Patel

It took nearly a decade. But Isilon Systems has finally turned its first quarterly profit. The Seattle maker of digital storage products expects that trend to continue in 2010, with CEO Sujal Patel telling TechFlash that Isilon should be profitable this year.

But this isn't an earnings story, as much as it is a turnaround story. It's been a long, long road for Isilon, which struggled to recover its bearings following a series of accounting oversights after its spectacular debut on Nasdaq in December 2006. Those oversights -- coupled with a lack of customer focus -- led to a management shakeup just 10 months after the IPO in which co-founder Patel was reinserted into the CEO post.

Expecting twin boys at the time, the young tech executive thrust himself into saving a company that had lost its way. After all, this just wasn't his company. It was his baby.

Patel's job was not easy. Wall Street had lost faith in the company. The stock had lost more than three quarters of its value during the short period between Isilon's IPO and Patel's return to the CEO post on October 23, 2007. At the time of that executive shakeup, I noted that Patel -- a former RealNetworks employee who had been serving as Isilon's CTO -- had no experience running a publicly-traded company. He was 33 at the time.

The odds were certainly stacked against the company, which faced competition from storage giants such as EMC and NetApp.

"We saw an incredible market opportunity, but the company was not executing well," said Patel, whose company makes a network appliance that helps customers such as NBC, Eastman Kodak and MySpace store massive digital files.

Further complicating matters were some problems in how Isilon recognized revenue, accounting issues which forced the company to delay its financial results and initiate an internal audit investigation.

"You can imagine trying to sell to an enterprise customer when you have that cloud over you," said Patel. "It is just incredibly difficult, so we went through the process of cleaning up what was behind us."

Vice president of engineering Brett Helsel dubbed that dark period the "the apology tour of 2008" because Isilon executives spent the first months meeting with top customers, apologizing for the company's missteps. On his first day back in the CEO office, Patel said he made something like 100 calls to customers. He also introduced a new rallying cry, ICF, which stands for Insane Customer Focus.

"We had sort of lost this piece of the culture that we had back early in the company's life of customer focus. Always being 100 percent focused on the customer, focused on what the customer needs, how to solve the customer problem -- just listening to customers," said Patel.

Isilon not only reached out to customers, but it also took a deep look at its own management team. Of the company's top 12 managers, only one is a holdover from 2007.

"To some degree, we have reinvented the culture of the company and kind of returned back to earlier-stage roots," said Patel. "The company today is a tremendous amount leaner and meaner and more efficient than it was."

The company made minor tweaks, replacing more costly bottled water and hosting contests to see which employee could stay in the cheapest hotel. It also made bigger changes, cutting 10 percent of its workforce in in April of last year.

The new corporate philosophy paid off in the fourth quarter. Isilon posted its first quarterly profit as a company, albeit a tiny one. Net income came in at $140,000, which compared to a net loss of $4.3 million for the same period in 2008.

Meanwhile, revenues increased 18 percent to $37.5 million as Patel said they've started to see a "glimmer of hope" in the economy. For the full year, revenue was up eight percent to $123.9 million.

"What we are excited about is that we think that those results -- and the validation it gives for our business model -- really gives us a lot of momentum as we head into 2010," Patel said. The company now employs about 365 people, with 18 open positions.

Isilon, of course, is not out of the woods yet. The stock -- trading at $6.61 -- is still way below its initial offering price of $13 per share.

Isilon's stock is down more than 70% since its IPO

The company's market value is hovering just below $500 million. That's not where Patel wants it to be.

But Patel -- now 35 -- said that he's gratified with the transition over the past two years.

"I look back now, and boy, yeah it was tough," he said. "But companies have ups and they have downs and if you have a strong team and you have the roots of a strong culture you can get through it."