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Venture Profile: Bill Reichert, Garage Technology Ventures
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Angel Mehta: One of the formulas that both investors and executive search guys like myself are always trying to identify is how to best evaluate an entrepreneur or CEO. If you ask 100 people on the valley at random what the # 1 criteria for success is, they’ll tell you, ‘Smarts’. But the valley is full of high IQ executives and entrepreneurs that have crashed and burned. Do you have any insight into what criteria should possibly replace ‘Smarts’ on our priority list?
Bill Reichert: Do you remember the famous investor who managed the Magellan Fund?
Angel Mehta: Peter Lynch, wasn’t it?
Bill Reichert: That’s him. Long ago he made a comment that I thought was very insightful. He said that he only invested in companies that were easy to run. His point was that he didn’t want to invest in some extremely clever business model that required extremely clever guys to execute. From Peter Lynch’s perspective, Enron, as an example, would have been a bad investment ON THE FRONT END (everyone knows it was a bad investment on the back end, of course) – but he would never have done that deal because it was designed around being really really ‘smart’, as you say. His comment was, “The single best investment I ever made in my life was Taco Bell!”
All of us so-called ‘smart’ people are going, “Yuck, what a horrible frame of reference”. But his point was that if you get a company that’s based on a business model that’s too clever, you’ve got to hire all these really smart people to run it, and really clever people really want to prove how smart they are so they design very complex systems… and complexity kills companies.
Angel Mehta: Not to mention that the really smart people are always harder to find…but does that imply that the best CEO’s aren’t necessarily likely to be the smartest people from a pure IQ perspective?
Bill Reichert: Possibly, yes. The ‘C’ students are the ones that tend to be the CEO’s and not the ‘A’ students. The ‘A’ students tend to be enamored of complexity and cleverness. The ‘C’ students are enamored of effectiveness and success. They want to get from A to B in the simplest and fastest possible way, because at some level the ‘C’ students are basically lazier than the ‘A’ students. (Both Laughing).
Now, you don’t want to over-extrapolate all this, of course. But it’s a frame of reference that explains why it’s not necessarily the best thing to build a company around people with elite degrees, be it a Harvard MBA or Ph.D. in Physics from MIT. The key to success is execution, not cleverness.
Angel Mehta: You once mentioned that you discovered the world of business by accident. What did you mean?
Bill Reichert: Going back to my family history, I come from a long line of doctors so it was always presumed that I would be a doctor. In terms of accepted professions in my family, there were only two domains that one would aspire to: teacher or doctor. I grew up in an environment that suggested everything else was less important. There are only three direct ways you can contribute in life: You can be a physician and heal people, you can be a teacher and teach people, or you can be a farmer and grow food. (My grandfather was a farmer and in the summers I grew up on his farm. He was really an entrepreneur, so I guess I got the entrepreneur gene from him.)
When I was a senior at Harvard, my roommate and I were highly disdainful of our classmates who would troop off to the placement office and do interviews with companies. We had a different plan – work during the summer and then travel Europe in the fall. We did the classic college thing - took a friend’s van heading west, drove across country and wound up in San Juan Capistrano. I needed to get a job and saw an ad in the newspaper for McKinsey and Company. I had heard of them before, so I wandered in and said, “Hey, I can do this!” and they looked at me cross-eyed and said, “What are you really doing with your life?”…I replied, “Well, really I’m planning on going to business school.” (At that point, I had been accepted to both Stanford and Harvard B-schools.) And to that they said, “Oh, well why didn’t you say so?” So that’s how I ended up at McKinsey. It was not particularly strategic, but it worked out. This is back in the time when being shipped all over the world was fine with me.
Angel Mehta: You don’t mind that when you’re young and single…[Laughing]… So what was your first foray into the entrepreneurial arena?
Bill Reichert: My first company, which we started when I was in grad school, was a financial analytic software company - back when the PC was first coming out. A friend of mine and I were doing some consulting work for a venture capitalist. One day, one of us said “You’d have to be really stupid to lose money developing software for the PC.” It was such an obvious opportunity area. The phrase became prophetic… In any case, I thought I understood the elements of a good business model and the techniques of financial analysis from my McKinsey experiences, so we designed a line of financial analytic software. One pitch, one VC, a $600,000 investment, and we started this company. But what I didn’t fully appreciate was that building a company was hard. I just assumed it would be easy…I mean, I was in school and this was fun, right?
Angel Mehta: So what woke you up to reality?
Bill Reichert: One of our first challenges occurred when I took a job offer back on Wall Street that I couldn’t really refuse. So I ended up doing the bicoastal thing. I left the west coast and we hired a guy to run this company. At a strategic level he did a great job. In the end we had a business model where rather than developing our own proprietary line of software, the idea was, “Let’s go find brand name companies that want to develop branded software for the PC and we’ll be their development shop and take fees and a royalty downstream.” We got the contract to do the Dow Jones Accounting Series. It seemed like brilliant model, but the problem was that at the time, there was no such thing as a professional software engineer or software developer for the PC. The only guys we could find to write the code were, in essence, hackers. Some guys who developed some games, some guys who were from the PC user groups that had sprung up around the Valley, but these guys were not professional corporate code writers…
Angel Mehta: It had to be wild trying to manage a group like that…how did you do it?
Bill Reichert: Not very well. And being on the east coast at the time I didn’t have a clue about what was going on. We had this huge contract to develop the Dow Jones Accounting Series and we bit off WAY more than we could chew. We always had ‘98% of it done’ but we were never able to ship it. One day Dow Jones walked in and said, “We’re taking over the company” and that was the end of that.
Angel Mehta: That must have been painful…
Bill Reichert: I was on the east coast and had just gotten engaged. I got off the phone with my buddy after hearing this story and I turned to my fiancé and told her, “I think I just lost more money than I will ever make in my life.” [Both Laughing] I was 26 or 27 years old and I thought I had it made. Then poof it all went away and I was wondering if my fiancé was still going to go through with the marriage. In any case, I had the choice between playing the Wall Street game at that point or coming back to California and playing the entrepreneurship game. In the end I decided the world doesn’t need another investment banker. The future was in creating interesting new companies, so I dragged my family out to California and started doing it again.
Bill Reichert has served as President and Managing Director of Garage Technology Ventures since March 1998. He also serves on Garage's Board of Directors. Prior to joining Garage Technology Ventures, Bill was co-founder and Vice President of Academic Systems Corporation. Bill has been involved as a co-founder or senior executive in several venture-backed technology startups. He has also held positions at McKinsey & Company, Brown Brothers Harriman & Co., and the World Bank. Bill holds a B.A. from Harvard College and a M.B.A. from Stanford University. Bill can be reached for article feedback at: reichert@garage.com
Angel Mehta is Managing Director at Sterling-Hoffman, a retained executive search firm focused on VP Sales, VP Marketing, and CEO searches for enterprise software companies. He can be reached for feedback at: amehta@sterlinghoffman.net
 
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