You’re not going to want to miss this interview with Alan Knitowski, Founder & CEO of Phunware.
During the interview, we dig into Alan’s incredible background including his stint as an Army Ranger, the founding of his first company, which he sold for $169M after just 22 months, and so much more.
The stories Alan shares in this interview are inspiring and the knowledge he shares is priceless. Enjoy!
Have comments, questions, ideas, or feedback? I want to hear it. Tweet me at william_griggs.
Topics Covered In This Episode
- Have you always wanted to be an entrepreneur?
- Is there anything in you background that drove you this direction?
- Have you always wanted to be an entrepreneur?
- Military / MBA
- Can you talk about your experience in the military and what that taught you?
- How did that experience equip you to start Vovida Networks?
- How does Nortel play into your story?
- What did you learn from building Vovida Networks?
- How were you able to build something so quickly (22 months) that Cisco valued so much ($169M)?
- What mistakes did you make that our audience could learn from?
- What did you learn during the process of selling it to Cisco Systems?
- What did you do after the wire transfer cleared?
- What have you learned starting and running Phunware?
- How were you able to get the initial sales?
- What do you find yourself helping early-stage entrepreneurs out with most?
- What kind of mentality do you have to have to be a successful entrepreneur?
- You invested the first $100k into Vonage, correct? It now has a market cap around $1B.
- What did you see in that opportunity?
- What have you learned along the way?
- You invested in RingCentral which went public and is worth over $1B.
- What did you learn from that experience?
- You invested in Bazaarvoice, which went public and is worth hundreds of millions.
- Why did invest in BV?
- You invested the first $100k into Vonage, correct? It now has a market cap around $1B.
All right, Alan, thanks for joining us today.
Alan Knitowski: Hey, thanks for having me. I’m really looking forward to being able to participate.
William Griggs: Yeah. I really appreciate your time. You’ve got a great background and a great set of experiences I know our audience can learn from today. I really want you to help them, these early stage founders, listening to the podcast learn from your experiences as a serial entrepreneur to increase their likelihood of success. But before we do that, can you kind of give our audience maybe a 30 second overview of your background, what you’ve been able to accomplish, and what you’re working on type of stuff?
Alan Knitowski: Sure. So you hit the nail on the head. Ever since I got out of the U.S. military, I was an Army Ranger for a number of years. I got into the serial entrepreneurship game. I spent 12 years in California split between Silicon Valley and Newport Beach. I have been in Austin for about the last seven years. So undergraduate and graduate school at the University of Miami and Georgia Tech were tied to industrial systems engineering. Then when I was in California, I did an MBA at UC Berkeley. I was very fortunate to have been trained on how to be an entrepreneur and a first time CEO by none other than Ron Conway and the original SB Angel Fund.
So basically, I’ve been a non-recovering serial entrepreneur. I have been blessed with having built and sold a number of companies to Sysco Systems, Level Three Communications, and Internet Security Systems which then was subsequently bought by IBM. For the last more than six years now, I have been the founder, chairman, and CEO of Phunware which has been very blessed and fortunate to have been back to back Inc. 100 on the growth list for the three year windows that they have rolling back to back. Forbes list of America’s most promising companies.
Last year, we were blessed enough to have received the number four fastest growing company in North America from the Deloitte Technology Fast 500. So it’s been a bit of a whirlwind.
William Griggs: Very cool. Yeah, you definitely touched on a lot of stuff. The military experience, business school, entrepreneurial endeavors, Phunware. I want to dig into all of that. But if we go back to the beginning, have you always wanted to be an entrepreneur?
Alan Knitowski: You know, I think I’ve always wanted to become a millionaire. That’s a weird thing to say, but I grew up from a probably upper to lower class family or middle lower class family. Both parents worked very hard. My father was a mason. My mom worked in a Junior High Library. We didn’t have a lot growing up. I had two older brothers. My parents taught us to go through life and not feel like a victim.
It’s the United States of America, and anybody can accomplish anything if you put your mind to it. You work your butt off. So I think it was a great way to grow up and realize … at the time, you don’t necessarily realize what you do and don’t have. That becomes evident later. I think entrepreneurship became a means to achieve the goals that I had which was really to see if I could try to be a millionaire by the time I was 30 and not necessarily knowing how I was going to do that at the time.
William Griggs: Gotcha. How did you translate kind of that urge and that upbringing and some of those lessons into a military career?
Alan Knitowski: So the first part was growing up in Tucson, Arizona. One thing was what’s as far away from mom and dad and home that I could get without leaving the United States or being cold. So I probably could have picked Alaska or Maine or something like that. University of Miami had a unique program when I was graduating high school in 1987. I was fortunate to have been first in my high school class. So I had a lot of academic offers and other things that I could pick from for college. I did look at West Point. I looked at the Air Force Academy. Then, I applied to all the Army/Navy/Air Force ROTC programs.
Ultimately, the University of Miami had a unique program where if you used your ROTC scholarship in addition to having tuition covered and your $100.00 a month stipend to live off of, you basically had a program at Miami that would pay room and board. So that really was the driver that had me go from Arizona to the U.
William Griggs: Gotcha. Very interesting. So you were in ROTC at University of Miami. Then how did that translate … how did you get to become a Ranger? How did earn the right to become a Ranger?
Alan Knitowski: Yeah, so funny story. I actually finished an industrial systems engineering degree at Miami. I did well enough there to qualify for an educational delay. So when I graduated, I was commissioned as a pilot. I was supposed to get my mandatory 8 hours of sleep. I was supposed to enjoy hopefully being an Apache helicopter pilot. But when I went to graduate school and had another engineering degree, the beloved U.S. military decided that the needs of the Army yanked my pilot slot and put me in the Corp of Engineers. Then, I was sent off to Ranger school. So I was able to do Airborne, Aerosol, Ranger school.
Then, my welcome to the real world was being sent to the ’94 nuclear weapons inspections at North Korea. I lived on the DMZ for a year before continuing my path. I was always a bit disappointed that I never got to be the pilot I always wanted to. Back in high school was when Top Gun came out. I was as infatuated as everyone to be a pilot and it would be like in the movie. But in reality, because I had the background I did, I was moved into a different area of the military. Then all of a sudden, got to learn what it was like to not get to eat or sleep as opposed to getting my mandatory eight hours of sleep being a pilot.
William Griggs: Yeah. So as far as the drive that we talked about a little bit earlier about wanting to become a millionaire by age 30. Did that happen pre-military or while you were in the military?
Alan Knitowski: No. It was post military. It actually didn’t think I was necessarily going to be able to accomplish that goal when I was still in the military because I didn’t really think I was going to get out. I was going to stay in and do a company command and continue that career. It was really a complete accident that I ended up getting out of the service. I ended up getting married. I was going to meet my wife’s family for the first time. We had met them in Southern California. We went back up to San Francisco and the bay area.
We were literally having a drink at a bar getting ready for our flight to go back to Hawaii because I was stationed at Scofield Barracks, Hawaii. I think that was my reward for having spent the time at Korea. What happened is a head hunter walked up to me – I don’t even know what we were talking about – and asked me if I would please miss my flight. I looked at him like he was crazy. I said what in the world would I miss my flight for? He said we have an interview we’d like for you to do. I said how would I get home then? We’ll cover your flight. So where would we stay?
We’ll get you a hotel. How would I get to the interview? Well, we’ll get you a car. I was like I don’t have anything but shorts and a t-shirt to wear. They said that’s fine. Go ahead and do that. So I ran out of virtually everything to say. Finally, I said what would my wife do? Well, we’ll give her a $200.00 to go shopping. I just looked at her. She looked at me. We were kind of both puzzled and surprised and ultimately agreed. Then, I went and interviewed at Northern Telecom at Santa Clara for probably about six hours. I told them what a bad idea it was because I couldn’t be out for at least 18 months.
I didn’t know anything about telecommunications at the time. All I knew about Northern Telecom is that I grew up in Tucson, Arizona. They sponsored the PGA Tucson Open for golf. So ultimately, by the time I flew back to Hawaii, I had a job offer waiting on my doorstep. That really changed the path which lead me to get out of the military in August of ’96. Then, literally I spent the next five years in probably the biggest internet and tech boom in history in the middle of Silicon Valley. While I was there, it just seemed like everybody was starting companies. You were just supposed to do that.
So without really having a clue what that meant, I ultimately had another gentleman I worked with at Nor Tel who was on the technical side who happens to be the CTO of Phunware here. We’ve spent almost going on 20 years together ever since. We ended up starting our very first company. That was how the entrepreneurship path started.
William Griggs: That’s very interesting. So in the military, were there any certain lessons or skills that you learned that you think helped you become a better entrepreneur?
Alan Knitowski: Sure. I think context. Being in the military and trying to be an entrepreneur ironically have a lot of similarities. You always have less resources than you want, less time than you want. You’re often in situations that are difficult and adverse. You don’t get a lot of sleep and food. So the biggest thing I think translated was the context where at the end of the day I can think about what’s the philosophy that we approach Phunware with is I get to eat at some point today. I’ll get to sleep at some point. Since I’m in Austin today, I’ll get to see my family. And nobody is shooting at me. So this really can’t be that bad.
William Griggs: Right. So that kind of context is super helpful as you move into the entrepreneurial space. When you had that job offer at Nor Tel, when did you decide to get your MBA?
Alan Knitowski: Actually, I decided to do it while I was at Nor Tel. Part of the reason was I had two engineering degrees and didn’t want to have people necessarily looking at me and suggesting that I was an engineer. Industrial engineering is kind of a unique engineering because it’s very much about optimization and heuristics and efficiencies and work flow and process. It’s a great form of … almost like a very technical MBA in some respects. So I think that it became one of those items that I wanted to do more to check a box, and I think set up where I could have people try to assume that you were either too business or too engineering.
I wanted to be as rounded as possible. I was a product manager at the time. I think if you ever want to be a startup CEO, being a product manager at a big company is a fantastic job because it forces you to learn about hardware and firmware and software. It forces you to learn how to find products and to launch them, how to do marketing and sales, and order configurations and logistics, and support in returns and everything on a global basis. So it’s like running your own small empire, if you will, on a global scale for a big company tied to a specific product line.
Often when you start a new company, before you can really grow up to be a big company and a big idea you’ve got to start with a specific product or service offering that’s going to be the basis for what you plan to build.
William Griggs: Gotcha. As far the MBA and your experience there, what do you think helped kind of equip you to start your first venture?
Alan Knitowski: It was interesting at the time. I was both doing the MBA and I was also starting a company. So what I found through that process was that sometimes it was a little blurred as to what you were learning in the MBA versus what you were learning by having Sand Hill Road just beat the hell out of you. I think between the two of those, a lot of the colleagues that I went to school with and just the experience sharing amongst all the things going on at Silicon Valley at the time, it was probably a good blend of the School of Hard Knocks meets formal education.
So I think that Berkeley helped hone some of the skills to think about working with David Acre who did the Intel Inside campaign, and named the Athlon chip and all the methodologies of thinking about branding and positioning. I think he had some really great instructors that were like that. Then, the rest of it was really to just give you a very wide exposure set with experience across all the various functional areas that were relevant. Entrepreneurship, branding, strategic marketing, finance, accounting. I think all of that set to put an overlay so that you could have both the quantitative perspective to go along with the qualitative perspective.
William Griggs: Very interesting. So you talked a little bit about Sand Hill Road beating the hell out of you. Can you talk a little bit more about that experience?
Alan Knitowski: Well, I think, no matter who you are in the world and no matter what you’re trying to do even if you don’t want venture funding, I think if you really want to see what a certain form of hell is like trying to get to a general partners meeting on a Monday morning at a big time Silicon Valley VC is just an experience that everyone should go through even if you don’t want the money, even if you don’t need the money. I think having people just stand who are wildly intelligent throwing knives at you nonstop for an hour straight … there’s nothing you’re going to do that is going to avoid blood spilling.
It’s just a matter of you don’t want to get hit in the jugular, if you will. So when I had that first experience, it was with Sequoia Capital. When you went around the table, you had Mr. Valentine who you always called Mr. Valentine who founded Sequoia after being the founder of National Semi-Conductor and lots of other things. You had Mike Moritz, you know, Yahoo and Google fame. Doug Leone of numerous companies up to more recently Ring Central. But you just had every single person around the table was just a ridiculous investor with amazing successes across Sequoia of all firms.
Yahoo, Google, Apple, Oracle, and on and on and on. Just like foundational companies in history. Every one of them went through there. You’ve got to really distill down everything you think you know into 12 to 15 slides. Those 12 to 15 slides have to be able to articulate that you’ve thought enough about every conceivable thing that would go on with who are you, what do you do, where do you come from, what’s the problem you’re solving, what’s the product of service that addresses it, what’s the competitive landscape look like, what kind of direct and indirect selling motion are you going to do, how do you overlay that with sales and marketing in the full nine yards.
Then, the financials and business model that go with it and investment opportunity. You’ve got to just kind of do that on the fly and know it cold without even looking at your slide deck. So that experience, I think, is useful for everyone even if it doesn’t go the way they might like it. Even if they don’t want it. There’s nothing better than to really see what the smartest of the smart money thinks and to challenge every little thing that you believe in and stand your ground.
William Griggs: Yeah. So standing your ground. Were you also able to maybe adapt and rethink through some of the stuff to make a stronger business case afterwards?
Alan Knitowski: You’d like to think so. I mean, you always sometimes think outside the box. Sometimes that’s a good thing. Sometimes it’s not. Entrepreneurs by their very nature have to have a little ability to have extremely smart people tell them things that they can both accept things that makes sense and completely dismiss the things that are contrary to their vision. There’s a lot of stuff, I’m sure, that are comparable to being an actor or actress. You’re too tall. You’re too thin. You’re too young. You’re too old. You’re too this, and you’re too that.
You have to get an awful lot of rejection which is pretty much synonymous with the pursuit of institutional capital. Everyone wants to tell you how stupid you are, how little you know. My favorite quote I ever heard when I was a first time CEO was how naïve I was to think I could even comprehend how to run a company. Those are some hard things to figure out how to respond to. So when I heard something like that you don’t want to be a jerk. You don’t want to be offended. Statistically, what they’re saying to you is accurate.
The only thing I could ever come up with that I thought was a reasonable response was to say respectfully, Mr. So and So, if you told 500 people across the table at lunch that they were naïve if they thought they knew how to build a company, 499 times out of 500 the statistics say that you’re going to be completely accurate. I can’t dismiss all the experience you’ve had and the pattern recognition you’ve gone through. There’s nothing I can come up with to say that is going to disprove the fact that 499 times out of 500 you’re going to be right. But the question you really have to ask yourself is am I the one.
Ultimately, until we go fast forward and look backwards at what happened, you’re really not going to know if I’m the one or not. I think I am. You don’t think so. We’re both entitled to that opinion. Now, we’re going to get to see what happens.
William Griggs: Yeah. That’s a very interesting perspective. So let’s dig in a little more to Vovida Networks and make sure that we can pull out some learning so we can help the audience members hopefully be that one, that person, to build a successful company. So Vovida Networks … am I pronouncing it correctly?
Alan Knitowski: Yeah. It was the first to letters of the voice video and data.
William Griggs: Vovida Networks. From my research, it said … the internet told me … you can confirm or deny this. You sold it for $169,000,000.00. Is that correct?
Alan Knitowski: Give or take. Not exactly the right number but close enough for government work.
William Griggs: Close enough for this discussion. It also looked like based on some of the research that it took about 22 months to exit that company. Does that sound accurate as well?
Alan Knitowski: Yeah. It was kind of a whirlwind. We started in February of 1999 and actually sold it in November of 2000. So I was actually accused of having done one of the last deals in Silicon Valley before that particular bubble really popped in March of 2000. It was really December of 2000 when Sysco Systems missed earnings for the first time in its history. They used to beat by .01 religiously for years and years and years. It was a public company. We closed in November. Sysco pre-announced in December. Then, the last part of the tech bubble and the internet bubble started unwinding.
I was always jealous that I didn’t get to do a bubble deal. So I would have always liked to know what it was like to get excessively overpaid through the bubble. But I think ours was a little bit more on the rational realm. But it was an exciting thing. It was the world’s first open source class five switch replacement built on Lennox back when nobody really knew Lennox. It was pronounced Lennox at that time. No one really had any idea how to use Lennox for telecommunications and networking. It was typically done using UNIX or some derivative of UNIX or it was usually Windows.
William Griggs: So $169,000,000.00 give or take. 22 months give or take. What were some of the lessons you kind of learned through that experience that are still transferrable to today?
Alan Knitowski: Well, the biggest thing is that you have to feel comfortable in your own skin. You have to feel comfortable zigging when people zag and vice versa. When we were building something, there had never been anything built in the world for telecommunications on Lennox. We literally had to go with audio codes and beg them to put a Lennox driver on the hardware or our entire business wouldn’t work. So I think the biggest thing is the lesson I would say in all entrepreneurship … if you believe it’s possible, then it is.
If you believe it’s not possible, then it will never be. If you believe that you can accomplish what’s seemingly seems impossible, this isn’t the right thing for you to do because you’re always going to have less people, less money, less reach, and less everything than everyone you want to compete with. So what you have to do is feel very comfortable to find a market often that people don’t even know exists to find something that foundationally solves a really important problem.
Then, for you to be a dominant player in that ridiculously growing market that most people didn’t see and find things that you’re comfortable doing something based on what the market empirical data is saying not what people’s perception of the “experts” believe is happening. I think that applies whether it was you can’t build an open source business model for telecommunications that will work. You cannot build anything using Lennox. You can’t do anything that’s going to compete with the incumbent oligopoly of Nor Tel Ericsson, Lucine’s alcatel, Siemen’s Nokia.
The reality is you have to take all that in and see is that just that your perception is wrong, is your data wrong, do you trust the wrong industry or market analyst. Are you just not paying attention to history? So you have to have strong conviction to do something that fundamentally people don’t believe in and consistently do that. I think most of entrepreneurship is all about that.
William Griggs: Yeah, definitely. As you were starting to build Vovida, were you thinking all along about how this might fit into somebody like Sysco’s product portfolio?
Alan Knitowski: Honestly, not at all. The first motivator of Vovida Networks was that Nor Tel had decided after they had committed to funding my MBA at Berkeley that they decided that it was a corporate benefit. They no longer had to honor that contract unless I would agree to stay with them for like four years after completion. That wasn’t the deal I signed up for. While people like this say the old adage that hell hath no fury like a scorned woman, I’d like to say hell hath no fury like a scorned serial entrepreneur with access to capital.
They pissed me off so badly about that that I said how do we come up with a business model that would go after the core profit in software of Nor Tel. Give it all away for free and compete. Be the equivalent of like giving away Windows to sell Office on top. So my first entrepreneurship wasn’t just that I wanted to try to do it, it was literally that I wanted to implode Nor Tel because I was so furious that they would not honor a contractual agreement with me. Then, tried to change the rules of it.
So what I created, little did I know until a little bit later, is that in the year we were bought by Sysco one of their top three corporative initiatives for the year was to destroy the profit sanctuaries of the NELAS. NELAS is an acronym for Nor Tel, Ericsson, Lucine, Alcatel, and Siemens. They were trying to disrupt the circuit switching incumbents to then make voice over IP and packet switching more relevant.
Little did they realize that we had come up with a business model that was very friendly to doing pull through demand for Sysco phones and switches and routers and gateways that simultaneously caused more devastation to the incumbent systems in place than anything that they had ever thought of. Sometimes the stars align where that kind of anger and frustration and motivation intersected with a business need by up and coming telecommunications players against what amounted to a 100 year incumbent.
William Griggs: So you had the deal with Nor Tel. They were going to fund your MBA. They pulled that. You had paid for it out of pocket. Then, you turned like you said to create an entrepreneurial venture to help destroy them. Do you think that – I don’t know anything about Nor Tel recently are they still around? Are they doing okay?
Alan Knitowski: No. Actually, Nor Tel ultimately went bankrupt.
William Griggs: There you go.
Alan Knitowski: So they have not been for a lot of reasons beyond myself, for sure. But it was sort of a mixed emotion day when they actually filed because at one standpoint one of the motivations of my first company actually came true. Then on the other side, it was kind of sad to see from the standpoint of the folks that were still there that I knew that you never like to see something like that happen to people that you know and like.
William Griggs: So as far as building that company and going through that process, looking back are there any kind of obvious bonehead mistakes that you would never make again?
Alan Knitowski: You know, ironically, we in retrospect after doing so many companies really made a lot of fortuitous decisions that prevented a lot of potential carnage. What I would say that the smartest thing that we did was that I’ve always worked with Wilson Sonsini Goodrich & Rosati which is the law firm in Palo Alto with other offices that sort of is emblematic of the blue chip of the blue chip as it relates to startups and technology companies specifically. They are set up with an office bordering Stanford University in Palo Alto. They invest out of WS Investments which is the partner money. They’re very entrepreneurial friendly.
They really helped make sure the structural elements of our financing, our articles of organization, our bylaws, and our corporate structure which was a Delaware C Corporation. Everything that you could do to screw up as an entrepreneur they basically made sure that none of that happened. I would say as a result, it gave us the widest variety of opportunities to be successful. I would say that to this day even though I’m in Austin, I still work with the same team through all these companies directly in Palo Alto. It’s always been a great blessing.
The general partner, Casey McGlynn has been with me over all these years. He was one of the three managers or co-managers of the original SV Angel Fund with Bob Bowman who is another fantastic person that’s been doing startups forever along with Ron Conway, kind of the godfather of Silicon Valley Angel Investment. So I would say that the most important thing is to get the structure right. If you’re trying to build something that you want to be large and you want to raise money, the best opportunity you will have is to work with someone like Wilson Sonsini so that when you have investors look at the deal, they’re not worried that the documents or the structure are messed up.
Oh, Wilson Sonsini did it. Check. They also can make sure that you use a Delaware C Corporation which is critical. In fact, I was going to look at Angel Investing. Someone told me they were anything other than a Delaware C Corporation, that would be strike one in my mindset without even knowing who they are, what they’re doing, or why. So I think that once you get the foundation of that right, then you set up the best opportunity to be successful. So I think that’s been the benefit that I’ve seen. We didn’t make a lot of mistakes. You can never have enough money in the bank.
That’s always a common theme. You’re always out resourced and out gunned. You still have to make it work. Maybe that’s where the military part has always been beneficial, as well, that it doesn’t matter how screwed up the situation you’re thrown into, you still have to figure it out.
William Griggs: That’s some good advice to drive home. Get that legal help set up. Initially, make sure you get everything and documentation like you said … all the foundational elements. Dotting all of your I’s and crossing all of your T’s. When you sold the company and it was final, how did that feel? Was there any moment in time that you could take us to that we can kind of experience that feeling as well?
Alan Knitowski: Well, sure. It feels very satisfying and very gratifying obviously. It’s financially a mess of change. You go from the situation you’re in as a first time entrepreneur. Then, you have a concentrated stock position that represents the lion share of your net worth literally overnight. So all of a sudden things like estate planning and all this crazy stuff that you would normally never think about … wills, medical directives, powers of attorney, and all the people that suddenly want to be your best friend. The scary part is the second … it’s not when the wire hits. It’s when the press release hits that everything turns into a mess.
I think we had 18 phone calls at 6:00 a.m. Pacific from the second that the press release hit that Sysco bought the company because it was 9:00 a.m. Eastern. Every wealth management group on Wall Street suddenly wants to be your best friend, has always loved your company, and cared about your family. They’re just all full of garbage. No one cared the night before, but suddenly everyone wants to be your best friend because they’re trying to get fees, I’m sure. It’s no different than if someone hit the lottery. They’re just different sizes of lotteries.
William Griggs: I know often times for people getting the lottery, it’s deferring that kind of announcement so that they can kind of get all their ducks in a row and things in order. So when people start coming to them, they have a game plan and won’t get tricked into that. Is it similar? Or is it just kind of knowing that’s going to happen? So you can help the people in the audience when they get their exit to make sure they don’t make those poor decisions.
Alan Knitowski: Well, what we did is between signing the deal and actually closing where it became public information, I took a portion of the employee base in our company and I sort of mandatorily set up for their families to go sit down with the lawyers at Wilson Sonsini and do estate planning because I knew that none of them would do it on their own. So I actually forced them to do it. So I did it myself as well, but there was about another eight folks that I made them arrange with their spouse or significant other to go up and get it all done and gave them the day to sit there all day and do it.
That was something that maybe they would have done it, maybe they wouldn’t have done it had I not intervened. But I thought it made more sense to force them to do it so that I didn’t have to worry about what may or may not happen. The reality is people can make good or bad decisions like anything else in the world. You hear horror stories of athletes and celebrities and entrepreneurs and lottery winners or people that get an inheritance that are either responsible or not responsible. Everybody makes mistakes in that process because no matter how much education you have, no one really teaches you how to protect, preserve, or enhance the money you have.
If you want to read a seminal book on why you don’t want to trust other people with your money, just go read Michael Lewis’s Liars Poker and you’ll make sure that you learn how to manage your own money. I probably manage more of my own money through what I do at Charles Schwab directly because when I sold the business and used Goldman Sach Wealth Management, I realized that if you’re a billionaire you might get some really amazing talent at Goldman Sach. But if you’re just a millionaire, you tend to get some pretty junior people that may or may not know as much as you about the markets.
So I think that it’s important to really be intelligent, to really think about things. It’s not like someone goes to class to learn how to balance their checkbook anymore to do an estate planning any more than they realize how to buy vehicles or do a mortgage. Half of these things people get slapped in the face to learn throughout their lifetime. When you go to school and no one teaches you most of these things. So that’s a hard lesson. What I would say that changes the most are more the people around you more so than you.
Clearly, you might have some changes, but the people around you … because no matter what you do the biggest example of a simple question that gets asked where you’ll be an ass no matter what you do. You can take stock that you give people for free. Some of your friends. Some of your family. Maybe some of your classmates. You’re sharing the distribution of some of this wonderful economic thing that just happened. They’re going to inevitably ask you one question which means you’re an ass no matter how you answer it. Should I sell this stock?
If you say no and the stock goes up in value after that, you’re the ass that cost them money because they could have made more by not selling. If they say should I sell and you say or no and the stock goes down inversely, then you’re the ass that they could have sold the stock and made more money. A lot of people don’t look at it and say I didn’t pay for this. Thank you. A lot of people will actually ask you that question. You’re damned if you do; damned if you don’t. So you just have to be a little bit more cautious and understand that there’s a lot of folks out there that may want to get access to you.
William Griggs: So let’s transition to talk a little bit about your current venture, Phunware. You’ve been working on that for several years. But if we go back to kind of the beginning, you had a new venture. You had a new approach to the market. How were you able to kind of get some of these initial sales?
Alan Knitowski: A lot of it was when we started Phunware in February 2009, a little more than six years ago, only 2 percent of the world’s internet traffic was mobile. That mobile traffic was predominantly through carriers on feature phones. The good old flip phones. Most of the applications you would use would be tied to what they called on deck. You might get them through your cell phone bill on a monthly basis whether it was a ringtone, whether they were other small applications you could use. The IPhone didn’t come out until about the summer of 2008.
So for the six to nine months before we started Phunware, we were trying to figure out is this going to be different? Will this smartphone, despite the fact that there’s been a palm and all these other devices, is this going to change things? Fundamentally, it actually did. When we started the business, less than five applications were enterprise branded. Like a Bic lighter might have been as close to an enterprise application. There was no NFL on mobile. There was no NASCAR on mobile as it related to these smartphones.
So all that came later. So what we tried to do is take our learnings from the shift from circuit switching to packet switching and had the ambition to say how do I reach every connected device in the world. How do I create something … you know, we call our software Phunware. Phunware the name means applications that exhibit game like mechanics and behavior. In order to reach everyone in the world, we wanted our software to be as foundational as hardware, software, and firmware when you talk about technology. So that’s a pretty big goal and a pretty big idea.
If you’re going to say how do I reach every device touching the network in the world, we had to put a lot of thought in to what kind of horizontal platform would we create, what were the vertical solutions that pre-integrated that platform. We were one of the only ones in the world that believed mobile first, native first, and fully integrated first though a single login. Everyone was funded to be a point solution which we didn’t believe in. We also didn’t believe in Apps. We believed in experiences. We believe that the experience that you wanted to download if you were an NFL fan would be that high value touch point between the NFL brand and these any time anywhere audiences at scale worldwide.
We threw ourselves into learning the use cases and feature sets of what an experience on mobile meant anywhere any time with those rampant consumers and passion verticals that media, entertainment, and sports where adoption started. Then, we use those learnings to build our platform. If you’ll remember back, everybody wanted mobile to go the way of the web. They wanted HTML 5. They wanted responsive web design. They wanted write once from anywhere, you know, LinkedIn, Facebook, Google. Everybody wanted web apps in Safari or Chrome.
Nobody wanted stand-alone apps. But that’s not what happened. Today, not 2 percent of the world’s internet traffic is mobile. 65 percent is mobile. Of that 65 percent that’s mobile, over 90 percent of that are in applications not browsers like Safari and Chrome. Of those 90 percent of those applications, over 90 percent of those are free or freemium. Somebody’s got to pay for free. So what we realized is let’s be the world’s first mobile cloud company. We evolved that from mobile to multiscreen. We created MAS or multiscreen as a service.
95 percent of our revenues are infrastructure composed of subscriptions that look like SAS and transactions. Only about 5 percent of our revenues are services. We know have a 200 people. We’ve grown immensely over the last six years. I still am terrified every day of the week that we have a big enough balance sheet to support having record bookings and record billings quarter over quarter, year over year. First quarter, we were up, I think, almost 80 percent on a gap revenue base year over year for the first quarter. Bookings were up over 112 percent for the first quarter.
So the good news is that’s blistering growth. This quarter, we’re going to have record bookings and record billings again. But as you do that and as you are that successful, you have to keep raising increasingly bigger and bigger pools of money to support the float, the carry, the invoicing, the collection, the fulfillment of service, and the expansion of all that revenue. So it’s a never ending process. Over time, it’s not like the headaches go away. They just kind of shift. The numbers get bigger. So the size of the balance sheet needed are bigger.
After all the years I’ve done, probably more than 15 year of young company building, I like to call myself an experienced optimist at this point.
William Griggs: That’s a great overview of kind of the genesis of the company and where you are today. So let’s kind of transition to kind of some more rapid fire questions as we wrap up. So once we get done with this, the people listening to this can get back to building their business. Let’s do some rapid fire questions. How’s that sound?
Alan Knitowski: Sure.
William Griggs: All right. So as far as advising other entrepreneurs and helping out maybe as a mentor, where do you find that you kind of help early stage entrepreneurs the most?
Alan Knitowski: Well, before I started Phunware, when I first moved to Austin I joined the Central Texas Angel Network which has been a fantastic place. So a lot of the things that I’ve done is with Inc. because we’ve been one of the Inc. 100 companies the last two years and I’m ex-military. I’ve gone out a day early where they have an event specific for military entrepreneurs, military veterans, families of military veterans, and active duty service men and women. I’ve actually volunteered my time to try to help whether they’re for profit or not for profit. I try to stay involved where I can with Central Texas Angel Network.
But now that I’m wearing an operator hat, that’s been a little bit harder. A lot of the incubators and a lot of the network groups here in Austin, there’s Capital Factory. There’s Bootstrap Austin. There’s the Austin Entrepreneurs Network. They have the Association of Texas Angel Networks which has Central Texas Angel Network, Baylor Angel Network, and Houston Angel Network. So a lot of these places are great ways to be able to give back, to be able to engage, and to provide advice. All of us can learn all the time. None of us have a monopoly in the way to do everything.
But there’s a lot of good experience from different verticals. I find that when I get an operating hat, it’s a little bit harder to do as much as I do when I’m not wearing an operator hat. But I have a thing coming up shortly where I’ve done for probably about five different universities where they have business or entrepreneurship classes. I’ve done it at the University of California at Irvine. I’ve done it at the University of California at Berkeley, the University of Miami. I’ve done it with Baylor University. I’m getting ready to do it at Concordia University.
Where I’ll go in a spend an evening and actually talk about what it’s like to be an entrepreneur and kind of the scared straight version of what it’s like to put your house as collateral for your Dell equipment and all the things that can and should go wrong. What can happen in relationships and your family and your marriage if you don’t have these things aligned and everyone’s not on. Because there is no free lunch in this stuff. So that’s really where a lot of the giving back comes from is to really try to pay it forward the way other folks in Silicon Valley were kind of enough.
You hear the famous stories of the young Steve Jobs going to the Hewlett Packard founders and reaching out directly which is why an older Steve Jobs, even though he was competing with Facebook, would host a Mark Zuckerberg. That’s really the right way to think about it. I encourage people to think about cooptation, pay if forward, and do as much as you can so that people can hopefully avoid some of the mistakes that others might have made early on.
William Griggs: Very interesting. As far as doing some investing on the side as well, can you talk a little bit about Ring Central and Vonage and Bizarre Voice. What you saw in those companies. Why you put money in.
Alan Knitowski: Yeah. A lot of times when I’ve looked at some of those, it started usually with a relationship with some of the principles that were involved in the deal. A lot of times I like to say you invest in the jockey more than the horse not that the horse can’t be great. What I find is that the consistent thread of success tends to be the people. Everybody is going to get curveballs. I’ve worked with the same people for 15 to 20 years whether we’ve done products or services whether we’ve done different types of markets. What’s usually constant are the people.
So Ring Central was about Vlad and Blade who I knew from my time in Silicon Valley early on when Ring Central was only doing about $5,000,000.00 or $6,000,000.00 in revenue. They were trying to do some little bolt on acquisitions to get the ball rolling. Was doing a favor for a friend and really got involved and really liked what they were working on. Back then, it was called Hosted Communications or Managed Communications as opposed to Cloud Communications. But it was really that early on that me and our CTO here at Phunware and another colleague of mine were asked by Vlad and Blade to spend a couple of days with their exec team when they were contemplating do we take a bunch of venture money?
Do we try to Bootstrap this? How do we think about it? Ultimately, thought that it would be great if they could get the right investor to really try to scale it. That led to them going out really met Doug Leone and Sequoia. Subsequent to that Cosla Ventures came in. Subsequent to that Sysco. So it worked out to be wonderful. It was great. My investment was probably almost aged 10 years before they went public. You’ve got more than a $1,000,000,000.00 company now on Wall Street. Vonage, I actually invested when it was called Minex Holdings.
Some of the changes in management that was both an interesting thing to be some of the first money in, but not necessarily the best financial outcome. Some of the principles that came in after the investment was in place had a little bit different philosophy, played cap table games. That was a good lesson in when it’s important to invest in preferred stock not common stock. Not only were there some reverse splits in the private markets, but even into the IPO there was reverse like one 1 for 6. So in that case where Ring Central was a glowing financial success, I would say Vonage was basically trying to break even because of all the gamesmanship in reverse stock splits.
It taught me as an Angel Investor to never invest in anything other than preferred stock not common stock. Bizarre Voice, I didn’t invest in the early, early stages. I probably invested right when it was approaching kind of a just hitting six digit, or excuse me, a nine digit valuation. So really investing through a fund that was buying secondary shares. I got to know Brett Hurt and really thought what they were doing was going to be real interesting. IPO went really well. Secondary went well. The investment return turned out to be a good thing not as in outcome with the multiples of a Ring Central just because of the nature of the when I got involved in it.
But it’s cool to see not one, not two, but three Angel Investments ultimately get to the public markets. Now, I try to really focus on where the company is at. What’s the valuation relative to the risk threshold? Really, what’s the structure of the deal? Because when I look at deals now it’s how is it structured, how’s it going to be financed, and how is it going to be monetized. I focus on that a lot more than even who the people and the product and the service are at a starting point. Then once I’ve done all that work, then I really focus on who the team is because the market is going to shift and things are going to change. Good teams usually figure it out and win and reinvent themselves as they need to. Bad teams don’t.
William Griggs: That’s a great overview. It’s always fun to kind of get the point of view of the set of experiences from an Angel Investor and entrepreneur to help our audience kind of understand where people are coming from and what people are thinking about. So as they either craft their pitch or think about who they want as investors, they have some more data points. So as we wrap up, is there anything that you kind of want to drive home for our listeners in an effort to kind of increase their likelihood of success?
Alan Knitowski: No. I just say go in eyes wide open. Understand there’s no Staples easy button per se. It’s a ton of work. It’s a ton of sacrifice. If you’re not willing to go through the sacrifice and work required to get to the proverbial pot at the end of the rainbow … I meet a ton of people in the world that want the pot of gold at the end of the rainbow. I don’t just meet a ton of people that want to go through the sacrifice and the effort that’s required to get from here to there. But I love entrepreneurship. I think everybody should do it.
I think you have to be wired to accept that you can take off your swimmies and dive into the deep end of the pool and assume you can swim. If you can’t, that you’re going to figure it out. If that’s uncomfortable, then I think it’s not a good thing to consider. It’s very seductive to think I want to be an entrepreneur. The harsh realities of it when they set in when you realize that Friday is two working from Monday. 24/7 always on. Anything that can go wrong can go wrong and will go wrong often. You just have to be able to deal with that and move things forward.
In this world, a day is a week. A week is a month. A month is a year. A year is a decade. If you feel sorry for yourself, that’s interesting. But it’s not going to solve anything.
William Griggs: Well, that’s a good place to leave it. If people want to connect with you or learn more about Phunware, how can they do that?
Alan Knitowski: I would basically suggest that you can follow us at Phunware. P as in Paul. H as in Howard. U-N-W-A-R-E. You can also jump onto Facebook at the Phunware sight, LinkedIn, and most importantly www.phunware.com. We’re real excited by what’s going on and hope to keep things going the way they have been in the past. A lot of work to do and a long way to go though.
William Griggs: Great. I’ll put the links in the show notes below the interview. Alan, thanks for joining us today.
Alan Knitowski: Thank you for having me.
Alan Knitowski’s Bio
Alan is a successful serial entrepreneur with multiple exits over a 15 year period to companies including Cisco Systems (NASDAQ: CSCO), Level 3 Communications (NASDAQ: LVLT) and Internet Security Systems (now NYSE: IBM). He is a 2014 Finalist for the Ernst and Young Entrepreneur Of The Year Award for Central Texas and has been a Founder, Executive, Angel Investor and Fund Manager throughout his career in the private sector after serving in the United States Army as an Airborne, Air Assault and Ranger qualified Captain in the Corps of Engineers.
Alan has also built and managed companies that have won both regional and national awards for growth, including # 4 on the 2014 Deloitte Technology Fast 500 for North America, # 82 on the 2014 Inc. list of the 500 Fastest Growing Companies in the United States (and # 40 on the 2013 list), # 36 on the 2014 Forbes list of America’s Most Promising Companies, # 1 on the 2013 ABJ Fast50 list of the 50 Fastest Growing Companies in Central Texas and # 2 on the 2008 Deloitte Technology Fast 50 for Orange County.
As a mobile and multiscreen industry expert, Alan is frequently quoted in trade publications, serves as a panelist at industry events and writes for the Wall Street Journal’s Accelerators Blog.
Previously, Alan was President of Alternative Investments for Curo Capital LLC and Managing Director for Trymetris Capital Management LLC. In the past, he was a Co-Founder and Director of Telverse Communications, a next-generation advanced services ASP focused on wholesale communications services for carriers and service providers, which was acquired in July 2003 by Level 3 Communications.
Before this time, Alan was Director of Marketing for the Voice Technology Group at Cisco Systems and was responsible for business, market and community development, including business planning and strategy for Cisco’s global packet communications initiatives. In November 2000, Alan joined Cisco as part of the Vovida Networks acquisition, where he served as Co-Founder, President and Chief Executive Officer and led the company from idea conception through its eventual acquisition by Cisco.
Alan holds an MSIE degree from the Georgia Institute of Technology, an MBA degree from the University of California at Berkeley and a BSIE degree from The U. He lives in Austin, Texas, with his wife Kelly and their four children and serves on the President’s Council at the University of Miami (FL).