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How many years does it take to build a profitable SaaS company?

Under 5 years

5 – 9 years

10+ years

Not possible

CEO Spotlight: Douglas Levin, Black Duck Software, Inc.

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

For somebody who got interested in business by reading the Wall Street Journal and biographies of business titans, Douglas Levin has come a long way from the ‘crazy, fast-paced’ companies that he ran during the bubble. Now, he emphasizes the importance of hiring the right people – people with experience, who make a lot of difference to a software company on the product front. Angel Mehta, Managing Director of Sterling-Hoffman, talks to Douglas Levin, CEO of Black Duck Software, about sticking to the rules, software industry consolidation and the importance of advice on big decisions.

Angel Mehta: Do you think that ‘business is in the blood,’ as they say?

Douglas Levin: Not necessarily. My father was an attorney who had a moderately successful law practice. I got interested in business as a boy and teenager by reading the Wall Street Journal and biographies of various business titans from the sixties and seventies. I really enjoyed and learned a great deal from business and economics classes in college and grad school. So for me ‘business was in the pages of books,’ not in the blood.

Angel Mehta: You ran a few different companies in the bubble…how does growing at that kind of speed impact the quality of the companies you built?
Douglas Levin: MessageMachines and X-Colloboration were both crazy fast-paced companies. They were formed and financed really quickly, and product engineering, marketing and sales were all executed at lightning speed. It was absolutely crazy. There was a very high expectation of going public or realizing a fast and enormously profitable exit. But the business, engineering and other basics were not there, such as product management, product planning, product engineering, customer support and other things. These elements of the business suffered for lack of processes, much too rapid thinking and personnel without the right experience.

Angel Mehta: What specifically did you learn from that experience to never do again?

Douglas Levin: Hiring the best possible people is absolutely essential. At X-Collaboration, for example, we hired 10 engineers from MIT and Harvard who were right out of school. They were hackers, not software engineers; there is a difference. Most of them did not have the experience and discipline that senior software engineers have after working at an established company. At MessageMachines, we hired much more senior people because product quality was a critical success factor.

Angel Mehta: Isn’t that impossible in the software business?

Douglas Levin: No! Great engineers with proven track records deliver great products. There are always challenges, such as making delivery deadlines, dealing with resource limitations, accommodating customer requests, building ever-better software, etc. The people you hire make all the difference in the world.
Angel Mehta: What is the difference between hackers and software engineers? Age?

Douglas Levin: The difference is not necessarily age. It’s really an internalization of tried-and-true and new development methodologies, languages and approaches while innovating. Experience, knowledge and expertise all matter, but more often than not ‘outside-of-the-box thinking’ makes a big difference. However, making software simple to use – not just creative – is a big differentiator between a hacker and software engineer. A hacker will simply build it. By contrast, a software engineer will design, spec and code it, and in the process hide all the hard stuff to do while exposing only the essentials, making the product very accessible to the ultimate end-user. That takes time, patience, intelligence and other intangibles.

Angel Mehta: Let me ask you then about Black Duck’s core offering. What is the problem that the technology is solving for customers, and what was the genesis of the company? Where did it come from?

Douglas Levin: Black Duck Software offers systems for accelerating software development through the use of open source for enterprises, government and technology companies. Essentially, we help organizations more effectively reuse software components while managing the business risks that result from security vulnerabilities, version proliferation and licensing conflicts. By enabling organizations to fully manage component reuse within a software development life cycle, companies produce better quality software, reduce development and maintenance costs, and speed time-to-market.

Software development has changed a great deal over time; software engineers today code less and integrate or assemble components more. These components may have been developed by third parties (like outsourcers or offshore development firms) or reside in open-source software repositories. This ‘assembly’ model results in faster completion of projects and also results in lower development cost, because you’re using free open source software. Simultaneously, however, it increases the business and IT risk associated with software assets inside the company and increases the risk profile of corporations overall. The risks are associated with software licensing, litigation, security vulnerabilities, etc.

Black Duck Software helps mitigate the risk of using components from many sources by automating the laborious task of manually searching for open source and third party code, while providing the related licensing information needed for safe reuse of those components.

Angel Mehta: How has the software industry consolidation affected you?

Douglas Levin: First, it has created a market opportunity for us. Black Duck is now a standard part of the software due diligence processes. As the software industry consolidates there is more merger and acquisition activity that requires Black Duck to help vet the code bases of target companies.

Second, while consolidation reduces our total customer base, it enables us to manage one market while we pursue other markets like the enterprise and government sectors. Finally, consolidation creates new opportunities. SUN’s purchase of MySQL has created another open source player on the landscape, thus creating more business for Black Duck.

Angel Mehta: Did Black Duck have its game plan right from the beginning, or was there ever a time when you were forced to do a 180-degree shift in strategy?

Douglas Levin: No, we had a very strong plan from the start, developed over a six-to-seven-month period. The company was founded in late December 2002, and the original plan that I developed to operate, finance and market products was strong enough to accommodate shifts in the marketplace, but by and large it’s been fairly linear. There have been some tweaks to strategy, but the vision and fundamental business model continue to apply.

Angel Mehta: When was the last time you sat at your desk and decided that you really didn’t know what to do in a management situation?

Douglas Levin: That happened in the summer of 2007, when we had two excellent candidates for one job, and a sensitive situation associated with hiring to fill the position. The candidates both had long track records, extensive directly applicable experience and similar points of view on the future of the business.

I think it’s important to seek advice from your Board of Directors, other CEOs and advisors when you have tough decisions to make. Some CEOs say share the pain; I agree, but getting other perspectives is so helpful in other ways. Often it helps just to articulate the problem, your decision, and the logic that supports the decision. But, it’s equally helpful to get questions and ideas from guys who have already seen or done it all.

Angel Mehta: I think that’s an interesting problem. I assume that any entrepreneurial CEO of a growing company is going to have challenges like that one at some point. What advice can you offer CEOs facing a similar situation? I mean, how do you pull off hiring post-startup phase management successfully?

Douglas Levin: Honesty, openness, one-to-one time, and a realization that things are not going to be perfect. Time and patience are two critical success factors.

Angel Mehta: From what I remember, you have four conventional venture capital firms and three corporate venture investors involved in Black Duck. Intel, Red Hat and SAP Ventures have all invested, right?

Douglas Levin: That’s correct.

Angel Mehta: So is it the case that when you take money from corporate venture funds, that you are able to obtain strategic arrangements with those companies much more easily than you would otherwise? What have you found the benefits of taking money from those investors to be?

Douglas Levin: Bringing corporate investors into Black Duck was not an accident. After I founded the company I realized that these entities could play an important role in helping establish Black Duck as a business and also subsequently. They provide a ‘Good Housekeeping Seal of Approval,’ which is important when you are first starting out, especially selling to the enterprise. They are also woven into many of the operational and strategic plans subsequent to the founding of the company. SAP, Red Hat and Intel were all customers before they were actually investors. In Red Hat’s case, they beta tested the code and thought it was one of the coolest ideas in the open source space. Then they asked to become an investor. With Intel and SAP, they were customers before they were investors.

So, the corporate investors do have a strategic interest in making Black Duck successful. The corporate investors in Black Duck have chipped in various marketing support and customer or partner introductions, and have helped with brand awareness.

A good example of this occurred when I was invited on a tour of outsourced development firms in India with Intel Capital. I’ve been to India many times, but this time my trip was completely different because Intel opened so many doors to which I did not have access. At speeches in India, the Indian audience instantly recognized our corporate investors’ names. When I mentioned our venture capital investors, no one in the audience recognized their names.

Angel Mehta: Do you find the competencies vary between corporate investors and traditional venture funds?

Douglas Levin: Flagship, Fidelity and General Catalyst Partners are early-stage investors who helped support the company in much more operational and tactical ways than the later-stage corporate investors. All investors do things that are in the best interest of the company, of course, but the ability to actually deliver operational support, or other types of support, vary during different stages of the company’s development. And that’s why it’s good to bring in corporate investors later on, in later stages of the company’s development. For one thing, the company’s systems for support are already set up, and for another thing, the company will relate better to the large corporate entity during those later stages.

Angel Mehta: Would you say that you’re a better CEO today then when you founded the company?

Douglas Levin: Yes. No question about it.

Angel Mehta: What do you do differently today?

Douglas Levin: For one thing, I listen more and evaluate more. When I founded the company, I was head-down, trying to attain all the company’s objectives and personally engaging directly with anyone who could not embrace Black Duck. Today, I’m a resource broker, visionary and strategist. I do less, and empower more. Most of all I’m a strategic thinker and communicator. I’m also a coach and, of course, the company’s leading cheerleader. I do a lot of public speaking. I love this part of the job, but equally I love interacting with employees and just lending a hand or showing my support for initiatives and day-to-day work.

Angel Mehta: What do you tell prospective entrepreneurs that are getting lots of negative feedback from people about their ideas?

Douglas Levin: I believe that entrepreneurs need to go out and start companies if they really believe in something. There are plenty of people who are not going to understand an entrepreneur’s idea, or only see negatives. They’ll just say, “It can’t be done,” or “You shouldn’t do it,” or “Don’t risk it, this could be really bad,” or any number of things. If the entrepreneur can back up his or her idea with market data and a long-term vision, then the entrepreneur has a lot of work to do and should put his or her head down and ignore all these nay-sayers, and to quote Nike: “Just do it.”

Doug Levin is President and CEO of Black Duck Software, a global provider of solutions that manage software component reuse. He founded the company in 2002. From 1987 to 1995, Doug held various senior management positions with Microsoft Corporation, including heading up worldwide licensing for corporate purchases of non-OEM Microsoft software products. Prior to Microsoft, he held senior management positions with two startups in California and served as an IT and financial consultant to an overseas development company. For interview feedback, contact Doug at dlevin@blackducksoftware.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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