Tonight, I attended the 1st Annual Entrepreneurial Leadership event at Emory University. I was invited by Dave Williams (via Toby Bloomberg and Sherry Heyl) to come and blog. Wow, how forward thinking is that to have a blogger attend?
I won’t spare you with my crazy adventures trying to get from Alpharetta to Emory university (2 hours in the car) at this time of the day – of course, to find no available parking in Guest Parking. That’s another story…. I arrived late, but in enough time to hear the keynote by Tycho Howle.
If you don’t know Tycho – well, you haven’t been in the Atlanta technology scene for very long. He’s pretty famous around this neck of the woods. You see, Tycho is a serial entrepreneur like myself – and he’s famous for Harbinger. Yea, that’s the big company that defined the term EDI. While EDI isn’t exactly how we define services today – yesterday, Harbinger set the standard for how businesses communicated information between each other using Value Added Networks. But, this session wasn’t about EDIs or VANs – it was about one of my favorite leadership topics – servant leadership.
Tycho spent time talking to the alumni of Emory MBA school about value based leadership and how to treat your employees, your customers and your partners. As Tycho stated, “values and character are the most important”. I couldn’t agree more. We share the same famous saying. It’s often dumbed down these days in our politically correct society. So, here it is with the exact words, from the source and reference:
“So in everything, do to others what you would have them do to you, for this sums up the Law and the Prophets.”
How appropriate for an entrepreneur leader in today’s society? Tycho said that character and values are the most important traits of a servant leader and the best way to grow a business. Tycho spent time talking about how he received so much help during his tenure at Harbinger, and now nuBridges, by treating people with respect and dignity. He said that a lot of people helped him and cared a lot about his success.
There were around 50 or so Emory MBAs at the event — some successful entrepreneurs in the crowd. I was the sore one that stuck out and probably the only one that doesn’t have an MBA from Emory. My degree is in life lessons – having started a number of business and raised quite a bit of venture capital over the years.
After a nice talk by Tycho, he broke into a warm-hearted Q&A with the audience:
How do you know when to exit (and how to exit)?
Tycho said he wasn’t sure he’s the best guy for that. He said he “focuses on execution”. Create a real business and partners will find you. Spending huge amount of time dealing with others ends up most often wasting time. Benn Konsynski added nicely: “and they don’t work on your clock”. Try and build a successful business and it will “sell itself”. Building something: partners and customers will “sell you”.
How do you know when an IPO is a viable exit?
Tycho said, “when you take money from a professional investor, you will need to eventually have a liquidity event”. When Harbinger IPO’d in 1995, they did 7-8 presentations to investors a day for wall street. They ended up having to trade off on dealing with investors and spent most of their time doing this. Tycho spent some time illuminating everyone on well-known challenges with U.S. public companies these days. Tycho said most companies spent on average $2M per year dealing with the effects of being public. Tycho said that some in Congress was trying to do something about this and that the current public markets were “shutting down sources of innovation” for these companies. Interestingly enough, a trend I’m hearing more about these days, Tycho talked about opportunities for a number of companies considering the London AIM marketplace as a vehicle for public market investing. Tycho noted that over 2,000 early stage growth companies had gone public on the AIM and that a number of large middle eastern and European countries are investing there.
How to deal with the care and feeding of investors?
Classic pro entrepreneur advice from Tycho: “hit your numbers” as the “best way to take care of it”. Tycho also recommended that, if possible, don’t put yourself in a situation where an investor is calling all the shots and in a position of full control of the company. Boy, when you’re on the other end of needing money, this is challenging. This goes back to my golden rule: “don’t raise money if you need it”.
What is the planning process you go through starting a new venture?
Tycho says in textbook fashion: “at the outset, think about your three constituents: customers, employees and investors”. You’ll need a plan that encompasses all three. You’ll need to think about the product or service, but you’ll also need to make sure you have an integrated business system and take care of your operational capability, support infrastructure and sales capacity. Tycho noted that so many people fail because they only focus on the development of the product – but then run out of money before they can sell it and make money.
My addition to this advice: “if you’re not selling your product from the beginning and involving at least an early customer to build the product, you’re dead. Just stop while you’re ahead. Worse than running out of money before you sell it — you’ll build the wrong product and you’ll spend the rest of your money trying to fix that.”
How would you value the business idea versus the skill set of the entrepreneur/team?
Tycho says that less than 25% in his opinion is about the idea, the rest is bout the entrepreneur/team. Ideas won’t go anywhere if you can’t execute, period. And, Tycho added, many companies don’t have original ideas and make plenty of money (and then noted, Microsoft specifically).
Tycho had an interesting parting comment before the next question: “Venture capital is like vitamins – what you don’t need, you just piss away”. Wow, what a cool statement from such a classic guy.
How can you tell when hiring people if they have the right values and character? How can we become better judges of character?
Tycho admitted “I wish I could always be right in judgment of people – but I haven’t been”. He suggested that you thinking about business scenarios when talking to potential employees and ask them how they would handle certain situations with a question like: “Gosh, I’m not sure I did the right thing once in this situation – how would you have handled it?”. Tycho coached that some people aren’t experienced enough to be able to properly address the problem from a business standpoint – but others are seasoned enough and they come up with answers that seem like cutting corners or questionable, that you probably will have issues. He admitted: “it’s hard to know the answer to that sometimes.”
What are the biggest opportunities for growth as a values based culture (not necessarily financial)?
Tycho said flat out: “Not sure I’m the best person to address this” and then smartly added that going-green and security are increasingly important to everyone these days.
Someone stated that it was “culture probably was the most important part of creating ethics” and Tycho added that it “starts with the person at the top”. He said that at nuBridges they share a lot of information about the company with their employees even though they’re private. He said that it creates an environment whereby everyone feels like an owner.
What lessons from the public environment have you taken into the private environment?
Tycho said boldly that “it’s good to run like a public company — good auditors, good outside boards and try and run with a quarterly revenue focus as if you were public”. The most important advice he added in my opinion: “you’ll be well served if you can figure out how to build a recurring revenue stream.” That’s certainly the best thing I heard all night. He claimed that nuBridges is profitable and has approximately 65% revenue mix for repeatable revenue, 5-10% professional services and the remainder composed on license sales. Smart man. nuBridges has grown 60% last quarter over the previous year’s quarter and 12% preceding quarter.
What do you do on focusing on research & development (R&D) – what position do you take to ensure the business is growing to take advantage of new opportunities?
Tycho said that it is always a tradeoff, and it’s easy to spend a lot of money generating new product and not selling existing product. He said that it’s different once you’re profitable and added that you always have to ask “at what rate do you reinvest in new product?”.
What is the best structure for a company, S-Corporation or LLC?
Tycho said that in the first 2 years of nuBridges they knew they would focus exclusively on “R&D and no selling”. He said that some investors might be able to use those loses (from investment) to offset their gains from an S-Corporation. However, he admitted that most professional investors can’t absorb those loses and sometimes setup blocker entities to keep those losing from flowing through to partners. He then told us that nuBridge was an LLC up until next week – in which case they switch to a C-Corporation.
What is a real company?
Tycho asked and then answered his own question: “What is the only mistake besides failing? Running out of money”. He said the definition in his opinion of a “real company” is that “its future is in its own hands.” If losing money, someone else controls whether you “live or die as a company”. How true. You’re “self-sufficient” even if you’re not growing much as long as you’re profitable. Tycho gave the best advice you don’t need an MBA to understand: “expenses must be less than revenue” to continue to have life as a company.
And the final question, At which point do you decide which things you can do yourself versus outsource?
Tycho said that they outsource a good bit of their development at nuBridges to India (currently, 30 full time developers in India). He added that they have safeguards in place for protection and that they’ve also outsourced other areas such as their hosting. His suggestion: “Look at each area and ask: which is my core compentency and which one’s are not?” Tycho claimed that if you don’t outsource development to India, you’ll be at a competitive disadvantage. (Personal note, I’m not buying this. He’s drinking someone’s kool-aid here and this trend will be tempered over the next couple of years). He submitted to everyone: “never outsource sales”.
Tycho is a pro and a wise entrepreneur. Not only has he been successful at starting and building large businesses, he’s also grounded in what makes a great leader: focusing on the people, values and character.
A couple things I would add:
- Have fun. Everyone in the crowd looked a little too uptight. Maybe this was part of the Emory MBA persona. Being an entrepreneur and creating a company should be fun. Life’s too short and if you’re not having fun you shouldn’t be doing it since you won’t survive.
- Stop worrying about raising capital and focus on building a business. Venture capital is a necessary part of the building of a large business. It’s not the default way to finance every business. Focus on building something of value and creating what Tycho terms a “real business” and the money will show up. Serve your customers and create something that they want. They will be the best source of capital in the cheapest form – revenue.
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