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On The Scene: Entrepreneurs share their secrets

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On the Scene
Thursday, February 04, 2010

Growing big and growing fast is no easy feat for a startup. Particularly in this economy, just getting investment is difficult. But some entrepreneurs do manage to quickly grow their businesses, or even enter established companies and take them to new heights — but not without some bumps along the way. Still, their success stories are valuable resources for anyone thinking of dipping into the entrepreneurship pool.

The top-floor conference room at Perkins Coie’s Pearl District office was packed last night for a panel discussion hosted by the Oregon chapter of The Indus Entrepreneurs (TiE). Three panelists were on deck to share their experiences: Sudhir Bhagwan, former chairman and CEO of SnapNames; Nitin Khanna, founder and former chairman and CEO of Saber Corp.; and Matt Compton, venture partner at Madrona. Each came from different backgrounds, but agreed on many of the ways entrepreneurs can achieve solid returns for both their companies and their investors.

One of the biggest early mistakes entrepreneurs can make is not clarifying role definitions among founders. Compton knows from his work with companies as a venture capitalist that things can get messy when it’s not clear from the beginning what each founder’s responsibilities are and how the company’s stock is allocated among them. This can be particularly tricky when the founders are friends, something Khanna knew from experience; he founded Saber Corp. with his brother and his best friend in 1997.

While Khanna and his brother opted not to take a salary in the early years while the money flow was still dry, their co-founder chose to pocket his earnings from the get-go. Over the years it became clearer that Khanna’s friend wasn’t as committed to Saber’s long-term success as the other two were and was eventually let go, a difficult process because of his relationship with his co-founders and the lack of role definitions early on.

Khanna learned from the mistake, however, and eventually made it a point for each potential employee — regardless of their level of work — to be brought on as a 90-day hire and undergo a rigorous screening process to make sure they were strong cultural fits with the company's mission. Originally a consulting company, Saber grew into a $24 million government solutions company by 2005 and was sold two years later by Khanna.

Outside the startup realm, entrepreneurs can also encounter challenges moving into established companies and trying to implement changes. After spending 21 years in executive positions at Intel, Bhagwan — now a local angel investor — stepped in as chairman and CEO of tech company SnapNames. But there was plenty of work to do in his first years at the company, with SnapNames losing money and market share. A competitor even offered to buy the company for free while sharing future profits, which Bhagwan quickly turned down.

The solution? Focusing on a unique service offered by SnapNames that didn’t exist anywhere else at the time: a technology for domain acquisition that allows buyers to bid for expired domain names. In addition, Bhagwan brought in operation systems that he had picked up from Intel and implemented them among the staff to help re-establish expectations and responsibilities. The result was a significantly more productive staff, without having to change the headcount.

But the running theme throughout all three panelists’ experiences was establishing trust, not only among the founders and employees, but also with financers. “Ask your financial partners what success looks like,” Compton says, adding that having that conversation upfront lets you know what they are expecting out of the partnership.

But a word of caution from Compton when seeking investment from friends or family, a common startup source: Make sure they understand the possibility that they could lose their money, and that they’re not putting everything they have on the line. If not, you might want to skip Thanksgiving dinner if your venture doesn’t go according to plan.

Kevin Manahan is the online editor of Oregon Business.

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