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Venture Profile: Paul Margolis, Longworth Ventures

By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search

The removal-by-force of an entrepreneur from his own fledgling company has become almost tradition in the game of early stage investing. But every ≠now and then, an entrepreneur has the foresight and wisom to recognize when itís time to move on and hand the reigns to someone else. Paul Margolis Ė ≠former CEO of Marcam Corporation Ė was one of them. Sterling-Hoffman Managing Director, Angel Mehta, talks to Founder of Longworth Ventures, Paul Margolis, about the joy of outgro≠≠wing your baby, and getting other people to do your work.

Angel Mehta: In 1995, you retired from Marcam Corporation, the company you founded in 1980. Most founders I know that stay with a company for that long are in it for life. Why did you end up leaving?

Paul Margolis: Towards the end of my tenure there, I started making a number of mistakes Ė and it was very obvious to me. The company had grown to a little over $200M in revenue by around 1990, which means we were growing nonstop until then, but it was important to get somebody with experience in there. By that time we had 1200 people, I had many people working for me who had done a lot before and Iíd built a great Board. Managing a company isnít something you can really learn in school. Itís best learned through a mentoring process. I think itís one of those things where you do it, make some mistakes, and somebody says, you know, youíre making all those mistakes, you should really do this instead. It really doesnít lend itself well to figuring it out as you go. So what happens a lot of times, and it definitely happened with me, is you get somebody whoís pretty smart and pretty confident in their intelligence and they think, you know, Iím tired of people telling me you havenít done it before. I can figure this out.

More than anything else Iíve seen, management isnít something that yields very well to figuring it out like an equation. Itís much more lessons learned. When I see experienced managers making mistakes, itís just that they donít know some proven things that work. The only way you really know them is by putting them to work in the process.

Thatís why, when you look at big companies that are well run, they do that really well. IBM does that really well. Xerox did that really well. Weíre just talking about IT companies. There are plenty of companies outside technology; GE does that really, really well. Thatís where theyíre focused on.

Angel Mehta: What were some of the mistakes that made it very obvious to you that it was time to move on?
Paul Margolis: When an organization gets big, the person at the top has to find a way to keep things simple and to keep himself at a high level. I always say that Ronald Reagan proved that even the biggest job on the planet can say that Ronald Reagan proved that even the biggest job on the planet can

Venture Profile:
Paul Margolis,
Longworth Ventures

Favorite Band:
Eric Clapton
Hobbies: Skiing, Sailing
Biggest Fear: What I don't know
Passionate about: Ethics, Doing the Right Thing
Favorite Movie: It's a Wonderful Life
Favorite Color: Blue
Least liked Food: Greasy Spoon
Most Admires: Gandhi

be a part-time job if you just hire the right people and keep it simple. Many people were frustrated by his presence because they thought he was a simpleton. But he found a way to have a very successful presidency by most objective means, whether you agreed with his politics or not, by keeping it simple and hiring great people.

What happened to me, to answer your question, was because of very high energy I kept allowing myself to get dragged down into the details, and then I found myself trying to make decisions below my level of authority in the organization. That screws up everything in a company because, first of all, people donít feel empowered; second, they donít feel responsible. They can just stand back and say: ďWell, Iíll just wait for the boss to decide,Ē and then you end up being like the proverbial boy with the finger in the dike. Itís just not the way you run a sizeable organization. So people whoíve been mentored properly understand that they need to find a way to keep at a high level and not allow themselves to be tempted to get drawn down into the details.

Iíll go with that presidential analysis again, you know, Jimmy Carter and Ron Reagan. Jimmy Carter was a nuclear engineer, graduated near the top of his class, very accomplished, chosen by Admiral Rickover as the best of the best. Heíd throw himself into the job. He was young and energetic and heíd give everything out and he got eaten alive in that job.

Ron Reagan hired a bunch of people. He kept it simple, went home early, went to sleep early. Because he kept it simple. I did that really poorly because I hadnít done it before.

Angel Mehta: Could you give examples of things that you think entrepreneurs and small companies have a tendency to over-complicate in an organization as it grows?

Paul Margolis: One is evaluation and measurement, especially in smaller companies. People build very complicated evaluation and measurement systems that personally I think are distracting and then you see them struggle, struggle, struggle and struggle with the evaluation. Sure, each personís decision is difficult and painful, but I think after youíve done that kind thing for a while, youíre sort of good at it, and get comfortable with making the hard decisions fast. But the people who havenít done it before find the whole thing scary. I think a lot of it is accepting that youíre going to make mistakes. At a certain point for me, a light bulb went on and I realized that I was going to make a lot of mistakes in decision-making and thatís fine as long as I sort of did it quickly and did the best job I could.

Angel Mehta: Youíve had the experiences now of an entrepreneur, an operating executive, and a venture capital investor. Which do you prefer?

Paul Margolis: Well I like being a venture guy because Iím personally better suited to it. A good venture capitalist is typically behind the scenes in a supporting role, so the kind of person who likes to be on stage, likes to be a leader, to be in control, or likes to get their arms around one thing and make it perfect is a terrible venture capitalist. In venture capital, if youíre doing it right, youíre not in control and not getting the recognition as youíre supposed to be giving that to the company. So you have to deal with the frustration of never getting to work on one thing until it is perfect.

I really like being an advisor. I donít find it frustrating not being in control because Iíve already had my opportunity to be in control, and I donít particularly need to be on the stage or in the limelight. I like working on a bunch of different things at the same time, so it sort of works really well for me. I think Iím better cast in the venture role than in the CEO role.

Angel Mehta: Fortune Magazine once did a feature called ďThe Best Advice I Ever Got.Ē How would you answer that question?

Paul Margolis: A guy I had on my team gave me a lot of advice about how to delegate and make sure that responsibility gets pushed down an organization and not allow the organization to push responsibility up. It was one of the most important lessons I ever learned.

Paul Margolis is a Partner with Longworth Ventures. He brings more than 25 years of entrepreneurial and investor experience to Longworth. In 1980, Paul co-founded enterprise resource planning (ERP) software leader Marcam Corporation, which grew under his 15-year leadership to over $200 million in revenues and more than 1,200 employees. As CEO, he led Marcamís successful IPO in 1990. As Chairman, he led the spinout of Marcam Solutions and Mapics, Inc. into two public companies in 1997, achieving a market capitalization of more than $380 million. Paul helped found the Open Applications Group, an enterprise software industry association, and was its first Chairman. For article feedback, contact Paul at paul@longworth.com

Angel Mehta is Managing Director of Sterling-Hoffman, a retained executive search firm focused on VP Sales, VP Marketing, and CEO searches for enterprise software companies and lead investor in www.softwaresalesjobs.com, the #1 site for software sales jobs. Angel can be reached for feedback at amehta@sterlinghoffman.net

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