Patricof on Success

Alan Patricof is recognized as the father of venture capital in his role as cofounder of Greycroft Partners, Inc. (formerly Patricof & Co. Ventures, Inc., now known as Apax Partners). Patricof started the firm at a time when venture capital was a new concept in financing. Since 1970, he has been instrumental in growing the industry from a base of high-net-worth individuals to an industry with diverse backing.

Patricof has helped start and has provided strategic guidance for the growth of companies such as America Online, Office Depot, Cadence Systems and Apple Computer. He was a founder and chairman of the board of New York magazine, which later acquired the Village Voice  and New West  magazine. Patricof sat down with NY Report managing editor Daria Meoli to discuss how he identifies companies with potential for success.

Daria Meoli: What does it take to turn a good idea into a great business?

Alan Patricof: It’s not the venture capitalists; it’s the entrepreneurs that turn a good idea into a great business. It starts with management. Ideas are a dime a dozen, so it takes a really talented individual or a group of individuals to turn that idea into a business model. To do that, entrepreneurs need to really address the market potential, or the size of the market they’re specifically going after, and their competition. They need to understand the unique competitive advantage they bring to that particular project, and then they need to assemble a team that’s capable of implementing the idea.

DM: What characteristics do successful entrepreneurs share?

AP: I don’t know if there’s one common characteristic, but a successful entrepreneur is someone who pays meticulous attention to details. It’s someone who not only comes up with an idea but has the skills that are required to implement that idea, and who has that determination — in the face of all odds against them — to persevere. I think a successful entrepreneur also has to be a good motivator of people.

DM: How do you judge when a company is successful? Is it when someone wants to buy the company? Is it when the company has a certain market share or revenue?

AP: I’d have to say the ultimate test [of a successful business] is when a company becomes cash-flow positive. I think too many companies operate forever by raising money from shareholders to keep themselves alive. To really be a viable company, you have to generate sufficient profits to be able to reinvest in the business and to generate growth.

DM: You’ve had many successes, but along the way you’ve probably invested in some not-so-successful businesses. What did you learn from those experiences?

AP: People who fail usually lack the talent that I thought they had. They don’t have the ability to motivate people and their idea wasn’t as good as it sounded. But I think the one main killer is someone who is so determined in their original concept that they don’t have the ability to improvise and to change their model to accommodate the realities of the marketplace. And that’s a common trait.

I always tell the story of a company that I helped start very early in my career. [The idea was] to sell [a device] to doctors to take on house calls. It was a great product; but it became clear after six months that doctors don’t spend money and they had stopped going on house calls. So, while they had a great product, the market wasn’t there. If this entrepreneur was someone who had just kept trying to convince doctors that they should buy his product, he would have drowned. Instead, this person put a screw hole in the bottom of the device, [mounted it on a] tripod and, instead of selling to doctors, he started selling the same device to anesthesiology departments in hospitals. He wasn’t stubborn in his approach to who was going to buy the device and what they were going to pay for it. Rather, he shifted entirely and survived to become a very successful company.

DM: Speaking of changing with the times, how has entrepreneurship changed in the past 15 years?