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| Home - Venture Profile - May 03 Issue |
Venture Spotlight: Terry Garnett, Venrock Associates
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I mean, he’s sort of the other side of the coin as far as being an entrepreneur. He had a clear vision from Day 1 about what he wanted to do, how he was going to do it, who the partners were going to be…look at how he built the board! Charles Schwab joined the Board very earlier on. He also got Jim Gaither from Cooley Godward….
Angel Mehta: In other words, Siebel was a ‘professionally’ managed startup from day one…
Terry Garnett: Right…and it’s interesting. I think what happens in the venture world is, you could look back a year or two after the fact and see which companies were really put together like Siebel - on a professional level, where the entrepreneur was really good, the backers were first class...the odds of those deals succeeding are much higher than the average start-up.
Angel Mehta: I know you did a stint at McKinsey and I want to ask you about the consulting experience because I was having a pretty heated discussion with a friend of mine from AT Kearney recently. I remember an anonymous article in Fortune, years ago, by an ex-consultant who moved into an operating role. He was basically saying that he would never in a million years hire anyone from his old consulting firm to help him run the new company. What is your take on the value of a consulting background – let’s say, in terms of preparing an entrepreneur or operating executive for how to do things right?
Terry Garnett: I’ll change the question a little bit. I think that the larger consulting firms, Mckinsey, Bain, BCG…they’re typically structured to service the Fortune 500 where you have very large complicated organizational structures….I think the biggest value of the consultants in a lot of cases is they challenge the existing view of the world. Sometimes in a big company, management gets down a track where they don’t really have an objective perspective of what’s going on outside in the marketplace.
Another key with consulting firms is that they’ve seen larger companies go through so many problems that if you’re going through that same phase, they can probably help. For example, a lot of technology companies get to a billion in sales and they outrun their supply lines. The things that worked at a hundred million don’t work at a billion and so a consulting firm like McKinsey that’s worked with a billion, $5 billion, $10 billion can sort of help put a strategy together and say, “This is what you should look like at a billion dollars in revenue.”
Angel Mehta: How to scale?
Terry Garnett: Right. So that’s a viewpoint that I think is quite valuable. I think you know the success is in the implementation, though…Coming up with a strategy is easier than actually doing it.
Angel Mehta: But do you think its good training for a would-be entrepreneur to work at a consulting firm?
Terry Garnett: It can be for some people, but I think part of what makes a good entrepreneur and what we look for is people that have really had a lot of challenges - without a safety net. I think there’s a value to being in a situation where you’ve run out of money. Can you handle running out of money? Can you go to the next level? Some people go through very predictable careers and find it hard to deal with ambiguous situations – which is what a startup is all about. There are no real answers that are readily apparent – but lots of choices.
Angel Mehta: So what you’re identifying here is the value of having struggled?
Terry Garnett: Yes. If you’ve gone through all the gates and gone to all the right schools, and then you’ve worked at all the right firms…that’s a much difference existence than going out and sort of having to make something literally from nothing. If you look at the great entrepreneurs in our century: Larry Ellison, Michael Dell, Bill Gates. These guys didn’t even get through college. Which doesn’t mean they don’t have the smarts and all the rest…but they didn’t have classic careers were you say, “I’m going to go through all these gates and finally when I get to a certain point I jump off and then I’ll become an entrepreneur.”
Angel Mehta: I like to ask people to reflect on the phrase, ‘If I knew then what I know now.’….So if if you had a chance to go back in time and speak to your younger self, what are some of the things you’d want to pass on about how you think about business and how to apply. NOT INCLUDING stock tips like ‘Buy MSFT young man’… [Laughter]
Terry Garnett: That’s a great question. I think that after 20 years in Silicon Valley, I’ve been very lucky to meet some incredibly smart, gifted people and I think if there were any mistakes I made…it was letting relationships drift. In retrospect, I look back and say, “God, I should have stayed in contact with that person” or “I wish I had found a project to work on with that person …” The problem is, you wind up going at such a fast rate that you’re moving on to new things all the time and it’s very hard to stay in contact with all the people that you wanted to. Good people do good things many times over. So that’s probably the biggest thing I would pass on to my younger self.
Angel Mehta: I wanted to talk about the market a little bit. How much do you demand of yourself in terms of depth of knowledge before you do a deal? Does Venrock, or just you personally, insist on having an airtight understanding of the space, the technology, that sort of thing?
Terry Garnett: No. It’s probably scary how little we know on some deals. It’s very much a gut feel. I think one other thing I’ve realized is how important it is to have another good partner from another good firm that I want to work with on a deal with me. It’s reciprocal. In fact, some of the newer deals I’m seeing are ones where I’ve said to two or three people I really like in the venture industry, ‘Hey, let’s do something together…’…I did one with Dave Beirne at Benchmark Capital…I’ve done deals in the past with Promod Haque over at Norwest…I”ve been interested in doing one with Jim Breyer from Accel for a while. The idea is that if two of us both see the opportunity in the segment, and we’ve both been doing it a while, there’s probably something there that has potential. But of course, going into new markets, you’re just NOT going to know all the answers going in. There’s a level of ambiguity that just comes with the territory. You just hope you’ve found people that are smart enough and motivated enough to go chase down whatever the opportunity happens to be.
Angel Mehta: Will the selling environment improve for ISV’s this year?
Terry Garnett: Well you know if you think about the software space, Angel….there’s something like 400 public software companies – even after all the consolidation and bankruptcies. If you think about the situation of the CIO at GM or Coca Cola…he has 400 direct sales forces from these PUBLIC software companies calling on him.
Angel Mehta: Trying to get on his calendar…and then you’ve got thousands of startups doing the same thing.
Terry Garnett: Exactly. So the congestion in each customer account is incredible. You’ve got to have something very unique that is really compelling….and I think the question for the venture industry is that, with thousands of venture capitalists, how many new companies can we really create around this? Of course, the good news is that if you think of the Internet sort of dated around ’93 when Netscape was started…the Internet is less than 10 years old in the commercial sense. The PC is 25 years old and it’s still a growing market, een though Microsoft owns a big part of that space. We’re still at a stage where we’re in the first or second generation of applications. There should be another wave over the next 10 years that we really don’t know how to read yet.
Angel Mehta: More and more these days I find that past performance records don’t do much to tell us if a CEO or VP Sales is going to succeed or not. Do you find any consistent indicators? How do you select who you’re going to drop in to a portfolio company?
Terry Garnett: I’ve had a similar experience. I, at one point, had a CEO who was in his probably late 20’s…he had only been in staff jobs at a pretty large company - hadn’t really managed large teams. On the other side, I had a CIO of a very large bank who had managed 4,000 people and now is running start-ups. It’s very hard to predict, and I’ve been surprised on both ends. I’ve been surprised by people who had phenomenally good resumes – you do the background checks and they seem like they walked on water…and they get into the portfolio company can’t handle it. Then you have the flipside…people that you look at the resume and say, ‘I will never back this person’ – but somehow, they do phenomenally well. In fact, I’ve actually become more a fan of giving the entrepreneur more time to try and work it out.
Angel Mehta: That’s something I haven’t heard very often…
Terry Garnett: It depends on the situation but there’s no substitute for the passion and the vision that the entrepreneur has. Whenever you move that out and you put in the professional manager, you lose something. A great example of that is Checkpoint, where there were three young engineers who started the company in Israel… didn’t have a lot of management experience coming in and now that’s a company that’s very significant today is the exact team that had very little management experience. Checkpoint is an INCREDIBLY well run company. It’s got incredible systems that they’ve built to run the business. So that’s an example of a company where going in, you would have seriously questioned, “Could the original team scale through all those gates?”. And the answer would have been, ‘Probably not’ – but somehow, they did.
Terry Garnett is a General Partner with Venrock Associates. He was a personal early stage investor in Siebel Systems and Checkpoint, and also led Venrock’s investments in NIKU, NEON, and Crossworlds among others. To send feedback to Terry, email: tgarnett@venrock.com
Angel Mehta is Managing Director at Sterling-Hoffman, a retained executive search firm that specializes in VP Sales & VP Marketing searches for enterprise software companies. To send feedback to Angel, email: amehta@sterlinghoffman.net
 
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