To create an enduring business means creating one that will last. That is different than creating a startup and selling it off.
Ray Zinn, Silicon Valley’s longest serving CEO, and one who ran his semiconductor business for 37 years, tells you the top three things you need to do to make your business enduring.
Guy Smith: Hello everybody, and welcome to another special edition of the Tough Things First podcast. This is something we’re doing differently this year, several times a year we’re going to have a special episode where we talk about the top three tough things that you as a business leader need to do for a specific topic. And today we’re going to talk about the tough things first that you need to do to build an enduring business. Now, what do we mean by enduring business? I’m going to cheat here because I took this from Ray Zinn’s book, Tough Things First. And an enduring business is one that is not designed to be a bottle rocket, it’s designed to be a hoist, it’s designed to be steady day in, day out, profitable for this generation, for the next generation, for the generation after that. And that’s what Silicon Valley often avoids doing, is building enduring businesses. So we’re going to talk with Ray Zinn and we’re going to get those top three things to build the enduring business. And on that note, hello Ray, how are you?
Ray Zinn: Doing fine Guy, thanks for this opportunity to meet with you us again, to talk about the top three tough things first that we need to do.
Guy Smith: Well, and I think it’s important for your audience to keep in mind that Ray is literally the longest serving CEO in Silicon Valley. I mean, he is a legend out there, the way that he started his company, the level of employee commitment to his company as demonstrated by the low turnover rate, and the number of people who left the company and then came running back because they discovered it really was a great place to work. All of this fits into today’s topic about the enduring business and Ray’s advice is to how to do that. So let’s jump right into that, Ray. Tell me what the number one aspect of building an enduring business is. What’s the first thing every business leader needs to focus on?
Ray Zinn: Well, I’d like just to go back a minute where you’re talking about what is enduring. Enduring is the opposite of endearing. Enduring, as you pointed out, is like a hoist. It’s sustainable, it doesn’t fizzle out. Endearing is like the 4th of July fireworks, that looks great for about 20 minutes, everything’s all wonderful and you’re all excited, and then it fizzles out. So the endearing companies fizzle out, the enduring companies don’t look glamorous in the sense of word. They can take and sustain great loads for long periods of time. And so to do that, the first thing you got to do is make sure that when you start your business, if you’re a startup, or even if you’re in a company or a business that has been underway for a while, is to make sure you have enough cash to sustain yourself. That you’re not just here today, gone tomorrow, sustain yourself means that you are profitable.
And then that means having enough cash to take you to profitability. And so if you’re say on net 30 days in your receivables, you have to be able to sustain yourself for 30 days, because you’re not going to get that cash for 30 days. And probably average is more like 50 to 60 days. And so whether you’re running a business or whether you’re starting a business, you want to have enough cash to take you to profitability. In other words, the cash will last you. The reason I say that is because otherwise you’re constantly going out there having to chase the almighty dollar to keep your company going. And so if you can’t raise enough money to take you to profitability, or if you’re an ongoing business and you can’t make it to the end of the month or the next 50 to 60 days, don’t do it, just fold your tent. And so I would caution anyone who is either running a business, or is considering going into a business, that if you can sustain yourself until you’re profitable, then you shouldn’t be in business. And so that’s the real key.
Guy Smith: And oddly enough, that goes against a lot of the bad advice that you hear in Silicon Valley. The number of entrepreneurs I’ve seen who spend their first five, maybe six years doing nothing but raising money, while internally, their company becomes dysfunctional, unprofitable, almost internally antagonistic. Everyone living on the pipe dream, but no one actually getting black ink on the bottom line. Seems to me to be almost a cause and effect. If you spend as a business leader, if you spend all of your time out in the field raising money, you’re doing absolutely nothing in the office to try to reach profitability.
Ray Zinn: Absolutely. And I think that’s the mistake that most companies make, or startups make. And by the way, why 90% of all startups don’t last more than three years is because they’re out there raising money rather than running their business.
Guy Smith: And that gets me to one of my pet peeves, which is Uber. Uber’s been around now for more than a decade, they’re bleeding billions of dollars every year. The only way they’ve been able to sustain this is through investors throwing more and more money into it. And still to this day, they have no horizon that says, this is the date that we will be profitable. At some point this has to implode.
Ray Zinn: I know, exactly. So you’re not a real business or a real company if you’re not profitable, pure and simple. Profitability is sustainability. And anybody that tells you that they’re running a company that doesn’t have to be profitable, they’re running a non-profit organization as you would, they’re not going to survive.
Guy Smith: Yeah. Yeah. And it’s kind of happening to Uber right now. They kept expanding their mission statement, they kept adding on new businesses on the side, and now they’re lopping them off like they’re doing self amputation. And I’m sure people can do self amputation, but it’s not pleasant.
Ray Zinn: Well, even non-profit organizations have to have, the revenue they bring in is greater than the expenses that are used to create the non-profit. And so Uber is even worse than that. They spend more money than they take in. I call them breatharians, you know what I mean? They’re living off of nothing. And while I use Uber and they’re fine service, without making money, they die. And if you wonder why Uber can run you around to your destination for about a third or half of what it cost you to take a taxi, now you should understand you can’t do that forever because you’re just going to lose money. All those taxi cab companies that used to used to run you around for twice what you’re currently paying at Uber or Lyft, they charge more money for a reason. Not that they’re trying to be rich, they’re just trying to be sustainable.
Guy Smith: Right. Right. All right. So number one thing that a business leader needs to do to build an enduring company is to have enough cash to take them to profitability. What’s number two on your list?
Ray Zinn: Well, you have to have an employee-centric business. You got to have happy employees. And going back to Uber, I take Uber all the time, I use Uber at least two or three times a month, or Lyft, not just to talking about Uber. But in talking with those drivers, I’ve never spoken to one of them that really likes the company. They’re not employees. Of course, Uber calls them contractors, they’re not employed, the drivers are not employees. And they looked at it as contractors. And so they don’t have any loyalty, they don’t have any commitment to the company. And as I said, I take it all the time, I’ve never had the same driver. And I always ask them how they like driving for Uber or for Lyft, and they don’t like it.
I say, “Then, why do you do it?” “Well, we don’t have a choice.” They’re all saying they don’t have a choice and they need that extra money. And so they put up with the nonsense, but they’re not going to be loyal. I would say the average Uber driver is probably less than three years. In other words, they don’t stay with them very long. And so if you don’t have a loyal employee base, trust me, you’re going to assume to be out of business, or you’re going to constantly be rotating employees. So having a good culture where, where the people say when you ask them, “How do you like your company?” They say, “I love my company.” And that’s what keeps your employees there when they say they love it, they absolutely love it. And so I think that’s the mistake that especially Uber makes, to some degree Lyft, is that they really don’t like their company.
Guy Smith: And I’ve seen this in operation myself ages ago. I used to work at a Circuit City corporate headquarters, and they had a center of gravity with the inside of the company, which was always reinforced in the house Oregon through the management chain, whatnot. But it was always about customer service. And this was before Best Buy came and Circuit City had a CEO overhaul. But everyone was excited about the company because everyone held dear to that idea that we’re here to make our customers happy. We always want them to feel like they got the right product, the right service, blah, blah, blah, blah, blah. And they didn’t pay exceptionally more than anyone else, they didn’t have extravagant benefits. But boy, everyone showed up to work with a smile on their face and ready to do the best job that they could, because they had a belief that our core mission was something important.
Ray Zinn: Well a happy employee, you’ll have a happy customer. I hate to keep going back to Uber, but I’ve never seen a happy Uber driver.
Guy Smith: Yeah.
Ray Zinn: And it’s always gloom, gloom, gloom, gloom. Okay. And so if your employees are not happy, your customers are not going to be happy, because they’re the ones that are creating that product or service that you’re providing. So you absolutely want a happy employee base.
Guy Smith: Right. And I’ve been in a couple of cars where the driver works for both Uber and Lyft, and I’ve specifically asked them, “What do you think about these two companies?” And almost to the man, they say Uber is tough, antagonistic, we don’t really feel welcome. And then they’ll say, “But Lyft is nicer.”
Ray Zinn: I’ve heard the same thing.
Guy Smith: Yeah. “Lyft is at least trying to look out for us, trying to make our interactions with companies here, blah, blah, blah.” And that’s why I think Uber will be history and Lyft may actually continue on towards the horizon.
Ray Zinn: Yeah, because you’re right. I found the same thing, that by and large, the drivers speak more highly of Lyft than they do Uber. Because as you pointed out, Lyft is respectful to their people. At Micrel, the company I ran for 37 years, we were an employee-centric company, we focused on the employees. They were our bread and butter, what makes a company successful is the employees. And so we had a culture of honesty, integrity, respect for every individual, respective of their position. And the fourth was doing whatever it takes, no excuses. So those four cultures really are the mainstay of how we kept our employee turnover at the lowest in the industry, by far the lowest. The industry average was like 15% or 16%, and we were down below seven for 37 years, 7% turnover. And so that’s key. And we also had the highest boomerang rate, employees returning back to the company that left. The highest. I would say in the 37 years, half the employees that left the company wanted to come back. And that just speaks volumes for the culture that we had.
Guy Smith: That does speak volumes because like everyone else my age, I’ve had several jobs. And I can not think of a single company that I wanted to go back to.
Ray Zinn: Really.
Guy Smith: And so you had that many employees who said, please let me back in the door. It says a lot about the culture, that they want to come home.
Ray Zinn: That’s key to a successful company is having a happy and productive employee base. We always talk about how important productivity is, whether you’re in accounting or whether you’re in purchasing or manufacturing. Productivity is extremely important because that’s how you keep your costs down. That’s how you lower your expenses, is by through productivity.
Guy Smith: Right. Okay. So in terms of building an enduring business, number one, we had, have enough cash to take you to profitability. Number two, have an employee-centric corporate culture. What would be number three on your list?
Ray Zinn: Well the third is an extremely important one, to keep your product line fresh. Whether you’re a company like Uber, or whether you’re a company like Micrel or Boeing or wherever, where you have product line that will obsolete. You have to make sure that whether you’re a service company or in real estate or banking, or whether you’re making widgets, you got to keep that service or that product line fresh because there is obsolescence. And so whether it’s the techniques that you use in selling a property as a real estate person, whether it’s the updating of the technology using for your widget, if that product line is not kept fresh, you’re just going to see your business diminished. And so even though, if you’re running a beauty salon and you have a good customer retention, meaning your people keep coming back, you’ll probably find it’s because you’re keeping your service fresh.
In other words, you’re doing something a little different. Maybe you’re adding something to the services you’re providing, you always want to keep updating your product line. I know that, I have an iPhone and an iPad from Apple and I’m constantly getting updates. And I begin to wonder if it’s because they did a crappy job when he introduced the product or whether they’re just keeping their product line fresh. And you can tell how good a company is by how fresh they keep their product and service.
Guy Smith: Well you know, there’s a parallel which I can talk about a little bit. I’ve got one tiny little toehold in the music industry, and with streaming now, and with the cost of entry being so low, it’s completely changed the mechanics of how independent artists get out to their audience. And a truism in their market is that you release an album once a year, maybe even longer, but you got to drop a single every two months in order to keep your audience aware that you exist.
Ray Zinn: Exactly.
Guy Smith: And by keeping them aware, when you do drop that big album, then they’re ready to buy.
Ray Zinn: Well, it’s true in almost anything, whether you’re in the music industry, beauty salon, or banking, or making a widget of some kind. If you’re running into a buggy whip type business, meaning the buggy whip is running out of style, out of business, you’re soon going to perish. Look at all the stores, I heard that Macy’s is going to shut down hundreds and hundreds of stores. And I had to ask myself, I wonder why Macy’s is having to close down so many stores? Same thing with Fry’s electronics, they’re shutting down a lot of stores.
And even though it should be obvious to them that online is taking over, they have to find a way to keep their product line fresh. Walmart, for example, is now moving into doing what Amazon’s doing. So they are keeping their product line fresh. And then now some of these other grocery stores are now offering a service so that they’ll deliver it to you, maybe using robots or whatever. But they’re jumping in line. If you don’t get in line, if you don’t keep that product line fresh, you’re going to die. And what Macy’s has not been able to figure out how they’re going to compete with online shopping.
Guy Smith: And while we’re on this topic about keeping things fresh, give me a little bit of backstory here. You were in the semiconductor industry. This is always a place where there’s continuous innovation going on, trying to anticipate where end products may be going in the future. What kind of things did you do in semis to try to keep product lines fresh in that kind of a hyperdynamic environment?
Ray Zinn: Well, every product has a life. [inaudible 00:20:02] what you’re doing, making shampoo, or whether you’re making iPhones. There is a certain life that you have to look for, to be aware of. In our industry, in the tech high-tech industry, your product is going to need to be refreshed at least every five years. And so they bring an iPhone out every year, and it’s hard for them to figure out, “Okay, what are we going to do uniquely different?” And that’s a real struggle. Apple’s having a real struggle trying to find how they keep that product line fresh. How do we keep people wanting to buy another iPhone? They look at the battery life and they say, “Well battery life in the iPhone is probably three to four years.” And so they know that at some point the customer is going to have to get another phone. And to get them wanting to come back to Apple, we’ve got to have something unique and different so that they don’t go over to Samsung or LG or someone else.
And so you got to look ahead, say, “Okay, where is this thing evolving? Where’s it going?” And be prepared for it. For example, when we were at Micrel, we knew that at some point, the key pad on the cell phone was going to go away, because back in the early nineties, they brought cell phones out, all of them had keypads. Well that makes a phone bigger, I don’t know if you remember the first, some of you may not even remember them, but they look like a big brick. And you couldn’t carry them in your pocket. You had to put them in some kind of a holster or something. And so they said, “Okay, we’re going to have to get rid of that key pad. And so to do that, I’m going to gave to go to touch screen.” So then you have to develop the technology to allow you to do touchscreen input. And then so we started out with the very tiny display, the display is probably an inch by an inch and a half, and people can hardly read them.
And they couldn’t do much with them, so they knew the technology was going to go to more app oriented technology, as opposed just to being a cell phone or just a calling device. And so we needed a bigger display. So we had to work on how do we build bigger screens and how do we house them, how do we fabricate them? And people don’t like great, big, thick things. They like them thin. If you note that the cell phone is actually bigger physically in a screen point of view than they ever have been, and yet the phone is thin, very, very thin. TV monitors are very, very thin, TV screens are thin. And so we have to keep looking ahead and say, “Where’s it all going? Well thin is in. Okay.” As they say. And so you have to think, “Okay what can I do innovate to make mine even thinner?” And so I see the day, honestly, when the cell phone will be as thin as a piece of paper.
Guy Smith: Mm-hmm (affirmative). Well, what has my attention right now is artificial intelligence at a chip level. I perceive that there’s going to be a future where AI is on the edge, it’s in your cell phone. And it’s kind of like what the internet was a couple of decades ago. We know it’s there, we know it’s possible, we just have no idea what it’s going to morph into. And I think once these AI chips find their way into phones, there’s going to be all a whole new rush of innovation in terms of how we can make these so-called smart devices, really smart devices.
Ray Zinn: Well they’re getting smarter. What limits the artificial intelligence is the speed of the microprocessor. And so as those can do things quicker and do it as fast as the human brain, then there’s a lot of things we can do that are anticipatory. When somebody throws a ball, you’re pitching a ball back and forth, even though you don’t realize this, your brain recognizes that somebody is raising their arm to throw the ball. And so you’re getting ready. Okay. And so your brain is a fantastic artificial intelligence tool because it sees in advance what you’re about to do. And so as AI can recognize well in advance something that needs to take place, then it can anticipate what to do. And so you’ll see AI in everything. Artificial intelligence will be in every aspect of our life, whether it be robots, or whether it be cell phones or planes. And everything in our daily life is all going to be affected by artificial intelligence.
Guy Smith: Yeah. I agree with that. And I don’t share in the gloom and doom that some prognosticators have. I think it’s actually going to end up being such a huge accelerant to the human condition that we have our best days ahead of us. Not any huge fear of everyone being chronically unemployed.
Ray Zinn: Well, that’s what’s been the problem since day one, is they figured that AI is going to take over jobs. It will eliminate certain jobs, but allows that individual then to do another kind of a job. So AI then are opens up doors as opposed to closing doors.
Guy Smith: Well, and on that point, one thing which I’ve been doing in some of my presentations lately is talking about what it was like when I first entered the business world. For me to get a report out when I was first out of college, I had to take material to the typing pool, I had to take my spreadsheet stuff out to somebody who could do type setting. I then had to go over to the graphics department, so somebody could draw me a pie chart. And then I had to take it to the mail room so that this report got put in everyone’s cubicle folders. All of those jobs have gone away because my computer now allows me to do all of that work and then email it to everyone directly. But the unemployment rate didn’t go up because of that, people found different opportunities, different ways to work, different things to do. And AI will have that same effect. It will, as you say, eliminate some jobs, but it doesn’t eliminate opportunity. If anything, it’s probably going to create some.
Ray Zinn: That’s exactly right. Well going back to the cameras, we used to have these film cartridges we’d put in the camera and then you’d take the pictures. You usually take like three pictures because you wouldn’t be able to see them until you went to get them developed. But then once you ran through all X number of pictures on the roll, I think it’s 35 or whatever it was, you used to take pictures of. You take that roll down to the local processor, then they would develop the pictures and that used to take a few days. And then you’d go look at them and you decide what you wanted.
And so when you shot a picture, you didn’t actually get to see that picture maybe for a few months, because number one, you got to use up the whole roll, unless you wanted to waste a roll. And so we’re all programmed to use everything on the rolls. I’ve been literally a year back in the fifties and sixties, a year waiting to look at a picture that I took because I had to use up the roll and then I had to get it developed and so forth. Whereas now, if I need to take a picture of something to show somebody that this got broken, and can you repair it? I just take a picture of it, and I can go down to the store and say, “I need this part.” And it’s instantaneous.
Guy Smith: Mm-hmm (affirmative).
Ray Zinn: And while the film companies have gone out of business, that make the film. Not gone out of business particularly, but when they no longer had that product line, that opened the door for a lot of other opportunities now, because we can take pictures on the fly. So that’s called refreshing your product line.
Guy Smith: There we go. So before we recap these three tough things that people need to do for an enduring business, in order to get a real quick start on your enduring business, do buy a copy of Tough Things First, this is Ray’s management and leadership manifesto. There is no single book that you can read that’s going to make you better prepared for starting your business than this. And I’ve got a degree in management, I sucked down business books on a regular basis. This is the top one, this is the one that entrepreneurs really need, not only to read, but to hold close to their heart because it sets the foundation for doing it right. No pie in the sky, over-hyped management theory. This is all boots on the ground, hard-nosed, what you need to do to build an enduring business guidance. And you can’t get it from any source better than the longest CEO in Silicon Valley.
Ray Zinn: So just to recap Guy, the series that we’re doing is really based on what they can find in Tough Things First. We’re going to talk about the top three tough things first you need to do in each particular area that we focus on in the book. And it’s going to be a whole series of podcasts that are derived from what you can learn in the book.
Guy Smith: Absolutely. And we’re releasing them slowly. We’re not going to give them to you all at once. We have other podcast guests, other topics that we’re going to do. But this is going to be you toehold into business reality, how to make it happen by facing down those things that people often don’t like to face down. And if you don’t face down these problems, then your business is going to be hampered if not killed off entirely.
Ray Zinn: And if you finish the series that we’re going to do on Tough Things First, you’re going to get a certificate from us. It’ll show you have completed the tough things first series of podcasts. So be the first to get a certificate saying that you have completed it. Maybe you can use it to get you get a raise as your particular company, or to help you start a company, whatever. But say, “I’ve been through the Tough Things First series podcast.”
Guy Smith: Well, now you got me thinking this needs to be a lecture series that we charge an admission fee for it. Okay. So let’s recap the top three tough things first that you need to do to build an enduring business. Looking at my notes here, number one I saw was, have enough cash to take you to profitability and avoid all that money hunt, going to the multiple rounds of fundraising. Have an employees-centric corporate culture, one that makes employees love the company and excited to show up to work every day. And keep your product line fresh so that you are ahead of the competition, ahead of the curve, always delighting your customers.
Ray Zinn: Exactly. So just rehearsing those again, raise enough money before you start. Number two is happy bunch is a happy lunch, all your employees. And the third is, we all like fresh vegetables, so keep your product line fresh.
