A Tale of Two Exits, Part 1

Lessons learned from my first (lousy) and second (great) CEO experiences

Hi there reader,

Thanks for taking some of your valuable time to ride down memory lane today. It’s been a couple of years since my last company was acquired and I’ve been fortunate enough to move into that quasi-retired, old-guy advisor role, which has been very enjoyable. I’ve worked with about 15 early/growth-stage companies thus far, mostly with first-time founders and/or CEOs with some very compelling and interesting businesses.

The frequent and engaging conversations that I’ve had with these next-gen leaders are the catalysts that got me started on this document. Shocker – it turns out that many of them are having to confront and solve the same types of problems and challenges that I (and so many others) have seen dozens or even hundreds of times throughout long careers. Upon some reflection, I realized that I handled many, if not most of these challenges very poorly in my first CEO gig, but often better in my second CEO go-round.

That got me thinking about the extreme contrast of results from my two CEO opportunities; both ended in acquisitions, but the exits could not have been more different. The first was arguably the worst of all time (WOAT, horrible on virtually all accounts), and the second was fantastic. The two situations had a lot of nuanced differences, but they also had a lot in common.

And one of the things in common was that they had the same CEO. I was the same guy in both places, right? The first time CEO and the second time CEO in this narrative were the same person who probably did the same things the same ways, right? Well – not so fast – with the wonderful benefit of hindsight, and full gratitude to Charles Darwin, it seems like there indeed may have been some CEO evolution along the way.

With this document, I’d like to share a first-hand perspective on some of more significant learnings, behaviors and perspectives that changed along my two CEO journeys. It’s certainly not an exhaustive list, and it’s obviously limited to my personal experiences. None of the points I will make are themes that I invented; they’re just the ones I experienced.

In retrospect, I was fortunate to have close-up encounters and extreme results that represented very opposite ends of the spectrum – the good and the bad/ugly – and I learned a lot from both. Your situation will undoubtedly be different, and you’ll need to know yourself very well to take advantage of some of my points.

But hopefully, this doc will help you discover a tidbit or two that will hasten your journey to the better end of the spectrum and also serve as an acknowledgement and thank you note to the many (you’ll know who you are) that helped me navigate mine.

Background

OK, here’s the Cliff Notes version, as this is a rather long doc. I spent a lot of time in the tech industry – started in 1980, so about 41 years until I put the pencil down as an operator (minus 2 for grad school, so let’s say 39 in the game). In the grand scheme of things, I was fortunate to see a lot and touch a lot of bases, but ultimately, I was a bit player during that era – I’m never going to be inducted to the Silicon Valley Hall-of-Fame, there are no books or podcasts, and my name is still largely unpronounceable to most.

I was a small cog in the very big tech wheel from the early 1980’s to the early 2020’s, and imperceptibly, along with thousands of others, helped the wheel to keep spinning a little bit. In those 39 or so years:

• I worked for a total of 10 companies

• They ranged from old and huge (IBM, HP), to very new and small (<5 employees)

• 5 of them were public, and 5 were private

• And I was able to work and live in Silicon Valley, Europe, Asia, Seattle, and New York

I was involved in 5 exits. That’s 5 out of 8 if you don’t count IBM or HP during my early years (for those of you who don’t read history books, they both used to be important in tech). In those exits:

• 2 were as a VP/CMO, reporting to the CEO – I was in the front seat, with one finger on the wheel, and had a pretty good view

• 1 was as co-founder/COO – a hand on the wheel along with the other founder/CEO

• 2 were as CEO – in the driver’s seat, both hands on the wheel

It’s those 2 as CEO where I lived through the amazingly stark exit contrasts. Both companies ended up being acquired – one for $1 (not a typo, that’s one George Washington), and one for $1.2 billion (that’s 12 million Benjamins for the mathletes out there).

In both cases I took over from a charismatic, visionary, energetic, genius, impulsive, mercurial, and controlling founder. They were both right out of central casting – and so was I, as the “professional manager” who came in to help them take the company to the promised land. They had all the initial ideas, vision and inspiration, and I apparently had a resume that allowed me the opportunity to help their company scale.

In my first CEO gig - let’s call it Drobo - why not, that was the name of the company, and you can easily figure that out anyway:

• I took over from the founder, a very smart, internally popular, and outspoken visionary who had gotten sideways with the board (tell me if you’ve heard this story before)

• We got off to a pretty good start after the CEO transition and were able to take the company from about $15m in revenue to about $40m in 2 years

• Along the way, I turned down an offer to sell the company for $250m, which would have been 6x return to investors. I thought we could do better.

• Then I skillfully led the company from $40m back to $20m in revenue - it’s not as easy as you think!

• Soon thereafter, the board decided to sell the company for whatever we could get – for a bunch of reasons, it was time to get out

• We hired a top-tier, brand-name, hall-of-fame banker, and proceeded to run a completely unsuccessful sale process – we had no bidders – zero – nada!

• And, ultimately, in a Shakespearian twist of fate, we ended up selling (more like “gifting”) the company back to the original founder for a buck - yes, the guy I replaced ended up replacing me!

• On the way out, I was asked to communicate that story to our employees and to fire myself in front of the entire organization. I’d just say that this redefined “rock bottom”.

• For a long time afterwards, I tried to rationalize that I had done most things the right way, and that several circumstances worked against us, but looking back now, I realize that I probably made every rookie mistake in the book!

In the second case (ServiceChannel):

• I again took over from a genius, charismatic, mercurial founder who ran into challenges with the board

• But, this time, we were able to take the company from $10m ARR to ~$100m ARR

• And we eventually were acquired by a large public company for $1.2B

• Our original investors made about a 13x return, and even though it was a pretty small company, we minted about 30 new millionaires among our employees, which was a great feeling.

So, what were the “big differences”? What was handled differently the second time around, and why did that matter?

I’ve tried to organize these into a “Top 10” list - there are undoubtedly more than that, but 10 seems to be the maximum for a list like this. And yeah, there’s some real Captain Obvious stuff in here – but sometimes you need to see it in writing for it to become obvious. Hopefully you’ll find that tidbit or two that will help, and if you happen to find that ALL of them apply to your current situation, run (don’t walk), to a nearby executive coach and/or therapist.

One last note before we get into it. There is a thing called Result Bias – whereby one tends to, in hindsight, judge a decision based on the outcome (an exit in this case) vs. an assessment of the quality of the decision at the time it was made. I am totally guilty of this – at least in this document. Even with this inherent bias, I think the items on the list are real and make sense.

OK, enjoy – these are presented in no particular order - with some color commentary below.

Lesson #1: If you’re “taking over” – embrace and honor the founder (as much as possible), and if you’re the founder, do the same with the new person

The first time around, I was extremely excited and enthusiastic for my upcoming role. So much so that I probably didn’t do enough diligence on the situation that I was being introduced to. I did know that the founder was no longer around but wasn’t fully aware of the circumstances until my first day. I guess a clue would have been that the board chairman and lead investor opted out of his commitment to introduce me to the company on that first day – I got a call on my way to the office – “I’m running behind this morning and can’t make it, but you got this - let me know how it goes”.

Well, I was greeted like the Red Sox at Yankee Stadium. First question – “why did the founder get fired?” Heck, I dunno. Second question – “What the hell makes you think you can do anything better here than he did, you don’t know anything!” Same answer as the first. It was a rough first day to say the least.

It turns out that the founder dismissal wasn’t pretty, was quite embarrassing, and left a long-lingering bad taste among everyone; the founder promptly started a new company in a very adjacent space and began (deftly I will say) undermining our company and poaching his previously hired top talent from under my nose. The board, getting wind of this, suggested that I go “see if you can re-habilitate the relationship, and maybe invite him back in as an advisor”.

Let me give you the spoiler alert on how that went - not well! We had created a very motivated adversary, and he performed quite admirably in that role. Side note – I am not blaming this (or the founder) at all for the ultimate failure of the company – that was on me, via an execution problem that I oversaw, combined with a blind spot on some emerging trends (“the cloud”, maybe you’ve heard of it?). But it certainly didn’t get us off on the right foot.

In my second CEO at-bat, the founder transition and replacement were no less difficult, but much more well thought-out and borderline graceful. In this situation, I was already on the board and fondly remembered my earlier voyage down this similar transition path.

This time, we “promoted” the founder to the board, and gave him a small, contained team and budget to continue innovating, semi-autonomously from the core company. I spoke with him every day, usually multiple times – picking his brain, listening to the ideas du jour, and absorbing the criticisms at how badly we were doing! It was not very easy – the ideas and critiques were myriad and fast-paced, the innovation playground quickly exceeded our budget without much to show, and his prior relationships and continuing conversations with customers often undermined our strategy and plans. But it was WAY, WAY, WAY better than my first situation – at least we were talking. I learned how to absorb some of the blows, most of the distractions were eventually handled, he wasn’t competing with us, if you listened hard enough, there were insights and learnings about the business that we never would have gotten without his involvement. Remember, there is always some “genius” in the founder DNA.

Eventually, we went on to raise another round of financing and structured the funding so that 50% of the proceeds were secondary for the founder and technical co-founder. He had built this company up from nothing, managed it for 15 years, and was now an active (if not contentious) board member. He deserved to get paid a big chunk, and we made sure he got taken care of. We then tethered his remaining (and sizeable) basket of stock options to his ongoing board participation so we could stay aligned for the remainder of the journey. The debates and criticisms never stopped, and bouts of antagonism emerged from time to time, but in the end it was worth it. The level of discomfort I faced here was not even close to the first time around when the founder was much more alienated and detached from the company.

By the way, I realize that this entire point may be lost on you if you’re not taking over from a founder or if you are indeed the founder – but maybe you can apply similar principles to the new leader that the board has brought in to “help you”. This shoe fits many scenarios.

LESSON LEARNED – Strive to understand, embrace, and learn from “the other guy”. Egos often discolor the relationship (at least initially) – but, at the end of the day, they are most often not your enemy, and there are likely to be tidbits of valuable insights along the way if you’re able to navigate this often uncomfortable partnership.

Lesson #2 - Uncomfortable Success is WAY better (and more comfortable) than Comfortable Failure

This might be a more generalized permutation of the first point above. In my first CEO gig, I tended to (non-voluntarily at the time), optimize my decisions to scenarios that made me more comfortable in my job, but not necessarily more successful.

• I tried to keep the founder out of my business – and ended up pushing him away in a non-productive manner

• I hired several people I already knew and had comfortably worked with in the past, even though they knew very little about this new business I was running and had almost no small company/startup skills – they were big company folks

• I was uncomfortable with conflict and tried to avoid it. So, I’d quickly sideline or defer any debates, disagreements, or arguments among my staff. I felt that the short-circuit alignment and faux-harmonious staff meetings without the contention would get us through.

• I didn’t hire any “difficult to manage” employees even if they had amazing track records. I didn’t want to deal with the headaches every day.

• We ran a very traditional, very conservative product/roadmap process – very incremental, very comfortable, lots of running plays (football analogy), without a ton of risk-taking (passing plays).

And there were more. I was wrong on all of these.

In the second gig:

• We kept the founder close and tethered to the business. It was very hard, and it was very uncomfortable, but it did add some positive nuggets along the way

• We ran some passing plays and took some risks that were definitely not incremental – we continually raised prices, changed our business model at least twice, started charging people for stuff that was free for over 15 years, etc. I thought some of these plays were crazy at the time, and for a while, we got yelled at a lot by our customers (uncomfortable!), but luckily our board and others around the table strongly encouraged and supported us, as they had seen many of these passing plays work in other companies.

• I had to get a lot more comfortable with my discomfort around the staff meetings and discussions – here, we had more than our fair share of debate, and it would swing in the direction of very contentious on occasion. I had to get a lot more comfortable in managing that balance – I was certainly not the best at it – but in the end, we worked through it, and the company ended up being stronger through the passionate exchanges.

LESSON LEARNED - Comfort rarely produces the outcome you’re looking for. Get uncomfortable and learn how to deal with it. Exhibit A in this area is teambuilding. Let’s double click on that in the next point in Part Two.

This concludes the first installment in the five part series: A Tale of Two Exits, by Tom Buiocchi. Part Two will be published in two weeks. In Part Two, Tom discusses his lessons regarding convenience hires vs the best hires, and customer segmentation.

About the Author

Tom Buiocchi has helped lead 5 companies to exits as CEO, founder, and marketing executive over a 30+ year career. Most recently, Tom was CEO of ServiceChannel, a company serving global retailers with a platform and marketplace for facility repair and maintenance. ServiceChannel was acquired for $1.2 billion in 2021.

Prior to ServiceChannel, Tom was the CEO of Drobo and served in marketing leadership roles at Brocade, Apex and HP among others. Tom has served on boards of venture-backed, private-equity, and non-profit enterprises and currently advises a wide range of early-stage start-up companies.

Tom holds an electrical engineering degree from Union College in Schenectady, NY, and an MBA from the Kellogg School at Northwestern University. To get in contact, please reach out to Tom on Linkedin.