McNealy Talks About Building Billion-Dollar Companies at VC Summit

When you get the CEOs of tech companies in a room with venture capitalists, there’s usually one thing on their mind—making money. A lot of it.

Scott McNealy knows a few things about making a billion-dollar tech company. He founded and was CEO of Sun Microsystems, one of the most important and successful companies to emerge from Silicon Valley. After running Sun for more than two decades, McNealy has returned to the startup game. Earlier this year, he became the CEO of Wayin, a Denver-based social media startup.

With Wayin, McNealy is hoping for a repeat success, just like the CEOs and VCs gathered at last week’s Colorado Venture Summit in Denver. The event offers tech startups and growing companies the opportunity to connect with investors and drew 57 CEOs and founders from Colorado’s venture-backed tech companies and 59 VCs, including 34 from outside the state.

McNealy was the event’s headline speaker, and he talked about building a billion-dollar company and shared lessons he learned from running Sun and from watching the growth of Silicon Valley. Here are some of the highlights:

Get lucky. His first observation was as droll as it is undeniable.

“What does it take? A lot of luck,” McNealy said. Sun Microsystems benefited from good fortune during its early days and then heyday in the 1980s and 1990s, as did the rest of the tech industry’s giants. To support his point, he cited the book “Accidental Empires,” which recounted the rise of Silicon Valley and companies including Sun through the mid-1990s.

“I didn’t read the book, I lived the book. I was an accidental empire, and there are very, very few people who have had two big hits,” McNealy said. He identified Steve Jobs as the one big exception, having founded and led Apple and Pixar.

Don’t pretend to be Steve Jobs. This might be a bit of unexpected advice. McNealy kept coming back to Jobs, emphasizing that he “was a freak” who was so singular he’s not really a good example to try to follow. McNealy suggested that entrepreneurs and CEOs need to keep their egos in check and not try to emulate Jobs’s methods, such as his obsession with little details and his reliance on intuition.

“I think Steve Jobs has probably single-handedly messed up more people because they think they are Steve,” McNealy said. “I’ve only met one Steve Jobs. Most of us are mere mortals.”

Establish a decision-making process and stick to it. Luck isn’t the whole story, of course, as companies need certain things to capitalize on good breaks.

“If you want to really grow, you have to train everyone in the company to have a decision model, and it cannot be complicated,” McNealy said.

“You should decide how you are going to do it, document it, tell everybody, and make it become part of the culture. Delegation is going to have to be something that’s learned and ingrained, because the company will not be a billion-dollar one [otherwise],” McNealy said.

An example is the memo McNealy sent everyone at Wayin when he took over the company. In three or four pages, he outlined how he thinks, works, and makes decisions. A key part was emphasizing he doesn’t want to make many of them.

“My job as boss is to decide who gets to decide. I want to make very few decisions, because I’m not on the ground,” McNealy said.

He said the memo explained that he assigns a few decisions to himself and the rest to different parts of the organization. He wants the process to be participatory but not consensus, and he sets deadlines for when a decision has to be made. He requires decision makers to research the subjects and present what they’ve found at meetings with their key peers. He also wants them to present all the options and justify the course they’re recommending.

Before that, though, McNealy wants to be briefed first, and he does retain veto power, which he very rarely uses.

“There’s going to be a one-in-a-hundred chance I’ll overrule you, but that’s the process, and everybody is going to have to agree and commit, disagree and commit, or get the heck out of the way,” he said.

Pick a cause—and a threat. McNealy calls himself “a raging capitalist” who thinks capitalism is “economic war,” but he thinks people should have motivations in addition to making money. Picking a cause and defining a purpose is something companies should do from the start, and they will see benefits in their performance.

“The psychic income from that cause will drive loyalty, drive energy and excitement, and get people working harder. Yeah, everybody works for a paycheck, but they also like to think they’re working for a greater cause,” McNealy said.

It unifies a company, as a company should be filled with people with different backgrounds united around a common purpose who add value as they work to a common goal, he said.

But there’s another great unifier—having a shared threat that keeps people energized and focused, and maybe even a little afraid of what would result if they come up short.

“Know who are the enemies, and take them on,” he said. “It’s your job and your kids’ educations, or it’s theirs. You decide,” he said.

Leadership can’t be taught, but future leaders can be. “I love HR people who say we’re going to develop leaders. You can’t—they’re born,” he said.

But good leaders need wisdom that comes from experience, and successful companies realize that and give promising employees the chance to grow, even if it means risking some failures. McNealy likened it to continually dunking leaders in deep water to “make them swim up to the top to get air and learn how to paddle.”

“You want them to know every aspect of the business and be faced with every potential disaster and opportunity and drowning moment you can get them in. That’s how you accelerate their gathering wisdom,” McNealy said.

Accordingly, companies need to look past job titles and focus on the talents and character of their employees, he said.

“They’re not engineers, they’re leaders.”

Managers need to focus on people. McNealy warns managers not to get caught up in day-to-day things or the details of a product launch or campaign.

“I don’t think any of my managers have spent too much time working on the people issues,” McNealy said. “They’ve all spent way too much time engineering the product, picking the colors, all the rest of it.”

He said he learned that lesson from Jack Welch, the renowned CEO who led General Electric for much of the 1980s and 1990s. McNealy was on the company’s board, and he said Welch spent about 40 percent of his time hiring, reviewing, training, and firing key managers.

In large companies, CEOs might set the strategy and make a few crucial decisions, but there is only so much they can do when it comes to execution and making all the seemingly little decisions that add up to success or failure.

“The people that make the decisions are the ones down on the front lines. Your job is to make sure you have the people making those decisions. That’s the only way to scale to a large organization,” McNealy said.

Big decisions. Successful CEOs don’t just pick the right people and create a purpose. They also have to get some important nuts-and-bolts decisions right. McNealy named two: the first was identifying the jobs that are critical to success (typically those that build products like chip engineers at Sun or people who engage customers) versus those “that are just there,” like the cafeteria chef.

The other is about outsourcing.

“The biggest decision a CEO has to make is, what do I make and what do I buy—that is your most strategic decision, and you have to think about it a lot more scientifically than you do,” McNealy said. Knowing that should keep a company focused and not bogged down in something like finding the best cafeteria chef in San Francisco, he said.

Trending on Xconomy