John Baker’s high noon arrived on Feb. 22, 2008, in the United States District Court for the Eastern District of Texas, Lufkin division.
Baker, CEO of an upstart Canadian learning-management software firm called Desire2Learn, was staring down the barrel of a $17-million patent infringement suit filed by Blackboard, a billion-dollar U.S. behemoth.
Texas juries don't often take kindly to defendants in patent cases, and this time was no different.
Baker lost that day, and the court ordered D2L to pay $3.1 million to Blackboard.
Two years after the suit was launched, it was the end – but only of Round 1.
Undaunted, Baker took the case to the U.S. Court of Appeals for the Federal Circuit in Washington.
He won in July of 2009.
Three years of costly litigation could well have sunk a lesser company, but Baker’s confidence – in his product, his people and his clients - never wavered.
A willingness to go with his gut and adopt total transparency throughout the case, against the advice of his lawyers, also helped to distinguish the young executive as a true entrepreneur.
“I think when you’re backed into a corner, you sort of resort to your core values,” Baker, 35, told me at D2L’s Waterloo Region headquarters in downtown Kitchener recently.
Those values have propelled the company, which Baker started in 1999 as a third-year University of Waterloo student, from a one-man startup to a fast-growing multinational with 376 employees and plans to add 200 more in 2012.
Our full conversation follows here:
Q – How many people work for Desire2Learn?
A – We’re just around 375 people; I think it might have been 376 today.
A year ago today we had 200, and a year prior to that we were around 140, so we’ve been going through a very significant amount of growth in just the past two years.
Obviously we started off very small and grew pretty steadily over the last number of years.
Q – You founded the company in ’99?
A – Yes, in ’99, as a third-year student from Waterloo, back when there wasn’t a lot of support for enterprising co-operative education students.
I think they now have a program called enterprise co-op, but in those days I think they expected you to get a job.
Q – What were you studying?
A – Systems design engineering. [Finishing] was a struggle, but I managed to hang in there for my last year, and I graduated with honours.
Q – How did you start your company?
A – At university, I had worked on a project prior to starting the company. It was an open-ended project that allowed us to pick any problem and we had to go and find a solution to it.
That sparked a passion in me; ‘Okay, what else is out there that needs to be addressed, or how could I help society out?’
I decided to take a semester off and pursue one of those ideas, which was helping to improve the learning experience.
I knocked on a few professors’ doors and received some interest in pursuing the development of some online courses, and just went after it.
Q – Where did that idea come from?
A – At that time, when I was in university, instructors would write down their notes on the chalkboard and you would basically copy those notes, and you would try to learn from that experience.
I thought, ‘There must be a better way to do this.’
At the University of Waterloo at that time, they were also transitioning from cassette tapes, and from mailing in forms for assignments, so I thought maybe, by leveraging the power of the internet, we could really do a big transformation on the educational experience here at the university.
I was thinking very myopically around me and my university, versus the bigger-picture vision.
And then, after a few interactions with clients, I saw the huge opportunity that it was and decided to make it a full-time venture.
Q – Was that a key lesson, that if you have a problem in your own life that needs solving, it can lead to a business opportunity?
A – I think even in education, where we spend a lot of our time, people talk about problem-solving skills as being a critical thing that you need to develop in learners, but for me, it was problem-finding. That was the skill that I needed to learn to spark my entrepreneurial journey.
It just struck me one day, that I need to go out and find some problem that can have a big impact on people, and even if it doesn’t become a success, at least I will have tried, just to stretch myself.
Q – So, when did you know that you wanted to be an entrepreneur?
A – I never really thought of it as going off to work for somebody else versus being an entrepreneur. I just thought, ‘Let’s just go and try and do something different’.
I’ve always had that drive to make an impact, to really make a difference in people’s lives.
It doesn’t matter whether it was as a co-op student working at a company, or doing this; I was really passionate about making a difference, whatever I was doing.
Prior to starting the company, as a co-op student, I would be working long hours solving tough problems for somebody else.
Q – You’re from eastern Canada, correct?
A – Originally, yes; I grew up in a small fishing outport village called Wesleyville, Newfoundland until I was in Grade 5, and then from Grade 6 onwards I was in a small hamlet called Holmesville, Ontario.
It’s near Goderich, and before we moved to Holmesville I spent a year in Goderich, living with my grandmother. After graduating from Holmesville Public School I attended Central Huron Secondary School.
Q – What was it like being a kid there?
A – It was great. You’re always outside; I was always playing with friends or competing in sports whether it was skiing, soccer, baseball, basketball, volleyball, swimming or hockey. There wasn’t a tremendous amount to do during the evenings, but you still got up to fun with your friends.
Q – What influenced your decision to go into systems design engineering?
A – As a student in high school, I did very well in all the different subject areas, so it wasn’t a situation where, ‘I’m really strong in this one area, so I’ll focus on that.’ So, I never really knew what I wanted to do when I went to university.
My initial thought was to become a doctor, and I think my parents were trying to guide me towards something a little more applied or hands-on for my first degree, before I went off to med school.
They were suggesting maybe engineering, and I thought, ‘Okay, I’ll take a look.’ And systems design really appealed to me, because it actually taught you broad-based engineering. It wasn’t civil, it wasn’t computer science, it wasn’t software, it was across all kinds of different disciplines and integrating that knowledge, but yet going deep on every one of those pieces.
The design projects were an incredible part of the program. We even built a bridge out of a sheet of cardboard, and even though it spanned a metre, it was one piece of cardboard and a ball of glue; that’s all your components were, and it could hold over 700 pounds.
So you got to apply really good engineering skills to solve really tough problems, and it gave you good diversity. I thought, what a great topic for someone who doesn’t really know what they want to do, to go out and explore a whole bunch of areas.
It’s a great program.
Q – How quickly did your company become a functioning enterprise, where you could make a living from it?
A – Well, I had to make a living right away, because I was a student and I had no other job. So I started generating revenue within the first few weeks of getting started.
It wasn’t a lot of profit in the first few years, but it was enough to just keep on doing what I was doing, and to keep growing.
Q – What exactly were you selling?
A – At that time, it was more of a services business, so it was helping instructors or professors build online courses.
At that time, I was taking my old course notes and putting them online, and putting interactive activities like assessments or quizzes into the online offering.
And then it very quickly transitioned at the University of Guelph, our first big client, where we were helping to build the tools that actually built the courses.
So, instead of building courses as a service, it was now building the tools and the platform to build the courses. It was a big transition.
Q – So were you cash-positive from the start? Did you have to seek investment?
A – We were kind of cash-neutral; I wouldn’t really say positive, but neutral for the first few years. I paid the bills and occasionally I would dip into my own savings, or friends would chip in, or my parents.
But overall, it was very much the hard way, of going out and winning clients and then building the business off the revenue that was coming in the door.
It wasn’t easy, that’s for sure.
Q – How old were you when you first started knocking on doors to sell?
A – I would have been 22.
Q – Was the reception you got affected by your youth?
A – Oh yeah, it was tough. I remember someone at the University of Guelph said, ‘John, your competitors were willing to do this for free but yet we still selected you.’ And I’m like, ‘Why did you select me?’ And he’s like, ‘Well, 98 per cent is based on my belief that you can do a better job and deliver, and two per cent is on what you’ve done before.’
And that was not easy, convincing someone that you could not only tell him what was needed but also go out and build it, and they could base their decision on a little bit of evidence that you had built up in your past history.
But luckily we found a few early adopters who were willing to take a bit of a risk, and they invested, for sure.
Q – Did anyone turn you away because you were too young?
A – Oh yeah, that would happen from time to time.
However, there were some funny stories. One client introduced me to his staff by saying, ‘When he first showed up at my office, I was expecting John to look a little bit more like me, with some grey hair. But don’t worry, everybody; he’s grown on me, he’s not as bad as he looks.’
You’d get ‘no’ all the time.
Q – Did that get better, or were there enough yeses to mitigate the nos?
A – I think you just have to learn to be persistent. There were a lot of nos; don’t get me wrong, but the occasional yes certainly made up for it.
You also learn to focus on the advantages. In my case, I knew internet technology inside and out, and I could help them make the transition to that platform better than anyone else could.
So an ability to play up our strengths allowed us to get an initial client base built up, and then it was just ‘deliver’.
Then you just keep on doing it, cycle after cycle after cycle, eventually you’ll have built up a great reference base of clients.
Q – And wind up with 376 employees?
A – Yeah, and wind up with 376 employees. We’re looking to hire another 200, by the way, if you can help us. I think one in 10 tech jobs on the job posting board in Waterloo right now are with Desire2Learn, so if you could find some more that would be great.
Last year, we started the year with 65 job openings and we wound up the year with 160 hired, so I anticipate this year will be a good growth year, too, if the market demand is any indication.
The openings are in all areas – sales, marketing, communications, PR, everything. R and D, service, support – there’s not an area where we’re not hiring.
We’ve got opportunities opening up across Canada, the U.S., Brazil, Australia, Singapore, China, the U.K., and others worldwide.
Q – How many countries are you in now?
A – Our products are used by clients in about 20 countries, and users are pretty much scattered across the entire globe.
Q – What about operations?
A – We’ve got a U.K. sub, an Australian sub, a U.S. sub and a Singapore sub, and have contractors in Brazil and other locations. We’ll see that scale this year, too, hopefully.
Q – The litigation against you launched by Blackboard in 2006 was significant. What was the first sign of trouble?
A – It was basically a phone call, followed a few seconds later with a piece of paper that was served to us. So it came without any warning.
We were sued in the Eastern District Court of Texas, over a patent. We investigated and believed the patent should not have been issued; it’s not a valid patent; we’re going to fight this vigorously and we’re going to persist.
Q – How big were you at the time?
A – Less than 65 employees full-time; 65 total if you counted co-ops and contractors.
Q – Were you intimidated, knowing how big they were and how small you were?
A – I think there was a bit of shock and a bit of disbelief, but we were confident. I don’t know if that was us being naïve or a strong belief that we were in the right.
It’s not an easy decision to make, but we believed it was the right one to fight, and it was the one we made.
Q – How taxing was it on the company to hire lawyers and fend off such a well-funded adversary?
A – It was a hard battle. There’s no question that we lost a few potential clients over it, but we did our best to keep growing.
Even during the litigation phase we still managed to grow from 65 equivalent people to 140. We still managed to triple to quadruple our client base during the litigation phase, and a lot of that had to do with how we approached it, I think.
We were transparent on everything. We set out a simple rule: We’re going to tell our staff, we’re going to tell our clients and then we’re going to tell the world, and we’re going to do that in very quick succession, and we’re going to tell them the good, the bad, the ugly. We’re not going to hide anything; we’re just going to share our journey along the way, which was not a common practice to do.
Q – How did you decide on that approach?
A – We were in a room much smaller than this room (the D2L board room), and within 30 minutes we’d decided, basically, that this was the only way we could do it.
That simple little communication strategy helped us so much, no question.
Q – Where did the impulse come from to do it that way?
A – I think when you’re backed into a corner, you sort of resort to your core values. And when we looked at our core values, we were open: ‘Hey, you know what? If we had a hosting problem, we would tell people about it; we wouldn’t hide from the issue; we wouldn’t sweep it under the rug; we’d identify the issue and get it resolved. It’s who we are.’
So we anchored on those core values, and those core values told us, ‘Be open and transparent and share.’ So we did.
It was very risky, for sure. Our lawyer at the time was not sure of the strategy of sharing, but we proceeded nonetheless.
Q – Did defending against the litigation put you in real financial jeopardy?
A – It was far more expensive than we ever thought, no question. And it was far harder to afford it financially, but we kept the team focused. We had a small team focused on the litigation piece and everybody else was focused on delivering.
They had to make sure clients were happy, make sure new clients were coming on board, make sure we were communicating, make sure we were building the right products that the client wants. And so, we just kept focused on the execution piece and that carried us through.
We were really fortunate. We had an industry that rallied behind us. We had marquee clients, whether it was big corporate clients or education clients, who heard about it, who believed in us and who came to support us by still buying our technology during the litigation phase.
We had others who felt ‘you’re a little too risky for us so we’re not going to purchase’, but we retained 100 per cent of our core client base during the phase, and a lot of that, I think, comes back to that strategy, which was, ‘Here’s what’s going on; we’re not hiding anything from you.’
So you get rid of some of that fear, uncertainty and doubt that the competition is sure to be spreading.
Q – How did your competition respond to your strategy?
A – I can’t comment on how our competitors responded but we would hear rumours of many of them trying to take advantage of the situation. Others were supportive.
But we tried to take the high road and said, ‘Okay, we’re just going to compete on our merits and go out and win this business.’ We just had to dispel the rumours that were being spread.
Q – If you had to list the qualities that saw you through that period, what would they be?
A – Integrity, openness, hard work, dedication, persistence, passion about what we were doing. Those were all some of the key things.
One of the things that drove us through a lot of the ups and downs was the team that we’d built. The fact that we were developing leaders within the company, so that everyone wasn’t relying on me.
Through that, a number of our key team members became real strong leaders. We saw them step up, and that to me was probably the most impressive part of that whole period.
We were able to keep the clients happy, but at the same time we did build a much stronger company, even in the face of pretty major obstacles.
Q – When did everything get resolved?
A – At the end of 2009 and the beginning of 2010, so just about two years ago.
Q – Are you willing to say how much it cost you?
A – Oh, many millions. But it was the right thing for us to do.
Even though the system has major flaws, the patent eventually was overturned. Hopefully the system gets better as time goes on, because the way it was when we went through it was very broken.
Q – What are you looking forward to in the coming year?
A – We are excited about a number of initiatives this year which will have a big impact on our clients and help transform the way the world learns. It is going to be an exciting year for our company.
I also hope we fill 92 current empty positions and create another 92 or more.
Talent development and talent hiring is probably our Number 1 concern right now for the next year as we continue to grow.
Q – On that subject, you’ve clearly made a commitment to Waterloo Region, even though some argue that it’s wiser, from a talent perspective, to locate in a larger centre. Why are you here?
A – We do have staff around the world; we are approaching 40 staff in the U.S., we’re approaching a dozen staff in Australia, we’re adding more staff in Asia, in Latin America, in Europe, and we’ll probably have staff in other parts of the world soon.
So, looking for talent globally.
What’s exciting about Waterloo Region is that is has top universities, easy access to good transit, and you’ve got great talent in the region.
And it is great that I can work here in this office, and my house is on the other side of another city nearby, and it still only takes me 20 minutes to get home at night in rush hour. Not that I ever leave at rush hour..
You get the advantages of being close to a big city such as Toronto, but not necessarily being in it.
That said, we’re looking at all options for how we grow globally. But I can’t think of a better region to set up a business and start growing. There is great space available, you’ve got great talent, you have an amazing, supportive community behind you.
If I look back to when we were two people, we were already being put in front of the whole community to give a five-minute pitch on what we were up to – and this was before there was the massive startup support that exists in the community today.
So the whole community has a long history of supporting great companies, even the small ones.
Q – Some people in Canada’s tech community still measure success by the number of companies that exit through acquisition, while others say we should be digging in and building our companies. Why have you chosen to build rather than sell?
A – Even in our space, we see most of our competitors build and then sell.
There’s nothing wrong with building a business and seeing an exit, but that’s not what we’re doing. We’re trying to execute on a vision that we have, and we think we can do that far better than anyone else who we’ve run across.
So, we’re committed to the market for the long term. We really, truly believe that learning, life-long learning, really needs a great company and a great platform to do that, and we’re really just getting started.
That said, we’re buying companies, too, these days, so we’re focused on bringing in great talent and great people, but we’re also retaining and growing the people in those organizations to continue to build out a bigger vision.
We’re looking to build something really big here, and that’s not easy.
A lot of companies exit probably far too fast, far too early.
Q – Why do you think that is?
A – Sometimes they just need help getting to the next level, so joining some bigger entity makes a lot of sense. There’s no harm in that.
In other cases, they may have picked a market that was really small and found it tough to jump from that market into a bigger one.
In other cases, their investors want a return on their investment and they don’t want the risk, so they look for an exit.
Those are all valid reasons.
Q – Have you had trouble scaling up in that way, or have you been able to retain that early success at funding your own growth?
A – We haven’t been looking for outside capital because we have good cash flow and good capital in the organization already.
We’re not against it; we just haven’t done it and haven’t had a need for it.
Q – I guess inviting outside capital could also mean surrendering some control, too, right?
A – Control is not the main issue but it could hinder us from executing on our vision. We’re really interested in building a great, lasting, durable company.
Building a durable company is a really good challenge. It’s not easy.
Q – Who are your role models for building a great company?
A – Oh, there are lots of people who have done great things.
I would say, as much bad press as they’ve gotten in the last little while, Jim [Balsille] and Mike [Lazaridis] have done an amazing job of building a company in a very short time frame - and in a very tough market, crossing the enterprise as well as the consumer space with a device, in probably the hardest market to do it in, which is the smartphone segment right now.
There are other good companies, like Microsoft, IBM, Google, Apple; there’s all kinds of great companies you can learn from.
There are also great companies that have learned a few lessons over the years, and you can take some of those learnings away.
We also try to learn from clients.
But to answer your specific question on mentors, my mentors so far have largely been business leaders in the Waterloo and Toronto communities and within our client base.
Q – What can the rest of Canada’s tech community learn from what we’ve done in Waterloo Region?
A – One of the strengths of this region has been the community aspect, the willingness to sort of help each other out, solving problems, co-ordinating shared best practices, sharing ideas, the peer-to-peer groups, the community building, the barn raising, all those concepts are really impressive.
I was in a peer-to-peer group when there were four people in the company, and I was in the CEO peer-to-peer group, learning from other CEOs. Then I got into a more advanced peer-to-peer group when there were 20 people in the company. So there was a progression of learning and sharing ideas back and forth.
Even our developers, designers, and sales team members are in peer-to-peer groups.
So that willingness to share and break down company barriers to learning is important.
Q – You don’t see that everywhere.
A – I’ve seen it in Silicon Valley and Boston, and I’m sure there are many other communities. Especially in the early days, you had it with the chip manufacturers in the valley, where people who were struggling would talk to each other over a lunch somewhere else outside their main campus, and things would get solved.
That sort of culture is here, too. There’s no question.
Q – Who is the biggest player in your space?
A – Blackboard is the biggest player in our space. They just went private; a private equity group bought them for about $1.6 billion. But we’re slowly growing our market share, more and more every year.
We’re also diversifying our product suite from just the traditional what would be called a learning management system or learning environment to a more complete set of products. One example is our Capture product where we can do live webcasting of events that could also be archived.
So you could be late for a meeting and you’re walking to the meeting and watching what’s going on in the meeting or class on your BlackBerry or iPhone. So there are other competitors for some of our point solutions, too.
On the e-portfolio side of the house, which is more like a social learning network, we see a pretty diverse competitor set these days. But we have some distinct advantages that we can offer with a complete solution for clients and even go head-to-head on the point solutions.
And that is the way we think now. We don’t think, ‘How do we compete against Blackboard for this one product or this one feature’; we think, ‘How does every one of our features, or every one of our services or products, stack up against the best in the entire industry?’
We’re pretty ambitious when it comes to how we build things.
Which is not easy either, but it’s a good challenge.
Q – How old are you now?
A – I just turned 35 two weeks ago.
Q – How has it been personally to preside over the growth of a company from you to 376 people?
A – I think it’s been very rewarding.
For me, it’s never really been about myself; it’s been about the impact we’re having on people’s lives around the world.
To get feedback from clients who are just so excited about how we changed someone’s life, or how they’ve gone from 50 per cent of students graduating to 100 per cent and they say it’s all because of your software, it’s incredible.
There’s a school we’re working with in Alabama, and in the 2010 school year, they had 100 per cent of their students graduate. Previously they had maybe half of the students who started the school year finish the school year.
It’s touching to be just a part of that amazing transformation.
And if you look at Ontario, when we first started working with Ontario, the K-12 schools in this province, two in three students would graduate, so one in three would not. Last year it was one in five, and we’re hoping to support their goal to get it down to one in 10.
So if we can help improve graduation rates in high school, and if we can improve the outcomes in university, and if we can help people make the leap into the workforce and do workforce development so that they’re always learning and maturing, that’s going to be really exciting.
We’re already starting to do that. We’ve won some really leading-edge clients in the corporate space; NASA is a client, the Coast Guard is a client, the Workforce Development Agency in Singapore just came on as a client. At some point, we see a world where everybody has the ability to get access to the highest quality educational resources, and break down all the barriers that exist in getting them access.
And hopefully they can achieve the results that they want to set out for themselves personally.
And this is not a little problem.
There are some countries where one in three will graduate high school, and even fewer will graduate from university.
I believe the quality and productivity of our society depends on the education and learning done by each citizen-- it’s critical to invest in our people to improve our society and increase productivity.
I look at the investments governments are making in terms of helping to fix their productivity gap, and I question, why aren’t they investing more in the single biggest thing that could actually have the biggest productivity improvement, which is people?
If you look at where the money’s going, it’s to capital projects to improve equipment, which is great; I think that will have an impact. But if you can improve your human capital, and how you do that is through better learning, then that’s going to be a huge impact on society.
We’re at the core of all of that transformation, but we still have a lot of education to do to help people realize the potential.
