Founder in Eleven

March 10^th, 2023 will mark the three-year anniversary of when Technology Services Group (TSG) was sold to Alfresco.  This post will be slightly longer than other posts as it will attempt to share the reasonings behind selling TSG and serve as a recollection of the sale, my post-sale experience at Alfresco, and what I learned from the process. 

TSG and Alfresco Background

TSG was founded in 1996 and began in the pharmaceutical space with one large client.  This first job required the client to choose between Novasoft and Documentum, two different document management software packages, for the purpose of organizing important quality documents for manufacturing.  With our help, the client chose Documentum, which lead to TSG becoming the go-to Documentum partner in the Chicago area.

In 2007, TSG became a partner with Alfresco, another Document Management (also called Enterprise Content Management or ECM) software company founded by John Newton, who earlier in his career had co-founded Documentum.  TSG was a go-to partner of Alfresco, winning multiple awards including Partner of the Year in 2014.  Over the span of  24 years, TSG had talks with multiple people at Documentum and Alfresco about a potential combination that extended beyond partnerships.

Two Plus Two Equals Six

When considering mergers with other companies, I always made an effort to highlight all the benefits of a company merger.  The equation “two plus two equals six” is representative of those benefits; two companies together can produce more (six) than they could by themselves (four).  By merging TSG with Alfresco, we could see improvement in company synergies, efficiencies, momentum, and market presence.  In our case, strategically combining with Alfresco offered the following benefits to TSG:

• The Alfresco brand – As a small company, TSG would often lose opportunities for software sales or services due to our limited size and brand.  Selling TSG services would be easier under the larger, world-wide Alfresco brand, which came with a global sales force and positive reviews by industry analysts.  TSG software, if branded as official Alfresco products and sold by the Alfresco global sales force, would also generate significantly more sales than TSG could by itself.
• The Alfresco client base – Having access to the entire Alfresco customer base would generate significantly more sales of TSG services and software.

Likewise, adding TSG to the team would result in the following benefits to Alfresco:

• The TSG team – Alfresco would benefit from TSG’s team size and experience, particularly when it came to large complex projects and migrations that would arise from the sale and use of Alfresco software.
• TSG software – TSG software, different from Alfresco, would bring additional sales opportunities to existing Alfresco customers.  TSG software could help Alfresco better compete against other ECM companies for new customers, since TSG products included a document viewer, configurable case management interface, and NoSQL products—components not available in Alfresco software but available from competitors.
• Industry perception – Upon announcing the TSG acquisition, Alfresco could gain momentum in the market as investors become interested in the potential benefits and growth opportunities brought by the acquisition.  The announcement could also generate excitement and attention from industry analysts and the media, leading to increased coverage and exposure for Alfresco. At the time, Alfresco’s competitors in the ECM industry (OpenText, Hyland) were making acquisitions themselves and getting attention from analysts and the industry as a whole.

“But what about the money?”

For cynics that are thinking, “Come on, you sold out for the money!” financial benefits did exist for both TSG and Alfresco.  In 2019, TSG had just completed our best year and highest earnings in 24 years.  Typical consulting firms can be purchased for 5–10 times earnings while software firms, at the time, were somewhere in the 15–40 range.  Alfresco, owned by private equity firm T.H. Lee, was looking for a way to improve earnings and could easily justify the purchase of TSG based on the difference in our multiple. 

TSG’s size made it easier for Alfresco as, even at our highest earnings, we would be a small part of Alfresco’s overall revenue. This would result in a similar services mix to other software companies receiving the 15–40 times multiple.  For TSG, the owners’ opportunity to realize a valuation of 5–10 times earnings and buy out after our best year was also a factor because, from a timing perspective, TSG was concerned that we would not hit growth levels in 2020 or could lose future partnership with Alfresco (see more below). 

TSG History with Potential Sales

Over the 24 years of running TSG, I had both approached potential merger firms and been approached by firms for the purchase of TSG.  For other business owners/founders, I thought it was always worth listening or pursuing mergers or acquisitions as long as it did not distract from the day-to-day business of running the company.  Between my own contacts and learning from those in my peer business groups, I felt I had a good understanding of the process along with multiple advisors—a good accountant, lawyer, and M&A friend that could help me discern which opportunities were worth pursuing.

For other business owners, one mantra that I would always share was resisting companies that would “buy me with my own money.”  Many other consulting firms approached TSG for a “roll-up,” suggesting we combine to collectively increase both our worth.  While I have seen successful roll-up approaches for other companies, those pitched to TSG did not seem to be worth their potential success for the greater risk of our owners giving up control. 

I also did not want to pursue hiring a Mergers & Acquisition firm to market and sell TSG.  I thought the “we’ll sell to the highest bidder” mindset would be difficult given our size and document management market niche.  I was also very concerned about the reaction of our employees and clients if word got out that I was looking to sell, especially in the realm of employee and client retention.

Personal Concerns

It is worth sharing that I was also diagnosed with prostate cancer in 2017.  While the operation was successful and I am 5+ years cancer free, the thought of something happening that could affect the ability to fulfill my role as co-owner did play into the timing and decision to sell.  I did have a concern about the firm without my involvement including the burden on my family and other TSG owners if I was no longer available to run the firm.

Timing with Alfresco and Hyland

Early in our partnership, I had brainstormed with executives at Alfresco and brought up acquisitions with the previous two CEOs.  At one point in 2018, Alfresco sent out a representative from their private equity firm T.H. Lee to look at strategic partners (including TSG), but nothing came from the discussion at the time.

In 2019, TSG was having our best year but, for the first time since our partnership, Alfresco-related projects and revenue declined and no longer represented the majority of the TSG revenue.  After T.H. Lee provided Alfresco with new CEO, CRO, CMO, and supporting teams, TSG felt like we were losing traction with our partnership with Alfresco.  We had a similar fall-out with Documentum in 2010 when we were removed from the Documentum Partner program.  You can read about the Documentum upheaval in CIO Review in 2017 and in our post on partnerships.

With a new CEO for Alfresco coming in 2019, that November I reached out to the T.H. Lee representative and arranged a meeting in Boston to present the potential combination opportunity.  I felt strongly that if the our non-Alfresco work trends continued to increase for TSG, the window of opportunity for an acquisition would close, particularly if Alfresco continued losing opportunities to TSG.  I presented to the CEO and CRO in December, and TSG received a letter of intent in early February.  Alfresco conducted due diligence in February and the sale closed on March 10^th, 2020  (you can still read my old hopes on the TSG Blog).  The timing of the sale was incredibly relevant (and pretty lucky) as many will remember the United States going into severe Covid restrictions that same weekend on March 12^th.  The announcement was generally viewed as positive from industry analysts.  You can read their thoughts in Deep Analysis, Digitizing Polaris, and ECM Architect.

Other relevant 2020 dates included:

• April 28 – Alfresco released TSG enterprise viewer
• June 23 – Alfresco released TSG content accelerator for claims content management
• July 9 – Alfresco released TSG content accelerator for policy and procedures
• October 20 – Hyland completed acquisition of Alfresco

One of the goals we discussed with Alfresco during the acquisition process was how TSG’s products and services could help Alfresco finally make the jump to leader in the Gartner Magic Quadrant, something they had never accomplished. Alfresco achieved that milestone on the last Gartner Magic Quadrant for Content Services Platforms 2020 (Gartner is now doing reviews); look for all the Gartner mentions regarding the acquisition, consulting, federation, migration, viewing, redaction, cloud, business-focused applications, and next-generation platforms.

The entire TSG team stayed with Alfresco throughout 2020 but, unfortunately, Hyland’s acquisition of Alfresco in October lead to an aggressive approach to cost-cutting with an eye on a more profitable bottom line and layoffs.  Due at least partly to UK labor laws (where Alfresco engineering was based), most of the layoffs happened outside of the UK.  As a founder, with my earn-out completed fully and early by the Hyland acquisition, I was one of the approximately 20 TSGers alongside others from Alfresco that were laid off on October 20, 2020.  Over the next couple of months, I worked hard to help many of the laid off employees find jobs.  Hyland later laid off nearly 150 of their own workers in January 2021.

As pointed out in an earlier post (Layoffs, How to Avoid the Company Culture Killer), it is difficult for a company to retain employees after the employees witness a large portion of their coworkers and friends laid off.  One and a half years after Hyland’s purchase of Alfresco, 21 of the 30 TSG alumni not laid off had left Hyland for other opportunities with only a very dedicated group of 9 remaining.  While I am out of the ECM space and working on multiple other efforts, I still keep in touch with TSG Alumni and customers, offering advice whenever requested. 

What Did I Learn That Is Worth Sharing with Other Founders?

Some of my lessons learned during the acquisition and subsequent working for Alfresco include:

Lesson #1 – The Value of Outside Advisors

I was very lucky to have a great peer group of other founders that had successfully sold their firms, and a strong team that advised TSG throughout the acquisition.  Some of my peer group alumni (we used to call ourselves the Chicago Technology Roundtable) included Lance Russell (formerly PointBridge), Mike Snyder (formerly Sonoma Partners), Michael Silverman (formerly Duo Consulting) and Kevin Taylor (formerly Obtiva).  After everyone but I had sold, we would have alumni lunches (I felt like the last guy left on the island) where I got critical info on how sales go down and insight into what I could do after a sale. 

My advisors during the sale were M&A, accounting, and legal review.  I couldn’t be happier with my M&A partner, Rick Herbst and Sikich.  Rick brought objective advice and assistance during all parts of the sale, particularly with valuation and negotiations.  My accountants, Mowery and Schoenfeld were also outstanding and often outperformed the accountants on the Alfresco side of the acquisition.  They were great in helping keep the TSG books clean and up to date before the acquisition as well.  Nancy Temple of Katten Temple represented my legal interests throughout the sale and during some of the difficult after-sale legal discussions.  Having a great team that I could trust, particularly since Alfresco had a large and expensive team, proved critical to TSG’s success.

Lesson #2 – The Value of the Alfresco Brand and Global Sales Force

One of our assumptions that proved 100% accurate involved the value of the Alfresco brand and Global Sales Force, which we believed would add to the TSG products and services.  During my 7 months at Alfresco, TSG was able to easily leverage the Alfresco brand for access to additional customers and book additional consulting sales.  Labeled as Alfresco products and sold by the Alfresco sales force, the TSG software was tremendously successful under the Alfresco brand, marketing, and Global Sales Force, continuing to outperform expectations to this day. 

Lesson #3 – The Ups and Downs of an Earnout

Earnouts are part of a company sale where the seller (TSG) receives additional payments based on the business’s future performance after the sale.  For the Alfresco purchase of TSG, the earnout was completed after one year if certain milestones were met.  On the positive side, the earnout kept the TSG team and our college hires intact.  All of the 12 employee owners of TSG were also kept motivated to perform, which lead to zero TSG turnover during the earnout.

On the negative side, TSG was only a small part of Alfresco, and hitting our earnout numbers didn’t necessarily benefit other groups at Alfresco and their individual goals (see our team versus individual goals post on how individual goals can lead to competition). While TSG had responsibility for hitting the earnout target, we did not have the authority to make a decision if another executive from Alfresco (CEO, CRO, CPO, CCO…) had other thoughts on the decision based on their own goals or staff motivation. 

In hindsight, I might have tried to push for better alignment of goals between the teams during negotiations.  In talking with one attorney that often worked with earnout disputes, he shared that, in his experience, it was very common for founders to be overly optimistic when it comes to achieving the earnout.  I would coach founders under an earnout to understand that assuming all parties want to you to achieve the earnout is naïve and that, when push comes to shove, individuals will perform in their own best interest that may not align with earnout goals.

Lesson #4 – Bureaucracy and Egos

As an individual founder, I was always a little envious of the collaboration at other companies who began with a group of founders partnering together.  As part of the Alfresco executive team, I was hoping to collaborate with other executives and departments.  During my time as an executive, most of the Alfresco leadership was new to Alfresco and the ECM industry (less than 2 years). They had all been very successful at other software companies, and were brought in by the PE firm to “flip” Alfresco to another company, or to quickly get the financials in better shape.  These executives, like myself, had individual success before Alfresco and wanted to continue that individual success at Alfresco for their personal brands.

The TSG team, having worked together for years with a great degree of trust, was accustomed to debating and making quick decisions based on the long-term goals of the client, company, and employees as a team, and coached to leave egos at the door.  Alfresco, 8 times the size of TSG with many new executives, needed a formal bureaucracy to define roles and responsibilities and give authority to the leadership team in making individual decisions for their respective areas.  As I was comfortable in a “move fast and make mistakes” environment, the bureaucracy of a larger company alongside my lack of authority left me saying “I’m sorry” often when I stepped on egos in the Alfresco bureaucracy in my trying to get a product or sale completed. I was again naïve and came to better understand how egos in a bureaucracy could result in competition rather than collaboration. 

See the below ChatGPT thoughts on the effect of egos and bureaucracy:

Q: What is the effect of bureaucracy and egos on collaboration, decision-making and innovation?

A: Bureaucracy and egos can have a negative effect on collaboration, decision-making, and innovation.

Bureaucracy can limit collaboration by creating silos and preventing open communication between teams. This can lead to a lack of innovation as ideas may not be shared or tested across departments.

Egos can also hinder collaboration by creating competition instead of cooperation. This can cause employees to focus more on individual success rather than team success, which can further harm collaboration efforts.

In terms of decision-making, bureaucracy can result in slow processes and limited creativity. This can cause missed opportunities and prevent companies from adapting to changes in the market. Egos can also negatively impact decision-making by limiting diverse perspectives and alternative viewpoints, which can stifle innovation.

Finally, innovation can be harmed by both bureaucracy and egos. Bureaucracy can prevent the implementation of innovative solutions or processes, while egos can create a reluctance to experiment or consider new ideas. This can result in a lack of innovation and an inability to stay competitive in the marketplace.

It wasn’t surprising TSG immediately had a good collaboration with the marketing and analyst relations team at Alfresco, with minimal competition of TSG’s own marketing resources. Our goals were aligned: TSG was bringing new products to market at Alfresco and was coming in with a deep understanding of the ECM/Content Management space for analyst relations.  TSG also had a great working relationship with the new Cloud Operations team at Alfresco, as our goals were aligned to transition Alfresco customers towards the new cloud offering.

TSG initially struggled with Sales, since both TSG and Alfresco Sales had a history of leading their own sales efforts.  Gradually, the teams were able to successfully collaborate better as both teams pursued the common goal of selling software to the customers.

TSG services did experience internal competition when it came to Alfresco Customer Success, since Alfresco had consulting resources before the TSG purchase.  Alfresco Customer Success – Professional Services would sell resources (often referred to as “bodies”) that were competitive against TSG’s selling of strategic and more profitable projects.  Attempts to distinguish Customer Success Clients from TSG Clients to avoid competition was never resolved, and goals remained competitive.

More disappointing was the competition and egos from management in Alfresco’s Product Engineering group.  Engineering did a detailed review of the TSG products as part of due diligence before the sale was finalized, but, in my personal view, never embraced the TSG products or engineers due to a “not invented here” mindset. 

Lesson #5 – Not Invented Here

The “Not Invented Here” (NIH) mindset is a common challenge in software engineering teams, where team members resist using existing solutions or code from outside their organization, preferring to create everything from scratch.  Although there is comfort knowing one engineered their own company’s products, NIH can result in wasted time, resources, and missed opportunities to leverage the expertise and innovation of others in the field.

When prompted, ChatGPT returned:

Q: What is not invented here?

A: “Not invented here” (NIH) is a term used to describe a mindset or attitude within an organization where it is reluctant to adopt or use ideas, products, or processes that are developed externally, outside the organization.

The NIH syndrome often arises from a sense of pride, ego, or fear of losing control or credit for innovation. It can lead to missed opportunities for growth and improvement, and it can stifle innovation and progress.

The NIH mentality is prevalent in many organizations, particularly those that have a strong internal culture and a history of successful innovation. It can be challenging to overcome, but it is essential to recognize the value of external ideas and to be open to new approaches to problem-solving and innovation.

Over TSG’s long history with ECM, we had developed our products from scratch, closely tailoring them with our customer’s needs.  The new Alfresco Product Engineering executives didn’t always perceive the value of the TSG products, or why customers bought TSG products compared to the value of their own products.  In my view, due to a NIH mindset, Alfresco Product Engineering Management would often imply the products were something less than the products coming from the Product Engineering team.  In hindsight, during negotiations I should have pushed for specific goals regarding TSG products for Product Engineering.  Product Engineering did not have any goals associated with the success of the TSG products, resulting in competition rather than collaboration.

Lesson #6 – Contract Terms versus Reality

Closely tied to the above points on bureaucracy and ego, the purchase agreement had specific language concerning performance by TSG and Alfresco during the earnout.  In the reality of maintaining my day-to-day relationships with Alfresco’s many teams, it was difficult to enforce those terms if conflict arose between teams.  As a founder with experience in making decisions for TSG, I was also a consultant familiar with building trusted advisor relationships alongside clients where conflicts often arose.  It was a challenge to draw a line between sacrificing for the benefit of Alfresco team relationships while also protecting TSG’s interests.

I would share with other founders that, while agreements might specifically state that a given action take place, day-to-day decisions, ego, or bureaucracy could interfere with contracted actions.  Threatening to start legal proceedings for every small difference is not productive or practical.  I would recommend documenting any of these items in a diary format with slack, email, and notes to make a compelling legal case if needed when the earnout is complete. 

“But, if you could go back in time, would you sell to Alfresco again?”

With Technology Services Group as “my baby,” there is a sadness that comes with knowing TSG has not grown and prospered in my absence.  That being said, I think one TSG alumni owner summed it up best in saying, “I miss what we had at TSG, but I don’t want to give the money back!” 

TSG had reached an inflection point of 50 people, which would have required changes to continue to grow, particularly given that we were niche-focused on ECM.  Given my age and cancer diagnosis in 2017, it was in a way inevitable for me to make either a sell or transition decision.  Since our ECM niche did not appear to elicit long-term sustainability or profit, making the sale to Alfresco was strategic, and a choice that I would make again.

I cannot be more thankful for Alfresco in taking the chance on TSG, and seeing how it created the momentum that eventually led to the Gartner Leader status, Hyland acquisition of Alfresco, and unbelievable financial success for all TSG shareholders.  Given our best year in 2019 and the unforeseeable Covid circumstances, the TSG sale to Alfresco could not have come at a better time for myself, the TSG shareholders, and Alfresco.

While it is very satisfying to see how successful the TSG software has been under the Alfresco/Hyland brand, it would have been even more satisfying if the services side had not declined as the TSG alumni and I have moved on to other opportunities and companies after the layoffs and subsequent attrition.  While I would have loved for TSG to have stayed intact as a unit, grown, and prospered, I cannot be prouder of the team that has remained with Hyland and continue to provide outstanding service to their customers.

I am also so proud of the TSG alumni over the 24+ years which, at last count, included over 300 people.  It is so satisfying to see how many TSG alumni have gone on to tremendously successful careers and lives.

Would I Build Another TSG?

With my non-compete over, I have been asked if I would build another TSG.  While it is easy to reminisce about what I miss about TSG and my team, it is hard to see being able to recreate that magic, or see myself having the energy and drive I did back in 1996.  From authoring this blog and other activities, I am hoping to coach others as well as contribute to more mission-based efforts.  Something I am particularly proud of is my involvement and board position with ConnectWaukegan and bringing broadband to the low-income areas, including my summer of 2022 project with Fixed Wireless.