Crossing the Innovation Chasm – Geek Squad Founder Robert Stephens’ Leap from Startup to Fortune 50 Retailer Best Buy

Crossing the Innovation Chasm – Geek Squad Founder Robert Stephens' Leap from Startup to Fortune 50 Retailer Best BuyWe hear it so often that it has become cliché.  Small companies are nimble and move quickly where as large companies can muster significant resources but are slow to respond to emerging threats and opportunities.  In response to their admitted slow pace many big companies have focused their attention on acquisitions as a way to mitigate threats and infuse new growth opportunities into their business.

According to Clay Christensen and his team at Harvard (The Big Idea: The New M&A Playbook) – companies spend more than $2 trillion on acquisitions annually.  With research showing the failure rate of mergers and acquisitions between 70% and 90% the best case scenario is that we are wasting $1.4 trillion per year on failed acquisitions.

The question then becomes “why is it that so many of these acquisitions fail to deliver the expected benefit for the acquiring company?”  Are the acquiring companies imposing their slow pace and risk mitigation policies onto the smaller company?  In 2002, consumer electronics giant Best Buy was looking to fuel their growth into PC, home theater, and appliance services.  To jump start that work Best Buy acquired the then startup Geek Squad which had been founded by entrepreneur Robert Stephens in 1994.  During our recent interview Robert shared his story of entrepreneurship, risk taking, acquisition strategies, his pick for Most Visionary CEO, and an expensive 99 cent burrito.

Q1.  In 1994 you started Geek Squad with $200 and a bicycle. By 2002 Geek Squad became a subsidiary of Best Buy. How many agents and locations had you grown to in those first 8 years?

In 2000 when I called on Best Buy we were in four cities: Minneapolis, Chicago, San Francisco, & Los Angeles.  We didn’t have any offices.  Literally we didn’t have any offices.  Just cars and people and we dispatched everything out of Minneapolis.

Our model was kind of like Uber is today.  We didn’t have a lot of infrastructure – we just had people, cars and dispatch.

Q2.  As an entrepreneur what was your approach to risk taking and driving growth?

I’m risk averse. I don’t take risks. There are risks that you know you’re taking and the ones you don’t.  At the time my risk was staying in school and taking on more debt.  That was the risk I was avoiding by starting my company.  I didn’t think I could work anywhere in a big corporation so I was forced to found a company. I didn’t wake up deciding to be an entrepreneur – I just didn’t see any other options.

The truth is that I applied to become Prince’s head engineer but he didn’t hire me. Had Prince hired me I would have toured the world and had fun parties but I would have never started my company. There is a reason that you start a company in your 20’s before you have kids and settle down. You have less risk.

Like for me my youngest is 16 years old so in two years I will have reduced my risk again. I will go back to having 20 hours a day free, no kids at home, and under the age of 50. This means with the current progress of medical technology I will have 40 years of work ahead. Now I am more experienced. With my next startup I will be even more dangerous.

I don’t want to own anything.  I do that because I am extremely risk averse.  I don’t want to be encumbered by debt and that dates back to being a college student. I once bounced a check for a 99 cent burrito.  I knew that I was going to bounce the check but I hadn’t eaten in a day and I was really hungry. As I watched the burrito cook in the microwave I remember knowing that this burrito was going to cost me $23. That was a really expensive burrito!

I never really got over that sense that I was that close to starvation.  Which is good – it keeps you hungry and keeps you on your toes.

In terms of risk the whole deal with Best Buy is that I had no other choice. I couldn’t franchise Geek Squad.  Proof of that is today. How many Geek Squads are there?  None – why is that?  It is a hard business that doesn’t really scale. You can barely franchise burgers and doughnuts let alone franchising a complex in-home service. The fact that there are no other “Geek Squads” is my proof that I made the right decision.

I felt I had no choice and that I had to sell Geek Squad because for me the risk was that I didn’t want my first startup to be a failure. By putting it inside of Best Buy I was able to ensure its survival. I might have made more money taking it public but I felt that I would have been ripping off my shareholders by selling them a company that wasn’t scalable. I cheated because now Geek Squad is scalable as part of Best Buy.

Q3.  Was it a difficult transition for you in moving from entrepreneur to part of a Fortune 50 retailer?

It was a huge change – you can’t keep beer in your office.  There are two kinds of risk – those of action or inaction. There is the risk of losing the culture – startups are great and they can be innovative and drink beer at night but they lack scale and leverage. Large corporations have resources and market share that they can deploy, use, and influence but they tend to lack agility.

My risk also was staying small.  I didn’t want to stay a small fry, some little computer repair person like everyone else in the yellow pages. So I traded one risk for another – and that is really how everything goes in life.  You have to be honest and aware of the risks. Where people get in trouble is where they fool themselves and lie to themselves about what the risks are.

We give founders way to much credit.  When you are 24 and you’re eating Ramon Noodle and 99 cent burritos that’s not really a risk you are taking.  It was either that or taking on $100,000 in college debt.  Now that is risky – toiling away for decades to pay off of that debt.  Now that is risky.  I will tell you what I am impressed with a 30, 35, or 40 year old parent who has kids and family obligations and a spouse to love and pay attention to and then decides to start a company. That is ballsy, that is gutsy, that is a person that I respect.

Q4.  What advice do you have for executives that are acquiring growth startups? Which acquiring organizations would you cite as examples of good in this space?

I don’t see many examples of good in this space.  The best acquisition that I can think of is YouTube when they got acquired for $1.2 billion.  Everybody thought that was insane.  Now it looks like an incredibly good deal.  It is very profitable.  Goggle didn’t touch it, they didn’t mess with it.

If you buy a business, first of all, get over the idea that you’re going to incorporate it into your business.  Whatever.  That’s not really going to happen.  It is better to let it live on its own because if it was hitting some growth rate you should just let it happen and not ruin the momentum.

Q5.  What advice do you have for entrepreneurs considering or currently going through a similar transition?

My advice to founders is unless you are planning on staying you need to know what you are going to do next and don’t kid yourself. What I would say is that for me going forward I am only interested in working for visionary CEOs.  And there are very few of them, like a handful in the world. That’s the biggest problem in corporations – they lack vision.

There is the whole size issue and can big corporations innovate but I would argue that the fish stinks from the head down.  It comes down to the CEO – if your CEO does not get it your doomed.  The second most important thing is the board [of directors].  For example, more than half of Amazon’s board is digital and has real expertise. I don’t know anybody from Best Buy’s board in the last ten years that had any digital expertise.

The reason that is important is that the board is the one to review the big strategic plans but if they don’t understand digital or they don’t understand trends then they can’t really evaluate it. I don’t care if they have an MBA from Harvard – there is so much disruptive technology going on that you have to know what you are talking about.

Q6.  You had mentioned the idea of working for visionary CEOs. Who would be on your short list of visionary CEOs?

I think the most interesting and fun CEO in the world right now is John Legere (@JohnLegre) of T-Mobile US.  I love his style – he is super irreverent and breaks rules.  He was the fourth place carrier at T-Mobile and what is the first thing he did.  He said that cell phone plans were insane and too complicated. He simplified them. That is something that any of us can do. The best CEOs simplify things – they simplify their offers. They don’t try to use trickery and fine print.  You can tell his enthusiasm and he’s also made some smart moves.  He is growing market share. They are still small and they have some coverage issues but I think he has done the best he can with the hand that he was dealt.

In January, he was in Las Vegas for the Consumer Electronics Show (CES) and showed up at AT&T’s party. He loves Macklemore and showed up for the concert and they kicked him out.  AT&T played it just like David vs. Goliath and Legere played it masterfully.

So he uses Twitter, he’s a CEO who is really on social media. I don’t even think that a company should have a social media team anymore. That was fine when Twitter and Facebook came out but the problem is that when a company has a social media team – nobody else in the company needs to be on social media.

I want the CEO to be on social media – I want the CEO personally tweeting. You can have legal and marketing departments on Twitter but the CEO needs to be there and available.

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As Robert stated above, sometimes the risk isn’t in starting your own company but in taking on college debt with the uncertainty in how you will repay it. For Robert and Geek Squad it was imperative to partner with a company like Best Buy that could scale complex in-home services across the country. He recognized that would mean slower decision making and more politics but he saw it as the lesser of two evils which was remaining the “small fry.”

Robert has a good understanding of his own risk tolerance is looking forward to returning to entrepreneurship soon. With his further experience and understanding he expects to be even more edgy in his future endeavors. Robert follows his own advice and is incredibly active with the Twitter community. You can follow him or engage him in discussion at @RStephens.

Those that know Robert can attest that he never has a shortage of opinions.  With his permission I have edited our interview for brevity and a few explicit remarks.  If you’re interested you can watch our entire Skype interview available on my blog at www.matthunt.co.

image credit: behance.net

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Five Ways Organizations Lose When They Cover Up Innovation FailuresMatt Hunt is the CEO and founder of strategy and innovation consulting firm Stanford & Griggs, LLC. With over 20 years of business and technology experience he has a demonstrated excellence in business strategy, innovation, and leadership development with large companies, small companies and non-profit organizations. You can follow Matt on his blog MattHunt.co and Twitter @huntm

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