Ex-Rackspace CEO talks about fast growth and fighting Amazon

May 20, 2019

By: Greg Jefferson, San Antonio Express-News

Lanham Napier, the frenetic former Rackspace CEO and evangelist of the cloud and managed hosting company’s storied Fanatical Support, was in Boston with his family last week when we got him on the phone.

His son was about to graduate from boarding school, and Napier and wife, Dacia Napier, wanted to watch him pitch in the last few baseball games of his high school career. Cade Napier will be a freshman at Yale University next fall. For now, he’s interested in environmental engineering.

“I had a much smaller worldview than my son does,” Lanham Napier said. When he was a high school senior, he took the SAT once, applied to just three colleges and hadn’t traveled much.

Napier, 48, grew up in Houston. Although his mom was a schoolteacher and his dad a professor of management information systems, he said he wasn’t interested much in academics. Having attention deficit hyperactivity disorder didn’t help.

Nevertheless, Rice University accepted him, putting Napier on an elite track to Harvard Business School and the corner office at Rackspace during its heady, high-growth early days.

Napier wrote about his experiences at what remains San Antonio’s largest tech company in “Billion or Bust! Growing a Tech Company in Texas” (published Jan. 1 by Braun Ink). The book is brief — 166 pages — and fizzing with the energy and enthusiasm of its author.

Napier left Rackspace five years ago after a sharp disagreement with its board over the best strategy to pursue in light of increasingly brutal competition from Amazon, Microsoft and others.

Apollo Global Management, a New York-based private equity firm, bought Rackspace in 2016 in a $4.3 billion deal and took it private. In February, it carried out its third round of layoffs.

“Restructuring is necessary, but, man, it’s hard,” Napier said. “My gosh, that’s heartbreaking.” He added: “I hear from (Rackers) all the time.”

Napier and his family live in Alamo Heights, though he spends most of his weekdays in Austin developing BuildGroup, a platform to allow small investors to put money in startups.

Following are excerpts from “Billion or Bust.”

Napier, as a recent Harvard Business School graduate, went to work for local real estate development firm Silver Ventures, backed by billionaire Christopher “Kit” Goldsbury.

As a creative genius, (Goldsbury) had a peculiar way of thinking. He could transform the ordinary into the extraordinary. Take our office space, for example. Kit loved Mexican art, so he transformed a former church into a hacienda-style office space. He decorated it with hand-painted turquoise and terra cotta Spanish tiles, colonial Mexican furniture in the offices, hallway benches covered in traditional serape fabric, and Mexican folk art.

Quincy Lee, a hedge fund manager in Houston and high school friend of Napier, urged him to become Rackspace’s chief financial officer in 1999.

I thought I may as well meet with Graham Weston and Morris Miller at Rackspace.com, early investors in the company. Graham had built a successful real estate business and made a name for himself as an exceptional entrepreneur. We met at The Mexican Manhattan on the banks of the San Antonio River.

He reminds me of Messy Marvin, I thought.

Marvin is a blond kid from the 1980s Hershey’s syrup commercials. Graham had little round glasses like Marvin, although Graham seemed much more comfortable in his own skin than his Hershey’s doppelganger. Graham told me about Rackspace, and I liked what I heard. I began due diligence, knowing I had to work to understand the product and industry. It had been years since I had programmed in FORTRAN and BASIC, and my only internet experience was sending email through my America Online account. I bought “How the Internet Works” and began reading.

He joined Rackspace and put together a growth plan.

I wanted our strategy in San Antonio to be long term, for us to believe that one of our main competitive advantages was that we made investments for a big, long-term, billion-dollar future. I thought that although we might not have a huge base of knowledge workers, we could think bigger and longer term; our move today would make us a force to be reckoned with in 10 years. … That’s how we would win in the roughly $13 billion global managed hosting market.

Napier was promoted to CEO in 2006 — as it became clear that Rackspace had outgrown its headquarters in downtown. The company had to find a new location.

I had never heard anyone at Rackspace seriously consider moving the company to Austin. Rackspace investors were from San Antonio, and the company’s co-founders (Richard Yoo, Dirk Elmendorf and Pat Condon) had all attended Trinity University and met in San Antonio.… But as CEO, I felt I had to consider the possibility of moving. From the standpoint of someone whose job was to execute on growing the company, I thought Austin made for a logical choice as a headquarters location. It offered a much bigger base of tech talent, which would improve our odds of successfully going public and growing to a billion in revenue.

But Napier eventually backed a compromise.

We developed a detailed action plan for tapping into Austin’s UT graduates and the former Dell people. It started with our quickly creating a satellite office in Austin and recruiting people to it, but we would keep our headquarters in San Antonio.

To believe in this, we had to set a vision in which Rackspace would become to San Antonio what Dell was to Austin.

Rackspace moved its headquarters to a boarded-up mall in Windcrest.

This was by all accounts a crazy idea. Windsor Park Mall opened in 1976 as a shopping plaza with stores including The Athlete’s Foot, Casual Corner, Walden Books and J.C. Penney and a food court that included Chick-fil-A, Dairy Queen and a game room. The mall stayed vibrant into the 1980s, but then it became a mess. Gangs started to overrun Windcrest, and shootings near the mall became a regular occurrence. People didn’t want to shop there anymore, and in 2005, it shut down …

Graham loved this idea from the start. He was a real estate investor in addition to his role at Rackspace, and he had been working on a theory that malls across the country would fall apart as retail shopping gave way to online shopping, and a lot of their space could be repurposed as tech campuses …

We spent over $100 million on renovations. We received $72 million in tax abatements and development grants from the state of Texas and the city of Windcrest …

Malls connect people to stores, and in our renovated building, we retained that “connected” theme. We made the offices open, casual and expansive. Each Racker had a desk, chair and cube — which we ironically called our “power cubes” — and we clustered the cubes into groups.

Rackspace began to hit its stride around this time.

By 2007, we were a team of 2,000 people, energetic and passionate about our work. We had a very low employee turnover rate of 6 percent, and our undesired turnover, which is departures we didn’t want, was even lower.

But around the same time, a nearly unstoppable competitor was coming for Rackspace’s lunch.

In building the largest online retail service in the world, Amazon created an enormous infrastructure of servers that supported its business. In 2006, Amazon decided to repurpose this server infrastructure — it created Amazon Web Services, or AWS, and entered the hosting space.

AWS rapidly gained about 200,000 web hosting customers. Overnight, we had a competitor with enormous infrastructure and the deepest pockets imaginable. Its entry into our market dramatically raised the stakes and the amount of capital we needed to spend to compete …

I concluded that to compete against AWS, we needed to compete on quality. I would need to manage a challenging combination of very high growth and best-in-class quality. Every day I went through the front doors at The Castle (Rackers’ name for the headquarters) obsessed with the specific actions we needed to take to maintain the best quality in the managed hosting industry while further increasing our already high growth rate.

As the threat from Amazon — and later Microsoft — intensified, Rackspace’s leaders weighed their options, including partnering with one of their major competitors. Napier wanted to pursue that option. But Weston and Rackspace President Lew Moorman pushed for Option One, continuing to pour money into its OpenStack offering.

Their position infuriated me, but they held firm and united, and I could do nothing to change their minds. We took our disagreement to the board, and its response completely dismayed me. The board believed we should pursue Option One, not Option Two, so we shouldn’t pursue the partnership with BigCo. The board believed pursuing Option Two meant getting in bed with the competition, and the board had no interest in that. They wanted OpenStack or bust.

I detested the decision. The mandate to pursue Option One felt to me like being told to bring a knife to a gun fight.

Napier’s working relationship with Weston and Moorman soured.

I stopped trying so hard to maintain my strong working relationships with Graham and Lew. First, Graham and I stopped talking on the phone every night. When we were aligned in our strategic thinking, our relationship was straightforward. When we weren’t aligned, life in the C-suite became difficult.

Napier left Rackspace in early 2014. A little more than two years later, Apollo Global Management bought Rackspace.

I hope Apollo keeps Rackspace in San Antonio, and I hope that over time, Rackspace spawns entrepreneurs and innovators who create additional new jobs in San Antonio. Our angel investors came from San Antonio. They knew almost nothing about our industry and not much about growing a tech company, but they helped us have a sense of place and enabled us to stay in San Antonio. I think if Rackspace had started in Silicon Valley, the un-techie notion of offering Fanatical Support may have been silenced quickly or died soon after being introduced.

Greg Jefferson is business editor of the San Antonio Express-News. Read him on our free sitemySA.com, and on our subscriber siteExpressNews.com. | greg.jefferson@express-news.net

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