Pat Sheridan, former co-founder of Modus Create, unpacks his journey from bootstrapping a remote-first startup to building a 450-person global company, partnering with private equity in 2021, and ultimately growing Modus to roughly 700 people through five acquisitions. He chats with Elizabeth about how they built their distinctive company culture, why rapid growth created the need for a growth partner, and how trusted advisors helped them navigate their options and understand their value in the market. The conversation also explores Modus’ “M&A Bingo board” approach to acquisitions, the growing pains that came with scaling, and Pat’s transition from founder to board member to finally stepping away from the company he built.
You can find Patrick on LinkedIn: https://www.linkedin.com/in/patsheridan/
Elizabeth Shea (00:43)
Hello everyone, and welcome to Branching Out. We are so excited to have Pat Sheridan in our virtual studio today. Hello, Pat. How are you today?
Pat Sheridan (00:51)
I'm doing great, Elizabeth. It's great to be chatting with you again.
Elizabeth Shea (00:54)
Yes, I know. It's been a long time. I've known Pat a very long time, it seems like. We won't talk about how long, but he comes to us as the former founder of a company called Modus Create, which was a high-flying company in this region. He's since exited his business, and we'll talk about that. But he's also a local entrepreneur, a DC entrepreneur, and has some perspectives on the local economy and the ecosystem. So, we're really excited to get started on your journey and how you got to where you are today. So, welcome again.
Pat Sheridan (01:23)
Thank you. Maybe I'll just give a little bit of my background, how I kind of got to Modus Create, and then what I'm doing now. So, I guess I'd have to take you all the way back to the 90s. You know, I came out of college right at the perfect time in the early- to mid-nineties where the internet was a thing. It was a very big thing in DC.
And I got a start at actually C-ven. I was a very fairly early employee of C-ven when they were back at the Watergate building. And I got kind of my first MBA, if you will, by watching Reggie kind of grow that company through the exuberance of the early dotcoms. I went on to work at two more startups that were a lot of former AOL folks in the area. And then when it all kind of came crashing down, I switched over to consulting. And to your point about DC, one of the interesting things about DC is a lot of my colleagues post dotcom startups went into big government, either military things or things on the government financial side. And that's where I ended up working on some very large-scale systems for the Treasury Department that helped them leverage, e-government back in the early 2000s and bring large amounts of money in and around the US government. And I really enjoyed working in consulting. And that's kind of at that time.
There were a lot of big movements starting in the early 2000s around agile software development and these new ways of working in the web. And I really kind of centered in on that and eventually ended up just going out on my own, starting a small consulting company that was at the intersection of user experience and kind of agile software development. And I ended up selling that company to a company called Three Pillar that became Three Pillar Global. And then I spent two years there, really helping build UX and product strategy. I spent most of that time in New York. And around that time, I got kind of what became the idea for Modus Create. And to your point, we had a pretty strong 10-year run at Modus. We started in 2011, bootstrapped, got up to about 450 people by the pandemic, and did a private equity deal in 2021. And so, now I'm kind of fully out of Modus Create.
And I've started a small holding company called Sirideain Ventures. A lot of the exited founders that I talked to feel like, you know, private equity and venture capital are potentially the next things to get disrupted. And the whole way of building a startup with AI tools is very different. So, I'm sure we'll get into some of those topics as well. But I really loved starting and building a company in a DC area. I felt like it was a small pond with some really big fish in it. And, you know, a really great ecosystem for entrepreneurship.
Elizabeth Shea (04:03)
No, I appreciate that. There's a conversation about just the talent acquisition and, you know, Silicon Valley versus the DC region. You've always been a big proponent that I've seen for this region and the ecosystem. So, hats off to you. But that's pretty enormous scale, particularly at a time when you were kind of ahead of the game. So, can you talk a little bit about how did you scale? What what went into that process? And were you scaling with an exit in mind or were you just scaling to grow a good business?
Pat Sheridan (04:31)
Yeah, those are great questions. And you know, I kind of feel like the Homer Simpson rule of like you have to be successful despite your own idiocy, you know. So, for me, a lot of it was what I didn't realize pre-being an entrepreneur, that I was working in environments where I was meeting tons of people, whether jumping from startup to startup or working in consulting. And I built a pretty like, in retrospect, good network in the DC area with my first business, which I also bootstrapped.
I felt like it could only grow to my level of incompetence. And so, I ended up going to Georgetown and getting an MBA and wanting to kind of get beyond this kind of operator in the business, not on the business, kind of thinking. And then, I kind of think of my second MBA was my experience at Three Pillar, which acquired some companies in the area, really expanded to international operations, and was really building kind of mature infrastructure for growth.
So, by the time I kind of came down to Modus, I essentially had a thesis around where I thought . . . The iPhone had come out in 2007. And when I thought about my career, I thought about . . . you know, there was a phase of computers that had no hard drive, they had no monitor real or internet. Then you had laptops, then you had dial-up internet and broadband. And when I looked at the phone, I felt like the phone is really going to change the way that people interact with computers. It's going to become the computer in your pocket, but it's going to go through these phases. And in 2010, if you remember, there was still like 2G internet, there was like no unlimited downloads. So, we basically, my co-founder and myself, had to build a business plan that said, how do we make money until there's really a market around applications, even before there was an app store on the iPhone? And that's really the kind of “be a little bit more right than wrong” that set us on a path to ride some very big waves.
Elizabeth Shea (06:30)
Well, you know, one thing that I've always noticed about you and your firm is that you always drove a strong culture, particularly because you had employees all over the world. So, what were some of those things that you did to ensure that you had that culture as you grew so quickly? That's so important for business owners.
Pat Sheridan (06:45)
It is. And especially, separate from a product company and a services business, the people are the product, right? So, for us, it was a very simple thing. In retrospect, I had met my co-founder on these forum sites around emerging technology. And really in these communities, these open-source software communities, you have people contributing, working from home all around the world, but they're very like self-motivated, high energy, high personality kind of developers.
And when I looked, when I was in New York looking at how traditional consulting companies interacted with the clients, they would kind of want the client not to learn anything. But I was in these communities of folks that were wanting to share everything that they were learning. And so, the idea around human capital strategy at Modus was we need to build a company in like the image of an open-source team where there's one class of employee. Everyone is an equal member contributor for a lot of the core work that we do. And people are expected to be self-directed. They're expected to be proactive.
You have to build almost a ring of fire around that because people would always ask me . . . I think because Modus was one of the first remote first companies back in 2010 or 2011, somewhat early into that. They would say to me, “How do you know people are working?” And I would say to them, “I don't know, but their colleagues know.” And at Modus, it was kind of like your colleagues will fire you way before I ever do. There's like a self-healing kind of nature to how you build those teams.
The other thing was as we started to expand, having had the benefit of having a network of people like in Romania, in Mexico, in Brazil, in Argentina, we had a lot of really strong local tech community advocates in any geography we would want to expand to. And so, our kind of thesis was like less about a kind of typical NBA, we should buy an office or build an office in Costa Rica or Brazil. It was how can we be seen as . . . and we had this phrase, AVR: active, visible, relevant. And that's really what our culture was for the team members and the company. But we would say, “how can we be seen, our brand, as active, visible, and relevant in Brazil's emerging tech scene or Mexico?”
So, we did a lot . . . we worked with you guys to hone and polish a lot of this, but we did a lot of content strategy. I always used to say, “I'd rather send people to speak at conferences than hire salespeople.” Like, no offense to sales executives out there. But there was like a self-reinforcing loop that if you are taking the money that you would otherwise do traditional sales and marketing, and you're using it to send your highest performing people around the world to be advocates and ambassadors for the brand and thought leaders in the market, then you're creating a self-enforcing culture kind of pyramid inside the building where, like, if you want to be the person who's out speaking, then do what she does. You know, if you want to be the person writing the book, then like model your behavior.
And then we would describe Modus as like . . . we're a platform for you as the consultant to achieve your career goals. Consulting is tough. Some people want to get some experience and then they want to go work at a Facebook or a startup. And we would kind of position Modus as a bridge employer, like, “hey, you can give us three years of your life, work on some really high, visibility work for some global clients. And then your resume, your value is going to look really good if you decide consulting's not the thing for you.”
And I wish I could say, Elizabeth, that like we white boarded all this out in 2010. The reality is, I had good advisors and mentors along the way, like Bobby Christian and others who would always challenge me on, like, what's the vision? And I would say in the first three years, “the vision is to make payroll, okay? Like, I don't know what the vision is.” But by year three, my co-founder and myself — and I think it's different dynamic based on how many partners or co-founders are in the business — but we did this retreat where we just made a list of like, every client we had to fire and why, you know, every person that didn't work out and why or things we would have done differently that didn't feel right. And out of that exercise came like core values, whatever you want to call it, guiding principles that really carried us the next 10 years. But we had to jump in the deep end of the pool and live it first.
Elizabeth Shea (11:08)
Wow, that is amazing advice for any business owner that's trying to scale. And the culture's so important because that's an important part of any kind of an acquisition target, if you will. So, if we can shift gears real quickly and talk about when did you make the decision or did you make a decision? How did you go about the process of considering a sale? I believe you were approached probably. I mean, most people are approached a lot. Tell us about that journey.
Pat Sheridan (11:32)
Yeah, and it kind of overlaps with Covid because there was a lot going on in Covid that kind of pushed us into that lane as well. But the framing statement would be that when we started the business, I thought “if we're 25 or 30 people, that's amazing.” Like that's way bigger than anything I had done on my own prior. When you start getting into being over a hundred people, and two hundred and three hundred, you have a lot of opportunities. You also have a lot of liabilities, right? Now the payroll, you know, is two million dollars a month. And your assets can become liabilities in the market. How many full-time versus contract people should you have, et cetera?
So, there's some dynamics around the finances of a bootstrapped business. We took on no money to start the company, we bootstrapped it. And we were very disciplined in terms of how we took money out of the business as the owners of the business. We didn't want to have debt on the business. So, we did a lot of things that I think basically said, look, if we can grow 20-30% a year organically, we should never sell it because then it's just a very profitable cash cow and we'll take dividends at the end of the year. If we start growing 50% a year, or in our case, like 70-80% year over year, then we structurally cannot self-finance as a bootstrapped business. We need a growth partner.
And when Covid happened, it created this huge kind of spike in people looking at their development, like potential clients, looking at are we over concentrated in India? What happens if Covid goes rampant, and 90% of our developers are there? The war in Ukraine was another forcing function. And people wanted to have a distributed network of kind of higher-end folks. And so, to your point, a lot of cold calls started coming in through the website or my email. It's amazing how well investment bankers are at guessing your email address as a founder.
Elizabeth Shea (13:28)
Oh, sure. And noting how much you probably are making right now or earning for the business.
Pat Sheridan (13:32)
Yeah, exactly. So, for us, it started off as my co-founder and myself doing a 409A valuation for the business during Covid for key man insurance. And when we got that valuation, it was surprisingly way higher. You know, as I like to say, if that's what the business is worth with one of us dead, what's it worth if we're both alive? So, we ended up . . . we always had an informal advisory board at Modus. So, we formalized an advisory board to help us select an investment banker. We did a process to kind of select a banker.
We ended up with ClearSight, who ran a process for us that was a little bit longer than I think most people do because we weren't sure . . . Should we be an add-on to an existing company? Should we merge with another company? Or should we try to be the platform and the brand and merge things into us? So, we wanted to kind of see what was behind every door before we did that. And I'm really glad in retrospect that we did that because there's so much you don't know.
And for you as the owner, you're going to go through this process maybe once. If you're lucky twice, and if you're really, really lucky, three times or more. But the people on the other side of the table are doing this all day, every day. And so, it was really good insurance for us to do that. The other thing that I would say, something I touched on at the beginning, is I was fortunate enough to go through the Mindshare program in 2011. And so, I got access to really good folks in the area, like Mike Lincoln and Cooley and others that had been informal advisors to us along the way until we really needed it for a real deal. That was great insurance that that I think enabled us to get — hindsight 20/20 — what I feel like was a really good outcome.
Elizabeth Shea (15:20)
So, the let's go back to the fact that you hired an investment banker. And I have the highest regard for ClearSight, so of course job well done there. Not all business owners and not all founders elect to go that route. What made you decide and how did you go through the process of actually selecting a bank?
Pat Sheridan (15:40)
So, I'll try to boil it down to a couple things. I feel like having the benefit of having then sat on the other side of the table and we bought five companies after we did our deal at Modus.
When I think about like the easiest way is just revenue tiering. Like if you're under, 20 million or 15 million in revenue, it may not make sense to work with a banker just based on minimum fee commitments, that they want to get out of the deal. If you're in this kind of 20 to 40, 40 or 50 million range, that is like a very hot private equity acquisition market. And it totally makes sense to run a process with a banker who has tons of relationships and can frame, you know what I mean, the market in terms of getting you, the best outcome.
And I think for us, when we were interviewing different firms, we didn't want to be their biggest deal ever. We didn't want to be their smallest deal ever. We wanted folks that were really good in that 20 to 50 million revenue space and also negotiated for their fees. So, some people would say to me, other entrepreneurs like, I didn't like it that there's like a million-dollar deal minimum or this or that. And we looked at it a little bit differently, which is I want to see how hard you fight for that that deal minimum and how open you are to negotiating escalators if you can get certain valuations. And if you're that good at negotiating your own rate, then you're going to be a bulldog for me when we're negotiating the value of our firm against, you know what I mean, a group of potential.
And again, I there's some folks in the area that really helped us out in that period. DP Vankitesh was a good friend of mine was on our advisory board. . . John Estrada. We also, from our client base, we did a lot of work with private equity firms. And we had access to a group of like CTOs and founders that were on technical advisory boards of private equity form clients who we asked to be on our advisory board in selecting a banker and in doing the deal. And that was like the best insurance policy we could have put because there's only so much my co-founder and myself would even know to ask in some of those meetings.
Elizabeth Shea (17:41)
Right. So, it helps to get information as much as you can and look for your advisors to help support that process. To what extent would you say that you ever considered anything beyond private equity? Did you ever consider a strategic? Or how did you educate yourself on the difference?
Pat Sheridan (17:57)
Yeah, I think we had big strategics reach out to us. I think the challenge for us though is in services is like consulting and services kind of its own thing. And there's like a fragmentation of are you low end, like just staffing? Are you something more sexy like cybersecurity . . . or product was kind of . . . product operations, product studio or product engineering? And so, this is one of the reasons why it makes sense to like five years before you do a deal, know as many investment bankers as you can because they will frame you to say, “This is what the market's valuing. If you're product engineering, it means you have to have these capabilities, this type of work and clients. And you can only have this much staff aug as part of your revenue mix. That's going to get you a 10x EBITDA evaluation. If you're staffing, that might be three or four.” And so, some of those elements helped us understand a year before we were doing a deal, if we want to be seen as this type of business, we have to ensure that all of our collateral, our case studies, our website is what you would think of when you think of these businesses.
Now the other part was our operations. I felt that strategics would not understand work from home. And because we had so many people in countries, we had to set up a lot of international operations to make sure that we were in line with local labor laws, US labor laws, corp to corp. And how do you create an employment like experience when 70% of your staff are actually long term, like five-plus-year independent contractors working through their own LLC in Brazil to your company? And so, I think we looked at the reality of our business and the newness of remote and we said, “they're just not going be able to wrap their mind around . . .” And I think that kind of bore itself out.
A lot of the investment bankers do these little roadshows once or twice a year where you go, and it’s just like speed dating for businesspeople. And it was pretty clear when we did those that like, the Accentures of the world, other big companies like that were like, “why don't you have an office with two thousand people in India?” And we're like, “well, I just need the five smartest people in India. I don't need to have all that overhead and infrastructure.”
And then as it relates to private equity, this kind of goes back to some of the advantages of DC. There are some really good mid-market private equity firms in DC that have a long track record in tech investing. They have a thesis. They've been investing like ahead of when cloud became a thing and when mobile became a thing. And so, we started looking at private equity firms and saying there's some firms that just want to cut certain size checks. There are other firms that are really aligned to a thesis and there are firms that want to get into this very attractive space in terms of tech-enabled services and are willing to pay premiums. And so, as a founder, entrepreneur, business owner, you have these three different brains, right? You have your kind of operator brain, your owner investor brain, and then you as a person. And you have to make a call on “am I trying to exit this business and get the biggest premium I can on the business, or am I trying to really double down for the second bite of the apple and work with someone that has an industry connection or . . .” you know what I mean” Something that's going to accelerate that we couldn't do on our own. And so, that's how we kind of framed it and why we ended up choosing the private equity route.
Elizabeth Shea (21:11)
So, you educated yourself quite a bit it sounds like, which is key for anyone that's considering a transaction. Just to reiterate, you became the platform company for this PE firm. So, an injection of capital, you held on to some of your equity, I'm assuming, and then went out to acquire other companies. If I could double down on that a little bit, on the opportunity to acquire other companies . . . Can you just share some of the things that you looked for when you were acquiring firms? What were the big keys? Because those could be the people that are listening to this, to this podcast today.
Pat Sheridan (21:41)
Yeah, absolutely. So, as I mentioned, kind of with Modus, my co-founder and I had come out of this mobile revolution. And we were at the right place at the right time in terms of technology in our network to quickly be able to get into services and mature and grow that. That wave became fairly mature by 2020. I don't think mobile was like new . . . If you didn't have a mobile app for your business by 2020 . . . And so, as we were looking out to 2030, even before Covid, we were thinking that like the next big things are going to be satellite-based 6G, like internet everywhere, always on super high speed, worldwide IoT, and instead of the phone as the device, just any light bulb you plug in will have Wi-Fi and listen to you and God knows what else.
And instead of engineers writing code, you know, with open-source libraries, it's AI writing code. And it turns everyone into a developer. So, we put this generalized thesis that said, this is why Modus did well to help enterprise firms with innovation teams and you know, the big companies, I think by 2020 had a lot of corporate innovation things happening. And we felt that we could adjust our thesis for 2030.
And so, when we did that, then you have to take a very hard x-ray of your business and say, “Well, we're really good at app design and development, but we don't really have a strong data analytics play.” Or “We're really good at writing code by hand, but we need a set of computer scientists that can train computers to write code, and you know, 10x, 100x, what our developers can do. And so, we basically built what I called the M&A bingo board. I had a very strong Chief Strategy Officer at the time who I felt like, okay, we're going to have this M&A bingo board that round out the places where we're strong and we're weak. And then we're going to look at two other vectors for growth, which are channel partners.
So, by the time Modus got acquired, we had shifted from you know just being kind of open-source advocates to really being a big partner with AWS and GitHub and Microsoft Azure, some really big tech players at Lassian and using that as our go-to-market. So we when we looked at our capability side, where do we need to acquire? We then looked at our channel partner ecosystem and said, “Well, there are folks that are ahead of us. How do we get to platinum level?” You know, “how do we do things that within the channel give us some acquisition?”
And so, we had this kind of fragmented fractal tree of like, “okay, we need some core capabilities, but if it's a core capability plus a channel partner, let's prioritize that, maybe pay a little more for it,” et cetera. And you know, with M&A, it's just like anything else. You just want to be more right than wrong because it doesn't all work out great. But I think it helped us, and in terms of communicating upward to our board, right? That like, which are things that a founder isn't necessarily doing pre-acquisition is, having to have a quarterly board meeting and report on “here's where we are, here's how the integrations are going, here's how the combined revenue picture is looking,” etc. But I think, you know, after we did those acquisitions, we got up to about 700 people worldwide. And we tried to focus . . . I think one last thing I put on there was we tried to focus on companies that had the same like . . . Was the founder like a technical founder that came out of a boutique niche community and really wanted to stay in that role versus be the CEO at the next level? And so, we wanted to position our platform as like a really good place so that we culturally understand what your concerns are, we've gone through that ourselves, and we're going to be a good place to kind of bring those things together.
Elizabeth Shea (25:16)
So, tell me about what this meant for you personally. You know, you come into . . . you're the platform company, so you're the first in there. What was it like for you to make the transition? How did you go through that experience of not being in control anymore?
Pat Sheridan (25:32)
Yeah, I wish I could have been a fly on the wall and had a videotape of like what some of our first board meetings were like, cause I think you kind of have to fake it until you make it a little bit on some of these things, you know. I think I have a tendency to get excited and talk a lot. And I think in those early days, you've just done this deal, it's transformative for your personal finances, you know, your family, et cetera. You're now all potential energy on all these things we could do in the early days.
And so, one of the things that I did was say, “well, this is an opportunity for all of us to redefine our kind of identity professionally” because it's no longer the cavalier bootstrapped founder. It's now, are you going to want to move out of a role that is more on the business side and be kind of a technical thought leader in the business and bring in a professional CEO, or is that something that you want to grow into? And for me, what I asked our PE partner was send me board decks from all your other portco companies. Like you can redact any info, but I want to see how they communicate with you. And I want to understand for my team ahead of our first meeting, we're going to dry run . . . what do we put up the chain? How much of this is partnership and we’re asking for your input on things, versus you are just the money and we're going to tell you how your asset is performing?
And so, I think I would recommend to anyone who's transitioning from just solo founder to more formal CEO, especially when acquisitions are involved, is how you communicate up the chain. Ask them. Ask them what they want. We also, you know, in pulling companies together, we're moving to things like Net Suite and things that I felt like the juice is not worth the squeeze. We're putting in all these systems to try to pull all this data, but these systems are crap, especially now in this era of AI. You know, the overhead that my team has to do to pull data together or make sure the data makes sense is way more cumbersome than it was when we were just a small, agile shop. And then I think the bigger transition is then when you transition out of the company that you founded. I was listening to the podcast you did with Jake Bittner. We were in Mindshare together the same year, so it kind of resonated with me.
But just another friend of mine called it a previously important person. You know, it's like you wake up one day and there's no emails. Nobody needs your opinion on anything. And I didn't plan it this way, but something I would recommend to folks is I before I fully stepped down and stepped out of Modus, I was like, what am I going to do if I got nothing to do? And I was very anxious about like, what am I going to do?
But I think it's like and it's like getting back in shape. You just have to trust the process. I first started with just taking a sabbatical. So, like as the new executive team was coming in, I stayed the first month to kind of get them introduced to clients and team members, et cetera, be kind of there to shepherd the transition. Then I took a sabbatical of two months off to just get the team now has to disconnect from me and reconnect to the new executives then just shift to a board role, you know what I mean? Then kind of shift out of the company completely. And I'm almost a year into that now. Now I think about it differently. Now I think about like, “man, if I had to go back to work next Monday, ugh, no way!” Like I'm actually really enjoying what I'm doing now. And the idea of getting on the grind is like not something that I would be jumping necessarily into.
Elizabeth Shea (29:09)
Well, so hindsight is 20/20, what kind of things would you suggest what would you have done differently if you could have just gone back and relived that life again?
Pat Sheridan (29:16)
Yeah. Well, I'm having to look at my cheat sheet here because there's like so many things. So, I kind of look at it like when you're doing the deals . . . things we didn't know that I think bit my co-founder and myself that we hindsight 20/20 . . . So, we had a couple different we had couple different attorneys throughout the course of Modus. We had folks that helped us with day-to-day stuff, contracts, leases, whatever, HR stuff. And then we had folks that help us with very big things like acquiring a company or opening an office or doing this deal.
One of the things we didn't realize till the deal was done is that we should have also had attorneys personally that were looking at everything that was being proposed and then looking at our personal tax picture and saying, “okay, I know this makes sense for the deal, for your firm, for Modus, to be getting acquired by a PE firm, but does the way that the new co is going to be set up?” . . . So, we got put in a holding company that was an S-corp that created tax liabilities for us on the debt that was used to buy the company, right? Because it was an S-corp and not a C-corp. And so, there are things like that that are like very specific and tactical. But the broader would be, you know, have attorneys that are a strategic partner, right?
And then also have things that represent what you don't know to ask in a deal process, because that last month, you don't know if the deal's even going to close. But then all of this rapid . . . You've got docs that are like this big you're supposed to be reading all the way through that there's no . . . Maybe AI could do it for you now, but you know what I'm saying. There's no way you could even know. So that's like a very tactical thing.
I think the other thing would have been when you're in a deal process, you're selling. And when you're selling, you're selling like “we're the best company in the world and everything is amazing and gets more amazing every month!” And I would say to folks, like the hindsight 20/20, is that when you have expansive growth through before and through a deal process, it's kind of like the football getting overinflated where the seams start to pop in the football. And I think for us, when we were crossing the revenue that would have made Modus a very attractive add-on to a business, to the revenue that made us make sense as a platform, we were really not thinking through like, do we have enough HR? Do we have enough marketing? So, like the real running a business stuff that . . . We were adding 30 people a month, you know? It's like, do we have enough middle management to even manage this many people? And I think we got, you know, some growing pains and understanding that, but maybe we might have more attractively weighted other deals or company that had a mature global presence and had an overlap of clients that we had, those kinds of things. But you know how it is. It's like, if I had known all those things would I've done much differently? Probably not, you know?
Elizabeth Shea (32:17)
Right, right. And hindsight’s 20/20, but it's not everything. It's just, you know, what you might have learned. But it is helpful for people that are considering going through the process who are in a similar situation to yours, which is what are the things that I should be thinking about? We do talk and we hear a lot on this podcast about having a really good set of advisors that understand M&A, that understand your personal financial advisor, a great accountant who's not necessarily the person who does your taxes, but does tax planning and estate planning. Those are all very important functions that are part of that MA process, regardless of how big you are.
So, I saw on LinkedIn recently that you had a post where you said, “you if I could tell a business owner of a few things, would anybody listen?” And a whole bunch of people said, “Yes, please tell us, share your wisdom!” Because you've experienced a couple different sides to it. So, what would be some of those highlights that you would share?
Pat Sheridan (33:08)
Yeah, you know, it's so funny because I feel like there are certain mornings I just get over-caffeinated and that's when some of my best or worst LinkedIn posts come out. And as I was kind of putting my cheat sheet together for this call, you know, just a couple things. Like first and foremost, like bootstrapping is a mindset, and it's not for the faint of heart. I was fairly involved with entrepreneurship stuff at Georgetown and people would ask me, what's the hardest thing about being a founder? And I would say, like, “can you shoot your best friend in the face, if you need to for the business? Can you fire your best friend?” Because there's a lot of dead bodies on the side of the road of all these really good companies. And how do you handle stress? You know what I mean? Like there are positive ways to handle stress and there are very self-destructive ways to handle stress. And do you even know what those things are?
I operated best when I had a really good routine which was very hard for me to keep because of the amount that the business required me to travel. But having the ability to know — “I handle every Monday like this, every month like this, every quarter like this.” It really helped us scale and it helped us kind of understand when things start breaking, that's when you have to rethink. And if you're in a high growth business, things might break every other quarter. Like what is your ability to handle change and grow?
I think you covered a lot of the other ones that I that I had put in there. Just like, you know, it was a whole process to with my co-founder to just say, “hey, 10 years is a long time to do anything. Are we all in for another 10 years? Like this is starting to feel like a marriage more so than a business partnership.” You know what I mean? Like how do we want to handle that and being able to have productive conversations if you're in a founder type environment?
Because I find that the deals for the companies we tried to acquire that had multiple founders and that it was hard for them to make decisions or it was . . . You kind of don't really understand that. And I was just very lucky in terms of how my co-founder and I got along and never worried about anything with each other. We were very aligned in terms of what kind of compensation we took out of the company. Like things that could have just . . . Forget market dynamics, that could have destroyed the company multiple times if you have big disagreements with a co-founder.
But the advisor piece was really critical. I think being both in peer mentoring groups, if you're familiar with Peter Mellon at Georgetown starting a group called NetSito. And I was in a peer mentoring group with like Rick Fleischer from Urgently, Don Berger from Social Tables. Like folks that went on to build huge businesses. But when we were all like under the radar and no one had ever heard of any of us . . . Then I moved over to Vistage. And when people ask me about those peer mentoring, I always say, well, we were in it for five years and we grew from four to forty million in revenue in that time. I think it was because people were always throwing rocks at us, telling us “These ideas are crap. What are you going to do in the next 30 days?”
And I think those things mattered because you know how lonely the founder / CEO job can be, where you have to present positivity to your team. You have to go home to your partner and not make them jump out the window because you're two days from missing a payroll or something. And so, you need to have a group of people that are very focused on you. And understand, okay, this is you with your hat of founder CEO, this is you with whatever business owner, but this is also just you, the person, and is it worth it to get up every day and go get on that treadmill, you know? I'm sure there's many, you know, many others. I'll have to . . . like of course I'm drawing a complete blank on everything I put in that post as you ask me about it.
Elizabeth Shea (36:58)
No, this has been a wealth of knowledge and information that you've shared already. So, it's just some really interesting insights. I will say that there's one final question which a lot of folks on . . . We've had differing opinions. Some people think that the day that the deal is done is the day you're done. Some people think “No, I'm going to fulfill my contract and help grow this and get the other bite at the apple.” Like where do you fall on that spectrum? Totally putting you on the spot now.
Pat Sheridan (37:25)
Yeah, this is a very good one because I was joking with someone that when you do kind of a majority deal, but you then become a minority investor / shareholder in a company you started, okay? It's kind of, as I said to someone, “it's like, hey, you sold someone a used car and you're still driving it, you know? But then one day, there's someone in the passenger seat who yanks the steering wheel.” And you're like, “What? This is my car!”
The other analogy I like to joke with people on is like, if you've ever seen a movie based on a book, they can end the movie at several places, you know? And so, it's like you can end the movie on, “hey, we built this company, sold it, and that's the end of the story. But I think personally for me, it was more like, especially having gone to business school to kind of frame my thinking from not just being a great individual contributor, but also trying to think through “how do I run an early, emerging tech, whatever business?” I wanted to sit on the other side of M&A, you know, and get a couple of these experiences. And some of my friends and mentors in the DC area had basically said, “look, there's more to the deal than the money. So, like, do you want to come out of this two to five years later and have met . . . How many Fortune500 CEOs do you think you could meet as a function of doing a deal? What kind of advisory board can the PE folks put together?” And we had some very strong folks that had run billion-dollar companies in design and product on our advisory board. Some of the Wharton professors that wrote books on corporate innovation, folks that I never thought I'd be able to get access to, then be on our advisory board moving forward.
So, I think there's multiple things, but I do think at the end of the day, I've talked to as just as many other entrepreneurs that said, “one day I woke up and I was like, ‘forget it. I'm ready for my next thing.’” And a lot of that is an individual call. I'm not the kind of person that had some like self-awareness that other folks in the DC area talked to said, “look, I'm great, five to twenty million in revenue. I can get you five to twenty. And then after that, you're going have to get somebody else because this is just what I know how to do.” I was just like, “I don't know, let's see!” I mean, that's kind of my whole approach at Modus. I thought, like, “hey, I'll be great at a 10 to 20 person company.” And next thing you know, you're a hundred to two hundred, two hundred to four hundred, and you're like, “so long as I have a good set of five people around me, I feel like I just move up a layer.” You know what I mean? I'm only ever dealing with five to fifteen people. And so, how is the structure able to step up and grow? But yeah, I think that's a hard one.
But for me personally, one of the things that we did was we made a guess on when the AI moment was going to happen, which we were talking about in 2020 or 2021. And we thought it was going to be like 2027 that the ChatGPT moment was going to happen. So, when it happened in 2023 . . . And we were people who I felt like were in the know, you know, on a lot of things. The market was kind of down because of the economy. And this was the area that now everyone's spending money on because they feel like they have to keep up with the Joneses, right? And when that happened, and I felt like, okay, we were building a business to be ready to capitalize on that for like ‘27. We now have to put a bunch of things in hyperdrive. And a lot of folks in my network, former clients that had exited, were now restarting startups like it was . . . Reminded me of, you know, 2010 and mobile, you know? And I felt like, “man, I got to get back on the ground.” Like that wave feels like it's so much bigger. You know, if what we did with Modus and mobile and apps was big, this is going to be a thousand times that. And I just wanted to get back on the ground and get my hands really dirty, you know? And so that's what I've been, that's what I've been doing.
Elizabeth Shea (41:23)
That's amazing. Well, so much of it depends upon the why. What's your why? What's an individual's why? You know, what gets them up in the morning? And that's going to be different for everybody, but your perspective is very valuable and very helpful. So, thank you.
I'm going to wrap it up there. I appreciate everything that you've contributed, and I cannot wait to share this to our network. And you did a lot of nice name-dropping there, so we'll have to make sure we tag them in our LinkedIn post.
Pat Sheridan (41:46)
Let's hope they don't ask to be edited out, right? Yeah, exactly. Well, yeah, great catching up with you, Elizabeth. I wish that I had known more about folks like yourself providing this kind of support, you know, because we were so new to it when we were doing it first time around. I hope folks think to build that network and get that advice before they jump into that end of the pool.
Elizabeth Shea (42:09)
No, I appreciate it. That's my why. I want to help other business owners navigate that experience themselves because it's a lot. It's a lot to process. So, thank you so much, Pat. It’s wonderful to see you.