In this episode, Trusted Counsel’s Evelyn Ashley and John Monahon speak to Senior Counsel, Tom Wardell who joined the firm in early 2018. If you missed the press release on Tom’s joining Trusted Counsel, you can read it here. Additionally, Tom was president and CEO of Versyss from 1988 to 1993. Versyss was a provider of computer systems for small businesses and based in Boston and Los Angeles. It was the largest provider in the United States for the physician practice and credit union industries and one of the top-three providers for the construction and building-supply industry. Tom’s experience with buying and selling Versyss gives him unique insight and practical understanding of our clients’ businesses and the operating problems and issues they face. We’re pleased to share with you our in-depth interview with Tom Wardell.
According to Tom, he and his business partner David knew what they were getting into when they bought Versyss. They had a good sense of where the mistakes were and what the problems were. Upon takeover, they immediately set out to get rid of expensive R&D projects. Next, they tightened operations which meant eliminated various projects and there were necessary layoffs. Lastly, they decided to set the foundation for a larger concept that entailed positioning the company as a “systems integrator.” They managed to turn the business around in 60 days in terms of having it run in the black, and therefore, generating cash that they could use for operations.
Absolutely critical during the process was having a strong executive team. Tom said “You wind up needing people who first of all buy into your vision. Secondly, you need to know how to assign responsibility and hold people accountable without pushing or scaring them.” The business success can also be contributed to managers who created a strong team.
Tom ultimately sold the business because a true systems integration business required an engineering/programming creating thinking group that was different than what the company was at the time. Secondly, his business partner became very unwell. Based on his partner’s illness, Tom thought it best to sell the business instead of continuing this entrepreneur undertaking.
During the course of the podcast, CEOs, business owners, and C-level executives will learn:
- The biggest challenges Tom faced when he bought the business
- What prompted him to start wearing bow ties (it started when he bought the business!)
- How he got the business out of the black in 60 days
- Advice for CEOs or first-time entrepreneurs looking to sell a business
To learn more about the steps that you should be taking inside your business now to make it more attractive for a successful sale visit our dedicated website www.preppingtheprincess.com. Also, be sure to check out our new e-book titled Prepping the Princess: Is Your Business Ready to Sell? Download the e-book here. The e-book is compiled of a collection of conversations recorded over the course of 2018 as a podcast series on our podcast show called “In Process: Conversations About Business in the 21st Century.” The show is hosted by Evelyn Ashley and John Monahon of Trusted Counsel. The e-book is designed to give the enterprising business owner an idea of how to prepare for an exit, even if that transaction is years away from fruition.
Don’t miss a single episode of our podcast show. Subscribe to our show “In Process Podcast” on iTunes and now on Google Play to receive this episode as well as future episodes to your smartphone.
How I Did It: I Bought a Failing Business and Turned it Around in 60 Days
Tom Wardell, Trusted Counsel
(c) Trusted Counsel (Ashley) LLC. All Rights Reserved.
Speaker 1: It’s time for In Process: Conversations About Business in the 21st Century, with Evelyn Ashley and John Monahon, presented by Trusted Counsel, a corporate and intellectual property law firm. For more information, visit trusted-counsel.com. And now with In Process, here are Evelyn Ashley and John Monahon.
John: Our guest today is Tom Wardell, senior counsel at Trusted Counsel. Tom joined our firm in early 2018. It’s been great having him.
Evelyn: Yes, terrific.
John: And, Evelyn, as you know, we’ve been talking about selling the business. And we are fortunate because Tom actually has been a CEO.
Evelyn: Right, a very unusual situation where you actually have a practicing lawyer who actually acquired and repositioned and then sold a technology business, which of course fits perfectly with both our client base and our listening audience, who are always interested in the process. How do I get myself ready and out of this business?
John: Absolutely. Tom’s been just a huge resource for the firm. Excited to have him. Tom, welcome to the show.
Tom: Thank you. I’m glad to be here.
John: Do you want to take our listeners a little bit through your bio?
Tom: Sure, just quickly. 20 years of law practice, after which with a former client then retired, someone whose company I had sold to a major telephone carrier in the country. Together we bought what I always refer to as the computer remnant of that same telephone company’s foray into office automation, which everybody did in the late ’80s. All the telephone companies bought pieces of computer operations and vice versa. IBM bought Rome. AT&T bought NCR, as I recall. Anyway, we bought the computer remnant because it failed for everybody, so then they took it all apart. And we set out to turn this warhorse into a systems house.
Did that over a five-year period. Sold it. I retired much too young to be retired. Wound up in Atlanta, married my wife, and looking for something to do.
Evelyn: What better choice could anyone make but to go back into law practice?
Tom: The practice of law, yes. Mm-hmm (affirmative). I was a walk-on in Atlanta and wound up practicing law again, as I am doing now.
Evelyn: Well, we’re so glad to have you, and our clients are, too.
Tom: Thank you. Yes.
Evelyn: So, Tom, you bought a company that was losing money.
Evelyn: And you were aware at the time that they were losing money when you made the acquisition.
Tom: That’s correct.
Evelyn: So, tell us a little bit about what were the first steps that you took once you got inside that business? You must’ve been of course strategizing and thinking through what that was going to be during the acquisition-
Tom: That’s right.
Evelyn: … but what’d you do first?
Tom: First of all, it was a sale by a public company of a subsidiary. Consequently, they used the auction process, which meant we had six months of diligence as they winnowed down the buyer universe. So, we knew pretty much what we were doing. Plus, David, my partner, he knew the company from the inside out as well. So, we had a very good sense of where the mistakes were, what the problems were. We had been warning the seller that this was not a good process they were running. And we wound up taking it over overnight. So, we knew what we needed to do. And we needed to do two things.
One was get rid of very expensive R&D projects. Every computer company and every telephone company was spending millions of dollars on R&D that was going nowhere. I had another friend who took over one of the big computer companies at the time. And we shared our experience, and he said, “Well, I had to get rid of a $300 million [Skunk Works 00:04:01]. So, that was part of it.
The other part of it was just plain tightening the operations down. And we knew where the differences were, and then we set out to divide our responsibilities. His was to run the revenue and get, now that we had the operation and the core business squared away, to run that as hard as he could. Mine was to clean things up, which meant I laid off 300 people. As I shut these projects down, we tightened operations in certain of the branches, held the captive distributorships that we had. And I say captive because the world was so proprietary at the time. They only sold our products. And it didn’t work if they tried to do otherwise.
Anyway, we managed to turn it around in 60 days in terms of having it running in the black and, therefore, generating cash we could use for operations.
Evelyn: Excellent. You knew what you were going to do. You knew what you had to do. But knowing what needs to be done and actually getting it done sometimes can be two different things. What were your biggest challenges that you faced when you started executing?
Tom: Well, if you are a subsidiary of a major monopoly, you don’t worry about things like cash flow. Cash flow is something that flows by.
Evelyn: Totally removed.
Tom: Yes. If you need cash …
Evelyn: It’ll be there.
Tom: … the mother sends cash. If you have cash, the mother takes it back. We of course had a totally different issue. So, getting people used to thinking cash flow was important. One of the things I did was simply step on the brake with respect to all invoices, that is our own payables. And we found $750,000 worth of working capital, not because people were screwing up necessarily, but, “The power bill came in yesterday, so I’m gonna pay it today.” And I had to explain to people, “Wait a minute, you have bought 30 days just by being a customer.” So, it was that kind of thing.
Getting people to recognize the importance of answering customer calls immediately, being responsive on the support lines. So, those were really just operational things that were required. And it didn’t take long. The hardest thing was helping people understand they were now employees not of a telephone company that was gonna pay for their tuition to get an MBA, but they were employees of an entrepreneurial computer company, as we called them then, but basically information technology.
Evelyn: Right. Well, so, given that kind of cultural change that they were going through, you had to lay off 300 people, but did you also lose other people that couldn’t actually handle it?
Tom: We didn’t lose all that many. We did lose a few who really … Actually everybody that left, left because of the culture change, not because they were unwelcome or felt unwelcome. But they really had wanted to get that MBA. And they wanted to do something else.
Evelyn: They were relying on that tuition reimbursement.
Tom: Yes. It did result in my being very scary. And to this day, I wear bow ties when I wear ties at all because that was the way I got people to take another look. They had reached a point where … I don’t particularly wear jewelry. I would put my watch on the desk. People thought I was clocking the call, the conversation we were having. So, I stumbled on bow ties, tried it out. It worked, and it became a part of the company’s culture. We did everything we could to be as open with people as we could about what we were doing.
Evelyn: So, how important was your executive management team through this process?
Tom: Absolutely critical. And you wind up needing people who first of all buy in to your vision, secondly, know how to assign responsibility and hold people accountable without punishing them or scaring them. I often use as an example the woman who ran our training of the trainers group. And [Sabrina 00:08:23] always described to people when she was reviewing them, “Look, I only have so many resources, and this is what I need from you as one of those resources. And I’m not getting it. This is what more I need.” So, she de-personalized the review. She was able to be completely supportive but at the same time very demanding. And that was very important.
And in the managers, in several areas, we needed strength we didn’t have in the senior managers. And there are some funny stories, which I won’t lard in here, but those people got changed out. And frankly they went back to the mother ship. That’s-
Evelyn: Right. That would make sense.
Tom: Yes, that’s where the jobs were.
Evelyn: So, that’s kind of an interesting … I think communication is something that often gets overlooked by companies, particularly as they’re growing or even as they’re just operating that the difficult conversation, because everyone hears it as, “Whoa, why do I … I gotta lay these people off. I have to do X, Y, Z.” Did you feel that you had the empathy that it took to be the leader?
Evelyn: Yes. It wasn’t a learned … Because you know lawyers are often not very empathetic.
Tom: Yes. No. I mean you need to be able to be very concrete and very empathetic. I mean this is not a pretty experience for anybody. It’s actually I think more demanding on the line managers than it is on the CEO as such. Of course that depends on how big the company is. But at one point, my partner’s wife said, “It really doesn’t bother you to terminate people, does it?”
And I said, “Well, obviously I think a lot about it and how I go about it. But, no, it doesn’t really bother me. And the reason it doesn’t bother me is that because by the time the problem gets to my desk, that person’s work group has already distorted itself in order to accommodate the nonperforming individual. So, it’s a more straightforward process.” And frankly, people usually know that they’re not performing.
John: So, did you have a goal in mind when you bought Versyss?
Tom: Yes. We were gonna do one of two things. We were going to clean it up, turn it into a really high-performing systems house, which is a … The basic business was back office basic computer systems for small businesses, financial accounting, scheduling, inventory control, those kinds of things for small businesses. And by small businesses, I mean businesses for whom there really wasn’t any way to get the kind of data systems talent they needed. They might need one or two people. Well, that’s a dead-end job. So, you’re not going to get the kind of person that you want.
That same business exists today, but it’s not in the cloud, and it’s not on a subscription basis. I don’t mean my company, but they may or may not, for all I know. But I do mean that concept of companies that need that additional IT support, but there’s really no way for them to add it as a resource for which they would put someone on the payroll.
Evelyn: Mm-hmm (affirmative). So, you had it was a fairly sizeable company.
Tom: Yes, it was.
Evelyn: And I kind of call this is cruise ships don’t turn very quickly, yet you were able to get it in the black in about 60 days.
Evelyn: But I know that there was some conversion on the way that things were done. Talk to us a little bit about how you made that decision to do that and how you actually executed it.
Tom: And that was, if you will, I said there were two things we were gonna do. One of them was clean it up and sell it. The other was to create a foundation for a larger concept, which was that of systems integrator. And I’m not gonna go there, at least not right this minute. But the real challenge we were facing we had excellent application software. We actually had superb hardware, but it was small-business hardware. That is, our machines went from four ports to 128, and the 256-port machine was in development when we took over the company.
The world was very concerned at that time. Everything we had was proprietary. We had our own language for everything. Everybody had their own language for everything. And what it meant to the marketplace in general was, A, they would outgrow their systems for which they had paid 50 to $75,000, and they would have to basically throw them away and go get a bigger system. They couldn’t actually grow, they couldn’t scale their systems. Secondly, if they tried to combine systems, the systems didn’t talk to each other, hence the real need for systems integrators.
So, we made a decision, which was not really a finger-in-the-wind decision. We had looked at this very hard. We knew our application software was superb. We knew we would never sell enough hardware to make it worth our while to be in the hardware business, because our hardware was proprietary. So, nobody was gonna buy our hardware who wasn’t also gonna buy our software. So, we needed to turn our operating system towards universality or uniformity, which was the big push going on in the late ’80s, early ’90s.
So, I took the head of hardware engineering for a long walk on Redondo Beach in Los Angeles, Labor Day weekend of 1989 and said, “Roy, we’re going out of the hardware business, but I need your help to get us there.” And what was remarkable was we had 100-plus, 106 if I remember correctly, hardware engineers. What we did was take that operating system and turn it into what’s called an emulator, which meant we could put it down on somebody else … It’s basically a piece of software. But what it does is connect our proprietary language software to the more uniform operating system of somebody else’s.
We built it so that we could go into any one of the majors. We made a decision, we were not going to be available except on one platform. It took two and a half years. We set out to support the bejesus out of our client base. And here’s where I always say you gotta prepare for luck, but you also gotta get lucky. We made that decision Labor Day weekend of 1989. And with the September 30 quarter of 1989, both IBM and Digital Equipment, known as DEC, and they were the biggest providers of computer equipment, had their first loss quarters ever. And the whole universe of users was absolutely scared to death. Who knew what was going to happen?
And of course as things ultimately played out, two of the majors, DEC and Data General, did go out of business. Hewlett-Packard went out of the computer business. And we fortunately chose IBM. So, we were setting out to do an OEM contract where one of the majors would develop a relationship between their operating system on one of their lines of business, and we settled on the what was known as the RS6000 at the time out of the Austin, Texas, operation of IBM. We were able to do that at, it was a right time, right place thing. By early ’91, this project was far enough along that we were sure we were gonna come in on time. We knew it was gonna work. And we put out an RFP.
Well, the majors had figured out that the mainframe business was more or less mature. And they needed to get into the low end-
Evelyn: Personal computers.
Tom: … of the business pyramid. And we represented the biggest possible single customer they could have, not that we were huge, but we had 20,000 customers, and we had between us and our captive distributorships, we were gonna spend a couple hundred million dollars a year on equipment. And we had made it very clear in the RFP it was only gonna be one vendor. So, they were competing with each other but only for us as their customer.
And the situation was such that the deals got better and better. And there are, again, funny stories there, but we don’t have time for those today, because we were, you talked about people turning the boat, we were the mid-sized boat turning, but the big boats-
Evelyn: Were turning with you.
Tom: … were really having a hard time turning. And we had situations where people came into our parking lot in helicopters with a new deal and all this kind of stuff. It was fun for the employees. It was fun for us. So, the deals kept getting better, and then we rolled it all out in May of ’92.
Evelyn: Took a little while for you to get there, though, right?
Tom: It did, yes. No. I mean-
Evelyn: Yes. That would be kind of hard work.
Tom: … and the key and the hard work to be done during that period was to make sure you absolutely had support of your customers. You want to have excellent support anyway, but [crosstalk 00:17:51].
Evelyn: Yes. But they were there and they wanted your software, and that this was going to work.
Tom: That’s right. And we needed to help them through whatever. And it’s the kind of thing where you have to say to your support people, “Look, I know life is difficult, but at 3:00 in the afternoon, I still need you to have a smile in your voice when for the sixth time that day, the first words out of your mouths have to be, ‘Well, before we get started, would you just look behind the printer and make sure it’s on.'” But that was our customer base. These were not people who had-
Evelyn: I think that issue still presents itself with many users.
Tom: Yes, it does. It’s there.
Evelyn: “Has it been charged?”
John: During that long process, did you have any doubts yourself?
Tom: No. I was sure it would work. I trusted these people a lot. I’ve gotta tell you, the hardware engineers we made it clear from the beginning obviously we were going out of the hardware business. We did everything we could to support them. We offered them jobs in other places. But we also told them, “Look, we understand, and you’ll have nothing but good references.” And every one of those people had a job before, not with us necessarily, before it was done. And it can be handled culturally in very good way.
And it really has to do with the kinds of things that you bring to the employees separate from the business itself. We had an occasion in the Los Angeles operation where the employees came and said, it was there during one of the bad Los Angeles riot times, and they came and said, “Could we take the vans in to help,” we had two employees whose families got burned out, “to help rebuild?” Of course the answer’s yes. But that goes a huge long way when they know that senior management is on their side.
I’m fascinated with all the bickering about healthcare right now because David and I decided going in we were gonna do an income-indexed healthcare insurance program. And we did. So, he and I paid more for health insurance than anybody else in the company, and it was scaled entirely according to income, not on the basis of how many dependents you had and so forth and so forth. And it worked. And we used reinsurance. But at one point, we had an extra pod in one of the facilities. And we just turned to the employees and said, “Look, there it is. There’s this much money. If you want a daycare center, you figure it out.”
And they ultimately came back and said, “Actually, we’d rather use the money to support people who have a sick child that comes home so that the babysitter is covered. So, we set something up so the babysitter was covered. That kind of stuff keeps people very loyal.
Evelyn: Yes, completely committed, yes. Well, plus the other side of that is if I think that Roy the head of engineering, while he was told there was a term associated with this likely or he had to change what he did, on the other hand, the next couple of years had to actually be pretty interesting.
Tom: Oh yes.
Evelyn: And that’s what engineers are always looking for a challenge, right?
Tom: It was.
Evelyn: Things where changing, so-
Tom: Oh yes. And they came up with something which with I think we figured out we needed no more than two weeks of additional programming in order to lay this sucker down on whoever’s platform we ultimately wound up choosing. And yes, it was very interesting. And for what it’s worth, the experience for us was a true partnering experience. And that’s what we were insisting on. We got very good pricing from everybody. But IBM was the one that came in and put together an integrated program with us. I went over to Poughkeepsie several different times because this was the first time they’d ever done a true OEM …
Tom: … arrangement where it said “Versyss” on the front and “IBM” on the back.
Tom: Yes, no, I mean it was a very, very useful experience.
Evelyn: So, revenue-wise, did this really massively bump your revenue over time or how long or …
Tom: No. I would say … That question winds up having two different answers. One is no. It allowed us to expand our business but not super dramatically partly because we were the biggest thing in our particular vertical-
Tom: … industries that we supported at the time. But the other was because of the ways in which pricing changed. So, that’s the yes part of the answer, because what we also were able to do or be the first people out of the box to stop bundling pricing. Rolling into that period of time, there had been a pattern of everything got thrown into the hardware price. Meanwhile, the hardware is getting less and less expensive, so people discovered, “Oh my God, we gave away the support. We gave away the training. We gave away the maintenance.” And so, people found themselves stuck with these things that-
Evelyn: With the cost of having to-
Tom: … were supposedly prepaid.
Evelyn: … yes, to do that over the future.
Tom: Yes. So, the yes part of the answer is we unbundled pricing. So, our support contracts were real, and they had lives to them. Our various levels of service contracts same thing. We had the same struggle getting people. They would pay for training and then not take it. I mean that’s still a problem in the industry. So, that part was a yes part. And that continuing revenue stream became a very important part of life when we were selling the business. I mean you got a five-year service contract that somebody signed up to. It’s like having a five-year lease on a building. That revenue comes in.
Evelyn: Right, very consistently.
John: How was the unbundling met? Was it immediately a success, or did you have to go out and educate people?
Tom: The way you handle any change in a price structure is through your sales force and through the commission structure. So, customers weren’t necessarily … They were definitely paying less for the hardware and more for these other things. But you sell the value and they get it because the support became more and more and more important. On the sales side, we made it worthwhile to the salespeople to think of these things as unbundled and to sell them that way. And then you roll it out and you wait and see.
And it wasn’t too long before I got a call from the branch manager of our biggest branch, who had a young salesman, a new salesman in there, and he, “Tom, I think there’s a mistake in the commission structure. Young John here has figured out that if he sells the hardware in this quarter and the software and the maintenance in the next quarter, he makes more money,” to which I had this dual response. Part of me in the back of my brain is saying, “Thank you, Jesus, for John.” And the other part of me is saying, “Gee, Hank, let me look into this.”
So, four hours later, I called him back to say, “No, that’s the way it’s supposed to work.” And of course it went through the sales force like a gas fire. So, that’s how we took care of it on the [crosstalk 00:25:32].
Evelyn: Because a good sales force always reverse-engineers the commission structure in order to understand how they make the most money.
Tom: That’s absolutely right. And that’s the way you want it. Yes.
John: So, who were you reporting to during this time? Who were your constituents?
Tom: I guess I would say collaboratively with my partner. It was a captive board. We didn’t have outside … We had outside investors, but they were all people who had known the company, and we didn’t have a private equity firm or a venture capital firm or anything. And then our major financing was entirely a working capital loan from the beginning, from a commercial lender. So, they had no seats on the board or anything like that.
And I guess I would say David and I reported to each other. That was pretty much the way we ran it. We would have dinner together two, three nights a week and go over, “Okay, where are things, and where are you going? And if you’re gonna be in the U.K., then I need to be in Boston. But if I’m gonna be in Los Angeles, you need to be in Boston,” that kind of thing. So, yes.
John: And after you guys got it in the black, which was pretty quick after you acquired it, was it pretty linear progression, or did you have-
John: … any significant setbacks?
Tom: No, I would say it was pretty linear. Yes. But again, we knew the business we were in, so we knew how to energize the sales. And the fact that we were going to be more uniform or prosaic, if I can put it that way, i.e., we were gonna be on an IBM platform, that ultimately became a big deal for the customers because now they felt safe. They always loved our software. They knew they didn’t have to give it up. They knew they could count on the same support people. And they would still be bringing up the same system they were used to. But now, it would be on a platform of a company that they knew was selling hardware to everybody in the world.
So, that actually did become a plus. But it didn’t start out that way. Starting out, we just supported people and told them change was coming and they would be happy.
Evelyn: Why did you make the decision to actually sell the business? And was that a decision?
Tom: It was-
Evelyn: Or did it present itself?
Tom: Two things really drove the decision. Both things operated together. I indicated that we had thought that once we had this stabilized and profitable, we might use it as a platform from which to grow a systems integration business. As we came to that … Well, let me back up just a moment. There’s nothing better than buying a non-performing subsidiary from a company that has the Earth to spend building it and then can’t run it, because we had a footprint. You couldn’t build the footprint that we got for virtually nothing. 27 or whatever it was local offices all across the country. You pick a major city, we had a branch there. You couldn’t afford to do that. So, that was part of the foundation that we anticipated.
But the true systems integration business required an engineering/programming, creative thinking group that would’ve been somewhat and in some cases quite different from the group we had. The group we had, of employees, were those who felt most comfortable with a system that they knew and they understood, whereas we’re talking about on the systems integration side having a bunch of real hotshot troubleshooters. And-
Evelyn: More like a consulting business in a way.
Tom: It is very like, except we would’ve done it with people more engineering-oriented, more hands-on. And we became concerned. Here were these people who had really given us all this time, energy, support, belief in us. We made a point of papering the place with options. So, every employee had a participation in this thing we built. And the only way to do the systems integration business would’ve been to put in parallel another entire operation. Most of the people who had made us successful on this side really couldn’t have undertaken roles in the other business.
So, we found ourselves saying, “Wait a minute. We’re gonna undo a lot of what we set out to build here. We’re gonna create competing cultures in order to make this happen.” And the second thing was that David was very unwell. And ultimately, he died before we were able to complete the sale of the company. So, it became important for me as a person for his estate to not ask them to wander into yet another entrepreneurial undertaking but that we would basically sell it. And frankly, I was tired. I mean …
Evelyn: Yes. It was pretty intense I’m sure for …
Evelyn: Yes. Did you hire an investment banker to do the-
Tom: We had used an investment banker to help us on the finance side. We negotiated our purchase ourselves, but we used an investment banker when we put the financing in place. So, we returned to that same investment banker. And I had used … I mean we all know that before I did this, I had done transactional stuff, and I made a point of using an investment banker I had used several times before as a lawyer so they knew me, they knew David, and they-
Evelyn: And you knew them.
Tom: Yes. And we all knew each other.
Evelyn: It was a good relationship.
Tom: Yes. So, they were out there.
John: So, what were you looking for in terms of a purchaser?
Tom: Given the circumstances, I don’t want to sound cavalier about this, but certainly David was dead. I wasn’t looking to continue, to have a professional relationship. And below us we had three senior managers. And they all traveled with the company. So, I was concerned about protecting them, but I wasn’t concerned about continuing as a … I didn’t care. I didn’t want to continue as an officer. I didn’t need to be on any board. So, we were basically looking for best price but also best care of our employees, and our … Well, we knew if we got best price, we’d have taken care of our investors. Yes.
John: So, how did you go about finding it? You said you had a banker that helped on the financing.
Tom: The banker found it, the banker [inaudible 00:32:22], yes. I wouldn’t describe … Yes, I suppose I would say there was luck there, but it was more a question of timing. It was just who was trying to do what? And the buyer ultimately our best price came from somebody who wanted our client base. Yes, they loved the fact that our customers loved us and so forth, but they really liked the fact that we had 20,000 customers.
Evelyn: Interesting. How long was the process time-wise?
Tom: Six to eight months, yes.
Evelyn: That was pretty quick.
Evelyn: Very quick.
Tom: It was quick. I think to some extent, we benefited, and I think you probably want to talk about this, from the fact that I had been a deal guy. So, I knew what kinds of resources one needed to put to this. I knew you needed to put an inside deal team together and not have … There needed to be a few people whose-
Evelyn: That were focused on doing-
Tom: … responsibility was to make this happen. The war room was important. And we still used concrete war rooms at that time.
Evelyn: It must’ve been a dream transaction, John.
Tom: And nothing was electronic. The world just wasn’t as advanced that far.
Evelyn: Right, it was paper. Yes.
Tom: Yes. So, there was a real war room. We made it available. The buyer quite frankly wanted this. And that helps. If you can get a buyer that really, really wants your [crosstalk 00:33:48]-
Evelyn: Was there any auction kind of-
Tom: No. No auction.
Evelyn: Or it was just one buyer?
Tom: It was a shopping thing, but not an auction in the sense … I mean everybody knew this was gonna happen. So, within the industry, that was understood. But it was not in any public sense an auction. The banker had the book, walked it around, and-
Evelyn: And this was the best [crosstalk 00:34:11].
Tom: Yes. And we had been approached many times both to go public and to sell the company. It just hadn’t been the right time. So, with everybody knowing our project, essentially the first conversion cutover had happened and was successful, and David was dead, knew that something was going to be done.
Evelyn: It was gonna happen.
Evelyn: You go through the process. You did not stay. At all, or you were there no time?
Tom: No. No, I didn’t. I was-
Evelyn: Wow, free and clear.
Tom: … actually gone before it closed.
John: Before it closed?
Tom: Yes. I had worked very closely … Being a CEO is a lonely spot. And I had worked very closely with a fellow who had built his own company and sold it several years previously, and I used him as a consultant, not to solve any particular problem, but of somebody … I took him to dinner every …
Evelyn: It’s a good … Yes.
Tom: And I paid him for his time.
Evelyn: You need to have someone to talk to.
Tom: And I just threw the spaghetti on the wall and said, “Okay, George. Here we go. This is what I’m coping with this week. What do you think?” And I don’t have any sense, but I certainly had a sense that George would handle it just fine. And he had come in prior to that time and ultimately then ran the company.
Evelyn: Stayed, okay.
Tom: No, he didn’t stay.
Evelyn: He did stay either.
Tom: No, he didn’t stay either. Yes. Nobody stayed, yes-
Evelyn: That’s interesting.
Tom: … except the three senior managers.
Evelyn: Okay, well, I think we need to make it clear to our listening audience that that’s pretty unusual now.
Evelyn: Sellers usually stay for some amount of time.
Tom: And that’s an important thing for people to recognize because in addressing if I’m going to stay, what do I need? I remember when my brother sold his company and he called me, he said, “Okay, they are insisting that, A, I go on the board, B, I sign a three-year deal, and, C, I be the troubleshooter and go where they want me during that three-year period. What do I need to insist on? And, i.e., what kind of a parachute and under what circumstances do I need to negotiate so that …” And he, after two years, actually did pull his rip cord and-
Evelyn: Was able to go.
Tom: … was able to go. Yes.
Evelyn: Which is usually what the … Typically it is what a seller wants.
Tom: That’s right. Typically the seller is looking for the continuity of the senior management group.
John: So, what were the things that you think you did the most right at Versyss?
Tom: Well, I’ve probably already talked [inaudible 00:36:38]. I put the culture piece at the top. I would sit on the corner of my desk, shirt sleeves, sleeves rolled up just I am now. I did have a bow tie on. And I would sit on the front of my desk every Friday afternoon and do a video that got shipped to all the branches over the weekend that would say, “This is what we did this week. This is how we’re coming on the …” I’ve forgotten what we called cutover project. “And these are the people that really made huge contributions this week.”
I made a point of sending handwritten welcome notes to every new employee, which across 1,100 employees can take some time, but you can do a lot of that while you’re watching the news. And the cultural stuff I think was important because these people had been hurt. The people who were cut were not surprised to be cut because they’d been put in dead-end projects on which a lot of money was being spent. So, we helped them find jobs. But there was uneasiness. These people had known if you’re working for a losing operation, you know it. And it’s scary.
And the other thing is obviously having made the decision at the right time about getting on to somebody else’s hardware platform, unbundling pricing, setting up the purchase of software in a totally different way. We were the first people to use seats instead of ports as a way of pricing the software. So, if you needed to upgrade, you added four more seats, and you paid for it. So, those were the things I would say I did best that I feel best about, yes.
Evelyn: Anything you wish that you had done differently?
Tom: Yes, mm-hmm (affirmative). Definitely I think this is probably something that every person who’s running a growing business confronts. Doing deals is fun. And I would definitely have not done the early acquisitions that we did when we did them, not because we paid too much, but because we needed to be entirely focused on what we were doing. And merger integration, i.e. after the fact, is a thing unto itself. And you’ve got the whole culture [inaudible 00:38:59] and all that stuff that needs to happen.
Evelyn: Well, it’s a cultural change for you, too.
Tom: Yes, exactly.
Evelyn: There had to be challenges and-
Tom: So, I would not have done that as soon as I did. I probably would have pushed earlier, harder, faster to make sure other people, everybody knew everybody’s else’s job and how their job fit into the overall scheme. We eventually got there, but it was not something that became top of mind as soon as I wish it had.
John: Mm-hmm (affirmative). Do you have any advice for CEOs or first-time entrepreneurs?
Tom: People looking towards the possibility of exit you mean?
Tom: Yes. First of all, I would say don’t forget culture is everything. Number two, don’t play the CEO card any more than you have to. Everybody knows you’re the CEO. Use the word “we” over and over and over again. Yes, the vision comes from the top, but if it’s gonna work, it has to be everybody’s vision, our vision.
And I guess the other thing I would say is two things. If you’re gonna sell your business, recognize how important having the diligence material organized and available is. Make sure somebody’s in charge of that, somebody from within the company. We as lawyers run war rooms all the time, but we don’t know. We can give people a diligence list as to what they need, but we don’t know what that means because it’s their company.
And I recommend this every single time. If you can find within your business a way of creating what’s called commonly an annuity stream, that is a repeating, like I described the support contracts, that’s where the value lies. Why? First of all, it assures a buyer that there is a continuing stream of income if they just run it right. And secondly, it also assures the buyer that the customers expect to stay for some period of time so that you can have a better … Frankly, you can get a better price, but you can also have a better comfort level with them, with the buyers coming at it.
Evelyn: And it also increases the value of your business.
Tom: Definitely, absolutely. Yes. It really does. Not every business provides that, but it’s surprising how many do if people will look at it that way. And we are all participants in a document production program called Word that at the time it took over the market took it from a company called Word Perfect, which had the better product, but Word Perfect had bundled all the support into the price of the product, which meant the only way they could support themselves was to continue to sell, sell, sell, sell, sell, whereas opposed … And when they tried to reverse it and charge separately for the support, it was too late. The customers got really upset because they figured they’d bought that already.
Evelyn: Yes. If you’re gonna move, you gotta go fast.
Evelyn: This has been great, Tom.
Evelyn: Really, really good. Thank you so much.
Tom: You are very welcome. It brings back [crosstalk 00:42:10]-
Evelyn: If you’d like to get in touch with Tom and talk to him more about the process of exiting a company, please reach out to him at firstname.lastname@example.org. And if you’d like to hear more about our law firm, please check out our website at trusted-counsel.com. We’ll see you next time. Thanks, Tom.
Tom: You’re very welcome. Thank you.
Speaker 1: This has been In Process: Conversations About Business in the 21st Century, with Evelyn Ashley and John Monahon, presented by Trusted Counsel, a corporate and intellectual property law firm. Are you interested in being a guest on our show? Email our show producers at email@example.com. For more information on Trusted Counsel, please visit trusted-counsel.com.