I'm Josh. Welcome to Two Commas. This is the podcast all about exits. And we talk to luminaries and industry leaders that have sold their business for seven figures or more. Today I'm joined by Myles Valentine. Myles has been described as a serial entrepreneur. I've known Myles for a number of years. And he was very strong in the telco space originally, and then moved into sort of tech.
Telco software and so Myles has been around tech for probably more time than he cares to remember. And he had a wonderful exit back in the early teens in New Zealand. So first up, please welcome along Myles. Myles, thanks very much for joining us today.
Thank you. Thanks Josh. Good to be here.
Great. I always like to start these conversations with a bit of an insight into the origin stories. So would you mind giving us a bit of a snapshot of the early days for Myles kind of career and some significant moments in your journey, please?
Yeah, sure. Well, without wanting to go too far back. I was working in property development during the 80s. The very real bubble that we all found out was a bubble when there were 42 listed property development companies on the New Zealand stock market. And after 87, there were two left about three years later. So sure enough, company went flat. I lost my...in fact, I resigned before the end because it was very plain to see. And
sat there literally thinking what am I going to get into? Long story, my boy, with I started selling telephone systems and or started a business selling telephone systems with two partners. And
because telecom was deregulating, God bless Roger Douglas. Those were the days when if you recall, you probably were probably too young, but it took you six weeks to get a telephone line and took you six weeks to buy a fax machine. If you had a bottle of scotch, you get a lot quicker. And I'm not kidding.
The post office operated very, very, very inefficiently. Anyway, we got into selling phone systems, did that rather well, grew a business. That was where I discovered sales process and the value of a sales process. We very religiously followed a sales trainer called Brian Tracy, Psychology of Selling Program. And we being the sales team, we had about a dozen sales people, we had a couple of girls and 10 guys.
We followed a model and a process and frankly clean telecom up. And we were obviously, we were the second biggest supplier of phone systems in the country. We had offices in Wellington Christchurch, but telecom were
20 times bigger than we were, but we were the second biggest. Got acquired by Ubix, had a very real restraint of trade not to get back into phone systems. So started ZCOM, which was voice technology at the time.
And what we did, we built call center software. So we took control of the PBX over when somebody rang an 800 number. And again in 1994, this was quite new stuff. I mean, 800 numbers were only, they were out there and they were around, but they were about
64 cents a minute, literally. They were mind bogglingly expensive. But people were starting to realize the value of a call center and they were called call centers and not contact centers. So we started building software that controlled the call. So when somebody rang the 800 number, we
decided who they talked to, decided the messages they listened to, reported on the call. We invented callback.
You know that, in fact, I want to say we, a chap called Peter Bonham, who was our senior lead developer guy invented it. And you know, to this day,
that take press one to retain your position in queue and we'll call you back just as if you waited was exactly how we started it.
We, yeah, so that was 1994, the start of voice technology. We moved into Australia.
At that stage, we only connected to the NEC telephone system, which was one of the dominant systems in New Zealand, but was the dominant system in Australia. And so we expanded into Australia,
partnered up with NEC. They ended up ultimately taking our product and selling it for us. But initially it was more of a partnership. And then
when my daughter was born December 96, my wife spent the next year, I was gone every Monday morning on the 6am flight to Sydney.
And I'd come home at midnight on Thursday and God bless my sister-in-law who called in and helped my wife bath the older baby, because I wasn't there for the first year. And lived in Sydney and it went pretty well.
In fact, it went very well. It was good. And then, I'm giving you a bit of a history now, but then trade and enterprise, New Zealand trade and enterprise in 1996,
brought about 20 venture capital investors down from Taiwan, of all places. And we, there were a group of, I don't know, actually, I didn't really even know how many, but I guess a dozen or so technology companies pitched to them.
Now, 1999, no one really knew what VC was. I mean, it was, we didn't really know what it was. Well, in fact, no, we didn't know what it was. We just thought it was money. And we knew we needed money. We were thinking about, well, just expansion generally, not really having thought that far ahead. We were going, we were going well, you know, we were making good sales.
We were profitable to the extent we were investing in ourselves. And anyway, so we pitched to these 20 odd people sitting in a room. And about six weeks later, I get a phone call from a guy called Stephen Ching, who was actually the CTO of ASIC computers. And he was also head of their company.
Which was called Hontang. And, you know, literally, it was a phone call out of the blue, he rings me up and he said, My old Stephen Ching, he spoke excellent English. We'd like you to come to Taipei, we'd like to invest in your business. And I'm like, sorry, who are you again? And anyway, so we went out and retained what we call it the CTO.
So we went out and retained what we call at the time, a consultant. There was a company floating around called Caltech, which was nothing to do with any American company. It was a couple of individuals, Douglas Paul and Wendy Hall. And I think there was another one, another partner.
But we dealt with them, we retained them. I went up to Taipei with Wendy, she came with me to act as my consultant, because I don't know. In fact, I suspect she didn't either. But you know, we really didn't know what the hell we were doing. We really had no idea.
And anyway, we went up there, we met a number of people over the course of a few days, came back to New Zealand. And about a week later, they came back and said, Okay, we're prepared to put a million Kiwi in, if you can match it from local investors.
And again, back at that time frame, we had quite a number of Taiwanese immigrants that had moved to Auckland. And Acer Computers holds a very strong reputational, well, very strong everything positioned in Taiwan. It was a bit like in the old days, you know, Fletcher's Challenge was to New Zealand, you know, if Fletcher's Challenge was investing, then Kiwis would have followed type thing.
And so Caltech raised a million locally, predominantly from Taiwanese investors. And we had our 2 million bucks in Kiwi. And that was about September, October, November 99. Well, at the time, the currency was 40 cents in the dollar. So 2 million Kiwi was actually only 800 grand US, which as we learned very quickly was nowhere near enough to move to America.
So but I moved. So this January 2000, wife and now three year old daughter and four year old son, we moved to Southern California. And I think we ran out of money in June.
Just a few months later, it was so we just so underestimated how much and again, these were the days where there was no sass, you had to you had to buy all of your hardware for your it environment, you had to create a LAN and something that I think is now well known.
But because you're coming from New Zealand, you've got no credit history. So we had to we prepaid our entire one year lease on our apartment for the whole year, plus a $5,000 US because everything's in US of course, dog deposit to bring the dog over what have the dog there.
And yeah, you ran out of money fast. Ultimately succeed, which came out of left field was screen sharing technology was just starting then. Because when we first started in February, we brought we brought a couple of Kiwis with us who were acting as channel managers.
And their job was to go out and find any see resellers in America to resell our product. And we you know, we did that recently successfully. We found a group and found a list and got on the phone and called them and set up a point, you know, and we set up appointments and the Kiwi way being you go out and have a meeting, you get on.
And what that means over there is you get on a plane, you go to see them. Well, that's freaking expensive and very time consuming. And so and and back in the day, every demo we did was face to face.
So we started within about two weeks, we realized we can't do this. This is ridiculous. But as I say, screen sharing technology was just starting. So we started to be able to do remote demos.
If that hadn't come along, and you know, we all the work from home things quite topical at the moment, obviously, America was working from home in 2000, because you don't have offices over there where everybody works in the office.
They're all over the country. Big place. You know, the end of end of ZECOM in 2012, we I think we had about 65 people around America, and there were only 15 or 20 in the office, you know, because everybody's working from home as they do.
So the screen sharing thing enabled us to do remote demos and that we kind of got our feet. And, you know, that was the that was kind of the start of ZECOM getting to that point.
And by this stage, we changed the name voice technology. There were two voice technologies in the US. So we changed the ZECOM, you know, silly process about how do you go through changing names?
We paid a consultant until I got fed up with the first bill that came in. It's like, you know, we're not going to do that. And then lovely girl called Theresa Murphy in our marketing department said, well, what about ZECOM?
Because everything had to be called COM in those days. You remember, COM was if you're a dot com, it matters. Yeah. But but, you know, again, there were when we say when we when the family was moving and people going to America, it's fantastic.
And I go, look, you know, it's a bit like a gold rush. I don't know whether the gold's going to run out. I don't know whether it's going to work.
I don't know whether we're going to find it, but we're going. So, you know, and and really, you know, well, what turned out to be a fantastic adventure?
I really, you know, I was not that keen to move to America at that point. I really like New Zealand.
I thought it was the best country in the world. And why would I want to leave? But at that point, I really well, when I got to America, I really said I enjoyed it a lot.
And and, you know, the opportunity and I think we pretty regularly that it's a great country to go and do business in.
And yes, so so it was a great adventure. And, you know, then we went through, I don't know whether you're going to ask about all some of the really interesting things that mistakes that we ultimately made.
I'll definitely get to those. Yeah, I'm sure you will.
There's some a lot to unpack there. The thing that stands out for me probably about that journey is that it's been said that success involves sacrifice.
And so what I heard you say is that early on in the ZCOM Voice Technology journey, you made the decision to invest a lot of energy into the business.
And the consequence of that was the family time that you had. And then you decided to move country as well.
And so that's a lifestyle sacrifice, a quality of living, access and continued dialogue with friends and family.
You know, those things have to happen along the way as well. And so I don't think it's something that people often reflect upon from the outside, you know, the overnight success story and, you know, sold for a whole bunch of money.
And they don't appreciate there's been a lot of decisions along the way because every decision has consequences that involve sacrifice.
So I just thought I'd call that out. I'm curious. You bootstrapped at the start.
You raised in 1999 just pre tech rec, which was fantastic timing. If it had been six months later, the money probably wouldn't have existed.
And so what happened? You ran out of money relatively quickly in the United States without delving too deeply into it.
I'm curious as to how you solved that problem that you faced when you ran out of cash flow quite quickly. What did you do?
Well, one of the by this stage, Caltech had gone off and as the VC market was evolving in New Zealand,
AMP, a part of AMP that doesn't exist anymore, I think, was had decided that they wanted to get into VC.
And Douglas Paul had picked up a contract to manage AMP's VC portfolio, which didn't really exist at the time.
In fact, they acquired another business that had a portfolio and Douglas started to manage that on their behalf as a manager on contract.
So suddenly we had, well, I'll say access. I mean, we had an entree into AMP money.
And at that point, they chose to invest alongside Hontung. And so a degree of luck.
We were kind of right place, right time talking to the right person. And, you know, well, it was actually a good decision for them.
They, funny enough, at the end, they got out too early. They actually sold before we made our sale, which was a really...
I ended up writing to them about three times to make it very, very clear in writing that I was recommending they did not sell what they did,
which was in about 2011. But anyway, they chose to. But back then in 2000, it was a good, not bankable,
riskable VC investment. And ultimately it did pay off. I mean, the valuation then, I think, was six Kiwi, seven Kiwi.
So it was a reason. And look, as we all know with VC valuations, they're very much put your finger in your mouth and wait for the wind.
So but yes, so right place, right time. And then ACC bought a bit of...
I had a problem with my partner, as often happens, or he had a problem with me. I'm not sure.
But no, I had a problem with him. And we ended up...
Yeah, I won't go into that path because there's a few individuals that are well known around New Zealand.
But we ended up, ACC ended up buying part of my partner's stake. And so now we had AMP and ACC in there.
And so we were reasonably funded, but then we didn't actually raise much more for...
Well, actually, we didn't raise much more. We grew within...
Yeah, I wouldn't say we bootstrapped it. We were sort of growing reasonably and making profit.
And the more we grew, we just had to manage our investment alongside how the revenue and margins were going.
And you know, software, it's copy, colon, A, and you've got another copy of it.
So if you can start, if you can keep growing. And again, it was pre-SAS.
So we were selling, it was the day every first of every month, you're back to zero.
And again, from the telephony space, telephony had no concept around maintenance contracts.
So the telephony market pushed back really hard on paying a support contract for this,
what they thought was a piece of telephony, but it wasn't. It was a piece of software.
So that was a real hurdle we had to get over in that sector.
And yeah, so by the time we sold, we had about 750,000 US of maintenance coming in every month,
which was a start, but you know, it was quite a big machine by then.
We needed to sell three to four million a month. So every month.
And that was a thing that I certainly did not miss after we sold that constant every month,
you know, where you're at with the number. Because if you didn't get over that break even point of
whatever it was, 3.2, 3.4, and you lost money, but the moment you got over it,
you were at 88% GP and suddenly you were in Clover.
So if you were 300 grand above your break even point, then it was a great month.
And if you're 300 below, it was a hurt. So yes, as I say, it was the days before SAS.
And yeah, I've started to delve into the numbers and you mentioned the P word along the way there,
which is interesting. So I believe business and life is quite cyclical.
And so you talked about profit, which in the early noughties was the thing that you were building
your business to achieve at a certain point in time.
And then you'd build upon that and then hope that someone might turn up and value that revenue stream,
those customers at the geographies that you're working in, all those things that lead to a great exit.
And then, of course, during the late teens and the early twenties, we went through the heyday of
invest at all costs and get revenue at all costs.
And so valuations went through the roof and business fundamentals seemed to be forgotten about.
But we're back to that space again of profit being very, very important.
So it's just funny how these things kind of turn around.
But I'd like to kind of start to delve into the exit itself.
And you started to talk about some kind of revenue metrics.
I'm curious if we could get a sense of the scale of the business.
And when you went through the sale, three to four million US per month, 750k or so.
If we could just clarify the scale around these numbers, the offices, the number of staff that you had
just to kind of expose the value, the volume of the business at that point.
Yeah. Well, as I said, what we had realized, unfortunately, and I can't really tell you when it was,
call centers wasn't a great space.
While it was nice and technical and really looked pretty good, it was bloody hard.
There's a lot of technology that go and again, not SASS.
So when we sold a system, we had installers that would turn up on site, walk into an IT room
and with a server, sometimes quite a big server, in fact, oftentimes a big server and plug it in.
And plugging it in and making it go was hard work.
Well, sorry, it required a lot of expertise, telephony expertise, IT expertise.
And so and that expertise was hard to find and relatively expensive.
And then we needed trainers to train the users and how to it sounds simple, log on, log off,
but how to use the system, how to program it, how to manage it, the administration, so forth.
So the realization was it didn't scale very well.
It was hard work to scale because of all this expertise that was required.
Now, if it had been an SASS world where you could literally kind of turn it on and then just train people how to use it.
Well, that would have been an awful lot more scalable.
So we had had this somewhat uncomfortable realization.
So I'm not sure what it was, probably the 2000s like, OK, this is this is quite hard.
And when we were looking at the multiples of.
Whatever, and we, you know, we track those multiples pretty clear, where I certainly did.
There were a number of M&A sources of information around acquisitions and what they've got at.
And we weren't really we knew we were at the low end of the multiples, you know.
One, two, you know, God bless, maybe three and times revenue.
Yeah, times revenue. Yeah, times revenue.
And we were only doing the profitability because again,
and at the time, I kind of talked about it with a few commentators afterwards.
I mean, we probably should have gone way smarter and raised an awful lot more capital.
Like like one of our big competitors did Genesis, who, you know, they started like about the same time as we did,
but they went out and raised 70 billion and they were acquired by Alcatel and kind of the rest was history.
And just went big from the start.
And we had this small to medium positioning because we'd come from New Zealand.
We thought that was again, big mistake. We should have got a lot bigger, a lot faster.
So lots of lessons. But so the scalability was was a problem, which ultimately was getting at all effective revenue.
So, yeah, there was, I say, you know.
Some disappointment there, obviously, because we would have much rather be to 5X than
what we ended up being. It was in the low ones in terms of the revenue.
And because we'd chosen not to. And again, my board was made up of every one of them was an accountant,
except me and the chairman, who was a Canadian Kiwi, actually, but Canadian.
So I had a very fiscally driven board who were very, very focused on governance and numbers and
but numbers being profitability, not growth. And they did not want to dilute.
They did not want to go and raise overseas capital. So. Yeah.
You're kind of constrained. It was a it was a you know, and when people ask at the end of the
asked at the end of the day and we got a bit of criticism at the time, you know, why did you sell?
You sold too early. You sold out. God, the shareholders all hated each other.
18 years in by then as well. It's not exactly early days.
Well, they'd been in for about 12 years at that point. But still, you know, there was a lot of,
you know, they hated as well. But, you know, they were all ready, ready to move on.
Lots of conflict. I was spending a third of my month just just sort of going around the shareholders
and keeping them all kind of in line. It was time.
And as I say, we sort of realized the scalability wasn't such.
So we and and we're also about to go through this massive.
We had moved onto the Microsoft platform, which wasn't a P.B.
Xbox anymore. It was this amorphous sort of thing of software that floated around
ultimately, you know, ultimately the cloud.
So we had to do this major migration shift technology change to to not plugging in literally
with a with an ethernet cable into a box, but integrating with this this very nebulous telephony
platform. And back in the day, Microsoft didn't understand the value of telephony always working.
You know, when you think back 15 years ago, you know, if a phone call ever cut off,
it was like, what went wrong? You look like you're a bunch of cowboys.
Exactly. Wow, that's not reliable. Well, nowadays, you know, we have so many drop calls on cell phone networks.
You don't even think about it. You think about it. I lost you.
And so so Microsoft weren't ready for telephony.
I don't know what state they're in now, but back in the day, I mean, there was no no, you know,
who do we ring if it doesn't work? What do you need to do that?
Just send us an email. No, no. The call centers down.
You know, this thing is making five thousand in revenue every 10 minutes.
What do you mean? We've got to send you an email.
So there was a real change of or sorry difference in expectations between us and them.
But sorry, that's coming back to the point of the coming back to the point of the multiple.
So we had a major change that we that we had done, but we could see it was just going to keep on going.
And it was keeping on going. So there were a number of reasons to.
OK, let's look at our quote strategic options. And and and that's what we did.
And then, you know, then we started the process of looking at the strategic options and
and identifying a an investment banker is as they were called.
And we we picked a company called Coram that offshore based or yeah,
offshore based Washington, sorry, Washington, Seattle, Washington based.
And we started to go through the process.
OK, you know, took us through that. So for those unfamiliar dealing with investment bankers,
because the way that I look at the world is that at the small end of town, you deal with a business broker.
And if you're medium, you deal with one of the fat for M&A divisions typically.
And at the top end of down, typically is where the investment bankers kick in.
But I'm curious about the nature of the experience with those folk, how they manage the process.
Was it a white glove kind of silver service sort of experience or was it a bit loose and wild?
Kind of just unpack that a little bit for us if you could, please.
It was very it was very hands on.
I mean, the first thing they they really said, well, they they got to know the business a bit.
They decided, OK, they could understand it then.
OK, so you they were asking me, you tell me who do you think would buy you?
So we came up with a list of 30, 40 entities that were in different groups.
And then they added a few who did they know inside all those organizations?
And that's one of the criteria that we sort of looked at in terms of how well connected were they.
And and then they they pulled together the sorry, you write the I.M.
The information, the random they finesse it.
And then they they send out a basically a two page just got a client the space.
If you're interested, come back and then and then the bigger I.M. goes out to those that are interested.
And you then I ended up on a oh, sorry, we ended up in a roadshow traveling around.
Probably went to seven or eight people that or entities that had got the full I.M.
would definitely serious had the grunt.
You know, they could do it.
And we did that over the course of a couple of weeks.
It was like a shortlist series of meetings.
You turn up to a bit of a pitch, explain the business.
We're a little bit more than that because they had they had a reasonable.
Most of them knew the space.
That all obviously read the I.M. that that furnish a set of questions, we'd answered them.
So the actual meetings were more than an hour.
They were, you know, we were there for probably.
Two, three, four hours in each one, as we went into a level of detail,
like pre due diligence almost.
Oh, yes, yes, exactly.
And, you know, to get them to the point of.
Were they. Qualification that they were interested in us and were we interested in them?
And that was probably a lesser concern there.
So, yeah, did that roadshow.
And then and then the you know, it's all about the tension that the investment banking can create, obviously.
And the goal being that you want two or three people, three or four or four or five,
maybe more than the area, the more the mirror you've got at the table at the end,
who want to buy you the better.
And yes, so that's that's a key piece of the investment bankers role to get to get multiple parties at the at the table at the same time.
So you had seven predominantly North America based on this all North America based.
They went through the process of the pre D.D.
And so how many were they thinned down to that then went into deep D.D. and was the process to.
OK, great. See a little bit of deal tension going on.
So there was a there was a yeah. And I was going to say a model.
There was a reasonable amount of tension. Yeah. Yeah.
And. Yeah, so so we kind of knew then, you know, we had we had a fish on the hook.
Just now a question of going through the, you know, getting the getting the fish into the boat and.
Yeah, then then as it evolved, one one acquirer sort of got more way more interested and
which was a company called Inch House and the the guy behind Inch House and look, I.
I looked up for before we came to this. I assume he's still alive.
He was he was reasonably old.
Getting a resume on now, he was probably mid 60s, I guess, when early 60s, when when he acquired us 12 years ago.
So I assume he's still around. But he.
He is an inveterate acquirer.
He had bought something like 200 companies before he bought bought us, which was a staggering number.
He put together a company in Canada called Open Text as a roll up,
which I think is still one of Canada's largest software companies.
And he had a model and he had a formula and he did not stray from that formula.
So we ended up employing a US based financial controller for the period of the acquisition,
which was only about four months. This guy did very well out of the options.
So in fact, he sent me a note afterwards, thanking me for paying for his kids college education.
You're welcome. It was quite unique.
But he was a US based CFO because he spoke the same language, because he was in the same time zones.
He was there. He could deal with them. And and very.
Yeah. And so his big and first task was to take all of our financials.
And we had we had, you know, New Zealand, Australia,
US, UK, Asia, financials that we prepared every month, obviously consolidated,
putting all of those into his formula and into his literally his spreadsheet.
And that was one of the one of the warnings that I woke up at 4am because Steve was in Toronto.
And I rang up to find out what had gone on overnight.
And I got Steve and he said, oh, I've got a problem.
I was like, shoot. Because our process was really fast.
We did the LOI over the course of Easter.
I was actually up at my beach house in the far north.
And I literally went through every phone.
I had landlines, cell phones, backup batteries, everything.
Every day I was on the phone solidly for three days to Steve and to Nat,
the investment banker negotiating the LOI.
And we so between then and we the deal went unconditional on May 31.
So it was between about April the 8th and May 31, which is phenomenally quick.
It was seven weeks or so. But it's because this guy had a formula.
He was just so damn good or so damn structured and how he did it.
And we so I rang up Steve one morning.
Oh, we got a problem. You know, because that was probably the seven busiest weeks of my life.
I think it was it really was 16, 18 hours all day every day,
just just until he went to bed and you wake up in the morning straight on the phone.
Steve and Frank, the US based finance guy,
he had just completed after about two weeks of work,
this whole recategorization of all of our numbers to theirs into his format.
And he had put the machine, his PC into the boot, the trunk of his car,
and gone out to dinner with Steve as he finished it.
Steve was still at work. Steve knew went home and Frank had finished at whatever time it was in Toronto in the office.
Steve had said, you want dinner?
Frank had said, yes, put the PC into the boot, gone for dinner, come back, boots jimmied, computers gone.
Well, so it's whatever time it was in the morning in Toronto, I'm trying to get hold of Frank.
He's on the plane flying back to California and I don't know whether he's done a backup.
So I've got it was about the most uncomfortable four or five hours as I waited to get hold of Frank.
Had he backed it up before he put the freaking computer into the back of the car.
Pre cloud base, of course, everything sat on disks.
Well, it was just you know, it was just into any head back that up.
Yeah, he had backed it up.
Frank worked on he had a Mac and he put it into iCloud.
And thank God because because Steve was one of those short attention type guys.
He was ready to move on to the next acquisition.
He was sort of getting to the end of it.
And if that if we had to start again, I don't think we would have got back there.
So anyway, that was a that was a blip.
But so so the due general so Steve and a Toronto sorry an accountant from Toronto and an accountant lawyer from Toronto.
He turned up in New Zealand mid the DD process.
I don't know when it was probably the end of April.
And I did a tour with him.
We went round. We were to any see in Australia.
We went to Cisco, who we partnered up with at that stage.
We were we were a partner of Cisco's in the call center space.
We went to resellers.
He did his own due diligence as in the face to face kind of interviewing.
And it was an interesting first.
He really was. I remember his shoe.
The guy was with a fortune.
I mean, probably in those days, in those days, it was I think we calculated his his shareholdings with about half a billion.
And just in in inch house, it was at the time.
And the first airport, his shoe fell apart and and very first airport.
So he just said to the girl behind the counter, he said, you know, have you got some of that subductive fragile type?
He taped a shoe up and we went around for the rest of the week with a
it was really he was he was interesting fish.
But not nice.
Yeah, look, you know, Bell is a nice guy, but but very financially driven.
It's been said that time kills deals and ordinarily a quick DD process is one that tends to take, you know, for maybe six months or so.
Seven weeks is remarkable.
And so that demonstrates, as you said, a experience based on a maturity around the DD and an understanding of what it was that he was looking for and looking at,
as well, no doubt. But what do you believe was the thing that got him across the line?
So why did ultimately the deal get done for inch house to buy Zcom?
We were very clean. It was it was relatively easy.
I guess we were just a very it was a it was a relatively simple business.
There was we had we had lots and lots of product validation.
I mean, we had, as I said, you know, three and a half thousand sites were running all the time.
You know, they didn't stop.
He could see we had the people we said we had.
He could see that he talked to the resellers that we said we had.
There were no I mean, what are the scary things for for a the founder or the board when you sell a business is the reps.
And if they're buying the company, which they did in our case, the reps and warranties you sign.
And at the end of the day, I was perfectly comfortable signing them because I knew them intimately.
You know, I I'd been involved in every step of the state, every step of the way.
And so the reason it was so quick, I think, was it was a very clean deal.
And I can't remember I said it before, but we were one of the first companies he bought.
He normally bought distressed companies. He normally bought companies that were in the crap.
And we were not. We had a couple of conversations about this while we were traveling.
And because he sort of had to get his head around that, that we were.
Yeah, we were making sales, making money.
We were OK, because he wasn't used to it. So. So, you know, at the time, you know,
I mean, the investment bank said, well, that's that's going to be quick, you know, with the deadline that it set.
And I didn't really know any better. It was the first real I'd ever been to.
That was for sure. So and I've got to say at the end of the seven weeks, thank God,
it was only seven weeks because I don't think I could have lasted.
What a guilt. She said, what a kill.
It was really very, very intense.
So it was it was a clean, easy deal.
And also, he was so kind of experienced.
You know, there was no earn out. There was no I had no retention.
He wanted me to stay for a year at the end of the day.
As I say, the deal was done May 31. I rang him up in about September and said, Steve, this isn't working.
Because he'd made me understandably and it was fine.
I was now Asia Pacific president.
So I wasn't I wasn't running the company because the company was being morphed into Inch House.
My U.S. president, the existing U.S. ZECOM president became the U.S.
president for Inch House because he lived there and that made sense.
And he was a very good operator. And look, I was I didn't really care.
I didn't care about the title or the role, but running Asia Pacific wasn't really going to cut it.
I didn't you know, if I was going to hang around, I wanted to do something a bit more meaningful.
And it also I was I, you know, fear to say I was fairly 18 years have been a long time.
So so I rang him up in September and said, hey, Steve, you know, I'm figuring you're expecting this call.
And he definitely was, which is why he hadn't put a retention in there,
because he knew that I probably wouldn't last.
Sunset. Yeah. And he said, look, do me a favor.
Let's not tell anybody till December. And I said, yeah, that's fine.
You know, so I stayed quiet. And, you know, early December,
I announced the staff and said, hey, guys, some guys and girls, I'm leaving at the end of the month.
And he brought he had an Australian guy who he brought in to replace me and kind of handover was complete.
So he was he was a very savvy acquirer, which which and you hear so many tales of woe of companies that are not woe.
That's probably the right word. But, you know, troubles and integration is difficult.
Yes. This one was actually pretty easy. It worked out for him.
He had a, as I've said a few times, a very financially driven guy.
That was the very first line on their website. We are a financially driven company.
It's going to say we're people orientated. We believe in culture. No, no, no.
We are a financially driven company. If it wasn't in the budget, it did not happen.
OK. And budget time, as I heard from the what Ernie, my US president,
they were pretty interesting times. Yeah. Yeah. Everything worked by that budget.
So but Steve rang me up probably about July, August.
And he said, Miles, he said, you're not charging enough.
We're not charging enough for maintenance. I'm going to I'm going to double them.
I'm doubling maintenance overnight. Right.
And I went, well, well, well, well, well, Steve, Steve, Steve, hold on.
It's been a really long and so I started to try to talk him out.
He said, Miles, I'm not asking for your opinion.
I'm I'm bringing up to tell you we're doubling maintenance.
So effective 90 days, we're doubling maintenance.
Remember how many customers you lost to? Wow.
I was so wrong. I was so, so wrong.
I kicked myself over that for leaving so much money on the table.
I've told this story so many times. Oh, what an idiot.
I could have we could have been making so much more money because, you know,
if our maintenance had even been 300 grand more a month, that would have,
you know, damn near doubled our profitability in the last year of business.
He doubled it and lost two.
Wow. People often say that one of the first things you do when you buy a business
is come in and put prices up by 10 percent and see what happens.
But putting them up by 100 percent is a bold, bold move.
It was a big lesson for me.
We've we've bled into the next bit of the conversation,
which is things that you in hindsight look back upon and go,
we could have done that a lot better.
Or if we'd just seen this thing coming, it would have had a markedly different result.
So that's clearly one of them.
What are the other things that spring to mind for you around potential missteps
or things that if you'd handled differently, would have had a
quite a big impact on the outcome?
Yeah, we sort of moved out of small to medium as our space faster.
It took, well, say me, it took us way too long to realize that
that selling bigger things is better.
And I kind of blame that or attribute that back to our sort of
New Zealand and Australian upbringing where, you know, we think that.
Small to medium is OK.
And, you know, that's our place in the world,
and particularly in the American space, because that's where we play.
We should have gone bigger.
We should have focused on the bigger market a lot faster.
That was. But that's the first big mistake we made.
The you know, this this was at the time quite very big.
We were approached or we found actually we found there was a company called
Exponence that was a roll up company in itself that had been put together
in the US and they acquired the Avaya growing and emerging markets business,
which basically the Avaya PBX space under about 500 extensions,
which was they were the biggest reseller in the world of telephone systems
at that time. And they they were acquired by this roll up company called Exponence.
And we I chased down Exponence, got to
the head office was actually in Santa Clarita, which was about two hours north of us.
We were in Orange County, got to basically sold into them.
Long story short, they they they said to us, OK, we want to take you.
We want to take your product on.
We want to brand it.
And we want the first right of refusal to buy you in two years time.
And we.
And there was a degree of exclusivity.
And there was a degree of exclusivity in there, too, on the NEC system.
They wanted exclusive supply on the NEC system and.
No, I've got the wrong, sorry, exclusive supply on the Avaya system.
We could keep the NEC stuff out to one side.
So we thought we'd died in gone to heaven and,
you know, biggest reseller reseller in the world in America
wants to take your product on, wants an exclusive fantastic.
So within about a year, they got up to about three million in revenue.
By that stage, we were doing four in the US.
And on Halloween 2003, I got a few.
And there was some things going on just immediately before that.
Avaya realized that they had made a huge mistake selling this business
and they needed it back.
So they reacquired it back from exponents and exponents had got themselves
in trouble on the share market because they were subject to a to a shorting.
Stock play and they got themselves in the crap and they needed to sell it.
So they sold it back to Avaya.
Well, Avaya, the first thing they did, they went.
So we've got three quarters of our business with this reseller.
On Halloween, I get this phone number, a phone call from
the MD of or the CEO of exponents going, look, Miles, I don't know how to say this,
but we've been reacquired by Avaya.
You need to talk to them.
You've been shafted as the context of that call.
We lost our we lost three three with the 90 days they took us off.
They initially told us that no, no, no, no, no, no.
There's a place for you.
Very good in the low end call center space that we need you.
And over the course of 90 days, you
more conversations we had, the more we started thinking
these guys are going to drop us.
And that was a big problem.
So lesson, huge lesson, don't ever, ever, ever have too much
too many of your eggs in one basket, even if the baskets are really attractive.
It appears really attractive.
So that was a very tough year.
We grew 15 percent.
We took it all back.
We that was when we started to really push maintenance.
We did up our maintenance at the time.
We started to do it all directly, which was really good,
because we started getting 100 percent of it instead of
about 40 percent, which is what we were getting through the reseller.
So lots of good things came out of it.
But boy, it was a bloody tough year.
Two thousand four.
And as I say, we grew 15 percent by the end of it, but we grew an awful.
It was one of the better things that happened to us actually.
Because and in the meantime, the board had agreed to this.
And I again, I I was feeling naive from a
I guess equity side or or
corporate structure side.
You never, ever want to have an exclusive and a right
of first refusal, because no acquirer is ever going to look at you
knowing that all the work they do to acquire you can be undone because somebody
over the, you know, over the fence has got a first right of refusal
if they if they want to buy it instead.
So, you know, my message I've said to many, many, many entrepreneurs
over the years is don't ever, ever have a first right of refusal with anybody.
It destroys your ability to sell yourself.
It's interesting because that was essentially like a downstream sales opportunity.
And so I think as opposed to supply supply side.
Well, and as a Kiwi company, we wow, you know, I've got somebody that's going to buy me.
You just don't realize that you've got no tension in that situation.
There's no one's ever going to provide the tension.
So you're never going to maximize your outcome.
So, yeah, that was the first thing.
Yeah, that was that was another very aligned to that same experience lesson out of that.
Yes. Yeah, those are a couple of goodies.
So going through the negotiation process, you mentioned that you had some a bunch of different investors
and there was some conflict that was between those investors and some challenge in managing those people.
You had obviously a board, you had partners, distributors, etc. to consider.
So I'm curious as to when you got to the negotiating table and when you were evaluating the terms
that were able to have some some pushback and some movement on,
how did you you privilege those different terms and what became really important to you as you were as you were negotiating?
Good news is I had a good chairman by and the Canadian chairman was actually excellent, too.
But he we ended up the board wanted a New Zealand based chairman.
And we ended up actually ultimately getting rid of Owen, which was a shame because he was he was good.
But I've got to say, Brian Allen, who was our chairman at the time of sale,
the sale negotiation was really when I was using all those batteries up that weekend,
a lot of those phone calls were to Brian and he gave me some excellent, excellent advice.
Do you recall any specific things that he mentioned at the time?
Sorry, it's a while back. I probably can't.
I probably can't recall the specifics, but he was invaluable.
And and also actually during that next seven weeks because because yeah, he was he was very, very good.
So Brian and I basically just did the best thing.
Well, I'll say for the business, we didn't because it was going to be good for the business.
It was going to be good for the shareholders.
So we didn't really and by that stage, the shareholders were all like just get a deal done.
Thankfully, there weren't any specific things that any of them wanted or didn't want.
It was we could just do the right thing for the business, get as clean a deal as we possibly could.
I was we I think we were all in agreement.
We didn't want to know in our type situation.
We all knew that that those are fraught with grief and particularly actually in in Houses structure.
We were definitely going to be morphed into them pretty much immediately.
I mean, how it just an earn out wouldn't have worked.
So, you know, Brian and I really just did the cleanest.
Well, the cleanest deal we could do and that worked.
And we probably for you know, we probably missed out on, I don't know.
Another million or two. Not sure maybe.
I don't think it would have been any more, but the clean deal was definitely very valuable.
Yeah, in the grand scheme of things, my recollection 30.6 million USD about 40 odd million Kiwis.
So, you know, one or two million here.
Easy to say, but in the grand scheme of things, it's not that material.
Well, particularly when you either, you know, you one hand you get a deal on the other hand,
you want to two more million more you haven't.
Yeah, it's like, oops. So, yeah.
So, you know, I think it was fair to say we were all at the time, we were all pretty happy.
Yes.
It was a good outcome for us.
Said we'd kind of figured out was a tough space.
It was going to have more of a tough space coming.
So we were, you know, we kind of fought our fight and Inch House has actually continued to.
They've done, they've done continue to do pretty well.
Okay.
I must have been having a look at there.
I wish actually in hindsight that probably the thing that none of the shareholders wanted
and I probably didn't either at the time, we wanted to be paid in cash.
We didn't want to get stock.
We should have taken stock because the Inch House stock quadrupled over the next two years.
Yeah.
Timing wise.
Yeah.
It was, you know, Steve was a very good, very good manager as a public company
and as a public company entity in Canada, they performed very, very well.
So, you know, it would have, could have, should have, we should have taken some stock instead.
But then again, he would, he probably wouldn't have given it because he valued his stock immensely highly.
Right.
He'd rather pay cash.
He wanted to pay cash.
So, you know, we all thought that we were good.
We're all on the same page in hindsight.
Ernie, the US president did very well out of the option scheme because there were quite a few options with four year terms to them.
So, I won't say they came cheaply.
My only way to see value is options of a stock very highly.
But Ernie did well over the course of the next few, well, four years time out of Inch House options.
Yeah.
Which was good.
So, yeah.
So, you were a long time in Telco once you added all up, you know, the P&BXs through the 80s and early 90s.
And then you started Voice Technologies, ZCOM, sold, exited in 2012.
So, both of those things happened in the same year.
Did you go, I'm going to wade back into the Telco space or I'm going to take some time out or I'm going to move into a completely different part of the world because I am over Telco.
What did you do afterwards?
Yeah, I was over Telco.
And I mean, at the end of the day, I'm a sales guy.
I couldn't even identify a line of code.
I mean, I don't know a damn thing about software development.
Or sorry, I do actually, but I don't know how to write software.
I know quite a bit now how to make good software.
But I learned that slowly.
But as a, you know, I'm fundamentally, you know, a revenue focused type person.
I didn't really want to.
I didn't want to get back into Telco.
I kind of did not much for a little while and then I started to do some angel investing.
Kind of enjoyed that.
But then realized I didn't really enjoy putting small amounts of money into companies.
It was a bit of a, you know, as they say, spray and pray type situation.
But, you know, there's been some very good outcomes lately.
Cami being one that where spray and pray has worked extremely well, which is fantastic.
I mean, New Zealand needs some successes or more successes.
But no, I actually teamed up with a guy, Mike Stokes, and we started a sales leadership
mentoring networking type operation.
We were called Sales Syndicate.
It's now called Indicator.
And we ran, we had four groups of about a dozen, fifteen sales leaders.
We'd meet once a month.
We'd bring in a speaker.
We'd try to educate them and enhance their knowledge about sales leadership.
And I really enjoyed doing that for about four years.
And then Mike wanted to make it bigger.
I was very happy with a relatively small monthly commitment that it required for the four groups.
And we very amicably parted ways.
And he's gone on to make Indicator much, much bigger and better.
So I enjoy doing that for about just before COVID actually.
And then I've done a bit of consulting since I'm definitely on the sort of phase out.
I'm now predominantly spending most of my time down in the South Island and playing a few
bit of golf. Should be a scratch golf.
I've only made a golf of playing, but I'm not nowhere near it.
You know, a fair bit of golf, mountain biking and walking and yeah, it's really quite enjoying.
The fruits of the labour. Pretty much retirement.
Yeah. Yeah. So yeah, so I'm relatively very happy.
Yeah, great. Yeah.
I think it's always a bit of attention for a lot of us to achieve that consistent kind of satisfaction and contentment.
But it definitely takes a conscious decision not to go for the next things.
Yes. Really, because there's a little voice telling you, you probably should.
You know, what are you? Why aren't you?
And there's another voice saying, maybe not.
I call that the tyranny of drive.
So from the outside, people that don't necessarily have drive, look at those of us that do and they say,
well, you're lucky you have drive.
And I say, that's like a monkey that's on your back 24 7.
And it's the thing that wakes you up at 3am and the thing that consists that you work on the weekend
and the thing that says to you when you've sold a company and you're financially secure that you should go out and do another thing again.
And so it becomes a bit of a beast to have to tame.
It's taken me a long time not to feel guilty about not doing things.
Yeah. And you know, that guilt thing is very real.
When you should be.
Yeah. So long time.
Yes. Yeah. But pardon question for you, Miles.
So in an alternate universe, one that didn't see you head down the path of becoming a very competent salesperson
and then becoming a founder of a few different companies and then exiting those things.
So the career path that you look at that you could have had and you go with some interest.
Wonder what that would have been like for me to do the vocation that would have been fascinating or enjoyable for you.
Oh, I would have I would have stayed in property.
Which is a very New Zealand answer. I don't mean that, but I really enjoyed the property development we were doing in the 80s.
Company I worked for Bexley was doing a few different things.
And, you know, we were just we were building a timeshare.
We would do it. We were sort of trying to be a little bit nontraditional.
But property development, I really quite enjoyed.
And I would have liked to have stayed there.
Yeah, if I had an alternate, my son is now in commercial real estate and I really liked that property space.
Not not not. I don't own flats and things like that.
I'm not I'm not saying that I'm talking about commercial.
Yeah, same. Commercial development, adding value, you know, taking a taking a piece of land and building something and turning it into something with way more value.
Yes, that would have been the other path if if.
And I could have nearly followed that.
Yeah, we're off camera.
How fate comes. Fate works in a very strange way.
I mean, I I bought a hutch dresser, a cowrie hutch dresser on the side of the road, took it to a paint stripper to get the varnish taken off.
And in the the furniture place, all these cordless phones.
And it was an American guy who'd come down to New Zealand to work for Telecom as part of that whole US rock regional operating company structure.
And he brought all these cordless phones down. And I had a mate who worked for Sanio who'd shown me a cordless phone.
Again, this is 1985 or six.
I remember ringing up my mother and saying, Mom, you're not going to believe this.
I'm talking on a telephone. There's no cord. She's like, don't be stupid.
I said, truly, I am anyway. So I as a sideline while I was at Bexley, I started selling these things to my friends.
You know, I was getting three hundred fifty bucks and they were costing me a hundred of land.
And that's how I got on the phones. It was just such a random fate experience.
If I hadn't bought that hutch dresser, I never would have gotten the telephys.
Well, it's interesting off camera we were speaking that you actually did manage to scratch that itch of commercial property,
despite the fact that you're an entrepreneur, having bought the property that you're in and no doubt some other ones along the way as well.
So it's a I guess a testament to you can have things that satiate interest as long as you're doing the main thing, the main hustle as well.
You have a side hustle is essentially what I'm trying to say.
Well, it's been a really insightful conversation, particularly around the structuring of the deal, establishing tension,
the mistakes that you made along the way, enterprise versus SMB, taking funding versus not taking funding.
The value of external advice and probably the big one for me is the thought process that you had around pricing
and that when an acquirer came and they doubled the prices for your customers and you lost almost no customers whatsoever as a consequence.
I think should probably give people a lot of pause for consideration about their pricing structure and how they go about doing things.
But it's been a really valuable conversation.
I thank you very much for coming on today and look forward to keeping in touch.
Thanks, Josh. It's been good fun.
Great.
Nice chatting.
Thanks, man.