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What Problem Do You Solve For Whom And How?
Chief executive of one of the US government's favorite software suppliers explains why business students think too linearly and how profit is a decision not a result
Peter DiGiammarino
Peter DiGiammarino is firm about how to take a business through the current downturn: “I believe profit is a decision not a result… if you bring in less money then you spend less.” He is also firm that decisions can’t be made alone, a lesson he learned as a business student at MIT in the 1970s.
DiGiammarino heads one of the US government’s favorite tech suppliers. Compusearch is the largest supplier of procurement systems to US federal civilian agencies including the departments of Agriculture and Energy.
The 30-year veteran of the software and services industries ran a $200 million chunk of American Management Systems and, since 1996, has helped turn around a succession of companies in the sector. He graduated with an MS in IT and Organization Development from MIT’s Sloan School of Management in 1977.
For Compusearch, the recession has meant cutting back on “marginal growth initiatives”, like a planned expansion into State government agencies and into Europe. The firm is concentrating on businesses that “continue to make money all the way through the trough”, in particular the software through which federal agencies will spend or grant half the $787 billion government bailout.
The discipline of a downturn can create an impetus for growth, according to DiGiammarino. In the depths of the late 1970s recession, while at American Management Systems, he designed an automated credit collection system for Wells Fargo bank. Banks at the time were in dire need of a technology that would raise productivity, and his division went on to become the leading supplier of such systems to banks in North America, with revenues growing from $1m in 1980 to $40m by 1989.
MIT
“You can’t do anything alone. It always takes a team”, says DiGiammarino, and this was the most valuable lesson he learned at business school. “Setting up groups that work well together… partnering with a CFO to form the nucleus of an executive committee and bringing in other strong players… I first learned this at Sloan”, he says.
He also advises any student to build a network “that you can live off your whole life”. DiGiammarino describes this aspect of business school as a “phenomenal” one-off opportunity that “you won’t get 20 years out”.
Around the time he started at MIT, the 21-year-old came across an article asking former students what they wished they’d done more of, and the answer that cropped up the most was Organization Development. “I didn’t know what it was but I took all the classes in it that I could”, says DiGiammarino.
As someone with a scientific background, he says he craves order and structure and likes working with executives who are trained engineers themselves. But he admits scientific and analytical skills aren’t enough: “You need to develop your creative right brain… I sometimes think people should get an MBA and then get an MFA (Master in Fine Art)”.
Business schools, argues DiGiammarino, have been “churning out” graduates who excel in analytical, linear thinking. This may have contributed to the kind of poor decision-making that led to the credit crisis and for which business schools are now under fire: “Students were thinking too linearly: take advantage of a system that favors you… they were finding the easy way out and running with it”.
Hope for entrepreneurs
“The reality is there’s tons of money and it is looking for good things to invest in. But it’s hard to find it”, says DiGiammarino. A typical start-up can probably go twice as far as its owner thinks without raising money, he adds: “You should spend more time on the business and be clear about whose problem you’re solving and how… you will give up a lot less when you go to investors”.
When a start-up does need money, DiGiammarino believes there will always be at least three investors in its specific area. To find them: “You have to approach it like a project. Look at similar companies, look at your customers’ shareholders”.
He also recommends using an intermediary: “investment bankers are there for a reason… they have a lot of connections. If you find a good one you can save a lot of time”.
Managing investors
DiGiammarino’s own role has evolved from operating businesses, to helping executives and their private equity and venture capital funders work together. “I’m a deal-oriented operating guy”, he says, “I know how to deal with money”. He was recently asked to help turn around a tech consulting firm for the Carlyle Group.
According to DiGiammarino, funders make the “systematic blunder” of not having enough confidence in management, while managers find it difficult to communicate with investors and integrate them into their businesses.
His advice to people running new companies is to establish a consistent pattern of performance against expectations. “It’s a hard game to play… you have to know yourself and what you’re capable of… you have to manage presentation ahead of performing, and then you have to deliver”. However if you achieve this the trust earned will be invaluable.
On leadership, DiGiammarino makes two observations: first, early-stage CEOs tend to be successful through their hard work and abilities. But to grow beyond $50 million turnover (a nice problem to have) chief executives need to stop having their people help them and start helping their people.
Second, he is wary of the myth that a leader must necessarily have a “big persona”. Leaders should be open to people who think completely differently to themselves. DiGiammarino, who describes himself as an introvert, says that leaders must recognize that there’s a “whole lot behind them to make things happen”.
Reading list
Built to Last by Jim Collins and Jerry Porras. Successful habits of visionary companies
Good to Great by Jim Collins. Promoting disciplined people to make disciplined decisions sets successful companies apart, rather than a high profile CEO, cutting-edge technology or fancy strategies.
E-Myth Revisited by Michael Gerber. Argues that entrepreneurs typically make poor business people and how they can overcome this.
Heroes
Charles Rossotti, one of five founders of American Management Systems. Built a billion dollar company over 25 years. Later reformed America’s tax agency as Commissioner of Internal Revenue under Clinton.
Peter Drucker, considered the father of modern management, published Concept of the Corporation, a study of General Motors, in 1945
Peter DiGiamarrino In brief
2005 to present: Chairman and CEO of Compusearch Software Systems Inc
2000-2004: As President grew Touchstone Consulting Group from 20 people and $6 million turnover to 130 people and $30 million sales.
2001-2002 Spun out $20 million professional services unit Aquilent from Commerce One
1996-1997 President and COO of Hyperion Software, now Hyperion Solutions acquired by Oracle
1977-1996 Rose from California-based project manager to Vice President at American Management Systems.
1977 MS Information Technology and Organization Design, MIT Sloan School of Management
1975 BS Computer Science, Economics and Math, University of Massachusetts Amherst
Board of Advisors to Chancellor of University of Massachusetts Amherst
Lives in McLean, VA. Three children
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Suggestions:
Hi all,
I am considering applying for DL MBA at WBS. Can someone please suggest how I can get in touch with current DL students or alumni whom I could talk to and get their frank opinion of the programme.
from Alex Kouzmin
I am considering applying for DL MBA at WBS. Can someone please suggest how I can get in touch with current DL students or alumni whom I could talk to and get their frank opinion of the programme.
from Alex Kouzmin
Would like to hear more about "linear" thinking and its problems. What is the ideal alternative to linear thinking? Can people be taught to think in this way?
Anonymous
Interesting article; would like to read more about leadership as referenced towards the end of the article. Chief executives are so used to having people help them that it would be very enlightening to learn how many can actually turn around and "help their people". Also, there seems to be very few chiefs without a big ego or a "big persona". I would think that the workforce would be very open to a leader that can think completely different.
Anonymous
From someone who has had the privelege of working with DiGiammarino, he has that rare gift of intellectual capacity and curiousity. To be on his team means winning is the only option: his team, customers, investors - they all win.
Anonymous
Peter's approach right out of Sloan was to get a position in a large company that could pay him while he developed a business. There are few, if any recent graduates that can develop a substantial business without such "funding" to live on during that process. Getting venture capital funding is virtually impossible until you build the "network" or "organization” that he describes to help get an in to a venture capital firm or "Angel investor". Once you get some financial success with the large company, it will allow you as an entrepreneur to have at least some cash funding to live off while developing your own business, as well as a good start to your network that should have been developing at the large company.
Peter's approach to a successful business career may not be for everyone, but is a viable option that should help some students reach a similar level of success.
My experience has been very consistent with Peter's comment that most ventures that do not plan profits, end up with none, especially in a down economy. It is surprising the number of entrepreneurs that are afraid to address projected losses before it is too late to save their business.
Anonymous
The 7 characteristics of companies that went from Good to Great (Jim Collins):
>> Level 5 Leadership: Leaders who are humble, but driven to do what's best for the company.
>> First Who, Then Where: Get the right people on the bus, then figure out where to go. Finding the right people and trying them out in different positions.
>> Confront the Brutal Facts: The Stockdale paradox - Confront the brutal truth of the situation, yet at the same time, never give up hope.
>> Hedgehog Concept: Three overlapping circles: What makes you money? What could you be best in the world at? and What lights your fire?
>> Culture of Discipline: Rinsing the cottage cheese.
>> Technology Accelerators: Using technology to accelerate growth, within the three circles of the hedgehog concept.
>> The Flywheel: The additive effect of many small initiatives; they act on each other like compound interest.
Anonymous
pretty respectable "leadership persona" for a guy who "concentrates on where businesses continue to make money" - in the form of government bailouts. well done.
Nirst Fame Nast Lame
Interested to know what MFA he's got in pocket.
Anonymous
This guy sounds like he runs a very ordered ship. But maybe too successful to remember what it's really like starting-out? Small entrepreneurs don't go to investment bankers to find investors, or worry about people-management when your company passes the $50m mark:)
Jen
Who are the people 'behind' DiGiammarino?
Anonymous