|Home - CEO Spotlight - Feb 05 Issue
CEO Spotlight: Josh Pickus, Niku Corporation
By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search
Angel Mehta: It seems a somewhat unconventional career path to move from Law to Venture Capital to becoming CEO. What were the drivers behind it?
Josh Pickus: Well, I think unconventional is a charitable way to put it. I was counsel to large technology companies such as Intel and other exciting emerging companies like Web TV which later became part of Microsoft. I helped to start a very unconventional venture law group. We didn’t wear ties and we invested in clients. We turned down established firms so that we could work with the most exciting new companies. It was really a very entrepreneurial venture, particularly for a law firm. However, I began to feel that I wasn’t dealing with the upside part of the equation… I was always asking, ‘How do I solve this problem or crisis?’, instead of asking, ‘How do I capitalize on this opportunity?’ So I became frustrated, feeling that the whole professional focus of law was limiting me, although I couldn’t think of a better place or way to practice.
I decided that I was either going into the venture business or going to a company. I chose Bowman Capital (a venture capital firm), run by Larry Bowman, a wildly successful technology hedge fund manager in the public markets. He had at that point $5 billion or $6 billion under management and was really the heir apparent to George Soros and Julian Robertson. He started a private company investment group and I became a partner. We went out and raised five hundred million dollars and invested in many deals, most of which were duds but a few of which, like Sycamore Networks or ONI, were big hits.
In a short time, I realized I made the wrong choice. I still felt very much like a coach rather than a player. I was the worst sort of investor because I had many ideas about how to run the company and I wanted to take up management time sharing them. That shouldn’t be the investor’s focus, particularly at the mezzanine stage where we were. You need to make good decisions, pick good companies, ensure that the right management is installed, and give advice only when appropriate. As a venture person you’re not a member of the management team…in fact, and nobody likes to admit this… but you are their boss. Ultimately, you are part of the body that can fire them. That creates a barrier, even in the best circumstances, to any real open dialogue. I found it very frustrating, realizing that I was farther away from the business than I had been as a lawyer. At least as a lawyer, I acted as consigliore to the CEO.
Angel Mehta: So you left Bowman Capital to join Niku…
Josh Pickus: Yes, after a year at Bowman, I left. I had worked very closely with Niku when I was a lawyer at Venture Law Group, and they came to Bowman looking for mezzanine financing. Eventually I ended up having a conversation with the founder and CEO where he said, “I don’t want the money, and I want you to join the company. It was about the time of that Agenda Conference and it really resonated with me.
Niku was focused on ‘Professional Services Automation’ and it seemed like a very opportune time because I knew the people well and I actually had some domain expertise.
That was November ’99 and we went public in February of 2000. The company had a market cap of $7.5 billion, on revenue in the quarter of about $8 million… profitability was no where in sight. The stock shot up to $105. We had 1,000 employees and then, like so many other companies, we hit the wall and the stock went as low as 11 cents. We had to lay off 800 people and go through a very painful exercise, but we managed to turn the company around. So I’ve had different roles at Niku – stepping in as CFO before becoming CEO - but it’s been an interesting odyssey. It took me until my late 30s to figure out what I really enjoy: operating a business.
Angel Mehta: I understand that you didn’t particularly enjoy venture capital… but would you say that it was a good training ground insofar as preparing you to become a CEO? Did it give you a new perspective on how to run a company?
Josh Pickus: I think both law and venture capital provide very useful training. The venture business forces you to think about the big picture and how things relate. As an operations person, it’s very easy to get myopic and to think a lot about the compensation structure in your sales organization, for instance. A CEO has to keep the bigger picture in mind and to understand how to relate that to bigger picture because you’re not operating in a bubble.
The law piece prepares you for running a public company because the new reality for public company CEOs is that they have to deal with this ever more complicated regulatory apparatus.
Angel Mehta: Speaking of legal issues, tell me about the effects of Sarbanes-Oxley on Niku. My sense is that when a software company goes public, there’s way too much time spent on discussing how to best stack the bricks of gold and not enough time spent on how to just find more gold. Do you think that perhaps Niku, or any other company in its position, would have been better off had it stayed private a little longer?
Josh Pickus: Yes. Sarbanes-Oxley will cost Niku a million bucks this year, pretty close to 2% of revenue. My finance group has done a very good job and we’re in the advance stages of testing and getting very good feedback from our auditors. We have avoided the panic experienced by many others but it’s an enormous undertaking for any small company. Once you’re through it, you know the world will go on, but it’s really quite a challenge.
It’s not so much that I would say we shouldn’t be publicly traded but, I think, it’s going to end up being a significant negative for the U.S. economy overall for exactly the reason you say. An entrepreneurial company has to focus on creating new value and what this does is require you to spend an enormous amount of time measuring and assessing and, as you say, stacking the bricks.
Companies like ours are paying for the sins of the Enrons, the WorldComs and the Tycos of the world. Most technology companies are fairly straightforward and honest. Devoting this money to documenting processes as opposed to building new product is very painful. Fraud is going to occur anyway, quite frankly. So essentially, you’re taxing entrepreneurial growth and I’m not quite sure to what end. It’s a very frustrating position to be in.
Let me put it this way Angel: I’ve never in my life wanted to testify before Congress but I really would like to about this because there’s a lack of appreciation in Washington for the monumental effects on entrepreneurial companies. Entrepreneurial companies are supposed to be the ones that are creating new wealth, creating jobs and making the American Dream real.