The Making of a Serial Entrepreneur / Technopreneur by Lawrence Hughes


Published on Chief Technology Office and Founder Lawrence Hughes shared his lessons learned in working and building start-ups. This is the first webinar organized under the DigitalFilipino Start-Up 100 Project that aims to mentor, encourage, give advice to aspiring technopreneurs. More information about the project can be found at

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The Making of a Serial Entrepreneur / Technopreneur by Lawrence Hughes

  1. 1. My  experiences  in  starting  four    private  sector   ventures   Lawrence  E.  Hughes  
  2. 2. 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  
  3. 3. 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;  2010  
  4. 4. 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  (    AsiaCEO’s  award  for  Top  Technical  Innovation  Team  in  the  Philippines,  2010   (for  InfoWeapons)  
  5. 5. 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.  
  6. 6. Mementos  of  Mycro;  Labs  (not  much  le;)  
  7. 7. 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.  
  8. 8. Mementos  of  Mika,  L.P.  (almost  nothing  le;)  
  9. 9. 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  (  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).  
  10. 10. Interim:  Various  Companies  
  11. 11. 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.  
  12. 12. CipherTrust  –  Makers  of  IronMail  ™  
  13. 13. 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    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.”,  I   advise  the  Indian  and  Malaysian  government  on  their  IPv6  rollout.  We  are   training  engineers  at  SingTel.  
  14. 14. InfoWeapons:  Pioneer  in  IPv6  
  15. 15. 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.  
  16. 16. QuesUons  About  Entrepreneurship  
  17. 17. 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.  
  18. 18. 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.  
  19. 19. 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.  
  20. 20. 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.  
  21. 21. 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!  
  22. 22. 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  
  23. 23. 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.  
  24. 24. Visit  http://www.e-­‐  for  more  information.