SSD Guest Blog | Let Your People Grow

Startup Advice from Three-time Entrepreneur Mike Brody

Today’s guest post was contributed by Exago. Exago is privately owned, self-funded and profitable. Exago has been providing Exago BI, its flagship business intelligence solution, to industry leading application software and service providers and their clients since 2006…  Learn more at exagoinc.com and follow Exago on Twitter at @Exagoinc

Exago CEO Mike Brody — wiry, dry-witted, sagacious in the dispensing of business advice — has been founding software companies since the early 1970s. He graduated from City College with a degree in Political Science in 1969, back when ARPANET was just starting to make the technological advances that would catalyze the Dot-Com Boom decades later.

Brody stumbled upon computer programming by happenstance, at a recruiting agent’s insistence that he would find it both interesting and lucrative. After developing a talent for COBOL at MetLife, Brody went on to co-found Stockholder Systems, Inc. (SSI), a shareholder recordkeeping application company. Later, in 1979, he built a stock option administration solution that became his second enterprise, CMS Transcentive, later bought out by Computershare.

Today, he and Stewart Meyers run Exago (est. 2006), a flourishing business intelligence software company headquartered in Shelton, CT. After more than 45 years in the field, Brody shows no signs of slowing down and waves off talk of retirement. “I really love leading this company,” he says, “and if I left, I wouldn’t be CEO anymore. I’d just be another old guy.”

Brody shares some of the lessons he’s learned from a lifetime of entrepreneurship in the tech sector.

Brand new startups often struggle to estimate their projected growth. How long did it take to get Exago business concept to first revenue? How long from first revenue to $500K in ARR and beyond?

The concept stage was very short. Between the three companies I started, I probably spent a combined total of fifteen minutes writing business plans, if that.

Exago started almost by accident. My original plan was to buy a product called World Records from Computershare and make Stew the CTO of the company, but that transaction fell through. So asked Stew if he wanted to create a system for administering cash compensation plans instead. He agreed, but after working on the project for a month-and-a-half or so, he came back with a counter-proposal. “Just hear me out,” he’d said. "I really think I can create an ad hoc reporting tool for end users.” So I said ok, why don't we do that.

Meanwhile, Computershare is having trouble running the reports people have been requesting. We brokered a deal, and they became our first client. We signed our first official contract a year later but didn’t hit our first $500K of ARR until 2011, five years after founding the company. Our first million came two years after that.

Eleven years in, Exago has grown but still has fewer than fifty employees. Would you call it a startup?

I think we act like a startup in that we’re fluid and able to respond quickly change, but I prefer to think of us as an entrepreneurial company.

To me, the difference between a startup and an entrepreneurial company is funding. Raising $20M to start your company is very different from self-funding it, which is what we did with Exago. At the head of an entrepreneurial company, you're always thinking about growth, and it's a relatively high rate of growth. Conversely, if you raise startup capital, you begin with things like a marketing department and a sales department and so on. When you're self-funding, you don’t have that luxury. Instead, you've got fifteen people wearing different hats all the time, and you have to be much more careful about how you spend money.

My advice to entrepreneurs just starting out is to think twice about pursuing VC capital. It’s time-consuming, and accepting VC money usually means you’re losing a lot of control right from the beginning. I strongly recommend looking for angel investors instead; they rarely even end up on your board.

What’s something you now know about founding software companies that you didn’t know when you were first getting your start?

The first thing is — and I think this is where most CEOs are weakest when they start out — is understanding finance. You should really have a good grip on how to do a budget and understand it’s not to constrain yourself but to facilitate growth. I learned that back at Transcentive, and I think that if I’d known it sooner, we’d have grown faster than we did.

The other thing — and this I learned recently at Exago — is that to really grow a company, you have to pay close attention to hiring self-motivated people with a high drive for success. You can't afford to stand over your employees’ shoulders, so fill your company with enterprising individuals. Keep out of people's hair and let them do their thing. It's crucial to let people grow.

Of course, the flip side of that is firing, which is the hardest thing you’ll have to do as a CEO. It's just brutal, but it’s detrimental not to do it when it needs to be done. Everybody knows when someone’s not pulling their weight, and they’ll begin to wonder why nothing is being done about it. They’re the ones picking up the slack. But it’s so common when you start out to promote a hardworking salesperson all the way to VP of Sales only to one day discover that they’re not VP of anything — they're barely managers. How do you address that? Getting the right people and nurturing them is critical.

Stewart Meyers is Exago, Inc.’s cofounder, and the cofounder relationship can be deceptively challenging to navigate. What advice do you have for cofounders just getting their start?

My advice? Cofound your company with Stew.

In all seriousness though, you should go into it with a good feeling. If you go into the relationship being unsure of your cofounder, that's a prescription for disaster.

It’s also really important for you and your cofounder to have different spheres of interest. I, for example, have no interest in steering the technology side of the company, so it's not like there's ever any conflict about that. That's 100% Stew's bailiwick. And Stew's really not interested in the business side, though he’s gotten more interested over time. The more your interests overlap, the more likely you will be to lock horns at some point. Stew and I get frustrated at business problems, not each other.

What is your philosophy for developing talent at Exago? How do you encourage employees to grow and realize their potential?

Communicate. As much as possible. Have company meetings as much as your finances will allow so that you can get everybody together in the same room and tell them about the direction of the company, how they fit into that picture, and what their responsibilities are. When I kick off a company meeting by reminding people that they can be their own CEOs, I mean it. As a CEO, you're going to make mistakes, and that's ok; but the idea that you're in control of your fate should give you a foundation for making decisions.

Another thing to communicate to your employees is that they don’t succeed at the expense of other people. At least not in the companies I like to deal with.

A few years ago, Y Combinator’s Paul Graham coined the term “trough of sorrow” to refer to the struggle that ensues when startups lose their momentum post-launch and face the possibility of collapse. Have you ever experienced the trough of sorrow? If so, what tactics did you employ in leading your company through it?

Yes, I experienced the Trough of Sorrow once with Exago and once at Transcentive. At Exago, it was early on — just Stew and me — and we were using some Microsoft product to do something, I don’t remember what. We were running tests on the software and kept coming up with erratic results. Just when we thought we’d solved the problem, there’d be another error. I was running tests late one night and remember throwing my pen at the wall, ink going all over the place. I was so frustrated. We didn't know what the hell to do. In the end, we ended up yanking the MS product, and Stew just wrote the code himself. But it seemed like we'd never get this thing done. We just decided we’d figure something out to do, get through it somehow.

The Trancentive trough was different, though. We had maybe 20 employees at the time and had started to lose business. We cut down to about 6 or 7 people on payroll. On top of that, my dad became sick with cancer. At one point, I got stuck at a client meeting in Atlanta while my son, who was three at the time, flew down to Florida to be with my father. I remember standing up there talking to people at this meeting and thinking I'd just like to get the hell out of here. But I stayed, and then I caught my flight to Florida. I just told myself and the company that one way or another, we’d find a way to through it. After my dad passed away, I spent a lot of time selling and sitting alone in airports, working to keep the company afloat. It was hard, but we made it somehow.

What are the top three software products Exago uses daily and could not function without?

To me, the number-one thing is probably QuickBooks. Act-On and LinkedIn follow, probably in that order. Company-wide, I’d say Zendesk, Salesforce, and JIRA are the top products. Without Zendesk, it would be really hard to support our clients. Without Salesforce, it'd be hard to get new clients. They're equally important, I think.

What are the top challenges you face in running the company today, and what is your method of dealing with them?

The top challenge is continually looking at the business’s organizational structure to make sure that the pieces fit together and that people are growing. This year, we moved four people from Support into totally new positions that we never had before. So that's a big challenge — how do you fill those roles? One thing I’ve learned is to hire internally, if at all possible. Resumés can be really tricky, and company culture is enormously tricky, so if you can fill vacant roles with internal people who have already proven themselves, do it. It can also be challenging to find people who are willing to fill roles for which there is no precedent; most people are sort of intimidated by that lack of structure.

Learning to respond quickly to negative changes and pressures has also been challenging. But it's just so much fun, you know? Every call, every email is another opportunity. There's just something singular about being CEO of a company, having that ultimate responsibility, especially if you started the company. It’s just exciting.

Jennifer Carl is the Director of Software & Services Division Programs. Follow the Software team on Twitter at @SIIASoftware @SIIAJennifer