Satyam Kantamneni was told his firm was too small, too risky, and not growing fast enough to be acquired. But when Ascendion, his longtime partner on client work, faced a build-or-buy decision, they chose to buy UXReactor because it was faster, safer, and they had already seen the quality of the work. The result was a successful exit that defied conventional wisdom and didn’t require a banker, broker, or advisor. In this episode, Satyam shares how he turned a strategic relationship into a deal others said was impossible.
TRANSCRIPT
Greg Alexander: Hey, everybody. This is Greg Alexander. You’re listening to the Pro Serv podcast. Brought to you by Collective 54. This show exists to help founders of boutique professional services firms make more money, make scaling easier and make an exit achievable. And on today’s episode, we’re going to talk about selling the quote unquote, unsellable firm. And we have a success story with us, a longtime, well-respected, well-liked member of Collective 54, Satyam Kantamneni. And Satyam recently sold his firm UX Reactor to a strategic by the name of Ascendion. And my objective for today’s interview is 2 things. Number one: I want to honor Satyam’s achievement — it’s quite remarkable, you’ll see so in a minute. And I also want to extract some actual wisdom for other members who would like to sell their firm, but are being told they can’t, and therefore they might think they have an unsellable firm. But the reality is they probably do have a sellable firm. So that’s what we’re going to try to get done today. With that, Tim, it’s good to see you. Please introduce yourself.
Satyam Kantamneni: Absolutely. Thanks so much for the platform, Greg. My introduction on a high level is, you know, I live in the San Francisco Bay Area. I’ve been doing something I feel is my calling, which is user-centered design — founded in grad school and kept to it. And so overall 10 years as a journey. So I think, Greg, right at the time when you’re ready to exit, I guess I exited according to your book. So 10 years building and growing UX Reactor and seeing it through the thick and thin — more thick than thin — and then obviously more recently going through the transaction with strategic, as you called out. So that’s my introduction overall. And I’m sure I can talk to you as we continue the conversation.
Greg Alexander: Okay. So at the start of this, I just wanted to publicly congratulate you. You know, you and I have gotten to know each other. We spent some time together, and like all entrepreneurs, you had your ups and downs, but you are exhibit A for perseverance. You pushed through it all and got to the other side, and on behalf of the community, we’re very proud of you and very happy for you.
Satyam Kantamneni: Thank you. I appreciate that, Greg, and it surely takes a village, and Collective 54 was surely a big part of that village.
Greg Alexander: Alright. So I’ve got 5 themes that I want to talk about in our interview, and in each one of those themes I’m going to ask you a couple of questions. So the first theme is kind of origin and mindset shift. And the goal here is I want to bring out the mental pivot that allowed you to go from doubting if this could get done to actually pulling it off. And I have 2 questions here to ask you. I’ll ask one and get your answer, and then I’ll ask the second one. So you were told by a lot of people that your firm wasn’t sellable for a variety of reasons. Maybe it was too small, or it wasn’t growing, or what have you? What were the reasons that advisors gave you, and what made you believe they were wrong?
Satyam Kantamneni: See, when you’re doing it as a first-time founder, you always go with what the collective wisdom is. And I would say my intuition felt always different. But again, I’ll say any founder that doesn’t — they should never be in that business of being an entrepreneur. Because you are following an intuition. I think to answer your question, why we felt that we were not sellable, I think Greg Fink, I believe from Equiteq, had this wheel of things that could get you to — I think the first Founders Summit. And we were there, and I brought my leadership team, and I was sitting there and looking at those 8 elements that they had defined. And we probably had only scored in one of them a reasonable score, and 7 of them were negative. Basically things like client concentration, did we have a sales team, etc. — all these things that were not working well. And again, the reality is that’s exactly what hit us as a business. So to those of you — I think everybody here — we have a 10-year journey. 8 years was insane success. I would say it was success where we were the fastest growing in our space, on the Inc. 5000 list 4 years in a row, fastest in the San Francisco Bay Area 4 years in a row. And success was just kind of coming together and growth was happening. And then client concentration hit, and not having a sales system hit, and both of those were a big priority. And again, now I see why buyers put importance to that. The top 4 clients that were giving us 90% of the work at the beginning of 2023 started contracting. And while we were refusing work at the end of 2022, we were building up the delivery model. So we effectively had more delivery and then less demand. And that ended up becoming a very crazy 2023. And because we didn’t have a sales team and a function, that ended up impacting us, not having enough to build demand. So it took about 18 months to get that to stabilize, and we were negative. But the good thing was, we had cash and everything available from our prior years. And again, something that is always spoken about from a financial perspective — to have enough of a rainy day fund. Don’t just spend it when you have it. So there were things that were going well. There were things that were not going well. The things that were not going well really hit us hard. So obviously no one wanted to touch us. I’ll give you the same thing with Ascendion. The first conversation I had with them, the CEO of Ascendion was like, “Why did you bring me this deal? This seems like a liability.” And I’m sitting there as a founder like, yeah, absolutely. I mean, it is a liability, because it’s negative EBITDA, has a large team, and no real story around it. And if I was a buyer on the other side, I would say the same thing. So long story short, there were things that were identified as negative, that would be negative, were negative. The thing that was working is that there was some reason why 8 years of success was there. There was some reason why we had clients — pretty large Fortune 500 companies, small companies that were successful and loved it. I’ll just share one thing. We had a celebration about 2 weeks back after we announced this publicly, and we invited some of our clients. And what was interesting is, because the announcement went out on April 27th/24th, and a week later we were doing this small party. We sent out some invites, and very quickly everybody that we sent an invite to accepted. People flew in from places, and that’s what then shows you what we actually built — good projects, good people, good engagement and good relationships. It’s just that they didn’t come to kind of fruition when we needed it. But that’s the goodwill that came in. And I think that was why we were valuable — that we were still an impact-creating organization while all the negatives existed. So the intuition was still that, yes, there is something valuable here. It’s just that we are not able to get a couple of things figured out. And as a small firm, every mistake can be challenging. If you’re a large firm, mistakes are much more forgivable. That’s what I would say on a high level to give you my perspective on what you asked.
Greg Alexander: Yeah, no, it’s a great perspective and a great answer, and it’s a good reminder. You listen to the experts. And you mentioned Greg Fink, and he is one. And Equiteq’s a great firm, and they have a way of looking at things because they’re an investment banking firm that sells firms like yours. And that’s what they’re doing. They’re educating us. And I forget the name of it — it’s a wheel, they give it some name. There’s 8 items on it. And you take that, and you say, okay, I need to improve in these areas. Sometimes, especially when you only score one out of 8, it can be a little discouraging.
Greg Alexander: but it shouldn’t be. It should be okay. So this is the path forward. Let’s go get to work on these things. The one thing that you always did, which I think is ultimately the reason why you, successfully exited is you delivered outstanding client work. and it’s not a surprise to me that your clients got on a plane and flew in to participate in the celebration because of the value that you created to them, and in the end, you know, as long as that’s there, that might be the only non-negotiable right. As long as that’s there. The other things you can you can build off of that? Okay, let me ask you a question regarding like, was there was there a specific moment when you realized, hey, maybe I can actually sell this business like what changed from thinking that it couldn’t be done to that, it could be done. Yeah, you know, you mentioned a key word there, trust right? And and I think you know, as as someone who observed this from the sidelines. I think Trust played a huge role here. And I want to talk about this because to the extent that you can discuss the details, and if if I make a mistake and ask a question that you cannot discuss, just tell me, and we’ll move on. But you sold your firm to one of your strategic partners. and you had a working track record with them. They knew you. They saw the quality of work that you did so trust was built up, and one of the unique characteristics of your deal is you did not hire an investment banking firm or a broker an M. And a advisor, you know, you just dealt directly with the buyer because of the nature of the relationship. So so, for those that you know are hearing this for the 1st time. Can you give us the context like, who was the buyer? Tell us the nature of your partnership, and how you went from partnering to joining.
Satyam Kantamneni: Yeah, I think everything is is uncertain till it’s certain right. And I think for us the choice was not to stop trying. Right. So I think we were. We were literally pushing. And I think this is a huge, huge kudos to the team that I’ve had, and I think the tenure for most of leadership at Ux react has been 7 years of a 10 year period as an average. So leaders have stayed on, and I think what we were trying is, we were trying to get the business up and running. We were trying to keep the team motivated. We were trying to kind of find partners and channels and we’re trying to build out the sales function. So a lot of the trying that was that grit of saying, like just sitting there and letting it happen was not an option. So we just kept persisting through those conversations. Obviously, you know, the discussion started happening. And and it’s interesting. If you believe in yourself, then others will believe in you right. And I think in this case we truly believe that we had a value creation machine here. And and when we were working we were generating about 60, 70% margin. So just that we didn’t have enough demand that we could figure out. So this was very profitable, very effective. So for us. And that’s what other companies were also seeing is like that. We started having these dialogue. Now, what we have is something that you know. Again, we are solving a need that is not being solved as well. So as somebody starts figuring that out our buyers and and everybody start figuring it out, it quickly ended up, you know, becoming more and more apparent that you know what we have is unique. And and if they could figure out the other scaffolding around it that, it could actually, you know, really take off. That was 1 1 factor. So we were having this conversation also. Most of the conversations were non-threatening conversations. So these were conversations. Let’s let’s try one experiment at a time. Let’s see where it is. I mean for us. Let if it will be in the end a great thing. If you have a Channel partner for you. It would be a great thing if you were to acquire, and the conversation was not like, you know, again, just like I would say, acquisition is like a marriage and you’re like, you know, just one date at a time. You figure out one thing at a time, and and always the openness that you know. If it doesn’t work, you know, you’ll just walk away as friends, and I think that was what it was. And then but we believe that what we had was valuable. They saw something, but we wanted to make sure that it would come together in the end we effectively had the 3 different offers we had to think through. So it was also interesting that it was not the only offer on the table and and but the fact was, in all these cases we were having one experiment, one conversation at a time and and then it started coming together when it, like July last year, is when we had the 1st serious conversation where we started saying, Okay, how do we make this? And then we realized that right now it’s not a marriage. But but then let’s keep working through an experiment at a time, then. And one thing worked 2 things work. And then slowly and steadily, and Loi started kind of coming together. So that’s when you start realizing that this is happening. And this is happening, I think. And interestingly, this is something I will also share, Greg, that most Lois and I think, actually get worse after the loi. In our case the terms the the deal did not change, but the terms they actually became more and more conducive for us. Because more and more trust was being built through that process. And it actually worked out pretty well for us. And that’s when it starts hitting you that this is happening. And this is gonna happen, and and then it, it’s all done. So I I think, for in to introduce the firm ux reactor itself, and that will probably give some context, right? So ux reactor is a strategic user experience and design firm. So what that means is that the best analogy I give is like, we are the architects. Or if you’re looking at construction. We are architects, and then they’re general contracting companies. So in this case it’s Indian. The company that acquired us was the engineering firm now in in the software setting, we are, we are the software design and user experience function. And then somebody has to engineer that everything that we design has to build by someone. And we didn’t have any engineering capabilities ourselves. So we started working with partners that could effectively attach us to them, and that was also the shift of saying that you know, hey, we cannot go build our own sales function as a small boutique. We have to find a build, a partnership model with, you know, organizations. And that’s kind of was a big shift. And that was a shift that actually played out for us. So in this case, this partner started saying, Okay, let’s see if we can. You add value to us and like anything which is an strategic. You know, it has to be a synergistic relationship that we multiply them and they multiply us. That was a key requirement
Satyam Kantamneni: and overall so as we started working through that, they the the. This is also when it shows trust. Right? So in their case, they said, Yeah, we believe in this. We will put our sales team to start selling this. And we are like, and we’ve had other partners that would say that. But then they would just not show up in this case they did. They actually started working through. They put in a couple of sales people. But then the interesting thing was, we brought them a deal before they brought us a deal, so we got a deal where we we actually did the design. And we said they wanted engineering, I said, here’s ascendion. They may help you with that ascendion showed up, and they did a good job, and they continue to deliver. We’ve we’ve extracted ourselves from there, but assignion continues to work so for them they saw value there. They doubled down. Then they got us into a deal that they lost. We pitched to that company, and it was one of the large 3 you know, credit bureaus, and then we won the deal. So again it slowly started, showing that you know. Okay, the the hypothesis that you know. Yes, we don’t have a sales function, but we have a good caliber quality team was starting to prove. And and that’s when I think, when it started coming together overall and in our case, you know, that’s when numbers started getting discussed where things were. And again, as you said, trust was being built one step at a time, and they were proving trust to us that they could do what they could do. We were proving to them that we could do what we could do. And then, slowly and steadily, everything kind of started becoming more clear.
Greg Alexander: Yeah, you know. And this is a big learning for those that are listening to this. You know, if you’re a small firm and you don’t think your firm is sellable, but you would like to sell it. A place to look is the ecosystem that you operate in. So in Satyam’s case, you know, he had Channel partners. Ascendium was one of them. They were synergistic partners, you know. Satyam’s were the designers, if you will, and ascendium were the builders, if you will. And the the easiest way, or I should say maybe the most reliable way of building trust is that when somebody refers you to one of their clients. Win the deal and do a great job. Because then they’ll refer you over and over again. And then they saw the work that ux reactor produced. And they heard from the client, hey, these guys are great. They really know what they’re doing. That’s how trust gets built. Everything else is just talk. And the same token, when you refer a piece of business to someone in your ecosystem, watch how they do. How do they treat the client? Are they a positive reflection on you? Do they do good work? Are they on time, on spec, on budget, etc, etc? And then a natural potential acquire is somebody that you have a track record with. That’s how trust happens. And very often these partnership conversations evolve as they did here to hey? I wonder what would happen if we joined forces like, does one plus one equal 3 here or not? And and that’s the way that something like this might get done. So if you’re a small firm and you’re having a hard time attracting an investment banker to represent you to a large universe of buyers think about who your strategic partners are, and maybe focus your time and attention there.
Satyam Kantamneni: I I don’t think I quite answered your question on the investment banking, and and that the support structure there, if I could quickly add a a minute on just that. That is actually because that was something I struggled with. So, by the way, this was not the 1st time we got an acquisition offer 5 years back. We did, but that time it was much more nerve wracking this time. It wasn’t because of collective 54, and I’ll share very quickly what I mean by that. So the investment bankers, from what I understand, actually helps you define that universe of buyers and then kind of gets you there. If you’re a small firm, you basically are the honeypot, and you’re attracting, and, as you kind of called it in our case, we are attracting it in our ecosystem. However, they still need the scaffolding of good advice around our deal is structured. What’s going on? You still need legal advice, and so on, so forth. And that’s what I was leveraging collective 54, and people like yourself to kind of help in that process but the the investment element of like, you know. Who are we? What are we? Why are we valuable and all that as a small firm that was all on us, and we we and I think that was also where we were the most comfortable. It’s just that we didn’t have a universe of buyers, and and we didn’t run a process which is its own thing. And because most. And this is also, I think, the buyers. And if all the buyers out there in the universe if they had lost that, they lost an opportunity to kind of engage, because they’re all looking at the superficial elements of that. Now, again, the point is, how much effort are they willing to put to kind of get that one diamond in a rough? That’s also a challenge, because sometimes most times it is a misfire. But the fact is that you know, why did we not bring an investment banker? Because we were selling ourselves, and we were selling to our ecosystem. But did we need more in that ecosystem? Absolutely. And I think that’s where the collective really really helps.
Greg Alexander: Yeah, yeah, it’s a good call out, and I appreciate you sharing that, you know our for listeners. My point of view is is that if you don’t have a buyer and you need somebody to help you find a buyer. An investment banking firm is the way to go. In Satyam’s case. They had a buyer. however, to get a deal done. He still needed help. For example, he needed lawyers, and he needed accountants, and he needed a consultant, etc. There are things you still need to do to successfully complete the exit. But in this case he didn’t need somebody to find him a buyer, which is the primary value of an investment bank. They provide a lot of value. But that’s the primary value. So if you’re listening to this, and you have a buyer, or you have people that are circling around you in your ecosystem. You don’t need help finding a buyer. Then you can take the path that satyam took.
Satyam Kantamneni: it’s unsellable because of a it’s probably I don’t know if the word unsellable, but I probably would say, it’s it’s unattractive and it’s and it’s unattractive for a lot of reasons. But then the one thing that attracts is that it is a core, it it actually is a great, it gives a great experience for people when they work with it and and people level. And again, so that’s probably what I would state if that.
Greg Alexander: Yeah, okay, I like that answer. I would add, I would add the following things to it. You know, most mergers and acquisitions are formulaic. So there’s a multiple of Ebitda or a multiple of revenue. And then there’s questions around the team. And you know the clients, etc. where unattractive firms. I’ll use your term. I like that much better than unsellable firms. What they oftentimes don’t get is what’s the strategic value, I mean, take the accounting hat off for a moment and think about the strategic value. And in your case there was tremendous strategic value of bringing ux reactor into ascendium. And then the conversation became, not what’s happened in the past, but what might happen in the future if we combine forces? That’s the big thing to really circle. So I just wanted to make sure that I emphasize that.
Greg Alexander: Okay, I think I got time for one more question. and that is if you had to do it over again. What would you do sooner, or what would you not do at all?
Satyam Kantamneni: I think. see? And and I’ve thought about it quite a bit, and I’ll answer it in a couple of ways. The 1st thing I will say is, being very aware of. What are you trying to build the firm towards? I think with the 1st 5 years we were not even clear about what we were just having fun. And we were just building things. We were excited, and we were doing what we were doing but not really thinking about an exit, not thinking about what the metrics are. How how should it be? There? We were needing cash for pet projects here and there. there’s a lot going on there. So I probably if I if I was to do ux reactor Aller again, I probably would always keep my eyes on. What am I trying to do now again build to sell is different from selling. But I had neither going. And what would I, you know, do more of, I would continue. I think sooner I would just say, start working on that ecosystem and the channel we were trying to do our own by our own way. And I would say, if I was doing it again, I would always start with, you know, having a deeper ecosystem and a deeper channel and as I said, it truly takes a village, and then might as well recruit that much ahead of time.
Greg Alexander: Yeah. I agree with you wholeheartedly on that last point. I mean, if you think about the nature of a boutique. the nature is, you’re a specialist, you know. You’re the category king or queen of a niche tightly defined niche, which means you don’t do everything so that there are things to the left of you, to the right of you, above you, below you, that the client is going to need to contract with. and knowing who those firms are, and how those services are complementary. It benefits the client, because now you can make intelligent recommendations to them. It benefits you as the boutique owner, because sometimes clients won’t move forward on your project if they don’t know what comes next like, how do I get across the finish line? It also benefits the ecosystem partners themselves. and in the end, when it goes well, which it did here, it leads to these types of outcomes so sooner, which was part of the question is, map out that ecosystem and start building relationships. And I would add one more thing to that which is, think through the lens of abundance as opposed to the lens through scarcity. I think sometimes boutique owners. They get wrapped around the axle in terms of market share and dollars gained, etc, you know there’s enough to go around for everybody, you know, and if your partners make money, and if your partners get clients. even though if you don’t immediately benefit from the transaction itself. You’re benefiting tremendously from the relationship value over time. And in satyam’s case, over 10 years. That’s how this happens. Does that make sense to you, satyam.
Satyam Kantamneni: Absolutely, I would not disagree at all, and good wisdom, for whenever the next iteration happens.
Greg Alexander: Yeah, great, all right. Well, listen. As I started, we’re very proud of you. We’re very, very lucky to have you in our community. Not only are you a fantastic entrepreneur with a tremendous amount of grit. You’re just a good guy every time I talk to you I have a smile on my face every time the members talk to you. They love being around you, and it’s always wonderful to see good things happen to good people. So congrats to you and your team.
Satyam Kantamneni: Thank you so much, Greg. Appreciate it.
Greg Alexander: Okay, all right. A couple of calls to action for listeners. If you’re not a member of Collective 54, you think you might want to be. Go to Collective 5, 4.com and fill out a form. We’ll get in contact with you if you are a member, and you’re dying to hear more about this story, and there are a lot more details. Look for the meeting invitation for Satyam’s private member, Q. And A. And you can ask your questions directly of him. but until next time I wish you all the best of luck. As you try to grow, scale, and exit your firm.
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