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John Pappajohn (Extended Interview)

posted on October 8, 2007

Mundt: Were you born an entrepreneur or were you made an entrepreneur?

Pappajohn: I think I was born an entrepreneur. At a very early age, I did many different jobs. As a five/six/seven-year-old, I did the usual things of lemonade stands, et cetera. I grew vegetables; I was a major scrap dealer. I used to scrap lead and copper and brass and rags. I always wanted to make money; I saved money, and I think that it continued throughout my life, all the way through college. It took me six years to get through school, but I worked and I had side jobs all the time. So I think I was born an entrepreneur. When I graduated from college I did not interview for a job. I wanted to work for myself and find a business where I could create my own entity, and I did that.

Mundt: There's a motivation there to -- as you said -- make money and save money, but that also takes a lot of confidence. If you can come out of college and decide you're not going to interview for a job because you want to start something on your own, that's confidence.

Pappajohn: I did always have confidence. I think that's because I grew up in an in an immigrant family, and we never had a lot of money. My father died when I was sixteen years old. I was the oldest of three boys, so we knew what we had to do. You've got to do what you have to do. So I've always been motivated to go out and do the best that I can.

Mundt: What role does luck play?

Pappajohn: You know, people say the harder you work, the luckier you get. But the truth of the matter is that you do need some luck along the way. In my experience, it doesn't make any difference whether it's the best of times or the worst of times. When you have a job to do, you have to do it. And then if you do work hard, enough luck will come along. You'll have some adversity, too. What most interpreters don't understand is that we probably become successful by solving our problems and our adversity. It's more than just working hard.

Mundt: Luck, then, is not something that just happens to you without any work. You're stirring the pot all the time to see what will come together, and it's luck that sometimes brings you things.

Pappajohn: Absolutely. That's right. Now, there are a few exceptions. But the truth of the matter is that there's a direct response based on the amount of effort you put into it.

Mundt: What were your goals when you started that very first business? What did you want to accomplish?

Pappajohn: I always wanted to be a millionaire. I used to tell my mother that someday I'm going to be a millionaire. That's kind of funny, because my mother was an immigrant. She emigrated from Greece; she never went to school. She read in the paper once that I was a millionaire. The next time I saw her, she said to me: "Son, why don't you retire?" That was many, many years ago. I said: "Well, it's just a beginning."

It wasn't money that I was after. It was success. I think my most successful entrepreneurs don't really do it for the money. There's a challenge there, to be successful, to do the best you can in whatever project that you are working on. My motivation with all of my companies is to help them do the best and succeed as much as they can.

Mundt: Can you talk a little bit more about the idea of success and what it is that you're seeking when you're trying to be successful in your career?

Pappajohn: I'm an advocate of W. Clemmons Stone. Stone's theory is that mantra is success. Whatever you can, you can succeed with positive mental attitude. Throughout my career, I've had a positive mental attitude. I preach it to all of my people, because I think it's an easy way to help you get ahead. What is the definition of success? Webster has a very simple definition of success, but each person has to decide in their own mind what success is. For some, it's to achieve a financial number. For others, it's to help humanity. For others, it's to create jobs. It means different things to different people. In my business, working with over probably almost 100 companies over the years, I go along with my management team and my CEO's, and I coordinate with them to help them achieve "success," whatever that means to them.

Mundt: Personally, for you, success then is… There's a dollar figure of some kind; there's a kind of financial reward that you're looking for, but what are the other things for you, personally?

Pappajohn: I like to be in a position where my companies are leaders in their industry. That, you know, we set a goal in advance. I work around the desires of my management team and CEO's. I think that the dollar amount is only the way you keep track, but ultimately it's about doing the best you can and having a good reputation in the particular industry that we're in.

Mundt: What are the values that are most important to you over the years, as you achieve this success that you're going after?

Pappajohn: Passion. Passion is important. Discipline is so important. I get up at 4:30 every morning, seven days a week. My wife gets up and makes me breakfast every morning. When I get up in the morning, I feel great, and I know what I'm going to go out to try to get done for the day. I think that knowledge and education are so important. There's an old saying that it doesn't take much to be smarter than 99% of the people that you deal with. So the point is to have that edge. That is so important in every industry, and that's what I preach to my management people -- my CEO's: You have to have the knowledge, and then you have the passion and the discipline, and we're going to succeed. One of my jobs is to help them find the right area where there's a wonderful opportunity. We specialized in being first, early on, in new markets, and we know then that if we're able to be disciplined and do well and create a successful company, everybody will be happy. Everybody will make money.

Mundt: Those are old-fashioned values even in very modern times.

Pappajohn: Absolutely, absolutely. It hasn't changed.

Mundt: What is the difference between someone who's in business -- even someone who is successful in business -- a man or a woman and an entrepreneur?

Pappajohn: Oh, there's a different mind set that you have. You have entrepreneurs who want to whip the world and are never satisfied with what they've been able to achieve. And then you have a mind set of what I call "second-generation management:" people that take over a family business and are content with whatever their income and sales level is. So there is a major difference there. The other thing that you have to be very careful about is that the entrepreneur has these great qualities of starting a business, but sometimes they don't have the management skills to continue the growth. See, what we do in our most successful companies is that either we have a very unusual individual that can go from being an entrepreneur to an exceptional manager, or we bring in people to assist in the growth of the business by adding management skills.

As an example, I've recently financed two companies. I'm very excited about both of them, because each one of these two presidents have been presidents of two public companies for me before. I know their skills. They're high maintenance; they call me many times every day, but they know how to work. They know how to make the company successful, and I know that I'll have two very successful investments.

Mundt: And those two individuals may not be long-term managers of any company, but they may be able to start many successful companies?

Pappajohn: Each one of them, with their previous two companies, they called me and said that they're getting up in years, and they want one more shot. "We want to make a big hit. Let's find a space, let's find a business." So we work together, and we put it together. It's pretty exciting for me, because with my new ventures, when I work with younger people that don't have experience, I call it toilet training. You just have certain things that are going to happen to a company. A company is like a human being. You have all of these events, and you have to be able to solve the problems. And the people that have the experience, they can anticipate those problems. So we get little bumps instead of big bumps.

Mundt: I think sometimes it's easy to look at companies that have been really successful and see from the very beginning a grand strategy. Certainly there is, I would imagine, a strategy. But the definition that you're giving to me of an entrepreneur, it sounds like little bit more than that. When you're starting a company, you're faced with problems every single day. You're solving problems, and you may have goals, you may have a strategy, but there's just a lot of day-to-day: "This problem has arisen; I have to solve it." There is some intention, and there's something that guides it in a successful company to that strategy. But it seems like there has to be a kind of focus while you're doing with the day-to-day. Dealing with the difficulties that arise allows you to see through them to what you're aiming for.

Pappajohn: You're absolutely right. That focus is on your ultimate goal. In other words, you can solve all the little problems, but ultimately, you cannot take your eye off of your goal. The successful entrepreneur, the successful manager is able to solve both of those problems.

Mundt: You've spent million of dollars educating entrepreneurs in Iowa, educating young students. How do you educate an entrepreneur?

Pappajohn: It's hard to create an entrepreneur. You expose them to the opportunities that are available to them. By teaching entrepreneur classes, assisting them, putting a business plan together, talking about opportunities in different fields… If they have a spark, if they create a passion. But if they don't -- lots of people get motivated for a day or two, but that motivation has to last, or they're really not entrepreneurs. It's okay; it doesn't hurt. The centers that my wife and I have financed, we've trained over 60,000 college students in the last ten years, going on eleven years. That means that many students have taken entrepreneur courses. Now, out of all of those students, how many new businesses have sprouted up? I'm not sure, but more than a thousand. How many of them have survived? I don't have the survival numbers. But that's kind of where it all starts. Many of the entrepreneurs… if they fail at first, they can turn around and start again. If they're a true entrepreneur, they will find another project and get started again.

Mundt: That seems to be one of the core parts of being an entrepreneur, is accepting failure. Not only on a small scale, from day-to-day, and learning from it and moving on, but dealing sometimes with a massive failure. The company that you start goes under, and you have to move on to something else.

Pappajohn: Absolutely, absolutely.

Mundt: Of ten students who would come and sit down in the room and take one of your entrepreneurial programs, how many of them have the spark?

Pappajohn: It depends on whether they have been pre-qualified. If you get ten students that have taken entrepreneurial courses, have an idea, and want to start a business, you'll obviously have a higher percentage. But if you take two students at random out of a class, than maybe none of them will become an entrepreneur. So there is a qualification there. Assuming that you have ten motivated students, one or two will venture out and start a business. What's happening today is that many of the students now are starting businesses when they're in college. For instance, University of Iowa has an incubator, and they have over fifteen start-up businesses in that incubator. Iowa State has been doing this for years, and I think that even NIACC up at a Mason City is just putting in an incubator.

So when you have an incubator, and you can get students started early, then you can assist them to do the business plan, assist them with marketing. Then the probability of success becomes much higher.

Mundt: Do you wish that you had a class like that when you were at that age?

Pappajohn: Absolutely, absolutely. I had no help. It's kind of interesting. When I look back, I'm not sure why I made it, but I spent a lot of time and I was not willing to fail. I kept plugging away at it, and then I did get lucky. I started a life insurance company, I hired good people, and we did very well. It was a good success, which assisted me to then become a venture capitalist.

Mundt: The skills that are required to run a life insurance company, I would guess, are a little bit different from the skills required to be a venture capitalist? How did it turn out that you have both of those skills?

Pappajohn: That's interesting. In my life insurance company, we had to raise money all the time, and so that's where we would do private placements to stay alive. As a result of that, that's how I got exposed to the financial end of the business. When I decided that life insurance wasn’t exciting for me, I stayed in my life company for seven years. I looked around for a new business, and I heard about venture capital. There were very few people in the business. I was one of the early venture capitalists. It's been thirty-eight years, and I decided that sounded good and saved up a little money, and I became a venture capitalist.

Mundt: Why did you stay in Iowa as a venture capitalist when there are greener pastures in Silicon Valley or other places?

Pappajohn: That's a good question. I told my wife: "Honey, I'm going into the venture capitalist business. I can live anywhere in America to run this business. Where do you want to live? Because I don't want to hear later that you're not happy with where we live." And she says: "I don't want to leave Des Moines." So I stayed in Des Moines, and I've been very happy with the decision ever since.

Mundt: How would you describe the entrepreneurial culture of Iowa? Compare it to other parts of the country. Are we a conservative culture? Are we willing to get out and try new things?

Pappajohn: We're both. I think that as I go back thirty-eight years, we were quite entrepreneurial. And then we had a farm crisis that created very a serious recession. And then we had a farm crisis that created a very serious recession. And then there were several start up companies in Iowa, and many of them went public. When that happens, more people hear about it, and they say: "Well, if he can do it, I can do it." So we had seven new life insurance companies; we had a drug store; we had a Dental Ease, which was a dental manufacturing company. We had Winnebago, which is a wonderful success story. And it creates optimism, because when people hear about other people's success, that helps motivate them to say: "If he can do it, I can do it." It's very important. So to answer the question, I think today, Iowa has become very entrepreneurial.

I think the centers have helped. I think the legislatures helped. I think the governors have all helped. Everybody knows that in order to create a vibrant economy, you need start-ups. You need that, because that's where the big companies all start out, usually small. You need start-ups. So I would say that Iowa has become a very vibrant economy thanks to the universities and colleges. And more money is available today than has been available in the past, because it takes money to ride the train. You need money in order to start a new business, and I think that all of that is available today.

Mundt: Has Iowa's entrepreneurial success reached outside of the bigger cities? We see it around us in Des Moines. We see it in Cedar Rapids. We see it elsewhere. Is it reaching out into Main Streets, small towns in Iowa?

Pappajohn: Oh, I think it is. I think it has. I know that there is a movement to provide more access to venture capital in rural areas. I know that Senator Harkin has been promoting venture capital for rural communities, in order to help those small communities create other businesses. In the state of Iowa, there's no restriction. As a matter of fact, I think that probably it's a plus to be in a smaller community. The smaller communities now are organizing around entrepreneurs and creating businesses and supporting those businesses. So I think it's a wonderful climate at this time. We still are not like Silicon Valley, and we won't ever be. But the point is that we have a good mixture of new businesses.

Mundt: More than sixty thousand students have gone through your education programs. Is that correct? Sixty-two thousand?

Pappajohn: Over sixty, yes.

Mundt: Where do you want to go next with the educational program?

Pappajohn: Good question. I guess I want to expand it. I think that the challenge in Iowa is great enough for me. I think that I want to have more start-up businesses. I'd like to see probably more support for the students that want to start a business, or the graduates or the young business people. It doesn't have to be a college graduate who's been working at a job and said: "Hey, I'm tired of this. I'm ready to start a business." Or someone who gets laid off, and he's in an environment where he can't get a job. To answer you, I think we can continue to improve the Iowa environment. Our teaching at the universities and colleges, it's gotten national recognition, and so I know what we are doing is the right thing. It just takes time. And the momentum is building.

Mundt: Do you see the same interest in entrepreneurial activity elsewhere in the country? Not necessarily in Silicon Valley… but if you were to look to even other states in the Midwest? Or the Upper Midwest, to Missouri, to Minnesota, to South Dakota? If we want to be successful as a country, we all need to be moving forward, not just pockets.

Pappajohn: There is an entrepreneurial renaissance going on. There's a real renaissance, and all the states recognize it. If they want to create economic activity, they have to have new start-ups, new businesses, and they have to change the mindset of the population to become more entrepreneurial. So the answer is yes, absolutely yes.

Mundt: I see fewer headlines now of states trying to attract companies to bring factories in. Certainly, that's a good thing. Bringing new jobs in is important. But there does seem to be more of a focus on creating jobs from within, rather than trying to bring them in from the outside.

Pappajohn: Economically, it's probably better to create your own industry, because when you're bringing in industry, it usually costs a lot of money. Although one of the things about being from Iowa, when I go to New York and I'm in Wall street -- I'm in New York ten to twelve days every month. When I tell them I'm from Iowa, they love it. Iowa has a wonderful reputation, a good work ethic reputation. It just resonates, and so it is a real plus. It is a real plus.

Mundt: You are one of the great patrons of the arts in this state. Can you talk a little bit about those two sides: the entrepreneur and the lover of great art?

Pappajohn: The entrepreneur has to have something that motivates him or her. In other words, if you're successful and if you make money, what are you going to do with your money? My wife and I, early on, neither one of us had any art in our homes, and we just both gravitated to art. The first month we were married, we went to an art gallery, and we bought a print for a hundred dollars. We still have that print as a memento of the beginning or our art collection. We like art, and for me and for my wife it's a passion now. We buy art because we like it. We're of the age now where we're beginning to give some of the art away. When you work hard, and if you make money, what are you going to do with your money? So you've got philanthropy. Where are your favorite philanthropies? Art has been fun for both of us.

Mundt: What do you consider to be your greatest legacy?

Pappajohn: I hope you know that philanthropy is our hot button. We are in a position that we are able to give. I think philanthropy, and probably to be able to create the entrepreneurial centers. Somebody called me recently "Johnny Moneyseed," in other words, Johnny Appleseed. We've been able to create this environment, this mindset change, where we help the state of Iowa. We create jobs and help people. It's all philanthropy, because you never know, when you give money away, which is the best. Everybody says their philanthropy is the best, and you do the best to decide where you want to and whom to give it to. It does good every place, but I'm particularly fond of the entrepreneurial centers.

Mundt: Philanthropy is not necessarily just a dispensing of charity, but it's really kind of venture capital, isn't it?

Pappajohn: Yes, you look for a return. There's not a financial return for us, but what good did it do? How many people did it help? Has it saved lives? Has it created jobs? In other words, there aren't many negatives to philanthropy. And so it becomes a matter of where the best return is for your money.

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