Company acquisition can be a messy transaction, indeed. But if accomplished carefully and accordingly, its returns will be handsome and worthwhile. Sharing his first-hand experience in such a deal with Cameron Herold is Ian Reynolds, the Partner at Zibtek. He details his role in acquiring half of the software development company by explaining how he set it up for success, the checklist he used to determine the right company culture to implement, and his tactics on efficient business scaling. Ian also shares how he creates meaningful customer relationships that truly benefit the company and the books he has and plans to read in the future.
Ian Reynolds is a Partner and Chief Solutions Architect at Zibtek, a software development consultancy focused on helping businesses build custom software. They help growth companies, enterprises, and visionary firms solve their core business objectives with agile software development. Zibtek’s mission is to focus on value creation on the client’s core business objectives. Ian has spent the better part of his career in consulting and has served diverse industries as finance, oil and gas retail power, field services, midstream energy, healthcare, pharmaceuticals, transactional finance, mergers and acquisitions, restructuring, eCommerce, retail, and software development. Ian is going to be sharing with us some of his successes and some of his failures as a Second in Command with Zibtek.
Ian, welcome to the show.
It’s great to be here. Thanks so much.
Why don’t you tell us a little bit about your journey? How did you end up in Zibtek and tell us a little bit more about what Zibtek is?
As you express with my little introduction there, I’ve seen and done a lot of things. My background started right out of college. I help launch different things to work it across a couple of companies. I was playing in that startup game and got sick of that pretty quickly. I decided to go back, get an MBA, and go into a traditional consulting role. I had the opportunity there to help some large companies, especially in the energy space deploy some large solutions, improve processes, and further enhance their position in the market.
I moved to the finance side, which is why initially I got into consulting and had the opportunity to do $20 billion in transactions, M&A, restructuring, A&D work, advisory, and reworks. You name it and I did it. That was fun. I saw everything there was to see in some respects, not all respects. I wanted to get back to do my own thing. I was looking for a company to buy and I acquired half of Zibtek. I moved up to Salt Lake City from Houston and it’s been good. We’ve been growing ever since.
Tell us about the company. What does Zibtek do?
We provide custom software development solutions for companies that need either additional staff members to complete a project or they need somebody to come in and execute on something. We also have a lot of IT staff augmentation engagements. Let’s say a company is an events company or they are in the manufacturing space. They need some type of software engineering but it’s not practical for them to hire the entire software engineering team.
They don’t want to hire the DevOps guy, network engineer, the front end engineer, the back engineer, or the web guy. It makes sense for them to come to us and partner with us to help build and maintain whatever digital infrastructure they need, be it a software application or web presence or something like that. Generally speaking, we’re supporting and building custom software for firms where they can’t find something that exists for them off the shelf.
You said you acquired the company. Was it with you and other people or was it you and some investor money? How did that work?
It was primarily me. I carefully structured financing. I didn’t buy the full company. I only bought 50% of the company. The original owner who I bought that 50% is still engaged. He’s focused on some core internal projects. He figured out what worked. We looked at the cashflows discount them back to the present, looked at things from fair multiple standpoints. We looked at it from a different perspective. We said, “What would work and allow the company to grow as opposed to what would work and put the most fat in your pocket?” We structured things that way where I could come in and still do interesting things.
Who’s operating as the CEO in the business?
As a 50% owner, we’re flat. We don’t have that. It’s a joint partnership where we’re both asking and answering questions tuned amongst each other.
Are you operating as a CEO or is he?
I’m operating as president and as relates to certain aspects of the business, I would say, similar to CEO. Let me describe it in a different way. We have broken up components of the business into how we’re doing decision making. Marketing is under my head. The process of engineering when a client comes to us and says, “I’ve got to build this thing,” is under me. Resource hiring, for example, is under him. Finances are a shared thing but we have an internal accounting team. We’re a simple business. The accounting is not that complex. We look at reports together. It’s more of divide and conquers than it is number one and number two.
How many employees do you have?
We’re about twenty in Salt Lake City and we have about 75 international. We have about 50 contractors that we use for specialized functions where it doesn’t make sense for us to bring those folks in-house. We’ve had that contractor relationship for a couple of years.
I want to go back to the startup game for a second. You said that you’ve been around in the startup game for a little bit and got sick of it, and you’re talking about your MBA. Demystify the startup game for us because often people are enamored and that’s such a great space. It’s good to hear somebody give the contrarian view to it because it isn’t as easy as it is and it isn’t always as fun.
It’s hard. That’s the first thing to say is. If you look at corporate innovation, most of it occurs at large businesses where they are doing a strategic initiative internally to try to solve a problem for their business. That lends itself to creating new business lines, new verticals, going into new spaces, and these sorts of things but the failure rate is high. You hear this 1 out of 10 failure rate and I would argue that it’s higher than that if you consider that a lot of these big businesses are innovating. Small businesses and in particular, startups are typically doing 1 of 2 things. They’re trying to solve a need that they don’t think is adequately provided for in the market by either creating something new or by providing a better or good service.
The mistake that a lot of entrepreneurs make, especially in the startup game is they think, “If I build this product, they will come. If I build this thing then they will come. If I market this thing, even if it’s not good, they will come.” A business is like a car. You have to maintain it. You need wheels, tires, an engine, siding, windshield, and you’ve got to have a steering wheel. Too often, businesses fail to recognize, especially these folks in the startup game who are trying to figure out something unique and fail to recognize that there’s a component part of this business that I haven’t built that needs to be put in place.
That’s the difficult part of the game. You’re capital constrained. You’re, in many respects, fumbling in the dark because it’s difficult to get all of those pieces of the vehicle and understand how they fit together. You’re going to have to learn by making a lot of mistakes and failing fast. That’s part of the reason why the startup game is particularly difficult at least from my perspective.
I’ve often seen so many companies, especially in the US market where they try to invent something cool, try to go out, and sell it. Instead of trying to identify what the customer’s needs are solving and when the customer has money and has a need, it’s easy to create a company around that, but much harder to create something cool and try to create a need from that. You said that you had some creative financing in place to do the acquisition? Can you walk us through how that works?
Parts of it are seller financing, based on some degree of performance, and putting some money down with anything but a large percent of it is structured seller financing. We looked at it from the standpoint of what is the best fit for the business, what allows the business to grow, while still properly rewarding the seller for that piece of equity. We structure it and that’s how we did things.
I’ve been pushing a lot of my clients to do acquisitions especially at the time that we’re in now. A lot of the Baby Boomer owners are tired. They don’t have it in them to run this thing for another seven years and they will do a seller carry. Did your bank consider that as equity in the deal at all or did you have to put some money into it or did the bank loan it to you as well?
A few years ago, banks didn’t look at seller financing as debt in most cases because it’s pre-tax and the debt loss that pretax can’t write it off like traditional debt depending on how things are structured in most cases. The bank will be willing to lend on top of that so for a business owner who’s looking to sell, it’s favorable and for a person who’s looking to buy, it’s favorable, because they won’t count it against you if you will. You’re right to push your clients to either look to sell or buy. Especially on the buying side, things are appropriate. You have a lot of Baby Boomers who are looking to retire. There is a wave of opportunity that’s coming and will not go away. It’s something like $1 trillion or $2 trillion in assets that need to change hands in the next couple of years and probably sooner.
Tell us what some of the lessons that you’ve learned along the way in the few years that you’ve been there running the business now?
The most important lesson is, no matter what you do, the most important aspect of any business to people is you have to hire exceptional talent, you have to incentivize them to do their job and do it well and you’ve got to hire slowly and fire quickly. Hiring, for any business, is the hardest thing you’ll do hands down. Probably having a checklist process, which we put in place pretty early of saying, “You have to meet these criteria to be a valid candidate.” It’s valuable. It’s so simple to put in a checkbox process in terms of who you’re hiring, stick to it and be willing to wait for the right person to come along. Most people don’t marry the first girl they meet and it’s the same is true when you’re trying to hire that person. That’s been the primary lesson.
The second lesson is when you’re building or growing a business, or trying to solve something that hasn’t been solved before, and we’re a service business, so our business is constantly changing with the market. In a certain sense, we are reinventing ourselves. Getting feedback from your customers isn’t a task. It’s essential to your business. It is your business. You have a business because you have customers. You don’t have customers because you have a business.
What do you mean by that? Walk us through that.
If I am not actively and habitually taking the time to communicate with my customers, not as people who are paying the bills, but as people whose vested interest I have towards their success, then I am going to have a hard time fundamentally understanding what it is they need to be successful. As a service provider, I’m going to have a hard time providing a service that is truly valuable to them that they’re going to want to continue to stick around and be a partner for ten years to what have you.
How do you systemize that connection with the customer? What do you guys do internally? What do you specifically do?
Structurally, we have certain benefits. As folks building and maintaining software, we’re talking to the client or one of their core parties. They may be product owners or something like that, 2 or 3 times a week at least on a project management standpoint. Some of the time can be used to gather that. We also have our sales team have regular check-ins with the clients every quarter at least to say, “How can we help your business?” It’s not, “How are we doing?” We’ll hear how we’re doing during the project management calls. By having a conversation, “Is there something else we can do for you?” As opposed to, “What can we do to get more money in?” “What can we do to expand our project scope?” “What can we do to deepen the relationship?”
Typically, they mean something. We can adjust our business model by changing resource mixes and communication patterns because our world is changing all the time, in terms of the software development process. We train our people differently. We have Friday training with all of our resources once a week. The project managers in the United States have a two-hour training. We pay for outside consultants to come in, train our resources, and all of our engineers in all of our offices. We can adjust our training to better be able to provide for our clients and that’s a cost to the business, yes.
It’s a huge upside that you’re leveraging now.
It’s a cost to the business but we get the opportunity to train our folks in something that our clients need globally, across the entire business. It makes us much more effective.
What things are you training the internal team on? Outside of the engineers, are you training everybody in the company or just the engineers?
We’re training everybody. Let me talk about sprint and agile methodology. For sprint and agile methodology, most folks who come to us and they say, “Do you do agile? Are you an agile team? Do you do scrum?” Most folks don’t know what that means or what they’re asking for. It’s a buzzword. You’ve heard it, you generally get it and you know that you’re asking for that thing. It’s to our benefit if we train our clients, on the proper way to do those things so we can move them into that process that we can execute on their behalf because we’re going to be able to move much more quickly in providing services and everybody is going to get on the same page and we’re going to use an established process and they’re going to take that skillset and apply it to their business. They’re going to come back and say, “Within this broader agile methodology, I want to be able to include this marketing thing, which is in the software that you’re building.” The teams can talk and they can be cross-functional.
We have spent time retraining project managers on how to do user stories. How do you properly write user stories for your clients for these projects in a way that conveys what it is that the client is trying to achieve and also gives enough information to the project engineer? That’s one example. Another example is, we’re teaching the project managers, some of which were functional, some of which were technical. Here is the engineering structure by which we are executing a QA process. Here’s the code. Here’s how we do it. Here’s how it is structured in the code. Go into GitLab, GitHub, or what have you and review the Engineer’s Code. You should be able to read that and read that now. Having training like that allows us to disproportionately add value to our clients in a way that I’m not sure that most firms are doing. Our broader objective is building a high-quality engineering culture.
What’s interesting is I’ve always said that the more you grow your people, the more they’ll grow the company. The leader’s real job is to grow their team. The more that we focus on growing the skillset so I’ve identified about twelve core competencies that leaders need to be strong in like situational leadership, coaching, delegation and time management, project management, interviewing, effective meetings, classroom teaching, and conflict management. It’s all stuff that if you grow the leadership team in those skills, they can propel the organization. It’s great that you’re dedicating that two hours a week. It’s like every athlete keeps working on their skills. Why wouldn’t leaders and business people do it?
It’s hard to do. The guys have to put in more time on the days where we do training. They gripe and things but what happens is all the burden that everybody carries gets a little lighter.
One of the more famous business books out there is Stephen Covey’s The 7 Habits of Highly Effective People. He talks about the Quadrant II activities, the high impact, low urgency activities, and that’s training. It’s hard to do it because we always have urgent pressing for our time. It feels like we’re avoiding stuff that’s important but the reality is the payoffs from those activities can be huge. You shocked me a little bit over your hiring lessons with the checklists. I want you to give us some more specifics because you identified a simple system that companies can probably use. Can you walk us through what those checklists are like for your hiring?
First of all, walk through our general process for a high level and we’ll go through the checklist. The first thing is we make them take an online test. We’ll talk about engineering, for example, but we apply this to everybody. For engineers, before they even talk to us, they take an online test because there’s a quantitative measure and a qualitative measure to an engineer’s skill but you have to have the quantitative measure. You need to be able to write certain inquiries and you need to have a certain amount of competency to even work for us.
Before we even talk to somebody, we’re spending money to screen a lot of people. They hit the test. Most people get to 20% but we know as soon as somebody gets an 85% or above, this is somebody we want at least to move to the next stage. After we complete that first wave of folks and we do folks that work training up from scratch, and we hire out of schools, but we also have qualitative measures for those things. After we get to that stage, we put them with a peer. We don’t put on with somebody senior first.
We put them with somebody who is maybe 1 or 2 years ahead of them and we say, “What is the opinion that you have of this person? Run them through, basically, the soft skills, set of items that are going to be required to be successful in this job. Can this person do it?” We empower that typically Junior resource to say or that resource at that same level to say, “Is this person somebody you would want to work with? Do they have the same soft skills that you do?” They’ll say yes or no.
During that time, HR isn’t interviewing them. We don’t let HR make those types of decisions. HR is getting this qualitative feedback. Do you have the ten basic behavioral skills and professionalisms that would let you in? They’re chatting with them so we’re going to move it along the stages and get feedback, and they’re going to talk to a senior person. That senior person is going to run them through a case study and we present them with another hard impromptu test that they have to do right there. You’ve got to solve this problem. We see how they do under pressure because they weren’t expecting it and they weren’t prepared for it. We put them in.
What mistakes have you made in your recruiting process in your hiring process in the past? What mistakes have you made and how have you learned from those?
We stood up in another office and getting the culture right is hard. We did group interviews, basically, we had one person and we had that person talk to several people at the same time. What resulted was groupthink.
Several candidates? Was it one candidate and several people on your team or several candidates in one person on your team?
One candidate and several people on our team. We found this out later that they were following this practice. We said, “No. You can’t do that because you’re going to be too easily swayed by the person and each other and there’s going to be groupthink.” We had to climb our stat. You want individual interactions with a person to understand how they’re going to perform. It’s okay to have maybe two people in a room but those two people interviewing that one person still needs to have an equal weighting to the other two people who’ve talked to that person.
It’s interesting. We’ve done reverse panels where we have multiple candidates being interviewed by one person at our company and all we’re looking for amongst that group is who’s the strongest culture fit and who are the strongest leaders? After we identify that we’ll bring them in to see if they have the skills to match it but we only want to talk to people that have the right culture fit. You’re doing some of that as well.
Pretty much so.
You talked about how culture is tough. What’s culture? How do you define culture inside your company?
The culture inside our company is don’t say something can’t be done. You’ve got to give the who, what, when, where, why, and how. If you don’t give the why it’s effectively almost grounds for termination. People need to know the why. People need to know why you’re doing something and why it’s important. We push that. We state that at the beginning of every single internal project management meeting that we have across the company every Monday. We start with, “What are the who, what, when, where, and why else? What does it define and why?” We repeat that. The other piece of culture is we want to do the work so well that we are going to be able to do it much more effectively next time.
The object of what we’re trying to accomplish may be to build a specialized widget that takes data inputs from XYZ locations. We want to understand the implicit engineering behind it and how to do it exceptionally well so that this idea that we’re learning in one project and executing for someone that’s not only incredibly functional and written incredibly well, but because we understand implicitly, we’re going to apply that same level of excellence to other projects when that comes up. The concept is going to be ingrained across the culture a little bit more clearly. We don’t do cowboy coding.
Tell me about what you are focusing on in terms of your growth now? Where are you continuing to work on your skillset as you scale?
I’m spending a lot more time on the marketing side and understanding that the world is changing and we have to change with it. There’s this Gartner data that we have and is publicly available, where customer preferences in terms of shopping for not only products but services are moving online. It fundamentally changes how we’re going to communicate with our clients in that first communication. I’m spending a lot of time to personally understand what it takes to communicate the values that we are building with our engineering culture to someone who may not come from an engineering background or may not appreciate the money we throw in all this training in these sorts of things. It’s difficult to convey. I’m personally re-teaching myself on a lot of the basics of marketing, and I try to get back to the basics.
Where are you learning about? How are you learning that?
You’ve referenced books. What I’m doing is have you ever played that the kids play the Wikipedia game where you get from one Wikipedia article to the other go through links? I’m trying to identify who the biggest and best companies are. I read the book How Google Works by Eric Schmidt, and one of the gentlemen who worked previously in Google wrote this book and it was about their engineering culture. Invariably, in one of these books by these prominent individuals, they mentioned other books. I have a little hierarchy of going from biggest to smallest and work my way backward. I’m trying to get the whole 52 books a year. I’ve been on pace for that. I’m a little bit ahead in 2020. That’s the approach I’m taking.
Have you ever read Insanely Simple?
No. Who wrote that?
I don’t remember who wrote it, but it’s about Steve Jobs’ methodology of simplifying everything inside of Apple and they give some specific lessons like 10 or 15 strong lessons on simplification. It’s multiplication by simplification and it’s how they simplified meetings, marketing, messaging, and coding. It’s strong. I was impressed. The rest of the books I’ve ever read were about Apple but this was a tactical, simple lesson, specifically laid out lessons on a scale. Another one is The Hard Thing About Hard Things by Ben Horowitz.
I highly recommend that. I don’t recommend a lot of books and those are the two that I’ve been recommending over the last few years. The Hard Thing About Hard Things is all about being a wartime CEO. It’s being in the trenches during a time of crisis. He wrote it during the 2001 and 2009 global financial crisis and the dot-com meltdown in 2001 and how they scaled companies in real strong crisis modes, and again, specific tactical good lessons out of that, too.
I’ve got it written down here on a sticky note. I have two more books.
Give us your two then, you’re six months into the year 2020 or 26 books down.
Influence by Cialdini. I’m surprised I hadn’t read that book earlier. I’m going to say a biography that I finished, Titan. It’s about John D. Rockefeller Sr. and his approach to business and his background. It’s a business book and it is about the vicar’s capitalist at that time. It was a phenomenal read. It took me forever, but it was an incredible read.
Cialdini’s stuff on influence and his second book, Pre-Suasion. He’s come and spoken to our Genius Network event a couple of times. If you liked the Rockefeller book on Titans, take a look at a book called Rockefeller Habits, which is all of the habits that Rockefeller and his businesses used to scale their companies. It’s by Verne Harnish. It takes a lot of the concepts that we learned through reading about Rockefeller and it’s created us a code of systems that you can use to scale companies too which is cool.
It’s on the list.
I love your Wikipedia training as well. I can see the way your mind works on this stuff. Tell us about remote teams. You talked about how you’ve got 75 remote or 50 different contractors you’re using walk us through how you manage those kinds of groups.
Prior to my arrival, the company was fully remote. The team only met periodically in an office and that changed because we had a slew of things we needed to get done and we thought that would be pretty practical to be in the office. Everything was done via email and scheduled phone calls. I said, “We need to increase communication velocity.” We went and partnered with Rocket.Chat, which is their open-source version of Slack. We’re the North American software development partner for them so we’ve switched to Rocket.Chat and we make sure that every team, every functional team has a group. We switched over G-Suite. Every functional team has a G-Suite group where if anything is emailed to that group, everybody sees it and we send all internal communication through that so that way everybody is on the same page at all times.
We’ve made it so there are no excuses for not being aware of what’s going on and clients can send to that as well so they know, “This is for this group. Everyone be aware.” We try to systematically kill any information gaps where people don’t have the availability of information about what is going on with the project. We have made the client communication meetings mandatory to a certain degree. There are situations where it’s not mandatory, but we make our clients meet with us.
Most folks would say, “Send me an email,” but that doesn’t work because you need to have a live human being on the other line as close to face to face communication as possible. We forced that. We prioritize communication by being first. If you can get face to face, you can get in front of a person, you can go meet at Starbucks. That’s what we want. If you can’t do that, we want a video call. Like you and I are having a conversation. I want you to be able to see my facial expressions. If we can’t do that, we want a phone call.
When you are making the clients meet with you, how are you explaining that to the clients and getting their buy-in?
Practically. I ask the question or one of the sales guys or one of the product managers ask the question. It’s like, “You think it’s reasonable that human beings evolved with face-to-face communication.” They’ll say yes. “How recently have we been communicating via telephone?” “I don’t know, maybe 100 or 200 years?” They’ll say, “That’s probably true.” You’d say, “What type of communication conveys the most information?” “Sitting here with you,” is usually what they’ll say. They’ll say, “That’s great. We want to do that as much as possible.” We repeat what they said to us, “We didn’t evolve to send letters to each other or electronic mail, or text messages.”
We evolved in social groups of about 150 people and it’s important that we have these in-person communications otherwise, certain things are going to break down. You’re not going to understand my tone. I’m not going to understand your tone. Sometimes it is okay to be angry at me. Sometimes it’s okay for me to be angry at you. We don’t yell at each other but we need to be able to convey with as much information as we can convey as much information as we can consume with the tools we have. The best tool was getting in front of a person.
You’re leveraging video as much as possible. Tell us some of the other technology tools you’re using to scale the company?
We built a sales automation platform. It’s like a CRM, but it has one of these automated campaigns drip sequences and SMS things in there. I’ll talk about communication preferences. Everybody does have their unique communication preferences. This guy happens to respond more via text. Let’s push that but we’re going to push people towards these video communications but people do respond more through text. TryOnCourse.com in which we needed a public tool where we SaaSified it but we send all of our client communications through that, outside of video calls and stand-ups. Eventually, it’ll have video calls and these sorts of things.
Using CRM, everybody can get on the same page in terms of what is the contract. What is the expectation? What is the deliverable date? When was the last time we communicated with this client? When was the last time they called in? Have they left a voicemail that we missed? Having all of that in one place where the entire team and we do limit access to certain things for certain people, but where the team can get as much information as possible to make proper decisions is incredibly helpful.
We’re going to wrap up with one final question. If you were to go back to your 21-year-old self, thinking about yourself and leaving college, what advice would you give yourself back then that to be true now, but you wish you’d known back then?
There are immutable laws of finance. The sooner you can jump into something that you understand that you can start compounding to capital, do it. If I would have purchased a business at age 21, as opposed to age 27, I’d be a lot further along. I thought I would have looked for opportunities to do that sooner. I’m pretty sure I would have figured it out.
Give us that in layman’s terms. What do you mean by that?
Einstein said, “The greatest force in the universe is compounding.” If I can grow 10% a year or 20%, every two years in basically seven years I’ve doubled my money. There’s not only a compounding effect to wealth, there’s a compounding effect to knowledge. If you’re in a position to compound both, you’re going to come out the other side much more effective than you were. The sooner you can put yourself in the situation to be Aristotelian or quote Aristotle, “Be magnanimous.” If that’s something you want to do, you’re going to get there much more quickly. At the end of your life, you’re going to probably be much more ahead of other folks, if not in monetary terms, but in terms of a skillset and a life well-lived.
I love that you learned that you wanted to do it at 21 but even starting at 27, you’re well ahead of the curve.
Ian Reynolds Partner and Chief Solutions Architect at Zibtek, thank you so much for sharing with us in the Second in Command Podcast some great lessons and cool insights. I appreciate it.
- Ian J.H. Reynolds – LinkedIn
- The 7 Habits of Highly Effective People
- How Google Works
- Insanely Simple
- The Hard Thing About Hard Things
- Rockefeller Habits
- Get Cameron’s Online Course Invest In Your Leaders
About Ian Reynolds
Zibtek is a software development consultancy focused on helping businesses build custom software. They help growth companies, enterprises, and visionary firms solve their core business objectives with agile software development. Zibtek’s mission is to focus on value creation on the client’s core business objectives.
Ian has spent the better part of his career in consulting and has served in diverse industries as Finance, Oil and Gas, Retail Power, Field Services, Midstream Energy, Healthcare, Pharmaceuticals, Transactional Finance, Mergers, and Acquisitions, Restructuring, e-commerce, Retail, and software development.