David Steinberg knows how to make the most of a situation. At 22, he turned the basement of his Bethesda, Maryland, home into an office for his first startup, Sterling Cellular, using every dime of his savings and maxing out all his credit cards to fund the company.
That was back in 1992. Unlike many of the startup founders of today, Steinberg hadn’t dreamed of running his own company when he was in college. “I became an entrepreneur because I had no choice,” says Steinberg. “I had no job.”
Six years later, in 1998, that business had grown to more than $25 million in revenue and he’d started two more wireless companies. Then Steinberg met John Sculley, who had served as PepsiCo president and Apple CEO, at a networking event. Steinberg had the seating cards for the evening’s dinner switched so he sat next to Sculley.
It was the beginning of a long relationship, one that would lead them to cofound a company in 2007 that would eventually become Zeta Interactive, which uses big data analytics to help companies amp up their marketing strategies and better manage customer relationships. Last year, Zeta made more than $150 million in revenue.
Steinberg spoke with Fast Company about what he’s learned from having founded five companies, and how he’s chosen to do things differently this time around with Zeta.
When Steinberg started his first business, he bet everything he had on it. If the company went under, it would have taken him years to dig himself out of the debt. It often takes that kind of audacity to start a business, he says. But that doesn’t mean he’d be so brash in founding and growing a company ever again. He’s seen too much to let himself take a risk without calculating what he has to lose.
Take, for instance, his third company, InPhonic, which sold wireless services and devices online. The business grew rapidly, raising millions in funding and acquiring another company Steinberg launched called Wirefly.com. But, eager to grow as quickly as possible, InPhonic began taking on far more debt than it could handle, and, when the 2007 debt crisis hit, it was one of the casualties. Steinberg was forced to sell the company to a private equity firm.
There’s a difference, says Steinberg, between a flavor for risk and an aptitude for risk, and the best businesspeople he knows are the ones who have an aptitude for risk. But it takes time and a hell of a lot of trial and error to hone that aptitude. “Most great entrepreneurs have a great understanding of the risk-reward of a scenario,” he says. “When you first start out, you don’t.”
Steinberg has learned the hard way that guiding business decisions based on sheer loyalty can be a mistake. At InPhonic, he regrets having stayed with the same finance team for too long out of loyalty. “The people who get you where you are, are not the people who get you where you need to go,” he says. “That might sound callous, but it’s not. If you cycle people out of your organization and help them get into roles in other organizations, they’re better off too.”
Zeta’s 700 employees include a group he calls “Zeta People,” which oversees hiring, running internal training, and helping with the judiciously named “outplacement process” that Steinberg says involves helping people who leave the company find jobs elsewhere. “When we move someone out, how do we do it in the best way for them and us?” he says.
Steinberg learned from InPhonic that running a company means never turning a blind eye to finances. At InPhonic, getting as big a share of the market was more important than making sure there was money in the bank–a strategy that ended up leading to the company’s demise. Now Steinberg is far more cautious and calculated about company growth. “When I put my head on the pillow at night and I know we have money in the bank, I sleep a lot better than when I know I have to raise capital to keep my business going,” he says.
His goal with Zeta was to make the business profitable as quickly as possible rather than getting the biggest market share. One way Zeta did this was by acquiring a handful of undervalued small companies in the space that it could then bring together to create the business. “It’s a moderated game where we are looking at growth verses profitability verses cashflow,” says Steinberg. “A lot of entrepreneurs are great at the ideas, but not as good at the execution. Know who’s paying you, when you are getting paid, and what is your cashflow like.”
One of the biggest challenges for Steinberg has been letting go of control. But over the years, he’s gotten a lot better at getting out of people’s way. “I’m not sure this is from wins, losses, or age, but I’ve done a better job letting my team do their jobs,” he says.
Hiring for aptitude is how he often can rest assured he’s leaving the responsibilities of the company in good hands. When going through the hiring process at Zeta, prospective employees are often given an intelligence test–and, according to Steinberg, only 12% pass. It’s part of Zeta’s focus on bringing the best brains to the table. “You can teach a smart person to do almost anything,” he says. “But you can’t teach a person to be smart.”