Founders may need to go on the “money hunt” to raise capital. But they need to maintain control. Silicon Valley’s longest serving CEO talks about the trade-offs.
Guy Smith: Hello again and welcome to another episode of the Tough Things First podcast, where we explore everything technology, Silicon Valley, leadership, executive management with the guy who’s basically done it all, Ray Zinn, the longest serving CEO in all of Silicon Valley. How are you doing today, Ray?
Ray Zinn: Pretty good, Guy.
Guy Smith: Hey, so let’s talk about where I used to live, Silicon Valley. There is a something that troubles me out there. You’ve spoken to this yourself many, many times and that’s the struggle that founders in startups have balancing between raising money and actually building their companies. One of the things that we see is that the founders go on what we’ve called the money hunt, where they are perpetually under pressure to keep raising round after round after round of money in kind of a blind obsession of raising the top line revenues, in theory, so the VCs can then just sell off the start off to Google or Facebook or whoever might be interested. But the downside seems to be that this takes all the time away from the founder and the CEO and probably hurts their company during its most formative years. So, talk to us a little bit about how the money hunt interferes with actually building a corporate culture and managing the shop.
Ray Zinn: Well this money hunt thing is probably the reason why they don’t succeed. The rule I have is that you raise enough money up front, in the very beginning, to take you to profitability. The reason for that is because once you start the ball rolling, as they say, you want to spend the time developing a company. Now some of these startup guys, these want to be entrepreneurs, they’re more focused on just starting a company and hopefully selling it off sometime in the future. And they’re, hopefully the near future, and they don’t really worry about building the brick and mortar of a real company. And I see that as a serious problem with almost every single company that I’ve looked at over the past three years, is they’re more focused on trying to sell the company even before they start it than they are in building the company.
And I asked him, “Why is that? Why are you so focused on selling the company?” He said, “Well, because everybody asks us what is your exit strategy”. And I said, “Well, I didn’t ask you that.” But they all seem to be focused on the exit strategy. And so that… An exit is not where you want to be. You want to be in the beginning. In other words you want to… It’s like trying to sell the house before you even get the thing built.
So these CEOs or these entrepreneurs need to focus more on developing a company and forget about selling it. That should be a last thought in your mind is exiting. If I were in their shoes starting a company, I would say if somebody asked me what my exit strategy is, my exit strategy is to build a company. I want to build a real honest to goodness company and not one that I’m going to be bailing out of in a few years. So, that takes care of itself.
If you build a good company, people will come to you and want it. I’ve had people say, “Hey, I love your home. Is it up for sale?” And I say, “No, it’s not up for sale.” And so, when I ran Micrel for the 37 years that I had it, I had people coming to me all the time saying, “Hey, are you interested selling Micrel?” and I said, “No, I’m not.”… “Why not?”… “Well, because I’m building a company, I’m running a company. I’m not just trying to sell a company. I’m not like a builder doing a spec home. This is not a spec company. This is a real company.”
Guy Smith: Yeah. I heard one entrepreneur say that his exit strategy was to die of old age and that was it. Everything else was kind of off the table.
Ray Zinn: Well, he probably will die of old age, but not as a CEO.
Guy Smith: So, this gets down to a funny problem, which I guess founders have to weigh out in their mind and that’s how much time do they really need to dedicate, I mean absolutely mark off on the books, in terms of developing their corporate culture, handholding their people, optimizing their operations. Let’s take a hypothetical. Let’s say that they have to be in the money hunt a little bit, that’s part of their gross strategy. Where does it tend to break? What’s the minimum amount of time any founder should be investing in his company and its culture and its people and its operations?
Ray Zinn: I’d say 100%. It’s like you’re going down the freeway at freeway speeds and you said, okay, I’m going to see how long my car can continue down the road without hitting someone if I take my hands off the wheel. That’s what they’re doing. I mean they are basically saying we’ll see how long the company can run without me being there to help manage the operations. And it’ll… I guarantee you, unless your car is very, very stable and its got all electronic artificial intelligence that self driving cars… you would… I guarantee if you take your hands off the wheel of that car that’s… even with those artificial intelligences, it’s not going to… at least in today’s environment, you’re not going to go down the road very far. And that’s the way it is with running these companies as a founder and you decide to let the company run itself while you’re out there raising money. It is not going to last very long.
And so when you get back after your money hunt and you find your company in disarray, you say, what happened? Well, what happened was you left the helm and decided to go off and play poker or something. But anyway, that’s 100% of your time should be spent managing and running the company.
Guy Smith: You know, given what you just said, I think a great analogy might be that these founders are busy trying to put gas in the tank of a car that doesn’t have any wheels on it.
Ray Zinn: Yeah, they can run the engine but it isn’t going anywhere. So, that’s a pretty good analogy, Guy.
Guy Smith: So aside from venture capitalist pressure to keep going out there and getting round after round of funding, what other reasons do you see that founders might be ignoring these foundational aspects of building their company? Why might they be dropping the ball other than the fundraising problem?
Ray Zinn: Well, I mean there’s… they maybe don’t know how to do it. Maybe they don’t understand the fundamentals of what it takes to build a culture of a company. The culture, it’s like your family, right? If you don’t spend time with your family and with your spouse and trying to develop that relationship with your spouse and your children, you’re not going to have a family. That’s why… maybe why we have the divorce rate is so high in this country, because parents and spouses we’re just not paying enough attention to what’s really important.
In running a company what’s really important is to consider your company like a family. You’re the head of the home, as you would, as a leader of your home or your company, you should be just as concerned about your company as you are about your family. And of course that’s not true for a lot of husbands and wives and parents that they’re… they don’t seem to care about their families and that’s why their families fall apart. And that’s why companies fall apart too, is because we don’t treat our company like a family.
Guy Smith: Well, that’s definitely one of the better analogies I’ve heard. Given the way that a company needs to be nurtured as well as a family. And for the audience, quick aside here before we get back to the Q and A, is in Ray’s book, Tough Things First, there is a lot of discussion about corporate culture, what it is, how you build it, why it’s important to the employees, why it’s important to your vendors and your customers and everything else. I have a degree in management. I spent 22 years on Silicon Valley, but I learned more by reading Tough Things First than I did in all the other time that I spent out there in the business world. And if you’re a founder, man, you got to buy that book and you got to read it now. It’s going to eliminate so many problems for you because it’s the most concise education on entrepreneurship you’re going to find out there in the market.
Ray Zinn: I was talking to a friend of mine, oh it’s been probably six or eight months ago, and he was… we were chatting almost like you and I are chatting now about running companies and he leaned back in the chair and he started to cry and this guy is in his eighties. I said, “What’s the matter?” and he says, “Well, I’m just reflecting back.” He says, “If I had had Tough Things First, if I had had that book back when I was running my company, we would not have gone bankrupt.” And he had tears in his eyes and I thought, wow, that’s really something. What a recommendation that is. I says, “Why don’t you go ahead and write me a review and on Amazon?”, he says, “I’m going to do it. I’m going to go do that.” And he took his handkerchief, wiped his eyes, he says, “You can’t believe how important it is for people who want to start and run their own companies to read Tough Things First.” And probably the most strongest recommendations that I’ve seen.
Guy Smith: Well, I wholeheartedly agree with that. At the risk of hijacking your podcast, I wrote a book a while back called the Start-up CEOs Marketing Manual and it was basically an expensive calling card for me. But I got on Amazon the other day and I noticed that about four out of every five customer reviews there said, I wish I had had this book when I started up because I stubbed my toe along the way so many times this would have just eliminated that. So to the founders out there, that is the value of Tough Things First. You’re going to not only build a better company and a more enduring company, you’re going to avoid stubbing your toe on all of the obstacles that will be in your way.
So, I’ve got one other question related to this balancing of building the company versus raising the money. What founders are going to be interested in are what are the good ways as well as the quick ways to establish a sound corporate culture? Because this seems to make many of the operational issues kind of handle themselves. What can a founder do to get a good solid corporate culture foundation underneath themselves and all the new employees?
Ray Zinn: Well, he’s the leader of the band, so it starts with him having a characteristic of honesty, integrity is important. And then of course, being respectful of his employees, treating them as equals, being their advocate, their protector, their defender and this is so that they feel safe and that they are going to be looked out for. And then of course, the attitude of doing whatever it takes. I mean being right there and working with them in the trenches. As the saying goes, charge San Juan Hill yourself, don’t require them to do it. You lead the charge. They want to know you’re committed, they want to know that you’re kind, respectful and that you’re honest and you have integrity. And that if you have those attributes, your people will follow you.
Guy Smith: I think it’s interesting you said that, because I believe I read an article that you wrote. I think it was in Forbes, where you had talked about how corporate culture, at least in the start of a startup’s life is really the culture of the founder or the founders themselves. The organization takes on the beliefs and the attitudes of the founder. And that’s kind of interesting because you see some companies out there that have very, very bad reputations and you have to kind of wonder what people the founders were.
Ray Zinn: They’re the ones that established that culture of either good or bad. And so, if the company has a good culture, you can look at its leader and say that leader has a good culture. If you find a company that has a bad culture and we, without speaking names, we know who those are, it tends to fall back on the leader himself. It usually… the leader is the one that is the culture driver, as you would.
Guy Smith: Well, and I think that’s an absolutely bulletproof point. I spent a long time in and around the Hewlett Packard universe and everyone who I knew who worked for HP, who was old enough to actually remember Bill and Dave, knew that the culture derived from those two men and the old Hewlett Packard culture was magnificent. Everything worked. Everyone worked for the same cause. Everyone was happy to work there. And then when Bill and Dave went away, so did major parts of that culture and that’s when HP started having all sorts of problems.
Ray Zinn: Well, back when I was much younger, back when Dave and Bill were running Hewlett Packard, they called it the HP way. You don’t hear that anymore. You don’t hear anybody saying, well, it’s the HP way and the reason is because that culture is gone.
Guy Smith: And for the young listeners in the Tough Things First podcast audience, do a Google search on the HP way, you can still find the list of what Bill and Dave thought out there. It’s a great beginning point for you to think about how your organization’s culture should evolve. And on that point, the one other thing that I want to advise to the listening audience, Ray has two books out there: Tough Things First required reading for all of you founders and entrepreneurs, but also grab a copy of the Zen of Zinn. If you’re looking for a better understanding about how your company and your community and the cultures within and without all interoperate because your company is part of the community, the community will become part of your company. And it’s important to understand the interrelationships of all these philosophical operational points between the two because that will help make you successful. Otherwise, rate and review us on iTunes, Google Podcasts, Stitcher, wherever you like to acquire your podcasts. And by all means, fire it up for next week and we will see you for another episode of the Tough Things First podcast.