Mar
5
ETL - Ken Wilcox
March 5, 2008 |
Today’s speaker, Ken Wilcox, is probably one of the funniest and most personable entrepreneur we have had come to the class. He shares the story of his life in becoming an entrepreneur and provides some pretty amazing insight into why he made the decisions he made and the wide ranging impact of said decisions. You can listen to the original podcast here or check out the notes below.
Background
Ken Wilcox is president and CEO of Silicon Valley Bank (SVB) Financial Group. Since January 2000, when he took on the role, he has successfully pursued a strategy of expansion and diversification while remaining focused on the company’s core niches of technology, life sciences, private equity and premium wineries.
Wilcox joined SVB in 1990 when he co-founded the company’s East Coast Technology Division. In this role, Wilcox managed the first regional office of Silicon Valley Bank and was responsible for all lending activity east of the Mississippi River. After being promoted to chief banking officer in 1997, Wilcox moved from Massachusetts to California and became president and CEO within four years.
Prior to joining SVB, Wilcox spent two years as a member of the Technology Lending Group with the Bank of New England and five years at Shawmut Bank in Boston. Before he began his banking career, Wilcox was a professor of German at The University of North Carolina at Chapel Hill. Wilcox received a bachelor’s degree in German studies from Oakland University and a Ph.D. in German Studies from Ohio State University. He also earned a master’s of business administration from Harvard Business School. Finally, Wilcox is a member of the board of directors of the Federal Reserve Bank of San Francisco and the Silicon Valley Leadership Group.
Personal Narrative of History
As a little bit of history, Wilcox tells us that he went to Harvard Business School, because he didn’t get into Stanford’s Business School. From there he started pursuing his wife and adds a humorous anecdote that he is still pursuing her. Just before he graduated, he realized that he didn’t have a job and needed to get one somehow. After being denied left and right, he ended up at a banker’s meeting and went up to the speaker afterwards and told him that it was the most interesting speech he had ever heard. Right then he was hired as a banker, and 25 years later he is lending money to technology startups.
His first career job was at the Bank of New England, and after posting a loss of $1 billion in 1990, which was the largest posted by a bank in US, he decided to move out of Bank of New England. He brought his boss and some friends around, and they left to a better bank - SVB.
Silicon Valley Bank
Wilcox passionately and simply states that their mission is to ‘Help entrepreneurs succeed.’ After that, he articulates that their vision is to be the leading provider of innovative financial services to entrpreneurial companies of all sizes worldwide. It doesn’t seem to have been a bad idea because today they employ 1,200 people, and if you include the contractors from India, the number grows to 1,300 people. They have 50% marketshare of backing for venture companies, they are the bank for more than half of the existing venture funds, and they invest in more than half of the existing venture funds. SVB is one of 8000 banks, and only top 250 get attention. Because they are the 100th largest, they consider themselves the littlest big bank or biggest little bank.
How Silicon Valley Bank Works
As a simple banking lesson, there are depositors and borrowers. They take money that is deposited and lend it out to others. Technology companies in specific deposit seven times as much as other industries deposit, and this can result in a big drag on return on investment (ROE) and return on assets (ROA) if not lent out. To take advantage of this return on investment and make money for the bank, Wilcox analyzes the three CEO’s and what they did right and wrong. The first CEO, Roger Smith, lent money to real estate developers. The real estate developers borrow the money and buy buidings, and when a recession comes, they can’t pay you back. As a result, they had their first and only loss in history. The second CEO, John Dean, decided to lend money to underserved niches. Ultimately, they discovered that they were underserved for a good reason - it wasn’t a good niche. Examples include churches and independent film makers, and to highlight the failure is that they found out that 15 of the films they invested in would not sell at the box office. But, because it occurred during the boom of 1999-2000, their massive warrant gains from investments compensated for the niches’ failures. After that, he came on as CEO and decided to put the money in broker dealer - CD’s, etc - and that ended up being a huge success. In fact, it worked so well that they now have $7 billion in the bank and $22 billion in the broker dealer (and held on to the premium wineries niche).
SVB 4 Points of strategy
- Focus exclusively on technology. 95% of everything they do is technology and the other 5% is premium wine. Even though many VC’s and CEO’s drink wine, it’s still a pretty flimsy argument for maintaining this niche.
- Expand product set. Because you only have the startup as long as they can use your your products, you have to expand in order to keep them longer.
- Keep businesses longer. The key is to get the startups before they seek venture capital, hopefully as early as when they have an idea and business plan. What essentially happens is that as they get larger and the product set no longer fits, they drift off. What Wilcox realized is that they were nursing these startups and then spinning them off to Wells Fargo who would get all of the profits.
- Expand geographic scope. They now operate in Boston, Shangai, Bangalore, Mumbai, London, and Israel.
- Make more money by spending less. This is a very simple and obvious one, but Wilcox decides to point it out anyway. He noticed that in 2006 they had a 19% growth in expenses. They were spending $17,000 per employee, and in order to save money they started to 1) squeezing vendors 2) outsource tasks to people who can do it less expensively and 3) reduce steps in business process. The result is only a 2% growth in expenses for 2007.
Culture is Key
Most people in most corporations are unhappy. 50% of people are looking for a better, happier job, and Wilcox decided to highlight some of the keys to their success in establishing a great culture. The culmination of these lessons has led SVB to be the 6th best performing bank in the nation.
1) Who we hire vs who we try to keep.
- Hire intelligent people - Hiring intelligent people allows you to develop better solutions to problems and act on them more quickly.
- Hire a Diverse Set of People - SVB’s employees speak over 50 first languages, and over half have never worked at bank before.
- Hire People Who Can Work as a Team - To put solutions into effect, you need a team. Encourage people to work in a team through the culture you create.
2) Culture promoted.
- Be respectful - There is nothing that can destroy morale quicker than a work environment that disrespects the individuality of the individuals who work there.
- Use metaphors - These are especially helpful at describing what you want to accomplish. In the case of SVB, the whole organization is an orchestra, with every part being equally important and requires that everyone needs to play simultaneously in order to make beautiful music. A second metaphor they use is a boat with oars. Everybody has to have an oar and pull on it in unison, otherwise they start to go in circles.
Q: Day to day basis, how do you influence culture?
First, by maintaining awareness when interacting with others. Second is by unit evaluation that is done in groups and is evaluated by peers.
Q: Do you have venture fund?
There is over a billion invested in venture funds. They put it into best funds they can, with 1/4 of the total invested in debt funds and another 1/4 put into their own venture funds.
Q: What other markets are you looking at for international expansion?
Canada potentially. Vietnam and Eastern Europe are emerging markets, so they don’t want to bite of more than they can chew.
Q: When should startups come talk to you?
As soon as you’re serious about looking for money. Even before a little bit is fine.
Q: What services do you offer?
As a simple answer, all the things that you could get in other places. One other major benefit is that they arguably know more people than any other bank in the startup ecosystem. Their goal is to help people find capital and give good advice too. Essentially, one thing a startup should realize early is that it is best to let others do what isn’t your expertise, and that’s where SVB comes into play. They can help introduce you to things you need, such as bookkeeping, attorneys, method of payment for employees/vendors, capital, equity and debt capital.
As a point of insight from a bankers perspective, Wilcox points out that all lenders need 2 sources of repayment. The first has to be pretty certain, and the second has to be dead certain. The salary is a good source of first repayment, and the second source is the house. In a business, the first source is cashflow and the second is saleable assets (stuff banker can sell).
Conclusion
Ken Wilcox provided an illuminating and interesting perspective on the world of banking. I found it particularly insightful and advantageous (at least in my humble opinion) to have SVB as my bank for a startup because they not only can provide me with the banking services I need but are also willing to help me find other people I need in the ecosystem. The obvious benefit, even though it is a little delayed, is more business for them in the future. Finally, the talking points about a great culture and working as an orchestra was particularly powerful and worth sharing when I’m in team environments.