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bootstrapping your business

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lynne revo-cohen: know what you don’t know

Thank you, April, and thank you to my co-speakers.  SCENDIS truly started in 1984, so I'm sitting here being really humored by how old you guys are.  We were around before there was a Take Your Daughters to Work Day. In fact, having had daughters at that time, lots of people actually looked a little bit askance at my partner and I¾my partner is a woman also¾for even going to work when we had daughters that we should have been staying home with.  So, we have been around for a long time and have seen a lot of changes.  I want to say hello to all the young girls and boys, I have seen some boys in the audience as well, and welcome to this panel this morning.  I also want to tip my hat to Mario and Fran and the Netpreneur organization.  This is the first event that I have been to, and I see what I have been missing, so you can bet that I will be back.

          Mario, we don't really know each other, but you are my hero.  One of these days, my goal is to sell our company and be able to give back to the community what you have given back to the community.  I think it's very, very admirable.  I know a lot of people want to be like Mike; well, I want to be like Mario.

          We have a company that helps mostly large, Fortune 1000 companies deal with the very sensitive issues around workforce diversity and other high-risk areas, such as sexual harassment, racial harassment, discrimination issues, age discrimination and so on.  When I told Drew what we did this morning, he said, “Oh, my gosh, you must be very busy.”

          We work with lots of our clients after what we call “the train wreck.”  Mitsubishi is a good example of that.  Many of you may remember the country’s biggest sex harassment case being filed four or five years ago against Mitsubishi in Normal, Illinois.  We were the company that was hired to come in after all the publicity, bad feelings and after the big lawsuit to fix that situation.  Not a very easy situation to walk into.

          We also were hired by the US Navy to do sexual harassment prevention training after Tailhook, in fact,  Carl Moore, the gentleman who runs our compliance department that does that kind of training was one of the authors of the Navy's policy on sexual harassment prevention that the pilots at Tailhook ignored.  These are the kinds of things that we do.  We prefer to work with clients before the train wreck, and most of the people that we work with actually are in that mode.  They look around, don't want to be the next headline and don't want to have the kinds of problems that some of the companies in the headlines have had.  They hire us to come in and try to do prevention strategies and help them be an employer of choice by having good work force policies where they can appreciate whomever works for them and appreciate their customers, no matter how diverse they are.  In fact, they see diversity as something to leverage to their benefit, not just to manage.

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          When we started the company in 1984, it was before Anita Hill, Clarence Thomas and Tailhook, before all the things that we have come to identify with these kinds of issues, and we really had a passion for trying to do something proactive around diversity issues.  At that time, our issues that we wanted to work on were pay discrimination issues.  For years, it had been documented that men make a lot more than women.  It doesn't matter what profession you look at. We set out mainly to start a consulting company that would help employers see if they did indeed discriminate and, if they did, what could they do about it so that they wouldn't get in big trouble.

          We had no money.  We had no proof of concept that there was a market that anyone would ever hire us, perhaps to do anything other than cut their grass. We had really no business background to speak of. Both Corretta Hubbard and myself came out of the government relations world and that's where we came to know these issues.  So we really didn't know what it took to start a business.

          We also had no fear.  Or, maybe, no pride.  I don't know, but certainly having no fear puts you in a really good position as an entrepreneur, because you can't have any fear.  You need to be able to ask for help in a million different turns and not have so much pride that you can't admit that you don't know the kinds of things that you don't know.  Believe me, when you are starting an organization, if you haven't done it before, there are tons of things you don't know.  You don't even know what you don't know.  And so you have to have no fear¾no pride is too strong¾but the willingness to admit to people that you really need their help and the willingness to ask for it.

          We started with $1,500 apiece, so the grand total we put into the company in 1984 was $3,000.  That enabled us to upgrade my partner's computer in her den and put together some marketing materials.  One of the things we did right away, since pay-equity was such a hot political issue, was to start a newsletter called Pay Equity Trends and we did a national distribution to women's commissions, state agencies, city agencies and people that were looking at these issues and for solutions by virtue of state and local legislation.  So we used the money we had to get awareness that there was such a consulting firm that could do this kind of work, and it drew the attention of the State of Ohio, which was our very first client.  We were two women with no staff and a fledgling company, but we had a dynamite newsletter that the head of the women's commission for Governor Celeste in the State of Ohio was an avid reader of.

          She called us up, said they were about to do a $200,000 study for the state work force for the State of Ohio and asked if we could bid on that project, so we did.  We pulled together a team of professionals that knew a lot about compensation and labor relations and that could help us supplement what we knew.  We knew the political process and what it took to move an issue from point A to point B.  We also knew that we had to surround ourselves with technical people that really knew how to do the work, and that is what we did.

          We funded the growth of our company for 14 years really on client work.  We went from one state to the next.  We used the strength of Ohio to get New Jersey, New Jersey to get Wyoming, Florida, Philadelphia, Ann Arbor.  We opened an office in Canada because the Canadian government passed legislation that required not only public sector, but every organization project as well, to do equity studies.

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          We had a lot of trouble at that time even getting a line of credit.  You may be familiar with some of the stories about how hard it has been for women in businesses to get VC money.  Well, hark back to 1984.  It was hard back then to get any money, and we had a very difficult time getting even a small $75,000 line of credit.  Now, part of that was that we weren't money people, and we probably didn't present as well as we would have if we had known more when going to talk to the banks.  I can remember a banker who has become a friend of mine saying to us, “You two ladies are a little too distant from your finances.”  Maybe it was when we didn't know the difference between revenue and earnings.  I don't know, but we learned, and one of the things we learned is that you never go see a banker without a money person with you.  We learned that lesson very early and we learned about money.  We learned it the hard way, but we really learned about money and we never again went to talk to money people, whether it was bankers or VCs, without people that really understood the way that money people think and could talk in the same language.

          We were always very strategic in our early days about how to get business.  Because we were known, more or less, on the advocate side of this issue, lots of the potential employers looked at us like we might be a little too sympathetic to the women's side and maybe our pay-equity analysis would favor the women and labor groups a little too much.  Knowing that political sensitivity, we were very strategic in finding organizations that had a reputation on the flip side to go and bid with.  For the State of New Jersey, there was a task force that was hiring a consultant of about 30 people, and on that task force were women's groups, unions, corporate groups, as well as the state personnel groups.  We rode the train back with a gentleman with Hay Associates, a well-known compensation firm throughout the country, and we talked about it and decided that we would be a perfect team.  There wasn't anybody on that committee that we couldn't make happy, so we teamed on that project and won it.  We did the same kind of strategy in Canada with Deloitte & Touche on the diversity work and on the pay-equity work, very strategically teaming with people who would appeal as a team to our buyers, no matter what their political persuasion might be. It was very successful for us.

          We did the same thing to win the Mitsubishi job.  That was very high profile.  Everybody read about it in the newspaper.  The company probably got 300 responses from companies like us saying, “We can help you do training in sexual harassment prevention.”  Our avenue was different.  From our lobbying days, we knew the union people in Washington, so we worked through the union to get to the company and then to Lynne Martin who had been hired by the company to do crisis management.  Because we had done other work for Japanese-owned companies, we were a good fit.

          It had to be in 1996 or so.  Corretta and I had been in this business for 12 years and looked at each other and said, “You know, this is fine.  We bootstrapped this thing for 12 years now.  We could do this for a long time more, but do we want to?  Or do we want to turn this company into something that we could really grow, build and potentially sell?  Maybe, after 18 or 20 years do something else with our time?”  We decided that, yes, we definitely wanted to take that course of action.

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          What that meant was that for the very first time in our history we had to look for other people's money.  We had never done that.  When we started our company, we didn't know what a venture capital person was.  It wasn’t in our lexicon really at that point in time, but we met Whitney Jones, who started the first ever small business investment corporation that was earmarked to lend money to women-owned businesses, and we were her first deal.  We got a $1.3 million from Capital Across America, and our goal was to take this little $1 million dollar company and build it to a $50 million company, then sell it at some point to a larger company.

          To do that, we knew that we had to do more than consulting.  We had to actually build technology products that would supplement the assessment, consulting and training that we did.  With the advent of the Internet, we had the ability and the vision to know that if we had a client that had 50,000 employees, the best and quickest way to get prevention training to them through the Internet.

          This was 1996. and there was nobody out there at the time that had a business selling that kind of training and assessment over the Web, so we went out there.  We knew we couldn't do it on our own¾that was one thing we couldn't bootstrap because we knew the cost of technology¾so we got our first round from Capital Across America that allowed us to build our technology platform, then we went out for what I guess you'd call serious money.

          In 1998, we started to look for our second round of venture capital funding, and, again, never lost sight of the fact that it's okay to ask questions and ask for favors from people when you really needed it.  We got a lot of help from our first investor, and a lot of help from friends in the VC community about how to go about doing that.  We had some questions to ask each other: Were we willing to give up control of the company? Obviously taking in VC money meant we had to give up a fair amount of control.  Were we willing to give up equity in our company?  To date, we owned 100% of the stock in our company.  The answer was yes to both those questions.  Were we willing and did we have the ego strength to be told no 20 times before somebody said yes on the 21st time?  Having done this for so long, we said, “Yes, we can do this.”

          So, we set out to do that, and we put together probably a dozen different versions of a business plan that eventually was attractive enough to GE Capital and Bank of America to successfully take part in our second round, a $6 million round last summer, to take this company to the $50 million level that we are looking at over a five-year period.

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          The biggest question is: Would we be okay with knowing there had to be an exit; that this company called SCENDIS would some day not be our own?  The answer again was yes, and that's what it took for us to be comfortable taking on the investors; being totally responsive to those investors; having to sit through, like we did yesterday, the painful quarterly board meetings and answer all the questions that you know ahead of time they are going to ask, but they are still hard when they ask them; and really to be able to prove to people who give you money that you can double your revenue every year until you get to your goal.

          Probably there are things that are very similar even though we are in a different mode now than when we were bootstrapped. The things that matter, however, are still the same.

          April asked me to talk about the relationship with my partner.  We have the same relationship we always did.  We know each other's strengths; we know each other's weaknesses.  We support each other completely and we are very comfortable in a co-CEO role.  In fact, one of the biggest reasons why one VC said no was that he couldn't get over how you could have a co-CEO.

          What do you do when you know you are right?  We have been successfully able to maneuver that, but we are still very political in how we go after our clients.  We are still very strategic.  We still have alliances with law firms and with Deloitte & Touche, and we still do the things that we did well.  I have somebody back at the office now who loves to do all the operations stuff that I hate to do, so this is one of the freedoms you have when you finally have investor capital¾make hiring decisions that allow you to do the things that you really like to do and things that you are good at.

          We still are evolving as the market changes.  We went from pay-equity to harassment prevention to diversity and now to leveraging diversity, and I'm sure we will change our model as we move along.

Ms. Young:  Lynne, that's great.

Ms. Revo-Cohen:  An interesting journey, that's for sure.

Ms. Young:  Thank you very much.  I've actually made a note earlier about something Jeff said that I want to repeat.  There are costs to everything.

          I remember at one point going to a colleague of mine at George Mason University with an idea that involved a third party, and he said, “April, you need to understand that the reason I became an academic is that I don't want to work with other people.”  Now, that's a concept.  That's not really a good thing in an academic environment, but there are costs of taking money.  There are costs of not taking money, if you have that choice.  Lynne, you asked yourselves some hard questions and I think they are the right ones.  I think Jeff is exactly right.  I can't tell you the number of CEOs that I have seen not in their positions anymore.

          Lynne also highlights something that I think is very, very important when you start thinking about whether it is realistic to go from bootstrapping to venture money and what it will take.  This transition from what is essentially a services company where the ability to leverage and the gross margins are on how many bodies you have, as opposed to products, which you can sell any number of times, is part of what will allow you to argue that this is maybe not a $1 million dollar business or even a $5 million business but a $50 million business.

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