Welcome, sir.
Thanks, Joe.
Dave, before you started Florida Funders and then SeedFunders, and became a startup investor, you were a successful entrepreneur yourself. I thought we might talk about some of the lessons you’ve learned and provide some advice to the entrepreneurs out there.
My pleasure. Where do you want to start?
Did you always plan on being an entrepreneur?
Starting a business was not something most people thought of where I grew up in town of Monessen in Pennsylvania. It was a small, steel town south of Pittsburgh. And everyone’s dad worked in the Mill. It was largely settled by first generation immigrants. They were Italian, German, Polish, Slovak, Finnish, Croatian. They were all very hard workers, but outside of a few Italian markets and a Chinese laundry believe it or not, there just wasn’t a lot of entrepreneurship. A lot of my classmates stayed there and worked in the steel mill. Entrepreneurship wasn’t something I thought about back then.
But, you didn’t go for the steel mill.
Actually, I did. But it was only for two summers when I was in college at Pitt. My dad worked there for 40 years. He insisted I go to college, and not end up in the steel mill. But twice, he was able to get me a summer job there. Probably just to show me the lifestyle that he didn’t want me to be living. One side note here by the way, my dad did have some entrepreneurial spirit in him. He took a correspondence course, that’s really an old term now. He took a correspondence course, and learned how to fix TVs. He did have a lot of work, but he told me he could never leave the security of a paycheck from US Steel.
You went to Pitt. Did you major in entrepreneurship?
There was no such thing back then. Entrepreneurship was not really even considered a subject people studied, but I did major in engineering. I thought, if I did want to go off on my own, engineering would be a good field, where I can become a consultant or go out on my own and start my own business. Eventually, that is what I did. My first company was an engineering company. It was called of course, Chitester Management.
And you started that right out of college.
No, I knew I needed a lot of experience first. So, I worked for some large companies like Bacto & Blunt and smaller companies as well. It was all geared towards learning enough before I decided whether I wanted to go out on my own or not. I was actually 38 when I started Chitester Management. I’ve been unemployable ever since.
What do you mean by unemployable?
Once you do it, and you go out on your own, it’s hard and for me, impossible to go back and become an employee of someone else. I talked before about my pyramid of success. One of the four characteristics that make up the foundation is passion. One thing I would tell entrepreneurs, if you are really thinking about starting your company, you need that passion. You have to realize at that time, “There is no turning back. This is it.” You may never be happy working for someone again. Now you have to be all in. There’s no testing the waters, no, “Let me try this.” You need total commitment.
But you worked as an engineer for a while, to get that experience. How important is that industry experience?
I think experience is the most important part of being a successful entrepreneur. I know I said passion is important, but passion for something without any experience really rings hollow to me. For example, if someone comes to SeedFunders with a new app for hiring employees, but never worked in a HR department or for Indeed or Monster, it would be difficult for me to believe that they’re passionate about it. It seems more like they might have thought of it as a good idea, and want to see if it will fly. But it’s always best to get a job in the industry first, and see if the passion is there. See if you’re in the industry, you’re working in this industry, do you still have that passion or it’s just a fleeting thing that’s going by? You have to do that before going all in.
Passion and experience is all you need to be an entrepreneur. Sounds easy.
There’s a lot more. Another characteristic at the base of my pyramid for success is perseverance. For example, when I started Chitester Management, here is the story. Hillsborough County’s engineering department was our big client. They’d take a while to pay. So, we didn’t have the funds to make payroll while we waited for payment from the county. I went to our bank, and they agreed to factor the county invoices. Basically, we send invoices out on Monday. The bank would give us 80% of the amount on Tuesday. And we’d make payroll on Wednesday. That was expensive, but you’ve got to do what you’ve got to do. You’ve got to persevere. You’ve got to do everything you can do to be successful. Perseverance is one.
The Tampa Trip by the way wrote a huge article on how much the county was paying Chitester Management for outsourced engineering. They said the county employees should be doing that. Believe it or not, we lost all the work, because the county now thought they looked bad, because we were doing all their work. We had to lay off a bunch of people when it was difficult. But again, you’ve got to persevere or you’ve got to keep going.
What ultimately happened to Chitester Management? Did it go out of business?
No, we persevered. We managed to bring in another large client. It was an insurance company – a very large project outside of Atlanta. It was actually carpet mill that burned down. We had to testify in a lawsuit that was of over $1 billion. Basically, it lasted three or four years. We made decent profit, but you know what happened, “I was the star witness on that. After that, I completely lost my passion for the business.” We built up for two or three, four years. I did the expert witness testimony. I came home and said, “That’s it. I’m done. I lost my passion.” I got the, “Been there, done that,” feeling. When that happens, it’s all over. At the time, I felt I had a better idea, moving into technology rather than hourly billings. I started my next company already Red Vector. That provided online education to engineers, architects and contractors.
Is that when you sold Chitester Management?
Not exactly. I actually retired from that, and I brought in my brother Tim, as president. He also went to Pitt. He also got an engineering degree. He also worked for large engineering firms such as Bacto & Sterner Webster. He ran it for five years. Then he came to me one day and said a competitor had approached him about buying the company. It was a public company from New Jersey. Had about 100 officers around the world, but they had no significant presence in Florida. We negotiated what’s called a strategic buy. That’s an important lesson for entrepreneurs here; a strategic purchase versus a financial purchase. A strategic purchase is when the company wants to buy your company to fold you into their products or services. And add value to their existing products and services. Financial purchases, when they would say, if we invest this amount of money, we can get a return of this amount in the future years. There’s a huge difference between those two; a strategic purchase versus a financial purchase. Basically, the strategic purchase is much more valuable to the entrepreneur, because people pay a lot more money, because it’s not just financial. At the end of that, we ended up with – I would say – at least double what we would have got had it just been a financial purchase, by making it a strategic purchase.
That’s great. And in the meantime, you said you had started another company, Red Vector.
Yes, one of the services Chitester Management offered was live seminars for engineers, architects, and contractors when they needed continuing education credits to renew their license. This was very labor-intensive, costly and certainly not scalable. My wife Kathleen and I would travel around the country. We would joke that we were just money laundering. Because the time we went somewhere, all the revenue got from the seminars went right out the door to the hotels, rent-a-car companies, the airlines. And we ended up with nothing. It wasn’t scalable. We weren’t making any money. One day I was flying back from us on Sunday night after a weekend seminar in Albuquerque and it hit me, “Why not put all these educational material on the internet so everyone could access it without travel? Then we would travel for me or them. Then we could resell it over and over. Again, that’s the next lesson – scalable technology.
That seems pretty common. Aren’t a lot of companies already doing that?
No, this was 1999. And no one was doing it. Another lesson for entrepreneurs. Get ahead of the curve. That might be the most difficult thing. When you accomplish, when you’re a new company, you’re a startup, how do you get ahead of the curve? The courses at Chitester Management were approved for continuing education by various boards and relative states. So, I just basically put them on the internet through Red Vector. And, it caused a huge backlash. It was a huge backlash of competitors saying what we’re doing is not legal. It’s not right, because we were ahead of the curve. They were still going to hotels and doing seminars. I was actually called to Tallahassee to justify in front of various boards: construction industry licensing board and others. To justify what we were doing, because we were so far ahead of the curve. Eventually, we were approved. And no one had to go to hotels and get their continuing education anymore. And everyone lived happily ever after.
Sounds like you really met a market need.
Well, there is another lesson for entrepreneurs. You need to have a product that solves a problem. We changed the way people were doing things. We charge the same price as live seminars, but we eliminate all the travel requirements, and all the cost and all the time. That is a critical lesson. Basically, you have to solve a problem. If you’re not solving a problem, there’s very little chance that you’re going to succeed.
Then how do you exit Red Vector?
In 2003, I brought in Tom Wallace as CEO. I’m a startup guy. Red Vector now needed to concentrate on operations. Again, another lesson for entrepreneurs, “Know your limitations.” As I said, I’m a startup guy. It now needed basically, somebody to move it forward through operations. So, Tom built it up. We got an offer a few years later from a VC in Tampa, Stonehenge and I sold controlling interests. It was a series A round. A few years after that Stonehenge came in with a series B round. And I sold my final interest in the series B. I probably sold too early. Eventually, three or four private equity firms took control. They changed the name to Vector Learning. They purchased additional companies. They put a lot of money in. They went on a buying spree. The last I heard, it sold for over $500 million about four years ago. Someday I can say maybe I started a unicorn, but the lesson here is, “Don’t be greedy.” When you see there’s an exit, you might as well take it.
That’s great, any final thoughts.
Maybe, I can just summarize the lessons learned here. First of all, you have to have the passion. You need industry experience. Perseverance is essential. Strategic investor is preferable. Scalable technology is the key. Get ahead of the curve. Meet a market need that solves the problem. Know your limitations and don’t be greedy.
Dave, when you started making lists, it’s top 10. That’s only nine. Don’t leave me hanging.
Okay, there is one more. Have fun.
