SEA's James Marciano interviews Jeff Stewart
Hey, Jeff. How are you?
Good. How are you doing?
I'm doing fine. So, you're my guinea pig for this, all right?
All right. So, Jeff Stewart, welcome to Strategic Exit Advisers Interview Series, E’s with X’s. Jeff, we're happy to have you.
Happy to be here, thanks.
You and I go way back. For our listeners here, tell us a little bit about the history of your business. I know you’ve sold several companies, so which one are we talking about today?
Well, I think you wanted to talk about our first business with Square Earth, which is when we met back in the 90s. We shared an office building. We were on different floors, and we were both involved in the early days of the World Wide Web. That was a lot of fun. We were both in our 20s and growing our first business.
Yeah, sure, 55 Broad Street – brings back a lot of memories. So, tell us more about Square Earth, a little bit of background.
Sure. So, we had always wanted to start a business, and we were fortunate enough to have exposure to the World Wide Web pretty early on. I was a management consultant and was working with – one of my clients was the NASDAQ where I got to explore the technologies that could affect the NASDAQ, and I got to play around with the World Wide Web.
Went in one day and saw almost 800 companies listed in Yahoo! Came back the next day, and there were 1,600. So, realized something big was happening. Meanwhile, my co-founder David had – he was actually deploying web-based systems on Wall Street with Solomon Brothers. So, we had known each other from college and decided to dig in with the idea that this new medium was going to be so important that it would make up for our lack of experience.
And in fact, that proved to be the case. We had iterated through a couple different business models, did what now is called a “pivot,” and then ultimately settled on the idea that there would be a new category of consultants that specialized in deploying web based systems. And our company was going to be one of the first, and our big competitive advantage was: we owned suits to wear to business meetings!
A lot of people involved back then in the World Wide Web came out of multimedia or design, and we were able to go in and talk to very large corporations about their strategy and address very adult concerns like data security and business process re-engineering and business objectives. We were able to get a following with companies like Citi Bank and AIG. Pfizer, Merrill Lynch and Microsoft were some of our clients. And really grew that organically through revenue and tight management of cash.
Fantastic story. And how big did you get it before you decided it was time to sell?
So, we felt that there was gonna be some consolidation in the industry and that there was benefit to being one of the break out companies. We had studied what had happened with railroads, what happened with canals, electricity, broadcast of television and radio. And in the early stage of a new technology, you really want to be one of the winners.
So, we looked at – about three years into it, we looked at an acquisition of a design company which we thought could be expanded and really re-purposed into a much more internet oriented business. We were very tech heavy and business heavy, and they were very design heavy. So, we thought that combining would really take us to a new level. We ended up not doing that deal, but got approached by a company called Proxicom instead.
They were venture-backed, and they were growing very quickly, also. We ended up merging with them, and then went and acquired a third company called Ibis out on the West Coast. And that gave us the scale to move into the public market, and eventually, we were about 1,200 consultants and about a $2 billion market cap e-commerce consulting company.
Awesome exit Jeff. And because we're trying to help entrepreneurs who may be considering their own exit, or acquiring companies if they're not growing fast enough organically, can you talk a little bit more about the M&A process with Proxicom? Did you end up hiring an investment bank or an M&A adviser to help you through that process?
Well, we didn't. But we did seek help. So, we didn't have any outside investors, which is a common place to look for guidance. So, we invited an adviser on board – who was a former KKR Partner – and compensated him with some equity. He was just very knowledgeable about deals.
He had been a CFO. And a CEO. He had run a public company. And he helped us better understand the inner workings of M&A and financing. And that was important to have a trusted adviser at the table, especially as first time entrepreneurs.
Who else was part of your trusted adviser team as you went through their process?
Yeah – of course lawyers and accountants were involved. But I think one of the great things about starting a company in America is everyone wants to help and provide support. But I would say our adviser Al Pastino – Al played a critical role, he gave us the confidence to move forward. And also, there were three of us. The third co-founder, Brad Galle. So, because there were three of us, we were able to split the work up a bit and keep the business running while also exploring various opportunities.
I was just gonna say I think you bring up a really important point that, obviously, when you're going in to sell a business, it can prove a real distraction, and the last thing you want to do is take your eye off the ball and stop serving your customers.
Absolutely. And I think the best way to sell a business is when you don't have to and may not even want to.
Yup. And what is the best advice you could give to someone considering an M&A transaction, especially if faced with a UFO (unsolicited flying offer)?
So, the best advice we got was from an Inc. magazine article back in the 90s. It said, “you only get to sell your company once, so do it often.” And what we basically took – and this is within a couple weeks of incorporating – from the article was a philosophy that “when somebody is interested in buying, take it very seriously, but expect to walk away.” And we got approached several times to be acquired, and the first time we, quite frankly, weren't prepared.
It's 'cause we didn't take any outside financing or governance or how we described ourselves, our pitch. It wasn't rock solid. And our diligence, what we looked like – we were focused on growing the business and serving customers, not being able to perform due diligence at the drop of a hat. So, we learned a lot from that first attempt, and at the end of the day, we ended up not doing it, the offer wasn't economically interesting for us. And maybe that's because we weren't as tight as we needed to be in the sale process.
But we got approached a couple other times, and each time we got better at it and we were more prepared and it became less of an issue. And by the time the Proxicom opportunity came along, it wasn't that disruptive, and we were prepared to walk away. And I think everybody was pleased with the terms 'cause it allowed us – it allowed them – to accelerate their technical capabilities.
It allowed them to really accelerate their presence in New York and their customer base in New York. It brought in an important relationship with Microsoft that we had developed over the years. And it brought in great management expertise into the company, and it was part of – I'd like to think – part of why we were able to go into the public markets before all hell broke with the bubble popping.
Well, it sounds like they had a couple really great reasons to buy your “special sauce”: those customer relationships, especially with Microsoft, your management team, and wanting a New York base. Had you – had they been on the radar at all for you? Had you known about them or done any projects with them?
We did look at some joint projects as part of the diligence process. We had proactively made sure that we had relationships with various people who were in the industry, and I think that's part of being a CEO is building relationships with other people in the industry and understanding what they're doing. And sometimes creating with them or partnering with them creates more wealth faster. So, it's important to have those relationships.
Yeah. That's great advice. And so after you merged with Proxicom and then went public, where did you go from there?
I had years earlier had an idea about – when I was a management consultant – the idea of producing documents remotely, right from your computer. I had spent a lot of time in the copy center as a management consultant thinking “wouldn't it be great if we could press a button.” So, we – a friend of mine had a very similar idea. And with his egging and support, we decided to hire an analyst to research this idea with the idea that, at some point, we'd want to start a business, and it would be good to really see if this was a worthy idea.
And the plan was the analyst was gonna spend the summer researching and present his findings in the Fall, and then we would figure out what we wanted to do. And about three weeks into it, he's like, “you need to drop everything; you need to start Mimeo.” You know, this was when stamps.com was 18 months old and a billion dollar company, and the opportunity space that Mimeo.com plays in, still to this day, is much, much bigger: billions and billions of dollars spent on the management and distribution of digital and hard copy documents.
Upon seeing this research, we felt compelled to jump in and start another company. And so we did and raised $21 million for Mimeo.com. Back then, it was a major effort to develop software, so we had dozens of software developers, spent almost 18 months building out the product, setting up a factory, integrating the software with the factory, integrating the factory with the FedEx system, and then launch that right as the bubble was popping.
So, fortunately, the business model and the team was strong enough to weather that, but that was an exciting adventure. And that company today is – we have almost 1,000 employees – over 1,000 depending on the time of year – who help thousands of businesses produce and distribute their documents, often in the training and development space.
Mimeo.com now has thousands of customers including many of the worlds largest corporations.
Jeff Stewart, my favorite serial entrepreneur in New York City, thank you so much for being here, a part of Strategic Exit Advisers, E’s with X’s Series. I appreciate it. It was good to talk to you.
My pleasure. Have a great day.