Thread by @NeckarValue

How did an overambitious Apple engineer end up owning the Grizzlies NBA team?

@RobertPera started his networking firm Ubiquiti with $30,000 from savings and credit cards. Today, it's a $20 billion company.

The crazy part: he still owns 89% of the stock!

Pera left UC San Diego with degrees in engineering and Japanese and joined Apple in 2002 to work on Wi-Fi

"I wanted to build products. I idolized Steve Jobs."

Pera wanted to join a design group but his manager told him to slow down. Pera got a 2-out-of-5 performance rating.😔

Pera noticed Apple could boost the signal and range of its routers. But nobody was interested.

You can guess what happened next: He spent nights and weekends building his own prototype.

In 2005, he left - just when his manager told him he was "finding his stride."

“Apple’s a great company, but I realized I wanted to have more success faster.”

For several months he lived in his “economical $650-per-month office” surrounded by bail bond shops and spent $30,000 to build a prototype of a Wi-Fi radio card.

Pera signed up customers at a trade show and managed to get an $240,000 upfront payment for 3,000 units. Then he flew to Taiwan to get it manufactured.

At only $80 his product was an instant hit. But within 6 months, there were copycats undercutting him.

“I learned my first rule of business. You need to build something defensible.”

Still, margins were good and he never had to take venture capital. "Ubiquiti’s been profitable every quarter since I founded it in 2005."

By 2009, he had his own portfolio of routers and antennas. They were cheap, easy to set up and well suited for rural areas, emerging markets, and small businesses.

One reason for his profitability was that he focused almost exclusively on R&D and design. Rather than hire a large salesforce and support, Pera counted on an engaged online user community to spread the word and support each other in online forums.

His model was unorthodox and more profitable but also had some vulnerabilities.

Around the time of the IPO, one of this distributors hired his engineers, stole his designs, and made counterfeit products. It took a major effort to shut this down. The stock tanked.

"Looking back, we weren't ready for an IPO. If you're not built like a fortress and you cannot control your own narrative, you shouldn't be a public company. I was an inexperienced CEO for public markets. I didn't necessarily know about the power of creating your narrative."

Remember how I said he hadn't needed VC money?

In 2010, he took some growth equity and later regretted his decision.

"I didn't know anything about private equity. As soon as they made that investment, they wanted a path toward liquidity."

Today, the company has branched out from Wi-Fi to switching, security, phones, and even access management.

Revenues and profits keep growing at a rapid clip (chart by @theTIKR - no, not sponsored. Just a good platform @skhetpal )

The company also stopped doing investor calls. It's a unique story and with the stock doing well Pera doesn't spend his time marketing.

He did however write a blog and shared some of his lessons.

Commoditization: Overnight, growth slowed, customers turned on us... and I found myself in an impossible position to compete; I was contemplating shutting the doors and moving on with my life..

rjpblog.com/2012/06/12/boo…

Predictive vs. reactive development:

"The gold standard for the predictive development model is Apple. The iPhone for example combined a mastery of user experience understanding with a world-class development team"

rjpblog.com/2012/06/20/boo…

"A reactive model will succeed when it is lead by an effective entrepreneur."

"We were not experts when we entered the market, but after surviving long enough to accumulate experience, we were able to adapt to the market challenges."

"Fast-forward to today, Ubiquiti is now completing its first predictive development effort in AirFiber. Whereas the predictive model would not have been possible for us before, it now has become a viable model after several years of experience competing in our market."

Defensibility: An Apple-style closed ecosystem

"Not only did AirMax bring important performance improvements, it marked the beginning of Ubiquiti’s defensible business model. Now, when WISP’s built AirMax based networks, they were “locked-in.”

rjpblog.com/2012/06/23/boo…

Pera bought the Grizzlies with partners in 2012 for only $350 million (now worth $1.3bn)

“When I was growing up, if I could do anything in the world I wanted to be a professional athlete. For a long time my dream was always to be in a position to maybe be involved in a NBA team"

Some favorite quotes:

“I look at [Ubiquiti] as a combination of Apple’s philosophies and the democratization of advanced network technology. Ubiquiti tries to empower our customer base; not exploit them for profitability, which is the current status quo.”

"I have always had a mind that questioned the status quo. I never listened to what others said about how you should form your career. Questioning everything led to my success."

“Anybody that I find fits into my category of ‘superstars,’ I’ll hire them. If I see 100 (superstars) tomorrow, I’ll hire all 100."

"In today’s world, all success starts with R&D, and the quality and value of the product. Traditional business was based on information asymmetries; in an environment where information asymmetries exist, relationships are very powerful. ...

Now the world is moving towards an environment of information transparency. Where that dominates, as in our case, the real value is the technology that wins out. I’m 100 percent focused on R&D and on our business model."

Some links for further reading:

bloomberg.com/news/articles/…

bizjournals.com/sanjose/blog/2…

fastcompany.com/3003767/apple-…

forbes.com/forbes/2012/01…