the when’s and how’s of big decisions

pulling the trigger

“I don't think I ever made a bad decision too quickly,” says Phil Carrai of General Atlantic Partners and an operating executive at its portfolio company Ai Metrix, “Most of my bad decisions are because I waited too long to make a decision.” At this Netpreneur Coffee & DoughNets event held May 30, 2003, Carrai and a panel of successful entrepreneurs explored the factors and processes they use to make their biggest executive decisions, the kind that change the nature of a company. This event was hosted by the Tech Council of Maryland and sponsored by Comerica, Ernst & Young, and Fenwick & West.

panelists:

Ching-Ho Fung, Chairman of Parature
Deepak Hathiramani, CEO of Vistronix
Phil Carrai, General Atlantic Partners and Morino Group
Michael Chasen, CEO of Blackboard

moderator:

Mark Frantz, Vice President, The Carlyle Group

Copyright 2003 Morino Institute. All rights reserved. Edited for length and clarity.

Disclaimer: 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, Netpreneur.org or any of their affiliates, agents, officers, or directors. The transcript is provided “as is” and your use is at your own risk.

mark streger: welcome

Mr. Streger: Ladies and gentlemen, welcome to the event you've all been waiting for. For one thing, this is an historic Coffee & DoughNets in the transitioning of Netpreneur. My name is Mark Streger. I'm Vice President of the Tech Council of Maryland, your host today. As you know, the three local Tech Councils—the Northern Virginia Tech Council, the Washington DC Technology Council, and the Tech Council of Maryland—are rotating hosting of Coffee and DoughNets and working with the new group of entrepreneurs who are transitioning Netpreneur. We're very glad to see that the Netpreneurial spirit is still alive.

        Mark on your calendar that the next Coffee & DoughNets will be July 15 in Fairfax.

        Without further ado, I'd like to introduce Mark Frantz, a partner at venture firm The Carlyle Group, who is going to moderate this event and introduce our speakers.

mark frantz: introduction

The topic today is “Pulling the Trigger.” For those of you with guns, however, that is just a metaphor. You can step out of the room. As a venture capitalist, I’m a little leery to be up here with four guys who might have guns, especially Michael, since we worked together.

        We want to walk through many topics this morning about decision-making, whether it's on the employee front with regard to management teams or the board you should build to advise your company, whether you should take investors, whether you should get in joint partnerships, whether you should be discounting for your early customers, and so on.

        One of the things you'll hear this morning is how key communication is. It really is an essential part of the decision-making process, and it's the communication that the entrepreneur has with those folks who are working with them. And it’s about communicating with themselves, when they try to decide whether they made the right decision and learned from it. Of course, as a venture capitalist—and some folks consider venture capitalists glorified early morning quarterbacks—one of the things we'll look at is whether when you made the call, did you make the right call and what did you learn from it?

        What happens when you don't make the call? Then somebody ends up having to make it for you.

        We are very lucky to have with us this morning four gentlemen who come with very successful but distinct backgrounds, able to cover the entire landscape. I'll turn it over to each of them to walk you through what they do in their current companies, a little about their backgrounds, how they got there, and they’ll open up with some of their “trigger” stories. Then we're going to come back and turn it over to you and have an interactive Q&A session.

        With that, we'll turn it over to Ching-Ho Fung to open up.

ching-ho fung: first, you need a process

Mr. Fung: Good morning. I'm Ching-Ho. I'm very happy to be here today. There are two reasons I'm happy today. One is that I have been a Netpreneur fan since 1997, the year Netpreneur was founded. The second reason is that a few months ago, my company recruited Ben Martin who worked for Netpreneur for two years. After working with me a few months, he submitted my name to be on the panel, so I guess I've done a good job working with him in the last few months.

        My company's name is Parature. The name is a combination of two words: paradigm of the future. It's just easier to remember. It’s kind of a technology name, and we hope to do something with it.

        We also recently recruited Fran Witzel, one of the team who first started Netpreneur with Mario Morino. He just joined my firm two months ago, as our Vice President of Sales. Now, that is called “pulling the trigger,” a big decision for us, a young startup with 10 people whose average age is about 24—me excluded, I'm 46.

        How did we make the decision to bring Fran Witzel into the team, and how is that team going to work? The good news is that it has been working out tremendously well for us. The decision wasn't easy, but it was a decision that we had to make. The major decision process as we actually did it was in the following order: We focused on building our assets, our sales, then we figured out what we needed next. We needed somebody with leadership and experience to join us. Then, you have to evaluate what is available to you. What is out there that is actually available to you? With a little company, you cannot just imagine, “I can get this, and this,” and try to bring in the best in the world if it is not available to you. Finally, you pick the best out of the options that are available to you.

        We have been working hard in the last two and a half years to make that decision. What I'm trying to say, is that in my business decision process, when I make major decisions, it is actually a decision that had been made a long time ago; you just evaluate the right time to do it. Hopefully, that is not just “pulling the trigger.” Hopefully, it's a decision-making process that, at the right time, you feel like everything is ready, and you pull the trigger.

        I'm a golfer. When I get on the course for 18 holes, for every stroke I make I feel like I'm pulling the trigger, but I have evaluated the wind and all the conditions, then I pull the trigger. I feel that is a positive thing. Thank you.

michael chasen: scaling your decisions

Mr. Chasen: Hi, everyone. My name is Michael Chasen. I am the CEO and one of the co-founders of Blackboard located in Washington, DC.

        Let me tell you a little about Blackboard, first, because it will be relevant to some of the points that I want to discuss today. Blackboard was started in 1997 by myself and my good friend Matthew Pittinsky, the same year we became aware of Netpreneur and joined the organization. Since then, we've had a little bit of growth—we've grown from what was originally two people, to around 470, and we have grown from zero dollars in revenue to about $90 million this year.

        Our company has undergone a lot of changes over the last five or six years. To be honest, for the first year we were pretty much just sitting in a room because we didn't know what to do, so that doesn't count, really. All the growth we saw was actually over the last four or five years. Before the whole boom had taken off, we said, "Hey, we think there is this great opportunity," and we started a company. To us, that meant renting an office where we went and sat for awhile working on business plans. Then a good friend of ours introduced us to Netpreneur, and, more specifically, we were introduced to Ching-Ho, who was our very first angel investor. We had a great relationship with the Netpreneur organization and a lot of the people involved in this community. Over those years, we saw a lot of changes.

        Let me tell you in a little bit of detail what Blackboard does as a company. We primarily sell enterprise software to colleges and universities. Our software lets institutions bring their teaching and learning and campus life all online. If you were to go to school, besides going to class, you would get your course syllabus online, you would get your course material online, you would get your test online, your quiz online, you would talk to your fellow students online, you would talk to your teacher online. All of that adds a third dimension to your existing course environment. That is the Blackboard learning system. We actually have over 2000 institutions in the United States and around the world that are using our product.

        We also sell the Blackboard Transition System, which is our second major product suite. If you go to campus now, you get a student ID card that will not only allow you to get into your dorm, but your parents could put money on that card and you could use it as a “One card” around campus. We manage over a billion dollars of student spending through those cards on a yearly basis.

        In addition to selling the software that provides institutions with the power to bring their learning or their transaction systems online, there are other opportunities it opens up to us as well. Primarily, we're selling enterprise software, and we charge an annual license fee for that software. Both are products that the institution downloads, runs, and installs themselves. What is actually a little unique is that we now have six million students on our platform on a daily basis. If you were to add up all the separate installs, we would probably be one of Media Metric's top visited websites. We reach a huge base population, so there are a couple of initial opportunities that have come from that unique characteristic of our platform. For example, we are able to act as a mediator for publishers that are interested in selling online content to teachers and students through our learning system; and, with our transaction system, we are able to connect local vendors and merchants to our system so that when students use their ID cards off campus, we make 7.5% on all the transactions that take place. So, there are a couple of different revenue opportunities we've managed to evolve over the years.

        The most interesting thing that has happened as we evolved is that the decision-making has fundamentally changed. It hasn't gotten easier, it hasn't gotten harder, but decisions that were easier in the beginning are harder. If you were to define "pulling the trigger" as a very, very large decision, I honestly don't think that as a company or as a division we technically pulled the trigger until like a year and a half ago.

        Let me give you some specific examples. When we were 20 people, it used to be very, very easy for us to reorganize. We’d call everybody in the room and say, "Okay, you're Vice President of Sales." You are able to adjust the company more quickly to adapt to all the changes that are going on. When you are growing from $1 million to $90 million in a short time frame, you have to constantly examine what the organization looks like, not only to support the revenue opportunity you are at currently, but to prepare for that next level you're going reach. You are constantly examining organizational structure. Just this past year, we decided we needed to be more focused by market. We need to specifically focus on higher education with a dedicated group, then began expanding into the international and K-12 markets, and we wanted to design the company to be focused that way. It took us over a year to actually work out that organizational change because of our company's size. That to me is pulling the trigger. When we decided that we want to do a fundamental reorganization in our company, we did it department by department. Something that used to take a couple of minutes got drawn out and took over 12 months. What was a minor decision when we were a smaller company is now a much, much, much larger decision and has ramifications that you are not aware of in the beginning.

        Part of the reorganization was that we also wanted to change the way our sales force was targeting the market. We have a 100-person sales team, so that meant updating individually all of the regions and all of the pipelines they had been establishing, looking at potentially modifying our pricing, and looking at how the teams work together. That change in itself took several months to roll out.

        The second item I'd like to raise is a “pulling the trigger” event that we've experienced, mergers and acquisitions (M&A). When we were a small company of about seven people, we actually got together with a group of students out of Cornell University who had developed some technology to allow students and teachers to put course material online. We got together over lunch and said, "Let's merge.” They bragged to us about how they had 10 clients and we bragged to them about how we had one year more management experience than they did since we were 25, and they were only 24. We thought that a powerful combination could be created and form a leading company in this space, so we negotiated, we met the team a week later, and we merged.

        Just recently, we acquired a very, very small piece of a company called Student Advantage out of Boston. We wanted a specific piece of technology that they had developed and a specific team. There were only 14 people and 25 clients. Very small. It took us three months of due diligence and another two months just to work with our board of directors to get them all comfortable with the acquisition, plus a stack of legal documents that would probably be about two or three feet high. All that for an acquisition that was less traumatic for the company than the original acquisition done over lunch. Because of the scale, everything takes longer, from dealing with the board, to the financing, even the payroll is a much larger task. So it was a major decision for us to acquire this small, 14-person company, and it took months and months of negotiations, as opposed to being able to just meet over lunch.

        Another example came just this past week when we were talking about adding new features in our product. I'm not talking about rolling out a new product; I'm talking about just adding additional features to our existing product. There is one feature in particular we think would be very useful to the client base. It is not even a major feature, just one that will allow students to get individual notifications whenever there is a change in their course environment. It's not that it appears to be that difficult to build or to add, but we were talking with the product development team, and I said, "I think we can probably get this out in the next three months. It's probably only four weeks of work and we can beta test."

        They said, "Michael, we need to test this small addition in over 50 different system configurations, load balance it so that we can make sure that not only five people can use it, but so that 10,000 people can use it simultaneously. Also, we have to make sure that when our clients actually upgrade, all of their data will work with this new add-on, that it won't corrupt any of their existing systems, and that it won't cause any additional load to be placed on any of the other processes that are running. We think it will take nine months to a year to launch this new feature.”

        I am talking about a single feature on a product! When we were adding features early on, we had 10 clients. We'd call up all 10, tell them about the feature, work with them to develop it, roll it out, and they’d all love it. If there was a problem, we assigned one of our tech people to each client to work with them to make sure the feature was properly implemented. Now, we have to think about full regression testing, full roll-out plan, full support plan. Just training everyone internally in the company on this one new feature involves 50 support people and 100 sales people. Something that used to be very, very minor has now turned into a major decision. When I think about pulling the trigger, I'm actually thinking about a lot of the decisions we have been making over the last year since we reached a certain size.

        That is not to say that you don't pull the trigger when you are a smaller organization, as well, but it's a different type of change. In fact, when you are a smaller company, the smaller decisions actually seem to have bigger ramifications. As Ching-Ho said, when you are a 20-person company, or more to the point, a four-person company, and bring a new hire on board, you are significantly increasing the size of the company. It is a very, very big deal when you bring on someone who has senior experience.

        I remember when we were a 20-person company, all friends. We were hiring our very first . . . I won't say outsider . . . but the very first person who was going to move to Washington, DC, for the job. We couldn't believe that anyone would actually want to move to come work for Blackboard. We had a whole meeting about it. Should we allow this person to move and change their life when we were still a young startup? We weren't even sure whether our business model would succeed. That was a major decision, and it was one hire—the guy who wanted to do our website.

        Later, decisions about hiring got more complex. We were bringing in a Vice President of Sales. We already had a Vice President of Sales, my friend Lee, who had been with the company from the beginning. Just by bringing in a senior manager, you are now talking about a major organizational change. [Laughing] Now, we go through Vice Presidents of Sales like every two years.

        Letting people go is another big difference. When you are a six-person company, and you fire someone, that is a major layoff. I actually am surprised now, because once you reach a certain size in a company, people come and leave on almost a monthly basis. It was a lot more traumatic as a smaller company to make that type of decision. One of the things that I learned in talking with a lot of my fellow entrepreneurs involved in the Netpreneur program, is that you hit a certain point and you know that this person doesn't necessarily have a role in the company anymore, but they're still your friend. Of course, when you start a company, who the heck are you going to call for work? You can't put an ad in the paper, “Come work for free in a startup that I don't think is going to succeed and make no money for two years.” That's a very hard job posting to do. The only people you're going to get to join you are your friends. Eventually, certain initiatives don't work out and people aren't right for the roles. It's more difficult for you to say that this isn't working out or that you want to bring on someone with more experience. A small decision like hiring and firing, something that is done on a weekly basis in the company today, was a major decision point when we were smaller.

        The last item I'll mention is that one of the hardest things about knowing when to pull the trigger when we were smaller was when we decided to stop focusing on the technology and start focusing on selling. We are a technology company, so we inherently always think that we need to be focusing on technology and building it better. A friend of mine was telling me that we should consider the newest technology. We should rewrite the entire application from scratch. “In two months it will be 10 times better and 50 times faster.” You have to know when to continue developing on your existing base and when to focus on selling the product. A lot of people in small companies say, "The product is not perfect yet; it is out in beta. We are not ready for prime time." Well, you need to mentally make the decision to focus on selling your product so you know whether your product is a success or not and so you can get the client feedback rather than spending all your time perfecting it. Again, it’s not a decision that changes the way we do business now, but something that was a very, very major decision for us early on.

        What you consider to be “pulling the trigger” is all relative to scale. What you experience over time is fundamentally different depending on the sizes of the company. It all depends on not only on the experience you have at a given point in time, but also on the ramifications of the decisions you are making and how long it takes you to implement it. Thank you.

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