Lessons from Home Depot’s Acquisition of a $100 Million Juggernaut Blinds.com

September 6, 2017 |  

About this episode


Jay Steinfeld started selling blinds online in 1993. The e-commerce pioneer went on to build Blinds.com into a $100 million category killer before Home Depot decided enough was enough and made Steinfeld an offer he couldn’t refuse.

To read a transcript of this episode, click here.

In this wide ranging interview with one of the giants of the e-tailing field, you’ll learn:

  • The pros and cons of picking a niche
  • When to build your management team
  • How to acquire a company while minimizing your risk
  • The definition of a minority re-cap and how to use one to take some chips off the table
  • The biggest mistake founders make when taking money from friends and family
  • How a little-known clause in a private equity investment called “participation” can wipe out millions of what you take away from the sale of your company
  • The meaning of public company rigor and how you can use it to create a more valuable business
  • The benefits of assembling an outside board

Blinds.com got acquired, in part, because they were a big fish in a small pond. At more than $100 million in revenue, they were the largest online retailer of blinds by a long shot. Even though Home Depot has close to $90 billion in sales, Blinds.com were outperforming them in their tiny niche and that made Blinds.com absolutely irresistible to Home Depot. So, what’s your niche? Find out by completing The Monopoly Control exercise in The Value Builder System™—finish Module 1 free by getting your Value Builder Score.

About Our Guest

Jay Steinfeld is the founder and CEO of Blinds.com, the world’s largest online window coverings store. After starting a small chain of window coverings retail stores in Houston, Texas, he launched the Internet’s first blinds Web site in 1993, and sold his company to The Home Depot in 2014. Jay is an Ernst and Young Entrepreneur of the Year. He writes a weekly column for Inc. Magazine called Chief Effective Officer, which is about becoming a more effective leader. He also serves on the Innovation Board of the XPrize Foundation, which is focused on solving the world’s greatest challenges through the spirit of competition.


John Warrillow:                This episode of Built to Sell radio is brought to you by the Value Builder System. You’re an entrepreneur and you’ve got somewhere between $1 million and $10 million in annual revenue and you’re trying to figure out what’s next. Maybe you want to scale up. Maybe you want to sell. Maybe you want to bring in a manager and delegate some of the day to day stuff, bring in the next generation of leaders. Maybe you want to pass it down to your family. A

John Warrillow:                ll of those options, the one prerequisite is that it’s built to sell, that it’s actually something that you can pass on to another generation without you, and that’s really what we try to evaluate using the Value Builder score. It takes about 15 minutes to complete the questionnaire, and then you’re going to get a readout of how your business would be viewed by an acquirer across eight unique dimensions that acquirers care about. Again, it takes only about 15 minutes. You can do it free at valuebuilder.com.

John Warrillow:                Up next is Jay Steinfeld of blinds.com. He started his business with a $3,000 investment and built it up to $100 million company. I think you’re going to like this interview. It talks about the pros and cons of picking a niche, or niche if you’re from the south, when to pick your management team, which I thought was really interesting. You know, the problem with being in a small niche is both a blessing and a curse. He talks a little bit about that. He talks a little bit about how he used an acquisition strategy and how he picked up companies for, in many cases, pennies on the dollar, so listen for that. One of the things I think you’ll find really interesting is his discussion about taking on a private equity investor, and listen for his definition of participation and how that can have a material impact on the value you take away from your business. Lots of great stuff here in this wide ranging interview with Jay Steinfeld. Enjoy.

John Warrillow:                Jay Steinfeld, welcome to Built to Sell radio.

Jay Steinfeld:                     It’s great to be here.

John Warrillow:                Yeah, well thanks for doing this. I mean I’ve heard the blinds.com story through many, many different forums and it’s great to actually put sort of a voice to a name at the very least. You’re a famous entrepreneur who’s achieved a lot. Tell me a little bit about why you got into the blinds business.

Jay Steinfeld:                     Well that was kind of a fluke. I had just been fired from a VP of finance job, and I wasn’t doing anything. My wife was in the blinds business for a couple of years, and I figured why not? I opened up a second store, so she had the store in Houston. I had one in a suburb of Houston. That’s where it started almost 30 years ago.

John Warrillow:                Wow. Maybe talk about the transition from a physical bricks and mortar store to selling blinds online.

Jay Steinfeld:                     The funny thing is that when I got out of having a brick and mortar retail store, which was grueling. I was working six days a week, early, late at night, coming home maybe at 9:00 at night and doing the paperwork on Sundays, I said never again will I have a store. Now with Home Depot we have 2,000 stores. That’s a good thing.

John Warrillow:                It is. You’ve kind of gone back to your roots. Tell me about the transition from physical stores to online.

Jay Steinfeld:                     Well, I went in 1987 in the store, into 1993, this is the year before Amazon started. I had heard about the internet and was just wondering what it was. I didn’t even know what email was. There was no broadband, cell phones were huge. That’s 1,500 baud modems we were using. I just went into the idea that I wanted to experiment with marketing and used it as a brochure for my store just to try to generate prospects, leads, appointments. I got conversant with it and thought in 1993 that was a good way, for $1,500 I might add, to generate more prospects. An ad in the Houston Chronicle cost at least that much. I did that for two or three years. I wasn’t even selling online, and then I thought maybe you can sell things. There’s this company, Amazon, that’s selling books, so I’m going to see if I can sell blinds. Everybody thought I was an idiot. You know, you can never sell blinds online. People can’t see them, people can’t touch them. They have to install them themselves, measure themselves, so there’s no way this is going to work.

Jay Steinfeld:                     Well, I did it anyway, and in 1996, for $3,000, and that $1,500 and $3,000 was the only money I ever put into the business of my own, I started selling maybe one sale a day while I kept my store. I was in my store, going to people’s homes to sell blinds. I was a shop at home decorator, perfect for a CPA, which I never told people I was a CPA. Who wants a CPA to design blinds and draperies in their home? It was working because it was part time between my other appointments. They’d call into the store and they’d say, no, all of our customer service representatives are busy. Of course it was just me, so they’d call me in my car, I’d pull off the side of the road, have my big cell phone, call them back, say hi, I’m Jay in customer service and how can I help you? That’s how it started, with my order pad and calculator on the front seat of my van in between appointments.

Jay Steinfeld:                     At some point, I was doing as much online as I was in my store, which was a million and a half dollars a year, with two employees at the time. Then I thought, wow, this is kind of fun and it’s much easier than working seven days a week in the heat, and decided I would just go full time online in the blinds business.

John Warrillow:                What kind of margins are there in selling blinds? I mean is it one of those very low margin businesses? I mean my assumption is that it is, but I have no idea.

Jay Steinfeld:                     Being with a public company, talking about margins is really something I have to be careful about.

John Warrillow:                Right, okay.

Jay Steinfeld:                     I’ve been told it’s a low margin business, but our margins are healthy and we’re increasing them all the time.

John Warrillow:                Got it. Got it. Okay. You get this thing up to a million and a half where you’ve got a store with a million and a half in revenue, and you’ve got just two employees. You’re generating a million and a half through online.

Jay Steinfeld:                     And hardly work.

John Warrillow:                Yeah, and not working Saturdays and Sundays. As you think back to the arc of the story, so from sort of 1996 now, I guess, we’re into 2014, when you get acquired to Home Depot. Were there one or two what I like to call inflection points where kind of, as you think about it now, with a scotch in front of a fireplace, that were big moments for you company? Do you think back and can you identify one or two of those?

Jay Steinfeld:                     I can. We made four acquisitions that were competitors of ours during the years. The first acquisition was the time when I decided to get out of stores and just go full time online, so that was February of 2001. In 2001 we acquired a company in St. Augustine, Florida. They were doing three million, so we were at four and a half the first year. They had some technology that we didn’t have. Our shopping cart really wasn’t even a shopping cart. People had to add up their prices to determine … literally they had to add it up and fill in the blank.

John Warrillow:                Love it.

Jay Steinfeld:                     They wrote the name of the product that you wanted to buy in text fields. Then we tried to develop our own shopping cart, but it was a disaster. Acquiring this other company that had a legitimate shopping cart made it much easier, and we doubled our sales the first year because people could actually buy. Then with the sales of the acquiree, that brought us up to that nine million pretty quickly.

Jay Steinfeld:                     The other inflection point was in 2005 when we acquired our second company. At that time we had critical mass where I could start hiring C level people, because before we didn’t have enough money, we didn’t have enough cash flow to do it. At that point we were doing $33 million, and at $33 million, it was time to hire a real chief marketing officer, controller and others. Having that critical mass and having people who were experts more so than I was definitely an inflection point. Each of the other acquisitions we made gave us the opportunity to hire people that before we weren’t able to afford. It was the ability to hire really good talent that we couldn’t afford before, and we didn’t have to borrow, because we had the revenue. Those were the main drivers of being able to accelerate our growth.

John Warrillow:                Great. When you went to acquire the companies that you acquired, how did you value them? How did you structure the deal?

Jay Steinfeld:                     These were mostly companies that had kind of topped out, and they were either bored or didn’t want to do what was required to move themselves to the next level. We had highly motivated sellers. We didn’t really come up with what it was really worth. These companies weren’t worth much to anyone other than us.

John Warrillow:                Why?

Jay Steinfeld:                     We were number one, and we could pay just about whatever we wanted because no one else wanted to buy those companies.

John Warrillow:                Why were they so unattractive to anybody else?

Jay Steinfeld:                     It was a small market, the blinds business. Maybe at the time, $3 billion, so big money wasn’t interested in it. The margins were smaller than a lot of other industries, and it was run mostly by founders. When you’re buying a company, if there’s no management and there’s just the founder running it and you know the founder’s going to be gone, you’re taking a big risk when you’re buying a company. One of the things we’ve always done is tried to, when we got to the point where we started thinking about selling, we knew people would not spend enough to buy us, at least the amount that we wanted, if they believed that by buying it and I left, they would be left with a company that had no rudder. You have to make sure you’ve got the management team. These didn’t have management teams and we were able to therefore buy them because I had the team and it was more of a synergistic buy than getting new capabilities.

John Warrillow:                On this show we always talk about kind of multiples of revenue or multiples of EBITDA, and when you’re acquiring these guys, are you getting close to sort of one times revenue or anything close to that?

Jay Steinfeld:                     No. It was much less.

John Warrillow:                Interesting.

Jay Steinfeld:                     Yeah. One company we bought almost in bankruptcy. This was a company if we hadn’t bought them, they would have just dissolved, owing a lot of money. That company was very, very tricky and technical and we needed a lot of really sharp legal advice to get through all the trap doors that could have been there.

John Warrillow:                You were buying the liabilities of the company as well as the assets, I’m assuming.

Jay Steinfeld:                     No, no. We just bought the assets.

John Warrillow:                I see, difference between asset and a share sale in that case.

Jay Steinfeld:                     Right. We just bought assets. We were buying basically a customer list and a revenue stream. It was out of state and there were a couple of people that we brought along, but that was it, so it was really just a customer list and revenue and a long history of being in business, but on the verge of bankruptcy. Being able to get a company that is basically worthless made it an exceptionally good deal.

John Warrillow:                Yeah, I bet. How did you finance the growth of blinds.com? I mean did you have private equity involved, or I mean how did you structure that?

Jay Steinfeld:                     We bootstrapped it almost the whole way. Occasionally we borrowed money, but not that much, and from banks, just a bank debt. The companies were small enough that we were acquiring, and because we bought them at really what we believed were particularly distressed price, that we were able to just use our cash or finance the payables in a way where we could assume the debt of a seller, and within a year we paid off one, and another one it took us 11 months, on another one, so that’s within a year. We never believed we had a lot of risk because we paid a small enough amount and we didn’t leverage the company much at all.

Jay Steinfeld:                     It wasn’t until 2012, two years before we sold, that we took on some private equity, and that was from a growth fund, and it was just to buy out a couple of our stock holders who were not aligned with us in how the company … we wanted to grow the company, they wanted dividends or cash distributions. We bought them out. We did have a little debt left over from an acquisition. We paid that off, and we kept some money on the balance sheet for growth, and we took off some chips and made a little money, which was awesome because we were able to get the debt at a valuation that was higher than what we were paying off those other stock holders, so it was accretive, so we ended up with no dilution at all by taking money out, putting more money on the balance sheet. It was a great opportunity. That was orchestrated well.

John Warrillow:                You just exceeded my financial knowledge. My grade 10 math just exploded. Talk to me about how that was accretive, and maybe if you could explain it to me as if I were as stupid as I actually am. How is that accretive? You had a little bit of debt. You bring on some private equity. I’m assuming they’re taking some shares. How is that not diluting you?

Jay Steinfeld:                     Let’s say the people that you’re paying off, you’re paying off at a valuation of one dollar.

John Warrillow:                Okay.

Jay Steinfeld:                     The money that you’re taking in is valued at $2 million, so that’s cheaper money, so you’re using cheap money to pay off expensive money, so you end up with no dilution because you got the money cheaper than what you had to pay it off.

John Warrillow:                Got it. Who are the share holders that you mentioned that you had? What was the capital structure before you did the private equity deal?

Jay Steinfeld:                     There were probably five or six sort of friends and family. Then two of them were looking for cash. We, again, wanted to grow, so they said here, here’s a number. Pay this off and you can have our shares, and we did.

John Warrillow:                What was their number based on? How did they value the business?

Jay Steinfeld:                     You know, you’re looking at willing buyer, willing seller, so the actual how they were thinking about it really didn’t matter because what we were able to pay worked within the confines of the structure of how much we were getting a value from the private equity group. Because the private equity group valued our company much higher than what the other company was willing to take money at, it was a good deal. The valuation was not really even … how it was valued wasn’t really the point. The point was we got it cheaper.

John Warrillow:                Got it. You know, when we do these interviews, oftentimes friends and family are involved. I remember one interview we had recently where the woman had taken, I think it was a relatively small amount of money in the very early days of the business, so the family member, I think it was in this case, actually got I think a third of the company, and she went on to exit at sort of, I can’t remember, something like $38 million or something to that effect. It was a big pay day for the family member. As you look back with hindsight, what advice would you have for entrepreneurs considering sort of doing a bit of a small friends and family round? Do you sort of think about that now and have any sort of advice for folks?

Jay Steinfeld:                     The alignment of purpose and expectations for whether they’re viewing this as a long term play or whether they’re wanting cash and expecting pay outs, that’s really something that needs to be discussed. At the beginning it didn’t matter because we were just trying to survive. Over time that question is the key question, because it became an untenable situation when people wanted more money and we wanted to grow. When you’ve got most people wanting to grow the company and a couple of people who just say, no, I don’t care about that. You’re making this money, pay it out. You’ve got to do something. That is not a sustainable situation.

Jay Steinfeld:                     I think having candid discussions with people as to what their expectations are for the investment, do they believe that the company should be sold as fast as possible? Do they believe that you should wait to get a certain type of pay out? Do they want money in the meantime? As we went into different rounds of receiving the money, we made it clear to the investors that, look, at this point, we’re not paying out anything anymore. If you want to still be here, we’ll either pay you off or be involved, but don’t expect anything until we sell.

John Warrillow:                Did they have enough votes on the board to override that decision?

Jay Steinfeld:                     No.

John Warrillow:                Got it.

Jay Steinfeld:                     They didn’t. There was some arrangements that we had made in advance that made it a lot easier, and without going into the technical stuff, it was pretty straight forward.

John Warrillow:                I mean we’ve talked about dual classes of shares on the show before, so I’m assuming there was kind of a voting class of shares and a non-voting? Is that how you execute that?

Jay Steinfeld:                     We just had some pre-arranged formulas for valuation in the event somebody was going to leave.

John Warrillow:                I see. I see.

Jay Steinfeld:                     We just executed those strike prices.

John Warrillow:                Got it, and were those strike prices, without getting into the details, were they based on a multiple of revenue or EBITDA? How would you suggest people … what would you tie it to?

Jay Steinfeld:                     In our case, they were fixed because it was something to be negotiated frequently, and we already negotiated pretty early, so that was just a number that we could use.

John Warrillow:                Whatever, 10% of the company is worth a dollar, and that’s the number is basically …

Jay Steinfeld:                     Exactly.

John Warrillow:                Got it. Got it. Interesting. It was actually a fixed number. As you negotiate with this private equity company that’s looking to bring in some money, how does this misalignment and having to work through this misalignment with friends and family investors, how does that impact your negotiation with the PE firm?

Jay Steinfeld:                     I don’t believe it had any effect. They couldn’t block the deal because of that pre-arranged situation, so we knew we could just execute on that. It actually made our story more believable, because it was clear why we were taking the money. We were growing 25% a year, we were making money, and then we had this situation, we had a little debt, and the fact that we wanted to raise as little as possible, let’s just say they wanted X and we wanted 50% of X, even though, and they said, look, we really would like to give you more than that, and we said no, also was a strong indication that we felt really good about the business, because we didn’t want to take any more money than we believed we needed to to make good on those three things, taking a little money off, paying off the debt, and buying out the two stock holders.

John Warrillow:                Got it. I guess what I was curious about was how well you got aligned with the private equity investors around exit intent. I mean the private equity deals that I’ve seen, you know, they’re looking to get out with a favorable return on their money, you know, usually in a five, seven year period. Did you guys have those conversations saying, look, we’re going to sell in five to seven year? How did you get aligned around that piece?

Jay Steinfeld:                     That’s, again, one of the most important things you can do when you’re raising money, is understanding the alignment. Frankly, you never really know. You just have to ask a lot of questions and talk to people that have CEOs and investors from other companies where they’ve invested and find out what happened. I spent a lot of time talking to other people who have raised money from the fund to make sure that what they said was true. Once you get in with somebody and you’re misaligned and, remember, we were just coming off of that situation, and that’s what I was afraid of. I’ve heard of CEOs being … you know, what happens to Uber, with Travis. He’s gone. You read so many stories of CEOS thinking that what they need to do is bring on a “professional” CEO, and you sign covenants that you may not understand or things may start going a little sideways, and then that triggers some covenants and then … I mean you’re screwed.

Jay Steinfeld:                     You’ve got to just make sure you’ve got people who you really trust and that seem aligned. All the questions that we were talking about, of course valuation is important. You can’t say valuation’s not important, but other than that, these covenants about alignment and when you’re going to sell, and there’s something called participation, where you’re not selling the company within a certain time frame. That triggers not really a penalty, but for the entrepreneur it’s certainly a penalty, where if you haven’t sold within five years or six years or four years, that you’ve got to make some payments, or the amount of money when you ultimately have to sell is increased, not so much by their percentage, but by this extra provision. Yeah, those things, not only do you discuss it, but they’re an actual written term in your contract. They’re all negotiable, and we did negotiate that.

Jay Steinfeld:                     What we had done was … here’s a really good tip. It’ll say if you haven’t sold it in a certain amount at this dollar amount, then you’ve got to pay X. We said all right, that’s fine, but let’s look at the top side too. What if we sell it for more than that in a shorter period of time? Then we want to cap that provision at a lower number, because we shouldn’t be penalized and have to pay that extra money if we get a really big number. As it turned out, that’s what happened, and therefore that provision never even kicked in. On the participation clause, I would be thinking about how you can put a number that if you exceed, then it doesn’t even kick in. That was recommended by one of my other stock holders. It might have been the single most important suggestion that that investor made in all the years he was there, and he’s let me know many times.

John Warrillow:                Let’s run through it. In a typical PE deal, they would say, look, you’ve got to sell within five years at X price, or you owe us X amount of money, you know, penalty.

Jay Steinfeld:                     We owe you $5 million.

John Warrillow:                Right.

Jay Steinfeld:                     What if we sell it way beyond that number? Then it won’t kick in at all because you’ve exceeded their expectations.

John Warrillow:                Even if the time frame is more than five years?

Jay Steinfeld:                     It’s all negotiable, so in this case it was within that five year period. If it’s past that, I don’t believe, as I recall, that provision did apply. We sold the company two years after we took the money from the PE firm, so that was way ahead of schedule, and we weren’t even looking at the time to sell, which is another good tip. If you’re building a business of consequence where you’re not building it to window dress it, but you’re really just trying to build a really great company that’s leveraging the bottom line, that’s growing at high compounded rates consistently, and you’ve got a good management team, even if you don’t sell the company, you’re doing really well and you’re increasing the value, so you’re not risking anything. We always ran the business as if we were not selling it and thought of us more as a public company, and building toward the possibility of going public one day. Not that it was a priority to do so, but we wanted to run a company so well that other than Sarbanes-Oxley, that it would be viewed by any potential buyer as wow, these guys are really, they’ve got a clean company and that provides a lot of confidence and makes it more likely that they’ll give you a great value.

John Warrillow:                I read that. I was interested in learning a little bit more about that view of running it as if it were public. I mean how …

Jay Steinfeld:                     I can give you some examples of how you do that.

John Warrillow:                Well, no. I can think of ways that you would do it technically. I’m wondering how you do it internally to make that digestible for employees, because on one hand, you know, they didn’t join Home Depot. They joined a nice little company in Texas with Jay who walks in the door every day, smiles at them, knows them. These 150, 175 employees, they joined your company. A lot of people would say I don’t want to be part of a public company. I don’t want that scrutiny, that 90 day churn. I don’t want any of that. I want a nice folksy business to join, but you convinced them it was a good thing. How did you do that?

Jay Steinfeld:                     I convinced the associates that were working for me to work harder. Is that what you’re saying?

John Warrillow:                Work with more rigor and what would be viewed as a public company rigor.

Jay Steinfeld:                     Well, what I thought was public company rigor turned out to be naïve. Now I know what public company rigor is. I thought we were running it like a public company, but we really weren’t. We were doing things like having a real board with real governance, and having to have real board meetings with people who could keep us accountable and increasing our perspective on whether we were really leveraging and getting the performance. Now that we’re part of Home Depot, the scrutiny is enhanced, to say the least. We’ve actually become a better company now than we were then because of that. If we have the mindset that we always want to get better and we don’t want anything sloppy and we want our records clean and we want good accountability by everybody by doing all best practices, you’re just going to have a better company, period. Any company that’s growing, that’s going to maintain its success, just has to get better at everything. It wasn’t so much that it was being run like a public company. It was being run like a company that has to get better in order to succeed and stay relevant.

Jay Steinfeld:                     Then we were pumped more obvious things like getting outside board members, changing to a big four audit firm, switching to Silicon Valley bank instead of some local banks, the types of things that anybody who’s looking at the company would say, yes, it looks like they have associated themselves with the right people who will provide the right governance and oversight. That’s really more what I mean by pressing us to squeeze out a penny here and there.

John Warrillow:                Got it. Talk about the triggering event that led to the Home Depot acquisition. You mentioned you were on a mission, you weren’t planning to sell. How did that sort of transpire?

Jay Steinfeld:                     Well it’s not exactly accurate to say we weren’t planning to sell, we just weren’t planning to sell yet, because once you take in private equity, you better be planning to sell, because if not, you’ll be pushed out. That’s ultimately what has to happen. What happened was we were running a company and we were number one in the world selling blinds online, and we were beating everybody. We had a very big market share, so you’re going to run the attention of companies who are maybe number one at other things and not in this category. At some point they all have to say what is going on in Houston? How are they doing this with so few people and so little capital investment? There’s something going on there.

Jay Steinfeld:                     We started attracting several companies who started looking at us. We had no banker. We had no book. We basically just had out senior leadership team notes and we had some good minutes from our board meeting, and we had good decks that we were continuing to evolve. We just went into these meetings with here’s our last board deck. Here it is. Look at that. Of course everything was looking good, the numbers speak for themselves, and it didn’t look like we were trying to sell, which we weren’t. At some point, they say well, it’s a make or buy, and these companies decided to buy.

John Warrillow:                How many companies were at the table at the time? Home Depot being the winner, but were there other folks?

Jay Steinfeld:                     At that time, two.

John Warrillow:                A total of three, including Home Depot?

Jay Steinfeld:                     Yes. Well, two at the time. It was Home Depot and one other.

John Warrillow:                Got it. How do you, as a CEO, get your sort of comfort level up to share that level of detail with a company that ultimately, if they decided to make, instead of buy, would be your biggest competitor.

Jay Steinfeld:                     We were careful in how much information we were giving. We gave general ranges. Even on EBITDA discussions, we would say it’s greater than the majority of e-commerce companies. It has improved each of the last five years, and our gross margin has improved each of the last X number of years, so providing general guidance was really what we needed, because they could then sort of connect the dots to know that, okay, we told them what the revenue number was, so they knew the market share, and knowing that profit was going up and gross margin was going up and seeing our culture especially, they knew that there was something special going on with the company.

Jay Steinfeld:                     We had built our own technology, a web platform. It’s a configurator that they didn’t have and no one else had, and it was agnostic to product category. It was for blinds or anything else, so when you talk about a big public company that did not have a technology that we had spent four years developing, they have to say can we even do that? If we can, how much will that cost and how long will it take? They were at a point where they were thinking, we’re number one in everything else. We’ve got to be number one here, so here’s a company that’s getting bigger and more profitable almost every quarter, and looks like they’re heading to be public, so they were looking at us and saying how to we preempt them going public and take them now before they get too expensive? That was what happened.

John Warrillow:                At this point, there’s another player at the table. Did you get to the point of having two competing letters of intent?

Jay Steinfeld:                     No. There was one that we’d been talking to, and we were very close. We were maybe one or two deal points away from that, but Home Depot liked what they saw. It was aligned with their vision. We liked the people. We liked everything about what they were saying and what they wanted us to do with our technology, and they just acted faster. They had the intent, they had the will and the ability to strike first, and there was, of course, discussion on pricing and all that, but they had that intention to do it and to get it done. That whole process, I thought, went very well because we had very candid discussions on what was important to us and vice versa, what was important to them. Even the attorneys that were involved that we all know can be blockers to transactions, were not. Everybody was aligned, so our attorneys were talking to their attorneys. It was a beautiful thing, it really was.

John Warrillow:                Well that’s a first. We’ve done a lot of these interviews, and I can’t say that anybody’s referred to that kind of due diligence negotiation as a beautiful thing.

Jay Steinfeld:                     The people there and I, we could call each other any time. There was never tension during those calls. It was, look, this is what we really need to make this work, so we can’t budge on that, but what else can you do? It was that type of collaboration to work towards a win-win for both. It’s really hard to say that, but it really is true. The people involved at the front, he and I could talk and work through, I believe we worked through every issue other than the highly technical things, some of the covenants and things like that, which had to be done by the attorneys. Even they managed to work through everything with very little friction. I mean there’s certain things we wanted that they didn’t, and we couldn’t get it, but almost everything else was, look, this is what we need and we got it. We said this is something that has to happen for this deal to work, and after trying to be creative on working around it to come up with other solutions, and we realized we couldn’t, we both gave where we needed to because we both wanted it to happen.

John Warrillow:                What were the non-negotiables for you?

Jay Steinfeld:                     Cash. That was important.

John Warrillow:                They wanted to pay in stock?

Jay Steinfeld:                     No. They actually did want to pay cash. I can’t go into any other deal terms, but that was a non-negotiable because what I’ve heard is when you take stock or when you have earn outs and things like that, you get misaligned because of allocations that the parent or the acquirer has where they now start burdening your income statement with costs that you didn’t have before, and what you thought was an earn out now becomes harder to achieve because you’ve got another line item or two or three that you didn’t have before. It was important that I didn’t have to have those types of worries going in. It’s not just because I was greedy and wanted it. I just spend a lot of time building this and I felt obligated to my family and my associates that this be something that I didn’t have to be concerned about post merger. All the representations, whether they be written or oral that were made in advance, all have worked out. It’s been three and a half years. I’m still here.

John Warrillow:                I was going to say, why are you still there?

Jay Steinfeld:                     I’m having fun. All the things that they wanted me to do, I’m doing. We’re hitting plan. We’re working on growth initiatives that are enterprise wise, we have access to the whole executive leadership team to bounce off ideas, they seek our ideas, we collaborate towards growth possibilities, things maybe that even stretches Home Depot out of their comfort zone. The fact that we even have the conversation says a lot about the people there who will listen to a podunk little company in Houston.

John Warrillow:                Your words, not mine.

Jay Steinfeld:                     Yeah, and have influence. When you feel like you’ve got influence and you can transform what is now a $100 billion company in some small way and maybe in one or two ways in a big way, at least big for us, why would you not want to do it? I don’t want to start another company.

John Warrillow:                I mean as you look back though, you had $100 million company in 2012, before you invited the private equity group in. Is there any part of you that wants to go back to that independence of … I mean you still weren’t a start up. You had a very successful company. I’m sure you had a great lifestyle. I guess the reason I’m asking the question to give you a bit of time to think about it, was there’s probably a lot of people out there that are sitting there saying, I’ve got a great business, I’m making money, things are getting easier, it’s not as hard as it was in the olden days, and they’ve got an offer maybe, and they’re wondering should I take it and join the big company or, you know, is life really greener on the other side, or should I just remain independent and keep cashing the dividend checks? In your case, is there a part of you that thinks, oh, wow, I’d love to go back to 2011 when we were just cresting $100 million but I owned the whole thing and I could decided what and where we went? Any part of you thinks about that?

Jay Steinfeld:                     Well, the answer is unequivocally no.

John Warrillow:                Wow.

Jay Steinfeld:                     On a scale of 1 to 10, I’m at 11 for selling the company when I did and to whom it was sold. It’s been a great partnership. Everything that we set out to do, we’re getting the chance to do it. Because we’re a subsidiary, we have a lot of autonomy, and because our culture is so unique, they don’t want to mess that up, and they know that when big companies acquire little ones, that there are unintended consequences of things that they want to do, like compensation. No, we can’t do that compensation plan because it’s inconsistent with other subsidiaries we’ve bought. Once we do that, we’ll have to do it for everybody.

Jay Steinfeld:                     Well, with us they said we know that this is the way you’re paying people, is part of your culture. It’s part of what has made you successful. We don’t want to screw that up, so they were smart enough to know that they were vigilant to not mess up the formula. They’ve made good on that, and every time we’ve had some discussions about it, I can’t recall any time where, when given a proper, reasonable explanation, that they insisted that it had to be done a certain way, which is not to say that there weren’t some decisions that we don’t like. I mean my wife makes decisions that I don’t like. We’re still married and I’m happily married.

John Warrillow:                What was it like to tell your employees?

Jay Steinfeld:                     It was really one of the best days in my career, because we had such a dedicated group that was doing so well that being part of that and making that announcement, and by the way, I had made sure that every employee in the company had stock options, and that when the company was sold, every single employee got cash. That’s pretty cool, when you can tell everybody that you’re getting this. Then they find out how much they’re making and they’re just ecstatic. One of the things that I did was take $2,000 for each of my associates from my own money and set up a 529 account or a 401K if they didn’t have it, so that they could think about their own future. It was just my thank you, my personal thank you to each one of them for helping me really go far beyond any dream that I’d ever had. It was tremendous for us all to be there.

Jay Steinfeld:                     That doesn’t mean that over time people didn’t sense a change and have some concerns about it. It was always, all right, now that you’ve sold and you’ve got this money, are you going to leave? I still get a lot of questions. Are you leaving? Are you leaving? What’s going to change? I’m still here, and they still don’t believe me that I’m going to stay. It’s a constant question that I get, but they also see when I come into the office, I am just buoyed by the opportunities that we all have, and to be better than what we ever believed possible.

Jay Steinfeld:                     That’s actually the purpose of our company, is to help people become better than what they ever believed possible. That’s our stated purpose. That’s number one. That’s our why. When that’s genuine and they know that’s what I want to do with every single person, and so does our whole leadership team and the idea’s to help everybody else, it’s saying okay, we’ve gotten better and we’re going to get better. If you come into our office, which looks just like a Silicon Valley start up, all the colors, the open spaces, ping pong, shuffleboard, all that, it’s apparent that people are having fun, and there’s a lot of pressure, but we’ve worked through it and we’ve evolved to become better.

John Warrillow:                Well, hey, that’s a great place to end it. Jay Steinfeld, thank you so much for joining us.

Jay Steinfeld:                     It’s my pleasure. Thank you.


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