Tom Mendoza, President Network Appliance Gil Shwed, Chairman & CEO Check Point Software Technologies			In October 2005, VP and Gartner Fellow Michael Maoz and Gartner GVP Joel Wecksell conducted an interview with Check Point Software Technologies Chairman and CEO, Gil Shwed, and Tom Mendoza, President of Network Appliance, in front of a live audience of 650+ attendees at a Gartner conference in Tel Aviv, Israel. The topic was leadership and scaling a great idea into a great business. Check Point , (Stock symbol: CHKP) is recognized worldwide as an innovator in securing the internet with its enterprise firewall and other products, and the CEO and founder, Gil Shwed, invented and patented key pieces of the technologies. Network Appliance, or NetApp, (Stock symbol: NTAP) is a world leader in enterprise storage solutions. Tom Mendoza has been a critical part of the company's success, and since 2000 is also the President of the company. Our interview with Gil Shwed & Tom Mendoza took place in October 2005. Michael Maoz: Gil and Tom, thank you for participating and helping us with the Mastermind. Our Mastermind discussion topic today is how to take ideas and create big companies. How do you take great ideas, incubate them, and grow the company? We'd like to start by asking you to take two minutes to describe your companies and some recent history. Gil Shwed: We started the company about 12 years ago, focusing on the field of Internet security, and we've been able to grow very nicely over the past 12 years. We are now getting close to about $600 million a year. One of the main challenges we have at Check Point is trying to build a global company that is very proud of being an Israeli company. We want to create new products here, while we incorporate ideas from, and work with, a global team of people. We have invested a lot in building that culture for the company, in building the right business processes, a culture for everybody at Check Point around the world — on the one hand learning from each country, from each culture that we have in the company, and on the other hand creating a single culture. Tom Mendoza: NetApp is a 13-year-old company, and I've been there for 11 of them. When we came into the data management business, our thought process was, "How will businesses store all of the new information generated on the Internet in a cost-effective way?" We focused on the new high-technology and Internet companies up until 2000, as large enterprise businesses were slower to look outside of their own businesses for solutions. Once the recession happened, though, we had to reorient our company away from high tech and toward two opportunities: the enterprise and abandonment of an engineering-only focus, which meant changing processes and changing our sales teams — it was a real test of our culture. Through all of the shift, we were still voted one the top 50 companies to work for in America, three years in a row. In the past three years, we've doubled sales and moved successfully to new markets. Joel Wecksell: Tom, how is it that you could redirect the company, stop and reorient people and their priorities and goals? Mendoza: What kept me up at night during our period of wild growth from 1998 to 2000 was my concern that too many folks were worried about stock price, rather than how to sustain an advantage. When the recession hit, it was almost seismic for us. Our price to earnings (P/E) ratio was the highest on the NASDAQ, so our stock got hit very hard. That's when you start to understand whether you have a great corporate culture. A strong culture is most important in times of difficulty. Anybody can have a good culture when everything's all right. But when times get tough, your ability to pull together on the same page is everything. We believed all along that our big reason for winning with the Internet and high-tech companies was that our technology allowed them to scale their infrastructure for much less money than anybody else, because you could manage it more simply with our product. We just needed to take that same message to the large enterprise and government sectors. We did a couple of things. First, we did one layoff in the history of our company; we did it in less than one hour, and we were done. It was 75 people. It's wrong to do layoffs repetitively, in small numbers. Whatever the number is, do it as fast as possible, get it behind you and move on. Because we were open, there was a trust and a belief that the executives were telling the truth. Second, we limited our scope. We brainstormed with everyone in our company, globally, to come up with the key products people would invest in during a recession. We narrowed our focus down to three areas only. Third, we refined our message to be appropriate for the enterprise and asked ourselves if we had the right people to deliver it. We determined we did not. So I went on stage in front of our entire company, which was watched globally, and I said, "We're changing our business model, and we're going to do it tomorrow. We're going to go through some tough times." We ended up taking out 40 percent of our sales team within a six-month period, and we hired the sales team we felt could aim at the right goals. We went through three quarters where results were down. Now we've just had our 15th straight quarter averaging 30 percent growth, year over year. So, my net advice is to make your decisions fast, be clear on what you will and won't do, and then act forcefully. Maoz: Gil, we chatted earlier about different business models for companies as they start in one geography and then grow. Compared with U.S.-based companies, there are different business models for companies that are started in less-mature or smaller economies like Israel, Slovenia and India. Could you talk about the ways to grow that have worked in your operation — and those that have not? I imagine you'll speak about the Israeli perspective specifically, but I think your comments will apply worldwide. Shwed: We started in a small, entrepreneurial country, but still, our market and our customers are not in Israel — they are all over the world. We knew that, to succeed globally, we had to enter the U.S. market. The rest of the world pretty much follows the U.S. in terms of technology. We also knew that we had to get the best people in every country. I started the company with two wonderful colleagues, who are also excellent friends and businesspeople, smart enough to know we could not do everything ourselves. We did not want to make the mistake of recruiting our friends from here in Israel and sending them to the U.S., or around the world, to run the business. Instead, we went to find the best globally. For example, we figured out that the best marketing people are in the U.S., and that's also the target market. By the time we completed our global team, half the management team was in Israel, and half was outside Israel. Wecksell: Gil, one of the things you said a couple of times is that it is important to listen to the customer. But customers do not always want what is best for your business over time. You have to make wise choices, and you can't always listen to the customer. How do you draw the line when your own business logic dictates a different path from what the clients might find most important? Shwed: To strike the balance, you have to be very smart in thinking about what customers will need two years from now. So you have to understand what their challenges are and build products accordingly. The other part of the equation is being a partner to our customers. When the customer tells you, "You know what? If you just add this small component to your software — or even a large component — it would make you a much more important partner for us," you have to listen. At Check Point, we've never been focused on going to a small number of customers and selling them huge installations — instead, we've focused on going to many customers, and starting with each one of them, and selling them one product, for a reasonable price. Our expectation is that, if they like that first product, they will stay with us and buy more. Maoz: Tom, what would you say? You have a company that's growing very nicely, and you've made some great decisions. How do you ensure that you are listening to the customer? Mendoza: Well, I think you make an excellent point, and so does Gil. We set up customer councils (there are five throughout the year) where we tell customers where we think the industry is going and what we think our priorities are going to be. It's very interesting to us when CIOs and the "movers and shakers" of those companies say to us, "You know what? If you did that, that would not mean so much to me." I spend 50 percent of my time working with customers and partners. I spend 25 percent of my time on strategy. I spend 25 percent of my time on our people and culture. Every office I go to in the world — and I do a lot of traveling — I sit down with the group. We have a brown-bag lunch, and I encourage them to ask me anything they want, and I'm very candid with my responses. We listen for what the customers believe is really important for them. That's how we first got into disk recovery: because the customers told us. The other thing we've done is identify, for each industry, the thought leaders, the movers and shakers, the people that look ahead — companies like Cisco and Yahoo. That is one of the reasons I am here working with Israeli companies: They take risks more than others, they're technologically savvy and they try to get an edge on technology. What a lot of companies do wrong in America is think that everyone should act like they do in America, especially in Silicon Valley. From the earliest days of the company, we've set up our management team around the globe so that we make sure we understand global customers. The more I talk to people, and run my ideas by people in the street who have a problem, the better the decisions we're going to make for our customers. You can fool yourself with seven smart people staying in a room, all thinking you're real smart together. But you're not going to end up changing the world. Wecksell: How important are things like government policy and national culture for growing your businesses? Mendoza: We did some business in Ireland because its company-friendly policies attracted us. India has done a great job of building out the infrastructure before it had the business. We had to make a decision on India or China, about a year ago, as far as R&D and service were concerned. We needed something in that part of the world, and we decided on India. It wasn't less expensive than China, for sure, but India was far ahead in how it built infrastructure and how easy it made it for us to come in and set up the new business we wanted. Both China and India have very intelligent populations that you can choose from. But the Indians have made it a point of learning to speak English very well; in China, that's much more of a problem. So there were more obstacles to overcome. I think all of us are going to aggressively go more global — and we look to find a government that wants us to be there, that makes it easy for us to be there. The country has to have an infrastructure built. Finally, this is something Gil brought up before — the local people must have an entrepreneurial spirit. We have NetApp around the world; that's our culture. We'll do some local things to fit in: That is how we have to do business. But our corporate culture should be our culture no matter where we are. If we don't think we can have that culture in a particular country, we won't go. Shwed: The most important thing is the people. It is a much more important factor than the government policy. You can attract foreign companies through tax breaks, labor laws and infrastructure, but without an entrepreneurial spirit, you will not have many successful native companies springing up. That is one major difference between Ireland and Israel. Israel grows its own companies, whereas Ireland largely attracts outside companies to do manufacturing, logistics and services. Ireland does not have a great record of building large and innovative companies. Maoz: Let me just follow up on this: When you look at your experiences around the world in these different cultures, how would you compare the U.S., Israel, China, India and Central/Eastern Europe for things like entrepreneurial spirit and innovation? Mendoza: I think the United States is heading down a bad path. I'm very worried about the United States. I think that we've let our education slip. I'll give you a couple of statistics that I find interesting. The first is Japan vs. China. There were 100 Ph.D.'s in science last year out of Japan, but there were 7,000 Ph.D.'s in science out of Shanghai. Three years ago, there were 50,000 fewer software developers in Bangalore, India, than in Silicon Valley. Now there are 25,000 more in Bangalore. Bill Gates gave a speech to the governors in the United States in which he said that we're not going to be able to employ yours kids. Why? There are fewer and fewer science and math degrees taken by Americans in the United States. The big crisis in America is around education. We've got to incent people to get back to technology, and into engineering and science degrees. We should not take entrepreneurship for granted, and to have that, you need an educated base. Wecksell: I didn't want to miss the opportunity to talk about the armed forces. It is well-known that you, Gil, got the idea for your business when you were working in the army. I wanted to find out what the differences are. Because we have a lot of military people here, what have you learned from the army, what have you learned from private business, and how different are those things? Do they support each other, or are they in conflict? Shwed: The entrepreneurship resources of Israel go beyond the military and the defense industries. You have 18-year-olds in the army using very sophisticated technology. By the time they leave the military, they have years of advanced training without having started university training. The commonality between a startup company and the Israeli army is that you don't always have all the resources that you want, and you don't have the reach, but you must still reach your objective. There is no system to tell you how to solve your challenge, and so you use your intelligence to make it happen. Sometimes people in the high-tech industry feel that it's about making a lot of money and doing it quickly. Sometimes they feel it's about having great work conditions, nice facilities and recreational activities. But the real thing that makes a company successful is sharing the objectives, sharing the goals and having the motivation. That is something you see in the military: People will work, sometimes in the worst conditions, and they aren't paid much, and yet they work extremely hard. They are very motivated. That is the attitude and the spirit you want for your company. That's who I like to have at Check Point — people who care about what they're doing. It doesn't mean that they shouldn't get paid well, and it doesn't mean that we should not have perks. Many years ago, in the dot-com era, I interviewed a senior person, and I said, "What do you want to do?" and he said, "I want to make eight million dollars." I told him that is the wrong motivation. The right motivation is really about accomplishing the goals and trying to make that happen: Everything else will flow from that. Maoz: You're both well-known. But for yourselves personally, who are your role models? Shwed: I don't have a single role model. There are many people who I know I don't want to be like. But my challenge is to understand how I am being influenced. The hardest thing for an individual in business is to be yourself: defining your own priorities and your own objectives. We can learn from many people, but let's not try to imitate anyone else. Mendoza: An actor named Sidney Poitier is very good friend of mine. I travel quite a bit with him, and the way he treats other people, as famous as he is, I find to be astonishing, and something that I can always admire. I admire my father. Growing up, he had no education whatsoever, and gave me all the opportunities I have, just through his love and desire. He never told me there was anything that I couldn't do. I don't believe in people who, at the end of the day, are about how much money they make, what they own or what they do for themselves. I believe all of this is about what we can leave behind — I had the good fortune to meet the president of Microsoft right before I came here. I read his biography, and he said, "I want to leave a positive imprint on the world." That's the role model for me. Wecksell: What are your final thoughts on leadership? Mendoza: Fairness is the No. 1 thing you can do for your employees. Sure, you can build a gym and all that stuff — but are you fair? Did you give people an opportunity to succeed? If so, I believe that they will come through, that they don't want to let you down. And No. 2 goes back to something Gil said: It's all about doing the right thing, doing something that you believe in. If you're in the right industry, money will happen to you, but money is absolutely the wrong motivation. And No. 3, the most underused, or underrated, word in the world is passion. I'm driven by passion. I'm passionate about what I believe in. I'm passionate about what I care about. I don't hang around anybody who's not passionate. I have no interest in people who don't care a lot about what they're trying to accomplish. Shwed: I would add two things. The first is to always challenge yourself and always try to improve. I think that is the least you can do, and something that I am trying to do every day. It is what I am trying to do for others, and trying to do for myself. The second thing is to have a regimen that you stick to. Persistence in business is critical. Persistence lets you go beyond the day-to-day concerns and to really achieve and be successful. Maoz: We would like to thank the both of you for coming to Israel and visiting with us. Your thoughts on leadership are just terrific. The best of luck to both of you.