Conversation with Evoke Software’s Lacy Edwards
Software Industry Entrepreneur
Lacy Edwards has been in the software industry almost since there was a software industry. He put himself through college by working as a computer programmer after a stint in the Marine Corps, and spent five years at IBM where he was an award-winning sales executive. Since then he has served as CEO of three new companies, building them to the point where they did an IPO or were bought by another firm, rewarding his investors quite handsomely. He is now the CEO of Evoke Software, his fourth entrepreneurial venture. Evoke Software is the leading provider of data profiling software. Along the way he was recognized by Insider Magazine as their CEO of the Year for 1988, and in 2000 by the Harvard Business Club of New York as one of ten “Entrepreneurs of the Year.” He began his entrepreneurial activities at age 16 and still obviously thrives on the challenge. Mr. Edwards recently spoke to an alumni group from the Graziadio School about entrepreneurship and venture capital. Professor Chuck Morrissey follows up on some of the themes raised there in the following interview.
GBR: Do you think there is some set of personal characteristics or attributes that show up early on in a person who turns out to be entrepreneurial?
LE: I think so. I know a lot of entrepreneurs – and I spend a lot of time with them. Based on that, and looking at myself, there are a few things that I have noticed. For one, we are risk –takers. We will put a lot on the line. We don’t look outside for answers. And, to be an entrepreneur you also have to be a real self-starter.
I take mentoring very seriously, and I spend a lot of my time mentoring others, but I was never mentored in my career. And most of the entrepreneurs that I know weren’t either. I don’t know if it’s because we just weren’t receptive to being mentored or what. Maybe it was that we felt we were too busy to ask other people for advice. But, entrepreneurs are pretty much the kind of people that are willing to do it on their own. You give them an environment, and they figure out what to do. They are just kind of “get it done” people.
Part of it, too, was that when I entered the software business, it was brand new. There were not a lot of people to go to. I think most of us found that we could look at different things that we learned from different people but could not look at any one person – or two or three people – and say “that person was my mentor.” But I can look at a number of people who taught me very, very important lessons.
GBR: Do you still have a variety of people you can call on for help or information on a particular topic?
LE: Absolutely. And I do that. I have a good network of friends and business associates. I will get calls, and I will place calls. I’ll say, “This is what I am thinking of doing,” and then say, “What am I missing? What can you see that I am not seeing?” That kind of advice is immensely valuable.
GBR:: Is there anything other particular thing that defines an entrepreneur.?
LE: Entrepreneurs come in very different shapes and forms, backgrounds, and personality types. Some entrepreneurs are the real visionary pioneer-type of person, while I am more of the builder – the creator of the business — type of entrepreneur. I have never created a product. I don’t really have the skill set to go dream up something that no one has ever done before and go try to do it. But I can certainly identify opportunities and build a team and execute around that. That is what my style is.
GBR: This leads to the next question – and I think that it is something that all new venture founders struggle with — the issue of transitioning from the one stage, such as that of the visionary founder, to the next one where someone like yourself steps in to move the company forward. How does one know when that stage has come, and what do you look for in terms of people to manage the next state?
LE: As the company grows beyond the initial stage, you really need team players, people who will accept particular defined roles. The earlier the stage of the company, the less definition of roles you will have. But as the company grows, it gets harder to manage in an entrepreneurial style because you need to build a culture and processes. After that, you have to go to the discipline systems-builders.
Most of the entrepreneurs that I know are really not comfortable once the company gets to a certain size. We are kind of fish out of water at that point.
GBR: As you interview the follow-on candidates – the people you put in place to run the company at that point — would you purposely avoid the entrepreneurial risk-taking person?
LE: I would, yes. At that point, I am looking for people to implement, follow through, and stay close to things. I have run a couple of companies, and I know the importance of staying within controls, of meeting the expectations of Wall Street. This is critical. The ability to take a risk – especially in the smaller growing company — is therefore somewhat limited. You really don’t want much of a risk-taker in that situation. You want to make sure that everything is thought through and that the critical factors are covered and that you are not putting too much at risk.
GBR: Are there any consistent patterns in the time frame as to when these transitions should take place – such as the classic three-year mythology that exists? Or is it more a question of industry or market issues?
LE: Industry and market issues have far more to do with that I think. I have built companies that were in hot markets where we were just growing by leaps and bounds. And then in the last few years – especially since 1999-2000 – just staying afloat is the key thing. Growth is third or fourth down the list. So market conditions and industry dynamics have more to do with when you are able to make the transition to the next stage I believe.
GBR: I would like to touch on a favorite topic of mine – namely, what inhibits major firms from taking advantage of new venture opportunities that are initially developed in-house? You had a lot of experience with IBM. What are the things that would inhibit major firms like IBM from exploiting those opportunities?
LE: That is a really good question. And I have thought a lot about it. Let me give a couple of examples. Why did Starbucks ever get started? Why didn’t Maxwell House or somebody else go and do that? But, how interesting would it have been to the public if Starbucks had been started by a big company. I think there is some market appeal to consumers in something that is new and fresh.
Also, it is hard in an existing company to attract and keep the kind of entrepreneurial, risk-taking, hard-working person that is required to go build something brand new. Take, for example, relational database technology. The relational database technology was around for twenty years before it ever really was commercialized. It took the likes of a Michael Stonebraker or Larry Ellison (Stonebraker who started Ingres, and Ellison, Oracle) to come on the scene before that technology took off. IBM had this technology for years, but it took the small new companies to come in and do the guerilla marketing and to create a market in order to get that industry going.
Another example would be customer relation management or CRM. Oracle could have done everything that Siebel has done. Why didn’t they do it? Well, for one thing, they didn’t have a guy like Tom Siebel who was willing to go out and do it. Tom is a life-long entrepreneur, and he knew what he was doing. If you can do something like that, then why not go and do it for yourself as opposed to doing it for some big company? That attitude plays a roll in this as well.
GBR: Some companies have tried forming new venture “wings” in which they take those people whom you characterize as entrepreneurial in spirit give them their own vehicle within the organization. Their track record isn’t very good though. What is it, that even when they recognize they need a separate vehicle, that it just doesn’t go?
LE: I think you have to look inside the person. As an entrepreneur, I lie awake at night and I worry about every little thing that goes on. I watch the details. Until this company is up and going and successful and profitable, I watch everything!
To have somebody else paying all of the bills takes a lot of that intensity away. All of us who have started companies have been through that period where you are living day-to-day — sometimes for a long time. You are forced to do many things, and do them right the first time, because you cannot afford to mess up. I believe it just takes a lot away when you have the big bankroll and know that if it doesn’t work out, you can go get another assignment. That is one perspective on it. I am sure there are many others.
On a related issue, I had a number of interviews with IBM two years ago. They were looking for five software industry CEOs to come in and run different divisions. What they said was, “We want experienced CEOs to come in here and not let the bureaucracy of IBM stop them from getting their job done.” They wanted “barbarian-type leaders” to come in and revolutionize some of these organizations. There was a huge compensation package, but I just couldn’t get interested in it. I just said, “You know, I would spend so much of my time fighting internally within IBM, as opposed to really doing what they wanted me to do, it would never work.” Actually, they never did it. I think they came to the conclusion that it would have failed if they had done it.
GBR: What do you think we will be talking about five years from now in terms of venture capital and new business? Will we see lots of new Evokes and other new ventures –or are we now in a classic cycle?
LE: The technology industry in general, and software specifically, has matured to the point that I believe what we will have going forward will be cycles. From the late 70’s until the late 90’s the line was just going straight up. There were so many new opportunities and new companies, and tremendous amounts of venture capital were available. I think that we now have matured into a cycle now where you are going to have a period where the existing companies will probably do a lot of the innovative development. But, on the other hand, I think there will be times when that lags, and you will find a host of new companies coming in and serving specific new market areas.
GBR: In your talk with our alumni, you stated that venture capitalists invest in markets, not in management teams. That is different than what is often taught in management textbooks. Why do you say this?
LE: My experience has been that venture capitalists look at the market, and that is so important it eclipses other things. In the summer of 1999 I was looking for $25 million for a company. This was right at the height of the Internet bubble, but our company had nothing to do with the Internet. I had a sound business plan, a company that was growing, real customers, and a good product. Yet I was rejected — probably 30 times — in a six-month period by venture capitalists, many of whom I knew well. It was not a commentary on me; it was because we did not have an “Internet angle.” I was told by some that, “We don’t do anything without the Internet.” Someone even suggested that I put “dot.com” after the name. They simply did not have the time to invest in anything but this red-hot market. They could not spend the time to do the due diligence on a company when it was clearly not where they wanted to invest.
You can’t take away from the fact that success has a huge impact, and confidence in the management team is important. But I don’t think you would ever get venture capitalists to invest in a great management team if the market is not hot. I had one venture capitalist tell me that they would rather invest in a hot market with a mediocre management team than in a great management team in a slow market.
GBR: Finally, there is one other thing that I would like to follow up on based on your talk to our alumni. You commented there that, “No success is worth sacrificing your family, values, and things that are important to who you are.”
LE: You have to have your family committed to what you are doing. If you are going to go start a business, you family has to understand what you are up against. In the early stages you are making an enormous time and energy commitment. An eighty-hour week is a light week for an entrepreneur.
The family needs to share. You need to tell them what is going on. If my wife had not supported me, I could not have done what I have done. But, while I need my family to know what is happening, I have been very focused on keeping the two areas separate. When I come home, I want to be with my family; there in a different role.
GBR: Thank you for your time and for your insights. And we will be watching to see what new venture attracts you in the future.
About the Author(s)
Charles A. Morrissey, PhD, has transitioned from a successful career in new venture formation to the field of management education. He brings this extensive experience to his classes by blending the theoretical with the practical.