Make Don’t Chase: LLamasoft’s Don Hicks and Toby Brzoznowski
(As seen on www.concentratemedia.com)
July 20, 2011
By Jon Zemke
There’s a difference between building a business and building an acquisition. The co-founders of LLamasoft, Don Hicks and Toby Brzoznowski, know a bit about the latter and a lot about the former. In fact, they know enough about building a business that they have created one of the fastest growing second-stage firms in Ann Arbor.
LLamasoft, a logistical firm based on innovative software, has gone from Hicks and Brzoznowski to 50 employees in 13 years. The 40-something University of Michigan graduates and Ann Arbor residents initially developed LLamasoft’s principal technology as a department for another start-up. They left when they realized that company had a great business plan for Power Point presentations but not the discipline to install revenue-generating building blocks.
That company, Crystallize, and later Applimation, raised $42 million in venture capital and is gone today. LLamasoft avoids VC investment but has $10 million in annual revenue and none of the bad habits that raised red flags for Hicks and Brzoznowski.
“The official kiss of death is when you buy a cappuccino maker for your cafeteria before you sell any fricking software,” Hicks says. “We still don’t have a cappuccino machine.”
“In fact we just signed up Starbucks as a client this week, so we’ll go buy from them,” Brzoznowski says.
Hicks and Brzoznowski have a bit of disdain for venture capital-oriented culture and the following it creates, where start-ups spend more time practicing elevator pitches than winning new clients. To the partners, LLamasoft is successful because it sticks to its knitting while chasing excellence. Do that and the money happens.
“It’s really turned into a cult, this idea that the whole point of a start-up is to chase investment,” Hicks says. “Forget it. It’s really a bill of goods that is being sold out there. A business is supposed to make money, not transfer money from unsuspecting investors to you so you can spend it on yourself over the next year or two.”
Hicks and Brzoznowski invited Concentrate’s Jon Zemke to LLamasoft’s downtown headquarters to talk about talent attraction, building a business and the pending NCAA infractions against Ohio State University’s football program.
LLamasoft is staffed with members of Generation Y and X, which is not the norm for logistics companies. How have you struck that balance?
Hicks: Smart hiring. We hire fiercely competitive people. Just because a Generation Y guy is all tatted up doesn’t mean he’s not fiercely competitive.
A big problem for small companies is nailing down bigger contracts with major corporations because of things like brand unfamiliarity or size of the business. Have you run into this and if so how have you overcome it?
Brzoznowski: In the early years, we had to structure our deals so it reduced the risk to them. We did pilot projects and proof of concepts before they invested in the software, so we were investing with them. As word got out and we grew, analysts realized we were on par or better than our competitors, so the risk factor went down.
Hicks: In the early stages when someone gives you a break, you can’t fail. It will be your last project. So every project is succeed or die. That’s one thing you lose as you get bigger, so you have to try to cling to that.
So is that the advice would you give to a small business trying to land those first few big contracts?
Hicks: Sort of. You can’t just sit there working your one contact. You have to do your marketing.
Brzoznowski: Cast a wide net.
Hicks: Exactly. You’re not fishing for one big fish. You’re casting a big net. And when you get that opportunity, don’t screw it up.
A pet cause for LLamasoft is partnering with nonprofits to improve global humanitarian and public health initiatives. If the bottom line of a business is to make money why devote time and resources that don’t generate revenue?
Hicks: It does generate revenue. We don’t offer free services. If there is no budget that means there is no skin in the game and no investment. We’re here to make an impact and to do that people have to be putting stuff in. Generally when there is no money changing hands, people are not serious about it.
Brzoznowski: It’s a revenue generator but it’s very low margin compared to the rest of our business.
So why do it at all if you’re not maximizing your profits?
Hicks: The goal of our company is to increase the value of our shares. We’re trying to be the leader in supply-chain design. If you’re going to be the leader, then lead. If we don’t help, then we’re not the leader.
Is this a case where personal morals bleed into the culture of a company?
Hicks: We’re subverting the notion that you have to be an asshole at work and a good guy at home. Just be the best version of yourself.
LLamasoft choose one of the most architecturally significant high-rises in the center of downtown. Did you guys have those factors in mind when you choose that location?
Brzoznowski: We’ve known all along that the downtown area is where we want to be. It’s a great place for employees to have access to everything that Ann Arbor offers. Also, our clients are big names and they come here a lot. We want them to have access to everything downtown Ann Arbor has to offer. There is a lot to being in an attractive spot that adds gravitas to the company.
Hicks: It would be cheaper to go elsewhere, but people like it down here.
LLamasoft depends on a lot of young talent coming out of the local universities. How do you convince them to stay here?
Hicks: It’s not really a sales job. You make the conditions for them to stay. Undermine the idea that they can’t have anything better any place else. We pay them well and give them a nice work environment.
Have you found it difficult to convince people who are unfamiliar with the Midwest to move here for a position?
Hicks: It’s challenging, but we’ve been successful with it.
Hicks, you play jazz trumpet. Josh Linkner, chairman of ePrize and also a jazz musician, likes to say that creative-based classes like music are more important in the 21st Century’s economy than traditional ones, like math. Do you agree?
Hicks: No. When people say things like creativity is more important than math, it sounds like an excuse to suck at math. Maybe Josh needed to study harder at math? There is no reason why you can’t be a great jazz musician and pretty decent at math. People in the U.S. need to hunker down and get better at math and science.
Brzoznowski, I saw you used to play baseball at the University of Michigan. What do you think about Tatgate and the arguments for increasing the compensation for college athletes?
Brzoznowski: It makes 30 extra minutes of practicing seem small in comparison. Even though there is a massive amount of revenue in college athletics, I don’t think there should be direct compensation.
That seems like an anti-business point of view. Shouldn’t these athletes be allowed to earn as much money as they can while they’re there?
Brzoznowski: I can see it going both ways. Some of the minor details, like not giving the athletes any means of generating income can be revisited. But the more you funnel money in the more they will abuse that. It also creates a situation where the haves and the have nots have an even bigger gap to fill.
Jon Zemke is the Innovation And Jobs News Editor for Concentrate and the Managing Editor for SEMichiganStartup.com. He conducted and condensed this interview. His previous article was Cooler By The River: Yan Ness, CEO of Online Tech