Simple, But Hard – Part 1

Note – This blog is adapted from a speech that I gave to the Raleigh Young Executives Club on May 13. 2013.

Overture will soon reach the 13^th anniversary of its founding by Jeff Reedy and me.  Anniversaries are a time for celebration, but also for reflection.  In this blog I have captured a few stories from the history of Overture that illustrate some principles that can be characterized as simple, but hard. 

Simple but hard describes many aspects of our personal and professional lives. Want to lose weight?  Eat better, eat less, and get more exercise.  Simple, but hard.

I recently started shooting skeet, and was frustrated by my lack of progress.  I took some lessons and have learned the basics:

• keep your eye on the bird, not the barrel
• allow plenty of lead
• keep your head on the stock and follow through.   

Simple, but hard.

This principle of simple but hard applies many aspects of the business world.   For example, Steven Covey’s “7 habits” falls into this category.  They include “Sharpen the saw” and “begin with the end in mind”.  Simple, but hard.

On that note, I am going to share a few stories with you, that I hope you find interesting and informative.

Point 1: The key to finishing is getting started

Or, put another way, the journey of a thousand miles begins with the first step.

You are all familiar with this simple but hard idea.  I need to start my taxes.  I need to start exercising.  Etc, Etc …

I have been fortunate to have been involved in some success with Overture.  As is the case with many startups, the early work was done as our unpaid “night job” while we still had our “day jobs”.  Jeff Reedy and I did this for about 8 months starting in January 2000.  

During this period of night and weekend work we were able to refine the business plan and make some initial contacts with potential customers, investors and employees.  However, you can make only so much progress in this fashion.  At some point, you have to decide: Are in or you are out?  Are you going to fish or cut bait?

We took the plunge, quit our day jobs, pooled some money and started Overture in September 2000.  Sounds simple, but it was hard.

• We had to walk away from a steady job and a paycheck
• We invested our own time and money in our idea and vision
• We had to commit to the business in the face of rejection from potential investors, potential employees and potential customers
• We faced the prospect of legal action from our previous employer.  There was no legitimate basis for a law suit, but we had to treat it seriously in the face of our fund-raising efforts.

So, we got Overture going.  We raised some early money and hired a few employees.  On to product development.

In the early days of Overture we were lean and nimble.  We could make decisions quickly and get started on projects.  Our first few products were not quite right for the market.  However, they had the most valuable property of any product: they existed.  We were able to take those products and make minor adaptations to make them market winners.

As we grew, it became harder to get past the analysis stage.  The desired end date was creeping closer, but we were making no progress. We were so concerned about getting the product right that we couldn’t get going.  

We are doing a lot better on this now.  I feel that we have restored a lot of our old “a bias for action”.  If you are going to drive from North Carolina to California, it’s probably not a bad idea to get on I-40 and head west while your navigator looks for any issues down the road.  In other words, get going and make corrections.  Simple, but hard.

Point 2: Be Committed 

Commitment is one of the simplest ideas around, but also one of the hardest.

As I mentioned above, an important part of getting started with Overture was investing our own time and money.  This meant writing large checks to cover the initial funding.  It also meant that Jeff and I went without pay for about 9 months, and then took “grocery money” for a period after that.  

I want to share a contrasting story.  When we started Overture we leased some space in the First Flight Venture Center or FFVC in RTP, near where Davis Drive ends at Cornwallis Road at the entrance of IBM.  The FFVC was originally the Triangle Universities Computation Center or TUCC.  After TUCC was decommissioned in 1990 the state turned the building into an incubator in 1991.  It was a good place to start a business because they provided a variety of furnished rooms on a monthly basis, along with phones and internet.  As we grew we acquired more and more rooms, including what became known as the “basement” in Overture lore.  This was the lower floor, which was also the original RTP post office.

Another firm in the building was a startup providing circuit board layout services.  Companies like Overture need to convert designs into circuit boards, but only occasionally.  This is an ideal job to farm out to a services firm.  The presence of such a company in the same building was very convenient.

The firm was formed as an LLC with two principle partners.  The president was a man who was a circuit board designer who still had a day job at a local firm.  The vice president was a woman who was handling sales and operations.

When the president lost his day job he decided to work full time at the startup and take a salary.  He informed the vice president that her services were no longer required.  His thinking was that he could do this since 1) he was the president and 2) his wife was the accountant and had the checkbook.  Of course, that’s not how a partnership works.  The wheels quickly fell off and the firm dissolved shortly thereafter.  He was not committed.

Commitment shouldn’t be blind.  At some point it may be rational to pull the plug.  However, you have to be prepared to ride through the initial storms and hardships.  The story above is a great example of why VCs say “don’t trust a founder with a day job”.

Point 3: Be Contrarian

For investing, this notion is commonly phrased in a couple of ways:

• Buy low, sell high. 
• When people are greedy, be afraid.  When they are afraid, be greedy.

It’s never easy to start a telco equipment company like Overture, but especially not in 2000 and in RTP:

• It requires a lot of capital and the sales cycle is long. 
• The big customers are notoriously difficult to deal with, and many won’t do business with a small company. 
• Most of telco startups are focused in Silicon Valley, Boston, or maybe Texas.  There is not much of an infrastructure here in RTP, especially with respect to VCs.  They don’t want to fly over a deal to get to a deal. 
• Finally, 2000 was the tail end of the boom.  Very few angels or VCs were interested in making this type of investment.

Despite the difficulties, there were some real benefits to starting when we did. 

• We were able to recruit and retain some great employees without using extraordinary means.
• We were able to acquire very expensive test equipment for pennies on the dollar.
• We were able to find commercial space for very good rates.
• There was not an expectation from our investors that we would immediately win big deals.  We were able to win some small deals, refine our products and build our company.  When the market started to turn around in 2003, we were ready.
• We were able to build a business that let our customers get maximum use and evolution from their existing network, rather than the bubble approach of rip and replace.

In all these cases the benefits came from a contrarian approach.  Simple, but hard.

Point 4: Expect some failures, but manage them and learn from them

I like to fish.  Since big fish eat little fish, and since all fish start life as little fish, most fish are conditioned to hide in places that are hard to access.   If you try to get them out, you are going to lose some end tackle (i.e. hooks, weights and lures).  However, I tell new anglers that if you are not losing some end tackle, you are not fishing in the right place. You do have to apply some discretion.  I always prefer to throw a 20 cent plastic worm into a nasty brushpile rather than a $5 crankbait.  Stil,l you have to be willing to lose some tackle to catch fish.  Simple, but hard.

I also like to play bridge.  The scoring in bridge is such that success is rewarded more than failure (being set) is punished.  You need to be aggressive to win.  The saying is that if you are not occasionally being set, you are not being aggressive enough.  Again, you have to apply discretion.  There is a time when you are vulnerable, where the penalties are doubled. That’s the time to be a bit more careful.  However, if your opponent is vulnerable and you are not, bid away.  It may not work out in any given case, but over time the averages will work in your favor.  Simple, but hard.

In product development there is a fine line between aggressive schedules and unrealistic schedules.  If you are meeting all of your schedules and all of your designs are successful, you may not be aggressive enough.  Sometimes you may not be willing to embrace the chance of risk, such as when a contract penalty clause is in play.  During the other times, are you willing to allow aggressive plans to fail sometimes, and not punish those involved because you know that you are ahead in the long run?  Simple, but hard.

Another fine line is between spending a lot of time doing market and customer research on a product versus trying a lot of ideas quickly.   This goes to the previous point about a bias for action.  One thing that we see with Google is that they crank out a tremendous number of products.  Some are boring, and some are failures.  However, the sheer volume of product delivery means there will be some winners.  Google mitigates risk by minimizing the cost and time of bringing these products to market.  In the equipment business it’s harder for us to develop new products quickly and cheaply.  What we can do and have done is make the products very flexible and programmable.  Get them out ASAP with functionality that we have reasonable confidence in, get it in front of customers, and then update it to match their real needs.

One of our few absolute failures that we had was when we abandoned the notion of flexibility in favor of product cost.  The resulting product was close to what the customers needed, but the lack of flexibility meant that we couldn’t close the gap.  We had to kill the product.  We certainly learned from that failure, but we didn’t fire anyone.  Simple, but hard.

I sometimes characterize learning from mistakes aspect as “Experience is how we avoid mistakes.  Unfortunately, mistakes are how we gain experience.”  Put another way, “The lessons at the school of hard knocks are expensive, but they stick.” 

Continued in Part 2 …