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Here’s the program.
Andrew: Hi everyone, my name is Andrew Warner. I’m the founder of mixergy.com, home of the ambitious upstart and the place you come to every day of course so you can listen to stories from successful entrepreneurs about how they built their businesses.
So how does a first-time entrepreneur end up building two companies that each sell for over $100 million? Joining me today is John Georges. In 1996, he co-founded LGC Wireless, which offered indoor networking and sold in 2007 for about $170 million. In 2001, he launched NextG Networks, which offered aesthetically pleasing antennae to the cell phone industry and sold 61% of it in 2009 for $360 million. John, welcome to Mixergy.
John: Thank you.
Andrew: I was trying to sum up two businesses in three words. How did do with the summary of what the businesses did?
John: In terms of the technology?
Andrew: Yeah, what did I say for NextG, I said aesthetically pleasing antennae to the cell phone industry.
Andrew: Actually, maybe you can describe it. How would somebody listening to us right now, who’s driving in his car maybe, come across something that you created over at NextG?
John: Well, many years ago we predicted the explosion of handsets and data over smartphones and mobile data, and we knew then, with my engineering background at least, that the network was not sufficient to handle a growing demand in data, plus the growing demand in voice.
So really what these two companies focused on was how to create mobile cellular technology that will allow the operators like Verizon and Sprint and others to be able to handle the voice and the data. So in-building was the first company you mentioned, LGC. We were a little bit early as most entrepreneurs are, which is actually a good thing, it’s better than being late. Just not too early.
That was more of an indoor mobile where you create small cell sites out of a building and then NextG was more of an outdoor model where you hang things on existing utility poles and lamp posts to create a cell site as opposed to the ugly towers that people see in their backyards.
Andrew: That’s what I was trying to get at with that aesthetically pleasing because I kept as I was researching you, coming across articles about how it wasn’t a blight on the neighborhood, that community groups weren’t up in arms when this went up and at the same time it helped the cell phones companies complete their coverage because they needed to have some antennae in the pockets where they couldn’t build up these big cell towers. Of the two of them, which one was the bigger personal win?
John: I think the second one. I think you get more seasoned with trying this a number of times. The first one I was actually as an entrepreneur very technically focused. I wasn’t focused necessarily on the market, I wasn’t focused necessarily on the investment, I just wanted to have fun and create a new technology, which we did.
I think I got a little bit wiser after the first company, so the second company we used all of the efforts and everything that we’d learned in our first company to create a much more successful second company?
Andrew: Do you still own a piece of NextG Networks?
John: Yes, I do. I’m also on the board there.
Andrew: You are.
Andrew: Roughly, what size of the business do you still own?
John: It’s an ongoing concern. It’s a private company, but a substantial piece enough that it keeps the golden handcuffs on to make sure that it’s successful, even though a majority of it was purchased as you mentioned by a private equity group.
Andrew: This is Madison-Dearborn Partners?
John: Madison-Dearborn and Excel, which is a very well-known VC that actually is one of the early investors in Facebook and Madison Dearborn out of Chicago, which is a traditional private equity firm. So the combination of those two saw a lot of tremendous value in the business and then purchased it in 2009.
Andrew: Did they buy any of your shares too, a significant portion?
John: Oh yes.
Andrew: They did?
John: Yes, I recommend to all entrepreneurs that typically I’ve seen many mistakes occur when they hold out for a higher number and there’s an old saying, “pigs get fat and hogs get slaughtered.” My view is that if an entrepreneur, if they start out with no money, they should always try to take a little bit of money off the table. It’s just the smart thing to do. I believed in the company enough, I wasn’t going to run it anymore because we sold the majority stake, but I took enough off the table to create the lifestyle that I had wanted and that I had earned, but I also rolled over a significant amount so that the company continues to prosper and it keeps me involved.
Andrew: I see. So you still own a piece of it, you sold a piece of it, the majority of your ownership though you still have.
John: The majority of my ownership I actually took out, and I still own a significant, but not majority piece that I rolled over back into the business.
Andrew: I see. All right. So let’s go back in time and hear the story of how you got here now that we have a good sense of where you are and what you’ve built. Before we go back and find out how you got here. The day you sold, what did that day feel like?
John: It’s interesting you mentioned that. Typically the day becomes more like months, because the selling process, entrepreneurs think that it occurs in one day. I guess the actual final day when it was signed and then all of the proceeds get transferred to the shareholders. It’s a great day. I almost feel as though a load was lifted off my shoulders, that I finally had arrived. But it was a long haul, so it was bittersweet in the sense that it’s not your company anymore when you sell it, right? When you don’t own it, but you’re thankful because someone saw enough value in it and shareholders got their return. That was my biggest kick is that a lot of employees and a lot of investors and shareholders as a whole made an excellent return for their money.
Andrew: I understand the feeling of arrival. Was there also a feeling of safety or did you have that before then?
John: A feeling of safety relative to the sale?
Andrew: Yes. A lot of times a lot of venture capitalists who I’ve interviewed will say that they want entrepreneurs to take some money off the table so that they’re not worried about the rent, so they’re not worried about what they’re families are going to do and where they’re kids would go to school. Were you in a situation where you needed and wanted that safety or was it not an issue at that point?
John: No, it wasn’t an issue because we had competitive offers for the company, which is always a good thing. In order to keep everybody honest you run a competitive process. I could not encourage that more, although you have to be careful because you don’t want to scare away people. By running a competitive process they may think that prices become too inflated. We basically ran what I would call a competitive process and I think that originally we wanted to have an investment into the company so that we can continue to grow it and take a little bit of money off of the table, but then someone made us an offer we couldn’t refuse and cashed out most of our proceeds, but still rolled over a significant amount. I would say that is a concern and I’m glad that you’re telling me that venture capitalists now see that. Back in old days I guess, in the ’90s, cashing out was a very rare thing.
Andrew: The person who I’m thinking of is Mark Schuster who says he likes his entrepreneurs to be able to take a little off the table so that they’re not worried financially, not having that pressure on them. It frees them up to have a little more creativity and to fight harder. Let’s come back to this day, but we’ll start off with the original idea. This was 1996. I think you were working for, actually what were you doing just before LGC Wireless?
John: Well, I had come to California from New York. I was born and raised in New York and I went to Berkeley, that was my reason I arrived in California. I graduated with my Ph.D. in Electrical Engineering in 1994. In 1995, actually I was still working for the university teaching various courses, students, undergrad courses, helping my adviser. That’s really what I was doing and I knew I wanted to be an entrepreneur so in ’96 I would say we got the idea and we incorporated, but really ’97 is when the company got rolling.
Andrew: Were you working for a while at Bell Communications Research or do I have my research wrong?
John: No, your research is dead-on. I started my career as a technician. I was going to school. I couldn’t afford to pay for schooling. Bell Communications Research, which was kind of an outspin of Bell Labs after the divestiture occurred for those of you who are old enough to remember when the operating companies used to be one operating company, Ma Bell they called it, or AT&T. After the divestiture Bell Corp was Bell Labs effectively of the various operating companies. I got a job, a very lucky job frankly, as a staff technician and while I was a technician during the daytime Bell Communications or Bell Corp paid my way through school.
Andrew: I see. Hey, let me ask you this, something that you said earlier before the interview started just stuck in my head and I was trying to find a way to bring it up in this interview. When we were talking about how to move Skype around you said, I’m not a very technical person around like how to move Skype. Meanwhile, you’re an engineer, a lot of the technology that we’re going to be talking about in this interview frankly it intimidates me a little bit. I don’t know this stuff. I don’t touch it every day. I’m not familiar with it. How do you explain that? On the one hand the Skype thing, you don’t feel fully on top of or you say that you’re not a technical person or used some word like that. On the other hand, you’re building up antennae that the rest of us depend on for our phone service.
John: That’s a good question. Well, I’m 45 years old, Andy, and by that standard I’m an old geezer compared to the young entrepreneurs of today. I’m more of a phone guy. I pick up the phone, I like to call people. That’s another thing I emphasize for all this computer technology where people have meetings over the computer. I have to see it face-to-face. Compared to a teenager that can text at a hundred miles an hour and someone that can just click a button and call up Skype and have it all work, for some reason sometimes computers and I just don’t agree. I think one day when they make the Mac voice activated where they can just turn on and know exactly what I’m thinking that’s when I’ll really love them.
Andrew: So how involved are you in the technology of the companies that we’re going to be talking about?
John: I’m still very involved in NextG, but in LGC again was sold.
Andrew: I’m sorry, how involved were you as you were building up the companies and the technology part of it?
John: I have a blog that talks about this and I’m not sure if you want me to reference it later or not, but I’m an engineer so I started out doing the engineering, but someone has to sell, someone has to go out and sell the product, so between myself and my co-found Dave Cutrer who is technically much brighter than I am, I chose the role of going out there for the first time in my life and doing sales. I learned as I went and that’s what most entrepreneurs do.
Andrew: All right. Let’s come back to sales and hear about it as we go. I’ve got to reassure you that even though I use Skype every single day to do these interviews, I had to call you up on your cell phone and apologize and tell you that I was having Skype issues today and needed to restart my system and clean it out, so thanks for understanding.
John: That was reassuring that you called me.
Andrew: And that I needed the phone because the computer wasn’t operating the way it should. So what was the original idea behind LGC Wireless?
John: At the time wireless was taking off, the subscribers in the country were not where they’re at now, they were at much lower penetration levels and we thought that operators like Verizon and AT&T and others were not going to be able to reach everywhere and people wanted better cell phone coverage. Back in those days, ’96, ’97, the reception was still bad. Basic reception, not even doing all this smartphone data things and really it’s still kind of poor in some areas. We said, hey, in Manhattan and places in big cities, buildings are even worse than some places outside, so we said why don’t we invent a product that provides good cell phone reception inside of buildings so people can use their phone not only outside, but also at work, not only in their car, but also at work.
Andrew: And were the end-users buying it or their companies buying it or was this the cell companies that were buying the devices?
John: Our two companies always sell to the cellular operators, the ones that are building these networks for us to enjoy the services that we currently enjoy.
Andrew: So the first product, was it called LG Cell?
John: Yes, very good.
Andrew: What is the LG Cell?
John: That’s a blast from the past. The LG Cell is essentially making a building into a cell site. You see towers alongside a road. Essentially we made buildings into towers by placing small, unobtrusive antennae inside of a building so that users in the building, especially tall buildings and skyscrapers and others and malls and whatnot have excellent cell phone reception so they can use that as their sole phone, which was the demand at that time. Hey, just get me good voice quality. The operators did deploy a lot of those, they’re employing even more now, that’s why I referenced try not to be too early in the market, but it’s better than being late. They’re deploying more now simply for a different reason, not just for cell phone reception, but also because of the data demand, they need to divide up their spectrum if you will, I don’t want to get too technical. They need to create smaller and smaller cells.
Andrew: So the idea was, we lost you just for a moment as you were explaining it, inside a building there wasn’t enough cell reception.
Andrew: Users and customers inside the building wanted to be able to pick up the phone and call someone and have the reception. LG Cell essentially made the whole building essentially into a cell tower that would give people access to their phones.
John: Exactly, and it created a situation where in that building you can now replace your land line phone at work, which was unheard of at the time because people always relied on their work number.
John: And more and more as you can see, people just have one number and that number is their cell number.
Andrew: Okay. So, did you guys develop this inside? Where was it developed?
John: It was developed in the earlier days inside of a small office in downtown Berkley where we had graduated. We had rented an office and funded it frankly ourselves with credit card cash advances.
Andrew: Wow. So you’re funding it with credit card advances. You’re building the equipment inside to test it.
Andrew: When you finally have it up and running its, how long does it take you to actually have a working version?
John: I think from the day that we started to the day that we finished, we had a prototype in about nine months.
Andrew: Nine months?
John: Yes, and we had to sell that prototype, which was all banged up and scratched up, we had to sell that prototype in order to continue to fund the business, which we did.
Andrew: And this is just you and David at the time?
John: Yes, just David and I and then quickly we had two more people join us that were very influential in the business.
Andrew: So when you build it and it’s time to sell this first prototype so that you can have money to build the rest of the business, how do find the customer for the prototype?
John: Well, that’s where I kick it into sales gear because we were operating in a vacuum. We knew absolutely no one and this is what an entrepreneur has to do when he’s starting from scratch with no money. It just is what it is. You have to pick yourself up, bootstrap and get out there and try to make things happen. We started cold-calling and we found that after a few weeks of not being successful cold-calling, because cold-calling usually does not work, we found someone in the industry who that was able to connect us with the right people and that led to some good connections with technology people at the operators that said they had an interest in the product.
Andrew: Who’s the person, I mean what was his role?
John: The role of the customer side?
Andrew: The person that made the introduction. I’m wondering who is this person that he can shepherd you in?
John: You’d be amazed how many people come in and out of these companies and I think just being connected two, three levels removed, now things are easier to get connected through LinkedIn and Facebook and other media, but back then it’s talking to people once or twice removed that used to work there that can make the introduction.
Andrew: All right. So they made the introduction and then you still have to go through the cell companies and get the customer.
Andrew: That’s another thing. I just interviewed a founder recently who said it took him a year to get his software onto the mobile phones. A year just for software. Here you’ve got hardware that’s new from a company that’s just starting out. How do you work your way toward the person who’s going to say, yeah lets do it?
John: Sell it. Selling to cellular operators is extremely difficult. I’m not saying that it’s more difficult than other areas, because I’m not as familiar, but yes, they have a very high bar for you to enter and for them to spend time on it, so I think getting to the right technical people I think we were fortunate. Sometimes it’s better to be lucky than smart.
Andrew: So you were just talking to everyone and you happened to hit on the right person and that person was in the technical area, not procurement inside the business.
John: No, always typically the technology folks at the operators are the ones that look at your product and then make recommendations to use it or not use it.
Andrew: When you were in sales mode for the very first time for your own business, how did you do it? What do you remember that you did that you’re kind of impressed by even looking back now?
John: I think looking back I’m surprised anybody picked up my call.
Andrew: It sounds like they didn’t. The cold-calling didn’t work.
John: I think I had a thick New York accent and I think most people rejected me, but after three or four tries on getting to the right person just to speak to that person. I think just essentially being genuine, explaining what you have and if there’s an interest and we believed that there was an interest in our gut, which was all wrong. The approach was wrong. We should always do market research first, not technology trying to find a home, but we eventually got to the right person through luck and it turned out that they had a need.
Andrew: All right. So they bought the first one. What’s the feedback that they gave you on it that sent you back in to improve the next one?
John: I think they wanted to beat it around. They actually put it in their own facility, in their own offices so they really beat the heck out of it and test it. They had, I would say, pages and pages of feedback as did other customers.
Andrew: So you had other customers after you put this in place.
John: Yes, because we sold the prototype unit and that allowed us to make another two or three prototype units, which we then distributed and found over a period of many months to other customers.
Andrew: So how did you find the other customers?
John: I guess this is where my Queens, New York street smart attitude comes in. Once they found out that a competitor had this product and they were trying it out it was a little bit easier to get the technology folks at the other cellular operators.
Andrew: So you’re saying that once you get one customer it’s a lot easier to get others to try what their competitors are trying?
John: Yes. I think you have to create that friendly competition.
Andrew: So then essentially by the first or third one you had a profitable business on your hands?
John: Well, profitable in the sense that we were able to live another day.
John: Before we went out for venture capital money.
Andrew: What was it like looking for venture capital money in the late ’90s when you guys first sought it?
John: Well, it was a little bit easier. I would say that the chances at that time, you make ten presentations, the chances are you’ll get funding. It got a little bit harder after that. Then the bubble occurred kind of toward the late ’90s and since the company was making good progress, the successive rounds got a little bit easier because of the bubble. But if you can raise money in difficult times then I think the chances of your business, believe or not, succeeding is probably going to be higher than just simply raising money during the bubble and people just riding kind of the speculative wave. It was very difficult to raise the seed round, a lot easier once you’re making progress to raise successive rounds.
Andrew: Can you give me a story of how you raised money in the seed round of one of the people you convinced to join you or one of the people who turned you down?
John: Yeah. Well, I had a lot of turndowns.
John: Everything from you guys are too young, you guys are inexperienced, I don’t believe that mobile communications is going to be that big, we’ve heard it all. And one guy basically said I’ll give you, I think the initial investment was $500,000, it’s the minimum I would say that typically VCs invest and we got a decent evaluation and we took the money and we created a profitable business with actually that initial seed investment. I’ve also heard being first-time entrepreneurs. I’ve also heard you guys can’t be the CEO. You can’t run the company. We have to bring someone in. That was always a contingency in my first company, which was kind of a foreign idea to me, but in any case, we hired a CEO and we took the money and we created a profitable business.
Andrew: And you said earlier and I wrote this down to come back to it, that you got wiser in the second company and didn’t make the same mistakes that you made in the first company. What were some of those mistakes?
John: Well, I think the mistakes were giving up control too easily and an entrepreneur not knowing his worth and typically you’re worth a lot more. I was very inexperienced and it’s OK because we did create the company, we learned a lot. Staying on the board. Some entrepreneurs are not even asked to be on the board. I would say resist that completely. Also, just how to sell, how to create technology, just a lot of blocking and tackling lessons that we didn’t repeat in the second company.
Andrew: Did you lose majority ownership, the two of you, in the business?
John: In the first company yes, in the second company no, until we sold.
Andrew: And was that in the first round, in the seed round that you lost control?
John: In the first round.
Andrew: So the seed round was $500,000 and the first round after that, that’s when you lost control of the business.
John: I would say it was more like 50/50 at the time. Again, we were very inexperienced. I think it was between the first and the second round, but in that subsequent stage when you start losing control because you’re giving up more of the company, but you get a lot more money in to create a profitable business, which is what we did. So we raised a lot of money to give up that piece, that ownership, which sustained us for a while.
Andrew: So you didn’t know a lot of this stuff. You couldn’t have known the technology and the customer and the sales process to the customer and the funding process. If you could go back and get some help through this, who would you turn to? Who would you advise your older self to go back and talk to?
John: When you get turned down ten times it has an effect on everyone. However, persistence pays off. I love the passion and the persistence that we had, I wouldn’t change that. I would probably get better counsel. Maybe speak with entrepreneurs that have done it before, more experienced entrepreneurs. I think that was probably the one thing that we could’ve done is speak to other more experienced, older entrepreneurs and that’s why now I’m very liberal with advice to entrepreneurs that approach me with their ideas. Some investors, they have good intentions, but they want to maximize their returns as well and the entrepreneur needs to protect their interest. So I would say more of an entrepreneurial counseling that’s done it before and also better legal counsel. I think you need to have a very strong law firm that backs your interest.
Andrew: What kind of entrepreneurs have you backed recently or helped and advised?
John: People that I’ve met in a local cigar shop, I’ve invested in their ideas, everything from a formal investment from VCs that I now know that I’ve made money for, that introduced me to investments to co-invest along with them.
Andrew: Okay. So what kind is it? Is it consumer electronics, is it more businesses related to your previous companies?
John: Businesses related to my previous companies, no. I may do something in the area of infrastructure, which is more related to my prior two companies, but more of the things that I know I won’t do on my own, which is consumer-related, software, things like that.
Andrew: That’s what you’re more interested in investing in?
John: In investing, for example, social media. I’m interested in ideas on gaming and crowdsourcing and social media. Those are the things that I probably don’t have experience to start on my own, but I think I know a good idea when I see one.
Andrew: So, the day of the sale, I looked back and I found an old article and it said, “I just stepped out of the employee meeting and everyone was very positive. There was lots of applause and slapping on the back. I think people feel pretty good about the fact that we built a company from nothing to $170 million.” I thought that quote would be from you, the guy who was there from nothing, but it was Ian Sugarbroad, the CEO at the time.
John: Yes, we brought in Ian, as I mentioned to you the investors, one of the contingencies was that you had to have a CEO. So that’s the gentleman that we recruited and actually he turned out to be a fantastic individual and ran the company very well.
Andrew: Five years with the business. The question that I’m wondering though, so he was a good person who stayed there, he helped shepherd the business toward the sale. What did it feel like to not be the person doing that, in that role? To not be the person who said, we started out in this little nothing of an office, tinkering around with this little device that we banged up and sold the first one so we could build this business and here we are selling it. What’s it like not to be that person?
John: Well, initially it’s hard, but when you look back you say to yourself, thank God I wasn’t that person because I’m not sure I would’ve gotten to the result that it would’ve given the inexperience that we had. Everyone is human, everyone has an ego. However, it did teach me some lessons on things I would’ve done differently even from the management that was at LGC. It is difficult in the beginning, but looking back at all the potential pitfalls and the inexperience that we had, that’s why I think mentor-ship from experienced entrepreneurs can get you through and still allow you to be the leader of the company all the way from start to finish. I think that counseling is critical. It was hard, but I think for LGC in my particular case we may have gotten a good result that way, we may have not.
Andrew: You personally, did you do well from the sale?
John: Yes we did. David and I did well because we retained some ownership even though it was a much longer haul than we expected.
Andrew: All right. Before we continue and find out what you did afterward, I read a quote from you, I don’t even know where, I just copied and pasted it in here where you said, “Coming from a poor Greek immigrant family I feel like I was always primed for the start-up life.” What I’m wondering about that is, what was that poor immigrant background that you went and I can’t imagine coming from that background what it must have been like to sell so tell about the background, help me understand where you came from.
John: Well thank you for asking for that Andy. We were very poor. There’s a family of six kids, living in the inner city in New York. We went to public school systems.
Andrew: Where in New York? I’m from New York. I’m wondering what city? What part?
John: In Long Island city back when it was not as clean and gentrified as it is now, but it was kind of a gang/drug-infested area back in the ’70s. It wasn’t a friendly place near Queen’s Plaza, I’m sure you’re familiar with it. My parents just had a tremendous work ethic. They worked three, four jobs each. They made probably minimum wage. They just instilled a tremendous work ethic and education. It was hard putting food on the table and of course my dad passing away at a young age made it even more difficult for my mom to manage six children and working in menial jobs, but we all got by and I think that one thing that it did for me positively is that it taught me the value of education and work ethic to get out. I think the negative side of it, it puts a fear in you that you don’t want to live your life that way, so maybe it’s the carrot and the stick.
Andrew: So were you at a place where you would just say, we don’t have heat right now. I’m never going to allow myself to not have heat and have to put on a sweater and gloves indoors. Was it like that kind of constant in your head?
Andrew: It was.
John: There was a winter where we had absolutely no heat, we used the oven for simultaneous heating and cooking and those are the times when I said to myself, I didn’t really know any better, because we had pretty much lived that way since I was a kid so I didn’t really know any better. I didn’t know any rich kids or go to any rich neighborhoods. To me going to the local public school park was a treat. I felt as though I was in the country because I got to see a little grass. Yeah, it was that way and I basically said to myself, this is bullshit.
Andrew: This is not the way I want to live forever.
John: Yeah, excuse my French.
Andrew: It’s all right. And how old were you when you lost your father?
Andrew: And then it was your mom providing for the family at that point?
John: Yes, and I was the oldest one at the time.
Andrew: Wow and you were immigrants? Did you have family in New York?
John: No, my parents were immigrants from Greece. We were all born here, so we’re first generation. They were the immigrants. They spoke broken English. No family. My mom had some family, but estranged. My dad had no family, they were all back in Greece on the island of Rhodes.
Andrew: I always still think about this. If my dad died my mother, they were immigrants too, my mother wouldn’t know what to do. She wouldn’t be able to take care of us and it would be a huge fear of what would happen if he died. Here you had that situation. You watch your mother, how did she do it?
John: She was amazing. I think I get all my strength from her. I remember she worked as a waitress, which is where she met my dad in the local diner. You know, one of those typical Greek diners in New York where you get a good cup of coffee, but nothing really anything else. Basically, she collected pennies and nickels in pickle jars and that’s how they bought their first house. She didn’t speak any English. She saved up three pickle jars’ worth and she put a down-payment on a house that was in foreclosure that cost eleven grand in the inner city and I think she had two thousand dollars in change and she asked me to go and take one of those wheelies from the supermarket and put the pickle jars in there and she went to the auction. We were with her. We were just little kids and we bought our first house that way. She was amazing.
John: Yeah, she was amazing.
Andrew: Coins in a pickle jar?
John: Then she got her real estate license and now she lives in Florida. She was remarried. She lives in Florida and she’s living off of the rental incomes that she gets on some property that she saved up in Florida, so she’s good. At least I don’t have to worry about her now.
Andrew: Unbelievable. One more thing before we move on. You mentioned earlier that you didn’t know any rich kids you said, I didn’t know another way of life. At some point you must have gotten an idea that there’s something bigger. You did, where did that come from, that vision of what’s possible?
John: I think I had great friends and I think the more educated an individual becomes, the more they strive for knowledge and the more passion. People cling to that and then they take you in and show you perhaps things I didn’t see, so as I became a little bit older, in my late teens I got to see that, hey, there could be potentially a better life out there than what we have now. I just dedicated myself to studying and books and it almost became an obsession to get out of that life through education, through engineering.
Andrew: What are some of the books that you read?
John: All technical books. I loved physics, I loved math. Listen out there kids, love math, it’s good stuff.
Andrew: Math did it. You sat and read a math book?
John: Well that or algebra, stuff that I hadn’t done as well as I should’ve. I loved reading about Einstein and his philosophy. I just enjoyed some philosophers like Dakart. I just read philosophy books, Aristotle and Plato and also heavily, heavily technical books. I really enjoyed those.
Andrew: Interesting. All right.
John: It got me out of thinking about other stuff and it was challenging enough for my brain.
Andrew: I see. Okay. All right. I used to read biographies of business people and at the end of the biography the guy who starts off as a poor Greek immigrant child ends up running a major empire somewhere. Seeing that major empire made me think, oh that’s the possibility. There’s another item on the menu of life that I wouldn’t have known about otherwise. The end of the arithmetic books and math books don’t have anything like that.
John: That’s a good point. I started reading those books in college when I knew I wanted to start my first company, so I read books about Bill Gates and Steve Jobs and Andrew Carnegie on leadership, Stephen Covey on real estate, even Anthony Robbins I read. I started reading those books once I got to college. It’s more self-help, actually they’re quality books, but there’s nothing like the real world, even after you read those books. There is nothing like the real world to get you fine tuned. I have a famous quote I’d like to say from Mike Tyson. Mike Tyson is a fellow New Yorker. He had the absolute best quote in the world for business. He didn’t mean it for business, but it’s actually the best business quote and he said when somebody asked him, this boxer is going to come in and he’s going to fight you this way because he knows your style and he said one thing that I apply to business every day. He said, “Everybody has a plan until you get hit.” So I love that quote because in real life you get hit a lot and that’s how you bounce back and how you handle the situation. All those books are great. Those inspirational books are great for inspiration, but it comes down to 1% inspiration 99% perspiration.
Andrew: 99% perspiration. I’ve got to keep going with the story even though I see that we’re almost at the end of our hour together, for the audience it’s less than an hour because we’ll edit out the tech issues. But let’s move on. NextG Networks 2001, where did the idea come for that business?
John: Well we had left LGC because our stock was vested there. We felt as though not being on the board and not being in a leadership role that the company was doing good without us. We had good management recruited. We’re entrepreneurs so we had the urge to go start something new. We felt the company was in good hands.
Andrew: And this was before Ian came in?
John: This was around the time that Ian came in and we said hey, lets try this wireless technology, but outdoor because that’s where the carriers, the operators like Sprint and Verizon Mobile, that’s where they’re building most of their sites and we knew that neighborhoods hated those towers. So we thought how can we get much less intrusive towers and we said, hey look at those utility poles, look at those lampposts. It was kind of an obvious idea. It turns out that because of the high data usage that we’re seeing today and that we’ll continue to see, small cell sites are what’s required anyway in order to have your Android phone work properly versus tall sites, which interfere a lot with other sites, so it turns out we were approaching it from a coverage and a capacity perspective and it turned out to be an obtrusive argument and it’s like the trifecta of why carriers really want to deploy sites that way now.
Andrew: So you saw all of these poles already up in the city all you had to do was add your antenna to the existing poles and you’d have an acceptable to the community.
John: Well that took many years to develop the word acceptable to the community and it’s a lot harder to get something on a pole or a wooden pole because you don’t own that pole, and it’s a lot harder to get something on a pole or a wooden pole because you don’t own that pole. So you have to cut into respective recipients for a piece of the revenue.
Andrew: So the technology, how long did it take to build that out?
John: Well, we used existing off-the-shelf parts, it took us about a year to build that out and we had to reduce the size of the cell tower down to the size of something that can fit on a utility pole or a lamppost. Now that we were a lot savvier it took about a year to a year and a half.
Andrew: To put it together and was it still you and David putting that together?
John: It was David and I putting that together, but now we had some capital to bring in some people on our own and we had a good track record from LGC so we were able to raise money, a much larger amount of money at a much better valuation.
Andrew: Okay. How soon after you launched did you raise money?
John: I think we funded the company for about a year on our own, then we developed a prototype and then we were able to raise money.
Andrew: So how did you get the first customers?
John: We knew them, now we knew them from the first company. Investors love entrepreneurs that stay within the same space that they’ve been in before because they have all the contacts, they know the space. So we knew them and we just called them and tried to make it happen.
Andrew: I see. So you said hey, we sold you indoor technology before, now we’ve got this outdoor technology. What about the poles? You said it was tough to get on the poles because others already owned them. How did you do that?
John: Very tough, but it turns out that the Telephone Act of 1995 that said hey, even though a utility company owns that wooden pole they can’t monopolize it. You have to allow competition from Telecom carriers, so we were effectively a Telecom carrier providing service for the other carriers. We went to the cities and we went to the utilities and we negotiated agreements and we said look, the revenue that we get since you’re an owner of this pole, we’ll share a little piece of that with you and that facilitated the access to hook to the infrastructure, the pole.
Andrew: Did you know that that was out there as a possibility when you launched NextG?
John: I knew that we had to tackle that problem. I didn’t think it was going to be that hard. The regulatory framework to get access to infrastructure that you don’t own is very, very complicated. The technology I thought was going to be the battle. Everything other than the technology was the battle.
Andrew: Getting the okay. Do you have an example of how tough it was or one of the pieces along the way?
John: So given that we had the right to the pole, we would call up a city or a utility, no I don’t want to do that, sorry go somewhere else, well you have to do that, it’s the law. You have to allow us competitive access. Here’s what we’re doing. No, I don’t really want to do that. After the first six to nine months we landed the top three cities of, I think of Chicago, L.A. and New York, we were able to get in the door.
Andrew: How? How did you get in the door with them? You didn’t have any contacts there.
John: That’s the key. This is where investors were a little bit frightened because it required a big regulatory team, so I had to hire a few lawyers instead of engineers in order to get us access to those poles. At the time if you recall a company called MetroCom or Ricochet, they were kind of going out of business, this was Paul Allen’s company. Paul Allen had invested in this company and they were the only ones at that time that convinced cities to put little radios, like Wifi type radios on poles. I hired a lot of those people because they had already the access to the cities and the contacts.
Andrew: I see.
John: So that worked out really well. Again, it’s better to be lucky than smart.
Andrew: Venture Beat, when you tried to go public and you eventually sold, Venture Beat said, this is a company that’s been in the red since day one. You were losing money intentionally weren’t you?
John: Yes. Exactly. The model was you don’t want to sell a widget, we tried that at LGC, you sell a box, then you’ve got to go make the sale again to get more revenue. This time we said to the operators, listen, we have access to the pole, you don’t, we have the technology. Why don’t you just pay us a recurring revenue for ten years and we’ll put up most of the capital to build that site for you, that utility pole or that beautiful lamppost in downtown New York and that model worked. Although you’re in the red profitably you’re generating large and huge cash flows because you’re getting rent. It’s like kind of a condominium. You build it with your own capital and you rent each condominium for a recurring rent.
Andrew: I’m sorry, something I’m not following then. If you own it and you’re getting rent on a regular basis for it, don’t you depreciate the cost of erecting it over the life of the box over your ownership of it and then you subtract the depreciation from the revenue that you’re collecting and then you should have a profit, no?
John: The answer is yes and the life of these contracts is ten to fifteen years. However, you have to build up enough recurring revenue from the capital that you’ve spent in order for that to happen. Now the company is building up significant cash flow. It’s all about volume. You need to build a lot of apartment buildings or a lot of condominiums in order to get the rents to pay back what you’ve spent on the capital.
Andrew: So the cash flow is negative because you’re putting out a lot of cash upfront and you’re collecting a little bit at a time over the years. Even on a profit and loss basis, you’re losing money?
John: On a P&O basis I think this year or the last year I think that eventually the company will break even, but again I think that that’s not really the measure for this kind of company. It’s kind of like our company, it’s more how is your cash flow? How does your free cash flow? Are you generating cash from your business minus operations? Are you generating free cash flow? So the answer is yes.
Andrew: I would actually love to do a whole show on finance, I’m so into it. Like taking a statement, not a current one, but a past one, so that there’s no sense of secrecy around it and just breaking it down and talking about each level of it, kind of like college like what we used to do then. That’s outside the scope of this program so I’ll push on.
John: Sure. For example, there’s the cash flow, the balance sheet and the P&L and I think that those are the three that the entrepreneurs should know about and they should take a lesson in it. Again, in cash flow related businesses you don’t necessarily look at the profit. You look at the cash flow. If you’re selling equipment and there’s a margin then you’re right, you’d have to show a profit for each time you make that sale. But if you’re spending a lot of capital or you’re raising debt in order to fund your operation because again, you’re getting a stable, recurring cash flow scheme, then that’s actually preferable to look at cash flows.
Andrew: The IPO that I mentioned, you tried to raise $150 million, had to shelve it, what happened there?
John: The market tanked. It was the worst timing possible. We started a company in the worst recession before that in the dot com bust. It turned out that we tried to go public in the worst time. The timing was bad and we said, okay, we can shelve this. We have a great company, great cash flows, people are interested in investing in it because of the stable, recurring revenues. Let’s go out and raise money and that raising money ended up being people were interested in buying it. So we sold it.
Andrew: How did you feel internally when that happened? There are no articles about it because you couldn’t talk about it publicly at the time, but when you’re going to go public it’s going to change your whole life, it’s going to change your people’s lives.
Andrew: And then it doesn’t happen. How do you feel personally?
John: Again it was a big downfall because the market just wasn’t ready. As an entrepreneur everyone that says it’s just business, not personal, it’s very personal. When you have your heart in something it’s very personal.
Andrew: How did you react to it? How did you feel when that happened?
John: People are only human. You get down, but then you pick yourself back up and you say, “Okay, what’s the next step?” You’re responsible for a lot of people and what comes into your mind, what about all your employees and your contractors out there that are depending on you? Just get yourself back up. That fear alone and I feel like I’m a generous person, that fear alone is enough to pick me up by my bootstraps and to raise the money that I need to ride this storm out and frankly we ended up with a fantastic result because instead of going public and being subject to all those rules and regulations, which most start-ups are not ready for even though they file an S-1, that’s a key point, I think that it turned out to be the best of all worlds and we got some great partners and great investors and great people.
Andrew: How do you get your confidence level up when you have such a big setback and how do you get it up to a place where you can go into an investor and convince him that there’s a future here and convince them to be as optimistic as you yourself might be struggling to be?
John: I think that even though your emotion is tied up all into it and you’re probably in knots and you’re not sleeping and you’re not eating right and you’re not exercising, I think you retreat a little bit. You get your arms around what’s going on, you get your mind around what’s going on, try to take the emotion out of it and look at the business fundamentally. Is this a good business or not? And be objective about it. It’s hard for entrepreneurs to be objective because they think all their businesses are fantastic. And then rely on your team. Rely on people that are your confidants, rely on them. Take the ego out of it almost and then I think you can, with those elements, I think you can pick yourself back up and just move forward. It’s a grind, it’s definitely a grind, but that’s what the word means, you grind it out.
Andrew: So we talked about the sale. Who’s the first person you talked to? Who’s the first person you called to just celebrate with after the sale?
John: My co-founder Dave Cutrer and a lot of employees were very happy because remember Andrew it was one of the worst periods of our economy and we ended up executing a sale that returned shareholders an excellent return and I’m proud of that concept that during one of the worst recessions of our time we actually sold the company and made money.
Andrew: How did you and Dave Cutrer meet? You guys have known each other now for decades?
John: I would say since the Berkeley days. He came from Cal Tech, I had just come from Columbia, New York. We met in graduate school and we wrote a lot of interesting technical papers together in graduate school. Even though we both have a Ph.D. from Berkley in engineering, it only takes one Ph.D. to know how good another one is and I rank well below him and he knows it.
Andrew: So is he on your speed dial on your phone right now still?
Andrew: All these years later. What phone do you carry?
John: I carry the Motorola Android and if you look at it he’s in the top favorites.
Andrew: So was a great partnership.
Andrew: Your web site. I actually didn’t see the blog before the interview. I didn’t see it linked from your Twitter profile. Your Twitter profile goes to, I forget what kind of Google page, with a bunch of links, so I must have overlooked it, but I didn’t see it when I was searching you. Where’s the blog?
John: I told you I was computer illiterate. The blog is www.leadingtoinnovate.com and all it does is introduce entrepreneurs and I’m just writing about what I learned because I want to share and again, I wish I had a mentor like me now when I was first starting out. But I’m there to build up their confidence and to make sure they know their worth, that’s the key. Investors are hungry for good deals, they may tell you that they’re not. You may get a lot of rejections, but know your worth.
Andrew: I know that when you said earlier that you help entrepreneurs that you’re happy to give them feedback and to be a mentor, I imagine a lot of people are going to write down your contact information now and reach out to you. I believe that fewer are going to say instead of saying hey, can you help me out, what am I trying to say? I’m trying to tell my audience, don’t just say hey can you help me out. I heard on Mixergy that you want to help entrepreneurs. Check out his site, maybe you can help him out first. Maybe the web site is on a bad platform, maybe there’s some issues with it. Offer to help even if you don’t need anything now and then later on come back and say hey John I heard that you’re a good mentor and that you want to help out entrepreneurs, can you check out my great idea?
John: Given the time constraints that I have of course.
Andrew: Absolutely. Please guys, take that into account. Help him out first. I’m going to say, John, thank you and if there’s anything I can do to help you, not with Skype because apparently my Skype is not doing all that great itself, but with anything else I’m happy to do it and I’m very grateful to you for doing the interview.
John: Andrew, I’m very grateful. I think you have a wonderful company here and what you’re doing is fabulous and fantastic and you’re getting the word out and I think it’s tremendous.
Andrew: Thank you. Thank you all for watching.