Three years later he was promoted to vice president (the youngest ever). He was making $300,000 a year and, having long ago ditched the Supra, was driving a Ferrari Mondial Cabriolet--similar to the one Ellison drove. In fact, Benioff says, "Larry drove a cheaper one."
As an executive, Benioff performed a wide range of jobs at Oracle--sales, marketing, product development--but he was most admired as a "big-idea guy." During his tenure he worked on dozens of launches, many of which helped the company transition from selling products for mainframe computers to products for PCs. More than a technologist, Benioff was regarded as a master at generating buzz. He became known for staging splashy and wildly innovative product launches. When he introduced new software to help companies develop their own applications (which some called the "most boring product ever"), he kept it secret and played up the mystery. He titled it Project X and made anyone who wanted to attend the launch announcement get a wristband and sign a nondisclosure agreement three days in advance. The hype alone was enough to generate interest. People tried to storm the doors of San Francisco's Moscone Center, the elevators and escalators were stopped to control the masses, and Benioff got a standing ovation. Oracle had never seen anything like it before. (It has since adopted this kind of fanfare for almost all its launches.)
But while some at Oracle remember Benioff as an all-star, others--especially those turned off by such hype--didn't understand why he was considered so special. Critics say he wasn't much of a manager and couldn't run a group. "Marc was one of Larry's favorite children," says former Oracle president Ray Lane. "He had good ideas, but he didn't create a lot of revenue and had no respect for the organization or the political process." Some denounce the software he worked on, saying it was copied from Microsoft or Apple ideas. Others disapproved of the massive amounts of money Benioff spent. He was known to drop $1 million on a launch, including nonessentials like logoed jean jackets or hiring his masseuse to de-stress his team before the big event. A former colleague remembers a widely circulated sentiment: "Benioff spent more on T-shirts than he generated in revenue."
Benioff was always aware of those criticisms. "Nobody could figure out why I was going up the chain so quickly at Oracle," he says. "It's weird.... People said I was related to Larry Ellison ...that I was his nephew, or that Larry was my babysitter, or he mowed my parents' lawn." Bizarre rumors like that still circulate around Silicon Valley. "We heard that he washed Larry's car as a child," says Zach Nelson, who worked at Oracle and is now the president and CEO at NetLedger, a competitor of Salesforce.com.
In Benioff's defense, he's the first to admit that not all his projects were hits. "With a high rate of innovation there's a high rate of failure," he says. "Only through high risk can you get the jewel." But he insists that he did find some jewels while at Oracle: "My leadership was integral in the development and maturation of products that created a substantial amount of revenue."
Part of the resentment no doubt stemmed from Benioff's privileged arrangement. He was separated from the rest of Oracle and given a quasi-independent division to oversee. One employee called it "a startup with a lot of money and a great gym." For long periods he wasn't even in the main Oracle buildings, the famous blue-green towers called the Land of Oz, but in a smaller site across the street. His staff knew he was controversial within the company; one assistant described the geographical distance as favorable because they could "see the arrows coming." But his employees were also intensely loyal. "Marc has the best intentions and takes care of the people around him," says Steve McAdams, who worked for Benioff for five years and now heads up Oracle's Internet File System.
For all the rapid success, Benioff didn't feel fulfilled. By 31, he was rich, powerful, and lost. "I needed a change," he says, "but I didn't know what I wanted to do: Quit? Start a company? Take Oracle in a different direction?" Instead, with Ellison's blessing, Benioff took a six-month sabbatical and traveled to Hawaii and India. That trip spurred his interest in yoga and Eastern religions, which quelled his formerly avid interest for material things. The transformation didn't go over well with his colleagues. "He wasn't Mr. Spiritual when I met him," says Evan Goldberg, a close friend who used to work at Oracle and founded rival NetLedger. "He was happy-go-lucky and driving fast cars." Says former Oracle president Lane: "I didn't understand it. He was as likely to talk about getting in touch with yourself as he was to talk about a product."
Benioff explains his time off as a search for his own philosophy of leadership. "It wasn't about Judaism or Buddhism or Oracle," he says. "Ultimately it was about personal leadership--about me maturing as a leader of myself, my family, my company, my industry, and the world." Whatever it was about, when he returned from the trip he was ready for a new project. As he puts it, "There were certain things I wanted to show."
The idea for Salesforce.com actually struck in the fall of 1998, while Benioff was still at Oracle. It's never been clear exactly who came up with it, but a lot of people claim to have, including Ellison and a bevy of Oracle alumni who are now Salesforce.com competitors. Of course, Benioff has his own version. "I've never taken credit for the idea," he says; then, after a pause, "But it was my idea." Regardless, it's clear that Ellison encouraged Benioff to start a company to implement it. He was a generous boss, giving Benioff time off, investing $2 million, and agreeing to sit on the Salesforce.com board.
In March 1999, Benioff rented the apartment next door to his own and hired three developers, Parker Harris, Dave Moellenhoff, and Frank Dominguez Jr., to write the actual code. The space had spectacular views of both the Bay Bridge and Golden Gate Bridge, but they didn't have much else to work with. Benioff gave them a 2 1/2-page business plan, which he admits he spent only an hour on. The developers remember that they weren't impressed by it, but they took the job anyway. "Marc had Valley connections," says Harris. "Even if it failed it would take us to new places."
In those early days Benioff still had a position at Oracle. After he had returned from his sabbatical, he started a $100 million foundation there, called Oracle's Promise, which is dedicated to putting Internet computers into classrooms across the country. Ellison got all the credit; he was invited to meet with then-President Clinton and the First Lady at the White House and appear on The Oprah Winfrey Show. As Benioff described his job at the time, "I'm Larry Ellison's humility." But it didn't require much work--he showed up at noon and left at 3 P.M., enjoying his downtime. Every few days, he'd check in on the developers, often on his way in from a run. "What are you doing with my money?" he'd ask. (In addition to Ellison's $2 million, Benioff put up $6 million of his own.)
While the three programmers were busy writing software, modeling it after easy-to-use sites like Amazon.com and Yahoo, they were also getting a crash course in Benioff 101. They were invited to one of his holiday parties and told to dress comfortably, yet they arrived to see valet parking, guests in tuxedos, and carolers dressed in 19th-century attire winding up the staircase. Although Benioff was rarely in the office, he was already setting it up according to his own tastes. He hung a picture of the Dalai Lama on one wall. "I thought it was weird," says Moellenhoff, "but whatever makes him happy." The three developers weren't used to this way of doing business, or to a boss with so many New Age passions. "Yoga?" says Dominguez. "Give me a remote, a couch, and a beer, and I'm fine." Occasionally Benioff would surprise them by showing up, unannounced, with visitors such as a Wall Street Journal reporter or a group of Japanese businessmen to whom he wanted to show off the "laboratory."
By summer 1999 they had a rough product, and Benioff took a leave of absence from Oracle. If the new company didn't work out, Ellison said, he could have his old job back. The startup had just ten employees, including a handful of marketing and sales people (or "talkers," as Benioff called them), and it was about to hire a new CEO, former Oracle executive John Dillon. In September it signed up its first customers, and after that Salesforce.com exploded in dot-com fashion. By the time Moellenhoff got back from a three-week honeymoon in November the staff had doubled and the company had moved from the apartment and settled into a new 8,000-square-foot office. At the end of 1999, Benioff was finally ready to leave Oracle for good.
Salesforce.com held its official launch party on Feb. 22, 2000. The company had 200 customers by then but still minuscule revenues and no profits. That didn't stop Benioff from wanting to throw the best launch party ever. He rented San Francisco's Regency Theater and talked of booking rock star Lenny Kravitz, then settled on the B-52s. He hired a harpsichordist and positioned actors in cages around the room. The event drew more than 2,000 attendees. It was a few weeks before the Nasdaq hit its peak of 5,048, and dot-coms were as full of swagger as they would ever be. At one point Benioff made a promise to the crowd: "We are going to be a $100 million company three years from now," he said. "We're going to be the last dot-com."
His former mentor Ellison wasn't going to help him achieve that goal. Their once-close relationship came to an ugly end when Benioff was surfing around on Oracle's website and discovered something he found disturbing: Oracle had launched OracleSalesOnline.com, a product that would compete directly with his own. Livid, he called Ellison and asked him to resign from the Salesforce.com board of directors. In his usual iconoclastic fashion, Ellison refused to quit. According to Benioff, Ellison said, "It would be much cooler if you fire me." (Besides being "cooler," firing him would also allow Ellison to keep his millions of shares of stock and millions of options.) A frustrated Benioff leaked what was going on to the newspapers, which landed him some much-loved attention. "It was the greatest thing that ever happened to us," he says. After two Wall Street Journal stories and one very heated phone call, Ellison finally sent Benioff an e-mail in which he officially resigned. Benioff would ultimately let him keep his stock and options. ("We're trying to help Larry get back his net worth," he jokes.)
At that point, Salesforce.com was still under the day-to-day leadership of CEO Dillon, but that wouldn't last much longer. Benioff never considered himself an operations person--he was the idea guy. But now that his company was growing, he and Dillon started fighting. There were particular problems with money--and how much some thought Salesforce.com was burning through. For the launch party, for instance, Dillon agreed to a $250,000 budget (an amount he considered excessive), yet Benioff wound up spending $600,000. At the rate Benioff was going, says one former employee, he would have run out of cash in early 2002. Dillon wanted to raise more, but Benioff and the board were opposed. So in 2001, Benioff staged a massive shakeup, firing his CEO, CFO, several vice presidents, and a senior VP.
Although the board had approved the purge, many industry people worried about the future of Salesforce.com with Benioff in charge. Dillon was more mature and more conservative; he brought credibility. Benioff was the entrepreneur who invited his yoga teacher to management meetings. He was the guy who insisted on bringing his dog to work--even though it once urinated on the office carpet. He wore a Hawaiian shirt and signed all correspondence "aloha." "I expected him to have a hard time," says former Oracle president Ray Lane. But Benioff has surprised him. "He's doing even better than Dillon did in the role," Lane says. "He's done a brilliant job."
That's not to say that Benioff has done things conventionally. He follows business advice from unlikely sources, like fallen rap star MC Hammer. ("There's no doubt in my mind he's a creative genius--one of the greatest marketers I've ever met," Benioff says. The Hammer taught him to have "street teams," or evangelists within the community, who stand up and say they use the product.) Benioff also asked his rabbi to come into the office to talk to his managers about how to fire people with compassion. He's consulted with Billy Graham, the Dalai Lama, and Zen monks in Kyoto. Before Benioff hired Jim Steele as company president, he subjected Steele to a three-day ordeal that included psychological testing, an interview with Benioff's girlfriend--who doesn't even work at Salesforce.com--meetings with customers, and a one-on-one session with Koa, Benioff's golden retriever and the "chief love officer" at the company. (Steele ultimately got the job; he's still there.)
And Benioff still spends as freely as ever--some $20 million on marketing alone since the company was founded. That's a pretty big number for a small business, but it qualifies as astronomical when you realize that most of it was spent not on ad campaigns but on promotions like footballs, chocolates, fortune cookies, and, yes, T-shirts.
While many of these practices are quirky at best, Benioff has done a lot of stuff right, by many accounts. He took the best of what worked at Oracle--especially his ability to create excitement for an untried idea--and focused it on a single product. For example, instead of telling the world about the strengths of Salesforce.com's software--that it's cheap and easy to use--Benioff sells it as a revolution: "The end of software." The company's phone number is 1-800-NOSOFTWARE. He wears a pin with a red slash through the word "software." It seems overblown, especially given that, by almost any definition, he's still selling software (albeit a type that gets distributed to customers differently).
Somehow, in the end--maybe it's the footballs, maybe it's MC Hammer--Benioff's strategy appears to be working. Salesforce.com is still private, so there are no audited financial statements, but Benioff says revenue jumped from $5 million in 2000 to $52 million last year. He's anticipating more than $100 million this year, and $10 billion by 2012. While that sounds like classic Benioff hyperbole, Charles Phillips, a technology analyst at Morgan Stanley, calls it one of the best-performing private software companies. Benioff is gearing up to file for an initial public offering sometime this year, and he isn't the only one with high hopes. John Dillon, the CEO Benioff fired from Salesforce.com, still has his shares, and he expects to do well on them. (His new company even uses the Salesforce.com product.) Benioff's goal: "We want to build the most profitable company of all time."
When the IPO does happen, Benioff, who owns 30% of the company, is likely to become an even wealthier man. He says he'll use a good portion of the money to fund his foundation, which currently supports technology-related projects in San Francisco, Hawaii, India, and Nepal. "It will have no material change on my life," he says, adding, "There's no material possession I'm in need of." Statements like that sound very Zen monk--ish, but it shouldn't be ignored that Benioff never really renounced material possessions. His three-story house in San Francisco's Presidio district, close to where J. Crew CEO Mickey Drexler lives, has an amazing view of the Golden Gate Bridge, a gym, a guest suite, and five flat-screen TVs. He's in the middle of redoing it now (even hiring a color specialist to choose the hues), but the indoor hot tub is finished--it looks out at the hole in the ground where the pool will go.
Of course that's nothing compared to the Bentleys, the Italian fighter jet, and the maxi-yachts owned by one Larry Ellison. And speaking of Ellison, Benioff and he had a reconciliation dinner about a year ago, when Benioff was invited to the construction site in California where the Oracle chief was building his $100 million Japanese-style villa. The dinner didn't exactly rekindle the friendship--Ellison still doesn't show up for Benioff's personal holiday parties, though hundreds of others do--but it did establish a kind of detente. In fact, Ellison's imprint on Benioff may be fading. "Marc respects Larry, but never talks about him," says Benioff's girlfriend, Krilich.
"This loosening of ties with Ellison was an important step for Marc personally," says Tom Berson, a friend of Benioff's and an advisor to the company. "It distanced him from Larry, and allows him to be a businessman in his own right--operating with his own principles." But Benioff, always the competitor, sees it another way. "I can say I'm the only person who fired Larry Ellison."