Mistakes startups make in business plansㅣBob Tinker & Tae Hea Nahm EP 01

In this interview, we sit down with Bob Tinker, the serial entrepreneur and co-author of Survival to Thrival, and Tae Hea Nahm, the co-founder and CEO of Storm Ventures and the co-author of Survival to Thrival. Bob and Tae Hea have built together two big successful startups, Airespace and MobileIron. To find product-market fit and scale their business, they made many mistakes from different perspectives, each as a co-founder and investor. Bob and Tae Hea wrote the book Survival to Thrival, one of the best sellers for B2B startups worldwide, to share their essential takeaways for future generations.

Bob Tinker: My name is Bob Tinker. I am a multi-time entrepreneur. On the professional side, my key achievements, some were successes, some were failures. Like a lot of entrepreneurs, probably the one I'm most well known for is being the founding CEO of a company called MobileIron, which we started in 2008 and grew from zero to $150 million of ARR over the course of five years and took it public on Nasdaq. Prior to that, I started a company as part of the founding team at a company called Airespace, which was also a success. We sold that to Cisco for $500 million in 2005. And prior to that, it was a company that did not do very well, and I learned a lot about what not to do.

Tae Hea Nahm: Hi, I'm Tae Hea Nahm. I'm co-founder of Storm Ventures. We're a venture capital firm based in Silicon Valley, focused on B2B software companies. We've invested in over 200 companies, twelve of which have become unicorns. I was also the founding CEO of Airespace, which we sold to Cisco for about half a billion dollars.

Bob Tinker: I grew up in the Midwestern part of the United States. My dad was an engineer and my mom was a scientist, so I generally grew up being around technical people and loved taking things apart. When I was a kid, I used to take clocks apart, toys apart. I was probably destined to be an engineer, even as a small child.

When I went to university, I majored in computer science and industrial engineering, and started my first job as an IT manager at a bank. My big transition to become an entrepreneur happened when I moved to California in 1996. I came out here to go to business school and get an MBA at Stanford, and I fell in love with becoming an entrepreneur: the idea of starting your own business, the opportunity to make a difference in the world. I also saw people make a lot of money doing it. As a 28-year-old coming out of grad school, that seemed like a great idea.

The very first startup I worked for was one called Vertical Networks. It was an interesting idea: we built the very first IP PBX, a phone system that runs on the internet. In 1998, everybody knew that phone systems and voice and data were going to come together, and it was definitely a problem that needed to be solved. The problem with Vertical Networks, though, is only big companies buy phone systems, and they only buy them when they open up new offices. So even though it was going to be a big market over time, it was going to be very slow, and there was no urgency in the customer's mind. As a result, the company always struggled.

There were some key things I learned along the way. The first was: if you're going to be a startup, solve a problem that has pain and urgency. The problem with my first company, Vertical Networks, was there was pain but no urgency. Urgency answers the question: why is a customer going to buy now and not six months from now? When you're an early-stage company with very little cash, you need customers to buy now.

One of the great things about Silicon Valley, and one of the great things about entrepreneurship, is people respect failure, because you get to learn what not to do. And as long as you walk away having learned important lessons that you put into practice to make a difference in the future, I think failure is a great teacher.

Tae Hea Nahm: When Airespace first got started, I was just an investor, but I was the only investor, and the company was incubated at Storm Ventures's office. The original idea for Airespace came from someone working at Storm, Tim Danford. He was a technologist out of Cisco with a lot of experience, and he came up with the idea of having one infrastructure to support both cellular and Wi-Fi access. I liked the idea of Wi-Fi and cellular, because then you can support all wireless in one box. I thought people would want simple, easy wireless access, so I figured Wi-Fi would be the way, because Wi-Fi leverages open spectrum. It's free. It's not like cellular, where you have to pay a provider. That was my belief, and why we started Airespace.

To be honest, the beginning of Airespace was really hard. I hired four people to do cellular and four to do Wi-Fi. But as we talked to customers, we realized they just wanted Wi-Fi only. That's why we pivoted to Wi-Fi only, and I had to lay off half the team at that point. I remember one of the people I laid off, I had moved him from outside the United States to Silicon Valley to do this, and then I had to lay him off. It was tough to lay off fifty percent. But the alternative was we shut the whole company down and I laid off a hundred percent.

This was also in 2002, when Silicon Valley was going through a very difficult time. Given the difficulty of Silicon Valley and the problems Airespace had in the beginning, because we were pursuing the wrong product strategy, the natural temptation would have been to shut it down. The only way I could persuade my partners that we should continue funding was to become the CEO of the company myself. But that also increased my accountability: if the company failed, I'd be fired.

One thing that boosted my confidence that we should continue was a conversation with Samsung executives, who talked about wanting to Wi-Fi enable all their laptops and consumer devices. That gave me confidence that this might be the beginning of a wave. Once I believed in Wi-Fi, we needed to hire out the rest of the engineering team and the go-to-market people, eventually bringing on my own replacement as CEO [passage unclear in source recording, "employee number 24" reference]. As I was talking to one of our investors about the go-to-market approach, I mentioned we wanted to pursue one based on partnerships, and that's when my co-investor introduced Bob, saying he'd be very good at partnerships.

Bob Tinker: The idea behind Airespace was to enable people to use Wi-Fi at work. We can all laugh about it now, but there was a time when we didn't use Wi-Fi at work. This was 2002. Intel had just built Wi-Fi into their very first laptop, and people were asking, how do I use this, what do I attach it to? All of a sudden people were bringing laptops to work, putting Linksys access points under their desks, and creating security holes in the network.

Airespace's mission was to bring Wi-Fi to the enterprise, and that worked out well. We timed it right: there was a wave of change with laptops now enabled for Wi-Fi, and a big pain because enterprises didn't know what to do about it. We built a solution for that. At Airespace, we tackled a problem that had both pain and urgency, and we went from zero to $80 million over about three years.

How do you get your first ten customers? Every startup wrestles with that, because it's hard from the customer's point of view. Imagine you're going into a hospital for surgery and the doctor says, you're going to be my very first patient. Your challenge as an early startup is convincing customers to buy your product when nobody else has.

Sometimes that comes from previous relationships, where you've worked at other companies and built trust. That can help. But the real thing you need to do is make sure you're solving a pain that has urgency, because when people have an urgent pain, they're willing to take a risk on a smaller company.

The second thing that matters in finding and winning early customers is listening to them. One thing we did well was a concept we called a teaching customer. When you're talking to early prospects, some say yes, some say no, some say maybe, and you get a lot of feedback. It's hard to figure out who to listen to. Figuring out which customers are the ones you really want to index on, because you believe there are others like them, that's what we called teaching customers. If we picked the right ones and indexed on their feedback, that's what let us go from one customer to three, to five, to ten.

It's a rough road, though. Your first couple of deployments are usually bumpy. The product doesn't work well yet, it's brand new, things go wrong. It's hard, but that's part of the fun. If you do a good job, you become friends with those customers, because you solved a problem that helped them become a hero. They become invested in your company's success. It's really hard to win early customers, but if you get a couple of great ones, they'll say good things to others and start the flywheel of credibility that gets you to product-market fit.

The thing we did a really good job of at Airespace was finding channel partners to help us sell to large enterprise customers. One of the challenges of selling as a small startup to big, established companies is they look at you and think, you're a little company, why should I buy from you? Having big partners work with us to sell the product helped us win a lot of large customers and accelerate our growth.

We grew very quickly. By 2005, we were at $80 million, and the business was cranking. We had effectively unified every company that hated Cisco against Cisco. We called it the ABC strategy: anybody but Cisco. And it worked.

Bob Tinker: Then Cisco came knocking and said they'd like to buy us. My feelings were mixed, honestly. On one hand, we were excited to keep building Airespace. We felt we had a path to really grow the business in front of us, so I didn't really want to sell to Cisco. But on the other hand, it was a huge compliment that Cisco reached out and said they believed we had a great business, a great product, and a great team, and wanted us to be part of their company.

At the end of the day, we felt the combination of merging with the market leader, and being able to sell Airespace products through Cisco's entire sales channel, meant we could make a huge difference: so many more people would get to use the product. That was compelling. The second thing that was compelling was, frankly, they offered a good price, and we felt that was the right thing to do for our investors. So we decided to do it.

It was still hard, though, because giving up on running your own independent company and becoming part of a larger one is the end of an era. It's bittersweet: you have to say goodbye, move out of your office, watch the logo go away. Everything you worked so hard on goes away.

Tae Hea Nahm: It was a controversial decision, and tough in hindsight. People could say we made the wrong call. We were ahead of companies like Aruba and Ruckus, much bigger at the time, and they became multi-billion-dollar unicorns.

Bob Tinker: One of the things I'm most proud of is that two or three years later, Cisco sold almost a billion dollars of Airespace equipment to customers.

Tae Hea Nahm: I'd say it impacted me in both a good way and a bad way. In the bad way, it made me believe I could fix companies, that I knew what to do and could run them myself. So I made some poor investments where I believed I could coach the founder or the CEO and make the company successful. That was a bad lesson, and I had to change how I invested. In the good way, it gave me the confidence and the formula for making good future investments: identify a wave, and be able to catch it and surf it.