Jim Clark: consummate entrepreneur
Netscape founder discusses the birth of a company with CNNfn
NEW YORK (CNNfn) - Jim Clark may not be a household name, but he is arguably the most innovative and restless entrepreneur of the modern age. At 56, the former Stanford professor has five high-tech companies to his credit -- three of them already multibillion-dollar enterprises.|
Along the way he revolutionized computer hardware for animation at Silicon Graphics (SGI: Research, Estimates) and created a browser called Netscape that opened the world of the Web to millions of people with a PC and a telephone line.
Clark may also be responsible for the staggering wealth of Silicon Valley. So renowned was his technological genius, he changed business history by taking Netscape public before it had ever recorded a profit.
And he set off a wave of public offerings based on speculative future earnings that has forever changed the Silicon Valley and made entrepreneurship everywhere THE thing to do.
Skepticism about Internet companies, coupled with a resistant health care system that, Clark said, "wants to defend waste," account for the rough start of his third venture, Healtheon (HLTH: Research, Estimates). Clark maintains the company -- now merged with erstwhile competitor WebMD -- is going to revolutionize the health care industry. Time will tell if he is right.
A billionaire a couple of times over, Clark doesn't need to keep working. Yet, he launched two new companies in 1999: MyCFO, a Web-based financial management program; and Shutterfly, an online digital photo printing service.
Clark admits he has nothing to lose with these ventures except his stellar reputation as the one guy who is always one step ahead of the rest in picking out the next big thing.
Clark, who just returned to the United States from a trip on his boat to the tip of South America, spoke to CNNfn.com about starting companies, the evil of venture capital, the importance of human resources and creating wealth.
Q: Would you share one piece of advice that you would give people trying to start a business?
A: Treat your people well. Don't let the first one out the door. If you get in the habit of letting them leave, you will spend an immense amount of time training new employees.
I have developed a philosophy about allocating ownership to your employees.
At the time the company goes public, I believe roughly half the stock [should be] in the hands of the employees. There is no justification for 75 percent of the stock going to investors. In many of the new types of companies being created, huge amounts of capital are not required.
You have to manage the stock program, equity dilution program, and follow it as closely as a cash-spending program. In the end, if a company goes public and if it is not fairly distributed, people begin to recognize it. It creates bad feelings among the employees and it brings up a third aspect that is related to equity. You need to be constantly diligent that the best employees are rewarded. We are in an age that is starkly different from the last age of creation. In this day and age, it is impossible to build a company without sharing the equity and make sure it is democratic.
The wealth being created today is more democratic. Investors are valuable and the people making it happen are valuable. The equity allocation and distribution is something I focus on constantly as a side part of keeping the company healthy. There are countless things associated with keeping people happy and you can't ever lose sight of the equity and compensation issues. Of the two, I tend to focus more heavily on equity.
Also, you have to carefully examine the market and don't be afraid to cannibalize your product.
Q: What do you mean by cannibalize?
A: You have to be willing to challenge your own product lines. For example, Barnes and Noble (BKS: Research, Estimates) could have addressed the Internet, but didn't until Amazon (AMZN: Research, Estimates) forced them to. That is the worst way to do it. I have known a lot of technology people and they often don't test the market enough.
There is nothing to match the process of having an engineer spend time with customers. They will make better products as a result. That is a well-worn practice at big, surviving companies like Hewlett Packard (HWP: Research, Estimates). We used to do it at SGI. You have to be very sensitive to the market and that means defining products the marketplace likes.
Q: What inspires you to start a new business? Where do your ideas come from?
A: Usually it is because something begins to annoy me and disturb me and makes me uncomfortable and then I want to try to find a solution to it. MyCFO came from a problem that I was having dealing with my money. You realize how inefficient you are at paying bills and I decided that if I have this problem then other people do, too. A lot of new wealth is being created and it seems like a tremendously big market. I was annoyed by that problem for two years before that idea crystallized.
Q: It has been said that, at least with Silicon Graphics and Netscape, you were able to hit on the next new thing. There is an army of entrepreneurs in the Silicon Valley and elsewhere who are trying to discover the next new thing. How did you do it?
A: When I have an idea and I know that it is something worth pursuing, I run like hell. I don't just lunge off in a new direction with little thought. In the case of Netscape, once I got it and knew there was going to be a big market, I had an extreme sense of urgency so I ran like hell. You must execute quickly and you must get good people to work with you. You don't have time to sit back and admire the idea. Companies are teams and you have to get them focused on the problem and you run like hell. There are a lot of risks and pitfalls and avoiding those becomes paramount.
Q: You have had a lot of experience raising venture capital. Is there one piece of advice you can give entrepreneurs about dealing with venture capitalists?
A: A lot has changed in the last couple of years and one of the things that has changed is that there are a lot more venture capitalists than there were in the early '80s. Entrepreneurs today are generally able to get more money for less stock.
And there is also a new category called the "angel investor." It is a category I don't have a lot of regard for because what I see happening with angel investing is that it is expensive money. They tend to be people whose pockets are not deep and who don't have a lot of experience. I think it is the wrong way for an entrepreneur to go. That was a lesson I learned at Silicon Graphics. I ended up owning a lot less of SGI than I thought I should and I have always resented that the venture capitalists took 40 percent of the company for $800,000.
That initial funding I got was similar to what angel funding is today. The problem for some people is they have a good idea and they need some money. I would recommend people get with a more traditional venture firm who has a lot more to offer. I also recommend they get the business plan put on paper and raise a team before they start raising money. In the end they are going to earn more. I recognize that is a dilemma. In the early days I succumbed to this usurious valuation and was unhappy with the results.
Q: You have started now five companies in the past 18 years. How do you maintain your drive and enthusiasm?
A: It has mutated over the years. The financial pressure is off now and now it is reputation pressure. I suppose fear of failure drives me to some degree. Why ruin a good record? In the beginning I was driven by the need to make a better living. Now it is just fascination and I don't work as hard.
MyCFO for me was very important personally and once I began to see the size of that market possibility, I got excited. Then came the challenge of inspiring other people. Starting a new company also brings with it a certain possibility. Once you recruit people, you put their lives in a certain state. It brings a certain burden and you have to be willing to step up to that responsibility. I get tremendous satisfaction from creating something that creates money for people and that is needed in the market.
Q: What is in your future? Another company?
A: I don't think I will be doing five more. I am not even sure there will be another. I wouldn't bet on it. After a while, you want to take a little time to enjoy life.
Well, there is probably one more company in there that is an idea of mine. I did create the software for my boat and there is a lot of pressure to market that. I keep trying to think of a way to take it to the broader market. It has still not come to me how to make this into a business that would warrant my time, but I'm still thinking about it.