1000 Entrepreneurs: Ken Aldrich on 30 Years of Venture Capital and 50 Successful Businesses – GuruFocus.com
Over the last three decades, Ken Aldrich has successfully invested in over 50 businesses and has personally co-founded almost a dozen himself. He considers himself a jack of all trades, having been involved in everything from biomedicine to real estate. Some of his most successful investments include helping start one of the first wind parks in Palm Springs and Green Dot Corp. (NYSE:GDOT), which has become the worlds largest prepaid debit card company. In May, Aldrich published his book, "Dream Toolbox," which aims to guide readers toward establishing an entrepreneurial mind and gaining control over their financial world.
Before the business
Prior to entrenching himself as an entrepreneur, Aldrich started his career as a wage earner practicing law. He spent a great deal of time and effort to earn his law degree and land a spot in a well-established firm. With a clear career path ahead of him, Aldrich got to work earning his keep and establishing his position in the firm. However, one definitive moment stands out as the time when he became dissatisfied with his work.
This moment would revolve around sandwiches of all things. Working alongside one of the senior partners at the firm, Aldrich was helping to create a registration statement for a public company. At the end of the session that fateful day, the underwriters and the people from the company headed out to get dinner:
At the end of the day the company and the firm that was doing the underwriting turned to us, the lawyers, and said Well that was really good. Can we have a new draft of the work in the morning at nine and we will start again? Off they went to have dinner at Chasens and we ordered sandwiches, Aldrich said.
To provide context for those who do not know the Los Angeles restaurant history, Chasens was a well-known restaurant that was often frequented by famous celebrities until its closing in 1995. Based upon the prestige of the restaurant's chili, it is easy to conceive a distaste for sandwiches after a long day at work.
While in his 20s Aldrich did not have an issue eating sandwiches, yet he was thinking toward his future. My partner, that I was working for, was in his 30s or 40s. I do not want to be the guy eating sandwiches in his 30s or 40s, and I do not care how much they pay me for it, Aldrich said. It was in this moment that he decided that he would much prefer to be the guy going out for a nice dinner after work.
With clear motivation, Aldrich set out to find himself a new career path. He landed himself a contractual position at an investment banking firm. This provided him with some needed experience and training, alongside a foot in the door with a name behind him. This new venture would come with an inherent risk, one that Aldrich would feel almost immediately.
Working at the law firm, he had earned himself a paycheck and a solidified position. Upon leaving, that paycheck disappeared. To compound the pressure, Aldrich was working on a contract for the investment banking firm, meaning that if he were to no longer be productive in their eyes, he would be cut from their team. In essence, the already large pay cut he had taken could go away in an instant. He went on to say:
Wide World of Sports had a sports program on Saturday and their opening montage was a skier, it might have been a tobogganer, coming down a ski run and losing control and flying head over heels into a snowbank. The tagline was Wide World of Sports, the thrill of victory and the agony of defeat. I realized that with conventional jobs you are either working for a paycheck or in the case of a lawyer you are measuring your life out in coffee spoons as Eliot once said in a poem. There is never the chance of a real thrill of victory. The expectation is do not screw up and I wanted something more than that.
Finding success
With a drive to succeed and find that thrill of victory, Aldrich set out on his journey to become a successful entrepreneur. By nature of the business, he would find himself in the world of seed stage venture capital, investing and co-founding businesses from the ground up. Through both luck and skill, he was able to grow many of these businesses to success, yet there is seemingly no connection between them. However, Aldrich considers himself a jack of all trades and finds that his curiosity has led him to such diverse portfolio.
While he has found himself invested in many different fields, there is one key factor that ties them all together. If there is technology involved, I want to make sure that if it is successful, often it is not completely developed when we start, but that if it is successful it will make a fundamental change in some business, or industry, or science, Aldrich said. Having this significant change in the way things are done makes either the business or the product stand out in a way that the market cannot deny. For Aldrich, this is key for these types of ventures to be a success.
It is very hard to be successful starting a new business if you are just doing it a little bit better because, you know, everybody is looking for perfect, but perfect is the enemy of the good. If there is an existing process that is serving the market adequately it is usually just a fools errand to try to make something else that is just a little bit better, he continued.
As with many lessons, Aldrich had to learn to make fundamental changes first hand. One of the first businesses he found himself involved in was working to develop a new device for LASIK procedures. This device would allow for the surgeon to be more accurate when applying the procedure. Initially, the company found success in that the device did improve the accuracy of the procedure. However, it was not a big enough difference and nobody cared according to Aldrich.
Going back to the drawing board, the company went about redesigning the product so that it could be an aid to curing amblyopia in children, yet the market there was too small. With the aid of an ocular physician, the company found its true purpose. The new design would allow a surgeon in the process of doing cataract surgery to take an accurate measurement of the eye.
Prior to this new design, the surgeon would attempt to measure the eye through the clouded portion as best as possible before removing the affected area. As the measurement had to be taken through the affected area, it was generally not overly accurate and that is how people ended up with those coke bottle glasses, Aldrich said.
With their newly pioneered technology, the surgeon had a new device that would attach to the microscope that they used during the procedure. This would allow for them to take an accurate measurement of the lens of the eye prior to the surgery. This technology resulted in vision on par with a LASIK procedure as a byproduct of conventional cataract surgery. It was very gratifying for me because I have, over my life, had enough eye problems to realize just how life changing that small procedure can be, Aldrich said. This business would eventually go on to sell for $350 million.
Managing risk
With the prospect of millions, if not billions, on the horizon, there is constant risk involved with starting these businesses. For Aldrich, the key to success comes in managing this risk, although it can never be entirely eliminated. Once he has established that the technology or the business will make a fundamental change in the industry it operates in, he looks toward the people involved. First and foremost, he questions if they have enthusiasm and skin in the game as he calls it. Now that does not necessarily mean that they have written big checks, but they have put some portion of their life on hold to pursue this, he said.
Finding a person who fits these qualities allows for Aldrich to be confident that if things get difficult with the company, nobody is going to give up. In many cases, things do go wrong when starting a business. Very rarely does a business make its way to success without encountering a road bump. At some point everyone has to take some genuine risk. I have never known a startup that did not involve that, Aldrich said.
Over the course of 30 years in business, Aldrich has experienced his fair share of risk and road bumps. One of the most egregious cases that he recalled involved a biotechnology company. The company in question was working to develop new stem cells similar in nature to embryonic stem cells. The winning factor was that the company had found a way to access these cells without needing a fertilized embryo. So we took all, or we thought we took all of them, some people still managed to find objections, but we took basically all the real objections away from those who were concerned, for religious or for other reasons, with whether or not using embryonic stem cells was in effect killing a human being in utero, Aldrich said.
While they had overcome a major roadblock to progress their research, they still had not reached calm seas. The company would go public and found itself in the midst of the economic downturn of 2008. Almost overnight, funding that had been promised had disappeared and the company was left stranded with no backing.
To further compound issues, the CEO of the company died of a heart attack shortly after. Aldrich found himself running the company and as an investor himself. He put forth a check for $500,000, one that would have been very painful to have lost in his own words. In a stroke of luck, he was able to find an investor for the company. However, the man was in Paris, was Russian and spoke no English. Not a man to be stopped, Aldrich flew to Paris, dug up a translator on the eve of a French holiday and made a deal with the new investor.
With the help of this new partner and his own investment, Aldrich would pull the company out of the hole it found itself in. The company would continue to make progress on its stem cell research. Eventually, the majority shareholder of the company would push Aldrich out of a leadership position and he decided it would be best to pull himself out of the company entirely. During his time there, Aldrich would grow the stock from 15 cents per share to over $2 per share.
The biggest perks
While Aldrich has undoubtedly seen rough times working with companies, he has found himself, more often than not, in the position of successfully creating a business. The thrill of just saying, I did that, claimed Aldrich, is one of the best parts of what he does. Continuously, he has had the ability to take the vision that someone brings him and help them turn it into a reality. For him that has been extremely gratifying, yet he has been able to take it one step further.
Many of the companies that he has been involved in have changed people's lives for the better. The first LASIK company aided many people in having better vision, which Aldrich considers life changing. The stem cell company has the potential to change the way stem cells are used, and he believes they ultimately will. Even present day he is working with a company that is working to make chemotherapy drastically more effective to the point that it can cure certain types of cancers.
Without a doubt Aldrich has found the thrill of victory and helped people in the process. Now it is still a whole lot of fun to make money from a deal and see it take off, he said. One of his most ludicrous investments was Green Dot Corp., in which he was an early investor. Since throwing his hat in the ring, the company has not only reached a billion-dollar market cap, it has created an entirely new industry of prepaid debit cards.
Even the wind park in Palm Springs that Aldrich helped start has seen him cashing monthly checks from land rights for the last 20 years. Having both built companies and earned money for decades, it is easy to understand how he has no desire to change anything, yet Aldrich believes that he has no regrets for a different reason.
I think in each case we did the most we could do with what we had available, Aldrich said. In his opinion, there will always be something that could have gone differently or a potential to have found greater success. The reality is I had gone everywhere I could think of and took the option that was available, he continued.
In the end, worrying becomes unproductive. It creates a situation in which you are cautious about your current ventures and begin to question every decision. Aldrich believes this type of fear, the fear of failure, is one that is extremely detrimental to an entrepreneur. Overcoming this fear has been key to his success.
No end in sight
In his most recent ventures, Aldrich has found himself seeking to inspire both youth and entrepreneurs alike. He has spent time working with at-risk teenagers to provide them with financial lessons as well as the skills to develop their dreams into reality. From these lessons, Aldrich developed a podcast series that would eventually become his first book, titled "Dream Toolbox," for anyone frustrated by unfulfilled dreams.
Although Aldrich has had a career outlasting many other entrepreneurs, he does not believe he will ever be able to stop. While he has made a promise to himself to not start any new companies, he will continue to fund and advise them as much as he can:
I can not see stopping because, frankly, it is so darn much fun. I have flunked retirement several times in the sense of really trying to turn it off. What I have discovered is just about the time I am getting all excited to go play a round of golf, or go play tennis or something like that, somebody will call me up with a new idea, or a new concept, and I will cancel the golf or cancel the tennis because nothing is more exciting than dealing with a new idea that has great promise.
Question and answer
GuruFocus: As an entrepreneur, and a serial entrepreneur at that, is there anything in the future coming up or already starting to reach the market that you are really excited about and would love to get your hands on?
Aldrich: My experience has been that the things that are already visible to me, out there in the market, somebody else has already started and is way ahead of me. So what I am looking for are the things that are not yet obvious and those can come in many ways. I recently became an investor in a company. It is not a startup anymore. I invested through some friends, but it is very exciting. They have, I believe, a way to, I will not say cure, but to take any of the existing chemotherapies that are used in cancer and make them way, way more effective, and the reality is, based upon the data we have, in many cases cure cancers that the physicians had given them up as incurable and a death sentence. That is enormously exciting to me and I think that we will see that.
I have also invested, although I am not a principle, in three or four other companies that have varying ways of approaching, particularly cancer, but other disease forms. That to me is an exciting area and I think we are just beginning to scratch the surface of what can be done medically. There are things going on with AI that will affect the medical world. I read in this mornings newspaper about a new AI technique that I think was developed by Google that has greatly improved the accuracy, or looks like it has greatly improved the accuracy of mammograms. That could be life-saving.
GuruFocus: Where do you look for inspiration?
Aldrich: One of the great books and it is overlooked, but I think everybody should read it right after they finish mine, actually before, is "Think and Grow Rich." Which has been around for almost a century, I guess. It is absolutely a brilliant set of ideas and structures for entrepreneurship. There are certainly more modern books. I happen to like Peter Thiels book, which I think he calls "Zero to One." It talks about entrepreneurship and finding a niche that you can fill and expand into making something big. Of course, if you just start looking and get specific, there are tons and tons of books on how to structure a business, how to handle the accounting, finance and so on. Again, I think it starts with changing the belief systems so that you believe you can do it and for that there probably is no better book that I have read than "Think and Grow Rich."
GuruFocus: What are you most grateful for at this point in your life?
Aldrich: Oh wow. I am most grateful that I have had the incredible good fortune to have the love of not one, but two wonderful women in my life. First my wife, who died a few years ago, and second, the woman who is now sharing my life. That has been remarkable. I have also had the good fortune through most of my life of having good health. I have had plenty of health issues that I have had to deal with, but they have all been like the puzzles I talked about. OK, I have a problem. I had a vision problem. I have had other things. How can we solve them? So far, they have all been soluble. I have been very fortunate. As you can see from this ugly photograph on your screen, I am not a young man anymore. I wake up in the morning thinking I am at least 20 or 30 years younger than I am until I look in the mirror. And that is a good thing because age ultimately matters as none of us live forever. In terms of our capacity to do things, it is how we view ourselves, so that is important.
Aldrichs advice for entrepreneurs
Have a vision both personally and in business:
Try to visualize what life would look like if you were to find the success that you have. Once you have this vision, there is something for you to strive for. In Aldrichs opinion, this is one of the most powerful tools an entrepreneur can utilize. Visualize yourself being successful while standing in front of the mirror. It may feel stupid at first, as it did for Aldrich, but you will eventually make that vision a reality by translating it into the present. Use your vision to tell yourself that you are successful now and, before you realize it, you will have reached many of your early milestones.
Put some skin in the game:
It can be simplified to one word: commit. You need to absolutely dedicate yourself to what you are doing if you want to succeed. This will require personal sacrifice. Your life will not continue to exist in the same way that it had previously and you have to be OK with that. Once you have committed your life to achieving your goals and truly put some skin in the game, you will find success. If you do not do this, you are going to give up when things get tough.
Determine if the worst outcome is survivable:
Another of Aldrichs most powerful tools is determining if the worst possible outcome is survivable. Look at the worst thing that could happen in the course of starting this business. Are you looking at bankruptcy? Or could it be something personal that ends life as you know it? Once you have determined what could happen, you need to decide if you have the ability to keep going on after that. If you can survive the worst outcome, than there is nothing that can stop you on your journey. All your problems become puzzles that have a solution. You simply need to find it.
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