High-Impact Entrepreneurship

Scott McNealy (Co-Founder, Sun Microsystems; Founder, Curriki.org) offers entrepreneurial tips [Video and transcript]

At last month’s Endeavor Entrepreneur Summit in San Francisco, Scott McNealy, Co-Founder and former CEO of Sun Microsystems shared his entrepreneurial wisdom in the welcome keynote. In addition to telling the story of the company’s beginning and reflecting on lessons learned since, he also talked about his newest venture, a non-profit called Curriki.org. Curriki is the leading K-12 global online community for teachers, students and parents to create, share, and find open learning resources that improve teacher effectiveness and student outcomes. The site, which is summarized in this PowerPoint and PDF, is also highlighted in two case studies (case 1 / case 2).

You can watch McNealy’s speech or read the transcript below:

Summit Keynote:

TRANSCRIPT

Sun Microsystems’ Beginnings

I asked everyone at Endeavor what everybody wants to hear, and everyone said how we got started. I’m not sure that’s a terribly great story. It was four 27 year olds back in the olden days. We got to follow in the footsteps of Steve Jobs who was the first inexperienced, semi-ignorant, young, non-credentialed CEO to go found a company and really lay the groundwork. So when there were four 27 year olds who in 1982 went to get VC money, nobody batted an eye, even though I had three years business experience which was more than the other three founders combined. And we raised $4.5 million the first year. We started on February 24, we were profitable in May, we did $8.5 million in our first year, $39 million the second, $115 million the third, $250 million the next year, then it went to $510 million, and then $1 billion dollars, so that was kind of our growth ramp—I might have a couple dollars off.

Now how did it all happen? It was a Stanford and Berkeley University startup. Andy Bechtolsheim had invented the Stanford University Network Workstation under a grant while a PhD student at Stanford, and so it was the SUN network, so that’s how we got our name, on the Stanford University Workstation. And Andy was looking to get people to build his computer, his desktop workstation, but they weren’t really doing a good job; he was licensing it out to different people. And Vinod Khosla, my classmate from Stanford Business School, who I got to know mainly because he always seemed to be the last guy at every business school party–he found Andy and said to me, quit your job, let’s go start this company. And then we went to Berkeley and found the top software engineer for Unix from Berkeley named Bill Joy and the four of us started this. It was a nice combination of hardware, and software, and business school, somebody who had done it before and somebody who was inexperienced when we got started (that’s a joke). And the good thing about it is we didn’t know any better. Ignorance is bliss. That’s an important thing to remember. If you actually knew how hard it is you probably wouldn’t do it, so don’t worry about that.

Have a Controversial Strategy

I’d like to give you some suggestions, some quick ideas and thoughts to think about. Linda Rottenberg [Endeavor Co-founder and CEO] touched on the one I think is the most important and that’s the crazy thing. I’ve said for many, many years, you have to have a controversial strategy. It must be controversial. In fact, the more controversial, the better chance you have of making a lot of money. If everybody thinks what you’re doing is the right thing to do, everybody’s going to do it. Everybody does it, there’s no differentiation. If there’s no differentiation, there’s no pricing power. No pricing power, you’re not going to get a profit. No profit and you’re not going to be able to hire anybody, and you’re not going to make any money. It’s like walking into an interview and they say, “Why should we hire you?” And you say, “I breathe.” Fogging a mirror is not going to differentiate you at all. [hide-this-part morelink="Click here to show the rest"]

The real hard part about a controversial strategy is that it’s actually pretty easy to come up with a controversial strategy, but it has to be correct. Because a controversial strategy that is wrong, is just plain stupid! So, I can’t help you with that one, but don’t be alarmed if it’s controversial.

And our controversial strategy was to share. We used open interfaces, open technologies, open components, and really were able to, as we called it, build a Ferrari out of spare parts. It got us to market quickly, we had the whole world doing R&D for and with us…and against us, but it was a better strategy than trying to beat IBM, with their own mainframe technology which wasn’t possible.

Be Quotable, Be Memorable

The next point I would share with you besides being controversial is you’ve got to pick one of two strategies, and my suggestion is to be quotable. And to be loud and noisy and pick a fight. We always tried to pick a fight with the number one and number two company and say we were number three. And then we would make lots of noise.

And we used the media. And I would explain to the media, “Hey, I’m going to give you lots of good quotes; treat me right and I’ll bring you more.” And we had a little deal. And I said just make sure we’re on the front page, spell our names correctly, and I’ll give you lots of outrageous quotes. Because we couldn’t afford advertising. So people think I don’t like Bill Gates, but it was theater, really, truly. [Microsoft CEO Steve] Ballmer and I went to school together, as did Gates and I. It was all theater, and you know quotes are how you get remembered and why I’m up here today.

People remember me for a quote a long time ago: “the network is the computer.” By the way, people are still figuring that out. I would encourage you to think about that because that should be part of your new entrepreneurial strategy. They call it “cloud” computing. Why didn’t I think of cloud in the 1980s? But, that is a big one.

Another one that is all the rage is a statement I made quite a while ago, which is: “You have no privacy; get over it.” And my Chief Privacy Officer just went crazy on me, because she thought it was the worst thing I could possibly say, but it’s obviously true. You have no privacy.

And interestingly enough, most of the new startups here in the Valley are all about invading your privacy. Figuring out how to profile you even more precisely than even you know. So using the cloud to invade your privacy tends to be the number one venture startup, other than using Obama’s stimulus money to do something green, which tends to be the other way people get things started.

Use Other People’s Money

If you’re going to go start a company and it’s your first one and your net worth isn’t really terribly high, my suggestion is use somebody else’s money. There’s a bunch of folks who are going to get up on this stage; use theirs. Practice starting up companies on somebody else’s money. Once you get good at it and you’ve won a couple of times and you have your own money, then you might want to use your own. But there’s no reason not to use someone else’s money. I know it’s harder in other geographies, but you know what? The VCs from the US are starting to go out in other places because there are some more friendly economic environments than the US to invest money. And as your economies develop and people are saving a bit more money, there will be a better opportunity. And it doesn’t necessarily hurt to give away some of your company now to get that capital in, because money does help you fight that battle.

Your Business Plan is Never Static

Another piece of advice is everybody has a mission. If you’ve gone to business school, you learn gotta have a mission, gotta have a vision, gotta have strategies, gotta have objectives, and tactics. And you write this all up and it’s called a business plan. And that’s a necessary component of what you’re doing. Now the problem is, you shouldn’t do it in hardcopy; you should do it online because it’s going to change. And I tell everybody who comes into any startup that I’m involved in, things are going to change above, below, and around you faster than any other place you’ve ever been. And be prepared for that, and to accept change. You know, I don’t think that Apple knew that word processing was going to be their number one market, I don’t think IBM realized that Lotus 123 would be the reason people bought their computer at the start, I don’t think that eBay knew that Beanie Babies was going to be the thing that happened, and I don’t think that Google got started knowing that Page Rank search, selling words to the highest bidder every day was going to be their business model. So you gotta be prepared to get lucky, to be opportunistic, and have that plan.

The Importance of “Why?”

But once you get rolling, and you settle in on what you’re going to be doing and as you’re growing, hopefully you’ll get to the point where you need to think a little about having a cause. And we didn’t really. We weren’t very explicit about our cause at Sun Microsystems for quite a while although everybody sort of knew what it was, and that was we wanted to get everyone connected to the network while doing no harm to the planet. So, that was our cause and we actually articulated it in kind of the second half of our existence. But a lot of people liked that; it was sharing, getting people connected, and being much more eco in terms of the amount of energy we used to go deliver our computing power.

So very powerful in the sense that that made a lot of people want to buy from us, sell to us, work with us, and work for us, and stay with us. People have basic needs—food, shelter, water, all those sorts of things—but they also have a higher-order bit. Some psychic income as I call it, and there’s nothing wrong with stating what that higher order cause is for your organization.

I kind of cornered Linda Rottenberg in the speakers’ room, and I said, “Why do you do this?” I didn’t want to know what she was doing, I said, “Why are you doing this?”Cause I wanted to know what here cause was, what her reason was. And she had a very powerful one. She said she wanted to share the ideas of entrepreneurship—which have been so strong here in the US—with all these other countries and cultures around the world. So she has a very strong cause. And you can see that in the passion and the energy she has in leading this organization. You need to have the same passion and energy wrapped around a cause that Linda has for Endeavor, or people won’t want to follow you, people won’t want to affiliate with you.

Picking the Right Board of Directors

The next thing I would share with you is if you’re going to use somebody else’s money, you’re going to have to have a board of directors, because they’re going to want to have oversight, they’re going to want to have governance. And you will hate that word “governance.” It’s like the worst babysitter you had growing up. So, you have an opportunity most of the time, you know the big money folks are going to put their own people in there, but when you have a chance to put somebody on your board of directors, choose wisely. Companies do fail because of weak boards. And almost always, a weak board is a contributor to the failure of a company.

So, do not underestimate how important it is to have somebody who has hopefully been there. And that means they have been in the piñata. And if you’re the CEO, you understand you’re in a piñata. You can’t see anything and people from random directions are taking 2x4s and hitting you, and as soon as you protect yourself from that flank, somebody’s hitting you from another blind side. And life in the piñata means you need people on the board who understand that, who have been there, and when you stumble they don’t walk in and say you, “Bozo, what is wrong with you?” Because anybody who’s been a CEO has made a ton of mistakes, way more mistakes than anybody else. You know what the problem is with being a CEO? They solve the easy problems down below, and they only bring you the unsolvable problems. That’s the worst part about being a CEO’ you never get to fix anything because they only bring you the unfixables. Do you want to lose your left arm or your right leg? By the time it gets to you, those are the choices you have.

I can remember many times going home to my wife Susan and saying, I didn’t do anything good today. And that’s the way you feel. You need a board who understands that, who can support you, who helps attenuate rather than amplify the bad news, and lets you enjoy the good news. Because you know what, you don’t have any peers in your company and really the board is as close as you’re going to get. And if they haven’t been in the saddle, if they’ve just been a VC their whole life, for instance, or if they’re a banker, or if they’re a politician or a lawyer, or some other thing, they don’t know. It’s a different job. I remember getting a job was a big change, and then I remember becoming a manager was a big change, and then becoming a second-level manager where I managed managers was a big change, and then I became CEO. And that was like going light-speed, you know that was a Star Wars moment where you went *poof* and the whole world just changed. And so try to build a board that has former CEOs on it. Not current. Current CEOs are too busy [ducking blows] so you want to try and get some former CEOs.

Make/Buy and Share/Protect Decisions

Some of the biggest decisions you will make when you get started are make/buy and share/protect. And make/buy I think everybody understands: What do I make versus what do I buy? And that’s a huge question. That is the most strategic decision you will make. And everybody wants to know, what should I make versus what should I buy?

Well it’s very simple. If you know who your customer base is bring ‘em in and listen to the questions they ask. And that will tell you who you need to hire. You need to hire people who can answer the questions they ask. If they come in and say, you know, what do you put in your hamburgers, then you’re probably a restaurant and you ought to hire a chef. But if they don’t ask that question, you probably ought to outsource the lunch room and buy your burgers. I’m trying to give you a simple answer, but it’s very very simple. If you talk to your customers, listen to the questions they ask, that will be the clues as to who you need to hire. Everybody else, you ought to outsource. As much of the rest of it as you can. Why? Because your business is going to change above, below, and around you, and your direction is going to change so fast it’ll to make your head spin. The worst thing we ever did at Sun was sign leases longer than two years. We could have saved Sun billions of dollars if we had always bought on the spot market for facilities. So buy on the spot market wherever you can. Going long, you’ll guess wrong—hey, that’s good. Going long, you’re going to guess wrong. I’m a poet.

And the other decision you have to make strategically, is what do you share versus what do you protect from an intellectual property perspective. We had a different strategy, Steve’s [Jobs] was more successful. But Steve didn’t go out and be quotable, Steve Jobs understands the power of the secret. And that’s another way to go, but I don’t recommend that because none of you are big enough to be a secret. Apple can afford the power of a secret. And it’s very, very powerful. Apple’s also big and strong enough that they can afford the power of proprietary technology. So any of you who use Apple stuff, will know it doesn’t work with anything else. It’s very closed: you have to buy an iPod, you have to buy an iPad, and iTouch, you have to buy the Mac, and then you have to use MobileMe. You’re stuck. He’s the new Microsoft…just with better graphics. Just as many bugs, just as much administration, but it looks prettier.

So Steve has chosen to not share anything and go proprietary. You might not be able to do that. You might need more community support, more people helping to innovate and integrate to whatever technologies you have. But that’s a big strategic decision. Sun made the decision to share a lot of our intellectual property and our APIs, and in the later stages I think we overshared and we got bought. And then Larry Ellison shut down all that sharing stuff. You know you can’t win the Americas Cup boat race by sharing.

Never Give Up on a Sale

So, another suggestion: never give up on a sale. Never assume you’ve lost a deal. I always say, a deal’s never lost, it’s only postponed. And you just have to have that attitude. Selling is very easy. For those of you who went to business school, I can teach selling in about two minutes. You walk in and say to the customer, here’s my product, can I have the order? They’ll say no. You say why, they’ll explain it. You go away and fix it. You come back and say, I fixed it, can I have the order? They’ll say no, you say why? You get the point. After about 15 times they’ll say, OK, here’s the order – get out of my face.

Just remember that. No is a key to yet another feature for your product or service. That’s all it is. Too many people think no means get out of my face. No. Just “why?” is a very powerful question. You say, I’ll be back. You don’t even ask, you just say I’ll be back. Don’t bother ‘em and try to oversell. Just go back and fix their problem. Don’t argue with them. Go back and fix it. Even if you don’t do anything different, come back with a different pitch. But so many people want to go argue, and that’s just not the right way to do it, just keep going back.

I’ll never forget, when we were starting we had Sun workstations and there were four major software CAD (computer assisted design) applications that ran and Apollo was the other startup that we were competing against. The three big ones had moved over to Apollo and none were running on the Sun workstation, but Computervision was the biggest of all; it had 40-50% market share maybe even more and so we had to win the computer vision deal or we were out of business—this was two years into it. And we went and we sold like crazy, and we were doing everything that we could. And all of a sudden, Vinod Khosla was our CEO at the time. He got a phone call, I was in his office I remember, it was about two in the afternoon, closing time in Boston and Computervision called up—the purchasing guy—and said we are formally advising you we have chosen your competitor and we are commencing negotiations to close the contract and we are formally shutting down all conversation with Sun Microsystems, thank you very much. And Vinod went pale. And if you’ve met Vinod that’s hard to do. And he hung up the phone and I said what’s wrong? And he said CV just told us we lost. And I went pale, and I said what do we do now? And I’ll give Vinod an enormous amount of credit, he said, let’s launch a proposal that they can’t refuse.

So we put all of our technology in escrow, we offered free manufacturing rights, we offered super aggressive pricing, we invented a product we didn’t have and wrote the spec down and at 5pm, three hours later, we FedExed to the 12 people we knew this new proposal and then Vinod and two of our engineers got on a redeye and showed up in Computervision Boston headquarters the next morning and started calling people and saying will you come talk to us? Did you see our proposal? Nobody would come near us. We were radioactive. So finally, about 11 o’clock in the morning, one of the engineering VPs came down into the lobby and said listen, your proposal is interesting, but go away. You can’t be seen here, just go away and stay tuned. Sure enough, Apollo got real arrogant in their negotiations. Thursday we got a phone call and they said meet us in Chicago with a word processer and a printer and a lawyer and we’ll do a deal. We got there Friday, worked through Saturday, announced the deal on Monday, and blew away Apollo.

That’s just a story of don’t take no for an answer, but don’t argue. Just give them something better.

Some Personal Advice

Now I’m going to give you a personal suggestion, go start your company before you get encumbered financially and with kids, because you’re going to work a bazillion hours. Next suggestion, the most important strategic decision you make in your business career—this might surprise you—is who you choose to have babies with. I chose very well, I got lucky. I waited til I was 39 and through most of the entrepreneurial phase of my life. But I guarantee you, whoever you have children with, is going to be a big part of your life and if you pick the right person it will make you a better leader, a more focused leader, and a leader who can spend more time on your business without feeling bad about leaving your kids home alone. So, very, very important.

And I will tell you that very few people interview and check references on who they marry as much as they will the VP of Finance. Think about it. Go meet the parents. Go meet the siblings. Go meet the crazy uncles. Meet everybody. Genetics matter. They are in there and if they aren’t there in your wife, they’ll show up in your kids. So check it out. And, by the way, if they were formerly married, you have to interview the ex. Would you ever hire somebody who got fired from a previous company without talking to somebody from the previous company? And we don’t do it!

I’m over time now, so have fun, make it fun. We always have a saying—kick butt—which win and have fun. You’re the leader, make it ok to have fun. Have fun, let them have fun, because they’re all gonna work a million hours. The next suggestion, lean Mandarin.

Scott’s Non-Profit, Curriki.org

Finally, I want to share with you one other thing that’s near and dear to me. I started a dot org, a non-profit, sort of like Endeavor, only tackling a different problem and that’s education, and a piece of education. And it’s called curriki.org. It’s a K-12 educational website that is hosting nearly 50,000 learning assets that are free and open source, in multiple languages around the world. What I would like you all to do is evangelize in your home country, your home school districts, any teachers, parents, or students that you know. And get people to donate to the website, use the website, share. We spend $15 billion a year in the U.S. every year once a year annually on curriculum and you know what, 10 plus 10 was,vis, and will be 20, for a long time. And we spend $130 on a third grade math text book when the one I learned on worked just fine. And I think we can change the world and improve everybody’s lot with free, open-source, self-paced, on-demand, real-time scored, multi-media, web-enabled curricula, as opposed to stupid textbooks. So please check it out. If you get really, really successful and go public, donate and make it happen.

Anyhow, thank you all good luck. Have fun. Go for it. There is no risk if you’re using their money. Thank you everybody. [/hide-this-part]

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