Scott Tibbitts | Crain's

In this ongoing series, we ask executives, entrepreneurs and business leaders about mistakes that have shaped their business philosophy.

Scott Tibbitts

Background:  

Founded in 2009, Katasi is a technology company based in Boulder, Colorado. It produces a network-level solution to distracted driving in the form of a device, called Groove, which people can install in their cars to hold all messages and other notifications.

Before founding Katasi, Tibbitts founded and served as the CEO of Starsys Research.

The Mistake:

I got hooked on growth.

When I was working in the space business, the company I was with, Starsys, was ridiculously successful. It was born around this cool little invention, a paraffin actuator, and we sold them for use in spacecraft. Once we hit it, we grew at 40 percent per year and were quickly worth more than $60 million. We went from 50 staffers to 70, to 90, to over 100.

At a certain point, people stopped coming to us for the actuators. They were coming to us to solve problems. We thought, if we could add to our tool belt, people would come to us with even bigger problems.

We went out and acquired a motor company and incorporated that into our business. As soon as we did that, it felt like the whole world started hammering on our door. Can you do this for me? Can you do that for me? And these were cool things that we wanted to do – docking systems, rover motors, robotics.

I wish someone would have grabbed me and said, “Scott, do not grow. Do not eat everything on the table. Choose the things that are profitable and focus on them and building your culture. Do not grow faster than 15 percent per year.”

If that had happened, it would have saved me $10 to $20 million. But it didn’t, and instead of restraining growth, I ate everything on the banquet table. I would tell people, if you get too much work, just hire more staff.

But space stuff does not replicate easily. It’s special, it’s dark arts, it’s magic. These things have to be done just right or else you get failures. We attracted the very best talent, but we couldn’t attract 40 percent per year of the very best. We just started hiring off of resumes, and we lost the organizational control and ultimately control over our product. The things that normally worked every time started failing.

That led to us being unable to grow profitably, and eventually to us having to sell the company.

There’s something really addictive about growth, especially for an entrepreneur.

The Lesson:

It is extraordinarily difficult to say no to revenue, but sometimes you have to.

Your company value is a function of your revenues. In the space industry, that revenue multiplier might be 1.5. That means that in 2003 if my company was worth $10 million and the next year it grew $4 million, I just personally made $6 million. That multiplier makes it so hard to say no to revenue.

How can you say no to growth? It almost killed me.

Part of the answer for me was shifting to an industry that can replicate and scale quickly. If you need to make 100 units, you just download another 100 copies.

I’ve swung into an industry that doesn’t rely on hundreds of artists. You can have a small group of talented people support a company that scales to extraordinary levels. Katasi can potentially be a $100 million company with only 20 to 30 people on staff.

The second piece has been to be very careful about hiring. You have to preserve your culture.

The third and final thing is to rigorously prepare for scale-up. Maybe you haven’t sold that many units yet; you still have to be ready to operate at a high level. Overprepare, overprepare, overprepare for every possible contingency.

Of course, we’ll see. I still may have a hell of a time saying no when the opportunity for more revenue comes along.

Scott Tibbitts is on Twitter at @ScottTibbitts and Katasi is at @Katasi_Driver.

Photo courtesy of Katasi.

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