This lecture discusses the concept of creating transformative shareholder value through a combination of evolution and revolution using real life case studies as experienced by the presenter.

1. TransformativeValue Creation
FredThiel
USD School of Business MSEL Guest Lecture
February 5, 2016

2. My Goal For OurTime Together
• Deliver as much take home value as possible by…
– Providing a context and framework for creating value through
transformation
– Discuss a process that leverages the framework
– Sharing relevant real-life examples of how I have done this myself
– Keeping this interactive so you can ask questions to get clarity

3. FredThiel
• Advisor to global PE/VC firms, Corporate Boards and
Management Teams
• 30+ years in the technology industry
• Relevant to today:
– CEO Lantronix / 1998 - 2002 (NASDAQ:LTRX IPO 2000/Secondary 2001)
– CEO GameSpy Industries / 2003 - 2004 (Exit to IGN 2004)
– Director/Advisor CCS / 2007 - 2013 (Exit to Misys 2014)
– Director/Advisor ICCNexergy / 2012 – 2013 (Exit to KRG 2013)
– Advisor RacoWireless / 2012 – 2014 (Exit to Kore Wireless 2014)
– Director/Advisor B+B SmartWorx / 2008 – 2014 (Exit to Advantech 2015)
– Advisor AssetPoint / 2008 – 2015 (Exit to Aptean 2015)
– Chairman/CEO Local Corp / 2014 – 2015 (Sale of assets to Media.net)

4. Context
Transformative CEOs Outperform the Market….
A transformative CEO is
someone who “creates new
value that reinvigorates a
company, reinvents an
industry or reboots society”.
Robert Reiss
(co-author “The Transformative CEO”)
”The CEO is really also the ‘Chief Value Officer’ of an enterprise. It’s a key part of his or her job to set and monitor strategic value
goals, to make sure that opportunities for value are maximized, and that threats to value are minimized.”
- Tim Powell, The Knowledge Agency
By 2009, Steve Jobs had created $150B of additional shareholder
value.
After 20 years leading GE, Jack
Welch had created $390B of
additional shareholder value

5. Context
• Value Creation
– Econ 101: Value is created anytime an action is taken for which the benefits
exceed the costs. As an enterprise creates more value it becomes more valuable
to its owners.
– The role of any executive is to create value in excess of his/her cost to the
enterprise.
• How do you measure the value you add each day/week/month/year?
• How have your contributions added to the value of the enterprise?
Value is not created by cost cutting and waiting for the recession to end.
Value is created by seeking innovationsand creating an organization that can implement them.
- Adam Hartung

6. Context
• Transformation
– Transformation entails changing (by insertion,deletion or
permutation) something so that it becomes something else –
ideally something better J
• Crude oil is refined (incrementally made better by removing impurities) to
make higher value products like gasoline, plastic resins, jet fuel etc…
• Sand, soda ash and limestone are transformed under very high heat into glass,
a completely different material

7. Context
Phases In A Company’s Life
5 Stages
Adapted from Jim Collins – “How the Mighty Fall”
Time for Transformational
Value Creation
Start-up
Velocity
It has become
common to use
the term “pivot”
in reference to a
start-up trans-
forming its
business model
and/or product
Rate of
change
externally is
faster than
the rate of
change
internally

8. Framework
• There are two processes of TransformationalValue
Creation:
• Incremental value is created by refinement (aka evolution)
– Kaizen – continuous improvement
– Good strategy for quick low-risk gains in value
• Net new value is created by innovation (aka revolution)
– Innovation and transformation require precious limited resources - time and capital.
– Many enterprises are not willing to make the investment when they could afford it, and
when they finally have to – it’s often too late.
Successful long-term/sustainable value creation most often requires doing
both evolution and revolution

9. Framework
Evolution Revolution

10. Framework
Product/Market Strategy Matrix
Low Risk / Low Value Add
High Risk / High Value Add
Med Risk / Med Value Add
Med Risk / Med Value Add
Evolution
Evolution
Revolution

11. Framework
Product/Market Strategy Timeline
(Time required to execute)
Penetration
Market Development
Product Development
Diversification (New Product / New Market)
[minimal risk] {$}
[medium risk] {$$}
[medium risk] {$$}
[high risk] {$$$$}

12. Process
Evolution
Situation
Analysis
Internal
•Strengths
•Weaknesses
External
•Opportunities
•Threats
Continuous
Improvement
Cycle
Plan
Execute
Review
Identify
GoalInsights

13. Process
Revolution (aka Build a Start-up)
Find A Big
Un-served
Need
Define A
Minimum
Viable
Product
Get
Customer
Validation
Build The
Product
Acquire
More
Customers
Build Out
Product
Offering
Grow The
Business
Pivot
Evolution

14. Lantronix
• Evolution:
– Situation analysis showed sales and marketing efforts focused on wrong products
and channels
– Executing new sales and marketing focus generated 2x margin dollars after only
90 days
• Revolution:
– Customer conversationsidentified potential large opportunities around single
port serial servers to connectdevices to networks.
– Pivoted company around“Device Server” (now part of IoT)
– Company had no internal R&D – acquired small competitor to broaden product
offering with embedded,acquire an engineering team and proprietary IP
– IPO mid 2000 / Secondary offering mid 2001

15. GameSpy
• Evolution
– Too many initiatives and products that did not succeed
as planned yet still lived on – lack of focus
– Reduced focus to a core set of products and iterated
continually to identify right price model and drive rapid
subscription growth
– Achieved profitability in 90 days, grew revenue by 80%
and exited to major PE backed competitor in 12
months

16. CCS
• Private Equity investment thesis is often predicated on transformational value creation
• Thesis was to productize knowledge previously delivered via custom software solutions into an
enterprise software solution delivered via the cloud
– Repeatable model requiring professional services for configuration/implementation – eliminating the need for
custom development
– Drivers for demand were regulatory compliance needs, better governance and risk management,and reduced
operating cost
– Company had a number of top 10 banks as customers (credibility and great references)
• What happened
– Big bank projects move very slowly and at their own pace
– Banks want to control IP and do“a lot of the work”
– Banks have multiple lending lines of business – many stake holders with competing agendas and high turn over
– Banking crisis 2007-2011
– Three generations of product and cusomter feedback resulting in industry leading straight through processing of
commercial loans
– Prudent management of resources (helps to have a banker as CEO) allowed company to pay down 100% of
debt and pay dividends, and return 100% of invested capital prior to sale in 2013 to strategic acquirer

17. Local Corp
• Victim of Exogenous Risk – aka Silver Bullet Risk
– Business had both customer and vendor concentration dependency on Google andYahoo
– They could at any time put us out of business – and they eventually did
• We tried Evolution:
– Stabilize and grow existing businesses while trying to reducing customer/partner
concentration and risk
– Incremental product offerings and constant iteration to test new ideas
• We tried Revolution:
– Develop new businesses (discontinuous innovation) while the old ones were under attack
• Launched mobile search product for carriers/MVNOs and won major accounts in 12 months
• Pivot legacy businesses so that they support new business around programmatic media arbitrage

18. Local Corp
• Lesson Learned
– When you dance with elephants,you sometimes get stepped on and die
– The value of your company is determined by the relationship of risk, growth and cash flow
– Decreasing risk grows value
Cash Flow/(Risk – Growth)
Cash Flow
RiskGrowth
How risky is the growth?
© Oracle Capital

19. In Conclusion…
• We discussed the following:
– A context and framework forTransformational
Value Creation using both evolution and revolution
– A process for implementing the framework
– Four real-life cases and lessons learned

20. Questions/Comments?
Was this useful?
Where could we have spent more time?