Paul Short
Letting Go
April / May 2005
Volume 3 Number 2
Paul Short was at the edge of growing his business beyond his wildest dreams. In 2003, after more than a decade of building the Albuquerque-based Innovasic Semiconductor, an embedded chip design and manufacturing firm, he had a list of big-name clients, increasing market demand and the promise of a fresh round of venture capital amounting to $4.25 million. Innovasic was poised to expand its product line, break into untapped markets and grow its workforce.
The chance for an entrepreneur to lead his company into a growth phase would be in the dream-come-true category for many. But for Short, the pending boom drew a different reaction. He chose to leave the position of CEO.
While some may consider such a move odd, even ludicrous, for Short, letting go of control made perfect business sense. As he led Innovasic into the venture capital world—€”where return on investment is typically expected in five to seven years—€”he was faced with the dilemma of leading the company out of his own entrepreneurial desires, or thinking on behalf of investors. In this case, stepping down was the best decision for the long-term growth of the company.
"I argue that as CEO you have a responsibility to separate your ego from your business," says Short, adding, " If you don't, your business is simply an extension of you. It does not serve a greater purpose and it does not serve the stockholders."
Now 45, Short launched Innovasic in 1992. He and a partner bootstrapped their way into the integrated circuit consulting business, designing chips for graphics, high-speed processing, data conversion and compaction, and communications. The company also carved a niche cloning chips discontinued by manufacturers.
By 1997, Innovasic had grown to 11 employees, $1 million in annual revenue and was showing a profit. Despite the company's success, Short—€”who admits to having a five-year attention span—€”got bored and changed the business model completely. He moved Innovasic from primarily a consulting/service to manufacturing discontinued chips.
"This is a classic example of a company run by a CEO who can't separate himself from his business. Now, Innovasic had a five-year attention span, just like me. I put everything at risk: the profits, the employees, the years of work, all because I was bored," says Short.
The business plan had legs, though, and in 1999 Short attracted $3.2 million in venture capital. However, after landing the capital he quickly realized he was accountable for the first time to a higher power —€” stockholders and a board of directors. Things like exit strategies were the foremost considerations. He says a board is the first step in creating an environment where a company can stand on its own and not be solely dependent on the CEO. "It's not to make you feel good," says Short. "It's not to bring you business. It's not to give you advice. They may do all of these things and more, but the board's sole job is to make sure the company is doing the right thing for the shareholders."
The company landed the capital at the peak of the tech bubble. By 2000, demand was soaring and staff and infrastructure was significantly increased to handle the influx of new business. Then the tech bubble burst. Over the next year the semiconductor industry shrunk 42 percent and some of Innovasic's biggest customers bowed out. "We were burning through the cash we raised fast and revenue wasn't growing as planned," says Short. He was within weeks of laying off half the staff and had to cut salaries across the board. The morale of employees and Short dropped to a historic low.
The company succeeded in growing during 2000 and 2001, having to cut only five employees. This was enough to keep investors relatively happy considering other tech companies were closing their doors. But for Short the crisis was enough to force him to re-evaluate his leadership role.
"I saw then that the company needed to have more than me running it through the strength of my own will. I made a commitment to myself: I was going to separate myself from this company and get it to run smoothly without me." That personal decision led Short to talk openly about the company's weaknesses, including his own as leader. He and employees began to discuss, plan and measure the company's strengths and weaknesses, improving all aspects of Innovasic as a result.
Still in the position of CEO, Short sought a second round of venture capital. He eventually landed a total of $4.25 million in series B funding in 2003 from three investment firms as well as the original firm that invested $3.2 million in 1999. The new round resulted in an even more powerful board of directors and a new product definition.
There was only one problem, however. It had been five years since receiving the first round of funding, and if left to his own devices as CEO Short might change the company all over again. Rather than acting on this impulse, he announced Innovasic needed to find a new CEO and he would head up the business development arm instead.
Eighteen months later, in November of 2004, Keith Prettyjohns was hired as CEO. "He's a person with the experience, the drive and the humanity to finish the job I started." says Short. Prettyjohns is leading Innovasic into becoming a primary source for embedded chips, versus solely a manufacturer of discontinued lines.
The story of Paul Short is a success for a number of reasons. Through entrepreneurial brute force, he founded and grew a company that's alive and well after 12 years, surviving the tech bubble collapse and two rounds of venture capital investment. And it is an example of how a leader letting go of control can, in the end, set a company free—€”a decision many entrepreneurs may be faced with one day. Short is at ease, relatively speaking, heading up business development. "I am no longer CEO of Innovasic, but the company no longer owns me either," he says. "I have created something that is larger than myself; it can thrive without me. And that is the accomplishment I am most proud of."
Eric Billingsley is a freelance writer based in Albuquerque.
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