In this session, one of Vistage’s top executive coaches, Ed Robinson, brings together a panel of successful Maryland-based CEOs to share their experiences as founders and valuable lessons learned.
Below are edited highlights of this in-depth look at the challenges and opportunities that come with being an entrepreneur.
Watch the full session for free at https://www.foundercity.com/may26 then explore other Founder City content.
The panel includes:
Ed Robinson – President, Capacity Building Solutions & Master Chair, Vistage International. Author, Reflections on Life and Leading and Unlocking Your Profit Potential.
Noah Berk – Co-founder & Strategy, obo. Agency
Yair Flicker – President, SmartLogic
Vlad Friedman – CTO, Databank Ltd. & CEO, Edge Hosting
Jason Peay – CEO, VersaTech
James Allen Schultz – President and Co-founder, R2Net LLC
Robert Wray – Founder and CPO, Whitebox Inc
Ed Robinson: Real change happens at the grassroots level. And, who affects the grassroots more than the entrepreneurs who build their businesses and organizations in their communities?
Let’s start with an introduction and one lesson:
Vlad Friedman – CTO, Databank Ltd. & CEO, Edge Hosting: I was a CEO for 26 years, in business for about 30 years now. I originally started a technology company in the basement of my parents’ house when I was 18, to pay my own way through college. I went through a lot of different industries and made a million mistakes along the way. I had to transform the business many times over… I started with one employee, which was my dad, and grew to about 100 people and $20 million in revenue… In 2017, my company was acquired by a private equity firm. Now, I am the CTO of that new business. Since I’ve joined, we have acquired 48 data centers and have about 700 employees with a total of 64 data centers in 29 separate geographic locations… It’s been a fun and exciting journey.
Lessons learned: Don’t be afraid of making mistakes. Don’t be afraid to take risks. Don’t be afraid to change the business. Don’t be afraid to learn. Just because you made a decision yesterday, doesn’t mean it is the same course that is going to take you to the place you want to be tomorrow.
Ed: What is like to have a performance review with your dad?
Vlad: It’s tough. What’s really important was understanding our respective roles up front. We were very clear from the beginning. That helped us get along because we weren’t stepping on each other’s toes, even as the business grew and scaled. Learning those boundaries was really important.
Lesson learned: Set clear expectations for each role or position as you add team members.
Jason Peay – President/CEO, VersaTech: I started my business in 2005. Similar to Vlad, I’ve never worked for anyone. I started my business straight out of grad school. We are primarily a software development and IT infrastructure organization. We focus on federal government contracting. We support agencies like the FDA and the Department of Transportation. Some of the systems we build impact public safety… We do a lot with five-star crash ratings and fuel emission improvements and help the government manage the fuel emissions program to ensure manufacturers meet those standards.
Lesson learned: Anything is possible if you want it. You just have to put the time, effort and work into it. There is no better time than the present to do that.
James Allen Schultz – President and Co-founder, R2Net LLC: JamesAllen.com is an online retailer of diamonds and fine jewelry. A precursor to this company was born in my living room in 1998. I needed to buy a diamond engagement ring. I shopped on eBay. I got a great deal and I thought, there might be an opportunity here. We bootstrapped with $5000 and bought another diamond. We sold that, then created the .com and spent about six years growing the company ourselves. In 2006, we partnered with an Israeli firm. From 2006 to 2017, we grew the company via “friends and family” fundraising. We did a private equity deal and then another one. We raised more than $150 million. In 2017, the company was acquired by Signet, which is a publicly traded company which also own Zales, Jared and Kay.
Lessons learned: One, don’t be surprised if your three-year plan takes 20 years. Just continue to execute. Second, whatever you might envision as success, make it bigger.
Noah Berk – Co-founder & Strategy, obo. Agency, Co-CEO: We are a technology consultancy that helps other organizations by figuring out how to set up the entire sales, marketing, service and technology stack… This is our sixth year in business. We have about 34 employees now. I’m very fortunate to have an awesome cofounder. We both have our own “swim lanes,” and clear delineation of what we are each working on. I have tried doing it myself and I’ve tried having partners. It really comes down to, if you are able to find that partner that is a perfect complement to who you are, that’s one of the biggest takeaways.
Lesson learned: It’s important to really vet a potential partner. Make sure you are both aligned around the mission and that you actually complement each other. A strong match can reduce some of the burden on a single founder.
Yair Flicker – President/Founder, SmartLogic: We build custom web and software applications for tech startups and other fast-growing businesses. We help companies get to market more quickly and help them build the technology and software that they use to power their business. I started the company in 2005. We now have 19 employees and are a fully virtual company.
Lesson learned: It is a marathon, not a sprint. You have to be in it for the long haul. You cannot expect any quick wins. Keep grinding and grow the business.
Robert Wray – Founder and CPO, Whitebox, Inc: I started my first company when I got out of high school. It was an IT consulting company which took care of about 200 small businesses across Baltimore and Washington. Then, in the late 90s, I had this hobby of putting computers in cars, since that was the only way to get digital audio in your car. That’s how I got started in e-commerce. I built software for that company. I mortgaged my house and took friends’ and family money. My net worth was about negative $500,000, which was crushing. That software product failed and I ended up building a bunch of software products and systems to turn that company around. We dug ourselves out of that hole and quintupled our revenue. The software worked so well for my company, we released it as a product and service to help other brands grow. With that, my cofounders and I launched Whitebox Inc. in August 2013. We help brands sell more stuff. Then we also help them move that stuff. We are also using technology to drive efficiency and quality in our buildings.
Lesson Learned: Be open and get advice from folks who can help you. One of the biggest mistakes I made in my first company was thinking that if I shared my idea with others someone would steal it. In that, I think I lost a lot of really valuable advice.
Ed: Jason and Yair, you have not pursued outside capital. You decided to self-fund your growth or use the banks to help you get there. Why?
Yair – I have a service business. It’s consulting. Those types of companies are generally not seeking outside funding because of the way the financial model works. It’s pretty simple. We sell our time. The way the business grows is by hiring more people and charging a premium on their time. It’s a lot harder for a company like mine to scale. That’s one thing. Historically, there’s not a lot of interest from VCs or private equity groups.
The other thing is control. With investors and other people on the balance sheet, I would have to consider giving up control of the business. That’s not something I really considered for SmartLogic. In the future, if I decide to start or cofound other businesses where the business model is different, then I’m sure it would make a lot more sense to seek external funding.
Ed: Do you think that slowed your growth or hindered the ability to scale the business?
Yair: For sure. Outside capital allows you to run more experiments. It allows you to hire more people. It allows you to invest in growth. So, it’s certainly a trade-off.
Jason: We are a services-based business… We thought about it, but it wasn’t in line with where we were at that time, strategically. We tend to grow through bids and proposals… In my industry, once you get to certain size it becomes harder to grow at a similar pace. When you are a $5 million organization and you win a contract that is worth $1 million, you’ve grown 20%. When you’re a larger business, you might grow by .5%. Looking back, it probably would have been nice to take on some investment dollars to help build out some capabilities that we could use to go to market and differentiate ourselves. Has it been a hindrance? I would say no. There is still a great opportunity in my specific space to grow without taking on investment dollars. Where I want to take the organization, we’re kind of at a point now where it would be beneficial to have investment income, so we could acquire business or hire the talent that could take us to the next level.
Ed: Thinking of organic versus inorganic growth, do you think that outside capital might be helpful for inorganic growth?
Jason: Yes. Absolutely. That’s were getting capital investment early on may have been a really smart idea. If you can get some outside investment to help you acquire a company of similar size, you can double in size. You tend to pick up new capabilities and strengthen capabilities you have. There’s a lot of benefits to the inorganic growth model. Right now, being in a pandemic, an organic model is harder, mainly because people don’t want change… (they tend to stay with an incumbent contractor.) So, this inorganic model, because of the pandemic, has become even more advantageous.
Yair: Money gets you access to acquire talent, companies, services and things like that that you don’t have access to through organic growth. In that regard, it makes a lot of sense.
Lesson Leaned: Each funding path has its benefits and challenges. It’s up to you to choose, so do your research. Include an honest assessment of your risk tolerance and need for control.
Ed: Noah, you launched a business with friends. How did you navigate working closely with a partner that’s already a friend?
Noah: I did not necessarily set out to start a company. I was originally very happy in my career in enterprise sales. My current business partner is one of those genius types. I knew if I were ever going to start a company, I would want to start a business with him. I think, in the beginning when you’re putting together relationships and partnerships with friends, especially if they’re putting some of the capital in to get you started, you might think, “We don’t care about percentages or how much people own, etc.” Well, I will tell you, put a lot more thought into the future. Ask yourself, “Will I be happy?” It’s always tricky. Be careful. Pay attention when you are going through these agreements. Really, think through the “what ifs.” Both, “what if you are successful in the very beginning and faster than you thought,” as well as “what if it takes two or three times longer?” Then, are you happy in all those scenarios? It could be harder to change down the road.
Lesson learned: Agreements count. Pay attention to the details, even among friends and family, and don’t hesitate to get professional advice before you sign on the dotted line.
Ed: I see a lot of relationships break apart over money. What really impressed me is that in every conversation we had, you prioritize the relationships. Money was secondary. As a result, I think you navigated some difficult conversations and maintained the friendship…Having worked with hundreds of businesses over the years, the family business dynamic can be difficult. Talk us through the decision to start a business with your father and his changing role.
Vlad: Initially, the decision was based on need… Quite frankly, he was the first employee I could afford… One of the toughest things is having a clear delineation of responsibilities. I made it very clear that it is my company and I’m the CEO. I will make the final call and I appreciate your input. At the same time, trying to balance that with some level of compassion… I wanted to make sure that I found good places for him to land, so that he felt engaged and happy, like he had a meaningful contribution in the journey. He did make a big difference in the business. It’s really a balancing act. And, certainly, had its challenging moments. Looking back, I would not change the decision.
Lesson Learned: Create boundaries up front, so you are not fighting about them down the road.
Ed: Rob and James, you guys took on outside capital and you ended up giving up pieces of your business. Tell us about what it’s like.
James: Michelle and I started the company with $5000 in capital. For the first six or seven years, it was just us. We didn’t raise capital. Our ambitions were a bit more modest. Once we teamed up with the guys in Israel, there was a clear-cut strategy to build a company and exit it. We raised the first 10 million from friends and family. Fortunately for us, it was a Cinderella ending. We were ultimately acquired for $328 million. Granted, we had all been diluted through these investment rounds, but it was still a life-changing amount of money. There is a calm confidence that comes with knowing that you’re going to be okay. For us, raising that capital and giving up control was the right thing to do.
If I look back on anything I would have done differently… we were kind of a bankrupt company. We were living off of debt. We had to raise money. These rounds were not a luxury for us. That type of risk, although it worked out in the end, there is a lot of anxiety and uncertainty.
Lesson Learned: As smart as you may be, you can’t be great at everything. Bring on a strong C-Suite. Letting go of those responsibilities can be difficult, but it’s important. Hire talent and don’t be afraid to let things go.
Rob: When you talk about outside capital, I think you’re really talking about a change in control. For me, my first two companies were lifestyle companies. I did what I wanted to do and had flexible hours. I got to have some fun customers. As I read about the Apples and Googles of the world, I really wanted to know what that was like, to work for a big company. I wanted to learn. I wanted to do something different. That’s when I decided to take this outside money.
Lesson learned: Money = Control.
Rob: It afforded us the growth capital, so you can stomp on the accelerator and go faster. But, for me, the most interesting thing about it was the ability to work with really smart people, certainly smarter than I am, and be able to learn from those folks. Once we were able to get our first rounds of capital, we were progressively able to add smarter folks to the team. It kept the snowball rolling. …I think, when you give up these pieces of equity, you are either doing it to get investment dollars or you are doing it to help incentivize your team.
Lesson learned: Success is attractive, not only for investors, but in hiring prime talent, too.
The conversation continues at https://www.foundercity.com/may26.
Many thanks to Ed Robinson and the panelists. Vistage is the world’s largest executive coaching organization for small and midsize businesses. For more than 60 years Vistage has been helping CEOs, business owners, and key executives solve their toughest challenges through a comprehensive approach to success.