Published on Forbes 6/14/2104
Rob Ryan is the founder of Ascend Communications, the Internet company Lucent Technologies purchased for about $24 billion in 1999. Fifteen years later, the Ascend deal still holds the record for top venture backed technology acquisitions (to put it in perspective, Facebook’s recent acquisition of WhatsApp netted $19 billion). From a discussion with Rob at the Stein Eriksen resort in Park City last week, I learned the firsthand story about the day he invented the Sunflower Model he used to grow Ascend and other billion-dollar companies since.
It was a clutch moment. Ascend was selling dial-up Internet connectivity ports to customers such as AOL, Earthlink and UUnet. He was pitching George Kelly, the Chairman and CEO of CapStreet who’d taken Cisco public in 1990, to do the same for Ascend. To say the pitch was going badly would be an understatement. Less than 30 minutes into the discussion Kelly halted the conversation abruptly. “I don’t get it,” he said. “I won’t be investing in this company and I won’t take you public,” he said, and he stood to end the meeting.
It was the moment, Ryan recalls, when “stuff got real.”
As his life flashed before his eyes, he remembered an experience from his past. He’d been closeted away in a snowed-in cabin to evaluate his alternatives as the company had swung on an earlier pendulum of near-certain death in 1991. Consciousness brought him quickly back to the present. “No,” he said. “We are scheduled for a one hour meeting. You owe me 30 more minutes.”
In the earlier experience, Ryan had found inspiration from a seminal article by C. K. Prahalad and Gary Hamel for Harvard Business Review: “The Core Competence of the Organization.”
Rob Ryan, founder of Hero Partners, led Ascend Communications to a record $24B deal
The article had revolutionized Ryan’s thinking and redirected his company. It unveiled the concept that organizations are not manufacturers of motorcycles, or copy machines, or other devices. Rather, their products are the expression of core competencies a company possesses such as the ability to build finely tuned cylinder engines, or advanced imaging, or, in Ascend’s case, the ability to provide mass access to the Internet with reliable devices and speeds. (Prior to his epiphany, the company had viewed itself as one of the first providers of video conferencing technology.) To regard a company through only the lens of its products is akin to missing the strength of a tree by looking at only the leaves, Prahalad’s article said.
Suddenly energized, Ryan illustrated the core strengths of Ascend for Kelly as a central set of large circles. From that core, the products emerged as smaller circles, spreading outward like the petals on a flower. It was a leverage play. As the petals emerged, he pointed out that each product would use the core competencies already in place to drive revenue. Now Kelly recognized this was not a linear proposal. Time to market was much faster.
Kelly looked at the diagram and paused. Then he spoke. “I’ve made a mistake. You’re the next Cisco.” In 30 minutes his impression had moved from walking out of the room to “Holy Mackerel,” Ryan recalls. Now he recognized that a structure for the modern Internet had been born. He was looking not at a product idea, but at the creation of an industry.
As Ryan surveyed the sunflower diagram he realized a result that was perhaps even bigger than achieving the agreement with CapStreet for Ascend: a reliable and repeatable model for business. He now had an ideation method that provided not only a process for making decisions but also the structure for creating a scalable business of any variety and size.
At the center of the structure, the Sunflower Model identifies the core competencies that distill a company to its essence as a set of value propositions. The competencies may include intellectual property. Perhaps some finely tuned skills. Or perhaps there is access to ingredient resources at an exceptional cost. The stem, or the trunk of the sunflower represents the forces beyond the organization’s control that may influence its sustenance such as changing legislation or a catastrophic global event. The company must consider these alternatives, too.
But just because you can do something doesn’t mean that you should. The product petals emanating from the core should be evaluated by stakeholders and ranked by numeric score for value, uniqueness and leverage as the three invariant criteria Ryan requires along with the additional factors companies bring forward and careful attention to driving forces beyond the organization’s control. “How much money does this product make or save for the customer?” he asks.
Next, by averaging the scores, the organization identifies the products to pursue, and in which order. Ryan talks about product options as integers–the prime and composite numbers that make up each value proposition–and about the process of finding the products that present the strongest composite value as potential paths to pursue.
Companies then go into the market for a “walkabout” (innovation in action, he says) and ask prospective customers,” Tell me about your pain points,” and identify the ways the company and products could lesson those issues or take them away. Later, with a product developed, the company asks market participants, “Would you buy this product? And if the answer is yes, would you give me an order? At what price and what size would that order be?”
With orders in hand, the company has a clear direction and the investors have an easy decision to make. Now they have a set of product alternatives and an order of priority they can pursue with mathematical analysis and precision to predict their success. As industries evolve, if the market for motorcycles becomes less attractive, for example, perhaps the company uses its core skill to make dune buggies. If the need for video boxes goes away, the company delivers its core value through alternatives such as Internet access instead. Suddenly new product alternatives the company had never considered can come to the fore, for outcomes the organization can produce faster than even the most formidable competitors.
For Ascend, the Sunflower Model produced a nearly $24 billion purchase event. For other organizations the model may manifest differently. For example, a $30 million opportunity to manage policy compliance for aviation may be based on core competencies that can be equally useful to other markets such as transportation, education and financial services. Now the company has the opportunity to produce revenue in the billions and thousands of additional jobs and joint ventures, while becoming more immune to adverse market pressures as well.
Back to Ryan. Following the history-making outcome of Ascend he was content, for a time, to return to a quieter life with his wife Terry at their Montana ranch. Interestingly, as I’ve looked into Terry’s background I discovered that both Terry and Rob are graduates of Cornell University, in 1969. She played a vital role in the early development of Ascend alongside Rob, directing finance and operations for the growing company. Together they have also been instrumental in Cornell’s entrepreneurial programs in the years that have followed Ascend. Public records show that Ryan has faced a fair share of personal challenges as well. Following the Ascend acquisition he spent several years in relative isolation after the tragic death of both of his parents to cancer. Two years ago he lost his brother in Hurricane Sandy. He also endured severe back surgery in 1997 that forced him to resign from the CEO role at Ascend and to assist primarily from the sidelines during the final two-year period leading up to the historic merger event.
Post Ascend IPO, as Rob and Terry ventured to their favorite restaurant, Bridges, in Danville, California (where the famous restaurant scene in Mrs. Doubtfire was filmed, he has mentioned as an aside) they would often emerge to find people waiting as they returned for their car. Ryan assumed the restaurant was popular and the people lining the sidewalk were awaiting their cars. Then he realized at least some of the people were lining up to see him. They had seen the license plate on his car, an older model Mercedes, “Ascend1.” Realizing it was Ryan, they waited outside the restaurant for the chance to tell him hello.
“You’re my hero,” they would sometimes say. “I used to work at Ascend. I was a janitor (or a clerk. Or a salesperson. Or an investor.) They wanted to thank me. They tell me their employee stock put their daughter through college, or built a wing of their house. They remarked on the fact that I only ever took a CEO salary of $120,000-130,000.”
“Why can’t there be more CEOs like you?”
Ryan pondered the thought. What about the concept of a hero company? Meanwhile, he provided business mentoring to the young man who was parking the cars, a fellow entrepreneur. He started to advance the Sunflower Model through boot camp events at his ranch, providing investment and mentoring for 50-some companies including several significant outcomes:
Silicon Spice, which was sold to Broadcom in 2000 for $1.2 billion, LookSmart, a San Francisco-based search ad network with a market cap of $2 billion,
NetCracker, a Waltham, MA, provider of telecommunications, operations and management systems to service providers, was sold to NEC for $300 million, and RightNow Technologies, a Bozeman company providing cloud-based customer experience software products and services with a market cap of more than $1 billion after it went public, then acquired by Oracle in 2011 for $1.5 billion.
Two years ago, Ryan recognized the opportunity to expand the effort more rapidly by creating a new organization, Hero Partners, enacted through a merger of Ryan’s Entrepreneur America with Salt Lake City-based Hyde-Norton Group. Prior to the merger, Hyde-Norton operated as a strategic consulting group for growth companies, run by a set of young and semi-retired entrepreneurs: co-CEOs Justin Hyde and Tyler Norton and partners Cody Hyde, Scott Carlisle, Randy Garn and Douglas G. Smith. Since the merger, former U.S. Senator Bob Bennett, R-Utah, and his consultancy, The Bennett Group, have also joined in.
The Hyde-Norton Group has provided the additional components to address Ryan’s new agenda that is now becoming very aggressive—to take his Sunflower Model and Hero Company efforts to the full U.S. (and as envisioned, eventually to the rest of the world). The Hyde-Norton partners are young (age 31 and up) but each is already successful as a serial entrepreneur. (Contributor Cheryl Conner previously acknowledged Randy Garn as a one-man entrepreneurial tsunami here.) Together, the partners represent a wealth of experience and an extensive Rolodex for all resources needed to advance a company at warp speed. (They call it the Velocity of Relationships, according to co-CEO Justin Hyde.)
In a unique model, the team selects companies with the brightest potential for hyper growth and works as extended members of their management teams to bring it about. By applying the Sunflower Model and Ryan’s expertise they identify a path. Hero Partners s compensated with a combination of fees and warrant agreements that aligns them with the growth imperatives of the company, and works with the companies to ensure their success in reaching their fullest potential and revenue goals.
What are the characteristics of a Hero Company? Ryan refers to “Hero DNA” that comprises traits such as grit, intelligence, tenacity and staying power. The full list could provide the space of many additional columns (perhaps Ryan will write them), but prospective organizations should be forewarned they embody the foundational principles that also created Ryan’s success: principled leadership, conservative CEO salaries, and—a non-negotiable—that just as in Ascend there be a plan in place to provide every employee in the participating companies with stock.
In the first year and a half he team has provided support to close to 24 companies. But Ryan has an even bigger agenda in mind: As entrepreneurship becomes a pervasive way of life for more U.S. adults, he would like to provide the Sunflower Model as a process of thinking and for the creation of businesses of all sizes, from one person to a global enterprise, to every student and organization throughout the U.S.
“My father served in the Pacific Theater of the second World War,” he acknowledges with some pride. “That was his war—but perhaps this will be my smaller war, in his honor.” Ryan has another goal to accomplish as well—he would like to write about the Sunflower Model in Harvard Business Review as a tribute to the man who provided his inspiration, C. K. Prahalad (sadly, while Prahalad was lauded during his life as one of the world’s top business thinkers, he passed away from a lung disease in 2010).