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Andy: Hello, all you listeners out there in podcast land. I hope everybody's having an amazing day after Thanksgiving. This episode is going out to the world on Friday, which is the day after Thanksgiving. So I hope everybody had an awesome, relaxing end of season, sort of speak in our world and a season day after Thanksgiving. And this is, we're coming into a big week next week, which is the annual irrigation conference called the IA show. Technically it would be the irrigation association annual conference and at the conference, I will be. Not at a booth or anything formal, but demoing some technology that I've been working on for this last year, which is a long range wireless soil moisture sensor. And if you are able to join us Tuesday evening, which is the night before the show, I will have plenty of sample. And for those interested to join the beta group, some beta devices. And I thought. What better way to prep for next week than to have another discussion with my good friend, Paul Bassett, who has been helping to advise on the development of the sensor [00:02:00] and, uh, the entire, uh, let's call it a project, the entire project. So Paul, welcome back to the podcast. Oh, Paul: thanks for having me, Andy. And I can't wait to be one of the first beta users and testers of of this technology. It's been something that our industry's been needing for. Since its inception. So this is going to be one of those technologies that hopefully everyone's going to embrace because it's now going to have the soil moisture sensing, right? In the palm of your hands. Andy: That's good in the palm of your hand. When, while he's saying Paul saying that I have one in the palm of my hand and what's pretty awesome too, is I would say you are one of our industry's beta testers. You know, there's a probably just a handful, maybe there's more than a handful, but there's a few people that have always had a liking to test new products and seek out new products in just that early adopter sort of way. And you are definitely one of them. And this is not your first time, this will not be your first time beta testing soil moisture sensors because you've actually been testing them for, you know, 20 years at this point. At least Paul: 20 years for sure. And I remember when, when baseline. First came out with their control system and their soil moisture sensors. And I was ecstatic back then and still to this day on how the technology works. And I really like the taking the wired soil moisture sensor readings and converting it over to now a wireless reading, which is just phenomenal being able to transmit. Out of the ground, what the soil moisture is without a Andy: wire and to be able to try to connect the dots, so to speak, in terms of hand. No, it just rained. Let me quickly check my app and [00:04:00] see what that did to the soil profile, right? Or, you know, we adjusted some run times. I had the crew adjust some run times. Let me take a look at the app and see what that did to the moisture profile. I think that most of the time when we set a schedule on a controller, start time, run time, day of the week, it's an educated guess, right, using whatever tools we have ability at that moment in order for us to determine what the run time should be to apply the right amount of water. But there is never been really a tool, I shouldn't say never, there are some, but there's not a universally available tool that anyone could use to then see the results of. What did that adjustment from 30 minutes to 45 minutes look like, or from one hour to 30 minutes? What is it actually doing to the soil? There isn't a universal tool available that anyone can use easily and affordable to start learning. Paul: And I like what, what you've done by taking on this particular project and Finding the latest technology that's available and using the, that technology and intertwining it with soil moisture sensors, specifically, most folks aren't really aware of, you know, how this frequency transmits and how it was received and how it gets moved from the device into the palm of your hand. Why don't you tell us how that Andy: works? Yeah, there's a stack. We won't go right now all into all the details, but there's a stack of of different technologies that when you stack it together, the data basically passes through the stack and it is delivered to you in the web browser on the phone or the computer. So the device pings through a gateway, either private or public. Then it goes up to a network server and the network server passes it to an application server. Then the application server is what pushes it to the U. I. So one data point, one point of moisture has to pass through all [00:06:00] those little channels along the way in order for the user to then see it on their device. And that's been, uh, I wouldn't say it's a challenge, but it makes what seems, it makes what seems so simple, actually quite technical under the hood. It is Paul: very technical under the hood, Andy, for sure. And the way you describe it. Andy: Yeah, and you gotta sort of learn each of those, each of those, you have to learn each of those, um, pieces of technology. Because it's not just one of them. And so one of the things that I've done is, you know, gathered a group of people together, i. e. you as one of the advisors and, uh, and Nate as as an engineer, uh, and then a whole slew of other people that are sort of experts in their line of work. So it might be it's the network server developer, or it's the application server developer, or it's the hardware engineer, or it's the application developer. Um, you know, designer of the actual, uh, capsule, if you will, the hexagon. So there's kind of had to have been a T there's a whole team that's sort of working on this project, uh, to move data from the ground all the way up to the cloud or right into the palm of your hand. And what I think is pretty awesome. Is that where we, where we've landed started from an idea, you know, that you and I shared back in the spring where we kind of said, man, what would it, if sole moisture sensors were easy, what would that look like? And that's where we came up with this, you know, scan it, drop it, connect it. You know, you don't have to call anyone. You don't have to activate anything. You can just. Scan it, drop it and connect it. And, you know, so what people will, we'll see is that that is the trying to make it easy for the everyday person has been our goal and both affordable, [00:08:00] affordable and easy for the everyday person. So you can just. Grab one out of your truck, scan it, drop it, add it to your account, and you're off and running. Paul: Andy, it's phenomenal to hear that because it sounds like it's something that's been really needed in our industry to be able to have something this easy to deploy that it sounds like almost everybody could use it. It's not just for the professionals. Is that right? Andy: That's that's the goal. You know, there are products out there that have 10 X 100 X. The capabilities of what what I've been building because the The point of what I've been trying to build is something that's for everyone. Not something that is extremely scientific, not something that's research grade, not something that has to be connected to a control platform, but just a soil moisture sensor for the everyday user so they can have the tool to learn. So they can have the tool to see what happens as a result of their watering patterns. And I really think that that's a missing, a missing piece is that we don't, we are not able to connect the dots on what happens when you apply the water. We apply the water and then we We imagine what happens to it, and then we make some assumptions based on the health of the plant material. If the plant material is not healthy, then we make another assumption of I either over watered or I under watered, but we don't have a good tool to actually learn about the health. The application or precipitation rate, you know, and as it relates to the runtime on what you do. And so I think that, you know, somebody might say, I don't know really where I want to use this sensor. It's like, well, just go put it somewhere and you'll quickly have some data that will make you more curious. And you'll want to put another one in another spot because you'll get even more curious and then you'll start bringing in more data. You'll start learning and then you'll become. Over time, a better [00:10:00] irrigator because you have the, you know, cause and effect, so to speak, Paul: and, and to one of the things that I've learned through the knowledge lab that you've been working on is that, you know, this, this information that you're displaying, you're putting it in a way that It's easy for people to see it and understand it and ingest it. It's not in major graphs and very hard to see. So that's one of the things that I've really been encouraged about by the way that you're displaying the information on the application. Andy: Yeah. Again, right. It's gotta be easy and understandable and ideally in the palm of your hand, you know, the sensor in the palm of your hand and the data in the palm of your hand and I'm pretty excited about, uh, The level, let's see, how do I say this, the, I'm pretty excited about the level that the application is at for beta, you know, I think that, um, you know, a lot of products come to market as beta and they really are at level one, you know, maybe it's just one, just one graph and it's very simple, but what, uh, What the users will see in the, in the first beta launch is actually a lot of additional features in the software, um, such as notifications, users can set up an email notification that if the soil reaches a certain threshold equal to or greater than equal to or less than, et cetera, they can get an email notification, uh, right in the beta, in the beta version. That is a good, Paul: you're right. I did when you showed that to me, I was like, wow, I mean, it doesn't feel like it's irrigation technology. It doesn't, it's so much different in the way that you're able to bring it into the irrigation field, [00:12:00] um, with this technology is, is really astounding. Andy: And that's, it's interesting that you mentioned that because technology by itself would not be for any one industry because the technology is simply the technology. And so in this instance, it's about taking the technology that's available in the, in the greater world. But then applying it to our industry, using it. Um, you know, such like, uh, for instance, if the user would rather not have an email notification, but would rather have that notification run into a slack channel that they're on. That's totally possible. You know, we can send a notification when the soil moisture sensor reaches a certain threshold and send that notification through slack Paul: and forgive me for being one of the older guys on this call, but I don't use slack and I don't even know what it is. Well, Andy: you use Microsoft's version of Slack, which would be called teams. Okay. Uh, even though they're different, they're similar Slack, you know, predates teams, but, uh, you know, Slack is like, is like a chat communication tool with additional features and threads, uh, similar to Telegram. I know you use Telegram Slack would be similar and used by, you know. Used a lot by corporate America now to message with, with teams and update teams kind of like in a, uh, more efficient way than sending emails, sort of speak. And then how does it? Yeah, another modern tool, I guess. That's why I'm Paul: mentioning it. Tell me when you say that, because, you know, again, how does it interact with this, this slack? What do you, how do you Andy: set this? Yeah, I mean, the beauty of slack is let's say you've got a group of 20 people on a slack channel. And they can all be notified in Slack channel if the soil moisture reaches a certain point, right? So it's just, you know, there's a million different types of examples like that, uh, where you can take data from one source connected to another source. [00:14:00] Um, yeah. Paul: And when you're talking again, it doesn't feel like we're talking irrigation and that's what I like about what you're doing is you're bringing in technology that's not within the irrigation field and you're tying it into our application. So. That's another thing which really amazes me that you've done. Andy: Yeah, cool. Thank you. It'll be interesting. I'm really curious to see what users, number one, do with it. Where do they want to put it? What do they, what do they learn from it? What, uh, you know, what light bulbs go off for them that they didn't know before? And... Those kinds of insights will be helpful in order to, uh, improve, you know, the project, improve the product, the project to figure out which areas, you know, maybe need more focus, both from perhaps the data collection perspective, but also so that I don't have to assume what the users want. Because we need the users to use it to tell us, you know, the reasons and the places and what they need so we can build that. Paul: Well, you know, the use cases that I've started understanding when, when you came to me with this technology was that, you know, when I have a bunch of controllers out there and I'm manning to them and, you know, we have rain sensors on, they're supposed to shut them down when it rains. But we really. The settings aren't great, and you don't really have any feedback loop on those on the, uh, the rain sensor. Like, I don't know what the rain sensor set at. Is it a quarter inch? Is it an eighth of an inch? Um, and then sometimes we have to rely on remote weather stations, and I don't really ever find trust those when it rains or doesn't. So I really needed the ability to understand how the water is being applied at the site level. And I need to know when it [00:16:00] rains, what does the rain do to the moisture that I can shut the system down? So that's where I've been extremely interested in in these devices, having that capability and insight. Into what happens not only when an irrigation cycle applies the water, but what happens when it rains and how long does that take that rain to get to the moisture level in the soil that I don't need to operate my irrigation system. Andy: Mm hmm. Mm hmm. Yeah. I like just thinking about what you're saying. It's almost like, uh, those who are curious will really like. We'll probably have a great experience with the sensor because it allows them to say something such as I wonder what happens when blank, you know, fill in the blank. I wonder what happens when it rained yesterday. What did that do? Which you don't have the visibility right now. Rain sensor clicks off, but it doesn't give you any data. It's it's just a switch. But there's there's there's no data coming out of it. Speaking Paul: of switches, I know you and I don't want to get ahead of myself because there's a lot of things that you talk about in your mind that goes on with With regards to what's next and what can you do, but I know you and I've had some discussions about, you know, having this sensor tie into a local like switch in the controller, like a rain switch where that you can suspend that. irrigation cycle on the standard controller with a rain sensor type switch that connects directly to the application. Is that what I heard? Andy: Right. Yep. Uh, yeah, we can hit that for a moment. So I think in any, as soon as, as soon as you have one idea and one idea becomes a product, then all of a sudden it unlocks more things. Okay, great. We can measure the moisture, but then, well, how do we? Turn the controller off or keep the controller off. Well, we need something tied to the controller. Okay, what can we tie to the [00:18:00] controller? Well, we need some type of a receiver switch that can open and close the rain sensor terminal since that's the controllers, you know, external device connection. So if we can open and close a rain sensor terminal, then we can. pause or suspend the controller. So, you know, the idea is, uh, and I guess I'll just share it is after, you know, after the, the, the hex moisture sensor is, you know, finalized beta, et cetera. Then the idea is to have a smart switch and a smart switch would be a universal controller adapter that can be used in combination with the soil moisture sensor or really anything else. Potentially in the world that's connected to the cloud, whatever that device might be, we can connect it to our smart switch, I. E. And then connected to the irrigation controller. So you could suspend the irrigation for any other possible reason, because now the smart switch is connected to the cloud. So, yeah, keep your, uh, keep your eyes open for that one, guys, because that, that, the smart switch would work with or without a soil moisture sensor. It may be the connection to the controller for a soil moisture sensor, but you could use it, you could just use it as a remote control off switch if you want. Now, now that I think about it, Paul: well, Andy, I know, you know, all the things that you're thinking of there are extremely interesting to me, you know, I'm very curious with technology. So I'm glad you're able to, you know, bring this to market, um, and take some of your ideas and it helped enhance and save water in the irrigation industry. Andy: Yeah. Appreciate having the number one beta tester in my back pocket. Paul: Well, I'm the one that's very curious. Andy: Yeah, and so guys if you are curious and you're listening to this prior to the IA show it starts next week Uh, meet up with Paul and I, we're going to have, uh, you know, get some people together with OpConnect on Tuesday [00:20:00] evening. Uh, and then again, you can join me at the baseline brew crew if you haven't registered for that on Wednesday. Uh, but Tuesday I'll have some, I'll have some beta units of the, of the sensor and the application. So if you want to get involved and participate and be curious and join in on the project. Would love to have you. Yeah. Look forward to meeting anyone who wants to come out and say hello at the show. Paul: Well, I'm anxious, Andy, for sure, to be able to get more of these out in the field and, and test them and see what's happening in my soils. Andy: Cool. Right on. Well, thank you, Paul, for the little, uh, the little brain share, and thank you for your support and, uh, being a fantastic advisor, uh, to me and the project really appreciate it. Paul:I'm probably your number-one cheerleader. There's no doubt about that. Andy: Thanks, man. I'll see you. Next week and, uh, catch everybody else, uh, catch you guys next week on another episode of the sprinkler show. See ya

About AndyAndy is on a lifelong journey to understand, invent, apply, and leverage technology in our world. Both personally and professionally technology is at the root of his interests and passions.Andy has always had an interest in understanding how things work at their fundamental level. In addition to figuring out how something works, the recursive journey of learning about enabling technologies and underlying principles is a fascinating experience which he greatly enjoys.The early Internet afforded tremendous opportunities for learning and discovery. Andy's early work focused on network engineering and architecture for regional Internet service providers in the late 1990s – a time of fantastic expansion on the Internet.Since joining Akamai in 2000, Akamai has afforded countless opportunities for learning and curiosity through its practically limitless globally distributed compute platform. Throughout his time at Akamai, Andy has held a variety of engineering and product leadership roles, resulting in the creation of many external and internal products, features, and intellectual property.Andy's role today at Akamai – Senior Vice President within the CTO Team - offers broad access and input to the full spectrum of Akamai's applied operations – from detailed patent filings to strategic company direction. Working to grow and scale Akamai's technology and business from a few hundred people to roughly 10,000 with a world-class team is an amazing environment for learning and creating connections.Personally Andy is an avid adventurer, observer, and photographer of nature, marine, and astronomical subjects. Hiking, typically in the varied terrain of New England, with his family is a common endeavor. He enjoys compact/embedded systems development and networking with a view towards their applications in drone technology.Links Referenced: Macrometa: https://www.macrometa.com/ Akamai: https://www.akamai.com/ LinkedIn: https://www.linkedin.com/in/andychampagne/ TranscriptAnnouncer: Hello, and welcome to Screaming in the Cloud with your host, Chief Cloud Economist at The Duckbill Group, Corey Quinn. This weekly show features conversations with people doing interesting work in the world of cloud, thoughtful commentary on the state of the technical world, and ridiculous titles for which Corey refuses to apologize. This is Screaming in the Cloud.Corey: Forget everything you know about SSH and try Tailscale. Imagine if you didn't need to manage PKI or rotate SSH keys every time someone leaves. That'd be pretty sweet, wouldn't it? With Tailscale SSH, you can do exactly that. Tailscale gives each server and user device a node key to connect to its VPN, and it uses the same node key to authorize and authenticate SSH.Basically you're SSHing the same way you manage access to your app. What's the benefit here? Built-in key rotation, permissions as code, connectivity between any two devices, reduce latency, and there's a lot more, but there's a time limit here. You can also ask users to reauthenticate for that extra bit of security. Sounds expensive?Nope, I wish it were. Tailscale is completely free for personal use on up to 20 devices. To learn more, visit snark.cloud/tailscale. Again, that's snark.cloud/tailscaleCorey: Managing shards. Maintenance windows. Overprovisioning. ElastiCache bills. I know, I know. It's a spooky season and you're already shaking. It's time for caching to be simpler. Momento Serverless Cache lets you forget the backend to focus on good code and great user experiences. With true autoscaling and a pay-per-use pricing model, it makes caching easy. No matter your cloud provider, get going for free at gomomento.co/screaming That's GO M-O-M-E-N-T-O dot co slash screamingCorey: Welcome to Screaming in the Cloud. I'm Corey Quinn. I like doing promoted guest episodes like this one. Not that I don't enjoy all of my promoted guest episodes. But every once in a while, I generally have the ability to wind up winning an argument with one of my customers. Namely, it's great to talk to you folks, but why don't you send me someone who doesn't work at your company? Maybe a partner, maybe an investor, maybe a customer. At Macrometa who's sponsoring this episode said, okay, my guest today is Andy Champagne, SVP at the CTO office at Akamai. Andy, thanks for joining me.Andy: Thanks, Corey. Appreciate you having me. And appreciate Macrometa letting me come.Corey: Let's start with talking about you, and then we'll get around to the Macrometa discussion in the fullness of time. You've been at an Akamai for 22 years, which in tech company terms, it's like staying at a normal job for 75 years. What's it been like being in the same place for over two decades?Andy: Yeah, I've got several gold watches. I've been retired twice. Nobody—you know, Akamai—so in the late-90s, I was in the ISP universe, right? So, I was in network engineering at regional ISPs, you know, kind of cutting teeth on, you know, trying to scale networks and deal with the flux of user traffic coming in from the growth of the web. And, you know, frankly, it wasn't working, right?Companies were trying to scale up at the time by adding bigger and bigger servers, and buying literally, you know, servers, the size of refrigerators. And all of a sudden, there was this company that was coming together out in Cambridge, I'm from Massachusetts, and Akamai started in Cambridge, Massachusetts, still headquartered there. And Akamai was forming up and they had a totally different solution to how to solve this, which was amazing. And it was compelling and it drew me there, and I am still there, 22-odd years in, trying to solve challenging problems.Corey: Akamai is one of those companies that I often will describe to people who aren't quite as inclined in the network direction as I've been previously, as one of the biggest companies of the internet that you've never heard of. You are—the way that I think of you historically, I know this is not how you folks frame yourself these days, but I always thought of you as the CDN that you use when it really mattered, especially in the earlier days of the internet where there were not a whole lot of good options to choose from, and the failure mode that Akamai had when I was looking at it many years ago, is that, well, it feels enterprise-y. Well, what does that mean exactly because that's usually used as a disparaging term by any developer in San Francisco. What does that actually unpack to? And to my mind, it was, well, it was one of the more expensive options, which yes, that's generally not a terrible thing, and also that it felt relatively stodgy, for lack of a better term, where it felt like updating things through an API was more of a JSON API—namely a guy named Jason—who would take a ticket, possibly from Jira if they were that modern or not, and then implement it by hand. I don't believe that it is quite that bad these days because, again, this was circa 2012 that we're talking here. But how do you view what Akamai is and does in 2022?Andy: Yeah. Awesome question. There's a lot to unpack in there, including a few clever jabs you threw in. But all good.Corey: [laugh].Andy: [laugh]. I think Akamai has been through a tremendous, tremendous series of evolutions on the internet. And really the one that, you know, we're most excited about today is, you know, earlier this year, we kind of concluded our acquisition of Linode. And if we think about Linode, which brings compute into our platform, you know, ultimately Akamai today is a compute company that has a security offering and has a delivery offering as well. We do more security than delivery, so you know, delivery is kind of something that was really important during our first ten or twelve years, and security during the last ten, and we think compute during the next ten.The great news there is that if you look at Linode, you can't really find a more developer-focused company than Linode. You essentially fall into a virtual machine, you may accidentally set up a virtual machine inadvertently it's so easy. And that is how we see the interface evolving. We see a compute-centric interface becoming standard for people as time moves on.Corey: I'm reminded of one of those ancient advertisements, I forget, I think would have been Sun that put it out where the network is the computer or the computer is the network. The idea of that a computer sitting by itself unplugged was basically just this side of useless, whereas a bunch of interconnected computers was incredibly powerful. That today and 2022 sounds like an extraordinarily obvious statement, but it feels like this is sort of a natural outgrowth of that, where, okay, you've wound up solving the CDN piece of it pretty effectively. Now, you're expanding out into, as you say, compute through the Linode acquisition and others, and the question I have is, is that because there's a larger picture that's currently unfolding, or is this a scenario where well, we nailed the CDN side of the world, well, on that side of the universe, there's no new worlds left to conquer. Let's see what else we can do. Next, maybe we'll start making toasters.Andy: Bunch of bored guys in Cambridge, and we're just like, “Hey, let's go after compute. We don't know what we're doing.” No. There's a little bit more—Corey: Exactly. “We have money and time. Let's combine the two and see what we can come up with.”Andy: [laugh]. Hey, folks, compute: it's the new thing. No, it's more than that. And you know, Akamai has a very long history with the edge, right? And Akamai started—and again, arrogantly saying, we invented the concept of the edge, right, out there in '99, 2000, deploying hundreds and then to thousands of different locations, which is what our CDN ran on top of.And that was a really new, novel concept at the time. We extended that. We've always been flirting with what is called edge computing, which is how do we take pieces of application logic and move them from a centralized point and move them out to the edge. And I mean, cripes, if you go back and Google, like, ‘Akamai edge computing,' we were working on that in 2003, which is a bit like ancient history, right? And we are still on a quest.And literally, we think about it in the company this way: we are on a quest to make edge computing a reality, which is how do you take applications that have centralized chokepoints? And how do you move as much of those applications as possible out to the edge of the network to unblock user performance and experience, and then see what folks developers can enable with that kind of platform?Corey: For me, it seems that the rise of AWS—which is, by extension, the rise of cloud—has been, okay, you wind up building whatever you want for the internet and you stuff it into an AWS region, and oh, that's far away from your customers and/or your entire architecture is terrible so it has to make 20 different calls to the data center in series rather than in parallel. Great, how do we reduce the latency as much as possible? And their answer has largely seemed to be, ah, we'll build more regions, ever closer to you. One of these days, I expect to wake up and find that there's an announcement that they're launching a new region in my spare room here. It just seems to get closer and closer and closer. You look around, and there's a cloud construction crew stalking you to the mall and whatnot. I don't believe that is the direction that the future necessarily wants to be going in.Andy: Yeah, I think there's a lot there. And I would say it this way, which is, you know, having two-ish dozen uber-large data centers is probably not the peak technology of the internet, right? There's more we need to do to be able to get applications truly distributed. And, you know, just to be clear, I mean, Amazon AWS's done amazing stuff, they've projected phenomenal scale and they continue to do so. You know, but at Akamai, the problem we're trying to solve is really different than how do we put a bunch of stuff in a small number of data centers?It's, you know, obviously, there's going to be a centralized aspect, but there also needs to be incredibly integrated and seamless, moves through a gradient of compute, where hey, maybe you're in a very large data center for your AI/ML, kind of, you know, offline data lake type stuff. And then maybe you're in hundreds of locations for mid-tier application processing, and, you know, reconciliation of databases, et cetera. And then all the way out at the edge, you know, in thousands of locations, you should be there for user interactivity. And when I say user interactivity, I don't just mean, you know, read-only, but you've got to be able to do a read-write operation in synchronous fashion with the edge. And that's what we're after is building ultimately a platform for that and looking at tools, technology, and people along the way to help us with it.Corey: I've built something out, my lasttweetinaws.com threading Twitter client, and that's… it's fine. It's stateless, but it's a little too intricate to effectively run in the Lambda@Edge approach, so using their CloudFront offering is simply a non-starter. So, in order to get low latency for people using it around the world, I now have to deploy it simultaneously to 20 different AWS regions.And that is, to be direct, a colossal pain in the ass. No one is really doing stuff like that, that I can see. I had to build a whole lot of customs tooling just to get a CI/CD system up and working. Their strong regional isolation is great for containing blast radii, but obnoxious when you're trying to get something deployed globally. It's not the only way.Combine that with the reality that ingress data transfer to any of their regions is free—generally—but sending data to the internet is a jewel beyond price because all my stars, that is egress bandwidth; there is nothing more valuable on this planet or any other. And that doesn't quite seem right. Because if that were actively true, a whole swath of industries and apps would not be able to exist.Andy: Yeah, you know, Akamai, a huge part of our business is effectively distributing egress bandwidth to the world, right? And that is a big focus of ours. So, when we look at customers that are well positioned to do compute with Akamai, candidly, the filtering question that I typically ask with customers is, “Hey, do you have a highly distributed audience that you want to engage with, you know, a lot of interactivity or you're pushing a lot of content, video, updates, whatever it is, to them?” And that notion of highly distributed applications that have high egress requirements is exactly the sweet spot that we think Akamai has, you know, just a great advantage with, between our edge platform that we've been working on for the last 20-odd years and obviously, the platform that Linode brings into the conversation.Corey: Let's talk a little bit about Macrometa.Andy: Sure.Corey: What is the nature of your involvement with those folks? Because it seems like you sort of crossed into a whole bunch of different areas simultaneously, which is fascinating and great to see, but to my understanding, you do not own them.Andy: No, we don't. No, they're an independent company doing their thing. So, one of the fun hats that I get to wear at Akamai is, I'm responsible for our Akamai Ventures Program. So, we do our corporate investing and all this kind of thing. And we work with a wide array of companies that we think are contributing to the progression of the internet.So, there's a bunch of other folks out there that we work with as well. And Macrometa is on that list, which is we've done an investment in Macrometa, we're board observers there, so we get to sit in and give them input on, kind of, how they're doing things, but they don't have to listen to us since we're only observers. And we've also struck a preferred partnership with them. And what that means is that as our customers are building solutions, or as we're building solutions for our customers, utilizing the edge, you know, we're really excited and we've got Macrometa at the table to help with that. And Macrometa is—you know, just kind of as a refresher—is trying to solve the problem of distributed data access at the edge in a high-performance and almost non-blocking, developer-friendly way. And that is very, very exciting to us, so that's the context in which they're interesting to our continuing evolution of how the edge works.Corey: One of the questions I always like to ask, and it's usually not considered a personal attack when I asked the question—Andy: Oh, good.Corey: But it's, “Describe what the company does.” Now, at some places like the latter days of Yahoo, for example, it's very much a personal attack. But what is it that Macrometa does?Andy: So, Macrometa provides a worldwide, high-speed distributed database that is resident on what today, you could call the edge of the network. And the advantage here is, instead of having one SQL server sitting somewhere, or what you would call a distributed SQL Server, which is two SQL Servers sitting next to one another, Macrometa has a high-speed data store that allows you to, instead of having that centralized SQL Server, have it run natively at the edge of the network. And when you're building applications that run on the edge or anywhere, you need to try to think about how do you have the data as close to the user or to the access point as possible. And that's the problem Macrometa is after and that's what their products today solve. It's an incredibly bright team over there, a fantastic founder-CEO team, and we're really excited to be working with him.Corey: It wasn't intentionally designed this way as a setup when I mentioned a few minutes ago, but yeah, my Twitter client works across the 20-some-odd AWS regions, specifically because it's stateless. All of the state, other than a couple of API keys at provision time, wind up living in the user's browser. If this was something that needed to retain state in any way, like, you know, basically every real application under the sun, this strategy would absolutely not work unless I wound up with some heinous form of circular replication, and then you wind up with a single region going down and everything explodes. Having a cohesive, coherent data layer that spans all of that is key.Andy: Yeah, and you're on to the classical, you know, CompSci issue here around edge, which is if you have 100 edge regions, how do you have consistent state storage between applications running on N of those? And that is the problem Macrometa is after, and, you know, Akamai has been working on this and other variants of the edge problem for some time. We're very excited to be working with the folks at Macrometa. It's a cool group of folks. And it's an interesting approach to the technology. And from what we've seen so far, it's been working great.Corey: The idea of how do I wind up having persistent, scalable state across a bunch of different edge locations is not just a hard computer science problem; it's also a hard cloud economics problem, given the cost of data transit in a bunch of different directions between different providers. It turns, “How much does it cost?” In most cases to a question that can only be answered by well let's run it for a few days and find out. Which is not usually the best way to answer some questions. Like, “Is that power socket live?” “Let's touch it and find out.” Yeah, there are ways you learn that are extraordinarily painful.Andy: Yeah no, nobody should be doing that with power sockets. I think this is one of these interesting areas, which is this is really right in Akamai's backyard but it's not realized by a lot of folks. So, you know, Akamai has, for the last 20-odd-years, been all about how do we egress as much as possible to the entire internet. The weird areas, the big areas, the small areas, the up-and-coming areas, we serve them all. And in doing that, we've built a very large global fabric network, which allows us to get between those locations at a very low cost because we have to move our own content around.And hooking those together, having a essentially private network fabric that hooks the vast majority of our big locations together and then having very high-speed egress out of all of the locations to the internet, you know, that's been how we operate our business at scale effectively and economically for years, and utilizing that for compute data replication, data synchronization tasks is what we're doing.Corey: There are a lot of different solutions that could be used to solve a lot of the persistent data layer question. For example, when you had to solve a similar problem with compute, you had a few options in front of you. Well, we could buy a whole bunch of computers and stuff them in a rack somewhere because, eh, cloud; how hard could it be? Saner heads prevailed, and no, no, no, we're going to buy Linode, which was honestly a genius approach on about three different levels, and I'm still unconvinced the industry sees that for the savvy move that it was. I'm confident that'll change in time.Why not build it yourself? Or alternately, acquire another company that was working on something similar? Instead, you're an investor in a company that's doing this effectively, but not buying them outright?Andy: Yeah, you know, and I think that's—Akamai is beyond at this point in thinking that it's just about ownership, right? I think that this—we don't have to own everything in order to have a successful ecosystem. You know, certainly, we're going to want to own key parts of it and that's where you saw the Linode acquisition, where we felt that was kind of core. But ultimately, we believe in promoting customer choice here. And there's a pretty big role that we have that we think we can help with companies, such as folks like Macrometa where they have, you know, really interesting technology, but they can use leverage, they can use some of our go-to-market, they can use, you know, some of our, you know, kind of guidance and expertise on running a startup—which, by the way, it's not an easy job for these folks—and that's what we're there to do.So, with things like Linode, you know, we want to bring it in, and we want to own it because we think it's just so compelling, and it fits so well with where we want to go. With folks like Macrometa, you know, that's still a really young area. I mean, you know, Linode was in business for many, many, many years and was a good-sized business, you know, before we bought them.Corey: Yeah, there's something to be said, for letting the market shake something out rather than having to do it all yourself as trailblazers. I'm a big believer in letting other companies do things. I mean, one of the more annoying things, from my position, is this idea where AWS takes a product strategy of, “Yes.” That becomes a bit of a challenge when they're trying to wind up building compete decks, and how do we defeat the competition? And it's like, “Wh—oh, you're talking about the other hyperscalers?” “No, we're talking with the service team one floor away.”That just seems a little on the strange side to—some companies get too big and too expensive on some level. I think that there's a very real risk of Akamai trying to do everything on the internet if you continue to expand and start listing out things that are not currently in your portfolio. And, oh, we should do that, too, and we should do that, too, and we should do that, too. And suddenly, it feels pretty closely aligned with you're trying to do everything.Andy: Yeah. I think we've been a company who has been really disciplined and not doing everything. You know, we started with CDN. And you know, we're talking '98 to 2010, you know, CDN was really our thing, and we feel we executed really well on that. We probably executed quite quietly and well, but feel we executed pretty well on that.Really from 2010, 2012 to 2020, it was all about security, right? And, you know, we built, you know, pretty amazing security business, hundred percent of SaaS business, on top of our CDN platform with security. And now we're thinking about—we did that route relatively quietly, as well, and now we're thinking about the next ten years and how do we have that same kind of impact on cloud. And that is exciting because it's not just centralized cloud; it's about a distributed cloud vision. And that is really compelling and that's why you know, we've got great folks that are still here and working on it.Corey: I'm a big believer in the idea that you can start getting distilled truth out of folks, particularly companies, the more you compress the space they have to wind up saying. Something that's why Twitter very often lets people tip their hands. But a commonplace that I look for is the title field on a company's website. So, when I go over to akamai.com, you position yourself as something that fits in a small portion of a tweet, which is good. Whenever have a Tolstoy-length paragraph in the tooltip title for the browser tab, that's a problem.But you say simply, “Security, cloud delivery, performance. Akamai.” Which is beautifully well done, but security comes first. I have a mental model of Akamai as being a CDN and some other stuff that I don't fully understand. But again, I first encountered you folks in the early-2000s.It turns out that it's hard to change existing opinions. Are you a CDN Company or are you a security company?Andy: Oh, super—Corey: In other words, if someone wind up mis-alphabetizing that and they're about to get censured after this show because, “No, we're a CDN, first; why did you put security first?”Andy: You know, so all those things feed off each other, right? And this has been a question where it's like, you know, our security layer and our distributed WAF and other security offerings run on top of the CDN layer. So, it's all about building a common compute edge and then leveraging that for new applications. CDN was the first application. The next and second application was security.And we think the third application, but probably not the final one, is compute. So, I think I don't think anyone in marketing will be fired by the ordering that they did on that. I think that ultimately now, you know, for—just if we look at it from a monetary perspective, right, we do more security than we do CDN. So, there's a lot that we have in the security business. And you know, compute's got a long way to go, especially because it's not just one big data center of compute; it is a different flavor than I think folks have seen before.Corey: When I was at RSA, you folks were one of the exhibitors there. And I like to make the common observation that there are basically six companies that exhibit at RSA. Yeah, there are hundreds of booths, but it's the same six products, all marketed are different logos with different words. And they all seem to approach it from a few relatively expectable personas and positions. I've always found myself agreeing with the things that you folks say, and maybe it's because of my own network-centric background, but it doesn't seem like you take the same approach that a number of other companies do or it's, “Oh, it has to start with the way that developers write their first line of code.” Instead, it seems to take a holistic view that comes from the starting position of everything talks to each other on a network basis, and from here, let's move forward. Is that accurate to how you view the security space?Andy: Yeah, you know, our view of the security space is—again, it's a network-centric one, right? And our work in the security space initially came from really big DDoS attacks, right? And how do we stop Distributed Denial of Service attacks from impacting folks? And that was the initial benefit that we brought. And from there, we evolved our story around, you know, how do we have a more sophisticated WAF? How do we have predictive capabilities at the edge?So ultimately, we're not about ingraining into your process of how your thing was written or telling you how to write it. We're about, you know, essentially being that perimeter edge that is watching and monitoring everything that comes into you to make sure that, you know, hey, we're not seeing Log4j-type exploits coming at you, and we'll let you know if we do, or to block malicious activity. So, we fit on anything, which is why our security business has been so successful. If you have an application on the edge, you can put Akamai Security in front of it and it's going to make your application better. That's been super compelling for the last, you know, again, last decade or so that we've really been focused on security.Corey: I think that it is a mistake to take a security model that starts with a view of what people have in front of them day-to-day—like, I look at my laptop and say, “Oh, this is what I spend my time on. This is where all security must start and stop.” Because yeah, okay, great. If you get physical access to my laptop, it's pretty much game over on some level. But yeah, if you're at a point where you're going to bust into my house and threaten me in order to get access to my laptop, here you go.There are no secrets that I am in possession of that are worth dying for. It's just money and that's okay. But looking at it through a lens of the internet has gone from science experiment to thing that the nerds love to use to a cornerstone of the fabric of modern society. And that's not because of the magic supercomputer that we all have in our pockets, but rather because those magic supercomputers can talk to the sum total of human knowledge and any other human anywhere on the planet, basically, ever. And I don't know that that evolution has been really appreciated by society at large as far as just how empowering that can be. But it completely changes the entire security paradigm from back in the '80s when I got started, don't put untrusted floppy disks into your computer or it might literally explode on your desk.Andy: [laugh]. So, we're talking about floppy disks now? Yes. So, first of all, the scope of impact of the internet has increased, meaning what you can do with it has increased. And directly proportional to that increase the threat vectors have increased, right? And the more systems are connected, the more vulnerabilities there are.So listen, it's easy to scare anybody about security on the internet. It is a topic that is an infinite well of scariness. At the same time, you know, and not just Akamai, but there's a lot of companies out there that can, whether it's making your development more secure, making your pipeline, your digital supply chain a more secure, or then you know where Akamai is, we're at the end, which is you know, helping to wrap around your entire web presence to make it more secure, there's a variety of companies that are out there really making the internet work from a security perspective. And honestly, there's also been tremendous progress on the operating system front in the last several years, which previously was not as good—probably is way to characterize it—as it is today. So, and you know, at the end of the day, the nerds are still out there working, right?We are out here still working on making the internet, you know, scale better, making it more secure, making it more robust because we're probably not done, right? You know, phones are awesome, and tablet devices, et cetera, are awesome, but we've probably got more coming. We don't quite know what that is yet, but we want to have the capacity, safety, and compute to power it.Corey: How does Macrometa as a persistent data layer tie into your future vision of security first as what Akamai does? I can see a few directions, but I'm going to go out on a limb and guess that before you folks decided to make an investment in such a thing, you probably gave it more than the 30 seconds or whatnot or so a thought that I've had to wind up putting these pieces together.Andy: So, a few things there. First of all, Macrometa, ultimately, we see them coming in the front door with our compute solution, right? Because as folks are building capabilities on the edge, “Hey, I want to run compute on the edge. How do I interoperate with data?” The worst answer possible is, “Well, call back to the centralized data store.”So, we want to ensure that customers have choice and performance options for distributed data access. Macrometa fits great there. However, now pause that; let's transition back to the security point you raised, which is, you know, coordinating an edge data security platform is a really complicated thing. Because you want to make sure that threats that are coming in on one side of the network, or you know, in one given country, you know, are also understood throughout the network. And there's a definite role for a data platform in doing that.We obviously, you know, for the last ten years have built several that help accomplish that at scale for our network, but we also recognize that, you know, innovation in data platforms is probably not done. And you know, Macrometa's got some pretty interesting approaches. So, we're very interested in working with them and talking jointly with customers, which we've done a bunch of, to see how that progresses. But there's tie-ins, I would say, mostly on compute, but secondarily, there's a lot of interesting areas with real-time security intel, they can be very useful as well.Corey: Since I have you here, I would love to ask you something that's a little orthogonal to the rest of this conversation, but I don't even care about that because that's why it's my show; I can ask what I want.Andy: Oh, no.Corey: Talk to me a little bit about the Linode acquisition. Because when it first came out, I thought, “Oh, Linode must not be doing well, so it's an acqui-hire scenario.” Followed by, “Wait a minute, that doesn't seem quite right.” And I dug deeper, and suddenly, I started to see a bunch of things that made sense. But that's just my outside perspective. I prefer to see you justify what it is that you've done.Andy: Justify what we've done. Well, with that positive framing—Corey: Exactly. “Explain yourself. How dare you, sir?”Andy: [laugh]. “What are you doing?” So, to take that, which is first of all, Linode was doing great when we bought them and they're continuing to do great now. You know, backstory here is actually a fun one. So, I personally have been a customer of Linode for about 13 years, and you know, super familiar with their offerings, as we're a bunch of other folks at Akamai.And what ultimately attracted us to Linode was, first of all, from a strategic perspective, is we talked about how Akamai thinks about Compute being a gradient of compute: you've got the edge, you've got kind of a middle tier, and you've got more centralized locations. Akamai has the edge, we've got the middle, we didn't have the central. Linode has got the central. And obviously, you know, we're going to see some significant expansion of capacity and scale there, but they've got the central location. And, you know, ultimately, we feel that there's a lot of passion in Linode.You know, they're a Linux open-source-centric company, and believe it or not Akamai is, too. I mean, you know, that's kind of how it works. And there was a great connection between the sorts of folks that they had and how they think about customers. Linode was a really customer-driven company. I mean, they were fanatical.I mean, I as a, you know, customer of $30 a month personally, could open a ticket and I'd get an answer in five minutes. And that's very similar to kind of how Akamai is driven, which is we're very customer-centric, and when a customer has a problem or need something different, you know, we're on it. So, there's literally nothing bad there and it's a super exciting beginning of a new chapter for Akamai, which is really how do we tackle compute? We're super excited to have the Linode team. You know, they're still mostly down in Philadelphia doing their thing.And, you know, we've hired substantially and we're continuing to do so, so if you want to work there, drop a note over. And it's been fantastic. And it's one of our, you know, really large acquisitions that we've done, and I think we were really lucky to find a great company in such a good position and be able to make it work.Corey: From my perspective, one of the areas that has me excited about the acquisition stems from what I would consider to be something of a customer-base culture misalignment between the two companies. One of the things that I have always enjoyed about Linode—and in the interest of full transparency, they have been a periodic sponsor over the last five or six years of my ridiculous nonsense. I believe that they are not at the moment which I expect you to immediately rectify after this conversation, of course.Andy: I'll give you my credit card. Yeah.Corey: Excellent. Excellent. We do not get in the way of people trying to give you money. But it was great because that's exactly it. I could take a credit card in the middle of the night and spin up things on Linode.And it was one of those companies that aligned very closely to how I tended to view cloud infrastructure from the perspective of, I need a Linux box, or I need a bunch of Linux boxes right there, right now, and I don't have 12 weeks to go to cloud school to learn the intricacies of a given provider. It more or less just worked in a whole bunch of easy ways. Whereas if I wanted to roll out at Akamai, it was always I would pull up the website, and it's, “Click here to talk to our enterprise sales team.” And that tells me two things. One, it is probably going to be outside of my signing authority because no one trusts me with money for obvious reasons, when I was an employee, and two, you will not be going to space today because those conversations always take time.And it's going to be—if I'm in a hurry and trying to get something out the door, that is going to act as a significant drag on capability. Now, most of your customers do not launch things by the seat of their pants, three hours after the idea first occurs to them, but on Linode, that often seems to be the case. The idea of addressing developers early on in the ‘it's just an idea' phase. I can't shake the feeling that there's a definite future in which Linode winds up being able to speak much more effectively to enterprise, while Akamai also learns to speak to, honestly, half-awake shitposters at 2 a.m. when we're building something heinous.Andy: I feel like you've been sitting in on our strategy presentations. Maybe not the shitposters, but the rest of it. And I think the way that I would couch it, my corporate-speak of that, would be that there's a distinct yin and yang, there a complementary nature between the customer bases of Akamai, which has, you know, an incredible list of enterprise customers—I mean, the who's-who of enterprise customers, Akamai works with them—but then, you know, Linode, who has really tremendous representation of developers—that's what we'll use for the name posts—like, folks like myself included, right, who want to throw something together, want to spin up a VM, and then maybe tear it down and never do it again, or maybe set up 100 of them. And, to your point, the crossover opportunities there, which is, you know, Linode has done a really good job of having small customers that grow over time. And by having Akamai, you know, you can now grow, and never have to leave because we're going to be able to bring enough scale and throughput and, you know, professional help services as you need it to help you stay in the ecosystem.And similarly, Akamai has a tremendous—you know, the benefit of a tremendous set of enterprise customers who are out there, you know, frankly, looking to solve their compute challenges, saying, “Hey, I have a highly distributed application. Akamai, how can you help me with this?” Or, “Hey, I need presence in x or y.” And now we have, you know, with Linode, the right tools to support that. And yes, we can make all kinds of jokes about, you know, Akamai and Linode and different, you know, people and archetypes we appeal to, but ultimately, there's an alignment between Akamai and Linode on how we approach things, which is about Linux, open-source, it's about technical honesty and simplicity. So, great group of folks. And secondly, like, I think the customer crossover, you're right on it. And we're very excited for how that goes.Corey: I also want to call out that Macrometa seems to have split this difference perfectly. One of the first things I visit on any given company's page when I'm trying to understand them is the pricing page. It's one of those areas where people spend the least time, early on, but it's also where they tend to be the most honest. Maybe that's why. And I look for two things, and Macrometa has both of them.The first is a ‘try it for free, right now, get started.' It's a free-tier approach. Because even if you charge $10 or whatnot, there are many developers working on things in odd hours where they don't necessarily either have the ability to make that purchase decision, know that they have the ability to make that purchase decision, or are willing to do that by the seat of their pants. So, ‘get started for free' is important; it means you can develop right now. Conversely, there are a bunch of enterprise procurement departments out there who will want a whole bunch of custom things.Custom SLAs, custom support responses, custom everything, and they also don't know how to sign a check that doesn't have two commas in it. So, you don't probably want to avoid those customers, but what they're looking for is an enterprise offering that is no price. There should not be a price tag on that because you will never get it right for everyone, but what they want to see is ‘click here to contact sales.' That is coded language for, “We are serious professionals and know who you are and how you like to operate.” They've got both and I think that is absolutely the right decision.Andy: It do—Corey: And whatever you have in between those two is almost irrelevant.Andy: No, I think you're on it. And Macrometa, their pricing philosophy allows you to get in and try it with zero friction, which is super important. Like, I don't even have to use a credit card. I can experiment for free, I can try it for free, but then as I grow their pricing tier kind of scales along with that. And it's a—you know, that is the way that folks try applications.I always try to think about, hey, you know, if I'm on a team and we're tasked with putting together a proof of concept for something in two days, and I've got, you know, a couple folks working with me, how do I do that? And you don't have time for procurement, you might need to use the free thing to experiment. So, there is a lot that they can do. And you know, their pricing—this transparency of pricing that they have is fantastic. Now, Linode, also very transparent, we don't have a free tier, but you know, you can get in for very low friction and try that as well.Corey: Yeah, companies tend to go through a maturity curve evolution on these things. I've talked to companies that purely view it is how much money a given customer is spending determines how much attention they get. And it's like, “Yeah, maybe take a look through some of your smaller users or new signups there.” Yeah, they're spending $10 a month or whatnot, but their email address is@cocacola.com. Just spitballing here; maybe you might want a white-glove a few of those folks, just because not everyone comes in the door via an RFP.Andy: Yep. We look at customers for what your potential is, right? Like, you know, how much could you end up spending with us, right? You know, so if you're building your application on Linode, and you're going to spend $20, for the first couple months, that's totally fine. Get in there, experiment, and then you know, in the next several years, let's see where it goes. So, you're exactly right, which is, you know, that username@enterprisedomain.com is often much more indicative than what the actual bill is on a monthly basis.Corey: I always find it a little strange when I have a vendor that I'm doing business with, and then suddenly, an account person reaches out, like, hey, let's just have a call for half an hour to talk about what you're doing and how you're doing it. It's my immediate response to that these days, just of too many years doing that, as, “I really need to look at that bill. How much are we spending, again?” And I honestly, usually not that much because believe it or not, when you focus on cloud economics for a living, you pay attention to your credit card bills, but it is always interesting to see who reaches out and who doesn't. That's been a strange approach, and there is no one right answer for all of this.If every free tier account user of any given cloud provider wound up getting constant emails from their account managers, it's how desperate are you to grow revenue, and what are you about to do to pricing? At some level of becomes… unhelpful.Andy: I can see that. I've had, personally, situations where I'm a trial user of something, and all of a sudden I get emails—you know, using personal email addresses, no Akamai involvement—all of a sudden, I'm getting emails. And I'm like, “Really? Did I make the priority list for you to call me and leave me a voicemail, and then email me?” I don't know how that's possible.So, from a personal perspective, totally see that. You know, from an account development perspective, you know, kind of with the Akamai hat on, it's challenging, right? You know, folks are out there trying to figure out where business is going to come from. And I think if you're able to get an indicator that somebody, you know, maybe you're going to call that person at enterprisedomain.com to try to figure out, you know, hey, is this real and is this you with a side project or is this you with a proof of concept for something that could be more fruitful? And, you know, Corey, they're probably just calling you because you're you.Corey: One of the things that I was surprised by where I saw the exact same thing. I started getting a series of emails from my account manager for Google Workspaces. Okay, and then I really did a spit-take when I realized this was on my personal address. Okay… so I read this carefully because what the hell is happening? Oh, they're raising prices and it's a campaign. Great.Now, my one-user vanity domain is going to go from $6 a month to $8 a month or whatever. Cool, I don't care. This is not someone actively trying to reach out as a human being. It's an outreach campaign. Cool, fair. But that's the problem, on some level, for super-tiny customers. It's a, what is it, is it a shakedown? What are they about to yell at me for?Andy: No, I got the same thing. My Google Workspace personal account, which is, like, two people, right? Like, and I got an email and then I think, like, a voicemail. And I'm like, I read the email and I'm like—you know, it's going—again, it's like, it was like six something and now it's, like, eight something a month. So, it's like, “Okay. You're all right.”Corey: Just go—that's what you have a credit card for. Go ahead and charge it. It's fine. Now, yeah, counterpoint if you're a large company, and yeah, we're just going to be raising prices by 20% across the board for everyone, and you look at this and like, that's a phone number. Yeah, I kind of want some special outreach and conversations there. But it's odd.Andy: It's interesting. Yeah. They're great.Corey: Last question before we call this an episode. In 22 years, how have you seen the market change from your perspective? Most people do not work in the industry from one company's perspective for as long as you have. That gives you a somewhat privileged position to see, from a point of relative stability, what the industry has done.Andy: So—Corey: What have you noticed?Andy: —and I'm going to give you an answer, which is about, like, the sales cycle, which is it used to be about meetings and about everybody coming together and used to have to occasionally wear a suit. And there would be, you know, meetings where you would need to get a CEO or CFO to personally see a presentation and decide something and say, “Okay, we're going with X or Y. We're going to make a decision.” And today, those decisions are, pretty far and wide, made much, much further down in the organization. They're made by developers, team leads, project managers, program managers.So, the way people engage with customers today is so different. First of all, like, most meetings are still virtual. I mean, like, yeah, we have physical meetings and we get together for things, but like, so much more is done virtually, which is cool because we built the internet so we wouldn't have to go anywhere, so it's nice that we got that landed. It's unfortunate that we had to do with Covid to get there, but ultimately, I think that purchasing decisions and technology decisions are distributed so much more deeply into the organization than they were. It used to be a, like, C-level thing. We're now seeing that stuff happened much further down in the organization.We see that inside Akamai and we see it with our customers as well. It's been, honestly, refreshing because you tend to be able to engage with technical folks when you're talking about technical products. And you know, the business folks are still there and they're helping to guide the discussions and all that, but it's a much better time, I think, to be a technical person now than it probably was 20 years ago.Corey: I would say that being a technical person has gotten easier in a bunch of ways; it's gotten harder in a bunch of ways. I would say that it has transformed. I was very opposed to the idea that oh, as a sysadmin, why should I learn to write code? And in retrospect, it was because I wasn't sure I could do it and it felt like the rising tide was going to drown me. And in hindsight, yeah, it was the right direction for the industry to go in.But I'm also sensitive to folks who don't want to, midway through their career, pick up an entirely new skill set in order to remain relevant. I think that it is a lot easier to do some things. Back when Akamai started, it took an intimate knowledge of GCC compiler flags, in most cases, to host a website. Now, it is checking a box on a web page and you're done. Things have gotten easier.The abstractions continue to slip below the waterline, so the things we have to care about getting more and more meaningful to the business. We're nowhere near our final form yet, but I'm very excited about how accessible this industry is to folks that previously would not have been, while also disheartened by just how much there is to know. Otherwise, “Oh yeah, that entire aspect of the way that this core thing that runs my business, yeah, that's basically magic and we just hope the magic doesn't stop working, or we make a sacrifice to the proper God, which is usually a giant trillion-dollar company.” And the sacrifice is, of course, engineering time combined with money.Andy: You know, technology is all about abstraction layers, right? And I think—that's my view, right—and we've been spending the last several decades, not, ‘we' Akamai; ‘we' the technology industry—on, you know, coming up with some pretty solid abstraction layers. And you're right, like, the, you know, GCC j6—you know, -j6—you know, kind of compiler tags not that important anymore, we could go back in time and talk about inetd, the first serverless. But other than that, you know, as we get to the present day, I think what's really interesting is you can contribute technically without being a super coding nerd. There's all kinds of different technical approaches today and technical disciplines that aren't just about development.Development is super important, but you know, frankly, the sysadmin skill set is more valuable today if you look at what SREs have become and how important they are to the industry. I mean, you know, those are some of the most critical folks in the entire piping here. So, don't feel bad for starting out as a sysadmin. I think that's my closing comment back to you.Corey: I think that's probably a good place to leave it. I really want to thank you for being so generous with your time.Andy: Anytime.Corey: If people want to learn more about how you see the world, where can they find you?Andy: Yeah, I mean, I guess you could check me out on LinkedIn. Happy to shoot me something there and happy to catch up. I'm pretty much read-only on social, so I don't pontificate a lot on Twitter, but—Corey: Such a good decision.Andy: Feel free to shoot me something on LinkedIn if you want to get in touch or chat about Akamai.Corey: Excellent. And of course, our thanks goes well, to the fine folks at Macrometa who have promoted this episode. It is always appreciated when people wind up supporting this ridiculous nonsense that I do. My guest has been Andy Champagne SVP at the CTO office over at Akamai. I'm Cloud Economist Corey Quinn, and this is Screaming in the Cloud. If you've enjoyed this podcast, please leave a five-star review on your podcast platform of choice, whereas if you've hated this podcast, please leave a five-star review on your podcast platform of choice along with an insulting comment that will not post successfully because your podcast provider of choice wound up skimping out on a provider who did not care enough about a persistent global data layer.Corey: If your AWS bill keeps rising and your blood pressure is doing the same, then you need The Duckbill Group. We help companies fix their AWS bill by making it smaller and less horrifying. The Duckbill Group works for you, not AWS. We tailor recommendations to your business and we get to the point. Visit duckbillgroup.com to get started.Announcer: This has been a HumblePod production. Stay humble.

My guest today is Andy Polaine. Andy is a service designer, consultant, educator, author, and podcaster. He's co-author of the book Service Design: From Insight to Implementation and host of the Power of Ten podcast. In this conversation, we discuss service design, and how it helps organizations think more holistically about the experiences they enable. Listen to the full conversation   Show notes Andy Polaine Andy Polaine on Twitter Andy Polaine on LinkedIn Power of Ten podcast Service Design: From Insight to Implementation by Andy Polaine, Lavrans Lovlie, and Ben Reason Adobe Director (aka Macromedia Director, or Video Works) Antirom School of the Arts & Media, University of New South Wales Ben Reason Livework Lavrans Løvlie (in Norwegian) Chris Downs on LinkedIn Fjord Powers of Ten (film) by Charles and Ray Eames The Guide to Self-sufficiency by John Seymour Service blueprint Design for the Long Term by Andy Polaine UK Government Digital Service (GDS) This is HCD network Some show notes may include Amazon affiliate links. I get a small commission for purchases made through these links. Read the full transcript Jorge: So, Andy, welcome to the show. Andy: Thanks for having me. It's pleasure to be here. It's very nice to be the other side of the mic, as they say. Jorge: Well, it's a pleasure having you here. For folks who might not know you, how do you introduce yourself? Andy's background Andy: So, my name is Andy Polaine. I am a service designer, consultant, trainer, coach, writer, and podcaster. And so, it's never really very easy. I've got one of those kinds of “hyphen” professions where I just kind of add bits to it all the time. My background is… so I actually studied film and when I did my undergraduate, I wanted to be a film director. And, initially I wanted to do visual effects actually from a very early age. And then, got interested in film and filmmaking. And when I started my degree, which was photography, film, video, and digital media, that just came in – this was early nineties, like 1990 – as I knew there was this thing called multimedia where you could… with Macromedia, or it wasn't even that, it was called Video Works, I think it was before it even became Director. And I'd always noodled about with computers; I'd had a personal computer as a younger kid, played games a lot and stuff. So, it was always kind of fascinated with interactivity. And I had those kinds of dual tracks all the way through. There was a sort of bit of competition in my head between the world of filmmaking and this new thing. And I chose this new thing, “new media,” as it was at the time, because I was kind of interested in it as a form. What does it mean to be able to interact with stuff? What are the affordances of this new thing? And so that's where I started. So, I started kind of doing interaction design before it had that name. And sort of discovering some things about interactivity, with a group called Antirom. And then, I started teaching it quite a lot and I'd always done a lot of teaching, even when I was a student, I used to of teach my peers quite a lot. And that's always been a… The secret thing about teaching is you hoover up a lot of knowledge. I think you gain more knowledge from teaching than you do give out actually. And then I was heading the School of Media Arts at the University of New South Wales in Sydney. And we were having a kind of faculty restructure, and I'd started getting interested in the idea of organizational design. And in these meetings about the restructure, the faculty – mostly designers and artists, who were the faculty – were having a meeting where they read out pages of A4 to each other, and then had long conversations and I thought, well, this is a design process. Why aren't we up at the whiteboard, you know, designing this organization? And then when I went back to the UK to visit a friend of mine, Ben Reason, in his newly minted studio of Livework, he started talking about service design. And he said, we're doing this thing called service design and I met Lavrans and Chris Downs as well and suddenly there's, “oh right! There's a whole way of thinking about this stuff.” And sort of language. And so I started kind of making the shift into that and then co- wrote the book with them, and then started teaching it. And I actually, you know what? [It was] the other way around, I started teaching it and needed the book that I wanted to teach from. So, there wasn't one, so I wrote it with them, and that's sort of been my journey. Then I went to Fjord for a while where I was, again in a kind of teaching role, as well as design director role. And I've just recently – with brilliant timing, on the 1st of March – went independent again, as a design leadership coach and also training, clients and client teams. Powers of Ten Jorge: Your podcast is called Powers of Ten, and that's named after the very famous film by Charles and Ray Eames. Why Powers of Ten? What is it about “Powers of Ten” that is so powerful? Andy: There are, there are two books that – I realized that only recently – that had seemed to have had a massive influence on me when I was a kid. My dad is an artist and was a designer too. And he had a book version of Powers of Ten that's where I first saw it. I saw, you know, a book with the frames in it. And there was another book called the Guide To Self-Sufficiency by a guy called John Seymour. Now I can talk about later and it talks about the, kind of, how to be self-sufficient, grow your own stuff, but it talks about the four seasons of the garden. And the Powers of Ten thing, just stuck with me, cause this guy actually called Andreas Elba (?) who was a friend of mine, and we were having a conversation about how to explain service design to people. Because that ability to zoom in and out and zoom out from big picture to detail and back again, and understand how they affect each other is really, really important, right? And we've really seen it recently with the coronavirus stuff, but small things can make a massive difference, particularly when they sort of aggregate up. But at the same time, a shift in policy or something can ripple – or a shift in business model ripples across all the details. And so, I'm talking about it and I had this kind of model of these different layers. And I think Andreas said, “Oh, do you know that film ‘Powers of Ten'?” And I was like, “Oh yeah, yeah, no, I love that!” And then I started using that as the way of explaining it to people. And so the thing about “Powers of Ten” is this idea of… One, it's an exponential thing, which now everyone understands, thanks to the coronavirus. But this idea of… To those that don't know, it starts with a camera above a guy on a picnic blanket, one meter above him and then 10 meters and then a hundred meters, the powers of 10 each time. So, one of the things is how quickly you're out into the universe, right? How quickly that multiplies up. And then it goes back down into the subatomic level. But the other thing is this kind of rhythm that there is, where there are moments of density: there's lots of matter, there's lots of planets, or there's lots of whatever, and then space. And as you know, good chunks of it in both the subatomic level and the kind of universe level where there's just lots of space and then suddenly there's a lot of density again. And I just found it, that sort of fractal thing where these patterns kept repeating themselves, I found it really, really fascinating, and it really stuck with me as a kind of way of thinking. I don't know if it has anything to do with my kind of film background. Maybe there's a bit of it there. You know, and when you've got like a line and a scene and kind of an act and so forth, or, maybe. But I just find it a really useful way of thinking about everything. Consulting Jorge: I'm wondering, in consulting work – because I take it from what you've been describing that most of your career has been as a consultant, in advisory roles to organizations… Andy: A mix. So, I've had… I switch in and out of kind of academic life and consulting. And so, I've had periods where I've been doing likes of 10-15% consulting every so often and doing talks and stuff and mostly teaching. And then I've had periods of the other way around. Jorge: So, these subjects, I think, fit in very nicely with what I would expect to be an academic perspective on the work, right? Where it's more introspective and you're… you were talking about this notion of zooming up and down the levels. And in my experience, folks in the business world are more focused on the nearer term, perhaps more actionable or kind of like… I've even noticed a resistance to ideas that they might consider more philosophical. Andy: Yeah. Jorge: And I'm wondering, first of all, if that somehow corresponds with your experience, and if so, how do you deal with that? Andy: It does correspond to my experience. So, service design in particular… You know, fundamentally it deals with ecosystems and services are kind of multiple touch points, they're multiple kind of channels. If you can think in terms of ecosystems and actually try and pull the parts of those ecosystems together to understand that you're actually all involved in delivering the same thing. You know, there's I think a bit in the book where we say a service is designed in silos, or created in silos, or experienced in bits. And it has a reputation, service design does, of boiling the ocean. Right? So, it's… Laddering up is a great thing, but you can very quickly get into a point… And I see it with students a lot, where it's like, “I want to do something about sustainability. And that means we have to change the use of plastics. But in order to do that, we have to change this…” And then all of a sudden, they're like, “Oh, we have to change the entirety of capitalism,” which is absolutely true. We do. But it's very, very hard to tackle it at that level. And so, I think one of the things that, in that sort of consulting world is to work out, what's the level of influence of… First, there are two things. One is, what's the level that we're actually trying to achieve, change at, and having a conversation at? Because often I think clients will state will want – or stakeholders will want – to be making change to what's essentially a structural change to the business, but sort of hoping that they can do it through some sort of customer experience mapping or something. So getting that right, getting everyone understanding that this is the level that we're tackling at, or working at, is important. And then making sure when you're having those conversations, you don't get kind of out of whack, you don't get kind of misaligned. Because I've seen, you know, plenty of times people having a really long discussion or debate or argument about some detail and yet the bigger picture thing is actually in fact the thing we need to be talking about at that time. And vice versa, right? In my head, I've got those different kinds of zoom levels and I'm trying to kind of work out where people are at and where the project is at and try and bring everyone aligned on that or move them up and down as well, you know? Jorge: Yeah. And I'm guessing that also understanding what level of role you're dealing with in the organization itself might be important, no? Andy: Yeah. Yeah. And, and that's what, I guess what I meant by that kind of, someone who's jurisdiction is quite… it doesn't have to be smaller, like it could be they're the head of customer experience or something, but if they are then in competition for budget or whatever it is with the head of marketing and the CEO has another idea and whatever, they're all essentially part of the same ecosystem if they're fighting with each other. Or they feel like, “Well, that's not my kind of role and that's not my jurisdiction.” It makes it very, very hard for them to operate. So a lot of that job is facilitating the conversations between them. And I guess a lot of my frustration is… I've come away from the idea of kind of breaking down the silos. I think silos are actually… they're often for good reasons and you need some kind of containers, but sort of bridging them or making them a bit more porous, I think is really crucial. I think that you really need to make sure that you know how you fit into the other part of whatever else is going on. Jorge: One thing that I've experienced in consulting engagements is that sometimes these design projects serve as the excuse for people in those silos to work together collaboratively, perhaps for the first time. And they become more aware of the… more tangibly aware of their differing objectives, incentives, and communication styles, perhaps. And just that knowledge is a powerful catalyst to changing the conversation, somehow. Andy: Yeah. So one of the things… this is a service design thing, but it doesn't necessarily have to be this… but one of the things in service design is a service blueprint, where you're mapping out the front stage and backstage, all the sort of bits of the enterprise that actually deliver or support the delivery of that service or that experience. And I think it's often seen as… we're going to design this thing and then we're going to fix it, you know? And blueprints are actually a kind of terrible name. Because it's, it's not really a blueprint, what it is is a map really. And in that it's often its main value is actually, for the first time, different parts of the organization, see how well their stuff fits together, you know? And it's one of those things of, our tools, you know, shape our thinking. And if you sit in PowerPoint decks and Excel sheets the whole time, you don't ever really see the connectedness between all of those different things. And so, whether it's synchronously, everyone's in the room together, asynchronicity of people coming in and out, I think that's a really kind of useful tool for that. What is service design? Jorge: Some folks listening in might not be familiar with service design. Andy: Hmm. Jorge: What is the introductory spiel? What is the “101” to service design? Andy: There's a, there's a big debate about this. So, one of the ways of thinking about it is, it's the design of all the different touch points that go into delivering a service or a customer experience, plus the kind of backstage, behind the scenes things, and that's kind of IT. Could be man-in-a-van delivery, it could be all sorts of things that go into actually delivering that service and making sure that they are coherent across different channels. So when you move between say a website and an app or call center, you're speaking the same language, talking about the same things and so forth. And also, that there are kind of seamless transitions between steps, so as people move through the journey. And so, with that, that means someone can take a journey through your service ecosystem in whichever way they like and it's always coherent. And service design is basically about doing that the way I usually explain it to kind of, you know, my mother, is this idea of… if you've ever had an experience with an organization, often with government, but often with things like telcos and insurance companies and so forth, where if you've got a problem and it feels like every time you phone up or have some kind of contact or, you know, use a touch point, it feels like you're dealing with five or six different companies instead of one. Our job is to make it feel like it's a seamless experience. Jorge: One thing that is coming to mind, hearing you describe that, is that it sounds comprehensive in nature and holistic, right? Andy: Yeah. Jorge: In that it's looking to embrace as much of the experience as possible for someone who is trying to accomplish something by interacting with either a system or organization. And that strikes me as a direction that might be in tension with another direction, which has to do with specializing more or wanting to compartmentalize design. And I'm thinking now of like professional self-identities, right? Like some people think of themselves as visual designers or, I don't know, industrial designers or, you know, in… Andy: UXers or whatever. Jorge: Right. And what strikes me here is that in all of those cases, the object of design is some kind of tangible artifact. Some are more tangible than others, but something that you can examine and point to and say, “I designed that.” Andy: Yes. Jorge: What is the object that's service design designs? I don't even know if that's a fair question. Andy: No, it's not really. I mean, it's, like I said, you're designing what you're doing is taking a zoom level up actually, or a couple of zoom levels up and trying to design, make sure that all those objects or those touch points – that can be people, incidentally, or systems – are working in cohort, that you can interact with each one and understand what's going on. That there's a kind of seamless sense to them. They feel like they're a whole. So, in some respects, what you're designing is a kind of ecosystem. But there's another bit to that also, which is the business model, right? So, you know, most service design teams have a business designer amongst them. Because they're the two halves of the same coin. If you're trying to design a service… and let's take an example where you say, “Well, we're going to change the business model from freemium to subscription.” Then the way the whole… all the touch points around that and the way you talk about that have to change, right? You know, to communicate it right. And often you'll see that a business model and the design of the different touch points in the service are slightly at odds to each other. The most… well, one of the ones I know of is a telco's name I won't mention. The call center, when you phoned the call center with a problem, they would tell you to go into the store in order to get some help. But the same company had created an app, a sort of self-help app, in order to try and get people not to go into the store. So, see you have two touch points that are kind of working against each other, with different messages, coming from the same company. Jorge: Yeah. And you talked about coherence earlier, right? Like there's this misalignment there that stepping up a level and looking at the entire – or as much of the picture as you can – exposes those points of incoherence. Andy: Yeah, and it breaks trust, right? You know, humans anthropomorphize everything, right? We give our cars names; we shout at our computers. We do it with our pets and everything else. And I'm pretty sure we're just basically hardwired to see the world narcissistically as kind of everything in the world is like another human being, right? And I think we also relate to companies like that too. And so we have these you know, things in this relationship, you go, “Oh, I thought we had this relationship and it turns out we have a different relationship,” and there's a little kind of ding in the trust there. And, and so that, that kind of happens all the time. If you imagine someone who you kind of know quite well, who you're spending a lot of time with – which is often the case with some services – and all of a sudden, they do something really out of character, you start to kind of wonder, “well, what's going on there?” And so that's, I think, what's going on when you get that destruction of trust, when those things aren't designed as a kind of coherent whole. Jorge: It feels to me that service design is kind of systemic design; it's design of the system. And perhaps calling it systemic design might lead people to assume that it really is about technology or something when it's meant that, “system” meaning in the broader sense, no? Andy: Yeah. And you know, I've been really interested in systems thinking in the last few years. I think I've always have been, but in the last couple of years, I've read more up on it and stuff. And you know, I think there's a lot of overlap there. And one of the reasons why I think there's a lot of overlap between that and say, circular economy and sustainability, is a lot of the way of thinking is around kind of ecosystems and human behavior and understanding how small changes can add up to a kind of big difference. And, do you need to kind of map out those big things, but also you also need to deal with the absolute details of how easy it is to find a recycling bin and stuff like that. All those things that are just the barriers to people changing their behavior don't have to be very high for them to not do anything at all. Projects and governance  Jorge: When thinking about design engagements, I often think of them as projects to be undertaken, especially as an independent consultant. Andy: Right. Jorge: You get called in because the organization has some kind of need, and you get brought in to help them design a solution that addresses that need, right? And one of the systemic aspects to any kind of situation that an organization might find itself in is that whatever caused it and whatever intervention you're designing is not something that is going to be fixed into a particular time. There are going to be ongoing changes happening, right? And I'm curious about the relationship between service design interventions and ongoing governance of the systems that are set up. Andy: Yeah. This is the kind of bane of agencies' lives actually. So, it's design agencies, I think because, you're absolutely right. I mean, there's lots of different parts to this. One is just a purely kind of… we talked about it before, is a sort of jurisdiction level of who is your stakeholder? Who is basically hiring you as an agency or as a consultant? And, what's likely to be their kind of budget, right? And they have a kind of certain amount of budget, and it seems to sort of pan out to be where you've got enough money for kind of three or maybe six months of work, which often means that you kind of get the discovery and the kind of ecosystem mapping and the concept of this sort of beginning of the kind of concepts done. And then basically the budget's used up of, what's probably at least a kind of two- or three-year process really. And so service design is slightly got a bad rep in that sense of being, you know, or you guys just come up with a load of kind of journey maps and blueprints and concepts, but never execute on them. And the reason why our book was actually called From Insight to Implementation is because you really need to be able to follow those things through and keep referring back. So, that is a real problem, actually. And the other bit is that jurisdictional thing, which is that person has started a process, which in fact affects the whole company or it needs to involve the whole company in order to maintain it and deliver it and so forth. And there does need to be governance there. And that governance is often set up sort of internally focused around well, you're in charge of IT, you're in charge of marketing and so forth, rather than thinking about the, how does this relate to the service and the delivery of the service? And so, who needs to be in the room, basically, having conversations about how this gets modified or changed and so on and so forth. And that is a real problem. I think there's a real problem with this idea of when again, you know, it comes back to, say, in a funding model, in an organization, the difference between funding a team versus funding a project. Projects, I think, are a natural way of people to think about things. And I'm guessing it probably comes from school. It's actually often a terrible way to think about services. I much prefer gardening and we talked about the such, I think, over email. That's why I gave this talk. I talked about that gardening book, right? And that there is no sense where you, you say, “we're done. We've shipped the garden!” Right? It's not, it's never finished. It's always changing you plant something. And some, it really does well. And then all of a sudden it does too well, because it's casting shade over all the other stuff. And then something else is withering in the corner and you either just chop it out and throw it in the compost deep or you move it somewhere else. And so, it's kind of ever going, changing thing. If you think of government services, like, I don't know, applying for a passport, or going to jail, or visiting people in jail – that's not a thing that's ever done; it's just always changing. Jorge: The idea of gardening brings up the element of time into the project, right? Andy: Yes. Jorge: And this notion that the intervention you're making now is going to have effects down the line. And in some ways, what I'm hearing you say is that ultimately the object of design might be the thing that makes the design as opposed to the intervention itself. Andy: It makes the design in what sense? Jorge: So, when you talk about funding teams versus funding a project, in some ways the project serves as a reason for a team to coalesce. But ultimately the thing that you want to do is ensure that the team is in place and that they have the resources necessary for whatever goal the thing is setting out to accomplish; to be an ongoing concern as time passes. Andy: I do think that as a… you know, if you're coming in it from a sort of consultancy/agency kind of angle to an existing organization… or an organization that isn't a design organization, like a bank or an insurance company or whatever, you only really can be successful if that company can take on some of the skills and work and become – you know, quite often, a lot of them do have internal service design or design teams internally. I don't think it's realistic for them to constantly rely on externals. I think those external consultants can bring knowledge from other spheres, which is really useful, and experience from other spheres, and see patterns where, if you've been stuck in the same organization for a long time, your field of vision narrows, and also can do some of the heavy lifting sometimes. But ultimately, and particularly for public services – it's why the GDS in the UK have been so successful, because they've really got a fantastic group of designers working on that stuff all the time and have become much more integrated into the sort of ongoing process. I don't know if I answered your question there, though. Jorge: Yeah. No, you touched on something that I was wondering as well, which is the relationship between internal design teams and people who come in from the outside. To bring it back to the Eames image… the very nature of the engagement, if you're external to the organization, you are by definition, less close to the situation, less close to the problem at hand, so to speak. And as you were pointing out, you have this broader perspective informed by projects, perhaps in a variety of different industries, even. Andy: Yeah, yeah. Jorge: So, you bring that perspective to bear on these projects and you have to work with people who are internal to the organization and, and much closer to the situation at hand. So, in some ways you have to develop this ability to very quickly move up and down those zoom levels, right? So, that's one thing that comes to mind. The other is that there are upsides to doing this kind of work that transcend the immediate project at hand, right? You might be hired to help solve for something that isn't working well or ease transitions between steps or what have you. And you might deliver on that, and that might be part of the value that you're bringing to the client, but you're also demonstrating a different way of working, right? Like one that does take in the bigger picture, perhaps.  Andy: Yeah. I think this is both a sort of beneficial thing that you bring in and is a cause of frustration too. You know we sort of talked about it a bit before, that zooming in and out lens is really useful in the sense that you're showing how… because particularly a department or a team inside a larger organization can get a little bit sort of stuck in their own bubble or their own kind of confinement, and they often get sort of learned helplessness, this, “and we would, we'd love to work that way, but we can't. Cause that's just the way things are done around here.” So sometimes that's true in which case, well then, your design problem isn't really the thing that you're trying to tackle, your design problem is the thing that's constraining around you in the organization. And you know, if you get the chance, then we have to deal with that in order to kind of make you be successful. That can be liberating because you're able to make that connection, you can create some change inside an organization. Or it can be deeply frustrating, because the answer to that is, “well, that's all very well, but we just have to fix this thing. You know, we just have to kind of deliver this thing for whoever by this impossible deadline and we don't have any chance to affect that other stuff.” And so, you are just kind of selling them a kind of a pipe dream. You know, a lot of the kind of training or coaching I've done is interestingly less around, “we're really struggling with this design problem. Can you help us?” Than it is around facing the other way, “we are struggling as a department inside our organization to kind of gain traction, to gain buy in, to… we can see that there's this thing, and we can see this connectedness, but we can't seem to kind of convince anyone else of it.” And then, you know, and so that's actually a lot of the work I do is kind of non… it's not really focused on the design object, actually. It is focused on the server ecosystem around those designers. Jorge: Again, hearkening back to “Powers of Ten,” right? Making the invisible, visible by zooming up and down the levels. Andy: Yeah, it is. And, and like I said, that can be, you know, it can be liberating and frustrating for people. And, you know, can also be a bit annoying if you're kind of… so, one of the things is when you come in as an external, it's just like any other kind of therapy or something it's much, much easier to see someone else's relationship problems from the outside than it is to see your own and your own patterns and stuff. And so, you know, the advantage of bringing someone in externally is they've got that kind of view. They can also probably say things that internal stakeholders can't say. So that's, that's kind of one of the roles I often play. But that said, it can very easily sort of come across as, you know, I can see this whole kind of picture and you guys can't. Or even if I paint it for you, then they're just going to feel frustrated that you're not just focusing on the task at hand. Closing Jorge: Well Andy, I feel like we have so much to talk about and we could keep going. I feel like I have like four or five different things that I want to ask you about, but we have to wind it down. Where can folks follow up with you? Andy: So, I have a website it's polaine.com, P O L A I N E, like my name. I'm on Twitter as @apolaine, you'll find me on LinkedIn. Those are sort of main three places and I don't really hang out on many other social media places anymore. I sort of cut down on it. Jorge: And the name of podcast is Powers of Ten, right? Andy: It's Power of Ten actually. Yeah, so I gave this talk about “design to the power of ten,” and so that was where it came from. And I didn't want to kind of too heavily steal the Eames's title. So, yeah, it's called Power of Ten it's on the, This is HCD network. Jorge: Well, fantastic. I will include links to all of those in the show notes. It's been a pleasure having you on the show Andy. Andy: Thanks very much for having me.

Property managers may not know about or haven’t tried maintenance coordination. But they are quickly discovering its value in making their jobs easier, manageable, and understandable.  Today, I am talking to Andy Shinn of EZ Repair Hotline about implementing an Entrepreneurial Operating System (EOS), Traction, and process improvement.  You’ll Learn... [02:40] Maintenance Coordination: Define world-class process to run for property managers to address issues and inconsistency with performance. [03:49] Growing and gaining Traction to create a structured operating model and take business to the next level.  [04:32] Systems that every business needs: Operating, planning, support, and phone. [06:00] EOS predicts and creates future through annual planning for quarterly goals broken down into monthly and weekly commitments.  [08:38] Constraints around Crazy: Don’t get distracted; you can’t do everything; force yourself to limit your focus to inspire, not control your team. [13:18] Fundamental Flaws:Take things that work well for you with Traction and EOS; leave out the other stuff.  [16:28] Accountability Chart: Visionary, integrator, leader, doer, and other roles and responsibilities depend on strengths and weaknesses. Overlap occurs until roles are filled by others. [22:43] EZ Repair Hotline establishes values: What are we doing now? What are we aspiring toward?  [25:28] Do they share my values? If the answer is “no,” they have to go. They’re team members hurting your business, momentum, and results. [26:18] Two Different Businesses: Do you want a business that you can have vs. a business that you want and love?  [30:08] Change people's mindset to move beyond minimum standards by motivating those who want to step up and make things happen.  [37:42] Process Piece: One of the six components of Traction by documenting processes to improve them and help others reach goals. [40:03] Planning System Solves Internal Problems: One of three things must be missing—accountability, transparency, or clarity on outcomes. [43:19] Property Managers: A structure helps you avoid working 80 hours a week; figure out how to handle work without having to be available all the time. Tweetables Every business needs an operating system. EOS: What are you going to do with your business in the next 90 days? EOS makes things doable, not overwhelming when growing a business. When businesses predict and create the future through planning, that’s magic! Resources EZ Repair Hotline DGS 15: EZ Repair Hotline with Andy Shinn Traction by Gino Wickman Wake Up Warrior 90 Day Year Rockefeller Habits EMyth Clockwork Checklist Manifesto Profit First DiSC DoorGrowClub Facebook Group DoorGrowLive DoorGrow on YouTube DoorGrow Website Score Quiz Transcript Jason: All right, and we are live. Welcome, DoorGrow hackers to the DoorGrow Show. If you are a property management entrepreneur that wants to add doors, make a difference, increase revenue, help others, impact lives, and you are interested in growing your business and life, and you are open to doing things a bit differently, then you are a DoorGrow hacker. DoorGrow hackers love the opportunities, daily variety, unique challenges, and freedom that property management brings. Many in real estate think you’re crazy for doing it, you think they’re crazy for not, because you realize that property management is the ultimate high-trust gateway to real estate deals, relationships, and residual income. At DoorGrow, we are on a mission to transform property management businesses and their owners. We want to transform the industry, eliminate the BS, build awareness, change perception, expand the market, and help the best property management entrepreneurs win. I’m your host, property management growth expert, Jason Hull, the founder and CEO of DoorGrow. Now, let’s get into the show. Today’s guest, I am hanging out with Andy. Andy, welcome to the show. This is Andy Shinn of EZ Repair Hotline. Andy, you’ve been on the show before. Welcome back. Andy: Great. Thanks for having me back. It’s good to be here. Jason: [...] and you’ve made a lot of changes since then and grown. I would imagine quite a bit. I’ve seen you at several conferences that we’ve both been vendors at. Tell us what’s been going on with EZ Repair Hotline. Andy: Last time we talked we were pretty much brand new. We were maybe a couple years in, but we really hadn’t had much momentum, and we were just getting started in the industry. We’ve grown a lot over the last couple of years. We’ve learned a lot in terms of process. I hope to talk to you about some of that today and some of what we’re doing. It’s been an exciting couple of years. I think this is an industry, maintenance coordination, that’s just taking off in the property management space. A lot of property managers don’t even maybe know this is available or some haven’t tried it yet. It’s definitely a wide open industry and we’re excited to work with a lot of property management companies who I think are seeing value with what we do. Jason: Great. Well, let’s get into it. Where should we start? Today’s topic is implementing EOS, Traction, and process improvement at EZ Repair Hotline. Let’s get into it. Where do we start? Andy: I guess, maybe just a little bit of history. Over the last year, we have really been working on defining a process and what our product needs to look like. Before that year, we were very customizable. As a property manager, you come in and you’d inform the process as much as we did and I think that was causing us issues, inconsistency in performance. About a year ago, we said, “We got to define a process that’s best in class, that’s world-class, that we can run for the property manager. They’re not just buying us like a virtual assistant, they’re buying our whole process. They’re getting that whole package of what we do.” That was really important for us over the last year and we’ve made some strides in that direction. Not exactly to the end of where we want to be, but we’re moving in that direction. Anyway, about January or so, I’d heard about Traction probably on the DoorGrow site. A lot of property managers are implementing Traction. I decided to read it but I did an audio book which I do sometimes. I read about a business book a week. Usually, I read them but for whatever reason I did this on audio. It just didn’t catch with me, so I just went on and I kept doing my thing but then I was hearing more and more about Traction. I decided to go to Barnes & Noble and pick up the physical book and see if that made a difference, and it did. It’s a kind of book you need to sit down, open up with a notepad, and really use it almost like a workbook. I knew a few chapters into it that it was going to be that was going to be really exciting for EZ Repair because it creates a really structured operating model which is what we needed. There’s a lot of different books that’ll help you do that but I think Traction for a small–medium-sized business is the perfect way to do it. Certainly is the perfect fit for us. We’re only a couple months into that Traction piece, coming off, like I said, where we started a year ago, but Traction’s taking us to that next level. It’s really exciting. Jason: Cool. I believe every business needs an operating system. There’s different systems that every business needs. Initially, the entrepreneur is every system when you’re first starting out, but there needs to be a planning system which is what we’re talking about. There needs to be a support system for most business. If you have customers that needs to be supported, there needs to be a support system in place. There needs to be a phone system for most business so there’s phone communication. I think there’s five or six, maybe seven different systems that every business needs and one of the key systems is a planning system. In most business planning systems I’ve studied, the Traction and EOS stuff, scaling up—I’ve worked with Allen Scharfen who’s a brilliant operations mind—there’s a lot of different planning systems out there. One common thread that seems to be through all of them is annual planning, having quarterly goals, being broken down into quarterly and then having goals broken down into 30 days, and then maybe even something broken down into weekly commitments that the team are working on. We don’t use EOS. In our business, I use a different system but it’s similar to what you might find in other systems, which I think all good business planning systems incorporate at least those basic elements. Andy: It does and you mentioned taking the goals, like the quarterly goals. What EOS really tries to do is take your business into 90-day chunks. You’re really running a 90-day cycle of, “What am I going to do with the business in the next 90 days?” You’re setting longer term goals like, “Here’s what’s out here that I need to be able to hit. Here’s my stretch goal, my 5- or 10-year goal of what this company’s really going to be like.” Then, what it does is it takes it down to just 90-day blocks where you’re setting targets that the enterprise owns but then individuals on the leadership team own. Here’s what I own for the next 90-days, what they call rocks. At the end of that 90 days, you’ve taken your business that next step and now, you plan out your next 90 days. It really helps businesses put things in a very doable context because it can get overwhelming, as an entrepreneur, when you’ve got a lot of stuff going on, especially in a growing business—this industry is really growing—and to be able to say, “Here’s what’s going to happen in the next 90 days. Here’s what we have to do in the next 90 days. Here’s the goal for the next 90 days.” That’s a very easy way to take the business forward, rather than thinking, “Where are we going to be three years from now,” and trying to plan off of that. That’s fully difficult. EOS for our business has been fantastic and in just about 90 days in, in taking the business into those 90-day chunks. I have a feeling, for property managers, they’d see the same kind of value. When I was a property manager, I would have seen a lot of value in this. Like you mentioned, there’s other systems, too, but being able to select a system like this is really important for companies to be successful. Jason: I think most businesses have no planning system. They’re just winging it. The entrepreneur’s winging it. When you do implement a really sub-planning system, then what happens is you become able to predict the future. You’re creating the future in the present and eventually, it’s happening and that’s magic. That’s magic for businesses to be able to predict and create the future. Most entrepreneurs come up with these big goals, big dreams, and these endless to-do lists. If you look back at all those things—we’ve all been there as entrepreneurs—very few of them ever end up coming to fruition, very few end up getting done. We always bite off more than we can chew. We overestimate our ability to get things done. We get distracted because we take on too many different goals and too many different things. What I’ve noticed in having a planning system in the business is it forces me to limit the things I focus on. I’ve been doing this for several years, not just 90 days. I’ve been doing this for years and it forces me to limit the pressure that I put on my team as well because a lot of time, as entrepreneurs, we get really pumped up and excited, right? We go to an event, conference, something. We come back to our team and we’re like, “We’re going to do all this stuff. I just got all these great ideas.” And then we get super excited, we throw out some big goal where we heard some coach or somebody say, “Write a number down that you want to make. Add a zero to it. Add another zero. Go big.” You hear these old phrases like, “It’s better to aim for the stars and miss than a pile of manure and hit.” Entrepreneurs love that. They’re like, “Yes, the stars.” We get so pumped up and excited, then we walked out of the room and we think, “Man, my team must be pumped up.” What they see is a grenade sitting in the middle of the floor with the pin pulled. That’s their perception. They’re like, “What are we going to do with this? How are we going to that? My life’s already hard. Doesn’t he know how hard I’m already working?” They look at us like we’re kind of crazy. I think the biggest thing I’ve noticed with planning is that it allows us to get buy in from our team because ultimately, I can’t do it all on my own. I just don’t have that capacity. You don’t as well. You cannot do everything in your business. You cannot answer every phone call at EZ Repair Hotline personally. We really rely on our team and if we don’t get their buy-in, if there isn’t adoption into any system, or into any goal, or any outcome that we have, then we end up trying to control people. Controlling as an entrepreneur is not a very comfortable place for us to be, to be controlling our team instead of inspiring them. Andy: That’s a great point, though, because entrepreneurs have different personalities. It is a different mindset. Most people, they want more structure. You and I are probably really comfortable just working without structure and getting things done. Jason: I can totally live in chaos. I can totally do it because to me, it’s giving me new ideas, I have to adapt, I’m exploring. That’s fun and exciting for me. I’ve had team members quit because of that, because it makes them feel really uncomfortable and unsafe because most people [...] crazy, you have to be smart, maybe a C on the DISC profile. They want stability, they want things to be okay, they want a job where everything stays similar each day. I would probably get really bored in a situation like that. It wraps some constraints around my crazy. An upside of constraints is that it forces innovation. It allows my team also to innovate because they have an outcome. I don’t care how they get there, as long as they live within our value system, but I don’t care what specific actions they take to do it or to get there and they can create, innovate, and come up with ideas that I never would have thought of. Andy: That’s exactly right. You’re training structure for your team so they know what to do, what to expect, and what the goals are. Goals that they can imagine because I can imagine a five-year goal but my typical employee is not imagining a five-year goal. They want to know, “What are we doing this year? What are we doing the next three months?” It gives them something very tangible to hold on to. “What do we need to accomplish in these next three months?” At the same time, the whole operating system relies on employees and leadership at all levels to be able to bring ideas to the table, bring process improvements to the table, and to do things to try and achieve those goals. How are we going to get there? Well, we’re not going to get there by just running the show. We’re going to get there because we’ve set these 90-day targets, what specific activities do we need to do or what do we need to change to get to these targets? It creates structure but at the same time, almost counterintuitively, it does create that innovation from employees thinking about, “How do we hit these targets?” I think it’s very effective. I think the cool thing, too, about Traction that I like, it creates what they call a visionary role. That allows for somebody like me to still have a place in the operating model. I’m not just trying to fit into this operating model and be more structured. It allows a place for the entrepreneur to be that visionary, to be that person who’s got the ideas, and maybe he’s got the crazy goals but it tells you, “Here’s how you operate within that model as that person.” That’s been a personal help for me as well. Jason: I’ve been really outspoken online. I don’t know if you’ve seen some of my posts but I’ve been really outspoken online somewhat against Traction and EOS. I do see the value and important pieces of it but I also think there’s a couple of fundamental flaws. Everybody I’ve talked to that does EOS, they don’t do everything. I think that’s the benefit of taking a system is you can take the things that really work well for you and leave out the other stuff. Ultimately, if we’re really honest, EOS was built as a system to create a really nice business for the people that created EOS. You have to go hire integrators from them, you need the integrator, and the integrator is the magical, golden key to the whole puzzle. They take on this glorified role that replaces a COO or operations manager. They take on the executive assistant role which is a critical role for an entrepreneur. They squeeze all of that as this layer in between in their accountability chart, which is an org chart, between the visionary, which is the entrepreneur, and the entire team. Which in reality would be probably the most dangerous thing to ever do with your company, ever, to give somebody that much power and control because they don’t even need you anymore. They can just chop that top piece off and the whole org chart works fine without you. What that means, they can charge whatever they freaking want. They’ll come back to you after a year, after they know and run everything in the business, and everybody’s loyal to them and say, “I want $500,000 a year. I want a percentage of the company.” What are you going to do? Replace them? I think, ultimately, the best way to foundationally build every business is around the entrepreneur because we’re not all the quintessential or perfect visionary. I’ve noticed in property management, there’s different roles. I’ve noticed there are some property management business owners, some entrepreneurs are more accountants. They’re more accounting-minded, they’re more on the financial side, they’re more doing things by the book. You got some that are more relationship-oriented. They’re more about people, relationships, they love. Some are more sales-oriented. Some may be should keep and retain some of the property manager type of role. Some may be should be the sales or BDM person in the business. That might be the last thing they give up. Some may be the operations person and doing systems and coordinating things. Ultimately, the great thing about having a business is instead of building it to somebody else’s system, we can build it around ourselves and make ourselves feel like Ironman with our supersuit. We can have the business that makes us feel amazing, supported, and fulfilled that we love doing everyday. Ultimately, that’s the one fundamental, foundational piece that I would change in that system to build around it. I think everything would extend out from that. Andy: That makes total sense. I’ll tell you how we’re doing for the accountability chart. Jason: Yeah, I wonder how you’re using it. Andy: First of all, we’re self-implementing so there’s nobody else in the picture but it’s working out well for us. Maybe this is probably just advantageous to us. It just so happens to be that I’m in this business with Michael, my stepson. He is the perfect integrator. He’s the perfect operations. Jason: He’s an operations guy. Andy: Exactly, that’s what he does. I’ve done those things but I’m not as good at that as he is. I’m more of the visionary. We’ve taken ourselves and each of us has taken that role. So, I’m the visionary, he’s the integrator. There’s still a lot of overlap so it’s maybe not as clean as what it would look like at the end of that accountability chart. It’s not like there’s one person reporting to the visionary. That’s the only contact the visionary has as you might look at it visually. Jason: This isn’t as it perfectly claims. Andy: No, exactly. We’re growing and in our current size, I’m actually filling a couple of the boxes that would be on the next level down like some of the financial and the CFO type roles. I’m filling that as well. I’m filling a couple of the boxes. That’s how we’re using the accountability charts, to make sure that somebody’s in each of those boxes. Even if that’s Michael or me overlapping. As part of the process, we also added a couple of folks to our leadership team. We had one operations lead. We brought that up to three to give them very specific responsibilities within the organization. When you look at our accountability chart, you will see that visionary and integrator but it’s not quite what you described. It’s a lot different. Then next level down, we’ve got our operations leads and then you’ve got me on a couple of the boxes at that next level down, filling those roles until we’re large enough to fill those roles with other folks. That’s how we’re using that chart. I think the risk that you brought out are very real but I think for us, and maybe it is a little unique with me and Michael being in a partnership in the business, those roles actually worked out really well for us. Jason: Yeah. I think every visionary entrepreneur does need an operationally-minded person. They’re just the yin to the yang. They’re the opposite that we need to wrap some constraints and some managerial prowess towards what we as visionaries would not be good at. We need that person and that role in the business, so it makes a lot of sense. I think ultimately, another key takeaway for the listeners is that it is important to have an org chart. There’s a lot of people saying, “Do away with org charts,” or they’re saying that no org chart that has to exist and you need to build towards it. I don’t believe there’s an ideal org chart or an ideal situation but I do believe that it is important to have clear levels of responsibility to understand who reports to who. You can’t serve two masters. You can’t have somebody reporting to two people, everybody will be confused as to who their supervisor is and who they report to, and have a company that runs well. It just doesn’t tend to happen in reality. Even if you don’t create it, it starts to exist organically. People have people they trust as an authority, people that they go to, and to make it actually clear and say, “This is how it is,” makes everyone feel more at ease, makes it a lot more comfortable, and then attaching to that, their roles. What is their job description? I think that’s where it gets really specific is everytime we add a new team member, our role changes if they are doing anything that impacts us in any way. Most of our initial hires impact us directly. Any executive team members, any assistants, they’re taking something off our plate. Our job description changes, so we need to update that. Their job description changes everytime we bring on somebody else that works with them on that team. Businesses are a fluid thing. Everytime you hire somebody, and if you’re growing and scaling, these are always happening. That top level team is going to be in flux, initially, until that’s somewhat stable. Then the lower levels are going to have that flux and that change, all those variations, and their job descriptions need to be updated and tight. Over time, what I’ve noticed also is every single team member, as the company grows in scales, starts to do less, not more if it’s being done well. Because as the company scales and grows, my job description gets narrower. Like my head of fulfillment, his job description gets narrower. He used to be doing all the content, content gathering, client communication, and everything. His job gets narrower and narrower as we slice pieces off and give them to new people so that he has leverage. That’s how that pyramid grows and scales, is everyone slicing pieces off and doing less and less, but they get better at it and they’re able to focus more on what they really enjoy if you’re doing it right. Then, they’re even better at it and more excited. Over time, they get better and improve. A lot of people think you just pop somebody into a role if you got the processes documented. But I think there’s something to be said about long-term employees and keeping people as long as you possibly can. I don’t think you can beat that in a business. Andy: Absolutely. I’ll tell you though, as you’re growing, what you just said is exactly why you want to have an operating system in place as you’re growing. It’s because you do have those changing roles. If you don’t have that built, you said something like it’s going to happen anyway, it is. It’s going to happen by itself but it’s not going to happen the way you want it to and that’s true. If the processes is through the job roles, is through the culture in your organization, all of that stuff is happening. The only question is, are you directing it? We’ve really been trying to direct it over the years and finally, with Traction, we’ve found a way that we’ve said, “This really organizes what we’re trying to do and it’s been very helpful.” I’ll talk a little bit about our values, if I can, which is one piece of Traction that we had a head start on. We were already working on our values. We had set up an initial set of values a few years ago when we started the company. They were just me and Michael, put them together. They were just about having fun in the workplace. That sort of thing. I’d say they were lightweight values. They didn’t have a lot of meaning behind them and since we just put them together. The employees that had come on since didn’t have any stake in them, so to speak. Last year, last December, we brought in a team of three employees and we had them work as a committee to put together our values as an organization. We wanted them to focus on two things: (1) What are we doing now? Because we felt like we had a pretty healthy culture, and (2) What are we aspiring towards? What are we aspiring our culture to look like? Those three went out and talked to all of our existing employees. Over the course of several months, ended up putting together our values which fit in perfectly, timing-wise, with Traction because we had that in place at the same time we’re implementing Traction. That’s so important for any company to do. Even if you're a small company, put together those values because now we’re able to look at how we deal with customers, how we interact with employees, how we do our job, how we set up processes. We can look at all of those and the context of our values. Is this consistent with what we’re trying to be as an organization, with the culture we’re trying to put together? So, that’s been really helpful. That’s a part of Traction we were sure to working on. You can do it without doing Traction, but it’s a big part of what Traction brings to the table as well. So, very important. Jason: Touching on values, I think it’s important to have values in the business because without those, you can’t even have team members that believe what you believe, which I think is the most foundational thing in building a team. If you don’t have believers, then you have people that are just there to get paid. If they’re just there to get paid, they’re going to be B players. They’re not going to care about quality the way that you do. They’re not going to care about the results. They just care about getting the paycheck. I think it’s a very dangerous thing to not really ensure that you have values set and that your team members are aware of what those are. I think it’s very easy once you get clarity on your own values as a company. This is one of the exercises I take clients through when we take them on, is to get clear on their values. But if you don’t have clarity in your values, then it’s impossible to have a company that displays them. It just won’t happen. Once you get that clarity, it’s very easy to look at every single team member and just ask a very simple question, “Do they share my values?” It becomes really obvious, it’s a yes or no, you know. If you know these team members at all, you know. Do they value integrity? Do they value being on time or whatever it may be that you care about as an entrepreneur? And if the answer is a no, they have to go because they’re hurting your business, they’re hurting your momentum, and they’re hurting your results in the business. I know when I got clear of some of my values as an organization, what my purpose was as a human being and my purpose for my businesses, over a very short period of time, I think I fired half of my team. I just let them go. I let go of contractors. I brought in new people and the entire temperature of the company leveled up because I think what we do as entrepreneurs is we often trade the business we really deep down want for the business we can have. We have this business. We take on the properties we can, anything we can. We go out to far areas and manage properties too far where we can. We take on team members that can fill a role instead of what we really want. We’re doing the business that can be used instead of the business that we should or the business that we deserve. That’s a huge difference. Having a business that you can have versus a business that you really love are two completely different businesses. Most businesses, especially when they get into the 200–400 door category, a lot of them at that stage had built a team, a system, and everything around them, I’ve noticed that is still with the old mindset that they had as a solopreneur and it’s painful. This is probably the most painful stage I’ve seen for entrepreneurs in the property management industry, is that 200–400 door category. Fifty–sixty door category can be quite painful, too, but they’re usually solopreneurs at that point, so the pain isn’t as widespread. Andy: That’s right. The thing about this too, Jason, whether you’re talking about Traction, E Myth, Clockwork, or other books that’ll talk to you about, how do you pull yourself out of the business all the time? Because when you’re an entrepreneur and you’re growing, if you don’t have a structure for how that growth is going to happen and what’s your business model needs to look like, you’re going to drive yourself crazy. You’re going to be working 90 hours a week and you’re going to be on-call 24/7. You’re going to be answering the phones all the time. That’s just part of what a lot of entrepreneurs do as they grow. If you get a system like Traction, I think that helps you pull yourself away, be the real leader of the company and not the doer of everything within the company. I think Traction’s a good way to do that. For me, I’ve been able to create this role that I think is comfortable for me, that’s not overwhelming, that it’s something that I can do, it’s the kinds of things I like to do, and at the same time, Michael’s got something he likes to do in our operations leads. They’re in roles, they’re very comfortable, and they like to do that. I think you take that all the way down your organization and if you structure that, you give everybody a piece that they’re good at, that they can do, they have the ability to do, and that they want to do, that’s going to make them very effective. That’s a lot about what Traction and other operating systems are really about. The other thing, though, I wanted to touch on something you said a little bit about we can set minimum standards for people who work for us. A lot of people get into that mindset of, “Oh, well you’ve got to hit this minimum. If you’re not hitting it, you’re in trouble. You got to hit this minimum.” No matter what happens is people hit that minimum. But what you don’t understand is that you’re losing an extraordinary amount of discretionary effort that you could have had from that employee if they were on board with your values, if they understood the goals. They were buying to those goals, and they wanted to reach them. Now, their performance isn’t the minimum. Their performance is up here. They're not even worried about managing the minimum because everybody's onboard with their culture, everybody's onboard with their goals. Nobody's around here. It's just a matter of how much discretionary effort they're providing.  I worked in call centers for a large organization before I became a property manager, before I started EZ Repair. Call centers are the worst at this because it's about setting up these metrics around handle times or compliance. Jason: [...] tickets, check time between how long it takes to write notes, everything. Andy: When you took your break, you're supposed to take a 7-14 but you took a 7-17, so you're only 98% compliant. All this stuff, all you're doing is managing somebody that hit a minimum standard. That's what you're going to get.  When I came into some centers, we were able to change their whole mindset, saying, "Yeah. We've got to measure on the outside of those things, but what we really need to do is to motivate our team towards a common goal." We were able to improve service levels immediately at a very large contact center, immediately. That contact center, people thought it was understaffed, that we weren’t answering the phone quick enough, going and almost immediately just by setting targets, getting away from this minimum standards, changing people's mindset, and getting people to step up. People will give you discretionary effort if they're buying the way you're doing it. They're onboard with it.  As a small business owner, I think a lot of us missed that. We do get into the, "Okay, we've got to hit these standards," or, "It's busy. We're not getting everything done. We've got to up our standard to how many X number of widgets we're going to make or whatever our performance metrics is," and that's fine. You have to have goals and standards.  What we really need to do is to motivate people who want to step up, add a little work, and be a part of your company because they buy into your company. They decided to get up on Monday and go to work because they like what they're doing. They like what they're trying to accomplish. That's a big part of this. Traction help us do this. I think there's a lot of other ways you can implement those types of things. Traction gives you a way to show each employee on a 90-day basis, something that is very relatable to everybody, "Here's what we're trying to accomplish over 90 days. Can you help us do that?" To a person, our teams told me in small meetings with everybody on our teams, “Yeah, we can do that. We will do that. We'll step up if we have to. We'll do that and we'll make that happen.”  I think you'd be surprised how people will respond to you when you can bring them a real visual, structured, account of what we're trying to do with the company, and get it out of the framework that we're talking about earlier where it's in my head, that I know what I want my company to do, and I got this pie in the sky. Jason: Which [...] everyday. Andy: Exactly. It didn't help anybody because it does seem a little scattered, it does change sometimes, and nobody can really related to these ideas I've got in my head about where business is going. Traction brings it to a level where everybody in the organization can understand the buy-in and get excited about it.  They can also put the pieces together. They can see in our five year goal, "Okay. This is what we need to do in this next 90 day chunk. If we do this and we keep doing our 90 day chunk, we're going to hit that five year target." Even though it seems like it's way out there, we're going to hit that, and we're going to hit it 90 days at a time. If I were looking at Traction and say, "What's the biggest single thing we've got out of this?" there's a lot of things in there. It's the ability to chunk that business in 90 days, and have a very good and very solid structure. Jason: Yeah, and really any business planning system, that is one of the most basic things. I've done Wake Up Warrior, there's a 90 day year which is a system out there that's scaling up, the Rockefeller Habits, that system. There's EOS, Traction. All of these things. My [...], internally we call DoorGrow OS. It's our Operating System. I've taken what I feel like is the best of all the systems out there. It may, in the future—I don't want to be the vaporware guy—be the system that we share with property managers. I do have an intention to help create the ultimate system out there, but I think what you're saying is very valid. I don't know if you know this, you and I have a little bit of a similar background. I don't have the scale that you had at AAA, but I was the head. I did all the hiring, I was the lead supervisor and head of a call center for the largest private broadband internet service provider in California. Then, I left there as a big fish in a small pond to work at Verizon in their Business and Tech Support Center for DSL and was the low guy on the totem pole, but I got paid a lot more when I went there.  I've been in the call center environment. I've been the supervisor doing the hiring. I've taken the supervisor calls as well. I've done all the low level work. The funny thing I noticed is when you have a system and you geared it towards those metrics, people figure out how to game the system. I figured out how to manipulate the system because it was all about speed in getting things done faster. I used a piece of software that could do macros that would prepopulate tickets. I noticed we're only getting about three types of tickets. We had to fill up this horrible piece of software in Verizon that was detailing everything that we did, what we said, and how to be done. They really made four types of problems so I created this macroscript thing. It would just prepopulate the tickets. I have my tickets done and I was back on a call right away. I got really good at closing out tickets legitimately, so that we were helping people.  I then started sharing with other people that were struggling. If you're not making your metrics, you get nervous. They're afraid that you're going to get axed. Here's the funny thing. Supervisors don't like [...] people messing with the system or doing things differently, especially if it wasn't their idea. I had supervisors that wanted to challenge that or felt threatened by the fact that I optimized and make things better.  As entrepreneurs, this is what we do. We're always looking for ways to support our team or looking for ways to improve speed, improve accuracy, help them be better. If we give our team members that ability to feel entrepreneurial which is where instead of micromanaging them, we give them our values, we give them our outcomes. We give them outcomes to work towards and we let them see what they could do. I've been really amazed when we've gone into planning sessions with my team. I say, "Here's the things that I want, what [...] you have to help us get there." My graphic designer has a completely different view and perspective from her angle of the business than I have from my top down. My head of fulfillment and the content person has a completely different view and perspective from that side than I do from the top down. Their ideas are great. I'm always amazed. We have all these brainstormed ideas. I'm like, "Yes. I didn't even think of that."  I think we also as entrepreneurs, we become the emperor with no clothes if we don't have a planning system because they're all just saying, "Yes," and they're just getting their paychecks, they're just doing what they're told. They're not innovating, they're not feeling alive, and they're not really enjoying being part of that organization. You're the boss that everyone is complaining about. On the weekend, they just leave for the weekend. What you said earlier about discretionary time, I want team members that even on the weekends, they're thinking about how they could be better. They're thinking about the job. They're excited about what they're doing. They're studying and learning new stuff because they're excited about what they get to do in the business and they feel passionate about being able to be part of something bigger. They like that feeling and camaraderie of being on a team, and having a culture. It's a very different thing. Andy: I’ll tell you a quick story along those lines. We're doing a lot of the process piece. One of the six components of Traction, one of those is process. We've been spending a lot of time on that. I mentioned a year ago, we want to really formalize our process where it’s consistent the same way every time for every company. You can customize things like that. Your [...] criteria can be customized, but you couldn't customize when we follow up with the tenant after repair. We're not going to do the same for everybody. There's things in our process where we don't do the same. When we started Traction, we're also used to email then The Checklist Manifesto was a great book, as well. We talked about how we are going to document our processes in a way that our team has all the support that they need for the process. We did that. We put some really cool documentation for our seven key processes all in checklist style but visual checklist. You don't have to fill anything up. Any team member, even new team members can immediately walk into a process and these steps to do for that, for example. When we roll that out, almost immediately, one of the team members who does most of the work on one of our frontend processes—part of the dispatch processes—that was able to come in and say, "Look, I’ve been doing this process. It's working fine. If we did this, we've been quicker. We can get to these work-overs dispatch even quicker." We made these small changes. Because we had a checklist listed down, he can even see what's the next stage in the process and what are they doing. He was able to put that altogether and say, "Here's the fix. Here's something that we can improve." We implemented it the same day. It definitely drives people to be more engaged in the operations. They're not just there to do your ABC work that you asked them to do. They're vying into the goals they were trying to accomplish. They're vying into the process you're rolling out. They're trying to be a part of that.  We've seen a lot of that. A lot of folks at the very frontline and in this particular case. This is an employee that has only been enlisted for a couple of months. People feeling really comfortable to be able to help us towards these goals. Now that they understand what we're trying to do and that really put an understandable 90-day blocks. Here’s what we’re trying to do and everybody's going to be more likely to be onboard, jump up, and say, "Hey, let's do this differently because that’s going to improve our operation." Jason: Yeah. If you look at any problem internally in a business, there's one of three things that must be missing. Either there isn't a clear outcome, which a planning system help solve, there isn't accountability, it wasn't clear who was supposed to be doing it or who was responsible for the outcome, and there isn't transparency. Nobody can see who's doing what or see that people are or are not getting things done. Nobody has clarity on where the business is at financially or how it’s working. I think having a planning system, having regular meetings, it creates this culture that allows accountability, allows transparency, allows responsibility, allows to be a clear drive towards outcomes.  Most businesses have no clear outcome. They're not working towards a clear outcome. They're just managing day to day fires and they're just shooting in the dark. That's how most small businesses operate. It financially looks that way in their business, too. There is a consistency in the financial side as well. Also, it's a financial system which is a part of planning. I'll just throw that out there which I'm a big fan of Profit First.  Andy: First of all, big plug to Profit First. Big plug to Profit First. It changed my business two years ago. Absolutely a big fan of Profit First and in Clockwork thesis. He’s written several great books for profit entrepreneurs.  For me, you were talking about how most small business owners don't do these things. I was in that same boat. Even though I come from a very structured environment from AAA, when I was a property manager, that's all I [...] property management company. I joked but it's not really a joke. I didn't make any money in my property management company until I sold it. That was the company I ran. When we started EZ Repair, we sort of forgot to do this a little differently. We started getting into the systems and reading different books about structuring, about how to have an operating model, how to profitability. It wasn't really until, like I said, two years ago, we were at Profit First. That just transformed our finances completely. It's was amazing. And then here, I feel like Traction for us is going to be the next turning point, but a couple of years from now, I'll be talking about how we found Traction a couple of years ago. I think it's an evolution of a small business. You learn different things as you go. But for any small business owner, even if you're just starting up, whether it's Traction or another system, you need to have an operating system in place. This would've been so much easier for us a couple of years ago if we did implement it, but that’s okay. We’re implementing it now and it's never too early. I don't care how small you are. Maybe you don't have employees yet but you plan on growing. Get it in place.  Jason: Yeah. For those listening, what do you want them to take away from this? Andy: Hopefully, some learnings from me. What I just said from my own property management experience when I was a property manager. Hopefully, you can make some money before you decide to sell your [...] business. Hopefully, you can make money along the way. There's a lot of property managers who are. The ones who are have that structure. They have that operating system. They have that financial plan in place.  What I'm advocating for is to do that as a property manager. Implement, whether it's Traction or another operating system. Implement it. Definitely read Profit First. It will change your life, absolutely. Do that going forward. Even if you're small, even if you don't think you're there yet, even if you think, "Well, I'm just a one person show," or whatever, one or two person show, it doesn't matter. The structure is going to help you so much and it’s going to keep you from working those 80 hours a week.  I know there are PMs out there working 80 hours weeks because that was what I was doing when I was a PM. You don't need to. Even if you're not ready to hire right now, these operating systems are going to help you structure in a way that you won't be working 80 hour weeks anymore. They'll figure out how to handle the work without actually having to just be available all the time.  Hopefully, you'll determine too that there's some self-showing work that you can do, maybe some maintenance work coordination, work duty. You can do some other things. You can outsource, but you're definitely even without doing any of that, just by structuring your work and system like Traction, you're going to find your job becomes easier or manageable, and you're going to understand exactly what you need to be doing in the business everyday. Jason: One thing I want everybody to take away from this, too, is that this is rare in businesses in the US or everywhere, really. This is rare that a business will implement a planning system, implement profit first, have these pieces in place. I think every listener should feel a lot safer with using a company if they hear that they have these pieces in place. Andy, props to you for getting these pieces in place over EZ Repair Hotline. I'm sure those listening will feel a lot safer with using these services if they haven't considered these before. It creates more consistency in the outcomes of the business. It creates more reliability. Really, that's what people are vying from all of us—safety and uncertainty. That's what they want. They want results. It's far easier to deliver results when you have a predictable system to create that magic and to create a future.  Andy, I appreciate you coming on the show. How can they check you out? Andy: Thanks for having me. Our website is probably the best way to start to take a look at us. It's ezrepairhotlinellc.com. They can see all our products and the easy way to set up a meeting with me or just to send us a note in the contact form. I'd love to have people follow up with us. Jason: Perfect. I appreciate you, Andy, coming on the show. Hopefully, you have an awesome rest of your day. Andy: Thanks, Jason. That was great. I appreciate it. Jason: You can check them out. It is ezrepairhotlinellc.com, so check them out. If you are a property management entrepreneur, you're feeling stressed out, you’re feeling overwhelmed, you're not getting the results that you want, you don't feel like you have consistency, you feel like things are crazy, you feel like you're on a financial rollercoaster, you may just need to start with getting clarity on yourself. This is where I start clients out when we start working with them, when we start coaching and consulting property management business. We start them with figuring themselves out first. Andy is the center of the solar system. I'm the center of my business. If you change and help them get clarity on what they love doing, on what they should be doing, or where their time is being drained, or where their energy is being drained, we align the business around the entrepreneur.  Every business will be very different from each other. Every business will be unique. It will support you, you will feel alive, and you will feel the momentum which is what we crave as entrepreneurs. The rest of the world wants to be happy or sad. They're focused on that. We want momentum. We want to feel alive. If we don't have that, we feel unconstrained, we feel overwhelmed, we feel frustrated, we feel stressed, we feel stuck. That's hell for us as entrepreneurs. If you're stuck in a little bit of hell, maybe reach out, and we'll see if we can get you unstuck. I'm Jason Hull, from DoorGrow. Check us out at doorgrow.com. Make sure you join our Facebook community, our Facebook group. You can get to that by going to doorgrowclub.com. If you feel like your property management website is a little bit outdated, it's older than 2-3 years, maybe it's 5 years old or older, it might be time to test that website, see how much money is really leaking and costing you. You can go to doorgrow.com/quiz and take our website quiz. Most websites that go through it get an F grade in terms of conversion which means you are losing deals and money right now. It's probably costing you tens of thousands or maybe hundreds of thousands of dollars, annually, in lost deals and lost business. So, check that out. Again, I'm Jason Hull with the DoorGrow Show. I appreciate you guys tuning in. Be sure to check us out on iTunes or on YouTube. Like and subscribe. Where it's possible, leave us a testimonial or review. We'll really appreciate that. That is it. I am out. Bye, everyone. To our mutual growth. Until next time.  

A private equity firm is in the business of buying, growing, and exiting companies, hopefully for more than they bought it for. For every industry there is a private equity firm out there. As private equity diversifies, what are the key trends changing the nature of the deal? Today we are discussing where private equity firms come into play in the buying and selling space. Today's guest, Andy Jones, is the founder and owner of PrivateEquityInfo, a private equity database that helps investment bankers and private equity firms close more deals by taking a look at the top trends to look out for when scouting an acquisition target. One major trend we discuss is the holding periods for private equity and how those can often reveal the direction of the overall economy. Studying these and other trends are useful for potential buyers to understand what to look out for in an acquisition deal. Episode Highlights: Andy's history with Private Equity Info. A look at a typical private equity deal. What sellers should know about the private equity industry. Buyers don't want the ugly marbles. Why buyers prefer asset deals over stock deals. What ebita sizes private equity firms are looking for and why the size requirements are in place. Smaller ebitas and add-on investment trends in the private equity arena. Why larger acquisitions still make more sense. Best ways to find the private equity for your business. We touch on the topic of microfunds; what they are and how they work. Typical deal structures that Andy comes across. Why business founders don't have the same appetite for risk as PE firms. The typical holding period before an exit. How long is it? Exuberance trends typically show up when those holding periods experience a decline. Andy shares his top ten trend list for 2018. Transcription: Joe: Mark, I understand you had a great conversation with Andy Jones from PrivateEquityInfo.com. Mark: Yeah private equity is one of these things that buyers and clients that we talk to and even … I'm sorry sellers and clients that we talk to and buyers as well often ask us about. Is private equity buying online businesses? Are they buying Amazon businesses? Are they buying SaaS businesses? Where do they start buying? When do they … what are the lines for it? How does it work? Andy Jones is somebody that I've known now for probably seven, eight years. He's always been very primed by complimenting me on the content we put out. So anyone that complements me is immediately somebody I like and so we talked about having him on the podcast- Joe: Hold on just a second, you're awesome Mark. You're a really good guy and I'm proud to be your partner. Mark: I thought you're stopping the podcast here. Joe: No, I'm just complementing you; that's all. Like you see I just wanted to be liked by you today. Mark: Okay well continuing … thank you, Joe. We will talk about increasing your equity stake in Quiet Light Brokerage after this call. Joe: Awesome. Mark: It's kind of easy guys, it's really that easy. And so Andy has PrivateEquityInfo.com. It's a fantastic database of private equity activity across the spectrum. So anything from manufacturing to the online world but something that they do at PrivateEquityInfo.com is they take a look at the trends and what is going on in the world of private equity and these can be leading economic indicators. And he gave me one trend in particular, I'm going to let him get into the details of it but it's the holding period for private equity. Because private equity, what they typically do for anyone that may not know that they're going to make a lot of investments with the goal of growing these businesses but then exiting these businesses as well or at least a portion of these businesses that they're building up. And the holding period, how long they hold them can really tell us a lot about the direction of the economy and what to anticipate next. And so they look at this holding period, the average number of years that a private equity is hanging on to business before they exit it. Right after the recession that holding period went up to like a number of I think it was like eight or nine because they bought at the peak and they had to wait for the economy to recover before they could exit. So I'm going to tease here and just say listen to the podcast to see what the average holding period is right now, what number we want to look out for to be able to understand okay maybe the economy is going to start to retract a little bit and use that for the decisions we want to make. Joe: This is going to be fascinating. I think we're going to learn about the future of the economy here as well. Hey before we move to the podcast I just want to give a shout out to Mike Nuñez from affiliate manager. Mike, you're probably out riding your bike right now listening to this podcast, I appreciate all the positive feedback you've given us in the last few months. Thank you very much. Let's go to the podcast with Andy Jones. Mark: Andy thanks for joining me. Andy: Thanks for having me. Mark: All right let's start off with a little bit of background on yourself and where you come from. I'll let you do that part. Andy: Yeah I'd be happy to. So my name is Andy Jones. I'm the founder and owner of Private Equity Info. We're an Austin, Texas based company. We own several websites but our flagship website is really PrivateEquityInfo.com and this is where we provide and emanate research database that helps investment bankers and private equity firms and even the corporates close more deals. So I have an engineering background and investment banking background that's kind of what lead me onto this journey of entrepreneurship 14 years ago. Mark: Yeah pretty cool and you are one of the people … I will confess you feed my ego whenever we send out messages by saying really great content Mark. I'm like hey, I like this Andy guy. Andy: Yeah yeah. Mark: Good stuff, I like that. Well cool. We're going to talk about private equity today because you have PrivateEquityInfo.com and really good information through that site. How long have you had that now? Andy: So yeah we launched 14 years ago, January of '05 so this year is our fourteenth. Mark: I remember when everybody's site is full. It was like three, four years old and somebody who had like an eight year old site it was like ancient. Andy: I know I'm that guy. Mark: You know you're that guy right? I own a 20 plus year old site and then Quiet Light Brokerage this is going to be our 11th anniversary coming up next month. Andy: Wow. Mark: Actually by the time this episode airs we've surpassed 11 years so … really really cool. So again private equity was what we're going to talk about today. We get this question all the time from buyers. People want to know things like who's buying online businesses and would private equity be interested? At what levels are private equity interested in and how do those deals sort of differ from other deals? And you've got a pulse in the industry more so than anybody else that I know so I thought hey let's talk about this. I think this is- Andy: Sounds good. Mark: -sort of thing to go into. So let's talk about just kind of the typical private equity deals from what you are seeing and from your experience. I mean what is a good intro for somebody who owns a business that might be thinking about selling and they think well maybe private equity would be interested? What should they know about this industry in general and the different PE firms out there? Andy: Okay. Well, that's a pretty broad question; let me see if I can tackle it from the few angles there. So I'm going to come at this from the assumption that there is some general knowledge of private equity but maybe some inexact knowledge and I'll just kind of ram a little bit and we can flesh it out. But essentially let me just start with the basics what a private equity firm is. A private equity firm, they're in the business of buying growing and exiting companies for hopefully more than they bought it for. And the way they do that is they typically raise a fund through their limited partners. And limited partners are typically institutional money, pensions and retirements, high net worth individuals, [inaudible 00:06:43.1] and such. They raise a fund that has a 7 to 10 year lifetime and the private equity firm then puts that money to work by buying companies. And their hope is to grow those companies, produce cash flow, and exit at a good return on investment for their limited partners and also for themselves. So that's kind of the mechanism of how they work. We can create … we can talk about how they create value later if you want to but you know is a private equity firm the right buyer for your company? Well now that depends on a lot of factors; primarily size but also industry. So by way of size, there's a huge range of private equity firms out there and they go from billions of dollars of interest in price value, company size down to single digit millions. And so there's a long tale of the firms out there. But at some point, the transactions get small enough that it's not really just logistically practical to make investments of small sizes for a platform investment. But I will also say that for add-on investments, you know private equity firms often have this model whereby they buy a platform investment and then we have add-on investments to it. Most private equity firms have size criteria for platforms but for add-ons, it can be more strategic interest rather than size. And so usually there's not a lower limit on the add-on acquisitions. Process size is one limitation, geography being another, and industry. If you have an industry there is a private equity firm interested in it. There's a lot of private equity firms out there. The trick is finding which ones are interested in your company and that's where we come in. Mark: Yeah so I want to talk a little bit about these different sizes because we … as a broker I get these emails all the time from private equity firms that are out there. They're reaching out to just these large databases of brokers and they typically are saying hey we're looking for investment opportunities in manufacturing with this, that, the other thing. A lot of times it just does not fit what we do at all. Obviously, there's no reason but they always list a minimum EBIDTA that they want to see. And typically what we're seeing from the ones that reach out to us would be EBIDTAs of a minimum of 10 million, 5 million, 2.5, and in some rare cases 1 million but almost never below that. Andy: That sounds about right. Mark: Yeah. So what do you see with that? I mean, first of all, I think we can ask the question why, [inaudible 00:08:58.2] the listeners of everything we're all … it's obvious but for those that may not be cashing out of that why do they have these size requirements in there? And then second of all if you comment on that breakdown I mean are private equities looking for these [inaudible 00:09:10.6] smaller in the world of bootstrapped entrepreneurs a million dollars EBIDTAS is a decent deal but for private equity firm that's tiny little bits of money there. How does that break down? Andy: Yeah let me answer those in reverse. So the spread you kind of set it right. Yeah most of them are 10, 25 million in EBIDTas that's for the bigger firms. In the upper middle market, firms are going to be and middle market firms is targeting down the 5 million down to 1 million in EBIDTA [inaudible 00:09:36.7]. But there are firms that will do it. And I think really the trick there is if you're operating in that size range, the trick is not to be considered a platform investment. You want to be considered an add-on investment. And the single best way to find the right private equity firm for your company if you're selling it and if you're down in that range … even half a million, a million dollars in EBIDTA it's getting pretty low. But it is to use a database like ours to keyword search based on keywords that describe your company the portfolio companies that are owned by private equity firms and we allow you to do this. You can search almost 80 … I guess a little over an 80,000 of them now and find those portfolio companies that are currently owned by private equity firms and that is … yeah, they look like your company. So that's the single best gauge to determine a private equity firm's fit or interest in your firm and your company is if they've already made a platform investment and you might be a likely add-on. So that's the process I would go about to discover the sort of rifle shot hits that you're looking for and you can use a tool like ours to find that. Why the size limitations? Well, they have a fund and they have to deploy that money. And if you have a hundred million dollar fund and you're deploying it at single digit millions at a time it is too much work. You'll never get it deployed. And that's really just driving your limitations there. Mark: Right. I think we have addressed this at the podcast topic a while ago on should you buy big or should you buy small. I've addressed this topic in a number of times as well where if you have the resources available to be able to run a larger enterprise from just making your dollars work; the larger acquisitions make so much more sense. The workload, the resources that go into a lot of internet companies doesn't really scale at the same rate as the revenues do. And so it makes sense to do that. So for a private equity firm to come in and try and buy out a company doing 250,000 in EBIDTA just doesn't make much sense. They're not going to reach the goals that they're looking for. And also the capitalization rights, I mean how large are these private equity firms when … how much capital are they trying to deploy through acquisitions? Andy: It really depends on the firm. You know if you wanted to … I don't know off the top of my head but I've done studies on this based on our data. And I've done some data size and probably shoot to our blog. So if people want to visit our blog you can read more about it but it's very typical to have fund sizes and it'd be hundreds of millions of dollars. Mark: Right. So let me take a little bit of a diversion real quick. I want to ask you a question that a trend that I've seen in our space here in the online acquisitions space, I call them micro funds because I don't really have another word for them. Andy: Okay. Mark: But these people that are raising 10 to 15 to 20 million dollars and they're doing it following that private equity sort of model of bringing in those investors. Their goal is to bring in a few companies, have some synergies between those companies, grow them, and hopefully sell them off. Are you guys tracking those at all at this point? Andy: So at that level what we typically see is a firm that has raised capital because they have an operating partner with very specific industry experience and they're looking to buy a company or two. In that case, they're likely not in our database and it's not because we don't know about them, it's just for fit reasons. Most of our customers that we serve are middle market investment bankers and because of that, we want to provide them a data set of firms that are likely going to close the deal. And if you're buying one or two companies the probability of you closing that deal is pretty small especially if you've already closed one. Mark: Right. Andy: So the firms in our database are only those firms that have committed capital that are closing deals in the marketplace. Or sometimes they're from a sponsor but they have to demonstrate that they're actually closing deals. Because at the end of the day investment bankers and firms like yours you want to close a deal so you want to make sure that the people that you're approaching from our database have some probability of making that happen. Mark: Yeah that makes complete sense. All right let's talk a little bit about … and again you've said this a couple of times so I'm going to reiterate it but talk in generalities when I'm asking you some of these questions. Every firm operates differently. Some like the sort of incubator method … you really it's going to be different from one from the next but I want to talk about typical deal structures. And let's say that we have somebody who … they built up a company and let's say that they're in that seven figure EBIDTA range or low eight figure EBIDTA range as well. I know I'm working with people on that low eight figure EBIDTA range, they're looking for an exit down the road and they're definitely in that private equity territory where that's what makes most sense. Andy: Okay. Mark: So when you're approaching private equity firms with a business … let's just focus mainly on the seven figure EBIDTA range, the one to five million, say that we have some people there, some PE firms there. What sort of deal structures do you typically see? Are they completely asset based acquisitions, are they stock, are they management buy-outs with the managers staying on and if there's no general rule that's fine too of course. Andy: There's no general rule but there are some factors as you know that sway the rules. Let me organize my thoughts on how to answer that. So asset deals versus equity deals, there's no all encompassing rule for that. Generally speaking, let me just sort of educate the audience a little bit and there's a good analogy for this. If you think about your company as a bag with a bunch of marbles in it and marbles are the assets, buyers like to come in and pick out the marbles they want. That's an asset deal. I want this marble, this marble, and this marble and that's what I want; that's an asset deal. You keep the corporate entity and all the other marbles I don't want. Whereas a start deal … equity deals says I will just buy the bag and all the marbles in it; good, bad and ugly. Well as a general rule, buyers prefer an asset deal and sellers prefer start deals because it's just [inaudible 00:15:21.8]. Buyers don't want the ugly marbles; the litigation, the potential liabilities … you know that stuff, so just for your audience though typically we find that the buyer wins because they're the ones with the money. So if you want a deal done you're going to do an asset deal. So there's not a hard and fast rule, the exception to that is often times when there's customer contracts in place that you don't want to have to renegotiate, you don't want to create a new corporate entity and then often times those become start deals just for just the core purposes. That's the other part of your question, you're looking at a seven figure in EBIDTA deal. Mark: So the basic structure of it. I know we've run into some cases where we've worked with private equity firms but they wanted to have a management team in place before. Andy: Right. Mark: Or the structure of the deal you know as a cash or as a cash financing and as a- Andy: All right, again it's going to be all over the place but generally speaking if the owner is retiring … owner-founder is retiring, the seller that's one case whereas if they're wanting to stay on and run it and grow it that's another case. If they're retiring it's going to be more … mostly a cash out kind of deal. But if there's a continuity there and they're selling the vast majority of their equity to a private equity firm retaining a small minority stake on the order of 10, 20% that's a different sort of deal. And that's probably the preference for most private equity firms. Again we're talking generalities. All firms operate differently. If you have a strong management team that wants to stay on the private equity firms are going to be interested in that. If they're interested in your company because of its industry, its size, its growth trajectory, and its promise to go on forward they want that management to stay on and they want them properly incentivize and aligned. So typically what we'll see it's not unusual at all to see a certain sort of enterprise value established at the exit of the majority of your stake. And then the private equity firm infusing that company with capital and all sorts of tools to create value. And then having a subsequent accurate equity exit whereby the original owner's second exit is as much as or more the first exit. It happens quite frequently. It doesn't mean it will happen obviously but it's not so unusual. Mark: Yeah and I think that falls in this territory of thinking outside the box of some of the regular deals that most people think of. I talk to a lot of sellers who they want that 100% exit, they got in love with the market but they moved on. But sometimes a really good deal is if you do find that good firm involved just getting that partial exit or that first exit and then that second exit later on can be like you said just as lucrative or if not more lucrative as you got this thing behind you. Let's talk a little bit about 2018 and some of the trends in the- Andy: Let me add … I'm going to add on to that a little bit before we move on. Mark: Yeah, please. Andy: So one of the things that people I guess wonder is how … why is it a private equity firm can come in buy a majority position the equity and create value where I couldn't? A lot of that stems from they're just … they don't have their entire net worth tied up in that company or a huge swath of it whereas an owner and founder does. So they can come in and infuse it with capital where an owner would go I don't know if I want to throw the rest of my [inaudible 00:18:29.6] that I got in the basket. The same basket is already all in. And so a private equity firm and can take greater risks because it's a small percentage of their portfolio in total. And you know and as a bootstrapped operation there's a mathematical limit to how much you can grow your company without outside capital. It has to do with your profit margins, there's a straight mathematical relationship. Your profit margins are X your growth can be Y and no more. So your opportunity for outside capital is debt or equity and founders oftentimes don't have the appetite for debt and this is where private equity can come in and infuse the company with capital at a risk for them that's much more acceptable than it is for the owner-founder and try some things that are maybe riskier and get that company to grow through multiple expansion and taking on your projects and what not. So that's kind of why they're able to do that whereas an owner sometimes isn't going to take that leap of faith. Mark: I think there's another aspect to that as well. I think … I'm glad you stopped me with that, we talk a lot on this podcast and conferences, just people that we talk to in general; entrepreneurs. These bootstrapped entrepreneurs or even the guys that have come in and maybe bought something smaller and that growing it. I put them in that same category of this bootstrapped entrepreneur who this is their livelihood and if it's not 100% of the livelihood it makes up a good part of it. A lot of people are not operating with an aim towards an exit. Maybe it's in the back of their mind so a few things here and there and they do this but a private equity firm has this holding period. They have this goal of we're growing this, we're going to get the cash flow from this, and in most cases … in a lot of cases, they're looking for that exit with that company as well where they could profit from it. Andy: That's right and it drives a huge sense of urgency day after day after day. And once you're owned by a private equity firm, it's hit the ground running. It really is because they're driving that growth because they need to grow the company and exit it before their fund timeframe runs out and so it's a bit of a race. With that comes a lot of operational efficiencies, they'll add to your institutionalizing the company in terms of process fees and measurement and systems in short governance and it's all the stuff that you should do as a company but sometimes that stuff falls and kind of cracks. Mark: I'm going to make a plug so Walker Diebel who works with Quiet Light Brokerage and how he's the executive producer of a number of documentaries and one of them is Print the Legend on Netflix. And it's about the 3D printing industry. There's a really cool part in there where you see [inaudible 00:20:58.0] go through this transition of bootstrapped you know the classic starting in the warehouse garage everybody is really agile doing what they have to do and then they take outside money and it becomes institutionalized. And one of them … I cannot remember what her name was but she said just like I call this part trying to put the skeleton into the jellyfish, trying to get it back on in a jellyfish. Andy: That's a great analogy. Mark: It is. It's a great movie by the way. Print the Legend, you can get on Netflix and again that's my genius plug for Walker. Andy: I love it. Mark: Yeah. So let's talk about 2018, let's talk about some of the trends that you're seeing in 2018. Actually no let's back up we're going to talk about that in a minute because we've just said that they buy these companies with a goal of exit. What is a typical timeframe? What is the holding period that most companies are … most of the private equity firms are looking to hold companies before doing that exit? Andy: We do a report about every six months to update the holding period and we say well of all the companies that have exited in 2018 how long were they held and we compare it to six months ago and 2017, 2016, going back in time. And I set you a graph of this beforehand and we can post that if you want to or whatever or make it or you can visit our blog and see that study. But generally speaking, I think most people would say look the general private equity holding period is 3 to 7 years. That's the right answer. It's fairly generic and that's kind of all-encompassing but I wrote down some stats here. The medium holding period right now as of a couple months ago is 4.8 years. So of all the companies that have exited in 2018, they were held just shy of five years. By way of comparison, we saw a max holding period of 5.6 years in 2014. Well, why was it so long then? Well if you think 2014 and you subtract out 5.6 years, if you're looking at companies [inaudible 00:22:48.7] and say you're looking at companies that were bought at a peak of evaluations right before the recession. So those are companies that are portfolio companies owned by private equity firms that got bought at the beginning of 2008, unfortunate timing, and then just hit the recession and they just had to hold a lot longer to either breakeven or realize any value. So that increased the hold rate. And we saw a minimum conversely in the year 2000 when we have a .com boom out of 3.0 years. And we saw another minimum in 2008 you know at the peak of that it bubbled there at 3 ½ years. So that leads me to think that if you start getting around … I'm going to say holding periods of 4 years or less it might … maybe it's an indicator of a little bit of exuberance in the market. And so right now we're at 4.8 years and it is declining. It is consistently going down every time we track. So we're aiming to the 4, we're not there yet. Mark: That's fascinating data. We've actually had that conversation internally quite a bit as far as the trends in the market and what we're thinking. And what we're seeing right now we're seeing one of the more aggressive markets in the 11 year history of Quiet Light. Now granted Quiet Light Brokerage when I first started it was 2007 and we were really just getting our feet wet and getting go-ins. So we didn't have a lot of data … real useful data then we hit a recession. So you take the first six, seven years it's pretty bearish. They [inaudible 00:24:13.3] are working with. Andy: Right. Mark: So comparatively like this is the time that we're in right now feels really good and strong and that [inaudible 00:24:19.9]. Andy: And we can talk about statistics because one of the great things about having a database is that it learns itself to this during data studies and slicing and dicing a data. It really pops out interesting trends. Right now valuations are high. No secret I think everyone in your industry knows valuations are high and I'll actually tell of you guys a little bit here or your world of investment banking and business brokerage. If you are a company owner and you are thinking about selling in the next 3 to 4 years and it's even on your horizon there may not be another time that is this good for valuations. It is as good as it gets. I mean there are a couple of economic factors there. There is sort of meta … macro-economic factors that are happening that are making this as sort of sustained seller market but that'll change. Those factors are just real quickly … money is cheap right now. Monetary policy has made interest rates low. It's cheap to borrow money. It's fueling a lot of growth. Companies are growing but consequently, those people with money are looking for where can they get a better return on my capital instead of CD's and treasuries and stuff like that. So they're looking at the alternative asset space. They're putting money into private equity which has created more private equity firms than ever before, larger funds than ever before, looking for the same deals as everybody else. So there's a huge … from a financial buyer perspective there's a huge demand. And then the other factor that plays with that is a social factor and that is you probably thought this as the eye. When the baby boomers were going to retire and then we had 60's we thought that there would be these huge influx businesses for sale as they start to retire and that largely didn't happen. They just kept working. The baby boomers just kept working and that only eventually come out a buy plan but right now because they've held their businesses longer they've built up a pent up demand because they're limiting the supply. So, on the one hand, you have money in trying to chase deals, on the other hand, you have fewer deals. That's what's creating this sustained seller's market where valuations are high. It will change. It will go back down and we're going to remain. You cannot … this is my opinion not data, but you cannot make money on the assumption that someone else is going to over pay in the future years like you did today. Mark: Right … no I think that's absolutely right that when … last year on this time I wrote one of the last blog post that I personally wrote. We started the podcast instead. Before we started recording here I was telling you that I like doing this [inaudible 00:26:49.6] Andy: Yeah, right. Mark: But I talked about the history of what we've seen over the years and during those recessionary years boy if you've got a 2.7 or 2.8 discretionary earnings for a business it was a really solid deal. And today people are looking that and saying why would I ever sell for that. Understanding multiples, they're relative to the time, they're relative to the supply and demand within the marketplace and what money out there and what other investment vehicles are out there as well. Even when you're thinking about when to exit when you're thinking about buying and growing and turning this around in the case of a private equity firm that's crucial data to really kind of hone in on and understand. What are you seeing trending this year? I know I was contacted by Buzz Feed a while ago about private equity firms starting to get into the Amazon space and really looking more towards e-commerce specifically within the Amazon Marketplace. What are you seeing as far as different trends in the private equity space or is there any industries that seem to be popping up right now? Andy: There are you know we studied the portfolio companies and what's changing over time. I sort of have a top 10 list for 2018 that I'll run down with you. On top of the list has always been and maybe always will be manufacturing. Mark: I see that all the time. Andy: Everyone likes a solid just basic manufacturing company, no frills just consistent cash flow, consistent growth; predictable money. With that said manufacturing as a percentage of the portfolio companies is way less than it used to be. So coming hot on its heels are … number two and three and four positions which number two is software. So far this year software deals are a big deal. At number three is technology. This kind of go together and it makes sense. Anything that you can scale like you can with a software and technology private equity firms are interested in the ability to find the concept that scales with very low capex which software and technology tend to do. And also have this component of recurring revenue also a big theme for the private equity firms. The others I'll run down … number four was health care. Interestingly enough number five was data businesses, information services which I'm on. Six would be oil and gas which is interesting because there for a while that went away. When it went down so cheap and thus nobody … everybody was losing money in all the oil and gas services companies and the PE firms just weren't doing that but it's coming back. Seventh is medical. Eighth, construction which has been interesting, traditionally we would not see much construction related private equity investments mostly because it tends to be very capex heavy. Number nine was transportation and logistics. And number ten was engineering so another kind of services company. Mark: Fascinating. The software I presume SaaS businesses with kind of all that- Andy: Well that's the preferred. Yeah, that's the preferred model. Not always but that's where everybody's going. Everyone's going to SaaS and everyone's going to the club. Mark: Right. What about consumer products? I mean that's obviously not in your top ten list. Andy: You know off the top of my head I don't know where it is. There are a number of private equity firms that specifically build consumer product brands and focus on that exclusively. Some well-known firms they have done really well. I know that for a while food and sort of ingredient businesses we're pretty hot. I don't know if that trend is still as hot as it used to be but consumer brands is definitely a hot industry it's just not on our top ten. I hear it all the time. Mark: Sure. But what are some of the things that private equity firms just love to see when they're looking for an acquisition target? Andy: Some of the things we already touched on recurring revenue. I mean it's all about stability of cash flow. So I would say stability of cash flow spur the quality of earnings kind of companies. Scalable businesses that have strong cash flow and a track record of growth. And those firms that are maybe a little more venture capital minded might say you know what's the opportunity here in terms of can this just blow up as a trend or is this software tool just meeting this huge demand in the cloud space that's going to be the next revolution of software so that sort of thing. But really it's all about cash flow stability or scalability. Mark: All right then what are some of the things … I mean people will probably come up with conclusions but what are some of the things that they'd want to avoid? Andy: Yeah so in addition to just like the opposite of those private equity firms it would be difficult to find firms that will do project based financing as opposed to just an outright purchase acquisition. They don't want to finance your projects. They typically will not do projects that require a lot of capex. With that said I did say construction was in the top 10 so I am not sure about that but traditionally it's just hard to scale companies when you have to put a lot of money on upfront for property client equipment. And then lastly at least for the firms that we track, we do not track those that are not in this particular data site those that invest in real estate. In a traditional buyout M&A private equity firms, we just need a longer time horizon than seven or 10 years to make sure that real estate pays off like it should. So what we do track in another data model institutional real estate investor, that's a different animal altogether and probably outside of this group but … out of this conversation but they typically are just not going to buy real estate. Mark: I've got a question for you on general multiples and let's talk software and tech and if you don't have this data right now I know I'm kind of … I'm springing this on you, I didn't prep you on this one. Andy: That's all right. Mark: But we talk often that there's a bit of a multiple shift when you get to certain levels in EBIDTA. Andy: Yeah that's right. Mark: This is something that companies don't typically get the strongest multiples as you move up we see these multiple shifts. What are some of the demarcation lines that you see for EBIDTA as one of these multiples that you start to inch up? Or is it just kind of a gradual scale where you're seeing that happen? Andy: You know I don't know if there is definite lines and I don't know if I'm going to know the answer to that question but just let me talk kind of about a hand waving principles around. Mark: Sure. Andy: I think it just kind of scales generally with size. Companies that are bigger tend to be more stable. And when you're more stable that's perceived to be less risk for a buyer and therefore more valuable and hence a higher multiple. And so that is why one of the methodologies that private equity firms use is this buy and build platform an add-on strategy. It is you buy the platform company, you take a smaller add-on investment, you buy it for … I'm just going to make up a number, 6X EBIDTA and suddenly you put it in, you fold it into a bigger company and that same sort of producing asset is now repaid X because it's part of a bigger company. So you got a 2X sort of free value out of that built on. And I can remember meeting with … I won't name the name, but a private equity firm we're meeting with one time we we're working on a deal back when we used to do deals and he was outlining that strategy for me. He's like yes it's really not just rocket science, that's what we do. It's pretty simple and you buy it for a five and you get seven automatically; free money. Mark: Right. I have these conversations with buyers over the years that their first footsteps into the space of buying … in our case online businesses start with maybe on Flippa and buy me [inaudible 00:33:51.5] out of $20,000 $30,000 sites and that was their appetite. The next thing you know they're doing an SBA loan and they're buying something bigger. Andy: Right. Mark: In variable … invariably once they have enough success that light bulb goes off in their head where they look at that and say wait a minute I can bolt on my company over here which is more valuable, a company that is less valuable here and if I can fill them in I'm getting this multiple jump and I'm adding value immediately. And in addition especially with the sizes that we're looking at I can buy something with EBIDTAs of 500,000 but if I buy four of these, combined them, now I'm not buying at a multiple of 2.8 or three. I'm buying at a multiple … I'm now able to sell it maybe at 3.3, 3.5 or whatever the case maybe for that industry. Andy: Right. Mark: It's this double whammy of the valuations that go up. And as that light bulb with them goes off for where then the next thing I know they're building their fund around to be able to do that. Andy: Now it's easy for us to say it's much harder to implement. So you can say you are just free money. Yeah, there's a lot of hoops you got to jump there to make that happen and integrations and all that. And it's hard work and that's why not everyone is doing it. But if it is kind of conceptually not that difficult to understand. Mark: Right, okay where can people find you if they want more information and if they want to start kind of exploring this world of private equity outside of the blog that'd be a great place to start but what if they're finding for more information? Andy: So you can go to our website PrivateEquityInfo.com at the bottom there's contact us, you'll see my phone number and my email. I'm happy to take calls. I'm happy to answer your emails. If you have questions about private equity, questions about your business and [inaudible 00:35:32.0]. Just pick my brain that's fine. We're happy to do that. We love to talk to customers and potential customers and help people. Mark: Very good. Hey, thanks so much for coming on. I can see you having [inaudible 00:35:42.3] 2019 rolls around and we get in to some of the trends there. Start paying attention to these holding periods that are happening I think that's a really cool stat to be able to be tracking here. And also just kind of see where the trends are with these top industries that are kind of popping up as time goes by here. Andy: Yeah well thanks for having me. It has been fun. Let's do it again. Mark: Yeah thanks, bye. Andy: All right bye-bye.   Links and Resources: Andy's LinkedIn Andy's Company PrivateEquityInfo blog  

Meet-up with Grant McHerron in Rome in June NEWS [38:39] Blue Panorama B734 at Havana on May 18th 2018, lost height shortly after takeoff [45:33] In flight scare on KLM flight caused by Lithium Ion Battery [48:30] ASN Aircraft accident Airbus A321-231 TC-JMM Istanbul-Atatürk International Airport (IST) [1:04:27] Sichuan Airlines - Plane forced into emergency landing after cockpit window rips out at 32,000ft [1:23:22] Man who ignited midair brawl on Seattle-to-Beijing flight sentenced to 2 years in prison FEEDBACK [1:27:02] Brian - Questions for the Crew - Remaining Question for Dana [1:37:07] John - New APG Syndrome Sufferer [1:41:15] Chris - How do your Airlines handle compensation if you're grounded due to medical issues? [1:48:43] Andy - Thanks to APG for Rekindling his Aviation Passion [1:53:37] Plane Tale - Go ahead, take the controls [2:19:47] Tony - Questions re: 737 [2:30:31] Charles - Loved his latest Mad Dog Flight [2:33:53] Matt - Wings Over Illawarra [2:37:42] Capt Clevy - FedEx HUD Glasses [2:38:35] Dr Dan - Apple Sued by Families of EgyptAir Flight 804 [2:40:23] Jim - Feedback on Captain Nick's interview with Sir Glen Torpy , part 2 [2:47:05] Alex - Landings have Improved due to APG Crew Advice VIDEO Audible.com Trial Membership Offer - Get your free audio book today! Give me your review in iTunes! I'm "airlinepilotguy" on Facebook, and "airlinepilotguy" on Twitter. feedback@airlinepilotguy.com airlinepilotguy.com ATC audio from http://LiveATC.net Intro/outro Music, Coffee Fund theme music by Geoff Smith thegeoffsmith.com Dr. Steph's intro music by Nevil Bounds Capt Nick's intro music by Kevin from Norway (aka Kevski) Copyright © AirlinePilotGuy 2018, All Rights Reserved Airline Pilot Guy Show by Jeff Nielsen is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

In this second  podcast, Bennett continues where he left off last time. Borden describes his work on developing algorithms to find insider threats based on analyzing content and metadata. Transcript Cindy: Hi, everyone. Welcome to our Inside Out Security Podcast. Andy and I are very excited to have Bennett Borden. He plays many roles. He is an attorney, a data scientist, and also a partner at Drinker Biddle in Washington D.C. So welcome, Bennett. Andy: Thanks, Cindy. And again welcome, Bennett. Thank you for joining this call. So we're really excited to have you, and mostly because you have this unusual background that bridges law and data analysis. You've also written some really interesting articles on the subject of applying data science to e-discovery. I'm wondering for our non-lawyer readers of the blog, can you tell us what discovery is and how it has led to the use of big data techniques? Bennett: Sure, absolutely. And Andy and Cindy, thanks for having me. So discovery is a process in litigation. And it's a process when two or more parties get into litigation. These rules about discovery require the parties to trade information about whatever the case is about. So if you think of a patent infringement case or a breach of contract case, the two parties ‘serve discovery’—that’s what it's called--on each other. This is basically a game of Go Fish. And one side says, "Give me all your documents about the formation of the contract," and then the other side has to go and find all those documents. As you can imagine, in the information age, that could be anything! You've got to go find all the emails about that and all the documents like Word or PowerPoint. Depending on the case, it could be things like server logs or financial or HR data. It becomes quite the hunt in this modern age. Varonis: Right. So it has become e-discovery or electronic discovery. Bennett: That's exactly right. Varonis: The problem is finding relevant documents. And this problem of finding relevancy and how to decide whether a document is relevant would seem to lead to some ideas in data science. Bennett: Yes, and that's what's been really great about the advent of the information age and big data analytics in the last few years. Discovery has been around since the 1960's, but it was initially a paper endeavor.  You had to go to file cabinets and file rooms and you'd find stuff, and copy it, and hand it over. But as we’ve gotten into computerized systems and databases and especially email, it's become really quite burdensome. Millions of dollars are spent trying to find and locate these documents. It began as an issue of search technology, having to search these different repositories, document management systems and file servers and email servers. Then as data analytics came online, we have these advanced machine learning search capabilities. As I find something that I'm looking for, it's basically a “more like this” search, and analytical tools can help us understand the characteristics of what they call responsive documents and help us find more like that. It's greatly increased the efficiency of the discovery process. Varonis: Right. So it seems like some of these ideas of using data science started with e-discovery, but it has branched out from there. And I know you've written about how data analytics was used, for example, in other legal transactions like a mergers and acquisition case that you wrote about. Can you tell us more about how it's expanding from just e-discovery? Bennett: Yeah. This is really what's one of the most interesting parts of data science and its convergence in the legal sphere, because if you think about it, a lawyer's most fundamental product is really information. As a litigator, as a corporate lawyer, what we're trying to figure out is what happened and why: sometimes it’s whose fault it is or even trying to understand the value of a transaction or the value of a company, or the risk that's associated with certain kinds of securities transactions. All of that is based on information. The easier it is and the more accurately and quickly you can get at certainty of information, the better legal product you have. We started playing with these techniques. It’s the same techniques that were helping us find information that was relevant to a case, and tried to apply these to different settings. One of the most obvious is investigation settings, like a regulatory investigation or even an internal investigation. It's the same kind of principle, you're looking for electronic evidence of what happened. And that kind of pushed us into some interesting other areas. If you think about how a merger or acquisition happens, company A wants to buy company B, and so company A asks a bunch of questions — what they call due diligence. They want to know what your assets and liabilities are, what risks you might face, what are your uncollectible accounts, and, say, do you have any kind of environmental risk or litigation going on. The information provided by the target company is used to get an understanding of the value of the target, and that's what determines the purchase price. The more certain that information is or that value is, the fairer the price. When you start getting fluctuations in price, it really reflects the amount of uncertainty over the value of the company. Often when these companies trade information, they don't have a clear picture of the other side. We started using these electronic discovery and big data techniques in the due diligence process to get clearer information.   Varonis: Right. As I recall from the case, the company was sold, and then as part of verifying the company's disclosures about what they were doing were accurate, you actually went and looked at the file system. Bennett: Yeah. And this is what's interesting! When we were talking to our M&A lawyers, as one of the endeavors, we were going around to different practice groups in the firm, and we were saying, "Look, I have this skill set where I can get you information. And so how would that be valuable to you?" One of the lawyers I was talking to, the head of the M&A group, said, ‘Look, our biggest problem is that we don't have about what they're telling us and how accurate it is.’ Every M&A transaction has a provision, which they call an indemnification provision, that basically says, ‘You're going to tell me about your company, and then I'm going to give you some money for the company, but if I find out that what you told me was not accurate, then to the extent it wasn't accurate, I get to adjust my purchase price after.’ In other words, I get a refund of whatever the differences in value are. The problem with these indemnification provisions is that they are only open for like 30 or 60 days. Usually it's very hard to figure out whether the information is accurate within that very short period of time. So in this particular case, our client, the purchaser, had some doubts about the veracity of some of the information coming out of the other side, but really couldn't prove one way or the other.  Literally the day that the purchase closed, we owned all the information assets at the company we bought. We swooped in and did a data analysis, looking at all the information they had given us, and then walked it back through time. How did they come up with these figures in their disclosures? What was the internal discussion going on with their internal people and their outside auditors? We were able to show there was a pretty wide variance between what they told us and what is a reasonable basis for the valuation. We got millions of dollars back on that purchase price, and we've been able to do that over and over again now because we are able to get at these answers much more quickly in electronic data.   Varonis: Right. Yeah. It's fascinating that you're able to find the relevant files, you connect them over a period of time, and then sort of walk it back as a way to learn that the disclosure was not quite right. We're definitely on the same page about there's a lot of information on file systems, and data science can help pull it out! Back in December, we heard you speak at the CDO Summit here in New York City, and you also mentioned a system that you helped develop that can spot insider threats during and even before the actual incident. And I think you said you analyzed both the actual content and meta-content or metadata. Can you talk a little bit more about that system? Bennett: Sure. You know, this is one of the most intriguing things that I think we've done. And it sprang out of this understanding that electronic data inside of a company, and really anywhere, is really evidence of where someone has been at a certain point in time, and what they thought or did or purchased or communicated. So you can actually watch how decisions are made or how actions start to be undertaken. All of us go through our everyday lives, especially at work, leaving trails behind of conversations with people, emails back and forth, and how we come to decisions. All of these things are now kept in this electronic record. We have this sociological record-- more than we've ever had as a species, really! If you know how to get at those facts and how to put them together, you can really find the answer to just about how anything came about. I came out of the intelligence community before going to law school, and so figuring out what happened and why has been my background for my entire career. What we figured out in data science is we are pretty good at being able to predict what people are going to do as consumers. For example, this is why your Amazon suggestions, your gift basket, or your Netflix suggestions on movies, or the coupons they spit out at the local pharmacy are based on predictions of what you’re going to do. I thought if we can predict what someone's going to like or what someone's going to buy, surely I can predict if someone's going to do something wrong, because just like there's patterns in all human conduct, there's patterns in misconduct as well. So we tested this. We took a number of data sets that we had basically found in a discovery process-- a litigation or a regulatory investigation that was about corporate misconduct, something like financial statement fraud-- and all of these documents had already been analyzed by teams of lawyers to figure out which ones of those were relevant to the underlying misconduct. I had a target variable that a document was or was not related to the underlying misconduct. We built algorithmic models, predictive models, based on these underlying data, across all sorts of different kinds of misconduct, and it turned out that misconduct is actually highly predictable. We worked with some of my colleagues back at the intelligence agencies, some folks at the FBI, and some social scientists who worked with the psychology of fraud and the psychology of wrongdoing, and developed this algorithmic model that had aspects of text mining--- words and phrases people used. Some of it was based on social network analysis—looking at who was talking to who, and when, or strange patterns in communication, especially outside of work hours, people that don't normally talk to each other, or siphoning off communications outside of the network to personal email accounts. A significant part of this was conducting sentiment analysis. It turns out that the sentiment analysis actually was a large proportion of the predictive algorithm. After putting all of these features together into a model, it was stunningly accurate that we could find patterns as it began to develop, that people were either engaging in some kind of misconduct, or a situation was ripe where such misconduct could occur.   Varonis:  Right. There's some really interesting research about what they call precursors of insiders, and it sounds like you're spotting that in your algorithms. It also seems like you have a training set of data and you build it up, creating profile, a statistical profile. Bennett: Yes, that's exactly right. We looked specifically at the temporal aspect of misconduct. Catching someone after they've done it or kind of after the horse is out of the barn, that's easier, but what's harder is can we actually see the misconduct coming? So we built this model where we had a test set of data, some of which we used to build the model, and of course some of which we used to test it on, and we focused specifically on the behavior leading up to the misconduct. So could we catch it earlier? And that's where it's really interesting to see the dynamics, the sociological dynamics of how a corporation works, and people's frustration level and feelings of acceptance and support--was there some kind of loyalty  severancing event? It was really quite an interesting sociological effort.   Varonis: Absolutely, yeah. The researchers talk about trigger events that will push an insider over the line, so to speak. But we've also learned, as you suggested, that the insiders will actually try it out, they'll try to do some test runs to see how far they can get. And it sounds like your algorithms would then spot this. In other words, stop them before they actually do the act of copying or destruction or whatever it is. Bennett: That's exactly it.   Varonis: Yeah. We call that user behavior analytics, or UBA. That's the industry term of it. So it sounds like you think that's the right approach. Not everyone follows that way of finding these behaviors, or catching insiders, I should say, but it sounds like behavior is something that you're very interested in spotting. Bennett: It is. You know, it's fraught with very interesting issues. One of the things that I speak about quite often is the ethical use of data analytics. And there are certainly issues here. A lot of the triggering events or the triggers that come into misconduct situations have to do with people's personal lives, some kind of personal crisis or financial crisis, drug or alcohol dependencies, and a lot of it has to do with their interaction with their colleagues and superiors, stressful situations and feelings of ingratitude or not being recognized for their worth, and those are very personal things. And one of the things that we tested this on as part of a graduate program that I was involved in at New York University is what could you tweak this algorithm to find? We actually did some test runs. Could you find all the Republicans? Could you find people of a particular political belief or such? And you can! And it's very disconcerting that to realize that these kinds of algorithms can really find just about anything. So then the question becomes, "What's the right thing to do?" What responsibility do we have as a company or especially a public company to monitor behavior and to monitor compliance, and yet not interfere with people's personal lives? It's a very interesting question that the law is really not settled on, and is something that we have to consider as data analysts.   Varonis: Yeah, that's very interesting. The question is, "When do you turn it on?" Should it be on all the time or do certain conditions justify it? So yeah, I absolutely agree that is an issue for companies. I have one last question for you, and it has to do with, again, the insiders let's say who go bad, they're in a powerful position, they actually have created the content, they feel like they own it. And these people are sometimes very hard to spot because they're the creators, they could be high level executives, they own the content, and sometimes hard to determine whether they've actually done something wrong. They may be copying a lot of directories or files to a laptop, but that's just part of their job. So we are big believers in just keeping some basic audit trails on file activities, outside of any of the algorithms that we were talking about. So do you think that is just a minimal thing for companies to do? Bennett: It is. It's interesting because it's why we built the algorithms to capture so many different kinds of behaviors so that one person could not hide their trail well enough. But there's just basic things the companies should do to understand where their most valuable information is and where it's going. There is very simple technology out there that allows us to understand where valuable information is being routed and where it goes to that are far away from these kind of advanced algorithms. So it's common sense. In the Information Age a company's most valuable asset really is information. And so having what we call information governance principles, and so understanding and governing your information as you would any other asset is just good business.   Varonis: Right, absolutely agree. So thank you so much, Bennett, on your insights today. Bennett, if people want to learn more about what you do and follow you on Twitter, do you have a handle or a website that you can share with everyone? Bennett: Yes, thanks. My handle is @BennettBorden. And then most of my publications are on the firm's webpage at DrinkerBiddle.com under my profile. We write fairly often on this, and I would certainly welcome any thoughts from your listeners.

Once we heard Bennett Borden, a partner at the Washington law firm of DrinkerBiddle, speak at the CDO Summit about data science, privacy, and metadata, we knew we had to reengage him to continue the conversation. His  bio is quite interesting: in addition to being a litigator, he’s also a data scientist. He’s a sought after speaker on legal tech issues. Bennett has  written law journal articles about the application of machine learning and document analysis to ediscovery and other legal transactions. In this first part in a series of podcasts, Bennett discusses the discovery process and how data analysis techniques came to be used by the legal world. His unique insights on the value of the file system as a knowledge asset as well as his perspective as an attorney made for a really interesting discussion. Transcript Cindy: Hi, everyone. Welcome to our Inside Out Security Podcast. Andy and I are very excited to have Bennett Borden. He plays many roles. He is an attorney, a data scientist, and also a partner at Drinker Biddle in Washington D.C. So welcome, Bennett. Andy: Thanks, Cindy. And again welcome, Bennett. Thank you for joining this call. So we're really excited to have you, and mostly because you have this unusual background that bridges law and data analysis. You've also written some really interesting articles on the subject of applying data science to e-discovery. I'm wondering for our non-lawyer readers of the blog, can you tell us what discovery is and how it has led to the use of big data techniques? Bennett: Sure, absolutely. And Andy and Cindy, thanks for having me. So discovery is a process in litigation. And it's a process when two or more parties get into litigation. These rules about discovery require the parties to trade information about whatever the case is about. So if you think of a patent infringement case or a breach of contract case, the two parties ‘serve discovery’—that’s what it's called--on each other. This is basically a game of Go Fish. And one side says, "Give me all your documents about the formation of the contract," and then the other side has to go and find all those documents. As you can imagine, in the information age, that could be anything! You've got to go find all the emails about that and all the documents like Word or PowerPoint. Depending on the case, it could be things like server logs or financial or HR data. It becomes quite the hunt in this modern age. Varonis: Right. So it has become e-discovery or electronic discovery. Bennett: That's exactly right. Varonis: The problem is finding relevant documents. And this problem of finding relevancy and how to decide whether a document is relevant would seem to lead to some ideas in data science. Bennett: Yes, and that's what's been really great about the advent of the information age and big data analytics in the last few years. Discovery has been around since the 1960's, but it was initially a paper endeavor.  You had to go to file cabinets and file rooms and you'd find stuff, and copy it, and hand it over. But as we’ve gotten into computerized systems and databases and especially email, it's become really quite burdensome. Millions of dollars are spent trying to find and locate these documents. It began as an issue of search technology, having to search these different repositories, document management systems and file servers and email servers. Then as data analytics came online, we have these advanced machine learning search capabilities. As I find something that I'm looking for, it's basically a “more like this” search, and analytical tools can help us understand the characteristics of what they call responsive documents and help us find more like that. It's greatly increased the efficiency of the discovery process. Varonis: Right. So it seems like some of these ideas of using data science started with e-discovery, but it has branched out from there. And I know you've written about how data analytics was used, for example, in other legal transactions like a mergers and acquisition case that you wrote about. Can you tell us more about how it's expanding from just e-discovery? Bennett: Yeah. This is really what's one of the most interesting parts of data science and its convergence in the legal sphere, because if you think about it, a lawyer's most fundamental product is really information. As a litigator, as a corporate lawyer, what we're trying to figure out is what happened and why: sometimes it’s whose fault it is or even trying to understand the value of a transaction or the value of a company, or the risk that's associated with certain kinds of securities transactions. All of that is based on information. The easier it is and the more accurately and quickly you can get at certainty of information, the better legal product you have. We started playing with these techniques. It’s the same techniques that were helping us find information that was relevant to a case, and tried to apply these to different settings. One of the most obvious is investigation settings, like a regulatory investigation or even an internal investigation. It's the same kind of principle, you're looking for electronic evidence of what happened. And that kind of pushed us into some interesting other areas. If you think about how a merger or acquisition happens, company A wants to buy company B, and so company A asks a bunch of questions — what they call due diligence. They want to know what your assets and liabilities are, what risks you might face, what are your uncollectible accounts, and, say, do you have any kind of environmental risk or litigation going on. The information provided by the target company is used to get an understanding of the value of the target, and that's what determines the purchase price. The more certain that information is or that value is, the fairer the price. When you start getting fluctuations in price, it really reflects the amount of uncertainty over the value of the company. Often when these companies trade information, they don't have a clear picture of the other side. We started using these electronic discovery and big data techniques in the due diligence process to get clearer information.   Varonis: Right. As I recall from the case, the company was sold, and then as part of verifying the company's disclosures about what they were doing were accurate, you actually went and looked at the file system. Bennett: Yeah. And this is what's interesting! When we were talking to our M&A lawyers, as one of the endeavors, we were going around to different practice groups in the firm, and we were saying, "Look, I have this skill set where I can get you information. And so how would that be valuable to you?" One of the lawyers I was talking to, the head of the M&A group, said, ‘Look, our biggest problem is that we don't have about what they're telling us and how accurate it is.’ Every M&A transaction has a provision, which they call an indemnification provision, that basically says, ‘You're going to tell me about your company, and then I'm going to give you some money for the company, but if I find out that what you told me was not accurate, then to the extent it wasn't accurate, I get to adjust my purchase price after.’ In other words, I get a refund of whatever the differences in value are. The problem with these indemnification provisions is that they are only open for like 30 or 60 days. Usually it's very hard to figure out whether the information is accurate within that very short period of time. So in this particular case, our client, the purchaser, had some doubts about the veracity of some of the information coming out of the other side, but really couldn't prove one way or the other.  Literally the day that the purchase closed, we owned all the information assets at the company we bought. We swooped in and did a data analysis, looking at all the information they had given us, and then walked it back through time. How did they come up with these figures in their disclosures? What was the internal discussion going on with their internal people and their outside auditors? We were able to show there was a pretty wide variance between what they told us and what is a reasonable basis for the valuation. We got millions of dollars back on that purchase price, and we've been able to do that over and over again now because we are able to get at these answers much more quickly in electronic data.   Varonis: Right. Yeah. It's fascinating that you're able to find the relevant files, you connect them over a period of time, and then sort of walk it back as a way to learn that the disclosure was not quite right. We're definitely on the same page about there's a lot of information on file systems, and data science can help pull it out! Back in December, we heard you speak at the CDO Summit here in New York City, and you also mentioned a system that you helped develop that can spot insider threats during and even before the actual incident. And I think you said you analyzed both the actual content and meta-content or metadata. Can you talk a little bit more about that system? Bennett: Sure. You know, this is one of the most intriguing things that I think we've done. And it sprang out of this understanding that electronic data inside of a company, and really anywhere, is really evidence of where someone has been at a certain point in time, and what they thought or did or purchased or communicated. So you can actually watch how decisions are made or how actions start to be undertaken. All of us go through our everyday lives, especially at work, leaving trails behind of conversations with people, emails back and forth, and how we come to decisions. All of these things are now kept in this electronic record. We have this sociological record-- more than we've ever had as a species, really! If you know how to get at those facts and how to put them together, you can really find the answer to just about how anything came about. I came out of the intelligence community before going to law school, and so figuring out what happened and why has been my background for my entire career. What we figured out in data science is we are pretty good at being able to predict what people are going to do as consumers. For example, this is why your Amazon suggestions, your gift basket, or your Netflix suggestions on movies, or the coupons they spit out at the local pharmacy are based on predictions of what you’re going to do. I thought if we can predict what someone's going to like or what someone's going to buy, surely I can predict if someone's going to do something wrong, because just like there's patterns in all human conduct, there's patterns in misconduct as well. So we tested this. We took a number of data sets that we had basically found in a discovery process-- a litigation or a regulatory investigation that was about corporate misconduct, something like financial statement fraud-- and all of these documents had already been analyzed by teams of lawyers to figure out which ones of those were relevant to the underlying misconduct. I had a target variable that a document was or was not related to the underlying misconduct. We built algorithmic models, predictive models, based on these underlying data, across all sorts of different kinds of misconduct, and it turned out that misconduct is actually highly predictable. We worked with some of my colleagues back at the intelligence agencies, some folks at the FBI, and some social scientists who worked with the psychology of fraud and the psychology of wrongdoing, and developed this algorithmic model that had aspects of text mining--- words and phrases people used. Some of it was based on social network analysis—looking at who was talking to who, and when, or strange patterns in communication, especially outside of work hours, people that don't normally talk to each other, or siphoning off communications outside of the network to personal email accounts. A significant part of this was conducting sentiment analysis. It turns out that the sentiment analysis actually was a large proportion of the predictive algorithm. After putting all of these features together into a model, it was stunningly accurate that we could find patterns as it began to develop, that people were either engaging in some kind of misconduct, or a situation was ripe where such misconduct could occur.   Varonis:  Right. There's some really interesting research about what they call precursors of insiders, and it sounds like you're spotting that in your algorithms. It also seems like you have a training set of data and you build it up, creating profile, a statistical profile. Bennett: Yes, that's exactly right. We looked specifically at the temporal aspect of misconduct. Catching someone after they've done it or kind of after the horse is out of the barn, that's easier, but what's harder is can we actually see the misconduct coming? So we built this model where we had a test set of data, some of which we used to build the model, and of course some of which we used to test it on, and we focused specifically on the behavior leading up to the misconduct. So could we catch it earlier? And that's where it's really interesting to see the dynamics, the sociological dynamics of how a corporation works, and people's frustration level and feelings of acceptance and support--was there some kind of loyalty  severancing event? It was really quite an interesting sociological effort.   Varonis: Absolutely, yeah. The researchers talk about trigger events that will push an insider over the line, so to speak. But we've also learned, as you suggested, that the insiders will actually try it out, they'll try to do some test runs to see how far they can get. And it sounds like your algorithms would then spot this. In other words, stop them before they actually do the act of copying or destruction or whatever it is. Bennett: That's exactly it.   Varonis: Yeah. We call that user behavior analytics, or UBA. That's the industry term of it. So it sounds like you think that's the right approach. Not everyone follows that way of finding these behaviors, or catching insiders, I should say, but it sounds like behavior is something that you're very interested in spotting. Bennett: It is. You know, it's fraught with very interesting issues. One of the things that I speak about quite often is the ethical use of data analytics. And there are certainly issues here. A lot of the triggering events or the triggers that come into misconduct situations have to do with people's personal lives, some kind of personal crisis or financial crisis, drug or alcohol dependencies, and a lot of it has to do with their interaction with their colleagues and superiors, stressful situations and feelings of ingratitude or not being recognized for their worth, and those are very personal things. And one of the things that we tested this on as part of a graduate program that I was involved in at New York University is what could you tweak this algorithm to find? We actually did some test runs. Could you find all the Republicans? Could you find people of a particular political belief or such? And you can! And it's very disconcerting that to realize that these kinds of algorithms can really find just about anything. So then the question becomes, "What's the right thing to do?" What responsibility do we have as a company or especially a public company to monitor behavior and to monitor compliance, and yet not interfere with people's personal lives? It's a very interesting question that the law is really not settled on, and is something that we have to consider as data analysts.   Varonis: Yeah, that's very interesting. The question is, "When do you turn it on?" Should it be on all the time or do certain conditions justify it? So yeah, I absolutely agree that is an issue for companies. I have one last question for you, and it has to do with, again, the insiders let's say who go bad, they're in a powerful position, they actually have created the content, they feel like they own it. And these people are sometimes very hard to spot because they're the creators, they could be high level executives, they own the content, and sometimes hard to determine whether they've actually done something wrong. They may be copying a lot of directories or files to a laptop, but that's just part of their job. So we are big believers in just keeping some basic audit trails on file activities, outside of any of the algorithms that we were talking about. So do you think that is just a minimal thing for companies to do? Bennett: It is. It's interesting because it's why we built the algorithms to capture so many different kinds of behaviors so that one person could not hide their trail well enough. But there's just basic things the companies should do to understand where their most valuable information is and where it's going. There is very simple technology out there that allows us to understand where valuable information is being routed and where it goes to that are far away from these kind of advanced algorithms. So it's common sense. In the Information Age a company's most valuable asset really is information. And so having what we call information governance principles, and so understanding and governing your information as you would any other asset is just good business.   Varonis: Right, absolutely agree. So thank you so much, Bennett, on your insights today. Bennett, if people want to learn more about what you do and follow you on Twitter, do you have a handle or a website that you can share with everyone? Bennett: Yes, thanks. My handle is @BennettBorden. And then most of my publications are on the firm's webpage at DrinkerBiddle.com under my profile. We write fairly often on this, and I would certainly welcome any thoughts from your listeners.