Stephen W. Gibson. Founder & Angel.
- Date of Incorporation: May 1998
- Location: Orem, Utah
- Industry (Yahoo Finance): Private Equity Investing
- Employees: 20+
- Website: www.utahangels.com
So how did your life as an investor begin?
Well, it really began when a young man approached me with a business plan and asked if I would invest with him in this business venture. He wanted to have me put $10,000 in this business venture and get 10 percent of the company. But you see, he hadn’t really started the business himself yet, he had only written a business plan. So we talked about, “So I’m investing $10,000 for 10 percent. That means your percent is 90 percent, is that correct?” And he said it was. And so I said, “That must mean that your 90 percent is worth $90,000, is that correct?” He said, “That’s correct.” And I said, “Well it’s taken me a while to earn money that you want me to invest. How long did it take for you to write the business plan?” He said, “Well, about six hours.” And so I said, “So your time for six hours is worth $90,000.”
That introduced me to investing and he and I worked it out so we both owned 50 percent of that venture. I think that was more equitable. I’ve been involved in a lot of ventures, primarily with young people. Over in Littleton, I invested with two MBAs in a company. I felt at that time, well, if you had an MBA you had all the answers. That’s not true, but anyway. So I’ve been involved in investing for probably 15 years outside of my own businesses.
And you co-founded Utah Angels in 1998 with four of your friends. How did that get started?
Well, I was living in Provo, where I live now, and a lot of BYU students and others heard that I had harvested a business and therefore had some money that I was interested in investing. The word was out that a lot of my friends also were in similar circumstances. We were all kind of overcome with people presenting business plans to us as individuals, and I just didn’t have the time to read all the business plans. Some of the people were presenting their business plans to me as well as some of my friends. So I decided that I would invite four of my friends to get together and we met every month for several months, looking at business plans and having the entrepreneurs present their plans. Utah Angels has been a great funding source for a lot of startup businesses. Well over $30 million have been invested. Of course, that group has now grown from five to over twenty angel investors. We invest individually, but we hear plans together. After someone presents a plan, we ask questions using all of our experience, and then we arrive at a decision. Over time, I’ve become less active in Utah Angels because I’ve changed the way I feel about certain things in life, but now the real spark-plugger, the man that is carrying that on is Scott Frazier; John Richards, another well-known entrepreneur, is also very involved in it. Gary Williams is another member; as I say, the group has grown large. It has done a lot of good for young entrepreneurs here in Utah County and all over the state. You can find the website is utahangels.org
That’s great. And as we talked about earlier, you were one of the early investors for 1-800 CONTACTS, MyFamily.com, and Omniture.
That’s correct.
What was it about these opportunities that caught your eye?
You chose a good word, “opportunity”, Mark, as opposed to the “idea”. I differentiate greatly between an idea and an opportunity worth pursuing. In each of these cases, there was sufficient enthusiasm and drive by the founder, or founders. In each case, we had the energy and the passion of the entrepreneur, but energy and passion is relatively easy to find. What is hard to find is an idea that is an opportunity worth pursuing. In each of those three opportunities, there was something unique and different about their approach. For instance, Omniture was in web analytics when that was so new; the idea was for someone to be able to find where the inquiry came from on the Internet and be able to track what kind of computer it came from, what portal it came from, and how long a person was on that webpage. That was very unique, very cutting-edge, and very exciting in those days. So you discover a great idea, you look at it to make sure it is an opportunity worth pursuing, and then you say, “What kind of team is there?” And in the case of Omniture, Josh James and John Pestana are very unique individuals that both brought something to the table and were really able to take it forward. So it’s the team, it’s the idea, it’s the opportunity worth pursuing. It’s really the market, it’s solving a problem at a price that the person with the problem is willing to pay. And that’s true at 1-800 CONTACTS, Ancestry.com, and at Omniture.
Yeah, but not every investment opportunity works out as well as these three. I’m sure that you have quite a few that went south.
We usually don’t talk about those, but you know these are the three where I happened to have been the first investor. So that’s quite an honor, and it’s been pretty exciting to have seen those three opportunities. Those have been the best harvests, except for selling my own business, of any of them. But you know we haven’t had a lot of large failures. Real estate has hurt a lot of us the last two years, but even with that I’m working on two deals this week that we’ll probably put together next week, both in real estate. So there are always opportunities.
Tremendous. Some of the greatest life lessons do come from those failures though.
Absolutely.
What was one that taught you tremendous principles and value in your life and in your career?
Well, certainly selecting a partner is an important part of the equation, especially if it’s an investment where you’re working closely with someone every day. Choosing a partner is a critical thing that I’ve learned about from failures; that is, failures of some of the partnerships, and there have been a few of those. Another cause for failure is investing with a partner who doesn’t have a definitive exit plan or exit strategy. Make sure that you are in unison, that you’re building this company to do something with it, as opposed to just building a company. For example, some people want to build a company to leave to their family, some people want to build a company to operate, and some people want to build a company to merge with another or have it acquired. Some people want to build a company to go public. As an investor and as a partner, you need to talk about these issues before you ever get started, in order to have unison. Secondly, I’ve learned that before you invest with someone, or before you undertake something, you need some written agreements in place — I paid $6,000 to an attorney to put together a written agreement one time. Wow, $6,000, it seems like a lot of money, but that written agreement within a month prevented what really would have been a problem, b because within that $6,000 agreement were solutions to a problem that arose very early. We learn through those experiences, Mark, that you have to be cautious, and you have to know where the mines are in the minefield. You need to be a pretty good judge of people. I think the important thing is not to misinterpret passion and energy for a good solid opportunity worth pursuing.
That’s really interesting. So, for an aspiring entrepreneur, would you recommend a thoroughly detailed operating agreement? What other types of documentation would an aspiring entrepreneur need to have to solidify the business operations, at least initially?
I have not always been a great proponent of business plans, but I do believe business plans, even short business plans, are important. A business plan is one important document; if you are going to operate a corporation, you need incorporation papers that have been signed, sealed, registered, and filed with the State. Certainly projections of where the income is going to come from pro-forma, usually found as part of the business plan. If you’re going to have a partner or more than one stockholder, you need stockholder agreements. All of these things sound so laborious; but the problem is if you don’t have them, you’ll get bitten by some problem that will arise. I teach a class at BYU called “Basic Entrepreneurship,” and we start companies in the class. During the semester, we actually start companies and so I have the students get a bank account and incorporate. I have the students get a business license and all of those kinds of unpleasant things that entrepreneurs don’t like to do but are so necessary to have a good, strong foundation and even to make financial projections. And then they have to go out and sell $1,500 worth of merchandise or sell their services.
So this issue is about investing and funding companies. We’re interviewing you for your experience with Utah Angels, Ancestry.com and so forth. Raising capital is a difficult process at times. What advice would you give to aspiring entrepreneurs to be able to obtain capital?
Well, first of all they need to make sure that they need it, and secondly I’ve seen a lot of entrepreneurs be so involved in raising capital that they get their eyes off of the goal of operating their business. So while I’ve invested in a handful or two of companies, I question whether the current mode of going out and getting outside capital is so smart. You know some businesses need that, especially technical businesses, but because of market conditions right now, it’s very difficult to raise outside capital. If businesses launch anyway, I think they’ll be better entrepreneurs by understanding that the solution of most operational problems are found around sales: making sales, collecting the money from the customers, and having a revenue model. While I realize that some industries and some undertakings need to raise outside capital, I’m not a great proponent of that. I built a company where we’re doing $5 million in sales, though even an “M” word sounds small these days compared to the “B” word being thrown around so much. But let’s face it, very few businesses are even at $5 million. I never raised a dime outside, and lots of my friends, younger friends that I have now, aren’t raising any money either. I’m thinking of two that are doing $10 million a year in gross revenues and they have no outside investors. They just realized that if they wanted to really retain control and majority of the stock, they had to be very smart business people. While I realize that this is about outside funding, in reality the whole idea of boot strapping is one that appeals to me more, as a business man.
But there are also principles that you know that you are telling about the importance of a team, the importance of an idea, and the passion that are critical for the success in all cases. So that’s tremendous.
Yeah, but I don’t see the ability to raise capital as a necessary part of that formula.
Interesting. So what would you say, in as simple terms as possible, is that formula? You talked about the team; you talked about passion, what is that list, concisely?
Certainly the biggest one that comes to mind is that first you have to discover a problem, a void in the marketplace or even a problem that’s being solved now, but can be solved faster and cheaper. After you find a problem, you need to come up with a solution that can be offered at a price that the person who has the problem is willing and able to pay for the solution. And in the case of 1-800 CONTACTS, the problem was that you would go to an eye doctor and have him prescribe a lens and then he would wait two weeks to get the lenses to you. You’d have to come back a week or two later for him to have that lens in his store because he didn’t carry inventory. What Jonathan Coon did with 1-800 CONTACTS was that he carried inventory and at that time it was all mail order; now it’s all over the phone or Internet, primarily the Internet now. I say the first ingredient of success is to find a problem, and then come up with a solution that a person with the problem has the money and is willing to pay to get the solution. That’s really basic, but that’s very critical. There’s a lot more after that.
Good. So let’s switch gears now. Let’s talk about the Academy for Creating Enterprise. You started it in the Philippines in Cebu. And you’ve expanded into over 10 different countries, from what I understand.
We need to be specific on that. We have two models; one is a brick and mortar model, which is in the Philippines. In Mexico, and Brazil, it is a little different model. And then there are all these other countries.
Give us a little history of how the foundation came about, the mission behind it, and how you’re currently delivering services to people in the world today.
Let’s go back originally then, to the model, or excuse me, the problem. The problem is that returned missionaries in the Philippines have a lot of spiritual insight, but not much temporal insight. They had their spiritual lives together, but didn’t know much about how to get their temporal lives together. That’s a problem because it’s even compounded even more because there are very few jobs in the Philippines. There are 87 million people and very few national companies. The economy is based on small, informal businesses, but even to operate an informal business and to be successful; you need to know some business principles. When I say success, I mean successful enough to take care of the needs of your family. That was the problem; the solution is starting a small academy to teach returned missionaries how to start and grow enterprises. I was originally exposed to the Philippines as a board member for another foundation, but then I saw that that foundation really isn’t reaching the people that I wanted to reach, so Bette and I moved to the Philippines, rented a building, invited returned missionaries in, and started a training program. Since that time, about 1,700 returned missionaries have graduated, and they’re running all kinds of different businesses. Just almost any one you can think of.
Recently we’ve entered into Mexico where we’re teaching; we’ve taught over 100 returned missionaries in Mexico and we will be opening a facility there on 3.7 acres with several buildings already there that we’ll take over, and that will be almost a mirror to what is going on in the Philippines. That will be exciting. Then in Brazil, we have found a former mission president, who is an entrepreneur and has 1,200 English schools in Brazil; it started in China and several other countries. He’s going to run the Academy in Brazil. We already have the first group of 20 returned missionaries in Brazil, and that will grow. I would expect that we would teach 1,000 returned missionaries a year between those three locations, are the sort of a brick-and-mortar-type operations. In all of these other countries, we’ve written five volumes called “Where There Are No Jobs,” and the latest one was “Creating Family Prosperity.” That’s the kind of prosperity promised in the Book of Mormon, which says that if you keep my commandments, you’ll prosper in the land. And so that curriculum has been taught in ten different countries, from Congo, Ethiopia, and Honduras to Peru, Guatemala, and South Africa. The curriculum is being used, and we’re going to be growing two things at the same time—the brick and mortar, but also the dissemination of the curriculum.
That’s tremendous and really exciting.
It is. Thank you, it is really exciting for us.
Great. I understand that your wife Bette co-founded the Academy. Has she always been a significant help in your entrepreneurial pursuits, including Barclay’s?
Well, yes and no. She’s always been a great help in raising our family, and as you know as an entrepreneur yourself, you have to divide up certain roles. She worked really hard in that area, especially when the children were young. I do better with teenagers and so I went to work every day, working five and a half days a week, and she took care of the home, but we really co-founded the Academy. I appreciate you mentioning that, because she moved to the Philippines with me, which was a great help. As I stood up and sort of off-the-cuff taught classes— I hate to say we didn’t have some planning, but it was off-the-cuff —she took a lot of notes, and from all those notes, she put together lesson plans. From those lesson plans, she put together three out of the five volumes of “Where There Are No Jobs,” so they’re using those same lesson plans today in Mexico, Brazil, and also in the Philippines. Plus, she is a technician by nature, I’m an entrepreneur. I found this great building and rented this great building where the students also lived in the building and I kind of felt I was done, but she reminded me that there were no beds, no towels, no kitchen utensils, no tables, no chairs, no desks, no blackboards, no toilet paper, you know? Just on and on. So together we went out and bought those items. They are using those same things, some of those same things, ten years later. So she played a really important role in the beginning of the Academy. She still serves on the Advisory Board, but she’s discovered the value of grandchildren, and she’s spending a lot of time with our grandchildren.
Wonderful. Many describe your change from being the quintessential entrepreneur to now working with the Academy as being dramatic. You were closing deals and investing in some of the greatest startups in the United States. What brought about this change?
I think age is a maturing device, and that’s part of it. I think that, generally, Latter-day Saints who have made the same commitments that I’ve made realize that money is a small part of success and that when they are successful financially the opulent lifestyle that other successful people live sometimes loses its attraction for Latter-day Saints, if there ever was an attraction. I think, for example, multimillionaires in our faith have fewer drivers, fewer limos, fewer wait servants and on and on and on. So how are you going to use the money after you have a sufficient amount for your needs? Then what are you going to do? Are you going to give it to your children and ruin the next generation, and then they can give it to their children and ruin that next generation, or will you find ways to impart some of your substance to others through something like education?
President Hinckley taught us that education is the key to opportunity. I think that the right type of education applied is certainly the key to establishing enterprises that can continue the perpetual nature of business. And so I think educating returned missionaries is where it’s at. While I still feel driven to increase wealth because it’s there, I think a better thing for me to invest my time in is teaching others how to create that wealth, and when I talk about wealth in third-world countries, I talk about prosperity. To me, prosperity in third-world countries means clean water, nutritious food, educational opportunities for your children, and sufficient shelter and medication. When we talk about taking Latter-day Saints from poverty to prosperity, which is what I want to be doing the rest of my life, I’m talking not about the number of cars they own, but giving them a better way to take care of their children If I am kinder, it’s just because I see that that’s where real value is, in taking care of the poor, the needy, you know, the widows and fatherless.
That’s wonderful. Well, I would say you’re living the quintessential Mormon entrepreneurial life today, and that you have an opportunity to serve, to give back, and to use your skills to be able to educate the next generation. I think it’s tremendous.
Well, thank you. You know there are many others both in our faith, and within the Christian faith, and non-Christian faith that are doing many similar things. It is something I enjoy and it’s what I want to do as long as I can speak and talk and walk; I want to help others.
Any last advice you want to give to the aspiring entrepreneurs of our community?
I would say number one, start early. I’m thrilled when I read about high school students and junior high school students that are doing things entrepreneurial in nature. In my classes at BYU, I’m really intent on them starting businesses. So start early, and if they are going to fail, that’s okay. Don’t lay down too long, catch your breath, get up and try again. I think it was Bill Gates who said, “Success is a lousy teacher.” That’s true. Success is great to have, but I think we learn our lessons from failures as much as from our successes. So number one – start early, do it often. Don’t try to launch a 747 jet, launch a Wright Brothers’ plane; but launch something and if it crashes it’s not going to wipe out as many people. Start small, think big, start often, start early.
