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mario morino: at
what level do you want to play?
of all, thanks to everyone for being here this morning, especially
the panel. I also want
to take a minute to thank Mary, Fran, Mitch, Ben, Cathlin and the
whole Netpreneur team; as well as to thank you for the support we
get from the people who volunteer to help and the partners we work
with. Today, in
particular, I want to thank the parents who brought their children.
I think it's phenomenal, and I brought two of mine.
They are the love of my life back there, and there is another
one in Cleveland who is very jealous right now, my son, but he will
get through that in time. I think it's great to let the kids see what we are doing.
That's one of the problems of starting a business, by the
way. I have kids now
because I could never have done it before.
I'm going to cut right to the chase.
It's tough. It's very difficult to be in that hot kitchen and
have anything else in your life.
People don't like to hear that, but that's life and you have
to decide what level you want to play at.
Talk about years of bootstrapping, I started before 1970, so
I go back a long time in this respect.
Do you know what? The rules are the same and there is not a lot of difference
today. I see people
here that we went through a lot with more than 20 or 30 years ago,
and we’ve seen the same patterns start to come up again.
Ironically, if we’ve lived through a “fantasy land”
recently, we’ve come back to the basics now.
This session was very refreshing for me.
Bootstrapping is very much back in vogue.
There is no question about it, and probably more so than in
the last 10 years.
history repeats itself
If you look at it, there have been three phases.
The first I'm going to characterize as running roughly from
1970¾which I know for some of you is a tough date to
1985. This was a period
of bootstrapping at remarkable levels, especially since people were
pioneering a lot of new ideas. Providers and clients existed, but the markets were much
smaller and lacked the maturity that came in the 1980s. I call it the Pre-Consolidation Era in the software and
services industry when you had literally thousands of small
businesses trying to sell things.
From 1986 to 1993, the software industry went Big Time.
One phenomenon that triggered it was a transaction.
Computer Associates bought a company called UCCEL and forever
changed the landscape of what distribution meant in the software
industry, basically putting into play what Merrill Lynch’s Steve
McClelland had predicted in 1983 about consolidation in the
industry. The other
phenomenon that triggered it was that the glass house was breaking.
The “glass house” was what we called the corporate IT
departments and data centers which had the mainframes and control of
information technology, and had been the mainstay of IBM for years.
The Oracles, Microsofts and Novells penetrated the enterprise
through the business units and line managers, breaking down the
central IT control and changing the role of the glass house.
It wasn't obvious yet to the IT people or to the IT providers
that this had happened as profoundly as we would come to understand,
but, clearly, these two events caused the industry to change and
mature. All of a
sudden, the software and services business had to be about more than
technology, with marketing and distribution taking the lead to
Next, we went through the Fantasy Land of 1994 to 2000.
The interesting thing about the Fantasy Land was that the
pendulum swung toward the ridiculous¾and
there was a bunch of stuff that was ridiculous.
Momentum investing was ridiculous.
Valuations were ridiculous.
Many business plans were ridiculous.
We all were a part of it and saw them first hand.
We saw them and read them.
On the other hand, I will say that we have the makings of the
most significant technological transformation that we have seen
since the innovation of computers in the 1950s and 1960s.
No matter how you fathom it, the Internet, the Web and
wireless have introduced tremendous paradigm issues and changes.
We are only beginning to understand how they are going to
transform businesses. Marketswitch
is an example, or Tradeum and pricing models.
The changes are phenomenal.
The limitation is the vision of the client to understand and
apply this technology to their needs.
That's not meant to be a negative comment; it just takes
markets longer to assimilate these kind of transformational changes.
So, the framework for growth was established, yet we let the
Fantasy Land get away from us.
I think what will happen now, from 2001 onward¾at
least until history repeats itself again (and it will)¾is
that we are back to where we have great fundamentals, regardless of
how the economy looks. If
you take a longer view of it, there are great market fundamentals.
what we forgot
lost sight of the importance of proprietary technologies in gaining
true strategic advantage. I
couldn't agree more with Drew's comment on that.
People come in and you ask, “How long did it take to you
develop this?” They
say three months and you say to yourself, “Is this person crazy?
Can't they put two and two together?”
If you did it in three months, don't you think somebody else
can do it in three months, six months at worst, and clean your
clock? That’s as opposed to taking the time to develop something
substantial by someone who has a background of 15 years in your
space and such a compelling understanding of it that it would take
any other 20 people three years to get to the same point.
Those are market barriers.
We lost sight of all that.
We got so carried away with “time to market.”
Timing in the market is important, by the way, if you are in
a learning, adaptive organization.
In fact, I'll argue that one of the big advantages of a
bootstrap operation is that you get into the market quickly.
You get a client fast and you begin to learn in real time, as
opposed to sitting back and pontificating about your business plan
and how the market is going to respond.
A bootstrapper has to find things out really fast.
I look at those three phases and I think that the business
fundamentals are great for you.
I would argue that any business today that has sound
economics and a good model has no trouble getting money.
You may hate to hear this.
We said it when we started Netpreneur years ago, and that
people would hate it. Money
always finds good companies; I guarantee you that.
Therefore, if you haven't got any money, ask the hard
questions of yourself first, not of the venture community just yet.
It's a hard comment, but it's a real one, and that's why it's
held since 1970. If you
really have something, the money will find you.
I said that I found the panelists refreshing, and I really
mean that. As an
industry, we did get away from ourselves and we forgot fundamentals
too much, but we don't want to forget how exciting what we have in
front of us really is. The
great entrepreneur sees change and then capitalizes on that change.
We have some remarkable change, and the opportunity is very
good for those of you who can see it.
a shorts story
mentioned that they started with $3,000.
We started with $1,200.
The only reason we had $1,200 is that we needed $1,200 to
make the books legal. We
actually had no cash, but we had a contract.
We went out the door with a contract, so somebody was paying
our bills from day one.
I'm sure that many of you have lived through something like
this, but you just have to picture this scene in 1976 or 1977.
Fran Witzel had just come on board what was Morino Associates
and we were selling our first product commercially.
When we went out to sell in the field, let me tell you that
we were buttoned-down and looking good.
Our literature was in place and we looked like a real
company. When we got
back, however, we were sitting in my basement in a home on North
29th Street in Arlington, a classic World War II, two-bedroom
bungalow. The basement
was painted in psychedelic colors.
Whatever we could find that we could get for free was on the
floor or against the walls. It
was summer and the air conditioning didn't work so the two of us
would be sitting only in our shorts¾the
last layer, not even Bermuda shorts¾with
fans on us as we tried to sell a product over the telephone. The
“production department” was next to us¾they
were shelves with the manuals we would get up and go assemble if the
order came in or if we got the lead.
While you were pitching, though, you had to make the prospect
think they were talking to IBM; you had to project an image that was
greater than reality¾never deceiving, but being very careful to know
your capacity to deliver. The
reality is, if you are truly bootstrapping, you find every nickel
and dime along the floor to get you there.
That context is very real.
living on the edge
argue that bootstrapping is the very edge of entrepreneurship.
Bootstrappers may not reach the success of Bill Gates or
Larry Ellison, but they are probably the fabric of the American
economy today. Whether
you are pushing the $10 million business, the $1 million business or
the $50 million business, at the end of the day, the strongest
entrepreneur probably has bootstrapped.
Why? Because you
live it every minute of your day.
When I invest, that's exactly the kind of spirit I like to
invest in. I hated it
when a person looking for early funding came in and discussed their
exit strategy in our first meeting.
To me, it was an oxymoron.
I couldn't say it any stronger than that.
If somebody is coming in and the first thing out of the box
is to tell me how they are going to get out of the business, do you
think I'm going to invest in that?
Shoot me now and save me the pain.
This was what that fantasy was about.
Bootstrappers, by definition, are advanced workaholics.
What I mean by this is that you have to picture yourselves as
those two people trying to create the image of a large business
while you are really in the basement. I'll describe a very typical
day. It starts with you
in Chicago doing a seminar in the morning, then making three sales
calls in the afternoon¾not
one or two, but three¾then
flying home that evening where you are going to go back into the
office and test the product all night because you still have
development work going on.
You have just lived in two worlds.
You have been selling all afternoon and at night you are
coding. You go from
suit to jeans and you know what? These 24-hour cycles don't stop.
The only time they stop is when you go out to blow off steam.
It's one of the problems, and it's a fact of life, but I do
believe that the issue of being an advanced workaholic is an
absolutely essential ingredient to bootstrapping. The odds against you are just so strong, and only your will
can overcome them.
the great barrier niche
focus on proprietary systems came up several times today, and I
can't emphasize it enough. Whether
it is through technology or methodology, you have to have something
that is sustainable, keeps competition away and gives you a true
strategic advantage when you go to the marketplace.
Where that becomes problematic for the bootstrapper is when,
like the earlier questioner mentioned, you’re in a niche market
and you’re not alone. I
believe that niche markets make for great companies.
I think niche markets are the way you start; and I think that
grand visions¾from an execution standpoint¾are the way you go down the drain.
A great company knows a vision, but what they really
know is how they are coming out of the box in the next year or two
and what they are going to build.
The great company is going to listen to a marketplace that
tells them how to evolve once they are in the field.
Do you think Bill Gates saw Microsoft the way it is today?
Do you think Larry Ellison saw Oracle the way it is today?
Did Jim Goodnight see SAS the way it is today?
No, but they were brilliant about getting into the market,
then reacting, adapting and growing their businesses based on what
Look at the kernels those companies started with, how they
grew, how they took advantage of markets, responded to opportunities
and moved. I think,
again, that the issue of getting out into the marketplace and being
very focused is key because it gives you the time and knowledge.
It's problematic when you are in a field where there is high
competition right out of the box. You are never going to have the power to sustain yourself if
you are selling against somebody who already has a very large field
operation in place. It's
very difficult to do that with a Web-based sell or telesales against
somebody with 2000 feet on the street.
No matter how good your technology is, there is a sales rep
right there selling against you, face-to-face, and it's a tough
thing to overcome.
When you are picking spaces, there is nothing wrong with a
niche. A niche doesn't
have to be small; it's a niche¾a very defined, focused area. You are going after it.
If you are the one who owns it, you are the very best in that
niche. The customer is
going to buy your confidence and your knowledge even more than the
product, and that is an interesting part of the bootstrapping
bootstrapper has to be a naturally, highly effective salesperson.
You are never a “bag-carrying territory person,” but you
have to have a great capacity to sell your concept.
A bootstrapper without that skill is not going to get off the
ground, because, as all of you know, you are trying to sell a
concept. When you are
small, do you know what the company is really buying?
They are not buying a product.
They are buying you.
That's right, they are buying you because they know
everything about the company. They
know you are small. Once
you get past all the image issues, they know your real size, and
they are buying you anyway. All the faith they're putting in is not just that the
know that. They are investing in you, that you are going
to make it work the next year and the year after that as well.
Your ability to sell your concept and yourself is crucial for
the success of a bootstrapper.
Bootstrappers are naturally highly mistrustful of funders
because you work too hard to get there.
You can't understand the balance between what you’ve
invested in blood and sweat and what they get as an investor.
We started in 1973, and we were very tiny¾microscopic
is a better way to describe it.
We stayed tiny, and, finally, around 1982, we actually
considered outside money. Not for need of cash, by the way, but for need of liquidation
of some amount of principal money, and we didn't go looking for it,
a firm came to us.
A number of firms had asked before, but this one caught our
attention. I can't
begin to tell you how difficult this was for me.
It took a year, through all of the courtship and the dancing
and the relationship-building, for me to get confidence that they
were legit, because this was our baby.
There were two of us. My
partner was Bill Witzel, Fran's dad, and this was our thing, you
know? Having somebody
come in and take a piece of the action without putting any sweat
into this baby was really hard to take.
That year allowed us to understand the value of what a good
investor brings. It took a year, and it was highly introspective.
It was gut-wrenching to go through the change.
That was the most significant emotional change I went through
short of when we did a merger that forever changed the complexion of
the company. The IPO
paled in comparison.
a big league choice
come back to the issue of personal costs.
People at other sessions have heard me get on this topic
before. You have to
make a life choice and a decision about your business.
It's paramount. It
sounds very harsh, but it's coming from my heart in telling you
this. I think that
there are basically three models of businesses.
One is truly a lifestyle business, and there is absolutely
nothing wrong with that concept. You are making a tradeoff between personal values, income and
net worth, but your lifestyle business is likely based around your
family, your faith or maybe where you want to live.
You have to set a target in terms of income, you have to make
so much a year and you are fine with it. You made a lifestyle
change, but, basically, your company has to support your lifestyle.
The second model of business is one that has no desire to get
long-term, significant growth and is more focused on proving a
point, getting into a market, owning a particular space and
basically staying private. There
are other problems with that model, but your value is not going to
come out of equity. You
probably have to risk your own estate issues, but you learn.
You are not going to worry about that when you are starting a
business, that's 40-60 years out.
Then there is the businesses that goes for the gold, and
that’s the big leagues.
We were involved in a soccer league in Great Falls and even
though I'm out of the business world and running the nonprofit Morino
Institute, a person who was starting their own business said to
me at one of the games, “Mario, you work so much!”
I said, “Yes, but not nearly what I did back in
“How many hours a week?”
“Only about 70 to 80.”
“My gosh, you work a lot more than we do!”
“Then stop your company now,” I said.
“Don't kid yourself.”
You'll get absolutely eaten alive.
I guarantee you that there is somebody else in that space who
is going 24x7x365 with the intensity of a rhinoceros that is going
to take you right out. Either get ready to accept that or get the heck out because
you are kidding yourself and you are kidding your employees and you
are not being fair to everybody around you.
That's what it takes. That's
It's all about making the big leagues.
What do you think it's like to play cornerback like Darrell
Green in the NFL? It's
a 365-day-a-year job. Remember,
I said that in 1986 things matured in the software and services
industry. This is the
business, now. This is
the bigs. If you want
to get there, it's tough. It
doesn't mean you don't have another life at all, but it's very
difficult to balance them in the emerging years.
Go and ask Steve Case and Jim Kimsey what they went through
in the late 1980s and early 1990s to make AOL what it is today.
It was an enormous personal sacrifice of time, effort and
money, but it paid off in the end.
I'm not trying to be negative, you just have to come to the
conclusion about what you really do.
Don't say that you want to be an entrepreneur, then come in
with a lackadaisical business plan that shows you putting in maybe
60 hours a week. It's
not going to fly. No
one's going to believe it. If
it means we burst your bubble, better now than later because it's
going to be tough. If
you love it, it's phenomenal; it's exhilarating.
When you win, let me tell you, it's an adrenaline rush like
you can't believe, because it was all you; you did it and you
know you did it. You
made the investment of your time, and that's key.
I also want to touch on the critical necessity of a
bootstrapper to manage the expectations of others.
You are always projecting an image that has to be bigger than
what you are, because you have to come across in the marketplace as
strong, confident, stable and having sustainability, especially if
you are getting in the enterprise game and selling to the Fortune
500. Those are players
that are going to be around for a while, so you can’t look
last thing I'll leave you with, and I can't emphasize it enough, is
that you will screw up.
The key to the companies that you're selling to is how you
knows you are going to mess up. We have blown things up beyond all imagination in front of
customers, but what they are looking for is how you are going to
respond when you blow it, when you miss that deadline, when you miss
the release schedule. How
you are going to handle that client?
I pray that you never do what we did.
In 1970, we sold a technology that was still in our heads.
It was incredible arrogance.
I mean, we knew what we had to do as we had done it twice
before. But we had sold it before we had developed it, and now it was
early December and we were flying in to do the installation while we
were still coding on the plane.
We kept quietly working, still coding in the data center.
Finally, I had to go to the head of technology department and
admit that we blew it. Let
me tell you, they were incensed.
I mean, this guy was ticked because the whole year's billing
process was predicated on our work.
Here it is December 31 and they’re suppose to be billing
I said, “Look, I know we screwed you.”
We pulled no punches. I
said, “You have to give me three weeks,.
If you give me three weeks, we will move heaven and earth to
make this thing work.”
You know what? In
three weeks we delivered it and for the rest of our life we had a
great client, but we had to deliver.
In bootstrapping, you are going to fail at some point.
As Drew pointed out, there are just things that come up¾stuff
When it does, respond very well.
So, I wish you all success relative to your ambitions and
that when you do succeed, you take the time to get involved in the
community and help whoever you can in whatever way you can.
Thank you very much.
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