Serial Entrepreneur Phil Gross Talks About Business Models, Big Deals and Today's Investment Climate

By Mark R. Smith, CONTRIBUTING EDITOR



Focus, focus, focus; plus hard work, timing and a little luck: That combination/mantra has served Phil Gross well throughout his 35-year career. Gross, a serial entrepreneur, opened Expense Reduction Analysts' (ERA) Rockville office as the managing director for the Capital Area Region more than four years ago and works with clients throughout the region. Those clients span an array of market sectors, including the technology, nonprofit, association, professional services and health care industries, among others.

His approach has been working. Since opening the Capital Area office for ERA (one of the world's largest cost reduction consultancies, with more than 700 consultants worldwide, including 300 in the U.S.), he and his colleagues have averaged savings of 25%-plus for their clients; along with his business partner, George Wolfand, he was named the ERA Consultant of the Year in 2008.

Gross has been working in the D.C. metro area since 1974. Prior to joining ERA, he held senior financial and operating positions with the International Association of Chiefs of Police; Cresap, McCormick & Paget; MCI; and several other telecommunications- and health care-related entities. He was the first CFO of America Online (AOL). He also has served as the entrepreneur-in-residence at the Dingman Center for Entrepreneurship and as an adjunct professor at the Smith School of Business, both of which are located at the University of Maryland in College Park; as well as serving on the boards of several companies.

He was named an Ernst & Young Entrepreneur of the Year award finalist as a result of his experience as a serial entrepreneur and for his efforts in sharing his experiences with others through his teaching and mentoring activities.

Gross earned his B.A. and M.P.A. degrees from Syracuse University and has earned the Certified Internal Auditor and Certified Public Accountant designations.



What attracted you to a career as a serial entrepreneur?

My father was an entrepreneur in the building maintenance business, so that was my introduction. I found myself attracted to the variety of opportunities that one can see from that position, and to the opportunity to take calculated risks and build businesses. That keeps my work interesting and exciting.



Are there any industries that you key on?

Information services and information technology (IT), because those fields offer the ability to grow a business faster and with less capital than more traditional industries such as manufacturing and construction.



What do you ask yourself before you make a decision to invest in a company?

One of the questions is, "Does this business offer a solution for an existing problem, or is it a solution in search of a problem?" Often, people come up with interesting ideas, and they fall in love with them; but when you start to dig for more information, you have to figure out if the product the company is offering provides a solution for a real problem that people are willing to pay for.

You also always want to examine the management team and the intellectual property, as well as handle the standard due diligence. But, at the end of the day, you go revisit the first question.



In 2008, you and your business partner, George Wolfand, generated the highest consulting fees for the ERA network in the U.S. How did the two of you make that happen?

Hard work and focus, focus, focus. We had a broad base of clients that year and simply put in the time and effort to make it happen. In addition, we have found that our combined business backgrounds, along with the expertise of our colleagues, have proven to be a tremendous asset to companies looking to contain costs.



What was the appeal of your present line of work to you?

When I saw the ERA business model, it was one of the most straightforward I'd seen in 25 years of reading business plans. If you look at our business model, it lets me help businesses and other organizations save money. If we're successful, we share the savings; and if we're not, it doesn't cost our clients anything.



What's the biggest deal you've ever been involved in?

The biggest deal was helping to form the early strategic alliances at AOL in the late '80s because it really helped lay the foundation for the future. If it wasn't for those strategic alliances, AOL may not have achieved the success that it did.

The alliances, with Commodore Computer, IBM, Tandy Corp. and Apple Computer, brought AOL credibility and initial clients. With that credibility, the company raised additional capital. Remember, in the late '80s, there was no Internet [for public use]. It was when AOL came along and pioneered its technology that the world became educated about using online services.



Have there been many companies that you wished that you held onto?

I never second-guess timing. We can all spend our lives second-guessing everything we've done. What we need to do is look at the overall result.



What do you do for the employees of the companies that are affected by your investments?

We want to share the wealth and incent the key players to be part of our team by offering stock options and a competitive employee benefits package. If we don't, they'll go elsewhere.



What was the climate for serial entrepreneurs in terms of raising capital during the economic crisis of 2009?

From an investor standpoint, there were some great opportunities since valuations of businesses were way down. While that's good for the investor, it's not great for the serial entrepreneur. Still, if the serial entrepreneur can raise capital, that's a good thing.



What's the biggest mistake you've seen entrepreneurs make?

They lose their focus, or they fall in love with an idea, even if it does not make business sense. On that note, I like to watch the (ABC-TV) program "Shark Tank." I find that much of the input provided by the sharks is very real and valid.

I would encourage anyone who dreams of entrepreneurship to watch the show. It offers a number of insights that the viewer can learn from. A few of the "sharks" can be obnoxious, perhaps for the entertainment value - but I often agree with their basic points. Bottom line: An entrepreneur can learn a lot about how investors think by simply tuning in.



What do you consider a good success/failure ratio?

I've had more failures than successes during my 25 years of early stage investing. For instance, in 1985 I was part of a team that founded a software company that provided digital solutions to the stock photography industry, but we brought it to the market 10 years too early. Then, Bill Gates came along with a similar concept 10 years later, when the industry was ready for it, and was able to capture the market.

If you look at Department of Commerce statistics, the probability of success for the wide range of startup companies in various fields is very low. Talk to any venture capitalist and, for every 10 investments, most will not be big successes, if successes at all; maybe 10% or 15% will be major home runs. Working in the venture capital world is very risky business.



What has been your biggest challenge? And your greatest triumph?

The biggest challenge is raising capital. And the greatest triumph is raising capital, too. Without it, you can't build a business.



What's your forecast for your industry in 2010?

For the expense reduction industry, I predict continued growth as organizations need to keep focusing on their bottom lines. They've made the big cuts, now they need to look for incremental savings.