CEO to CEO Podcast: Kevin Reid

January 13, 2021 Kevin Campbell

The CEO to CEO podcast is hosted by Kevin Campbell, CEO of Syniti.

This week's guest, Kevin Reid, is the co-founder and partner of Blue Lagoon Capital. Kevin is also the former co-founder CEO and CTO of VirtuStream. The company was acquired by EMC for $1.2 billion, just seven years after he and his partner co-founded it.




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Kevin Campbell (01:08):

Welcome to this week's CEO to CEO podcast. Today I'm delighted to have on with me, Kevin Reid. Kevin Reid is a accomplished executive, an accomplished entrepreneur, a great advice giver. I'm fortunate to have him on my board and an all around good guy. So excited to have you on and have a conversation today, Kevin.


Kevin Reid (01:34):

Thank you.


Kevin Campbell (01:35):

Why don't we start with you telling us a little bit about your career journey. I know the highlights. You were at Kanbay for a while, that got bought a couple of times, you co-founded VirtuStream and now you've co-founded Blue Lagoon. So maybe you could just give us some of the highlights along the way for people that don't know you as well as some of us do.


Kevin Reid (01:59):

Yeah, no worries. So I started my career out of school with what was Anderson Consulting, became Accenture, and then went to go work for a client in industry and then realized that it was really the workaholic and I needed to go back in and do my first entrepreneurial gig.


And so I hooked up with my, I guess, now 29 years worth of a business partner who I met at Anderson at the time. And we started a company called Adjoined Consulting, which got bought by Kanbay, as you mentioned. And then Kanbay was acquired by Capgemini. And then after that Rod and I decided we would start Blue Lagoon as a fund. And we actually did that and invested in two companies, both of which we started, VirtuStream M&A company called Greensmith. Not many people know about the Greensmith side, but we started that right before VirtuStream.


I was the chair on that. And we had a lot less capital in it, but we had a really good exit with that one as well. Sold it to a company out of Finland. They were in the energy sector. And then Virtustream got bought by EMC. And then we became part of the EMC team. And that's what of course I meant Joe Tucci and Bill Green and some of the other fine executives that are also with us here at Syniti. And then EMC got bought by Dell, stayed with Dell for awhile as a president, and then left in 2018 and started our second fund, which is a follow-up to the first fund that had Virtustream and Greensmith. So now we have nine investments and I'm sure we'll probably talk about that at some point, depending on where you'd like to go.


Kevin Campbell (03:48):

Great, interesting career and again, an executive working for people and an entrepreneur building things. So, fascinating and you mentioned that you and Rodney had been partners for 29 years. That's pretty rare these days. What do you think the key is to your 29 years of working together?


Kevin Reid (04:12):

It is really rare and you know, some of the investors. I remember the guys at Intel Capital when they came in, I remember having a beer with one of them one night and they said, "You guys are this rare thing that we call a two in a box, where you've got two executives that are complimentary to each other and work well with each other, both, as friends and professionals." And I think it starts with respecting each other's capabilities and making sure that you check the ego at the door because to be a successful entrepreneur, you always have to focus on the bigger picture.


And if the bigger picture is making the company successful, then if you start to get too mired in your own individual skills, capabilities, or ego, then you definitely lose sight of the forest through the trees. So we've been fortunate to be good friends and good complimentary business associates. And after 29 years, I would say it's as strong as it's ever been on all fronts.


Kevin Campbell (05:10):

That's great. Your track record is quite impressive. And the comradery, relationship and synergies between you is also quite impressive for somebody that just watches from the outside.


Kevin Reid (05:24):

Thank you.


Kevin Campbell (05:25):

Speaking of tech investing, what do you like about being a tech investor?


Kevin Reid (05:31):

What's really interesting for me, being at my heart of hearts a technologist, is that it forces you to stay current. Because you want to be prepared for every pitch. And at the same time, you get to meet so many entrepreneurs who are really bright. It's hard to not be somewhat impressed by very passionate, driven people who are smart and who have good ideas. And so for me being able to get that constant perspective on so many different aspects of technology, that to me is the most fun.


Kevin Campbell (06:05):

What are the challenges? What are the biggest challenges?


Kevin Reid (06:08):

I think for me, the biggest challenge is the fact that for every investor, you've got a certain book of business that you can invest in. You've got a fund that has a certain size. And therefore just by laws of probability, you have to pass on more companies that you actually invest in. And that's probably the toughest thing because not only do you have an innate sort of anxiety around, are you passing on something that's going to be really good. But a lot of times, because you really feel it for these entrepreneurs, you identify with them, you see their passion. It's tough to do a pass, but inevitably you have to be a successful investor.


Kevin Campbell (06:49):

Let's talk a little bit more about the blue lagoon and what's the angle that you're looking on or your investment theme and how have you been sorting through the investments that you do have?


Kevin Reid (07:05):

Rod and I have been very much focused on looking at sectors that we think are early that have a certain amount of hype to them. And because of that, one of the areas that we focused on is autonomous vehicles. We think that there's a lot, that's still left to be done there. And even though there are several significant companies in investing hundreds of millions of dollars, it's such a broad spectrum of solutions that need to be stitched together. We still think there's some runway there.


We like artificial intelligence and machine learning. I'm sure things that are all near and dear to your heart, Kevin. But for us data is really at its infancy. You know, the number of different sensor types and capabilities to be able to digest and process data, now are at the point where we think there are tons of opportunity to create value in the AI and the ML space.


And then the last area that we've been fortunate to be successful in, in the past, is what we refer to as software enabled services, where people are looking at sectors that have spend, that have services that are being delivered, but have found ways to, to use software to their benefit, to do it at better margins, more efficiently faster and so forth. And so that for us is a third area that we like is the software enabled services sector.


Kevin Campbell (08:29):

And when you're looking at what then specific companies to invest in, and I know it's some science and some art and some gut-feel. Especially for you and rod and all the experiences that you guys have, what do you look for? If you were giving advice to another person that wanted to invest in companies, what would you tell them? What do you look for and what do you stay away from?


Kevin Reid (08:57):

So I think the first thing we look for is existing spend. There has to be a problem that needs to be solved. And usually if a problem already exists, that needs to be solved, then people are spending money trying to solve that problem. And so the first thing we look for is existing spend. Then the second would be ways that technology can therefore disrupt however that spend is being consumed.


And then the third thing we look at... And so if you think of it, that the second thing sort of percolates into what's the idea or the service that the entrepreneur has, or the founding group has. But then the last thing, which is arguably the most important is the management team. You have to make sure that as you're evaluating these management teams, you're really looking at their ability to take the idea and monetize it and then go through all the different stages of growth that a company has to go through to be able to be successful.


Kevin Campbell (09:58):

Have you learned some, like, I'll never do this again in investing or is it all a matter of degrees and learning over time?


Kevin Reid (10:09):

Yeah, I think there's the saying you either win or learn. And I think that's the key thing for us. We've certainly made plenty of mistakes over time. I think the most important thing is to look back at mistakes, whether it was patterns you saw in people and you, went against it and thought, "You know what? My gut says, I should do this. Even though all the signs are, I should do something else." Sometimes that works in your favor, but when it doesn't work in your favor, it's really important to own up to it and look back at it and then learn from it. And certainly over the years, we've tried to take all those learnings and apply them to the future as we go forward.


Kevin Campbell (10:52):

COVID has been something that we've all had to deal with this year, both personally and [inaudible 00:10:58] out to businesses. What's the impact that COVID has had on your portfolio companies so far?


Kevin Reid (11:08):

I would say across the board, Kevin, we've seen about a 30% drop in revenue through the course of the year. That's about the average that we've seen, not only in our portfolio, but as we speak with other investors, that seems to be a fairly rough approximation of what people have seen. There've been plenty of things that have helped those companies, such as the PPP programs that were put in place. But overall, I think we saw a tendency of projects to be delayed more so than canceled with the exception of the hospitality segment, because those companies had such a precipitous drop in their own revenue that I think they just had to react by shutting down a lot more things. So if you put that aside, I would say, generally speaking, we've seen most of our companies already getting back to the revenue run rates that they had before. So they're all high growth companies, so it's more like you're high growth and then you sort of stumbled and [crosstalk 00:12:13].


Kevin Campbell (12:14):

What do you think the impact of COVID is going to have on the tech scene and the tech investing scene on a longer term, 2021, 2022 kind of basis?


Kevin Reid (12:28):

Well what's funny is that I think technology practitioners, if you will, have always been very good at being able to work remotely. Several years ago, but back when I started my career, it was all about getting people into offices, getting these teams to fuse together and having a lot of camaraderie. And that would ultimately drive the chemistry, which drives the output. I think as long as maybe 10 years ago, when certain tools started to come into play, we saw companies start to shift more towards, let me just get the best athlete, no matter where they are. And then with that came a lot of travel where those athletes would then have to, if they had to be on a client site, they would travel. But if not, they would just do periodic trips in. So I think the tech scene from a delivery standpoint has just gotten a little bit better because the tools have all matured really quickly and the last a year.


If there's anything that COVID stone is really driven everyone as evidenced by even our interview right now, which would have been done very differently had we not been in COVID times. But I think the longer term effect that we're going to see from this is more people working from home. I think there will be some trends that likely won't reverse. You can't really replace in-person contact. But I do think with the benefits people have seen from travel and entertainment reductions, I think it's going to be hard for people to justify getting back on airplanes anytime too soon. On the holiday segments and hospitality, all of that. I think there's going to be that pent up demand that completely shifts, but for the tech scene I think that will be the only major impact.


Kevin Campbell (14:18):

That's really interesting. And we all talk about stress testing, whatever our ideas were. And certainly COVID stress tested a lot of ideas like we've never seen before. And so I think that has helped speed things along. I've heard people in retail say it advanced them by five years of kind of what they thought was going to happen in the marketplace. So I think it's going to present challenges in the short-term, but lots of good opportunities.


Kevin Reid (14:51):

I agree.


Kevin Campbell (14:52):

Let's talk about M&A for a minute. You've done a fair amount of M&A, participated in it. Combined companies watched it from a lot of different views. What have you learned about what makes successful M&A?


Kevin Reid (15:10):

So I, the three things I would focus on for successful MNA would be the culture, the communication, and the manner by which you integrate the leaders. And starting with the culture. Everyone talks about the cultures need to be the same. And so there's nothing new there. Probably the difference in my thinking around culture is the approach we've always used going all the way back to Adjoined where we probably did four or five tuck-in acquisitions of smaller groups is not only to identify the culture of being aligned with yours, but more importantly, identify what we call the culture leaders.


Who are the people in the company, they don't necessarily end up being the CEO or even the executive C team. But they are individuals who are like the cultural leaders for those companies, identifying them early on, being able to make them part of the thinking, part of the communication plan and ultimately making sure that that leadership team in the post-acquisition world gets integrated in a way that there's evidence of their leaders, whether it's cultural or not end up in the right places. But then having a communication plan, that's very, very well thought out around making sure that the key messages that you get from those leaders get sprinkled in, get disseminated and are very consistent, so that you're not leaving it up to who told you what around the water cooler.


Kevin Campbell (16:40):

Right. That's certainly true. And something that's easier said than done as you know.. So it takes a lot of dedication and hard work. I always remember about communication. They say just when you've said it so many times as a leader that you're tired of your own voice, you're probably just getting through to some of the people. So that's something that to work on. When you look for a perfect acquisition candidate, let's say you're coaching one of your teams that's looking for acquisitions today. What do you tell them about looking for the right candidate?


Kevin Reid (17:20):

I would say that the first thing we look for is the enterprise value. If you're looking at an acquisition target, there has to be an underlying extension of your own enterprise value post-acquisition. And that can come in multiple forms. It could come in the way of revenue expansion. It could come in the way of gross margin expansion by just being more efficient. It could come in the way of EBITDA with synergies that you could do below the line on the administrative costs of running a business.


And so we've seen many of these different approaches be used. And so there's really no sort of easy way to put a mold together and say the perfect acquisition because the acquirer, it's sort of like the beauty's in the eyes of the beholder. So you're going to have certain attributes that are going to be driven by the acquirer. But at the end of the day, it needs to be accretive to the enterprise value. I think it needs to be complimentary, the best acquisitions we've seen are where either a new set of clients come along, that you can cross sell into, or you have new products or services that you can extend in clients you're already in. And the best acquisitions are both work. Where you can actually expand your portfolio of services and expand your client base. And that's where you get that one plus one equals three.


Kevin Campbell (18:49):

Right. Which is what we're all looking for. let's switch to one of my favorite topics of data. What role have you seen data play in M&A?


Kevin Reid (19:01):

Well, the first thing is when we approach any company from an investment standpoint or acquisition standpoint, you're always trying to assess how well run the company is. And I have yet to see what I would consider a well-run company that isn't somehow obsessed with data. And when I say obsessed with data, it's tracking everything, it's tracking what their bookings look like and how they're tracking towards their quarter, running like a public company even if you're a private company. And understanding data, data, data.


You're going into a quarter how much backlog do you have sold. Your coming close to the end of the month, what sort of revenue have you pulled down against your budget? And so data becomes really important from just a pure cadence standpoint. The other area where it's really critical is in comparisons, because whether you feel passionate about one company or another enterprise value, and therefore the acquisition values are typically driven by what the data actually says from a comp perspective. So if you're a software company, that's really more SAS oriented than what our other SAS companies trading like, or have sold for in your particular industry. And you can apply that in many different ways, but ultimately the data is objective and that's why data is so important. It takes away all of that subjectivity and for M&A, for investments a lot of what you do is really around objectively what do you think you can actually yield out of an acquisition or an investment.


Kevin Campbell (20:40):

And one of the many times we've been talking, you told me a story about when you were getting acquired one time and how you felt that the control over data and your ability to convey that to the acquirer probably ended up, which is not a surprise in you getting a higher valuation. So maybe talk a little bit about why having better control of your data, what it can mean when you're trying to demonstrate where you're going and how you control the business to acquire.


Kevin Reid (21:21):

Sure. Well, I think I could have been telling you that story about either Adjoined or a VirtuStream, because I think in both cases, we could check that box. With Adjoined when we were acquired by Kanbay, we had actually written our own practice management system, something that we called NetView. And I think when Kanbay came in and started to look at the way in which we managed people, and we had a smaller number of people in data. They had about 4,000 people at the time, we had about 500 people at the time of the acquisition.


And when they came in and looked at the manner by which we were so meticulous about assigning people into projects, knowing exactly when they're rolling off, not only what their utilization would be, but revenue realization, is of course, a term that you and I have talked about as well. But looking at all the different KPIs that we had created ourselves and we're just maniacal about managing.


And you talk about partnerships on complimentary capabilities. You know, my partner Rod, he was very, very passionate about that, continues to be passionate about that. And that a lot of those philosophies we coded into a practice management system. And I think when Kanbay looked at that and saw the yield we were getting from our group of consultants and then thought about how that could be applied. Some of those metrics and methods could be applied to a broader group they actually were able to see where they could derive extra value.


I think with VirtuStream, it was the same thing. Joe Tucci mentioned at one point that he thought our company was just about as well as many of the companies that he'd ever looked at, which is a true compliment from Joe given how many companies he acquired in the life of EMC's legacy and even before. So it continues to be an area where anytime we invest in companies, we try to bring that rigor around data and data management, to the point where we even started a company, Stella Technologies is one of our investments for the fund for that purpose. Because we realized there were so many companies that couldn't stitch together all of that forward thinking all the way back through cash.


Kevin Campbell (23:43):

Right. And I think those are great examples. So I appreciate that the value of data, good data and your control and knowledge over your data. I also like you haven't seen any well-run companies that don't have people that have a maniacal focus on data. So as you were saying data is so important and you know, during my time at pure play, data company Syniti, I'm still shocked at how many executives that I talk to that don't understand the impact... They'll understand financial data, but they don't understand the impact of that data, all the different types of data on the product. On things such as inventory loss or order loss, or even customer data.. We're at a unnamed major paper company and they had 15,000 parts of which only 1,000 of them were unique, meaning you've got data all over the place.


And how do you do reporting against that? How do you do consolidated ordering, but it takes time for people to understand what that power is. And so that's part of what we're trying to work on with people every day. One of the things that you have a great reputation for is being a great mentor. And I've talked to lots of people who've said "Kevin's had a huge impact on me and my career." Mentors, most people say are important, but what do you think about mentorship and how do you think about the time you contribute to being a mentor?


Kevin Reid (25:28):

Well, first of all, that's great to hear that that many people feel like I've been a positive impact on their career, because I certainly try to be a positive influence on anyone that I come into contact with, but certainly people that work within any of our companies and especially people working within my teams. I've always looked at maybe the stratification of role models and mentors. And I think many people under-utilize role models. I think role models are very important because they help to build more around your personal character. And looking at role models they can come from any facet of your life, could be your parents, could be your grandparents, could be some random person that you know, or it could be someone you work with where you really look at some of the ways they carry themselves on the principles that they live by.


And that to me builds the attributes of character. And then you have mentors and mentors to me, instead of really shaping your character, they more shape your behavior. And by that, what I mean is, as a professional, there are many things that most people are not inherently comfortable with. Such as in a meeting where someone is presenting an idea that you think is just complete garbage how do you actually react to that? How do you deconstruct their argument? How do you plant your own arguments? How do you read the room of people?


If you're working with a customer and the customer does not seem to be engaged, how do you get them engaged? How do you read from the first point that they're not engaged? And so all these things around body language and behavioral mannerisms in the professional work environment. To me, those are the things that mentors really help with because mentors typically carry a different point of view.


And I remember my mom early on saying "When you go into a room, I'm not saying you should think that you're the smartest person in the room, but certainly don't think that you're the least smart. And when other people talk, just remember, they have a different point of view. They may not be smarter. They just have a different point of view. And so make sure you understand what your point of view is. And then to the extent you can share why you do that." And so I really encourage people that work with me to think of it that way. That first of all, your point of view is just your point of view. But if people don't understand how you constructed that, then it's very difficult to convince them that what you think is the right answer is really the right answer.


So from a mentoring standpoint, knowing that there are people out there who have more experience, who have seen people with your style and your mannerism who can tell you "Look, nine times out of 10, based on what I observe in your behavioral pattern. If you did these three or four things, you could be more effective." And so that's what I tried to do with people. And I try to do it immediately. If we step out of a meeting or I observed something, I try to tell someone, "Hey, great job, always start with a positive. If you did these other things, you probably could have gotten an even better outcome." And I think just recognizing that as a leader, that is part of your responsibility. You will only be successful if the people within your company are actually successful. And so it's incumbent on us as leaders to make sure that we can impart as much of our experience to the others around us as possible.


Kevin Campbell (29:10):

Great advice. The last thing I like to ask people as we're wrapping up is always what's the best career advice you've ever gotten along the way?


Kevin Reid (29:21):

Well, that's a tough one. You know, I've had the privilege of working with some pretty awesome leaders from, from Michael Dell, himself through Pat Gelsinger and David Golden and many other executives who I really admired and tried to learn them. In terms of actual advice. The thing that sticks out to me as probably the most memorable was when we were building Adjoined and anyone who's tried doing a startup recognizes the fact that you end up working more hours than there are in the day. And it gets to you. It gets to you, it gets to your family, it gets to your relatives. There is no way to avoid that. And the two pieces of advice I got were, number one, think of this as a deferred lifestyle, you are going to sacrifice some period of your life it might be three years it might be five years doing something at a frenetic pace that is to most people just not sustainable.


But if you're successful doing it and you get to a good outcome on the backend, then the lifestyle you can have for the remainder of your 40, 50 years on this planet will be very different. And so just think of it as a deferred lifestyle, as opposed to some people going into it thinking, "Well it's all about me. I did this, I'm worth this. You know, if I did that, then I should get paid this." And I've found that that was really, really helpful.


And then the second piece of advice was really around as you're working as hard as you are, make sure you have an outlet. You're not going to work any less hard, but you have to have an outlet. You know, if it's all about work, then that's not sustainable. But if you've got a passion somewhere, that can be a really good outlet for you, that you could blow off steam and sort of get yourself back into balance. Then that's what makes it sustainable. And if you could find that sort of balance where you can work hard and deliver results that are much more superior to your peers, and actually be able to do that in a sustainable manner, then you'll achieve greatness in my opinion.


Kevin Campbell (31:38):

That's great. So I have one more question, I lied. This year you lost your father and I know your father had huge influence on you. I'm sure you've had plenty of time to reflect. And I was fortunate to see the video of people talking about your dad who seems like a great man. What's the one thing that he left you with that you kind of wake up every day?


Kevin Reid (32:04):

It's really about people. My dad, his passion was people. He wanted to make people better almost to a fault? It's like he wanted everyone to achieve the most that they could achieve in life based upon their own internal capabilities. And so from a management perspective he was able to rise to the pinnacle of his profession, which was the National Association of Fleet Administrators. And he got there because of his reputation for being so focused on building great people.


And if you look at his track record, the people that work for him all went off and became successful professional peers of his, and even in larger, more established accounts. And he was genuinely happy for them in that regard. So I do think a lot of my focus on people and trying to get the best out of people and help them get the best out of themselves really comes from my dad. Because that was his thing. He was all about, you can only achieve greatness if you help others.


Kevin Campbell (33:13):

That's great, thanks Kevin for being on with us today, truly great advice and a good discussion. I learned something from you every time we talk. So thanks for being on. And everybody thanks for listening and tune in next time for the next episode of CEO to CEO, where we'll talk to more entrepreneurs and execs about learning about what their advice is and how they do things.

About the Author

Kevin Campbell

CEO, Syniti

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