Thursday, April 13, 2006

Interview with Lance Rosenzweig, PeopleSupport

My interview today is with Lance Rosenzweig, CEO and founder of PeopleSupport (www.peoplesupport.com), a Los Angeles-based provider of business process outsourcing, and a longtime reader of this newsletter. I spoke with Lance last week. Lance took PeopleSupport (PSPT) public on the Nasdaq in 2004, and I thought it would be interesting to hear from him on his whole journey form a venture-backed startup to now being a public company CEO.

Ben Kuo: Thanks for the interview. Tell me, for those who aren't familiar with PeopleSupport, what do you do?

Lance Rosenzweig: PeopleSupport is a leading global business process outsourcing (BPO) provider. We operate outsourcing operations in the Philippines, Costa Rica and the United States. From these operational locations, we provide several types of services to our clients, including customer management, accounts receivable management, and transcription and captioning services. PeopleSupport now has over 5,000 employees. We were a venture-backed company (Accel, Benchmark, Clearstone, Meritech and Rustic Canyon), and we completed our IPO on NASDAQ in late 2004.

BK: You started your business back in the heydey of the Internet boom--how has the company changed since you first got the idea?

LR: We founded PeopleSupport in 1998, in the midst of the first Internet boom. Our original business model was to provide outsourced web-based customer management services to dot-coms via chat and email. PeopleSupport was essentially a call center taking no calls. We grew rapidly in those days, winning over 100 dot-com clients, and growing to around 400 employees. Then in 2000 the bubble burst, capital evaporated, and many of our clients began to go out of business. At that time, PeopleSupport made three important decisions: First, we broadened our service offering to more comprehensive CRM outsourcing services, including taking calls. Second, we changed our sales focus away from dot-coms and to large enterprise clients. And third, we cut our cost structure significantly by migrating our operations to the Philippines. With these moves, we were able to continue to grow and reach profitability without raising additional capital. Had we not made these moves, we would not have survived.

BK: I wanted to focus in on your experience, now as the CEO of a public company, and having built a company from the ground up. How would you compare the skills you need as an entrepreneur to those you need heading a public firm?

LR: Many of the skills required to be a good entrepreneur are really the same for a public company CEO: build a strong team, develop a powerful business model, be passionate about customers, and adapt quickly to changing market conditions. However, in the public company world a CEO also needs to build highly robust compliance and accounting systems and controls, and to spend an increasing portion of her/his time on investor relations. A public company CEO should also help to build a strong independent board of directors, with particular emphasis on the audit committee.

BK: How are Sarbanes Oxley, and heavy regulation of public companies affecting your business? Would you have gone public in this environment?

LR: Many of the disciplines and rigors of Sarbanes Oxley and other regulations are actually quite healthy for young public companies, as they force companies to develop more robust internal control processes and redundant checks and balances. Unfortunately, the cost of compliance is particularly onerous for smaller public companies, and most of the benefits of SOX could probably be achieved at a much lower cost to investors. Overall, it cost PeopleSupport almost $3 million last year to be public. There are still compelling advantages to being public (access to capital markets, greater credibility with clients and partners, and liquidity), although the bar has moved way up in terms of the company size that can afford to be public.

BK: Finally, what advice would you give to an entrepreneur trying to making today on how to build a successful business?

LR: I believe that today is an excellent time for entrepreneurs. Capital is available, the Internet continues to create tremendous opportunities, large companies are aggressively looking for new ways to drive down costs and improve productivity, and the world truly is flat, with previously untapped global sources of supply and global demand. A couple of pieces of advice for entrepreneurs outside of the usual strategies for building successful companies: build a business that really matters to customers, and assume that your exit will be FAR later than you could imagine.

BK: Thanks!