Deep Dive with Bob Blumberg

INTRODUCTION: Welcome to the Daily Bolster. Each day we welcome transformational executives to share their real world experiences and practical advice about scaling yourself, your team, and your business.

Matt Blumberg: Hi, I'm Matt Blumberg, co- founder and CEO of Bolster. Welcome to the Daily Bolster. Today we are going In Deep with Bob Blumberg, who is also not totally coincidentally my dad and someone who I've often said is my entrepreneurial hero. And Bob is a retired tech founder and entrepreneur who is currently the executive chairman or CEO advisor to multiple startups, which actually means he's not really retired. But dad, welcome to the Daily Bolster.

Bob Blumberg: Thank you, Matt. Delighted to be here and join in a conversation with you.

Matt Blumberg: Great. Well, I have been looking forward to this because although I know a lot about the arc of your career and the lessons you've learned over the years, first of all some great stories and some of them are also going to be quite interesting to early stage first time founders or even later stage founders that listen to the show. So thanks for being here. Why don't we start with the beginning of your career. You finished MIT with an undergraduate and a master's in chemical engineering, and then before you really dove into your business career, you worked in the Pentagon. What did you do there?

Bob Blumberg: Well, before we get there, you skip one step. I went to Harvard Business School and got an MBA. My theory at that point in my life was I really enjoyed technology, but I wanted to have a broader scope of what I did, which you would get in business more than in a technical field. So I really wanted to work on the edge of where technology met business, and that's sort of what shaped my career.

Matt Blumberg: I forgot that you did that straight out of the master's in undergraduate, which is unusual today, but was normal back then.

Bob Blumberg: Yes. Also, our country was in the midst of the Vietnam War and I wanted to finish what I wanted for my education, first. Then the Vietnam War is still going on, I volunteered for direct commission in the army, underwent training, and then got a job interestingly at the Pentagon working for the Secretary of Defense on his planning and budgeting and systems analysis staff. I spent a couple of years working on the five year United States defense plan and budget, but did it at Lieutenant's pay. As I was transitioning out-

Matt Blumberg: Well, hold on. So let's ask a question about that. So you're working for Robert McNamara, who had been recruited to lead the DOD out of private industry, which was very unusual. There'd been a couple secretaries of defense over the years like that, but not very many, and I think he was the first. What was the experience like working in the Pentagon but working on a team that probably felt very corporate? Did the rest of the Pentagon respond to that or reject that or?

Bob Blumberg: There was an uneasy truce. We worked with the military officers who were very suspicious of us, but knowing we were all in the service of the United States government, were reasonably cooperative. The interesting thing really was I served mostly under McNamara, but he had left before I did, and I served also under Melvin Laird and Clark Clifford. And it was very interesting to see how quickly things changed when the guy at the top of an enormous organization was changed. I won't go into the details, just the ripples were felt very quickly all through the organization.

Matt Blumberg: All right, so you transitioned out of the Pentagon?

Bob Blumberg: Yes. As I was thinking of leaving and looking for what my business career would be, it came to my attention through another one of my colleagues at the Pentagon that there was a new field emerging, which was called venture capital.

Matt Blumberg: I've heard of that. I've heard of that too.

Bob Blumberg: It was very little known back in the early 1970s. In fact, there were five venture capital companies in the whole country, and I interviewed and was fortunate to land a position with one of the first ones founded, J. H. Whitney& Company in New York. And I joined there as an associate. I worked there for a couple of years. One of the partners there had left and formed his own venture firm located in San Diego. And for a variety of reasons, I decided it was time for me to move. I called him, joined his new firm, opened a New York office for them, ran it as a one man office, and after a couple of years we could see that there were problems with a one man office and he did not want to expand it, but he wanted me to stay in the firm. So we picked up stakes and moved to San Diego where I've been ever since.

Matt Blumberg: All right. So I have one story that I remember you telling over the years from your time at Whitney that I have retold several times. So I will ask you to retell here. We live in the world now of pretty intense development of junior people, whether it's management consulting firms or investment banks or brand management programs or big banks or tech companies. I think the balance has shifted in a lot of ways between the company and the employee, and we'll talk about that more a little bit later, but one of the stories I always remember was the story of you getting your first raise at J. H. Whitney.

Bob Blumberg: I knew you were coming to that. I had been with Whitney for just about a year and had never heard whether I was doing well, badly, I had no feedback. I didn't know if I was in the right direction, the wrong direction. And just at the year end, I went to the men's room and as I was doing my business, I noticed that I was standing next to the managing partner who was also doing his, and he turned to me and he said, " Oh, Bob, why don't you go speak to George, so we're giving you a raise." That was it.

Matt Blumberg: That was the extent of your-

Bob Blumberg: That was the feedback I got after my first year of work.

Matt Blumberg: That was your professional development. Excellent.

Bob Blumberg: And I did say to myself, this is something I'm not going to do.

Matt Blumberg: Okay. So you find yourself in venture capital, you become a partner, you move out to California and you've joined another former colleague from Whitney, and you had a different experience as a partner in a venture firm than a lot of people do today. Today, a lot of venture firms have investment partners and then sometimes they have some operating partners that go in and help the portfolio companies when they need help. But you had a job that was a little bit of both.

Bob Blumberg: Absolutely. Well, in those days, venture firms were much smaller. Today's venture firms never ceases to amaze me. When I look one up on the web and I see a venture firm with four partner, with six partners, 82 associates and just enormous number of people, we were a firm of five people, and so everybody with their investments did everything. We looked at new investments. If we were responsible for making one, we either went on the board or had a responsibility for supervising it. And somehow we were very active investors and a couple of times where we had an investment in the company and it was clear the CEO was not working out, had to be let go, but we still saw value in the company. We fired the CEO, I got parachuted in as acting CEO, and my job was to hold the rest of the team together, solve the worst of the problems, hire my own replacement, and extricate myself. I did that a couple of times and I said, Hey, you know what? I'd rather prefer the role of CEO in running a company to being one step outside and advising and hope my advice got taken, et cetera, et cetera. So I resigned from the firm. I spent the better part of a year looking for a company where I could invest and become an owner or part owner and take on the CEO role as well. After roughly nine months, I was approached by someone I knew, who was in contact with two other people. Turned out we were all MIT alumni, but none of us had known the other at school because we were slightly different years. And they had an idea for a business and we reached an agreement that we would work together. I would write the business plan. This was in the days before slide decks, so everybody, their presentation was the form of a written business plan. And none of these, my new partners had ever read a business plan. They were technical and I had just gotten through a career where I'd probably read a thousand of them. So our agreement was I would write the business plan with their help because they knew the industry much better than I did. And at the end of writing the business plan, we would decide if we were going to continue to work together, I would be the CEO and if not, they had a free business plan. It worked out. We worked together well, we clicked, we went out, we raised financing and we named the company Spectragraphics because we were making advanced graphic terminals in an era where serious computing work was done on large IBM mainframes. We raised capital, we built a product, we built a company, and we built it from scratch to doing about$ 40 million a year, which is in today's dollars an awful lot more.

Matt Blumberg: Then very significant computing company in the early 1980s for sure.

Bob Blumberg: Right. And the technology shifted very rapidly on us, and it was clear that people were going to throw out their IBM mainframes and switch somewhat to PCs, but in those days even more to something called an engineering workstation using a UNIX- based operating system.

Matt Blumberg: So that was a seismic shift in computing. But one of the things I remember hearing from you along the way was that you at one point were competing head to head with IBM, right? You're a tiny startup. IBM offered performance graphics workstations as well, and it was kind of you and IBM and no one else, and the other competitors had sort of faded away. What was it like waking up every day feeling like I'm competing with what at the time was probably the largest technology company on the planet?

Bob Blumberg: It was a challenge, but I think we had superior products that were compatible with theirs, but better. And our customers were large companies, they were the General Motors, the Lockheeds, the TRWs. People who designed and built big things, and of course dealing with large corporations, you have bureaucracies to deal with, you have organizational silos and all those kinds of things. And we would typically find allies in the engineering department who appreciated our better performing technology and run into roadblocks probably with the IT department, but sometimes with finance because no one ever got fired for buying IBM.

Matt Blumberg: You literally ran into that adage.

Bob Blumberg: Many times. Many times. I'm sorry.

Matt Blumberg: I was going to say there are a couple other things from that era that I wanted to ask about. One was you had the company ready to go public.

Bob Blumberg: Yes, we did.

Matt Blumberg: ...in October of 1987. And the stock market crashed, I forget the day, I want to say October 29th was called Black Friday, 1987, if that was the date. And you had an S1 on file and you had either done your roadshow or were in the middle of your roadshow.

Bob Blumberg: We had done the roadshow the week and a half before the market crashed. And I had an intuitive feeling that the market was going to be in trouble and that we should get our IPO out before. And our underwriters wanted us to have an agreement with a company that people may remember called DEC, Digital Equipment Corporation. They wanted to have us port our technology to their platforms and the underwriters wanted us to have that signed agreement. And all through August, everybody was on vacation, couldn't get the deal done, and we finally got it done in September and we were ready to go and we started putting together the S1 and getting ready for the roadshow and we were on the roadshow. And as the week progressed, I could, the market was getting more and more nervous and it was clear that there was a race, whether we could get the offering out before the market crashed or not. And we didn't, the market crashed and we were set to go public two business days later.

Matt Blumberg: And in retrospect, was that a good thing or a bad thing? Obviously it would've been nice to get an IPO off and get the cash in the door and get some liquidity, but presumably your stock would've gone through the floor with everybody else's, two days later.

Bob Blumberg: That's true, but I think it still would've been a good thing because we were profitable, we didn't need additional financing and we would've weathered the storm. The market did come back, it always does. And we would've been in a better position to also make acquisitions with liquid paper we could use to bolt on other allied technologies. So it was a disappointment and no question, it hurt the company.

Matt Blumberg: And then to continue on the journey there, what really hurt the company was the revolution in computing that moved away from mainframes and terminals and moved towards power in the form of a chip on desk. So you had a decision point in the early 90s, late 80s, and decided to pivot the company into a couple new directions. You want to talk about that for a minute?

Bob Blumberg: Sure. We knew we had to do something different, and we actually did several things. One, we tried to make an engineering workstation to compete against Hewlett Packard, Apollo, Silicon Graphics, et cetera, and we did that, but we made one very fundamental error. The processing chip that everybody was using was Motorola and our engineers decided that the new chip out from National Semiconductor was much better. So we decided to go with that. We spent a lot of time and money porting our software to a Unix that we had to port to that chip and National semi then pulled it from the market. And so that just cratered the idea. We no longer had the resources to start over again with a Motorola chip. We tried two other things. We sent a team of a marketer and an engineer to interview all our top customers and say, you know what we do? We do high performance graphics for CAD/ CAM, computer- aided design and manufacturing. What problems are you having that we could help with? And we came back with lots of evidence of what we could do, and that was to build software that enabled interoperability of otherwise incompatible software systems. So for example, the Boeing company were assemblers of airplanes, but they bought many of the large components. They bought their jet engines from Pratt& Whitney or Rolls Royce. They bought their tail section from a firm in Australia. The wings were built by someone else, and each of these companies had a different CAD/ CAM system, and the communication between them was non- existent. So we built software that enabled either real- time whiteboard markups of engineering drawings or interoperability where someone could look at a different system and market up with notes, arrows, voice notes, et cetera. And they could then have design meetings by telephone between Australia and Seattle while both were looking at the same image on a screen. In the early 1990s, nothing like this existed.

Matt Blumberg: I mean, five years ago, things like this only barely existed, certainly 10 years ago. So you were a bit ahead of the curve there.

Bob Blumberg: We were. We were ahead of the curve. And just then the internet was coming on board and the internet was growing wildly and everybody else was offering free software on the internet because they sold advertising or because they had enough capital, they could build a big user base before they figured out how to charge for it. And so we had invested millions of dollars in this software. We needed a revenue stream and we kept running into that's very nice, but it's on the internet, it should be free. And ultimately, I think if we had had enough capital, we might've weathered the storm and lasted long enough to sell enough, but we couldn't sell enough. And here's a story for you, it was just ridiculous. We sold to Ford Motor Company and we were in exhaustive trials with them for free for at least six months. And finally they said, " Well, we like it, we'll buy one seat." One seat, who do you communicate with one seat? You need at least two seats. Couldn't convince them to buy even two seats. So that went by the boards as well. But meanwhile, we had taken our factory, which was manufacturing terminals, and we could see that as the volume slowly dwindled because of the change in technology away from mainframes, our same overhead would be spread over fewer and fewer units and we would price ourselves or cost ourselves out of the market. So we came up with the idea of, hey, there's this new field called contract or outsource manufacturing. Let's see if we can get in some other people's products to build, spread the overhead and continue to make our terminals profitable as long as there's a market for it. So we did that and the company went down from$ 40 million a year to$ 10 million a year, but we survived it. We built the OEM consignment or full turnkey building product for other people, printed circuit boards, full product assemblies test. And along the way, we acquired a company in a similar business in Indiana, had a factory in Mexico, built a company back to 70 million a year, and then we had a sale. We successfully sold it to a Taiwan based company, much bigger company in the same industry at the end of 2010.

Matt Blumberg: And then since then, you've been advising mostly first time technical founders on how to be entrepreneurs and business builders?

Bob Blumberg: Correct.

Matt Blumberg: So in the last 10 to I guess 13 years, you have had a really different vantage point, which is advising these companies, building very contemporary web- based companies, app- based companies, some in FinTech, one in payment tech, one in digital holography. So I'd love to ask you a couple questions as you reflect back on the arc of your career. So we're talking about a 50 year journey now. What has changed and what has not changed for startups? And let's pick a few specific areas. So let's talk first about financing.

Bob Blumberg: Okay, well, it is a very interesting thing that happened when I started in venture capital. As I said, there were only five companies in the country and the amounts of capital for startups was much smaller, but people didn't spend the way they spend now. So the dollars went further, and it continued that way until about 1978 or 1979 when under the Carter administration, the government was moving to take away any advantage for capital gains over ordinary income. And there was a revolt in Congress and a congressman from the Midwest, I think Wisconsin, but it might not have been, named Steiger. Put in the Steiger amendment, which protected increased the benefits of capital gains. And all of a sudden, venture capital took off. It was like a switch had been thrown and people were able to raise much larger amounts in venture firms and thus deploy much larger amounts. And the whole startup economy changed totally from that year going forward.

Matt Blumberg: And I think that was certainly also a coincident with very significant increases and improvements in technology and sort of the breadth of the technology sector. So it's interesting to think about how the growth of both went hand in hand.

Bob Blumberg: Well, I think that's true. We have here in this country a very much more entrepreneurial culture than most of the western European nations. And in those days, certainly the Asian nations, although that's changed. And so entrepreneurs here are business heroes, they're not rebels. And that makes a difference. And people here, if they're an entrepreneur and their venture fails, as long as it wasn't through fraud or something that was inappropriate, they can pick themselves up, dust themselves off, and start again. That wasn't true in most European countries. If someone had a business that failed for the rest of his life, it was John Smith whose business failed. So the culture here was very different and encouraged entrepreneurial activity.

Matt Blumberg: For sure. And so that's kind of a good bridge from financing to the topic of leadership and management. So how has that changed or how has that not changed over the decades?

Bob Blumberg: Fair enough. In the beginning of my career and working its way forward-

Matt Blumberg: Other than getting feedback in the men's room.

Bob Blumberg: Right. The venture capitalists were not interested in financing a 20 year old with an idea, quite frankly. They were interested in someone who had cut his teeth in industry, was maybe in his 35 to 50 year old timeframe. So they had good managerial experience where had been with a company where they knew good managers were developed like in those days, General Electric and had an idea. In the industry, they already knew where the existing companies were ignoring that new path. So that was basically the model in the '70s and into the'80s. And it lasted for a while, but it dwindled and the idea of the new younger entrepreneur with a revolutionary idea and limited experience, those people were now able to get financing. In part because so much more money had flowed into the venture capital coffers from pension funds, endowment funds, et cetera.

Matt Blumberg: So that has to have had a pretty profound impact on the culture of startups and on the way the employees experience working in a startup. I don't know, what have you seen along those lines?

Bob Blumberg: Well, let's see if I can say this. A lot of people have gotten very rich by being in technology startups that took off. They were able to do so because so much venture capital became available. But the other thing that's happened is there's developed a network of people in the new business industry, both on the finance side and on the operating side, and deep networks have evolved so that someone who enters that ecology can give contacts and is much more fluid in ability to move, start his own company with limited experience. And it's just all become much more fluid than it used to be.

Matt Blumberg: Yeah, I think that's probably a good summary of what's different. Everything is cheaper, faster, easier, more fluid in the whole world, not just the world of startups and technology. All right. So let's close with one last question. Everything you know across your career today, what are 1, 2, 3 pieces of advice you would give to an early or a mid stage founder, maybe a first time founder today building their business?

Bob Blumberg: Okay. One, the importance of making sure all the people in the company, especially your direct reports are really aligned. So frequent communication, making sure that everyone shares the vision or if they don't, find out why and maybe the vision needs to change. But you need to have everybody working towards the same goals and same purpose. What I used to do, we have a weekly senior staff meeting and we would all say, okay, what did I accomplish last week? What problems have I run into that maybe I could use some help with? And what's my plan for this week to accomplish? And so that way everybody on the senior management team knew what everybody else on the senior management team was working on and they could cooperate, help, offer assistance, whatever. We would have at least one all hands meeting a quarter, where I, and maybe one or two of the other senior officers would explain to all the employees what we were doing and why. And we would occasionally supplement that by asking a senior person from one of our customers to come in and tell everybody how they were using our products, what they were doing with it and what their products were that would result from it. And that helped get, again, alignment of all the people in the company with what we were doing and why. So one, I'd say communication. Two, and I don't think I did this as well as I should have, but man is a political animal. And you always get some politics in organizations once you have more than three employees, I think. And you can't avoid it, but you have to manage it and make sure it's absolutely minimized and doesn't get in the way of the performance of the company. And quite frankly, I think I let things fester too long sometimes, and I could have done a better job at that. Three, I think, one has to realize that the chief job of the chief executive of a startup or rapidly growing company is to understand when they're going to run out of capital and make early plans to supplement the capital as necessary. Now, depending on the stage of the company, it may be equity, it may be debt, it doesn't matter. It's critically important that the CEO understands under various scenarios when they're going to run out of cash and have a plan to make sure that doesn't happen.

Matt Blumberg: Well, that is probably a very good note to end on because that is absolutely critical. But your other points are great ones too, alignment and communication. So Bob Blumberg, just want to thank you for being on the Daily Bolster. It was great to hear about some things that I think are good timeless lessons, but with some good color behind them that a lot of people who listen to this will appreciate. So thank you very much for joining us.

Bob Blumberg: Well, you're more than welcome. And needless to say, I know the CEO of Bolster and the head of this podcast, and I think he's doing a generational advance. So thank you for having me.