Over the last two years, SoftLayer has grown from nothing to over 10,000 servers and by the end of this year could surpass 30,000 servers if growth continues on its current track. A key component in managing this growth is finding leaders with the ability to scale as the company grows. More often than not, entrepreneurs are good at starting businesses but not good at growing them. In that vein, if you are the leader of a startup, what traits does your management team needs to have if one is to build the biggest, baddest and most valuable company in an industry?

Battle wounds: We all have read the stories about Bill Gates quitting Harvard to start Microsoft, Michael Dell selling servers out of his dorm room, and Larry and Sergey leaving Stanford to start Google. It is very rare that someone can come out of college and start something that becomes the dominant player in an industry. The majority are an amalgamation of our experiences of years of operating any one of a number of businesses. Look for the managers with some scars. Even the aforementioned entrepreneurs are pretty much battle tested by now.

Visionary: As fast as SoftLayer is growing, we better have a pretty good vision of where we are going so we don’t run this Porsche off a cliff and into an abyss. We have seen many potential customer IT managers come to us in a panic upon their sudden realization that no more servers can be added to their datacenter because of inadequate planning for power and cooling. And I am not just picking on IT; this applies to the finance function as well. As the CFO, I have to have a vision for what my organization is going to look like all along the way, from the startup phase to an IPO, merger or acquisition or whatever other path this journey takes us.

Communication skills: Today’s CFO must be more technically proficient than his predecessors; however, this does not negate for the financial or any other executive to be able to communicate not only with company staff, but customers, vendors, bankers and shareholders as well. As discussed in other blogs, the internet has given all of us the ability to communicate in so many different ways than in the past. The challenge of any manager is to figure out which method of communication is the most effective in a given situation to get the job done and keep the organization moving forward.

Je ne sais quoi: It’s a French phrase we as Americans have used over the years to refer to a certain quality someone has that cannot be explained. A good manager has to have this “Presence”. While the internet and email and all forms electronic communication have made the world smaller, to have an impact a leader still needs to be out communicating, listening and understanding to keep the team on the right track. The leader who sits in his office all day can review a lot of data but needs to get out to find what is really going on inside a company. The “Ivory Tower” manager is doomed to failure in today’s fast paced business environment.

Rock in times of adversity: For all of us who have participated in startups (and I have done four now), there are going to be tough times. You can count on that. How you react in those situations sends a message about your ability to lead to your staff. As a leader, you have to be the go-to person in tough times. Are you prepared to handle the adversity?

The team: Much like a professional hockey team (I would use football but my son plays hockey and this is my blog), you can’t do it all alone. From the general manager on down, the owner/president of a team has to have the ability to attract top notch staff to who he can delegate the work of moving the organization toward the ultimate prize in hockey, The Stanley Cup. If he can’t and tries to keeps all the work for himself, he will find himself on the outside looking in.

Do we have the team to scale? So far it appears that we do. Are we going to have to add additional leadership along the way for us to achieve our goals? Absolutely. We have just added a Chief Strategy Officer to the executive management team.

We continue to be confident our management team can provide the leadership needed to grow SoftLayer into an industry leader.

Are you as confident in your team?

- Mike Jones (Who?)

Just like any company, the search for ways to increase revenues and lower costs to make more money never ends. In the increasingly competitive hosting environment, raising prices is rarely an option but finding ways to cut costs while making the experience better for the customer can and must be done on an ongoing basis.

We have achieved some success to date with the provisioning of nearly 10,000 servers; however, the end game is far greater as the ultimate goal is to become a multi-national corporation serving markets all around the world. In the hosting space, you don’t really have a choice, you either innovate and get bigger or you get out. The complexities are just too great to have the luxury of maintaining the status quo. The technology landscape is littered with companies that started reading their own press clippings and got fat, dumb and lazy. And keep in mind that copying your competitors only delays the inevitable; the “me-too” companies eventually go away. In the technology world, you must innovate and push the envelope to survive.

While we are constantly looking for new and better ways to serve the customer, a great deal of time is spent improving internal reporting systems. I work with a management team that understands the importance of budgeting and tracking various financial and operational metrics. To that end, we have made a substantial commitment in systems and people to gather data to help make the best decisions for us and most importantly, for our customers.

I would love to reveal all the data we have at our fingertips but for competitive reasons, I don’t want to give away too much but let me leave you with this tidbit: I wonder how many of our competitors’ CEOs can, from his/her desktop, drill down to any one of 10,000 servers in multiple data centers and know exactly how profitable each individual server is with the click of a mouse.

The best companies in the world are all supported by world-class accounting and finance departments providing pertinent financial and operational data to all its stakeholders. The right information gives you a tremendous advantage over your competition.

Find someone good to count and analyze your beans. Wal-Mart did and turned the world of retail on its head. With a little luck, we might be able to do the same to hosting.

When you look at the names below, what is your first reaction?

For most, the common thread is that each has been accused or admitted to cheating in their respective sport. Barry Bonds for using steroids (and don’t tell me he didn’t use them); Bill Belichick for filming the Jets defensive signals; Shoeless Joe and Pete Rose for gambling; Tanya Harding for trying to disable her competition; Ben Johnson for steroid used to sprint faster than any other human being and Rosie Ruiz for only running half a marathon. All of them will forever be associated with scandal first and their accomplishments second.

But sport is not the only place where cheating is running rampant. The financial markets have been and continue to be rocked by financial scandal. We all know about the high profile cases like Bernie Ebbers (Worldcom) and Andrew Fastow (Enron) but a recent university study has shown that from 1978 to 2006, there were 788 Security and Exchange (SEC) and Department of Justice (DOJ) enforcement actions for financial misrepresentation or as the layman would call it, “cooking the books”. In those actions, there were 2,206 individuals identified as being culpable for some or part of the financial fraud. While all the sports figures above had their reputations tarnished, only some of them have suffered financial hardship and if I remember correctly, none served jail time for their initial actions. For financial misrepresentation, the penalties are far more severe. Over 93% were fired or left their jobs with another 31% barred from future employment as an officer of director of any publicly traded company. In addition, 617 of these individuals have been charged with criminal violations; 469 were found guilty and sentenced to an average of 4.3 years in jail and 3 years of probation. Needless to say, their financial position suffered as well. On average, these managers lost $15.3 million in stock value once the scandal was revealed and paid $5.7 million each in SEC fines.

Cheating never comes to good end. Most scandals generally start small, then greed sets in and the rest is history. Is cheating worth it? Even if you don’t get caught, you will always be looking over your shoulder. And sometimes scandals can occur even with the best of intentions. Compared to other industries, hosting is still in its infancy and is just beginning to address the provisions of Sarbanes-Oxley. Who knows what kind of accounting and operational issues will come to the forefront as some of the leaders in the industry enter the public markets?

Around here we foster an environment of honesty and integrity. What are you doing in your company? How do you want your company to be perceived in the marketplace? Are you ready to face the public scrutiny of the SOX generation? Your customers and the markets are watching.

Thanks to my financial brethren at Enron, Worldcom, Barings, BCCI and all the companies currently embroiled in the stock back-dating scandals, I have sit through an ethics seminar every other year to maintain my status as a certified public accountant.

In my position as Chief Financial Officer, ethics and integrity are of paramount importance and as a company, we work hard to hire staff with these characteristics. Keeping that in mind, a survey was taken in 2005 by Deloitte and Touche of American youth between the ages of 13 and 18 in which they were asked the question, “If your boss told you to do something you thought was unethical, would you do it anyway”? An astounding (at least to me) 53% of the kids said they would do what their boss asked them to do.

As a technology company with a work force that gets ever younger as kids become more and more technologically savvy, that is frightening statistic. However, what it points out is the need for us to set the behavioral standards and to train our staff in what those standards are.

What are those standards? For every company those will differ somewhat but a recent survey points out the types of unethical behavior every company faces on a daily basis. In 2005, the American Management Association’s Human Resources Institute asked companies why their employees behaved unethically. The top five reasons:

1. Pressure to meet unrealistic business objectives
2. Desire to further one’s career
3. Desire to protect one’s livelihood
4. Working with a cynical, demoralized environment
5. Ignorance that the act was unethical

We have all faced having to make decisions in light of one or more of those five reasons at some point in our lives. How we have reacted to those situations has helped define each of us as we moved through our careers.

How will you know what the ethical choice is when you are trying to make a decision? Let me leave you with one final quote from Potter Stewart, former U.S. Supreme Court Justice on his definition of ethics:

Ethics is knowing the difference between what you have a right to do and what is the right thing to do.

Are you doing the right thing? And are you demonstrating that to your peers and those you lead? The world is watching.

Yes, Mike Jones is my real name.

I am the least liked guy in the whole company. I am the one who has to say no. No to the fully enclosed domed cubicles with sliding doors and skylights. No to the quad processor quad core desktop PCs. No to 6 flat screen 30 inch monitors for each developer (3 is plenty). No to the recumbent Herman Miller massage desk chairs. No to the offices large enough to fly more than 3 RC toys at any one time. No to the “must haves” outside the budget. In short, I am the evil CFO. Some have even called me Iron Fist.

In spite of my constant no’s, we have built an amazing culture of innovation by saying “yes”, a lot more often than saying “no” over the last two years.
Here are some of the things we’ve said yes to:

• Yes to 10 of us starting the company when no one believed we had a prayer of surviving.
• Yes to outside investment.
• Yes to going ahead with the idea of a private network.
• Yes to building out data center space not knowing when or if we would ever see that first customer.
• Yes to not taking salary the first year to get the business started.
• Yes to investing in programmers to build a portal that gives customers what they want.
• Yes to spending extra money on infrastructure to allow us to build server farms on a scale never seen before.
• Yes to the API project.
• Yes to giving our developers time to be creative and come up with new ideas.
• Yes to Muenster Fest!! (Lavosby or Samf can explain in a future blog)

In the future, I hope to be able to share more with you from a financial standpoint about how we make this business work.

The Real Mike Jones (CFO, SoftLayer)

p.s. To put the rumors to rest, this is not me. In fact, none of these are either.