About the Host
Ryan is an entrepreneur, podcast host of the show Life After Business and the co-owner of Solidity Financial. Having personally experienced the hazards of selling a business, he joined up with his friend Brandon Wood to educate others on the process. Through their business (Solidity Financial), they provide a platform for entrepreneurs called Growth and Exit Planning that helps in exit planning, value building and financial management.
About the Guest
Vicki Raport is an entrepreneur and multi-discipline business executive with over 25 years of progressive experience in managing and directing high-growth, mature and start-up companies in the retail and technology industries. She was the Co-founder, CEO and Visionary Executive at Quantum Retail Technology, Inc., a profitable, high-growth technology company serving the retail industry that was recently acquired by a strategic enterprise software company.
If you listen, you will learn:
- Vicki’s background in business strategy.
- The career change that was the beginning of Quantum Retail Technology.
- How Vicki used skill sets to find the right people for her team.
- The early days of the company.
- How Quantum Retail Technology pivoted into “deployable software.”
- The pros and cons of Enterprise software and what is it?
- The hard trade-offs in business.
- What triggered the sale plans.
- How Vicki and her team planned for the company sale.
- The failed attempt to maximize the business.
- How they bounced back.
- The importance of being intentional in business.
- The team’s goals for the company sale.
- How to hire the right investment banking firm.
- Why the chosen buyer was a good fit.
- How Vicki and her team handled running the company during the sale negotiation.
- The impressive final deal.
- How Vicki’s employees responded to the sale.
- What Vicki would have done differently.
- The importance of hiring the right lawyer.
- How to cope with emotional and mental drain during a sale.
Announcer: Welcome to Life After Business, the podcast where your host, Ryan Tansom, brings you all the information you need to exit your company and explore what life can be like on the other side.
Ryan Tansom: Welcome back to the Life After Business podcast. This is episode 90. Have you ever wondered what a business exit would look like if it was well thought out, if you created a bunch of value, hired the right people and you march towards the plan of what you wanted to accomplish? Well, today on the show we have Vicky Raport who has an amazing story. She and for other partners quit their big box jobs and after a lot of strategic planning, they started a company called Quantum Retail technology that did machine learning and had services specifically for the retail sector. And Vicky shares with us on the show today about how as they were having explosive growth and they were really making a dent in the industry that after five partners having different needs and wants, they got together and they said, what is it that we want?
Ryan Tansom: What is the timeframe? And after three to five years, we would like to have liquidity and then they put all of their muscle into building a valuable business, hiring the right investment banker, going to market and dividing and conquering between operations and then building enterprise value to literally walk out and walk away from the sale of their business exactly the way that they wanted to. There was a lot of bumps and turns along the way, but Vicky describes what she did, what she was proud of, and what you would have potentially done differently, but overall intentionality got them what they wanted. There is a ton of gold nuggets that Vicky shares with us because of all of the different things that she learned along her journey. So without further ado, here's my episode with Vicky.
Announcer: This episode of Life After Business is brought to you by Solidity Financial's growth and exit planning. Their proven process gives you clarity on all of your exit options and how those options impacts your financial success, timing and future happiness. Sell your company on your timeframe to the right buyer at the price you want.
Ryan Tansom: Good morning, Vicky. How you doing?
Vicky Raport: Great, Ryan, how are you?
Ryan Tansom: Good. We were both just chatting about how we wish we were not in Minnesota, even though we were over Skype and you've been traveling and, uh, into, uh, the west side of the states and you and I met at Palm Springs at the Ernst and Young entrepreneur of the year award. So you have some really cool things that you've done in your past and for the listeners that aren't too familiar with it, maybe just take us back, Vicky. What was the day that you decided to be an entrepreneur and how did that all transpire?
Vicky Raport: Yeah, well, it's, it's pretty funny. I, I'm sure that most people say this, that you don't really just decide to be an entrepreneur. Right. You think about things from a very different perspective, but when you look at it in hindsight, you realized that that was when wanted to become an entrepreneur. So back in 2003, I was an executive at an enterprise software company and it was a large growing, very successful company and quite, it was really looking to be sold. They had brought in a new CEO, they were kind of going through the process of getting the company ready to be sold. Um, it was a public company, but they knew that they were not maximizing the value in the public market and so they were kind of in that mode of, you know, they stopped product advancement and they were kind of cutting costs and it was just the writing was on the wall . And I was feeling like I didn't really want to be working in that reductive type of environment.
Vicky Raport: Um, and so I basically, you know, raise my hand and said I'll take the package and really started to look for something else. I was a VP of strategy at the time.
Ryan Tansom: What kind of business was it?
Vicky Raport: Enterprise software, so it was a company called ReTech, which ultimately got bought by Oracle. And so very successful, large retail enterprise software company sold to the top retailers all over the world. I work, I ran a number of aspects of the business during my time there, you know, ran a separate business unit, which is probably when I really got the entrepreneurial bug, you know, the kind of that internal, it was an in-trepreneur role really, if, if, if you, if you will, and uh, ran strategy, ran product, the development, ran services, and so, you know, I was really very much in the idea of how do you create value for customers. That was kind of my thing.
Vicky Raport: And so when you get into that environment where a company is getting ready to be sold and it's obvious and it, you know, things kind of stop and slow down. I was ready to move on to something else. And so I took some time off. I had a six month non-compete and what we realized at the time when we left was that we really saw this idea of the mass accumulation of data, right? That was coming out of retail, both from a consumer and a transaction level. There was RFID, there was loyalty, there was... Social was just starting to, to, to become something important. Right? But there was really no systems that could take in and utilize that data at such a low level. I mean, everything was really designed to present information in an aggregate, not at an atomic level and so I really felt that there was something there and so when I took my time off, that was really kind of simmering in the back of my mind and in August of that same year - so I left in March of 2003 - in August of that year.
Vicky Raport: I called a number of former colleagues and some had moved on to other jobs. Others were still at ReTech as it was be preparing to be sold and I really reached out to people that I thought diverse capabilities and ways of thinking and my thought process was if I was going to start a company, who would I want to be in it with me? And so much of what my thinking of when I started Quantum was around who do I want to be working with? And so at the time there were five of us in total and for other people and I was living in Breckenridge, Colorado. And everybody came out and we spent three days together brainstorming and thinking about what the future of data in the retail industry looked like and how that information was going to be leveraged to create value. And we came up with a bunch of ideas and we split ourselves up into kind of feasibility groups to do some analysis then and from there, over time, we kind of narrowed our scope to a platform that used what is now called machine learning, right? [Ryan interjects: Way ahead of your time.] Low-level transaction data to drive profitability into the retail supply chain. So that was an August. By October, everyone had quit their jobs, and in January of 2004, we started Quantum Retail and so it's really a classic entrepreneur's story. You know, we saw a need in the market, but I think our twist was that we looked at who do we really want to work with and create our company with a group of really talented people.
Ryan Tansom: That's super cool. So, you know, as far as the partner would or the partners, would you guys all jump in together and contribute your own, you know, whether it was financing or floating your own payroll until you guys actually started making money?
Vicky Raport: Yeah, that's exactly what we did. So we had five of us, we created a company with five equal shareholders, um, we all put in a very nominal amount of money to fund expenses for the first six months or so for the year and we didn't take salaries until probably 18 months into it. And even then, you know, you start out with what's, OK, what do you need to survive. We didn't go from zero to $150,000 or $250,000 a year. We were like OK, what is, what's the minimum that you need? [Ryan interjects: Can I pay for my vehicle?] Exactly. Can you pay your mortgage payment, feed your kid? Right? So we really started from zero and amazingly we actually bootstrapped the company through the duration.
Ryan Tansom: That's super cool. So a couple of questions because I know for five partners, um, what, did you have any concerns about that? And then maybe the second part of that question is how did... you know, what were the different skill sets that allowed you when you said you want to, who do you want to work with? So, and then how did that work? Your ability to determine whether you wanted to partner up with five people?
Vicky Raport: Right. So I'll start with the piece about the skill sets, right? So my background was really in, you know, strategy, but overall business management. I came out of, uh, of uh, early financial background, but have really been running business units and components of businesses through much of my career. A lot of strategy work, a lot of go-to-market work, a lot of positioning. And so I really kind of new finance operations and strategy, if you will. We brought in, uh, one of my business partners was the former chief technology officer, you know, an EE by trade, came up through Accenture, worked as a CTO and heading up development. So he had a real technical background. One of my partners was Dr Linda Whitaker. I'm really one of the top people in the country in retail-related operations research, you know, kind of an ops person, um, from a, from a, um, algorithms perspective.
Vicky Raport: So she understands business models and algorithms that a lot of retail science work. Very, very experienced, very knowledgeable. One gentleman, uh, was to two of the gentlemen were then out of the UK. One of them was a specialist and probably one of the best team builders that I've ever worked with and also really understood the European market and was kind of a services and delivery expert, if you will. And the last guy was really kind of an overall real strategists, deep thinker, you know, guy out of Oxford in the UK, really, really got big picture stuff. And so, you know, it was a very, very diverse group, um, both in terms of skills and perspective and work experience. But we had all kind of met up through ReTech.
Ryan Tansom: What a cool group of people to be able to talk to you on a daily basis.
Vicky Raport: Yeah, it was, and you know, I mean, I, you know, some, sometimes you'll look back and some of the funnest times were before we had a product that we're making any money and just the ideas and the excitement and all of that. So, you know, in uh, in, in, you know, in, in retrospect, right, they were all necessary to create the company, I think. Those, that's those skills. And so I don't think we would've been become what we had if we hadn't had everybody, you know, I would say, you know, hindsight being 20, 20, I'm not a hundred percent convinced we should have all been partners, kind of equal partners, throughout it and it makes, it really makes it... five partners is a lot of partners... [Ryan interjects: A lot of cooks in the kitchen]. So a lot of cooks in the kitchen. But, you know, we, we and we had our challenges and I think some of the biggest challenges come from, you know, over time, people's lives change, right? I mean... you know, somebody has kids, somebody has a, gets married, somebody gets sick and everybody's priorities can start to change over time. And so when you were, may have all been in the exact same place in 2004, things might look different in 2014.
Ryan Tansom: What were some of the things that changed or threw curveballs your way?
Vicky Raport: Well, I mean, you know, I mean I think a lot of it, I guess if you think about, you know, the company obviously went through many of the ups and downs that companies go through, right? You grow, grow, grow, you maybe overbuild a little bit, you got to contract at some point, you know, you start out making no money and everybody has a different tolerance for how much they can reinvest in sweat equity versus getting paid out. Right? So grapple with those as you move along. You know, somebody, one of your partners says, Hey, you know, I can't live on $80,000 a year, right? I need to be making a market wage. Right? And so then you decide do you pay that person more or does everybody get a raise? And can you afford to give everybody a raise? You know, like that. [Ryan interjects: lots of dynamics with five people]. Yeah. The dynamics of do we continue to pay everybody the same thing or do we, we create different salaries based on their position in the company? Um, you know, we made the choice to continue to pay consistent wages across the board because we knew that we- our big payout was going to be at an exit.
Ryan Tansom: Right. On that note. Yeah, I think that's a really good point. Did you guys plan for the exit from the inception or did that transform over the time with the conversations between the five of you?
Vicky Raport: Yeah. You know, I think everybody at that point in time, I mean it was 2004, I think, you know, tech was booming again. Right? And I think everybody's like, goes into this thinking they're going to be a millionaire. Right. So you always think that selling your company is the goal. Right. Um, I don't think any of us went into this thinking we're going to build a company that's going to become a public company. But I don't think we started out with a structure and a thought process around how would we sell the company.
Ryan Tansom: It was just more or less let's build something and think about it.
Vicky Raport: Exactly. And I think that, you know, a lot of people probably think I'll build a good company and then it will be worth something, right? And it's not a bad way to think and it, and oftentimes that works out, but you know, my view and hindsight would be there are many things that you can do that are good for an exit that don't stop you from building a good company. And you should do them. It's not mutually exclusive to think about that very consciously in the, in the early stages. And as you move along and as you pivot your business, which ultimately a lot of people do, you know, at some point in time, even if they're small corrections, making sure that you're continuing to think, how is this helping create value for my business that somebody would pay for?
Ryan Tansom: Well, I think you, you hit on some amazing points there and I, I'm curious, you know, when you think about, you said that a lot of businesses pivot and so one of the things, Vicky, that I see with our clients, people you interview or when I went through is how those decisions that you are making as you're building the business could change depending on how you want to exit and tying those potentially two together. How did you guys, what was your business model and how did you go to market? I'm just curious, was it a product, was it services? And then did you pivot and would you have done things differently from your business model, had you known who you were going to sell to?
Vicky Raport: Yeah, I think um, I would have just... so let's start with, uh, what, what was the business model and how did, how did that grow? Um, so we started in 2004. We had very grand ideas of being a SaaS-based company and as many software companies of that time we... to bootstrap, you basically look to your first customer to what does this first gen product gonna look like? And so we found our first customer, which was Guitar Center, and we, they funded the development of our first product, they had no desire to be a SaaS platform. And so we said, OK, well we'll build it for them. And then we look at every time we, you know, when we, when you do something like that, then you say, OK, build version number one is the Guitar Center version, right? Now, what am I going to do to that to make that generally available to my, to the, to the broader market. And as we were doing that, we got our next customer. And they were like, no, we like what you've got there, right? We just need these other things. And so we built onto that. And so what ended up happening is, is that we continue to develop kind of deployable software versus a SaaS-model software.
Ryan Tansom: Ah, can you define that? I'm just curious.
Vicky Raport: Yeah. So, so to me, deployable software is something that's really designed to be hosted inside your firewall. And we... So our software was mission critical. We were building large replenishment and optimization and allocation systems for the world's largest retailers. So this was a mission critical system. We weren't selling them some little marketing tool. They were, you know, these were multimillion dollar deals with significant implementation because they were deeply connected and at the time people were still very reluctant to have those types of systems in a standalone software as a service environment where we would be doing the hosting and they didn't have that on their servers.
Ryan Tansom: So, uh, you know, when you're... I totally get it. And, was there, was there a ratio between services and implementation? So like labor costs versus software costs? I mean, did you have a balance between the two or...?
Vicky Raport: Yeah, we did and I would say, you know, we probably had more services work than we would've liked, but it was something that they needed a lot help with. I mean these were, you know, people were... One of the good things we did do was put subscription licenses in place. So regardless of where they deployed the software, they paid for it on a recurring basis, which was really important to our business model.
Ryan Tansom: Did you guys intend to do that or did it kind of naturally come out of that and did you, do that...?
Vicky Raport: We intended to do that. That was very, that was a business model structural piece. The other piece would have been to have made the move to SaaS deployment, uh, you know, where we hosted it, earlier. Um, and we wound up doing that later, um, in our, in our life, you know, but I would have, you know, in retrospect I would have forced us to do that earlier, even if it had cost us some of the deals that we've got because it's a philosophical thing about how to create value for that company. And if you looked at where valuations were going at the time, SaaS valuations were so much higher than enterprise software regardless of what you were delivering it or how are you operating.
Ryan Tansom: So I think you, that you just kind of naturally moved into the second part of the question that I was having. So you guys did end up pivoting and it was because of the value that would have been driven off of that for the enterprise. But I think, you know, what's the dialogue, because I think internally with your partners and your clients, because I think what you said, Vicky, is something that a lot of people struggle with were shifting a business model like that to create enterprise value has a little bit of a short end where there it might cost more, whether it's from deals or you're actually investing into the infrastructure because you're shifting your business model. I mean, how did you guys talk about that and was that the goal with the enterprise value?
Vicky Raport: Well, there's two things. One is that that's where the market was moving. We knew that even if customers weren't demanding it today, they were going to need it down the road. That's how, that's how people were starting to think about their businesses. It's, you know, AWS came online, you know, Azure came online. It really started to be obvious that, over time, software systems, we're going to move to a SaaS-related model. And so it was both from a market perspective in terms of what customers would eventually want, and also from an enterprise value perspective of what, what the market was willing to pay - the market was willing to pay for, not customers. So that was definitely there. And we, it, it, it, once you kind of get into this mode that was a big investment for us to do. And so one of the, you know, one of the things that, you know, if I look back, hindsight being 20/20, we probably should've taken money earlier on to fund that.
Ryan Tansom: What would you, what was some of the things that cost money? Was it, um, was it like a data center infrastructure that you're buying out? Or was it, um, moving cashflow?
Vicky Raport: Well, it was, it was never infrastructure. It was all about the investment that would have to go into creating a different software model. And then the business model itself is different, right? You have, you, you know, when we would do transactions, we would make money on our transactions. SaaS businesses are designed differently. They have long tails in terms of um, you know, you need to have recurring revenue. You usually don't make money in your early years and so that whole business model shift was going to cause us, if we couldn't kind of transition it on top of our existing business model, it was going to cost us a lot of cash and with a bootstrap model. You really don't have that cash to just kind of wait for the model to kick in.
Ryan Tansom: I'm just trying to think of from my own experience and maybe for the listeners really gonna be a million dollar deal, you recognize the cash, you know, you're funding your operations by doing that and to shift it where that million dollars instead might be spread over five years where it's, you know, 50 to a hundred grand a month instead of a million dollars, which is a significant challenge for you when you need to pay bills.
Vicky Raport: Right? And I think that, so part of it is just by design how the cash flows into you, but I think the other pieces that in early periods you typically absorb a lot of costs as part of a SaaS program and so you're willing to operate and you're willing to provide services and training and things upfront that go into an initial stage of an implementation as part of an overall business model that may not get you profitability in an early year. But then in the second year, you're doing less and then the third year you're making 90 percent margin, right? I mean, you know, so it's it. You have to kind of look at it as a three year horizon where you're, you're and, and if you do it successfully and you get a lot of customers in the beginning in the market, you lose a lot of money. So it's a really hard trade-off. It's very difficult to make that move. Many companies take years and years to do it.
Ryan Tansom: So as you guys are going through this, and I can only imagine that when you throw five partners and different needs on top of that scenario, you know, where did the conversation start going as you're, you know, striving to change the business model and increase enterprise value. What was the dialogue with the five people? Was you're triggering event in the marketplace or internally that said, you know, what we need to potentially look at what we want to do with the ultimate vision of the business and the exit.
Vicky Raport: Yeah. Yeah. So, you know, this was so, you know, I can't pinpoint it exactly, but I mean from a timeline perspective, I think we knew that we were gonna we were starting to hit some limits to our growth related to our bootstrap model and that we did want to kind of make this migration, if you will, to a new platform, new, new way of delivery. And we kind of did some exit planning. So you would understand this, right? Your background and this is all about what you tell people, right? Um, we actually did a pretty critical strategic planning process in 2011 and looked at these things and mapped some of these things out, and in conjunction with that we went through an exit planning process. Um, and so each of us had individual things and we got together and looked at things as a group - we worked with an outside consultant who helped us with that. And what we came to agreement on was that we knew that we wanted to seek some type of liquidity event or exit in a three to five year horizon. That that's kind of where people were.
Ryan Tansom: And then when you get, um, I'm curious because I think a lot of people, a lot of entrepreneurs, the kid think in terms of, you know, I'm sick of being leveraged. I'm sick of having this all my eggs in one basket. You know, when you guys... outside of the financial liquidity that I think a lot of entrepreneurs want to strive for, were there other things throughout this process that you guys determined that would be important table stakes for you? I mean, you got, especially with five people with five different, you know, ideas of how this baby that you guys have all built together. It represents them, whether it's the legacy of the software code, the culture, all those different things. Did you have other ways that you layered on all the different other variables that could be important in creating that liquidity?
Vicky Raport: Well yeah. There was really kind of two, two axes to the right. One is are you mentally and emotionally ready to leave the business? And the other is, are you financially ready to leave the business? Are you going to get what you want out of it or what you need, from a financial perspective? And then are you ready to let go of this. And that goes back to, are you in the role that you want to be in? Right? Are you, you know, do you, do you, are you still excited about what we're doing? Are you enjoying this right? Are, do you, do you view your time here as an opportunity cost versus, you know, are you thinking, "Gee, you know, I could go out into the market based on my experience now and command a much higher salary" or you know, w what, what is your personal horizon? And so with five partners, everybody was in a different place.
Ryan Tansom: No kidding.
Vicky Raport: And what it led us to be to say was, is that we aren't ready to sell because as a group, we were kind of all over the map, but over this time - and we felt that there was more upside to the business and that was a really important piece. Right. And so we thought that within that time period we could lay out a framework that would allow us to do some things and we made changes to our rules in the business. We, some actually... a couple of the founders left the business on a day-in and day-out basis. They didn't leave their stake in the business, but they went out to go do other things. Yeah. And so, you know, we did, we, you know, people were flexible in terms of saying, you know, not everything, Quantum isn't going to give me everything I want right now. I'm not ready to walk away from my investment in it, but I'm ready to go do some other things. And so we developed, you know, uh, we expanded our management team, we did some other, you know, interesting things. Um, I think we really looked at that timeframe and saying, now, intentionally, what are we going to do to maximize the value of the business over this time?
Ryan Tansom: I think, you know, just kind of hearing it and um, I'm assuming the experience that you had is that priorities shifted and you guys did some very intentional things, like the intentions were there is what I'm hearing. And when you guys were thinking about liquidity, because was it like you, you had mentioned that, you know, you weren't planning on going and doing an IPO. So what were the different exit thoughts or buyers or if you had to have started formulating some sort of ideas behind that. And then did those precipitate some of the strategies that you were implementing?
Vicky Raport: Yeah... So really, you know, a couple of years we actually went in 2012 as part of this process, went out into the market to get an outside CEO. We actually, we actually identified that maybe one of the things we need is to bring in somebody from the outside, you know, we had grown the business, we, we kind of, you know, all had a hand in it and maybe we need somebody who is really kind of taken a company to the next stage and, and helped them exit and bring them in and kind of let them lead us down this path. And they, that the person we brought in new that this is where we were going. We were seeking a liquidity... to maximize the value of the company for a liquidity event over three to five year time horizon.
Ryan Tansom: One question on that, too. I think if you're, if you're familiar with traction? [Vicky interjects: Yeah, very familiar.] Then you know, there's this whole visionary integrator and then you got the five owners, which I think is very unique how you guys determined that you can be an owner, but you don't have to work in the company. Then there's this whole question that we've been exploring and it's how do you hire this integrator or the visionary, these different roles. And then the, I think a lot of entrepreneurs get freaked out because if you were to say what you just said to someone that is the caliber that they, that you need for this, what are they going to say? I want equity or I want something. And how did you structure this where you can align all the five different partners with someone that can actually do this? Was it salary, you know, stay bonuses, Phantoms... what was the structure?
Vicky Raport: I'll give you the structure and then I'll finish the story, because it's actually kind of an interesting story. So the... So we brought in this outside CEO and he was given a very nice salary and a bonus plan and um, stock options and everybody in our company had options. So, I mean we, we had, we had options from the onset. So we always gave, you know, everybody in our company who, you know from the administrative assistants, you know, up through executives, had varying levels of equity that we, we gave as options. And so, you know, by the time we sold the company, probably somewhere in the neighborhood of seven or eight percent of the company was owned by, by the, by employees or former employees. So this person was given a very nice package to come in with the mission of maximizing value for this liquidity horizon.
Vicky Raport: And it was a real challenge. That's... that was at the time when we said, OK, this person's going to come in. A couple of people said, hey, you know what, I'm not interested in working for somebody else, but we think this is the right thing to do. I'm going to go do something else. And so time ticks by and it's coming into 2013 and this guy isn't, isn't moving the needle the way we need him to. And so we gave him time. We let him bring in different management. We, you know, we did a lot, made a lot of changes to the business and he really wasn't moving the needle the way we needed him to, and so we actually made a call two years after end of the process or close to it to say it isn't working out, we have to part ways, and at that point in time we said we're gonna, we're gonna get the company to sell it ourselves.
Ryan Tansom: So did someone come in and like we did one of you take over the CEO role then?
Vicky Raport: Yeah. So, so the, the people who had left the business came back. One of my partners, Chris Allen, took over as the operational CEO and I took over to lead the process for the sale of the company. And so what we did is over a kind of, I would say six to nine months leading up to us initiating a process. We totally buttoned up the ship. I mean we went out and secured major contracts. We landed a couple of new clients. We, you know, got our cost structure in order, you know, we really kind of clamped down and said this is, this business needs to be operating like it's creating value. Right?
Ryan Tansom: Is there anything else that you did to, to, to be, to take your words, to create the value? You know, so you got, you cleaned up the financials, were there any other specific things that you did that maybe he didn't do or he did, or somewhere in that, you know, building the value that you really thought was a good idea?
Vicky Raport: I'd probably, our biggest, the biggest thing that we did was, is we went in with one of our major clients and renegotiated a five year contract with them which was a huge contract. It was over $50,000,000 and you know, it should have been done long ago. Um, we, we, we brought in a CFO who was a transaction CFO and we, you know, we, we had done a lot of planning from a business perspective ahead of time, right? So for example, we have fully-audited financials back to 2008 when very clean HR records. We went through a process of making sure all of our key contracts were secure prior to going into the market. Um, we made sure that our financials and our ability to predict what was coming down the road from a, from a revenue forecast perspective and a cash perspective was 100 percent sound so we could at hit or exceed our numbers that we were positioning.
Vicky Raport: We made sure that we had all of our key positions filled going into that process. And so, you know, I think that the, the CEO that we hired really thought that he was going to come back to us and say which he did say, hey, we need to go out and just get equity and you know, this is what I think we're going to be able to get and this is probably what you're going to have to give up. And it was like somebody talking who wasn't an entrepreneur, right? It wasn't his business. He was like, yeah, you know, I, you know, I, I think this is what you should do. And it was, it was a bad answer. You know, we could have sold the business two years ago and made more money than that. And so we really went through and did a big clean up sweep.
Ryan Tansom: So did you guys have a target dollar amount that you... A couple of things and like you know exactly what you got... cause the reason for my question is you guys have a very strong team that you had a lot of strategic thinkers and so I think there's a lot of intentionality of what you guys were doing, which is awesome. So who were you planning on positioning this to sell to? And then w, you know, was it a dollar amount that you guys are going for the business or was it a net dollar amount per of one of your or five partners or you know, what were the benchmarks that you were striving for?
Vicky Raport: Um, yes and yes. You know, a lot of this was about... and we were very intentional in our process as well. And so we, we said here's what we think the business is worth based on our revenues and our multiple of revenues. And, you know, looking at, you know, the, the things that we think the market that has to bear, um, is this something that everybody feels comfortable with? And people were like yes, you know, if we can exit within a year and get that amount, we feel pretty good about that.
Ryan Tansom: With them being comfortable. Was that when you say, you know, within a year, does everybody intend completely walking away or was it, you know, was that part of that?
Vicky Raport: We didn't know. W, W we, we went through our process. We went through a very rigorous process of finding and uh, we worked with an investment banker and they were good. They were specialists in selling companies of our size in the technology space. They weren't kind of, "Oh, if we don't sell you then we can get you some equity or we can get you some debt financing or whatever." These guys did like 70 transactions a year. They were, they were, this was what they specialized in. And they knew everybody in the market place that we would want to have access to. And so we worked, first of all, we interviewed, we talked to 20 investment banking firms, interviewed six and got down to this one because you know how it is when you have a firm, somebody's always calling you to say, "Hey, do you want to sell your company?"
Vicky Raport: You know, we had a list, a mile long of people who said that they wanted to talk to us, but we quickly went through and narrowed it down and got the group that we wanted. And during that interview process, we asked people to value our company, how would you value our company and who would you position us with in the market? And these guys came back with the right answers in terms of how we thought about our business, how we felt the market thought about our business and a range, right? Nobody says, "here's the number you're going to get." They give you a range of what they thought that they could get in the market place. And we felt comfortable that if we were within that range, we would hit the numbers that we felt we wanted as individuals.
Ryan Tansom: Yeah. Along those... because with that many people, you're - which is awesome - you're getting some serious feelings and you're getting a read on the pulse of the marketplace, too. You know, did the, how did your visions or perspectives of the potential buyers change? Was it private equity? Was it, you know, actual clients? Was it, you know, strategic partners? What was the kind of the spectrum?
Vicky Raport: Right, well we have like three levels, right? Um, but our first choice was a strategic. Was finding somebody who felt that our, our product suite fit into their model, right? The second were like PE and financial buyers if you will. And the third was somebody who maybe wants our technology to take it within themselves and kind of take it out of the market. The third level, we really didn't go anywhere near. I mean, to us, that was maybe if one of our customers wanted to buy the technology and we really didn't want to go down that path. So we didn't spend a lot of time on that. So we we went into the market with a full process around strategics and PEs. We did about, we did management calls with 30 to 40 companies and we had management meetings with seven companies and we had offers from three. And we kinda had... we had offers from a strategic, we had an offer from a financial buyer, you know, who was really just kind of doing a calculation on a napkin and say, "this is what I'll pay you."
Vicky Raport: And then we wound up with, we wound up going with somebody who was kind of a hybrid of that. Yeah. So, um, the company that we wound up going with was a company called Versata. I don't know if you know who they are. Um, yeah, they're, uh, there's a company actually company called Trilogy software out of Texas. Austin, Texas. And it's a privately owned company that does almost a billion dollars in revenue a year and it's enterprise software and we were sought as their acquisition arm. And their business model is one of going for customers that have complex products, which we had, you know, machine learning integrated into multi-billion dollar environments, right? And uh, a tier-one customer list, which we had the best, some of the best retailers in the world on our customer list and has long contracts and customers who continue to use their product over a long period of time and that was their business model. So they, because they do a lot of acquisitions, they do a ton of acquisitions, tons, in this space. They had the rigor of a financial buyer, but they saw the value of that strategic perspective.
Ryan Tansom: So many questions. So the, the, what I think is really cool, Vicky, is your exposure in the process and the diligence that you guys took, you know, how do you, how would you because you... to get to that perfect buyer, look at the numbers from the investment bankers on down to calls and I mean to get to that perfect situation, you know, how did your guys as dialogue, as a team and education change over that process? What were some of your insights before you started the process and then, leading up to that, how did, how did things evolve internally as a team?
Vicky Raport: It was really good. I mean, you know, we had all of our team was good, you know, we had smart people, we knew how to position our company and talk about our company and every time you meet with somebody you refine that pitch. And so I was, you know, I really managed and led the process, if you will. But then Chris, who was the CEO really came in as the guy, you know, he and I tag teamed almost every management call and you know, he was there as the CEO of playing the lead, pitching the company. I was there, somebody who really understood kind of all the backgrounds of everything. And he knew all that, too, but we had two people at the table so they didn't think it was like a one man band, right? And uh, you know, we really, I think a big piece of this was we divided and conquered.
Vicky Raport: We said the biggest thing to hurt our valuation or help our valuation is the performance of the business during the time that we're selling the business. And a recognition that this could take a year to do. We said these are the people who are going to be working on the transaction and the rest of you guys have to execute. We cannot miss a step. And so we really kind of divided the team up, you know, it was Chris and I and then we had our CFO who was, as I said, as a transaction expert and our VP of strategy and we focused on anything that had to do with the transaction. Our VP of sales, our CTO, our, um, support people are services people, they had to make sure that that business ran. And so, you know, Chris probably spent 80 percent of his time making sure that that team was running the business and maybe 60 percent. All right. I take it back. It varied, right? And probably 30 to 40 percent on the transaction. And I think that was one of the smartest things we did. I think that had we, asked only one of us try to lead the transaction and run the company, it would've been very easy to trip during the process.
Ryan Tansom: And or suffocate yourself because it's so much work.
Vicky Raport: Yeah, I mean it is an incredible amount of work and think nobody, everybody says that, but you don't realize that until you go through it, right? it is and it's stressful, right? I mean everything that you're doing is so important. It's like the most important sales process in your life and you know and it's your baby and you take it personally and you care about the people and you're half the time you were like schizophrenic because you're trying to run a business and you're trying to sell it at the same time. So it's a challenge. But I mean that was one of the great things about having our, our team was that there was more than one of us to bear that burden.
Ryan Tansom: I think it's extremely important what you said because I think a lot of entrepreneurs try to do this themselves and or what they- what happens, because you guys have so much intentions that a lot of people get an out-of-the-blue offer and they get so much... they get romantic around being courted and they don't go- They miss this entire process that you guys did. You know, shifting more into the deal structure. How was it structured? Did you guys realize... I mean, did you guys at negotiation get more clout because of how much work you've done and was it, you know, cash up front, was there earn-outs involved and you know, what was the kind of the after effect with the employees?
Vicky Raport: Yeah. Yeah. OK. So, so, so deal structure is very, very interesting. We actually, we had an incredibly clean deal. Incredibly clean. Like I tell people what this deal was, you know, and you're going to hear it and you're going to go, "oh my God, that was the cleanest thing I've ever seen." We actually had a better offer. You know, we, we have, as I said, we had multiple offers, we had two competing offers and one of them was kind of like, that was so attractive, but the one that was... So we had two offers. One, one was more than the other one and it wasn't like orders of magnitude more. It wasn't like five times as much, but it was more. To a number that would be important to us, but it just had hair all over it, right? It had, oh you got, you're going to have to loan us the money to buy the company from you and there is an earn-out. There's all this stuff has to go into escrow and warranties and rep are there are like lasting for a lifetime, and we looked at it and said, you know what, the number is a great number, but the deal is a bad deal and the other company, Versata, who ended up going with was all cash, no earnouts, limited reps and warranties and it represented the cleanest deal with the highest likelihood of closing at the agreed upon valuation. And we actually completed our due diligence in 45 days and closed for exactly the term sheet.
Ryan Tansom: That's amazing.
Vicky Raport: Yeah, I know! And and there was no earn-out, limited reps and warranties and no employment requirements. They asked. They asked people to stay, but it wasn't a requirement of the deal.
Ryan Tansom: Why was the two different offers.. Why were they so different?
Vicky Raport: Because I think the other company was a company that didn't have, they weren't... didn't understand acquisitions the way that Versata did. And they were, it was kind of a, you know, they thought they were going to be clever and you know, kind of a bunch of lawyers. And then they thought that they were gonna you know, they thought that they were going to be very clever and structure it and do all these clever things...
Ryan Tansom: Was that a PE firm?
Vicky Raport: No, it wasn't, it was a software company, but it really, I think that they, they, they got a little too clever for themselves. And, and I think we went back to them and said, you know, so much of this looks attractive, but you've made this deal a horrible. If you want to make the deal look better, we're really interested, right? Because I think some of us, I think having an option to reinvest and take a second bite was not unattractive to people, but we weren't gonna do it at the expense of getting our... Being able to get the fair price with some certainty of getting cash out of the business. And so, um, it, it just, it didn't appeal to us. I think everybody looked at it and said, you know, it, it isn't going to, it's never going to play out the way we want it to. There's too much risk in it. And I think, ultimately, I'm not sure we trusted the buyers.
Ryan Tansom: Yep. Yep, that's a huge caveat. How did you tell your employees once the deal was closed with Versata? I mean, what was the, how did you expose the news?
Vicky Raport: There's a couple of things. First of all, our whole executive team knew that we were selling the company and so, you know, we had, you know, everybody had stock in the company, there was something at stake for them. There was only one person, who was our CFO, who didn't have stock and he had a transaction bonus set for himself. So we, we had structured that, right? Our employees actually knew that we were in the market looking for financing. So we had positioned this that we were going to go into the market and look for investment and I think that... So we, you know, we talked to them about, you know, some of our process and things that we were doing and we didn't say, "oh, there's a high likelihood we're going to sell the company versus getting financing." But they... we didn't set it up that it was a complete surprise and we weren't around after hours.
Vicky Raport: You know, we would have meetings when there were people in the office and, you know, talk about it as something that we were spending time on. Right. So I think, um, what we did tell our employees what we did was we had an all-company meeting. Um, we had people in the office who are in town, we had people overseas and for the people overseas, we had one of our executive people go to that meeting. Uh, and so we tried to have people gathered in a place. Of course there are always a few people who are remote and by themselves and we announced the transaction and at that time we announced a new CEO taking over the company that, you know, we were going to be there for some period of time during transition. Right. And you know, then the uh, the Versata CEO got up and spoke about Versata and, and what they do and how they approach things. And then we had follow-up meetings with the management and with all the teams kind of immediately within, you know, a day or two of, of making the announcement.
Ryan Tansom: What was the size, how many employees did you guys have at that point?
Vicky Raport: We had a little bit over a hundred.
Ryan Tansom: Ok. Yeah that's a lot of people. Was there any major concerns or worries that they had?
Vicky Raport: Sure! [Ryan interjects: Who is Versata? What? Do I have a job?] That was exactly it. I think, you know, one of the things, you know, you look, you know it while it's happening, but you don't really know it. You believe this while it's happening, but you don't really know it until after the fact, which is that people work for people. And so a lot of our, our team had grown up with our company and they worked for us. They worked for the people who founded it. And they had, we had a lot of relationships with people. And so, you know, I think over time they made a decision about whether they wanted to stay with Quantum. And by the way, Quantum is still there, it still exists. We still have all the customers that we had at the time. It's doing just fine. Um, but people made a decision, do I want to work for Quantum or did, was I really working for Vicky and the rest of the team and that... the culture and the environment that they had. Right? And so overtime, you know, quite a, quite a few people left.
Ryan Tansom: Overall. Vicky, do you feel good about the whole journey?
Vicky Raport: I think the journey was amazing, you know, I mean, I could always point to things that I think could have been better during the journey, but I mean I couldn't be prouder of, you know, the people that I worked with and uh, the things that we were able to accomplish and the value we were able to create for our customers. Um, and what I was able to learn and do. You know, it was, it was amazing. Um, and you know, I certainly know a lot of things I'd do differently, um, both in terms of, you know, in terms of my next adventure, my next business, but, you know.
Ryan Tansom: Is there any major things right off the top that you can... it's probably more technical based on your story, but what are some of the main highlights of, you know, even though you feel good is there... or what are the things that you would do differently next time?
Vicky Raport: Let's see. Um, I think I would've been a little bit more intentional earlier on in really trying to think those several moves down the board for the company, right? We kind of knew that we needed to do things, but we really, from that business model perspective didn't make the changes that we needed. I think we would've probably started our strategic partnership strategy a lot earlier. If you believe that your ultimate exit is going to be... your best value is going to come through a strategic, it's really important to start to build those relationships in the market as early as you can.
Ryan Tansom: That's a really good point.
Vicky Raport: Yeah. And, and, and we had them, but we didn't have tight ones, we didn't have ones that we could, you know, we worked with IBM and we worked with Oracle and we worked with Deloitte and we've worked with Accenture, but we didn't have tight relationships so that when the time came for us to think about selling our company, they would look, they would raise their hand and say, hey, we would want these guys know. I think, um, we talked about that we probably would have made our shift to the business model earlier. I think there's structural things that we could have done to create value better in terms of being more intentional about getting more customers and not bigger customers. I think one of the things we did suffer from was a concentration of large accounts. I mean, all of our customers were big customers. And so, you know, we didn't have a thousand customers, you know, we had, you know, 10, you know, dozens of customers. And so they were great customers and they were really big and huge and important, but when people look at valuation, they, they always get, uh, they, they, they're afraid that if one of those leaves, it can impact the, the value. Right?
Ryan Tansom: Which you mitigated with some contracts, though, which shows that you guys were very... Yeah.
Vicky Raport: You know, I tell people, get professional, get professional help. Get a good investment banker and get a good and trusted M&A lawyer. Don't, don't just get your guy who does your contracts.
Ryan Tansom: Don't use your general counsel to take it to market.
Vicky Raport: If they don't do M&A transactions, get, get an M&A lawyer. That can be... I mean, you look at it and you're like, oh my God, I'm paying this lawyer so much money. But those people can save you millions of dollars. You know, so.
Ryan Tansom: As you're, as you're looking towards the future, you know, Vicky will, you know, feeling good and you, you mentioned next venture, you know, how are, how did you deal with the emotional and the mental readiness? I mean, it sounds and you know, kind of what we talked about, you got a lot of things going on. How did you deal with it? And then what are you doing now?
Vicky Raport: Um, you know, leading the process that, you know, I always said that for Quantum I was going to be the last man standing that I believe so hard in it and I was so emotionally invested in it that I would be the last one out the door. And leading the process of selling the company gets you over that really fast because it is, you know, you... it is so emotionally draining and mentally draining that by the time we sold the company I was ready to sell the company. So I was able to kind of go through that process over a year's time because I was in the middle of it. Right. I think it was harder for some of my other partners who weren't involved in the day-to-day. I think when it happened, it seemed to happen quickly. It's like, OK, we got our offer and 45 days later we sold. The company was done, they were gone and I think they had a they had a harder time probably that I did. I think the cool thing is, you know, I certainly took time off, I played a lot of golf. It takes you a good six months to decompress, but what I have realized is that this experience is something that I can use to help other people. And so I really started to focus my time on mentoring and advising, started beefing up and doing a lot of not more non-profit work. I sit on a non-profit board, I'm involved with a non-profit engaged philanthropy organization where I provide kind of consulting services and then over time to put that into really paid- now I do paid board work. I work as part of Tech Stars as part of their mentoring. Umm, and I'm doing strategic advisory services and really kind of CEO/CXO type of support on a retainer basis.
Vicky Raport: Um, and so much of my focus now is assisting fast-growing companies and their evolving businesses and helping them with looking for sustainable business models and growth and long-term value and ultimately a successful exit.
Ryan Tansom: Are you having fun?
Vicky Raport: I am having fun. You know, I am looking for what's next. I would love to land somewhere and work with a great team again to create that kind of value that you have when the company is yours. Right? And when you have a piece of it versus just the consulting role. I think gets a little lonely sometimes. But uh, you know, I feel very good about, you know, where we landed and certainly, you know, being able to go through that journey and create jobs for people and create value for customers, you know, makes me feel good about what I was able to do for the last decade. So.
Ryan Tansom: I love it and I think you, you hit on so many good pieces of wisdom throughout this. It was and it was intentionality. I think you guys just did an awesome job and I'm happy that you're out the other end thinking about all the fun things you can be doing and I appreciate you coming on the show, Vicky. If there's a one way that our listeners can get in touch with you and what would be the best way.
Vicky Raport: Probably the best way would be to look me up on linkedin.
Ryan Tansom: Perfect. Perfect. Perfect. Well, thank you so much for sharing your story on the show. I really appreciate it.
Vicky Raport: No problem, Ryan. It was my pleasure.
Ryan Tansom: Thanks for sticking in there until the end of the episode with Vicky. It was a little long, but it was amazing how much wisdom she had throughout that story and I think Vicky's journey is an amazing example of what intentionality can produce because they put pen to paper what they wanted, why they wanted it, and then all of the different strategic plans fell into line in perspective of the greater vision of what they were trying to accomplish. So their timing how much money they wanted, all the different things that they need to do with inside the business all fell into line and it helped them march towards that goal. Roles, responsibilities fell into different categories and different priorities because they knew what they were doing and why.
And another thing that I thought was very interesting about the journey is Vicky mentioning the fact that over that year process, she mentally processed where she was going to be and was ready mentally when the business actually ended up selling. So she got the chance to continue to create and think about what she wanted to do next and what was going to end up happening throughout the process. So the process helped drive the value of the business, hire the right people, get what they wanted, find the right buyer, and then emotionally and mentally got Vicky ready. So I really hope you enjoyed the episode as much as I did and if you really liked it, going to itunes, give this show a rating. Otherwise I will see you next week.