How to succeed in business

College trustees typically serve their institutions through leadership, vision and financial support, but Monmouth College trustee Larry Gerdes recently went a step beyond, stepping into the classroom and giving students first-hand advice on how to become successful entrepreneurs.

A venture capitalist and a partner with Gerdes Huff Investments in Atlanta and Sand Hill Finance in Menlo Park, Calif., Gerdes spoke to business students in the Midwest Entrepreneurs class about his more than 40 years in the investment industry.

Gerdes immediately grabbed the attention of the students with his personal rags-to-riches story. The sixth of six children born to German immigrants on a small farm in Lee County, Ill., he became the first member of his family to go to college, enrolling in the agriculture school of the University of Illinois.

“In those days, there was no integrated learning,” he told the class, “so I knew I had to pick up as many courses outside of agriculture as possible in order to understand such disciplines as accounting and marketing.” That he did, accumulating 57 hours of non-ag credits out of 120 required for graduation.
Determined to become an entrepreneur, he started four different businesses while still an undergrad, but he knew he needed much more knowledge to truly succeed.

“I knew I couldn’t make money with an ag degree,” he explained, “so I enrolled in the Kelly School of Business at Indiana University.” There, through an assistantship, he gained a mentor, who helped set him on a trajectory for success.

Armed with an MBA, Gerdes decided to get his feet wet in finance, taking a position at the age of 24 as a loan officer at a small bank in Peoria, Ill. Through coincidence and luck, his fortunes suddenly took an unexpected turn when the president asked him to evaluate the business plan of a friend, whose request for funding had been turned down by the bank.

That friend—Monmouth College alumnus Walter Huff Jr. ’56—would soon become Gerdes’s friend and lifelong business partner.

Huff’s vision was to computerize record keeping for the hospital industry. Beginning with clients at small hospitals in Galesburg and Canton, Ill., he needed $1 million to capitalize. “My personal lending limit was $75,000,” Gerdes explained, “so I took the request to the board of directors, which was authorized to approve up to $1 million.” This they did, and Gerdes advised them to take 20 percent stock in the company, an idea they scoffed at, which Gerdes said would come back to haunt them.

Within a year, the company (named HBO & Co., for Huff and his partners Bruce Barrington and Richard Owens) needed $3 million to expand, and within two years it needed an additional $7 million, which Gerdes helped it acquire through banks in Chicago and New York.

Impressed with Gerdes’s financial savvy, Huff asked Gerdes to become his CFO. Initially hesitant to accept, because his mentors advised him against it, Gerdes’s wife told him to go for it, assuring him that if things fell through, they could live on her salary of $6,500 per year.

Things didn’t fall through, and a year later when Huff’s two partners decided to retire, Huff and Gerdes moved the company to Atlanta. The company, which by then had evolved into a patient information system that helped track hospital admissions and discharges, order communications and scheduling, went public in 1981.
On the day of the public offering, 30 of the firm’s employees became instant millionaires.

A hostile takeover attempt by an investment group, followed by the 1987 stock market crash, led to Gerdes and Huff leaving HBO and forming their own investment company. In 1991, HBO was sold to McKesson for a whopping $12 billion.

“Think back to that little bank in Peoria,” Gerdes told the class. “If they had bought stock in HBO as I recommended, they would have made $2.5 billion.”

In 1991, Huff and Gerdes turned their attention to investing in startup companies, the most notable being a medical transcription service called Transcend Services that they grew from seven to 3,500 employees. Gerdes served as CEO of the company for 17 years, before it was sold to rival Nuance for $330 million in 2012.

Still interested in the health care industry, Gerdes is now focusing his attention on kiosks in stores such as Walmart that measure biometrics such as blood pressure and body mass. As CEO of Pursuant Health, he is leading an effort to partner with insurance companies, which pay for both the medical data and provide incentive cards to individuals who undergo the screening. The cards are automatically loaded with credit, which can be spent on healthy items in the store.

The company before he took over management had “hit the wall” financially. Of its 35 employees, he fired one-third of the workforce in one hour and began a rebuilding process. By removing layers of bureaucracy and promoting bright young talent, he has built the company back up to 35 and is now preparing for a major expansion.

“I really like making money,” he told the class. “To get rich isn’t greedy, if you give it back. I love creating jobs.”