Cal Lai

The Overly Optimistic Entrepreneur

May 23, 2007

Case categories include: Entrepreneurship   Leadership   

By Robert Sher
He was overly optimistic in his last business.  It failed.  He was overly optimistic in his marriage.  It failed while he was still optimistic about his second business, and he found himself sleeping on his parent’s floor while he struggled to keep the business alive.

No tears, please.  Cal Lai wouldn’t have it any other way.  With nearly 400% annual sales growth, millions of dollars raised under his belt, and major customers coming online one after another, he hardly has time to look back.  His conviction that the opportunity he nursed along during the dark days was the best opportunity he might launch in his lifetime is looking correct right now.

The business, Sitoa Corporation, is a business that seamlessly connects e-tailers to suppliers, allowing them to quickly add thousands of products to their website and to sell them without any inventory investment.  Founded in 2001 with three people attracted by stock offers, the first year was the honeymoon – with Sears interested in utilizing their services, and money being spent as planned, building infrastructure and systems.  He lined up two financiers who were prepared to fund his venture for another couple of years.  Their World Trade Center address spoke volumes about their financial connections.  Both died in 9/11. 

All rewards involve risk
There are many ways to be an entrepreneur.  There are go-for-broke entrepreneurs, who seem to get written up in newspapers and magazines (when they succeed).  There are high growth entrepreneurs, risk-other-people’s-money entrepreneurs, steady growth/low risk entrepreneurs, steady state small business entrepreneurs, and entrepreneurial dreamers.  The entrepreneur gets to choose his path, and should think deeply about this choice.  But risk and reward are always paired.  High reward opportunities have high risk.  Mr. Lai could have shut the startup down, gotten a job to keep his work-life balance comfortable until another opportunity arose that looked safer.  But if he “chickened-out” he would forever wonder if he could have made it—if he had possessed what it took to pull it off.  But he didn’t choose the safe path.

Mr. Lai put in $85K from his own pockets to keep things running.  His stay-at-home wife and three kids lived an expensive lifestyle, and by the start of 2002, cash was bowstring tight.  In 2003, expenses quickly took them $150K into the hole.  His wife left, pronouncing he was addicted to risk and the startup life.  She wanted him to trade-in the ups and downs of an entrepreneur’s life for a safe, stable corporate one.  But Mr. Lai’s career path had been set years before.  To make ends meet, he began moonlighting to pay some bills and borrowed some money from family and credit cards.  He had hit bottom.

“It felt like running in sand,” says Mr. Lai.  Throughout 2002 and 2003, progress was slow and painful.  Just when investor moods seemed to be improving, the Enron debacle broke, and again postponed hope of funding.  His divorce made him feel depressed.  He took an entire day and sat, with only a yellow pad and pen in hand and took stock of his life, his dreams, his goals, and his current state.  He thought about his work, his children ages 7, 11, and 13 years old, and his life overall.  By the end of the day he was encouraged with the direction it was taking, except that he had no money.  He was still absolutely convinced of the value proposition that Sitoa promised, and if he could endure having no money for a while longer, he believed Sitoa might have a shot at changing an industry.

He had no other good options, either.  He didn’t want to be an employee again and was passionate about being an entrepreneur.  With the coaching of his father, he just made sure that each day he did his best to march forward, one foot in front of the other.  By nightfall his ghosts would swarm out, creating doubt and worry.  So he’d “reboot’ himself and awaken the next morning re-charged, ready to strap on the blinders and “run like hell.”

Staying connected with his kids and participating in their lives helped provide motivation to succeed while at the same time helping him avoid obsessing on the business.  Deep down, he knew that even if he completely failed, there was life after a failure.  After all, his last business had failed, and here he was, hot on the trail of another dream. 

As entrepreneur, you get to choose
Does hitting bottom always have to mean you’re broke, essentially homeless, and at wits’ end?  Can entrepreneurs draw a line in the sand that preserves some personal assets and cash flow to live on?  The answer is absolutely yes, if they choose to.  True, it may decrease the chances of success somewhat.  But when most entrepreneurs face the end of the line, a new survival instinct clicks in – and that often begins the turnaround.  They have to postpone some of their dreams to allow the business to survive, and those choices are often good ones.  Although Mr. Lai’s story is a success, many are not, and if the entrepreneur has preserved some of their life and wealth, they can heal faster after a crash and return to the fray.  Perhaps I am talking about the point where passion becomes an addiction.

The little bits of family money that Mr. Lai got in mid-2003 got the site running, which begat just a dash of angel money.  Then Sears went live, beginning to produce a trickle of revenue.

In 2004, Lai still had moonlighting to pay the bills, then in August, $2 million in financing arrived—but the terms meant Cal Lai abandoned any hope of having his personal loans to the company repaid.  The year 2005 brought his second and third major customers, another $1.5 million in funding, another six key customers, and then a waterfall of sales for holiday 2005—a complete validation of his vision. 

Going through any struggle in life will change you.  Some people come out of the struggle stronger, with lessons learned and deeper self-confidence.  Some come out broken.  Think carefully about whether you want to find out your fate. 

Think too about the ones you love in your life.  It will affect them.  Are they ready for the ride?  Did they know you were a “swing for the fences” type of person when they chose to share your life?   

We’ll see if Cal Lai joins the list of entrepreneurs deemed overly-optimistic when they were on the ground floor—like Walt Disney, Fred Smith and Thomas Edison.

Takeaways:
• Think hard about the consequences of being overly optimistic with your dreams, including the effects on your loved ones.
• When things get too depressing, find other ways to stay motivated in your life.
• Sometimes failure spurs tough choices and a change in plans, often for the better.

Robert Sher is principal of CEO to CEO, specializing in assisting CEOs and business leaders as they navigate critical passages.  He is the author of The Feel of the Deal; How I Built a Business through Acquisitions.  He may be reached at Robert@ceotoceo.biz.

Company and Case Facts:

Company: Sitoa
Person: Cal Lai, CEO, President and Founder
Alliance Member since: 2006
Business Founded: 2001
Annual Sales Volume: $14 million in FY2007
Head Count: 55
Service: Allows online retailers to electronically connect to suppliers allowing for sales without any inventory or investment
Typical Customer: More than 30 major online e-tailers like HomeDepot.com, Sears.com and Amazon.com
Written: May, 2007
Address: Sitoa, 1900 Norfolk Street, Suite 315, San Mateo, CA 94403
E-mail: cal.lai@sitoa.com
Phone: 650-293-9008