Dr. Steve Shwartz is co-founder and executive director of Device42, a Connecticut Innovations portfolio company that was named the fastest-growing tech company in Connecticut from 2015 to 2017. (Device42 was acquired in early 2019 by a private equity group.) He’s also a serial entrepreneur, investor, patent holder and author of a book on artificial intelligence, and has participated in multiple IPOs and exits over the course of his career. In other words, Steve is exactly the type of entrepreneur one can go to for insight and advice. We caught up with Steve recently to get his take on hiring, marketing and why Connecticut is a great place to grow a startup.
Connecticut Innovations: Thanks for agreeing to talk with us, Steve. You have an impressive background as both an entrepreneur and an investor. Do you think there is a certain personality type that chooses the startup life instead of, say, working for an established company?
Steve Shwartz: Over the years, I’ve discovered that when I hire someone with only large company experience into a startup, they nearly always fail. Here’s why: First, people in large companies make decisions slowly. Decision-making [there] tends to be a very bureaucratic process. Startups can only succeed against established companies if they are nimbler. As a result, decisions in startups have to be made quickly. Big companies create committees that take forever to reach a conclusion. In startups, decisions are often made on the spot by individuals or in impromptu meetings that might last a half hour.
Second, jobs in big companies tend to be narrowly focused. Tasks are well defined, and anything outside an individual’s focus area is done by someone else. To some degree, in a startup, everyone does everything.
Third, in a big company, no one sticks their neck out or takes risks, because a mistake can get you fired. In a startup, mistakes are—or should be—expected and tolerated. Learning from mistakes is one of the ways startups find their way.
Finally, every employee in a startup has a significant impact on the company’s success. Therefore, it’s very important for startup employees to be highly motivated by that success. In a big company, an individual employee has virtually no impact on the success of the company. Too, employees at large companies are often motivated by political gain rather than company success. Politicians coming into startups discover that the other employees quickly start to ignore them.
CI: Why did you choose the startup route?
SS: I got into startups accidentally. I had moved to the New Haven area to be an AI—artificial intelligence—postdoc at Yale. Roger Schank, a well-known AI professor there, decided to start an AI company and convinced me to be the first employee rather than pursue an academic career. I’ll always be grateful to him for that advice and opportunity.
CI: Why did you found Device42? What was the problem you saw that needed solving?
SS: I didn’t start Device42. It was started by Raj Jalan, and I joined him shortly thereafter as a co-founder. Raj had been a data center consultant helping customers perform digital transformations. Back then, it meant helping customers move to server virtualization and/or new blade architectures. Raj would ask his customers how all their IT assets, such as servers, network components and applications, were interconnected, but no one ever knew, so he would spend 60 percent of his billable hours figuring it out. He felt there had to be a better way, and that was the genesis of Device42.
CI: You’ve been at the company more than seven years. How drastically has it changed since you founded it, and what has been the biggest challenge so far? (And how did you solve it?)
SS: Raj and I started out by renting a desk at The Grove coworking facility in New Haven. For two years, we were a two-person company with a few offshore resources. We wrote code and sold systems over the internet. By the end of 2014, we had 80 customers in 20 countries—and had never met any of them. That was when we raised our Series A funding round led by CI.
For the first couple of years, we spent nothing on marketing. It was all organic search engine optimization; customers would find us via Google Search. Following the Series A round, we started buying Google AdWords, and that was our primary marketing focus for this past four years. Most of our customers came in through this direct channel. However, we were mostly attracting individuals and small teams in the IT department, and our average subscription sale was relatively small.
CI: You have an impressive blog, with frequent, informative posts. Does the blog drive new business? What goes into managing the channel?
SS: We don’t have a lot of hard data on the effectiveness of the blog posts. However, my suspicion is that the blog posts have a much bigger impact on existing customer satisfaction than on customer acquisition.
CI: How else do you market the company’s products and services?
SS: Oddly enough, we’ve had a lot of success without doing any marketing other than inbound marketing through Google AdWords. We just hired a vice president of marketing whose job will be to develop new marketing channels such as trade shows and analyst relationships, so stay tuned.
CI: What do you like about Connecticut as a place to start and grow a business?
SS: I’ve started a lot of companies in Connecticut and think it’s a great place to start a company. There are fewer qualified people for hire, but there is also less competition. There are also a lot of people who commute into New York City who are very happy to stop commuting for the right job.
CI: Thanks for your time, Steve.
SS: My pleasure.