M&A From Founder to A Board Member’s Perspective

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I'm Kisan Patel and you're listening to M and A Science where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during M and A deals. Foreign welcome to M A Science Live where leading M and A practitioner share lessons learned from their experience. When you use proven techniques in M and A, more value is created. If you're interested in keeping up with the latest from M and a science, visit mascience.com and subscribe to our newsletter while you're there. You'll also find a ton of free resources. Again, that's mascience.com I'm your host Kisam Patel, CEO and founder of M and A Science and Deal Room. Joining me today is Alan Gilmer. Alan's the founder, advisor and former CEO and Chairman of Envirus, formerly Drilling Info and the co founder of Vector Oil and Gas. Today we're going to talk about how M and A evolves from founder led acquisitions to overseeing deals as a board member. How are you doing Alan?

I'm doing great. Thanks so much for having me on here. I sure wish this had been around 20 years ago when we started.

I appreciate it. I think that's the goal is to really learn lessons and see if we can build some science around this industry. I thought it'd be really interesting to kick off with a little bit about your background but maybe sort of tie the narrative together. I thought it was interesting you originally started off doing oil exploration and got into the software piece. Maybe if we can start from there and see how we ended up doing.

M and A. I was a geologist begin with and then a geophysicist and geophysics was the very first science of oil and gas in the oil and gas really took advantage of the digital revolution when seismic data, when you actually could move that from paper to a computer and start looking at the waveforms and things essentially electrical engineering. It was a game changer by being early exposed to the leading edge science and digital sciences and geophysics helped me think about the rest of the oil and gas industry in ways that were more signal theory.

And what year are we talking about?

We started drilling info in 1999. We rolled out the first applications in May of 2000.

Okay. And then from 2000 pretty typical startup founder story started. This product went out. Probably did a lot of the sales things of that story. When was it? What size were you at when you made your first acquisition?

Our first acquisition came in around 2004. So we'd been in business for about four years. And in 2003 there had been a bigger company roll out an application that was going to be competitive with our big competitor at the time, which was P.I. dwight's, which had just turned into IHS. We were trying to think of data in a different way than they were. They had had to divest a single open license to their database. A company called Pinwell Corporation, it was a privately held publishing company out of Tulsa. Had acquired it and spent millions of dollars to try to bring a competing product to the market. They were eventually very unsuccessful in doing so. So they had approached us to see if we wanted to buy it. We certainly didn't have the ability to buy it for what was worth. They had found out all sorts of problems with the information with regards to how it was delivered, with regards to how they had tried to build it out. We ended up acquiring it. It took about a year of negotiation and we gave them some options on our company and essentially it was a cash free deal for us. And then it ended up very successful investment for them.

Eventually you bought a company that essentially was a failed startup competitor for no cash out of pocket.

Yeah. And it had this data that was not public. It was impossible to replicate. And so therefore it was like the one other, one other license of this non public old historical data that was very valuable to us. Mother's milk. Really.

Wow. That's really interesting how things evolve from there. What the next acquisition look like. I'm curious about this but also want to also get the thinking in your head about strategy at the same time and how M and A is mapped to the strategy as well.

Our first acquisitions were very much data related. Every state had different reporting requirements. There was a one man shop out of Louisiana in which we discovered that everybody in the industry depended on this guy's data. It was. You had to provide all these information on unitization. Hearing he had been acquiring it all. The state itself had had a fire and lost all of their own original records. So everybody depended on these to determine whether they had something that was a legal description. We acquired that from him. It was a small one man operation. And then he came to work for us and worked for us for a decade after that. We had a couple of little deals like that, but it was the way that we were doing it. It was very difficult to come in and normalize. And that was just based off of our database structure. I'd say the least valuable, but the most used bit of information was production information. And there was this one company in Austin actually that had built out a system that was used a lot by banks and it was used a lot by the financial community. And it was called hpdi. We approached them to see if they'd sell it to us. And it was a small five or six man shop. It was owned by another company here in Austin, an appraiser, kind of an appraisal company. We had to come up with cash for that one and we didn't have enough cash to go do that with. And that was our first effort at going out and doing financing, going out and doing equity or mezzanine financing. Because if you remember in 2008, that's when everything went to hell. Bank financing was gone. So the only thing that was really left was this expensive debt equity combination, these mezz type of deals. We were able to go get that finance through Main Street Capital out of Houston. Who became a partner at that point and never looked back. The use of professional financial community after that was set at that point. That was really transformative for us.

What you've described so far sounds like you're pretty opportunistic about your acquisitions. It wasn't so much like, hey, this is our main catalyst to growth is that we're really going to focus on acquisitions. These were opportunities that essentially sprung up and made sense that would create value in your current offering.

That's exactly right. It was ways for us to be able to go expand our offering. We knew what we had. It was to the core of what we were trying to do, of what we were offering. It was expanding geographical footprint in every case on these were small companies. So you didn't really have the challenge of competing cultures and things like that. At that point. We looked at it as data and we were serving our own client. And I think with HPDI was the first opportunity that we had in which we actually acquired a bunch of clients as well that were in an adjacent space which was in the financial space. They had a very loyal group of clients there because they had provided a way of slicing and dicing a particular kind of data that was exactly what that community needed.

How would you contrast between doing an acquisition where it's more focused on the IP data versus once you acquired a deal that included a client set with it. Like, like what complexities did that add?

You always want to be able to buy a client set as well as that's just the added value. Those client sets are happy with what they're getting. Is there ways of taking what other things that you're doing and be able to present it to them in ways that they want to see it? They have ways of looking at information that they're used to. And so the ability to go out there and expand the offering to them is important and then to take the data that they have and even some of the functionalities that they have and be able to present it to your own clients in a way that is novel and new. So it was a way of keeping things fresh as well.

How did things evolve as you started doing more acquisitions and needed to scale your effort?

We stayed opportunistic, but what we found was that too many of these opportunities would come up and we weren't ready for them. It was really kind of investment banks come knock on your door and say you gotta go do this. And. And there were some that we did that were more we looked at. I didn't say we did a lot of them, but some that were defensive in nature that this was an important thing to have and if we could just go out there and take it off the market, it was going to be important because that would provide too easy of an access to kind of somebody to go compete with us. Or on the other hand, that this was something that was going to be transformative with regards to what we're doing. As we started looking at bigger and bigger companies especially I'd say that becoming familiar and assessing the culture of the organization, organization became much more important in regards to things we're doing.

What'd you do different to start preparing for those transactions?

At first we did nothing and we got murdered because we did nothing. But one thing that I learned early on was that every CEO says that they really want to stay with the company and they want to grow the company. If that CEO is making life changing amounts of money and it's going to go straight into his pocket, that guy didn't want to stay. He's telling you that because he thinks that'll help the value of the company or you might be able to go do that. But at the end of the day then every time that we felt like we really needed the leadership of that company to Stay, you couldn't really rely on that. That was the flakiest part. Anytime anybody said oh yeah, they wanted to stay, kind of had to discount that hugely. Not in every case, but you couldn't be reliant on that. But in many cases what we found was how to identify who were the real game changers in that company, who were the really good ones and how do you incentivize them for the future instead of that moment of which you're acquiring the company. Oftentimes you'd find companies that were just so beholden to the capital providers and the way that they were structured were just a complete slap in the face for the people that actually had built it all out because they made some foolish errors early on. So all you were really doing is benefiting purely the capital providers and no one that was coming along with it and therefore creating nobody being happy. So you really had to be thinking about how do you incentivize people, how do you bring them into your culture and how do you incentivize the whole teams to be part of one team and how do you incentivize the future? That makes sense.

Yeah. That's probably the crux of doing M and A is figuring that out. And you touched on some interesting components. Who's getting life changing money out of this deal? Because they may promise the world, but once that money's in their pocket, you may never see them again.

Boats in the Bahamas and all those things come into play at that point.

Yeah, they get, I don't know what you call those yachts that ship around the world, but you know, you get that to the sunset. And then the other picture you painted was around maybe there's a unique capital structure that there isn't sort of those big payoffs and things like that. Maybe it's an opportunity to create better incentives.

But what we had as we were going on is that a willingness for them to roll some of their stock and some of their founders stock or what have you into the forward was. It was an important signal as to whether they were serious or not. What we found was the acquisition of a company wasn't about the money that you actually wrote at that moment to buy the company. It was going to be a bigger piece, a bigger pie because you had to bake into the whole thing. The future incentives of everyone going forward. And one of the benefits of us being private when we became private equity controlled was them being completely sanguine with regards to understanding that they really wanted to make sure that you kept the Very best people that you could. There was always an interest in using stock to do so.

Any other lessons learned around integrating cultures?

The hardest thing to do is to be able to walk away when the cultures just do not fit. I always looked at companies that had quite a, you know, I called them positive versus negative cultures. A positive culture is one in which they think about how is this benefiting the customers? How is this making life better for your clients and your customers and your stakeholders, which is your shareholders and also your employees. Those I find to be positive traits. A lot of companies, especially kind of young startups, are trying to compete against a big competitor. The easiest methodology for leading is to create a bad guy. You're competing against a bad guy, you're going to go out there and beat the bad guy. I've never been comfortable. I've never been comfortable with that methodology of leadership. It's the easiest one to go to. It's the one that's most probably proven effective to get people emotionally involved. But it's also one that I just. I find leaves a lot of residual problems.

What's the right way to do it?

Being a positive leader. What do you do that's so positive? Why do people buy what you're doing and how do you continue to go down that road? With regards to making the world a better place, that whole concept is heavily mocked. I don't know if you watch Silicon Valley. Remember Hooli, and it's easily mockable. It's really funny. But at the end of the day, you have to have a higher purpose. The people that you know are going to fail as entrepreneurs are the ones that are doing it purely for money.

I agree.

Trying to go out there and make the world a better place and have identified weird little niches in which they can make the world a better place for a certain subset of people. They're the ones that win.

I like that thinking. I totally agree with that. It's about the problem you're solving and the value you're creating for the customers.

Absolutely.

Like doing these podcasts and extracting as much lessons learned from you.

Yeah.

So going back to the walking away, that's a tough one. This comes up all the time in these interviews and the terms deal fever, all these stereotypes around it. How do you do that? How do you get to that point where maybe you sunk a bunch of time and resources and doing diligence in the deal? What is it just that sinking gut feeling is sunk far enough where you just do it? Or is there something more logical definition around hey, here's a point. This doesn't align with our strategy and we need to get away with it. How do you get those factors to get the commitment to do it?

The bigger the deal is, the more important it is. You have the walkway presence just because the bigger the deal is, the more able that deal is to shoot you in the head. If you buy the wrong thing and it's big enough and it turns out to poison the whole corpus, then that can happen. Easy to do with a small thing, to sit there and not walk away from the smaller thing. But it is the thing that seems transformative, the big, big deal that you have to have. The walk away principle.

Essentially, it's like a risk assessment that if it's a bigger deal, you're taking a bigger risk and you need to put a lot more consideration into that, be a lot more cautious.

And that's where it's super important to have a deal team and a board of directors that is skeptical and asking questions all the time.

Just to add context, how many deals has your company done to date?

That's a good one because I don't know, we've done at least 20 acquisitions, probably more.

Okay. We talked about some of the founder led acquisitions. It sounds like it's you and using some of the internal resources. When did you actually stand up deal team?

After we did our first private equity offering and kind of changed it from being a management controlled and owned company to being a private equity controlled company. Our first partner was Insight Venture Partners.

Okay. And that's like their growth partner.

Yeah.

So they sort of give you growth capital.

We were still organically growing and so we looked at tuck ins regularly. We did one or two. They were bigger. And that was really where we first started running into the cultural issues in a bigger way. And it caused us to back off and say, let's not do any of these bigger things until we actually figure out what it is we're going to do. And then I think towards the end of the time frame with them, that was really one of the bigger issues. When I brought in a recruited a COO to come into our company who's now the CEO. And that's when we first put together the deal team. The deal team was a strategy team. It was headed up by a pretty incredible person who was able to go out there and really map out strategies, map out white spaces, map out where the companies were, and was so egoless that she could go out there and have these conversations with owners that are founder owners. And we're well known amongst investment bankers for all the investment banking bodies that had been crashed against their rocks, you know, because they were just not going to ever sell and was able to make the case that we were a good place for founder led companies to end up. And her name is Tanya Andrea and she was the first to lead a more coordinated effort and the first to really understand and look at the cultural aspects on how to bring people in, how to present our company to those companies as a welcoming place rather than a 900 pound gorilla that was going to force them into all sorts of ways of doing things that they didn't want to go do. And, and to really identify what were the things that they were really bought into and was there alignment with the things that we were going to do. We didn't really have to sit there and put too much thought process into it. So at the time that it come to approvals that all these things kind of been worked out and been check marked off so that it became a very easy thing to go do as opposed to a last minute gazing at your navel and figuring out whether you wanted to bet the company.

This person was your corp dev lead.

Or started off as corp dev and then kind of head of strategy and today she's our coo.

Okay. It's really interesting. I like how you essentially articulated the value proposition of having a dedicated resource.

For M and a hugely important because companies typically are organic growers or they're inorganic growers and very rarely are they both. I would posit that having both, if you're an organic grower, being able to have a dedicated team, to be able to go out there and expand your opportunities inorganically is hugely valuable to a company. And the reason is, is because that's something that everybody in finance can get their head around. There was an old story about the guy who ran Cray computers. They bought Cray computers and they had no idea what he was going to build out to grow the company. And they'd say well, what are you going to do? He says well this year I'm going to do a quarter of that and next year I'm going to do another quarter. And then it was frustrating. They and if that guy got hit by a truck, the whole thing screeching stopped. Everybody understands that if you could go out there and acquire. People have made massive companies out of just a great acquisition team. To be able to go out there and say, okay, here's our strategy, here's an acquisition team. Go out there and put those together and do what you need to do. You know that that is a great way of building a company. The harder part is to go out there and build a company that has a lot of organic growth, because that's kind of magic. And then you have to figure out how you're going to go out there and build that in there. And that is a lot tougher than actually going out there and saying, well, here's going to be this piece for organic growth. And so on the software side, the biggest problem has been that if you acquire companies as your model, then you end up with a box of brands, just a big old bag of brands. Very rarely is there any kind of integration between any of those bag of brands. And for us, the bigger issue was to make sure that it was not a bag of brands and that there was true interoperability with regards to all the things we bought. So that put in a due diligence level with regards to what were the technologies that they used to build out the software. Was software supported or not? Was it state of the art? Was this something that was going to help our whole technology stack or was it going to be a drag on that? And at the end of the day, how much was it going to cost for us to replicate that technology stack if it came to that? So that became a big part of the whole due diligence process, making sure.

It ties to a clear strategy and maximizing the value on those deals.

What ends up happening when you start doing those kind of things, you start acquiring other companies, the first thing that clients are going to say, especially the snarky clients on Twitter, is they're going to go out there and say, oh well, they're going to buy this company and they're going to just jack up the prices and they're going to milk this as a cow, right? You're not going to do anything else, it's just going to be monetized and milked. But we've never done that. That was never what we were trying to do because we had a bigger vision than just having a bunch of cows to milk. Our vision was how are we going to put all these things together so that one plus one equals three and we could go do things that nobody had really imagined. What became very important to us was to have a very concrete idea on how we could create brand new value from putting what we had with what the company we were acquiring had. And to be able to have first 90 days, first 180 days, sprint, to be able to go out there and first product to market to show that what the accretive value of all these things were. That is a great way of basically getting everybody focused on a common objective. It's a great way of showing the client base that you just acquired that you're not there to milk them and that you're really thinking about what is their problems and how is the combination of the companies a much stronger combination than either of them alone.

Really good point. Often gets forgot. What made you decide to step back?

Well, Devin Parek is managing director at Insight. He was the one that encouraged me to always be on the lookout for a number two, a chief operating officer. And he goes, there's no timeframe for any of these things, but if you find somebody you like and we'd like to interview him, but we're going to be very supportive of you being able to bring that person in as a founder. That's always a tough deal because he's your baby and you have the distinct knowledge that nobody else does to make it work. All the other stuff you tell yourself. But he was right. I found a guy I was always interviewing and I interviewed this guy. I remember I was in our office in the UK, it was 9 o', clock, his time, 9 o' clock at night, my time. And I was at the office there in the uk. I was going to interview him for an hour. He talked for two and a half hours about my company. I might have said 10 words. And he talked about all the experiences he had and what he wanted to apply to what we were doing because he saw some things that would simplify a lot of our operational processes and what have you. I realized when I was listening to him, I was like, this guy is genius. This guy is an operational genius. So I came back to the States, I met him, was really impressed by him, met his family, because frankly, whenever you're doing anything like that, who they surround themselves with on a day to day basis is just as important as that person. Are his significant others, are they supportive? Are they not? He continued to blow me away. I had him fly up to New York to meet Devin and some of the team over there and I got back an enthusiastic hell yes. And we hired him and he hit the ground running it. And I remember when we first talked and I gave him a lot of degrees of freedom because one of the things that he said, look, Alan, I'm going to try to be as sensitive to things as possible, but you want to pull bandages off slowly or do you want to do them quickly? And I said, well, we got to do it quickly. The important part was to just give him the ability to go do it so that he didn't have to be worried that I was going to second guess his decisions. If he was going to make a decision, then he needed to let me know about it and if I had a disagreement of it, we would discuss it. I just didn't want to be in a position of second guessing. And that's always been an important part of our company. If you're going to hire really great people to run divisions, by going out there and second guessing what they're going to go do, you're giving them an excuse to say, I failed. Really, the only thing that you care about is do they not fail? You want them to succeed. That's what happened. And then he was the COO for two years. He was such a, such a transformative person in our company in terms of who he was able to attract to come to the company and what have you, that it was easy to make him the designee. I knew that he was on the radar screens of a lot of PE companies, PE groups, because every PE has got portfolio companies that are badly run and they need people that are going out and doing this. And I knew for a fact that the guy was on a lot of radar screens. And I didn't want to lose him because it was going to make me a lot poorer because I wasn't nearly as good operationally as he was. We had a discussion and I said, let's just make this official that you're going to be the next CEO. And he was appreciative and he came to me with a plan for over like a year and a half period that we could slowly transition things over to him. And I said, so I have a different plan for that. I said, how about next Thursday? We did a quarterly all hands talk. I said, I'd like to announce it at that point because at that point I knew that he knew everything about our company. He'd been there for two years. He was definitely fully immersed in the culture. I had ultimate confidence in him. And then I was going to step back to go be the executive chairman. The functional day to day wasn't going to change. We would still collaborate on the things we were doing, but it didn't seem necessary at that point to go out there and say he was going to be the CEO and then not be the CEO for some extended period of time.

You're answering a lot of questions before I ask them, which is great, because I was curious, how do you Go through this mentally letting the baby go. And the key things I got from it was essentially, you weren't nannying. You got away from that and essentially gave that next leader the freedom to create.

Being a CEO is a wonderful thing. I mean, my God, people treat you a certain way. It's very addictive. When I was considering about letting go, I spent a weekend thinking about all these things. I was like, yeah, this is about stepping away. And I realized that every reason I could come up with for staying as the CEO was something that just was to assuage my ego. It was not for the benefit of the company. That recognition that made it easy.

Really good point. How are you involved in deals today as a board member?

There's a list of companies that are active. We would have weekly calls with regards to various companies that we were either in contact with or discussions with. I always made myself available as the founder to be able to go talk to other founders, be a founder whisperer. That helped in some cases. And I think when you have a well thought out strategy and it's well articulated and everybody understands it, then it just becomes fill in the blank. And that's really what our team was able to go out there and eventually go do.

Really isn't a lot. As long as you have the good processes, a good strategy in place, these deals come to you. And essentially there may be a level of board approval, but there's just the general consideration to make sure things are aligned and that there's no big red flags staring at you. Yeah, life's pretty good, board member.

It really is. I mean, ad hoc never is great. The more you have to ad hoc things, the more chances for failure you're going to have. The less ad hoc it is, the more transparent it is. The more that everyone has bought into the whole process and the thinkings of why that is, the better it is. There's my dog.

So that's all right. We like them in the show. We're very dog friendly at M and a science.

Good.

That sort of gives a nice perspective. Essentially part of the board, there's opportunities, among other decisions in the organization. But deals come up. Sort of weigh in if there's any concerns. I like the point you made about still getting involved with some of the other founders that you may potentially acquire and just do a little nurturing of the relationship there.

Tanya was incredible at being someone who could really answer a lot of nervousness that other founders may have. But at the end of the day, sometimes a founder to founder discussion, frankly, a founder that is no longer the CEO of the company because I'm very much in the same position that they were going to be. What I found is most great companies, their founders are really worried about their people. They want to make sure that their great people are going to have a place to land and that the visions that they have are understood and respected and appreciated. And to be able to provide that and make sure that we understand that nobody wants to sit there, oh, we're going to take your baby and we're going to dissect it limb from limb. We're going to use the arm over here and three fingers over here and we're going to get rid of the rest. Nobody wants to hear that. And if that's what you're going to do, you damn well better not be telling the truth about that because nobody wants to hear that. And frankly, I think that's always a bad reason for buying a company is to buy and dissect. And we always looked at buying another company as an opportunity to really bring in some high quality people. It's very difficult to hire great people on an ongoing basis. And oftentimes when you're buying a good company, especially one that's having success, you know you're buying at least a handful of people in there that are very difficult to go higher in the open market. It is really like a big grab bag of goodness.

You got to have vision and goals that both organizations combined could really rally around and be aligned on. Absolutely putting that consideration in their point of view. I got to know here from previous conversation we had around technology versus people point of view. And I don't know if that's related to this.

Was it something I said? It was like, you know, as companies always try to pretend like they're this big behemoth and. And I always think that's a mistake. That to me it's always brands at their best represent the people behind the brands. And I always thought it was a huge mistake, especially in our industry. You'd have these three guys in an office who were writing code and then trying to pretend like they were IBM or Schlumberger or something. That was exactly the wrong way. It was like the bigger trick is going to be how do you become a bigger company and still be a person? Because people have loyalty to people. They really don't have loyalty to big faceless bureaucracies. And so you have to actually have people behind the processes because that's who you have loyalty to.

Makes a lot of sense. That ties back to how you really focus on the people, what their incentives are, how you're going to keep them motivated. When we look at criteria to approve a deal, part of this is focus, part of this is the strategy. We talked a little bit about how you're mapping out the white space. What does that look like, what's the thinking of that look like as you put it together to really create a flow of, here's our strategy, here's a white space we've identified and having that flow over to your criteria to approve.

Deals, it's always a funnel, right? A lot of things in the front of the funnel and a few things to get down to the bottom of the funnel. And your strategy is going to be revamped every few months because at the end of the day, things change. That's why when people have a five year plan and it's very specific, I guarantee you that that's a throwaway deal. You have to be able to say, okay, here's this emergent competitor over here, or here's this emergent technology, or there is white space that's emerging kind of in an adjacency. To us. The bigger issue is going to be identifying how are you going to direct your resources? Is this worth getting? Is something opening up that's going to be early on, that there's going to be a whole lot of revenue associated with it, or is this something that is an easy thing to go do, but then it's just a little add on to what you're already doing. So you're always having to look at the multi dimensional aspect of all of that and questioning that. And then for instance, in oil and gas, we started off as a purely oil and gas company and we made some acquisitions to move into a little bit of the power analytics and some things like that. So today we're looking at a lot of different analytics across the whole energy spectrum. Where are we going to go move there? Well, right now our focus is on a lot of things that we're creating out of our own databases. And an acquisition we recently did that was in the ESG space. Is that something we would have foreseen three years ago? Well, absolutely not. The world changes and you've got to be rational about how those things are changing. And how are you going to go out there and deploy your resources so that you're going to get a return as quickly as you can and that there's a good return on the things that you're investing in.

It's important to revamp your strategy.

You don't want to be buying buggy whip manufacturers looking longingly back at the days of buggy whips in the world when which the motor car is coming about.

How do you approach that? Where does that fit? Is that something that just stems within your current CEO? Is it led by the strategy person? What do the mechanics look like to make sure that there is periodic update and review on the strategy?

I think what's pretty good about at least Invaris and I'm not sure about other companies, but Invaris has a consulting arm and it's a very well respected consulting arm. It does consulting for governmental agencies, for corporations and what have you on energy itself. Across the spectrum, we have a diverse set of outlooks or viewpoints with regards to our consultants. All of our consultants are best in class, they're world class and we're able to go have kind of, I'd say honest discussions about everything that's taking place. And no one has got their finger on the scale too heavily to try to force things. And frankly, one of the benefits of Inverus today is that we're changing. The energy world is changing rapidly. I'm an oil and gas man. I understand oil and gas, absolutely. And I am an advocate for oil and gas. But my finger's not on the scale of saying we've got to support oil and gas at the expense of everything else, because that's where I came from. And I think there's a real benefit to having that. The whole thing about trying to create a company that's going to outlast you. How do you get your ego out of it? And to that extent, you just try to hire the smartest people that are willing to go that can basically stand toe to toe and have an argument about anything and not take it personally.

Really great perspective. And also you got a great point about the need to be agile in this increasing speed of this market and sort of the pace of keeping up with being relevant. Let's talk about some of the big lessons over your career. I don't know if anything jumps out, but I'd particularly like to hear about a deal that you may regret of doing and what you learned from it.

My biggest regrets are that I have always had a weak point for geniuses. And there was a couple of deals that we did early on and in which they were genius led little organizations and the people running them were truly little geniuses. And what I found typically was geniuses left to their own devices, they create crazy towns. And the reason is, is because rarely are Geniuses great at everything. The reason that they're geniuses is because so much of that capacity is concentrated on some certain aspect. And the problem with geniuses is that sometimes they feel like they're smarter than everybody at everything. I think that was really a benefit of me growing up was realizing that and I'm not nearly as good at a lot of things. I had an early boss that told me, he said, alan, you need to surround yourself always professionally with people that are great at stuff that you're not great at. So that way one plus one equals three. What you don't want to do is you don't want to spend all your time trying to be great at stuff you're not great at. Figure out what you're great at and then go out and do that and then surround yourself with people that are good at understanding that. But what does that require? It requires self awareness. Self awareness about what you know and what you don't know, what you're good at, what you're not good at. And ability to appreciate people that are great at things as opposed to, you know, even my career, my academic career, my career and professional life. I always noticed that people would always judge others based off of what they were good at without recognizing what the person that they're judging was good at. That meant that everybody always was falling short. And I remember seeing, man, I, you know, one of the frustrating parts of life is going through life realizing that if person A could have gotten with person B and both of them had been self aware, they could have changed the world. Instead they chose to just me and the other one and diminish both and not do anything.

Know what you don't know. Yeah, I got another new podcast I'm working on about leadership. I'm going to have to get you on there because that's a whole topic we can extract and take apart on its own. How would we tie that back to the M and A example you mentioned? Here are some of these genius led companies. Was that the deficiency that sort of not self aware about the weaknesses and areas that need to be developed.

It's these people that have very self destructive tendencies. I remember I was in a Vistage group one time. We had a very smart guy was running this one company was a, let's say was a consumer company that they had all sorts of deals over there. But he would listen to anybody. He would rather be right than rich. That was a statement that came out of that group. And I remember thinking about that. I was like, that's exactly Right. He was looking for nothing more than validation of his opinions and would reject everything that was not a validation of his own opinion. He didn't recognize what he was missing. He was just happy and comfortable in his own little worldview. And all the efforts that everybody was spending on him to try to think about things differently were completely wasted.

Is there a way to overcome that? Because I'm curious about this. I feel like even within my own company I could identify a personality or two that falls in that category. Is that something that is correctable or do you write it off and just saying that's a personality trait?

I'm not sure. A lot of those geniuses sometimes need to be locked away in a room and work on the stuff that they're really genius on and give them the flexibility to go out there and do a lot of other things other than that. If they are that kind of personality. There's a lot of frustrated geniuses out there.

That's interesting. So would you still look at doing the deal but then consider that and put them in a role where they would essentially not be an influential leader but more of a technical resource?

Maybe it would depend on them and whether they would be willing to go do that. You know, somebody who's toxic in an organization, who's unhappy and thinks everybody's an idiot, they completely undermine everything everybody else is trying to do. What I've always found was the hardest thing to do as a leader is to lay people off. The easiest thing to do is to fire them. That is, if somebody is toxic and destroying everything. And I really resisted getting rid of anybody for a long time. And then the point that I did the first time I got rid of a couple of toxic individuals in our company. And then I found that I had dozens of people coming over to my office and saying thank you for getting rid of them. The message that you're sending is that it's all right to be toxic and all right to be an asshole and all right to destroy value. And why the hell should I work my ass off coming over here when these idiots over here can get away with murder? And here's just set a bad example. It's like parenting. There's nothing different than parenting.

Harder to fire kids though.

Yeah.

Are there any other big lessons learned over your career of doing M and A deals?

Geographical differences are real. And then the real cultural differences when you acquire companies in different countries, definitely different styles that you have and realize that your culture is probably not going to translate completely to that culture unadulterated and so understand what you're going to be able to go do in order to make that work. That is an extra level of complexity, but it's usually worth it.

Yeah, I think a lot of this falls back on culture again. So looking at our business line, the one that's really doing well is this product deal room, project management for M and A. And we're sort of at that 2,3 million revenue mark, doubling annually. What's your advice to a founder like myself in that position? To start thinking about acquisitions. And even in our marketplace, I've noticed there's a lot of virtual data room products that are sort of end of life cycle. They may have started 10 years ago and now it's very commoditized technology and essentially the growth fell stagnant. Maybe they've really slimmed down. Product development I look at as opportunities. But then at the same time the other voice on the shoulder is like this will be a distraction in terms of acquiring this product and moving the clients and sunsetting the technology. I'm curious, like how would you look at something like that being an early stage company?

When you buy a company, you're buying products, you're buying a product line. That's proven that's the big reason you buy something up for something rather than going doing that, you're buying something that's proven that you think that you can scale. But one of the things that I realized even when we were organically growing and I was building products, what I love to do is I love to invent products. But I've made more money across the board changing up my business model than I ever did creating a new product. I don't think enough people think about, especially when you're locked in because you've got X number of revenues in the business model you have think about how you would go out and disrupt yourself and think about the business model and what's that going to require to go out and do that? What are other ways that you can generate revenues or eventually from that? And does that blow the cap off the roof of what you're feeling right now?

So if we look at that perspective of disrupting the business model that's hey, can we be more innovative? Can we look at other adjacencies that really make the offering more competitive and compelling? And again, focusing on value delivery to the customer and enhancing that as opposed to looking at low hanging fruit market opportunities to essentially grab some of the customer lists. Yeah, that's a good view. I fall in the same boat you described earlier. I like to. I think I got the four seed going out there for another product line and they take a while and I'm just like, after two, three years, the seed starts to sprout and it's nice to watch it grow. But I think you're right because the main business line first started, it's already hitting its nice scale and it's starting to produce profits. But then there's a lot more weight there to continue disrupting and making more improvements.

I've always found that people that go out there and look at especially people that sell seat licenses and things like that, they're always like, oh, well, if we sell all these and look at all the total addressable market, they think about that. What's the likelihood that you're really going to get any of that? Our big aha moment was bundling. We were building out all these little discrete pieces of products that were breaking even at best. Our first one was carrying the whole cost of everything, and we were rolling stuff out that were niche products, hugely valuable to the person that needed them at the time that they needed them, but not very valuable otherwise. High cost of sales associated with them because you had to make sure that everybody knew about them and that you need to make sure that everybody knew about them at the time that they had an acute need. Then you could extract the maximum dollars for that. So we had maybe five or six different product lines that were in that position and they were high cost of sales. People generally liked them, but they didn't need them. They didn't need them until they needed them, and then it scratched them back quickly and then they might not need them again. Once we identified what was the common attributes of all those, put them together and we sold them in a bundle, we got people to go buy these not on a seat basis, but on a bundled basis for a low cost. The year that we did that, we tripled our revenues. And that was after we'd gotten to the point where we were maybe growing 30 or 40% a year. And then at that point we tripled our revenues first year. And then it supercharged our growth from then on out.

Wow, that's a great example. We'll have to pick up another conversation about strategy. Yeah, Ali, gotta tell me what's the craziest thing you've seen in M and A?

You know, when big companies have diluted themselves that they're in a space and there's a lot of examples of that where they go out there and end up paying more than it'll ever be worth. The fact that that happens over and over again is a testament to both the abilities of investment bankers and it's a testament to that irrational giddiness that comes about. Those are the things that always surprise me about M and A. There's a deeper aspect about that whole thing about availability of money to buy things that may never actually cash flow pay out, but that's a different thing.

If anything, I'd love to quote you on that. That's such well said. And sometimes I wonder if we're entering a whole new era of where this sort of way we determine value on companies is just shifting. And it's so different now, the way these deals are getting done, because what you're describing is just happening at a higher pace.

Well, it is. And if you look at the whole system of how it is enabled, it concerns me a little bit. The new financial feudalism?

Yeah, big time. It's interesting to see how it's going to pan out.

Yeah.

Alan, thank you so much for your time today. I enjoyed this conversation.

Well, I enjoyed it too. Thanks so much.

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