Right to Win Series EP.2: Building Trust as Second-Time CEO with Dan Calano – EP.273

(00:00:00) – Intro
(00:04:27) – Dan’s background and career
(00:10:03) – Building trust and overcoming challenges
(00:23:19) – Navigating talent and reducing friction
(00:33:01) – Deciding to sell Utility Cloud
(00:37:51) – Reflecting on team and autonomy
(00:40:23) – Post-acquisition role and insights
(00:44:21) – Starting Grouper Companies
(00:45:32) – Autonomy and community
(00:50:36) – Second-time search and CEO experience
(01:04:59) – Approach to risk and decision making
(01:11:06) – Conclusion and final thoughts

Alex Bridgeman: Dan, thanks for coming on the podcast for the second episode in our Right to Win series. We’ve talked a whole bunch in the past about Utility Cloud and Fleetflo and the search in between. So, it’s been fun just kind of getting to know you through that, and making a podcast out of it will be a lot of fun. So looking forward to this.

Dan Calano: Yeah, thanks for having me, Alex. Big fan of the podcast and really happy to help.

Alex Bridgeman: Absolutely. Well, let’s start from the beginning with your first search around, run around. You went and acquired Utility Cloud and have now acquired Fleetflo. But let’s start in that first business you’re running, that first search, essentially my seat today, what was that like for you?

Dan Calano: So, let’s start there. The year is 2018. Getting into search, I would say that the two things that were just super motivating to me were, and you’ll see this continue throughout the journey, autonomy and community. So on the autonomy side, just really motivated to get in the seat and have the ability to make an impact on a business. Super simple. I think a lot of people focus on that, and it’s a good reason to pursue this journey. Second one, community. I’ve just wanted to work around great people, people that would make me better and who I enjoyed working with. So I was very motivated to get into operating a business. I would say the… back then, I was, I would say, mostly thematic, somewhat opportunistic; opportunistic had a bigger role. Long story short, I found a business that had a risk profile that was probably slightly on the riskier side, frankly, but it was interesting. There’s a lot of things to like about the business. It had good growth, super good retention, all the things you look for, and I had a phenomenal relationship with the seller. I can get into the story of actually, if it’s helpful, Alex, how we acquired and how we started operating because it was a bit unorthodox. I was, let’s see, I was probably a year and a half into my journey. And sourcing, I’d say I had a look at a lot of good opportunities. And for various reasons, this one was really interesting. The seller and I had a really close relationship. It was a risk that I was willing- I said, I’m going to do this deal. There’s enough here that has me excited and I have enough support. I’m going to do this deal. What was a surprise in the diligence process was through digging through contracts, long story short, we found that unbeknownst to a key customer, I would say the biggest customer, and the company, the customer actually owned all the IP to the software. And we said, hey, let’s talk about this. I think what we’re seeing is a real issue here and got on the phone with the customer. It was not the customer’s understanding. Again, long story short, the founder of the business and I said, hey, we’re going to do this. And I, Dan, want to help you through this journey to actually renegotiate this and make everything get into the right spot. But I obviously can’t acquire the business when there’s an IP issue. We had enough trust in each other that we agreed that I would take the CEO seat prior to acquisition. And so, I had maybe three or four months actually operating the business prior to any sort of transition of the cap table. Super unique. And during that process, we renegotiated the contract, which by happenstance was also up for a five-year renewal. So it was a whole renegotiation on commercial terms, IP, and let’s just say this is a top oil major as a customer. So renegotiating IP was not a small task. We got through it, and we got the deal done. So, Alex, I don’t know if you want to dig in on any other parts of my search journey there, but I would say it was a unique process from sourcing to acquisition and the first, I would call it pre-acquisition and then post-acquisition.

Alex Bridgeman: Yeah, definitely one of the more unique situations that I’ve ever heard of. And I didn’t know, we hadn’t talked about the IP issue before. So, that’s brand new. So, it wasn’t their understanding either? The customer didn’t think that they owned the IP. So, that must be kind of an odd discussion to have.

Dan Calano: It was. It was a, hey, I don’t think this is the intent here, but this is actually what this says, and we need to clean this up. So I should say it was not a contentious situation. It was more of a clarifying one, but still complex.

Alex Bridgeman: Yeah, the only other situation I’ve heard that was somewhat similar involved a much more contentious, like the customer vendor knew that they owned the IP of the software and that made it essentially unresolvable. It was not fixable.

Dan Calano: Yeah. So look, it was a risk. It was a risk on my part. Honestly, not quite sure what the path would have looked like had that not been resolved. For me or the seller, it was a risk that we both took. It was a high-confidence bet that we had, and it required a ton of trust, especially on his part. I mean, I look back and I’m like, wow, that was a gutsy move to bring me in, name me as CEO, entrust someone you’ve known for six months to handle what is probably the biggest issue the business will face… in the history of the company. So fun start and it did work out and again got us off, I’d say to a good start.

Alex Bridgeman: So can you talk more about the- I can see some of the reasons why it’s helpful for you to step in earlier to resolve that. What was the seller’s perspective in bringing you in early? Like what were they hoping to achieve by bringing you in earlier to resolve that issue?

Dan Calano: Yeah, at least in my case and a lot of the other cases I’m familiar with in acquisition, I should say, I think when there’s a really strong zone of overlap where a deal gets done and value is exchanged, where it’s mutually and significantly beneficial to both parties, one of the attributes is that the founder has exhausted what they’re capable or wanting to do with the business. They’re the zero to one, and they’ve clearly identified or come to a realization at some point that they need someone for the one to two. And in fact, there might even be risk to them of taking on that journey from one to two. So how did we get there? It was through the typical – forming a deep relationship and him having a lot of reflections even before I showed up, but definitely after we spent a lot of time together, that the one-to-two piece was really well suited for me. I think that the way that we got to that level of confidence mutually, but in particular, he to I, was a concept of like show me versus tell me. And that’s one thing, that’s one concept I try and use generally throughout M&A, is when you engage with a seller, it is inherently a large and complex sales process of sorts. In a sales process, you’re a problem solver in finding mutual value where the exchange is super beneficial to both parties. So you’re a problem solver. Sales doesn’t mean selling a used Buick. It’s finding how you create a lot of value for both parties. The show me concept is throughout that journey, you have a lot of opportunities to show how you’re the rightful next leader of this business. And you want to lean on that rather than telling them. So, telling them is, oh, we’re so great, my investors, this and that, my experience, this and that, et cetera, et cetera. Not bad to share, but you can’t rely on that. The show me is let’s actually show what great process looks like here. Let me guide you through this really complex decision you’re about to make. Let me show you how I think. Let’s expose a roadmap here of what are the key things that we both need to do and get right. As you’re sending me things, I’m going to come back to you and not just treat it as a black hole. So, you send me, for instance, send me your revenue by customer or by month. Okay, cool. I could take that into a black box and come back to you with, here’s the value of your business. Or what I could do is actually reflect on that, bring him back what I’m seeing and show how I think about revenue quality, what do I think are the risks, what are the trends, et cetera. And through all those different touch points in the process, I think you’re able to demonstrate rather than just show on your resume that you are indeed a very trustworthy person and thoughtful and all those things, but you also have what it takes to win, I mean, to basically be the next leader of this business. So, anyways, I maybe went a little long there, but I think that’s, like that’s how we got to that point, which is a pretty unique point. But I think it’s one that is sort of like, I’d want to get to that level of trust in any case, even though those circumstances were somewhat unique.

Alex Bridgeman: Yeah. I mean, that sounds like one great way of building trust quickly. You said from zero to six months, you became CEO of a company that had a big challenge going on and you hadn’t acquired yet. That’s a tremendous amount of trust that they developed in you. What were some other things that you did or showed or talked about or emphasized over time that helped build that level of trust? Essentially, your right to win that seat.

Dan Calano: Saying what you’re going to do and then doing what you say. I think it’s really straightforward. Coming through. So, this is putting yourself in the shoes of a founder, someone who’s about to make a significant decision on their business, which has largely been a big part of their identity for however many years. You have an unbelievable amount of knowledge, et cetera, that they need and you might not realize how big of a role you’re playing in their life at that moment, especially if it’s a proprietary deal. If you’re going directly to the seller, not only are you potentially a buyer, but you also need to serve the role of the river guide. They do not know what this process looks like. You are going to need to lay out, this is what you’re going to expect, this is what I get to you, this is what’s going to happen. And the way that you screw that up or the way that you erode trust is have the process actually look differently when it gets to actually executing on it. We have a timeline. I said I was going to get X or Y done by this date. I need this from you at that date. And if it just starts looking really different, that’s a problem. If it looks as expected, and you are a great communicator, you’re following through, if there’s a delay on something, you’re very transparent, that is, again, that’s an element of show me. You are demonstrating to me that you are the type of person I want to work with, I trust you, and you’re highly capable. And the way that you’re handling this process is really comforting to me. I’m being- things come up. Networking capital – let’s not just say that that’s an industry standard and here’s an article on it. This is a funny one because people do get wrapped around the axle on it and it’s not that important relative to other elements of the deal. Let’s really sit down and on a whiteboard go over what that is, why it’s important, some examples of why networking capital is handled the way it is. Okay, that’s educational. You’re earning trust. You are taking something where there’s anxiety and lack of knowledge in a process and helping paint the picture. So, I think it’s relatively like related to my last point, to show me, but I think just saying, being really articulate about what’s to come and then delivering at each stage of the process.

Alex Bridgeman: I like that. How did that momentum carry forward into closing the transaction, running Utility Cloud? You’ve already handled a pretty existential challenge. What do the next couple of years look like building on that?

Dan Calano: Well, the trust that… let’s just start with the trust that I built with the seller and the relationship we have there, that persisted up until this day. That was not just something where I needed something out of him. It was genuine. I deeply respect him. I value his opinion and continue to treat him really well. At this point, I just call us friends. Let’s just say that that, like that relationship stayed really strong and was really important throughout the journey and changed throughout the journey as well, in particular with his role in the business. But let’s talk about post-transaction. So you said, yeah, we were in an existential situation. It was resolved. We closed the transaction. The existentialism does not end there. So we were actually off to a really good start. The first, so the first six months of the business- Let me actually paint another picture. The Utility Cloud story is quite crazy. The company did have a lot of things to like about it. One of the things that was scary was that there was a significant amount of customer concentration. I still think it holds far and away the historical record for any transaction in the search fund community. But basically, a lot of customer concentration where that customer was growing somewhat significantly, both in terms of recurring revenue and in terms of funded roadmap projects, which the projects were scoped out for multiple years. So we made a… taking on operating a business is already a concentrated bet on yourself, on the asset, etc. But then to further make matters crazier for myself, we took a concentrated bet within the asset on a fairly concentrated customer. We said, okay, customer concentration is a risk for obvious reasons. Like if you lose the customer, that means that amount of revenue goes away. That’s fairly obvious. We can talk about other learnings from customer concentration and the implications of that. But let’s just say that that was a big piece of the bet. We needed to believe that that was going to continue to grow, at least for some period of time, and that other areas of the business, which were demonstrating good growth but on a much smaller basis, were going to really drive the future value of the business. So we get in there, and the first, I would say, six months are going really well. We’re cash flowing super well. We had your typical needed to figure out on the employee side. We had some folks who were dissatisfied. Some customers were mad at us. Nothing totally out of the ordinary, but things were going okay. In fact, I said, first six months, probably really well. They were cash flowing. We had a couple of deals that even in that pre-acquisition timeframe, I teed up. So that’s one other thing I didn’t mention. As we were going through that pre-acquisition stage, I was also continuing really the diligence of how true is the growth thesis. And during that timeline, we got to 95% certainty on a deal that was a $700,000 recurring revenue deal and closed a $400,000 opportunity that was part of that really big customer that we had, but in a different group. So growth was looking really good. Cashflow was looking great. And we were humming. Then at some point around, I don’t know, I guess it was probably eight months in, COVID hits. And when COVID hits, the one project that we were banking on continued for two years of significance was completely canceled. Completely canceled. So, we had- that was really the place from which we had to rebuild and from which a lot of the real lessons I learned in operating were born. A lot of mistakes were made, a lot of things I learned in time through error in certain occasions. But that was really the trajectory of Utility Cloud. A pretty decent start and then a somewhat big punch in the face, a rebuild, and then I’d say after the next 18 months, really getting a lot of the key pieces in place to building a great team and a really good business. So we can get into any of that that you want, Alex, but that’s the overall arc of the journey.

Alex Bridgeman: Well, what was the… at what point did you feel the most stress or up against the wall? Like what felt the most challenging? Like through that period, what challenges took up the most mindshare in your head over that time? What’d you spend the most time thinking about?

Dan Calano: Yeah, it’s going to be talent. Talent was always the greatest amount of mindshare taken… Let’s start with, I probably have ten key lessons learned, but let’s go into that one first. On the talent side, one thing I would say is, historically in my career, I’ve been very rewarded for being action-oriented and at times maybe too focused on making a decision very quickly. Talent is one that you don’t want to make quick decisions on. You want to hire really slow and be decisive, but be really thoughtful, be thorough, run a good process. And that was one where my action orientation, I probably over-rotated, and we were moving fast, had a lot of needs, and probably sacrificed the scrutiny and the process that we needed and made some big bets that were not run with great process and had to redo those. It wasn’t to say any- the talent I hired in all cases were really smart people, good people. Just what we were hiring for and the process that we ran, we made the wrong selections. And we also probably didn’t give those people exactly what they needed to be successful. So, on the talent side, once you make one of those decisions, especially if you ever read the book Who, they lay out the math of what is the cost of an individual contributor mishire, manager mishire, leader mishire. We lived through that. We took a couple shots that were the wrong shots. They weren’t- And unwinding those is incredibly painful. And the lesson learned there is really go slow to go fast. Measure, measure twice, cut once, understand exactly what you need, run a great process, and make the right selection. And when you make the bet, make the bet. Follow through, be really clear about what success looks like, and let it play out. Let it play out. So anyways, talent was definitely the number one. I would say that the second- and we got talent really right at one point, and there’s a pretty specific order of operations that happened there, where one unlock allows the next unlock to happen faster, allows the next unlock to happen even faster. And you just sort of break free at some point where the talent, the team is exceptional, the team is autonomous, your role completely changes, and every good decision you make compounds. I know we use the word compounds a lot, but it really compounds. So that was one thing we- a lot of time was consumed on. This is one that’s, okay, I’m going to give you a second one that’s less obvious than talent, very infrequently talked about. Friction. So general friction in the business. Every business has it. When I mean friction, I mean relatively small things that get in the way of people doing their jobs effectively. We want anyone, whether you’re an employee, a manager, a leader, whatever, you want the highest percentage possible of your time to be spent doing what the business needs and is your superpower. So, if you’re a salesperson, well, you want to spend like 90% of your time selling. Friction is the opposite. Friction is: I’m a salesperson. I can’t seem to get any clarity. We have, our CRM’s a mess. I’m trying to do prospecting, but we have all these prospects that are duplicated across a lot of organizations. And I can’t just- I have no single source of truth on what’s actually happened with this prospect in this account. Friction is: I booked this deal. My commission plan’s really unclear. Am I paid this or that? Friction is: I got my paycheck as a salesperson, my commission was calculated wrong. Friction is: I have- we have 19 different sales- I’m just doing this from the perspective of a salesperson. Multiply this out by every position in the business. I’m a salesperson. I want… You get the point. I need to submit my expenses. I put those- I don’t know how to do that. Sometimes I email to this person, sometimes I do that. It takes two months to get reimbursed. Friction, all of that is friction. And cleaning up the shop has just an unbelievable amount of upside to the organization. So, I hired one of the best hires, if not the best hire I made was a guy by the name of Josh Sands. I assume he’s okay with me using his name. Let me confirm that. But he was hired as my chief of staff. And the chief of staff was a funny role. And people ask, what… like in the accountability chart in EOS, like, how do we define that? I said, he’s the friction reducer. Every business needs a friction reducer. And I would deploy Josh into various projects where our order to cash process was a mess. When we close a deal, how does accounting get the information to correctly invoice the customer and pay out commissions? Well, that’s pretty formulaic. Like, what if we invested some time in that? We were spending, every time, every month, we were spending 10 hours of five people’s time going through and arguing about commission or why do we miss that invoice? Why is that wrong with the customer? The customer is looking at us like, do you guys under… what’s going on over here? Let’s reduce that friction. Next up, friction over here. Let’s tackle it. Let’s move on. And so on and so forth. So, he was really, anyways, a really key partner. And that is, I, as a CEO in the business, your inclination is to jump in and be the friction reducer, but you get pulled in a lot of different directions, particularly in that first year. So, man, getting friction right was another one that was just always happening and just cleared up the pathway for people to do their jobs. Super important.

Alex Bridgeman: That must feel kind of a little overwhelming at first when you hear about all these points of friction around the business and it feels like you’re just one guy. You can’t possibly solve all of these at once. You have to pick some battles and go from there. Where did you decide to focus in, like where did Josh go first? What were his first like one, two, three points where you start getting some momentum, there’s some streamlining of the business happening over time? Eventually you start seeing progress, but it must feel at first that this is a pretty big mountain here.

Dan Calano: Yeah, a big thing that’s important is to separate what is annoying or just bothersome in some way versus what is really critical to get right. A lot of people describe that as being able to walk past fires. So walking past a fire really means you’re looking at something, it’s a problem, it’s bothersome. In other roles in your career, you might be expected to fix that, but it’s actually non-essential to the success of the business. So to answer your question, it was having the discernment to really put things into two piles. What is something that is just bothersome and I’d like that to be better versus what is really having an impact on the organization? And just having some framework, I won’t get into details of ours specifically, but what is actually driving an impact? Well, let’s use that one example, order to cash. We calculated roughly what the time sink in that process was every single month for us. You look at the impact of customer trust erosion potentially, and then you look at, and we need people to be out there selling right now. And if we’re taking 10 hours a month, I mean, it might not be that much, but we can roughly quantify that all those things together are super impactful, no matter how you look at it. So just prioritizing what’s really having the impact on the business and also having the discipline to say no, or maybe not no but later and when for the things that are annoying. There is- you will always, and I don’t care how mature you are as an organization, you will always have things that are annoying and have a pile to put those in to say those will be solved, but not today. Here’s why. And let’s put that on the back burner. Having a system and a process to say no to those allows you to focus on the things that are bigger and are more material, whether they are customer-facing, internal resource consuming, etc.

Alex Bridgeman: Do we want to talk about selling Utility Cloud and what that process was like and the decision behind it?

Dan Calano: Yeah, let’s do it. So, let’s just tell the story of it. So actually it was relatively early in my journey when things started… Well, I should say right around the time that things started getting, really heading in the right direction, we were getting prospected by, of course, everybody, but one real strategic, strategic acquirer. And I took a phone call, said hi, and mentioned that we’re very focused on building the business. At some point, those conversations, we kept in touch, conversations got a little bit more serious, and they were throwing out numbers. The decision to sell the business was, first of all, just a very collaborative one with the board. I said, guys, I just have to be transparent about the conversation around, like we’re getting prospected, here’s what we’re hearing. We really need to talk about if this is something we want to commit to and frankly would be a distraction to at least my time if we wanted to take any steps at all. And we just laid out in a very collaborative manner, what do our options look like? And more importantly, what would need from a- I’d say there’s a couple elements to think through. One was just purely from a return standpoint. If what we think the business is worth today or at least what we’re being offered is, ends up being true, which of course, you need to validate that, what would we need to believe to really outperform that over the next five years? So, do we do something now or do we wait? And if we wait, it’s probably not one or two years. It’s let’s see if we can really get something to a much different level. And we went through a process of listing out what would need to go right. And just from a sort of calculated risk adjusted standpoint, we said, okay, financially, it does make sense. Financially, it does make sense. The other piece of the equation was just less financial. Like from an experience standpoint, is this something that I want to do? Is this something that the organization is ready for? And ultimately, we made the decision. And the decision, just as it is when acquiring the business in the first place, there’s this objective assessment of who is the right owner for this business right now for the next stage of the journey. So on the first leg of it, the transition time was right. I was the guy to take it on to get it from where it was to where it needed to go next. And we felt that all things considered, that there were other suitors that could continue to develop this business at a rate that would be more advantageous to the asset. We did run a process. So anyways, we had that strategic acquirer in the mix. We ran, we did run a process; that same acquirer ended up really getting awarded in the process. And we went through the journey to exit in the business. I’ll tell you a few really interesting insights and very honest insights. Number one, the name of your podcast is genius, and I don’t think I ever really- Like wrapping your head around being an owner hits different at different points in the process. Certainly when you get in there and you’re operating, wow, you feel like an owner. One other time where you feel like an owner is when you’re running the waterfall chart. And like in our business, we weren’t distributing cash along the way. We were investing every dollar back into the business. So, cash distributions are a non-factor. When you start running the waterfall, you see, wait a second, so that means that that $10,000 check that I need to cut to the accountants, oh, $2,500 of that is actually mine. So, if I spent… All of a sudden, it starts translating in a way that’s very different. You comprehend ownership in a different way. Now, maybe it’s a different case. There are a lot of businesses that do distribute capital along the way, and that might feel a lot different. But for me, that was a, wow, this is- I’m an owner, like, yes, financially… I felt like an owner in the sense of operating the business, autonomy, decision making, everything like that. And it really clicked, financial ownership, at that moment. Maybe I’m just slow, but it really clicked at that moment. The other interesting insight was, I had this realization, and maybe this is actually post, really post acquisition, when we were settling into the integration, was I realized how special the thing that we built was, particularly the team. What you are able to do at these Goldilocks sort of size companies and stage and with the level of autonomy that we have in this particular ecosystem is super unique. The way that we were able to make decisions, the way that we were able to empower others, the speed at which we were able to do things, not in a sloppy and just like, ah, get it out the door kind of way, but in a really get things done the right way without friction in the way, was highlighted to me on a level that I did not appreciate, especially how far we had come. It’s like the frog in the boiling pot. You do not realize how far you’ve come until you are presented with some change. And that was, at that moment, it was with sort of mixed emotions. I mean, the exit, I’m glad we did it. It was the right thing by and large for all stakeholders collectively, not just the investors. I do think it was the right thing to do at the right time. But one thing in reflection was, wow, we built a team that was really special, capable of making decisions, felt very highly empowered. And that was one realization that, when we get to the next chapter of my journey here with Fleetflo, was that was a core motivation. I want to get back to that. That was fun. And it’s unique. I think that it’s difficult to get there when you’re a startup. Like if you have three people, it’s difficult to get to that level where the team is really at the scale where you can achieve those compounding effects that I talked about. Three people, you can’t hire really at the level where you can achieve some scale. And when you’re at 300 people, I think there’s varying degrees of how effective a 300 person plus organization can be. But by and large, nine times out of ten, it’s going to be very different than what you can achieve with 50 people, which is, again, a sweet spot. So yeah, where do we want to go from there? Sorry, I probably went a little long, but let’s keep rolling.

Alex Bridgeman: So you sell, and like, what do you do? What are you doing? Are you still in the business? Are you… It sounds like you’re managing the integration, but by and large, what are you doing and thinking about now?

Dan Calano: Yeah. So first of all, I had a great relationship with the buyer, particularly the CEO of the company, entrepreneur, just awesome guy. It was clear that I didn’t have- they had all the key seats really filled across their business. So, I did take on a leadership role, but as more of an advisory, in an advisory capacity. I was largely responsible for making sure that just I was there, that the integration went well, people were supported, we didn’t make any mistakes, and that I could be a key thought partner to the CEO and others to ensure that their investment in the asset went well. Things changed for me there and I have a lot of realizations. I’ll give you one really positive and interesting one. I’d say largely at Utility Cloud, one of the things I really struggled with was what I’d call white-knuckling, particularly in the beginning. It’s like when- all I really knew coming in was I work really hard, I think I’m really smart, and I’m a good guy. So when in doubt, more, squeeze harder. And that’s put the weight- hey, put the weight of the world on your shoulders, carry it, you’re tough, white knuckle it, you’ll get through it. It has a purpose, but at some point, that actually is not useful. It’s not healthy. And one of the things I try to study is, from an operating point of view, you really are more of an athlete than you are anything else. There’s so many similarities to being an athlete. If you watch a Netflix series like Quarterback or Receiver, any one of those sports-related documentaries, you see the way in which the players need to keep a head on their shoulders, how they prepare, how they rest, how they gear themselves up for top performance. White knuckling is not a strategy to be an athlete. None of the top performers who are athletes, Patrick Mahomes, whomever, are just white knuckling. They are developing themselves in a sustainable way. And anyways, all that to say that when I sold the business and I didn’t have as much stake, I really was, at that point, just there to serve others. I wanted to make sure that things went well, that customers were taken care of, that the employees landed in a really great spot, that the buyer was satisfied with the decision they made. And I took that weight of the world off my shoulders. What I would say is, I was probably as effective during that time as I was before, but without the white knuckling feeling. So, I was- the key takeaway there is, you can try really hard, you can care on the same level without just gripping as hard as humanly possible onto something and obsessing about just the outcome. Investing in good process, taking a bet, following through can all exist without an extreme amount of strife. And after that transition period, I probably relaxed a little bit. And I was a very effective leader through that process. I’d say the business actually probably performed slightly better after that.

Alex Bridgeman: At what point were you not involved anymore? How long was that period with the buyer? And when you had the final email, final meeting, whatever, what did you start doing? Well, first off, how long was that period from selling the company to being out completely? And then what did you start thinking about?

Dan Calano: Yeah, so it was only after about- it was under a year where I was really full-time engaged in the business and then migrated into an advisory capacity, which allowed me to do other things. So call that, within a year, I was really focused on the next thing for me. While I was thinking about it, prior to that, I was able to actually pursue and start Grouper Companies. I can talk about the decision, how I got there, but Grouper Companies started really within a year of post-selling the business.

Alex Bridgeman: Great. Yeah, let’s talk more about Grouper then. So, if it was that quick, you must have… It doesn’t sound like there was a very deep introspective process there. Like you kind of knew you wanted to go and search again and do this again. It doesn’t sound like it was a very tough decision.

Dan Calano: It was a very tough decision. And it was very deep, it was very introspective, and it was not obvious to me. But I did land there, and I want to explain how. So, I go back to what are the things that, what are my core values? I really value autonomy and community. I, of course, want to be compensated for my efforts, especially if you take on a lot of risk. But it’s autonomy and community. When I say autonomy, that is, not that I don’t want to have anyone around me. In fact, it’s the opposite. I want to have a great team, whether it’s my board, a leadership team, a coach, a partner, I want all that. Autonomy means that I have the ability to impact something in a very meaningful way every day, and I get to largely craft, not without any checks or balances, but how we go about doing that. I love that creative process of thinking about, I have to get from A to B, what are all the variables that I have to consider, and how do I chart a path? On community, community is about, I just want to work with great people. And I want to invest in those people for a long period of time. And that is, again, across all stakeholder groups. The search fund community is obviously great. I view that as one of my communities, at least professionally. I have a number of other communities on the personal side, family, etc. But those were really my two guiding principles. And I did explore a lot of other things. I looked at, okay, what would operating- funny enough, and maybe not being reflective the first time around, for whatever reason, I thought getting in and operating my first company would be the step one to going in and operating a much larger company as step two. I’m not sure why I felt that way. I think it was something beaten into my head from earlier in my career where you just measure by dollars or size of P&L or something like that. It turns out not to necessarily really align with what I really want. So I looked at what would it look like to operate within, if I want to operate a bigger private equity backed, traditional private equity backed business? What would it look like for me to actually make some investment of my own or be an investor in the search fund community? What would it look like to actually start something from scratch? And the long story short is after filtering through all those different options, what most closely aligned with my values was going in, buying and operating a business again. And one other side point I would say is that there’s an element of product market fit, product being me, is the world, the way I saw it was, the world doesn’t need another decent investor. The world does need another great operator. And as far as what I can offer to the world, as far as what I can offer to an organization, I am meant to do this. And that should not be forgotten. Like, where am I most useful at this point in my career? To me, the answer was where I am right now. So that’s what got me there and what got me to reinvest and do this process over again.

Alex Bridgeman: It’s interesting you mentioned that you thought this would be a step one to a step two of a bigger company. Is Fleetflo bigger or kind of similar size as Utility Cloud? Like what did they end up- did you end up at something a similar size, and was that a deeper reflection that you had where, oh, actually running a bigger company maybe for these reasons is less of a product market fit for me than that same size? You kind of mentioned 50 people as a sweet spot, too. So I wonder if that’s part of it, too.

Dan Calano: Yeah, no. So Fleetflo is bigger from a starting point than Utility Cloud was. However… generally, just in my reference point there, what I was thinking of is a materially different size, like if I ran a company private equity backed with 250 people or something like that. I still classify Fleetflo as generally within the same realm. I mean, it’s in that Goldilocks zone of, it’s not a startup, it’s not a super big, mature company. It’s in that zone where you have a very manageable number of employees, you have a great, solid base of revenue, but that you can still have a relatively profound and somewhat immediate impact on how the business operates just based on its current scale.

Alex Bridgeman: And so, you talked about kind of the rights to win that you earned with Utility Cloud. What got you- Well, actually, backing up just a little bit. So, searching a second time, how did you approach it differently now that you’d been a CEO before, you’d searched before, you’d had a lot of experiences being a CEO? How was that process different? If I looked at it kind of a week in your search the first time versus the second time, what do you think I would notice?

Dan Calano: Yeah, well, what would you notice versus what was different could be different. But anyways, let’s start with what was different for me. I would actually say the motivation. Again, my core values were the same. However, I think my motivations were slightly different, the things that drove me. If I’m going to be really candid, there was both a lot of positive motivators the first time and a few negative ones. On the negative side, it was chip on my shoulder. I want to prove to myself and to others that I can be an amazing CEO. More along the lines of that. I want to do this as a means to show, again, to show myself or others what I’m capable of. This time around, and again, I’d say good positive motivators too there. I want to make an impact on an organization. I want to be an entrepreneur. All those things were true. This time around, the motivations were slightly different. It was, my why, I’d say, is a combination of a few bigger things. I really want to get back to that feeling of making a lot of progress as a highly functioning, winning team. That was really fun. That’s a great way to spend your day. I want that. I want to make a meaningful impact on a customer base and an industry. Lastly, I want to win. The funny thing about operating any of these businesses, acquiring any business, is you’re losing more than you’re winning typically if you are not going through on a lot of opportunities. In a sales process in a company, if you’re closing 20%, that’s probably pretty good. That means you’re losing eight out of ten opportunities. That’s hard. But I really, I’m addicted to the feeling of winning. I want to win. It’s good for everybody. It’s good for the customer. It’s good for our team. It’s good for myself. It’s good for the investors. Sorry. Darn. I do want to win. So, the motivations and what was driving me every day did feel different. Tactically, it was also very different. I’d say I had a few things that were just fairly tactically unique. One was I had developed a better mental model of the world. I could break down and develop theses in a more cohesive way. And why? I would say partially it was just experience and observation and talking to people, honestly, for a longer period of time where I had a better mental model of these areas are really interesting to dig into and here’s why. The second one was, of course, that I had done it before, but maybe this time around, I had a better mental model of how I could tap into the resources around me. As an example, I have a few close friends that during my first search were probably more mid-level at like a private equity firm doing some sourcing, whatever. Now those same friends are managing directors, and I’m talking to them on a weekly basis, seeing what’s interesting and having really profound discussions about different theses that I’m looking at. So the thesis generation was like night and day, my ability to fish in the right ponds, super different. I will say 2024 versus 2018, different M&A environments. So, yeah, for a variety of reasons that I’m probably less educated to speak to, I would say it’s more difficult to get in touch with sellers and it’s almost impossible to be opportunistically in touch with them. So the ability to get super deep in a few areas that I felt really confident in helped, but even then it’s hard. I mean, let’s just one example. It’s not an example I would recommend people search in, but let’s say pest control. Back in 2018, you could reach out and say, I’m an entrepreneur looking to acquire a business. And they might say, that’s interesting. Let’s talk. And I even thought that it was proliferated then with investors. Today, there are the strategics, there are the PE backed strategics. There are so many people in that pond. There’s a well-defined broker or investment banker network around just that industry. There are podcasts in that industry. And you are not getting a conversation unless you’re in some sort of inner circle there. If you’re not getting introduced by somebody or referencing the podcast or being at the event, you don’t have a chance. So, the ability to, A, recognize that and adapt to the current situation also, I said, matched where I was currently at. And that’s really, by and large, the strategy that I pursued. You’re still doing the same… Mechanically, you’re doing a lot of the same reaching out and having conversations. I will say it, of course, helped that when you operate a business and you understand, let’s just take one very simple example, in a software business, I can understand a lot by looking at a support backlog. I guess 2018, a support backlog, like your ticket backlog, would have been completely cryptic to me. What does that mean? Is that good? Is that bad? You can dig into certain parts of the business that maybe you could generally find some baseline numbers for, but when you’re actually operating, you know the implications of that. What does that actually mean? How hard is that going to be to fix and short-circuit a lot of this, is this a good place to spend time or not? So it looked a lot different. It felt a lot different. The strategy was not entirely different. I’d say I was fairly thematic the first time around, but it was a different experience.

Alex Bridgeman: So how did the second time around change how you picked investors and who you wanted to work with and what kind of board you wanted to see?

Dan Calano: This is going to be a short answer. My process was not very different there, maybe slightly so. Generally speaking, I treasured their relationships, both at the board level and at the investor level the first go around. It worked. The community I had around me was highly supportive. If anything, it was my learning how to tap into those resources in a more effective manner, particularly the board, that took a little bit of my own development. That worked. And so what you see this time around, I do have a different board. I do have a slightly different group of investors. One thing that was different is I did tend to concentrate on, okay, this time around, I did have a handful of investors that I worked with very closely and who were extremely valuable to me, deep trust. I know the good, the bad, the ugly, and they know the good, the bad, the ugly. And so, I did take maybe a slightly more concentrated view on things this time around, but largely my selection process for the board was fairly similar. Largely the selection process and the people represented in the community on the investor side was similar, albeit more concentrated. And that, going back to my point about community, that’s really important to me. And maybe it’s the devil you know situation. But man, it worked the first time. And I wanted that the second time as well. That community box was very firmly checked for me. And I really came to the conclusion that this is- when we say the search fund ecosystem, that’s now a broader term that includes a lot of other sub segments today. But my version is still, the people that I work with in the community is still very similar to what it was in 2018. And those are my people. Those are the people who lift me up, who help me, good, bad, and ugly, and I want that to continue. I want to invest in those relationships, and I expect those to still be relationships in 20 years.

Alex Bridgeman: And then jumping into Fleetflo, being a second time CEO, how did you approach the first couple months differently?

Dan Calano: Very differently. Gosh, I tried to take all the things that I learned in time, probably in 18 months, 24 months at Utility Cloud and just front load the things that worked. So that is- Let’s talk about a couple themes. One… this is on nobody but me, but the first time around, I was doing everything on my own. I was trying to lift, the world was on my shoulders. I wasn’t taking advantage of my board resources as best as I could. I was slow to hire the folks that I really needed. And this time around, I was faster to bring them in. So one of- let’s just use one example there in partnering. By the way, I think one thing on that subject, it doesn’t just have to be people that you bring on. I did fortify a really strong partnership with the existing team, and that’s been really strong. In addition to that, I brought on a COO, where we actually identified, we ran a process pre-closing and have- that’s been just like, boy, amazing and just an absolute lift on my time in the organization. So, people, figuring out a way to leverage the resources around me, building team and finding a way not to do this all on my own. And when there’s an opportunity where I’m doing something, let’s actually ask the question, who else could be doing that? Who else could be doing that better? And if the answer is not there today, when will that happen? So front loadings, having the supporting cast. Second one was just EOS. It doesn’t have to be EOS. It’s an operating system. It’s a way to get organized. It’s a way to focus on the big things in the business. EOS, just as one example, or any really good operating system is a way to prioritize. So you are constantly being faced with, man, I have a thousand things I could fix today, but maybe only three move the needle. So let’s focus, let’s put all of our time and attention on the three that move the needle. Friction is a piece of that. Like, let’s include on the priorities things that remove big friction, not just that increase enterprise value tomorrow. So yeah, of course, we want to spend a lot of time on landing a new big logo. That’s great. Let’s also make sure that we’re introducing things that are going to allow people to do their jobs effectively. Because… great example of something that compounds, you eliminate friction today, that’s going to free up someone to do 80% of their job that they’re hired to do. That is going to pay for itself many, many times over just in the next year. Let’s say… Oh, here’s another one. It’s pretty good. I was, as you can imagine, I was extremely invested at Utility Cloud in the really big customer with all that going on. That probably took away from me deeply understanding how we were creating value for the other 120 customers that we had. I have made it a significant priority to get out and talk to customers. I’ve been on the road a lot. I visit… I’ve probably been out to visit… So we closed in April. I’ve probably been out to customer visits no fewer than 25 times since then, something like that. So that is… And man, that’s a lot of birds with one stone. That’s building a relationship and trust and making sure that the customer understands where the business is going. It’s also understanding what the customer sees value in. Why did they buy? Why did they stay? It is maybe even an opportunity to open up, how can we create more value for you? Extremely, extremely valuable. I would say at Utility Cloud, in some cases, guilty as charged, I probably filled in the blanks in my head. When I’m creating a sales- when I’m redoing a sales presentation, I was doing a little bit of guessing on what do I think the customers value, but not actually in the words of the customer. That’s extremely important. And so, a lot of time has been spent from the customer point of view and getting out there and being out there in the industry.

Alex Bridgeman: I imagine also those customer conversations told you exactly what to focus on. Each customer probably had two, three, four, five ideas. Like, here’s all the things you could improve on that would make this, your product way easier to use or way more interesting and helpful to use because you can probably develop a roadmap entirely in all of those visits just by themselves.

Dan Calano: Yeah, exactly. You definitely are given some of the answers to the test on what to focus on. That is true, for sure.

Alex Bridgeman: Were there any questions you asked customers that were most revealing? If you were coaching me on doing a customer visit, are there certain things that you make sure you understand this before you leave?

Dan Calano: That’s a good question. Why did you buy and why do you stay are two good topics. Those are broad questions. But start there. I think it’s really interesting for a lot of reasons. And why they bought is an interesting way for you to understand what resonates about someone who’s a prospect and why do they stay is also something you want to highlight, but maybe another reason to think or another way to think about how we communicate value to our existing customer base. Those are two really interesting areas that should not be combined into one question.

Alex Bridgeman: So you’ve experienced risk in a lot of different ways. One, just being a searcher inherently has risk. Customer concentration has risk. Going through a sale process has risk and then searching again. There’s a lot of different variations of risk that you’ve experienced. I’d be curious what that gives you in terms of a new perspective on risk taking as an entrepreneur?

Dan Calano: So, look, I just don’t think we spend enough time coaching on how to take risk. So, I’ve internalized a lot about what does risk mean and how to actually manage it, particularly as an entrepreneur. So I always used to think that risk was, oh, that man or woman has a lot of guts. Risk is they’re a risk taker. They’ll jump out of a plane. That’s really not risk. Risk is more of a calculated system for playing a game. You are playing a game with typically uncertain information. So think of poker. You are delt a hand. You have somewhat limited information. You decide what kind of bet you want to take or not. You get a little bit more information. You get the opportunity to invest more or not. Risk is having a system around that. I should say that’s how one effectively manages risk. I think there’s one piece for me that resonates very deeply is everything you do here as being an entrepreneur is taking a risk or a bet. One thing I have struggled with is as someone who historically, the first 30 years of my life basically was rewarded in a linear fashion with you work hard, you get a certain result, you work hard, you get a certain result. That is not taking- that’s not the reality of playing a game of risk, really. In our world, you actually have to take a risk and you have to let it play through. Now, someone who’s very focused on controlling an outcome, that can drive you somewhat crazy. I think there’s this concept as an entrepreneur that you have to get really comfortable with of laying out this is, let’s just say we’re talking about the acquisition stage, this is the asset that’s interesting and that we’re looking at. If we’re never going to have complete information, we will certainly never have information about the future. We have eyes wide open. These are the three things that are most important for this to be a successful outcome. And here’s what we know about those three things. Once you actually take the bet, it is a bet. There’s a lot that you can control that is within your hands, but there’s also a lot that’s outside of your control. And having the mindset to be able to take that risk is inherently, I think, somewhat antithetical to sort of your classic MBA consultant iBanker where input very much equals output. In this world, we’re creating a lot of uncertainty, and it’s much closer to playing a game of poker. That mindset is really important as to how you operate. You are going to make a series. You’re going to make one really big bet up front. Then you’re going to probably make a bunch of pretty big bets and then a ton of small bets. Everything that you do is a bet. You hire a key talent. That’s a bet. You invest in a sales process. That’s a bet. Et cetera, et cetera, et cetera. And you have to be able to operate in that mindset and have it not drive you crazy. You have to say, this is our system, this is our process, and once we make a decision, sure, we have to have some way of measuring when to make a change, of course, but I have to live with making that bet. One thing that I’ll just throw out as a complete tangent, sorry, Alex, is I think it matters where you grew up. I was raised in the Northeast. I would say in general, this is super general, but I would say that academics, hard work, intelligence, those are the things that are rewarded if you look at just the Northeast in general, culturally, on average. What are the professionals that are really successful? There’s a lot of that. Of course, there’s many entrepreneurs and all that stuff. Texas is completely different. So I live in I live in Texas. And just if I look around me, a lot of the people that have been successful are in very risk-taking industries where there’s a lot of incomplete information, things that play out that are outside of your control – oil and gas, commercial real estate, big cyclical things. What is rewarded generally, again, there’s all sorts of diversity here, but more indexing toward risk-taking and playing this game of being an entrepreneur is closer to playing a game of poker. You have a system, you know what a good hand looks like, you know when to take a bet, you have a process, and when you make the bet, follow through, and if you win the hand or you lose the hand, okay, if you had a good process and you lost the hand, what can you do? You keep on doing that right over many, many iterations of taking bets, things will go well. You can’t just obsess all day about trying to control every outcome. Investing in process versus just trying to control every outcome, a big mental shift for me and something that’s probably not discussed a lot. Of course, there’s other elements of how to manage risk as an investor, things probably we do understand, but I want to highlight that concept of how to manage risk and think about it from the perspective of an entrepreneur, particularly when you’re taking on this wild amount of concentration risk. You have one asset, you have seven years, ten years that you’re going to invest everything into it. You need to get out of that mindset of obsessing about the outcome and just investing in really good process and be willing to have a good system for taking bets, because that’s what they are.

Alex Bridgeman: I love that. On that note, Dan, thank you for sharing on the podcast and coming on for the Right to Win series. This has been a ton of fun. I’ve really enjoyed chatting with you over the years, so it’s fun to have a recorded version of it. But thank you very much for sharing your time.

Dan Calano: Yeah, Alex, appreciate it. Huge fan. Thanks for having me. This was fun. I liked it, loved it.