Episode 6
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Transcription
Justin Hubbard:
All right, ladies and gentlemen. Welcome to another episode of Unhinged, brought to you by Dean Dorton. I’m Justin Hubbard. Today, I am happy to be joined by a local legend, Mr. David Goodnight. David has been involved with taking companies public, working internationally. Has vast experience in startups, both as an investor and as a very active member of the investing company’s management. So David, welcome to the podcast.
David Goodnight:
It’s good to be here, Justin.
Justin:
So where are you from? Let’s just start there.
David:
Yeah, so I grew up in Texas, in Houston. Went school in Austin, and got married in Galveston. And then at the tender age of 22, left Texas and never been back. I also lived in California and Michigan. And 20 years ago, I moved here to Lexington, Kentucky.
Justin:
What are some hobbies, or things you like to do when you’re not working within the startup community?
David:
So I really enjoy exercise. I run about 10 to 12 miles a week. I play golf. Yesterday, I played golf with one of Dean Dalton’s partners, David Richard.
Justin:
Oh really?
David:
We had an enjoyable round. And on the weekends I love to barbecue. Being from Texas, I make a mean spare ribs, pork butt. Barbecue is one of the things I brought with me when I moved from Texas.
Justin:
All right. What about books? Do you have any favorite books?
David:
Oh my goodness. Yeah, there are two books. One that I use all the time right now, and I used in my class when I taught that UK’s MBA program—I taught entrepreneurship there—and it’s called Crossing the Chasm. And what’s so important is your earliest adopter customers, they can help you get the product to market, but they can’t get you to a sustainable business model. You really have to cross the chasm to get to the more frequent users of your product. And at that point, your product has to be fully ready for the market. So you need the early adopters, but then you need to the close followers.
The other book that I remember from my college days that I still use some of the principles in what I do today is Zen and the Art of Motorcycle Maintenance. And some of you who are my age might remember that book. But what it does is it tries to stitch together reductionistic, rational thinking with emotion and romantic thinking. And being a psychology major undergrad, I usually start with romantic thinking before I turn the switch on to break things down and do what most finance people do is create structured analysis for which people can be held accountable. So it’s being able to set the framework of the problem, though I think is my unique competitive edge. Go back that book, Justin. Zen and the Art of Motorcycle Maintenance. You’ll get all 350 pages of it.
Justin:
So when you say romantic thinking, we can’t let that go. What do you mean?
David:
Sometimes in the job that you do, you have a gut feel for what the right answer is, but you can’t get there in a spreadsheet. So what I think about is you set the frame of the problem before you solve it. And that comes from intuition, that comes from working in a team environment, that comes in holding in your thought process seemingly disparate items that don’t seem to belong together. And by holding them in suspension before you solve the problem, you increase the universal solutions for the problem. And then you can set that frame and begin the analytics to prove whether your intuition is right.
Justin:
I’m fascinated by subjects like this, so I’ll pause. So perhaps put another way, putting yourself in a mindset where nothing is impossible, all possibilities can be done. And it’s just a matter of figuring out. Then, once you switch your gears, what’s really feasible. You mentioned travel, you’re doing your international stints through Lexmark. That’s got to be in there somewhere.
David:
Oh yeah. I do love to travel. My wife and I, we take a trip to an exotic location every year. And our last trip was to New Zealand. What a marvelous country that has. No wonder they don’t have, for 100 days, any COVID-19 cases. What I enjoy the most about my travel is the cross cultural experience. Seeing the way people around the world see the world helps me to expand my knowledge of the world. So I’ve been to, I think, 47 countries or something like that, and spent more than half my career with responsibilities in Europe and Asia and Latin America.
And the thing that impacts me the most when I traveled and was responsible for these geographies is how young they are. And we don’t have that perspective when you look in the US, I mean. But the average age in business is 15 years younger. And so you have people in their 30s running $100 million subsidiaries. And that would just not happen in the US. So the ability to take risk, take on new challenges, really sign up for huge goals, is surprising. The youth of the world is, I guess, the biggest experience for me. And I really love it. It keeps my attitudes and my view of the world younger as I get older.
Justin:
That’s interesting. And as a 30 something year old, I feel very inadequate now.
So you were at Lexmark from 1994 to 2007. That’s a long stint. And you took it from a regional manufacturer to an international, publicly traded company. Tell us the Lexmark story.
David:
Yeah. So wow. If you can imagine a person from Southern California flying into Lexington in the winter of 1994, January, how does a person begin? I was the first outsider. Outsider, meaning non-IBMer hired by the spinout called Lexmark. IBM sold it. They sold basically a series of, I think, four manufacturing, operations that were consolidated into Lexington. They did not have a sales organization or corporate organization. All that had to be built. Fortunately, it was built before I got there.
But the board recognized that they needed some outside management expertise. And they fortunately hired me. When I walked around, I had about 10 staff members. I was CFO of a network printer division which had about 700 million in sales, something like that. About half of that were OEM products. Some of it was even typewriters. Eight out of the 10 told me the company would fail inside 18 months.
So here I’ve just left my family. I just moved. And that team said, “Nope, I don’t think we’re going to be successful.” Well, instead of failing in 18 months, 18 months later, we’re largest ever IPO on the New York Stock Exchange. We were led by Goldman and four other underwriters. What that whole event got me was the challenge of being a new public company, corporate controller, which I was for five years. And during that five years, oh my goodness, we were growing so rapidly, 20 to 30% a year. We expanded our operations and Europe and Latin America and Asia. We built shared service centers. We put in a new global ERP system.
We battled through the Y2K and the Euro. There was no common currency before that time. We had to implement the common currency. And then at the tail end, Sarbanes-Oxley, which was very important as a result of some of the challenges of the tech bubble. So we survived that too. So doing that stint got me the responsibility to manage Asia and Latin America for six years. 50 countries, 17 subsidiaries, and 1,000 people. And I got to tell you, doing business China for six years, it was just fascinating. Australia, Japan, then Brazil. So that was quite fun.
And it taught me a new way of managing, honestly. And I kind of look at what’s happening with COVID-19 and the style of remote managing. And that’s what I did. It was an office of two people here in Lexington, Kentucky, and managed Asia and Latin America for that time. And fortunately, I had a really great team around me between the CEO, the CFO, the VP of HR. I mean, these guys were huge supporters of everything I did. And that kind of teamwork was able to play itself out across Asia and Latin America.
Justin:
From an operational standpoint, what are just some recurring things that you feel like attributed to the success that you had?
David:
First thing is trust the process before you trust the people. And good process, good, simple process that is followed, aligns behavior, and creates the kind of good behavior that you want to see in organizations and really prevents poor behavior. But for processes to work, they have to be simple. They have to be clear. You have to make the hard choices, and you have to follow up and make sure that processes are being adhered to. And it’s the same philosophy that I had in Lexmark and previous companies, I bring into my whole world of startups. So create good processes wherever you are. Processes take care of themselves. Once you create a process, make sure the process is being followed.
The other thing, teamwork, if you can motivate a team and align the team, that combination of motivation and alignment can result in some remarkable outcomes. Some challenges that you think could never be achieved, and are. It’s really one plus one equals three. It’s the spirit of the team all aligned with multifunctional disciplines that really create the huge breakthroughs. And I saw that time again at Lexmark. I see that time and time and again in my startup world endeavors.
Justin:
What would 2020 David Goodnight say to 1994 version of David Goodnight?
David:
I would say get ready—buckle up—this is going to be a rocket ride! You’re going to enjoy it like there’s no tomorrow, but you’re going to work your butt off.
Justin:
So now let’s talk about your corporate mentorship/angel investing involvement. You mentioned Bluegrass Angels, one of the angel groups that you’re involved in here in Central Kentucky. And as well as you partner with a lot of companies, both through that organization and individually. But when a business comes to you for help, or someone’s trying to pitch an idea to you, what are just some common characteristics or things that just kind of make a little trigger go off in the back of your head, like, okay, this guy might be on the something?
David:
Yeah, that’s a really good question. And this is something that has to be learned over time. This is not something that I learned at Lexmark. It’s something that I had to learn the hard way by reinventing myself as I moved from a corporate finance guy to a startup road warrior. And I hear ideas pitched all the time. And what I look for is passion and commitment. So an entrepreneur really has to believe in their idea. They have to be passionate about their idea. It has to be a driving force in who they are. And you can tell that in two to three minutes. Now that there’s a lot of people that play the game so you have to listen a little deeper.
But from the passion, then it really has to be a big idea for me to be interested. It has to be a change a world kind of idea. That’s what I look for. And then I look for the ability to have a change the world idea, but kind of knowledge on how they’re going to do it, and that they’re going to stick with it. So passion, without a big idea, without someone willing to stick to it, is somebody that’s probably not ready for the conversation we need to have, which is how do I put other investor’s money to work, or my own, behind a company.
Justin:
As a mentor, as an investor, where do you see entrepreneurs just consistently stubbing their toes? Are there any themes, or milestones, they have to get over? Recurring patterns that would be surprising?
David:
This is a good question. Again, this is one that is learned over time, right? But my experience so far is that the entrepreneurs who stub their toes don’t listen to customers. They focus their efforts inwardly. They create technologies. They take the attitude that “all I have to do is just get to the next release and the customers will love it.” Or they say, “What does that customer really know about this technology? He’s not the right customer for my product.”
Well, both views don’t get you to where you really need to get, which is customer-led innovation. So you need customers demonstrating your MVP—minimal viable product—in their own environments, committed to it and understanding that this enhances their value proposition, or solves their expense problem, whatever it is. But you need to build the airplane while you’re flying it. You know what I mean? And you just have to be willing to take that risk. And the good ones do, the successful ones do.
Justin:
Where do you see entrepreneurs or startups, I guess those terms are somewhat synonymous, but where do you see them wasting time and energy?
David:
Yeah. So right now I’m a part time CFO for one of my startups. And what we all talk about is one-touch process. So you see a piece of paper, you touch it one time. You see an email saying, bill me, invoice me, you touch it one time, and you committed into the process and it’s done. And so what you don’t want to do is solve the same problem over and over again by not building process. So you waste time by not committing yourself to doing the same thing the same way.
Justin:
Essentially it’s the same for a publicly held company as it is for the startup down the street.
David:
Exactly, exactly. And the thing is, when you’re raising capital, if you come to that part in the presentation in front of an investor, and you say, well, let me talk to you about the processes and controls we have, let me tell you, the investor reacts very favorably to the time you spent doing that. And it’s really the same for whether it’s a financial process, or a development process, or a manufacturing process. Quality, take your time, build those processes. They are as important to your valuation as your product market fit.
Justin:
Yeah. It’s interesting. The accounting rule has changed somewhat recently to how a business is defined. If it has documented processes, it’s a business.
David:
Yes.
Justin:
If it doesn’t, it’s just maybe some assets, maybe not. All right. Let’s talk about angel investing specifically: what are some pros and cons?
David:
Oh yeah, that’s a good question. My wife asks me this question all the time. And so the big one is, Justin, imagine I attend the PowerTech Water staff meeting every week. And I’m sitting there with a four PhDs and two masters degree engineers. And they are solving some of their customers’ biggest problems. And I get to be there. The ability to participate in a meaningful solution to a big problem globally is important. So whether it’s clean water, whether it’s saving water from irrigation, or whether it’s changing the nature of catalytic converters, whether it’s gene editing, I could go through the list. But I get to be part of that. And I get to contribute to their success and their journey. And so that’s why you want to be an angel investor, right, is the ability to participate in the big idea.
The con is I’ve never seen a business deal yet that wasn’t raising money all the time. You don’t have more than eight to 12 months of runway ever because raising money is expensive. It’s dilutive on your current ownership. You want to hit that next milestone. And with that next milestone, raise the next eight to 12 months of capital. So that’s kind of a treadmill. A lot of risk is involved with that. But those are the pros and cons of angel investing.
Justin:
If you were tweeting, if you had one tweet to offer the startup world, or the angel investing community from a governance level, you’re letting in on these companies, what would your one comment be?
David:
So priorities for me in my life and my career and today are the same. It’s customer first, employees second, me third. And it’s almost an inverted pyramid of the way some see the priority. But you’ve always got to be customer driven. You can’t meet the customer needs yourself. You need an organization and employees. So it’s the team. And the team, you always have a role in it, but it’s only with that priority that you fit is customers, employees, or team, and then you third.
We’ve enjoyed with Bluegrass Angels, I’ve been with them about 10 years, just a great relationship with Dean Dorton. You guys understand us, and you understand the startup community. I think our ability to be structured, and to help guide us, making sure that we report on time, managing our cash for us, making sure those controls are in place. And also taxes can be complicated in this area, and so we enjoy very good tax help from you guys. So it’s multifaceted. But when I give you a call, I get the answer right away. So thank you, Justin.
Justin:
No, thank you. It’s a pleasure to work with you all. Thanks for being on her podcast. First external guest. All right.
David:
Great to be here. Thanks.
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