A Message for Entrepreneurs:
‘Don’t Hesitate to Start’
Roni Einav is one of Israel’s most
successful software entrepreneurs. In 1983, he founded Fourth Dimension
Software, later renamed New Dimension Software. He served as its CEO and
chairman until the firm was sold in 1999 to Texas-based BMC Software for $675
million. Currently, he heads Einav High Tech Assets, which invests in high-tech
start-ups. Einav is also co-author with Miriam Yahil-Wax of the memoir, Nordau to NASDAQ — The Evolution of an Israeli High-Tech
Start-Up, which describes his entrepreneurial journey.
Einav believes that entrepreneurs
need to balance their instincts and education, and to not be afraid of making
mistakes. In a conversation with Knowledge@Wharton, he says: “I tell people
that if they are looking for the perfect idea, for the perfect gap in
technology, they will never get there.”
An edited transcript of the
conversation follows.
Knowledge@Wharton: Your book is titled Nordau to NASDAQ. What does the
title mean?
Roni Einav: The title has a few [different] meanings. One of them is
that I was living for many years in a place in Tel Aviv called Nordau Boulevard
and my destination was a global target like Wall Street or NASDAQ. There is
also a socialistic flavor because [World Zionist Organization co-founder Max]
Nordau was next to [Theodor] Herzl in the Zionist part of the movement. The
movement was pretty socialistic. And then we came to the climax of capitalism.
Also Miriam, my co-author, thought that it should be a little mysterious.
Knowledge@Wharton: You studied at Technion, which is one of Israel’s most
prestigious technical universities. And then you spent some time with the
Israeli defense forces. How did these experiences shape you as an entrepreneur?
Einav: I think I was lucky to be educated in Technion, which has
got a few Nobel Prizes. After being educated as an engineer, I served my
country in the Army. But I wasn’t an officer in the military operations; I was
in operations research, in the systems analysis of ammunition and our military
systems. From age 22, I got the chance to operate in the big [league]. You
fight for [your] opinions with the senior officers. And even though they are
40-45 years old and enjoy a great deal of prestige for what they’ve done in the
Army, you come out with your own thinking. You are not afraid to fight for your
opinions, to be stubborn … to think of what is the best for Israel and for the
Israeli Army.
I think it’s a kind of a
complementary education. After four or five years, you are more experienced in
the practical side of the academia and not just in the academia itself.
Knowledge@Wharton: From there, how did you enter the world of business?
Einav: I never worked for anybody. I started in the computer
business, but at that time it was more professional services. Our clients were
the ministry of defense, the Army, some of the big Israeli ventures. There are
not too many big organizations in Israel — just five or 10. After a while I
realized that if you want to play globally you need to have some [intellectual]
property, a software product or something that can be sold in other parts of
the world.
“If you are young and ambitious, you
are not afraid to fight IBM or Computer Associates and smaller organizations.”
–Roni Einav
Knowledge@Wharton: One of your first notable forays in business was in Iran,
which was under the reign of the Shah at the time. Could you tell us about that
experience?
Einav: At that time, the relations between Israel and Iran were
very close. Israel and Iran and Turkey were the power against the Arab world.
The Shah wanted to have a powerful Iran, a good education system and so on. He
came to us as architects and engineers to help him build the civilian part of
the Navy — the Iranian Navy. We built new cities in Bandar Abbas, Bandar
Bushehr and Kharg Island.
Today, Bandar Bushehr, for example,
is known for the nuclear plant. Sometimes Iranian boats travel from Bandar
Abbas to Lebanon with missiles. But at that time, we were engineers and the
thinking was that people from Israel can do a professional job relatively fast.
The places I have mentioned are very remote and have an extremely bad climate
…. So, it was interesting. After working with the Shah, we also worked with the
Pahlavi Foundation in Tehran. And we felt very good.
Knowledge@Wharton: The other episode from the early years I found interesting
was that following Israel’s peace agreement with Egypt in 1979, the Sinai
Peninsula evacuation contributed to the growth of your company, which you named
“Einav Systems.” How did that happen and what was the impact on the company’s
growth?
Einav: That was my first big contract. We had a team of 10 or 12
people. The Army at the time understood that in order to ensure that a project
of so many billions was effectively implemented, they must use civilian
resources. I was lucky to work for them and maybe they were lucky to hire me
because the job was intelligent, fascinating, but at the same time it required
a lot of effort and a lot of talent. As a result of my success in the job, I
got additional contracts, which were more related to software for big civilian
projects.
Knowledge@Wharton: How was Fourth Dimension Software formed and how did it
grow out of Einav Systems?
Sponsored
Content:
Einav: It was owned 50% by somebody who worked for Einav Systems
and 50% by partners related to Einav Systems. This was a very typical way, a
socialist way, of setting up a new business with no external funding. After a
couple of initial failures, we got an opportunity from the Israel Air Force.
They had software that they used for scheduling the routine daily life of the
Israeli Air Force. But while the software was important, there was no
documentation, nobody built it as a package. There was a [lot] of
improvisation. The Army and we came to an agreement that we would take the
software and develop it into something that could last for many years. The
benefit for the Army was that they would get it for free for many years and the
advantage for us was that we got an opportunity to do something very big.
Knowledge@Wharton: How did you overcome the initial challenges in developing
database software?
Einav: As we started with the scheduling package, we were naïve
enough to think that we could make a better database as well. If you are young
and ambitious, you are not afraid to fight IBM or Computer Associates and
smaller organizations. Maybe I can say … that in being too educated maybe
you’re becoming too disciplined and too organized. It’s good to be organized
but it’s also good to dream a little and be a little naïve …. You need to
balance your instincts and your education.
Knowledge@Wharton: Intuition and imagination play as big a role in
entrepreneurship as discipline and hard work.
Einav: I think so. We never dreamt that Fourth Dimension Software
would have so many products, that it would be so profitable. So, the range of
your dream is one year, maybe two years. And the dream is a dynamic one. After
one year, you have a different dream.
“We thought that it’s a
multiplication game — that if we double the work force, we would double the
revenue. It didn’t work.” –Roni Einav
Knowledge@Wharton: You spend a lot of time in your book talking about the
importance of human capital. One way of achieving your dreams is to attract and
develop the best people. Could you explain how you did that in your company?
Einav: At that time, it was relatively easy because in Israel
there were not so many [success] stories like Fourth Dimension Software. All
the stories about Israel and the few thousand start-ups are the result of my
story and stories like that. At that time, if you wanted to sell software
abroad, you just had five or 10 or 15 possibilities. Once we started to succeed
— you have to be successful in order to attract human capital — we had the
right friends in the Army. Among the new immigrants, we found the right people
to work for us.
Knowledge@Wharton: What was Control M?
Einav: Control M was our first enterprise software product. Across
the world, there are maybe 15,000 or 20,000 organizations like banks, airlines,
insurance companies and military organizations that have [multiple] activities.
Let’s take, for example, a bank. A bank has mortgages and foreign currency and
you can get cash from ATM machines. But at least once every day or maybe once
every hour, depending on its size, the bank wants to streamline all its
activities. We built a software robot that could do this. Later, we developed
complementary technology.
Knowledge@Wharton: How did the company enter and expand in the U.S. and then
in Europe? And what lessons did you learn from those experiences?
Einav: At that time we were dreamers but not crazy. We understood
that we didn’t have money to build our sales force. So, Boole & Babbage
Europe (B&BE) sold us in Western Europe. In America, we got another
distributor. This distributor, operating from California, worked for us for
five years but there were problems. In 1991, we entered into an agreement to
hire most of his people who were related to our technology in their offices in
six different locations. We were rich enough to make this move. It was a
critical move because a year-and-a-half later we had our IPO in NASDAQ. Before
that we needed to prove that we were a strong force. And as a global player,
you need to be on your own in the U.S.
Knowledge@Wharton: What are the factors that led to the company going public?
What obstacles did you encounter and how did you deal with them?
Einav: We were successful before going public. And we gained experience
during our journey. While we did not know what it meant to be public, we felt
that all our competitors were on NASDAQ and, if you want to be a global player,
you need to follow the game. At that time, the value of the company was $120
million. Two percent of the company was owned by EDS. We felt that [an IPO] was
the right move. After one year, the value of the company doubled. It was around
$250 million. After one more year, it was $35 million. So, there were also
troubles and once you are public, everyone knows when you are in trouble.
Knowledge@Wharton: Following the IPO, Fourth Dimension experienced
extraordinary growth. In less than three years the company grew six fold. What
drove this growth and what challenges did that create?
Einav: We learned how to be public for the good and bad parts. It
was good at the beginning, maybe too good. We thought that it’s a
multiplication game — that if we double the workforce, we would double the
revenue. It didn’t work. We needed to rebuild the company from scratch. But,
luckily, we had the money to fail for a year. With no money in the bank, it may
have been impossible to rebuild the company.
Knowledge@Wharton: What led to that sharp fall in business? Also, I believe
there was the filing of a class action law suit. How did you deal with that
challenge?
Einav: It happened all together. We were not ready for the fact
that our revenue was not growing as we had planned. The [problem] was that our
expenditure was extremely high. So, I told my colleagues, “Listen, if we have
20% or 25 % better sales and only 25% less expenditure, everything will be
right again.” And that is more or less what happened. The technology was good
all along and there were no severe problems with customers because in a way any
customer that you gain is strapped to your technology. It’s not easy to leave
the technology. Also, I think that the technology and the company are stronger
than business cycles.
Knowledge@Wharton: The conflict that followed also led to the firing of the
CEO from the U.S., your partner with whom you had started Fourth Dimension.
After that point, how did you rebuild the operations?
Einav: The problem with my partner was that he thought that we
could continue with the same concept. I took it more seriously. Once he was out
and we hired another CEO — I was the CEO in the interim period — [things fell
in place] because we continued to develop new products. It was relatively easy
for us to convince clients who had bought from New Dimension to buy additional
products because it was the same look and feel, the same concepts, the same
support. So, it wasn’t as difficult once we agreed about the new business plan
that was a little bit more conservative.
Knowledge@Wharton: Today you lead Einav High Tech Assets, which invests in
high-tech start-ups. What kind of companies and technologies are you investing
in?
“There is no way to ensure that
people will be in love or in good business relations for the next 20 years.”
–Roni Einav
Einav: Most of them are in software.
Knowledge@Wharton: Any examples?
Einav: We have a company by the name of VeNotion Technologies —
VNT. It maps applications, business applications, software packages, hardware,
etc. In a bank or any legal organization, after a while, they don’t know which
[application] is down and why. When they try to correct or change something in
one business application, they can harm a different business application. This
is one example; we know how to map business applications. Another thing we do
with software is build a kind of simulator… we can navigate to see the city or
the road. The idea is to assemble or to combine whatever is in Philadelphia and
if an architect or a transportation engineer is planning a new project with
say, Bentley, we know how to put a design in place and you can drive the car
and see whether there are safety problems.
Or, if you want to oppose a new
initiative in the city, at least you will understand what you are opposing,
because many times people oppose new initiatives without really knowing if it
will disturb them or not. So, we know to combine. These are two typical things
I do today.
Something that I do which is a
little bit strange is that we found out that in Israel and in California, I’m
sure in Pennsylvania too, 25% or 30% of the children don’t eat the yolk of the
egg. [We are trying to] mix the yolk and the white part of the egg in the shell
without touching the shell. So you can have a hard-boiled egg, which is almost
white. The child can eat it without noticing that he is eating the yolk. I’m trying
to make a business case out of it, either by selling such eggs in the
supermarket or by selling home appliances that can do the magic.
Knowledge@Wharton: During your career what is the biggest leadership challenge
you faced? How did you deal with it and what did you learn from it?
Einav: I can’t say what is the biggest because once you experience
failure you still need to convince everybody that you will survive. So, it’s
the way you behave, sometimes convincing people that the future is rosy. But
you also need to take concrete steps. You need strong contacts. For example,
when we signed the new contract in 1997 with Boole & Babbage (B&B), I
had to go to my board and convince my friends that the probability that B&B
would be purchased earlier than us was higher. I said to them, “I don’t know
for sure but I feel that this is the way to sign the new distribution
agreement. My instinct is that they will be purchased before us.”
Knowledge@Wharton: Based on your experience, what are the challenges of
working with a business partner? How should you choose a partner so that the
partnership is productive and does not become a source of stress and conflict?
Einav: I can’t be naïve and say that it’s easy. Even if you find
the right talent, the right partners, I can assure you that some of them will
be different in four years, some of them will be different in five or six or
seven or eight years. There is no way to ensure that people will be in love or
in good business relations for the next 20 years. I don’t have a formula for
that. You have to believe that you have selected the right wife, the right
partners, and that it will work. It’s not easy, not in family life and not in
business. But you have to work it out.
Knowledge@Wharton: What are the main lessons from your entrepreneurial journey
that could benefit other entrepreneurs? What advice would you give them?
Einav: The best thing I can tell people is that if they are
looking for the perfect idea, for the perfect gap in technology, and are afraid
to make mistakes, then they will never get there. In certain moments, you have
to decide to jump into the water. And if you find that you have made a mistake,
then make the correction very fast. Don’t hesitate to make corrections. At the
same time, don’t hesitate to start. Don’t think too much. Jump and do.
Knowledge@Wharton: One last question: How do you define success?
Einav: This is also something which is dynamic. When I was a child
or even a youngster, if somebody became a millionaire, let’s say made $1
million or $2 million, it was definitely a huge success. I don’t think that
somebody would like to define success as the success I have experienced because
it may be too much. It’s the kind of dream you can’t dream about. In Israel, if
you make less than $5 million, people say, “It’s OK. So-so.” You need to make
more than $5 million or $10 [million] in order to be regarded as a successful
entrepreneur. But the truth is that maybe to live a good life the old definition
of $1 million or $2 million or $3 million is good enough.
http://knowledge.wharton.upenn.edu/article/roni-einav-nordau-nasdaq/
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