June - 2002 issue > Business
Built To Last
Saturday, June 1, 2002
Henry Ford’s descendants can still see the results of his work on roads throughout the world. The Walton family witnesses Wal-Mart stores in almost every American town. Yet so many high-tech entrepreneurs of the late 1990s have nothing much to show for their success except a fat bank account, and maybe a fancy car.

Given the right market conditions a lot of people can make millions of dollars very quickly. The technology boom of the late 1990s is precisely proof of that. That doesn’t change the fact that in any market conditions, creating enduring companies is infinitely harder than just making money.

This distinction couldn’t be more relevant in the Indian entrepreneurial community. During the late 1990s many (not all) of the big hits scored by Indian tech entrepreneurs came either from acquisitions or exits on the public markets that didn’t translate into sustained shareholder value. In other words, entrepreneurs (the lucky ones) got in and got out, driven by a VC-centric way of thinking at the time that valued short term returns over lasting value. With that all far behind, has there been a shift in thinking among tech entrepreneurs?

A look at the real legends of the technology industry reveals an oft-mentioned fact: Almost all of the greatest companies are run in large measure by their original founders. Microsoft, Siebel, Oracle, Dell, Apple, and so on remain the cornerstones of the technology industry, and all still feature their iconic founders at the helm. So what does that say about the stereotype that entrepreneurs don’t make good CEOs? What kind of entrepreneurs are we talking about here?

Attitude Adjustment
“There is no birthright. But if there is a founder who can scale, such companies, in my opinion, tend to be longer lasting,” says Subrah Iyar, CEO of web-conferencing company WebEx. Nav Sooch, CEO of fabless semiconductor company Silicon Labs agrees with Iyar. “There is a stereotype that entrepreneurs are not necessarily great public company CEOs,” he says. “That can apply, but if you look at these great companies you find entrepreneurs running them.”

Many entrepreneurs say they admire Bill Gates and Larry Ellison, but with Iyar, it seems to really mean something. “That’s the class of people I admire,” he says. And it’s not their money he’s really talking about. “Those guys are unmanageable,” he says —something to aspire to?

Both Sooch and Iyar are still CEOs of companies that they founded and grew in the heady days of the mid 1990s. The two have different styles and personas, and some differences in their management philosophies. But both were first time entrepreneurs, and both have reaped enviable wealth from their individual companies. Neither looks like he will be retiring to Hawaii any time soon, however. Perhaps most importantly, of the Indian-founded companies that went public over the last three years, WebEx and Silicon Labs are among the top performers — their stocks down to realistic but respectable levels from IPO highs. And it seems to have a lot to do with the attitude of their founder-CEOs.

“When I met young entrepreneurs during the boom times, the stripes they carried where ‘I got funded by so and so VC,’ and that for me was very strange — most saw it as ‘I got funded now I’m done,’” says Iyar. “They would think ‘If I can’t do it they’ll bring someone in that can and that’s it I made my money.’

Iyar is quick to qualify his comments. “I don’t want to pass a value judgement,” he explains. “All I have to say is that that’s a different drive than putting your time into something and wanting it to endure.” This may just be the point. Entrepreneurs who focus on starting companies and getting an idea off the ground (most likely with VC help) are not wrong, per se. Just don’t count on the companies that they start being household names a few decades down the road.

“My opinion is that each individual is unique,” says Sooch. “And there are only certain individuals that can scale from three employees to thousands of employees.” No doubt dozens of founder CEOs have run their companies into the ground, and keeping the founder in the top spot is not a certain recipe for success. The Bill Gates’ of the world are a rare breed. Indeed most founders-turned CEOs that have had success stress the importance of knowing your limitations as a CEO.

Sreekanth Ravi, founder of internet security company SonicWall took his company public and ran it successfully as a public company for two years before handing over CEO duties to Cosmo Santullo in October 2001. “As CEO, I decided that the company would be better off with someone who could take the company to the next level of growth,” says Ravi.

But Ravi questions the mindset that high-tech entrepreneurs have from the outset — even now. “Many people still come to me for advice on how to build a company that has the best chance of being acquired by Cisco,” he says. “That is just such a foolhardy move. Because a VC tells you that you should be spending your money on a fancy office and Wilson Sonsini as your attorney and pitching to Goldman Sachs from the beginning, or developing a relationship with them. Those are all very foolhardy things to do.” Ravi continues, “People started getting a sense of entitlement that ‘I need to be leader and an entrepreneur or a CEO.’ That’s bogus. Those are anomaly periods that don’t happen often and if you were fast enough to slip through that window it does not mean anything about your ability to do it again in a down market.” He points out that eToys and WebVan were both Goldman Sachs and Kleiner Perkins deals.

“The reason [Michael Dell, Larry Ellison etc. are still so active in their companies] is that they bring in a different drive — it’s like building something,” Says Iyar. “Not all entrepreneurs are that way. Some people are sprinters and then there are marathon entrepreneurs. And it’s a mindset — what are they trying to do?”

Sooch explains, “We never set an IPO as an internal goal to rally people around,” he says. “Because if you do that, what happens after you go IPO?”

Staying in the Game
When Iyar got together with WebEx co-founder Min Zhu in 1995 at Future Labs (the predecessor of WebEx that was founded by Zhu in 1991), Zhu was struggling with the company. “In 1995 he wanted to give up and I said no,” says Iyar. “I had been working on networking [at Intel] in the 1980s. In 1988 I quit, saying ‘this network thing will never happen.’ And I went to PDAs [at Apple]. I was into the next hot spot. Networking happened in 1991 around Cisco. But I was doing PDAs, and for that, in 1993, we were again early to market. By 1994 I was a cynic. When anyone said the latest hottest thing it was the first thing that I turned away from.”

Iyar points out that there are market opportunities that involve incremental improvement — perhaps building a cheaper or faster version of an existing product type. Then there are problems that involve a change in end-user behavior. The latter take much longer to mature, but, if successful, have more staying power.

Given that they were trying to change user behavior, Zhu and Iyar didn’t want to go to VCs. “Our game plan was to figure out how to stay in business by doing consulting,” says Iyar. “VCs will tell you never to do that, but their pitch you about staying focused and time to market is all self-serving. Let me tell you, if you can run a business as well as a consulting business, that shows you have the capability to scale, because eventually when the business reaches scale it’s not one-dimensional.”

Iyar and Zhu were patient. Iyar explains that he was operating under the assumption that the Web conferencing WebEx was developing would take off in earnest some time in the next ten years. “I used to think, ‘It won’t happen over night, but one fine day it will be all around you. Our job is to stay in the game,’” he explains.

The company worked on getting paying customers. The strategy was to take no outside money for engineering and get market approval for the product, then raise outside money for marketing. In 1999, WebEx had enough customers. Iyar approached bankers and found that because he didn’t have a name brand management team, they wouldn’t take him public without name brand VC investors and strategic partners. So he went to VCs and strategic investors and gave them what he calls “a freebie,” in return for a small fraction of the company. WebEx went public in 2000.

Because Iyar and Zhu had built the company organically, they were in a position of strength. Asked if VCs pressured him to find a more experienced CEO to take the company public, Iyar laughs, “How could they pressure me, I owned the company. All of these people were given a small piece of the action. Good entrepreneurs don’t want to give up control of their company.” Iyar adds with characteristic levity, “Look at Larry Ellison and Tom Siebel, they’re not going to say ‘Mr. VC you know more than me, tell me what to do.’ That doesn’t go with that character.”

Where Do I Park My Ego?
Does this mean that lasting companies have to be founded and managed by egomaniacs? It’s a judgement call in terms of the egos of figures like Ellison and Gates, but a public company CEO doesn’t have to be an uncompromising dictator.

Sooch, who himself is relatively unassuming, explains, “The company has to get beyond being about just one individual. My philosophy has always been to surround myself with people that were smarter than me in their individual skills. I’m still very actively involved in the strategy of the company and communicating the message, but as the company grows you have to add talent.” Sooch has his COO Dan Artusi taking care of most of the operations.

But asked if anyone else can find the passion to succeed that founder CEOs can have, Iyar admits, “Most of the time the answer is no. For founders it’s more about the ego and about their creation. Professional managers by definition are managed by the world of professional metrics. And those metrics tend to be things like stock price, profitability, revenue etc. Founders are not looking for the stock price to be somewhere in five years so that they get a big bonus. They are not looking to their board and investors as their last voters. Founders measure themselves on what sustains, ten years from now. You are competing against yourself, your idea of who you are.”

“Someone who joins a company at this later point in the game is more of a process person and less of a visionary and someone who works on gut feel,” says Ravi.

Iyar, Sooch and Ravi are perhaps not exactly in agreement on how much having a founder in the CEO role matters. “Loyalty to the founders is typically much higher. People don’t question your right to that position. So if you have the right attitude you are less susceptible to politics, because it is your business,” says Iyar. Sooch doesn’t stress this point as much. “I would say founders should try their best to assess their own situation and be realistic. If you feel you have the skills to run a company as it gets larger, then I say go for it, but you have to be realistic,” he says.

Ravi clearly thought it would be best to step aside. But since Cosmo Santullo replaced him, SonicWALL missed its earnings for the first time since IPO, and that precipitated a layoff. Though there is clearly no causality between Ravi’s departure and the tough quarter, one wonders what confidence or political issues have arisen concerning Santullo’s leadership. Nobody said business was easy.

After The Party
Everybody is looking for big wins. That will remain a constant. But lasting wins don’t happen overnight — and if they do happen over night they tend to collapse overnight. The question is how many entrepreneurs, coming off the high of the late 1990s, have understood that and have that kind of patience.

“My view is don’t be fooled by the hype, says Ravi. “Right now even though we’ve been through a big downturn there is still a lot of hype out there from different sections of the industry, like investment banks and VCs.”

Not everybody can build a lasting company, and not everybody has to, but it may be that the technology industry is still struggling with its hangover from the bubble. Examining some of the few lasting success stories points to a firm commitment to stay the course among founders. And that seems to make much more sense now that getting in and getting out has become next to impossible.

The ethic of serial entrepreneurship preached extensively in Indian tech entrepreneurship circles is not the wealth-creation machine it was during the boom. An ethic of sustainable company building — fewer angel investors and more charismatic company leaders — is likely to leave more a lasting impression on the industry over time.

“For me what makes it work is that it is intrinsically interesting,” says Iyar. “It’s not a means to an end, not the idea that the stock is worth so much. That’s actually quite boring. What’s exciting is building something.” Of course the money doesn’t hurt, but fair value comes over time.

If you have more query about magazine please send mail to
Download SiliconIndia magazine
Download now for free Download now for free Download now for free Download now for free
Oct 14 Sep 14 Aug 14 July 14
SiliconIndia About Us   |   Contact Us   |   Help   |   Community rules   |   Advertise with us   |   Sitemap   |  
News:       Technology   |   Enterprise   |   Gadgets   |   Startups   |   Finance   |   Business   |   Career   |   Magazine  |   Newsletter   |   News archive  
Cities:        CEO   |     Startup   |   Mobile   |   CIO   |   Women   |   BI   |   HR   |   SME   |   Cloud   |   Marketing   |   QA   |   Java   |   Web Developer  
Community:      Members   |   Blogs   |   Indian Entrepreneurs   |   Gyan   |   Advice   |   Community   |   Find   |   CXO Insights  
Job Board:      Jobs   |   Freshers   |   Companies   |   HR Speak   |   Forum  
Online Courses:   Web Developer   |   Java Developer   |   CCNA Training   |   SEO   |   SAS   |   SQL Server 2005   |   J2EE
Education:   MBA   |   MCA   |   Engineering   |   Training Institute
Life:          Real Estate   |   Travel   |   Finance   |   Gadgets   |   Movie Reviews   |    Jokes  
Send your feedback and help us continue to improve SiliconIndia
© 2014 InfoConnect Web Technologies India Pvt Ltd. all rights reserved