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CEO Spotlight: Bob Zangrillo, NorthStar
By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search
Angel Mehta: Before we talk about NorthStar, tell me a little bit about your first entrepreneurial endeavor.
Bob Zangrillo: Interworld. At the time, I had this epiphany that transactions in retail, whether on the supply or demand chain side, were going to be done over the internet, The back office companies like PeopleSoft, SAP, BAAN… none of them had the application server infrastructure to be able to manage the volume of transactions that would occur with e-commerce. Interworld’s mission was to be the leading enterprise software vendor for the e-commerce industry so we focused on large retailers and large on-line players who were moving their business to the Web. Later we targeted large manufacturers who were on the B2B side of the space. Ultimately, we built an enterprise software product to manage all e-commerce transactions whether they were B-to-C or B-to-B… which really put us into a competitive situation with players like Broadvision.
Angel Mehta: What are the key lessons you took away from the experience with Interworld?
Bob Zangrillo: First, that it is important to get the leading players in the industry as early adopters so that you get a foothold in a core part of the space. That way your early customers worked with you to define the business requirements’ for the overall market. Interworld’s initial customers, MicroWarehouse, MultipleZones, Insight Computers already had fulfillment houses so they could easily leverage e-commerce site through the fulfillment process. They all had online capabilities. So they became the early adopters because the initial products sold over the web were books and computer equipment.
The second important lesson was about building teams. We realized that the individuals that could sell e-commerce would be the same individuals that would sell other packaged enterprise front office technologies. So I was able to recruit Danny Turano who was running worldwide sales for Siebel Systems, to do the same for us. On the financial side we recruited Pete Schwartz, CFO of Computer Associates. The key to building great companies is to hire great people because in a rapidly growing market you need them to build a scalable company.
Angel Mehta: What were the most surprising aspects of the experience as a first time entrepreneur?
Bob Zangrillo: The changes in market conditions were shocking. I went through the whole cycle where customer adoption was extremely difficult to where money was free and customer adoption was ubiquitous. Then I went through the back end of the cycle where customer had over built and budgets were non-existent.
Angel Mehta: Does that mean it was easier for you to tolerate when the bubble burst?
Bob Zangrillo: You have to realize that I got out early. As an entrepreneur you want to be part of an organization that is built to last. If you really look at things and you factor in rational thinking, you realize that it’s amazing that any rational entrepreneur might make it big – because you have to do irrational things to build a successful company. But at some point, the risk of continuing outweighs the reward, and you have to learn to exit. Luckily, I exited before the crash really hit – though I did watch other companies struggle as a board member and also had to coach several entrepreneurs through difficult times. It teaches you that you really do need to be a real time enterprise.
Angel Mehta: Did you jump into NorthStar right after Interworld?
Bob Zangrillo: No. I had done well in my first entrepreneur experience but I needed to recharge my batteries. I moved my family out to Aspen, thinking I would go on Boards, play the venture capital role again. However, I had a number of people who were trying to get me back in the game and I realized: once an entrepreneur, always an entrepreneur. It’s funny, because starting a new company is like deciding to get married and have three kids all at the same time… it requires the same time commitment to make it successful.
Angel Mehta: Tell me more about the process you went through in trying to decide what to do after you decided to come back. After all, you were certainly in a position to be more selective, right?
Bob Zangrillo: True. I tried to understand what was going to be the next big opportunity within the technology space. I actually interviewed, first, all the venture firms I knew to go through their portfolios and look at everything that was being funded, why was it funded, what were the problems that the Silicon Valley VC portfolio companies were going through. As part of that initial due diligence I found that people were funding feature sets and everybody wanted to be this ubiquitous horizontal application. They wanted to be the SAP of Financial Accounting across multiple verticals; they wanted to be the CRM across multiple verticals; they wanted to be the HR and Financials across multiple verticals, and the challenge was that… just like the media business… the big three or the big four were already defined. I realized the value was going to be in those companies that created the vertical market solutions, the ESPNs, the MTVs of the media world, because they would have a much more targeted solution and a much more specific return on investment for their market.
Angel Mehta: So fundamentally you took the same approach that an investor would…
Bob Zangrillo: Yes. The next thing was to determine the next big fundamental business shift where I had the passion to help transform an industry. I believe passion is the most important in quality in an entrepreneur. My passion and experience was certainly around the financial services space. Before InterWorld, I was responsible for the Family Office of one of the world’s wealthiest families. I had a history of dealing with private banks, brokerage firms, trust companies, regional banks, and knew how broken the wealth management process and how valuable the business automation would be to the industry. So I spent time with a small group of individuals who would help give me insight into the opportunity and challenges with transforming the financial services industry from a brokerage to advisory model through business automation. So I teamed up with four of my close friends, Steve Mnuchin (CIO Goldman Sachs), Bob Hurst (Vice Chairman of Goldman Sachs), Bill Coleman (Chairman &CEO BEA Systems), and Dave Beirne (General Partner Benchmark Capital). I spent time working with a number of leading financial services firms as design partners, and ended up creating a large footprint that was focused on the lifecycle of the enterprise wealth management space.
Angel Mehta: Could you explain what that means?
Bob Zangrillo: NorthStar’s investment advisory desktop solution empowers financial services firms to automate the lifecycle of wealth management including, investor profiling, wealth planning, investment selection, portfolio construction and implementation through to a client review. This process generates all the investor presentations that are created on behalf of a client and allows the advisory teams to manage and monitor their clients performance real time. The benefit is that firms are able to create an integrated and compliant client servicing model that significantly reduces costs and improves client relationships.
I’ll tell you that in my experience as an entrepreneur, it’s very difficult to build a profitable software company where you’re selling a deployable point solution anywhere between $75,000 and $500,000. You need to be focused on a vertical market solution that packages more specific industry domain, and the market has to be willing to bear a multi-million price point. This allows you to scale while offsetting the initial development costs. Later, you can move down market where you can have more repeatable packaged product for the mid market that provides the functional requirement of the larger firms.