A lesson about Startup

As part of the entrepreneurship class, I often share stories of successful entrepreneurs with students so they may learn something from other people’s experiences. This story is based on a note from my friend, a professor in India, where Karam Elahrian came and talked to his students.

As an entrepreneur, Karam Elahian had started ten companies, of which six were very successful. However, he liked to talk about his “First and biggest” failure that he considered important. He arrived in a red Ferrari with the number plate: “ Momenta”, the name of a company he started in 1989, but failed and cost him a lot of money. He said: “I never forget this experience, it changed my life.”

Elahian has a Masters in Computer Engineering from the University of Utah. After graduated, he got a job working at Hewlett Packard but after few years, he left and set up his own startup called CAE Systems in 1981. He said: “I always like to do something exciting. Living in Silicon Valley, I saw many entrepreneurs who had their own company; it encouraged me to start my own. At that time there was no training, no sharing of experience, and we did not know how to start a company but you looked at people like Steve Jobs and thought if he can do it, I can do it too.”

“In the beginning, we had few problems because we did not know how to start a company but we learned quickly. Our strength was that we had many skilled engineers so overtime our startup did well. I believed business skills can be learned quickly but technical skills were something that determined your success or failure. If you wanted to start a technology company, you must have technical skills and hired a lot of skilled people, else you will not succeed. Our first startup grew fast and began to compete with a bigger electronic giant called Tektronix. A competition could be bad for the business of both so they decided to buy my small company and gave me $75 million dollars for it. In 1984 that was a lot of money and I was very happy with my first success.”

He laughed: “Most people would rest for awhile but this “small success” prompted me to think of another idea so in just few months, I launched a second startup called Cirrus Logic. From previous experience in startup, I grew the company quickly but instead of let it got acquired, I decided to issued stocks and enter an Initial Public Offering (IPO) where the company was valued at $150 million. While managing Cirrus, one day I had a dream in which I was reading news and watching videos on a small computer about the size of a book. This was a strange dream because at that time Laptop and Tablet did not exist yet.”

He continued: “I liked the idea so much and determined that it must be a “special inspiration” so I decided to create another startup to make that dream a reality. I believed it would be another success so I gathered my money and launched a third startup that I thought would be one of the biggest companies in Silicon Valley. My two previous successes had given me a sense of invincible so I invested about $40 million for the new venture. Many investors saw my earlier success and invested money in my new company too. I started the third startup called “Momenta” with a lot of money.

He explained “My idea was to develop a small computer that can send and receive faxes where people could bring with them wherever they go. It was similar to a tablet today but at that time the Internet and wireless technology were still new and immature. I did not look at these technologies since I was a hardware engineer and I was very arrogant. I did not think I can be wrong. The problem was my small computer was not connected to anything and cannot send or receive the fax so I set up a data centre to receive and forwarded the fax to the device. My crazy idea was ahead of the time since there was no infrastructure and the technology was not fully developed yet but I did not care. Like a gambler, I just liked to do thing my way, I did not listen to anybody. I lost a lot of money because the crazy idea and it changed my life’s philosophy.”

He said: “One day I came to work and saw all the investors were holding a board meeting. I said to myself, I am the Chief Executive Officer (CEO), President and Chairman of the company, and I did not call a board meeting so why they were there. They said, “We have decided to fire you because we all lost money in this startup.” This came as a big shock for me and I refused to accept the fact that I had failed. I was very angry at them. How dare they fire me since I was the boss?”

“The next day, I got up and started to go to work but my wife said, “Where are you going? You were just fired. You had no company to run and no job, you also had no money left.” I did not believe that they could fire me and I did not accept that fact. After a few days of denial and anger, I began to accept the reality but I am not sure of what to do with my life so I decided to do a “walkabout” like the Aboriginals of Australia.”

“The customs of these Australia people was that if they are confused and do not know what to do with their lives, they would go into the desert and keep walking (walkabout) and do not come back home until they have reached an answer or find peace within themselves. Being alone in the desert or forest by yourself for many days or months will clear your mind. You have no one to talk to and no one to depend on so you must confront yourself. You keep walking and learn how to survive by yourself in nature and it teaches you a lot about things that you do not even think of. If you cannot solve the problem than you keep walk until you die as the aboriginals consider that you are not worth to live.”

He continued: “Of course, my walkabout was not like that but I did wander from place to place for about 13 months. I traveled to numerous countries, learned new languages and customs before realizing what I needed to do with my life. I decided to continue launching technology startups that can bring people together; grow them bigger, take companies global but this time I would do it with different attitudes. From now on, I would not to be greedy and arrogant and I will listen to other people and learn from them. So I returned home and started Entopia, an Internet service for knowledge management. That was another failure and I lost money again but I considered that was a test of my strength so after few months, I started another company called Cahoots that allowed people to collaborate and interact over the Internet. Both companies were founded in 1999 and also failed. If you remember that was the time of the dot.com phenomenon and many companies failed too. The entire industry was collapsed, people were angry, investors lost faith in technology, young people quit study computer science and the economy was very bad. But somehow I remained calm.”

He stopped for awhile and said: “If I ever start another company, people would think I am crazy after all the failures but I did. An entrepreneur never quit, he must learn from his mistake and continue. I reviewed all my mistakes and retraced all my steps to determine what I did wrong and why things did not work as expected. Today many of you would think that was simple because you are taught about the entrepreneurship but in 1999, no one knew anything about startup. There was no class, no teaching, and no training so you learned everything by yourselves.”

“I began to gather market information and asked myself: Who could be the customers? How big is the market? Who are my competitors? How much should I set my price? Who do I reach the customers? How do I get new customers? How do I keep the customers? How do I grow my business? How do I take my company globally?

He laughed aloud: “I saw some of you are smiling because you have learned about it in this class but twelve years ago, there was no such class. I did everything based on learning from my failure. So I launched my sixth company called Centillium Communications, which went public at a $700-million valuation in 2000 and achieved a market cap of over $4 billion. This was just after the dot.com fiasco but my company did well because it was carefully planned with all the details about how to make money and how to be profitable. You learned to follow a process, you learned to do things logically and you learn how to be a successful entrepreneur.”

He continued: “But everything I did, I learned from my first failure: I learned how to be humble, I learned how to be patient, I learned how to be nice with other people, I learned to appreciate everybody even people who were not nice to me. Basically, I learned to be a better human being. As a young and successful person, I have made many mistakes, I was arrogant, I treated people badly, I thought that I am invincible and I ignored others. My failure to be kicked out of the company that I found taught me a great lesson. There is no lesson more precious than failure and you must celebrate failure. It can temper your character and pave the way for great achievements later on.”

He concluded: “So you may ask what somebody like me doing after launched a very successful company? I started three more companies following the same process and they were all successful. That brought me wealth and richness but I did not stop there. I am sure that you think I am greedy. Yes, I am very greedy but this is a different greed. I started my tenth company called iEinstein, an e learning designed for the poor who could not afford to go to school. I came to India and saw all the poor people here without any hope so my goal is to invest in this new ventures and technologies that empower the youth and the poor. I wanted to make a difference in this world because I believe in entrepreneurship and by creating more startups is “The quickest way to reduce poverty” in any country.

Sources

  • Blogs of Prof. John Vu, Carnegie Mellon University
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