How To Do Less While Making More

March 27, 2020 |  

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Aater Suleman co-founded an IT services company called Flux7 in 2013, built it to 70 employees and sold it in 2019 to NTT DATA, the Fortune 500 IT giant.

To read a transcript of this episode, click here.

Aater Suleman co-founded an IT services company called Flux7 in 2013, built it to 70 employees and sold it in 2019 to NTT DATA, the Fortune 500 IT giant.

If you’re in the process of re-structuring in the wake of the new COVID-19 reality, Suleman’s story is rich with insight. It provides a number of lessons for any value builder with two significant themes emerging:

Do One Thing: Suleman and his partner started as “two smart guys with laptops” and would take any project. The partners quickly realized they needed to focus and become the best in the world at one thing. They decided on becoming experts in helping companies migrate their technology to Amazon Web Services (AWS). This focus created a domino effect where the more they concentrated their marketing, the more they attracted customers interested in AWS. They were able to say no quickly to wrong fit customers, reserving their sales resources for people who wanted to leverage AWS. They also found the focus accelerated their referrals, which in turn fuelled their growth.

Document Your Process: once Suleman decided to focus on AWS, they wrote down their five-step process, which gave customers the confidence that they had a methodology. Having a process also gave Flux7 a point of differentiation (we call it “Monopoly Control”), which Suleman credits with accelerating their growth dramatically.

This episode is jam-packed with insight, including:

  • Why brainstorming a business idea is a fool’s errand
  • Why you’re more likely to drown in abundance than starve out of scarcity
  • Why customers prefer you to have an opinion
  • The desperation index and how Suleman used it to choose customers
  • The ideal vs. acceptable customer
  • How to apply a “fit score.”
  • The bowling alley strategy and how to use it
  • How an hourglass may be the perfect visual analogy for a successful start-up
  • The difference between re-occurring and recurring revenue (both are good!)
  • The secret to a successful partnership
  • Preferred vs. Common shares
  • The payout waterfall
  • The secret Suleman learned after negotiating 400 + contracts
  • The power of LinkedIn for attracting acquirers
  • The difference between an IOI and an LOI
  • Why a plan may be worthless yet planning may be essential

Suleman credits focusing on implementing AWS and coming up with a 5-step process as the main reason they were able to go from two guys with a laptop to a 70 employee business in just six years. Wondering what an equivalent process could look like in your business. We’ve got you covered in Module six of The Value Builder System™ — complete module one free by getting your Value Builder Score.

Our guest

Aater Suleman, Ph.D. is co-founder of Flux7, an Austin-based DevOps consultancy modernizing enterprise IT infrastructure and processes and advancing knowledge of emerging technology for business value. He is a recognized thought leader and frequent speaker at events including AWS re:Invent, Dockercon, TechWell and O’Reilly and regularly conducts corporate workshops on digital transformation. He is a Technology Council Contributor for Forbes.

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Transcript

John Warrillow 

You know, as you spend time at home in these days, you’re probably starting to think about restructuring your company what needs to stay what needs to go, how can you operate in this new world and my next guest, Aater Suleman, made some really tough decisions in his company very early on, decided to focus on doing just one thing. Focus does a few things. it narrows the cash that you need for your company because you’re doing one thing not expending your resources on a bunch of ancillary things. Number two, it makes you much more referenceable people refer you when you can say that you do one thing better than anybody else. And it allows you to quickly jettison conversations with customers that don’t meet your absolute criteria for an ideal customer. It worked for Suleman, it can work for you in these times. Here to tell you his story is Aater Suleman.

John Warrillow 

Aater Suleman, welcome to Built to Sell Radio.

Aater Suleman 

Thanks, John. How are you doing?

Aater Suleman 

It’s great to

John Warrillow 

Yeah, I’m doing great I’m doing great too. Tell me about this company Flux7 what what did you guys do?

Aater Suleman 

So we were focused on helping enterprises innovate faster with specific focus on helping their IT departments get more productive and be able to innovate and focus more on changing the business.

John Warrillow 

Dumb that down for me dumb that down for me to something really basic. So what did you guys? What what how did that look? In practical terms? What were you doing?

Aater Suleman 

So, in fact, I think I’ll answer it from a broader perspective and then get into a little more specific. So the there’s a lot of change going on in the world of business right now. A lot of businesses that were traditionally physical businesses, if you will, are now moving on to the internet and taking advantage of the digital technologies. We are coming into companies often working with large, large businesses, the likes of Fortune 100 and fortune 500. And coming in and helping them with their technology needs as they made that transition from being a traditional business to a more digital modern business.

John Warrillow  

So you’re helping people with their their it so big, I mean, like there’s tons of, you know, I don’t know the numbers off top, my head but big, big brands, Nike. Abercrombie, these are all brands that are moving, you know, from a retail context into an online world, their percentage of sales online versus in retail stores, for example, are are growing pretty significantly. So you would help companies with this. So you start off with a fairly broad range of IT services. Right? It’s up point you got a bit more specific. Tell me about your focusing that you did.

Aater Suleman 

Yeah. So when we started the company, if I may start with the story, if you will. We always like to joke that we were two guys in the laptop when we started. Get hot startup in my garage in 2013. So between me and my co founder initially, I think there was some really interesting advice and learnings that we had. So when we were starting out the company, the very first thought was to go the more traditional route which is maybe go out, raise some investment, possibly try to build a product, which is very common in my field of IT and software, which is how most startups begin. However, we got some really timely and interesting advice from one of our acquaintances, I should say, Professor Sanjay Patel is at UC, and has built a couple of companies of his own. So Sanjay gave us some really interesting advice that if we do not have a precise problem that we want to go out and solve, it’s a futile effort to say go on the whiteboard and try to come up with an idea. I think, frankly, and that’s, if I may share an advice. I think a lot of entrepreneurs think that it’s the idea that’s where the company lies. And that’s really not the case.

Aater Suleman 

I think the idea is that the core idea of the company is something you continue to shape over time. It’s more the end it’s the ability to learn and quickly pivot to what the market is looking for is what matters at the end. So his advice was, rather than spending hours and hours on the whiteboard trying to hone in on idea, how about you just put yourself out there and start a consulting business. And start, you guys have some technical skills. Like I said, two guys on the laptop, two strong engineers, can you guys go out there and start helping companies with what they’re looking for? So that’s how we actually started. Naturally with that kind of a start, the focus was really broad. It was almost like we had a smart guys for hire kind of a banner. And we started projects, but all the way from helping people build software for solar panels to websites, as you mentioned.

Aater Suleman 

But the interesting part was that we started realizing pretty early in the journey, that if you actually want to scale a business, if you actually want to build it to sell, you actually have to focus on a specific area, it’s the common phrase that you would hear in the Silicon Valley that you are more likely to drown in the abundance of opportunity than to starve due to lack of opportunity. So we were starting to drown in the abundance of opportunity, though every project was different, every conversation that we were having was different. And that was not making it easy for us to scale and go deep into one thing and make a name for ourselves. A lot of references came in handy and in fact, if I may do a shout out actually Built to Sell was one of the books that a friend of mine recommended to me in those early days of the company. And one of my favorite books to date, actually, I read the book, we actually used the process. So the company started in 2013, in around 2014. We started making this realization that we’re going to have to narrow it down. We just can’t say yes to everything. Very, very important if I may point out another advice here. A strategy is to know when to say no. In fact strategy is about what to say no to not about what you say yes. Do you can say yes to everything. That’s not strategy.

John Warrillow 

So what did you start? What did you start to focus in on? What was the the thing that you decided to focus on?

Aater Suleman 

So we actually did it made a couple of decisions. I think the first one was we decided to choose a technology platform. And we decided that we would focus on Amazon Web Services or AWS in the in the cloud technology. What that meant was making some hard decisions, saying no to anyone who was not wanting to go into the cloud. The other decision that we made was we sharpened our focus away from application development. So just just writing like, in the past, we have it in mobile application, somebody would come to us and say, Can you write an iPhone app for us or can you create a website for us? We went away from that. And we said, we solely focus on a problem where I have a business, I have a business problem where I have maybe some code or some application or website that has been developed for me, I have developed myself, how do I make this more applicable to the modern world, taking advantage of the cloud technology, which is where AWS was a leader at the time.

Aater Suleman 

I think another thing that’s always important is again, goes back to my point about strategy is you have to have some beliefs about the world and the market. I think that’s really critical. And that’s what helped us sharpen the focus. Our belief was that the world is going to change in this direction, where IT and digital is going to be super important. The second belief was that all businesses are going to have some brush up digital going into the future, no matter basically, as they often say, everybody’s in the technology business. You may not know it, but everybody plays in the technology business. So that was one of our beliefs. And the third belief we carried was that human creativity is best spent on creative tasks rather than people doing mundane tasks across the business across the IT. So our focus was automation, take advantage of the cloud, take advantage of technologies that exists rather than rebuilding stuff from from scratch.

John Warrillow 

So you guys started to focus on instead of being kind of everything to everybody, you started to focus on being an AWS partner, in essence, is that is that right? I think a lot of people Aater have heard that advice before that they’ve got to focus and jettison some of the things that they do to get really clear. I love your your term drowning in in abundance. What was the toughest part about saying no to people that were asking you to do things that were not in your focus?

Aater Suleman 

Well, it’s hard to say no to revenue, frankly, when you’re a small business owner with a few employees, people that you have to pay and you have to put food on your table. It is always hard to say no, it takes a certain amount of restraint and discipline to be able to say no, and continue to focus on the goal. So I think that’s by far the hardest part, which is how do you balance the finances? We were bootstrapped company.

John Warrillow 

How did you balance the finances?

Aater Suleman 

So we actually this is more than half joke but it’s actually very real. We I came up with this term that we used to call the desperation index at Flux7. The desperation index was that Yeah, there are times when we would be in desperate need of customers and in desperate need of revenue. At that point, the desperate desperation index would be higher and that would mean that we would really open up our qualifying criteria a little more to tak in projects that we may not take at a time when the desperation index is low. So, literally there was a strategy was to A) being very aware of frankly, what the desperation index was at a given point in time, and then B) being able to use that in a sales process in a very dynamic manner. It would be a lie if I told you that, once we made the decision that we’re going to focus on this one thing, we just did 100% of that thing, that was not true. But that constant focus enabled us to get to it. Say that 80-90% of our revenue, close to 95%, for example, last year, actually came from the specific focus areas that we had. I think one one advice was also to kind of write down that focus area. And I really mean like the words right down there.

Aater Suleman 

Going to the effort of writing down what you put your focus and your customer qualifying criteria is, it’s okay to budge from it. That’s not a problem. If somebody comes to you, I think I mistake that I made for many years to be honest and is really a lesson learned the hard way I should say is  that writing down and specifying “This is what our focus is going to be” does not mean that you have to say no to everything else, you can still be a bit dynamic about it. But the difference is, it’s how you go to market. It’s how you introduce yourself that should focus on your area. So for example, just being very concrete when we said we’re not going to do anything, we are going to focus on Amazon Web Services, just creating a hypothetical scenario over here if a customer came to us and was actually wanting to use say the Microsoft Cloud, which is a competing product, would we have not even talked to them? No, we would have had that conversation. Just try to understand what they are looking for.

Aater Suleman 

And in fact, we did have a few of those scenarios where the customers ended up changing minds and after talking to us decided to go to go to AWS. So you would want to entertain that conversation. But the thing is that if you went to our website, there was no mention of us being able to do Microsoft, it was all about how you go to market that was all about AWS our partnership our focus. Gartner actually does a really good job, in my opinion, they actually call it two different personas, if you will. One customer profile is this is my ideal customer. And then there is a profile called acceptable customer that to me is one of the cleanest frameworks I’ve seen, just have them both written out. What’s your ideal and what’s your acceptable and then if you can remember the desperation index concept for me the the acceptable definition can shift a little depending on how desperate you are for anyone a given point in time.

John Warrillow 

Did you actually publish the desperation index? was it was it a number that you said, Look, we’re at seven or DEF CON 9. Did you actually use it number or was it sort of more tongue in cheek?

Aater Suleman 

We did not have a formal number that we published, but it was a, we actually had another thing that we created within the company was this concept of a fixed score. So we would actually rank a customer deal that would come in to see what the fit score was. And there were certain criteria that went into it on a scale of one to 10. So on a low desperation time, the we would want it to be eight or nine before we would actually take the project and our high desperation time, we would go to low that threshold down to five or six. So it was a little bit quantitative, but not not really science.

John Warrillow 

Aater, you know, you’re being very modest. A couple guys in a laptop. You built the company to 70 employees in the space of seven years. So this is this is a juggernaut company. This was a rocket ship. Tell me I want to get to… so you focus in on AWS. Explain how people understand who may be sitting on the fence saying, Oh, I don’t know if I should focus. I don’t want to say no to stuff right now. I want to be sort of customer centric and broad. Tell, tell me about what impact focusing on AWS, focusing your go to market strategy. What impact did that have on your company in the ensuing years?

Aater Suleman 

I think there’s two areas. And if I may start with the first piece, which is really important, I think it’s a misconception that customers want to work with vendors who can just adapt to their needs for everything. In my opinion, that’s a strong misconception. I think that’s most prefer vendors who have an opinion or come in with an opinion and say, “This is what you should be doing and this is what we think you should be doing.” So  it actually increases your close rate, if you will. If I have 100 conversations and I go in opinionated. It’s a bit counterintuitive, but there is a lot of data out there that shows that you actually close more business if you go out opinionated, the other piece of it is, so that’s the first part you close more. The other thing is by being able to say no to customers faster, or frankly, just giving them the data. And if they decide not to work with you, then it frees up time because time is your most important asset. As an entrepreneur, it frees up time. So you can then have more conversations than before. So if you say closing one out of every five conversations, but now you can have twice the number of conversations, you just doubled your business right there, basically because you did not waste time having conversations that don’t lead to anything.

Aater Suleman 

So that’s that’s something that we actually saw in our business. The second area was it allows you to be really good at something and it’s really important to be the best in something in my opinion. At Flux7, one of the taglines I always have is that we want to be the best In the world at one thing rather than be mediocre at a lot of things, and that one thing we chose to be was being able to help companies adopt Amazon Web Services. And we had a relentless focus on trying to be the best in the world that that that had impact on how we went to market, our deep partnership with AWS that we were able to build, they have a strong partnership program, we were able to climb through the ranks to get to a premier partner to when we made it to that level, we were one of the smallest and the youngest company to have made the premier tier we were in the we were sitting with the likes of essentials and of the world. And then and that actually then led to more business as well. Because when you’re really good at that one thing, people go on the internet or people go talk to AWS and say who’s the partner we should talk to, they would send them to us. So that actually led to a lot of growth and that’s how I basically feel. Like I said that’s a little counterintuitive, but saying no fueled the exploration of the company.

John Warrillow 

It’s not counterintuitive at all. I love the example and and I think it just applaud you for having the discipline to do it. And there is sort of this snowball effect, right? Where you the more focused You are the faster you say no, the more you become known for something the more people want to do business with you. Even having an opinion. I think those are all amazing lessons for sure. Were you worried at all, as the business grew against 70 employees, a lot of mouths to feed? Were you worried at all about your dependence on Amazon as a company? Did you did you have conversations about but what if Amazon changes strategy and doesn’t go to market through partners anymore? What if Amazon changes their pricing model? Or what if Amazon, you know, gets hacked and you know, all that. What did you have those sort of, you know, conversations internally?

Aater Suleman 

Absolutely. It’s very, very natural. It’s very healthy. Extremely important, in my opinion to be having those conversations. If you go back and kind of look at our, we used to have these quarterly company meetings, and I do often go back and just look at all the decks that I created from all those years and the questions I got just down the memory lane from time to time to go back and learn from our own history. And that was a question that came up almost every single meeting, which is, are we going to stay exclusive to Amazon? Or are we going to expand out? And my answer was always the one same thing, which is there’s still opportunity in this area. We have built a name for ourselves. There is no need to get out of here yet. This was not something we were married to. Towards the latter half of 2019, we actually did start to make some investments into other providers. Just we’re always doing this cost benefit analysis, if you will. And at one point, it looked like we had grown to a point where we could actually make a meaningful contribution to a second ecosystem. And I think that’s the other part, which is it’s always about, can you make meaningful contribution?

Aater Suleman 

When you are 20 people, and we have 50 people, the only reason we were able to get to that top tier status with Amazon was because of our focus, because we were just trying to focus on that one thing, and that enabled us to get there. When you go to a certain point, then you have the opportunity to fan out why not, and then look at a broader areas. But it’s, if I remember correctly, I think it’s called the bowling alley strategy. The way the strategy talks about it is that you want to be the gorilla in one area, and this is from a book I read five years ago, so my apologies to the author, others who may be able to correct me here but basically the bowling alley strategy the focus is is that you are Want to find that one bowling alley that you are the best at that you are going to be the best in? Once you have conquered that bowling alley, then you can look at the adjacent areas. So that’s that’s really critical to me. So yeah, so focus doesn’t mean a perpetual focus. In fact, focus doesn’t mean at all getting religiously married to something I think it’s about, constantly be doing that analysis on what your focus needs to be and if you need to broaden it or if you need to sharpen it, but not having a focus is what’s most dangerous.

John Warrillow 

The image of your image of your story Aater. The image is coming to mind for me as an hourglass. So when it’s two guys on a laptop, you’re very wide at the top right, I’ll take any project, just give me some money a moment, we’ll make it happen, right? But then you get very, very narrow. Very narrow for the next seven years. We’re the best at AWS implementation. We’re the world’s leader or premier partner, and then as 2019 progresses, the aperture starts to widen like the bottom of an hourglass it starts to widen again, there’s a second lane you guys start to get into. I think so many business owners start at the very top and they get really wide and and never go through the funneling process that the narrowing process. And and that can be I just, I don’t know if you have a reaction to that as an image, but if for me, it’s what you’re describing.

Aater Suleman 

That’s very accurate. In fact, to point john, at the using the hourglass analogy, I think there’s actually something really interesting I want to share with the audience. So when we were actually sharpening our focus in 2014, and I hope I get to embarrass you over here by giving you guys a lot of credit for the Built to Sell framework. When we were actually sharpening a focus in 2014. We actually went I literally took the book, The Built to Sell story, and you know when the main character decides that he needs to sell this company. And one of the advice he gets is that they need to take what they do and turn it into a process a five step process, ever since it was in graphics design, there was like work collecting requirements, proofreading, etc. We actually went and sharpened in early 2015 timeframe. So I think timelines are really interesting. 2013 the hourglass starts. 2014 it’s sharpened down to AWS. 2015 we’ve sharpened it down to the point that we actually had a five step process. People would come to us and we literally had a slide saying we’re going to do this, then we’re going to do this, then we’re going to do this, we’re going to do this. And here’s the pricing sheet. You have a application that you want to put in the cloud. If the application has three components, it’s going to cost you $15,000 if it’s four components is going to be $20,000. It was literally a spreadsheet of pricing and a five step process. And that’s actually what then allowed us to do a point earlier about kind of become the best in the world have the earned the reputation of being best in the world at that one thing. That’s actually what got us that acceleration really quickly, also enabled us to scale, picking up a lot of customers logos at a very quick rate, because when people are looking for exactly that.

Aater Suleman 

At that point, we were mostly working with small to medium businesses as our customers who had very similar repetitive needs. This was not a high margin business, which is why it wasn’t sustainable to build a 70% of our go off of that. But for 15-20% of it was great because we had the process laid out the pricing was on the website. Basically nobody else was doing that in the consulting world when we were doing it. And that gave us a strong differentiator and we were able to move very fast because of the five step process and even optimize and tune the process. We built internal tools once we have broken it down into the five step process. Then over time, to your point, the hourglass started to widen again. When we when our reputation grew to a point in 2017 timeframe that basically these big companies started to reach out to us, we would like, just open my email. And these are true stories. And I would have an email from like an IT director of Fortune 100 company and say, Hey, we have heard a lot about you guys. We want to talk work with you. Now, at that point, these enterprise customers do expect more flexibility, the five step process was not going to work there. So we had to widen the hourglass again. But I think your analogy was really good. And I think that that five step process, even though we don’t have that anymore, today because if we widen the focus, if you were to ask me and say, What would I go back and change because there’s always something and that would be one of those things. I wish we had stuck with it a bit longer. I think we actually widened a bit too fast. I think we could have built a stronger business. If we had stayed a bit more close. But I think it’s that process that laid out in the book. I think it’s great, actually, it’s from that standpoint, we literally followed it to the letter to build a process.

John Warrillow 

I’m thrilled to hear at work. So that’s great. I love that. So you really document your process. For folks who haven’t gone through that process that the documentation piece of it helps us understand what impact that had on customer confidence. At the time, you’re working a lot with small medium sized businesses. When you fire up the PowerPoint with the five step process. Did you see any difference between sort of how customers reacted before you had the process and how they reacted when you were able to show them the process?

Aater Suleman 

Absolutely. I think that’s it made a really big difference that we, I mean, I’ll just give you a quote from one of my customers when asked for reference by another customer. He basically just told them one sentence. He said “These guys have it down to a science.” And the act of like going to the cloud, which is considered to be a very complex thing, having it down to a science and being able to break it down into five steps, was very impactful. There were many customers, like I said, when we when these enterprises started talking to us, it was actually a pretty strong differentiator that we had an opinion. And like I said, I wish I could be that focused again, because from a sales perspective, that was like a dream come true. You would just get on a sales call. And we would just win the business like basically getting getting on a sales call on the hard part. Once you got on the call. We knew we would win that pretty much every bit every call we were getting and we were winning the business.

John Warrillow 

Fantastic. How did you finance your growth? It’s you and your partner. Were you guys equal partners in the beginning?

Aater Suleman 

Yes we were. We started out as equal partners and we actually had slightly against the conventional wisdom. We actually did not do like a 51/49 we actually did a 50/50 between the two of us. There was a lot of mutual respect and friendship there. Ali and I had known each other since college for about 10 years before Flux7 started, and that that mutual trust, I think, went a long way. We did discuss the possibility of doing an uneven split, but then we felt that would be more motivating for both of us to stay equally engaged with equal skin in the game. We funded the business completely bootstrapped it up in the beginning, so yeah, while we don’t have many ramen noodles stories to share here, but we do have the stories of time. In fact, if they were, they were months when we had to just defer taking a paycheck. And these were watered down salaries. So this was a we were just not taking very watered down paychecks even sometimes deferring them for months to let the bank account fill up before we can actually cash the checks. But so yes, it started out I can say from sweat equity. We grew the business from that until in 2018, when we saw an opportunity to just grow the business even faster, and we were coming to a point where we had to make some big strides. One of them was building a sales team for real. So that’s when we actually raised some capital, angel investors, friends of friends. And again, that then further fuel the growth, the last step of that journey before we got acquired last year. So we’ll actually then feel through the funding that we had actually raised that enabled us to hire a sales team.

John Warrillow 

What valuation model did you use to value the business in 2018? Was it kind of a multiple of revenue or EBITDA or how did you how did you value the company?

Aater Suleman 

Multiple of revenue? That was very common. I mean, it’s always a challenge to decide what that method is going to be. Keeping our eyes and ears open, I think made a pretty big difference. Just knowing our peers, other entrepreneurs in our field. When we were hearing about somebody else raising money, just making sure we like to reach out to them and to figure out how they work the day, even if they could not share specifics. So we have been prepping that mentally. For a while we kind of knew what the running multiples were, what the typical methodology was. So when the time came for us to do a raise, valuation was actually one of the least sticky points in the conversation.

John Warrillow 

What were you seeing in the marketplace in terms of range of multiple of revenue for a business like yours? Like what were you starting to kind of see as a fair multiple of revenue?

Aater Suleman 

So in 2018, that number, the multiple changes over time, that depends on how niche the businesses and what who else is in the market and just how the how the ecosystem is doing but in our ecosystem, there was about three times right revenue, most mid ranges going all the way down from two to 4.5. But three was pretty much the average.

John Warrillow 

And what proportion at the time of your revenue in 2018 was recurring?

Aater Suleman 

We actually had very little recurring revenue in 2018, most of our revenue was actually project by project.  I guess there was a colleague of mine who says that there’s a third kind of revenue, which is often not talked about and that is non recurring, but tends to occur. So we had that revenue, which is that it would be signing short contracts, but they would just keep renewing it over and over again. So it was recurring, it was non recurring, but it continued to occur.

John Warrillow 

Yeah, we call that the difference between reoccurring and recurring, recurring being subscription revenue, which is automatic, and reoccurring like a rash, which happens on a unpredictable but very common basis. Sounds like you had reoccurring revenue.

Aater Suleman 

this might be a very personal choice. But like I have said it on the other side of the table with consulting companies in my past life. And I had always, frankly, been a little for the lack of a better word, a bit frustrated at the push for these really big contracts and really lengthy contracts. So we actually built the business kind of from that insight. The catchphrase I often use was that we want our customers to call us because they want to call us not because they have to call us.

Aater Suleman 

So we didn’t want to put any even when we did have long contracts, we will have an exit clause in the middle. If we are not adding value just let us know we’ll leave. Which I think was actually incense really good because it actually kept our company under the leash all the time. And that was good because it forced us to deliver quality work. If you want an extension of the contract that’s coming up next month, you have to make sure the customer is super happy otherwise you’re not going to get an extension.

John Warrillow 

Aater, who is your partner in the business? Forgive me, I’ve forgotten his name. You said it earlier.

Aater Suleman 

Ali Hussein.

John Warrillow 

Tell me about the dynamic between you and Ellie leading into the 2018 finance raise? Were you both on the same page about the need to raise money. Was one sort of more bullish than the other?

Aater Suleman 

Yes, frankly, if I may brag about something over here a little bit, is that I think that’s actually one of those things that really made an impact on Flux7 was how much respect Ali and I carry for each other. I think it’s been phenomenal. Frankly, I could not have asked for a better relationship. And I’m not just saying this to make Ali feel better or anything. I know he’ll be listening.

John Warrillow 

What’s the secret? What’s the secret to your relationship? Like break it down for me? Why does it work?

Aater Suleman 

That long relationship that we brought into the business; the 10 years of knowing each other. The second was, I think there was a lot of values. We don’t agree on everything. In fact, there’s a lot of things we don’t agree on. But the difference was that there’s a value system, if you will, that we believed in both of us believed in, for example, we would both put our integrity ahead of money any day, we both strongly believed in that. We both are just not the kind of people in any business dealing or personal dealing. We just don’t nickel and dime. And I think that made a pretty big difference when we were making those decisions. May not be the wisest decisions, but it never led to us parting ways, if you will, because that’s where a lot of those differences occur. I think there was a lot of clarity in what areas we were each going to focus on. Even though we both came from engineering background Ali took more of the technical leadership and I took more of the sales and the business side of the focus.

Aater Suleman 

And we never really, like I said, we never really sat down and frankly nickeled and dimed each other on you did this and I did that. We both were working as a team kind of taking that collective approach helping each other out as needed. And I think one of the best things that came from that is, frankly, I see a lot of that in all of my team today, with any new new hires that we bring into the company, one of the first compliments that pretty much everyone gives us, wow, everyone’s just so helpful over here. Nobody cares about what their job is, what’s their job and what’s not, we’re going to step up and help. So I think that that made a very big difference. So coming back from that to your question about 2018. So in a way, it was very simple, we were really both on the same page.  We had disagreements on how the contract needs to be written, what are we going to fight on and what are we not going to fight on and the mutual respect allows us to have those heated discussions and come out of them without having lost any of our personal capital with each other.

John Warrillow 

Fantastic. You mentioned that valuation was one of the least contentious issues in 2018. When you raised money, what were the more contentious or more difficult things that you had to work through in, in that capital raise?

Aater Suleman 

Frankly, it’s legal stuff that we were not aware even existed. For example, different classes of stock. I did not realize that that was even a thing until we got to that phase. We thought everyone was just going to be with like the same common stock until we learned about preferred stock, although eventually we ended up settling that we will all do common stock, but I thought that was an important learning.

John Warrillow 

Let me just be clear to the investor wanted preferred shares and for you to keep common stock. Is that right?

Aater Suleman 

That is correct. Yes, that’s a very typical model.

John Warrillow 

And what is it? So for folks who don’t have never gone through this process explained to me what preferred shares are and what rights they have versus common.

Aater Suleman 

So, to me, and I’m no expert in this at all, but to me, the biggest difference was that  it’s the waterfall of how. So one of the things I learned in the exit, and if I may jump to the exit was a lot about the business. And a lot of things I could have learned earlier, I wish I knew I’d known earlier. One of those was how, when you make an exit, it’s not a simple like, I’m going to agree on a $1 million valuation and then $1 million is what I’m going to get, that’s just not how the world operates. It’s a far more complex process. They actually call it a waterfall, where you agree on the valuation of the business, but then you agree on the transaction expenses, and then the transaction expenses what’s in and what’s out? One of the most complex things that come about came about the acquisition to me, frankly, caught me by a complete surprise was this idea of like changing drivers on a rolling train when you when you’re going through an acquisition. So what that basically means is like just keep that analogy in mind you’re changing drivers on while we’re driving on a highway 100 miles an hour, how are you going to do that successfully without disrupting the current flow of the business? How are you going to decide what does valuation even mean? Because we were scheduled to close the night of December 30, at 11:59pm. There’s going to be transactions flying around on both sides of that right? Some customer invoices are in flight. Other customers have the work has been delivered, but not invoiced, yet. Other credit card transactions have been swiped but not yet built, who’s gonna take what transaction and how’s all that going to work?

Aater Suleman 

So those are all things that I learned. If I kind of go back to the legal stuff and the waterfall. So using that, given the parameter to answer the question about the waterfall, so one of those complexities that I learned about was that your money doesn’t get distributed as the value be on a valuation of 1 million, and you get 1 million, and then you guys divided about yourself, that’s not hard work. It’s a waterfall that actually gets created, who is going to get the first right to money, then who’s going to get the secondary to money? And the way it works is the first things that get paid off are the liabilities of the business. So maybe you agree on a $1 million valuation, but the business has $100,000 loan, that that’s the first thing that’s going to get paid off. Then the question is who gets paid off next? So who gets paid off next is typically your preferred stock is the one that gets paid off first, and then your common stock. So that and while it may not matter, like who cares how the waterfall is? Where it does matter is that on the preferred stock, and again, all of this is negotiable, but what I’ve seen commonly do people do is that on a preferred stock, one of the requirements is If the investors give you a million dollars, they will take out their million first regardless of how much the company sold for before the water falls to the next level, and then gets divided into at the next level amongst the common stockholders.

Aater Suleman 

So that’s basically the areas that they will, they will take their money out first. And then even on the preference, there is like multiples that people will put some. If you watch Shark Tank, there’s actually some really good learning that you can have from that. And I actually did watch that show to learn some of these economics and how it works. You can actually put on your preferred stock might say, well, if I’m putting in a million, I want 2 million back before you can take any money, investors who do that kind of stuff. So that those I think those would, I don’t think any of it was for us. We were very lucky. I guess I’ve been very, very fortunate in a lot of areas. And this was one of them that our investors were not too different from myself and Ali in our value belief system. So which made the process really easy. It was just a matter of We both wanted what was fair and what was right. It was more just a matter of getting to just getting pen to paper. So one of those things that was discussed and totally caught me off guard, but I had no idea about was this discussion eventually came out to be just the way we both wanted. But just I think it was just an interesting experience.

John Warrillow 

How did you get investors to move off of their requirement for preferred shares? Like how did you make that case that you should all be in the same boat with common shares?

Aater Suleman 

I think the one of those things that we established was, and I always recommend this and being a little philosophical is that I’ve seen people get very contentious when it comes to negotiations. And if I may give a bigger advice, I’ve obviously negotiated over 400 contracts in the last five years. So on a lot of first hand experience, one of the things I’ve noticed is that like, you always have to start with a belief that neither party is trying to screw the other party. It’s really just a matter of everyone’s trying to be fair, we all trying to get to the right place. And then start with first agreeing, there’s a framework around this, I think it’s called difficult conversations. That’s nice book there as well. And that actually talks about that, like, let’s first agree on things that we all believe in before we start to talk about things that we all disagree. And one of those things we all believed in was we have to do what’s right for the business, we have to prepare the business for a clean, simple exit. We don’t want to pay a lot of money to our lawyers, frankly, we would rather do things that are simple, and we all trust each other and we all agreed on those things very quickly. When that was there. It was more a question of well, we’ll preferred stock held the business will preferred stock make it any easier or harder for us to achieve our goal which will be to eventually exit the business and the answer was, well, preferred stock is great, but what it does is it misaligned mine and Ali’s interest with the investors interest they would want something else for the business then we do. Misalignment’s not the right thing for the business and it’s gonna deter us all from achieving our goal. So and that’s basically the common rule that we use for every other decision, we made. What’s right, what’s gonna help us achieve our goal and what’s gonna deter us from the goal. And that’s how we made this.

John Warrillow 

It sounds like Aater that your goal from this business fairly early on was to build to sell. You read the book, in the conversations you had with investors, it was clear that there was sort of an exit path in mind. Why was that your motivation? What was it that you hope to achieve through selling?

Aater Suleman 

So I think for me it was Ali and I basically bought started a career as entrepreneurs. That was what t led us to start Flux7 in the first place was this entrepreneurial spirit. And as an entrepreneurs, I feel like it’s one of those things that you always aspire to is that you can build something of such high value that somebody else wants to pay for it. Frankly, that’s just really, I think it’s a really meaningful test of what you’re actually building that are you able to build something that somebody else feels it has enough value that they would want to pay something for it. And that’s really, that was really one of our as just a building an entrepreneurial career, that was just a very simple one way of thinking about it. The other aspect of this was that we felt that folks that were when we were on strawman salaries in the very early part of the company, like I said, we weren’t alone. Some of our early employees were right there with us. And one of those things was that well, eventually, folks, who were right there with us, helping us on low salaries and working extra hours, how are we going to eventually make it up to them and this was one of those ways to do that. So that was that was kind of the original insight. And let me actually jump seven years and talk about where we were and close the loop on that decision. So that was a vision, we had been pretty vocal about it all along pretty much all of our team, our team members, employees had all known that that would be the aspiration one day, that’s how we’re going to do this. But what kind of made us decide what the end was it was just finding the right partner like we were in a hot ecosystem. We would be having these conversations all the time. But what really kind of made it all work was that we started seeing the, the next level of growth for this opportunity.

Aater Suleman 

To capture the opportunity that was in the market is gonna require us just to have a have a stronger backing, if you will, and so this decision was made actually in early 2018. I think there’s a really interesting aspect to this. And, in fact, your book talks about it, I still remember the story of how the entrepreneur then goes and talks about the fact that he had made that decision to his employee. So I kind of took a different approach there, which is pretty much at the time I hired everyone, I let them know that this is how we’re going to do it someday. So everyone was brought in with that understanding. So we did set some time milestones for ourselves, we kind of said, well, first time we’re gonna play with the idea will be 2018 that will be five years into the company. And then if that doesn’t make sense, then 2020 would be the next one. But sort of an ultimate deadline to ourselves was that around 2025, we would have made some kind of a decision and that really helped to keep us honest. So in 2018, rather than making an exit we ended up raising some capital. In 2020 we ended actually making the exit So we kind of followed that schedule that we had built for ourselves. And in 2018, when the first time around, we came about one of the things I did was actually put together something like a business case for my employees on why we would be thinking about either an acquisition or an investment. And that was basically something that I actually put together like I would do for a board, if you will. And we actually went ahead and presented it. I had something like 10 meetings, I broke my team down into groups of five, talked to every one of them, explained to them go seek opinions. And one of the things I had them do was, I said, Well, if we were to go down the acquisition route, what would be important to you? What would you look for in a partner? And the team actually cooperated, we actually jointly made a list of seven attributes that we would want to see in a partner. And then conversations continued and then we found we had a conversation with NTT. And it seems it felt like they everything that they brought to the table, we hit on seven checkboxes.

John Warrillow 

Tell me about how the actual transaction itself with NTT. So what triggered the conversation to begin with? Did you take the business to market? Hire an advisor and shop it? Or did they come to you? What was the process there?

Aater Suleman 

It was the latter. Actually, the conversation started with them coming to us. If I may go back, just a little,  in 2018, when we did make the decision that we would be going down this route, we did a few preparation stages, and one of them was to choose an advisor and have them under contract, if you will, so if we need them, they were retained. If we needed them, we could use them and we did consult with them when we raised the investment even though we did not use their services for the investment but it was good to have somebody we could call and have a conversation. And then come 2018, we will always be getting these outreaches we actually decided to start to see late 2019 that we had multiple suitors, if you will, that had reached out to us. By the way, if I may say that a small important tip. LinkedIn is a very powerful tool, in my opinion, that’s actually where most of our inbound came from. So NTT had reached out to us via LinkedIn actually. And the conversation started and I can’t say it’s just that they reached out to us. We had, like I said, we had that 2020 goal in mind. So they reached out to us we already had this timeline in mind, a couple of other folks reached out to us, it was just a very nice alignment of time. But as we compared our choices, that seven point checklist became our guide on how we were going to go with and that’s why made the decision really easy.

John Warrillow 

And in how many formal offers did you get? Was it just the one from NTT or or did you get other sort of formal Letters of Intent?

Aater Suleman 

There were a few. So to the exit process itself, I guess the one thing I’ve been told over and over again, is there’s no one standard process. But the process that we followed was kind of the more traditional two step process. Step one was just did like a teaser on the business. And we reached out to folks on those folks had reached out to us the others that we also reached out to we did a one page teaser and the teaser then translated into the indication of an interest from the potential buyers which narrowed us down to about half a dozen.

John Warrillow 

How many how many got the teaser?

Aater Suleman 

Oh boy, I don’t have the exact number it was, it was in the teens, if you will, to

John Warrillow 

Let’s say 20 down to six IOIs indication of interests that’s there and then out of the six, how many converted into LOIs?

Aater Suleman 

Then it came down to three that were actually in the mix at the very end of the last date of process.

John Warrillow 

And the three you mentioned, the fit with NTT, just give me a sense of how broad a range was there in valuation. Were they all sort of triangulating around this three times revenue number or was there a wild variances between the three?

Aater Suleman 

So I’m under strict obligation to not talk about number of the value. All I can say is the number wasn’t a simple 3x it was a bit more complex at the time of the exit. 3X was what we use when we did the raise the money, but that said without getting into any specifics on the multiple itself, they were in the vicinity of each other. So no wild differences roughly the same ballpark. The deal structures were different, though some are more favorable than the others in terms of just cash versus equity balance, if you will, on how what the structure of the deal was. One of the things that, frankly, and to my point earlier about, like I think your employees are your strongest assets. So one of the things that we absolutely looked for was that criteria checklist and one of those things very high on that criteria list was employee retention. The team that had helped us get there, we didn’t want the team to be losing their jobs when we are making a successful milestone. So that was very important to us that everyone in the staff was retained, and that in the deal structure in general, kind of being favorable to that and we will do that. So that’s actually one of those major things that stood out for us for NTT frankly,

John Warrillow 

Fantastic. So employee retention key there. Again, those seven criteria. If we go back to the three offers, I think people would be, you know, I think that without having gone through an exit, sometimes business owners think, okay, it’s gonna be 100% cash at closing. What when you looked at the three offers again, I know the NTT deal is highly confidential, but perhaps you could you could share your your perspective on what are the types of currencies or sort of structures that you you think people should expect to see. So there’s clearly a tranche or an amount of cash that’s usually paid at closing, I assume, what else should they expect? And what sort of proportions would you kind of coach them to expect?

Aater Suleman 

Yeah, so I have a general rule of thumb that I got from somebody two years ago was a third, a third, a third, which would be a third cash, a third bit in form of equity, and the third bit in the form of earn out. I think that’s a that’s a really simple, clean framework to do your planning around. The world reality doesn’t look anything like that, at least for us it didn’t. Everything was there was no no clean a third, a third a third but and the stipulations on the different terms vary as well. But I think that’s a that was a guideline that actually helped me a lot in my planning exercises.

John Warrillow 

How did it help you in your planning?

Aater Suleman 

So just we would be we would be doing spreadsheets kind of running numbers trying to understand revenue, we have an understanding of where the market is headed in terms of revenue multiple what does that actually translate into from a financial standpoint? The decision that it helps us do you want to keep going for another five years. Do you want to stop right now? Is that Is this the right time to exit? It’s actually my those factors that I think you should be considering. because the key is at the end, you need to make sure that you hit the goals that you set for yourself. And this is actually one of those things that go into that equation. And like I said, the final day will most likely be different, but it’s at least something that you can actually use as a framework.

John Warrillow 

It’s a great framework. Did you have a number in mind was there for you? Some of us have a sort of a financial number that you know, look up to hit bat? Did you have something in mind did you and Ali have a number?

Aater Suleman 

We did actually have a personal goal that we had kind of created for ourselves. And that’s typically what we would be comparing against from a majority of the company and towards that goal. So yeah, I think it’s a among other things like, I think there was one of those things right. Like you, you need to know what you were trying to get at the end of the day, your goal has to be there. And again, I highly recommend is to write it down, write down what your goal is, it’s day and night difference between, I can say it. Because every time you say it, you say it’s slightly different. That’s just how our brain works. But if you write it down, that’s the goal, that becomes the goal, and then keep it there. And then the second part of it is just continue to change it, just continue to evolve it. I can guarantee you, it’s not going to be the way you expect it to be. Eventually, what we ended up getting is different, very different. But it really helped us again, having it’s like one of those things where it’s like planning is essential. Plans are worthless. So at the end of the day, the plans were worthless, but planning was essential, having that framework that we were using to make sensible decisions to get there. Although eventually, like I said, it was very different from what we had expected. But I think that’s really, really important to have a framework so that you can plan sensibly, otherwise you just be shooting in the dark.

John Warrillow 

Were you able to achieve the number that you wrote down the first time?

Aater Suleman 

I guess the short answer would be no. A little short or actually short of that I think is probably the right answer.

John Warrillow 

And so what does that mean to you? Like, how does that now a few months on impact you the fact that you fell short of the dream number that you wrote down the first time?

Aater Suleman 

I think that goes to my point about writing down, but then keep reevaluating and be cognizant of what’s going on around you. Write it down, but don’t marry it. I think that’s really critical, not just about this, but everything else as well. Pragmatism still prevails. Common sense prevails. It’s not what you wrote down six years ago. It’s what the world looks like right now that the decision should be made on and that’s how we made our decisions. Frankly, to answer your question how it impacts me personally. I’d say  I feel very fulfilled, if not financially, but there’s so much else that actually came with it. To be honest with you, if I may share something very personal, I think the thing that makes me really proud today is that when I look back, I can say that there’s a lot of people that we worked with, and we came in contact with. And I hope I can say this in a public forum confidently that I don’t think there was anybody who can come back and tell me that I did wrong to them. I feel like we made a very major initiative over here, and a venture, if you will, with customers and employees and partners, and I feel like we were very honest. In our dealings, we dealt with things very, very transparently, very, very cleanly. Made a lot of friends made a very strong network as we went through this exercise. And I think frankly, looking back at it, I think you hear that from a lot of people, right? It’s one of those things when you look back money becomes less important. I think it’s actually definitely true for me here that to me, it’s that that stuff has become so much more valuable when I look back at Flux7 it’s not the valuation it’s I guess the happy people that have the people that are able to make happier on me that matters and employees who changed their careers as they grew in Flux7, folks who came in doing you can say $10 an hour job and then have walked out of Flux7 where they can claim a six figure salary. That’s what makes me really proud and makes me feel fulfilled.

John Warrillow 

And I see that in everything that the entire sort of arc of your story from your relationship with Ali, to your relationship with your customers, your relationship with your investors, to ultimately your relationship with everybody that you touch to the business. It feels like you had a very kind of honorable way that you approached everything. And it certainly is a great story and a great lesson. So I think that’s really, really great of you to share. Aater where I know people are gonna want to reach out. So what what, what would you say if people want to reach out to you? Are you open to LinkedIn connections? Or is there a website you want to point people to?

Aater Suleman 

LinkedIn would be the best way to do it right now. And I think I would, I would say this more selfishly as well, which is that if any of the audience I doubt, but if anyone does not have a LinkedIn account, well, I highly recommend it and now would be the time to create it if you want to talk to me. I’ll give you a second motivation.

John Warrillow 

There. Yeah, I think most of our guys and gals have a LinkedIn account Aater is spelled a little bit I’ll just spell it and we’ll put in the show notes a-a-t-e-r and Suleman, s-u-l-e-m-a-n.

Aater Suleman 

One of the beauties of my name, john is that it’s an equal opportunity name, there is no part of the world where it’s easy to say or spell. There’s literally no part of the world who can do it. And the other beauty is that it’s such a unique name that I own aater.com that gives you that gives your brand and if you just put my first name in Google, you will get to me. You don’t even need to type the second name which

John Warrillow 

That is unique in these days. Well, Aater it’s just a pleasure to meet you and I appreciate you spending time with us. Thanks for doing this show.

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