The Making of a Serial Entrepreneur / Technopreneur by Lawrence Hughes

My experiences in starting four private sector ventures Lawrence E. Hughes

Who am I?   Name: Lawrence E. Hughes, 60 years old, born in U.S., currently living in Asia.   Undergraduate degree was in Pure Math, with minor in Physics (I ignored the 5 pound weights and went straight for the BIG barbells – working up to 300 pounders). My job as student assistant at my university computing center was far more valuable to me later than all my formal classes combined.   Member of Mensa based on Graduate Record Exam score (high enough to get into almost any graduate program, but saw them as a waste of time).   Worked for numerous IT companies, learning everything I could from each.   Traveled extensively to understand other cultures, both professionally and for pleasure (35+ countries so far). Lived in HK 1993-‐95, PI 2002-‐11 (for most part).   Founded and ran 4 ventures (so far). Score: two painful learning experiences, one major success, working on second success now – I’ll let you know!   Married, Filipina wife, 3 kids (all bright, one already clearly has the entrepreneur bug, and the second is coming along).   Saw inevitable coming economic and political problems in U.S., created 20+ year escape plan, triggered in November 2008. See www.mises.org.

Accomplishments   Three books (so far):   System Programming Under CP/M-‐80; Reston Publishing; 1976   Internet E-‐mail: Protocols, Standards and Implementation; Artech House, 1998   The Second Internet: Reinventing Computer Networks with IPv6; Creative Commons license (free, self published, see www.secondinternet.org); 2010

Accomplishments   Many magazine articles, white papers, requirement specifications, starting with Dr. Dobbs Journal in 1976.   Speaker at major conferences in Beijing, Seoul, Kuala Lumpur, Singapore, Taipei, Sydney, Washington D.C., Berlin, many other places.   Many major software projects, including an 8085 macro assembler and linker, communication software, graphics software library, secure e-‐mail server, some of the key parts of SolidDNS, etc. Now working on next generation dual-‐stack network management system.   Created and taught certification courses in crypto and PKI for VeriSign   Founded Open Source and Security Lab, DOST Region 7 (Cebu)   IPv6 Forum gold certified engineer and trainer, created 700 slide IPv6 course   Created and run one of the seven IPv6 Ready testing centers in the world   Created site used by people all over the world to test IPv6 (v6address.com)   AsiaCEO’s award for Top Technical Innovation Team in the Philippines, 2010 (for InfoWeapons)

Learning Experience 1: Mycro; Labs, Inc. (1982-‐1987)   Primary product was MITE (Intelligent Terminal Emulator), initially for CP/ M-‐80, later for CP/M-‐86, MSDOS and even Macintosh. Sold about 250K copies worldwide. Bundled on numerous modems and Kaypro computers.   Based in Tallahassee (capital of Florida) – high percentage of population worked for public sector (worthless in private sector). No infrastructure to support private sector companies (banks, PR firms, lawyers, etc).   Zero funding – from beginning depended on sales to cover expenses.   No protection of Intellectual Property (legal or technical) – went from 0 to 140 competitors over five years, margins evaporated. One company stole design outright, and had better marketing and location. Many retail computer stores and clubs gave away hundreds of copies of our software for free, never paid for product they had ordered, etc.   Entry of IBM / MSDOS into microcomputer market was highly disruptive – many established companies didn’t survive transition. We did. Barely.   Ended with about $90,000 in debt, from loans I had to personally guarantee.   Lessons: Concentrate on my strong suit (technology). Partner with people who are equally strong in management, finance, etc. Anticipate “sea changes”. Locate where there is support infrastructure and employees for private sector.

Mementos of Mycro; Labs (not much le;)

Learning Experience 2: Mika L.P. (1987-‐1988)   Based in Atlanta. This time I was CTO and concentrated on technology.   An opportunity arose to create and sell a secure version of MITE to U.S. Internal Revenue Service (with hardware DES encryption). My share of profit from first sale alone would have been $2.3M. Secured $800K funding from private investors, most of which was squandered by the incompetent CEO the investors saddled us with. I created the product (Whisper) for IRS with about 10% of funds. The product was accepted by the IRS, but Congress never authorized funding for project, so the deal fell through.   We tried selling to the general market with $25K ad in PC magazine. We got 3000 responses, almost all from Europe . The N.S.A. refused to allow sales outside of U.S. (“security too strong”), which killed our only market.   Had been paying off debt from first venture the whole time, but wound up having to “eat” a personal bankruptcy, which affected my credit for 10 years.   Lessons: Never depend on sales to one customer (especially government). Don’t develop secure software in U.S. (subject to crypto export regulations). Don’t let investors force a bad team member on you – walk away from funding first.

Mementos of Mika, L.P. (almost nothing le;)

Interim: Worked for several companies, built capital   Worked 5 years for Intergraph, 3 years at HQ in Huntsville A, then 2 years with Intergraph Asia/Pacific based in Hong Kong. Mastered UNIX OS and software development (as well as graphics programming and networking).   Worked for West Coast startup (Software.com) for 1 year working on e-‐mail servers. Founder merged with a company based in Boston and all stock options became instantly worthless. Almost entire west coast team left immediately.   Worked for Inacom (system integrator) for 2 years. Mastered Windows NT large scale deployment and network design. Started learning firewalls.   Moved to SecureIT (firewall vendor, white hat hackers) as a software developer, which was bought by VeriSign 4 months later. VeriSign needed someone to create PKI training. I was only one there with crypto background, so I did it.   Spent two years at VeriSign (peak of IT bubble). Made about $3M in Incentive Stock Options (ISOs), half of which was taken in taxes by government (all short term capital gains). Learned crypto and PKI from the top people in the field.   Lessons: identify critical technology (security/crypto) and get job at the leading company – learn from the top people in the field. Be willing and able to re-‐invent yourself as needed. ISOs are great, but earn most of your money in Long Term Capital Gains (much lower tax rates).

Interim: Various Companies

First Major Success: CipherTrust   Jay Chaudhry (my former boss at SecureIT, then a VP at VeriSign) had sold SecureIT to VeriSign for $81M in stock. He later made over $500M from his VeriSign stock and was now starting numerous ventures. I approached him with an idea for securing email and he agreed to do a startup with me.   Jay was CEO and senior investor – he managed business aspects, marketing, sales, etc. He was brilliant at this and was already a serial entrepreneur. I learned a great deal from watching him.   I was CTO and junior investor. I was in charge of the technology (a secure e-‐mail gateway called IronMail). It later grew Anti-‐Virus and Anti-‐Spam filters.   CipherTrust was launched in 2000, with $3M between Jay and myself (plus minor amounts from other startup team members). We got a VC placement of $42M in 2004, and sold for $273M in 2006 – 91X the original investment.   We used aggressive universal ISOs and created some 20 new millionaires on exit.   Lessons: Partner with the best people you can find. Identify a key problem in a major area (e.g. e-‐mail security) and solve it better than anyone else. Hold onto your investments if they look good. Don’t sell stock just because you leave. Delay taking outside investment as long as possible so the VCs don’t wind up with everything. Defer gratification. Give good ISOs to your people. Everyone flys coach.

CipherTrust – Makers of IronMail ™

Second Success-‐in-‐the-‐Making: InfoWeapons   I wanted to create additional products, but nobody else at CipherTrust was interested. So I kept my CipherTrust stock and moved to PI in 2002. My researches uncovered a major unaddressed market opportunity: IPv6 (next generation Internet). In 2004 we oﬃcially launched InfoWeapons (to create IPv6 network infrastucture products – see www.infoweapons.com).   Once again, I partnered with a very experienced management type (Luis Gopez, now President and CEO) and concentrated on the technology. Luis had been in charge of the S.E. Asia VeriSign aﬃliate in Manila with PLDT. He has played the same role here that Jay Chaudhry did at CipherTrust, but this time I was the only investor. Luis knows telcos very well. I did quite well personally from the CipherTrust sale, and am still funding InfoWeapons with some of my proceeds from that. Taxes on that were almost all long term gains (at 15%).   We are now closing major deals with large telcos in Asia and the Middle East and are considered a world class leader in IPv6. We have lunched a joint venture in Malaysia (“DualStak Networks, Sdn. Bhd.”, www.dualstak.com). I advise the Indian and Malaysian government on their IPv6 rollout. We are training engineers at SingTel.

InfoWeapons: Pioneer in IPv6

InfoWeapons – SUll On-‐Going   InfoWeapons has been my biggest risk to date. IPv6 is the biggest thing to ever hit IT. It affects every network and is the only hope for continuing the Internet beyond about 2013. It involves ripping up one layer of the worldwide Internet (currently using 30 year old technology called IPv4) and replacing it with a vastly more powerful and scalable technology that will take us well into the 21st century. For details, see my free book “The Second Internet” (search google).   CipherTrust took about 3 years to begin covering expenses. InfoWeapons is much more speculative (just now, 7 years in, are we starting to cover expenses). I’ve had to put in much more money than I did at CipherTrust. No VC has been willing to invest (they don’t understand the timing or the dynamics). Many organizations have delayed deploying IPv6 until the last possible minute. That minute happened on April 15, 2011 for half the world (when APNIC ceased normal allocation of IPv4 addresses). Since then things are really taking off.   Our most likely exit will be an acquisition by one of the major players. The big guys don’t innovate anymore – it’s too risky. They let startups fight it out, then they buy the winner. We intend to be that winner. Already our market cap is about 3X my investment, and my goal now is to multiply that by 10X more.

QuesUons About Entrepreneurship

What characterizes an entrepreneur?   Self-‐starter: you have learned to learn on your own, and require no “spoon feeding”. Maybe completed a 4 year degree, but not more. Many of the most successful entrepreneurs were college dropouts. Academic degrees don’t impress you. Further college only slows down your continual learning process.   Independent: you depend on no one (especially the government, your primary obstacle to success) – likely others depend on you.   Risk taker: you are willing to take outrageous (but calculated) risks in return for outrageous potential rewards. If you fall oﬀ, you get back on that horse.   Born leader: many are willing to follow you without question, because of your track record, character, integrity, insight, vision, etc.   Skeptic: you question all assumptions, especially “common knowledge”.   Value integrity: you understand that your word is a primary asset, is easily damaged by unethical behavior, and is very diﬃcult to repair once damaged. Employees, partners and customers know they can rely on what you say. People will remember one failure of integrity, and forget hundreds of successes.   You see most “problems” as currently unexploited business opportunities.

What courses should I take in college?   College is a good place to hone your skills in learning. It almost doesn’t matter what you learn, so long as it is really, really hard (like Math & Physics). You won’t use most of it later. Guaranteed. In a gym, the goal is not to raise the barbell a few feet – its to gain the strength from having done so over and over again. College is to build your mind. Don’t waste that time and money (or even worse, damage your brain) with too much partying (you can do that later).   You might be able to learn a few technical skills, but most of what they are teaching is already obsolete or totally wrong. By the time you graduate, it will be ancient history. Do learn to write well and to read critically. Take courses in creative and technical writing, if available. Learn to communicate. Really well.   College is also a good place to ﬁnd similar minded, bright, capable people, drop out together, and go start a company. Many founders met in college.   Most business courses prepare you for middle management in giant corporations. That’s not where the fun (or the real money) is.   Otherwise, forget academia. Academics don’t have a clue when it comes to startups. If they did, they wouldn’t be making a professor’s wages.   Once you leave college (or dropout), your real education can ﬁnally begin.

How can I prepare to be an entrepreneur?   Read lots of books (many will be of little value – you have to kiss a lot of frogs to find a prince). I am providing a list of the few of the “princes” I’ve found. Read relevant trade magazines. Read books on corporate finance and how Venture Capitalists (more correctly called Vulture Capitalists) think.   Attend trade shows and conferences in your area of expertise.   Master your chosen technology. Become a world class expert and leader in it. Especially if you are going to play the rock star role. Get published. Often.   Get a job in a (if possible the) leading company in your field, and observe everything. Learn how the company works. Read quarterly reports. Understand the technology and the market. Learn from the best people you can locate. Make yourself totally irreplaceable. They should be ready to fire the CEO before they fire you. Do not take anything sensitive with you when you leave (customer lists, documents, insider information, etc). Be especially careful to avoid any hint of stealing IP. Don’t burn bridges, ever. Don’t dump on people that work for you. You may wind up working for them someday.   Work for a real startup. It may be risky, but your risk is tiny compared to that of the company founders. Watch how things work. Ask questions. Be a good little sponge and absorb everything. You will later have to do this stuff yourself.

What should I watch out for?   You should have enough savings to cover your costs (and anyone dependent on you, like a wife, kids, cats, parents, worthless brothers-‐in-‐law, etc). The more dependents you have, the worse the pressure will be on you, and the less risk you will be able to take. It may be a long, lonely time before you can pay yourself a salary, and you may have to pay salaries of others for quite some time before your startup can cover its own costs. It’s like a kid but more expensive.   Keep expenses to an absolute minimum everywhere possible. You don’t need a fancy office (maybe no office at all in some cases – work out of your home). You don’t need classy office furniture. Get a Microsoft Partner package – for a couple of hundred dollars, you get about $20,000 worth of great software: multiple copies of Windows 7 and Office, Windows Server, Exchange Server, etc. Use Open Source software where possible (FreeBSD or Linux). Avoid Apple unless that is your target market (and if so, good luck). They are overpriced, underpowered and highly proprietary. They look cool, though (if that’s your criteria, you’re probably not entrepreneur material). Drive a used car.   Hire only A players. Anyone below A doesn’t belong in a startup.   Outsource legal and accounting services. Don’t try to do your own.

The Magic of Private Stock •  Make your business a Corporation and issue stock. This is how you keep track of ownership shares. Get a lawyer or business expert help you manage it and parcel it out to employees, investors, etc. •  Private stock is like being able to print your own money. Some professionals will accept stock (at least in partial payment) for services, if your venture looks really promising. You can make up the diﬀerence in the salaries you can pay, and what an established company can pay with stock. •  Universal Incentive Stock Options (ISOs) are the secret that makes Silicon Valley so productive. Learn about them. With ISOs there is no “rank and ﬁle” versus management (or owners). You are all owners, and stand to sink or swim together. Would you rather have 100% of a 10” pizza, or 90% of a 100” pizza? Letting your employees earn up to 10% of your company will result in amazing productivity and loyalty, as well as keeping your costs down. Your employees are no longer just working to make you rich, but to make themselves rich. This is really high grade rocket fuel. Learn to use it wisely. I’ve seen it from both sides now – earning them at VeriSign, and giving them at CipherTrust and InfoWeapons. Both sides are great. Talk about a win-‐win. Capitalism at its best!

A few good resources   “High Tech Startup – Revised and Updated ”; John Nesheim   Priceless – contains actual VC tables from Sequoia Capital for about 30 ﬁrms, also contains detailed steps you should go through before opening the doors   “The Power of Unfair Advantage”, John Nesheim   Venture capitalists would love a match between a 300 lb. wrestler and a 10 year old kid. They would cheer for the wrestler. Totally unfair advantage is what they look for.   “Term Sheets and Valuations”; Aspatore Press   Written by and for VCs – how to really negotiate a term sheet with a VC   “Venture Capital Best Practices”; Aspatore Press   How VC really works (from personal experience, this is the real thing)   “Deal Terms”; Aspatore Press   Get this when you are seriously ready to talk to VCs   “Crossing the Chasm” and “Inside the Tornado”, Geoﬀrey A. Moore   The guru of high tech marketing, very popular in Silicon Valley   “Angel Capital – How to Raise Early-‐Stage Private Equity Financing”, Gerald A. Benjamin and Joel B. Margulis   How you get from startup to where the VC’s might actually talk to you

AddiUonal Resources   Join the one social networking service I find useful: LinkedIn. Start building your contacts.   Get a Kindle e-‐book reader. Or at least get a Kindle account if you can’t afford a reader. You can read Kindle books on your computer(s), Android or Apple tablets, etc. Most books you can download in 4 to 6 readers with one license. If you are not in the U.S., this save LOTS of shipping and time delay getting books. Plus Kindle books are always cheaper than print books (and never out of stock). If you get a reader you can carry your library around with you (on planes, in restaurants, etc). If cost is an overriding concern, the small unit will work fine. If you can afford it ($389 or so), get the Kindle DX (the Papa Bear of Kindles). Be sure to get the units with International 3G in addition to WiFi. Most of the books listed are available in Kindle form. My very favorite toy.   Get the best notebook computer you can afford. Forget tablets for serious work. They are good for playing angry birds. The Kindle is better for reading books. You can get amazing notebooks today for very reasonable prices from Asus and other Taiwanese companies (e.g. Acer). Get LOTS of disk and RAM. If weight is a really major concern, consider a netbook, but most are way underpowered.

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The Making of a Serial Entrepreneur / Technopreneur by Lawrence Hughes

by Janette Toral on Dec 09, 2011

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The Making of a Serial Entrepreneur / Technopreneur by Lawrence Hughes — Presentation Transcript