Terry Ryan talks about business in the past vs. present, early stage mistakes, and which startups catch his eye.
Q. You started a company in 1994 that eventually was acquired by one of the world’s biggest technology companies. Are there any market differences now vs. back then that makes growth easier or harder for an early stage company?
Let’s start with what makes things easier in today’s market and time. In the past two years, we’ve proven that leveraging cloud architectures and Saas-based applications makes a dramatic difference in everything we do, from the foundational and infrastructure side of our company as a day-to-day business, all the way to what we offer clients. This not only makes things much easier, but it brings cost through the floor.
Let’s talk about cloud architectures and the range of things that it does to ease. In the past, you may be looking at buying hardware, software, office space, and everything else – like an accounting system, call center system, development tools. Today, you don’t buy any of the hardware, basically. Let’s say you might buy 1/20th of what you previously spent for hardware. Now you’re paying for things like terminal access to Internet time; mobile devices; things that bring the connectivity piece together.
And then there’s software. But in today’s day and age, you want to stand up an accounting system for pennies on the dollar; a call center for pennies on the dollar; rent time on development tools for pennies on the dollar. In the cloud, all those things are there for the taking, with a lot of information out there to help you choose the best platform. This has dramatically shifted the infrastructure side of a business. In the past, it would take a lot of time and money to implement these physically in your own facilities. In the cloud, you piece these things together, they work very effectively, and your costs are through the floor.
LaunchPoint has been doing this for two years. When we started, we wondered if this was reality. We found that it really is that good and cost effective. That makes it easier to start and build a company, service customers, and get to customers. There are so many areas of cloud-based advantages beyond just infrastructure. For example, the numerous marketing and sales tools in the cloud to help you get closer to customers. These things, from my perspective, make it easier to get to the hard pieces of our jobs much quicker and cost effectively.
Let’s talk about what’s harder in business now. Back in the mid-to-late 90s, venture money was easier to come by. It was still the same legal, preview, and visibility effort, but there was a lot more money to be invested. The hardest thing now, especially in this economy, is deciphering who truly has money vs. those who are just mixing the pot. You need to get to those who have good funds, have been returning funds, and have raised money even in these past couple years – and then get their attention vs. everyone else as a startup. Venture capital risk decreases when funds are allocated to more mature businesses, so startup funds are hard to find. Of those you can find, VCs see less risk going after another class of businesses that are just beyond startup – those that have revenue streams of $3 million, $5 million or $10 million. Putting money behind these companies or doubling down behind an existing portfolio company that’s slightly in trouble are easier and less risky plays as compared to investing in a startup that’s just starting to see revenue. So institutional money is way tougher than I think anyone’s ever seen. From what I understand, it’s not going to get any easier. Market dynamics are much harder now. In the 90s, it seemed like we had someone knocking on our door every week wanting to talk to us about investing in Knightsbridge.
Q. What’s the biggest mistake that you see companies make in their early years?
One of the mistakes startups make in their early years is that original founders do not think beyond themselves. They don’t realize that what they are trying to accomplish is way bigger than what they can handle or are qualified for. If the early people in a company want to go bigger, and scale really fast instead of really slow, they must worry about how to surround themselves with people who can do the job.
Yes, in turn that means they have to give away equity. But getting the right person in early is a super huge leverage point. If you pick the wrong person, it’s a super huge degradation to the business. As a founder, your job isn’t just to be a founder and to protect your equity and cross your fingers that things will work out right with the people who surround you. It’s to logically think beyond you, and make the right uses of the resources at your disposal, be it the salary you pay someone, or use of options, stock, or benefits to surround yourself with bigger, bolder, better people who can help the company scale faster.
The second mistake is very interrelated: young companies don’t realize how important their leadership team is. The most senior people in every department at any given time are critical to driving direction of the company. In the last five years, I’ve looked at many businesses to invest or just keep an eye on, and I’ve consistently seen a gaping hole in their management team – or someone in the management team is doing something that they aren’t credentialed to do, or don’t love what they do, but are trying their hardest to make it work.
Companies need to build out a credentialed leadership group so that as they evolve, they divide and conquer and put functions and responsibilities in the hands of those who have the right experience and know-how to stay out of the terrible traps and get the job done cheaper and faster than before. Keep expanding the group of senior people plugging around you. The more you do it, the more synergy you create because you have more people focused on what they love to do. What not to do is have a CEO try to handle HR on the side.
The third mistake: I’ll call it the bounds of risk. I see a lot of companies that have too singular a focus. In contrast, there are those companies that almost have no focus. Both are incorrect as an approach.
A singularly focused company is one that has only one thing they want to do, and don’t want to morph from it. Early stage companies need to be ready to morph, remodel, rethink, and learn from what they are hearing on the marketplace, and then recreate on a regular basis. You need to go back to some foundational stuff: why are we in business? What technology wave are we trying to ride? What kinds of apps are we trying to bring to market? Are we building IP? These things need to be answered for some fundamental stakes to rally around, but you want to be able to morph the business. If you stay too focused all the time, you can’t do that.
At the opposite end of this, some companies do whatever comes at them willy-nilly, hoping that something will stick. Anything that comes from any direction, or any customer opportunity, they might chase. This pulls a team of any size in too many directions. Even a small group won’t accomplish anything and will run from one thing to the next without enough focus and direction.
Aiming for the middle is important. You need flexibility, but bound it with some stakes in ground. A longtime mentor of mine taught me to consider: how many things do you want to be trying for the first time at any given time? If there are three things that you are testing, piloting, or trying to move to a new level, that’s probably enough. This means that you’re allowing the business to be tested, stretched, morphed. But there’s still a plan in place, and you regroup to evaluate how those three things are doing. Do we shut them down? Keep going? Replace one with something else? Decide your three stretch goals. Be pliable and moldable in early stage, but with direction and clarity.
Q. What attributes do your current Launch Companies share in common?
The businesses we are building aren’t focused on the infrastructure. They are focused on business solutions. I don’t want my early teams focused on cell phone contracts with AT&T. Or worrying how to get our monthly financials out. Or where our business cards come from. All of these are the wrong focus. The LaunchPoint model means this infrastructure is prebuilt. We’ve put all the following in place: healthcare plans, dental plans, office space. What cloud architecture we’re using. What email system to use. The list goes on. We have a lot of good review and decisions being made. So our strict focus is on the solutions we’re building, and how we’re marketing, selling and servicing them. Any specific and unique IP, anything patentable, or that makes your proposition sing in front of a prospect or customer – that’s what we focus on. Our companies believe in this model.
Beyond this, we look for companies that believe in the future of cloud and SaaS-based architecture solutions. We’re interested in companies that agree that building intellectual property, patents, and software is a better game plan than just a pure services play. Companies that take their offerings to the level of a true business solution with real business value, vs. building just an architecturally cool techie widget. We’ve looked at some opportunities where it seemed like a perfect fit, but then the business solution itself didn’t have legs.
Lastly, we are looking for businesses that agree to a three-to-five year build period. In this time, there will be a ton of activity and a great deal of hard work. We’ll nail the market strategy, scale the business, put the right pieces in place, and then make key decisions at a checkpoint in three to five years. The cloud shortens this horizon.
Q. What grabs your attention about potential Launch Companies you are watching?
I watch a lot of different companies, and have talked with a lot of different companies. Some companies are still in the idea stage, where literally the ink is still fresh from putting pen to paper for their business plan. For these companies, you need to size up the concept and business plan. How good are they? How much can the founding individuals bring to the table? When combined with LaunchPoint’s model, what is the potential of the business solution? There’s a boatload of value that the LaunchPoint model can bring to companies at this stage.
Other companies might have two or more people dedicated to the business, perhaps part time for a year or two. Maybe they haven’t left their current jobs, and are taking time and seeking money to build the business. You need to evaluate these companies differently. You need to find out how serious they are. Why haven’t they been able to solve some of the problems yet in front of them? Then we need to look at how beneficial the LaunchPoint cloud can be for them. If they understand the world and value of cloud and SaaS, have a business solution that truly makes a difference with a huge market value, and have the right people are involved and in the right roles, this is another good fit.
So these two classes of companies hold potential for us. There’s a third type that we’ve self invented, like a stage zero (as opposed to stage 1 or 2 that I already addressed). This is one that we’ve conceptualized and brought to market ourselves – like we did with Discovery Health Partners and Ajilitee.
Some companies are interesting to watch even though they are not potential Launch Companies. They might be a couple of years in and have achieved magic fast, like Groupon or Mint, which was acquired by Intuit. I watch how these fast-movers go to market, how they are scaling, what their growth is, why they are getting so much visibility, what their business solution is, and what makes it so different. I look at it from the perspective of whether we can apply some of the things they are doing in a common framework to what we’re doing, like social media. We need to learn from the new techniques we see from these golden gems to see the potential for our own model.