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Worst Day Ever

Three CFOs share the lessons they learned from their toughest experiences on the job.
Kate O'Sullivan, CFO Magazine
May 1, 2004

In the fall of 2000, Janice DiPietro was feeling great. After reviewing her start-up company's numbers with its lead private-equity investor, she was eagerly anticipating a new infusion of capital in two weeks. DiPietro planned to use the funds to help the software company add company expand a new division and support the core business until it reached profitability. She estimated that the company would break even within the quarter.

Then disaster struck. In a routine conference call the following week, DiPietro was blindsided — the private-equity group announced that it had run into a problem with another investment, and would not provide any additional funding. "It was so out of the blue that the CEO and I had to put them on hold to make sure we had heard them correctly," recalls DiPietro.

The bad news came just as the market was beginning to crumble. Unable to reach profitability or to secure enough new financing to survive, the company eventually shut down its new division and laid off its 125 employees, ultimately selling its technology for about one-tenth of its value. "To this day, I am amazed it actually happened," says DiPietro.

This is the kind of gut-wrenchingly bad day that lingers in one's mind, and almost every finance chief has had one. Fortunately, the crisis often yields a lesson that can help the battle-scarred navigate, or even avoid, similar detours into disaster.

DiPietro, who is now the managing partner at the Boston office of Tatum Partners, says her experience at the failed start-up remains a guiding force in her business dealings. The lesson? Regardless of a signed contract, no deal is ever done until the cash is in the bank. She has also realized the importance of documenting any worries about a company's financing plans. "I had made the appropriate warnings about cash reserves and where we were going to be [in every board package]," she says. "I didn't want anyone to be able to say the CFO should have put the brakes on sooner." After the financing fell through at the start-up, DiPietro was able to point to her careful documentation when people looked to her for an explanation of the resulting cash crunch.

Patently Problematic
Like DiPietro, B.J. Rone also learned that a CFO can never be too skeptical. In 1988, Rone received a federal court notice alerting him that his employer, tape-drive maker Archive Corp., was being sued for patent infringement. The filer of the suit, competitor Cipher Data, sought an injunction that would prevent Archive from shipping its products. Rone, who had been feeling confident after helping the company clean up its accounting and boost its stock price, was jolted into action by the startling news. "Most of the patent work for our company had been done 10 years before I joined," he says. "I'd been told it was solid, but I had never gone back and reviewed it."

Upon receiving the notice, Rone shifted into crisis mode, temporarily delegating the top finance role to the company's vice president of finance. Then, focused squarely on the patent-infringement case, he hired top lawyers to study the company's intellectual property and prepare to defend it in court. He also scoured patent filings to find another company that would allow Archive to adopt its patents if necessary, identifying a company in Norway willing to make a deal. Rone's third strategy proved the charm: "I thought, 'Why don't we acquire the company that's suing us? Then we'll own their patents and can stop suing ourselves!'" he recalls. Costa Mesa, California-based Archive made a $109 million hostile offer to take over Cipher, a deal that was ultimately completed over three months for $8.25 a share, with Archive the surviving company.

Since that incident more than a decade ago, Rone has been a stickler for intellectual-property protection. He established new recordkeeping standards at Archive and reeducated the company's engineers on patent law. He now carefully reviews patent portfolios at each new employer. "A lot of times when I ask about patents, I get the response, 'We're in good shape,' but often people haven't really looked at it," he says. He advises companies to examine their intellectual property at least every five years, and to keep their engineers abreast of changes in patent law. And Rone says the CFO should also have more than one contingency plan for any disaster.

What Doesn't Kill You...
A truly horrendous day can lead a CFO to contemplate calling it quits. Greg Walker, now finance chief at software developer Magma Design Automation, says his worst day was so stressful it prompted him to take a career sabbatical. Accrue Software, a fast-growing Internet infrastructure business for which Walker was CFO, had scrambled to assemble a four-way merger of equals in a bid for survival in the sector, which was struggling in mid-2000. While Walker was on a flight to New York, where he planned to finalize the deal, the Federal Reserve announced it was raising interest rates by another 25 basis points. Technology investors, already skittish as they awaited both the outcome of the Microsoft antitrust case and quarterly earnings from bellwether Cisco Systems, bolted on the news. The market went into a tailspin.

As Walker's plane landed, his cell phone began ringing. It was the worst possible news: the drop in stock prices had drastically lowered the four companies' valuations, effectively scuttling the deal. Accrue's stock price, which had been hovering in the $40 range, plummeted to the $20s. Within six months the shares were trading at $1. "Trying to manage the investment community with this news was a nightmare," remembers Walker, who left the company in 2001.


Having spent several whirlwind years in the Internet market — including taking Accrue public in his first month on the job — Walker planned to retire. He "reluctantly" reentered the workforce in 2002, joining Magma only after determining that the company's executives had a solid, Old Economy growth strategy.

He now speaks bitterly of the stock-market bubble and its much-touted "grow for broke" mentality. "Never decide your internal strategy based on what the investment-banking communities are telling you," he says, noting that he saw many companies overspend to reach the number of users or viewers demanded by Wall Street. "You have to look at the underlying business model."




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