Launching a new company or business division? A new award-winning book by Wayne McVicker, co-founder of dotcom roller coaster Neoforma, offers some been-there-done-that advice that can help you keep your cool in the midst of the maelstrom.
Start-ups can be scary. Whether you’re heading up a new division of an established corporation or launching your own small consulting firm, uncertainty comes with the territory. So many variables are involved-from business and societal trends to employee personalities to competitor attacks to investor pressures-that your new creation will take on a life of its own. You might as well try to raise a predictable toddler. Still, according to entrepreneur Wayne McVicker, there are some common threads and overarching principles that transcend time, place, and type of business.
“I can’t stress enough how important it is to pay particular attention to commonsense keys to the development of a strong corporate culture,” says McVicker. “They are the rocks in the shifting sand. The problem is, the whirlwind nature of a start-up makes it difficult for many entrepreneurs or professionals to stay focused on them. You get distracted. You second-guess your decisions. Fear takes precedence over logic. You allow yourself to be swayed by others. And often, even though luck plays a role in the success of any start up, it’s failing to follow the tried-and-true principles that hurts or even destroys a new operation.”
McVicker certainly speaks from experience. And he traces that experience in his upcoming book, Starting Something: An Entrepreneur’s Tale of Control, Confrontation, & Corporate Culture (Ravel Media, 2004, ISBN: 1-932881-01-8, $22.95). The book follows McVicker’s journey as the co-founder of Neoforma, the first health care-dotcom-B2B-e-commerce company, which opened its doors in 1996.
By the time of its IPO in 2000, Neoforma had grown from the seed of a good idea into a publicly traded company worth $3 billion. Yet there was trouble ahead. Within four months, the company was in deep trouble, laying off good people and watching its stock value plummet. McVicker “made a few hundred million and lost a few hundred million” . . . just like that.
While Neoforma still exists, McVicker has little connection to it. Yet the lessons he learned from that experience will always be with him. And part of the reason he wrote his book is to share those lessons with others who might benefit from seeing how the commonsense principles that everyone “knows” can be affected during the tumultuous realities of “starting something.”
Twelve Things to Keep in Mind When Starting Something
- Be who you are. If you aren’t true to yourself, your company’s culture will suffer. So will you. A recurring theme during Neoforma’s early days was determining how to present the company to potential investors. Investors wanted to hear that McVicker and his partner, Jeff Kleck, planned to pursue fast and furious growth for their company. McVicker wanted the growth to happen in a more “organic” way. “We argued about whether it was right for us to project an image of ourselves as a very large corporation selling hundreds of millions of dollars of software and services a year,” he writes. “We didn’t doubt that this was possible, but frankly, we would have been quite happy to sell a few million dollars’ worth of software a year.”
- Hire for culture first, experience second. If someone feels wrong, they are. However exhausting and distracting hiring is, don’t delegate it until after the first hundred employees-and then only very carefully. Early on in the process of staffing Neoforma, McVicker learned the value of listening to his gut. He extended a job offer to a man named Isaac. McVicker disliked him but felt that he had the necessary experience. After some “aggressive and abrasive” negotiation, Isaac accepted the offer, but made Neoforma wait two months-and then quit the first day. McVicker writes about his rage: “This guy hadn’t felt right from the beginning-even though he sounded right. I had focused on his computer skills-which can be learned-instead of more important and innate qualities-like an arrogance, born of insecurity-that would have made him difficult to work with, even if he’d stayed.”
- Communicate empowerment. In the maelstrom that is a young company, it is easy for employees to feel helpless or isolated. All employees powerfully influence a company’s success and direction. Let them know they are valued and their voices are heard-often and in many ways. Don’t waste the potential of any employee. “By far the most common, frustrating, and damaging issue I had to deal with in those days of frenzied growth was disempowerment,” writes McVicker. “Within this dynamic, unstable environment, employees were convinced that their voices were not being heard. No matter how much we tried to ensure that they were empowered and had access to me and other executives, many felt undervalued. They flooded into my office, yelling, crying, and pleading.” What McVicker learned from this phenomenon, he says, was simply this: “Don’t underestimate the importance of communicating empowerment to your people. It’s one of the most critical functions of a leader.”
- Learn to release, without letting go. When you delegate (and you must) you can neither control every detail nor allow the idea to get diluted. Make your plan clear and monitor progress regularly. If you hired well, everything will work out. The saga of Larry and Emma, two employees hired in 1998, underscores the paradoxical “releasing without letting go” principle. McVicker told them to take control of their respective departments. Taking this directive to the extreme, they began disregarding his requests and suggestions. When he discussed this behavior with them, they went behind his back to complain. Fearing that he was being a “control freak,” McVicker allowed Larry and Emma to continue their behavior. “In retrospect it’s clear that I should have nipped the situation in the bud,” he reflects. “Not only were they ignoring what I wanted, but they were creating a culture of division and closed doors. Clearly, this was not the culture I wanted for our company.”
- Balance is not always found in the middle. Make and communicate clear decisions. Changing a position is better than not having one. In 1999, Neoforma needed to cut some projects. One project on the table, which McVicker loved, was a capital equipment solution code-named Picasso. In a classic leadership dilemma, McVicker had to determine whether to make the popular decision to cut Picasso and alienate the people who had remained loyal to his original vision for the company, or make the less popular decision to keep Picasso alive and alienate the others. “In an attempt to be fair to everyone, I came up with a weak compromise that satisfied and inspired no one,” he writes. “We’d keep the Picasso program going, but only allocate it just enough to stay alive. Sadly, my half-hearted decision conveyed uncertainty. The effect was immediate and deeply disheartening.”
- Do one thing well, then do it better. Then, while you are still improving the first thing, consider doing one, and only one, related thing well. And so on. Neoforma had a powerful catalog and messaging system on its website that was used by thousands of medical professionals. Then, in the interest of expanding their reach and potential, the team decided to “add a few new features.” These features ended up overwhelming Neoforma’s resources to the point that they completely obscured what was good about the site. Traffic dropped precipitously overnight from tens of thousands of visitors per day to hundreds. “We had tried to be everything to everyone-all at once” writes McVicker. “In the process we turned our innocent, obedient child into an adolescent monster. On the surface, it looked much larger and more grown-up than it had been before, but it was raw and unstable underneath.”
- Regularly wear your customers’ clothes. Most entrepreneurs come from the industry they are trying to serve, but when confronted by the challenges of starting or running a business, they quickly lose touch with the customer experience. One of the features the Neoforma website was known for was its state-of-the-art virtual reality tour of medical facilities. To create this technology, Neoforma and a firm called Be Here Corporation spent days photographing the interior of the Center of Advanced Medicine (CAM) in Chicago. McVicker found that the task gave him and his team a valuable sense of purpose. “Even though we had all worked in health care to varying degrees, we had only an abstract idea of the potential impact Neoforma could have on real people in real hospitals,” he writes. “The creation of this virtual tour solidified our connection to the real thing and gave us a renewed sense that what we were doing wasn’t just good for business-it might actually be important.”
- The unsatisfied customer is the most important customer. Therein lies all opportunity. In the early days of Neoforma, McVicker was showing off his new website to his father-in-law, a dentist. His father-in-law checked out the feature that allowed visitors to send e-mail inquiries to vendors, but couldn’t see the value since writing an e-mail and waiting for a reply would be slower than a quick phone negotiation. He added that if he could send messages to several vendors at once, that would be a timesaver. So, McVicker sent a specification to the developer that weekend, and by the end of the next week, Neoforma had implemented the new feature. “At its peak, twenty thousand messages a week were being sent from buyers to sellers,” writes McVicker. “We knew that we had significantly improved the lives of many people. I felt very good about that, even though it hadn’t been my idea.”
- Never let your competitors drive your business decisions. Stay focused. If your competitors come up with something good, your customers will let you know. Right before Neoforma’s IPO, CEO Bob Zollars received a call from the CEO of major competitor Medibuy. The CEO informed Zollars that WebMD was not going to renew its agreement with Neoforma when it expired later in the year, but was instead going to go with Medibuy. Zollars recognized the Medibuy/WebMD deal as a “transparent ploy” designed to “take some wind out of our sails.” “Had Bob not rationally analyzed that the WebMD deal was worthless, he might have been tempted to pay an exorbitant fee to renew the agreement to keep it out of the hands of the competition,” says McVicker. “And he might have been knocked off balance by the notice of cancellation on the day before our IPO. Instead, Medibuy paid an inordinate amount of money to steal a worthless deal from Neoforma-not in an attempt to help themselves, but to hurt us.”
- Never let your investors drive your business decisions. They are usually smart and can be intimidating, but they aren’t as familiar with your business as you are. Their viewpoint is short-term; yours should be long-term. Pressure from investors was a problem McVicker faced constantly. From campaigning to change the logo to insisting that Neoforma hire certain people, they relentlessly made their opinions known. Perhaps the most painful example of this pressure was when later-in-the-game venture capitalists insisted upon a participating preferred clause. Basically, this meant that if the company were sold, the most recent investors would get their money first-in fact, they would be guaranteed a multiple of their original investments before any money was distributed to earlier investors. This issue caused a major rift between McVicker, who favored compromise, and his partner Jeff Kleck, who was totally opposed to the clause. Kleck eventually agreed to a compromise, but harmony was lost. “As much as I had disagreed with the inflexibility of Jeff’s position on the funding round, I did agree with him on one thing-my new partners, the VCs, were certainly not my friends,” writes McVicker. “I had allowed them to manipulate me into putting my fear of losing everything above my loyalty to a friend.”
- Listen to all advice, but trust what you know. As you confront frequent obstacles, you may begin to question your core beliefs. Don’t. Be patient. Ideas that require customers to change behavior often take ten or more years to implement. In the midst of their fundraising activities, McVicker and Kleck hired a Stanford Ph.D. and MBA named Sasa to create their business plan. Sasa was insistent that Neoforma should emphasize the health care supplies market (which the founders knew little about) over the equipment market (which they knew very well). Though he had misgivings, McVicker capitulated. “After two months of work, Sasa delivered a hefty document that defined our long-term business plan,” he writes. “I never even read the whole thing. I was much too busy, and I knew the plan reflected where the company could go, not necessarily where I thought it would or should go.” This documented shift away from the founders’ core expertise triggered a very subtle division between them and their customers, and, perhaps more importantly, their company.
- Enjoy yourself. It is very easy, during the inevitable times of monetary starvation and market inertia, to lose sight of how much fun it is to create something new and useful. In Starting Something, McVicker describes his slide into depression, anxiety, and marital distress that, ironically, accompanied Neoforma’s rise to success. He eventually began working with a business consultant with an unconventional background who got him to dig into the emotional issues that he was trying so hard to keep superficial. To McVicker’s surprise, he found that such an experience wasn’t unusual. “It was not until years later that I would read disclosures by several well-known executives describing the bouts of extreme depression that they had suffered,” he writes. “I didn’t hide under my desk for hours at a time, as one had, but I certainly would have welcomed the idea that such an escape was possible. It would have helped to know earlier that I wasn’t alone after all, that it is okay to admit limitations and seek help.”
Although McVicker is adamant that following tried-and-true principles is no guarantee of start-up success, he also points out that guarantees aren’t what drive the entrepreneur in the first place.
“There are rewards, many rewards, inherent in creating something new,” he says. “You meet fascinating people and form complex relationships. You learn something every day. You get that intense feeling of accomplishment that comes only from running on pure passion and adrenaline. There is nothing like conceiving a new idea and bringing it to fruition. Of course, much like having a child, you can’t predict with certainty how that child will turn out. But regardless, parents are seldom sorry they had the child. That’s the lesson I most want to convey with my story.”
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About the Author:
Wayne McVicker is an architect and entrepreneur. Having co-founded Attainia, he has served as an executive there since its inception in 2001. He has 25 years of experience in the design, health care, and IT industries. McVicker’s five-year-long wild ride as co-founder, board member, and president of Neoforma (NASDAQ: NEOF) is the basis for his book. He lives with his wife and two sons in Silicon Valley, California. For more information, please visit www.startingsomething.com.
Starting Something won the 2004 DIY Book Festival Book of the Year Award. In the late September press release announcing the winners, Bruce Haring of DIY Convention stated: “McVicker perfectly captures the excitement, strategy, and struggles of building his own venture, a battle which DIY artists and entrepreneurs face on a daily basis. For perfectly capturing that quest, McVicker wins our top honor.” For more information, please visit www.diyconvention.com.
About the Book:
Starting Something: An Entrepreneur’s Tale of Control, Confrontation, & Corporate Culture (Ravel Media, 2004, ISBN: 1-932881-01-8, $22.95) is available at bookstores nationwide and all major online booksellers.
Tiffany Bass Bukow is the CEO & Founder of the #1 Personal Finance Website for Women and Families – www.msmoney.com. My life mission is to help people and the world thrive through creating companies that provide money, career and life skills education.
