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the when’s and how’s of big decisions

pulling the trigger

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deepak hathiramani: the role of the ceo

Good morning, everybody. I'm Deepak Hathiramani with a company called Vistronix in McLean, Virginia. I am going to go back in history a little bit in time, because I think it is relevant to the discussion. When I graduated from college in Austin, Texas, I primarily looked for a startup to work with, because I thought that was essential to what I wanted to do in the future. I was fortunate enough to find a small startup in Austin that had a great product and a great team, but we didn't know how to sell the product. After three years of hard work, trying to raise money on the penny stock exchange, trying to raise public equity, trying to raise any type of financing, we fell flat on our faces. That was a tremendous experience.

        Then I looked for another startup, which brought me to this area. The company I joined in 1989 was about $300,000 in revenue and 30 people. In 1992, we did $30 million, and the company went public in October of that year. In November of 1992, it was the second fastest growing company on the NASDAQ market. A tremendous experience. In February of 1993, it was the fastest falling company on the NASDAQ market. Trust me, when you are the fastest falling company, you get a lot of attention.

        Here’s what was instrumental in that experience: Going from zero to $30 million was one step; going from $30 million to a $100 million was a totally different step. That is where we are today at Vistronix. We are a $30 million dollar outsourcing and consulting organization, primarily focused on the public sector. We are exactly at the stage where the previous company was, trying to figure out how we are going to get from $30 million to a $100 million.

        In building the company, you come across a number of tough decisions you have to make, and, as entrepreneurs, what we would like to do is bury our head in the sand and hope the problem goes away. I'm sure a lot of you feel that way, but, as a CEO, my role is to decide as fast as possible when and where the decision has to be made. Procrastinating is not going to make the problem go away.

        One of the toughest decisions I had to make was in the third or fourth year when I had to terminate our second employee who had been with us for four years. The reason it was tough was that the second employee happened to be my wife. [Laughing] I'm still paying the price for that, but it was something that had to be done. Not because she was not capable of doing the job, but because at work she would first be my wife and then be the accountant. It just made business sense for her to step aside and for us to bring in a professional who could take us from where we were at that point to where we are today.

        As we continue to grow, my key role as a CEO is to always find the key players, creating a culture that allows people to think outside that box, and picking the right businesses.

        We grew from zero to $30 million in about eight years. I recognized that I did not have the infrastructure that would support getting from $30 million to $100 million and had to make some key decisions in trying to replace my management team. I felt that the team I had in place at that time were great people, but they were just not the right people to get us from $30 million to $100 million. In the last two years, we have systematically rebuilt the entire management team. Some of these decisions have been extremely difficult. When you go to an employee who has been with you for eight years, who has worked very hard, and you tell them that it's time to step aside, those are tough decisions, but they have to be done. I constantly ask myself the question: If I had a true Board of Directors, would I have this job tomorrow? That question lets me evaluate my performance, and sometimes the answer is no, unfortunately. I hope it doesn't get to the point that I have to step aside and bring in somebody else to take it to the next level, but it might. Entrepreneurs need to recognize that it is not an ego decision, it is how you build value for your company, and that is critical, from my perspective.

        As Babe Ruth said, "Never let the fear of striking out get in your way.” You have to make that decision. You have to know when to swing the bat. Sometimes you won't make the right decision, but you've got to make it, and you've got to pull that trigger. Thank you.

phil carrai: the unknown triggers

Good morning. I'm Phil Carrai, and I'm a special advisor for a firm called  General Atlantic Partners. I am also an operating manager in one of its portfolio companies as CEO of Ai Metrix, so I have the advantage of making the decisions, then Monday-morning-quarterbacking myself, which is kind of interesting. I feel like that Batman character, Two Face.

        I'm delighted and honored to be here speaking with you. This is a subject that is near and dear to my heart. I spent most of my life in operating roles as a CEO, COO, and have seen that decisions made around events—either around known triggers or unknown ones—define whether a company succeeds or fails. Often it is only in retrospect that people truly understand the decision that they made and the ramifications of success. It's like business books. They're always wonderful at doing postscripts on how companies did. It's always easier to go back in time and evaluate why a company was successful, but the trick is finding those specific, key events that are defining or life-changing in the history of a company, and making sure that you soberly think through those decisions.

        There are five thoughts that I want to share with you, and I know that I'm standing in the way between you and questions, so I will try to be brief. The first is that often when people look at triggers, they think of an event that is well known. My experience has been that triggers are really the series of events that in retrospect look like something major. At times, you do have life-changing decisions, such as raising capital, which is a fundamental change to who you are in the context of your business, but, often, it's actually a series of small events that really are the trigger.

        For me, the best example of that was one of the companies I was running which was primarily a tactical technology company. We brought in a couple of very senior enterprise strategic salespeople. The belief was that we needed to expand the base and to expand the average selling price of the product reaching the customer. The decision to hire just two strategic product people fundamentally changed us from what had been a company that was oriented towards telling $15,000-$20,000 tactical products to selling in the $250,000-$300,000 range. The context of the company, everything from what we developed to how we developed it, supported it, and sold it, fundamentally changed on that one decision. In retrospect, on your resumé, you say clearly that what you were planning to do was to expand the company, but it really was a minor event in the belief that this was a fresh way we needed to go. It really was a trigger.

        The second point is, in the bubble we focused so much on land grabs. That is what we talked about, that we had to get scale quickly. The reality is that most businesses don't need to rapidly expand as quickly as we think they do. Probably the worst decision I ever made in my career was a fairly substantial expansion in Europe. I had the US market, which was moving actually quite nicely.  We had grown revenues to $5 million and we were on track to do $18-$20 million in a very short period, like two quarters. The belief was that we had a similar sort of opportunity in Europe, and this was a time-sensitive market. If we didn't get a footprint in major geographies quickly, like Germany, France, and the UK, we were going to miss out on what we thought was a substantial opportunity. That was my belief. What I found out was that if you fire somebody in Germany after you hire them, but before they start, you have to pay them severance, which is an amazing thing. Also, the amount of money that you lose for making a bad trigger decision which your business really isn't ready for is substantial.

        The third point, and I've heard this a lot in my work with General Atlantic and also with Mario Morino at the Morino Group, is that nobody out there has a magic bean. I don't know how many times I’ve heard people say, “I can't figure out sales. I'm not really sure of the value of my product. I'm not really sure how I should go to market with it, the customers that I should approach, or how I should approach them. I'm going to hire a consultant and they're going to help me figure it out.” I've talked to people who said that to me. The reality is, you are kidding yourself if you think that somebody is going to understand your business better than you. You really are. If you believe there is somebody out there who is capable of understanding your business better than you are, especially at the scale you are, then maybe you shouldn't be in business. It's a hard fact. The reality is that nobody has magic beans or a magic lamp like in that IBM commercial. You are not going to find anybody who is going to know the business better than you, at least at your current scale, and to think that an outside consultant or attorney is going to do that for you means that you are just kidding yourself.

        The fourth point is to understand advice that you get from people in their context and from the context in which that advice is given. Many people have had attorneys and consultants give them advice about who they really need to hire, yet those people have never worked in a small business themselves or in an entrepreneurial organization. You all have had that experience. I know I have. It's always interesting to me to have a Big Four consultant—I know there are some of you out there, and not to insult you—but, it is always interesting to find somebody telling me why I need to sell differently when they’ve never sold anything in their life, or have never been involved in looking at payroll, or sweating out whether you have enough money in the bank to make it, telling you that what you really need to do is think about hiring somebody with substantially more experience. Great. That is wonderful. Here is a nickel. Thanks for your advice.

        I'm not saying that you can't get very good advice from people in the service community, but you have to take it in the context in which it's given. The value they are providing is based on their life experience, just like the value that you are providing your customers is based on your life experience. Don't kid yourself that somebody who has never been in a situation that you're in is going to provide you with the one pearl of wisdom that is going to revolutionize your business.

        The last point is that when you know you're going to make a trigger decision that is substantive, like you are going to raise capital, you are kidding yourself if you think that when you take an outside investor you are not fundamentally changing the type of business you have. The reason why we invest in companies is because there is growth associated with those companies and we like to see returns. If the nature of your business is that it is better off as a sole proprietorship or a lifestyle business, that is great; just don't try to make it something that it isn't. When you make those trigger decisions, think very long and very soberly. Get advice from a few people whose opinion you really value before you make that decision, because those sorts of trigger decisions, like raising capital or making a substantive change in your management team, will change not only the business, but your life. Make them soberly and make them carefully. Thank you.

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Statements made at Netpreneur events and recorded here reflect solely the views of the speakers and have not been reviewed or researched for accuracy or truthfulness. These statements in no way reflect the opinions or beliefs of the Morino Institute, or any of their affiliates, agents, officers or directors. The archive pages are provided "as is" and your use is at your own risk.


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