The Death of a Modest Man of Greatness

My friend Frank Samuel died yesterday in a one-car accident not far from his home in Geauga County. He was driving alone, wearing his seatbelt, in the middle of the day on a familiar road. His car slipped on a turn, spun clockwise, rammed into a guardrail, and his life was extinguished. The police have said that alcohol was not a factor, but anybody who knew Frank would have known that anyway. I occasionally saw him sip a single glass of white wine, but never more.

Frank was my first friend when I moved from Silicon Valley to Cleveland. I was introduced to him by Bill New, inventor of the pulse oximeter and founder of the great medical technology companies Nellcor and Natus. Bill had known Frank from his days leading the Health Industry Manufacturer’s Association, HIMA, in Washington. When I met Frank in 1997 he had returned to his home state of Ohio to lead the Edison Biotechnology Center, a statewide organization tasked with creating life sciences entrepreneurship in Ohio. It was also mentioned by somebody that Frank had returned to Ohio to dutifully take care of an aging mother, though it wasn’t something he talked about. He wouldn’t have.

It was during his tenure at the Edison Biotechnology Center that Frank hired me as a consultant. I was between jobs and needed work and Frank found a project for me. That was the kind of man he was. Frank hired me to conduct a study of how to make Cleveland an entrepreneurial metropolis—again, he repeatedly pointed out. In the early part of the 20th Century, Frank would say, Cleveland was the hub of entrepreneurship in the U.S. Of the 50 millionaires in the country in the 1920’s, 30 hailed from Cleveland, he would point out. Cleveland produced such luminaries as John D. Rockefeller, Jephtha Wade, and John Severance. Their legacy included Millionaire’s Row along Euclid and Prospect Avenues (remnants of which still remain), cultural institutions like the magnificent Cleveland Symphony Orchestra, leading foundations such as the Cleveland Foundation, and Lakeview Cemetery, where Rockefeller is buried beneath a tall obelisk and the Wade Chapel memorializes the leader of Western Union with scenes from the Old and New Testaments composed by Tiffany of thousands of pieces of glass.

Frank’s spirit of joy and wonder permeated his tenure at EBTC, as it was known, and he did a lot to advance the cause of regional entrepreneurship. The study he paid me to conduct had its run, along with other studies, but it did lead to an introduction to Jamie Ireland, who through his leadership at the Generation Foundation had financed the study. Jamie was instrumental in coaxing Cleveland’s many foundations to remember the source of their endowments and to reinvest some of their capital back into the regional economy. Jamie and Jim Petras and I decided that a study was fine, but taking action was better. We formed Early Stage Partners, an early stage venture capital fund, to invest in Cleveland’s start-up companies. Frank was instrumental in getting us going, administering a grant application to the Governor’s Technology Action Fund that was the formation capital for Early Stage Partners.

Frank’s influence expanded further when, during the Governorship of Robert Taft, he was appointed as Science and Technology Advisor to the governor, a position which he held from 2000 to 2007. Among his accomplishments were marshalling the Third Frontier through the legislature. This was a voter-approved bond measure that raised billions to invest in technology development in Ohio. Whenever I traveled to other states, I was always asked about this program—what it was, how Ohio had done it, how it was managed, how they could do it in their state. I always told people to call Frank. Frank was also instrumental in creating an environment of support for the Ohio Capital Fund, a fund-of-funds that was instrumental in bolstering Ohio’s Venture Capital community.

When the Taft Administration was termed out, Frank returned to Geauga County, where he again formed an organization focused on community revitalization through entrepreneurship—the Geauga Growth Partnership. I didn’t see him much during this time, but starting about two years ago, I sought him out to gather his ideas about how to further bolster Ohio’s entrepreneurial and venture capital industries. Support for these initiatives had fluctuated in Columbus, and some of the signature accomplishments of the preceding decade seemed to be in danger. As usual, he was fully informed, thoughtful, incisive in his opinions, and action-oriented. I asked him if he thought that Ohio would support a statewide venture organization and he was qualified in his response. The state needed such an organization, of this he had no doubt, but he wasn’t sure that the disparate parts of the state could be brought together behind one organization, or that there would be sufficient financial support.

A group of trustees on the board of the Ohio Venture Association persevered with the idea, however. We determined to conduct a venture fair and use the profits to finance Frank as Executive Director of a newly formed statewide venture organization. We thought he would be perfectly suited to the role, and he was, it turned out. The Great Lakes Venture Fair was held in October of 2012, just two years ago, and the profits were sufficient to engage Frank as a consultant on the project.

Frank was at first skeptical of support for a statewide venture organization. He traveled the state talking to people and asking for indications of financial interest. He conducted surveys. He concluded that the organization could expect a modest budget sufficient to support a part-time executive director and a consultant on policy affairs. And then Frank traveled around Ohio asking for funding commitments, formed a board of directors, delegated an exercise to develop a mission statement, and engaged with constituents around the state to increase support for Ohio venture capital and entrepreneurship.

Within six months, Venture Ohio, as the new organization was named, had more members and far more financial contributions than anybody had thought possible. I attribute this to Frank’s skill at both creating a vision and operating at the tactical level to bring people of many interests and perspectives together behind shared goals. The culmination of Frank’s success in creating VentureOhio was on evidence just over a month ago, at the organization’s first annual dinner at the Blackwell Inn and Conference Center on the campus of Ohio State University. The room was packed—far more attendees than had been anticipated. Networking occurred; awards were given; food was consumed, and the state’s venture and entrepreneurial communities had a chance to look at themselves and say “Wow, we’re bigger and more significant than we thought we were.”

In my last exchange with Frank, I sent him an e-mail congratulating him on the success of the VentureOhio dinner. He responded, as he always did, by trying to give me some of the credit. That’s who he was.

Nobody thought at the time that this event would be the capstone to Frank’s career, but if it had to be, it was a fitting one. Frank was a modest man, self-effacing and eager to give credit to others. But the hundreds of people in the room at the Blackwell Inn were a testament to his skill. He was a singular force in Ohio’s transformation from a Rust Belt economy to an entrepreneurial one, and he will be missed. I will miss him, my friend, Frank Samuel. I do not know how you replace a person like Frank.

At Quicken, Culture is Everything

I had the opportunity last week to tour a dozen or so of the more than 40 buildings in downtown Detroit that Dan Gilbert and his various associates and companies have bought and refurbished. It was an amazing experience. Building after building, interconnected by walkways and underground passages, has been repurposed into really cool workspace for young tech workers (with a few of us seasoned types sprinkled in for good measure). Nobody in Silicon Valley has it better.

I was attending Detroit Venture Partners’ annual Demo Day with more than a hundred other people, including many out-of-town VCs, most of whom were originally from Michigan but had to leave after school to find suitable jobs. There is a subtle—perhaps not-so-subtle—attempt to recruit these talented people back to Michigan to help rebuild the economy.

Such a tour is one of the standard components of any visit to this special kingdom. It’s usually led by Bruce Schwartz, the fedora-wearing tour guide who describes himself as a devoted advocate of Detroit; a childhood friend of Dan Gilbert; and the former CEO of a company in the mortgage business. Recent visitors, he reports, have included Madonna; Michael Bolton, who is directing a documentary on Detroit’s rebirth; and Warren Buffett.

The tour has a few interesting touch points: on the eighth floor of the former headquarters of Chase Bank—their logo is still on the outside—is the main cafeteria for employees of Quicken Loans and the many associated Dan Gilbert companies. It is as good as any Silicon Valley food court, and I have toured those at Google, Apple, and Pixar. Chase still has some operations in the building; you can tell which floors they occupy by their corporate dullness and lack of entrepreneurial energy.

Similarly, the building in which Dan Gilbert keeps his office, and the model of downtown that shows all the buildings that are being repurposed, is the headquarters for the venerable last-generation software company Compuware. Riding up the open glass elevators you can see where Compuware ends and Quicken begins. Bruce points it out. One is dull, grey, colorless and lifeless; the other is vibrant, colorful, energetic, and buzzing with activity.

“Culture is everything,” Bruce says, quoting a few of his favorite corporate sayings. They call them “isms.” Various of these are painted on walls throughout the tour, and passing employees, when asked, can cite a favorite one. This is one way that people are selected in, and out, of the interrelated companies.
Three of the locations stand out most in my mind. One is the security center of the 20 or so square blocks of downtown Detroit. In it are dozens of monitors that link to cameras dotting downtown. “You can’t take pictures here,” Bruce warns.

In this basement command center, personnel can monitor pretty much anything that goes on in the area. For our benefit, security personnel bring up a picture of a hoodlum who grabbed an iPad out of a tech worker’s hands one day in Campus Martius, the center of the zone. A picture of him was taken off a camera and, when he returned the next day to the same park wearing the same shirt, he was arrested. (Whoever said criminals were smart?) The message spread to this dumb crook’s associates, says Bruce, is that this is not an area to do crime.

A second location is the basement of the old First National Bank building. Vaults no longer needed in the age of digital currency are left open and surrounded by tech worker space—couches, open cubicles, art work. When the building was bought, it didn’t come with keys to the many safe deposit boxes in the vault, most of which remain unopened. “We didn’t want to deface it by breaking them open,” Bruce says. Warren Buffett, fittingly, was the only person to ever open a safe deposit box on a tour and find something—a dollar. “It figures,” says one person on the tour. The vault is furnished with chandeliers and a long table, and can be rented for dinners.

The third location that stands out in memory is the fulfillment area for Quicken Loans. It’s in a basement somewhere—I got dizzyingly lost after a while, but it might have been beneath the old Federal Reserve Building on West Fort Street. Bruce showed us the loan documents that a Quicken customer gets: neat, tidy, clear instructions, all in a cardboard mailer the size and shape of a portfolio case; everything in its place.

“We reimagined the mortgage fulfillment process,” Bruce says. Who takes the time to reimagine the package of papers a homebuyer gets on closing a mortgage? Someone who believes in this: “Obsessed with finding a better way,” which is one of the aphorisms Bruce quotes to us.

I have bought a few houses in my life, and the process is horrible. The documents are mind-numbingly opaque; the person explaining them is motivated by a commission, not by serving me; the documents get filed away and never seen again. Lawyers wrote them and were, apparently, paid by the word. Not so here; the documents are clearly labeled, concise, and simple to understand.

It’s good business to do mortgages this way, too. In the wrap-up to the recent mortgage crisis, mortgage originators and banks paid billions of dollars in fines and were prevented by courts from foreclosing on houses due to poor documentation.

The fulfillment area is staffed by young workers, with a seasoned manager or two. They’re used to tours and they greet us warmly. They seem genuinely happy, too, which is hard to imagine for somebody who basically works in a mailroom in a basement. How could this be?

As Bruce says, “culture is everything.”

Why I Like Mid-Career Entrepreneurs

Earlier this year I was asked to participate in a business plan competition at one of Cleveland’s elite private schools. The format was a “Shark Tank” and, like the television show of that name, the idea was that a group of investors would bid on which student companies they wanted to back. After a little competition between the investing teams and back-and-forth with the entrepreneurial teams, the general idea was that all money would be invested and all companies funded.

I was one of the investors but since there are only a few early stage venture capital investors resident in Cleveland, the investing teams were rounded out by people from accelerators, small businesses, and non-profit organizations. I was teamed with three people I didn’t know, none of whose retirement income was dependent on the quality of investment decisions they made. Each of the four investing teams was given a fictional $1,000,000 to invest in the seven presenting companies, each with up to five team members.

I was impressed that a high school was teaching entrepreneurship and that so many bright students would take the time to develop and pitch a business plan. Schools have over-emphasized preparation for academic colleges in the last 30 years, but many people aren’t suited to that type of education—and we’re seeing that there are fewer suitable jobs on the other side of an academic degree than there are people receiving such degrees.

Many successful entrepreneurs never went to college or, like Bill Gates and Mark Zuckerberg, never completed college once enrolling and comparing college with entrepreneurship. I noticed when getting my MBA at the University of Michigan that most of what the professors taught us was based on field work observing successful businesspeople, many of whom didn’t have MBAs. That observation was one my own forks-in-the-road in pursuing an entrepreneurial career over the false security of big company employment. On graduation, I picked up and moved to Silicon Valley with no job.

The student presentations were generally good, though necessarily immature. Most of them were “me too” ideas that were based on needs that teens could see in their lives, but which could be easily conceptualized and duplicated by other people. Most had flaws in their analysis of market, distribution, sales process, IP, or capital requirements. That was to be expected; the students had been given only a semester to take an idea and develop it, had no entrepreneurial experience, and had other academic and extracurricular commitments. The students were smart and hard-working and the teams had been well balanced in gender and ethnicity. They had been coached to give each student a speaking part in the presentation.

There was one exception to all the rules, a business that two introverted nerdy male students were already running—a videogame company with a product and customers.

After each of the teams pitched, the four investor groups were sent off to confer and prepare their bids. I immediately disconcerted my teams members by stating that I was only interested in investing in one of the seven companies—the one with a finished product and customers. This seemed to violate the intent of the event—as some people saw it—to get all the companies funded and to have a “feel good” outcome for everybody who competed. Some of my team members wanted to discuss, score, and rank each company, and I went along with the exercise.

Time was short, though, so we were called to begin making offers to companies. I made a beeline for the gaming company, but another investor group had gotten there first. Another presenting company stopped us and, in the interest of playing the game, we engaged with them.

They thought that their business idea was worth $400,000, and that we should invest $100,000 for 20% of the company. It had been one of the better ideas, but would have required a lot of work, a number of experiments to test assumptions, and a pivot or two. I decided to throw them a curve.

“Okay,” I said. “I get that you believe in this idea and in your ability to pull it off. You’re committed. So how about if we give you the $100,000, but we own the company and you earn your equity stake, over time, by achieving milestones.” A moment of stunned silence followed—this was clearly not what they expected. The rules were that investors were supposed to offer an amount of money for a percentage of the company, followed by a negotiation and a deal.

When evaluating a company I always—always—challenge one of the team’s assumptions to see how they will react. I’m observing the human behavior associated with responding to the unexpected, because this tells me something about how the team will respond to the inevitable twists and turns of pursuing an entrepreneurial endeavor. This is a deliberate, considered, and intentional part of my due diligence process. In some quarters this has branded me with being aggressive or arrogant with entrepreneurs. Nevertheless, I consider this to be a necessary step in being a good steward of the capital that my own investors have entrusted to my care. After all, an investment in a company is an investment in the people running it.

The team members looked at each other for a minute. I saw one or two nods, some averted glances, and some shuffling of feet. They weren’t prepared to respond to my question. Then one of the team members spoke up and, in a voice only a teenage girl could use to dismiss the obviously ridiculous, said, “No, it’s our idea. You have to buy into our company.” She wasn’t looking at me when she said this, or at her team members. Her lips were pursed and her body language betokened impatience. I now knew how this team functioned. There was a nervous flutter as her team members contemplated the aggressiveness of her response, and then one of the coaches called “time” and we switched off to another company.

Our culture and media extol youth, particularly in entrepreneurship. Though I appreciate and enjoy the young (including my two wonderful kids) I find myself gravitating towards mid-career entrepreneurs in my investment decisions—after experience with both young entrepreneurs and mid-career ones. Why is that, I have asked myself?

There has been a flurry of research recently on the concept of “10,000 Hours:” that it takes ten thousand hours of practice to become good at something. I believe this. Fifteen years ago I joined my church choir, after being a secret car singer. I didn’t read music (which I didn’t admit) and had never sung publicly or in an organized group. It took me about five years to learn how to fully read a piece of music. Only after eight years did I have a sense of what it meant to create beautiful sounds—how to use the diaphragm, throat, tongue, and lips to control exhaled air, when to go loud and soft, whether the piece was written to sound like brass or woodwind.

I had a similar experience developing competence in venture capital investing, in working with my son to become a second degree black belt in Tae Kwon Do, and in working with my daughter to learn how to figure skate (yes, I took up both sports in mid-life). Results don’t just show up immediately, or because you want them to, or because you’re smart or deserving or talented. You have to put in the time to develop competence, to make and learn from mistakes (in Tae Kwon Do that looks like being kicked by a large teenager; in figure skating, like falling hard on the ice), and to learn what it means to persevere.

I like mid-career entrepreneurs because they have invested their 10,000 hours in learning how to be businesspeople. By the time they come to me, most have experienced enough of the ups-and-downs of life to be ready to focus on those things that are necessary to achieve success, and to put aside those things that are unimportant.

Our society needs an entrepreneurial economy. That’s where the job creation and wealth creation occur that enable us to finance everything else we want to do as a country. But venture capital, as a product, is too precious to be deployed teaching people–like the young woman who dismissed my idea out of hand—how to be entrepreneurs. I did this once—I called it buying an MBA for the entrepreneur—and it wasn’t a successful investment. I will only invest in young, first-time entrepreneurs again under defined circumstances.

Where are young people going to get capital for their enterprises, then? The good news if you are a young entrepreneur is that there are more resources than ever to help you: entrepreneurial programs in high schools and colleges; accelerators; angel investors; seed funds. Plus, the Internet and new technologies have made it possible to start a company, especially a technology company, with less capital than ever before.

By all means, please send me your decks and reach out to me for feedback and to develop a relationship. Don’t pitch me, though. I’ll see you at the accelerators where I volunteer my time. Remember,  venture capital invests only in one out of a hundred ideas that it sees. Your odds are not good—unless you have put in your 10,000 hours.

Oh, and by the way, we didn’t get the investment in the gaming company. Another team, led by a young employee of one of the local accelerators, gave them a higher offer. We would have raised our offer to match or beat that deal, but it didn’t occur to the young entrepreneurial team that they could come back to us to negotiate a higher offer. They thought they had only one bite at the apple. Ah, experience. The young accelerator employee, by the way, invested all of his money; we invested none of ours (to the disappointment, I think, of some of my teammates). That is one difference between the accelerator model and VC investing.