From Bubble to Bust

"Egdakh bekrav sakinim" ("A Handgun in a Fistfight") by Yoel Gat, Maariv, 268 pages, NIS 79.

On April 16, 2003, Haaretz ran an article on the financial performance of Gilat Satellite Networks Ltd. In 2001-2002, the article stated, the company lost $777.3 million - roughly NIS 3.6 billion. Few people in the Israeli private market can say of themselves that during their directorship of a company, they were responsible for such a financial debacle. Yoel Gat, author of "Egdakh bekrav sakinim" ("A Handgun in a Fistfight"), a cofounder of Gilat and its chief executive officer until he was fired a month before Haaretz published the article, is one of them.

One might expect Gat to devote most of his book to analyzing the collapse of Gilat, which he headed for 16 years. But Gat does nothing of the kind. The book is 268 pages long and only after 200 pages of describing battles, singing paeans and telling tales of valor, does he get around to the company's failure. He spends only 50 pages on this, ending with an account of his new job with Raysat Mobile Antennas. The last page of the book is upbeat: "This is a good period in my life - one of the best ever. Sometimes I think to myself that what happened at Gilat was a stroke of luck." One doubts that the 1,000 Gilat employees who were laid off and didn't find more than NIS 9 million in severance pay in their bank accounts, feel quite as joyful.

Gilat is one of the most resounding boom-to-bust stories in the Israeli high-tech industry. Gat enthusiastically describes the establishment of the company, from the day he left the army - then head of Military Intelligence, Amnon Lipkin-Shahak, refused to back a program that Gat believed in - to the point at which his army buddies joined him and the germ of an idea became a full-fledged company. It is the kind of romantic story that corporate giants love. After all, even Bill Gates started out as a pimple-faced kid with a dream.

The company focused on developing technologies for satellite communication. It succeeded with the help of Israeli ingenuity, a lot of guts and the decision to enter the right market at the right time. Gat writes page after page about the effort that went into winning contracts and taking over companies in the early days. Capitalizing on his habit, bordering on an obsession, of note-taking, he describes the board meetings in painstaking detail, including all the alternatives prepared in case the first battle plan failed. Indeed, Gat, who hailed from the military, sees every battle as a life-and-death struggle. The book is full of military terminology. Gat marks the target, and like a guided missile, moves toward it.

Unfortunately, Gat's odd penchant for documenting every move produces a conglomeration of dry, boring facts that will interest only "insiders." This reaches a peak with descriptions like these, on the eve of the company's first public issue: "00:10 - August 9, 1993. El-Al night flight to New York. Four Israelis - Yoav, Ian, Jean and myself - napping in four of the five middle seats in row 26, tourist class. Upon arrival, we gather in our hotel room to go over the presentation and conclude that we need to buy a color Mac ..." Fascinating.

This inability to distinguish between essence and trivia continues throughout the book. "After the presentation, Bob Eberhardt arrived at SpaceNet as head of the Ford team. This was my second meeting with him, and the longer of the two. We started off with a preliminary discussion of technical issues: antenna size, telephony, handling data files, the cost of satellite transmission ... By the end of the meeting, they showered us with compliments on the seriousness of our approach and our detailed proposal, and said they would consider a trip to Israel." The reader can only scratch his head and wonder why all this excruciating detail is necessary.

Winning over the clients

And if that were not enough, Gat is always asking himself questions: "How do you become No. 1 in the market? How do you increase the size of the potential market? How do you keep turning out a quality product? How can you prevent the erosion of organizational culture resulting from constant growth?" The trouble is that he never answers any of these questions, even indirectly.

Only on rare occasions does Gat tell the really interesting stories, allowing us a glimpse of what goes on in the back rooms. He writes, for example, about how he wins over important clients when they visit Israel: He takes them on a helicopter ride that ends at Masada, where the blend of landscape, religion and history are enough to stun any potential client.

And what does Gat believe is vital when a company decides to go public? Not the quality of the company (although it doesn't hurt), but its "story." Only when the vision of the company - technology, marketing channels, products and potential - comes together to tell a credible story, is it ready to hit the stock market, he writes. When Gilat came out with its initial public offering, it had a good "story." Later, though, the stories got less interesting.

"The IPO forecast lacked the excitement of its predecessor," writes Gat. "The story, which was so powerful the first time around, packed less of a punch this time. Maybe that's why four pages were enough. This time we needed 90." IPO-forecast readers, take note.

Gat devotes many pages to the dynamics of negotiations, which sometimes turn violent. "At a certain point they announced that they would be the ones to decide whether to continue the talks or not. They began to act like real gangsters. Every phone call would begin with: `You have two minutes to say what you have to say.'"

He describes the moment when he came up with the idea of a partnership like Microsoft that would be called StarBand. Looking back today, it is clear that StarBand was a mistake for which the company (and its employees) paid dearly. Although Gat admits that "there was no stopping me. I was entirely obsessed with my dream," one cannot say he is being very hard on himself.

When the book finally gets to something interesting, i.e., the fall - obviously, no one is going to buy the book to read the boring dialogue between "Deputy Director A" and "Deputy Director B" - Gat writes: "And then, one day at the end of November (2000), the world stopped."

The point is that the world had already stopped at the end of March 2000. Gat doesn't say a word about the fact that the bubble had burst eight months earlier. He doesn't mention that the company shares, which had been traded in mid-February at $160 a share, were going for $120 a month later, and then $80 a month after that. In other words, Gilat stock had lost 50 percent of its value by April 2000, but for Gat, the world changed only in November, when the shares plunged another 50 percent, to $40 a share.

Great rift

Only later in the book does he broach the seriousness of his managerial failure (although now he conveniently switches to the plural): "We finally grasped what was happening, but it was too little, too late ... and even then, we found it hard to understand what had gone wrong." In describing the collapse of Gilat and the incredible mistakes he made, Gat's tone is almost whining. "Only three years earlier, we were the hottest thing on the market. Our shares shot up to $180. Gilat was worth over $4 billion. We had the analysts and investors wooing us."

Gat describes the great rift in the company with impressive candor: the squabbles between departments, between the mother company and the subsidiary, between the investors. This is when the reader understands what the author doesn't say explicitly: Gat made a profound mess of things. He was a guided missile, so focused on the target that he forgot that he had a company to run. When the market collapsed, the "Gilat tradition" he so often bragged about went with it. When Gilat stock plummeted, the company fell to pieces and the losses mounted, the new directors demanded his resignation and that of his partner. He writes: "The two of us were in shock. We couldn't believe it. We knew that such a thing was possible ... but nothing prepared us for the blow. For the lump in our throats." For the second time, Gat is surprised by something that everyone around him saw coming.

"A Handgun in a Fistfight" is a missed opportunity. It will mainly interest company employees who will want to read a firsthand account of what happened to their company. The workers and directors of other high-tech firms may find it interesting, too, but they may also find themselves lost and confused. Anyone who is looking forward to a book that seriously explores the responsibility of the person at the helm when a company goes bust will have to wait for another book by another CEO. Gat already has his sights set on the next target.