7 Bits of Startup Advice & Insight from Red Hat CEO Jim Whitehurst

Bull City Venture Partners tried something new for its annual meeting of LPs last week—an evening of talks and panel discussions before an invite-only audience of dozens of entrepreneurs and investors in the Durham fund’s local and national network.

A highlight of the evening at RTP headquarters was a “fireside” chat between BCVP partner Jason Caplain (top right) and Red Hat CEO Jim Whitehurst, an LP in the BCVP fund and angel investor in addition to his role running one of the largest open source software companies in the world. 

The conversation ranged from advice for the startup CEOs in the room to thoughts on the region’s startup ecosystem and business climate in North Carolina to a more existential discussion involving our country’s political climate and the pace of technology advancement. 

Here are some of the highlights of Whitehurst’s comments, pared down a bit for ExitEvent readers. 

My broadest advice is, as your company grows, don’t try to be more professional. Large companies aren’t very good at innovating. Large companies use traditional management systems and those were developed in a time where we said we have to have more process. 

 

As your organization grows, you can’t do it all yourself any more. You have to orchestrate through organization. Impart a capability into the organization that they can do it. Too many companies want to be more professional and really screw themselves up. Be fun loving. Keep that and think really hard about how you scale that but don’t lose that. 

 

I took over as COO at Delta when I was 35 years old—I’d never had more than 200 people working for me. The board said the bankruptcy turnaround plan is your baby. I had 80,000 people working for me, which is a lot. 

 

We were hurling toward bankruptcy and knew we were going to run out of cash and had 10 weeks until we were going to have to file. I basically didn’t spend any time with employees and locked myself in a room with bankers and consultants building the turnaround plan. Bankruptcy is not for the poor. You have to be very cash rich so I had to raise the largest debtor repossession loan in history—$2.5B to build a pile of cash to live on. I spent four weeks raising money. For literally three weeks, the CFO and I had 1.5 hour pitches to investors—the difference between your investors is you are meeting with investors thinking about possibilities and good things. In bankruptcy, they are distressed debt investors who have military haircuts and zero sense of humors. 

 

The day we filed, I went out in public and shared the plan, orchestrated by crisis communication. Afterward, the head of maintenance said to stop by break room later in the day. I went to the hangar break room and 150 mechanics looked at me and I realized I have no idea what I’m going to say—I have nothing scripted. Everyone was going to get laid off. The only thing I knew to say was all the details of the turnaround plan—the plan I told to investors. There were no questions about how long until I got laid off. They asked intelligent questions instead. 

 

I ultimately recognized that people wanted to hear the plan and built a program around letting employees know the details of the plan. We did it to engage and to keep people on board, but one thing we talked about was running an on-time operation, and Delta went from dead last to No. 1 in on-time performance and held that position straight through for three years. 

 

What did I do? I did nothing but tell people it was important and that it was their part of the turnaround. It made a difference in whether they’d run to get last bag versus walk or leave break early to help someone. Little things matter a lot. Telling people the plan and how you fit into it made all the difference in the world. Make sure people deeply understand the strategy, the context and their role in it. 

 

Broadly when I think about competitors for us now, I think much more in terms of competitors for talent than product market competitors. It’s a nightmare anywhere if you’re looking to recruit. But we find we get really good talent here. High-end super tech stuff is harder here—we’re not getting many open stack engineers, but some. People wanting any type of balance in lifestyle like it here and when you get here, you don’t leave. A 22-year-old single engineer is harder than someone who is 30 and having kids—our value proposition is once people start thinking about families. 

 

In Silicon Valley, you’re competing with Google and Facebook and those are hard companies to compete with in terms of what they are willing to pay and all the benefits and sexiness. I’d rather have a smaller pool and be higher on the list of people to work for. We’ve done a pretty good job of being a preferred employer in a geography that’s less of blood bath than California. And we are the second largest contributor to open stack. 

 

We also really work on allowing people to live where they want to live—40% of employees are remote. We collaborate with the assumption that the open source movement of thousands around the world is collaborating. 

 

Ansible was our first acquisition in area and it’s five minutes from my house—I love that acquisition. We’d love to do more acquisitions here. That has been a really easy acquisition. There’s a lot of ex-Red Hatters so they naturally know how to integrate well. It’s been our best integration we’ve ever done. And colocation makes it really, really easy. We’d love to do more acquisitions like that here. But we do infrastructure tech and there isn’t a lot of infrastructure tech here. I wish there was more. 

 

First off, just two minutes of context, I’m a massive optimist because I see the potential that tech has to fundamentally change our lives much more than in the past. There is a set of innovations that built on each other that finally created a platform for innovation around 1870 (rail gauge, electric lighting, etc.) That quickly led to the internal combustion engine then planes, trains, automobiles. There was an explosion of innovation in 1910 once there was common platform. 

 

On a small scale, we’re seeing that with client devices. Average person on desktop has six applications installed and 30-40 on phone. Make innovation easy, and you see an explosion of innovation. It’s really easy for developers to innovate on smartphones and easy to distribute and get paid and stores to sell them (…). 

 

In 30 years, average life expectancy in US will reach 100 based on what we know about ourselves and our bodies, what doctors will know to actively and prescriptively do things to us. In 30 years we will still be scared to death of global warming but we will find a way to be carbon neutral by then. We’ll sequester carbon in carpets, walls, etc.—a massive sucking of carbon back out of atmosphere. We’ll solve desalination and issues with water—massive social issues. 

 

The negative is I have no idea what the social system will look like at that point. There has been a fundamental change in value creation. Because of all that cool innovation that happened around 1870 after we had a platform, we started to see doubling in GDP per capita in developed world, doubled GDP per capita every 30 years. 

 

Political and social system to distribute that value created by labor and capital and varied around the world from communism to socialism to social welfare state, our social system and role of government looked different by 1930. 

 

Now, it’s less about labor and capital and more value created by individuals and knowledge. So how do you distribute capital in a way that you have functioning society? 

 

Our economic system is a choice of our democratic system and if it gets to the point that the majority of people don’t feel that it’s benefiting them, then it will change. It probably wont change this election. But you see how far extremes are material candidates now. We are one election from more radical change in our social economic policies…from social contracts breaking down. 

 

It’s an ecosystem problem. There are a whole lot of components of an ecosystem that have to work together. I think that some key components of that need to be A. some way to make sure that we get local investors to invest here. One of the things I see in SV all the time—my board members are there—is they are all making personal investments in early stage seed things. I’ve done some but most are things I’ve heard about from friends in California but not here. 

 

B. We need more visibility of what is going on here. The problem is, using open source analogies, in big data, there are a couple big winners like Hadoop but hundreds of thousands of companies throwing out seeds. We’re not filling out enough seeds to see them grow. We need liquidity in that system. It has to be private. And we have to build a culture and visibility around that. 

We should focus on a couple areas—I’d love to see this area do more around infrastructure—but realistically areas like MedTech, where we’re already strong and have a set of universities with NIH grants. We need to pick maybe two or three sets of things and really put weight around the arrow.

 

One of the problems is you’ve got to recognize we are not going to get the next big data startup happening in far out eastern NC. The government has to think about economic development across the state, but we’re not going to build an agricultural processing facility in Durham, we’re not going to build the next startup in eastern NC in a small town. When you think about strategy, it’s not five ideas spread equally. It’s we do this in these areas, that in other areas. I feel like a lot of the political dialogue is that the rural areas have difficult economic challenges versus the cities. And somehow those areas have to do different things. We’ve got to think about strategies to knock the cover off the ball here, in Charlotte and in eastern NC but not doing the same things. That creates a peanut buttering effect, which waters everything down for everybody.