SM: When working with smart people, it always pays to explain why. LD: Exactly, and they will ask 15 questions to get there if they need to. To this day I adore them. They cannot do anything until they know why. I love that. That was the biggest learning for me was how to manage an engineering team. I didn’t know what I was going to learn; I knew I would learn something but I didn’t know it was going to be that.
But I just could not get along with this guy who was the CEO because he could not see the value I brought. He would say that we just needed to get people to do stuff, and that is not how it works, at least for me. I have to get people involved and engaged. We had a big split, so I left.
I was sitting around thinking “What should I do now? I guess I will have to start my own company.” That is what I always wanted to do and there were no more excuses. That was it; I started SuccessFactors.
SM: What is was the genesis of SuccessFactors? How did you bring people together? You are not an engineer, so you were not the person building the product. LD: I was lucky that a business school friend helped me. That was the whole idea of going to business school, so that worked.
At that time, in 2001, if you can remember that, I felt that most venture capitalists were just scurrying and running away from class action lawsuits and they were so afraid of getting caught; there were a LOT of class action lawsuits at the time. It was like bargain hunting time.
Nothing cost anything because people did not think of ventures as a cost, they thought of them in terms of “How can we get out of this? How can I get rid of it?” There were a bunch of great technologies out there but they did not have any great products coming out of them.
The first thing I discovered is that these technologies were run by people who had never managed anything. It took me two minutes to realize that. I would sit there with the CEO of a company I wanted to buy and I could see straight through him. Out of respect I would ask, “What is your background?” and I would get an answer like “I used to run customer success at Symantec.” I would then think “Oh, OK. Now you are the CEO? What the hell are you talking about? Those things have nothing to do with each other!”
It was like that everywhere I went. I would ask their venture capitalists, “What is going on?” and I would be told that they had just run out of CEOs. That was my advantage because I knew how to manage. I basically took two different companies that were completely broken and I bought those.
SM: Could you explain how you bought them? Where did you get the money from? LD: I didn’t have any money, so I got clever. I went to an auction in Redwood City, and they were selling these dotcoms every three minutes, and it was the greatest thing.
If I had more brain power and capacity I would have stayed around and bought more stuff. I knew I wanted to buy this one company.
What had happened was that all of these credit companies had gone and taken ownership of these broken companies; they had secured rights in the company. It is called a UCC 1 filing. When you have a UCC 1 you have the keys to the castle, you own everything; IP and the whole freaking thing. They just shot these companies down, but they wanted something in return, so they would try to sell them at these auctions.
I just went in there and made a credit bid, which means I said, “I will take on the debt for this company personally.” I don’t remember how old I was, maybe 31, and I was taking on $3.2M in debt to own this company. I figured I would do whatever I could to build it up.
SM: You have courage!