How the transition from custom software to SaaS led to a $37M Exit, significantly higher than a deal they rejected for far less when they were not SaaS.

01

Transitioning to SaaS

How Alex’s company transitioned revenue models to dramatically increase their valuation.

02

Deciding Not to Sell

The first time they went to sell they decided against it to put more time in and increase their valuation based on what they learned.

03

Finding the Right Buyer

Where and how they ended up finding the right buyer willing to pay a premium for their business.

Managing Director at Neocortex Ventures, Technology Chair at the Sandbox, author at Augmented Mind

Alex Bates

Alex brings a unique perspective at the intersection of machine learning, big data, and the IoT. As an undergraduate, he authored 5 peer-reviewed publications (current citation count of 117), performed DARPA-funded research in neural networks, as well as research in memory and computational diagnostics. Next he jumped into the private sector, applying analytics on some of the world’s largest data warehouses at Teradata, the pioneer in big data.

In 2006 Alex co-founded Mtelligence (Mtell) to harness the deluge of sensor data in the industrial IoT, with a mission of creating a world that doesn’t break down. Mtell’s machine learning platform is used to monitor global fleets of offshore drilling rigs, railroad engines, and process equipment, in effect creating a distributed immune system to protect equipment and personnel. Alex is lead inventor on 3 patents in the area of sensor networks and machine learning. Mtell was acquired in 2016 by AspenTech (NASDAQ: AZPN), the global leader in process optimization software. In the two years following the acquisition of Mtell, AspenTech more than doubled its market cap, adding $4 billion of shareholder value. In June 2018, Barron’s highlighted AspenTech as one of the top three AI investments outside of FAANG (Facebook, Apple, Amazon, Netflix, Google). Alex received degrees in Mathematics and Computer Science with a concentration in neuroscience.

His new book Augmented Mind (print release coming in May 2019) explores how the combination of AI with human intelligence — called Intelligence Augmentation — has revolutionary potential.

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Full Transcript

Brandon: So today’s guest is Alex Bates. He’s a good friend of mine, I’ve known him for several years. I met him through EO Entrepreneurs Organization and he actually lives in the building next door to me in San Diego. So we’ve had a lot of really good scotch nights together and I’m really happy to have you on today. How are you doing, Alex?

Alex: Doing great and great to be on with both of you here today.

Brandon: Perfect. So tell us a little bit about your company. What you do and how did you start it?

Alex: Well, you know, the early origins of the company came out of some consulting experience we had and it’s now kind of called the IOT Internet Of Things. And I met my co-founder just on a camping outing socially, just kind of randomly. And we got a lot of common interests and we were doing consulting, his background was mechanical engineering and sort of maintenance of big industrial equipment. My background was you know, computer science and kind of neural networks and AI. And we started talking about ways we could, you know, use new technology in this field. And out of our consulting practice, we decided to bootstrap this company and actually, you know, fund some software development and work on getting things going. And really from the beginning it was, we knew there had to be a better way, these big industrial energy companies were doing maintenance on a calendar schedule and having tons of equipment breakdowns and sometimes you had big environmental catastrophes. And meanwhile all this data was getting collected, we knew there was a better technology approach to doing maintenance and preventing these environmental catastrophes. So we really just started working on different technologies that could fit in that. And over time we crystallized a vision of creating a world that doesn’t break down. And that became kind of our why statement of the company. And we also came up with a mission of protecting all the world’s critical assets within five years by the time we refined that was our targeted goal. So it was really using AI and machine learning, you know, to learn to monitor this industrial equipment, learn how to predict failure and how to prevent these catastrophes that we saw with things like the Gulf oil spill.

Drew: Wow, that sounds like pretty heavy stuff in terms of, you know, industrial monitoring and predicting failure. Is that something that you’re studying or background or you just were doing this consulting work and learning about that?

Alex: You know, it’s interesting. I had almost no experience in the industrial realm. Back when I lived in Oregon, I dabbled at a company that did industrial control systems but I was very new to that. My co-founder, on the other hand, was all in on industrial and maintenance. So it was kind of merging those two worlds together, of technology and the industrial and mechanical engineering and reliability.

Drew: You know, there’s a lot of companies that are doing consulting or service-based work and they would love to get into being a software company. You know, I’ve talked to a lot of people in that place. How did you manage that transition from, “Hey, we need to do the consulting work to also then building software, you know, while you’re doing that?

Alex: It’s a pretty rocky transition but I think on the other hand, when you’re consulting and you’re deep in the trenches with customers, it’s one of the best ways to really get a finger on the pulse of what their challenges are and how you can really help them, you know, kind of boots on the ground. So the challenging part is that you’re completely ripping apart your business model and in fact trying to use one business to find another one. And there’s a lot of trade-offs there but you know, we kind of decided that the consulting was a completely temporary thing just to fund our formation of the software company. And so we, you know, kind of treated it that way but still tried to give the white glove treatment to our customers. Some of those consulting customers turned into pilot customers for the software. So that was a natural way to sort of bootstrap the technology and get some customer references. So I mean, I would recommend it but also I’d you know, caution that, be aware, it can be a rocky transition.

Drew: What was something that was rocky in that transition for you?

Alex: Well, I mean, part of it is just, you know, you’re trying to do a lot of billable hours and then you’re trying to do a lot of R&D and you know, there’s only so many hours per week. So I think what happens, you know, we had some big consulting clients like Fortune 500 companies and if you let them, they’ll kind of suck the life out of you. So you have to kind of be careful to, you know, preserve some of your own time and space for your own R&D and not get too deeply entrenched in their organizational structures. I mean we had clients that would go so far as to invite us out for some of their, you know, employee events and we just had to sort of pull back to make sure we weren’t too all in on the consulting side.

Drew: So you talked a little bit about bootstrapping this through your consulting work to build the software. Did you use any other ways to fund the startup and invest in the software development?

Alex: It was really a bootstrapping model. I mean, we did have some people come in, advisors. We had a couple employees move on for just, you know, kind of life transition reasons. And we did have a couple advisors buy out their shares, sort of a smallish, you know, angel investments. But it really was a bootstrap model until raised a corporate venture round, you know, two and a half years ago.

Drew: So you raised around two and a half years ago. What did you raise the money for?

Alex: Yeah. That was really eight years into the company. So it was early years of bootstrapping and then we, you know, started getting our revenue from software and so on. But the venture fund that we rounded at the time, we really wanted it to build out of marketing and sales capacity and also to build up, you know, scale up our infrastructure to support an evolution to cloud and more of a subscription model.

Drew: Good, and what fund did you bring in?

Alex: In terms of the investor, do you mean?

Drew: Yeah. Who was the investor?

Alex: Well, we did everything from talking to institutional investors up in Silicon Valley to talking to strategic corporate investors. And we ended up going with a strategic corporate venture investment from a company called PTC. And the nice thing about that, of course, the terms were probably much more favorable to the entrepreneur than you’d get from an institutional VC where it’s much more of a financial transaction and they’re going to put in clauses, you know, to protect their financial interests. And I think that a corporate strategic investment, they’re more interested in having strategic access to the technology and you know, the ability to maybe influence a board seat, the direction of the company and also the chance to adopt it within their company and push it out to their customer base. So we did go with a corporate venture investment for that initial round.

Drew: And so it sounds like that was a good experience. And then you know, I imagine we’re able to do some of this scale up, you know. Was the mission accomplished?

Alex: Yeah, I mean it definitely funded, you know, some higher…We were pretty conservative with it but it was sort of in between a C…it was kinda like a series A but you know, maybe a smaller series A round. But I think it definitely helped us fund towards some of our goals but we didn’t really ramp up massive spending. We were still pretty conservative with the burn rate.

Brandon: That’s great. So it sounds like everything was you know, moving along, you’re growing the company, you raised money. Kind of when and why did you decide to sell?

Alex: Well, it’s interesting. I mean, I think like a lot of entrepreneurs, we were pretty passionate about the technology and the cause and the mission, almost probably to a delusional point. So the selling was almost a secondary consideration. I think we all felt that in our industry in particular, that the way to get our technology to a broad market adoption and to hit our sort of vision of protecting all the world’s critical assets, it was unlikely to have a direct path for us to do that ourselves. Like going all the way to an IPO and sort of just scaling our company all the way end to end. So we did feel that probably the likely outcome would be, you know, an M&A event with one of the bigger industrial companies in this space and industrial’s interesting because there was a relative short list of possible acquirers. You know, there’s a lot of big names that are pretty well known. We figured that would happen but at the same time, I think we were all pretty passionate about what we were doing and the impact we could have and just scaling it up. We felt that when the right partner came along that we would certainly go that route.

Drew: Can you tell me, you know, where were you when you kind of realized that you guys made that decision to sell? Like what, were you in a room, was it a meeting? Like when did you kind of say, “Hey, we’re going to do this?”

Alex: I mean, we’d had a number of conversations over the years with some of the big industrial Goliaths, everyone from, like, IBM and GE to other, you know, other companies in that space. There were conversations being had. I would say that, you know, around the time that we took that investment, we also happened to meet this boutique investment banking firm and start conversations with them. And I think they helped educate us on how that process works and, you know, if we were looking at that, how to set ourselves up for doing it. And also, of course, we saw that they were able to broker negotiations and how that whole thing would work out.

Brandon: Who else did you bring on besides that boutique investment firm?

Alex: Well, we also had some additions to our advisory board. We had one key person, Michael Theman [SP], he joined probably about three years ago and he came in through a personal contact and he was an amazing addition. You know, he was part of the agency software, one of the biggest kind of AI success stories where they were the IPO, they were acquired for close to a billion dollars by FICO and now they monitor almost all worldwide credit card, you know, transactions for fraud. They were actually based in San Diego and that’s part of why we have this analytics footprint in our city. He actually ended up joining our advisory board and eventually our board of directors. And he was also extremely helpful to help just, you know, set up the company for success.

Brandon: Wow, that’s really cool. So you’ve got, you know, this team, you’ve decided you’re ready to sell and you’re ready to move on. What did you learn from the investment banker and working with them?

Alex: That firm was called…I believe they now are owned by another financial firm. But they were just extremely knowledgeable about the whole process. But also they were pretty specialized in the industrial software space. So they had particular knowledge about, you know, how it works in that particular environment. I mean, they told us everything from here’s what the due diligence checklist will look like. We did have a financial acting CFO who had joined our company and he had made sure, you know, our books were pretty clean. But definitely the Pacific Crest took it to the next level as far as making sure, you know, we’re setting ourselves up for a path where if it does come together, we’re going to be really well positioned.

Brandon: So, and then you had all that, did you kind of go to market at that point or kind of determine a number that you want to sell for and go to market, or what was kind of the next steps after that?

Alex: Well, we didn’t really have an exact number. I think that we knew that, you know, if we were hitting the milestones we laid out in terms of, you know, growth and closing some of our key customers, that the momentum itself would increase the numbers. They would go and try to find comps, you know, for valuations and so on. But number one, a lot of those transactions were private and so they weren’t publicly disclosed. And in some cases they were able to get, you know, maybe insight information about, okay, we think this was probably the multiple and just, you know, through the grapevine figure out what the going rate was. We were also in this emerging market, it’s at the intersection of IOT and analytics. And because it’s a new and emerging market category, there weren’t a long list of transactions because it kind of was a new space, if that makes sense.

Drew: So, Alex, my experience is that every entrepreneur has their own number. Did you have a number?

Alex: I think we had tossed around different ideas in terms of multiples. I think that at the time I was happy, you know. Early on, its funny because the number changes every time. Like at one point, you’re like, man, if we go about 20 and then in the next point, it’s like, man, if we go above 30 and then at the next one, it’s like, hey if we’re close to 40. So I think that the number kind of evolved also with our growth. But when we finally consummated the deal, it was definitely at the number I was very happy with.

Drew: Before we jumped on this call, you were saying you were at the tax man and, you know, obviously living in California like we do, it’s a painful place that sometimes you build a number and then you start going, “Holy crap.” After taxes, that’s not a lot.

Alex: I mean on the one hand, it’s a good problem to have. We always used to joke, like, that’s a high-class problem, but certainly California is not a cheap state.

Drew: So you went out to market and you started to shop. Tell us about that sales process and you know, what happened?

Alex: Well, the interesting thing I think, you know, for companies looking at M&A, when you talk to a savvy investment banker, they’ll tell you, you don’t want to put out a message that you’re up for sale. Like that sort of undermines your value and it also looks a little bit desperate. So there’s sort of a process where you can, I mean, at the high end, you can do this outreach where you’ll become…there will be awareness, where you will spread to Wall Street analysts who will then turn, inform some of the big players, and then they’ll hear about you through back channels where they’ll certainly want to reach out and pursue you. And that’s a really good model. And so I think for us, you know, we weren’t sort of putting out radar pings that we’re for sale, but we were leveraging these bankers that had, you know, that had back-channeled conversations and we’re able to put information in the hands of people that could reach maybe potential target acquirers.

Drew: And so did you have anybody get interested and start to approach you?

Alex: Yeah. Well, and what’s interesting is it turned out that Aspen Tech, who was our, you know, our eventual acquirer, they had become aware of us already probably about two years before the actual acquisition. But really it was six months prior where they really flew out a team and really suddenly started taking the interest to the next level. And really from that point forward it was really key as far as having our, you know, Pacific Crest to help guide us through that process. [crosstalk 00:16:45]

Brandon: Go ahead.

Drew: You’re saying that you ultimately sold to them. But I think when we talked, you also said that there, you know, maybe a couple of years earlier, when you first went out, you had somebody interested but you weren’t quite maybe getting to the numbers that you wanted? Maybe tell me a little bit about that.

Alex: So there was a conversation almost maybe three years prior and it was with another big industrial company. And yeah, I mean I think at the time a couple of things happened. We were earlier stage and the market had hit a little bit of a rough patch. And so number one, we weren’t on an upward trajectory in terms of momentum, so that was one issue. Another issue is just that, like a lot of startups, had a lot of chaotic internal processes and maybe if we would have had better processes, we would have still rode out that rough patch in the market and had a stronger, you know, kind of sales pipeline. That conversation failed to consummate in an acquisition. And it was after that, you know, we did two things. We did raise this corporate round but we also brought in some external coaching that helped us really improve the processes that were pretty broken internally.

Drew: Got it. So you were saying that the investment that you took on two and a half years ago from the corporate was in light of kind of not ultimately selling, but taking on some money. Is that correct?

Alex: Yeah. So after that, we decided to take a round and then really try to improve our company and make it much stronger, especially looking at operational perspectives and then in our sales process.

Drew: And you said you kind of went back and you brought this coach in. Maybe tell us some of the things you did specifically to increase the value and start to make some transitions.

Alex: We knew we had wanted to make this jump to subscription pricing and towards software as a service. And so, but there’s a lot of inertia to making changes to pricing catalogs and, of course, existing cut target prospects in your pipeline want to stick with the existing enterprise pricing. So it is initially a pretty tough transition but we decided we had to do it. So we started making those changes to, you know, how we can adapt subscription pricing and changing our internal process to support that. So that was one very concrete thing. And the other things involved just looking at what our current process was for quantifying the sales pipeline all the way from leads to opportunities and the stage gates between them and, you know, how we qualify customers. And, of course, we, like a lot of companies, we had this thing where you chase the shiny ball, you know, “Hey, we got a new lead.” And suddenly you prioritize these new leads as opposed to ones that actually have a budget and are going to close within three months. Our coach has really helped us refine our whole sales prospecting motto and then operationally looking at even things like customer support and internal process to support that.

Brandon: A lot of people want to figure out how to go from kind of enterprise to SaaS. How did that transition go and what did you learn from that that you would kind of offer an advice or what would you do in the future?

Alex: You know, I think any transition like that can be a little bit rough going. I think that because there is so much inertia to big changes like that, for us it was helpful to have this external coaching consulting firm. Number one, to sort of diffuse egos when conversations come up about things that are going to change and two, just to keep you on point because these are multi-month transitions and you really have to…and meanwhile you’re trying to run your business and make this radical change. So it was helpful for us to have outside help and meeting you know, regularly to look at, make sure we’re on track to make that go. And for us, it was interesting because we did the subscription pricing transition. So that was one aspect. The second aspect can be cloud hosting and a lot of times SaaS is considered synonymous with you’re hosting the software. So the customers don’t have to have it on-premise. But you can actually do subscription pricing and still have an on-premise software model. And in the industrial sector, some clients still, they love subscription pricing but they’re not ready for complete cloud hosting because there’s concerns about their control system and getting data up in the cloud and there’s a lot of just real world challenges there. So we supported both models. So we did full subscription pricing, and we had some cloud-hosted customers and some on-prem customers.

Drew: So in these changes that you made, like, what was the impact to, like, your value, growth, the focus, you know? How did that kind of impact all of those things?

Alex: I would say there’s no question it improved the valuation. I mean, you know, what investment bankers will do is they’ll pull up comps and it was clear that SaaS multiples were higher than enterprise value or enterprise companies. So we knew that was a better model. We also knew that in the industry itself there was a shift towards SaaS and subscription pricing. So startups really shouldn’t be at the lagging end of adopting those changes that are clearly, you know, have a lot of momentum. So we wanted to be at the leading end of that transition. So we just decided to embrace it.

Brandon: Once you decided to sell, you know, you found the buyer, you got kind of these things sorted out, how long was the process of actually selling from when you first started talking and how did the process work?

Alex: Well, I mean I think earnest conversations probably started, you know, maybe six months out. And then due diligence was about a three-month process. So there were initial conversations and then there’s a whole process where there’s a letter of intent, a signature, you know, and then a formal due diligence process for going through that. So that was kind of the timeline.

Brandon: When did you tell your staff and how did they take it?

Alex: Well, see this is what’s interesting about this process and a lot of this was new to me, but there was a high degree of confidentiality in these discussions that was requested. One of the things we learned from the experience three years prior was that the most important thing when you start these conversations is not to kind of take your eye off the ball and not to get distracted, but how do…you want to start those conversations but you want to just also keep your foot on the gas pedal of growing your business and you know, hitting your milestones and that kind of thing. And so if we would have told all of our staff, you know, clearly this would be a major distraction and people kind of get short-timer syndrome. So we really didn’t tell anyone until pretty close to the end of the process, very close to the end of the process you know, when obviously we had to tell them and get signatures and things like that.

Brandon: When you say you learned that kind of the second time around, did you do something different the first time?

Alex: Yeah, I think the first time a lot more people were aware. And the problem, of course, is that these things are always very tentative and at best they take longer than you think. And at worst, you know, you might have conversations that die out and then more conversations that come in. So it can be demotivational if you’re always…I think as leaders you have to modulate a lot of those highs and lows because obviously there can be a lot of stress involved, and I think as technical and entrepreneurial leaders, have to bear that on our shoulders. And then certainly when the good news is official, you share it with everyone. But when there’s possible good news and then sometimes that falls through at the last second, that’s more stress than some people can take. So we were careful to sort of shield that.

Drew: I remember when we went through our sale and then subsequently I was part of a company where we bought about 40 companies. You know, every group kind of shared with their employees in different ways and sometimes, you know, we would show up and they were, like, learning about it for the first time and that didn’t go well. Sometimes people told them way too early and then there’s this kind of, like, long term fear and uncertainty and that’s not healthy either. So it’s like, you know, when exactly do you bring them in. You know, is there a moment where you say, “Man, this is the time where we should bring, you know, the employees in?”

Alex: Yeah, it is. I think it probably depends a little bit on the situation because like you say, you don’t want to wait too long and you don’t want to go too early and there’s a lot of judgment calls there. I mean, once you really maybe feel in your gut that it’s 100% sure, you might at that point decided to share maybe at least with more people on the leadership team. But certainly, that’s a tough one.

Drew: And then just out of curiosity, how many employees did you have and then how many of them maybe even had any equity or shares?

Alex: Well, technically we have nine full-time employees but we did have a pool of contractors and some were full-time equivalent, almost like employees. So with that, you know, we had probably about close to 20 including the contractors. And you asked how many shareholders there were?

Drew: Yes, that were employees as well.

Alex: They were employees. I mean all of our employees had stock options. So that was throughout the company. Consultants, only one or two did. And then our board members also had equity in the company.

Brandon: Kind of during this due diligence process and kind of mid-sale, did you have, like, one huge major concern throughout the process?

Alex: Well, I think part of our concern was sort of just, you know, you get a little paranoid that something can go wrong, especially when you’ve failed to consummate in the past. So I think there’s a lot of just maybe paranoia about, oh, you know, we have to…And there’s so much paperwork, like, you’ll get a questionnaire with 100 technical questions and you fill out and answer all 100, and then you get follow up questions, which are 200 questions. And then you answer those and then it’s, like, 500 questions. And I think part of it is, wow, are we ever going to have time to finish all of these questions and is it gonna sort of distract us from growing our business, and then just, you know, you, of course, you worry about…we were trying to close some big deals and we were actually able to close some deals during due diligence, which also is very helpful from a negotiating perspective. So I think that it’s like, man, are we going to be able to close these deals and answer all their questions and that kind of thing.

Drew: So you said you had a little failure to perform in the past. I believe there’s a pill for that, right?

Alex: I need some information on that.

Drew: But you did perform on this one. Tell me how much did you sell for?

Alex: So they actually decided to publicly disclose that. So it was 37 million, all cash deal and that was the amount.

Drew: Brandon, I think we need a sound effect next time we hear that because 37 million, that sounds awesome.

Brandon: And all cash too.

Drew: Nine full-time employees, all-cash. So no earnout, no funny business. Just a wire to your bank account.

Alex: It was just a wire and you know, they carve out 15% sort of as a reps and warranties kind of thing. But yeah, it was a cash deal, so it was a big celebration.

Drew: So where were you when you heard that it closed and the 37 million minus the 15% was being wired to your bank account?

Alex: Well, I’ll tell you, as one of the technical leaders of the company, I was intimately involved and engaged because the final day of due diligence, they had a team that flew out for Boston, and so they wanted to start at 6 a.m. and do this detailed technical screening where they were running code from the compiler and they’re also installing the media and running a battery of tests and making sure everything is 100% identical. It was definitely the most thorough evaluation I’ve ever been a part of, I mean, the whole due diligence was extremely thorough. We were pretty impressed. So the final day, of course, is pretty nerve-wracking and it took 12 hours. It was a 12-hour day and then, you know, they wanted to have all of these sorts of check marks and verifications and at the end of that, you know, was when the wires came through.

Drew: So you’re sitting there working all day, working your butt off, probably of the most stressful day of your life, making sure all the things are tight. So then at the end, that all happens and the wire happens. What was the, like, emotion that you felt at that moment when it closed?

Alex: You know, it was a combination of elation and it’s like when you’ve just run a marathon and you just, like, step over the finish line and half of you just wants to go take a nap. And the other half’s like, no, I gotta go out and celebrate. So I did go out and there was some pretty good scotch involved that night. But yeah, it was just also just a huge sigh of relief. There’s a lot of negotiation that happened right up to the 11th hour to make it seem like it could have been tentative. So then it’s just like, it happens and you actually kind of pinch yourself. Then you’re like, “Wait, did it happen?” And then you’re like, “Wait, show me that again.”

Drew: Did you log into your bank account and see how many zeros were behind the number?

Alex: We shared it. Actually, our CFO pulled it up and showed it to me and he actually took a photo of it. So that was the biggest that account had ever been.

Drew: Very cool.

Brandon: Kind of after you know, all the dust settled from that, how has this sale really changed your life?

Alex: Oh man. I mean a lot of different ways. Well, first of all, it obviously eliminates a lot of…it gives you a lot more financial independence and freedom, which frees up part of your mind that was maybe caught up in things that are a little bit more distracting, and now obviously it’s frees some of that up and then you can start to think about other things. And then you go out, and I think you meet a lot of interesting people that kind of opens up some conversations. Yeah. I mean, I think for me in this space of AI and analytics, it definitely made it easier to get ahold of people and start talking about future projects and collaborations also.

Drew: Who’s the most interesting person you met from that?

Alex: Well, I would have to say it would definitely be Richard Branson, which was an opportunity that came up to go out, you know, to his island, Necker Island, which I guess is only one of his two private islands. I mean, that guy is pretty amazing in terms of…I mean, in some similar ways to Elon Musk because he has a space company, you know, Virgin Galactic, he actually has an underwater company to do sort of these high-end submarines. And then, you know, also he has Virgin. But meanwhile, he lives on these islands in the Caribbean, British Virgin Islands, and has all these people fly out to his island. And that includes like, you know, high-end scientific and engineer people from, like, Singularity University and they’ll do, like, Ted talks and then he’ll go out kite surfing at 6 a.m. And I mean, that guy, just the way he lives his life is amazing. His nurse was there and she told us stories, like, he’s still out mountain biking down cliffs and he’ll fall and almost knocked his teeth through his mouth, and get back up and do it again the next week. So it’s pretty inspiring. This guy’s is in his 60s and he’s still living his life like that.

Drew: Very cool. So when are we going to be able to visit Bates Island?

Alex: Well, I’m taking notes. I mean, man, people like that, it helps you think about, wow, what would be the next level? Also Elon Musk, I mean, a guy that decided to disrupt, you know, multiple $10 to $100 billion industries just for fun. I mean, that’s interesting to think about those kinds of things. So I’ll keep you posted but I probably won’t be opening a Bates Motel. That would be [inaudible 00:34:44]

Drew: That’d be bad marketing.

Brandon: If you didn’t buy an island, what’s kind of one thing that you bought or a couple of things that you bought?

Alex: I did finally get a house and so I’m moving out of a downtown condo into a house. And that’s been a pretty nice transition because you know, you leave your condo, but then, you get the backyard, so that’s been fun to get that all settled in. And then also I did finally on the Elon Musk, talking about that, I did get a Tesla model S, it’s just an amazing piece of engineering. And I will admit I almost gave myself whiplash, so kind of learning how to dial that back on the throttle.

Drew: And that’s not a splurge. I think any self-respecting CTO to have a Tesla.

Alex: Yeah. Good point. [inaudible [00:35:42] requirement.

Drew: What are you doing now? You had to stay on with the company, right? How long do you need to stay on and kind of what are you working on now?

Alex: Well the initial discussion was for, you know, a two-year process and possibly farther. But, you know, there were some retention things involved. So I did agree to stay on and stay on as a full-time employee, as did my co-founder Paul, and some other…most of our personnel stayed on. So I think everyone got offers for employment [inaudible 00:36:17]. Yeah. I mean, at this point, it’s been interesting to see that…I would say that Aspen Tech is very experienced. They’ve, in their history have acquired over 30 companies, so they have a pretty detailed playbook. And a lot of the work now is number one, on the integration side. You know, tying everything into this bigger organization with a bigger sales force, customer support, R&D, and meeting with a lot more people for those different areas. And then, you know, a little bit of evangelism. So you know, I do a little bit of talking here and there but not a massive amount. But yeah, so I think it’s just now helping through their organization, trying to deliver on that original vision of creating a role that doesn’t break down, which was a complementary vision to theirs. So, you know, I think it’s just helping them through that.

Drew: Tell me, is it different being an employee than an owner? Like how has that changed for you in your life?

Alex: It’s radically different, that’s probably the…

Drew: It’s my understatement.

Alex: …roughest adjustment. Oh man, I mean, you’re a technical entrepreneur, you call the shots and you have a budget that’s [inaudible 00:37:27] control of the budget and now you’re an influencer. And so that is a radical shift. Well, I have to get used to that part but it is nice having the extra resources. So you try to take the good with the bad.

Brandon: And OPM is always good, other people’s money.

Alex: OPM, very happy with that.

Brandon: Have you learned anything, kind of how you were operating your company and then going and working for such a larger company that’s acquired all these companies and how they do business and how you used to business. Is there any, like, key takeaways of things you’ve learned?

Alex: Wow. Yeah. I mean, I’ve actually learned a lot from the technical leaders in this organization. In fact, we thought there was a really great culture fit from the very beginning of our conversations. Just really incredibly smart. You know, this team has grown out of these engineers out of MIT that [inaudible 00:38:26] the company out, like, 35 years ago. They’re not really humble, really hard-working, very technically shrewd and savvy and great people to work with. So actually I’ve learned more technical information, I learned about chemical engineering, which actually never would have thought I would be learning about. That was their roots and yeah, just the way they run it, their processes, I think has been helpful. On our side, I think helping them, they wanted to embrace more agile processes and we’ve helped them on that journey where they had more sort of waterfall style software development. So now we’re helping them move towards more scrum [inaudible 00:39:07] and you know, kind of learning how to middle ground. But yeah, certainly I’ve learned quite a bit.

Drew: So from, you know, the starting of your company, from consulting to building software, from software you know, enterprise to SaaS to selling, I mean you’ve gone through a ton of stuff and then joining this company, how will your next project be different if you were to start a new one, you know, from what you’ve done in the past?

Alex: It’s interesting. I always think, like, what would my lessons learned be? But there’s so many. I think you make so many mistakes and the hardest thing to really quantify but yet the most important is knowing what to prioritize, what’s really important at a given stage of your company’s evolution. And I think we made a lot of classic mistakes about over prioritizing, you know, maybe marketing and mark comm at certain points in time. And then over prioritizing or under prioritizing sales at other points in time, and things like customer support and making sure you don’t drop existing customers just when you’re pursuing new customers. Just knowing all those trade-off ups. Every startup is spread extremely thin. So I think a lot of the instinctual things about knowing how to prioritize and also how to shift the priorities when we do that. And another practical thing is bringing in outside consultant coaches. You do have to be careful because there’s tons of consultants, they’ll come in and bill hours you know, as long as they can, but we found some really solid ones that were helped to sort of do [inaudible 00:40:49] sprints with our senior leadership team and make sure we stayed on track for some of those initiatives.

Drew: And what was the best resource that somebody can go and look at or grab when it comes to dealing with this issue of prioritization that you said, you know, learned a lot about?

Alex: Well, it’s a question I’ve seen, you know, this scaling up Rockefeller Habits Model. I actually learned about that through EO, that in general helps you understand a lot of the principles to improve your core processes, whether it’s people or infrastructure and procedures. But we also worked with a company called RevCult, which sort of implements [inaudible 00:41:40] habits can be overwhelming. It’s an extremely thorough book and process. So probably just find coaches to help step through that, at least for the way we operated, that was helpful to help people kind of walk us through that journey.

Brandon: You hear so many bad things about consultants and coaches. Do you have any advice on kind of how to pick the right people?

Alex: You know, that is tough because we actually had, you know, on our evolution, we certainly early on, picked coaches where we thought, “Wow, this is the guy we need to work with,” and turned out maybe they were prioritizing the wrong thing. So, it’s really tough. I mean, you can check their track record, check their references but for me, if they’re grounded and [inaudible 00:42:30] once we read that book, [inaudible 00:42:36] it was such a massive sea change that it was so hard to get momentum, especially to get other people on the leadership team to go all in on it when they felt like I was kind of, you know, forcing it upon them. But once we found this external coach who is clearly, you know, I had read the book, so I asked them lots of questions, like, about scaling up and not only had he read it, he had clearly coached companies through it. And so that was a helpful kind of thing to test out.

Drew: So [inaudible 00:43:07] entrepreneurs who are listening and, you know, what’s the one piece of advice that you’d give to them if they’re starting to think about selling their company?

Alex: One piece of advice, which is a little bit…kind of turns the question a little bit is, I think, you know, focus on your vision and your why and your mission statement and that’s going to get you through the lows. I think that acquisitions usually take longer than you think. It’s one of those counterintuitive things where it’s probably a natural…I mean, every entrepreneur, you make a lot of sacrifices, you forego a lot of income, and clearly you would want some kind of liquidity event to pay you back for all that. Otherwise, you know, it would just be a rough road to take. So, for sure, you know, that’s going to be a natural thing you want to go towards. But I would say if you really focus on what your vision is and also set proof points, you know, here’s our milestones, here’s what route to do and just go all in on that. But I would advise even though you want to focus on building your business, maybe have a conversation with an investment banker. In the back of your mind, you’ll start to know about what processes they look for and due diligence. And you start to know, wow, we better get our salesforce pipeline totally dialed in. We better get our customer support processes documented. We’d better get, you know, our product management dialed in with a detailed roadmap. So I think starting those conversations will help you, even [inaudible 00:44:43] of growing your business as well.

Brandon: That’s really good advice, I appreciate it. I’ve got a few kinds of personal questions for you. How old are you?

Alex: You know, I just had a rough transition on that one, just crossed the big 4-0 number.

Brandon: Happy birthday.

Alex: Thank you.

Brandon: And did you go to college?

Alex: Yeah, I did. I went up to the University of Oregon. That was a great university [inaudible 00:45:19] There was a little sort of honors college program there. But I grew up mostly in Oregon, so I went to school, you know, kind of in state and kind of double majored in math and computer science. But I was really interested in AI, so I took, like, I think 64 credits of neuroscience, which wasn’t even…didn’t even count towards a major. So I was kind of not really sure how that helped, but I think it was just a passion.

Drew: Someday you and I will have to share some University of Oregon experiences.

Alex: We definitely should. Oh man.

Brandon: What is your relationship status?

Alex: Oh yeah. I’m single as far as relationships go.

Drew: What’s your Tinder handle for all the ladies?

Alex: In spite of being a technologist, I don’t necessarily have all those technical apps and Tinder and so on, but I’ll let you know…

Drew: Is that what it’s called, a technical app?

Alex: Technology of dating.

Brandon: How can girls or anybody else listening stay in touch with you and kind of follow you on your journey?

Alex: I don’t really have a Twitter or anything like that. I mean, I’m on my LinkedIn, I’m on Facebook and so on. But yeah, I don’t really keep a blog, so probably LinkedIn on the professional front would be the best way to get ahold of me. Always interested in talking about AI or the future of technology and anything like that.

Brandon: Perfect, Alex. I really appreciate you taking the time today.