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Globe 100 CEO Roundtable: The extended version

Posted by Scott Kirsner  May 23, 2011 12:18 PM

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Essdras M Suarez/Globe Staff Photo

(Left to right) Johnny Earle, Jeffrey Anderson, Gail F. Goodman, and David Vieau.

For the Globe's annual Globe 100 magazine, I moderated a roundtable of four local CEOs talking about innovation. A condensed version of our conversation ran in print, but I wanted to share the longer transcript (just lightly edited) here. Thanks to Globe co-op Allison Knothe for her transcription help...

The participants were:

- Gail Goodman, chief executive of Constant Contact, a Waltham company that sells digital marketing services to businesses

- Johnny Earle, founder and chief executive of Johnny Cupcakes, a clothing chain (specializing in high-end T-shirts) based in Hull

- David Vieau, cofounder and chief executive of A123 Systems, also in Waltham, a maker of batteries for power tools, electric vehicles, and utilities

- Jeffrey Anderson, founder and chief executive of Quick Hit, a developer of Internet football video games based in Foxborough.

I opened with a question for Johnny Earle, the t-shirt mogul.

Globe: Apple has this interesting aura where they have created scarcity for the iPad 2, and people line up in front of the stores, waiting for iPads, and everyone’s excited for the white iPhone. You seem to have kind of tapped into a smiliar idea of, ‘Let’s do interesting, fun designs and make people want them.’ How do you create this demand, when every other t-shirt maker is probably cranking out hundreds of thousands or millions of units of their product?

Johnny Earle: When I first started, I was doing it just as a hobby. It was a joke that turned into a hobby, and then it turned into this brand. I was designing the t-shirts out of my parents’ house at the time, and while everyone else was going out partying, I decided to gear my time and money towards this business. I wanted it to be something that had longevity, so I chose not to sell to some stores. We had some offers from Macy’s, Nordstrom, Urban Outfitters, and even Barneys, and we just went a different route. We started numbering shirts, and once we’d sell out of something we’d never make it again. We began focusing on packaging, which I think is a big thing when you come out with a product. Growing up, we’ve all been addicted to McDonald’s at one point, because of the Happy Meals. Instead of plastic bags, we started making food boxes for our shirts, and even cupcake mix boxes for some of the releases. When you pull out the shirt, you have to dust off real flour and sprinkles.

Globe: How many shirts do you make in a typical run?

Earle: In the mid-hundreds. We sell our shirts any where from $35 to $75, and they usually sell out pretty quick.

Globe: Let’s talk about the video game industry. What would you say is the vision for the videogame cluster here, Jeff? The industry in Massachusetts is about 1300 people by the most optimistic estimates today. What is the vision? Is this going to be an industry that’s going to be 50,000 or 100,000 people, or are we investing in growing something that’s relatively small? And I presume you are for the proposed tax credit for video game companies.

Jeff Anderson: I think the potential is enormous. What’s great about the games industry is that it has low capital requirements, and it’s multiple swings at the ball. You don’t have to have a billion-dollar factory. You can have a small team of creative, highly-motivated individuals. You look at things not necessarily from New England like Angry Birds, which is an incredibly popular franchise, or Plants vs. Zombies. It probably cost a couple hundred thousand dollars for these guys to put those games together. It’s a combination of job creation, for sure, but also the revenue creation and the tax base for these companies is enormous.

Globe: So it’s old-fashioned to be focused on how many jobs is this going to create in Massachusetts?

Anderson: No. I do think it comes down to jobs. I think that tax credits are ways the government can incentives businesses with large opportunities, and given the size that it’s at today, I think that it’s an interesting experiment for the Commonwealth to look at that growth opportunity. It’s not a big investment, and you don’t have to put a lot of money into it, but it has a big long-term value-creation.

Globe: So you’re in Foxboro. You’re practically in Rhode Island already. Have you heard from Rhode Island saying, ‘Hey, why don’t you move across the state line? We’re trying to create a gaming cluster down here?’ They were pretty aggressive with Curt Schilling’s company.

Anderson: We’ve had lots of conversations with lots of different states. We’ve gotten calls from Louisiana. Canada has been terribly aggressive. North Carolina has been active in the past. Those states understand the value that these jobs can create, and I think their desire is to attract that talent, that revenue base, and that growth. They’re good jobs — jobs which are paying $50,000, $60,000, $70,000 to engineers, $100,000 jobs.

Globe: A123 opened its Michigan plant last fall, and there was a lot of state and federal money that encouraged you to build your manufacturing plant in Michigan, where they’re in dire need of jobs. Do you feel like the model for a lot of Massachusetts companies now is, do the R&D here, maybe have the headquarters here, but do the manufacturing elsewhere, where it’s cheaper, and as Jeff was alluding to, there are lots of incentives to create jobs?

David Vieau: Massachusetts is one of the most expensive places in the country to live, and to do business in: the cost of electricity, the cost of housing, the general costs of it. We try to attract talent, and bring people in from Michigan here. It’s difficult. We did a bake-off between five states when we were trying to figure out where our factory should be. Virginia is known as a very business-friendly state. We looked at New Mexico. Some new car company was going to build there, and they were giving incentives. Arizona’s been relatively inexpensive, and lots of people want to go live there. Michigan is where our customers were, and Massachusetts was where we were. Michigan got very, very aggressive. They were in a position where they had to do something. Since that time, in two years, they’ve got 17 new companies in and around the electrification of vehicles and transportation . They’re all employing people and hiring people, so they were able to make a big difference with that.

We have 2200 employees globally. Michigan is about 500 now, and should be at about 1,000 by the end of the year. There’s maybe 250 here in Massachusetts.

Johnny: Wow, that’s a big responsibility. (Laughter.)

Globe: How many employees do you have?

Earle: We have about 37 or 38 employees.

Vieau: I’d like that. There’s no pride in numbers.

Globe: It sounds like Michigan is already, and will continue to be, the biggest site for the company, in terms of head count?

Vieau: China’s got more, but if you took the payroll of Michigan, it definitely would be [the biggest by that measure]. In China, you can have a thousand people, and their salary would be the equivalent of 100 in Michigan. We’re continuing to grow here in Massachusetts. The jobs that we’ve got here are all premium jobs – top scientists and engineers and the sales and marketing headquarters. We’re buying automation from a company in Lowell. Really smart guys. We’re shipping those machines to China. To replace the Chinese labor with Massachusetts labor is tough. How do you make that globally competitive? Massachusetts is where you do the innovating.

Globe: Gail, you started off and built the Constant Contact brand around the idea that everyone should be doing e-mail marketing — whether they run a Yoga studio or they are an accountant. What are you seeing now, in terms of social media, and what businesses want to do with Facebook, Twitter, and YouTube? How are you expanding into that universe?

Gail Goodman: Aggressively. For small businesses, it’s about how you stay connected to your customers. Their largest source of revenue is repeat business, and word-of-mouth from existing customers. How do you get repeat business? Stay in touch. The ways you stay in touch keep evolving and changing. We like to say that e-mail lights the fire, and social fans the flames. Tossing stuff out on Facebook is actually a pretty tough way to get a first connection, because the Facebook feeds are getting very crowded, and Twitter feeds are worse.

Globe: You had this interesting idea to proactively call Constant Contact subscribers and say, ‘Hey, can we help you get started,’ rather than waiting for the first support call from someone worried that they’re about to send an e-mail to everyone on the Internet.

Goodman: Crazy idea: why don’t we call them and help them get started? We tried it in 2003. The lovely thing is that you can test. We had a call group, and a control group. Let’s see if it works. We doubled our free-to-paying conversion rate. We kept them longer, and got them more likely to tell their friends. It was a wow experience when a real, live human being called you. And not only do they call, they don’t sell. They say, ‘Tell me a little bit about your business. What are you hoping to accomplish with your customer communications?’ It takes them from unsure to confident.

Globe: What do you do at your company to foster new ideas, innovative ideas, and maybe bad ideas from employees? How do you source ideas from people who aren’t sitting around the boardroom table?

Earle: We speak to our employees every day, talk to our customers every day. It’s always just a big brainstorm frenzy. Let’s say we released some shirts. Boston knows that if we released a girl’s shirt that’s going to be printed on a pink t-shirt, we won’t be able to keep that on the shelf, whereas in Los Angeles, we’ll have to ship all the rest of those back here to sell. Our employees know what sells, and what doesn’t. They hear what the customers are asking about, and what they’re wearing.

Goodman: We have a tool in-house called UserVoice. Every member of the company can say, ‘I think we should do this,’ and all the other members of the company can vote on it. That’s mostly used by our customer-facing employees. We have about 10,000 one-on-one interactions with small businesses daily. So if you’re on the phone with a customer and they ask you for something, our people are almost always checking UserVoice to see if someone’s already asked for it. When we do implement what they asked for, we can go back and thank them for the idea — even if 100 people asked us for it.

Globe: What about balancing longer-term investments in new products and research and innovation with having to report to Wall Street every quarter, and their desire to see how many batteries you sold this quarter, or how many new subscribers to the e-mail product you got? How do you think about that tension?

Vieau: You start off with nothing but pure innovation, but then you get a legacy that you’ve got to maintain, and all your resources get poured into that, and fighting competition. Pretty soon, you’ve got an innovation engine that is getting starved for resources.

We’re still in the scientific development phase of this whole new industry. There’s a whole lot going on with clean energy. But I’ve seen that problem in my last business [American Power Conversion], where we grew from nothing to a billion dollars in six or seven years, and then suddenly we were starved for the resources to put into the next generation.

Globe: One answer is you start buying companies.

Vieau: At A123, we did a spinout of a company, called 24M, that was an innovation that we had for next-gen technology. Could be a world-beater, but there’s a lot of risk in it. The question was, do we have enough resources? And we said, probably, we’d starve it.

Globe: This was batteries for the electrical grid, to store power, whether it’s from wind or solar or --

Vieau: -- And it’s really low-cost, a fraction of what the batteries would be today. We said, we’ll spin that out, and we’ll hold a piece of it. We brought in VCs to fund it, and we put in a team of entrepreneurs to go drive the thing. And we secured a position to spin it back in, potentially.

Globe: Gail, you’ve done some small acquisitions over the last year.

Goodman: We’ve done three acquisitions. We’re growing 30 percent a year, and we’re going to grow our R&D budget that much or more, because this an innovation space, and we need to be at the front of the innovation space. So we’ve used a combination of organic innovation, and M&A to keep innovating fast. We created a “labs” organization about three years ago that is doing next-gen technology investigation. They’re able to get hands-on with stuff that’s totally impractical, and not worry about delivering products. But they’re doing homework for what then turns into product.

Everything right now is about how location-aware [devices] are gonna change the customer interaction. How would it be if I could communicate with them while they’re walking past? How are we going to create a consumer location-aware experience that is not obnoxiously intrusive, but is welcoming?

Globe: It lets you know that there are only two of those pink shirts left at Johnny Cupcakes on Newbury St.

Goodman: How cool would that be? But how does the consumer opt into that? Are they going have a unique app for each of us or, are they going to have something like a Where or a Yelp or a FourSquare to receive that information?

Globe: Jeff, I have a feeling that when you started Quick Hit a couple years ago, you had different thoughts about how you were going to make money from people playing your games. Where did you start, and where are you now?

Anderson: I came out of Turbine, where the whole business was really a subscription business, where we would sell content and access to the product. Even there, we started making the transition to a free-to-play business, because ultimately, free trials are a much more friendly experience for a user. You can then convert them into a paying user. The free-to-play market had been so popular in Asia that it seemed like it’s a no-brainer that it would wash onto the shores of North America. So when we kicked off QuickHit, our vision had always been about free-to-play. The opportunity to go in and create your own online team, and being able to start playing against other people, was the core value proposition. We started with the assumption that there’d be some advertising that we would do on the product, and some micro-transactions.

Globe: What is a micro-transaction in your game? Is it like you’re buying a particular player or play?

Anderson: Yes. You’re buying new access to new seasons, improvements to your team during a game, or upgrades for your stadium, like luxury boxes and blimps. That vanity piece — improving your stadium — that was probably one of the bigger surprises for us. And then the advertising. When we kicked off, the advertising market was just terrible. But that part of our business has really continued to pick up. We did big deals this year with Farmers Insurance and with Visa, and we’ve got a bunch of deals coming out this year that I just can’t talk about.

Globe: If we made all of you Mayor or Governor or Secretary of Economic Development, what would be one thing that you would focus on that would make Boston a more innovative city, more supportive of entrepreneurs, more fertile as a place for creating great companies?

Anderson: For my business, the MassDigi [the Massachusetts Digital Games Institute, formed in April] stuff is a huge step forward — creating a trade organization around gaming for the first time in the Commonwealth. It gives us a way to start collecting metrics and information and start aggregating statistics, because that’s what’s helpful when you want go to Beacon Hill or to Wall Street, and talk about how this industry is really evolving.

Globe: Gail, what should we be doing other than trade organizations?

Goodman: We’ve got to keep our young talent here. We are bringing an unbelievable talent pool into our universities, and then letting them move away. Staying in Massachusetts is a very expensive proposition, and we don’t make it easy. The second is working on H1B visa problems, so that we can keep foreign talent here. And then third, we could do a lot on mass transit, to make it easier to live and work in the city and work in different parts of the city.

Vieau: This is one of the best places in the world at doing [innovation]. The innovation engine that we’ve got, and the universities that we’ve got, and then the way the VC community works — there’s a tremendous amount of bubbling activity that’s going on. We’re doing a better job than just about any other place around the world that I have traveled to. I do see the problem with visas. We do have a lot of talent around the world that we’d like to bring in.

Globe: Politically, saying we need more H1B visas can be a difficult issue. I think a lot of people say, ‘Oh that person must be taking a job away from someone who grew up in Massachusetts, and we want to see an American in that job.’ How do you position it as a bigger-picture issue?

Vieau: Our industry is really Asian-centric. We tried to bring people in who would help us build this thing, and we couldn’t do it.

Globe: You couldn’t hire people from Asia very easily, who may have had expertise in battery manufacturing?

Vieau: As we grew, it was harder and harder to get some of this new talent coming in that we could then leverage into more jobs for people. We still have that problem today.

I don’t know how the state solves the housing cost problem, because it’s a benefit of the success we’ve had as a state, but it is an issue. With dozens of people we’ve tried to bring in, the issue is that it’s too expensive for them. We try and figure out how we can help them get through that, but it’s a challenge.

Globe: Johnny, you do a lot of speaking to college students and high school students around the country. What’s the perception of Boston when you’re out there? Is Boston in people’s mental map of where they want to live after they graduate from high school or college, or are people still thinking New York, LA, San Francisco…?

Earle: I think everyone, when they’re young, has this California dream of moving someplace warm — and then they realize that if you have the same season year-round, it doesn’t feel so special any more.

Globe: We need to have an anti-warmness marketing campaign in Massachusetts.

Earle: I’ve met a lot of people who appreciate all the seasons in Massachusetts, and with every season comes different activities. There’s a lot of great companies in Massachusetts — a lot of great sneaker companies, a lot of great design agencies. I’ve spoken to a lot of different students that are interested in being in Boston, but the cost of Boston is the one thing that they bring up.

Anderson: I think the identity of Boston has always been one that young people have struggled with. It is viewed as more traditional, slower, maybe more business-to-business oriented. For people who are coming out of college and are looking to do something exciting — you know they’ve got their hair on fire, they’re ready to go take on the world — it doesn’t always fit with the culture they’re looking for.

If I was going to pick one more thing, I think we do a very poor job of promoting what we are about in Boston. I think there are so many exciting companies that are out there that I never hear about, even as someone who travels so much.

Earle: When I speak to students and entrepreneurs and young kids with ideas, I encourage internships as much as possible, because so many people go to school and try to rack up all these different degrees, and when they get out, they have no people experience, no real-life experience.

Globe: The last thing I wanted to do was see if you have questions for each other.

Vieau: Is there one thing that pops out as the most successful innovative idea you’ve had?

Goodman: All the innovation is done by others around me. I’m just a herder of innovators, so it’s hard for me to answer that. I think the best thing I’ve done to foster innovation is to keep people listening to the customer.

Earle: I’d say developing experiences for our customers and our employees — ways to make our customers feel like they’re not just buying a t-shirt, and ways to make our employees feel as if they’re not just working a 9 to 5 job. If you have fun doing what you love, then it doesn’t feel like work. We have some shirts we’re gonna be releasing as some point where you can win a trip somewhere, almost like Willy Wonka and the Chocolate Factory. For instance if, we do some Vegas-themed t-shirts, and you get the one shirt that’s different, you and a friend win an all-expense paid trip to Vegas. I know people that don’t even like my company and they are like, ‘Whoa, there’s a good chance at winning that.’

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Scott Kirsner was part of the team that launched Boston.com in 1995, and has been writing a column for the Globe since 2000. His work has also appeared in Wired, Fast Company, The New York Times, BusinessWeek, Newsweek, and Variety. Scott is also the author of the books "Fans, Friends & Followers" and "Inventing the Movies," was the editor of "The Convergence Guide: Life Sciences in New England," and was a contributor to "The Good City: Writers Explore 21st Century Boston." Scott also helps organize several local events on entrepreneurship, including the Nantucket Conference and Future Forward. Here's some background on how Scott decides what to cover, and how to pitch him a story idea.

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