Guest Speaker: What You Need to Succeed
Treat people right and they will eat nails for you, and other lessons I learned building Staples into a giant company.
Published January 2007
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COMMENT ON THIS ARTICLE"The child is father to the man," the saying goes. Just so, the start-up is father to the large successful company. Now that I'm a venture capitalist, helping entrepreneurs build into their small frames the bones of billion-dollar corporations has become my mission.
The premise is less obvious than it sounds. In my experience, entrepreneurs often confuse envisioning what a business will be with laying the foundation for what it could be. So they dream big dreams and construct detailed business plans, which is fine. But it's nowhere near as important as putting in place as early as humanly possible the people and systems that will carry them through their journey, no matter what unexpected directions changing markets or technology force them to take.
That's why I don't get hung up on business plans. I read them, of course. But whatever the plan says, the company will end up looking different. When we started Staples (NASDAQ:SPLS) in 1986, for example, our business plan proclaimed we would never deliver. Delivery added costs; we figured we couldn't afford it. Also, there was no expectation of delivery in the industry.
Nine months later Office Depot (NYSE:ODP) and Office Club got into delivery, so suddenly the expectation existed. Also, we found out that delivery appeals to a different--somewhat larger--customer than we had imagined. Consequently, average delivery orders were larger, which made cost-effective delivery easier to pull off. So we changed course, as all successful companies change course--over and over again. One thing entrepreneurs know for sure: If they do well, the business will get bigger. Always be preparing for bigger.
To me, business plans are interesting chiefly as indications of how an entrepreneur thinks. Here at Highland Capital Partners, the venture capital firm I'm part of now, we spend most of our time talking about what really matters: management and market. If you have the right management team and an exciting market, the rest will take care of itself. I suspected that was true before I came here--it had always been true for me. Now I know it for a fact.
The right people: Folks who have been there and done (something like) that. So what constitutes the right management? I love entrepreneurial passion and am probably overendowed with it myself. Also, I don't discount M.B.A.'s. At Harvard Business School I made contacts and learned lessons that have served me well. But nothing--I mean nothing--counts like brass-tacks, in-the-field experience. I want to work with people who have faced similar challenges. I don't care whether they've succeeded or failed, so long as they've learned. These days I am advising four emerging companies (all in retail, which remains my specialty). In each case, I looked at the entrepreneur's professional background and said yes, this is someone I can work with.
For example, Barry Perzow, co-founder of the pharmacy chain Pharmaca, has more than 40 years of retailing experience in the U.S., Canada, and Europe--that's more than I have. He's worked for big companies and small companies. And now he's reinventing an old model (as we did at Staples) by combining prescription drugs and natural remedies under one roof. Then there's Chip Wilson, founder of Lululemon Athletica, a yoga apparel chain based in Vancouver, British Columbia. Never heard of it? You will. Before starting Lululemon in 1998, Chip spent 18 years building West Beach, a skate and ski clothing business that he eventually sold to an investment group. I remember he told us, "I know there's an opportunity. And I know if we're left to our own devices and don't have a real management team we'll never get there. I'm going to pick as my investors those people who can help me build this into a big business."
That's exactly what I mean by laying the foundation for what could be. Chip has hired some strong people, but they can't support the business as it scales. You don't wear the same clothes your whole life--your body outgrows them. Similarly, companies need different kinds of talent and professional skills at every stage. Staples had four CFOs in 20 years and each was just right for his era. We had the perfect CFO for a start-up, the perfect CFO for a small-cap public company, the perfect CFO to help us through some nasty growing pains in the '90s. I want to work with founders who accept that they won't always dance with the ones they brought. Ideally, both the founders and their teams grow into larger jobs, but often they don't. I want them to be realistic about their limitations, to recognize that over time their roles will narrow.
