He45yinc magazine october 2015 by voolodedasd

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DRIVING LUXURY.

THE ALL-NEW BMW 7 SERIES. THE MOST INNOVATIVE VEHICLE IN ITS CLASS. Experience uncompromised luxury and cutting-edge technology, with 13 innovations found in no other luxury vehicle. And with its lighter Carbon Core frame and 445-horsepower engine, this BMW delivers exactly the kind of performance you’d expect from the Ultimate Driving Machine.®

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WorldMags.net The all-new BMW 7 Series

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“One of the world’s biggest problems ıs buildings that create the most carbon, use the most energy, and are unhealthy for many people.” —MICHELLE KAUFMANN, co-founder of Flux, which produces collaborativedesign software tools for the architecture industry

PG.

PHOTOGRAPH BY DREW KELLY

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OC TOBER 2015 - INC. - 3

DREAMING OF AN IPO? Read what founders have to say about life after going public.

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32 • LAUNCH

BUILT TO LAST (AND LAST … AND LAST) A growing number of entrepreneurs are eschewing external funding and concentrating instead on creating companies to last 100 years. By Bo Burlingham —

47 • LEAD

THE MOST INNOVATIVE WOMEN ENTREPRENEURS

—

THE LONGEST GAME Many founders will tell you they’re playing the long game. But no one is doing it quite like Theranos’s Elizabeth Holmes. By Kimberly Weisul

94 •

Features

128 • INNOVATE

MONEY

DO YOU REALLY WANT TO GO PUBLIC?! Founders who have taken on IPOs share the good, the bad, and the ugly from the other side of the public-private divide. By Tom Foster —

Will the Next Steve Jobs Be a Woman? — Inside the Mind of Sheryl Sandberg —

THE IMPACT 50: MAKING THEIR MARK The Inc. Impact 50 honors the female-led companies from this year’s Inc. 5000 that made the biggest revenue gains. —

THE KING OF SPA CASTLE

Steve Chon’s drive, determination, work ethic, and single-minded focus helped him build his spa empire—and led him to almost lose it all. By Saki Knafo —

ON THE COVER ELIZABETH HOLMES, CEO AND FOUNDER OF THERANOS, PHOTOGRAPHED IN SAN FRANCISCO BY PAMELA LITTKY 4 - INC. - OC TOBER 2015

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CONTENTS

THIS PAGE: ZOHAR LAZAR; ON THE COVER: HAIR AND MAKEUP: LINDSEY SMITH/TOKYOSF; STYLING: HEATHER SANDERS/TOKYOSF

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14 Editor’s Letter Why the next iconic founders will be women 16 The Inc. Life To get inspired, Blueprint Health co-founder Brad Weinberg likes to take a dive 156 Founders Forum Sandy Lerner, co-founder of Cisco and founder of Urban Decay —

21 •

LAUNCH

120

Departments

156

— 22 Tip Sheet Writing a book? You probably won’t sell many copies, but it could do great things for your image. Plus: The Jargonator and Norm’s Take 28 Positive Energy Building a better breakup: How Wevorce is helping couples ﬁnd a more civil split 30 Inc. 5000 Insights Flying hire: Magellan Jets mines a surprising client base to boost its membership and help revenue take off 44 Thomas Goetz Launching the dangerous, disruptive (smart) company —

47 •

LEAD

— 82 Norm Brodsky Women ask better questions when building a business—and men can learn from that —

85 •

119 •

INNOVATE

— 120 Tip Sheet Do you dare to take shares? A guide to taking, and giving, equity for services 124 The Startup Factory The founders, executives, and engineers of Palantir have created an impressive list of other companies as well 138 Disrupter The doctor who wants to revolutionize primary care 142 Jason Fried Conversations have two gears. Learn when to shift the chat into low —

6 - INC. - OC TOBER 2015

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CONTENTS

CLOCKWISE FROM TOP LEFT: ANDY ROBERTS/GETTY; POLLY BECKER; COREY OLSEN; MELISSA GOLDEN

MONEY

— 87 Tip Sheet Pick the best 401(k) plan for your employees 117 Helaine Olen How to assess an out-of-the-blue investment offer —

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TOP VIDEOS on Inc.com

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I N C .C O M / L E A D

4 Time-Wasting Habits to Stop Now Just being busy doesn’t mean you’re being productive, says Inc.com columnist Lolly Daskal. Don’t make Inc.com these mistakes

—

I N C .C O M / P L AY B O O K

Kim Kaupe

—

Co-founder of ZinePak

DOING EVERYTHING AT ONCE

ON WHY YOU NEED MENTORS

Multitasking won’t save you time, and it lowers the quality of your work. Focus on one project instead.

“It saves the people around you from having to live through your mistakes.”

2 MICROMANAGING

You can’t—and shouldn’t—do everything yourself. Letting others take on tasks beneﬁts the whole team, and shows that you’re a good leader, too.

— WORKING WITHOUT A GOAL

— PUTTING THINGS OFF

Procrastination only makes you feel guilty—deadlines will still encroach.

Without a sense of purpose, your work will often miss the mark. Keep in mind exactly what you’re trying to achieve.

Go Beyond the Page You’ll ﬁnd the icon at the left on selected pages throughout this issue. That’s your signal to grab your smartphone or tablet and go deeper with the content on those pages. Here’s how: 1. Download the free Layar app from the Apple or Android store or at layar.com. 2. Launch the app and scan any page carrying the icon. 3. Inc. videos and other bonus content will instantly appear on your mobile device.

8 - INC. - OC TOBER 2015

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I N C .C O M / I N C L I V E

Theo Goldin COO of Hint Water ON CREATING A GREAT PRODUCT

“I found myself drawing on everything from my chemistry background to my legal background.” CONTENTS

CLOCKWISE FROM TOP RIGHT: NUSHMIA KHAN; JB JAKUBEK; HANS NELEMAN/GETTY

—

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YOU MAY BE OUTNUMBERED, BUT NEVER OUTSMARTED.

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WorldMags.net THE ALL-NEW 2015 EDGE

BE UNSTOPPABLE

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WorldMags.net PRESIDENT AND EDITOR IN CHIEF

EDITOR

JAMES LEDBETTER

PUBLISHER

JOHN DONNELLY

ERIC SCHURENBERG

CHIEF OPERATING OFFICER, DIGITAL

MICHAEL MORELLO

DEPUTY EDITOR, STRATEGY AND BUSINESS DEVELOPMENT ALLISON FASS MANAGING EDITOR JANICE MALKOTSIS EXECUTIVE EDITORS JON FINE, LAURA LORBER SAN FRANCISCO BUREAU CHIEF JEFF BERCOVICI LOS ANGELES BUREAU CHIEF LINDSAY BLAKELY FEATURES EDITOR DIANA RANSOM SENIOR EDITORS MARIA ASPAN, DOUG CANTOR, KRIS FRIESWICK, VANNA LE, DANIELLE SACKS ASSOCIATE EDITOR KEVIN J. RYAN EDITORS-AT-LARGE WILL BOURNE, LEIGH BUCHANAN, BO BURLINGHAM, TOM FOSTER, BILL SAPORITO, KIMBERLY WEISUL, DAVID WHITFORD SENIOR WRITERS CHRISTINE LAGORIO-CHAFKIN, ILAN MOCHARI, JEREMY QUITTNER SENIOR CONTRIBUTING WRITER BURT HELM STAFF WRITERS GRAHAM WINFREY, WILL YAKOWICZ SOCIAL MEDIA EDITOR STEPHANIE MEYERS REPORTERS ZOË HENRY, TESS TOWNSEND CREATIVE DIRECTOR BLAKE TAYLOR PHOTOGRAPHY DIRECTOR TRAVIS RUSE ART DIRECTORS SARAH GARCEA, KRISTIN LENZ DEPUTY PHOTO EDITOR ERNIE MONTEIRO ASSOCIATE PHOTO EDITOR HANIFA HARIS DIGITAL PRODUCTION MANAGER JOEL FROUDE DIGITAL PHOTO EDITOR MARGO DOONEY EXECUTIVE VIDEO PRODUCER DEVIN ROGERINO VIDEO PRODUCER NUSHMIA KHAN WEB PRODUCER THOMPSON WALL ASSISTANT MANAGING EDITOR ABIGAIL BARON COPY CHIEF DAVID SUTTER COPY EDITOR PAM WARREN PRODUCTION MANAGER ANA ZAPATA SENIOR CONTRIBUTING EDITOR NORM BRODSKY CONTRIBUTING EDITORS DONNA FENN, JASON FRIED, THOMAS GOETZ, MARLI GUZZETTA, JEFF HADEN, BERT JACOBS, GEOFFREY JAMES, PAUL KEEGAN, PATRICK LENCIONI, HELAINE OLEN, BEN SCHOTT, AMY WEBB, LIZ WELCH INTERNS JOYZEL ACEVEDO, SPENCER BOKAT-LINDELL, ISOKE CULLINS, JACK DONNELLY, ELAINE GODFREY, VALERIE HEINMETS, ANNA HENSEL, KIMBERLY KIM, SOPHIA MALKOTSIS, BARTIE SCOTT SALES AND MARKETING

PUBLISHER, INTEGRATED SALES RICHARD RUSSEY ASSOCIATE PUBLISHER, NATIONAL CONFERENCE DIRECTOR LISA BENTLEY ASSOCIATE PUBLISHER, MARKETING JENNIFER HENKUS RESEARCH DIRECTOR REG UNGBERG ASSOCIATE RESEARCH DIRECTOR BEN O’HARA NEW YORK SALES DIRECTOR KERI HAMMER SAN FRANCISCO SENIOR INTEGRATED ACCOUNT MANAGER MICHELE KUHNS NEW YORK SENIOR ACCOUNT EXECUTIVES AMY CHRISTIANSEN, MEREDITH DeLUCA, ALAN MOY: 212-389-5300 ACCOUNT MANAGERS VIVIENNE GILLMETT, CHRISTINE RIDENOUR DIGITAL CAMPAIGN MANAGER KIRK INOCENCIO SENIOR ADVISORS CHRIS ANDREWS, IRVIN V. FALK ATLANTA JASON ALBAUM: 404-892-0760 CHICAGO MEREDITH WISNIEWSKI: 708-929-8126 DALLAS STEVEN G. TIERNEY: 972-625-6688 DETROIT GEORGE WALTER: 248-709-0727 LOS ANGELES/SOUTHERN CALIFORNIA RICHARD L. TAW III: 310-341-2341 INTERNATIONAL JOHN DONNELLY: 212-389-5345 CLASSIFIEDS ANN MARIE JOHNSON: 727-507-7505 FRANCHISE AND MARKETPLACE TOM EMERSON: 212-655-5220 INC. LIVE

DIRECTOR, STRATEGIC PARTNERSHIPS AND EVENTS LYNN SHAFFER SENIOR EVENT PRODUCER TENNILLE M. ROBINSON EVENTS COORDINATOR SHANNON BYRD ASSOCIATE MANAGER OF STRATEGIC PARTNERSHIPS AND CONTENT EMILI KAUFMAN CONSULTANT BREANA MURPHY BUSINESS RESOURCES

DIRECTOR OF OPERATIONS DARCY LEWIS EXECUTIVE EDITOR, CONTENT STRATEGIES SCOTT LEIBS DIRECTOR, BRANDED CONTENT PETE FRANCO ASSOCIATE DIRECTOR, INTEGRATED MARKETING KELSEY RODENBIKER SENIOR INTEGRATED MARKETING MANAGER MARY MOORE ASSOCIATE DIRECTOR, ACCOUNT MANAGEMENT BILLIE GIBSON ACCOUNT MANAGERS VANESSA BRAND, CELESTE GARCIA MARKETING AND RESEARCH COORDINATOR SHERICE GOODWINE GROUP VICE PRESIDENT, MARKETING PATRICK HAINAULT EVENTS MARKETING MANAGER MARCIE ROSENSTOCK ASSOCIATE MARKETING MANAGER LINDA LAU ASSISTANT MARKETING MANAGER ALYSSA PARSONS DESIGN MANAGER HOJOON JON DESIGNER MYUNG-HUN JIN PRODUCTION

GROUP DIRECTOR KATHLEEN O’LEARY ADVERTISING OPERATIONS MANAGER SUNG WOON KIL GROUP MANAGER JANE HAZEL FINANCE MANAGER BOB BRONZO ASSOCIATE MANAGER DAVE POWELL CONSUMER MARKETING

DIRECTOR ANNE MARIE O’KEEFE CIRCULATION OPERATIONS DIRECTOR DOUG SMITH SENIOR MANAGERS TYLER ADAMS, KATHRYN C. KMIOTEK MANAGER REBECCA SULLIVAN

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D I G I TA L D E V E L O P M E N T

GROUP DIRECTOR JASON TAGG DESIGN DIRECTOR HAEWON KYE SENIOR ART DIRECTOR JANET WAEGEL ART DIRECTOR ASHLEY O'BRION SENIOR DEVELOPER JOHN GUARAGNO DEVELOPERS AMINE BELKADI, SEAN CONNER, ANNMARIE CONWAY, NICK MANNING PRODUCTION DESIGN SPECIALIST ADAM KELLY D I G I TA L M E D I A A N D O P E R AT I O N S

GLOBAL HEAD STEVEN SUTHIANA DIRECTOR JONELLE MARINO LASALA SENIOR DIGITAL ANALYST CHRIS CATTIE DIGITAL ANALYST CHRISTIAN SEGARRA MANAGER, DIGITAL BUSINESS SELIN ERDINC ASSOCIATE DIRECTOR, REVENUE OPERATIONS DAVID VASQUEZ COORDINATORS, REVENUE OPERATIONS GABRIEL COFFEY, MEAGHAN CURRAN, NINA RUBIO DIGITAL AD TECHNOLOGY DAVID ROSENBAUM ASSOCIATE DIGITAL TECHNICAL COORDINATOR PATRICIA CARBAJAL ACCOUNTING

CONTROLLER EVE PAI SCHNEIDER ACCOUNT MANAGER JACQUELINE NURSE STAFF ACCOUNTANT SHARITA NEVERSON ACCOUNTS PAYABLE MANAGER MARILOU ORDILLAS PAYROLL MANAGER/ACCOUNTANT CHAREYL RAMOS MANSUETO VENTURES LLC

CHAIRMAN JOE MANSUETO CHIEF FINANCIAL OFFICER MARK ROSENBERG DIRECTOR, HUMAN RESOURCES MILES M. MERWIN DIRECTOR, FACILITIES RANDY DAVIS FACILITIES ASSISTANT/RECEPTIONIST TIFFANY TAM

HOW TO REACH US SUBSCRIPTION SERVICE: Inc., P.O. Box 3136, Harlan, IA 51593-0202 800-234-0999 or icmcustserv@cdsfulfillment.com OFFICE OF THE PUBLISHER: 7 World Trade Center, New York, NY 10007-2195 212-389-5300; www.mansueto.com EDITORIAL PHONE: 212-389-5377 FAX: 212-389-5379 WEB: www.inc.com LETTERS TO THE EDITOR: mail@inc.com PERMISSIONS: permissions@inc.com INC. 500/INC. 5000 INFORMATION: feedback5000@inc.com REPRINTS: 800-290-5460 ext. 128 or increprints@theygsgroup.com BACK ISSUES: 800-234-0999 Our subscribers list is occasionally made available to carefully selected firms whose products or services may be of interest to you. If you prefer not to receive information from these firms, write to the subscription service address above.

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WorldMags.net WELCOME

THE NEXT ICONIC FOUNDERS WILL BE WOMEN

NE OF THE mysteries of entrepreneurship is why there aren’t more women in the ranks of top business owners. According to Babson College, from 2011 to 2013 only 15 percent of venture capital–funded companies had a woman on their executive teams—and not even 3 percent of all companies getting funded had a female CEO. Among this year’s Inc. 5000—which measures success in the real marketplace, rather than in the eyes of venture capitalists—13 percent are run by women. But even that makes no sense when 37 percent of MBA graduates and 36 percent of all business owners are women. There are plenty of explanations, ranging from blindered male VCs to lack of role models to unconscious prejudices among both men and women. But what

struck the team behind this month’s Most Innovative Women package, led by senior editor Danielle Sacks and editor-at-large Kimberly Weisul, wasn’t how entrenched the absence of top female entrepreneurs is. It was how unsustainable it is. Is lack of capital the problem? That’s easing: Not only are male VCs coming around, but there are now plenty of women-focused investment firms. Is it lack of role models? Turn to the stories beginning on page 47—and you’ll find amazingly inspiring women founders in every field. In other words, a female Steve Jobs is not just a headline. It’s also an inevitability. I ran this notion past a couple of women entrepreneurs in their 20s—on the premise that their generation will undoubtedly be the one to birth the first female Steve Jobs. They too seemed a bit stunned at how fast things are changing. Carly Zakin and Danielle Weisberg, both 29, founders of theSkimm, the wildly popular currentevents newsletter edited for Millennial women, faced some skepticism when they pitched their idea three years ago. “We got a lot of ‘I don’t understand it, but my wife reads you,’ ” says Zakin. “One prospective investor asked if we shared a bedroom. We don’t.” Despite all that, most of their early investors were men, but since then the number of female

14 - INC. - OC TOBER 2015

mentors—not to mention female engineers and investors—has mushroomed. “So much has changed in just the past three years,” says Zakin. Stacey Ferreira, 22, sold her ﬁrst company two years ago to Reputation.com and is now on her second company, Forrge, a retail job marketplace backed by a Thiel Fellowship. Just seven years younger than Zakin and Weisberg, she says she has never felt that anyone has put gender-related obstacles in her way. “I’m not sure a woman founder 10 years older than I am would be able to say that,” she says, and acknowledges what a blessing that is. Founding a company is hard enough without worrying about a glass ceiling. Which is as good an intro as any to our proﬁles of Elizabeth Holmes and the other seven founders we’ve dubbed Inc.’s Most Innovative Women. Do they believe anything is holding them back? Not on your life.

Eric Schurenberg erics@inc.com

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EDITOR’S LETTER

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VA C AT I O N I N G W E L L

MAKING THE LEAP Blueprint Health’s Brad Weinberg wasn’t getting enough of a rush from competing in triathlons. So he started jumping into thin air Photographs by LUKE EVENS

16 - INC. - OC TOBER 2015

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NATURAL HIGH Brad Weinberg, several thousand feet above Central Florida, where he often trains with his skydiving team.

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THE INC. LIFE

“Hopefully, after WorldMags.net seven jumps, you’re able to jump by yourself.”

— BRAD WEINBERG, co-founder, Blueprint Health

LOOK! UP IN THE SKY! From top: Weinberg (center) sharing laughs with his skydiving team, the DeLand Falcons; focusing inside the aircraft; clasping on to create a perfect star.

18 - INC. - OC TOBER 2015

HEN BRAD WEINBERG turned

25, he jumped out of an airplane for the ﬁrst time. “It was a tandem skydive”—in which a novice is harnessed to an instructor— “and that’s what I thought skydiving was,” says Weinberg, co-founder of Blueprint Health, a fund that invests in health care tech companies. “Something you do on a birthday. Just something for fun.” But one day, Weinberg got to Googling. He watched videos of skydivers interlocking their limbs in midair, and read competitive skydiver Dan Brodsky-Chenfeld’s book, Above All Else. “That’s when I learned it’s actually a sport,” Weinberg says— and found a whole new way to vacation. An athlete and achiever by nature—he competes in triathlons “to stay active” and earned an MD before starting his business—Weinberg, who’s now 34, was hooked. He began making weekly jaunts to a facility near Orlando called Skydive DeLand. First up: an accelerated free-fall course—how to deploy a parachute, use altitude awareness to open it at the right time, and maintain stability in midair. In Florida, he met three guys with whom he’s formed a team for training and to practice positions like the star, in which multiple skydivers hold onto one another’s arms. They plan to compete in a national championship this year at DeLand, where they’ll perform an assortment of skydiving formations as many times as possible in 35 seconds. Weinberg’s now made jumps in Florida and in upstate New York, savoring the vantage point that skydiving provides. “One of the exciting parts,” he says, “is seeing locales from a completely different perspective—when you can look at an area and see things that you can’t when you’re on the ground.” Next on his list: Hawaii, Panama, and Dubai, and wingsuiting—that is, wearing an outﬁt designed to maximize midair hang time—off a Scandinavian cliff. “It’s a moment to kind of step back,” he says of his hobby (which actually requires him to step forward). “It’s funny to say that jumping out of an airplane from 13,000 feet lets me relax, but it really does.” —SHEILA MARIKAR

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THE INC. LIFE

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WorldMags.net Who says it’s lonely at the top? Come to network, be inspired, and celebrate.

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JW Marriott Orlando Grande Lakes | October 21-23, 2015 Purchase your ticket for the biggest celebration of the year. RSVP at inc5000conference.com

WorldMags.net FOUNDATION FORWARD, INC. A 501(c)(3) Non-Proﬁt

WorldMags.net PG.

WRITE A BOOK TO BUILD YOUR BRAND PG.

Start. Scale. Thrive.

“I heard a tremendous loneliness, like, ‘Is anybody else out there talking like I’m talking?’”

DANGEROUS CAN BE GOOD FOR YOUR COMPANY

—DAVE WHORTON, investor, on what led him to organize his Tugboat Summits, which bring together founders who want to build lasting companies

PG.

AMANDA RENE/COURTESY THE TUGBOAT INSTITUTE

THEY CAN SEE FOREVER CEOs of “evergreen” companies attending a Tugboat Summit in July take a break to hike through Sun Valley, Idaho.

••••

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OC TOBER 2015 - INC. - 21

TIP SHEET MARKETING

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BY THE

So, you’re writing a book. The hard truth: You probably won’t sell many copies. But it can be a powerful sales and marketing tool ILLUSTRATION BY SHOUT

HEN CORPORATE PHILANTHROPY consultant Susan Hyatt wrote a book, Strategy for Good: Business Giving Strategies for the 21st Century, it went on to win four publishing awards and got testimonials from top execs at Pﬁzer, Timberland, and Starbucks. Most important, it caught the attention of potential clients. “It does open doors,” she says. “The credibility is big. If people know you’ve written a book, they do take notice. It’s attracted new business for me, for sure.” Yet it sold just 1,000 copies. Books by or about entrepreneurs rarely sell well (unless they include the name Musk, Gates, Jobs, or Buffett), so if you’re considering writing a book, know that you most likely won’t make a dime. In fact, if you self-publish instead of working through a traditional publisher, you could spend tens of thousands of dollars. That’s why you should treat your book like a marketing investment that you can use to boost your company’s bottom line.

SAY SOMETHING UNIQUE AND VALUABLE To maximize the marketing power of your new book, you’ll need to focus it on your unique area of expertise. Once you identify what that is, you need to make sure people care. Start by asking your clients what they’re looking for in a book about the topic, suggests publishing consultant Shel Horowitz, the author of 10 books. For example, Jim Miller, an accountant and co-founder of the Sweet Box, which makes dessertbaking kits, developed his own budgeting system. His friends kept

The Jargonator Swatting the buzzwords of business By BEN SCHOTT

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WIDE-MOAT INVESTING “Investing in companies with clearly deﬁned, defensible, competitive advantages that are likely to last upwards of 20 years.” This is madness! What’s next? Proﬁt?! Source: U.S. News & World Report

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HIGH-NET WORKERS Those with “all the headaches of high net worth” salaries but without the assets to be truly rich. Like being old enough for marriage, but too young to drink. Source: The Street

LAUNCH

ILLUSTRATION: POLLY BECKER

••••

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NORM’S TAKE TO BOOK, OR NOT TO BOOK?

self-publishing, an editor ($40 to

if they were interested in it, others might be too. His book, Budgeting Doesn’t Have to Suck, was published in 2013 and has since sold just 700 copies, but it has helped Miller build his brand and position himself as a personal ﬁnance expert and public speaker.

GET HELP FROM PUBLISHING EXPERTS If you’re going to use your book as a calling card, it needs to be as wellwritten and professional-looking as possible. That’s where a ghostwriter comes in. Soon-to-be self-published

Once the hard work of publishing is done, focus on using your book launch to generate maximum exposure. Dorie Clark, branding expert and author of Stand Out: How to Find Your Breakthrough Idea and Build a Following Around It, drew attention to her book and to her business through an aggressive social media campaign coupled with direct email outreach. She expanded her opt-in email list by offering a freebie, a workbook based on Stand Out. She used the “salons” she’d organized for years with key influencers, including journalists, other authors, and educators, to generate attention beyond her circle of contacts. She reached out personally to other influencers using old-fashioned mail-merge letters. She also used the book launch as a way to secure speaking engagements at universities, professional organizations, and South by Southwest. “A book solidifies your expertise and credentials like nothing else,” says Clark.

“If people know you’ve written a book, they do take notice. It’s attracted new business for me, for sure.” author Tom Gimbel, founder and CEO of the Chicago-based staffing and recruiting ﬁrm LaSalle Network, got a ghostwriter as part of a package (which also included editing, cover design, and printing) offered for $25,000 to $35,000 by Advantage Media Group. Independently, ghostwriters charge $15,000 or more for a book-length project. If you’re

—ETELKA LEHOCZKY

THERE ARE PROBABLY 20 better ways to use the money and time it would take you to write a business book. You could attend a slew of networking events. You could launch a major advertising campaign. You could start a new business. And so on. That said, writing a book is not always the wrong thing to do. I know a guy who turns out a small volume in his area of expertise every few years. He uses the books as tools to engage with potential clients. They’re his calling card, as well as a way of differentiating himself from his competitors. And it works for him. I know others who write business books for largely egotistical reasons. They want to establish a legacy. They think they’ve learned things that will help other people. Some of them even expect their books to find a substantial audience. They’re usually disappointed. Here’s my general advice: If your business involves speaking or consulting, you should almost certainly write a book. Being an author does get you respect. If you’re a creative person and need a creative outlet, that’s another good reason to write a book. My friend and Inc.com columnist Tim Askew is a great example of this and has written eloquently on the subject. There can be substantial sales and marketing benefits to writing a book as well. Confidence is one. You do better marketing and make more sales if you exude confidence. If writing a book increases your confidence, you’ll probably get results. But if you’re writing a book for ego gratification and expect it to create sales, you can probably find better ways to spend your time and money.

Startup wisdom from senior contributing editor and veteran entrepreneur Norm Brodsky. Please send queries to asknorm@inc.com.

•••• GRETIGUE Grexit fatigue. Greveryone is grincreasingly grexhausted by grunimaginative and grating grocabulary for Greece’s greconomic gruncertainty. Grenough! Source: Business Insider

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FAUXMENTUM When a technology startup, its investors, or the market has exuberantly inﬂated expectations for growth. Fee, ﬁ, fo, fum, I smell the hype of fauxmentum! Source: Mark Suster

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STEALTH CLOUD When employees install user-friendly software apps “through the backdoor,” bypassing IT and HR. It’s an apt name: Stealth clouds are perfect for hiding Angry Birds. Source: Personnel Today

LAUNCH

iSTOCK.COM. ILLUSTRATIONS: POLLY BECKER (2)

••••

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The best or nothing.

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Don’t Go It Alone WorldMags.net

UPS CONNECT and Inc. are collaborating to bring business insights to growing entrepreneurs. At a recent event, Lindsay Gaskins, CEO and cofounder of Marbles: The Brain Store, and Brian Spaly, CEO and founder of Trunk Club, offered their insights on growing their businesses and on the importance that third-party partnerships have played in their success.

Marbles: The Brain Store

Trunk Club

Retail and online store selling games to stimulate critical thinking & memory

Men’s personal styling service

2008

$250K

“

2015

2009

$20M

Your one brain can’t solve all the problems. Bring in people who can give you advice. Lindsay Gaskins

Surging customer demand during peak periods is managed with the help of logistics consultants from UPS.

Warehouses made to function much more efficiently with a UPS Ready® program that consolidates inventory.

Customers get an enhanced experience allowing them to choose their shipping level with UPS shipping APIs built right into the Marbles site.

”

$1M

“

2014

$100M

You need to know your strengths and weaknesses and then hire other people to fill in the gaps.

”

Brian Spaly

As demand and customer base grow, Trunk Club is able to scale easily by integrating their ordering system directly with UPS WorldShip®.

Trunk Club knows exactly what supplier inventory is coming in each day with UPS Quantum View®. The visibility allows them to process and ship same day to a new member.

Orders are seamlessly integrated into their accounting systems with UPS Electronic Billing.

To watch videos with more insightsWorldMags.net from Lindsay Gaskins and Brian Spaly, go to inc.com/ups

WorldMags.net Imagine 400,000 thinkers and tinkerers working for your startup.

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WorldMags.net POSITIVE ENERGY

Building a Better Breakup Wevorce helps divorcing couples get a happier, cheaper start on the rest of their lives

ETTING DIVORCED sucks. Americans spend $30 billion to unravel 850,000 marriages each year, often resulting in empty bank accounts, broken families, and depressed, anxious children. The divorce process has been linked to heart disease, cancer, and diabetes, with health impacts lingering even after remarriage. And the fallout isn’t limited to the home: A study found job productivity falls 40 percent during a divorce. Maybe we’re doing divorce wrong, says Michelle Crosby, co-founder and CEO of Wevorce. “Divorce isn’t a legal problem,” adds Crosby, a lawyer. “It just has legal implications.” The less control a divorcing couple give to lawyers, she explains, the happier they will be with the outcome. Founded in Boise, Idaho, in 2012, Wevorce is like a divorce-focused version of LegalZoom, the online legal-form and service purveyor. Using Wevorce is akin to going through mediation while taking an online course. Over a span of three months—typically, a conventional divorce lasts a year—clients move through the steps necessary to dissolve their marriage, from divvying up assets and negotiating child support to FROM THIS learning de-escalation techniques DAY FORWARD and handling the news on social media. The process is personalized Studies show that when parents use for each couple with the aid of an mediation during algorithm similar to the one Netﬂix divorce, children are uses to recommend movies, and less traumatized by the experience. experts in areas such as child psychology and estate planning are brought in as needed for in-person or video consultations. The median cost is $5,500 (compared with $27,000 for a conventional divorce, says Crosby). Wevorce takes 10 percent (the rest goes to the lawyers and others who provide services), and the 400plus professionals in its network pay fees for training, software tools, and client leads. More than 250 couples have used Wevorce, which projects $16 million in revenue in 2016, thanks to contracts with corporate employee-assistance programs and the U.S. military. Then there are the emotional dividends. “When you get into that tug of war of who’s right and who’s wrong, it’s the children who take the emotional hit,” says Crosby. Wevorce has a 98 percent settlement rate, and 90 percent of clients say they’d recommend the service to a friend. “Hopefully, someday we’ll be the norm and the old way will seem barbaric,” says Crosby. —JEFF BERCOVICI

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INC. 5000 INSIGHTS

FLYING HIRE Targeting an unexpected market segment (jet owners) and cutting out a huge startup cost (buying planes), Magellan Jets has seen its business really take off

MAGELLAN JETS Quincy, Massachusetts 2015 Inc. 5000 rank: 3,365 Three-year growth rate: 98.4% 2014 revenue: $19.2 million Employees: 24

—

RENT, DON’T BUY

MAKE IT EASY ON YOUR CUSTOMERS

EDUCATE, DON’T SELL

Hebert didn’t go out and buy a bunch of planes at $3 million to $50 million a pop. Instead, he became a broker and struck deals with 180 charter operators with their own ﬂeets. Unlike many companies, Magellan prepaid the operators, to build long-term relationships. It also hired former pilots to handle scheduling, which, with their deep knowledge of weather, safety, and mechanical issues, they can do more efficiently than the salespeople used by many of Magellan’s competitors. The operators appreciate the pilots’ expertise. “It’s less headache for them,” Hebert says. This closer link with operators “gives us tons of availability and has allowed us to offer our customers the cream-of-the-crop planes.”

Many of Hebert’s members are jet owners who need a ride when their plane is unavailable and fractional owners who are over their hourly allotments. To attract potential clients, membership contracts are customizable. Customers use an online tool to select the number of hours they want to fly, the type and size of plane, and add-ons like inflight catering, fuel surcharge discounts, and ground transportation. Most Magellan competitors don’t offer custom contracts, says Hebert. Such pricing flexibility helped Magellan make members out of people who came to the company looking only for a one-off flight on a charter. Those fliers have been the fastest-growing segment of the client base for the past two years.

Instead of pumping cash into slick advertising, Hebert positioned the company as the go-to spot for learning about private jets. Magellan published white papers penned by outside experts on topics such as buying and selling planes and aircraft safety. It also built an online tool for finding so-called empty-leg flights that usually fly vacant when an aircraft needs to be repositioned for its next trip. Such moves ultimately improved the sales process: Customers better understood the industry and Magellan’s service, so salespeople spent less time pitching and more time assessing individual needs. The strategy “has been a big driver for our revenue growth,” says Hebert. “It was a cost-effective way to do inbound marketing.”

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MICHAEL REINHARD/CORBIS

AS THE 2008 RECESSION decimated the private-jet-rental industry, Joshua Hebert saw opportunity in all those empty planes. He and Anthony Tivnan launched Magellan Jets, an aviation broker offering charter ﬂights and membership programs that include 25- to 200-hour buckets of private-jet ﬂight time. A key to the company’s success at launch was its guarantee to members that they could book a jet virtually anywhere with just 10 hours’ notice. Annual memberships start at $100,000. Revenue grew 1,600 percent in its second year, and the company now guarantees a plane with as little as eight hours’ notice. Magellan’s continued growth, says Hebert, is the result of cultivating deep vendor relationships and identifying an unexpected customer base. —JENNIFER ALSEVER

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“My exit strategy is to be rolled out of my office on a gurney.” –Jessica Herrin, founder, Stella & Dot

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WorldMags.net Can you create a powerful, proﬁtable company without steroidlike infusions of cash from outside investors? A growing number of entrepreneurs are showing the way By Bo Burlingham PHOTOGRAPHS BY JASON MADARA

BUILT TO

LAST

(AND LAST … AND LAST) JESSICA HERRIN REMEMBERS EXACTLY where in the Stanford University library she was sitting when she checked her email that day in the spring of 1998—and nearly fell off her chair. She was a 24-year-old MBA student at the time, and the message was from Dave Whorton, one of the judges in a business-plan competition she and a classmate had entered with a proposal for an online wedding-gift registry. “Are you serious about this?” asked Whorton, an associate partner at the

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Today, WorldMags.net more than

blue-chip venture capital firm Kleiner Perkins Caufield & Byers. “If you are, pull your entry from the competition and come talk to me.” “If you were a Silicon Valley wannabe entrepreneur back then, getting an email from Kleiner Perkins was like getting an email from God,” she recalled many years later. She and her classmate took Whorton up on his offer and launched their business, Della & James, with Kleiner Perkins’s backing. Two years later, Della & James merged with the Wedding Channel. Herrin stayed with the company until she moved to Texas with her husband in 2001. Herrin says that she found her Wedding Channel experience tremendously educational, but parts of it made her uncomfortable. “I remember sitting around a board table with everybody talking about going public, and thinking it seemed crazy to me. We didn’t even have a clear path to profitability and predictability yet, but people were completely focused on return. The way their business model worked, they needed to sell, and they measured success by the valuation they’d get when they left. I believed you would actually create the best return if you were focused on transforming an industry, serving customers, and creating a really special brand that would last, versus trying to flip it.”

ERRIN’S INSIGHT represents a choice that entrepre-

neurs have long faced: between passion and profit, between building a company to last and building it to sell. Some companies—from 3-D carmaker Local Motors in Phoenix to $3 billion software giant SAS Institute in Cary, North Carolina—have tried to show that the dichotomy is false. Now such companies have powerful, wealthy backers in Silicon Valley and elsewhere; they argue that the path of permanence not only can be more satisfying, but can make you more money, too. Herrin’s next business, she decided, would have to be more than a good commercial opportunity. “I thought, ‘What am I passionate about?’ If I was going to do something again, I wanted to be soulfully connected to it. I wanted a missiondriven company that I would feel like doing until the day I die.” She realized there would be no room in such a business for investors who required an exit. Their focus would inevitably clash with hers. “When you have venture capital, the guiding principle can too easily become ‘How do we increase the stock price?’ versus ‘How do we change the world?’ I’d done that once. I didn’t want to do it again.” All of which Whorton found rather confusing when she came back to him in 2005 looking for startup capital. Herrin could hardly contain her enthusiasm for the new business she was working on, Luxe Jewels. It would design jewelry and sell it through trunk shows and home parties, and the sales force would consist entirely of women attracted by the opportunity to be in business for themselves. “What’s your exit strategy?” Whorton asked. “My exit strategy is to be rolled out of my office on a gurney,” she said. “OK. So it’s a lifestyle business,” said Whorton, who was in the process of setting up his own venture capital firm, Tugboat Ventures. “It absolutely is not a lifestyle business,” she replied, offended by the suggestion. “It’s going to be a big, international business, and it’s going to impact positively the lives of thousands of women entrepreneurs.” In the end, Whorton put in some of his own money, as did another venture capitalist. The understanding was that they would earn a return through profit distributions, not from selling their shares. Over the next five years, they watched as the revenue of the company, renamed Stella & Dot, soared, reaching $104 million in 2010 and landing it at No. 67 on the Inc. 500 list of America’s fastest-growing private companies. Within two more years, annual sales had

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ever, venture capital dominates Silicon Valley’s priorities.

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“In the private equity world, it is rare that entrepreneurs speak ﬁrst about the culture and the people. Usually they talk about money, because money is the goal.” –Dave Whorton, founder, Tugboat Ventures

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“The more you raise, the less likely you are to reach proﬁtability. If you want some wealth and your investors want a return, you have to sell.” –Bill Flagg, tech entrepreneur and investor

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Even if you don’t start by raising a bunch of money, it’s easy to be led astray.

doubled again. The company’s success was so dramatic that, in 2011, Sequoia Capital agreed to invest $37 million for 10 percent of the equity, likewise earning its return through profit distributions and thus allowing Herrin to keep running Stella & Dot as long as she likes—a radical departure for a bastion of venture capital. Herrin is, in fact, just one of a growing number of tech entrepreneurs, or former tech entrepreneurs, who have eschewed traditional forms of private equity, including venture capital, because they don’t want to be forced to sell their companies in the future. Tom Bilyeu is another. He realized in 2009 that he needed to make a change. His software company, Awareness Technologies, was going gangbusters, reaching No. 42 on the Deloitte Technology Fast 500 list of fastest-growing technology companies in North America. “We were making money, winning awards, standing in this beautiful conference room overlooking the Pacific Ocean, and I turned to my business partners and said, ‘I’m completely miserable.’ ” Like Herrin, he longed to work in a business he believed in, and his partners felt the same way. Their mutual passion was health and fitness. Within a year of Bilyeu’s epiphany, they sold Awareness Technologies and launched a new company, Quest Nutrition. Its first product was a protein bar developed by the wife of one of the partners. Sales took off. In 2014, Quest was recognized as the second-fastest-growing company on the Inc. 5000, with 2013 revenue of $82.6 million, almost 200 employees, and no outside equity. The owners were enjoying themselves way too much to consider accepting any investment that would require an exit. They were, however, willing to take on a minority partner, and this spring they sold such a stake to private equity firm VMG Partners in a deal reported to value the company at about $900 million. Or consider Jason Fried, the founder of the project management software company Basecamp (and an Inc. columnist). “I don’t like investors,” he said at Inc.’s annual GrowCo conference in 2014. “When you take money, you’re typically setting the stage to get out. It’s about multiples and math at that point. It’s not about product. It’s not about customers. It’s just about growth. And that, to me, is a perverted sense of what business is about. Business to me is about making something great, treating your employees great, treating your customers great, adding something good to the world that wasn’t there before.”

ENTER THE EVERGREENS

EW PEOPLE HAVE SPENT more time pondering these issues

than Dave Whorton. He hadn’t known quite what to expect when he’d invested in Herrin’s company, and the success of Stella & Dot had come as a revelation. A 42-year-old Stanford business school graduate, he had spent his entire working life in Silicon Valley, including stints at Bain Capital and TPG Capital, in addition to Kleiner Perkins, Hewlett-Packard, Netscape, and Drugstore.com, of which he was a co-founder. Until his experience with Stella & Dot, he had generally assumed that a startup needed venture capital backing to grow quickly to an appreciable size—appreciable, that is, by Silicon Valley standards—and venture-ﬁnanced companies are built to sell, not to last. That’s how their backers get the liquidity they need to pay off their own investors. Herrin had shown Whorton that at least one type of startup could get big fast without venture backing—and thus without having to sell or go public—and he couldn’t help wondering if there were others. In the late summer of 2012, he went to see her and asked if she knew any other entrepreneurs who shared her ideas about building companies to last. She said she knew about 10 people who would do it if they could raise the startup capital they’d need. Most of them had had venture-backed companies before and were contemplating what to do next.

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THE 7 P’s WorldMags.net Seven defining

Whorton began meeting with them and getting references to other people he should interview. In the next eight months, he talked to 30 to 40 entrepreneurs who either owned or intended to start businesses with the express goal of remaining private, independent, and unsold for a long, long time. By then, he had brought in a partner, Chris Alden, a co-founder of Red Herring magazine, and they had come up with a name Venture capitalist Dave Whorton and for such ventures: evergreen companies. Red Herring co-founder Chris Alden The more of these evergreen entreuse the term evergreen to describe preneurs Whorton talked to, the more he the increasing number of private, noticed certain themes. “They wanted profitable, market-leading businessto talk about culture,” he says. “They es that are designed to remain unsold and independent wanted to talk about people and purpose for a long, long time. In a manifesto released at the launch and ‘Why am I building this business?’ of the Tugboat Institute, Whorton and Alden identified In the private equity world, it is rare that what they saw as the seven defining characteristics of entrepreneurs speak first about the evergreen companies. In what they consider their order culture and the people. There are excepof importance, they are: tions for sure, but usually they talk about money, because money is the goal.” 1. Purpose have a longer-term view and more He found his reaction to the conversaBeing passionately driven by a operating flexibility than public or tions equally interesting. “I started really compelling vision and mission. exit-oriented businesses. enjoying them. The people seemed very 2. Perseverance 5. Profit authentic, even courageous. They have Having the ambition and the Measuring success by the number to be self-motivated, because they’re not resilience to overcome obstacles that provides the most accurate getting much positive feedback in the and keep pursuing the mission gauge of customer value delivered. community. They’re not getting a pat on indefinitely into the future. the back for having a high valuation, or (Integrated Project Management 6. Paced growth for getting a top VC to back them. They’re is a case in point.) Having the discipline to focus on not publicizing their revenue or their long-term strategy and grow steadily and consistently each year. (A good 3. People first profitability, and that’s OK with them. example: Jack Stack’s manufacturing Engaging a work force of talented Those things are not what it’s about. company, SRC Holdings, in Springassociates who excel as a team and Instead, it’s about ‘What experience am field, Missouri, which has aimed for are motivated by the mission and I having in building this company?’ ” and achieved 10 to 15 percent growth the culture, as well as compensaAnd there was another theme. “In a per year for more than 30 years.) tion, in the belief that, by taking lot of these conversations,” he continues, care of them, they will take care of the business, customers, suppliers, 7. Pragmatic innovation “I heard a tremendous loneliness, like, and community. Embracing a continuous‘Is anybody else out there talking like I’m improvement process built around talking? Because I don’t hear about them.’ taking calculated risks to innovate 4. Private I knew absolutely that others were thinkcreatively within the constraints Taking advantage of the ability of ing the same things, and so I proposed of the business. closely held private companies to a meeting in Sun Valley, Idaho, where I have a second home. I asked 20 or 30 people if they’d be interested in getting together to discuss what it’s like to build one of these businesses. I thought maybe five or six people would take me up on it. We ended up with about 50.” The meeting, later dubbed the Tugboat Summit, was scheduled for October 2013. As it drew closer, it took on additional significance for Whorton. “I wanted market validation that there was really something here, and I hadn’t just made it up in my mind,” he says. “If that gathering had not gone well, I’m not sure where we’d be today.” But it did go well. “I saw firsthand that, oh my gosh, bringing these entrepreneurs together is a very powerful thing. They need each other. They need the support. They want to share. It was incredible. I mean, just watching the

characteristics of evergreen companies

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••••

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THE VC BACKLASH ONCE, OF COURSE, Silicon Valley had been home

to numerous companies with values similar to those espoused by the evergreen movement. Their epitome and role model had been Hewlett-Packard, or at least the version of HP that existed when Bill Hewlett and Dave Packard were still alive. Back then, the Valley was

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••••

THE CASE FOR WorldMags.net NOT SELLING

trust, the authenticity, the excitement about the ideas we were sharing. So we had to do a second one. I said, ‘We’ll do it in six months. I want to build on this energy.’ ” He also wanted to see if the first summit was a fluke. “I thought maybe it had magic just because it was first,” he says. “The second one might fall flat. I didn’t know.” Whatever doubts he had were quickly erased as that second summit got under way, at the Carmel Valley Ranch in Carmel, California, in June 2014. “It was fantastic, just fantastic—because of the people,” Whorton says. “We put together some interesting content, to spark conversation, but let’s be clear: It was the people who made it happen—their connecting, their shared purpose, their common values.” The success of the two summits convinced Whorton and Alden that it was time to take the next step. In September 2014, they threw a party at Tugboat headquarters in Palo Alto to celebrate the launch of the Tugboat Institute, a membership organization for evergreen CEOs. There they issued a manifesto of sorts that included what they saw as the seven defining characteristics of evergreen companies, or the “7 P’s”: purpose, perseverance, people first, private, profit, paced growth, and pragmatic innovation (see “The 7 P’s,” page 38). They also announced that the institute would start a digital publication, The Evergreen Journal, and that Tugboat Ventures would establish Tugboat Evergreen, a network of investors interested in providing “patient, long-term, and noncontrolling capital for profitable and growing evergreen businesses.” Not that Whorton and Alden were renouncing their pasts. “We want to be abundantly clear,” they wrote in their manifesto, “that we view the evergreen path as an alternative to, not a replacement of, the venture and private equity path—and just one of a variety of different approaches to entrepreneurship.” Nevertheless, their announcement was proof positive that the idea of building to last had taken hold in the unlikeliest of locations: Silicon Valley.

IT’S ENTIRELY UNDERSTANDABLE that, after years of hard work and anxiety,

you would be tempted to cash it all in and sell your company, especially when there’s a multimillion-dollar check on the table. But there is such a thing as seller’s remorse, and for many entrepreneurs, the long-term beneﬁts of hanging on will outweigh even a generous buyout. Entrepreneur and investor Bill Flagg uses the example of a company that has less than $10 million in revenue, $1 million in EBIT (earnings before interest and taxes), and $600,000 in after-tax proﬁts (for the sake of this example, combined state and federal taxes are assumed to be 40 percent). YOU START WITH $1 MILLION IN EBIT A YEAR:

$1 million HOLD

SELL Buyer offers 10x annual EBIT of company

$10 million PAY 20% IN CAPITAL GAINS TAX

BEFORE TAXES

$8 million

PAY 40% IN STATE AND FEDERAL TAXES

You invest these proceeds and earn a return of 8% per year (a generous assumption)

$640,000

BEFORE TAXES

$600,000

PAY 40% IN STATE AND FEDERAL TAXES

$384,000

PROFIT PER YEAR

HOLD

SELL

That is a nice income, of course, but it’s 36 percent less than what you would make annually without a sale. And what if the company is growing 20 percent a year? Five years after the sale, the company would have $2.5 million in EBIT, and $1.5 million in after-tax profits. That’s more than four times the annual income had the business been sold. Now, of course, you would still have the $8 million in hand five years later. But had you not sold, the company would now be worth $25 million (at that same 10 times EBIT ratio)—that is, $15 million more than you got for it five years before. And the company might be much better off too. As Flagg puts it: “… and your customers and employees are happier that a big parent company didn’t run things into the ground!”

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To build WorldMags.net a company

still in the process of earning its global reputation as the place where technological innovation happens, and it was also becoming the center of the venture capital world. The two subcultures have grown symbiotically ever since. Along the way, however, the balance between them has shifted. Today, more than ever, the venture capital side plays the dominant role in defining the Valley’s mores. To some extent, the evergreen movement represents a backlash against the change, as Alden can attest. He has been in the thick of the action since 1992, when—as a young man just weeks out of college—he met a magazine maven named Tony Perkins and, with a third partner, launched Red Herring, which soon established itself as an authoritative chronicler of the tech boom in the Valley. After Red Herring succumbed to the bursting of the dot-com bubble, Alden started a technology company that merged with another company three years later. He stayed with the combined company, and became its CEO, until it merged with yet another company in 2010. By then, he was having doubts about the evolving business climate of the Valley. “Entrepreneurs were getting addicted to money,” he says. “Their first thought was ‘I need to bring money in,’ as opposed to ‘How do I build a product that generates revenue?’ Once they do bring the money in, they have to get a return for their investors. So they go for growth first, profit second, which means they ultimately have to sell. That need can distort the strategy and get in the way of building sound companies. You’re really hoping someone else will buy the company and figure out how to make money off of it. It’s a big change from the companies that we covered in the early and mid-’90s. They didn’t have an exit orientation the way companies do now.” Alden was well aware of alternative approaches to building a business. His parents had started and, after 40 years, still owned a successful chain of boutique hotels. His younger brother was its CEO. “That was always my concept of what a company was,” he said. “You ran it, made a profit, grew it, and held on to it. My question was, could you combine that mode of building a business with the dynamism of Silicon Valley? I thought, ‘Maybe there’s something that I can do to help change this dynamic. We have this entrepreneurial ecosystem that is very exit-focused. Couldn’t there also be one that is long-term-focused?’ ” He was working on starting such a business when he ran into Whorton, whose firm had invested in one of his previous companies, and they decided to join forces for the launch of the Tugboat Institute. Alden has since gone on to start what he hopes will be his own evergreen business, Palace Games. It develops “unique games and immersive experiences,” he says, such as the Great Houdini Escape Room at San Francisco’s Palace of Fine Arts.

to last 100 years, you must be obsessive about values, reputation, and promoting from within.

FOREVER IS A LONG TIME

ROM ONE STANDPOINT, it’s surprising that more technology companies haven’t chosen to remain private, independent, and unsold while growing into giants. “There actually should be a higher prevalence of them, because tech companies can be profitable more quickly than other businesses and produce cash flow and wealth for the owners without having to sell,” says Bill Flagg, another converted tech entrepreneur. He had been president and co-owner of RegOnline, an event management company, which was sold to a competitor in 2007. “A tech company can start with less upfront capital, no receivables, no inventory, and huge gross margins if you do it right,” he says. “At RegOnline, we were running 40 to 50 percent net profit margins, and I don’t think that’s unusual. But you probably won’t do it right if you start by raising a big bunch of money. I CONTINUED O N PA G E 14 4 mean, why do tech entrepreneurs want the money? It’s not for

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WorldMags.net Thomas Goetz L AU N C H PA D

•••• The Year of Launching Dangerously Creating a truly disruptive company is a key to success, but be sure to do it wisely

boundaries on privacy, in the interest of building more connections for its users (and more revenue opportunities for itself ). And Uber, everybody’s favorite example of a no-holds-barred company these days, has willfully flouted local laws and regulations in its haste to conquer new cities and countries. At Iodine, we set our sights on doing something dangerous. This is partly because we’re working in health care, an industry riven with inefficiencies. OR A VENTURE-BACKED technology startup like my Up to one-third of health care spending is wasted, company, Iodine, the clock starts ticking on day in overutilization, fraud, and errors. In a $3 trillion one—and every day after that is a race to grow fast industry, that’s a big incentive to ignore convenenough to buy some more time. tional wisdom and do something radical. The best way to achieve that fast growth is to But doing something dangerous in medicine build something people love so much they tell is fraught, because there are rules and regulators at everyone they know about it—turning users into every turn, like HIPAA and the FDA. The strictures disciples. This sounds obvious, but it’s a high bar. To are there for good reason: Lives are at stake, after breed disciples, your new thing can’t be merely better all, and medicine is nothing if not complicated. It’d than the status quo; it needs to be so great that it is be plenty easy to rush into health care with the sought out over the old, familiar thing. To do that, fine intention of fixing a broken system, but with no your new thing must be more than provocative; it must be dangerous. sense of how difficult it is to understand what you’re Dangerous doesn’t mean you need to build a risky product, trying to fix. We’ve seen other startups rush out as in risky for potential customers to use. Rather, it means being promising cloud-based products for hospitals or transgressive, upending the way people were living their lives insurers without realizing that health care compapreviously. It means delivering an experience in a way that more nies are loath to let their data migrate onto a startcautious folk would consider verboten. up’s cloud platform. There’s a fine line between Many successful companies have thrived by crossing into doing something dangerous and doing something dangerous territory. Facebook has time and again pushed the stupid—and we’re trying to stay away from stupid. Nonetheless, Iodine is doing a couple of things that could make some in the industry uncomfortable. We’re soliciting thousands of reviews from Thomas Goetz is co-founder patients about their experiences with medications and treatments, bringing true consumerism and CEO of Iodine, a digital to medicine. That’s unsettling to those whose products or services might be judged. We’re also health startup based in San Francisco. He is also author letting users personalize their treatment regimens, making it easier for people to find what works of the book The Remedy. best for them—stopping short of the regulatory ban on giving medical advice without a license. Follow him on Twitter: @tgoetz. (There’s no ban on providing medical information, even if it’s highly personalized.) The new mobile product we’re building might be the most brassy thing we’ve done yet; I can’t say too much, but it turns people’s experience with a medication into an algorithm that helps them decide (with their doctor) if it’s working. We’re itching to see whether they find it transcendent, or too much. Of course, the reason we’re willing to take this risk is that there’s little to lose. The clock is ticking, and we have to do something big enough to merit more investment. You could call our strategy embracing danger, cautiously. After all, doing something dangerous is easy. Doing something dangerous and smart is hard.

4 4 - INC. - OC TOBER 2015

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WorldMags.net Inspire. Empower. Get Results.

What male entrepreneurs need to learn from the other sex PG.82

MOST INNOVATIVE WOMEN Holmes. Wojcicki. Sandberg. And why the next Steve Jobs will be female

IN GOOD COMPANY Setrakian and seven others are hailed as Inc.’s most groundbreaking women.

“We cover highly consequential but poorly understood issues.” —LARA SETRAKIAN, co-founder of the digital news startup News Deeply

PG.

•••• PHOTOGRAPH BY MALIN FEZEHAI

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OC TOBER 2015 - INC. - 47

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LIFE CALLING Theranos was in stealth mode for 10 years—a third of Elizabeth Holmes’s life. Yet it’s still early days for her $10 billion lab test company.

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WorldMags.net ELIZABETH HOLMES THERANOS

THE

GAME Many entrepreneurs and their backers will tell you they’re playing the long game. But no one’s doing it quite like Theranos’s Elizabeth Holmes

By KIMBERLY WEISUL Photograph by PAMELA LITTKY

OU’D HAVE TO look really

hard not to see Steve Jobs in Elizabeth Holmes. Both Holmes and Jobs were loners as kids. As a teenager, Jobs discovered Plato; Holmes favored Roman emperor-philosopher Marcus Aurelius. Both dropped out of college, in part, because they didn’t see the virtue in an education they believed wouldn’t make a difference in their futures. Like the Apple creator, Holmes has kept her company, Theranos—which seeks to radically disrupt the lab test industry—shrouded in secrecy. Jobs became a billionaire by the time he was 40. For Holmes, that moment came sooner, when Theranos was valued at $9 billion. She was not yet 31. Of course, one obvious difference between them is that Holmes is a young woman in an environment that has long favored young men. But there are few entrepreneurs—of either gender—with

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Holmes’s record of accomplishment without actually revealing very much. BLOODY AMBITIOUS and even fewer willing to talk about Steve Jobs had massive ambition, but Theranos is aiming to disrupt it publicly. Holmes didn’t set out to Holmes’s is arguably larger. While revoluthe $75 billion lab test become a role model; she set out to save tionizing consumer technology is formiindustry, and grow it lives. But now, as the world’s youngest dable, Holmes believes her company by another $125 billion. female self-made billionaire, she’s stumwill actually save lives. Her diagnostic bled into this rarefied position and lab test upstart is aiming to disrupt a is beginning to own it. “I really believe $75 billion industry, and to help grow it it’s like the four-minute mile,” says by another $125 billion. There’s the revoluHolmes, whose estimated net worth is tionary nature of its science, as well as $4.5 billion. “When one person does it, the transformational vision of its model. more and more people do it.” Theranos, now valued at $10 billion, has Then there are the black turtlenecks. developed blood tests that detect hunMost have assumed that Holmes’s sartodreds of conditions and diseases from a rial choice is an eerie, if not presumptucouple of drops of blood from the finger, ous, homage to Jobs. But it turns out, instead of tubes of blood from a vein in the black turtlenecks were inspired by, the arm. Holmes aims to enable anyone of all people, Sharon Stone, who, having to get lab tests—for anything from cholesgotten a Best Actress nomination for her terol to cancer—on his or her own at role in Casino, wore one to the 1996 a local pharmacy for no more than half Oscar ceremonies. “My mom thought it of what Medicare would pay. Holmes was fantastic,” explains Holmes, dressed believes that providing faster, more conin a black turtleneck at her company’s venient, and less expensive access to lab Palo Alto, California, headquarters. tests will transform preventive medicine. Her mother soon overhauled the closets En route, she may also undo the profitof her two kids, who from then on able medical test industry, currently were regularly spotted in the neckdominated by two decades-old beheswallowing shirts. moths, Quest Diagnostics and Laboratory As with many things in Holmes’s Corporation of America. “I don’t think life, she’s stayed with the look solely for anyone disputes that Elizabeth and reasons of efficiency: The turtlenecks her team are visionaries,” says Gary The approximate number eliminate early-morning decision St. Hilaire, the president and CEO of Theranos tests that still making. Holmes has taken a similar of Capital BlueCross, which recently need FDA approval. Its life-hack approach to every aspect of her became a Theranos partner. first approval, for herpes existence outside of her lab test company, To get there, Holmes has taken the simplex 1, came in July. which is at best minimal, given that road less traveled, and what an excepthe 31-year-old works seven days a week. tionally long road that is. She’s already Holmes is a vegan because avoiding spent a third of her life building an animal products allows her to function on less sleep. She says organization that is still in its early days. From its inception she “doesn’t really hang out with anyone anymore,” aside from in 2003, she operated Theranos in stealth mode, bringing her younger brother, who joined Theranos as a product manit out into the light only a year and a half ago. She thinks ager four years ago. She didn’t take a vacation during the another 20 years is a reasonable time frame for her company entire decade of her 20s and doesn’t date. “I literally designed to impact the masses worldwide. In many ways, she is my whole life for this,” says Holmes in a strikingly baritone the opposite of a serial entrepreneur. She’s a devoutly voice, her shoulders curled inward and hands clasped, the monogamous entrepreneur: For better or worse, in body language of someone who is fiercely protective and on sickness and in health, she sees herself as having only one guard. Talking to Holmes is a bit like talking to a politician— existential purpose. “You’re talking to someone who she’s politely impenetrable, unspooling a stream of words wants to do this her whole lifetime,” she says.

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“I realized there had not been a sole female founder-CEO of a multibillion-dollar technology company. I didn’t believe it. I still don’t believe it.” WorldMags.net

PREVIOUS SPREAD: HAIR AND MAKEUP: LINDSEY SMITH/TOKYOSF; STYLING: HEATHER SANDERS/TOKYOSF. THIS PAGE: COURTESY THERANOS

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Even Holmes’s supporters see danger in that kind of D.C., to Houston, where instead of forging friendships, she’d commitment. “One of my shareholders said to me, ‘You are an sketch designs for time machines and collect insects. By the athlete running a marathon who thinks she’s running a sprint,’ ” time she was a 15-year-old high school sophomore, she was says Holmes. The risks of making a life bet on just one plan are spending her summers in California and had successfully many. There’s the possibility of burnout, sure, but what if after pestered Stanford’s administrators into allowing her to take decades of a claustrophobic existence, a new competitor comes a college-level Mandarin class. During her freshman year along and beats Theranos to market? What if her company runs at Stanford, she nagged Robertson, at the time a dean of out of cash, fails to change the world, or collapses? Theranos engineering, until he let her into his lab, which was populated senior technical adviser Channing Robertson admits, “I do mostly with PhD students. “She would just stand in my doorworry, because I’ve never seen a person with this kind of drive way every day and say, ‘When are you going to let me into who doesn’t miss or skip a beat.” Robertson frequently checks your lab?’ ” says Robertson. in on Holmes, who seems nothing more than bemused by By the time she got in, Holmes knew she wanted to devote his concern. “She just turns around with a big, wide smile and her life’s work to health care. She had been deeply affected says, ‘Life is great. Everything is fine,’ ” he says. by the sudden death of her godfather, who had a heart Holmes is willing to contemplate failure, but only in the attack but never knew he had coronary disease. Her parents scientific sense. She named one of Theranos’s internal projects both have had careers with noble ambition—her mother Edison, as a reminder of the virtue of staying the course: was a foreign-policy and defense aide on Capitol Hill, and When the inventor was asked why, after thousands of attempts, her father is now the global water coordinator for USAID— he hadn’t managed to make a light bulb ready for commercial but Holmes decided government agencies were not effective use, he replied that he had in fact made significant progress— enough. She’d watched “all these people with incredibly he now knew thousands of ways not to make a light bulb. good intentions” get mired in bureaucracy and politics while In Holmes’s view, being prepared to face failure 1,000 times trying to make an impact, she says. Meanwhile, with a startup, is simply what is required to finally get it right Holmes adds, “you say, ‘We’re going to do this,’ the 1,001st. And she has no intention of doing and you design an organization to do it.” anything else, ever. Her ingenuity ultimately led her to the field HOW THE SEXES of testing. The summer before her sophomore FUNDRAISE EING IN STEALTH MODE for so long year, she worked at the Genome Institute of leaves a company ambivalent about Singapore, doing SARS testing with traditional outsiders. Theranos’s new headmethods, like nasal swabs. At Stanford, she’d quarters is hardly a haven of hospibeen exploring lab-on-a-chip technology, PERCENT tality. While the building is being which enables diverse results to be extracted of U.S. venture funding goes to startup teams renovated, there is no lobby for from a minuscule amount of liquid on a microthat include a woman, and only 2.7 percent visitors, who are greeted by an NDA. In July, chip. By the time she returned to California of venture funding goes to female CEOs. when Joe Biden arrived at the company’s in 2003, Holmes had developed a novel drugsprawling, unmarked manufacturing facility, delivery device—a wearable patch, or an journalists who had been waiting for more than ingestible, that could adjust dosage according an hour were abruptly escorted out after a mere to variables in the patient’s blood and update 10 minutes of remarks. The next day it was doctors wirelessly. She filed it for her first Male founders are that much more likely to find revealed that one of the men seemingly protectpatent. “It was not only bold, but also remarkequity financing ing the vice president of the United States was able in terms of its engineering and scientific through angels than their female counterparts. not Secret Service but actually a Theranos integrity,” says Robertson. security guard lurking near Holmes. Holmes soon found herself spending more Holmes, who now has some 1,000 employtime talking to venture capitalists than in ees and an orchestration of security around the classroom, and asked the then 59-year-old her, has come a long way since ditching StanRobertson to advise her new company. He PERCENT ford at 20. At the time, there was no model for demurred. He’d been involved in about 40 of men tap business acquaintances, versus her to follow; it was 2004, years before dropstartups, but never, he says, with one run by a 5 percent of women. ping out of college and going westward was in 19-year-old. Her parents let her use the money vogue, and Holmes was hardly a coder raising they’d saved for her education as her first money for the next big app. Most biotech seed round of funding. She hired a couple of founders had PhDs and years of experience; students from the lab and started building Holmes had neither. She hadn’t even stuck prototypes, and Robertson agreed to become PERCENT around Stanford long enough to get her underher first adviser. “Just one or two of these of women are likely to leverage networks grad degree in chemical engineering. people come forward every generation, and of close friends, as opposed to 9 percent From a young age, Holmes has always she’s one of them,” he says. of men. exhibited confidence. She led a solitary childEven in those early days, it CONTINUED SOURCES: BABSON COLLEGE, INC. 5000 2014 SURVEY hood, her family moving from Washington, was clear Holmes was designO N PA G E 14 6

15 —

3X —

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THE DEMOCRATIC DRONE The LVL 1, CyPhy’s first flying robot for the masses, shoots film, snaps photos, and raised nearly $1 million on Kickstarter.

HELEN GREINER CYPHY WORKS

“Drones are like computers in the late ’70s. Yeah, they work and people are really excited to get them in their homes. But there’s so much more they could be doing.” 52 - INC. - OC TOBER 2015

O, NO, NO!”

That’s Helen Greiner, founder and CEO of dronemaker CyPhy Works, pausing mid-bite over her lunch salad to object to my heretical notion that her vision of drones in packs, hovering above suburban soccer ﬁelds, sounds like a nightmare. “It’s just a video camera that’s self-propelled,” she says. “You can get the bird’s-eye view, the running shot. You can get it from any perspective.” Right. I still don’t like it. But who cares what I think? “Things change,” Greiner says. The future is nigh and she’s driving it. Greiner launched CyPhy in 2008. (She ﬁrst called it Droid Works but discovered George Lucas already had a claim on that name when he sent her a nastygram.) Greiner was born in London and grew up on Long Island. She loved Star Wars, which

her businessman father took her to see when she was 10 years old. “I’ve wanted to build R2-D2 ever since. I went to MIT to learn how,” she says. MIT didn’t really know how, but while there she met another similarly obsessed student, and Rod Brooks, then director of MIT’s artiﬁcial intelligence laboratory. In 1990 the trio founded iRobot, creator of the Roomba robot vacuum. That thing scares me, too—an electronic dust-mote eater that roams the house, unattended—but again, I’m irrelevant. Today they’re in more than 10 million homes. Greiner left iRobot in 2008, three years after the IPO. “Rod blames me for squashing the idea of iRobot going into, you know, suspect types of applications”—she means sex robots. Apparently that’s a creep-out line even she won’t cross. (“What would I tell my mom?”) But more than that, Greiner saw the future—and it was airborne. CONTINUED O N PA G E 14 8 Remember when, back

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ILLUSTRATION: TINA BERNING; COURTESY CYPHY WORKS

DAME OF DRONES

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L A R A S E T R A K I A N N E W S D E E P LY

WorldMags.net

UNCOVERING NEWS IN DISTRESS

STORIES FROM FAR AND WIDE News Deeply creates news sites for urgent issues—from the Ebola outbreak to the water crisis.

Former foreign correspondent Lara Setrakian was fed up wıth superﬁcial news coverage—so she decided to build a new model for journalism Photograph by MALIN FEZEHAI

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“I want to leave no community unserved when it comes to the important stories of our time.”

OST ONLINE JOURNALISM operations these

days are addicted to the dopamine rush of racing to be the first to spit out a blurb, no matter how vapid, when news breaks. Lara Setrakian believes the future of news can thrive on the other end of the spectrum, too. Setrakian, a journalist turned entrepreneur, is the co-founder of News Deeply, a New York City–based digital news startup that hatches single-subject journalism sites about the world’s most pressing crises. In 2011, while serving as a foreign correspondent in Dubai for ABC and Bloomberg News, she became frustrated by the coverage of the Syrian civil war, which she felt was both one-dimensional and confined by linear storytelling. “We were never able to capture with complexity and consistency what was going on around us,” says Setrakian, 33, who speaks six languages. The new model she’s created is much like that of an emergency crew in triage: When there’s news of an issue that she believes is “highly consequential but poorly understood,” like the war in Syria or the Ebola outbreak (the subjects of News Deeply’s first two sites), her team creates a single comprehensive destination to report it. For each site—Syria Deeply, Ebola Deeply, Water Deeply, and, coming this fall, Arctic Deeply—Setrakian hires a journalist with mastery on that particular

issue to serve as editor, who then recruits expert freelance reporters from around the globe. “I want to leave no community unserved when it comes to the important stories of our time,” she says. Each site weaves together timelines, conﬂict maps, video presentations, and both original and aggregated reportage— sometimes getting a boost in distribution via partnerships with massive news outlets like AP. The ultimate goal is twofold: to create sites that exist only as long as an issue is salient, and to devise a system so turnkey that a new site can be launched in a matter of hours. Like that of many modern media companies, News Deeply’s business model is at times murky and is not currently proﬁtable. Under the umbrella of B Corp status, its revenue comes from a hybrid of sponsorships, live events, grants, and client services for entities such as the World Economic Forum and the Global Ocean Commission. But with the momentum gained from such accolades as the National Press Foundation’s Excellence in Online Journalism Award for Syria Deeply, Setrakian is hoping to broaden the company’s potential impact. “My vision for News Deeply is as big and ambitious as it is humble and experimental,” says Setrakian, who has dozens of ideas brewing for new Deeply sites—including one to cover the public health implications of diabetes and another to share the untold stories of Native American communities. “I don’t need this or want this to be a digital CNN or a new version of The New York Times,” she says. “I want this to be the platform that serves specialized communities with the most important information on the issues that count.” —SPENCER BOKAT-LINDELL

•••• WOMEN ARE GAINING AS FOUNDERS AND INVESTORS

A top Silicon Valley VC ﬁrm reports that, over the past 10 years, its investments in startups with female founders performed 63 percent better than those in male-founded ones.

63 PERCENT SOURCE: FIRST ROUND CAPITAL

56 - INC. - OC TOBER 2015

Share of angel investors who are women

2014

2004

26% 5%

SOURCE: CENTER FOR VENTURE RESEARCH AT THE UNIVERSITY OF NEW HAMPSHIRE

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S H A N N O N M AY B R I D G E I N T E R N AT I O N A L A C A D E M I E S

WorldMags.net THE SCHOOL THAT COULD SAVE THE WORLD reformer and rigorous systems thinker. As herself managing a crisis not typical an anthropologist, she believed it was essenfor an entrepreneur: Eight staff tial to live in Africa while building Bridge. members in Uganda had been “Just about every program that is designed arrested on the baseless suspicion for someone else, instead of with them, that they were involved in the fails,” says May, who’s raising her two young murder of a Shia Muslim cleric. Bridge daughters in Nairobi. International Academies, May’s for-profit The Bridge formula, which Inc. first attempt to alleviate developing-world wrote about in May 2014, is designed poverty through education, had already built to be replicable. Its 5,000 trained teachers 412 schools in Kenya in six years. Now it read scripted lessons from e-reader was launching in its first new market, an tablets. Parents pay an average of $6 per effort that was briefly interrupted when the pupil, and have access to a 24-hour hotline. Ugandan military swept up the freshly Bridge has its critics. Education recruited teachers. “They were clearly International, the global federation of under pressure to deliver suspects,” says May, who seems impossible to ruffle. “We had to work hard with our legal team to establish their innocence and get them out.” May, who co-founded Bridge with her husband, Jay Kimmelman, is no stranger to the unexpected and the controversial. Bridge is a promising and polarizing attempt to educate 10 million children throughout the developing world. Since launching in a Nairobi slum in 2009, it has scaled low-cost nursery and primary schools at a torrid pace. Today, roughly BRIDGING THE DIVIDE May has taken an anthropologist’s approach to scaling 100,000 African students get a developing-world schools—with $100 million in backing. Bridge education. May is backed by $100 million from a starry cadre of investors that includes Bill Gates, the teachers unions, is opposed to low-cost Omidyar Network, and Mark Zuckerberg. private schools in poor regions and has A Berkeley- and Harvard-trained anthromanaged to crimp Bridge’s growth in Kenya, pologist, May started focusing on education pushing back the company’s profitability during postdoctoral work in rural China. projections from 2016 to 2017. But May, who There she observed children walking more at presstime expected to launch in Nigeria than an hour to reach dark, freezing classin September and plans to be in India by rooms where often no teachers showed up. early next year, isn’t going to let detractors “It was like Charles Dickens’s London,” slow her down. “When we were starting, she says. The regulatory hurdles to opening people doubted we could build 150 schools schools in China were insurmountable, in a year,” she says. “We did it. Now we have so she and Kimmelman turned to Africa. to prove we can move it to new countries.” —LEIGH BUCHANAN May, 38, is an unusual amalgam of social

“When we were starting, people doubted we could build 150 schools in a year. We did it.”

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ILLUSTRATION: TINA BERNING; COURTESY BRIDGE INTERNATIONAL ACADEMIES

AST DECEMBER, Shannon May found

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WorldMags.net JULES PIERI THE GROMMET

BRINGING MAKERS TO THE MASSES

crowdfunding campaigns. “Everyone who’s been through crowdfunding knows that launch is exciting, but then it’s usually crickets.” Lisa Q. Fetterman, co-founder and CEO of sous-vide upstart Nomiku, says the Grommet has given her business early cred among retailers. “Some investors will look at us, see we’ve been through Y Combinator, and do a check mark,” says Fetterman. “If we’re selling to Target someday, the buyer will see we are on the Grommet, and that’s a check mark.” Last year the company launched a wholesale channel; an even newer venture positions it as an intermediary between a few major retailers—including Anthropologie, CB2, and Staples—and makers without the operational muscle to handle such accounts.

“If we’re selling to Target someday, the buyer will see we are on the Grommet, and that’s a check mark.”

••••

ONG BEFORE HACKER spaces and 3-D printing, Jules Pieri understood how the thrill of invention curdles into the agony of distribution. “The really innovative prototypes wouldn’t get produced,” recalls Pieri of her time at Playskool, where she was vice president of strategic planning in the 1990s. The problem, she observes, has been driven by the shrinkage of specialty retail and the ascent of Walmart and other outlets that want products to sell at predictably high volume. “Retailers want to repeat the past with a little tweak,” says Pieri. “Our job was to innovate and advance. I didn’t see a way out.” As an industrial designer, Pieri reveres craft. As a Harvard MBA, she understands

THE GLOBAL PULSE: FEMALE EARLY-STAGE ENTREPRENEURSHIP Sweden’s progressive utopia ranks surprisingly low, and even the U.S. has some serious catching up to do to match Africa. PERCENTAGES OF EARLY-STAGE ENTREPRENEURS AMONG FEMALE POPULATIONS

40 UGANDA 37% CAMEROON 34% ECUADOR 32% BOTSWANA 31%

30 PERU 28%

60 - INC. - OC TOBER 2015

For a company with Industrial Revolution– size ambitions, it has remained strangely under the radar. Pieri has raised $4.5 million from angels; the not-yet-proﬁtable business projects 2015 revenue of roughly $35 million. Unfortunately, though, Pieri’s champion of little guys has caught the attention of the biggest guy possible. In July, Amazon spun off a similar platform called Launchpad, which partnered with accelerators, crowdfunding sites, and VC ﬁrms, including Andreessen Horowitz. Pieri acknowledges that inexperienced product companies might be tempted to go that route. But, she says, “savvy makers will forgo the quick hit and realize that Main Street and specialty retailers are their true key allies.” —L.B.

BOLIVIA 25% CHILE 24% THAILAND 22%

20 MEXICO 18%

COLOMBIA 15%

UNITED STATES 11%

10 UNITED KINGDOM 8% INDIA 5% SWEDEN 4% JAPAN 2%

0% SOURCE: BABSON’S GLOBAL ENTREPRENEURSHIP MONITOR 2014 GLOBAL REPORT

ILLUSTRATION: TINA BERNING

strategy. In 2008, she and co-founder Joanne Domeniconi hatched the Grommet to bring strategy to craft’s rescue. Since then, the company has been on a mission to forge the maker movement’s disparate, idiosyncratic community into a major economic force. The Grommet is a product-launch platform. Weekly, its staff chooses seven products from 300 contenders, vetting not just for appeal and quality but also for obscurity. Weekdays at noon, the site unveils these products, organized into nine socially conscious categories, such as Made in the USA and Underrepresented Entrepreneurs (for example, those over 65). “Some people say we’re what you do after Kickstarter,” says Pieri; indeed, roughly 25 percent of the site’s products emerge from

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© 2015 AT&T Intellectual©Property. 2015 AT&T AllIntellectual rights reserved. Property. All marks All rights used reserved. hereinAll are marks the property used herein of are their the respective property of owners. their respective owners.

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CRACKING THE CODE Former Wall Street health care analyst Anne Wojcicki believes 23andMe will transform the inefficient drug-development cycle.

62 - INC. - OC TOBER 2015

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WorldMags.net ANNE WOJCICKI 23ANDME

THE DNA Anne Wojcicki’s genetic testing company was almost shut down by the FDA. Now it’s worth a reported $1 billion

Photograph by MATHEW SCOTT

OT LONG AGO, 23andMe founder Anne

Wojcicki was watching her daughter compete in a swim meet near their home in Palo Alto, California, when she realized her mother, Esther, whom she’d expected to see there, was nowhere in the crowd. Worried, she phoned. “Mom, why aren’t you at the swim meet?” she demanded. “I’m in Amsterdam,” her mother crowed. “They want me to change education!” Wojcicki tells this story to explain something most people don’t typically grasp. Yes, until a few months ago, she was married to Sergey Brin, cofounder of Google and one of the icons of Silicon Valley. But when it comes to locating the wellspring of her entrepreneurial drive, her ex comes in a distant second to the woman known to generations of students as Woj. “My mom is totally insane in the best possible way,” Wojcicki (pronounced Wo-JIT-skee) says, dressed in running shorts and hoodie at her company’s Mountain View offices. The elder Wojcicki is hardly a technologist; she’s a longtime Palo Alto high school journalism teacher who wired her three daughters (a brood that also includes YouTube CEO Susan Wojcicki) with what Anne describes as irrational optimism. “Without a doubt, the number one thing that’s inﬂuenced me is her saying, ‘Just get it done. It’s all within your control,’ ” she says. “Zuckerberg and Elon and Sergey and Larry are like her in that way—that free spirit, enthusiasm, get-stuff-done thing.” Growing up in the shadow of Woj, Baby Woj (as she’s known to her mother’s acolytes) internalized her greatest teaching: “The worst thing you can do in life is whine

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MESSAGE IN A VIAL

about what you can’t change.” That guiding philosophy—there are no obstacles, only unexpected gifts—has been essential for the leader of a company whose path has been anything but smooth and straight. Wojcicki co-founded 23andMe in 2006. A decade working on Wall Street as a health care analyst had convinced her that the American way of treating illness and inventing new drugs had to change. “It just felt like there was this massive amount of waste,” she says, referring to the billions of dollars the pharma industry annually plunges into drug discovery, with diminishing results. A chance dinner party conversation with Markus Stoffel, a molecular biologist, left her thinking the solution lay in aggregating the world’s genetic data and teasing out the patterns to prevent and combat diseases like Parkinson’s and Alzheimer’s. Wojcicki, who studied biology, had a handy template in her then husband’s company, which more or less did for the internet what she was proposing to do for the genome. By ﬁlling a plastic vial with saliva and mailing it to 23andMe, customers could decode the DNA embedded in their 23 chromosomes. That meant discovering everything from the existence of long-lost relatives to whether they were at risk for inherited diseases like cystic ﬁbrosis, or genetic traits, like lactose intolerance. As 23andMe was able to drive down the price of its tests, from $999 to $399 in 2008 to $99 in 2012, the company signed up hundreds of thousands of customers and expanded to Canada and Europe. Customers seeking the secrets in their own genes also contribute DNA and personal information to

In 2013, the FDA put a halt to the startup’s ﬁrst effort to decode clients’ chromosomes as a predictor of future health.

“I have a much better sense now of how long it takes to build things.” the company’s growing database. Wojcicki believes correlating genotypes to diseases could ultimately lead to efficient, targeted drug breakthroughs. But in November 2013, just as Wojcicki’s company was gaining momentum, she hit a brick wall in the U.S. The Food and Drug Administration ordered 23andMe to stop marketing its tests for health purposes, deeming them unregulated medical devices. Having your most compelling product yanked off the market is the kind of blow that could easily kill a startup. Rather than panic, Wojcicki reverted to her Wall Street analyst self, gathering vast amounts of information, certain a solution was hiding in plain sight. She held endless conference calls with lawyers, regulatory experts, pharma CEOs, anyone who might have useful insight. “That ﬁrst week was like ‘Data, data, data—I CONTINUED O N PA G E 14 8 need data!’ ” Wojcicki recalls.

•••• THE PSYCH CHRONICLES

Although women’s and men’s ambition to start companies has increased, their conﬁdence has not. MEN

Perceive opportunities to start their own companies

See opportunity and report that fear of failure holds them back

Believe they have the right capabilities to start their own company

Know entrepreneurs

46% 34% 26%

2014

61%

53% 49%

2008

Involved in early-stage entrepreneurship

2008

2014

32% 25% 2008

2014

2008

2014

14% 10% 2008

2014

SOURCE: BABSON’S GLOBAL ENTREPRENEURSHIP MONITOR 2014 UNITED STATES REPORT

64 - INC. - OC TOBER 2015

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WorldMags.net N I N A TA N D O N E P I B O N E / HOW I DID IT

BLOOMING BONES uses stem cells to regrow damaged bones. After getting a PhD from Columbia and working two years at management consultancy McKinsey, Nina Tandon, now 36, returned to school for an MBA to form the company at the forefront of what she calls “biology as design.”

ORGANIC GROWTH Bones being hatched inside a bioreactor.

When looking at the range of tissues that could be grown in regenerative medicine, the easiest is something that’s ﬂat, that’s one cell type, and that doesn’t interact with other organs. The skin. Skin has been done since the 1990s. The most difficult? Tissue that’s mechanically and metabolically active, that needs lots of calories, and that interacts with other organs. For example, the heart. Between them is bone, which has a complex shape but a single cell type. I focused my PhD work on the heart. I was able to coax rat heart cells to develop into beating tissue. So my ﬁrst aha! moment was seeing how traditional technology could speak the language of cells. My colleague, later my EpiBone co-founder, was doing similar work in a different context: Stem cells going toward bone lineage need a different language spoken to them. My second aha! was that I could help him develop that into a business. After blood, bone is the second-most-transplanted tissue. So those numbers are very compelling. Millions of surgeries, trillions of dollars, and no viable alternative. I’ve always been interested in the intersection of academia and industry, but academics don’t consider themselves entrepreneurs. When I applied for my MBA, people were like, “What are you doing?” On the application I wrote, “I want to transform myself from a biotechnologist to a biotech leader.”

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“We’re slow and steady, we’re science nerds, and we are aiming to help humanity.”

We got a grant in 2011 and incorporated in 2013. Then we wanted to raise $700,000 of angel funding, but did a $4 million round instead. I don’t want to get cocky, but I do think science is storytelling. I didn’t tell investors they would get a return. I said, “If you’re interested in WhatsApp, walk away. We’re slow and steady, we’re science nerds, and we are aiming to help humanity.” Of our 66 investors, seven are professors or deans from Columbia. Peter Thiel also was an angel investor, as was a man who cold-called me and within ﬁve minutes had invested $250,000. We’ve already grown a jawbone in a pig, and now we’re replacing cheekbones. This process can potentially help congenital defects, trauma, cleft palates, dental issues, and cancer. If this works, we won’t be on the market for another eight to 10 years because of the regulatory pathways. We hope to start clinical trials within two years. Biology is becoming a design element, and we’re part of that trend, which is bleeding out of the lab into the wider world. A woman is growing cement bricks with bacteria. Another woman, at MIT, has developed a strain of mushroom that can be used as a natural body suit to assist decomposition inside a coffin. I love what happens when we ask, “What if you start collaborating with nature instead of trying to harness it?” —As told to LIZ WELCH

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ILLUSTRATION: TINA BERNING; CARLA TRAMULLAS

PIBONE, A NEW YORK CITY–BASED biotech startup,

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A PANORAMIC CAREER Before architect Michelle Kaufmann worked at Googleâ&#x20AC;&#x2122;s top-secret lab, she designed her studio in Novato, California.

68 - INC. - OC TOBER 2015

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WorldMags.net MICHELLE KAUFMANN FLUX

MAKING SMARTER

The unravelling of Michelle Kaufmann’s architecture career led her to Google—and to reimagine design

Photograph by DREW KELLY

NLY IN SILICON VALLEY does an introduction from a client lead you to the guys running Google’s topsecret research lab. That’s what happened to architect Michelle Kaufmann ﬁve years ago, when a tech CEO she’d designed a home for put her in touch with Google X’s Astro Teller and Sebastian Thrun. After meeting with the pair, recalls Kaufmann, “I felt like I had found my people.” Although she didn’t realize it at the time, the encounter would also help her put her career, which had recently derailed, back on track. Kaufmann had spent the previous decade and a half building a soaring architecture career. She had worked for design populist Michael Graves and then computer-assisted-design (and swoopy titanium) pioneer Frank Gehry. CONTINUED O N PA G E 14 9 By the time she was 34, she had built her

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INC. & CAPITAL ONE

KNOW WHAT’S COMING

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WILL THE NEXT STEVE JOBS BE A WOMAN? Why a rising tide of female founders will ямБnally bring us the next iconic entrepreneur By KIMBERLY WEISUL Illustration by JOHANNA GOODMAN

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OC TOBER 2015 - INC. - 7 1

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ERE’S AN EXPERIMENT: Name ﬁve iconic entrepreneurs. Actually, don’t bother, because we can pretty much predict your answer. Every year, we ask the Inc. 500 honorees to name the entrepreneurs they most admire. The answers: Steve Jobs, Elon Musk, Richard Branson, Mark Cuban, and Bill Gates. We’ve also seen Mark Zuckerberg and Tony Hsieh. The list varies a bit each year, but one constant remains: They’re all men.

That may not seem like much of a problem. After all, the entire country, and in many cases much of the world, has benefited from the contributions of these men: the jobs they’ve created, the technologies they’ve built, the instant access to European footwear. So what does it matter if they’re all sporting a Y chromosome? It matters a lot. It matters in the most basic sense that entrepreneurship is so often touted as the great unlocking of human capital, which is exactly what it should be. But when it comes to fast-growth entrepreneurship of the exalted and peculiar variety that produces breakthrough entrepreneurs, the U.S. has done a great job of unlocking only about half of our human capital. Women own about 36 percent of U.S. businesses; just 10 percent of Inc. 500 companies are led by women. That’s the past. Wave goodbye, and blow it a kiss. Don’t linger too long, though, because the future looks radically different, and radically better. We’re going to see a rising tide of successful female entrepreneurs, and we’re going to see them on that most-admired list, thanks to their leadership ability, wide-ranging experience, education, raw talent, and tendency to deliver better returns. Men are changing too, seeing opportunity where it’s previously been overlooked, and investing in and supporting female entrepreneurs who weren’t considered backable before. That means more job creation, more innovation, and more inspiration for the next generation of entrepreneurs. Extraordinary human capital, after all, doesn’t just sit around waiting to be noticed. Entrepreneurs are by their nature disrupters, whether they embrace the label or not. For female entrepreneurs right now, that means not just disrupting their chosen fields but also disrupting the old boys’ club, with its myopia and patriarchal outlook. No problem. They’re already on it. ERHAPS THE MOST DIRECT evidence that female fast-growth entrepreneurs have been consistently underrated, and won’t be much longer, comes from the experience of current company builders. A growing body of research indicates that women, when given a fair shot, are better at high-growth entrepreneurship than men. Not just as good as the men. Better. In July, First Round Capital released some startling numbers. The seed-stage firm examined 300 of its

7 2 - INC. - OC TOBER 2015

investments across almost 600 companies, revealing that those that included at least one woman founder performed 63 percent better, as measured by increases in valuation, than those founded by all-male teams. In a similar vein, the Ewing Marion Kauffman Foundation showed that women-led private technology companies have a 35 percent higher return on investment than male-led ones. When they get venture money, these women-led companies generate revenues that are 12 percent higher than those of comparable male-run tech companies. And a study by Illuminate Ventures demonstrated that women use capital more efficiently than men. None of this happens without leadership—another area in which women, often thought to be not determined enough, not inspiring enough, not insert-adjective-here enough, actually excel. In 2011, Zenger Folkman, a consulting ﬁrm specializing in leadership development, asked direct reports, bosses, and peers to rate 7,280 leaders on 16 traits thought to be the ingredients of outstanding leadership—from taking initiative to displaying high integrity and honesty. Women outscored men on 12 of the 16, and did best on two measures stereotypically thought of as male strengths: driving results and taking initiative. Women consistently rated better than men in overall leadership ability; the higher up in the organization the leaders were, the bigger the discrepancy between men and women, and the more the women shone. With leadership, though, one often also needs experience. For all we hear about 20-year-olds dropping out of Stanford to raise trunk loads of venture money, most entrepreneurs need industry knowledge and connections to start a company. Women are gaining both, starting in school and continuing throughout their careers. Women now earn 36.5 percent of all business school degrees. They also earn about half of all MDs. No surprise, then, that health care is a particular bright spot for female entrepreneurs, with Elizabeth Holmes’s lab testing company, Theranos, valued at $10 billion (see “The Longest Game,” page 48). Sheila Lirio Marcelo took Care.com public in 2014; Rachel King did the same with GlycoMimetics; and more recently Anne Wojcicki’s 23andMe (see “The DNA Whisperer,” page 62) has joined the unicorn ranks. The weakness, by the same token, is in computer science, where women earn only 18 percent of undergraduate degrees. But maybe when it comes to entrepreneurship, this isn’t the deal killer it’s been assumed to be. The First Round data, among

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Susan Lyne hatched AOL’s BBG (Built by other surprises, shows that having a techniGirls) Ventures; serial entrepreneur Anu cal co-founder served to sink the value of a Women-led Duggal launched the Female Founders consumer-focused startup by 31 percent. private tech companies Fund with the express purpose of investToo often, the single biggest stumbling have a ing in women. block for women entrepreneurs has been These power centers are starting to have access to capital, especially equity capital. an impact, both through their investments That’s partly because 94 percent of investand by convincing others that companies ing partners at venture firms are male led by women are an undervalued asset and, female entrepreneurs say, less likely class—one that will deliver superior to understand the potential of a business returns. A Babson College study reported that specifically targets women as customthat in 1999, fewer than 5 percent of venture ers. Care.com connects caregivers to higher return on capital investments went to companies with potential employers, and, says co-founder investment than a woman on the executive team. By 2011, and CEO Marcelo, “we’re having to edumale-led ones that number had increased to 9 percent. cate the Street, which is 99 percent male, Only two years later, in 2013, companies on how women look for care.” with a woman on the executive team were We’re also finally acknowledging that attracting 18 percent of venture investunconscious bias is real, and that it affects Women-led ments. You don’t have to be courting VCs to both men and women. In a study pubtech companies with venture notice the change in mindset: According to lished in 2014, researchers asked people backing generate Alicia Robb, a senior fellow at the Kauffman of both sexes to watch pitch videos. Some revenues Foundation who analyzed more than of the videos were narrated by a man, 25,000 Kickstarter projects, female crowdothers by a woman. Sixty-eight percent funders on the site are more likely to get of the people who watched the videos fully funded than men. Why? Because said they’d fund the man, compared with women are using Kickstarter as a vehicle only 32 percent who said they’d fund the to invest in other women. woman. Those watching the videos—men That dynamic—of women actively supand women alike—considered the pitches porting one another’s success—is something from the men more “persuasive,” “facthigher than malefemale entrepreneurs say is relatively new, based,” and “logical” than the pitches from led companies SOURCE: EWING MARION and greatly welcomed. Just like men, they the women. Even though, word for word, KAUFFMAN FOUNDATION need a supportive network and successful the scripts were exactly the same. role models, two things many have lacked. Some VCs are trying to change. In “Now there’s Sara Blakely, there’s Tory the rare instances in which venture capiBurch,” says Jane Wurwand, who recently sold her company, talists used to invest in women, they’d promptly replace them Dermalogica, to Unilever. “It’s that ‘If you see it, you can be it.’ ” with men, says Amy Millman, co-founder and president of Jessica Herrin, the founder of retailer Stella & Dot [see Springboard Enterprises, which mentors and coaches women “Built to Last (and Last … and Last),” page 32], speculates that to raise venture funding. Now, she says, when VCs invest in the first generation of successful professional women were so women, “they brag about it.” Kleiner Perkins Caufield & Byers busy dealing with sexism that they couldn’t spare the energy or ordered up training for the firm in overcoming unconscious political capital to support the other women in line behind bias, and is now offering it to its portfolio company CEOs. As enlightenment ripples across the establishment, women them. Now, says Herrin, “every female CEO I know is hell-bent on creating more of them.” Even Elizabeth Holmes, who epitowith the relevant experience or means are realizing that if mizes the lone entrepreneur as much as anyone, admits how they too want to see more amazing women running amazing much of a difference it makes to have other women supporting companies, they’ve got to put their money where their her. When she started Theranos, she says it was women more frustrations are. Golden Seeds, a group of mostly ex–Wall Street women, has been providing early funding to female-run than men who doubted her. Now, she says, women are “coming out of the woodwork” to support her. companies since 2005; Cindy Padnos’s Illuminate Ventures For more than two decades, Springboard’s Millman has was formed in 2009. This trend seems to be reaching a contended that we needed vast societal changes before tipping point. In 2010, venture capitalists Sonja Hoel Perkins we’d have masses of women building fast-growing compaand Jennifer Fonstad corralled a group of Silicon Valley’s nies, cracking the very top ranks of entrepreneurship. Now, most powerful women to form Broadway Angels; so far, finally, she says, “we’re at an inflection point. It’s happening.” 48 percent of its entrepreneurs are women. Theresia Gouw, For the most-admired list, that means one thing: Steve, once a partner with Accel Partners, and Fonstad, formerly meet Stephanie. managing director at Draper Fisher Jurvetson, founded Aspect Ventures; Aileen Lee left Kleiner Perkins to launch KIMBERLY WEISUL is an Inc. editor-at-large. seed fund Cowboy Ventures; Gilt Groupe’s former CEO

35 PERCENT

12 PERCENT

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THE SANDBERG EFFECT Thanks to Lean In circles, women are getting raises, starting businessesâ&#x20AC;&#x201D;and running for public office.

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WorldMags.net VISION 20 / 20

INSIDE THE MIND OF SHERYL SANDBERG Facebook’s COO is arguably the most inﬂuential woman in business. Now, even after personal tragedy, she wants to spread that inﬂuence to small businesses— and get women into seats of power everywhere ROBERT MAXWELL/CPI SYNDICATION

By JEFF BERCOVICI

HEN YOU WALK INTO FACEBOOK’S

Menlo Park, California, offices, the posters bombard you: “Let’s Kick the Shit Out of Option B.” It has the ring of a corporate mantra, à la “Move fast and break things,” Mark Zuckerberg’s famous exhortation to his colleagues. But it’s something far more personal—a quote used by Facebook’s second-in-command, Sheryl Sandberg. Already one of the most admired executives in America, thanks to Lean In, her 2013 female-ambition manifesto, Sandberg became a different kind of symbol in May after the sudden death of her husband, SurveyMonkey CEO Dave Goldberg. Facebook’s COO had often credited her professional success, in part, to her supportive partnership with Goldberg. Together they were the model Silicon Valley power couple. It turns out Sandberg’s “Option B” line is from a raw, public Facebook post she wrote a month after her husband died, about coping with grief after the loss of “Option A,” the life she had expected to

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share with Goldberg. The post has been shared almost 400,000 times. On a steamy August afternoon, Sandberg is dealing with the tragedy the best way she knows how—by throwing herself back into her work. She’s in a conference room at the center of Facebook’s new 430,000square-foot Building 20. Like her boss, Sandberg has an open-plan desk. But it’s clear by the pool of personal effects at the head of this conference table—lip balm, hand weights, a jumbo Diet Coke, and a rubber physicaltherapy rod that she uses to treat the wrist pain she developed while writing Lean In hunt-and-peck style—that this is where Sandberg spends most of her days in back-to-back meetings. She’d like to learn to type, she says, but who has the time? After Goldberg’s death, she took on yet another commitment by joining the board of SurveyMonkey. If the rumor mill had its way, she’d be busier still; she’s always being touted as a candidate for some political office or CEO gig. To her, it’s just noise, though. What preoccupies Sandberg these days is small business. Having proved that the social network could move the needle for big marketers—like General Motors, which publicly dissed Facebook as an advertising medium in 2012, only to come slinking back a year later—Sandberg is now leading a campaign to convince companies of every size that it can do the same for them through a combination of simple content-creation tools and sophisticated ad-targeting. The message is getting through. More than 40 million small businesses have active Facebook pages. Two million of them are current advertisers, and more than a million have experimented with video advertising. Facebook hopes still more will sign up to use new tools it added in September, including customizable pages and inbox management. In a candid conversation with Inc., Sandberg reveals that her passion for entrepreneurs is rooted in her ancestors, argues that Facebook will become the ampliﬁer for small businesses, and explains that men still aren’t comfortable with women in power.

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Inc.: Let’s talk small business. Sandberg: This is literally my favorite topic, and I don’t get to talk about it as much as I want.

Why is it your favorite topic? Small business, medium business, SMB—there are 20 different names for it—but this is the source of economic growth. It really is. If you look at the job creation numbers in the United States, you look at them in Europe, the majority of job creation happens through small business. And people don’t fully understand that or appreciate it in a world where economic growth is so important and job growth is so important. Just personally, my family immigrated here. My grandfather had a paint store. It’s what put my mom through college. Small business is part of my family history.

What do small businesses have to do with your core mission of making the world more connected? We give a voice to people who other-

78 - INC. - OC TOBER 2015

you a webpage not just on desktop but, more important, on mobile. It’s free, and it takes three minutes.

A lot of businesses have accused Facebook of suppressing the organic reach of their page posts to encourage them to buy advertising. To some extent, the messaging you’ve been doing around small businesses is about making them feel like Facebook cares about them, right? We’ve cared all along, but we’re maybe showing that care better now. I think the best way to show you care is to make the products efficient.

One in ﬁve minutes spent in mobile apps is on Facebook. Facebook pages are, as you said, replacing websites for some businesses. Customers can

“My grandfather had a paint store. It’s what put my mom through college. Small business is part of my family history.” wise don’t have one. Before social media, if I as an individual wanted to publish something to the world, unless I could get some local TV crew to interview me or I wrote an op-ed or took out an ad, I had no voice. Big businesses have always had a lot more voice. They can afford advertising, they can afford marketing. But for small businesses, being able to quickly and cheaply connect to customers is a big deal. Thirty-ﬁve percent of small businesses don’t have a website. That’s because they are expensive and hard to do and not obvious. Small businesses are typically run by one person, the owner, who has few resources, no time. But a Facebook page is easy and fast and gives

buy items there, book tables there, chat with customer service. Is the vision to capture all the activity that now happens on the internet and bring it inside Facebook’s walls? The goal is to provide as much value as possible. How do we help you grow your business? If we are growing the top line for businesses and helping them achieve their goals, they’ll continue to do more and more with us.

What kind of success has the Lean In movement generated? We have 24,000 circles in 117 countries. We were hoping for a thousand. We grow by a hundred a week. They’re growing because they help people

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WorldMags.net OPTIMIZING PERFORMANCE BY CAPITALIZING ON CULTURE This company’s fresh take on what it means to give back has created a virtuous cycle of success.

ncreased profitability is one popular benchmark of growth, but the executives at Energy Management Corporation like to score their success by a less likely metric: increased payroll. That target is central to EMC’s goal of giving back to the community as a small business. “We were never going to become the kind of philanthropic company that could build a hospital or give away millions of dollars,” says Wayne Turnbow, president, who co-founded the company with CEO Steven Rossiter. “But we did think we could provide jobs. That’s what started our drive to grow faster.” The business, which sells and services power and electric control products including motors, variable frequency drives, back-up generators, and more, has accelerated its growth through strategic acquisitions. In addition to creating more jobs, that approach has helped it expand into new segments of the industrial electrical space, from manufacturing, service, and repair to distribution. “We specialize in large projects with very technical solutions that other companies have a hard time with, because it requires more than simply selling a part,” says Paul Rossiter, executive vice president. “It has to be custom engineered.” EMC’s diversification and growth has created jobs for new employees and new career openings for existing staff. “We’ve got good people working for us, and we have an intense feeling of responsibility to

them,” Rossiter says. “We’ve always kept that at the forefront of our minds as we make decisions on how we move forward.” That commitment to opportunity nicely parallels one of the characteristics EMC seeks in its employees: intrapreneurialism, which Turnbow ranks as one of the core competencies candidates must demonstrate. Integrity is equally central to EMC’s values and identity. “You can’t convey trust without having integrity internally,” Rossiter says. “That’s what keeps us in business.” It’s also what attracts the caliber of people who will sustain those values and attract additional like-minded employees—and that virtuous cycle is the motor for the company’s sustainable growth.

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VISION 20 / 20

THE LEVELER

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Sandberg doesn’t want equality just for equality’s sake: Diversity helps boost business.

People are always writing lists about “the next Mark Zuckerberg.” Why isn’t there a woman in tech who’s similarly iconic? What will it take? You could ask that question of every leadership role. Why aren’t there more women senators? Why haven’t we had a woman president? Why aren’t there more women in computer science? I really think it’s the stereotypes that become self-fulﬁlling prophecies. I think we also suffer from the tyranny of low expectations. In 2012, women got 20 percent of the seats in the U.S. Senate. And all of the headlines kept screaming out, “Women take over the Senate!” And it was like, wait a minute— 50 percent of the population with 20 percent of the seats is not a takeover. But our expectations for female leadership were so low that we were writing stories about how there was more than one woman in the Senate bathroom. Go look it up—it was an unbelievable press cycle. I just kept watching this thinking,

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“As a country and as a world, we are not comfortable with women in leadership roles. We call little girls bossy.” “You’ve gotta be kidding.” Look, I think as a country and as a world, we are not comfortable with women in leadership roles. Our discomfort with female leadership runs deep. We call little girls bossy. We never really call little boys bossy, because a boy is expected to lead so it doesn’t surprise or offend.

Facebook has made a concerted effort to increase diversity, but so far the needle hasn’t moved very much. Is there anything you have planned to step up the campaign? Let’s be clear: Our numbers are not where they should be. The whole industry’s numbers aren’t where they should be. This just changes slowly. It shouldn’t change slowly. I’d like to change it quickly, but there’s just a lot of work to do. We have to persuade more women to go into computer science. We have to persuade more people of color to go into computer science. Those numbers are low too, although

the Latino numbers have moved in the past couple of years. So we have to get more people to go into the ﬁelds, and it’s the same thing with leadership.

There’s been so much conversation around this in Silicon Valley in the past couple of years. Is it just talk, or is it reflecting actual change? Certainly, conversation is the first step. Educating people on the biases is the first step. Making the case that diversity is good for business results is really important, and I think that’s getting through. What I don’t talk about and other people don’t talk about is, it’s not that we want equality just for equality’s sake, even though we do, and it’s the right thing to do. It’s that we also want diversity and equality because it will make our organization and other organizations perform better. JEFF BERCOVICI is Inc.’s San Francisco

bureau chief.

MOST INNOVATIVE WOMEN / LEAD

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JUSTIN SULLIVAN/GETTY

accomplish real things. Our data says the great majority of people who join a circle will make a really positive life change for themselves within six months. They get raises. They get new jobs. They run for office. They change the dynamics they have with their partners. Some of them drop their boyfriends and decide they want new boyfriends who will be more equal partners. Over and over, the circles actually give people strength. The thing about women is you really get a lot of messages of “Why?”—“Are you sure you want that job? Don’t you want kids one day?” I always ask an audience: “If you’re a man, please raise your hand if anyone’s ever said, ‘Should you be working?’ ” Never had a hand. Do you know how many times women are asked if they should be working? There’s this assumption that women can’t work and have families, which is a really unfair assumption given that almost 70 percent of mothers have to work to support their families. So we have this fundamental assumption that women can’t do what men have to do.

WorldMags.net Leadership Starts at the Top 3 Easy Steps to Better Leadership

As a business owner, you rely on your leadership team to coach, train and support your workforce to help your company grow and prosper. An ability to understand individual styles and model your culture will help your leaders be a resource for your employees’ personal and professional growth. It’s not easy, but the payoﬀ of an engaged, productive workforce will be worth it. Here are three areas where your leadership team can get started…

Know Your Culture If your company culture isn’t what you’d anticipated, it’s not too late to rescue it. Start by asking: How well do your employees enjoy their work? Coming to work shouldn’t bring feelings of dread. Is there a level of accountability and responsibility? Taking ownership makes employees feel connected. Are your employees engaged? Believing what they do matters to the company and its mission leads to committed employees. How do you invest in your employees? Recognition for a job well done shows that you value your team’s work.

Build Relationships The better you and your leadership know your employees, the better position you’ll all be in to help them, and the company, continue to succeed.

Foster Independence Your leadership team can nurture self-guided success by creating a culture of independent thinking and creativity.

How to develop lasting relationships… Look at things from their perspective. Earn respect and trust by being open and real. Be their advocate and help them develop.

Spell out expectations and guidelines up front, but trust employees to execute their work creatively. Expect some failures. They’re part of the process. Deal with issues individually rather than implementing companywide policies to address a single situation.

Be open to input from your employees.

Promote work-life balance.

Give them latitude to solve problems.

Provide opportunities for professional development.

Want more tips on how to get the most out of your team? Download a free Insperity Guide to Employee Engagement or the Insperity Guide to Leadership and Management at insperity.com/inc. insperity.com | 800-465-3800 HR and Business Performance Solutions from Insperity: Workforce Optimization Human Capital Management | Payroll Services | Time and Attendance | Performance Management Organizational Planning | Recruiting Services | Employment Screening | Financial Solutions Expense Management | Retirement Services | Insurance Services

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WorldMags.net Norm Brodsky STREET SMARTS

•••• Women Play the Long Game What men can learn from them

They don’t understand the basics of finance. I find that women are open about this and are eager to learn. Of course, most of the men don’t have a very good grasp of the financials either, but they’re more likely to bluff, pretending they know more than they do. The most striking difference between men and women has to do with what they generally want OR THE PAST 20 YEARS, I’ve spent a significant out of their businesses—and how they go about portion of my time giving advice to young entregetting it. Almost without exception, the men are preneurs—about 30 a month—who come to me for interested in growing their companies and makhelp. I do it pro bono, and I’m happy to continue ing more money. At their age, I was exactly the seeing them after our first meeting if they want. same way. However, as I grew older, I realized What’s fascinating is that the women generally do, that there’s much more to life than business. The while the men generally don’t. That’s only one of women I meet with already seem to know this. many differences I’ve noticed in the way men and Consider Heather Willems and Nora Herting, women approach entrepreneurship. My overall who, in 2009, founded ImageThink, a graphic conclusion: Men have a lot to learn from women recording business that does live illustrations about having a good life while building a business. of keynote addresses, brainstorming sessions, and I should note that among all the people I work annual meetings. It’s become a leader in its field, with, women outnumber men by about 3 to 1. Men tend to get and the partners are serious about their business. in touch when they have a specific problem they’re struggling with, But they are also serious about their entire lives, whereas women contact me because they want to become better which is why they take periodic sabbaticals businesspeople. They ask a lot of questions, and they’re not afraid to creatively recharge and avoid burning out. to admit what they don’t know. “We aim to build the business to support our In the beginning, that usually involves numbers. Most new personal life choices as well as run the company entrepreneurs are salespeople with no background in accounting. responsibly,” says Willems. Then there’s the Event Studio, founded in 2008 by Elizabeth Busch, Anne Frey-Mott, and Beckie Jankiewicz. They had been at other Norm Brodsky is a veteran companies but felt that, as employees, they weren’t able to do their best work or engage with entrepreneur. His co-author is a wide enough variety of clients. They also wanted a more fulfilling lifestyle. They’ve since editor-at-large Bo Burlingham. They are also co-authors of Street built an extremely successful company with a sterling customer list, while creating the kind Smarts: An All-Purpose Tool Kit of complete lives they had set their sights on. for Entrepreneurs. Follow them on Twitter: @normbrodsky I’ve been working with the women of the Event Studio since they started. I still see and @boburlingham. them once or twice a year, although the relationship has changed. In the beginning, our conversations were mostly about their numbers. Now they come back because they value a perspective from someone they trust. The world around them is constantly changing, the dynamics of their business are changing, and they realize the value of getting an outside opinion on how they plan to respond. If male entrepreneurs developed a similar relationship with me, I might be able to save them some grief as well. EVAN KAFKA

SCAN THIS PAGE TO SEE NORM ANSWER QUESTIONS FROM ENTREPRENEURS. (See page 8 for details.)

Do you have a question for Norm? Write to him at asknorm@inc.com.

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“We believe in open-source everything.” —LIMOR FRIED, founder and owner of Adafruit (No. 43 on the Inc. Impact 50), which sells DIY electronics

109

PG.

HOW TO SHOP FOR YOUR COMPANY’S 401(k) PG.87 ARE YOU SURE YOU WANT TO GO PUBLIC? PG.94

•••• PHOTOGRAPH BY JULIE JAMORA

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OC TOBER 2015 - INC. - 85

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Social scientist and TED phenomenon Brené Brown listened as trusted leaders shared their stories of being brave. What do they all have in common? They recognize the power of emotion and they’re not afraid to lean in to discomfort. Struggle can be our greatest call to courage and Rising Strong can tell us the most about who we are.

“It is inevitable—we will fall. We will fail. We will not know how to react or what to do. No matter how or when it happens, we will all have a choice—do we get up or not? Thankfully, Brené Brown is there with an outstretched arm to help us up.”

—SIMON SINEK, optimist and author of Start With Why and Leaders Eat Last

Learn more about Brené Brown and Rising Strong at BreneBrown.com A SPIEGEL & GRAU HARDCOVER, eBOOK, AND AUDIOBOOK

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TIP SHEET BENEFITS

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HELP YOUR EMPLOYEES HIT THEIR TARGETS How to shop—smartly—to make the most of your company’s retirement plan

WHEN BIANCA CAAMPUED and Mallory Blair opened Small Girls PR in 2010, a retirement plan was the last thing on their minds. They wanted to grow a business, not contemplate the end of anyone’s career. And so they did: Five years later, Small Girls had an impressive client list, hip offices in Brooklyn’s Williamsburg neighborhood, almost 20 employees—and job recruits who were asking about the 401(k) on offer. There wasn’t one. So Kara Silverman, Small Girls director of operations, started investigating options. But, she says, “I’d never been in the position of evaluating 401(k) plans before.” That probably sounds familiar. When you’re starting a business, it may be years before you can hire even one dedicated human resources employee, never mind a retirement-plan specialist. And if you’re figuring out a 401(k) offering on your own, it’s hard to know where to start. You can’t automatically rely on retirement-plan salespeople, who may hide their products’ less savory financial details in the fine print. And since you’re acting as a fiduciary for your employees, you could get into trouble if you saddle them with an expensive plan. While “GE has a whole division dedicated to its 401(k) plan,” few small businesses can afford anything

similar, says Brooks Herman, head of data and research for BrightScope, which rates 401(k) plans. So, ﬁrst of all …

LOOK BEYOND THE EASY OPTIONS IF YOU’RE A smaller employer, you’re probably going to have to search harder for affordable retirement-plan options. They do exist—as do the resources to help you ﬁnd them (see “The 401(k) Experts,” page 91). Index funds tend to be the cheapest and best investment for many employees’ longterm retirement plans—though salespeople may try to push more expensive, actively managed funds. Or they may

••••

FROM TOP: JOEY KOTFICA/GETTY; VEER

THE GRIM STATISTICS Act now to beat the retirement odds MONEY

31%

of small businesses with 26 to 100 employees offer a retirement plan.

SOURCE: GAO

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of very small businesses, with 1 to 4 employees, offer a retirement plan.

SOURCE: GAO

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About half of men over 40 have some degree of erectile dysfunction (ED).* VIAGRA (sildenaﬁl citrate) helps guys with ED get and keep an erection. And you only take it when you need it. VIAGRA usually starts to work within 30-60 minutes.

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Individual results may vary.

Ask your doctor if VIAGRA is right for you.

VIAGRA is a prescription medicine used to treat erectile dysfunction. VIAGRA is not for women or children. IMPORTANT SAFETY INFORMATION BELOW. Do not take VIAGRA if you: • Take any other medicines called nitrates, often prescribed for chest pain, as this may cause a sudden, unsafe drop in blood pressure. • Are allergic to sildenaﬁl, as contained in VIAGRA and REVATIO, or any of the ingredients in VIAGRA. Discuss your health with your doctor to ensure that you are healthy enough for sex. If you experience chest pain, dizziness, or nausea during sex, seek immediate medical help. VIAGRA can cause serious side effects. Rarely reported side effects include: • an erection that will not go away (priapism). If you have an erection that lasts more than 4 hours, get medical help right away. If it is not treated right away, priapism can permanently damage your penis. • sudden vision loss in one or both eyes. Sudden vision loss in one or both eyes can be a sign of a serious eye problem called non-arteritic anterior ischemic optic neuropathy (NAION). Stop taking VIAGRA and call your healthcare provider right away if you have any sudden vision loss. • sudden hearing decrease or hearing loss. Some people may also have ringing in their ears (tinnitus) or dizziness. If you have these symptoms, stop taking VIAGRA and contact a doctor right away. Before you take VIAGRA, tell your healthcare provider if you: • have or have had heart problems such as a heart attack, irregular heartbeat, angina, chest pain, narrowing of the aortic valve, or heart failure • have had heart surgery within the last 6 months • have had a stroke • have low blood pressure, or high blood pressure that is not controlled • have a deformed penis shape • have had an erection that lasted for more than 4 hours • have problems with your blood cells such as sickle cell anemia, multiple myeloma, or leukemia

• have retinitis pigmentosa, a rare genetic (runs in families) eye disease • have ever had severe vision loss, including an eye problem called NAION • have bleeding problems • have or have had stomach ulcers • have liver problems • have kidney problems or are having kidney dialysis • have any other medical conditions

Tell your healthcare provider about all the medicines you take, including prescription and over-the-counter medicines, vitamins, and herbal supplements. VIAGRA may affect the way other medicines work, and other medicines may affect the way VIAGRA works, causing side effects. Especially tell your healthcare provider if you take any of the following: • medicines called nitrates • medicines called alpha-blockers such as Hytrin (terazosin HCl), Flomax (tamsulosin HCl), Cardura (doxazosin mesylate), Minipress (prazosin HCl), Uroxatral (alfuzosin HCl), Jalyn (dutasteride and tamsulosin HCl), or Rapaflo (silodosin). Alphablockers are sometimes prescribed for prostate problems or high blood pressure. In some patients, the use of VIAGRA with alpha-blockers can lead to a drop in blood pressure or to fainting • medicines called HIV protease inhibitors, such as ritonavir (Norvir), indinavir sulfate (Crixivan), saquinavir (Fortovase or Invirase), or atazanavir sulfate (Reyataz) • some types of oral antifungal medicines, such as ketoconazole (Nizoral) and itraconazole (Sporanox) • some types of antibiotics, such as clarithromycin (Biaxin), telithromycin (Ketek), or erythromycin • other medicines that treat high blood pressure • other medicines or treatments for ED • VIAGRA contains sildenafil, which is the same medicine found in another drug called REVATIO. REVATIO is used to treat a rare disease called pulmonary arterial hypertension (PAH). VIAGRA should not be used with REVATIO or with other PAH treatments containing sildenafil or any other PDE5 inhibitors (such as Adcirca [tadalafil]). VIAGRA does not protect against sexually transmitted diseases, including HIV. The most common side effects of VIAGRA: headache; flushing; upset stomach; abnormal vision, such as changes in color vision (such as having a blue color tinge) and blurred vision; stuffy or runny nose; back pain; muscle pain; nausea; dizziness; rash. Please see Important Facts for VIAGRA on the following page or visit viagra.com for full prescribing information for VIAGRA (25 mg, 50 mg, 100 mg) tablets. *

Data taken from the Massachusetts Male Aging Study. Of 1,290 respondents, 52% stated they had some degree of ED.

You are encouraged to report negative side effects of prescription drugs to the FDA. Visit www.FDA.gov/medwatch or call 1-800-FDA-1088. For more information go to viagra.com or call 1-888-484-2472 (1-888-4VIAGRA). The blue diamond tablet shape is a registered trademark of Pﬁzer Inc.

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WorldMags.net GENTLEMEN: helps guys with ED

get and keep an erection.

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IMPORTANT FACTS

(vi-AG-rah)

IMPORTANT SAFETY INFORMATION ABOUT VIAGRA VIAGRA can cause your blood pressure to drop suddenly to an unsafe level if it is taken with certain other medicines. Do not take VIAGRA if you take medicines called â&#x20AC;&#x153;nitratesâ&#x20AC;? for chest pain (angina). A sudden drop in blood pressure can cause you to feel dizzy, faint, or have a heart attack or stroke. Tell all your healthcare providers that you take VIAGRA. If you need emergency medical care for a heart problem, tell your healthcare provider when you last took VIAGRA. Stop sexual activity and get medical help right away if you have chest pain, dizziness, or nausea during sex. Ask your doctor if your heart is healthy enough to handle the extra strain of having sex, especially if your heart is already weak from a heart attack or heart disease. VIAGRA does not protect you or your partner from getting sexually transmitted diseases, including HIVâ&#x20AC;&#x201D;the virus that causes AIDS.

WHAT IS VIAGRA? VIAGRA is a prescription medicine used to treat erectile dysfunction (ED). VIAGRA helps a man with erectile dysfunction get and keep an erection only when he is sexually excited (stimulated). VIAGRA is not for use in women or children under 18 years of age.

DO NOT TAKE VIAGRA IF YOU: â&#x20AC;˘ Take medicines called â&#x20AC;&#x153;nitratesâ&#x20AC;? (such as nitroglycerin) â&#x20AC;˘ Use street drugs called â&#x20AC;&#x153;poppersâ&#x20AC;? (such as amyl nitrate or nitrite, and butyl nitrate) â&#x20AC;˘ Are allergic to sildenafil, as contained in VIAGRA and Revatio, or any of the ingredients in VIAGRA

â&#x20AC;˘ Other medicines or treatments for ED â&#x20AC;˘ VIAGRA contains sildenafil, which is also found in another drug called REVATIO. REVATIO is used to treat pulmonary arterial hypertension (PAH). VIAGRA should not be used with REVATIO or with other PAH treatments containing sildenafil or any other PDE5 inhibitors (such as Adcirca [tadalafil]).

POSSIBLE SIDE EFFECTS OF VIAGRA What are the possible side effects of VIAGRA? VIAGRA can cause serious side effects. Rarely reported side effects include: â&#x20AC;˘ An erection that will not go away (priapism). If you have an erection that lasts more than 4 hours, get medical help right away. If it is not treated right away, priapism can permanently damage your penis. â&#x20AC;˘ Sudden vision loss in one or both eyes. Sudden vision loss in one or both eyes can be a sign of a serious eye problem called non-arteritic anterior ischemic optic neuropathy (NAION). Stop taking VIAGRA and call your healthcare provider right away if you have sudden vision loss in one or both eyes. â&#x20AC;˘ Sudden hearing decrease or hearing loss. Some people may also have ringing in their ears (tinnitus) or dizziness. If you have these symptoms, stop taking VIAGRA and contact a doctor right away. The most common side effects of VIAGRA are: â&#x20AC;˘ Stuffy or runny nose â&#x20AC;˘ Headache â&#x20AC;˘ Back pain â&#x20AC;˘ Flushing â&#x20AC;˘ Muscle pain â&#x20AC;˘ Upset stomach â&#x20AC;˘ Nausea â&#x20AC;˘ Abnormal vision, such as changes in color vision (such as â&#x20AC;˘ Dizziness having a blue color tinge) and â&#x20AC;˘ Rash blurred vision In addition, heart attack, stroke, irregular heartbeats, and death have happened rarely in men taking VIAGRA. Most, but not all, of these men had heart problems before taking VIAGRA. It is not known if VIAGRA caused these problems. Tell your healthcare provider if you have any side effect that bothers you or does not go away.

BEFORE YOU START VIAGRA Tell your doctor if you have or ever had: â&#x20AC;˘ Heart attack, abnormal heartbeats, or stroke â&#x20AC;˘ Heart problems, such as heart failure, chest pain, angina, or aortic valve narrowing â&#x20AC;˘ Heart surgery within the last 6 months â&#x20AC;˘ Low or high blood pressure â&#x20AC;˘ Severe vision loss, including an eye problem called non-arteritic anterior ischemic optic neuropathy (NAION) â&#x20AC;˘ An eye condition called retinitis pigmentosa â&#x20AC;˘ Kidney or liver problems â&#x20AC;˘ Blood problems, such as sickle cell anemia, multiple myeloma or leukemia â&#x20AC;˘ A deformed penis, Peyronieâ&#x20AC;&#x2122;s disease, or an erection that lasted more than 4 hours â&#x20AC;˘ Stomach ulcers or any kind of bleeding problems â&#x20AC;˘ Any other medical conditions

Tell your doctor about all your medicines: Include prescription and over-the-counter medicines, vitamins, and herbal supplements. VIAGRA may affect the way other medicines work, and other medicines may affect the way VIAGRA works causing side effects. Especially tell your healthcare provider if you take any of the following: â&#x20AC;˘ Medicines called nitrates (see â&#x20AC;&#x153;important safety information about VIAGRAâ&#x20AC;?) â&#x20AC;˘ Medicines called alpha-blockers such as Hytrin (terazosin HCl), Flomax (tamsulosin HCl), Cardura (doxazosin mesylate), Minipress (prazosin HCl), Uroxatral (alfuzosin HCl), Jalyn (dutasteride and tamsulosin HCl), or Rapaflo (silodosin). Alpha-blockers are sometimes prescribed for prostate problems or high blood pressure. In some patients, the use of VIAGRA with alpha-blockers can lead to a drop in blood pressure or to fainting. â&#x20AC;˘ Medicines called HIV protease inhibitors, such as ritonavir (Norvir), indinavir sulfate (Crixivan), saquinavir (Fortovase or Invirase), or atazanavir sulfate (Reyataz) â&#x20AC;˘ Some types of oral antifungal medicines, such as ketoconazole (Nizoral) and itraconazole (Sporanox) â&#x20AC;˘ Some types of antibiotics, such as clarithromycin (Biaxin), telithromycin (Ketek), or erythromycin â&#x20AC;˘ Other medicines that treat high blood pressure

These are not all the possible side effects of VIAGRA. For more information, ask your healthcare provider or pharmacist. Call your doctor for medical advice about side effects. You may report side effects to FDA at 1-800-FDA-1088.

HOW TO TAKE VIAGRA â&#x20AC;˘ â&#x20AC;˘ â&#x20AC;˘ â&#x20AC;˘

Take VIAGRA exactly as your healthcare provider tells you to take it. Your healthcare provider will tell you how much and when to take Viagra. Your healthcare provider may change your dose if needed. Take VIAGRA about 1 hour before sexual activity. You may take VIAGRA between 30 minutes to 4 hours before sexual activity if needed. â&#x20AC;˘ VIAGRA can be taken with or without food. If you take VIAGRA after a high fat meal (such as a cheeseburger and french fries), VIAGRA may take a little longer to start working. â&#x20AC;˘ Do not take VIAGRA more than 1 time a day. â&#x20AC;˘ If you accidentally take too much VIAGRA, call your doctor or go to the nearest hospital emergency room right away.

NEED MORE INFORMATION? This is only a summary of important information. Ask your doctor or pharmacist for complete product information OR Go to www.viagra.com or call (888) 4-VIAGRA (484-2472).

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TIP SHEET BENEFITS

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emphasize the bells and whistles rather than the underlying product. Silverman, for example, was inundated with information about the account-monitoring technology offered by the different plan providers, meaning the ﬁnancial companies that manage 401(k)s and provide record-keeping services for them. She can rattle off the different types of asset classes they offered for Small Girls employees to invest in, and she was wooed by bonus offers. One plan provider, for example, offered a cake to employers who sign up for its 401(k) services. But when asked if her retirement suitors were suggesting managed funds or less expensive index funds, Silverman

Big companies can have entire divisions devoted to ﬁguring out retirement plans. You might not have even one person. didn’t know. “I wondered if some of those details would come out when we signed on the dotted line,” she says. That’s a common refrain, but it’s far too late in the process—waiting until you sign can cost you, and your employees, money. While those working for large corporations often pay annual fees of less than 0.5 percent of the funds invested in their employee retirement plans, small-business participants can lose up to 2 percent, or even more, to expenses each year, according to BrightScope. Retirement plans containing less than $10 million in assets are not

as likely as bigger plans to offer their participants access to the cheaper, passively managed index funds, according to a 2014 study by the Investment Company Institute and BrightScope. As founder and president of advisory service PlanVision Mark Zoril warns, “The employers don’t know what they don’t know.”

THE 401(k) EXPERTS FLAT FEES ARE A NO-BRAINER SOME PROVIDERS will try to lure you by charging a low upfront fee, with an agreement to let them take a percentage of assets under management, usually 1 to 2 percent, according to Zoril. That can seem like a good deal— but it’s not. Zoril points to one company that recently switched retirementplan providers. The original plan had about $7 million in assets, for which the company was paying about 1.5 percent annually, or about $105,000, to its service provider. Zoril helped the company switch to a lower-cost plan provider that offered passively managed index funds. The new annual charge was $28,000—most of which was a ﬂat fee, rather than a percentage that ballooned as employees’ savings increased. As for Small Girls’ Silverman, she ultimately picked the company with the free cake, newcomer ForUsAll. It also offers low-cost index funds, keeps employee costs at about 0.5 percent, and charges employers a monthly ﬂat fee. Not a bad deal at all.

—HELAINE OLEN

Ready to roll out this beneﬁt? These resources can help you ﬁgure out exactly what retirement plans to offer workers.

THE COST CUTTER Advisory services such as PlanVision help companies evaluate their current retirement plans, pinpoint ways to save money, and assist in looking at proposals from retirement-plan providers.

THE GRADING SYSTEM Six-year-old startup BrightScope evaluates 401(k) plans using publicly available data. On its site, you can learn about best practices and how similar-size plans compare.

THE GIANTS The country’s largest traditional 401(k) providers, including Fidelity Investments and Vanguard Funds, offer low-cost options and some products speciﬁcally tailored for small businesses.

THE INDEPENDENTS Employee Fiduciary is a low-cost and admirably transparent plan provider that publishes fees for its services on its website. For your employees, meanwhile, investing startup Personal Capital has an online tool that allows individuals to check the fees on their 401(k)s.

••••

ANDY ROBERTS/GETTY

60%

of employers with 50 or fewer employees say they’d support a governmentsponsored 401(k), according to a Connecticut survey.

$2,500 is the retirement savings of the average household. SOURCE: NATIONAL INSTITUTE ON RETIREMENT SECURITY, 2015

SOURCE: AARP

MONEY

25X

projected expenses of the ﬁrst year of retirement is the recommended amount an individual should have saved before retiring. SOURCE: CHARLES SCHWAB

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91 - INC. - OC TOBER 2015

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PA R T N E R I N S I G H T S / P R I N C I PA L

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Honorable Mention: Kitewire Leatherman Tool Group Van Meter Inc.

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DO YOU REALLY WANT TO GO PUBLIC?! These sometimes exhilarating, sometimes brutal details of day-to-day life after an IPO may make you think twice BY TOM FOSTER

94 - INC. - OC TOBER 2015

ILLUSTRATIONS BY ZOHAR LAZAR

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WorldMags.net T DOESN’T SOUND like the start of a crisis. Last year, HomeAway co-founder and CEO Brian Sharples decided that his company needed to spend more money on marketing. It had been a few years since the online vacation-home-rental marketplace, which became publicly traded in 2011, had forcefully invested in its brand. Meanwhile, Sharples had watched competitor Airbnb become synonymous with the business of homesharing, amassing a whopping $25 billion private valuation along the way. HomeAway suddenly seemed like an underdog. Now Sharples thought it was time to remind customers that HomeAway had long been a market leader. So at a midquarter conference in May 2014, he hinted at his long-term plans: Look to us “in the next several years to get more aggressive” in marketing. Shareholders hated the idea, worrying the expense might eat into margins. Days later, J.P. Morgan downgraded HomeAway’s stock, and the share price, already slumping from earlier that year, tumbled even lower. For the next

MONEY

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TIMING BECOMES EVERYTHING ONCE YOU GO PUBLIC, YOU NEED MORE THAN JUST GREAT IDEAS; YOU ALSO HAVE TO PICK THE RIGHT TIME AND PLACE TO DISCLOSE THEM.

few weeks, Sharples spent at least a third of his time on calls with anxious investors and analysts, who wanted to know, among other things, how much the company planned to spend on brand marketing versus performance marketing— splashy image campaigns versus highly trackable things like online search. “I’m not ready to talk about that,” Sharples would say, reasonably enough. The company hadn’t yet determined the exact mix. “Well, if you’re doing brand marketing, that’s going to be really bad,” a banker on the line would tell Sharples. Not bad for the company’s growth or underlying business, though: “Just bad for the stock in the short term, because it has a long-term payoff,” the banker would continue. “And we manage investments on a quarterly basis, so if we think the stock is going down this quarter, we might as well sell it.” It’s easy to imagine Sharples wanting to bang his head against a wall at that point in the conversation. Even after he clariﬁed, at the end of the quarter, how the company would pay for the effort without compromising margins, the results would not be in for a full year. This spring, when

96 - INC. - OC TOBER 2015

HomeAway’s heartstrings-tugging “Whole Vacation” ad campaign started running, the investment began to pay off: The trade press approved, and brand awareness and traffic have grown in the months since then, Sharples says. By all appearances “Whole Vacation” was a success; in the week the campaign rolled out, HomeAway’s stock price even jumped 7 percent. (In mid-August, the stock was trading around $31 per share, where it’s hovered for much of the past 18 months.) Where Sharples went wrong was in the messaging. By announcing his plans midquarter, rather than during the highly ritualized end-ofquarter conference calls, he didn’t provide enough context for the strategic shift, and the story took on a life of its own. “Here’s the issue about being a public company,” Sharples says. “If you’re private, you just make a decision. You don’t have to tell anybody.” But when you’re public, you do have to tell people, and include some details: “If you’re going to telegraph decisions,” he says, “analysts need numbers to plug into their models.” It seems like such an insigniﬁcant mistake. But it’s one of many unexpected complications that entrepreneurs confront when they emerge on the other side of an IPO. In an age of dizzying investor

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strategies, costly and complicated regulatory requirements, and 24/7 media coverage, the challenges of running a public company are trickier than ever. There are a lot of reasons to go public, of course— raising a big pile of cash not the least among them. Even the simple sense of legitimacy a public company gets, a sort of graduation into corporate adulthood, can be a meaningful advantage. But founders who, like Sharples, recommend crossing that publicprivate divide have plenty of cautions about life postIPO. One of them, Zulily co-founder Darrell Cavens, just decided to relinquish his company’s recently acquired

WARNING NO. 1

Rumors WorldMags.net Become Reality EVEN FOR A HIGH-FLYING stock, the market holds

public status; as this article went to press, Zulily agreed to be sold to QVC owner Liberty Interactive Corporation. Other founders are increasingly unenthusiastic about the once-vaunted prospect of going public. The busy IPO market of 2014 cooled this year, as many of the largest startups have chosen to raise ever more rounds of private capital, joining the so-called unicorns with billion-dollarplus valuations (though, eventually, those companies will have little choice but to try to go public). And then there was Alibaba founder and CEO Jack Ma, who raised $25 billion last year in the largest IPO in history, telling a New York City audience in June, “If I had another life, I’d keep my company private.” Some fast-growth companies, like email-marketing service provider MailChimp, plan to remain resolutely independent. (Its bootstrapped roots will make that easier.) “The only reason any sane entrepreneur would go public is if the investors needed an exit,” says MailChimp co-founder Ben Chestnut. There’s no one right path for sure growth, of course— and for many founder-CEOs, the headaches of being public are worth it. But if you’re considering following in their footsteps, their warning is clear: Make sure you know what you’re getting into.

constant perils. Take GoPro. For a few months, the mountable-camera maker with a rabid social media following seemed to have handily won its IPO. GoPro debuted in June 2014 on the Nasdaq at $24, and within a week shares were trading for twice that amount—and they only kept climbing. The stock eventually reached a closing-price high of $93.85 in early October 2014, which valued the company at almost $12 billion. Founder and CEO Nick Woodman, who bootstrapped GoPro’s launch 12 years ago on a surf safari in Australia and Indonesia, was suddenly worth more than $5 billion. It was short-lived; the market started tanking, and then something happened that nobody could have expected. Last October, French journalist JeanLouis Moncet reported that a GoPro product had been responsible for the severe head injury and subsequent coma suffered by the legendary Formula 1 racecar driver Michael Schumacher, among the world’s most famous athletes. Schumacher had crashed into rocks while skiing off-course in the French Alps; he’d had a camera attached to his helmet, and Moncet wrote that the mount had compromised his head protection. Over the next

5 PERCENT The average amount of a company’s value eaten up in the IPO process, between fees paid to investment bankers and the money not raised if the offer price is less than what the company could have gotten, as it usually is. “For a company with a price-to-earnings ratio of 20, that’s an entire year’s worth of income,” says University of Florida ﬁnance professor Jay Ritter.

+ PERCENT Average share-price pop, or ﬁrst-day return, for IPOs completed during the ﬁrst half of 2015, according to Ernst & Young. As Ritter points out, that means most companies’ IPOs are priced too low.

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few days, GoPro’s stock plummeted more than 10 percent. The report turned out to be completely false—Moncet later said he was speculating—but the damage was done. GoPro’s stock, down from its high following the overall dip in the market, only inched back up. Over the past year, GoPro’s stock fell to as low as $38—40 percent of its onetime high— before beginning a steadier, less frenzied climb than its initial pop. (As of mid-August, the price was around $60.) Ever the surfer, Woodman has tried to keep a cool head, despite watching hundreds of millions ebb and ﬂow, as speculations ﬂy online about everything from the company’s long-term viability to, well, German racecar drivers. “We can’t be responsible for the whims of the market,” he says. “We have no control over that. We do have control over following through on what we say we’re going to do, and whenever possible, exceeding expectations.” Whether or not a stock’s price is affected by insidious forces doesn’t change the effect. Whatever the reason, the new price is what it is, and the CEO’s job is to build it up from there. Woodman found a hidden bright side to GoPro’s tumble after its initial rise: that the kind of long-term investors the company wants saw it as a great opportunity to buy. One explanation for disproportionate stock-price movements is simple groupthink. GoPro may or may not be worth $94, but when a stock

98 - INC. - OC TOBER 2015

is hot, a lot of people want in. Likewise, when bad news hits, people run for the exits, sometimes en masse. This makes sense, of course, but it can go from disproportionate to devastating pretty quickly with the help of underhanded investors—say, short sellers who have an interest in seeing the stock price fall quickly and who might make the most of bad news or rumors. And then there are the outright fraudsters. “Misinformation is always put there for a purpose,” says Chris Hodges, the CEO and founder of Chicago-based investorrelations consultancy Alpha IR Group. “Especially if you’re a high-proﬁle stock, you’re a target.” Just ask Avon and Twitter, victims of absurd recent examples of suspected stock manipulation. Both companies had received buyout offers that drove up their stock prices—at least until the offers were revealed to be fake. In Avon’s case, the scammers legitimized their “bid” by ﬁling official regulatory documents with the federal government; in Twitter’s, they created a counterfeit version of the Bloomberg website to report the supposed offer. Private companies can also be attractive targets for rumors or deliberately placed falsehoods, of course. But the damage from post-IPO rumors is much more visible—thus often much more distracting.

LESSON You can’t ﬁght the rumor mill, whether your company is private or public. Follow Nick Woodman’s example: Keep calm and carry on.

PUBLIC-TO-PRIVATE BUYOUTS Number of public companies that became private again

107 96

91 83

58 46

86 62

30 27

2000

2005

2010

2015 through mid-July

SOURCE: PITCHBOOK

POST-IPO REGRETS? THEY’VE HAD A FEW

— After a postrecession surge, private buyouts are falling out of style. The number of public companies taken private in 2014 fell to a ﬁveyear low and is on a similarly slow pace this year, according to research ﬁrm PitchBook. It turns out that private equity has recently become a victim of its own success: “A lot of the low-hanging fruit has already been picked,” says the University of Florida’s Ritter. “The buyout market has been pretty active for decades now, and a lot of companies that are potentially more valuable as private companies are already private.” —GRAHAM WINFREY

WARNING NO. 2

Everyone Wants Answers—All the Time “THE ROLE OF THE CEO changes in public markets,”

says co-founder and CEO Cavens of the kidsfocused ﬂash-sales giant Zulily, which raised $253 million in a much-watched IPO in November 2013. In August—less than two years later—Cavens agreed to sell Zulily in a $2.4 billion deal, with the new owner keeping him in charge of the business. Before that deal was announced, Cavens had told Inc. that he had been spending a full ﬁfth of his day reassuring investors. “I don’t know that I had a full appreciation for how much time I’d spend on external communication,” he said at the time. That requires a lot of discipline and patience, when many founders

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would rather be focused on growing the business. Michael Dell, who two years ago took his namesake company private after 25 years on the public markets, says dealing with investor relations took up 20 percent of his time as well. “And it was the most annoying 20 percent,” he says. Those annoyances are compounded by the fact that there’s a broad range of investors, analysts, and journalists scrutinizing your company. Staying private won’t protect you from all of this attention, of course—consider Uber or Airbnb—but it does better restrict the amount of information available to outsiders. Jacqueline Kelley, Americas IPO markets leader for Ernst & Young, which works with companies on all aspects of IPO preparedness, advises soon-to-be-public CEOs to start practicing for the increased scrutiny as much as two years beforehand. “That includes holding mock earnings calls with your private investors,” she says. “We’ve been studying top-performing IPOs for 30 years, and one of the constants is that private company CEOs who prepare and act as public CEOs beforehand perform better later.” Those ﬁrst few earnings calls can be especially tough to navigate, because you have

100 - INC. - OC TOBER 2015

YOU’RE ALWAYS ON CALL SHAREHOLDERS EASILY TAKE UP 20 PERCENT OF MOST CEOs’ TIME— “AND IT’S THE MOST ANNOYING 20 PERCENT,” SAYS MICHAEL DELL.

6 to determine how much information is too much—or too little—for your different audiences. “You’ve got new investors you have to educate,” Alpha IR’s Hodges says. “You also have reporters listening, and you have to balance what investors need to know with not giving more information than you want your competitors to know.” But you also have to reveal enough to make investors understand what makes your company valuable relative to its competitors. One of the great ironies, Cavens says, is that a company’s more unorthodox practices—the kinds of things that can deﬁne a business—are often the ones that come under the most ﬁre from shareholders.

Cavens, for example, spent “at least 15 minutes in every investor conversation” discussing shipping: While most e-commerce companies compete on next-day and same-day delivery, Zulily consistently prioritized a diverse product offering over faster shipping. “I have very short hair,” says Cavens, who’s bald, “but I often feel like pulling it out, because these are just the wrong questions to be asking. Investors like to try to deﬁne you based on others.”

LESSON

Number of back-toback meetings entrepreneurs should be prepared to take with investors on a daily basis during an IPO road show, which typically lasts two weeks. “A lot of entrepreneurs are surprised at the extensiveness of the IPO road show,” says Robin Feiner, senior counsel at law ﬁrm Proskauer Rose.

14 Number of consecutive years of relatively low IPO volume. As existing public companies fail or sell out, and fewer new companies go public—choosing to ﬁnd larger buyers instead—“there’s been a pretty substantial decline in the number of publicly traded companies, especially smaller companies,” says the University of Florida’s Ritter.

Unless you’re bootstrapped, you already have to explain your business decisions to somebody. But do you want to have to explain them to everybody?

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MONEY

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WorldMags.net WARNING NO. 3

It’s Easy to Get Distracted by the Short Term THE FACT IS, if you want to become a public-company

CEO, you need to be ready to move quickly. CEOs who had been in their jobs less than three years were more than twice as likely to be forced out as those who’d been around longer, according to a 2014 study by the consulting ﬁrm Strategy&. As you’d expect, CEOs who delivered the lowest shareholder returns were forced out more often than those who generated the highest. The pressure to move fast and focus on the stock price is deeply entrenched in corporate culture. One of the most widely accepted maxims of public companies is that the CEO has a ﬁduciary duty to maximize shareholder value. There’s no legal requirement to do so, but the idea has become unassailable—and because of it, activist investors are always ready to pounce. The problem, many CEOs say, is that things you might do to boost the stock price in the short term can run counter to what you’d do to build the business for the future— by sapping money for R&D and sometimes by emphasizing contradictory goals. Michael Dell calls the pressure to manage to quarterly earnings a “90-day shot clock,” and it’s one thing he’s glad to be rid of now that his company is private again. About nine years ago, Dell’s PC supremacy began to wane, and the company began a long process of building new business lines around enterprise IT solutions, which has required the kind

of large investments that don’t pay off in the short term. “We can move better and faster as a private company,” Dell says. “We can focus less on shortterm results and more on mid- and long-term growth.” A recent study by Wharton professor David Hsu and Vikas Aggarwal of international business school Insead backs Dell up; the researchers found that going public

can dampen innovation and reduce a company’s appetite for risk, and that the reason for this is increased emphasis on short-term results and public disclosures. “My biggest worry before going public was that we would lose who we were and fall into a quarterly trap,” Zulily’s Cavens says. “We said we would go down this path but vowed to keep our focus

“If you go public, your ﬂexibility from a ﬁnancial standpoint seems six times that of a private company.” —COTTER CUNNINGHAM, RetailMeNot founder and CEO 102 - INC. - OC TOBER 2015

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COMPANIES GOING PUBLIC WHOSE CEO S WERE ALSO FOUNDERS

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on doing the things we would do as a private company, even if that means a bump or two.” As difficult as persuading Wall Street to accept that kind of balance (see HomeAway’s marketing investment snafu) is getting managers and employees to keep perspective—especially when they own stock. Market fluctuations affect their perceptions of both their own net worth and how they’re doing at work. On the day of Zulily’s IPO, Cavens sent a note to his staff warning them not to let the stock price drive their emotional engagement. “When the stock price goes up any given day, we are just not that much smarter,” he wrote. “And similarly, when it goes down any given day, we are not that much dumber.” The message, which Cavens reiterated every quarter, worked at first—but in recent months, as the stock slumped, Zulily struggled with internal employee reassurance and external recruiting. Like those of GoPro, Zulily shares soared to extraordinary highs in the company’s first few public months, from a IPO price of $22 to more than $72—and then fell back down to below its IPO price. Two consecutive bad quarters then sent the price down to the low teens. Liberty’s buyout offer, $18.75 a share, valued Zulily at less than its IPO price. As the stock slid over the past several months, Cavens found that his recruiters were having a harder time selling

104 - INC. - OC TOBER 2015

the company to job candidates. After the sale was announced, he would not directly discuss whether the IPO had been the right choice for Zulily, aside from acknowledging “beneﬁts and challenges” both before and after. But he singled out the impact of short-term stock movements as a particular post-IPO challenge. “Being public gives investors and employees liquidity on their equity,” Cavens said in August, “but also brings expenses and a daily stock price that some people get overly attached to.” Making decisions for the long term while minding the short term is, to some extent, a learnable skill, a balancing act that requires muscles that get stronger over time. “As a public CEO, you ﬁnd yourself having two voices in your head, always,” Sharples says. “When people bring me big ideas, I always think, ‘Is that better for our customers or not?’ And then I think, ‘How will that play to Wall Street?’ Where it gets hard is when you know in your heart it’s good for the business, and you also know it won’t play for Wall Street. It takes guts to get in there and do it.”

LESSON While you always have to balance your company’s short-term and long-term objectives, going public will increase the pressure on the former—and require more discipline to maintain the latter.

57% 37%

44%

39%

49%

46%

42% 34%

34%

25%

2006

2015

SOURCE: VENTURESOURCE

through early August

TIME TO IPO? IT MAY BE TIME TO GO

— If your eventual goal is to go public, brace yourself: The odds are you won’t be leading it. In the past ﬁve years, fewer than half of CEOs at the time of IPO were also company founders, according to Dow Jones VentureSource. As companies ramp up to IPOs, some founders—or their investors—decide to bring in CEOs with more big-company management experience, the University of Florida’s Ritter says. —G.W.

WARNING NO. 4

the IPO Is not the Finish Line “I BUILD THINGS AND get to watch customers buy and

use them—that’s tremendously satisfying,” says MailChimp co-founder Chestnut. “Sometimes I see companies build things I know are for investors— and what is the investor’s purpose? Just to increase wealth. That doesn’t align with my mission.” For him, even just considering investors ahead of customers goes against the whole reason he started a business. As a result, MailChimp has stayed private for 14 years. The email marketing service, which has eight million users and has been proﬁtable from day one, was entirely bootstrapped—a rarity among leading tech companies. Even after competitor Constant Contact went public, Chestnut responded not by raising a ton of money but by getting scrappy. “We said, ‘How can we make our product better than theirs?’ We came up with a freemium business model, and we doubled our users overnight.” Ken Grossman, the founder of the craft brewer Sierra Nevada, tells a similar story. He wrestled with the possibility of going public in the ’90s, when many other fast-growing independent brewers were doing so and his founding partner wanted to cash out. “I felt that the ﬁduciary responsibilities

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YOU’VE ONLY JUST BEGUN “THERE’S A TENDENCY TO SEE AN IPO AS AN ENDPOINT,” SAYS DARRELL CAVENS, WHEN REALLY IT’S “JUST THE WARM-UP.”

to look out for shareholders would constrain some of the things I wanted to do that might not provide the greatest short-term gain,” like doubling down on quality equipment or investing in green energy, he says. “The irony is that if I leveraged the company and went public, it would be easier to get the resources I needed, but then I’d have had different masters with different requirements.” After weighing private investors and deciding they’d bring him some of the same woes as the public markets,

Grossman managed to buy out his partner with bank financing instead. He funded some key upgrades in the same deal, and several years later he owned 100 percent of his company. In 2012, he took on debt again to open a second brewery, and managed favorable terms, in part because the craft-beer industry is hotter than ever. Neither Grossman nor Chestnut believes his company would be what it is today had it become publicly traded. And yet, many public-company CEOs can’t imagine having done it any other way— and say they’d do it all again. Cotter Cunningham, a veteran public-company executive who founded the online coupon aggregator RetailMeNot in 2009 and took it public in July 2013, has since been able to fund several acquisitions. “The flexibility from a financial standpoint seems six times that of a private company,” he says. “You can raise debt. You can buy bigger companies. You can raise cash if you need to by selling more stock.” Jon Oringer, who founded photo database Shutterstock in 2003 and took it public nearly a decade later, even argues that sometimes it’s easier

to manage public investors than private ones: “If you’re a private company, especially if you’ve done multiple funding rounds, you have investors who have been in your business different amounts of time and have different rights.” That can get complicated quickly, he says, whereas “being public, anyone can get in and out of the stock at any time. That lets us focus on where we think the business should go.” Still, many founders admit that most post-IPO satisfaction comes only after a long slog, a steep journey with a lot of pitfalls to go with the rewards. “There’s a tendency among entrepreneurs in private companies to see an IPO on the horizon as kind of an endpoint,” Cavens said months before he decided to change Zulily’s trajectory. “They shoot for it for years, and it’s only natural to feel like you can cross that line and then collapse. The reality is more like you just ran a 5K, and as soon as you’ve crossed the ﬁnish line they tell you it was just the warm-up for a 100-mile ultramarathon. And it starts now.” TOM FOSTER is an Inc. editor-at-large.

“The only reason any sane entrepreneur would go public is if the investors needed an exit.” —BEN CHESTNUT, MailChimp co-founder and CEO 106 - INC. - OC TOBER 2015

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THE BRIDGE SH ALL IT CAN DO —

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BRIGHTSTAR CARE

3-YEAR GROWTH $133.3M 2014 REVENUE $290.2M CEO SHELLY SUN FOUNDED 2002 LOCATION GURNEE, ILL.

A full-service health care staffing agency that provides medical and nonmedical care to private clients in their homes, as well as supplemental health care staff to corporate clients. 8

GOOD TECHNOLOGY

3-YEAR GROWTH $126.5M 2014 REVENUE $211.9M CEO CHRISTY WYATT FOUNDED 1996 LOCATION SUNNYVALE, CALIF.

Inc.’s inaugural Impact 50 list honors the top 50 companies led by women in this year’s Inc. 5000, as ranked by total revenue growth For more on the Inc. 5000, please visit inc.com/inc5000 1

AVELLA SPECIALTY PHARMACY

3-YEAR GROWTH $469.4M 2014 REVENUE $800M CEO REBECCA SHANAHAN FOUNDED 1996 LOCATION PHOENIX

Operates a specialty pharmacy through physical locations nationwide as well as through a mail-order facility and a wholesale division. 2

DOUGLAS ELLIMAN REAL ESTATE

3-YEAR GROWTH $196.9M 2014 REVENUE $543.2M CEO DOTTIE HERMAN FOUNDED 1911 LOCATION NEW YORK CITY

Brokers real estate transactions in markets including Manhattan, the Hamptons, Beverly Hills, Aspen, and South Florida. 5

PINNACLE GROUP

TRANSPERFECT

Provides a variety of technology and mobile security services to businesses. 9

MERCOM

3-YEAR GROWTH $125.7M 2014 REVENUE $156.3M CEO STELLA MERCADO FOUNDED 2000 LOCATION PAWLEYS ISLAND, S.C.

Specializes in IT-related design, network integration, and onsite project management for government agencies.

3-YEAR GROWTH $120.6M 2014 REVENUE $191M CEO DIANE GONZALES FOUNDED 2002 LOCATION HOUSTON

BLUE TECH

3-YEAR GROWTH $99.7M 2014 REVENUE $205.5M CEO SUSAN STONE FOUNDED 1984 LOCATION SAN DIEGO

An IT and professional services company focused on serving government clients.

Provides work-force services such as vendor management, payroll processes, and technical, clerical, and administrative staffing for large corporations nationwide.

Provides a full range of translation services in more than 170 languages to clients worldwide, from offices in 85 cities on six continents.

3-YEAR GROWTH $99.6M 2014 REVENUE $257.9M CEO JEAN MOORE FOUNDED 1996 LOCATION DAKOTA DUNES, S.D.

3-YEAR GROWTH $298.1M 2014 REVENUE $905.7M CEO PAM EVETTE FOUNDED 2000 LOCATION TRAVELERS REST, S.C.

Provides beneﬁts and services tailored to meet its customers’ personnel needs.

STERLINGBACKCHECK 3-YEAR GROWTH $170.6M 2014 REVENUE $297.4M CEO CLARE HART FOUNDED 1975 LOCATION NEW YORK CITY

Conducts background screening services for more than 20,000 organizations.

METHODOLOGY The Inc. Impact 50 measures absolute revenue growth from 2011 to 2014 among Inc. 5000 companies run by women. To qualify, companies must have been founded and generating revenue by March 31, 2011. Additionally, they have to be U.S.-based, privately held, for proﬁt, and independent—not subsidiaries of other companies—as of December 31, 2014. The minimum required 2011 revenue is $100,000. Inc. reserves the right to reject applicants for subjective reasons. The Inc. 5000 can be found in its entirety on Inc.com.

111 - INC. - OC TOBER 2015

AIMING HIGH

DRAWBRIDGE FOUNDER KAMAKSHI SIVARAMAKRISHNAN

Consults on and provides a range of IT services to businesses.

3-YEAR GROWTH $171.1M 2014 REVENUE $471.3M CO-CEO ELIZABETH ELTING FOUNDED 1992 LOCATION NEW YORK CITY

NETSYNC NETWORK SOLUTIONS

3-YEAR GROWTH $455.8M 2014 REVENUE $667.3M CEO NINA VACA FOUNDED 1996 LOCATION DALLAS

QUALITY BUSINESS SOLUTIONS

“I’m chuckling thinking started,” says Drawbrid Sivaramakrishnan: She be an entrepreneur. “I’m she explains. “I got my ad company AdMob hir Stanford, where she ea her master’s at Boston AdMob in 2010—and Si six months later to sta technology anonymous across their desktop an them more relevant ad would have the opport faster,” she says. Today has 100 employees. Its and Sivaramakrishnan Drawbridge’s data to cr internet for everyone. S degree to do that. —LIZ W

STERLING COMPUTERS

Provides and resells computer hardware, software, peripherals, supplies, and information-management services to government, health care, education, and commercial customers. 13

WDS

3-YEAR GROWTH $97M 2014 REVENUE $178.8M CEO JENNIFER MAIER FOUNDED 2007 LOCATION LAKE WYLIE, S.C.

A supply-chain management, warehousing, and distribution company with 22 locations around the U.S. and Canada.

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PHOTOGRAPH BY MATT EDGE

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back to how this all dge founder Kamakshi never imagined she’d m really a mathematician,” MBA on the job.” Mobile red her straight out of arned her PhD after getting University. Google bought varamakrishnan left art Drawbridge, whose sly follows individuals nd mobile devices to serve s. “A smaller company tunity to come to market y, the Bay Area company s revenue hit $33 million, , 39, now wants to use reate a more personalized She won’t need another

WELCH

ACCURATE PERSONNEL

CENERGY INTERNATIONAL SERVICES

3-YEAR GROWTH $51.2M 2014 REVENUE $95.1M CEO JAIMIE RIOS FOUNDED 1978 LOCATION SCHAUMBURG, ILL.

3-YEAR GROWTH $94.3M 2014 REVENUE $259.8M CEO JUNE RESSLER FOUNDED 1996 LOCATION HOUSTON

Provides specialized energy personnel, safety services, inspection services, logistics optimization, and vendor management to the oil and gas industry. 15

AMERICAN AUCTION COMPANY

3-YEAR GROWTH $84.6M 2014 REVENUE $203.6M CEO DEB WEIDENHAMER FOUNDED 1995 LOCATION PHOENIX

FCI FEDERAL

3-YEAR GROWTH $74.1M 2014 REVENUE $108M CEO SHARON VIRTS FOUNDED 1991 LOCATION ASHBURN, VA.

Provides business process outsourcing services for government agencies.

Conducts live and internet auctions across all categories.

SARATOGA ROOFING & CONSTRUCTION 3-YEAR GROWTH $70.4M 2014 REVENUE $81.9M CEO CHRIS GREEN FOUNDED 1999 LOCATION OKLAHOMA CITY

ATRIUM STAFFING

3-YEAR GROWTH $83.5M 2014 REVENUE $185.4M CEO REBECCA CENNI FOUNDED 1995 LOCATION NEW YORK CITY

Specializes in rooﬁng, sheet metal, and waterprooﬁng services.

Places and manages professionals in administrative, IT, ﬁnance, scientiﬁc, creative, and fashion retail positions, and provides other staffing-related services.

INGENESIS

3-YEAR GROWTH $60.5M 2014 REVENUE $118M CEO VERONICA EDWARDS FOUNDED 1998 LOCATION SAN ANTONIO

Provides staffing services in a number of sectors, including hospitality, clerical, light industrial, legal, ﬁnance and accounting, IT, HR, and marketing. 25

ADVANCE FINANCIAL 3-YEAR GROWTH $47.1M 2014 REVENUE $74M CEO TINA HODGES FOUNDED 1996 LOCATION NASHVILLE

A ﬁnancial services provider that offers free money orders, free bill payment, short-term loans, check cashing, and wire transfers. 26

APEX RESOURCES

3-YEAR GROWTH $46M 2014 REVENUE $59.8M CEO VINITA GUPTA FOUNDED 1996 LOCATION KATY, TEXAS

Renders completion ﬂuids, chemical additives, and oil-ﬁeld services for hydraulic fracturing applications. 27

UNIVERSAL ASSET MANAGEMENT

Provides work-force management services, including payroll, staffing, and recruitment, and business process outsourcing to employers in all industries.

3-YEAR GROWTH $44.5M 2014 REVENUE $54.8M CEO KERI WRIGHT FOUNDED 1992 LOCATION MEMPHIS

Specializes in asset management, transport-aircraft disassembly, and related component sales.

MERRIMAK CAPITAL COMPANY

3-YEAR GROWTH $59.1M 2014 REVENUE $96.6M CEO MARY KARIOTIS FOUNDED 1991 LOCATION NOVATO, CALIF.

Provides equipment leasing and asset-recovery services to U.S. and international clients. 21

ORION ASSOCIATES

3-YEAR GROWTH $58.9M 2014 REVENUE $107.2M CEO REBECCA THOMLEY FOUNDED 2000 LOCATION GOLDEN VALLEY, MINN.

Provides ﬁnancial, human resources, and quality assurance services and related training to organizations. 22

MEGACORP LOGISTICS 3-YEAR GROWTH $54.8M 2014 REVENUE $102.6M CEO DENISE LEGG FOUNDED 2009 LOCATION WILMINGTON, N.C.

A third-party freight logistics company that focuses on transporting full truckloads. 23

UNDERSCORE MARKETING

3-YEAR GROWTH $53.1M 2014 REVENUE $90.2M CEO LAUREN BOYER FOUNDED 2002 LOCATION NEW YORK CITY

An advertising ﬁrm that specializes in media strategy and management for brands in health and wellness categories.

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GLOBAL FACILITY MANAGEMENT & CONSTRUCTION

3-YEAR GROWTH $41.8M 2014 REVENUE $69.9M CEO LAURYN BLANK FOUNDED 2004 LOCATION MELVILLE, N.Y.

Provides repair, rollout, and construction services throughout the U.S. and Canada. 29

BLACKLINE

3-YEAR GROWTH $41.2M 2014 REVENUE $56.9M CEO THERESE TUCKER FOUNDED 2001 LOCATION WOODLAND HILLS, CALIF.

Designs enterprise software that performs ﬁnancial and related functions for midsize and large businesses. 30

DATA SYSTEMS ANALYSTS

3-YEAR GROWTH $40.9M 2014 REVENUE $106.9M CEO FRANCES PIERCE FOUNDED 1963 LOCATION TREVOSE, PA.

Provides identity management, information assurance, systems and network integration, and knowledge management to the Department of Defense and other government agencies.

HAIR AND MAKEUP FOR KAMAKSHI SIVARAMAKRISHNAN: ELIZABETH CHANG; HAIR AND MAKEUP FOR LIMOR FRIED: FLORA KAY

HE BUILT—AND

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MY ALARM CENTER

3-YEAR GROWTH $38M 2014 REVENUE $77M CEO AMY KOTHARI FOUNDED 2000 LOCATION NEWTOWN SQUARE, PA.

Designs and provides security systems, including home and business security, ﬁre and carbon monoxide detection, ﬂood protection, alarm monitoring, and personal emergency services.

CUTTING EDGE KATOM CO-FOUNDER PATRICIA BIBLE

DYNAMIC SYSTEMS

3-YEAR GROWTH $37.6M 2014 REVENUE $102.1M CEO MARDI NORMAN FOUNDED 1991 LOCATION EL SEGUNDO, CALIF.

Designs custom tech-related services to address a range of infrastructure and data-centerrelated issues, and also provides IT consulting, product advice, and training to clients. 36

KELLYMITCHELL

3-YEAR GROWTH $36.7M 2014 REVENUE $92.2M CEO CASSANDRA SANFORD FOUNDED 1998 LOCATION ST. LOUIS

Offers IT consulting, staffing, and outsourcing services, primarily to major corporations and technology companies. 37

DIXON SCHWABL

THE BEST WAY TO HONOR A CO-FOUNDER — A bereft Patricia Bible sat on her porch in 2004, three years after her husband, Tim, had died, thinking about quitting KaTom, the restaurantsupply company the two of them had co-founded in their garage in 1987—even though it had grown from $4 million to $16 million since Tim’s passing. “I was working 16-hour days to get through my grief,” she recalls, but her pain still made her want to leave. Then she wondered, “If I did this being mad”—from her loss—“what could I do with a plan?” Tim had embraced the internet when, Bible says, cell phones “were the size of a woman’s purse,” and she decided to put her focus on that as well. Along with selling KaTom’s 130,000 products online, Bible added content and marketing teams—and the company’s 1,000 customers grew to well over 100,000. “Being techsavvy keeps us ahead of the pack,” says Bible, 59, and the proof is in the numbers: In an industry that averages 5 percent annual growth, KaTom is averaging 21 percent. —L.W. PHOTOGRAPH BY EVAN KAFKA

LOGISTICS PLANNING SERVICES

3-YEAR GROWTH $40.7M 2014 REVENUE $59.8M CEO KIRSTEN CASTILLO HALL FOUNDED 1987 LOCATION WOODBURY, MINN.

Provides logistics services and related proprietary products and consulting services for businesses. 32

RIVERROAD WASTE SOLUTIONS

3-YEAR GROWTH $39.1M 2014 REVENUE $68.5M CEO KRISTEN BUNNELL FOUNDED 2004 LOCATION TINTON FALLS, N.J.

Provides waste management and recycling services to a wide range of businesses. 33

OPEN SYSTEMS TECHNOLOGIES DE

3-YEAR GROWTH $39.1M 2014 REVENUE $107.9M CEO MEREDITH BRONK FOUNDED 1998 LOCATION GRAND RAPIDS, MICH.

Consults on and provides a wide range of IT services, including recruiting.

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3-YEAR GROWTH $33.8M 2014 REVENUE $53.3M CEO LAUREN DIXON FOUNDED 1987 LOCATION VICTOR, N.Y.

Provides advertising, marketing, and public relations services across offline and online media. 38

SILICON MECHANICS

3-YEAR GROWTH $33.3M 2014 REVENUE $63.4M CEO EVA CHERRY FOUNDED 2001 LOCATION BOTHELL, WASH.

Provides server, storage, and related computing services to clients. 39

DRAWBRIDGE

3-YEAR GROWTH $32.8M 2014 REVENUE $32.9M CEO KAMAKSHI SIVARAMAKRISHNAN FOUNDED 2010 LOCATION SAN MATEO, CALIF.

Designs technology that lets brands reach the same consumer across multiple devices. 40

TABORDA SOLUTIONS

3-YEAR GROWTH $32.1M 2014 REVENUE $47.5M CEO ADRIANA SMITH FOUNDED 2008 LOCATION FOLSOM, CALIF.

Provides a range of IT services, including hardware and software reselling and staff recruiting.

E2 OPTICS

3-YEAR GROWTH $31.6M 2014 REVENUE $35.2M CEO KRISTI ALFORD FOUNDED 2010 LOCATION ENGLEWOOD, COLO.

Provides design, building, consultation, implementation, and maintenance and support services for local and wide-area telecommunications networks. 42

KATOM RESTAURANT SUPPLY

3-YEAR GROWTH $29.9M 2014 REVENUE $65M CEO PATRICIA BIBLE FOUNDED 1987 LOCATION KODAK, TENN.

Wholesales more than 130,000 restaurant supplies to commercial and residential kitchens. 43

ADAFRUIT INDUSTRIES

3-YEAR GROWTH $29.2M 2014 REVENUE $33.2M CEO LIMOR FRIED FOUNDED 2005 LOCATION NEW YORK CITY

Sells DIY electronics, tools, and kits for makers of all ages. 44

ACHIEVE3000

3-YEAR GROWTH $29.1M 2014 REVENUE $67.1M CEO SAKI DODELSON FOUNDED 2000 LOCATION LAKEWOOD, N.J.

Provides Web-based, individualized learning tools aimed at improving reading comprehension, writing proﬁciency, and test performance.

WorldMags.net THE DO-IT-YOURSELF ENTREPRENEUR —

It all started for Limor Fried when she made an MP3 player from a box of Altoids and blogged about it. “People started asking for kits,” says Fried, an MIT-trained engineer. “And Adafruit was born.” That was 2005. Today, the New York City–based company has 85 employees and a 25,000-square-foot factory that produces hardware kits that allow you to make anything from a robot to a GPS dog collar or an LED wig. It also offers more than 850 free online lessons for engineering and electronic projects—and sells the parts for each project. (Instructions on how to make all the products sold in the kits are also available online.) “We’re actually a tutorial company,” Fried says, “with a gift shop at the end.” That gift shop’s revenue is $33 million—and Fried, 35, still hasn’t taken any outside investment. “Historically, the way electronics were taught was, ‘Here’s an electron,’ ” she explains. “Adafruit is like, ‘Here’s how you build a motor.’ ” —L.W.

XIFIN

3-YEAR GROWTH $28.6M 2014 REVENUE $52.3M CEO LALE WHITE FOUNDED 1997 LOCATION SAN DIEGO

Provides a cloud-based technology and business intelligence platform that links health care stakeholders in the delivery and reimbursement of care. 49

STRATEGICHEALTHSOLUTIONS 3-YEAR GROWTH $28.1M 2014 REVENUE $40.1M CEO PEG STESSMAN FOUNDED 1997 LOCATION OMAHA

Works with the federal government to improve the quality, value, and efficiency of health care. 50

PROJECTSPAN SERVICES 3-YEAR GROWTH $27.4M 2014 REVENUE $28.7M CEO NELLIE J. TORRES FOUNDED 2003 LOCATION BROOKLYN

Provides a range of support services for complex transit and airport infrastructure projects.

SIMPLICITY CONSULTING

3-YEAR GROWTH $29.1M 2014 REVENUE $43.4M CEO LISA HUFFORD FOUNDED 2006 LOCATION KIRKLAND, WASH.

SHE BUILT, THEY CAME

ADAFRUIT FOUNDER LIMOR FRIED

Delivers on-demand marketing talent to companies in the technology, retail, health care, ﬁnancial services, and wireless industries. 46

PRIMITIVES BY KATHY

3-YEAR GROWTH $29.1M 2014 REVENUE $47.5M CEO KATHY PHILLIPS FOUNDED 1997 LOCATION LANCASTER, PA.

Wholesales a variety of home décor and gift items. 47

SHELBY MECHANICAL

3-YEAR GROWTH $28.8M 2014 REVENUE $37.1M CEO NANCY BRAY FOUNDED 2007 LOCATION CINNAMINSON, N.J.

Provides a range of mechanical contracting services, including code welding, boiler fabrication, pipeﬁtting, pipe fabrication, electrical contracting, rigging, and iron working.

PHOTOGRAPH BY JULIE JAMORA

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•••• It’s Nice to Be Wanted, but … Potential investors can be trouble, especially if you don’t know how to evaluate them

Thanks to a flood of private equity cash and still-low interest rates, privately held companies are increasingly finding themselves faced with this situation. The numbers of angel investors and the ventures they funded both grew year over year in 2014, according to the University of New Hampshire’s Center for Venture Research; overall angel investing was $24.1 billion, with three-quarters of that going to early-stage and HE FOUNDERS OF BEEKMAN 1802 weren’t looking for expansion financing. Meanwhile, private equity money. The Sharon Springs, New York–based lifestyle funds that work only with small businesses upped company was doing quite well on its own, with their investments by more than 50 percent in $5 million in revenue. Target was stocking its pasta fiscal 2014 from a year earlier, according to the sauce; Bloomingdale’s and Bed Bath & Beyond Small Business Investor Alliance. had just started selling its furniture and bedding. So what do you do if someone wants to give But then last spring, Brent Ridge and Josh you money? First, call in the experts. Through a Kilmer-Purcell received three unsolicited offers to friend, Ridge and Kilmer-Purcell found a lawyer invest in their company. It sounded like great news, who specialized in such deals and knew exactly but it left them scrambling: The founders (who are married) had what to do: He helped the founders prepare a been so busy growing their company, they hadn’t done a brand pitch document outlining Beekman’s story, past audit to analyze its strengths and weaknesses, so they had no idea financial performance, and three-year projections. how much Beekman was actually worth. Now they couldn’t Next, talk to everyone—including other properly evaluate the offers. Were they generous? Or was the potential investors. Although you may not be company being undervalued? looking for attention, agreeing to a chat is not “I was surprised by how complex it is if you are not prepared for agreeing to give up a stake. You could wind outside investments,” says Ridge. “We were behind the eight ball.” up with valuable information about market conditions and your company’s worth, even if you have no interest in pursuing the offer. And if you are interested, all the more reason Helaine Olen is a veteran personal to start talking to other suitors, to see if you can get a better deal. “If someone has come finance journalist, author of Pound to you, only very rarely is no one else interested,” Ridge notes. Foolish: Exposing the Dark Side of the Personal Finance Industry, Finally, know your company’s short- and long-term goals. If you have an idea of what you and co-author of the upcoming want to achieve several years out, you’ll have a better sense of whether a particular deal is Everything You Need to Know About Personal Finance ... on an Index Card. good for your company—regardless of the dollar amount attached. For Beekman’s founders, that means considering money only from investors that agree to keep the business focused on lifestyle products inspired by small-town living. “We want to find someone who understands our business and what we want to do, and who can still stay true to that vision,” Ridge says. “We don’t want to sell out, so to speak.” By late summer, he and Kilmer-Purcell had also decided to consider what sort of hiring and leadership support their investor suitors could offer. The founders are particularly hoping investors can help them recruit some seasoned executives with experience in retail and financial management, to address their lack of knowledge in those areas. “We feel like we’ve maxed out our skills,” Ridge says. “We’re just basically creative farmers.” Creative farmers, that is, with a lot of interested backers—and, now, a plan for assessing them.

GREG KAHN

MONEY

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OC TOBER 2015 - INC. - 117

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OC TOBER 2015 - INC. - 119

TIP SHEET EQUITY

WorldMags.net DO YOU DARE TO TAKE SHARES? Using equity as currency has appeal to startups and service providers, but beware the pitfalls IN 2005, GRAFFITI artist David Choe took shares over cash to paint the walls of an outﬁt called Facebook—shares now worth north of $200 million. Far more often, though, taking equity and waiving fees can leave you owning a small piece of nothing. Cash-conscious startups are increasingly bringing equity to the negotiating table. For service providers and consulting ﬁrms, knowing when to turn down these equity pitches and when to take a slice of the pie is crucial. On the other side of the equation, entrepreneurs need to think long and hard before handing over shares in what could become a very valuable enterprise. Just ask Emmett Shine, founder of digital creative agency Gin Lane. In 2012, Shine lowered his company’s usual fee and took a small stake in shaving products startup Harry’s. Gin Lane had never taken equity before, but Harry’s had

backing from a number of venture capital ﬁrms Shine knew well, and one of the Harry’s co-founders had helped launch online eyewear company Warby Parker. “We knew a lot of the people who were getting involved in the project, and they were all the best at what they do,” Shine says. Good call: Harry’s was recently valued at around $750 million. Since partnering with Harry’s, Gin Lane has taken equity in several other clients, usually accepting a 1 to 3 percent piece. One basic rule: Clients have to put up enough cash to cover Gin Lane’s operating costs during the engagement. Gin Lane also requires startup clients to offer it the same protections that seed investors get, such as the ability to make follow-on investments. While Shine says Gin Lane’s partnership with Harry’s continues to be fruitful, few startups come with the pedigree Harry’s did. If you’re consid-

ering taking or giving equity, these case studies offer valuable insights on whether you should take the plunge.

Understand the Risk Be disciplined RED ANTLER IS A branding company that

frequently takes equity in startup clients. Co-founder JB Osborne says one of the ﬁrst things to understand is how rare massively successful outcomes are. “If you make three bets and none of them work out, it’s probably because you made only three,” he says. “It’s not something you can just dabble in, because you have to be very lucky.” Expect losses. In 2013, Red Antler reduced its fee to take a small stake in ﬂedgling mattress company Casper, one of Inc.’s 30 Under 30 companies in 2015. Though many startups defer payment to service providers until after raising money, Casper paid

Equity Powered

Why service providers took a risk to help launch these products 120 - INC. - OC TOBER 2015

Billy Jealousy hires Tractorbeam

THE MISSION Branding, design, and

go-to-market strategy EQUITY STAKE Less than 10 percent

Creative branding agency Tractorbeam made an all-equity deal with skin care company Billy Jealousy. “We tried the product and loved it,” says Tractorbeam’s head of digital marketing, Christopher Miller.

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INNOVATE

FROM TOP: GALLERY STOCK; COURTESY BILLY JEALOUSY

••••

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TIP SHEET EQUITY

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Always Ask for Some Cash All-equity deals can cost you IN 2006, DESIGN and marketing agency

Aruliden helped devise a branding and product-design strategy for Q Drinks, a line of all-natural tonic water that had yet to hit store shelves. In return, Aruliden took a combination of cash, royalties, and a small equity stake. “That’s an ideal scenario, when you can get all three,” says Aruliden co-founder Rinat Aruh. While Q Drinks has seen consistent revenue growth, increasing the value of Aruliden’s equity, not all of the ﬁrm’s

startup partnerships have succeeded. One former client, an appliance company, agreed to pay in cash and equity. But Aruliden walked when it became clear the cash would not be forthcoming. Aruh says one early sign that she shouldn’t have partnered with that company came when it couldn’t make decisions about manufacturing. “They didn’t have their plan together, and they didn’t have the backing they needed,” she says. Aruliden now takes more care evaluating whether clients can pay up.

Get Creative Where there’s trust, there’s probably a solution IN 2013, BRANDING and consulting ﬁrm Sylvain Labs helped serial entrepreneur Jonathan Levine develop a line of headphones under the name Master & Dynamic. Sylvain founder Alain Sylvain accepted a combo of cash and equity. “I usually aim for around one-third of the project in cash, which covers a lot of our overhead,” Sylvain says, adding that he likes to negotiate additional cash or equity bonuses tied to reaching sales targets and other milestones. While Sylvain saw promise in a premium headphone brand, he says you have to trust your gut. “You have to really put all the paperwork aside and look at the founder and the business and feel good about it,” he says. Levine says his partnership with Sylvain Labs has been invaluable, but he advises entrepreneurs to think hard before offering shares. “Rather than granting actual equity, you could offer the right to buy at a preferential price,” he says. —GRAHAM WINFREY

The Fine Print Before equity is used as a form of payment, service providers and entrepreneurs should come to terms on these questions. ARE YOU OFFERING COMMON EQUITY, PREFERRED SHARES, OR A CONVERTIBLE NOTE?

“If you’re doing this for the ﬁrst time, get advice from a professional lawyer and investor,” says Gin Lane CEO Nicholas Ling. “One percent of equity in something can be very different depending on what terms you have around it.” WHAT IS YOUR EXIT PLAN AND WHEN DO YOU EXPECT TO EXIT?

“Remember that you’re no different from an investor,” says Red Antler co-founder JB Osborne. “You’re just investing your own resources.” DO YOU HAVE THE BUDGET TO DO EVERYTHING YOU WILL LIKELY HAVE TO?

“If they can’t show you how it’s going to come to life, they might not be able to get the support and capital they need to successfully launch the business,” says Osborne. WHAT IS YOUR DISTRIBUTION PLAN?

“Distribution is a bottleneck for a lot of product launches,” says Aruliden co-founder Rinat Aruh.

••••

Harry’s hires Gin Lane

Thrive Farmers hires Design Coup

THE MISSION User experience

THE MISSION Brand positioning

and website design EQUITY STAKE Less than 1 percent Digital creative agency Gin Lane took equity in Harry’s primarily because of its founders’ track record. Emmett Shine, Gin Lane’s founder, says, “We always say bet on the jockey, not the horse.”

122 - INC. - OC TOBER 2015

and product design EQUITY STAKE Less than 10 percent Strategic branding and creative agency Design Coup cut its fee roughly in half for coffee company Thrive Farmers, because it was so impressed by the startup’s business model. Thrive uses a revenue split with coffee farmers that helps them capture more of the sale price of their crop.

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INNOVATE

CLOCKWISE FROM TOP: GETTY; COURTESY THRIVE FARMERS; COURTESY HARRY’S

Red Antler’s fee in cash before closing its seed round. “It’s an incredibly dangerous thing to have uncertainty about when you’re being paid,” Osborne says. More important, though, Red Antler had faith in Casper’s determination to take an unsexy category—mattresses—and persuade consumers to buy its product online. “No one cared about mattress companies before them; that they believed in creating something that was really hard to do was really attractive,” Osborne says. For Casper, handing over equity was an equally perilous proposition. “Just like you wouldn’t want to overpay with cash, you certainly don’t want to overpay with equity,” says Casper CEO Philip Krim. Current tally: Casper reported $20 million in revenue in 2014, and raised $55 million at a $550 million valuation in June. So would Krim offer equity to a service provider again? “Certainly,” he says. “The ability to incentivize someone with more than just cash—especially someone who is in really high demand— could deﬁnitely be valuable to us.”

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WorldMags.net THE PALANTIR EFFECT I T H E S TA R T U P FA C T O RY

N THE LINGO, PALANTIR TECHNOLOGIES does complex event processing—trying to make sense of a world teeming with

seemingly unrelated signals. Its big-data crunching is useful for understanding trends in, say, stock prices, in consumer behavior—and in crime and terrorism. Aiming some of its highly secretive technology at bad guys, the Palo Alto, California, ﬁrm, which launched in 2004, allegedly helped nab both Bernie Madoff and Osama bin Laden. Similarly impressive is the list of other companies and technology stars that Palantir founders—including venture capitalist Peter Thiel of the PayPal maﬁa—executives, and engineers have gone on to create. —JEREMY QUITTNER ENTITIES AND ACTIONS

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INNOVATE

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UNFINISHED BUSINESS

Steve Chon relaxes (sort of) on the roof of his Spa Castle Premier 57, amid the mineral pools that his clients still werenâ&#x20AC;&#x2122;t legally allowed to use as of presstime.

128 - INC. - OC TOBER 2015

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WorldMags.net I N S P I R AT I O N C H R O N I C L E S

THE KING OF SPA CASTLE

STEVE CHON’S DRIVE, DETERMINATION, WORK ETHIC, AND SINGLE-MINDED FOCUS HELPED HIM BUILD HIS SPA EMPIRE.

AND LED HIM TO ALMOST LOSE IT ALL BY SAKI KNAFO PHOTOGRAPHS BY ANDREW HETHERINGTON

INNOVATE

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IN A SECLUDED SECTION OF QUEENS, NEW YORK, almost an hour’s walk from the nearest subway station, a four-story building with a façade the shade of orange sherbet rises above a grim collection of auto-part shops and dusty warehouses. Inside, past a pair of faux castle doors, there’s a kaleidoscopic array of pools and fountains and bubbling hot tubs and saunas, including a sauna lined with gold-color tiles and another encrusted with candy-color stones. If this marvel of plumbing is the “Disneyland of Spas,” as Susie Ellis, a spa industry analyst, has called it, then its Walt Disney is Steve Chon, a small, terminally unsatisﬁed man of 56. Chon can occasionally be seen stepping out onto the penthouse balcony overlooking Spa Castle’s rooftop pools, scanning his realm of relaxation through a pair of sunglasses. He sometimes dresses a bit like an ersatz Beat poet, in a black turtleneck, black slacks, black-rim glasses, and shiny black shoes. He has a ﬂair for drama. “I always see something bad,” he says. “Why is the customer service so bad? Why is this thing falling apart? The water coming down in the shower feels hot. All of a sudden it’s becoming cold. Why?” Chon may have a hard time relaxing, but his intense

130 - INC. - OC TOBER 2015

devotion to work has helped make Spa Castle a modern New York City institution. People have flocked by the hundreds of thousands to bathe in its all-nude single-sex pools, to sprawl on the heated floor of the nap area, and to submit to the merciless Korean exfoliation technique known as the body scrub. Spa Castle is described as a jjimjilbang, a Korean bathhouse, but Koreans make up only a small percentage of the guests. At $40 for a full day during the week, $50 on weekends, the Queens Spa Castle location draws enormous crowds from all over the city and beyond. The hinoki bath, which is said to be paneled in slats of the Japanese cypress dating back 300 years, is as close as anything you’ll see to an actual human melting pot. Chon claims he always knew the spa’s eclectic amenities would bring him a mainstream American following, even as friends and family assured him he would fail. People who know him say he is daring and headstrong—a “warrior type,” as one friend put it—and for years, these qualities served him well, steeling him against his peers’ skepticism as he charged into a series of risky ventures: first the original Spa Castle in Queens, and later a second branch, opened outside of Dallas in 2012. Then, in December 2014, he unveiled his boldest project yet, a sleek temple of leisure occupying floors seven through nine of the nine-story Galleria Condominium on Manhattan’s East 57th Street, mere blocks from the world-class spas of the Peninsula Hotel, the Four Seasons, and the Waldorf Astoria. To make it there could catapult Chon into the tiny class of breakthrough immigrant Korean-American entrepreneurs, such as Do Won Chang, the billionaire founder of retailer Forever 21. Within a few months, however, the project was facing ruin,

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SPA LIFE In addition to massages and other treatments, Spa Castle Premier 57 features a hydrotherapy pool, saunas, and relaxation rooms.

and Chon had become convinced that a cabal of powerful operatives was conspiring to destroy him. The king of Spa Castle, who had started with nothing and established what he had hoped would be the foundation of a dynasty, was suddenly in danger of losing it all. “I’m so anxious,” he said in February. “I can’t think of anything else.”

HON CAME TO NEW YORK from South Korea in

1980, when he was 21, for the same reason that most immigrants do—the chance at a better life. The previous year, South Korean president Park Chung-hee had been assassinated in a coup. “Korea was not in good shape, politically and economically,” Chon recalls. “I didn’t see my future.” When he got here, Chon, like many Koreans of his generation, saw relentless work as an unavoidable prerequisite of the success he craved. But he also understood that hard work was not enough. To

truly make something of himself, he would have to take risks that his fellow Korean expats generally avoided. Becoming an engineer was the ﬁrst of those risks. Back in the 1980s, few Koreans went into trades that require a professional license, though many had them in Korea. Rather than try to negotiate a foreign bureaucracy in a foreign language, they opened groceries and other small businesses. “There was a lot of group thinking,” says Ron Kim, a friend of Chon’s and a state assemblyman from Queens whose father, licensed as an electrician in Korea, ran a grocery store and then a string of nail salons in New York City. “When they immigrated here, they were told, ‘There’s an opportunity to open this type of business and everyone else is doing it.’ ” Chon believed he was a different breed. “I’m a gambler,” he says, striking his chest with his hand. “I have big guts.” So rather than going to work for his parents’ laundry full time, he joined the Army Corps of Engineers. But he still stacked newspapers at a stationery store on weeknights, and spent his Saturdays working as a shoe salesman in the Bronx. He eventually studied engineering at the Polytechnic

CHON STACKED NEWSPAPERS AT A STATIONERY STORE ON WEEKNIGHTS, AND SPENT HIS SATURDAYS WORKING AS A SHOE SALESMAN IN THE BRONX. WorldMags.net

INNOVATE

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Institute of Brooklyn (now part of New York University) and got his engineering license in 1990. Then, to expand his range of opportunities even further, he became a licensed plumber. Over the next two decades, he parlayed these skills into a contracting and construction empire, specializing in the construction and renovation of Korean-run businesses, like laundries and nail salons. He was also partly responsible for transforming the section of West 32nd Street that runs between Broadway and Fifth Avenue in Manhattan from an inconsequential block of loft buildings on the edge of the fading garment district into Korea Way, the buzzing commercial nucleus of Korean New York. He became one of the most successful men in the city’s community of more than 100,000 Koreans. But the thrill of this achievement quickly wore off. Success, for Chon, is like an “addictive drug,” he says. The more he gets, the more he wants. He dreamed of creating something unique, something that would make him a success in the eyes of all Americans, not just his fellow Koreans. The only question was what. A laundry? “Too small,” he says. A restaurant? “No experience.” Then he had his eureka moment, which occurred, ﬁttingly, in a bath. On a visit to Korea in 2003, some of his friends took him to an extravagant new bathhouse, where he noticed a group of American servicemen among the bathers. He saw that they were enjoying themselves. This surprised him. It had not occurred to him

grinning proudly. “Even my own wife said I’m stupid.” When he applied for loans, every bank officer he approached turned him down. In the end, he covered the costs of the $25 million project with his bank financing, a second mortgage, and his own money, nearly depleting the fortune he’d amassed over two decades, to create an opulent relaxation destination for the city—importing pink salt blocks from the Himalayas, yellow mud cakes from the Korean wetlands, and 40 shipping containers of bamboo flooring from China. But, from the start, Chon’s first business foray into the world beyond the city’s close-knit Korean-American enclave proved difficult as none of his other endeavors had. City approvals dragged on for months, and Chon’s hard-driving style turned off some neighbors. Along the way, members of the local community board and several elected officials tried to block the spa from opening. They were worried about the traffic it would bring—or at least that’s what they said in their formal complaints to the city. Some neighbors thought the spa would serve as a front for a brothel. Chon appeared at community board meetings and tried to make it clear that he was building a family-friendly establishment. But the board remained unanimously opposed to his plan, and would probably have succeeded in killing it had he not made a

SPA KING, GO HOME Chon’s ﬁrst Spa Castle faced stiff political opposition in Queens.

that something as uncommon in the States as public bathing would appeal to Americans. And not just public bathing, but public bathing in the nude. In other countries, the spa or its local variant—the hamam, the banya—is ubiquitous, but for most Americans, “taking the waters” has never been part of everyday life. Convinced that a Korean mega-spa would nonetheless do well in New York City, he bought a dilapidated warehouse in College Point, Queens, a bulge of postindustrial real estate protruding into the East River. The view was less than spectacular. Across the water stood a sewage plant. Chon, however, was sure that everything would work out. Few agreed. “My brothers said I’m stupid,” Chon recalls,

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direct appeal to the borough president, who took the unusual step of overriding the community board. On the opening day, neighbors picketed outside. Queens has the city’s largest Asian population, but College Point was still a bastion of workingclass whites. It seemed obvious to Chon that his neighbors wanted to keep it that way. Even after it opened, Spa Castle’s success was far from assured. But through luck or skill, his timing was good. Between 2007, when the ﬁrst Spa Castle opened, and 2013, more than 5,800 new spas opened in North America. “Spas are no longer perceived as the exclusive domain of the wealthy,” says Beth McGroarty, the research director for Spaﬁnder Wellness, a company that publishes an annual Global Spa and

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CHON COVERED ALMOST ALL OF THE COSTS OF THE $25 MILLION PROJECT WITH HIS OWN MONEY.

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“WHEN A TIGER DIES, WorldMags.net

Wellness Trends report. In the U.S., spa revenue rose 35 percent from $12 billion in 2007 to nearly $16.25 billion in 2013. Korean-style spas constitute only a sliver of the U.S. spa sector, but their numbers are growing. There are at least nine Korean bathhouses in Los Angeles, and others in the Bay Area, the D.C. area, Chicago, New Jersey, Colorado—really, wherever Korean immigrants have settled down. In the end, Chon’s persistence paid off. Today, about 300,000 people crowd into the Queens spa each year, according to the company. Chon would not disclose specific annual revenue but says the Queens spa’s sales have hit “more than $20 million in recent years.” The Texas location, opened in 2012, is meant to suggest an Egyptian temple, with towering statues of pharaohs flanking the entrance and a pyramid-shaped sauna coated in 23-karat gold. Chon expects that location to take in $14 million this year. Having fulfilled his dream of creating a business that transcends ethnicity, Chon set his sights on ensuring that his business will secure his legacy. “In Korea we say, ‘When a tiger dies he leaves his skin,’ ” says Chon. “ ‘When a man dies, he leaves his name.’ The name is Chon. I want to leave my name.”

HE LEAVES HIS SKIN. WHEN A MAN DIES, HE LEAVES HIS NAME. THE NAME IS CHON.”

FTER HIS SUCCESS in Queens and Texas, Chon decided to start a business in Manhattan, an area that hadn’t seen many ambitious Korean immigrant entrepreneurs succeed outside of the industries they had traditionally dominated. In May 2013, after several false starts, he took over the top three floors of the Galleria, a condo building just a few blocks from Central Park. At first, he says, the renovations went smoothly. But in September 2014, just as the project was nearing completion, he got his first taste of the difficulties to come. He had already spent close to $8 million on the construction and was just waiting for the Department of Buildings to send over an inspector for a final review, a key hurdle before he could open to the public. That’s when he learned that the board of the nearby Ritz Tower was suing him and the Galleria’s owner. In a caricature of old-money prudishness, the board fretted that the “nudity-friendly” baths in the gender-segregated areas would violate “public morals.” It also argued that the spa’s rooftop pools, cabana, and new walls would interfere with the Ritz’s views. Unfortunately for Chon, the latter complaint carried legal weight. As it turned out, a previous landlord of the Galleria had

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signed an easement agreement back in 1974 promising to never raise the height of the roof without the Ritz’s consent. Chon claims he wasn’t aware of this, and argued in his formal response that installing hot tubs was not the same thing as raising the roof’s height. Besides, the previous tenants, the New York Health & Racquet Club, had often held parties on that very same roof. Why hadn’t the Ritz complained about them? To Chon, the lawsuit smacked of snobbishness and racism. It reminded him of the prostitution rumors that had dogged him in Queens, but, arguably, this situation was worse. Unlike the working-class people and small-business owners who had rallied against him in College Point, the Ritz tenants, on the whole, were wealthy and presumably very well-connected. Chon says his landlord urged him to back down. Just surrender the roof and move on, he recalled the landlord saying—Chon had no chance against them. Chon barreled ahead anyway. In October, Chon’s legal problems multiplied. A Spa Castle employee had filed a class-action suit accusing Chon of forcing “bath servants” and other employees to work without proper compensation for 11 hours a day, six days a week. It is one of several suits that have been filed against Chon by his employees since 2012. Chon is fighting back against these accusations (the legal process is now in the discovery stage), and he says it’s the company’s policy not to comment on pending litigation. But he makes no apologies for his management style, a likely culprit in the continuing litigation. “I have to yell for my health,” says Chon. “If I don’t yell, I get sick. I can’t digest my food. I can’t drink water.” In December, as the New York State Supreme Court collected documents from both sides of the Ritz case, the Department of Buildings issued a temporary certificate of occupancy for Premier 57, allowing it to open pending a pool permit from the Department of Health. Every week, Chon says, he asked the Department of Health when the inspector would come; every week, he got the same answer: “One more week.” Bureaucratic delays are not uncommon in New York City. Although Joel Trace, an architect who has worked as a pool designer for more than 40 years, says he CONTINUED O N PA G E 1 5 0 rarely has had to wait more than three

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PA RT N E R I N S I G H T / N I S S A N

A Grownup Vehicle That Serves Kids’ Transportation Needs Tot Squad makes house calls to assemble, restore, and otherwise service a wide range of kid-oriented equipment. They couldn’t get the Nissan NV200 fast enough. Driving a traditional commercial van—especially in heavy traffic and areas of limited maneuverability—is not for the faint of heart. In fact, Jennifer Beall, CEO and founder of Tot Squad, calls it “really terrifying, the scariest thing ever.” Tot Squad offers an unusual service: it provides on-site cleaning, restoration, assembly, and installation of strollers, car seats, and other infant and baby equipment. The company’s employees spend a lot of time behind the wheel and, like Beall, they hated driving the company’s full-size cargo van; the vehicle bore numerous dents and dings attesting to the difficulties they had maneuvering it. When Beall heard about the Nissan NV200 Compact Cargo Van, “I couldn’t wait to get it,” she recalls. “We were one of the first businesses to purchase an NV200, and there was a huge waiting list. I had to jump through hoops at multiple dealerships to find one, but it was totally worth the wait.” Beall says the new van, an SV model, was as big a hit with her employees as it was with her, and she purchased a second one within months. The greatest advantages for Tot Squad are the van’s size, cargo capacity, visibility, and fuel efficiency. “Since it’s about the same size as a minivan, our female employees, who account for 90 percent of our workforce, are much more comfortable driving it,

and they’ve become more confident and safer drivers,” Beall says. They particularly like the visibility the optional rear door privacy glass package provides, as well as the accessibility afforded by sliding doors on either side and wide-opening 60/40 rear doors. When it comes to choosing the right van for your company, Brian Braudis, a Philadelphia-based business coach and consultant, stresses that it’s important to start with the fundamentals: size, Gross Vehicle Weight Rating, fuel efficiency, and what kind of upfitting you might do. For Tot Squad, the Nissan NV200 Compact Cargo Van has proved perfect across the board. “Because we’re a mobile business, gas is one of my top five expenses, so the 2.0 liter DOHC 4-cylinder engine is saving us a lot of money,” Beall says. In fact, the NV200 gets almost double the mileage of the conventional van it replaced. “It’s so spacious, it easily holds everything our employees need to do their job, including all the same equipment we had in our old van. We customized our NV200s with built-in shelves, and there are little spaces throughout the interior where we can hook tethers and nets to tie down equipment for safe and easy transport. The cockpit is designed specifically to make it easy to do paperwork, and there’s plenty of storage space for our clipboards, binders, and paper forms.” Beall is so keen on the value of the Nissan NV200 Compact Cargo Van that as her company, which currently operates in Southern California and New York City, prepares to expand via franchising she has “written into the franchise agreement that new franchisees must get this van,” she says. “That’s how perfectly it matches our business model—and how strongly I believe in it!”

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WorldMags.net PHYSICIAN, DISRUPTER

HEAL THY INDUSTRY

Medicine is often more about paperwork than about making patients better. A frustrated doctor wants to change that As told to LIZ WELCH

care may be a mess, but many founders clamor to fix it. Among them: physician Rushika Fernandopulle, whose Bostonbased company, Iora, reworks the primary care experience. Iora charges each patient a monthly flat fee—about $150, often covered by insurance— instead of using today’s baffling and complex system of copays and billing codes. Iora also pairs each patient with a health coach to ensure that he or she follows doctor’s orders. This model, while more expensive up front, addresses problems early on to save consumers and insurers money in the long run, by cutting down on emergencyroom visits and long-term care for chronic conditions. Fernandopulle launched Iora in 2012, with one clinic in New Hampshire and another in Nevada. To date, Iora has raised more than $42 million and opened 11 more clinics. And Fernandopulle is planning for 30 locations by 2016. 138 - INC. - OC TOBER 2015

Stupid Systems and the Soul It was 2002 and I was working as a primary care physician in Boston. I’d seen 40 patients, and had to stay two hours after work to ﬁnish up my notes, because that’s what these stupid systems make you do. My colleague was doing the same and said, “We went into this to help people. Every day, I’m losing a little piece of my soul.” Our health care system is based on billing and coding and checking boxes and rules. That doesn’t heal people.

Relationships do. I decided to build a new model from scratch and change everything. A lot of people are trying to ﬁx health care from the top down. We decided to start from the bottom— with primary care, where the real relationships begin.

The Power of Coaching If I say, “Eat a low-carb diet,” and my patient doesn’t understand what that means, how can she improve her health? Each of Iora’s patients has a dedicated

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HEALTH CARE, BY THE NUMBERS

••••

WorldMags.net Iora founder Rushika Fernandopulle thinks he’s found a way to curtail soaring health care costs. Data shows there’s plenty of room for improvement—and that Iora has its patients working more closely with doctors than is the case for the average U.S. citizen.

Average number of primary care doctor 1.6 visits per year, total U.S. population

The Worry Score We base our practice on the idea of proactive care. When we meet a patient, we assign him or her a worry score—a number from zero to 10. We start each day by huddling with the doctors, nurses, and health care coaches to see who is having problems. We focus on the 10s: “Is anyone in the hospital? Or in trouble with their blood pressure? Any ER visits last night?” We get data about patients whenever they see a specialist or visit the hospital, and we know when they ﬁll prescriptions. If they don’t, the health coach follows up to see why not, and how we can help. It’s amazing what we learn: The pills were too big, or the patient has no way to get to the pharmacy. These are easy problems to solve.

Toward a New Medicine In a typical practice, you’re paid only for what you do. Every action has a bill code. Our business model is a ﬂat per-patient fee, which ranges from $60 to $200 a month. Yes, we’re about twice as expensive as other primary care practices, but we save money in the end because our focus is on keeping a patient well and out of the emergency room or surgery. The health coaches help us do that, and the ﬂat fee lets

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Average number of primary care doctor 6.1 visits per year, patients enrolled with Iora

$2.9 trillion Total U.S. health care

a smart way. We work with sponsors— either self-insured employers, or unions that pay for health care, or progressive health insurers, most of which pay that monthly fee. We earn our money by taking care of our patients, not by billing for every service we provide, which is how the vast majority of primary care doctors are paid. Most big insurance companies and hospitals don’t like us, because they make more money in the current model. At most, typical primary care accounts for 6 to 7 percent of the overall money spent on health care by patients, employers, and insurers. The rest is spent on failure of primary care. As a primary care physician, I want to get paid for actually taking care of patients. Through our website, patients have full access to all their medical records, doctor’s notes, and lab reports. They can book an appointment online, and choose it to be in person, by phone, or by video. We also ask patients to personalize their page—to put up a photo, and write a headline like, “Working dad wants to run a marathon.” The best way to manage is to make sure each person has a goal— and is acting on it.

expenditures, 2013

$9,255 Per capita U.S. health care expenditures, 2013

5.8% Projected rise in health care costs from 2014 to 2015 SOURCES: CDC, CENTERS FOR MEDICARE AND MEDICAID SERVICES, IORA

them be creative—they can go grocery shopping with diabetic patients. If the doctor says, “Exercise three times a week for 30 minutes,” the health coach can help make that happen, too. Their work can include going to people’s houses or visiting them in the hospital, and then reporting back to the doctor if there is an issue.

How It Works Our core proposition is to increase the funding that goes into primary care in

Biology, Not Industry Health care is not Starbucks. Health care is very local. Different populations require different things. Our clinic in Las Vegas works with casino workers, who have different needs from the members of the freelancers union in Brooklyn. For the carpenters union in Boston, we have a personal trainer. At Dartmouth, where we have a clinic on campus, we have more mindfulness and stress-reduction experts on that staff. Whenever we open a new practice, we send employees from one of our existing practices who understand our culture. Most people think of scaling companies with an industrial model in mind, but health care is a people-based business. So we use a biological model. Cells scale through mitosis. A cell splits itself in two. And then those cells grow and split in two. That’s how we plan to grow as well.

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health coach who discusses the individual’s issues before the doctor arrives. The coach then stays during and after the exam to translate the doctor’s recommendations into an actionable plan. The most important skill for this job is empathy. We have intensive four-week training, during which we teach our coaches how to do things like take blood pressure and measure blood sugar, as well as motivational interviewing so they can ﬁgure out what the real problems are. We look for thoughtful people within the community being served, because they understand the culture. We barely look at résumés—instead, we have applicants do speed dating with our other health coaches. Sometimes we ask candidates to do a one-minute video teaching us anything—how to sew, ﬁsh, cook. You can tell more about a person from those videos than by a résumé.

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WorldMags.net Jason Fried GET REAL

•••• Shift the Gears of Your Team’s Communication Online group chat isn’t always productive. Sometimes you need to drop it into low

persistent team chat. Since then, newer products have hit the market, such as HipChat, Slack, Flowdock, Google Hangouts, and others. Group chat is all about high gear: a quick, casual conveyor belt of conversation. You say something, and it’s current for a moment. Then more people drop in and speak up. The conversation runs like a ticker tape, with old stuff scrolling away and new stuff front and center. The problem is that when USED TO HAVE a Jeep Wrangler. I loved it. When you live in everything’s on a conveyor belt, everyone feels the Chicago, a car that loves snow is an easy car to love. The need to toss some words in right now so that the Wrangler has a couple of four-wheel-drive modes. High gear, conversation won’t go on without them. The fear of 4H, is for cruising. You can even shift into it on the fly. But missing out is a huge deal, so people often speak up when you need to dig in—if you’re stuck, if your wheels are just to be represented. This sort of primary commuspinning, if you need more traction—you stop and shift to nication leads to knee-jerk reactions, not thorough 4L: low gear. Now you’re moving again, confidently. conversations. When people rush to be heard, and Why am I talking about Jeep transmissions? Because decisions are based on snap judgments, you create a they remind me of something else that needs high and low manic environment: Everything speeds up when it’s gears: communication. often better to slow down, think things through, and Team communication is something I’ve thought about a lot. At its give people a chance to digest and comment later. core, Basecamp, our project-management tool, is all about communiThis is when it’s time to shift into low gear. Low cation. It’s about sending out announcements, discussing ideas, having gear is how you dig in, get traction, make a compeldebates, and keeping decisions and client feedback on the record so ling argument, and, most important, give people it’s all available whenever you need it. time to consider and respond. But as more compaOver the past few years, all sorts of communication tools have nies are exposed to group chat—high gear—they popped up. The latest trend is team chat. In 2006, we launched a tend to forget the power of low gear. That’s when product called Campfire, which ushered in the era of modern, simple, things get slippery. Discussions that used to be calm and measured have become chaotic and scattered. At our company, we often start a discussion casually in a group chat. If an idea evolves, someone Jason Fried is co-founder will move the conversation to a low-gear environment, leaving the chat and posting a long-form of Basecamp (formerly message or document to Basecamp, sometimes illustrated with pictures. The tool is structured to 37signals), a Chicago-based software company. make information easier to present in large chunks in place of staccato chat lines. How do you know when to downshift? At first, it’s a struggle, and it’s never totally obvious. Many people discussing something line by line over 20-plus minutes without making big strides often signals that a shift into low is needed. Whenever I feel the temperature rising, I scroll back a bit to see how long the chat has been going on and how many people are chiming in, and if it’s been a while and lots of voices are in the mix, I’ll suggest we stop and switch gears: Someone go write it up. Long-form messages are wonderful things. They aren’t as fluid as rapid, casual conversations, but they give people an extended moment to absorb a pitch, to hold a whole idea in their heads, to listen to an argument from one person at a time. Then they can respond in kind. The ideal is using both 4H and 4L, high and low gears, equal partners in helping people make progress together. We’re building what we’ve learned about this practical two-gear approach into the all-new version of Basecamp, due out in a few months. Let us know what you think.

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The future belongs to the fast.

IT strategy is now business strategy. In a changing landscape, every company faces the challenge of quickly moving from what they are now to what they need to become. This has made IT solutions that can accelerate change the single most important strategic weapon for business. HP believes that when people, WHFKQRORJ\ DQG LGHDV DOO FRPH WRJHWKHU EXVLQHVV FDQ PRYH IXUWKHU IDVWHU 7R ĆŹ QG RXW PRUH visit us at hp.com/furtherfaster. ÂŠ Copyright 2015 Hewlett-Packard Development Company, L.P.

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B U I LT T O L A S T ( A N D L A S T … A N D L A S T ) C O N T I N U E D F R O M PA G E 4 2

funding inventory and receivables, as in other businesses. It’s for hiring people you can’t afford to pay out of revenues. You think they will allow you to grow faster. Then you keep hiring ahead of revenue and have a company that is constantly losing money. They call it the ‘burn rate.’ So you need to keep raising more rounds of money, and the more you raise, the less likely you are to reach proﬁtability. If you want some wealth and your investors want a return on their investment, you have to sell it.” But even if you don’t start by raising a big bunch of money, it’s easy to be led astray. Flagg described the syndrome in a post on his blog: “1. Start a company, ﬁnd customers, hire employees, start making real money. “2. Someone approaches about buying the company. “3. Fall in love with the idea of having millions in the bank. Start thinking about traveling the world, buying private islands, and never working again. “4. Become paranoid that if I don’t sell soon, I may screw up the company, miss my chance at No. 3, and end up sleeping on my sister’s couch instead.” That is, in fact, more or less how he and RegOnline founder Attila Safari came to sell their company, much to their later regret. Flagg estimates that 80 percent of his entrepreneurial friends have fallen into the same trap. It’s “what drives them to ultimately sell great companies to not-so-great companies who then run them into the ground (which is bad for customers, employees, and society as a whole),” he writes. “In fact, I’m surprised by how many of my friends (a good 30 percent-plus) have bought back the companies they’ve sold after they’ve been run down.”

14 4 - INC. - OC TOBER 2015

The irony is that entrepreneurs can often make more money by continuing to run a business than they can by selling it. Flagg gives the example of a company with $1 million in pretax profit, or $600,000 in after-tax proﬁt. If it is sold for 10 times pretax proﬁt—a high multiple—and the proceeds, after paying capital gains tax, are invested at an 8 percent annual return, the former owner will earn $384,000 per year after taxes, instead of the $600,000 she was taking home before the sale (see “The Case for Not Selling,” page 40). And Flagg walks his talk. Since the sale of RegOnline, he has become a partner in four customer-funded— otherwise known as bootstrapped— software companies in Colorado, where he lives. They have no outside equity investors other than him. He’s a minority shareholder in three of the businesses, and so it’s not his decision whether or not they ultimately

“And there’s not many voices out there promoting the idea of holding onto and growing companies for life. I was amazed by the energy that erupted from this room of entrepreneurs to hear a different, maybe more fulﬁlling option. So I’ve come to the conclusion that Richard Branson and Warren Buffett have it right … if a company is proﬁtable and growing, the best holding period is forever!” THEN AGAIN, forever is a long time. Entre-

preneurs who are serious about building to last will someday face a much tougher challenge than deciding not to accept investments that require an eventual sale of the business—the challenge of building a company that can keep its mojo and stay private and independent after the founder is gone. Few companies are capable of pulling it off, and they are virtually all either family- or employee-owned. Some entrepreneurs

Only a few companies can keep their mojo and stay private and independent after the founder is gone. They aren’t in Silicon Valley. get sold, but for now at least, all the owners are content with the arrangement. “If you grow a company organically based on what your revenues can afford,” he writes, “you end up coming into a much more profitable situation, which is what my partners are in. Between the four companies, we’ve got $20 million in revenue and are making $6 million in profit. So there’s plenty of wealth to be shared.” The obvious question is, why haven’t more tech entrepreneurs followed Flagg’s example? He asked himself that question after presenting his ideas to about 200 entrepreneurs at an SxSW conference. It “hit me that we are in a world full of VCs, private equity, investment bankers, attorneys who love to promote ‘flipping’ companies because that’s how they make money,” he writes.

have made that their explicit goal—but they aren’t in Silicon Valley. One of them is Rich Panico, the founder and CEO of Integrated Project Management, based in Burr Ridge, Illinois. Now in his early 60s, he exudes an intensity and a sense of purpose that he traces back to his childhood. The son of Italian immigrants, he grew up on the South Side of Chicago in a cold-water ﬂat that shared a hall bathroom with three other apartments. His parents wanted a better life for their son and sent him to a series of Catholic schools, where he excelled. After graduating from college with a degree in aviation-technology maintenance and management, he landed a job with Johnson & Johnson and wound up staying for the next 15 years. There he developed a fascination

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with professional project management, a relatively new specialty that had not yet been sufficiently codiďŹ ed to call it a discipline. â&#x20AC;&#x153;I felt the profession and the science of project management were critical for this country if we were going to implement, change, and evolve in a world that was becoming more and more competitive,â&#x20AC;? Panico says. He was thriving at Johnson & Johnson, which had rewarded him with promotion after promotion. He ďŹ gured he would either become CEO one day or get ďŹ red. What set his heart racing, however, was not the opportunity to lead a giant corporation. It was the chance to revolutionize his chosen ďŹ eld by starting a company of his own. Panico says his father had taught him that â&#x20AC;&#x153;anything you do, you should do to last,â&#x20AC;? and that was his mindset when he launched IPM in 1988. The ďŹ rst person he hired was JoAnn Jacksonâ&#x20AC;&#x201D;who was the CFO until recently, when she became vision realization officerâ&#x20AC;&#x201D;because he wanted to have a potential successor in place from day one. (Now the succession line goes four deep.) His stated objective was, and remains, to build a company that could last more than 100 years. Ask employees todayâ&#x20AC;&#x201D;even the newest recruitsâ&#x20AC;&#x201D;about IPMâ&#x20AC;&#x2122;s overarching goal, and they will tell you that itâ&#x20AC;&#x2122;s to have â&#x20AC;&#x153;a 100-year company.â&#x20AC;? Several admit that they joined IPM because of that goal. Panico and his team have shaped IPMâ&#x20AC;&#x2122;s culture accordingly, developing business practices and processes that are now deeply ingrained and second nature to the companyâ&#x20AC;&#x2122;s 140 full-time employees and about 95 project management consultants. What anchors the system, Panico says, are â&#x20AC;&#x153;timeless valuesâ&#x20AC;? that guide everyone who works there and give recruits a clear idea of what theyâ&#x20AC;&#x2122;re signing up for. By values, he means things such as â&#x20AC;&#x153;honest and ethical conduct,â&#x20AC;? â&#x20AC;&#x153;uncompromising integrity,â&#x20AC;? maximizing employee job security, consistently delivering the highest quality in the industry, and continuously improving. These are not just abstract ideals, either. IPMâ&#x20AC;&#x2122;s commitment to the latter,

for example, is embedded in the companyâ&#x20AC;&#x2122;s annual planning process, in which everyone is involved and which begins with a survey asking 15 questions, such as, What can be improved? Are we true to our values? What obstacles should we be aware of? Obsessive is a word that frequently comes up when Panico talks about his approach to management. He believes that, to build a company capable of lasting 100 years or more, you must be obsessive about values, about reputation, about promoting from within, about creating an organizational structure that can evolve over time, about deďŹ ning and documenting business practices, and on and on. Those obsessions have earned IPM a slew of awards over the years. The Great Place to Work Institute recognizes it every year as one of the best small-tomidsize workplaces in the country. Other groups have honored it for its ethics, customer engagement, and excellence of character. Then thereâ&#x20AC;&#x2122;s the Malcolm Baldrige National Quality Award, which IPM is currently working toward. Panico says he began the Baldrige process because â&#x20AC;&#x153;I wanted a report card based on close scrutiny.â&#x20AC;? It will take IPM another 73 years to reach its goal, andâ&#x20AC;&#x201D;if it doesâ&#x20AC;&#x201D; Panico wonâ&#x20AC;&#x2122;t be around to celebrate the achievement. In fact, making it to 100 will depend on people other than him. All Panico can do is give those who come after him a decent chance to succeed. That means, among other things, bequeathing them a culture, a management system, and an organizational structure that are set up for the long haul and not reliant on any one individual, least of all Panico. Therein lies the challenge for all entrepreneurs aiming to build private and independent companies that are as evergreen as sequoias. If Flagg, Whorton, and others are right about the superior strength and proďŹ ts of evergreens, we should eventually see a forest of them.

BO BURLINGHAM is an Inc. editor-at-large and the author, most recently, of Finish Big: How Great Entrepreneurs Exit Their Companies on Top.

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THE LONGEST GAME C O N T I N U E D F R O M PA G E 5 1

ing her company for the long term. She wasn’t going to screw it up by building something suitable only for a quick flip, or slapping together a company that could be gutted by acquirers or investors who didn’t share her priorities. Plenty of would-be investors told her she needed to go back to school. Other times, she recalls, “You walk into the meeting and the first question is ‘What’s your exit strategy?’ And you’re kind of interested in your entry strategy.” Holmes made her task harder by insisting on keeping control of the company, of which she still owns more than half. Jennifer Fonstad, at the time a managing director at Draper Fisher Jurvetson, was one of Holmes’s early investors. “You hear a lot about young entrepreneurs who come in with a certain confidence,” Fonstad says. “Holmes had 10 times that.” Holmes would need that confidence. “I certainly didn’t start out thinking, OK, it’ll be 12 years before we can finally begin to serve customers,” she says. Theranos won’t share many details about those early days, but it seems to have been trying to build on the wearable-patch patent that had so impressed Robertson. (“Originally, she was hoping to be almost bloodless,” says Fonstad.) Robertson says the early work wasn’t in vain: “The kinds of things we were working on then are embedded in part of the technology that we use today.” But the challenge of creating tests that were smaller, cheaper, and faster than the competition’s was grueling. Each test had to be developed individually, yet ultimately processed on a single platform—and Theranos needed to develop more than 200 of them. Holmes, who by 2005 had raised about

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$6 million in venture backing, knew she’d have to buy the time to do that, but wanted “to build a company that could grow from operations and not be dependent on what I call the equity umbilical cord.” So she jumped at her revenue-making opening: Clinical trials required only a handful of speciﬁc tests, so she began securing contracts with pharma companies to function as their testing facility. The deals not only gave Theranos the credibility that helped Holmes raise a total of $92 million in venture capital by the end of 2010; they also created real cash ﬂow that could help it fund continued development of its tests. Finally, in September 2013, after years of the company’s functioning as an outsourced pharma lab, developing dozens of patents, and having never operated a real website or whispered a peep to the press, it was time for Holmes to emerge from stealth mode and show the world what she’d been working on.

THERANOS WELLNESS centers feel more like

spas than testing facilities, despite being situated inside Walgreens drugstores, where virtually all 56 of them reside. At a Theranos-branded enclave in the downtown Palo Alto Walgreens, white leather couches and New Age music accompany a phlebotomist who warms the patient’s ﬁngertip with a gel pack before pricking it. The specks of blood ﬂow into a vial

reality, over the past 18 months the momentum behind Theranos has been building. There’s the recent deal with the prestigious Cleveland Clinic, which will use Theranos technology to test its patients. Theranos secured agreements with Capital BlueCross and AmeriHealth Caritas to be a preferred provider. A partnership with the Carlos Slim Foundation, which runs a network of health care centers in Mexico, will use Theranos tests to screen for, among other things, diabetes, a disease known to be preventable with early detection. In July, Arizona passed the country’s ﬁrst bill, co-authored by Theranos, allowing patients to order blood tests without a prescription. And then there’s the massive Walgreens deal. Any of Theranos’s advances could potentially transform the lab test industry. But it’s in pricing that Theranos arguably has the most powerful opportunity to disrupt, a point the usually restrained Holmes allows herself to get worked up over. “The premise that you’re going to run a business, and that if someone is in need, I’m going to charge them a ton of money, is completely wrong,” she says. “Price should be the same for everyone, period. And the price should be affordable.” Theranos never charges more than half the rate set by Medicare for blood tests; in some cases, it’s a 10th of the cost. A test for HIV can cost more than $80. Theranos charges $16.56.

“One of my shareholders said to me, ‘You are an athlete running a marathon who thinks she’s running a sprint.’ ” about the size of a pinkie nail, which is marked with a bar code. Holmes, who claims to be terriﬁed of traditional needles, says 40 percent of people don’t get blood tests ordered by their doctors because of that fear, along with cost. Holmes’s vision is to ultimately have Theranos wellness centers within ﬁve miles of every person in the United States—and to provide similar access throughout the world. Although she’s a long way from that

But Theranos’s black-box approach has led to a slew of criticism. Competitors and some in the medical community complain the startup has revealed too little about how its tests work, and have called for Theranos to publish its studies in peer-reviewed journals. Holmes is unapologetic about not giving in to the critics. “I admit it’s very intentional,” she says. “We don’t call on our competitors and explain how our technology works.” Instead, she says,

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Theranos is asking the Food and Drug Administration to approve each of its tests, something no other lab test company has done. In July, it received its first FDA approval, for its herpes simplex 1 test. It has approximately 255 tests to go. Others argue that early detection, in the absence of medical guidance, doesn’t actually lead to saving lives but instead ignites hysteria. “The past 30 years have shown that breast cancer screening has not been effective in reducing the burden of breast cancer. The same with prostate cancer,” says Eleftherios P. Diamandis, a professor on the University of Toronto’s faculty of medicine. While certain screenings, like cervical cancer, do work, he believes vast numbers of people will end up going to the hospital because of false positives, and endure unnecessary stress, medical procedures, and bills before discovering that, actually, they’re fine. Others are concerned that the average person can’t accurately interpret test results or even order the right tests. Holmes offers a philosophical, if not libertarian, retort: “The idea that I as a human should not be free to access my own health information, especially using my own money— even though I can buy weapons and anything else I want—and rather should be legally prohibited from doing so, summarizes the root of the fundamental flaw we’re working to change in our health care system.” Despite Theranos’s reported $400 million in funding, there is also skepticism about the sophistication of its technology. Because of the company’s insistence on secrecy, its board, which resembles a presidential cabinet—it includes former secretary of state George Shultz, former secretary of defense William Perry, former head of the CDC William Foege, and former secretary of state Henry Kissinger—can defend Theranos’s technology only by asking for blind faith. Board member and former Senate Republican majority leader Bill Frist, who was a heart and lung transplant surgeon before entering politics, says, “I’ve seen their technology and systems up close. What they’ve been

able to do is create a proprietary platform that really is the lab of the future.” But it’s certainly possible other needle-free avenues into testing—from lasers to biosensors—could leapfrog those of Theranos. For a scientist, Holmes has a notable relationship with her faith, drawing on it when the weeks in the lab are long and the criticism is loud. “My belief in God has played a huge role in everything that I’ve done,” says Holmes, who brings up God multiple times throughout our discussion, although she won’t specify her faith. “When you don’t have anybody to talk to and when you’re going through something that’s hard and believing that you’re doing that because there’s something greater that’s going to come from it—that you can’t even understand—that gives you the strength to keep going.” Frist says the way Holmes sees it, Theranos is her deeper calling. “Her purpose in life is very much on a different plane,” he says. “For her, it’s a tunnel. She knows right where she is in the tunnel, and she is dedicated to running through it and not paying much attention to the rest of the world.” More recently, Holmes has tried dabbling with life outside the tunnel. She’s been speaking to groups of girls, encouraging them to excel academically. “This is just one of those areas where a glass ceiling shouldn’t exist,” she says of entrepreneurship. “We change this for the next generation by our actions.” This is a point she’s reminded of often, particularly when thinking about where she falls in history. “It was a long time after I started this company that I realized that there had not been a sole female founder-CEO of a multibillion-dollar health care or technology company,” Holmes says, incredulous. “I didn’t believe it. I still don’t believe it.” When it is noted that being “the only woman” can make for a very lonely career, Holmes, who typically has a long, winding answer for everything, replies with just a single word: “Yes.”

KIMBERLY WEISUL is an Inc. editor-at-large.

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DAME OF DRONES C O N T I N U E D F R O M PA G E 5 2

in December 2013, Jeff Bezos showed off his prototype “octocopter” delivery drone on 60 Minutes? Charlie Rose got so excited he nearly passed out. Greiner, however, was unimpressed, as were all those who’d heard her riff on the concept earlier that summer at TEDx Boston. But it’s coming, Charlie, and sooner than you think—a brave new world of ﬂying robots that will not just terrorize our enemies but also deliver our groceries, fetch the remote, and insure that nothing we humans do, whenever and wherever we do it, goes unrecorded. Cumulative spending on what the

industry calls unmanned aerial vehicles (UAVs) is projected to approach a staggering $100 billion over the next 10 years. According to the latest Mattermark report, 105 drone startups have so far raised $367.8 million in funding. But CyPhy has had a seven-year headstart. While most of that time Greiner has been in R&D mode, she’s finally unveiling its mad science: The PARC (persistent aerial reconnaissance and communications) is a tethered, military-grade surveillance drone designed to surpass the 20 minutes of battery power standard for drones. The PocketFlyer, an electronic hummingbird that fits in your pocket (as long as you’re wearing cargo pants, like Greiner does), is suitable for indoor reconnaissance flights in live-shooter situations. And the LVL 1 is CyPhy’s first foray into the consumer market.

Greiner initially bootstrapped CyPhy, and then raised $13.5 million in venture capital. (She won’t disclose revenue.) But now she’s applying her experimental whimsy to fundraising: Last spring she launched the LVL 1 with a Kickstarter campaign. It worked, more than tripling the $250,000 goal, while conﬁrming there is a vibrant market for familyfriendly drones at a price that Greiner says allows you to “buy without getting permission from your signiﬁcant other”—around $500. But the way Greiner sees it, we’re just at the beginning of the voyeur revolution. “It really is like computers in the late ’70s,” she says. “Yeah, they work and people are really excited to get them in their homes. But there’s so much more they could be doing.” Which is precisely my fear. —DAVID WHITFORD

FDA agreed to allow 23andMe and its competitors to resume marketing tests for autosomal-recessive diseases, which result when both parents carry an abnormal gene. The decision stopped well short of full regulatory sign-off, but it was a promising enough omen that 23andMe was able to raise a reported $79 million funding round in July that pushed the company’s valuation above $1 billion. As a ﬁrst-time entrepreneur, Wojcicki admits she’s learned the hard way not to tackle all the pieces of a complex undertaking simultaneously. “When I look back, pacing wasn’t our strength,” she says. “I have a much better sense now of how long it takes to build things.” Meanwhile, the challenges facing 23andMe have changed as it has grown. Initially, the mere idea of using home DNA kits as diagnostic tools was a tough sell for many in the medical community. “The whole direct-toconsumer thing was not, how shall we say, widely applauded,” recalls board

member Esther Dyson. These days, the real question is whether 23andMe can monetize the revolution it has helped usher in. Doing so, says Gartner biotech analyst Stephen Davies, will require forging still closer ties to big pharma firms—the lumbering giants whose inefficiency spurred Wojcicki to action in the first place. But Wojcicki’s not worried about turning into them—after all, she is her mother’s daughter. Medicine has already changed for good, she says, flashing the fitness trackers she wears religiously on her wrists. Turns out, it was the heart-rate data from one of them, not a lab test ordered by a physician, that recently helped Wojcicki, who elliptical-bikes to work most days, figure out she was anemic and not out of shape. “Your health care is no longer about the episodic visit to your doctor, where you have this once-a-year assessment of random vitals,” she says. “It’s about the continuous stream of you.”

T H E D NA W H I S P E R E R C O N T I N U E D F R O M PA G E 6 4

The outcome of those frantic conversations was a tactical retreat and a strategic regrouping. Conceding to the FDA’s demands, 23andMe immediately began working closely with the agency to hash out what it would take to resume selling its tests. Meanwhile, it orchestrated deals with Genentech and Pﬁzer, giving them access to parts of its DNA database in exchange for upfront payments and a cut of revenue from new drugs developed using it. The company announced plans to make its own therapeutics, hiring a former top Genentech scientist to lead the effort. In February, the

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—JEFF BERCOVICI

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MAKING ARCHITECTURE SMARTER C O N T I N U E D F R O M PA G E 6 9

namesake ﬁrm, creating beautiful, modular, sustainably designed prefab houses that mashed up the ideas of Charles and Ray Eames and tracthouse pioneer Joseph Eichler, leading Sierra magazine to hail her as the “Henry Ford of green homes.” Then came the aftershocks of the 2007 housing-market crash. Kaufmann had bought a factory and was holding, she says, millions in contracts for prefab homes, but suddenly “the people who were getting funding from the banks were just disappearing.” She had no choice but to sell her designs and move on. Her professional implosion “was so public,” she says. “My husband and I were crushed in all ways. Just drinking tequila.”

humane, technology-wired architecture. In 2012, she co-founded Flux to apply artiﬁcial intelligence and computer science “to help make thoughtfully designed, healthy, durable buildings accessible to everyone.” Kaufmann says the startup, the ﬁrst official company spun out from Google X (now part of parent company Alphabet), will enable architects and urban planners to tap the massive efficiencies of a software platform in a profession where “essentially each building is still designed and built from scratch.” Flux, which just closed a $30 million round, built software that Kaufmann says will adjust for everything—from zoning regulations to the angle of the sun to the size of a screw—in seconds. After getting Flux off the ground, Kaufmann started and now runs the R&D lab for Alphabet and Google’s new campus, which is set to break ground in 2018. She is collaborating with the project’s two architects, Bjarke Ingels and Thomas Heatherwick, using rapid prototyping and other product-design principles to develop new kinds of building materials and adaptive structures, like “a handkerchief [roof ] in the middle

Dream big, data.

“ My husband and I were crushed in all ways. Just drinking tequila.” Until, that is, she met Teller and Thrun. “They were looking at the world’s biggest problems and for audacious ways to solve them,” says Kaufmann, who had always been driven by the global need for affordable housing and more sustainable architecture. “One of the world’s biggest problems is buildings that create the most carbon, use the most energy, and are unhealthy for many people and not built with durable construction. And there are still so many people in the world who don’t have access to shelter.” Since joining forces with the Google X team in late 2010 as a consultant, Kaufmann has reemerged as a major force for sustainable,

[of a building] that can open and close and create energy.” That project has led to her involvement in the partnership between Alphabet and former Bloomberg CEO Dan Doctoroff—Sidewalk Labs, which is “applying ambitious Google-type thinking to improve how we design and build cities,” she explains. All of these ventures have the potential to change the lives of millions, a much larger scale than Kaufmann ever could have achieved had her ﬁrm survived the crash. “We’re using the buildings we’re designing to help unlock or disrupt technologies,” she says, “to make better design for more people.” —WILL BOURNE

OC TOBER 2015 - INC. - 149

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T H E K I N G O F S PA C A S T L E C O N T I N U E D F R O M PA G E 1 3 4

“I’m going to build a Spa Castle in every state,” he proclaimed. “Last will be the one in Anchorage, Alaska. The coldest area! Then we go abroad.”

SPA CASTLE PREMIER 57 opened its doors

weeks to get an inspector, State Assemblyman Kim says a two-month wait is not unheard of, especially for small businesses. “It’s not just him,” says Kim. “I’ve seen a lot of small businesses struggle to get the inspector to come out to give them the green light to open up. But two months for a small business is bankruptcy.” Chon knew this as well as anyone. After all, it had taken him nearly two years to get the green light to build his palace in Queens. But in Queens, the property belonged to him. In Manhattan, he was a renter. He’d already spent hundreds of thousands of dollars just to hold onto the space. If the Department of Health kept putting off the inspection, he’d eventually be forced to break his lease. “I couldn’t wait,” says Chon. So he gambled, just as he’d done so many times before. Even though he knew that some of his neighbors wanted him gone, even though he believed they would take advantage of any opportunity to get him in trouble, he went ahead and opened the spa without a pool permit. “It wasn’t the right thing to do,” says Stephanie Chon, his daughter and the company’s director of operations. “But we were pushed to the point where we lose money or maybe go bankrupt, or we open.” If Chon was worried about the possible repercussions, he didn’t show it. In November 2014, just before the spa’s grand opening, he strolled across the roof deck with his head held high, showing off the mineral pools infused with ginger, rose, and lavender. Standing there at the literal high point of the Spa Castle kingdom, he took in the majestic view of the Manhattan highrises all around him.

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in December 2014. By then, the Ritz lawsuit was already going less well than Chon had anticipated. A few days before the opening, a judge had tentatively sided with the Ritz, issuing an injunction that indeﬁnitely barred Chon from letting customers onto the roof. Chon had spent half a million dollars to build those pools. He vowed to appeal the decision and, if that didn’t work, he’d sue his own landlord for letting him build there in the ﬁrst place. One way or another, he’d come out on top. He always had, hadn’t he?

Premier 57 continued to operate its massage and treatment stations, which didn’t need Department of Health approval. But, by then, the department had discovered other violations. “They were throwing all the regulations at us—every little nitty-gritty, small, minute thing,” says Stephanie Chon. “There was no end in sight.” Now the authorities had Chon’s full attention. Chon and his daughter tried to make amends. They bought a wheelchair lift to meet the requirements of the Americans With Disabilities Act, and had the facility’s pipes coated in color-coded paint, per Department of Health instructions. They called the department and left messages begging for permission to reopen the pools, spas, and saunas. But no one called

“I’m going to build a Spa Castle in every state. Last will be the one in Anchorage, Alaska. The coldest area! Then we go abroad.” Two weeks later, a dead body turned up in one of the pools in Queens. As omens go, it could hardly have been more troublesome. And yet, to Chon, the death was nothing much to worry about. After all, the dead man, Hock Ma, was in his 80s. According to the city’s medical examiner, he had died of natural causes. It wasn’t Chon’s fault. It wasn’t his staff’s fault. It was an isolated incident. There was nothing anyone could have done. It could have been worse, he thought. It got worse. Just after Ma’s death, on January 13, the Department of Health shut down the pools and saunas in Chon’s new ﬂagship. The department said the closure didn’t have anything to do with the death. Chon’s crucial error, a Department of Health spokesperson said, was opening the Midtown location without permission. That kind of omission happens in New York City; the sin is getting caught. How did the Department of Health know? It received a tip from a concerned citizen, according to the spokesperson.

them back, they said, and they began to wonder whether the bureaucrats were screening their calls. They prevailed upon elected officials to write letters on their behalf. They hired a lobbyist to talk to the Department of Health. At one point, they went down to the department’s headquarters themselves and waited hours for the inspector to emerge. When he ﬁnally appeared, he told them exactly what they didn’t want to hear: Just keep waiting. But Spa Castle without pools and saunas was unlikely to attract big crowds. Attendance suffered. Chon had little choice but to shut the whole place down, and that’s what he did, in February. He laid off dozens of employees, telling them they’d get their jobs back whenever the spa reopened. Privately, he worried whether that day would ever come. When asked at that time to explain exactly what would happen if he didn’t get the Department of Health permit, he stared blankly for a moment before cracking an unexpected smile. “Then we’re fucked,” he said.

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Stymied, frustrated, and verging on panic, Chon began to nurse a theory that allowed him to avoid some of the blame for his predicament, at least in his own mind. He became convinced that a certain player in the Manhattan real estate world, a very successful one, was waging a secret battle outside the court system to keep his project shuttered. He had—still has— no hard proof, just hearsay from contacts inside the city government about the identity of the supposed enemy. But that didn’t make him any less real in Chon’s mind. And there were, demonstrably, powerful people allied against him as part of the Ritz lawsuit. “They think I am going to bring down the property values,” Chon scoffed. “You know, ‘Asian,’ whatever.” The lawyers for the Ritz declined to talk. Chon, meanwhile, could not stop talking. One day in late February, he dropped by Kim’s Queens office. According to Kim, he seemed to be ﬁxated on the idea that he had been wronged. Kim tried to encourage him to move on. “When I hear people constantly blame others, to me, that’s not thinking rationally,” Kim says. “I’ve never seen him at that point before. No matter how difficult it was, he always took it on the chin.” Chon, he said, seemed to be at “a breaking point.” FOR MONTHS, the spa remained shuttered and empty, its hot tubs drained, its fate unclear. Chon, who had been so eager to tell his tale, was suddenly unavailable to answer any questions about how things were progressing. Toward the end of March, he stopped returning calls. He was just too busy to talk, his publicist said. The months dragged on. And on. Then, on June 13, the New York blog Gothamist had the news: “Midtown Spa Castle Will Finally Reopen!” Shortly thereafter, Chon was at the Spa Castle Premier, dressed sharply in a dark blue suit. It was early, around 7:30 a.m., and the spa had not yet opened for the day. Sitting in a cushioned nook in the TV lounge, he said he’d learned a valuable lesson from his recent travails. After months of demanding a permit from the Depart-

ment of Health, he deployed a tactic reserved for the most dire situations— like when the Queens Spa Castle faced defeat. “I changed my tone,” he said. “I tried to be more polite.” Chon had personally appealed to the commissioner of the Department of Buildings to write a letter to the Department of Health on Spa Castle’s behalf. It worked. In May, the Department of Health allowed him to resume using every part of the facility except the roof, which was still off limits due to the judge’s injunction in the Ritz case. Then, a few days later, the judge vacated the injunction, permitting Chon to use the roof with the Department of Health’s approval. As of presstime, Chon was still trying to get that approval, but he expected it soon. The Ritz litigation was still unfolding, but Chon sounded more optimistic than he had in months. For the first time in a while, he could “see the hope,” he said. Chon still believed his enemies had somehow orchestrated the months of bureaucratic delays, but now, finally, he was ready to take Kim’s advice and move on to other things. Although not quite resolved, the Spa Castle Premier debacle had already begun to recede in Chon’s mind. What he wanted to talk about, as always, was the next big challenge. His architects are working on plans for a 291-acre, $250 million Spa Castle resort in the Pocono Mountains in Pennsylvania. It will have an indoor bowling alley and a runway for planes and gliders. There, too, he is encountering opposition from the locals. In fact, the approval process has already dragged on for five years. And yet, Chon is, true to form, completely confident that he’ll triumph—somehow. He is sure his opponents will come around. And if it looks like they won’t, he might even try being polite. “Come there,” he says, addressing his imaginary critics in the Poconos, his mind already in the mountains. “Enjoy the woods area, fresh air, nice facility. You know, relax.”

SAKI KNAFO is a freelance writer based in New York City.

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SEVEN-DIGIT SALES FUEL MILLION-DOLLAR FRANCHISES by Mark Henricks

Business gurus from Peter Drucker to Warren Buffett have stressed that strong sales alone won’t make a great business. Drucker’s mantra, for instance, held that the purpose of business is to create customers. Buffett wants companies he invests in to have consistent earnings, strong management, and an attractive return on equity. But it all starts with the top line, and without robust sales that overwhelm costs, no franchise can create customers or generate earnings for long.

Retro Fitness attracts fitness-minded consumers with a monthly fee of $19.99 along with features like group classes and child care that are more commonly associated with pricier memberships. “The Retro Fitness model appeals to most consumers regardless of the market because everyone is desperately seeking a health and wellness option in and around their home base that caters to both their fitness needs and pocketbooks,” said Jason Mattes, chief development officer of the New Jersey-based franchiser.

SealMaster of Sandusky, Ohio, is one franchise concept that measures up well against almost any standard of business excellence. The company’s franchisees manufacture and sell pavement sealer as well as related materials and equipment. The fact that it is a manufacturing business makes SealMaster unusual in the franchise world. Its financial results also help it to stand out. The company reports that of 23 SealMaster franchises in operation at least five years, annual sales averaged $5.2 million dollars, with a 42 percent average gross profit.

The top 10 percent of Retro Fitness franchises generate an average of $2.3 million in annual sales and $798,350 in EBITDA. Membership dues create predictable monthly income, while ancillary income from the Retro Blends Smoothie Bar, personal training, group classes, tanning, child sitting, and the Pro Shop boosts bottom line returns. The gyms are designed to be run by professional managers, and Mattes said most franchisees own multiple locations and are not actively involved in dayto-day operations.

Franchisees sell to a large and growing pool of public and private customers. In addition to the road-building and maintenance departments of federal, state, and local governments, the market consists of pavement maintenance contractors, property management companies, airports, and other entities that own or are responsible for maintaining pavement. In addition to the seven-ﬁgure sales potential, another factor that makes SealMaster stand out is the size of the territories it offers. The company plans to offer just 48 territories in the entire U.S. Some territories are as large as entire states. While that gives franchisees plenty of room, it limits the opportunities available for new investors. As things stand today, SealMaster has only about 15 territories left in the U.S.

Retro Fitness has 130 operating locations now, primarily on the East Coast. Target markets for expansion include recently opened markets in Chicago, Detroit, Los Angeles, Ft. Lauderdale, Orlando, Salt Lake City, Austin, Texas; Raleigh, North Carolina; and San Jose, California. Mattes said the franchiser anticipates expanding to 700 locations by 2020. No competitive endeavor as complex as business ownership can be reduced to a single factor, and generating strong revenues is just one part of successful franchising. But revenues provide a convenient and widely used method of measuring a business’s size, health, and ability to adequately reward employees, suppliers, lenders, and investors. And as these franchises show, when strong revenues pair with a solid concept, it makes a compelling competitive argument.

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How has the tech industry changed since you co-founded Cisco in 1984? I don’t see much actual technology today, which is disappointing. People think that because they have some new app, they’re the next Google. But Google had real technology; these people just aren’t that smart. In a mature marketplace, it takes so much more money, and you have a huge barrier to entry. When we started, it was possible for the best technology to win. I don’t think that’s true anymore.

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E X I T I N T E RV I E W

Sandy Lerner The pioneering co-founder of Cisco and founder of Urban Decay knows how to get mad as hell—constructively—about software, makeup, and, now, agriculture As told to SCOTT GERBER Photograph by MELISSA GOLDEN

You’ve started many different kinds of businesses. What’s the common thread? Generally, outrage. With Urban Decay, I was outraged that the large cosmetics companies were putting most women in a no-win box—it’s not about pink, or about looking like Christie Brinkley. And now, factory farming is a disgrace that appalls me. But you have to separate outrage from tantrum—and if you want to have a business, you have to have a real product that ﬁlls a real need.

BREAKING NEW GROUND “Work is my favorite four-letter word,” says Lerner, 60. She now runs a $7 million organic and humane farm in Virginia that covers more than 1,200 acres, as well as a restaurant and a market that sell her produce.

Farming is a particularly hard business to scale. What would you tell other entrepreneurs interested in organic agriculture? You can make a good living producing good food. But farming is the hardest thing I’ve ever done, mentally, physically, strategically, logistically. And you can’t get out of it—it’s extremely difficult to ﬁnd someone willing to take over a midsize farm, especially one devoted to maintaining humane treatment of the animals. So there is no exit strategy for farming.

SCAN THE PAGE TO WATCH SANDY LERNER DISCUSS WHY SHE REJECTS THE DESCRIPTION ENTREPRENEUR. (See page 8 for details.) For

the Founders Forum video with Inc.’s Scott Gerber, go to www.inc.com/founders-forum.

156 - INC. - OC TOBER 2015

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FOUNDERS FORUM

HAIR AND MAKEUP: MELISSA SCHWARTZ JONES/ZENOBIA AGENCY

What’s your opinion on the state of venture capital today? It’s a mess. I always think that a business is a much better thing when I don’t have to listen to anybody else, particularly when they’re wagging their wallet at me. But if your business is going to fail—which would have happened at Cisco if we hadn’t taken the money—you have to choose the devil you want to work with.

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