Nearly every entrepreneur and every venture investor hopes to build a business that can ultimately be sold for a substantial multiple on revenue. But accomplishing this is no easy task, and it takes creating vision and potential that is far larger than the company’s revenues.
Dr. John Bates has accomplished this not once but THREE times. He founded Apama, a technology company, which he sold to Progress Software in 2005. Then he restructured that business unit and sold it to Software AG in 2013, creating a big data analytics business that became the spearhead of Software AG and continues to thrive and grow. Then he joined PLAT.ONE as CEO, grew that business, and sold it to SAP. This acquisition became a key part of SAP’s Internet of Things (IoT) offering. In each case, the acquisitions have not only been profitable for the seller, but enormously profitable for the acquirer.
I reached out to John to learn more about how he approached these sales. In this podcast, we discuss:
- How he built use cases to maximize the value of the technology and create reference-able customers.
- How he attracted a buyer for his first company and then made them wait until it was big enough to command a better price.
- How he created a competitive bidding environment when he sold Progress Apama.
- How he convinces acquirers that they’re buying not only future revenue but a new business approach and thought process.
- How he creates a tiger team to innovate in a legacy product company without disrupting the established business.
This podcast is all about how to sell a business for maximum value and ensure that it and the team have a great future in the acquiring company.
So listen in or read the transcript below. It was a fascinating conversation.
Full Disclosure – I used to compete with John Bates when he ran Progress Apama and I ran Kaskad Technology. Later, Progress Apama became a client of PropelGrowth. Software AG is also a former PropelGrowth client.
Transcript for Selling a Business – How Your Story Creates Value with John Bates
Candyce: Thank you, John, for joining us today. I’m so excited to talk with you.
John: Thank you Candyce.
Candyce: So John, you’ve had a lot of experience in building companies up and selling them. You’ve sold three so far. So, I want to talk about that. Maybe we can start with your experience of building up Apama before you sold that to Progress Software. I’d like to talk about how you went about positioning a company so it was an attractive acquisition target. Let’s discuss what you did for messaging and positioning, in building up your marketing and sales teams, thinking about your customers’ needs, and building up that customer base.
John: Absolutely. Apama was…I certainly learned a lot of painful lessons in the creation of that company. I was fresh from being a university professor, or an academic. I went into that company because it had some fantastic technology that we developed in research. What’s now called streaming analytics is about how can you sit on top of data that’s changing very quickly and make decisions on it with very low latency. It’s about acting very quickly. I know you’re very familiar with this space as well Candyce, having worked in this area.
The most important lesson we learned early on was, it’s not about technology. I think for a lot of people this would be obvious. But when the technology is great, you think, “Oh this is wonderful. I can apply it to telcos where they could analyze what’s happening in their networks or defense industry or all sorts of other areas.” Really, I think to really make a company successful and get it going, you need to find the first application area. You don’t sell technology, because technologists often say, “Oh I don’t really know what I’d do with this.”
You have to solve a business problem. The business problem that we were successful in solving was the rise of an area called algorithmic trading and high frequency trading. This was about finding patterns in stock market, futures market, foreign exchange and other capital markets information that’s streaming very quickly. We would find patterns that indicate profitable trading opportunities and then place orders in the market to trade on those very quickly. That’s really how we started. You remember this Candyce?
Candyce: Very well. I remember going to a conference where we met actually in…I think it was 2005. There were all kinds of use cases being presented for what we were then calling Complex Event Processing, CEP. You guys had a pretty good use case but a lot of companies were kind of floundering, trying to find their use case. So once you guys got the use case around algorithmic trading, like lemmings all of us followed you. That created a problem because it created price competition way too early in the process.
John: Yeah. I think that was…as we’ve talked before in this area, instead of saying “a rising tide floats all boats,” we were all playing five year-old soccer and running around after the ball…anything that moved. In the Apama world and a couple of other companies — StreamBase for example is another one. I think there was some reasonably good differentiation in creating specific solutions in a specific area. So while I would agree with you that there was too much competition over a small area, I think in the end there was enough done there to prove out and to build a scalable business.
So I know in Apama we built out a number of what I called “solution accelerators.” This has proven to be a model for how I like to operate in the business world. We build out the solution accelerators which are really between 50% and 90% of a finished application. They can then be customized because you’re selling a toolkit with a development environment and an engine which runs your real-time analytics. You model these solution accelerators in that technology.
You can then go in and add the remaining 10% to 50% with a customer, or a customer can do it themselves. You can go and sell this. You can demo it to the business: the business executive, the head of trading, the head of foreign exchange, the head of whatever area of the business. You can sell them a solution essentially. Often, that’s the best way in – through the line of business. The technology area could be much more painful, much more nitty-gritty and much lower price points. So that’s one of the key lessons that I’ve learned going forward. It’s really good if you can sell a solution to the business.
Candyce: Absolutely. So one of the challenges that we ran into in previous businesses that I co-founded was teaching a sales organization how to have those business level conversations and create vision at that level. That’s a lot about messaging and positioning. How did you go about achieving that and getting a sales organization to where they were actually able to bring these deals home?
John: That’s a great question. It can come down to something as simple as knowing how to identify and look for the right sales executive. Because somebody who’s good at having an IT conversation isn’t necessarily good at having a business conversation, and vice versa. So again, we learned a few painful lessons, but eventually we zeroed-in on the right kind of executive, who can have the business- level conversation. Now, there’s nothing wrong with also having the technology-friendly salespeople. That can be great as well, because they can do business areas that you didn’t know were opportunities.
In this case, I was the CTO as well as the president of the company. If you’ve got a founder CTO, you can basically do the first deals by selling a vision. The first deals are usually going to be painting a vision for where the world’s going, how this solution can take you to the next level and give you business benefits. It’s about having that right conversation with the right visionary customer.
We were lucky. We had our first visionary customer at JP Morgan. This was Antonio Reyes Miras and he was a visionary. He saw the way the world was going, and he agreed with us that this platform was needed. Then you get going and you have reference-ability. So I would say it’s about finding the right business level salesperson, but the first deals are probably going to be done with your CTO and your head of sales. Once you’ve got reference-ability, then you can make it more repeatable.
Candyce: So talk to me about after you got that established and you started then building Apama and positioning it. Also, what year did you sell to Progress?
John: In 2005. So, Progress Software came along. They found this need for real-time streaming analytics through their ownership of a technology called ObjectStore. This was an object based database, which different organizations were using to store real-time information. They started doing research on this, and found it would be good if we could analyze that information in real-time. They started to get a bit of a vision about the way the world was going. So they started looking for companies to acquire and sort of stumbled upon us.
They’d looked at a few other different flavors. We looked very much like a capital markets company, but they quickly realized that there was general-purpose technology behind the scenes. They said, “We want to buy you.”
We were backed by The Carlyle Group, very big private equity firm, which at the time also did venture capital. We said, “We’re not ready for sale.” Eventually this dance went on for about a year — while we were building our business. Eventually, they offered something which was interesting to the investors.
We thought, “Okay, well inside Progress we can take this forward.” Interestingly, you would have thought in this case that we would have sold to a Capital Markets company, but we actually sold to a software company. They then realized and understood that we needed to have a vertical focus to really take this to market. They had a lot of their customers in Financial Services as well. So that’s how Progress came on the scene.
Candyce: So then you ended up staying with Progress and served as the CTO and ultimately I think you then structured another sale of that business unit to Software AG. Talk about that.
John: Progress was actually the longest period of my career were I’ve ever been in one location. I was there for nine years. The reason I stayed for so long was because they kept evolving the role. I started off running a division and then ended up as the corporate Chief Technology Officer. Progress was a NASDAQ listed company, medium-sized, $600 million in revenue. So, not massive — but not tiny — with a very loyal partner base. But really, it had a legacy product which had been around for a while. We were looking to how we could reinvent, create a new core, or create a new buzz around the business. That’s why the Board and the CEO end up making me CTO.
What we did there was, without having to invest a huge amount of money, we created a new vision for the business. The legacy business was around application development. It was used by two and a half thousand partners to build their business with. We saw that the future was going to be digital business platforms. It’s going to be “Internet of Things.” At a very early stage we saw that. It would be around real-time applications.
So, we asked how could we create a vision around Progress being the platform for real-time predictive applications in a digital world? Then we’d eventually back the existing business into this, so these partners could utilize this new technology. We put together a tiger team to create this new business. We called it “Responsive Process Management.” It brought together business process management and complex event processing and all these other technologies, but also it was integrated into the traditional platforms.
So, this started going very well, and we were winning interesting new business with the real-time platform in financial services, travel and logistics, supply chain management and so on. Unfortunately, a new CEO came in and decided that he was going to focus on the legacy business and do something different. So, I had the opportunity to sell part of the new business we’d been putting together. I decided I was going to leave.
I got to take out some of my old staff. We sold the business to Software AG. They are a German-headquartered public company, who’d been very keen on the Apama business and other aspects of learning how to do this for many years. The reason they were so keen is that they had a middleware platform WebMethods. They wanted to be able to start to do big data streaming analytics on top of that. That’s how I came to join Software AG.
Candyce: How did you know that Software AG was interested? Was that a conversation that had been going on for a while or did an investment banking group help you guys meet? How did that happen?
John: So, I knew the guys at Software AG. I’d known them for a while, because they were very interested in Apama. I knew they’d like to have owned that technology. I just kept in touch with some of them. When it came to doing this top-secret sale process, we put together a list of 20 of the top prospects and went out and pitched to these companies.
We put together probably the best piece of work I have ever done with a team of four lieutenants. We were working in secrecy to put together this portfolio and went out and pitched to these companies, working with the M&A guy from Progress. It was very well received. We had a very competitive bidding process.
It’s all about how you position this stuff. It’s all about the deck and the story you tell. Everything in business is about that. You obviously have to have technology. But the best technology doesn’t always win. It’s about the story that creates value and the positioning.
In the end, Software AG looked like a very good fit, and indeed it was. Many of my colleagues are still there actually. I created for them a big data analytics business and an Internet of Things business which is now very much the spearhead of everything they’re doing. It works seamlessly on top of their WebMethods. It’s a key part of what they’re now positioning as their digital business platform. It’s caused them to continue in that direction. They’ve just bought an Internet of Things platform company. It’s completely changed their business.
Candyce: So, when you were doing that pitching, were you creating a story to create value for each of the prospective buyers in how this technology would fit into their stack, or did you use one pitch that you went to all 20 with?
John: We used one pitch and created a big deck about 100 or so slides which had everything, the kitchen sink in it. Then we created a teaser deck and then a mini deck. We sorted different use cases and different slides and depending on who it was, but on the whole, it was the same core of slides. I think some of the most compelling pieces of it were, “Here’s the customers, here’s how much revenue we had out of each customer over the last year, these are the industries, and these are the use cases.” Because these big companies just aren’t used to seeing that kind of analytics.
The other thing that I remember being incredibly compelling to these companies was, “Here’s how this business is going to make its revenue number this year. This is where it is today, how much it’s done so far. This is how much is going to be renewals from existing customers. These are the tier-one opportunities that we would say are pretty certain, and here are tier-two opportunities that we’d say are maybe less certain, but pretty likely.” So, you show this funnel filling. So you look like you’re on top of your business. You know what’s going on. You know your customers. You know your use cases.
Suddenly the buyer sees you not just as somebody who’s bringing a business which is going to add tens or hundreds of millions of revenue to them. They see you as a practitioner who can do the same for their business. They start to like the people, and the logic, and the approach. So the way you sell something also reflects on you and your thought processes, not just on the business you’re selling.
Candyce: Good point. Going back to those use cases. I know I helped to create some of those for both Progress and then later for Software AG as well which was a lot of fun. That’s an area that companies sometimes struggle with. Part of the reason that they struggle is because they’re so focused on their platform and their product that they don’t really get to understand how the customer is solving their own business problems are using that technology. Can you comment on that and how you approached that internally?
John: You’re right. One of the use cases that you were very early at looking at was real-time market surveillance. That’s an area that still hasn’t reached its zenith but it’s one that we later moved into as a big area. Because if you have something like a flash crash, or a market crisis where something goes seriously wrong, or something like at Knight Capital where one of their algorithms went wrong and it lost them $600 million in 30 minutes — how can you do compliance one or two days later? You need to be doing it real-time. It needs to be like a risk firewall around your business where you can shut things down if they’re going to cause damage.
The ideal thing is to predict problems and fix them before they happen. So that was something you were very early in identifying. I think that’s an area where the industry is going forward. You’re absolutely right. You have to be able to understand these use cases. It has to be almost like a startup, even if this is in a big company. If you’re testing a new use case, it’s like a startup. You go out and learn on the job. You have to understand how people are solving problems today. Ideally, you want to have heard about this use case from a customer. You probably want to have done it one, two or three times in a customer, prove it, and then scale it.
At the same time, you also have to understand the market opportunity. Before I invest in this use case to build out a solution accelerator, is the market big enough? Before I invest in hiring salespeople, is there a market behind it? So everything you do, whether you’re in a startup or a big company should be a mini business plan. You should have what I call an “intrapreneur’s” head on. So you’re an entrepreneur in a bigger company. You should always be thinking of something in terms of a mini business plan.
Candyce: So that’s a great transition to talking about those tiger teams that you mentioned earlier. I think that a lot of companies are in similar situations to what you described at Progress, where they have a legacy product base. They want to figure out how to continue deriving value from that legacy product base but they also need to stay up with and slightly ahead (although in my experience) not too far ahead. I’ve done that before and that doesn’t work well.
It’s challenging, especially if you are a company that’s in that range of $10 to $50 million. You’re investing a lot of the revenue and profits into delivering on promises you’ve already made to clients. How do you go off and find a new direction, even if it’s a slight tangent? How do you build new technology or a new platform without disrupting or taking too much revenue away from your existing business?
John: This is the classic challenge of reinventing or turning around an established company. You’re completely right. What you don’t want to do is to come up with this amazing vision where everybody goes “Yeah, fantastic!” Then you turn everybody loose on that vision and you neglect your existing business.
The key thing about a business is you have to have the business equivalent of the Hippocratic Oath. First, do no harm to the existing business.
So what you need to do is create this tiger team where 95-96-97% of people in your company are focusing on the existing business. You create a tiger team who have a special remit to be able to be more entrepreneurial. They need to be able to answer: “What are the value propositions? What’s the next technology platform?” They need to prototype this and do this quickly.
If you try and do this with a legacy product team, it’s going to be, “Oh we can’t do it.” “Oh it’s going to take three years.” You’ve got to have the kind of culture where people can take products that you might have already, wrap them in different ways, plug them together in different ways, build demos, build solutions. Then they take those things out, and work with innovative customers. They need to ask customers, “What are your big problems?” Then zero in on those.
You almost need to have the Bain Capital or McKinsey’s type approach but combined with a product team working inside the company. If you can put that together — and it does take certain personalities. I’m lucky enough to have done this many times, and I’m just building this capability at my current company. This is how you can take things forward without disrupting the existing business flow. Eventually these things merge together. The new business and the older business come together, and you find you’ve got a new business.
I’ll tell you who’s doing this amazingly well in my opinion in the market today and that’s PTC. They bought ThingWorx which was an okay Internet of Things development platform. Not as good as my company PLAT.ONE (plug, plug), but pretty good. (Note: PLAT.ONE was acquired by SAP under John’s leadership.)
PTC is a sort of legacy design company, a PLM (product lifecycle management) company with various assets. What they’ve done is build out ThingWorx as the tip of the spear in the Internet of Things. Then they started telling a story about how we’re now in the blending of the real world and the virtual world.
So PLM and IoT (Internet of Things) comes together. The CEO is showing demos in 3D where he’s holding a real-world sensor-enabled object. He’s showing how that object augmented in the PLM world, so you can see what it would be like if it was part of a real factory. He’s moving it around in 3D in the real world, and it’s reflected in the virtual world. What he’s done in the end is wrapped his legacy revenue with sexy IoT revenue. I’ll bet you that company gets bought by somebody like GE for an enormous multiple — much more than he would have gotten with a legacy company. So that’s how it’s done. Pretty impressive.
Candyce: Wow! Yeah that’s a great example. We are running out of time. Are there any closing remarks that you wanted to make that just kind of wrap up what your thoughts are on this?
John: I think that some of the things we’ve talked about are very much in my belief system around focusing on use cases and solutions. You can do that in a small company. It might be the core of your company. But you can also do it in a big company, and you can do innovation there and then hopefully wash your legacy revenue ultimately. I also think you have to tap into trends like I just mentioned there on IoT. That was an area where I went in my last company. I think you have to see where the trends are coming and play into it.
As you said Candyce, avoid the competitors and make sure you’ve got a differentiated position. It doesn’t matter the size, stage and scale. It’s all about the messaging and then about how you can use a tiger team to implement that messaging and ultimately change the trajectory of your company.
Candyce: That was phenomenal! Thank you so much John. I’ve really enjoyed our conversation. Thanks for being part of this.
John: Thank you.
Takeaways from This Session
My biggest takeaway from this conversation is how important it is to weave a story that creates a value about your company that demonstrates use cases that solve critical business problems for specific business niches. The more focus you can put on the business problem, the more value you create.
Equally important is how John structured the story of the value the company itself would bring to the acquirer. The story, deck, and the analytics he produced convinced the acquiring team that they were buying not only future revenue, but a team that could bring a new business approach and thought process that would transform the acquiring company. That is how you create lasting value, and it’s also how you extract the best acquisition price.
For more information about John and the companies he’s built, explore the links below:
Book by John Bates – Thingalytics: Smart Big Data Analytics for the Internet of Things
Companies mentioned in the podcast:
Articles Related to How Your Story Creates Value
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