Ann Winblad

8 Questions for Ann Winblad

April / May 2007 Volume 5 Number 2

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In 1976, Ann Winblad started Open Systems, an accounting software company, with the help of $500 she borrowed from her brother. The advent of the microprocessor and the first affordable PCs created a new opportunity for programmers. Winblad was one of the first generation of entrepreneurs who figured out by trial and error what a software startup was. Six years later, she and her cofounders sold the company for over $15 million. In 1989, she cofounded Hummer Winblad Venture Partners, the first venture firm to focus exclusively on software. In the years since, 45 of its portfolio companies have been acquired or gone public. Now Winblad is probably the most powerful woman in venture capital. The following is excerpted from Founders at Work: Stories of Startups' Early Days, by Jessica Livingston, published by Apress, Inc.

One of Silicon Valley's most successful venture capitalists was once an entrepreneur. She has some advice to offer.

JESSICA LIVINGSTON: Tell me a little about your background, how you were first introduced to software, and why you first thought about starting your own company.

I was given an extraordinary opportunity when I started college. They picked students with the top SAT scores and top grades as "experimental" students. As a result, I did not have to take any prerequisites, so it allowed me to take a lot more focused courseware than most students. I could do whatever I wanted. So I was able to double major in mathematics and business administration and also fill in a whole bunch of other classes, like computer science and acting, that most students wouldn't have. I made a real attempt to be well-rounded and totally equipped—€”having no clue how ill-equipped you are as an undergraduate. You have no experiential knowledge whatsoever. We didn't have internships. We had no international travel, no semesters abroad. So you were really much more naive as a student graduating in the —€˜70s—€”-even with a double major and a minor and some other good stuff thrown in. But I felt empowered.

The early —€˜70s was a big era of affirmative action and companies were forced to go hire women. I was interviewed for some really interesting jobs, and one that I thought sounded really great was this job at the Federal Reserve Bank. The president was a really young guy. They had all state-of-the-art hardware, software and furniture, so it felt like, "Wow, I get to be in this brand new hot place, the Federal Reserve Bank." That sounds like an oxymoron saying it now.
The truth was that all these jobs they were recruiting for affirmative action, if you weren't really a competent young woman, you would fail. There was a gap between skills and jobs because they had to hire you and they had to hire you in stretch positions to get women populated. In fact, I got my masters degree at night and Saturdays while at the bank, and I was only the second woman in the whole Fed system that had a masters degree. In the whole Fed system!

When I went there, it was the first real business experience I had—€”although I had had part time jobs. I'd never been in a corporation, and it felt so glamorous to have a cubicle. But it just wasn't inspiring. No one was chomping at the bit. I actually can't remember—€”I knew I was going to quit, but I can't remember the moment where I thought, "I'll quit and start a company." I still felt very empowered, like, "This isn't this hard a job. This is a big job and I've already gotten promoted once in the first three months and I know I can earn money. I can always come back to this, so why don't I break out?" So the three guys from the Federal Reserve that started the company with me—€”-one guy did quit his job and the other two took a year sabbatical, just in case this didn't work. They held on to the safety ring.

There were not a bunch of people saying, "Start a company, start a company. Let's do this. Let's build something from scratch." It's so long ago now that I just remember the general feeling that there was very little to risk. I was somehow already fully trained for anything that might confront me. Of course, all that is false; there's a lot of risk and you are never fully equipped to . . . you just have to be very adaptable. It turned out I was adaptable. I didn't know that until I did that, but it was just a feeling of fearlessness. "What's the risk? What will I have to lose? I'm sure I can do this." It was not cockiness, just that moment you feel in your youthfulness that you are sort of empowered to achieve.

I think what does separate some entrepreneurs from other entrepreneurs is we're not handwringers. We don't worry about the unknown. We don't really worry about the risk points ahead. As you get older and you get more experience, you train yourself to think ahead about the risk points versus just to take the next hill. But non-risk-takers and non-entrepreneurs would really have big headaches about this. They would need some level of comfort and safety. That's something that we look for in entrepreneurs—€”that they have the courage to do the job. That they'll have the ability to judge the business situation. They'll have the ability to lead people. They'll have the ability to interact with the marketplace and to really build confidence into strategy.

I read that you initially started out as a consulting company and you would do the "real" startup project at night, even though you hadn't figured out exactly what you planned to do.

Yes. We did that because no one had any money. There wasn't anyone around to even give us $6,000. In fact, I exhausted all of my savings on the incorporation fees and was about $500 short, which I had to borrow from my brother, who was in high school. But he had a job. He was the onlyone who had $500 to borrow from that I knew. So we had to find a way to cover ourselves. We see a lot of entrepreneurs that do this. That they actually find a way to earn some money, but they don't—€¦. they find a way to separate that from the business itself.
Where entrepreneurs try to mush the two together like, "Well, let's compromise the real business to sort of get more money in versus let's find a way to get money to cover the real business and leave it uncompromised." But they have to perform some unnatural acts to get started, which is what we did.

We were chosen under a Request for Proposal bid to build a student accounting system for a vocational school in the state of Minnesota, which helped us focus on what we were going to do. We had to really say, "OK, how good's our accounting knowledge?"—€”which had nothing to do with student accounting; this was grading systems tied to student accounting. It was really a one-off. It also told us how we could underestimate a project, how we would manage a project, how we would manage engineers, how we would manage our own time. And we got paid for learning on the job. All of us owe a lot to the per-son who took the risk on people who looked like children, who had no work experience other than the other three guys had been at the Fed longer.

We were overly thoughtful about what we would do. When it came down to "what special skills do we have," we went back to that accounting class and in fact opened up my college accounting book and said, "Let's start programming this from scratch and build accounting systems for smaller computers."

Was this before personal computers were even out there?

They were coming really fast. Hobbyist computers already started appearing. Now the year is 1975—€”remember that's the year that Microsoft started and Microsoft was writing Basic for kit computers. We didn't have as good soldering skills as probably Bill and Paul did. And we, of course, weren't working at the systems level writing the operating systems and languages, so we first applied ours to a minicomputer. They were not on commodity processors. They basically were pretty much like a high-end PC would be today. We skipped a whole small era of computers that all got wiped off the planet.

Microsoft talks about how their first 80 customers died. Well, we had some of those customers but very, very few. We moved into the PC market as the 8080A—€”which was the first Intel commodity processor, came out on a computer called CADO. The company was in Torrance, California, and funded by Sequoia. This was about 1978. They were using commodity processors—€”the first Intel processors—€”but a proprietary operating system. As a result, we had to find a language vendor because Microsoft's Basic was so weak, we couldn't program a robust accounting system in it.

Do you remember any major turning points?

There were so many things that happened. Sometimes they almost feel like acts of God. We were doing all this work for these CADO computer guys. And there were many things we didn't know—€”like pricing strategy or how do you collect money from people? So I remember one very unsophisticated thing, in that we had been working with CADO and they said, "We're going to get all of our resellers together. Since you're the big application vendor, come and give a presentation and pitch them."

So I get in front of these 60 or 70 guys and these guys are probably all in their 50s and I'm in my 20s, and we had a "blue light special," where we said, "If you give me a check today for $10,000, you can have unlimited rights to one of our modules"—€”the general ledger or something like that. "But you have to write me a check today." These guys are looking at me like I'm goofy and I'm thinking, "Well, maybe they don't believe this great offer." (This is how naive I am.) One guy says, "Well, we don't carry our corporate checkbooks around."

And I say, "Well, you must have your personal checkbooks?" I'm sure your company will reimburse you and, if you want to, put a note not to cash the check until Monday, but I need the check today." And the CADO guys are looking at me like, "OK, what is she doing?" That day I remember very well. They gave me a crate to stand on because the podium was so large for me. I stood on this crate and started going through the specifications of our product, and George Ryan, the CEO, said, "We're going to take a break now." And he said, "Ann, after the break, you gotta jazz it up a little bit. If you're gonna run with the big dogs, you gotta learn how to lift your leg." That really empowered me to ask for that $10,000.

I went home with, I think, like 12 or 15 of these $10,000 checks in my purse. For a young company, it felt like carrying gold around. We now have $120,000—€”all at one time! So that was pretty seminal—€¦of course today, things like that wouldn't work. It was a very unsophisticated market; we were their only choice. Probably, thinking back, half the guys wrote the check because they just wanted me to be successful.

I think this is something that people underestimate—€”-that there are always people out there rooting for you. That is probably part of what you have to develop. They probably went back to their offices and said the following: "We got a great deal on this software and this great little company—€”I think those guys might be successful—€”-called Open Systems. And this young woman got up there, and she had the balls—€”or stupidity—€”to ask eachof us to rip out checks for $10,000."

I was very fortunate that we all challenged each other quite a bit, that no one thought anybody's idea was better than the other's. So we had to vet our ideas against each other and sort of "win" among each other—€”the best strategy, idea, whatever. You're very lucky if you have an ensemble early on where no one just sort of accepts that you make all the calls. That you are reallyworking in the beginning as an ensemble.

When we fund early stage companies, even though there is a CEO named, in most cases in the ensemble, it is an ensemble. That's sort of what you look for: is there an early ensemble where everyone's rowing the oars and looking at where the boat is going and watching out for each other? That it is not sort of the "Let's get the org chart together and you'll lead us all."

Looking back, do you think you were a typical founder?

Yes. I think that I had all the good parts of a typical founder and all the bad parts of a typical founder. You get good at figuring things out so that you don't just view every problem as if it needs a brand new lens, which, of course, it doesn't. And you learn on the job, so you do a lot of things poorly. Unless you've managed people before, you don't really know how to do that well. So you have to build skills. I think it's really interesting being a venture capitalist because, when you've got 30 years of experience, then your challenge is how to teach and not tell. Because you want people to figure it out. You want to make sure that you can grab them by the coattails if they are falling off a cliff, but you want them to discover the edges by themselves. That's the biggest challenge of moving from being a business leader to being a business investor. Your job is not to tell, but to teach.

What kind of mistakes do you see new entrepreneurs make?

One of the big mistakes is that, when you form a company, there's a difference between being an inventor and being entrepreneurial to leading a company—€”being the CEO or, especially, the leader. You're not fending for yourself anymore. You're actually fending for shareholders. They can't be fending for their salary; they can't be fending for their net worth. They have to really focus on building value in the company for all shareholders. That sounds very sort of lawyerish, but it's true. Some never can make that jump fully. And that jump to "It's not about you; it's really about a broader thing, the company, which broadly is the shareholders, which broadly is the customers, which broadly is the employees, which broadly is your mission, which broadly is the values you bring into the company." There are some entrepreneurs that never really fully get out of the "me" thing. And that changes them from being the "inventor" entrepreneur to being the business leader entrepreneur.

Are you able to predict this better now that you have had so much experience as an investor?

Well, if there were a perfect lens on this, it would be easier. Most companies do not fail because some competitor crushed them. There's a small amount of failures where the competition was underestimated. There's a small amount in the software category where the technical achievement needed to bring a high-value product could never be reached. But the majority of companies fail by self-inflicted wounds by the leadership team. That stuff is all under your control. We have the biggest challenge in software companies: the core value is the intellectual capital. It's everything. And when there are big flaws in the leadership team that you can't remedy quickly, the company will die of self-inflicted wounds.

What is your top advice that you give to founders starting companies?

We try not to give too much prescriptive advice. "Think like a big dog and then figure out how you find leverage to get there." You have to have tactics to get to strategies, but you have to have a strategy, and you have to put your strategy up here and then see "Where's my gap" to get to this aspirational goal. You're always going to be short of people, you're always going to be short of money, you're going to be short of source supply value. So you have to find leverage points, versus working your way up through tiny little rungs and seeing if you get there. Think like a big dog, and find leverage to get there.