December 1, 2011

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Con Wadsworth

Mark Tuffin




Utah Business Staff

December 1, 2011

We suffer a bit from all the successful companies here. There are exceptions, but they take too early an exit. What that means is the top two or three people make a lot of money, and they might go create another startup and that’s great. Whereas if you stay the course and go public, and you create 50 millionaires, now you have 50 people out there who have a positive experience and money to go and do it, so it grows much faster.

When you’re in the Bay Area, you see how many Oracle and Google millionaires there are, and all those people go start companies and start investing, whereas here the top two or three guys make money, but the rank and file don’t. That also creates an atmosphere where people devalue stock options. Usually, the number one negotiating issue is how many stock options am I getting. Here it’s like, “I don’t care about that. What’s your 401(k) like?”

THOMAS: A business gets an offer for $20 million—they’re out. We just helped one of our clients sell for exactly that number. It was two to three years earlier than she was expecting to sell her business, but the offer—I am not criticizing, because I don’t know that I wouldn’t have done exactly the same thing in the same situation—but there isn’t an attitude of, “This business can be a $100 million company, we’re going to stick it out and increase that value.”

I also see a lot of individuals who have a great licensing idea—something that is a product in a product line as opposed to a business. Entrepreneurs tend to get this idea of, “This is my baby, it can be $100 million, it’s the greatest thing since sliced bread,” but they don’t really understand the market, don’t really understand the customers that well, and have this grandiose idea that they can take this product to $100 million when the reality is either because of cost or because of the niche that it’s in, it’s maybe a $20 or $30 million idea, but it’s probably not a company.

It’s really hard to get people to not build a company around the idea. Let’s find a strategic partner to take it to market. Let’s do a licensing deal. Let’s do something else that makes sense. You’ve got a great product, a great idea, great technology, but this would fit as a plug-in to something that already exists. Let’s get a strategic investor and see where we go.

So is it an idea issue—we see that the idea isn’t big enough—or is there a financing problem here?

McNALLY: It’s situational with respect to the business. We sold our last company. I was one of the cofounders of Devex International, which we grew for 22 years, ultimately selling it for $84 million. We looked at that as an opportunity to cash out investors that had been incredibly patient with us. The markets we were serving were not nearly as large as the market opportunities that we serve now. We get to start over with a clean slate at Domain Surgical.

I look back on that experience and realize we took that company, in the constraints of the businesses that we were in, about as far as we could without fear of the upturns and downturns of the market punishing our shareholders. So we ended up delivering a great return for our shareholders.

Then I look at our new opportunity at Domain Surgical and the size of the markets that we are able to serve, and I think about it in the context of wanting to have as much time as possible to realize our vision for this business because we believe it can be a billion dollar business.

So it starts from the character of the business and the vision of the founders from the beginning. Some businesses are better off to be family-run businesses, private businesses that may some day be either legacy or sold. Other businesses are fast-track for the potential to be a public company or some other type of exit, but down the road.

GOODRICH: Utah is a great place to do business, and our infrastructure is improving dramatically. But having worked on both coasts and 15 years in the Bay Area as well, there’s an infrastructure that is very conducive to taking companies public. All the service providers have done it hundreds of times. We’re developing that infrastructure. It’s not here yet, but we are getting there. I’d say that the VC and funding environment has dramatically improved since I came back to Utah to run ProPay in 2000. So we are on the right track.

Our bigger problems are in Washington, D.C. If Washington would just go away a little bit, Utah would do great.

GARDNER: It’s great to see, as we have more and more of a spotlight on the economy and the woes of different states, how stellar Utah is in terms of the business climate, especially within the entrepreneurial realm. At the same time, having lived in that realm, it also can be very hard and stressful.

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