Running the Marathon
Umair always loved Mathematics and pursued it with a vengeance in school, but also had teachers who helped him appreciate the role of the arts in his life. Going to work as a high school teacher himself helped him learn how to manage and motivate large groups, reinforcing the need to be innovative so his teachings would add value rather than be forgotten with the pages of a textbook. Given his interest in Mathematics and Engineering, MIT was where he ultimately wanted to go.
Working with people is what he did best and life at MIT constantly challenged his skills as a collaborator and a leader. Umair Khan learned many lessons in college life, some more difficult to digest than others. By the time Umair and wife were both Grad students, they had just had their first child. “If you can raise a child whilst both parents are Grad students, you can do anything.” Life was chaotic, to say the least, full of time, logistical and management challenges. Exactly the kind of training needed to run a startup in Silicon Valley.
But something happened in 1995 that steered the direction of Umair’s life towards the entrepreneurship. A small but niche company, Sapient Corporation, invited Umair to join them right after his Graduate studies but he opted to work at Intel, a giant everyone knew of. “1995-1999 were the golden years for the industry and I really hit the ground running. Almost a year later,” he says, “I got a $1000 bonus which, after taxes became $592.”
He didn’t understand the higher tax rate on bonuses so he leaned over to the next cubicle to ask his colleague, when he noticed a financially healthy-looking graph on his screen. It was Sapient Corporation that had just gone public. “That day, sitting there, it became clear what had happened – I had chosen Intel for the extra $2000 in salary, yielding me a bonus of $592 over the 6000 shares Sapient was offering, which then, would have been worth between $200,000-300,000.” And that just blew his mind.
From the Top
The building blocks of his life were set up in Karachi where he studied at Habib Public School through O’levels, then moved to Karachi Grammar School before going to MIT. He also met his future wife in Karachi, whom he married after they both completed their undergraduate studies, and so was settled in life before taking on the startup world. While Habib Public was the tough, boys-only school that forced you to be street smart, Grammar was at the other extreme, exposing Umair to a different socio-economic class.
“But what helped me most professionally was what I was doing in the one year after I graduated high school and before I came to the US.” Umair was a 17-year old, teaching Mathematics and Additional Mathematics to 15 year olds at The City School on Hali Road. In retrospect, this was probably the best job of my life.” Over the course of a year, he taught and gave private tutoring to those who needed additional help at virtually no cost. Nearly all his students ended up doing very well. Umair was having his first entrepreneurial experience quite by coincidence. “I was essentially leading a team of 30 to 40 people, trying to figure out the social dynamics of the group, motivating those that weren’t performing and further challenging the ones who were. It was a crash course in most things I needed to know about managing a team.”
His first day teaching was actually quite a challenge. “I went in to interview for the job and was asked to fill in for the Math teacher. None of the students wanted to listen to the “new kid”, who was fresh meat for a bit of fun and games. They said they had no text books with them and made other excuses to get out of the lecture. Instead of ‘teaching’ the subject, he shared a blueprint of how O’ level Math would be the key to their success in life and explained to them how life could turn out because of this subject. “The result was pin drop silence broken only by one student asking if he could go into another classroom and borrow a textbook so they could start the lesson. It was thrilling.” That standing in for the regular teacher was actually Umair’s interview and he landed the job. This first day was also the experience he wrote about in his college essay. This narrative was at a completely different level than what most others were writing about in their applications: this was real life, a demonstration of how Umair could handle a tough situation and influence a group of kids to think about their future.
In its essence, entrepreneurship is simple. It’s all about persuading people and everything else is secondary. “You connect with people, empathize with them and persuade them. Whether its your co-founder, your first employee, advisor, investor, your first partner or customer, you have to persuade them to believe in your idea and in you. That makes an entrepreneur part of a rare breed: the sincere salesperson and someone who truly believes in an idea and can persuade others to believe in it. This is something that you can only learn from the Arts, Humanities, Literature, Language and other Social Sciences. To me, anyone who took these subjects and was able to extract the life lessons out of them, is at a significant advantage when they start up on their own.”
The challenge, especially in Pakistan, is to develop this appreciation of reality and of the humanities in a system that is trying to stuff figures, dates and names down your throat via rote memorization. This might actually be a natural filter mechanism: if you can still develop the basics of creating, innovating, communicating and managing despite the system, you’re probably going to end up breaking the mold.
MIT gave Umair what is known as the ‘fire hose education’ where there’s no spoon-feeding and you either sink or swim. “If you are smart you will never sink, and if you are egotistical, you will almost always sink because no matter how good you are, there is always somebody better than you, something that can drive you nuts. If you’re there to learn, you’ll do well, but in case you’re there to prove to the world that you are the best, as was the case with many of us, it’s going to drive you insane. You quickly learn to know your limitations and be very resourceful.
Umair was studying Math and Computer Sciences and loved his time at MIT. The college had a significant Pakistani population, which was very helpful to tap into as a freshman. But then the best thing happened to him: he got his last choice for dorm selection in a seemingly dark and decrepit building where he didn’t know anyone (none of the Pakistani’s lived there), pulling him completely out of his comfort zone. At the time he thought the worst had happened. In three months, he fell in love with being in a place where he could meet and connect with the diversity that was MIT. While most people seek out others they have commonalities with, college is a social environment that pulls in people from diverse backgrounds who can help expose their lives and experiences to you.
When you start your own business, of course you want to reach into your community and network and pull in people from there, but what you need is the confidence to search for people who complement your experiences, not mirror them. From the time he was teaching in Karachi till the time he graduated from MIT, Umair had become extremely comfortable in stepping out of his comfort zone, of interacting with diverse people and persuading them towards his ideas. “Silicon Valley is heaven for entrepreneurs. There is nothing that compares with the entrepreneurial energy – the buzz – in the Valley and the resources here to go out and achieve the unimaginable success are incredible. But if you can’t operate out of your comfort zone and be part of the risk-taking culture, you may not do so well.”
From Cubicle Khan to Clickmarks and Beyond
Being in an established company can be a great learning experience before you take the leap into the world of entrepreneurship. In addition to detoxing what immaturities might still be left over from the student life, it exposes you to different functions within a business, if you are willing to put in the effort to do so. It also gives you time to build the courage needed leave the stable job and a Green Card to jump off the cliff.
Umair hooked up with Safwan Shah and worked on building Chowk.com, an online platform that inspired online community and discussion. “The energy and buzz that Chowk was great. It was a pure labor of love.” In 1999, he made the decision to start on his own and this was the start of Clickmarks.
Clickmarks started off as a shareable bookmark service, like Delicious or Digg is now, but about 8 years before the Facebook/iPhone generation had arrived. “We raised a huge amount of funding, $27 million over four years, which, in retrospect was not as conducive to success as it may first appear. It pinned us in a corner as to what we could do with the company in terms of an exit. All that money can also make you delusional about what is possible and keep you from focusing narrowly on the most important goals.”
An entrepreneur really has to have ridiculous ambition and intense humility and the challenge is to find the balance. “If you have ridiculous ambition and are arrogant, you’re dead. If you are too humble and undersell yourself, you’re dead. “When you have that much money, you start to think about doing too much with the company instead of focusing on one or two things and doing them really well.” Trying to do too much with a business is perhaps the quickest way to kill a business. “We could only do so much with limited resources and, let’s be honest, limited capabilities, and with the investment coming in, we started to get ignore that reality.” In Q4 of 2000, Clickmaks was making a million dollars in revenue a quarter with only 20 people. One of their VCs then insisted on bringing in seasoned management because they felt the impending high-paced growth phase would be too much for young Umair to handle. With seasoned management in, Clickmarks grew from 20 to 80 people and expanded out to offices in LA, New York, Atlanta, UK, Spain, etc., but went from a profitable million dollars a quarter to $3 million a quarter in expenses and no nearly revenue.
Their core focus had expanded from ‘get all your favorites in one place’ to ‘get all the content from the web out to any device’; they were using the growing team to go after all the telcos. This was before smart phones . WAP phones and Palmpilots were the hottest platforms, and Clickmarks was taking all the content and web services and transcoding them onto these (now primitive) mobile platforms. “Vodafone was an early adopter, generating most of our revenue which was huge for us.” Their seasoned CEO (who used to be a CFO) believed in building linearly on the financial success they had just gotten from Vodafone, by getting several other telcos. However, the early success with Vodafone was not easy to simply replicate with other telcos. And then the 2000 crash happened.
When startups win their early adopter and there is only one whale generating the revenue, they cannot afford to relax. They have to evaluate if the product and vision is scalable beyond the early adopter. If not, they must retool their product, which is capital intensive and if you only have one source of revenue in an unstable environment while you are retooling, you may have a serious problem on your hands. “It was just not a fun time,” remarks Umair. “Small-to-midsize company bureaucracy and politics can be even more insidious than in a large company”
It was a Wednesday night late in 2000 when Umair felt more overwhelmed than ever before and needing a break he found himself sitting in an almost-empty cinema theater watching The Lord of the Rings. “It was nearly midnight and the middle of the week, and I remember watching the movie initially with forced interest… until I heard Frodo Baggins tell Gandalf, ‘I wish none of this had ever happened, I wish the ring had never come to me.’ And Gandalf tells him, ‘So do all who live to see such times, but that is not for you to decide. All you have to decide is what to do with the time that is given to you.’ I remember sitting bolt upright in that theater at 1am, and I knew exactly what I was going to do.”
Umair called a meeting of the Board soon after and laid out the plans for revival. “Everything from who to fire, what to change in the product, how to change sales strategy, what the revenue numbers would look like and what the financial impact would be. I remember I was on a conference call with just one Board Member with me while the others joined in from across the country. And the guy who was sitting in front of me told the others, ‘by the way, Umair is not reading from a paper.’ That plan literally came from Uncle Gandalf – the moment of realization that I was wallowing in self-pity rather than doing something about the situation I was in. I went back to being CEO from CTO, let go of most of the seasoned management, including 13 vice presidents, and turned the trajectory of the company. Above all, I regained the feeling that I am incredibly lucky and privileged to have had these journeys with the people and the companies that I did, that I am glad the ring came to me”
Independent of Clickmarks, Umair had set up a group of 5-6 people in Karachi, which helped nurse the company back to financial health. This offshore experiment was his first experience with offshore outsourcing where he saw that you could cut back costs without impacting performance. After Clickmarks was acquired, he started the offshore services company, Folio3.
“We felt when it came to offshore development and labor arbitrage, the game seemed rigged against the entrepreneur. If you are a large corporation, you can get the best talent and throw even more money at them to ensure they stay, but if you’re a small setup, you simply cannot set up the offshore development office yourself. So either you will opt for an offshore development vendor who will not care about you because they have too many bigger fish to fry, or you will go with a smaller outfit that may have their own problems with employee retention and delivery cycles.
As a startup you cannot have people who cannot feel for your product. That’s the pain Folio3 was offering to ease. They were a group of smart engineers who wanted to work with startups as an extension of their business. Folio3 actually had no salespeople; their customers were their sales and marketing arm. They were and remain today smart people who are good at solving problems and living a corporate culture of customer loyalty and hard work. With time, they landed the larger companies who appreciated the unique entrepreneurial approach that Folio3 was extending to their customers.
Folio3 was a partnership between Umair Khan and his MIT batch-mate and Clickmarks colleague, Adnan Lawai, and both had made quite an impression in the US market. “Because people trusted us here, we continued to grow Folio3 to the size it is today.” To cater to the growing demand for development in the mobile space, they have invested in growing their expertise in designing and building world-class apps. This has significantly contributed to their growth in the past three years. “The big consulting firms (Accenture, etc) who spend millions advertising for clients in the mobile space, are not the gorillas any more. Mobility is so new and disruptive, customers are looking away from the usual suspects, towards smart, lean and nimble players like us who can service them.”
Customers like Standard Chartered, First Republic, SAP, Barnes and Nobles, Pfizer, are some of Folio3’s bigger customers. The mobile enterprise space has considerable energy and momentum. “It feels a lot like the DotCom Boom, but hopefully this time with a lot more rational exuberance. That’s the opportunity for us.”
As with all things, Umair’s entrepreneurial circle has done a 360-degree completion with the setting up of SecretBuilders, an educational gaming company inspired by his days teaching at The City School, Karachi. “As much as I want my kids to be great engineers, doctors and leaders, I first need them to be good humans: that comes from a love of the Humanities. So Secretbuilders is my way of bringing the world of Humanities, Art, Literature and Culture to children where they are most present today – on digital screens.” Secretbuilders is a platform that gamifies books so that children can interact with them on digital platforms. They work with many of the major publishers in the world, extending books to interactive apps, all the while focused on a mission of promoting a love of reading and literature among kids 2 years and up
Insights into the Venture Capital Culture
When you raise VC funding and eventually exit, the money first has to go back to the investors before coming to you. Clickmarks had raised $27 million in funding, faltered in execution, then resuscitated back from its near-death after the market crashed and didn’t have a huge exit. “That’s why you always want to be very conservative in capitalization, even though raising more money may make you feel very cool and popular. When I raised all that money at Clickmarks, Venture Beat was covering us and I was in USA Today, New York Times, all of the poster boy stuff. But you come to realize just how ephemeral all that is.”
With the comfort of hindsight, Umair knew there was a serious problem when their expenses overtook their revenue and they had to lay off half the company. “I was firing people I had persuaded to join and letting them down and their families. And this is 2001 so these families aren’t going to easily get bread and butter from anywhere else either because the market is in a serious slump. When reality hits you in the face, it tends to make you grow up very fast from being a poster boy to figuring how to get things back on track.
Entrepreneurship, after all, is about creating value. It is also this enormous sense, almost burden, of responsibility regardless of whether you have 10 or 10,000 people working for you. Anyone at the top messes up the company, the people at the bottom are the ones to suffer, usually due to no fault of their own. “That’s why it’s so important to have the humility with the ambition.”
When you look at a Venture Capital firm, you want to be careful not so much about choosing which one to work with, but who you are working with at that firm. “I personally think the VC has to be a partner who needs to be someone who has been in the industry, tried and failed so he or she can understand the pain as a startup and help the entrepreneur through the teething startup problems, into a robust company. The VC should be able to give you good advice and also to open doors for you. And there are many aspects to selecting which partner you want to work with but the same ruler can not measure all VCs. Of course, the VC has an interest in the returns they will get back once the company exits, but they cannot put that interest ahead of the performance and well being of the company. Nobody can, otherwise things start to fall apart.”
If a VC has, let’s say, a $500 million to invest, it can afford to bet on 50 experiments. Even if two or three of them are home run successes, another few are good hits and the rest fail, they may be satisfied. However, entrepreneurs don’t have the same strike rate – they don’t get 50 tries. “You are simply not going to get as many chances. But let’s be honest – if a company gets sold for $25 million and you make $5 million, that’s life changing for most people. But for a VC, that outcome may not mean anything, which is why they may push you to towards a higher risk path, even it means having you be one of their 45 companies that ultimately failed. That’s the fundamental disconnect between entrepreneurs and VCs which has given rise to the culture of angels and super angel investors. They invest smaller amounts, and are more amenable to singles and doubles.”
One thing young entrepreneurs should do is make sure their business model and market assumptions are fairly validated before going for big money. “A mistake first-time entrepreneurs make is to go for VC prematurely. The other is to feel, when they land a big name, like it is mission accomplished, when it’s not even intermission.”
When it comes to venture funding, the reality that you can start a company for much less today is a game changer. Nowadays, an entrepreneur can build a minimum viable product and get to first customers in $30,000-$50,000 using offshore resources versus $1 – $2 million. The challenge is to ensure that your app or web solution meets a well-defined, monetizable need. “Follow a lean startup methodology with an initial set of features and iterate. Learn from Clickmarks and don’t get caught up with doing too much too soon. We could have done more for much less, with a more narrow focus, testing and validating with customers more than we did.”
According to Umair, he has also seen too many people start something, then give up and move onto something different if it doesn’t work out. “That’s a cumulative waste of resource and effort. Start with small steps, learn, validate, keep tweaking it until it works. Don’t go too big too soon, but don’t give up too fast either. Most overnight successes in Silicon Valley (and beyond) were years and years in the making. As long as you see value in it, you can get the reward out of it.”
What makes Umair Khan a unique entrepreneur is his balance. He loves Math but has respect for the other things in life that may not be as quantifiable. He is a technologist who is a bibliophile. His rollercoaster ride through life has been made up of big risks, incredible comebacks and the realization that inspiration can come from the most random, unrelated incidents.
When you’re in the middle of the startup, putting in a 70-80 hour workweeks with half a Sunday off, it can be all consuming. But you have to pace yourself through the marathon that is a startup. If you sprint through every day of every phase, you are going to collapse. And at 44, Umair Khan is still a strong, yet cool contender in the marathon.