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Founder in Action: Allen Alley.

Replacing the 'B' Word

Allen Alley refuses to implement a budget, and Pixelworks grows to nearly $10 million.

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Budget" is a dirty word in Allen Alley's mind. For years, he watched what happened during budget season in the companies where he worked. People fixated on getting the most resources they could for the upcoming year — and ignored their real jobs in the process. Managers argued their way through endless meetings or began spending foolishly to exhaust their budgets — just to prove they needed the same dollars next year.

"Business was changing rapidly. Things we thought would be hot weren't, things we thought wouldn't be, were. We weren't getting what we wanted out of it," says Alley. "And after we adopted it, it was like it was the employees' inalienable right to spend the money."

When Alley hit the entrepreneurial road in 1997, he took an additional risk: refusing to establish a budget. Yet Pixelworks, Alley's Tualatin, Ore.-based company that makes chips for flat-panel display products, has quickly grown to $10 million in annual sales and 45 employees.

But it wasn't a budget that put Pixelworks on the fast track. It was a plan. "When someone has a budget, they go out and spend it," observes Alley. Pixelworks wields its plan as a guidepost; instead of a license to go out and spend, it's a "yardstick to work against." In fact, on the expense side, your ideal budget is zero, adds Alley.

Pixelworks' plan is ongoing. Every six weeks, Alley and the managers take a look at their roadmap and update it.

The approach is very top-down. Managers don't ask employees what they need to get the job done. They tell them what the broad market will support, how much the company should be able to sustain in each segment, and that's the yardstick for how much to spend. Then Alley asks every employee to act like an owner.

"I tell them to treat every expense as if it's overplan or overbudget. There might be a $10,000 copier in the budget, and we needed it three days ago. But we don't need it now because a new copy shop just opened next door."

Is this just an exercise in keeping costs low? Hardly, says Alley. In fact, he's quite willing to spend lavishly on things that leverage the business, even if it hasn't been planned for.

"If somebody says, 'I could be 30% more productive with a new computer,' we don't say, 'The budget says you can't have one for six months.' When you really need something, you don't get jerked around," he explains.

Making It Work

That's not to say that Alley works completely without a net. He does actually set annual projections for revenues and expenses and boasts that he consistently comes extremely close to hitting those numbers. But he and his shareholders, he says, aren't nearly as concerned with how much the company spends as with how much the company earns.

Alley judges his employees by how well they hit the company's business goals, not whether they stay on a budget. "I paint the vision, tell them the things that are really important: delighted customers, a family of chips and millions of dollars in sales," he says. "We don't say the 'B' word anymore."

Writer: Kathy Watson

This article was originally published in the May 2000 issue of The Edward Lowe Report.

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