How Mike Daniels Caught the Internet Commercialization Wave and Keeps Surfing

Mike Daniels

Mike Daniels is living proof that nice guys don’t finish last. He’s probably best known in tech/investor circles for his sale of Network Solutions, a small company in Tysons Corner, VA, for $19.2 billion in 2000. You might think of it as a harmonic convergence of an appreciation of the emerging Internet and the tech bubble.

But there’s more to a successful 40-year career than a one-shot wonder. Mike’s recent fireside chat at Big Idea CONNECTpreneur’s Winter Forum addressed some factors that have enabled him to continue making the right choices.

Over the course of his career, Mike has been involved in creating over $50 billion in shareholder returns in high-growth tech companies. He’s been focused on three long-term change waves that emerged during his 40 years as an entrepreneur: Internet, Mobile, and Global Digitization and have picked up over the last 10 years. Mike said:

“These are three massive change waves that have created hundreds and billions of dollars of investor/shareholder value for every company who figures out how to do this and execute. Those are the waves I’ve focused on…Any entrepreneur today needs to be on one of those three long-term waves or they’ll be left behind.”

Valuing work and service to others

Monumental financial gain might signal the end of a brief but wildly successful career, but for Mike it just meant it was time to find another challenge and opportunity to support American innovators and citizens.

He is moved when he recalls the letters he received from Network Solutions stockholders — many of them “retirees and grandmothers” who thanked him for doubling their retirement funds because they had bought stock in the company he steered.

He observes:

“Business is about helping people. And, we’re the people who create jobs and wealth and give people quality of life. The government can help us do that but we’re the people who do that. Those are the things you take away from this.”

A solid foundation helps

Mike grew up learning the value of hard work and perseverance. The son of a small business owner, he grew up in Cape Girardeau, Missouri, southwest of St. Louis and north of Memphis. He grew up helping out as a janitor, truck driver, and salesman and in summers during college worked at McDonald’s. He learned the value of work, perseverance, and respect for those who do it at any level. He attended the same high school as Rush Limbaugh, with whom he was paired as co-disc jockey on KGMO radio.

His lifelong interest in technology began when he attended Northwestern University on a debate scholarship and took a lot of courses at the tech institute.

He recalls: “Those were the days we sat in a small data center with punch cards up until midnight to figure out how you programmed everything.” He stayed at Northwestern for graduate school as a Navy Reservist during the Vietnam war, was sent to Washington, DC, to the office of Naval Research, the advanced science and technology part of the U.S. Navy.

That’s when things got really interesting. He recalls:

“Two weeks later they shipped me to some strange place called ARPA, the Advanced Research Projects Agency, which became DARPA, responsible for the internet, stealth technologies, satellite communications — you name it — hundreds of billions of dollars of commercial technology as the advanced science and technology arm of the Department of Defense.”

It was 1969, and Mike happened to be in the first user’s group of the ARPAnet, which is the internet, when they threw the operational switch about two months before. He and his colleagues sat at dumb terminals sending the first emails to communicate with government contractors in places like MIT, Caltech, Northwestern, and Michigan. After the military, he returned to Missouri to add law school to his credentials, but continued watching technology evolve.

He had followed the technology’s progress from ARPA in the 60s, to some use by education in the 70s, and from DARPA to the National Science Foundation in the 1980s. He started going to meetings at NSF in the late 1980s on the continued development of the “Internet.”

“These things take decades to get to the point of fruition. There was no one in the internet business in those days who had any idea of what the Internet could become.”

Stay connected

Mike lived the first half of his 40 years in business in government contracting in Washington, DC, where he moved with his family after law school. “I built major government contractors, kept them, took them public, sold them,” he says.

Mike knew he wanted to be in the tech industry, but attended law school in Missouri for some additional background. Nine months before graduation, Mike got a call with a job offer from a guy he’d met while at DARPA, named Jack London. Jack had become the CEO of CACI, a government contractor in Arlington, VA, which was providing information solutions and services to support national security missions and serving Intelligence, Defense, and Federal Civilian customers.  

Mike had watched the government contracting business since the late ‘60s and thought: “This is a big moving train. The federal government is the biggest buyer on earth.”

He moved back to the Washington, DC area to take the job and learned the business by watching his first mentor. Because he’s an entrepreneur, in 1979 he packed up his wife and kids in the car and moved to Rosslyn, VA to start his own business, Computer Systems Management, with a partner. It grew to a business of about 200 people who worked for Defense, Intelligence, and DARPA.

By 1986 he knew it was time to move on.

“It was pretty clear to me I was personally being hopped up all the time because I was signing every banknote to keep 200 people employed and that was a lot of money to me in those days.”

Know when to move on

Mike knew there were tons of things he still wanted to do as a federal government contractor, but he needed more scale, more capability. He decided to sell the company and “get on a bigger train.”

That train was SAIC, which became the largest privately held employee-owned science technology company in the history of the U.S. He uncovered the opportunity by talking to other CEOs in town. One told him to go to La Jolla, CA, to speak with Bob Beyser, the founder of SAIC.

“We were supposed to meet for an hour and a half. Five hours later I thought this is the smartest technical entrepreneur I’ve ever met in the U.S.A. He’s got a great model.”

Mike said: “It was one of the best decisions we ever made because when we joined SAIC, it was a $500 million with 5,000 people and we ended up being $11 billion in 28 countries with 44,000 people.”

In 1987, Mike ran all the networking at SAIC. John Woods, the Patton Boggs lawyer who helped him sell his company asked him to speak with a small company five blocks from the SAIC office in Tysons Corner, VA, called  Network Solutions. The company was thinking about making an acquisition and his lawyer thought it would be helpful to speak with someone who had just been through the process.

Mike recalls: “I liked them, they had networks and talent, and I started giving them subcontracts.”

Be ready to exploit new opportunities

In 1992, Networks Solutions outbid three other companies for the “exclusive cooperative agreement” from the National Science Foundation to sell .com, .org, .net, .edu to everyone on earth and also handle .gov, .mil and every country code for every nation.

Nobody much cared about the Internet in 1992, and the small company won a fixed price contract. Mike followed the deal with interest. It dawned on him that the Internet could be huge the year before when a corporate transaction lawyer he’d found in Silicon Valley, Jorge Del Cavo, told him about the venture capital community in Silicon Valley’s interest in the Internet.

Mike says:

“I thought like all things in technology, once the VCs in Silicon Valley start rumbling around and kicking the tires you better start paying attention because this might become a commercial thing.”

Be persistent

Over the next year and a half, Mike made Network Solutions five offers to buy the company. They turned him down every time.

“I kept incrementally raising the offer up until they finally gave up and sold me the company in March 1995 for $4.7 million. The dot.com boom started in 1997, we went public in the fall right in the middle of the craziest time that I’ve ever lived through. We raised $69 million at $18 a share, oversubscribed three times, everything was hot.”

In 2000, after raising $779 million in the public markets the previous year, Network Solutions raised $2.3 billion, the largest internet public offering of all time. It still holds a Wall Street record as one of the greatest returns on any investment in a 5 year period from purchase to sale.

“Our appreciation was 3,057%. All I can ever say is the best thing about that was that out of all of that we put $2.2 billion in cash back into the hands of the employee owners…Help the people who work for you and that helps this country.”

Everyone made a lot of money on that deal, including the individuals who purchased the stock.

Mike and Bob Beyster co-authored a book about their experiences: Names, Numbers and Network Solutions: The Monetization of the Internet.

Work with the best and contribute

Mike credits mentors, friends, and associates that remain part of his loyal circle for their role in his journey. He kept in touch with the best and brightest he could find involved with the developing tech industry.

Over the years Mike has served on 22 boards of directors. In the mid-2000s Silicon Valley investors bet on a company in Chantilly, VA, called Mobile365, which brought SMS and MMS messaging technology to the United States.

“They threw out the young CEO and asked me to be CEO and Chairman for awhile and I was smart enough to hire smarter people than I. I tend to do that a lot. I learned I’m not the smartest guy in much of anything. I know a lot and I’ve been able to do things but the thousands of people I’ve worked with in all of these companies are the people that make these things go.”

In 2006, Mobile365, a mobile messaging and content delivery service provider, was sold to Sybase in Silicon Valley, the #4 database management company, in an all cash transaction worth $425 million.

Today, he serves on the board of directors of Blackberry, CACI International, Mercury Systems, Invincea (Chairman), and the nonprofit Logistics Management Institute (Chairman), which has served as defense logistics experts for the Department of Defense since the start of the Vietnam war and during his tenure grown from $80-90 million to $250 million.

Mike continues to give back with service to many organizations. He refers to mentors and leaders who exhibit the traits he admires: honesty and intelligent action: Bob Beyster (SAIC), Jack London (CACI), Dan Bannister (DynCorp), George W. Johnston (George Mason). He calls the leaders who have had an impact on him over the years, “Citizen Business People.”  

He explains: “You watch what they do over time; they’re dedicated to a couple of things: Building great companies [/institutions] and helping the United States of America and the Washington, DC region. I tried to do what I watched them do.”

Advice for future leaders

  • Stay close to your friends and find the greatest entrepreneurs in America. “You can’t do anything by yourself. You can be the spark plug and do what you do, but you need really good people.”
  • Build a network of the smartest human beings that you can, anywhere on the globe, who you speak with to understand the technology waves in depth. “You need to hear from them the context for this and figure out your place.”
  • Turn off your devices and get out of this from time to time because we are so inundated with junk in the modern world that you need to get away from this stuff. It’s hard to make long-term decisions when you’re being pounded seven days a week, 24 hours a day by Facebook, the news media, and all this junk that surrounds us.

Mike concludes:

“Any time you think that the world we live in is going to overpower you or you can’t deal with it, or there are things you can’t do, just hike to the top of a big ridge or any mountain in the world where the wind blows and there’s not a single sound and you will know that you are one tiny spec in the universe and this should give you the feeling that there’s a bigger thing going on here than our everyday junk.”

 

Posted in entrepreneurs, innovation, Tech-Enabled Business, The Internet, Uncategorized | Tagged , , | Leave a comment

How The Motley Fool’s Co-Founders Share the Wealth

BICP Fall Forum Fireside Chat 3

Tom Gardner (L), CEO and Co-Chairman, The Motley Fool Company and Tien Wong (R), CONNECTpreneur founder have some fun Fooling around after a seriously informative chat. 

“The best way to keep money in perspective is to have some.” — Louis Rukeyser, American financial journalist, columnist and economic commentator
“Every business opens a story.” — Tom Gardner, founder, CEO and Co-Chairman, The Motley Fool company

Georgetown natives, Tom Gardner and his older brother, David, co-founded The Motley Fool company in Alexandria, VA, in 1993 at ages 25 and 27. David had gotten the idea to create a newsletter to educate and enrich investors on long-term investing while he was writing for a newsletter called Wall Street, founded by journalist and economics commentator, Louis Rukeyser.

At a recent fireside chat at Big Idea Connectpreneur, Tom, now age 49, explained how David’s frustration with Wall Street’s lack of advocacy led the brothers to found a newsletter that has expanded, contracted, and evolved into a multimedia financial-services company with 300 employees and half a million subscribers.

The brothers value a more qualitative approach to investment advice. Tom explains: “David would write a column on why it’s so beneficial to work with a discount broker at lower cost, but then on the corresponding page, the newsletter would list all the reasons not to. While presenting facts this way can be a good exercise, it could also leave the reader unclear about what to do.”

David and Tom’s fondness for exploring what businesses would be fun to invest in started way before 1993. At age 7, 8, or 9 at least one day of every spring vacation would include a visit with a CEO or CFO at a company in which their father, Paul, an international banking attorney, had invested.

Tom says:

“There was some pain in losing a sunny day, but what we learned was that companies are run by people. We’d get in the car afterward and be laughing and say things like “I don’t trust that guy. Do you trust that guy, dad? I don’t know why you bought those shares.”

Business was a game.

Tom reflects:

“It wasn’t that corporations were distant from us and taking advantage of people and society. They were run by people that made mistakes, made brilliant decisions, that were innovative, that fell behind, and that changed the world.”

Their maternal grandfather, H. Gabriel Murphy, showed them that business can literally be a game. He was the largest minority owner of the Washington Senators/Minnesota Twins franchise of the American League.

So, when David asked Tom to co-found an investment newsletter with him, Tom agreed to leave his linguistics studies at the University of Montana and his put his BA from Brown to work championing shareholder values, advocate for the individual investor, and call out the industry’s lack of transparency and corruption.

“Besides,” he deadpans, “We were unemployable.”

Tom shared some highlights of their journey and lessons learned:

Why they call themselves Foolish in a serious industry?

One way to differentiate a brand is to acknowledge people’s complaints about the industry and show them you’re different.

David was looking in a Bartlett’s Quotation book and saw a quote about the Motley Fool from Shakespeare’s “As You Like It.” He and Tom liked the idea of being like the wise fools that could speak the truth to the king without getting their heads chopped off because they were amusing.

Being contrarians helped them differentiate their brand from the larger financial advisory businesses in the U.S. “These advisers have not been serving others as well as they have been serving themselves over the past many decades with their fee structures and conflicts of interest,” he says.

There’s more than one way to start a business

The brothers started offering subscriptions to a print newsletter in 1993. They sent out a mailing to about 1200 friends and family. They thought they’d get 600 subscribers at $48/year, but they got only 8. Tom says they realized they didn’t have a business, but lucked upon an April Fool’s joke that spiraled out of control and the Wall Street Journal wrote about it.

They had decided to use humor to call out the unethical, and probably illegal, penny stock promotion they were seeing in financial chat rooms.

“People were taking an 8 cent stock, telling an incredible story about it, it would jump to 38 cents, they would sell them and it would fall back down to 8 cents or lower.” On April Fool’s Day, after consulting their lawyers, they hyped a fictitious penny stock on an exchange that didn’t exist, the Halifax Canadian stock exchange. Over the weekend, they watched others in the online community start playing along.

Tom recalls the excitement when they recognized people understood what they were doing and supported them: “Someone posted ‘I got my shares! It was $4,000 and it’s $40,000 already, and two hours later, it spiraled out of control.”

Some financial advisers were taken in by their April Fool’s prank; others were furious.

Tom recalls: “We got death threats to our work phone line, which unfortunately was David’s home phone number.”

The Wall Street Journal published a piece about their April Fool’s joke.

This prompted a call from AOL, which had just gone public.

Ted Leonsis, whose marketing communications company, Redgate Communications Corporation had been acquired by AOL that year wanted to break through with new content. He invited Tom and David into AOL’s offices to speak with eight executives about starting an online business.

They almost blew their first investment

People following local investors knew about Leonsis, an entrepreneurial Georgetown University alum. Before selling Redgate to AOL, Leonsis had net $20 million when he sold his previous venture, a technology magazine focused on the personal computing industry, to Thomson Reuters for $40 million.

Ted slid a piece of paper across the table to Tom and David. They thanked him for the incredibly generous offer but stuck to their father’s pre-meeting advice and told him they didn’t want to sell any equity. They were looking to sign a partnership deal.

“That enraged Ted,” Tom recalls. “He was so mad.”  This was before everyone had mobile phones. It took the brothers a half hour to drive back to their Alexandria offices before they could call their father and tell him what they’d done.

“What was the offer?” their father asked.

“He offered to buy 19.9% of the company that we would incorporate called The Motley Fool. And he offered $600,000.”

There was an audible pause on the other side of the line. Then Dad said:

“You said NO?”

“But, dad, you told us not to sell any equity!”

“Three thousand dollars in sales and a $600,000 investment for nearly 20% valuing at $3 million? I’ve never heard of anything like that!  You have to go back and say yes!”

So they did. That was their first investment and they raised about $55 million before the great recession of 2001.

“David’s idea was to hire people who are smarter than we are,” Tom says, “and it ended up pretty easy to do so.”

A painful lesson about what drives value

Being on AOL’s platform while it was growing rapidly helped The Motley Fool company grow. They earned about 40 cents for every $4 AOL earned. They loved the organization.

But when the great recession hit in 2001,  AOL could not sustain them. They realized, too late, they needed to grow their business beyond AOL.

Tom explains: “We built our business up with the financing and had 10 advertisers that were generating 90% of our revenues. We didn’t see anything wrong with that because we raised so much money we thought we’d be fine.”

Unfortunately, 8 or 9 of those advertisers were discount brokers. When 2001 happened, one after the other informed them they were cutting spending either 80, 90, or 100 percent.

“We watched our entire business fold over a six-month period in 2001 and realized they had way too concentrated a business in advertising and too few customers. That’s why subscription really saved us and aligned us with the people that we’re working for.”

By that time, funding was scarce and temporarily out of reach for their company.

What doesn’t kill you…

The Motley Fool had been careful with its money. Up until 2001, it had raised $55 million and grown to 80 employees. At some point that year, the company had $1 million in cash and $5 million in debt with a 20% interest rate. After one year of interest, they needed to have a few rounds of layoffs. To its credit, the organization prided itself on being transparent and posting its numbers internally. The layoffs didn’t come as a shock.

“It was a beautiful, painful experience,” says Tom. “Each time, people got in line to say thank you, make it work, what you’re doing matters to people, it’s worth it. Let’s figure it out. Some of them are here with us today.”

By 2007, The Motley Fool company began the highly unusual process of buying back all of their venture investors and choosing to remain private. One investor sued them to try to force them to go public.It was resolved.

“That gives us tremendous flexibility,” says Tom. “As a privately owned company of our size we generate sufficient cap to expand. We’re in a great position. However, in order to buy out those investors between 2007 and 2012 we had to pay about $120 million. We have sat and watched organizations run past us with huge financing rounds and be able to innovate in ways that we’ve dreamed about. But we made that decision going back to our dad’s initial advice: ‘If you can, maintain control of your vision.’”

The net result, now we’re on the other side of it and age 49, 24 years into the Motley Fool, I’m more excited than I ever have been because we have the resources, the ideas, and the network to deliver much bigger changes in the world of finance than we have.

Differing points of view enrich companies

Though both Gardner brothers have ideas for keeping their business relevant, they see them through the lens of different, complementary personalities. Tom’s the self-described people person who practices his listening skills while he’s talking. David’s the systems thinker, who in middle school at the exclusive St. Albans prep school in Washington, DC, organized an underground, 24-team strat-o-matic baseball league. He kept track of statistics, compiled standings, and organized the league’s complicated schedule.

Tom and David still co-lead The Motley Fool Stock Advisor, the company’s flagship subscription offering and David is the lead advisor on The Motley Fool Rule Breakers advisory service. David invented the Motley Fool CAPS site, which features community intelligence of 75,000+ ranked stock picks drawn mainly from the Motley Fool Community. Their company reaches millions of people each month through its website, books, newspaper column, television appearances, and subscription newsletter services.

How to remain relevant

The Motley Fool company is organizing its intellectual property more efficiently so members can view the data from different investing styles to see which is right for them.

At the moment they’re also creating subsidiaries and taking outside investment in those from investors with a super long-term perspective.

They’ve made available the FoolWorks tool at the core of developing a motivated, committed corporate culture. The brothers have learned to work through conflicts, rather than avoid them.

Tom says: “We’re interested in helping businesses develop their cultures with solutions for organizations and entrepreneurs that want to build great long-term properties.”

Tom’s advice: “We should all be looking at the companies we’re invested in and the businesses we’re involved in to make sure they are rapidly accumulating digital assets. Wherever your asset base is not digital you’re going to become rapidly irrelevant as a business in the next 10 years.”

“The worst thing you can do is sell a winner too soon,” he cautions. “Mathematically, we’re really rewarded for thinking long-term. In the private markets and the public markets, the best decisions we can make are the ones we plan to hold onto for the next 10-20 years.”

###

How the Motley Fool Team Approaches Investing

The single idea The Motley Fool stands for most is a long-term holding approach to building a personal investment portfolio. The team brings a qualitative view to investing. They favor founder-run businesses, which tend to beat the market by 2%. There are about 550 of them in the U.S. They contact all the CEOs and get to know the founders and teams. Their network is key. There’s someone on their team whose full-time job it is to point to interesting people to get to know.

“Thirty-five percent of my investment decision relies on mathematics,” Tom explains. “Sixty-five percent relies on a review of the products, the competitive advantage of the business. But, really more on the leadership team who owns that business, who invested in that company along the way. What’s the decision-making structure of the leadership of that organization.”

Tom says he is wrong 40% of the time and about 10-12% of his investments drive 85% of his returns. Other investors at the company are right 80% of the time and their aggregate returns are lower but their portfolios are less volatile.

David approaches the market as a venture capitalist would. He seeks out the highest-growing emerging businesses that have founders actively involved with the business and are truly innovative and disruptive. He’s always looking out of the next Amazon, Priceline or Facebook. Investing in search of the next great growth company means being right less frequently, e.g., a few companies drive 90% of your portfolio’s returns, and you’ll best the market in an open market like the U.S.

The wise Fool distinguishes actions depending on the stage an investor is in.

 

 

Posted in entrepreneurial community, entrepreneurs, Funding, Investing, startups, Uncategorized | Tagged , , , , , , , | Leave a comment

Man on a Mission: Honest Tea Co-Founder Uses Business to Drive Social Change

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As U.S. investors focused on technology companies in 1998, Seth Goldman and Barry Nalebuff, his former professor at Yale School of Management, took a different route. They co-founded Honest Tea, an organic, lightly sweetened bottled tea. The  co-founders were on a mission to make healthful consumer beverages mainstream.

Goldman liked marketing a good product, but says he also had “become awakened to the idea that a business could be a driver of social change,” while at Yale School of Management.

The broader mission of Honest Tea, and Goldman’s latest venture, Beyond Meat, for which he serves as Executive Chairman of the Board, is to improve people’s health, have a positive impact on the environment through the food system, agriculture; create fair trade labor standards and support community wealth.

“It’s all done through the market,” Goldman observes. “To survive, you can’t have economic inefficiencies in your business model.”

“Food is in a really interesting place right now,” says Goldman. “There’s an incredible growth opportunity because there’s such big fragmentation going on. Every major, large food company is seeing their market share shift and that’s driven by changing consumer tastes.”

Goldman says we’re in an era where two major directions are driving change in the food industry:

As with Honest Tea, the “undoing” or simplification of food is one. And, then you’re seeing the “redoing” of food, and that’s what Beyond Meat is. Says Goldman, “it’s taking an existing category and redesigning it in a way that overcomes the perceived nutrition or health shortcomings of that product.”

Everything about how Honest Tea grew was natural

Goldman was prompted to pursue the idea for a healthier beverage after he’d taken a run in Central Park to decompress after a presentation at a New York City institutional investment conference. He was thirsty, walked into a market, and realized there was nothing there he wanted to drink. It reminded him of the market opportunity he had Nalebuff had discussed in class three years earlier.

Honest Tea did not market through television commercials. Instead, the bootstrapped business held in-store tastings at Whole Foods (formerly Fresh Fields) at 17 upscale locations where it launched.

Fundraising was tough for the consumer beverage product. They launched in the kitchen of Goldman’s Bethesda home. The co-founders raised $10 million over ten years. Early on, they raised money from friends and family. By 1999-2000  they raised $1 million most of it from individuals who liked their product. Their average investment check (from an individual) at that time was for $25,000. Later, bigger investments rolled in from specialty food businesses whose CEOs brought industry experience to Honest Tea’s board.

“As challenging as that was it kept things very disciplined.  We traveled as a team, we shared hotel rooms. It’s part of our DNA to have that entrepreneurial mindset.”

They made mistakes, too. Early on, they lost $1 million trying to own and manage a bottling factory outside Pittsburgh because they mistakenly thought they needed to own their production. For six years he commuted every few weeks from Bethesda at 3:00 am and returned home to his growing family by 8:00 pm. Goldman calls this time “the darkest years of my life.” What kept him going was the idea of Honest Tea becoming a national brand.

A major lesson, from the bottling plant mistake: “Make sure you’re building what is in the long-term value of your enterprise.”

Goldman and Nalebuff recently created an illustrated book about their experience called: Mission in a Bottle, which Goldman discussed at a recent fireside chat with Connectpreneur’s founder and DC Metro area tech entrepreneur, Tien Wong.

seth-goldman-hand-up

First, the vision, a platform

“When I reached out to Barry [Nalebuff], he had just come back from India where he’d been doing a case study of the tea industry and he’d come up with the name honest Tea,” says Goldman. He observes: “The name was brilliant, but so was the idea of using tea so you could have a drink that’s healthy and tastes great without a lot of sweetener. Then, of course, the name gives you this platform to pursue a broader mission.”

Then, a long, hard slog to the next step

The co-founders launched Honest Tea with health conscious consumers and developed the brand before seeking corporate investment to expand.  

Things started taking off in 2006 and by 2008, Honest Tea had become the best-selling, organic bottled tea at Whole Foods in 15,000 locations nationwide.

That wasn’t where they wanted to stop.

The mission was to take healthful, organic beverages mainstream. That meant going national, while preserving their core values. Before selling to Coca-Cola, the co-founders took a 40% investment from the corporation’s new “Venturing and Emerging Brands” program, with an option to buy in three years.The co-founders used the time to continue growing its line and made sure the brand was not only certified organic; it was certified Fair Trade so it would give back to communities and support acceptable working conditions. By putting in place certifications from reputable organizations, nobody could cheapen their brand.

They kept innovating. One of Goldman’s three sons inspired Honest Kids, an organic less-sugary drink marketed in pouches. Goldman says:, “The whole category shifted from 100 calories a pouch to an average of 75. Ours is 40 calories per pouch.”

He adds, crediting the president of Patagonia, “You want to create enough pressure in the marketplace so that it’s challenging for your competitors not to follow you.”

They saw a ceiling ahead

While the co-founders had seen great growth, says Goldman, “…we also saw a ceiling ahead. We were getting approached by chains like Safeway, Target, and CVS, that wanted us chainwide, but we didn’t have the distribution to get there. We had to say ‘what’s the purpose of this? … The goal was never just to sell healthy drinks to healthy people. We knew we had to cross over to broader distribution.’”

Luckily, they had a great board

Honest Tea’s board had first-hand experience to help..”We had people who knew the industry, who knew branding, and natural foods,” says Goldman, including the CEO Stonyfield farm, the head of Timberland Footwear Co., and the head of Saratoga Beverage group, an independent Pepsi Bottler.

The Honest Tea team worked hard to increase shareholder value. Its founding investors received a healthy 26 X return.

Today, Honest Tea is a national brand with over 125,000 accounts. seth-goldman-laughing

Goldman looks to the future, and is now helping to build Beyond Meat, a privately held California-based company that has recently closed a $30 million financing to commercialize the first plant-based protein food with the taste, chew, and sensory satisfaction of animal meat. It took research from about 14 PhDs to get to the commercialization stage.

Goldman is a practicing vegetarian; his “Beyond Burger,” sells in the meat department to attract consumers who might not look in the freezer with the other veggie burgers. “It’s three things,” Goldman explains. “There’s the R&D piece, the commercialization, and the brand. We’re the first plant-based burger to be carried in the meat section.”

It’s a big idea. Meat is the world’s biggest food category, $200 billion in the United States alone. And it’s got global potential as a sustainable source of protein for countries whose water and land do not support a meat industry. That’s probably what attracted Bill Gates as an investor.

What’s Your Mission?

So what is the takeaway for entrepreneurs looking to build their own vision? The journey begins with a product mission. For Goldman, it was serving up a healthy life and lifestyle. An essential part of this mission is to protect the environment and enrich communities.

Once the mission is part of a founder’s mindset, a business plan begins to write itself. Goldman wanted to build a national brand, but not at the expense of his core values. Honest Tea is a case study in being able to do this. His latest venture, Beyond Meat, is another example of “doing well by doing good.”

beyond-meat

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Posted in entrepreneurs, Health, Healthy food, Mission-based business, Uncategorized | Tagged , , , | Leave a comment

Vocus & Beyond: Rick Rudman’s Excellent Startup Adventure

Rick Rudman and Tien

Tracxs CEO, Rick Rudman (L) tells Tien Wong at Connectpreneur about life as Chairman and CEO for automated marketing software company, Vocus, in a $1/2 billion cash transaction.

When you read about people launching tech careers in the mid-1980s, it’s easy to chalk up their success to serendipity. Rick Rudman was lucky to be in tech at the moment in history when the PR industry needed to be automated. However, nothing else about his remarkable journey was a given.

This is the story about how instinct, discipline, and being true to himself led to Rudman, Chairman and CEO of Vocus, a marketing software company, riding off on a motorcycle in 2014, the day after a $1/2 billion cash transaction, with the song “Best day of my life” playing in his head. And, why in 2016 he’s back in the game as CEO of Tracx, “a social business cloud for building brands and managing customer experience in the social-enabled web.”

Young, Reckless, and Disciplined

Rudman grew up in Maryland and told the crowd at Connectpreneur that when he graduated from high school in 1979 he didn’t want to go to college. Instead, he joined the Air Force and started studying technical training in electronics. He says with a self-deprecating laugh: “Six months into my tour, I thought, oh wait, I do want to go to college.” 

Determined to fulfill his commitment and follow his instincts, Rudman took night classes as he completed his four-year tour. Along the way he was promoted to Sergeant. He took 51 credit hours in his last year at Maryland and graduated with a degree in accounting. He is proud to have graduated within months of his high school classmates. It was the mid-1980’s, the internet was starting to come alive. After Rudman graduated he got an accounting job at a private company, started teaching himself how to program computers at night, and switched to the data processing department.

Leading and Learning

In 1992, Rudman and a friend from junior high school, Bob Lentz, started a consulting business to provide computer programming for large organizations, such as KPMG and the Department of the Navy. They were introduced to the idea of selling off-the-shelf software by people who approached them with a product idea to help big companies keep track of their grass roots lobbying and political action committees. “We thought hey, we can keep selling the same software over and over again and we don’t have to charge for programming services? That’s for us!”

By 1997, the software business had about $2 million in revenue from its government relations software and a buyer had come along offering to buy the business for $6 million in cash.

“My co-founder and I were young and single. We thought, hey, we’re rich! After all the paperwork, we had a closing dinner.We were at our lawyer’s office the next morning waiting for the wire transfer. We got a call saying the deal was off.”

A Defining Moment

The co-founders didn’t know why their prospective buyers pulled out. However, they did know that the investors were planning to put their government software together with a PR software company. Despite their profound disappointment, this detail did not escape their attention.

“When the deal fell through, my co-founder and I looked at each other and said ‘PR software sounds like a good idea.’ And, we went off and wrote PR software, which basically became the flagship product for Vocus for the next 15 years.  That’s what took us from a couple of million in revenue to almost $200 million.

The PR industry required automation as it expanded from distributing press releases to newspapers to become direct to consumers and online search. A $30,000 loan from the co-founder’s father enabled the team to found Vocus and build software for the PR industry and sell it to very large enterprises and midsize agencies.

A Brash Decision Worked Out

Vocus, based in Beltsville, MD, also turned out to be one of the first wave of Software As a Service (SAAS) companies in 1999-2000. Rudman explains:

“The tools were barely there, but we were lazy. We didn’t want to write Web-based software AND desktop software. So, we wrote everything for the ‘net. The good thing was we were young and reckless. Had we been more seasoned we might have thought the PR market is going online so we’ll write software plus a web-based product.”

The company was profitable in year one and reinvested in growth. They learned to partner with organizations such as Associated Press (AP), which in 2007 began allowing Vocus users to distribute press releases within the AP network. They accelerated their growth by acquiring businesses in the space, such as PR Web. At some point, they ended up acquiring the company with which their would-be investors had planned to pair them. Vocus grew by about 38% each year.

Learning from Mistakes

As Vocus grew, Rudman’s co-founder indicated the need for more funding with a quote from the classic movie, Jaws: “We’re going to need a bigger boat.” Though still expanding, the company was on the verge of not making payroll for 52 employees. The co-founders cut their team to 40 and figured out they had to make $300,000 a month or Vocus would be out of business. By the end of the year, Vocus was making $400,000 a month.  The co-founders had passed on the first funding offer from Edison Ventures because they felt the valuation wasn’t high enough. Six months later, in a rare move, the venture capital firm returned. They opened up a $2 million A round.

The co-founders made a major mistake of scaling up sales and marketing before they had their model right. “We pretty much wasted the money,” admits Rudman. They learned from their mistakes and fared better with their $13 million B round. Rudman says,“By that time, we knew what we were doing.” 

When Vocus went public in the beginning of 2006, it still had $5 million of the $13 million left in the bank. “It was a different era,” says Rudman.

“When things are going well, it’s great. The IPO process really isn’t that hard at all if you have a great CFO, which we did…In 2009, when the economy crashed it started not to be fun anymore.”

Grow Fast; Know When to Pivot

The company continued to grow by about 38% a year for 15 years. When the economy crashed in 2009, for the first time its annual growth shrank to just 5%.  “That was a tough year,” says Rudman. “We spent the next two or three years just trying to grow back to a high-growth model.” High-growth software models get higher valuations.

By 2010, the company was able to accelerate its growth by acquiring similar public relations software companies, such as Datapresse, BDL Media, and Help a Reporter Out.

“We started to bounce back on the growth side,” says Rudman. “We also came to the conclusion that software for the PR industry was brilliant when we got into it in 2000 but we couldn’t sustain the same level of growth. It was time to transition from PR to the broader marketing automation space.”

To expand its focus quickly, Vocus made a major move and acquired iContact, with $50 million in revenues. It paid off. Rudman recalls:

“That took us to $180 million. So, that was the path we were on. We were maybe a year into that transformation with a couple of hard years ahead of us to transition from PR to the broad marketing space and GTCR came along and offered us a 50% premium on our stock price and it was a good time to get out.”

GTCR, a Chicago-based private equity company, took Vocus private in June 2014 later that year merged Vocus with Cision AB, a Swedish company, to form Cision Inc. By that time, Vocus had over 1,500 employees in the US, Europe, and Asia. As CEO and Chairman, Rudman had led the company through 32 quarters as a public company. He felt it was time to leave on his own terms. He explains:

A lot of private equity firms have a financial engineering strategy. They buy two or three companies, put them together, cut a bunch of costs, leverage it with debt, then pay down the debt within five years and get a 2x return. I said, ‘That’s a good investment strategy, but I have no interest in running that kind of company.’ We agreed I would go. They asked ‘How long do you want to stay?’ I said, ‘One day would be good.”

Like software legend, John Cullinane, the author of The Entrepreneur’s Survival Guide, Rudman says he got tired of living his life in quarters, not seasons.  He also learned that who you work with, both in the company and on the investor side, is as important as the company itself. When Edison approached him to become CEO to build a solid infrastructure for Tracx, he explains: “I knew I was going to be a real CEO, set the strategy, choose the acquisitions I think are important.”

Rudman is enthusiastic about heading up the subscription-based company in the large and growing social media space. They serve large customers, like Sears, Kraft and the PGA tour, monitoring everything that’s being said across all the platforms, except for Snapchat, for now. He explains:

Whenever you have over 2 billion people that are active on some type of network, forum, physical location — anywhere — marketers will go there. You have access to 2 billion people. What I love about this space is it’s fundamentally changing the way companies are doing business. Social’s not a fad or even a channel. It’s how companies are engaging with customer/prospects and doing research…I think you can build a lot of value. The space is enormous, it’s still developing, and it’s going to change over the next 2-3 years.

Tracx, created in Israel, will maintain a small New York City office but open its main space this August on Woodmont Avenue in Bethesda, MD.

Read Rudman’s personal account of life after his big company exit and why he jumped back into the CEO role with Tracx here.

 

Posted in Cloud Computing, PR and Marketing Software, software, startups, Uncategorized, Venture Capital | Tagged , , , | Leave a comment

How DC’s Chief Technical Officer Lives Up to Her Potential

Archana Vemulapalli (left) the Chief Technology Officer for the District of Columbia tells Startup Grind DC's Brian Park (Right) she's recruiting technology the city needs to keep moving on projects. Local startups stay tuned! @dccto

Archana Vemulapalli (left) the Chief Technology Officer for the District of Columbia tells Startup Grind DC’s Brian Park (Right) she’s recruiting technology the city needs to keep moving on projects.

Six months (now 11) into her tenure as the Chief Technology Officer (CTO) for the Mayor’s Office of the District of Columbia, Archana Vemulapalli is on a roll. The 36-year-old engineer manages more than 33,000 employees, oversees 21 departments, 33 independent agencies, roughly 69 legislatively mandated offices, and five regional bodies. Aptitude made it possible for her to begin her journey, but attitude has been critical to her success.

Attitude Begins at Home

Vemulapalli says growing up in a home without gender role stereotypes gave her the confidence that she could pursue anything she wanted. Her father is a doctor. He made it clear that her stay-at-home mother, an economist, was the head of the household.

Says the new CTO, “There was no ‘This is what a man does; this is what a woman’s role is.’ It was about respect and making sure you had an equal relationship.”

When her mother mentioned learning to cook, it was in the context of something that is nice to know how to do to survive on your own.

She told the crowd at StartupGrind DC:

“I have a four-year-old at home and I was trying to find him books that teach him that women can do anything. I could only find one book about this girl called Rosie who’s an engineer. One book. You want to teach girls that they can get into engineering? Look at kids’ books. That’s where it has to start.”

She thinks schools also need to get more creative about their approach to engaging girls in technology.

Doing What She Loves

Vemulapalli came to the U.S. from India in 2000. She was 20, had a B.E., Electronics & Communications Engineering, from the University of Madras. She came to the University of Pennsylvania for an MSE in Telecommunications & Networking. Then, she moved to Washington, DC, to sharpen her leadership skills at Georgetown University’s McDonough School of Business. She followed her interests to the Women in Technology Foundry Program. By 2015, Vemulapalli was selected to engage in intensive, in-depth discussion of regional issues with senior leaders as part of Leadership Greater Washington’s Signature Program.

She says matter-of-factly: “I’ve always liked to do engineering and I’ve stayed with it. I’ve never really taken no for an answer and never really thought about it.”

The Journey From Private to Public Sector

Vemulapalli found success as a consultant and as CTO of a corporate real estate facilities manager with about 1,700 employees and $100 million in revenue. However, she missed seeing the start-to-finish impact of what she calls her “PowerPoint exercises.”

One day she was surfing the web, found the DC CTO job online, and applied. During the interview process she had conversations about how technology could help DC be better. It never occurred to her to ask how many other job candidates had applied.

“I really don’t think working for the government brings completely different sets of issues. I think the scale at which you measure changes,” she says. “In the government, you are always in a situation where you have more needs than you have funding available. It’s not that different from a startup.”

Running Lean

With limited funding, the DC government needs to do more with less. Its new CTO envisions taking a lean approach to getting things done. “It’s really critical we get into the mindset of saying any investment we make must be giving maximum value to the City,” she says. “It’s not that different from a startup. Only when you add value will people want to buy your product.”

She sees the biggest problem to be the traditional mindset of sitting, thinking, strategizing, and building grand visions that are 10-20 years out. “Technology 20 years ago is nowhere where it is today and you can make a case for that. We’re just moving on stuff.”

Part of the CTO’s strategy for moving swiftly on immediate tech needs is to identify how to engage startups instead of building from scratch. Beyond traditional requests for information (RFIs) and requests for proposals (RFPs), the team reaches out for information and promotes DC technology at major tech events. WeDC was a prominent display promoting DC tech companies at SXSW.

DC is actively working on nailing down its procurement and processes to support a startups-in-residence program. Vemulapalli called San Francisco’s tech team to learn more about its startups-in-residence program. She says:

“I think the beauty of startups in DC is you guys understand government way better than they do in other areas. California is just figuring it out now. We see more companies now from California coming here to pitch to government because they realize it’s a good, stable client. I want to make sure we create the opportunity for businesses locally, too.”

Coming soon: Watch for DC government hackathons, pitches, and reverse pitches to match up needed and existing technology from local startups. In addition to serving individual agencies, the CTO has begun to use data to run what she calls a Smarter DC.

Advancing on Potential vs. Accomplishment

There is an insidious practice that Vemulapalli feels both men and women need to recognize and address to truly level the playing field in technology. In her experience, women get opportunities based on demonstrated ability, not potential. She has not always seen this to be the case with her male counterparts. She explains:

“Every job I got, I got only because I was delivering above and beyond. Every promotion I got, I would always get the feedback of ‘hey, you need to be performing at that level and then you can move up.’ But I didn’t see that always apply to my male counterparts. Either they had a separate conversation or they were like ‘this candidate has great potential.’ I always heard this. I heard potential and then when it came to me it was always performance.”

Ask for What You Want

Vemulapalli suggests that instead of pushing to excel and prove beyond reason that they’re great at something to get promoted, women should be direct and ask for the opportunity to show their potential.

“The single biggest disservice you can do for yourself is not asking,” she says. “What’s the worst someone’s going to say, no? At least get a plan for what you can do to get there. They know you’re interested. I think most of the time we assume someone else is going to understand what we want. We have to articulate.”

Don’t Forget to Relax

“The best advice I got is to never take things too seriously,” Vemulapalli concludes. “You only live one life and life is short, so whatever it is just forget about it and go to sleep. I truly believe that. I won’t take anything too seriously. I do what I have to do, but at the end of the day I shut down. If you stick with that life gets a lot better.”

 

A version of this story appeared in StartupGrind.com.
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Mark Walsh Spreads Billions of SBA Dollars to U.S. Innovators

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It’s 7:15 am and Mark Walsh, Associate Administrator, Office of Investment & Innovation for the Small Business Administration takes the photo op anyway.

Mark Walsh is the ultimate connector. He’s smart and his can-do confidence, experience and business/political connections and know-how have positioned him to invest billions of taxpayer dollars into a diverse cross-section of American innovators for the U.S. Small Business Administration (SBA). Mark is Associate Administrator of the SBA’s office of Investment and Innovation.

He recently told the capacity crowd at a Connectpreneur networking event in Bethesda, Maryland, how his fateful stint as chief executive founder at liberal talk-radio, network Air America Radio, led to his current adventure. It was there that he met Javier Saade who later called him for a recommendation for a job to help the SBA invest billions of tax dollars in a fund of funds (a portfolio of other investment funds) and startups. The SBA Associate Administrator for Investment, Special Advisor for Innovation, at the time Sean Greene, had been a sales executive Mark knew from AOL.

Mark recalls:

“That job sounded so good I thought I’d like to have it myself — but I promised to recommend Javier so I did and he got the job…He said he was building it up so it would be big enough for me and I fell for that sales job. When he was ready to move on he called me and said ‘It’s time to come meet the Administrator.'”

Welcome to the Government

In November 2015, President Obama appointed Mark to his current position, which was just the focused mission he needed. He says his title, Associate Administrator, Office of Investment and Innovation for the U.S. Small Business Administration, sounds a little “government-y … I fell in love with the job, I fell in love with the organization. It’s great to be here.”

mark&Tien

Mark Walsh is comfortable in the spotlight since his early days as a TV newscaster in West Virginia. Tien Wong (Right), entrepreneur, community leader, and founder of the Connectpreneur networking event, jokes that he could simply ask Mark one question, sit back and Mark would fill the allotted time for the fireside chat. Says Mark about his job distributing SBA funding for innovation: “I’m really the luckiest, happiest guy I know.”

A Baltimore Boy & His Personality-Plus Mom

A Baltimore native, whose mother went into labor with him at an Orioles Game, Mark spent two years as a newscaster for a West Virginia television station before earning his MBA at Harvard Business School. He draws the audience in with the fun fact that his mother was the voice of the little boy who called out “More Parks Sausages, Mom — Please?” in a popular radio ad campaign. He finishes warming up the crowd by recounting his childhood memory:

“I would be sitting in the carpool and the ad would come on the radio and she would do it live for us in the car.”

Billions to Invest

Through the office of investment and innovation, he’s got $6.5 billion per year (refreshed) of tax dollars to invest in either fund of funds or in startups. One of his goals is to distribute all of the $4 billion in Small Business Investment Company (SBIC) authorization per year, not just part of it, as the office has hit $2.7 – $2.9 billion in the past 6-7 years. He says he can’t tell you exactly why it is so difficult to give away, but “I’ve got theories.”

“When we get an application for debt, there is a whole lot of paperwork on the entrepreneur’s background. We have a sister agency called the F-B-I [pause for laughter]… You’d be amazed how many of those founders/partners conveniently forget that arrest senior year of college. Or,…” He says, about to add another example but reconsiders and says:

“We do have a layer of mandated investigation. It’s your money; we have to be prudent and proper. It does take more paperwork and it takes time. It’s at least six months before you can get a yes, and you do that on your own time.”

Identifying investment candidates that create jobs and advance much-needed research for the U.S. government at a low loss radio takes some doing. Mark points out that the office of investment and innovation distributes taxpayer dollars is a zero subsidy program. “We generate jobs, we have a low-loss ratio and generate a positive cash-flow for the Department of the Treasury.”

Two main focuses of the annual multi-billion deployment he oversees are:

  1. Fund of funds = $4 billion a year of  SBIC leveraged, cheap debt for 10 years at 3.5% interest to venture capital funds, PE funds, business development companies, and bank funds. Of particular interest are high impact funds, which spend 51 cents of every dollar supporting innovation in super rural or urban geographies; on businesses owned by women, Native Americans/minorities, wounded veterans and companies that pursue President Obama’s three major initiatives: Advanced Manufacturing, Clean Energy, and Education Software and Services. He observes: “These days impact funds are raising more and more money and their returns are at or in some cases exceeding market expectations.”
  2. Startups = $2.5 billion in cash, not debt, each year and a trip to the front of the line for a license, to thousands of entrepreneurs with technology that is matched against  government research needs. Investment examples include iRobot, the Roomba robot vacuum built on technology that remembers surfaces covered when sweeping for landmines in the field; Epibone, which grows human bone; a replacement for Styrofoam packing pellets made of mushroom material; and a utensil  that compensates for a shaking hand, a simple idea/company that Google just purchased.

“Go to SBIR.gov and you’ll see a long line of RFPs [Requests for Proposals] from U.S. government agencies. So if DOD [Department of Defense] says ‘I need a bench chemist or startup to have a way to weave Kevlar to be more bullet resistant,’ it’s a natural pathway for innovation and research for startups that want the government as an early customer.”

Collaborative Culture Skills

Mark spends a lot of time in what he calls “the political zone.” He was the Democratic Party’s first Chief Technical Advisor and Head of Internet operations for the Kerry Presidential Campaign in 2004. Like his colleagues, he will be prepared for the changes a new administration could bring, but assumes that at his level it will have months to prove himself.

In an effort to keep his dream job, Mark practices positive, politically correct speech — careful to add phrases like: “I joke because I love…” just in case some innocent humor could be misconstrued.

A straight shooter, who has been known to swear for good effect, Mark honed his diplomatic skills over about eight years as the Chairman of the Board of Directors of the Bipartisan Policy Center, a think tank (they fondly called a “do tank”) founded by four former heads of the US Senate: Tom Daschle, George Mitchell, Howard Baker, and Bob Dole.

Out of the Trenches, Onto the Road

In the Washington, DC, startup trenches, Mark  was executive chairman of Homesnap.com, a residential “prosumer”real estate platform/app backed by fellow AOL alum via Revolution Ventures (September 2013 – November 2015) and CEO and co-founder of GeniusRocket (June 2007 – November 2015), crowd-sourced marketing for major brands and global nonprofits. During these years and earlier, beginning in January 2003, as Managing Partner of Ruxton Ventures, LLC, he served on a mixed bag of boards.

On the big corporate side, has been a division head and senior executive at technology and content companies, such as GEnie, AOL and HBO.

It wasn’t always sunshine and sausage. Mark lived through the March 2000 dot-com bubble collapse as CEO and Chairman of VerticalNet, which he took public on the NASDAQ in 1999. Terrible but instructive times.

In the quest to be “a really good fund to fund manager,”Mark aims to get more SBIR dollars into the marketplace for innovation and research that helps our government and helps commercialization as smoothly, efficiently, and in as technologically sophisticated way as possible. He says:

“If you look clownish in how you use technology, your customers and your clients will consider you as such. We’re getting a lot better at using technology to provide those funds to our partners and making sure it’s tracked.”

Mark and his team are taking their search for innovation and diversity on the road to regions such as Nashville, Pensacola, and Chattanooga. They would be considered unsuccessful if two-thirds of American capital goes into 25 zip codes, as it does currently. “It’s understandable, but not sustainable,” he says. To lighten up the room, he tears off on a riff:

“You’ve heard of Steve Case’s ‘Rise of the Rest’ bus tour? We have a bus, it’s a cheaper bus, it’s a government bus…it’s actually not a bus, we hitch hike, just so you know. If anyone is riding to Louisville after the event, I’ll be out in front of the hotel.”

Right now, there’s no place else Mark Walsh would rather be. The money to support innovation and job creation, the impact on diversity in all its forms, and the partnerships with government agencies add up to a job he “loves and wants to stick around and keep doing.”

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Esther Dyson’s Way to Wellville Meets Muskegon: Michigan’s Unhealthiest County

Esther Dyson, created Way to Wellville to contribute to what's known about how communities can generate health.

Esther Dyson, created Way to Wellville to contribute to what’s known about how communities can generate health.

On the eastern shores of Lake Michigan, Muskegon, Michigan, has it all: recreation, festivals, a couple of Miss Americas, an Astronaut, actors, musicians, a U.S. ambassador, an NFL quarterback, a wealthy lumber baron, a TV evangelist and others who have achieved in broadcasting, science, technology, literature, and politics. However, the most densely populated city in Michigan (2010 Census, 38,000) has another side, not featured on the local Chamber of Commerce website: Muskegon fell to last in the state for public health. What happened after they hit bottom is when things got interesting.

I might never have heard of Muskegon had it not won one of only five slots for a ten-year cultivation program called the Way to Wellville, created by Esther Dyson. Together, the county is pulling together over a ten-year period to improve key health markers so it can figure out how this and other communities can support a healthier population.

About 18 years ago, Jeff Fortenbacher, now age 55, CEO, Access Health, returned to a suburb of Muskegon after attending college in Florida and spending time away. He got his masters in psychology, and set up shop not far from his father’s foundry, which manufactures metal castings for many different types of products.

Jeff practiced psychology for 10 years, gravitating towards and landing in management/administrative roles, such as his role at his local Health Department. He understands the importance of addressing the psycho-social determinants of illness or health. Muskegon is fertile ground to explore community instances of: alcoholism, depression, homelessness, hopelessness, mental health needs, smoking/tobacco/substance abuse, obesity. It was found to have the highest instance of smoking and obesity in the state.

Local Rotary Makes Community Health a Priority

When the town’s local Rotary made promoting a healthier community a top priority, “Then things started to happen,” Jeff says. “We, as a community started a program here called Access Health that was to provide a community health coverage program to lower income, working, uninsured people.”

Why so many uninsured —  and under-insured — working citizens? These are the mom and pop businesses and local contractors and freelancers who work hard every day but don’t have sufficient health care coverage to protect their savings in the event of a catastrophic event. Our approach was to leverage the person’s access to our healthcare services to say you have to be an active participant in your health care.

“We gathered and disseminated data in cooperation with local businesses, the health system, and other community leaders, from religious institutions to local, environmentally conscious groups,” says Jeff. It would help when they donated their staff time to assist with local county contracts.

Jeff applied the lessons learned from his home-care company. He thought, in a sense I have a problem because the symptoms are there for a reason, a lot of times those symptoms are there because of behaviors and other things that need to be addressed.

“As part of that we started to initiate a lot of different education classes, business processes that reinforce multiple interactions with that individual on a yearly basis and also starting to gather the data and metrics around their healthcare and healthcare issues and the psycho-social issues that impact that.”

Under the Access Health model, each person has an individual health coach whom they meet with twice per year. There’s some preventive care and they meet with an exercise physiologist or a trainer. They set goals.

Jeff got help putting the pieces in place from local community participation. He says:

“We have offered a full coverage health coverage program for the last 18 years. For the majority of those years, it was $44 for employees. Then, $44 and through the DISH and the hospital support we’ve covered the other 40% of coverage.”

It is better than overcrowding the Emergency Department, today’s correct term for Emergency Room. Maybe they’re hoping people won’t be able to find it? Under the current system, the hospital is still a profit cetner, rewarded a high dollar value for donating community services. A healthy, fun routine for diabetes prevention instead of waiting and having to amputate? Yes, please.

How Jeff Got on Track

As soon as Jeff knew what he wanted to do for the community, he had no trouble getting support from community leaders, from schools to religious leaders, to the people themselves in the first town hall of its kind in the area. He bought a home-care company. He says: “That’s where I really got on track. As part of the home-care company, I would implement the behavioral health part of stuff.”

Jeff thrives in his medical/psychological practice and likes knowing he is significantly impacting the entire community as part of an effort to “put grains of sand in the engine” of this giant boat that’s been heading in the wrong direction. It takes time to turn it and initiatives to make community behavior healthier.”

He based his practice on asking for referrals of the most difficult patients — the ones always calling their doctors for visits, but were non-compliant. They waste time and money without getting a handle on the factors that have a negative impact on their health.

Jeff says: “If someone’s depressed, helpless, hopeless, isolated, all those things going on why are they going to take their medications as prescribed? They aren’t. They aren’t going to go to treatments either. So, I would go in and we work with them on multiple different things, whether it was financial health, social health, or physical health. Jeff’s multidisciplinary approach required that people agree to engage with their health care.

Jeff’s strategy, individual tracking software, and coaching team for each individual’s active engagement in healthcare reduced spending an average of $70,000-$80,000 in home care services down in to the $15,000-$20,000 range. They kept track of people by requiring several visits a year and telephone intervention and/or personal counseling visits to discuss recurring symptoms. The idea, was not to note that health markers were deteriorating, but to do something about it with a health coach.

His Biggest Mistake

Jeff’s engagement/accountability model was a great idea. Less than a great idea was building his entire caseload around cases with the toughest patients, who required hundreds of initial visits to get them on their est chance for a healthier, sustainable path.

Treating significant psycho/social issues to address did not improve when the healthcare rules changed. People needed time, often hundreds of visits, to scope out a plan with which an individual could live a happier, healthier life. The data collected could help Muskegon with better community practices and leadership fueled by requiring individuals to participate in and take responsibility for their health.

Among the local pilots that didn’t make it long past two years:

Stay Active Muskegon (SAM), which established the expectations of more movement and how to get its community’s people more active as a way to increase local health. It had not been tied to engaging people in healthy routines and holding them accountable for more movement.

Things really started taking off when the local Rotary stepped up healthcare as a priority.

We started the #1 in 21 initiative, Jeff explains. The goal was to be the number one healthiest county in Michigan by 2021. “Well you wouldn’t want to aim for #3, that wouldn’t be as interesting.”

The town kicked off the initiative with a series of billboards that put two objects representing health and unhealthy choices per board — a running shoe and a recliner chair; a cigarette upright next to an asparagus stalk. It was part of a campaign that illustrated how small changes add up to a healthy life. Access Health software feeds in data from individual Fitbits and other devices to maintain a patient overview and early warning system. That’s when a coach is alerted to start a discussion with the insured.

“Under the current fee-for-service system, people chase CPT Codes, which prescribe every procedure a doctor or hospital performs. The CMS is starting to say, we can’t continue doing this. We need a value-based system. We came up with a software system and a way to assign a health risk score to each individual in our system. As they move to a capitated system, which provides a set amount e.g., $300 per member per month to manage this population, healthcare campaigns need optimization. Preventive care, education, support, and accountability are helping Muskegon make small changes that could add up to a community with a healthy population.

Esther Dyson and the Way to Wellville team brought questions to the table to help ensure there was a defined structure around the program — goals, processes, expectations, metrics, and review.

It’s a big topic. Over the past year, year and a half, Esther and Welville have helped the 1 in 21 team to clarify its goals and how it hopes to achieve them. “How are we going to keep it focused? What is the existing capacity — such as Access Health, and what specific things will they do? Led by 1 in 21 coordinator, Jamie Helsen, 1 in 21 will be adding some structure to the program, defining specific metrics, and then looking no just at the leadership but also at bringing the community along to support them.

To date, because of some of the things they’ve done Muskegon has been designated as a States Innovation Model Community/grantee. Esther herself has been instrumental in saying ‘You guys need to do things to get more focused. You have ideas but not total understanding of what it takes to drive and make the changes.’ She reminds us we are dealing with years and years of embedded behaviors and changing direction of a huge ship of generations of culture.

The Wellville Five and the Way to Wellville team will be talking about their progress and learning from their mistakes as well as their successes over the next eight years. By the end, they hope that others will be following their lead in cultivating a healthy population.

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