Zach Clayton: Building Business the Right Way

From, posted March 31, 2015

Someone recently asked me if it was a disadvantage that Three Ships didn’t have venture capitalists. I laughed and thought about something Jim Goodnight, Founder of SAS, once told me. “I didn’t know what venture capital was when I started SAS,” he said and then paused dramatically. With a big grin, he then pronounced: “I’m sure glad I didn’t.”

Forty years and $3 billion in revenue run rate later, Goodnight is surely happy to be in control of his destiny. SAS constantly graces the Fortune 500 “Best Place to Work” list and has grown steadily, decade after decade. He doesn’t have to justify to external investors that making investments in employees leads to better results – he just knows that is the case. When managers think like investors (and investors think like managers), good things can happen.

There are entirely appropriate times to partner with institutional capital. Great companies such as Apple, Google, and Intel all had venture capitalists as backers. However, the wrong type of institutional capital can lead to many kinds of short-term pressures that distort management’s ability to create great long-term results (e.g. “cut R&D to increase margins,” “under-hire to show profit growth –  even if it burns everyone out”). In my own career, I’ve seen the destructive effects of how private equity or venture capital firms can let short-termism creep in, creating unnatural moments for the business.

Here are some principles I thought about when crafting the 3S trajectory:

Marketing tech is a very hot space – not just because of high valuations, but because of high customer demand that is fueling growth. But the bigger and more exciting opportunity (in my view), is to build a business the right way.