Saving a Company from Bankruptcy
This month, UFYC, a Sacramento database management software company, announced its first operating profit in more than five quarters, pulling out of a long slump after it was rattled by charges of securities fraud. Unify reported total revenues in the first quarter of fiscal 2008, ended July 31, of $4 million, up 129% from first-quarter revenues of $1.7 million a year earlier. A net loss of $218,000, vs. a loss of $754,000 in the year-earlier quarter, was due largely to the acquisition of software developer Gupta, a deal intended to extend Unify's reach. But business hasn't always looked so promising. In 2000, Todd Wille, who had been Unify's chief financial officer in the 1990s, was asked to return to the company and save it from bankruptcy. Currently chief executive and president, Wille spoke recently to Smart Answers columnist Karen E. Klein about how the company overcame some dark times. Edited excerpts of their conversation follow.
When did you first get hired at Unify?
I started here in August, 1995. The company had been in business nearly 15 years and it was a very strong firm with a solid enterprise product. In June, 1996, we went public on the strength of a new application development product. I was the controller at that point, and I later got an opportunity to become the CFO. As a company, we struggled through 1996 and 1997, but by the end of 1997 we were back to break-even with some revenue growth.
When did things start going south?
In 1998, I left the company because of conflicts with the CEO and because I felt I'd done my job in getting the company back on its feet. I went to work at a firm in Colorado. While I was gone, the CEO promoted my controller to CFO. I had told him not to do that because I didn't think he was a strong enough accountant to be CFO of a public company. But the company got more and more aggressive with its accounting interpretations. By the time I was called back in mid-2000 there were investigations ongoing by the FBI and SEC. In 2002, conspiracy and securities fraud charges were filed against the former CEO and CFO, and they were eventually convicted. As a result, the company nearly went bankrupt.
Why did you return to the company?
Part of it is my personality. I'm a farm boy from Iowa. I'm not used to giving up. I'm probably a little hard-headed. We had such a heritage of fantastic employees, great engineering, great administrative sales people and customers here. I was an unusual controller because I spent a lot of time talking to the sales and marketing guys, who talked to the customers. I knew the technology was critical and I felt there was truly a business here, but that the company had suffered from leadership issues.
Where do you start to salvage an operation that's in such deep trouble?
Those were very dark days in the beginning. I had two challenges. The first day I arrived, there were 19 forensic government auditors running around the company and everyone was scared to death. We had just over 100 employees at the time, and most of them had no idea what had happened. We also had multiple lawsuits that had been filed against us.
My schedule was to show up early in the morning and spend the first six hours dealing with the auditors, going through financial records and old e-mails. I would spend my afternoons, until 6 or 7 p.m., working with the chief technology officer, who was getting the engineers busy building something new. I would talk to the guys I knew who had been in sales, and I found out that the sales behavior while I was gone had gotten quite strong-armed and aggressive because of the pressure the CEO was putting on. I took a guy who I knew was a customer advocate and asked him to reintroduce the company to longtime customers.
From 6 or 7 p.m. until 1 or 2 a.m., I would work on fixing the accounting because there was no controller on staff at the time and the accounting manager was a young person who didn't have a lot of expertise in spreadsheets and contracts. Then I'd go home, sleep three or four hours, and get up and start all over again. I did that from August to December, 2000, until I had managed to reconstruct what had happened to the firm from January, 1999, to April, 2000.
When did you know that what you were doing was working?
My first major win was getting those 19 people to go home. I finally said, "Guys, you've looked at 99.5% of what's happened. Whatever you haven't found can't be very big. Let me fix the rest of this." And they did. They did eventually do a re-audit after I had corrected all the accounting records.
How did you deal with what must have been a severe crisis in morale in-house?
I made a decision early on to be completely honest. I couldn't share 100% of what had happened with the financials, but the employees seemed to trust me when I said I would be up front with them about everything I could talk about. When I arrived, [in] the July quarter just ended we had spent $6.5 million on actual revenue of $2 million. We then spent $3 million on legal fees and forensic accounting. One of the first things I did was downsize the company from 125 to 90 employees. It was very difficult. I called everybody in the room and said, "Here's what we have to do. Some of you are leaving today, some are staying, but this is how we have do to it."
As a testament to the people in the company, they were very gracious. A couple of the executives even offered to leave so more of the lower-paid people could stay on. They said, "Take me out and keep three engineers instead." Between August, 2000, and June, 2001, I lost only one person that I didn't have to, and he had three young babies and needed a more secure situation.
How did you start rebuilding your customer relationships and loyalty?
I made a lot of personal phone calls. I worked hard on the technology side and the customer support side of the company. A couple of customers were abused in the sales process. I refunded some money in a couple of places and changed some contracts that were unfairly one-sided. A lot of our customers were thinking about alternative products, but because we had produced such great technology for 15 years, it took time for them to leave us. By the time they were thinking about it, I was calling them. One thing that helped was that customers use us for big things and they are dependent on our product.
What are some lessons you learned from this situation?
Focus on your customers. I made that decision early on, and it was absolutely right. After that, stick to your knitting. We tried to do some things that were a stretch for us, but not with great success. We've decided to stay within our historical competencies, since there's plenty for us to do in that space. Finally, be honest with your people and take care of them. We have had very little attrition. We got down to 50 employees at our lowest point and we've built back up to about 70 today. We've learned that we get as much done with 70 as we did with 120. It's amazing what you can accomplish with a small, motivated, engaged team.
Obviously it has been a long time since the crisis at the company. What have you done since then?
It's been tough, but right now our revenue is the highest it has been in seven years. We went through some changes in strategy. We sold a company, then we acquired a company that has worked out well. Our application modernization group is working in a great new market and we find customers are trusting us again. That's really the best part, for me.