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Toward Zero-Energy Buildings: Kevin Surace, Serious Materials (Part 3)

Posted on Friday, May 29th 2009

SM: What was the purpose of starting Air Communications?

KS: In 1992 I met some people and came up with a business plan to start Air Communications as a wide area wireless device company. You could surf the web and recieve a fax with a little dial-up phone called an Air Communicator. It was bigger than our phones are today, but not too bad. We raised a total of $16 million, $5 million of which was in the first round.

We had the first reliable cellular data phone you could have, and it included fax. I ran the company and also coded and designed software at night. We had good customers, and we got it to $750,000 a year in revenues. We were probably 10-15 years too early. That technology finally took off about four or five years ago. We had a great company and a great team, but I was a terrible CEO.

SM: Why were you a bad CEO?

KS: I didn’t have the experience. I chose my board members poorly. I didn’t have the strength, age or experience to control that. I chose very smart people, but if you are going to have type A personalities you better know how to manage them, keep them focused, and keep them loving each other. I didn’t have that experience, so there were conflicts in places there should not have been. I had board members coming in and telling staff members what to do without informing me.

SM: I think it is a function of seeing the problems before. This is the time when it is helpful to have other trustworthy people around who can guide you.

KS: A first-time CEO, especially a young one, really needs mentors. I did not have that. I had a mess. About two years into the company we had orders on the books, product shipping, and money was a little tight because we had less than $1 million left, but there were only eight people in the company and we made 50 points in margin on each order. We were not in bad shape. The board got so frustrated with each other that one morning I came in and there was someone sitting in my office.

I said, “Who the hell are you?” and he answered, “Who the hell are you?” Turns out some of the board members voted and decided to do an orderly shutdown, and he was the orderly shutdown guy. We talked, and I got to know him and his shutdown team. They were in no hurry because there was money in the bank and we were shipping product. I started to convince them that it did not make sense to shut it down, so much so that they started to look at me and say, “Normally when we come into these things you are under water by $1 million and have no sales with people suing you. You are running an orderly business here, I don’t understand!”

I gave him some background and then proposed that I raise another round. The shutdown team said, “If you raise another round, then the new board can throw us out and we’ll go home”, so I went and got all of the other board members to come in with exception of the one who was problematic. I got a new lead and I threw out the other board member. The guys who were there to shut it down went home. That was a very unique turnaround story, but it was a great lesson. We went another three years with that company.

That board felt I was too young and decided to bring in someone. They were right, too. One of their friends came in to run the company, and I liked him. He had never raised a cent in his life but he was a good guy. He was a good mentor for a number of things. When it came time to raise money he just could not sell. He did not understand our business and could never really explain the technology, thus he gained no traction with VCs.

We started getting down to the short strokes again and had very little money left. I told the CEO that I felt I needed to go raise the money, and he told me that if I did he would fire me. I brought someone to the table and had $1 million in one week. I brought an early term sheet to the CEO, and the next morning I was fired. Two weeks later they laid everyone off, and the board fired the CEO. They kept a skeleton crew and brought me back as a consultant to keep the thing going, but I got to do whatever I wanted as well.

This segment is part 3 in the series : Toward Zero-Energy Buildings: Kevin Surace, Serious Materials
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