Prescience is a must-have for all top executives, more so for those in the technology business. Richard Harrington demonstrated it aplenty when he decided to consciously push Thomson Group away from the conglomerate that it was, to turn it into a digital information services provider. At that time much of its publishing division was steeped in print and the internet was still in its infancy. Harrington spent over 25 years with Thomson Corporation and by the time he retired as chief executive, Thomson was much more profitable despite operating with less than 10% of its original assets. He also oversaw the buyout of Reuters Group, to create the information services powerhouse that now operates as Thomson Reuters. Now that he is a venture capitalist and chairman of Cue Ball Group, one would expect his schedule to be less hectic. That clearly isn’t the case. He is not only busy advising fledgling companies that Cue Ball has funded; he is also a board member of many Fortune 500 companies. The recurring theme that comes through, as he answers our questions is “You better know where you are going and you got to have the right people”. It is to help other entrepreneurs get the latter right, that Harrington co-wrote Heart, Smarts, Guts & Luck, with Anthony Tjan and Tsun-Yan Hsieh.

Was the transformation at Thomson driven more by competitive pressure from other data vendors or were other factors at play? 

The Thomson I started with was more of a holding company than a focused information services provider. At one time it used to own newspapers, some publishing assets, a leisure travel business and an oil business, among other things. I felt that being a holding company was not the best way to create value for shareholders. So, in the mid to late 1990s, I chose to consolidate the information business, which was at the beginning of a major transformation from print to electronic. We wanted to understand the end-consumer better and we put all our efforts into doing that by using technology as an enabler. Rather than us unilaterally determining customer needs, we spent a lot of time with the customers, understanding what they needed. We did this ‘three minute analysis’ where we observed what our users did just before and just after they use our service. The idea was to check if we could build that in, provide more information or more software, or better service to help them do their job. That exercise allowed us to rethink the whole market because we were able to utilise the technology to expand our capability. A big challenge was dealing with a declining print business while growing the electronic side. We actually created a new business with an old business and the new business eventually grew bigger than the old business. 

Thomson was a listed company, so was there much pressure from analysts and investment managers saying they couldn’t wait five years to look at returns while you transformed?

We were disciplined in making sure we drove the business on an annual performance basis but the most important thing was to get our execution right. Initially, there was some issue that we were spending too much money on technology versus our competition and so, for a couple of years, investors questioned what we were doing and why we were doing it. Once we did a better job of explaining what was going on, we actually had less pressure than we had in the first couple of years. By making these changes we got a great opportunity to lead our competitors in this new environment. When I took over in 1997 we only had a few people working in technology. When I left we probably had some 12,000. 

Is the challenge in building an information business today different compared with when you started? You spent 25 years with Thomson and you oversaw the merger with Reuters as well.

The challenge is different because users are more tuned in and the devices utilised are changing rapidly. Capabilities continue to improve more quickly. People can leapfrog easier today than they could in the past. Therefore, you have to pay attention, especially if you are delivering a product over one of those devices. Not only is the product changing, you also have to be very smart about how you market and communicate with your customer. Understanding the issues that your customers face in their market is crucial. You have to redo and challenge what you are doing every single year to make sure someone isn’t doing to you what you did to them a while back. You have to ensure that your employees stay relevant. I used to worry about three things: strategy, people and performance. If you don’t have the right people in the right place, you will not be successful. 

You talked about paying attention to your market. Bloomberg grew pretty fast in the late 1980s and early 1990s and caught Thomson and Reuters, which operated separately then, unaware. 

Bloomberg had a great, one-size-fits-all model. They gave you so much information and were able to sustain that. Most important, they were intensely customer-driven and they really paid attention. If any customer had a problem, they were on his doorstep in a nanosecond. They were almost like the old IBM, which outplayed competition with superior service. But unlike IBM, they haven’t lost their way at all. Thomson (before its merger with Reuters) couldn’t compete with the Bloomberg Terminal as we catered to sub-segments in the financial services space. But every good business has its issues over the years and stumbles along the way. 

IBM is a good example of a company that stumbled but got back very smartly. Are there any other such examples you can think of?

I am on the board of Xerox and before I joined the board, Xerox had some problems in the late 1990s and early 2000s. They have come back very strongly over the years. It is primarily because of a change in leadership. Anne Mulcahy took over during a very troubled time and got it back and now you have Ursula Burns who continues to do an excellent job of growing the business. So, anytime a company stumbles it goes back to leadership. IBM are very strong now but they did stumble along the way because they couldn’t make a decision on who they wanted to be. Then all of a sudden you got new leadership and Lou Gerstner at that time started to stabilise the business and got them to focus on the key areas. 

The same goes for the education publishing industry where things are not very clear as of now. Some of the issues they are having today is because they are moving into the electronic format. They could have moved years ago. But again, people make so much money on the old products that it is difficult for them to make that switch.

Now that you are a venture capitalist, how do you determine which entrepreneur to fund and which to pass?

It is not an exact science, the reason being the founder of a company can only take it to a certain level. Sure, if somebody can see an opportunity in the market and get a product delivered, he is very good. But not every founder can scale a business, which is why we need a scaler who scales up the business; and then we need an extender to take it to the next level. A sound business proposition aside, we look for entrepreneurs who clearly understand what they bring to the table and have the maturity to give up the operating side to someone who is skilled at scaling. 

There was an article in Harvard Business Review some years ago titled “Rich or Royal: What Do Founders Want?” Some founders just want to be king. They want to call all the shots. But they can take the business only so far. The other part is being rich. What it means is that sometimes the founder has to turn the business over to someone else who can actually take it to the next level. If you do that you will be wealthier because the business will have become bigger. It is critical for all entrepreneurs to understand where they fit as their business grows and what their role should be. While you would always want the founder to stay, not every founder can scale and even if he can, he can’t extend. Occasionally you get one who can do all three. Michael Dell was the founder, scaler and extender. He stepped aside for a while and then a new president came in and Dell later became chairman and CEO. Even Steve Jobs — he was the co-founder, then had to leave and came back as an extender.

Your company’s website says “Our preferred formula for success is recurring revenue with fixed cost leverage”. Could you explain that with an example?

We own a business called Stylesight, which is a fashion database company. We will eventually sub-segment not only the database but the customer base as well. There is a single technology platform supporting the database and how we slice that up and sell it to the customer is up to us. We already have the infrastructure and once we get the format right, the subscriptions will sustain us. After that, the sales cost of adding a customer is only incremental. That is what we mean by recurring revenue with fixed cost leverage. Yes, every few years you have to rebuild your infrastructure but the key is what it is built for. If it is built to handle 10,000 customers and you have only 5,000, it is more of a fixed cost. In our case we don’t mind having a high fixed cost business, providing it has the ability to add customers. Once you get over the threshold and achieve profitability, you actually have more flexibility in pricing and other things as you continue to scale. Some venture capital companies want to get cashflow positive as quickly as possible. We are okay with delayed cashflow and focus more on growing the market. Once I get enough topline, I can fix a lot of obstruction.

Which areas in technology look promising to you as a venture capitalist?

There are several new interesting companies. We own a company called Livefyre, which crawls the web including Facebook, Twitter, blogs etc., and it will come back and tell you the hot topics people are talking about so that you can be a little more relevant. There is a company I can’t name that weeds through the net and tries to aggregate what people are talking about in advertising. Eventually what they will be able to do is monitor the impact of advertisements in real time and tweak it for maximum effectiveness. 

In the book Heart, Smarts, Guts and Luck, which you co-authored with Anthony Tjan and Tsun-Yan Hsieh, you emphasise self-awareness. How is self-awareness different from going with your guts?

Self-aware people are the type that you need in your organisation. It is about knowing your individual strengths and weaknesses and the kind of people that you need to surround yourself with to make sure that in total you all add up to 100%. Guts is about making tough intelligent decisions that go against the norm. As I mentioned earlier, companies are slow to change because they are making too much profit in a particular area. They are afraid that if they do something else they are going to hurt their profit, when, in fact, if they don’t do something sensible that hurts their profit today, it will hurt in a year or two. Guts takes care of that and makes those tougher decisions so that you can maintain your lead going forward. 

Now, guts should not be confused with gut feeling. I don’t like people telling me that they are basing their decision on gut feeling. True, you will never have 100% of the information to make a decision. But you have to get as many facts as possible. So it is always better to get some information even if it as simple as calling up a few some customers. You want to make intelligent gut decisions not Las Vegas-type gut decisions.

Any particular decision of yours that you thought would turn out right but didn’t?

I try to forget those. One of the strengths of entrepreneurs and leaders is that we learn from our mistakes and hopefully never repeat them. You always make decisions that would have, could have, should have and didn’t happen. We have made several poor decisions. I remember at Thomson we bought a company in a particular market. It wasn’t a US market. We thought we could convert the business model to be more like our other business models and we were totally wrong. We ended up selling the business three years later. We gave it away. 

 Is there a right balance between hearts, smarts, luck and guts?

The perfect person would have 25% of each but there are no perfect people out there. When I got myself profiled I came out higher on smarts and guts than heart and luck. The purpose of the book was to provide insight to company founders. In our study 60% of the entrepreneurs were in the category of heart, which is normal as they are passionate about the business. We wanted them to understand their particular qualities and get the right people around them. The more aware they get and understand their strengths and weaknesses, the more understanding they will be of people with other characteristics. But if they are not aware then they end up thinking that everybody should be like them. The key is to make sure that your team is balanced and everyone complements each other.