The Accidental Entrepreneur: David Skok of Matrix Partners Talks Marketing Lessons, VMware Killers, and VC Missteps
His last name means “forest” in Norwegian. Which is appropriate, because this guy sees the forest for the trees.
David Skok of Matrix Partners is one of the most talked-about venture capitalists in town, among young entrepreneurs and experienced ones alike. He is best known for his investments in JBoss, the open source middleware company (acquired by Red Hat for $420 million in 2006); AppIQ, the network and storage management firm (bought by HP in 2005); Diligent Technologies, a data protection company (bought by IBM in 2008); and CloudSwitch, a cloud infrastructure startup (acquired by Verizon this year). He currently serves on the boards of tech companies such as HubSpot, CloudBees, Digium, Enservio, and Solidworks.
Critics say he hasn’t had a big exit in a while. Supporters say he has a real knack for building companies and getting them acquired for good prices—and that what he touches often turns to gold.
Whatever you think of him, Skok has carved out a reputation as a hard-working investor with both technical expertise in business software and a deep understanding of sales and marketing from a customer’s perspective. For the past decade, he has been a general partner with Matrix. But when I sat down with him recently, I was more interested to hear about his previous life as an entrepreneur and five-time CEO, and how that shaped who he is today—both the decisions he makes as a VC, and the kind of mentorship he provides to startups.
It’s not quite Batman Begins or Casino Royale, but here is the David Skok origin story—and its lessons—in three parts.
Act I: A New Hope (Software)
The story opens in Johannesburg, South Africa, where Skok was born to an English mother and Norwegian father. His parents didn’t want him to grow up with apartheid, so they sent him to school in England, where he lived from age 8 to 20, in London. From there he went to college at University of Sussex, where he was part of the first class of graduates in England to be awarded computer science degrees. That was 1976.
His father made him come back and join the blue-collar family business, which involved machining equipment. He went to apprentice training school and survived his first week when all the tough guys tried to haze him. By the end of the course, he knew how to use a new tool for machining parts that followed a program stored on punched paper tape. The problem was, if there was a tiny error in the tape, the part would be ruined and “you’d have a huge wreck on your hands,” he says.
So Skok wrote a piece of software to get around this. “If you designed the part on the computer, you’d be able to do the machining without worrying about the geometry,” he says. That led him to start his first company, Skok Systems, which became a computer-aided design (CAD) firm.
“I’m accidentally an entrepreneur,” Skok says. “I didn’t plan to be an entrepreneur, I didn’t have any training in it, I didn’t have any mentors to turn to to teach me how to be an entrepreneur. I’m trying to figure out all the sales and marketing stuff that’s going on.”
The company went through a few shifts, but the pivotal moment happened in 1983. Skok Systems was selling its CAD software to be used by architects, but the sales cycle was long and arduous, about nine months. Skok came up with an idea to speed that up. His team organized a huge event for 650 architects in Sun City, a South African resort, complete with lavish décor, a fancy banquet dinner, and a comedian (who was very funny, thankfully). People had a great time, and the end result was $4 million in sales in one day—more than in the entire previous year.
“That was a very formative event for me in terms of shaping what I then started to call ‘building a sales and marketing machine,’” he says. “The whole concept of trying to analyze what’s going on in your customer’s head and flipping the whole way of thinking about selling on its head and saying, ‘It’s the customer-centric viewpoint that matters here.’ Rather than the way everybody designs their sales cycles, which is from the internal view of what they want to have happen.”
So, Act I ends with Skok Systems hurtling towards $36 million in annual revenue, and Skok himself flying out to Silicon Valley to raise a venture round and go big…
Act II: The (PC) Empire Strikes Back
It is a dark time for Boston entrepreneurs, of which Skok has now joined the ranks. For one thing, the weather sucks—it’s more like England than South Africa (but with colder winters). For another, Skok Systems has taken about $16 million in venture money led by Greylock Partners—hence the move to Boston—but is now struggling mightily against the tide in computing (as would befall many a Boston-area company).
“What really happened was the PC came out, and we were based on workstations,” Skok says. “That altered the whole business model.” He calls it “my first major failure” and “a tremendous loss.” Skok left the company in 1985, and the VCs eventually would sell it for about $10 million.
Through the ‘80s and ‘90s, Skok would have customer-centric success with other companies—International Software, Watermark, SilverStream—but perhaps more instructive are the difficulties he faced in those days. (This is the middle part of a three-act classic, after all. And no, I’m not including any Matrix analogies, because those sequels should never have been made.)
Watermark, a document imaging startup, emerged from Skok’s struggles in trying to turn around a hardware company called Xionics, in which he invested in 1990. What he didn’t know, until he was in too deep, was that the company owed a million pounds to a creditor. “We’ve got a crisis on our hands, and it’s a disaster for me,” he recalls. “Instead of spending any creative energy on how to improve the business, I’m sitting there dealing with creditors every day. It was one of the worst periods of my whole life, where my stomach lining disappeared.”
Xionics slowly worked its way out of debt, and Skok (who decided he’d had enough of the hardware business) started up Watermark Software within the company; it later split off from Xionics. He also learned an important lesson about personal motivation. He had gotten into Xionics simply because he wanted to make money, not because he was deeply passionate about it.
“That was a disastrous motivation,” he says. “The moment you start focusing on making money, in my view, you don’t make money. When you’re really completely passionate about what you’re doing, you accidentally make money because you build the right things that customers love, and you’re doing something that you love as well.”
Another lesson from Xionics: “In every other company, I’d done every hire in the company and built the culture the way I wanted to. You can’t bring the right culture if you’ve done the wrong hiring.”
So, Act II ends with Skok running Watermark as a separate company and winning venture funding from Matrix Partners and others around 1993. But it’s not smooth sailing. The startup would get sued by tech giant Wang, and a fierce battle would ensue…
Act III: Return of the VC
The Wang lawsuit taught Skok a lot about the inner dynamics of VCs. While Matrix stuck it out and was supportive, he says, some of Watermark’s other investors were putting on the brakes.
“There are a heck of a lot of VCs out in the world,” he says. “Some of them have the very best intentions to try to help you, but don’t necessarily help you.” So if you’re courting venture investors yourself, he says, do research on the dynamics of each firm, and reference-check each partner. “Having the right partner is hugely helpful.”
In the end, Watermark survived, did well, and was acquired by FileNet in 1995. Skok went on to lead another company, SilverStream, in its battles with Weblogic over Java application servers through the late ’90s and the dot-com bubble. He then joined Matrix Partners in 2001 and started working on his VC game, investing in young startups.
He has had his share of successes there (notably JBoss), but the struggles didn’t end, of course. One outcome in particular still eats away at him. “I’m still really upset about it actually,” he admits.
One of his early investments at Matrix, Virtual Iron Software, was looking to fix a big problem in data centers—how to virtualize servers for business customers. This was 2003-2005, before VMware was fully tackling the problem. Virtual Iron had great technology, Skok says, but the company ultimately failed in the marketplace because its cost of acquiring customers was too high. “I wanted Virtual Iron to be open source [like JBoss], and make the whole thing free,” he says. “I believe that was the way to make that thing really work and be disruptive. I still believe to this day that if we’d done that, we could have made that company incredibly relevant. So that was a failure, one that hurt.”
Virtual Iron was bought by Oracle in 2009, and Matrix got some of its money back, but VMware remains the dominant force in virtualization. So, I wondered, does Skok have another potential VMware killer brewing?
That would be CloudBees, a small Woburn, MA-based startup led by Sacha Labourey, formerly of JBoss. “It’s like the operating system for the cloud,” Skok says. “It’s the layer above what Amazon provides, which is machines and storage. That is a very potent concept. If they do well with that concept, they may wipe out the need for people to even worry about whether it’s VMware or whatever, because most people will end up just using the cheapest open source virtualization layer.” (The approach is related to OpenStack, an open source system for configuring corporate data centers as clouds; there are a few OpenStack companies now, and they all see VMware as the enemy.)
So, the end of Act III is being written as we speak. Skok has plenty more thoughts about the Boston tech ecosystem, the rise of consumer-focused startups, and the role of local companies like HubSpot, TripAdvisor, and Kayak as anchors and training centers for young talent. But we’ll have to save those thoughts for the sequel.