Morning after Thanksgiving, so I hope all of you, American Readers, are well stuffed. Here’s a research report called What’s Cooking on the Internet? surveying the Food and Cooking websites, celebrating America’s greatest food-oriented tradition.
By Richard Rabbat
The MIT Club of Northern California hosted a panel on Oct 4, moderated by Safa Rashtchy, managing partner at Piper Jaffray. The panelists were Brad Horowitz, VP of Product Strategy/Advanced Products @ Yahoo! Inc., Matt Cohler, VP, Strategy and Business Operations at Facebook, James Hong, CEO of HOTorNOt.com and Gus Tai, General Partner at Trinity Ventures.
The theme of the event was the building and monetization of sustainable online communities.
There was consensus on a number of issues raised, including the fact that these communities are generating profit from the 18-24 year old audience that had been disregarded in the past. James Hong claimed that his company expected people to keep interest in the site for about 6 months, and made money off providing a parallel dating service. HOTorNOT survived the .com crash because it offered a product that forces a reaction (clicking to rate a person’s “hotness”).
Brad talked about how after buying Flickr, they decided to keep its identity and to keep the viral advertising model that made Flickr successful -in that case, people learning about Flickr
through friends’ and families’ sharing their photos on that site.
Safa challenged the panelists with the idea that without keeping one’s audience captive for more than a mere few months, it will be hard to keep the momentum going for many social networks that believe they’ll keep the impetus.
Gus Tai seemed to believe that the money could be gleaned in a variety of methods and there was a large number of untapped markets of online communities that will thrive in the new world of social networks.
Apparently many people agree, including Google’s management that shelled out $1.65 billion to acquire on Monday YouTube.
Over the last few days, you have read two interviews with Peng Ong and Manoj Saxena.
I would like to do more of these interviews, especially with entrepreneurs who have really interesting stories to tell. This includes stories where there are more ups and downs, not just straight success. Serial entrepreneurs typically take lots of chances, and some bets work out, some don’t. Remember, even Steve Jobs had difficulty with NeXT. So, if you want to share your story, feel free to email me.
In the final chapter of our interview with Manoj he discusses his desires for the future, as well as his philisophical ideals which have guided him so far.
SM: How old are you, Manoj?
MS: I’m 41.
SM: You have a lot of time left.
MS: I’ve gone to places for a month where you don’t talk and you meditate for four hours a day and all of that. It was one of the most insightful and difficult things I’ve ever done in my life. It did help a lot. It is apparently the same concept that Buddha went through for three years before he obtained enlightenment. The whole deal is that for ten days you still your mind and turn it inward. The concept is that you are who you are because of the knowledge from the entirety of your life, the cravings and aversions – your knots. When you still your mind and open up those knots you go back and things happen. I went back to when I was 4-5 years old, as well as when I was 7. I began to notice things that my father said to me when I brought home a report card, and that makes me so driven.
SM: Is it a facilitated process or a random process?
MS: It’s a facilitated process. It’s done out of 4 centers in the U.S. and some 50 centers around the world. Every two hours they talk to you for five minutes. They tell you how to meditate and then they go away. You do it in a room where 10 or 15 other people are sitting as well. There is no chanting or anything. It’s just quite, stilling your mind and you don’t talk. There are two meals a day. You do it for ten days.
SM: What’s the name of the organization?
MS: Dhamma.org and the process is called the Vipassna.
SM: The Tibet meditation technique.
MS: Yes, its one of several. There are so many things I don’t know, one thing is I am pretty confident this is my last start up. The next thing will probably be a private equity set up where you get together a hundred million dollars or so and buy up a few companies. Restructure them, recalibrate them, make into a global enterprise and work it globally. Flip it. That, sort of thing.
SM: That is because you are tired of starting something from scratch?
MS: Yes, it is a different experience. One of the reasons I did Webify was to answer the question about my first company. Was I good or was I lucky? My wife says I’m just a masochist. My sense was that any idiot could have done it had you given them 18 million dollars in 1998.
SM: You had something to prove to yourself.
MS: That is a big portion of it. Proving to myself that it was not just a fluke. So I think the two areas I’m going to do something in is: first, I’m going to do something in social entrepreneurship where 70% is still about making money and 30% about doing good. I have this personal motto of “Doing Well by Doing Good”. The second thing would be a private equity deal on a larger scale, because it is a different type of a challenge. It’s just that Iwant to test myself in different areas. It’s all about learning and growing. Ready for climbing new mountains, that kind of thing.
SM: You can also explore other markets. You’ve done most of your work in the enterprise software market from an entrepreneurship point of view. There are all kinds of things happening in the consumer market such as Internet and Entertainment. Right now those markets are much more exciting than the enterprise software market per se.
MS: That is true. The reality is actually, knowing myself well enough, I am actively keeping myself away from thinking about that stuff.
SM: Why is that?
MS: Once I start thinking I see the thread, and I’ll get so consumed with it that within months I will be ready to go and leave IBM a little too prematurely. It’s one of those things I keep telling myself anyways. It’s an enticement. A seduction, and I don’t want to go down that path.
This has been a great interview with a very successful entreprenuer. It is interesting and facinating to discover what processes and methodologies affected his decision making process as he created his companies. Manoj did an excellent job understanding the optimal manner in which to fund his ventures. There is also a correlation with an article from the New York Times which I recently commented on, as well as other articles in my venture capital series.
SM: Where are you now in your frame of mind? You are at IBM obviously, are you going to be at IBM? How does IBM jive with your current state of mind? Where do you want to go next? What motivates you?
MS: Well I am at IBM right now. I’m still running the Webify business unit. What has been very satisfying for me to see is the impact we are having on transforming both Global Services of IBM as well as the software group. This is the first acquisition that IBM made that is a joint acquisition between their software group and Global Services.
I want to build and I want to make sure my products and technologies are going to make an impact on thousands if not tens of thousands of customers globally. IBM gives me a global platform to complete the journey and vision I had of leaving a personal legacy behind. Something that didn’t happen with Commerce One. I’m staying on for a couple of years to make sure that this product, which IBM has now launched as Websphere Fabric, is successful. I went to China to open the China Center. The ribbon cutting ceremony and all. Sitting back and watching the proceedings, you know when I saw the word IBM written next to Fabric in Chinese it was a very proud moment. I think I’m emotionally committed to making sure that this product sticks and becomes the crown jewel of IBM’s SOA portfolio. So that I can tell my grandchildren about this stuff.
SM: Assuming that your grandchildren would care!
MS: They may not but at least they will hear it!
SM: There’s actually a slightly tongue in cheek part to that comment. By the time we have grandchildren they are probably going to take all of this for granted. Just like we take the telephone for granted.
MS: They might tell us “you are so old” kind of stuff. I like to say that when you are done and gone all you leave behind is your children and what Google says about you.
SM: Before Google there was nothing actually. No epitaph, so to speak.
MS: Exactly, so I would like Google to have some cool things to say in a small way. We will be able to move the needle forward in certain areas.
SM: What are you doing with your wealth? Are you investing in new companies? Are you doing philanthropy? What is the destiny of the wealth you’ve created?
MS: Well, a couple of things. Number one I am contributing to the economy right now by spending. I’m doing my part from the consumers point of view. More importantly we’ve done a couple of things.
One is that 90% of my stock from the two companies will not go to my children. We have a foundation in place called the Saxena Foundation. We have quite a number of initiatives. There are three or four initiatives we are doing in India, some in America. We have a classroom named in Michigan State. Now there is a Chair back in Pilani. In the foundation we are going to put a provision in place that any member of our family out of America or India, if they are able to get into any of the Ivy League schools, the foundation will pay for four years of their education.
On a personal level you know after the Commerce One deal I tried to retire and ended up almost getting a divorce because I was bouncing off the walls. My wife suggested to me gently that I should go start another company.
SM: So that’s not going to happen again?
MS: I don’t think so. I’ve got a strong desire for what I call brain candy. I also have some money into hedge funds. I’m not allowed to invest in individual companies by IBM. Given the big title and name they think that seeing me put money in deals would be seen as IBM putting money in it.
SM: Any overriding unrealized visions or dreams at this point?
MS: That’s a great question. I feel incredibly blessed and grateful for all of the opportunities and breaks that have come about. I think the one thing would be to get to be a better human being. That sounds very philosophical, but I think to be a more rounded human being would be my unrealized dream. Being a more patient person, because patience is not my virtue. Being a better family person with a balance of home and family life. Some stuff like that.
In this portion of our interview with Manoj we take a deeper look at the person behind the success. We delve into the individual traits which have built success.
SM: What is your own personal core competency? Is it engineering, is it sales, marketing?
MS: I would say that it’s a combination of product management and sales. My core competency is being able to study a market and identify some deep trends. Be able to anticipate the trend and start building products and technologies to intersect the trend. The second core competency, without being boastful, is having the ability to identify, hire and recruit world class talent.
SM: How do you think you developed the former skill set?
MS: I think a big part of it was the time I spent in 3M. Because my role in 3M for the first three years I was there was … they have this program where they hire three or four MBAs every year from different business schools around the country. They put you through a boot camp where you work with different general managers and vice presidents on a variety of problems dealing with new product launches, marketing, divestures or acquisitions. Typically people do two or three projects there . I think my average work load was seven projects over the three years I was there. I used to call it the 3M buffet table. Because 3M had something like 45 different business units. I think working on a lot of those and really sort of honing the skills because 3M is really such a new product innovation machine. I think the whole process of staying close to the customers, observing and anticipating the user’s needs, and going and building a product based on that is something that at 3M I really got to hone my skills.
SM: Do you normally envision a product the a customer is likely to need, or do you listen to customers and come up with your ideas?
MS: I think it’s a combination of both. A lot of it is anticipation of some technologies on the horizon that could solve some really deep problems a customer could have. I think it is a combination of selecting technologies and then applying it. So applied product management is probably a core competency as well.
SM: The reason I am drilling down into this is that if you listen to Steve Jobs, the customer can never tell you what product they want because they have no idea what is possible.
MS: Absolutely, absolutely. When I was in 3M I had done some work with Erick Jaun Hipple at MIT on this whole area called Lead User Innovation. The concept there is exactly what you said, that if you ask a customer you will never get the right answer, however, there is a very small minority of customers out there who are called Lead Users according to this framework that Juan Hipple has worked out. A Lead User is typically people who have such a strong need or pain that they go out and build something on there own to solve the pain. The goal of the process is to be able to identify those Lead Users, identify how they are solving their problem and bring it back and commercialize the product for the majority of the market and mass markets.
SM: How do you identify Lead Users?
MS: That is a whole discipline. For example in Webify, which I did in early 2002, I went and spent six months at Wells Fargo with Steve Ellis who’s a good friend and a VP at Wells Fargo. I used to just go and spend time there and talk to their architects and really understand what their issues were with their business in general. There were some very big problems that were still there. E-business technologies of 2002 were not solving it.
SM: What were specifically some of the nuggets from your Wells Fargo discussions.
MS: Actually the first Wells Fargo market we thought we would go after was a failure. I had to recalibrate the strategy to apply it to another market. The same technology but a different market.
In the case of Exterprise I started applying the technology to automated processes and diagnose problems for telecom networks. The same technology ended up applyicable in E-commerce. The first application area I started with didn’t pan out and was a failure, but I still kept the technology and applied it to a different segment with a similar need.
The same thing with Webify. We thought we would go after banking with this emerging technology called SOA, even though it was under different architectures. I realized that SOA had a lot of limitations that were with performance and security which would not make it a good candidate for banking. Therefore, we applied it to healthcare and insurance, and other verticals.
In part 4 of our interview we discuss Manoj’s second venture, Webify.
SM: In the case of Webify you were funding it with your own money, right?
MS: Right, the first million bucks, I wrote those checks myself. The interesting part with Webify was I started it in March 2002. I had the hardest time finding pilot customers. This was in the middle of the nuclear winter of IT. No one wanted to talk to you. The last person who did that lost their job trying new stuff. So one of the things I did was I went out and I bought the controlling interest in a company out of India that had 50 odd customers, many multinational customers. I sent my VP of engineering over there, I went there for a month and started selling to companies like Johnson & Johnson, Cadbury, and Pfizer. Johnson & Johnson is still running our product.
My goal was to get brand name customers in India and then come back to the U.S. We were doing this in India because no U.S. customer would talk to us. My conviction was that there were still very large and hairy problems to be solved. As long as those problems are there, the market phenomena is a temporary one. So, as I said, there is no bear market for good ideas.
SM: I guess it depends on whether companies can survive a downturn.
MS: That’s right. That is exactly why my mantra used to be take a little money and build a lot of value. So we did that and interestingly enough as we were doing that, even though customers were hard to get, money was not difficult to get. We had an offer of a $6M investment in Webify, but we didn’t need it and actually turned down that money. If I took too much money and the market didn’t go right, I would have lost the whole company. Instead of raising 6 million dollars we raised 750 thousand in two batches until we got the market validated and enough of a pipeline built.
We did about $1.1M the first year and $5.5M the next year, and $13M the third year. We’re on target this year, but, I can’t give you the number because IBM has put all kinds of restraints on these numbers.
SM:And you’ve already been acquired this year. And that number is not public correct?
MS: It’s not public but it’s in the neighborhood of the first company’s acquisition. There is a good multiple with a great return.
SM: It’s interesting what you said earlier. You were offered 6 million dollars and turned it down to only take 750 k so you had room to validate the market, and that’s a very wise decision that less sophisticated entrepreneurs would not make.
MS: Exactly, because we learned and I saw this in 2000-2001 when I used to meet other CEOs among entrepreneurs, it was almost a badge of merit how much money you raised. Which is really quite the opposite and it’s true, it’s a bit counterintuitive. If you raise a lot of money you are leveraging the hell out of yourself. And you probably have a lot of people wanting to grab at the steering wheel if things don’t go right.
In part three of our interview Manoj discusses the various acquisition offers, as well as his exit strategy.
SM: In mid to late 2000 the Internet market started to crash, how did it go for your company?.
MS: In late 2000 it didn’t crash for us; we had about four other offers for acquisitions in the meantime. I continued to want to build this into a large company so we turned them all down. Commerce One had reached out to us in July of 2000 and had given us about a $110 million offer, and I said no to them.
SM: What was the revenue at this point?
MS: Revenue was about $18 million.
SM: So 18 months, 18 million dollars. A huge ramp.
MS: Actually, in 2000 we did about $18 million in bookings, not revenues. Revenues would probably be about $12 million or so.
SM: Still a very good run.
MS: On the other side, one of the things that we found was as we started getting into Q4 of 2000 we found that the sales cycle changed. In December of 2000 we had a $15 million pipeline, and we were expecting to close $7-$8 million of that. Suddenly I started finding that, in December, I started taking a lot of phone calls from the CFOs. We’re talking about them writing a million or two million dollar check, and with all of these dotcoms failing they began asking “How do I know that you guys will be around”?
At that time we were really going gang busters and I started realizing that this was not an issue about my product or my people, it was just an issue of customer confidence. I didn’t want to seem egotistical about it and take it forward no matter what, so I called back Hoffman, CEO of Commerce One and told him if he was still interested in discussing the purchase we should have dinner and talk about it.
So we met for dinner and Mark said he would give the same terms he was going to give back in July. By that time we had even more business. I think we gotten a couple more accounts and stuff. The fact that he approached it with a lot of professionalism, and the right way, I basically came back to the board and said, “Let’s take this offer and sell the company”.
MS: You’ve now sold the company at the end of 2000. Are you staying on as an executive at Commerce One?
SM: We sold it in early 2001. I was staying on to build an enterprise strategy for them. All of their products and sales were in exchanges, and they didn’t have any enterprise sales. So I decided to stay on with them to build out a vertical enterprise strategy solution. Unfortunately I was with them for over a year. I could have left the very next day.
First I decided to stay back six months and make sure that my team was well integrated in the right jobs, the right positions and all. Within the six month period the market had really started getting worse. We’re talking about the middle of 2001. Commerce One’s revenues really started falling off a cliff. I didn’t feel at that time that I should be bailing ship so I stayed on further.
Commerce One had hired another president, Dennis. I had some pretty aggressive proposals that I made to Mark Hoffman, one of which was to take a large portion of engineering and move it off shore. I explored a couple of companies in India for him. For some reason Dennis and I couldn’t see eye to eye on some of those strategies, so I stayed long enough to do the sales launch and left to found Webify.
MS: Where you still based in Austin, did you move to the Valley?
SM: No, I was commuting to the Valley 3-4 days a week. In the meantime my team had taken on more and more prominent roles; they were really the stars in CommerceOne. When I left, Hoffman wanted me to give him my word that I wouldn’t go after their employees, so I didn’t hire a single technical guy. I built Webify with an entirely new group of engineers.