When David Pennino achieved his goal of starting his own business, his former employers were so scared of his success that they went to extreme lengths to stop him.
During his appearance on the Dealmakers Podcast Pennino talked about what to invest in as a business, and not, the dangers of phantom equity, value of mentors, and the crazy lengths your competition will go to if they fear you. Plus, the benefits of bringing in fresh investors and board members, as well as the increased profitability of fewer meetings.
Listen to the full podcast episode and review the transcript here.
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Growing Up in Connecticut
David Pennino grew up in Connecticut. A place he says has an incredible talent pool as well as access and family activities. From there you can quickly be in Boston, DC, or New York City, or catch a flight to Europe. Then you have the coast, mountains and skiing not too far away.
It is also where he began his career working for Gartner. He was thrown into sales, and quickly scaled the ranks. By the time he was 22 years old he was rewarded for his performance with a trip to Thailand. There he missed the boat back, only to find the CEO was also in the same situation. That led to a great mentorship relationship. The CEO challenged him on his goals. He nailed it, and was able to continue to grow in the company, and work directly with top leadership. He calls it his own international business MBA.
Pennino was eventually tasked with handling the company’s largest account, IBM. He was fascinated with how they had built their global professional services business. Not unlike what Accenture had achieved in finance, and others in HR. He began to wonder what other opportunities there were to build a category leading enterprise.
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What Businesses Should & Shouldn’t Spend Money On
One of Gartner’s top salespeople made David a very attractive offer to join him in starting a new company. They were embracing the internet at a time when he thought Gartner was being a little too slow. So he made the leap.
He saw that company grow and do very well through an acquisition to a company based in India. Unfortunately, while they are still around, they did run into financial problems. While he says that they did the right thing in spending on physical, income producing assets like real estate, they committed too much to Class A real estate in the frothiest boom bust markets. Like San Francisco and Manhattan.
They were overly confident, and didn’t get out of those investments before the market fell off a cliff. He added that they probably spent too much on sexy startups, rather than more reliable and proven streams of business.
Another thing he noticed throughout his career was that businesses often neglect to focus on many of their own spending needs. At the most basic level, companies buy a substantial amount of goods and services to be in business; what they sell to their customers, and what enables them to sell. Most businesses focus their buying efforts on what they sell to their customers, but typically, buying the things that enable them to sell is neither a priority nor a core competency. Complex categories like Marketing, Packaging, Information Technology, Store Development, Distribution & Logistics, and Facilities Maintenance can represent more than 20% of a businesses’ annual revenue, but is often sorely neglected. David believed that with proper focus and attention, this untapped potential can represent a massive opportunity for businesses to drive cost reductions and pricing efficiencies.
Pennino’s opinion was that if they did tackle this in the right way, they could free up a lot of funds that could go right into investing in the things that drive the top line, while improving the bottom line.
When a headhunter called him while on a family trip to Disney, he found the opportunity to dip his toes in and work on this idea for a company out of the UK.
It grew, and was again acquired. Though due to phantom equity and some fancy accounting magic he saw the owners make out like bandits, with the employees not seeing the payouts they were made to believe they could get.
When Competitors Fear You
This experience, and with the prompting of his dad who reminded of his goal to start his own company by the age of 35, led David to strike out on his own to build his own Procurement business from scratch.
An introduction to Bain Capital led to landing their first investment. Even in spite of having to wheel one of the cofounders into the meeting fresh from a recent surgery.
After a 20 minute wait they were greeted with high fives, and a commitment for $8M in funding.
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Despite jumping into this business with no employees, his former employer grew terrified of him becoming a competitor to their huge multibillion dollar business.
They were so fearful that they hired one of the best law firms they possibly could to sue him. They thought a lawsuit would scare off his investors, and starve him of funding. So, they sued him, their investment firm, the cofounders, and even a company they were in the process of acquiring.
Because he worked on his business plan on the train which crossed state lines, they went after him under the RICO Act. Yes, the one that was used to go after the mafia.
This backfired on them in a huge way. Bain Capital figured that if this company was this scared, and was willing to go to such great lengths and expenses to stop them, there must be really something valuable in this business. So, they dug in, and supported him through two years of legal battles, and the millions of dollars it cost to fight them off.
Even better, it triggered Bain Capital to feed LogicSource with all of their portfolio of clients. So, they were spoiled with warm leads to develop their service and business model with during this time.
Listen in to the full podcast episode to find out more, including:
- Phantom equity
- The benefits of bringing in fresh investors and board members
- How to increase productivity by 45% by cutting meetings and empowering your team