Thoma Bravo Partner Carl Press takes listeners behind the deal with Foundation Software, a leader in the world of construction subcontracting software. Family-owned and operated for over thirty years, Foundation decided to partner with Thoma Bravo in 2020 after many offers from investor group , becoming the firm’s first fully remote deal. Carl is joined by Foundation Software President and CEO Mike Ode to talk about partnering with private equity, the construction industry’s digital transformation and what that means for the future of the business.
AIR DATE:
February 29, 2024
RUN TIME:
34:53
Transcript
DISCLAIMER:
This podcast is for informational purposes only and does not constitute an advertisement. Views expressed are those of the individuals and not necessarily the views of Thoma Bravo or its affiliates. Thoma Bravo funds generally hold interest in the companies discussed. This podcast should not be construed as an offer to solicit the purchase of any interest in any Thoma Bravo fund.
HOLDEN SPAHT:
Welcome to Thoma Bravo's behind the deal. I'm Thoma Bravo, managing partner Holden Spate, and that was Thoma Bravo partner, Carl Press, speaking with Mike Ode, president and CEO of Foundation Software. The foundation deal is a classic example of the type of deal we love to be a part of here at Thoma Bravo. Established in 1989, Foundation has decades of experience being a leader in the world of construction subcontracting software. And for over 30 years, they remained a family-run business, turning down a bunch of offers to work with private equity until we successfully transacted with them. With a history of innovation, a strong culture and a proven track record of being willing to pivot when the market heads in a new direction, it's no wonder Carl and our Thoma Bravo team were so determined to make this deal work. And as always, their instincts were spot on.
When you get down to it, this deal involved partnering with a strong management team to acquire a beautiful vertical market application software company with high quality revenue, a leading market position, and executing on a buy and build strategy. Our deal with Foundation actually involved four separate acquisitions, all debt financed that enabled growth acceleration, and an expanded product suite. As a case study, this was a perfect example of creating value as an emerging category leader in the middle market and software, and it hit on a lot of the key themes that we as a firm endorse across our entire portfolio. So today, you'll hear everything that went on behind the deal of this transaction from Carl Press, the deal, lead and partner at Thoma Bravo, followed by his conversation with Foundation President and CEO, Mike Ode.
CARL PRESS:
Hi, I'm Carl Press. I'm a partner at Thoma Bravo. I've been with the firm for just under nine years. I co-lead our $3 billion middle market funds, which we call our explore funds. And today on Behind the Deal, we'll be going inside the Foundation Software transaction.
Foundation is the category leader in software for construction subcontractors. So if you think about the actual subcontractors that perform the work, the trades, these are the electricians, the plumbers, roofing, HVAC, heavy civil, Foundation started by providing them accounting software or ERP to run their back office and eventually expand it into other categories of software for those customers, so payroll, and then bidding and estimation take off compliance, HR, mobile, workforce management. And today it's the most comprehensive suite of solutions for these construction subcontractors.
We got introduced to Mike and the founder of Foundation in the second week of March, 2020. Of course, the perfect week to engage with a company you're so dying to partner with. We had a fantastic call with them. The world was changing quickly. We weren't sure where it was gonna be in a week or two, but we knew we had to get out to Cleveland to meet the team. And probably four or five days later, the lockdown happened and suddenly there was no flying. There was no travel, we weren't coming into the office, and I assumed that there wasn't gonna be a deal to be done 'cause we can't meet with them and perform our usual due diligence the way we typically would. But we kept pushing ahead. We kept scheduling Zooms. We asked for some data, we started digging in. And what we found as we dug into the data is the company was as special as we thought it would be. Beautiful growth, unity economics, gross and net retention was off the charts. They had about over 5,000 customers at the time. And when we dug into the market, specifically construction subcontractors for non-residential construction, that's really the market that they perform in. Everyone that we spoke with, market experts, consultants, actual end customers, all pointed us back to Foundation as the category leader.
And when we asked them, well, what makes their product so special? What, what makes Foundation so special? They told us that the workflows of these subcontractors are unique and oftentimes they're unique even within the different subcontractor areas themselves, the trades, so electrical versus plumbing, versus HVAC and so forth. And Foundation has just been steeped in that industry for 30 years. They understand the needs of the customers. They're very deep in the specific workflows of, say, the back office of one of these subs or the front office or the field for that matter. And so the products have just evolved into a place where it, it would be really difficult to unseeded them 'cause they're highly, highly sticky. They're very tailored to this end market. And the reputation precedes itself as far as quality, customer service, speed to implementation and so forth. So they were just the dominant category leader in this space.
We're digging in late March, early April, not able to visit them, but with a, with this feeling that there, there's no way we cannot find a way to partner with this company. We had to do it, we had to find a way. And so we kept pushing ahead. We kept scheduling virtual meetings. It was unusual and, and almost awkward at first. The management team on their end led by Mike seemed receptive. We were obviously super excited and receptive. And come late April, it, it felt like we finally had real momentum. And it was a gut check decision at that point of, "Are we going to do a deal completely remote?" We had not done one as a firm yet. Of course, there was a lot of activity going on at the time across the firm, but we had not yet signed and closed a transaction, completely remote.
So that was a new territory for us. And I remember, in particular, we had the Invest- Final Investment Committee conversation over Zoom with the entire partnership. And we get off the Zoom, and Orlando calls me. Of course, his instincts are, are spot on. And he says, "We have to find a way to partner with this company. We have to do it. I don't care what you have to do. I don't care if you have to drive or hitchhike to Cleveland to figure this out, but we've got to do this because this is a really special company." And he was, he was of course spot on. At that point, we called the founder, we called Mike and we told him, "We're gonna find a way to do this no matter what." They were receptive, and ultimately, come late May, we were able to come to a deal that worked for both sides and we signed a transaction.
It's just been awesome to see the transformation of the company since we partnered three and a half years ago. When we first met Foundation, the company had about 50 million of revenue, had less than 10 million of EBITDA, and had never done an acquisition, and was really selling two products at that time, ERP and payroll. Today we have close to 150 million of revenue, about 45% EBITDA margin. We're growing faster organically than we ever did, and we now have a full suite of solutions, about eight different products that we can sell across what's now a 12,000 customer base. It started as 5,000, now is over 12,000. And so that cross-sell engine has just been a, a wonderful driver of growth and accelerator of growth. We can meet our customers where their needs are. So if they need payroll, they need ERP, we have that, but if they need HR, take off estimation, we have those as well.
So it's a full suite of products and our goal is we wanna sell everything that a subcontractor would need to run their business. The construction software market is still pretty fragmented. There's a few big players, Foundation emerging as one of them, and then there's a lot of smaller players that are tackling different niche categories of software to serve the construction industry. And so it's a beautifully fragmented market for private equity to go and consolidate. And so at Foundation, we've now done four acquisitions, all in different product categories to bring different capabilities to our product suite, which we can then integrate altogether and then deliver back to our customers as an integrated suite. And it enables us to add customers to our business, to cross-sell different products to our customers, and acc- ultimately accelerate our bookings and revenue growth. And we're gonna continue to be acquisitive in this end market to continue to acquire new capabilities that we otherwise haven't built yet internally or feel like we can get to market faster through an acquisition than through organic investment.
At Thoma Bravo, we now have a few different portfolio platforms in the construction space, Foundation being one of them. And one of the things we love about this end market is it's still getting up the curve on digital transformation, probably about five plus years behind some of the other industries and end markets that we invest into. And when you couple that with the labor shortage that's happening in the industry, uh, it means that there's now rapid adoption of software across these businesses to help facilitate back office, front office, field, and to get more efficient quickly and to drive margin in their own business. And so we're delivering a ton of value to our customers, and the industry's really healthy. There's healthy backlogs, and so there's this really great wave of adoption of software that's happening right now in construction.
And we are establishing ourselves across these different platforms as these category leaders that'll get embedded in these businesses and by virtue of delivering value and delivering high service, we'll be sticky and hopefully with these customers for years and years and years. So it's a really exciting time to be investing in software that's serving the construction market.
Mike is a really special leader. Uh, he- he's been with Foundation from the very, very early days of the company, and has touched quite literally every function within the organization. He's so well-respected and loved at the company. He has a really great feel for the pulse of the culture, and he really understands our products, and our customers and what they need. If you ask Mike, he can rattle off every name in the pipeline at any given point, what the opportunity is with them, and how big we could potentially make that account over time. That's the level of granularity and detail at which he works. So it's a rare combination of being a charismatic leader, really understanding your culture, and also being super data-driven and willing to spend the time hours digging into the data and really letting the data guide us to the right decisions, which is exactly, as a private equity partner, it's exactly what you want from your CEOs. You want decisions to be data-driven. You want somebody who understands their end market, but at the same time is willing to listen, and Mike is all of these things.
So it- it's just been a really... It's been a joy to work with him and to learn from him and become his friend over time. It was exciting, but what a unique and almost bizarre set of circumstances to do a deal in very early days of the pandemic. I also personally, I ju- I had a baby in that time period as well. My second son, Cameron, was born in late April. It was a busy and wild time, but in hindsight, one of the best decisions. And now here's my conversation with Mike Ode, president and CEO of Foundation Software.
Mike, welcome to our in-office recording studio. How about this? Pr-
MICHAEL ODE:
Awesome.
CARL PRESS:
... pretty professional, right?
MICHAEL ODE:
It is very professional.
CARL PRESS:
You come for the board meetings, you stay for the podcast.
MICHAEL ODE:
Mm-hmm.
CARL PRESS:
That's what we say around here.
MICHAEL ODE:
Pat McAfee show has nothing on it.
CARL PRESS:
No, it doesn't. It does not. Okay. Can you give the elevator pitch on Foundation today?
MICHAEL ODE:
Sure. Our mission is to be the number one provider of software for the back office of construction companies. It started with accounting, that is still today our, our flagship offering. But we have grown exponentially over the years with additional products. In 2006, we added payroll for construction, which again, think ADP, Paychex, although it's exclusive to the construction industry. We also have estimating now, we have project management, we have data collection out in the field, which another one of our missions is, it's really helpful to bridge that gap between the field and the office. The communication is something that's really lacking.
CARL PRESS:
Yeah.
MICHAEL ODE:
It's something that these construction companies are looking for. So we've been able to add that as well. So data collection has always been sloppy. It's always been somebody scribbling on a sheet of paper, handing it to the office, them not being able to decipher what it says. And we've been able to help in, in, in that area as well. I think one of the things that separates Foundation Software is that we knew early on that just being accounting wasn't gonna be enough. It wasn't gonna allow us to get-
CARL PRESS:
Yeah.
MICHAEL ODE:
... where we wanted to get. So that's why we've offered these other products, and we will continue to do that organically and through acquisition.
CARL PRESS:
L- let's go back to 2020 when we first met, so I think our first call was the week before all the lockdowns for COVID happened.
MICHAEL ODE:
Yeah. Early March.
CARL PRESS:
In, kind of yeah, uh, 1st or second week of March.
MICHAEL ODE:
Yeah.
CARL PRESS:
Up until that point, the company had been in existence for 35 years.
MICHAEL ODE:
Yeah.
CARL PRESS:
Every private equity firm and their mother had called you, emailed you.
MICHAEL ODE:
Sure.
CARL PRESS:
Said, "Hey, let's partner. Let's do a deal control deal, minority deal, every flavor of deal that could be imagined."
MICHAEL ODE:
Sure.
CARL PRESS:
And now, we're in this very bizarre state of the world. What flipped the decision for you and the team to say, "Now it's the time to go from a family-run business-"
MICHAEL ODE:
Sure.
CARL PRESS:
... "to a private equity owned business and partner with an investor group"? What was that decision like internally for you guys? And why then and why us?
MICHAEL ODE:
Yeah. So there was always a path. I'm not gonna get into a whole bunch of what that path was. That was not private equity-related. The transition was coming. We knew the transition had to happen. And what happened was we started in... We were getting to the point where we were getting larger and we created an advisory board. We had one meeting. (laughs) One. I don't know if I've ever told you this story. And as much as we talked-
CARL PRESS:
Some of, some of this-
MICHAEL ODE:
... I don't know if I've ever told you this story.
CARL PRESS:
Some of this-
MICHAEL ODE:
Yeah.
CARL PRESS:
... I've heard in bits and pieces from you.
MICHAEL ODE:
Yeah.
CARL PRESS:
But some of it-
MICHAEL ODE:
And like-
CARL PRESS:
... to, to hear it all is-
MICHAEL ODE:
Yeah. I-
CARL PRESS:
... that's why I'm asking, so.
MICHAEL ODE:
I don, I don't know if I've ever told you this-
CARL PRESS:
... let's go. This is great.
MICHAEL ODE:
We had our advisory board one meeting.
CARL PRESS:
Yeah.
MICHAEL ODE:
And one of the people on that board used to work for a portfolio company of, of TB. And they were like, "You should at least reach out to them, right? They're different than everybody else. They're different than the people that have been reaching out to you." I think I reached out to you via email. We talked and it took off from there. There was no months of planning. There was no decision that this is what we're doing.
CARL PRESS:
Yeah.
MICHAEL ODE:
We had the discussion. We started to talk. I'm like, "Yeah, I, I like what we're hearing here. This can definitely work." Then we took off.
CARL PRESS:
Yeah.
MICHAEL ODE:
And then my life changed for three months. But I, I... It was, it was great because Sam and Adam and Chandler and yourself, they were just so easy to work with, and were patient, and knew that I was not a banker and that this was new to me and foreign territory to me. But they also seemed that I was gonna get them what they wanted. I just might ask a lot more questions than, uh, the, the normal process would be.
CARL PRESS:
Yeah.
MICHAEL ODE:
And I think that why I say I would not suggest people go and do this, I'll tell you what I think did transpire in that time. We all became really close.
CARL PRESS:
Yeah.
MICHAEL ODE:
Right, because you were working directly with the CEO or at that time, the president, which probably isn't normal. And we, we formed a relationship and bonded and built some chemistry together.
CARL PRESS:
There was a certain rawness to that transaction because there wasn't an inter- intermediary. I loved it personally. If I... If every investment, every deal we did was like that, that would be great because it just... It allows you to get close.
MICHAEL ODE:
Yeah.
CARL PRESS:
It allows you to get right to the answers. Things aren't filtered. We're not trying to figure out where's the spin, where's the adjustments-
MICHAEL ODE:
Yeah.
CARL PRESS:
... on the numbers that need to come out.
MICHAEL ODE:
Yeah.
CARL PRESS:
We were getting it straight from you, straight from your team. And even though it was all remote, which was odd and new to us at the time, there was an honestness to the whole thing that I loved.
MICHAEL ODE:
You were able to learn more about us, intimately. And I was given a crash course in what it's gonna be like to work with a PE firm. And without that, I don't know if we'd be as successful, right. We would've spent the first six, nine months doing that because we did it for three months. I started to become familiar with it and what it involved, and what it entailed-
CARL PRESS:
Right.
MICHAEL ODE:
... and, and what was going to be expected right off the bat. And that just made the transition real easy.
CARL PRESS:
And you still wanted to do it after all that. (laughs)
MICHAEL ODE:
I thought it was awesome, to be honest with you. It just fits my personality.
CARL PRESS:
I appreciate that.
MICHAEL ODE:
It, it does. And again, I, I can't go back to enough of the fact that it's easy when you work with people that make it easy to-
CARL PRESS:
Yeah.
MICHAEL ODE:
... to work with them, so yeah.
CARL PRESS:
Yeah.
MICHAEL ODE:
Yeah, that, that was a big part of this deal.
CARL PRESS:
Yeah. And, and, and as I've told my partners, if they can all be Foundations, both in terms of the, the deal itself and then the journey, the three and a half years we've been on together, that would make my career.
MICHAEL ODE:
Yeah.
CARL PRESS:
Because I, I feel like all of the things that we talk about that make investments successful, partnering with existing management, creating a really tight relationship with that team, backing really what we believe are the category leaders and then executing on a buy and build, we've hit on all of those-
MICHAEL ODE:
Mm-hmm.
CARL PRESS:
... in the last three and a half years. And it's just been, it's been amazing to see. Here's the commercial bit of this whole interview for companies that are like where Foundation was three and a half years ago.
MICHAEL ODE:
Yeah.
CARL PRESS:
And there's many of them. And we, we call on them all the time.
MICHAEL ODE:
Yeah.
CARL PRESS:
Just beautiful category leaders in software that are maybe Founder-owned and led, and are thinking about this transition. Why do it? Why ultimately partner with private equity or with Thoma Bravo.
MICHAEL ODE:
Yeah, so there's gonna come a point in time where you hit a wall, right? And they've already seen many of those wall. One wall, some people like to measure it in revenue. Hitting a million is easy, getting above a million is hard. Hitting one to five is easy.
CARL PRESS:
Right.
MICHAEL ODE:
Getting above five is hard. 5 to 15 easy, 15 hard. At a certain point in time, you're gonna hit that wall and it's gonna stop. And you're gonna start to chase shiny objects over and over and over. You're gonna keep chasing, maybe one will hit, maybe they, none will hit, right. But what happens here is you stay focused, you stay focused on things. Now, you let the numbers tell you what to do. The numbers will drive the business, right. With TB, specifically, can't speak to other PE companies, you let that culture remain. And if you can start to let the numbers run the business, stay focused, quit chasing those shiny objects, keep the culture the same, you're gonna be successful. And that would be my recommendation to people as think of it from that perspective and be open-minded.
You know what you're an expert in, but trust me, TB is an expert in a lot of things that you're not an expert in, and listen to them. And I, I, I think that is what can really help these companies and a reason that they should do it or they're gonna stagnate, period. They just will.
CARL PRESS:
You know, I've had the pleasure of working with well over a dozen portfolio platforms now at Thoma Bravo. And I don't think that there is a culture as unique and as strong, quite frankly, as the one at Foundation. So can you talk a little bit about the inner machinery of what's happening inside the four walls of the company?
MICHAEL ODE:
(laughs)
CARL PRESS:
And it's a very much an in-person culture-
MICHAEL ODE:
Sure.
CARL PRESS:
... Which I love.
MICHAEL ODE:
Sure.
CARL PRESS:
But what makes the culture at this company so special?
MICHAEL ODE:
Yeah. I, I, I think the one thing, the first thing you'll notice as you walk in, there's nothing plastered on the wall. We, we, we don't have phrases on the walls. We don't have who we hope people will be. If I had a word to use, I, I would say we're accepting. Our culture is accepting. If somebody says what type of person works at Foundation, the answer is everybody.
CARL PRESS:
Yeah.
MICHAEL ODE:
Anybody you can think of works at Foundation Software. But the uniqueness of our culture is everybody's accepting of one another regardless of age or beliefs or just lifestyle. So we've always been very accepting. We're opportunistic.
CARL PRESS:
Mm-hmm.
MICHAEL ODE:
We like to promote within, we probably promote earlier than most would, or maybe some would even say should.
CARL PRESS:
Sure.
MICHAEL ODE:
I'm a perfect example of that, right. I think people like to come there and they like to work because they feel accepted and because they see opportunity. We are also very tolerant. We have kept employees that other companies would not keep and given them second chances. And I'm a firm believer in that, right?
CARL PRESS:
Yeah.
MICHAEL ODE:
We're all gonna make mistakes, are gonna regret things we do, and if you see improvement and you can give them the opportunity, we like to do that.
CARL PRESS:
I love that. That's awesome. And, and it's a perfect segue into the M&A that we've done since we've partnered.
MICHAEL ODE:
Mm-hmm.
CARL PRESS:
So we've done four acquisitions-
MICHAEL ODE:
Yep.
CARL PRESS:
... since the spring of 2020.
MICHAEL ODE:
Correct.
CARL PRESS:
Maybe talk about how we've integrated those companies, those people into this culture.
MICHAEL ODE:
Sure.
CARL PRESS:
Because I, I don't think I've worked with a company that's done it as well as Foundation has, and, and now we've done it four times, and we'll, and we're gonna do more, but maybe talk about that workflow and how we were successful doing that.
MICHAEL ODE:
Yeah. I'd, I'd say it starts in the beginning, right?
CARL PRESS:
Yeah.
MICHAEL ODE:
We looked for companies that we thought the culture was a fit because we knew that we weren't gonna be able to roll them all into Ohio. That, you know, they had to stay in Arizona and they had to stay in Florida. So having a culture already was important. We learned a lot of things such as you can't just go there for two days and leave and expect them to pick everything up from the first one to the second one to the third one, to the, to, to this last one. I think we've improved in that area of ripping off the bandaid and being present there for four, five, six weeks and letting them ask you as many questions as they want, drill you, give their side of the story and then sit there and listen and collect the data and explain why we're doing things the way we're doing. Why we have to start acting like $150 million company and not a $5 million or an $8 million or a $10 million company anymore.
CARL PRESS:
Yeah.
MICHAEL ODE:
So I would say those are the reasons that we've been able to adjust to the culture, but I'm gonna go back to what we just talked about earlier. We're accepting.
CARL PRESS:
Yeah.
MICHAEL ODE:
We're, we're different. We have companies from all over, different people from all over. And once they see that you accept them for who they are, it leads to success.
CARL PRESS:
Yeah.
MICHAEL ODE:
And then they see that you can help them grow and do the things they haven't been able to do as well. They become even more accepting to you.
CARL PRESS:
Yeah. I remember on one of them, you call me maybe two weeks into the deal and you said they don't totally understand how we think about sales. I'm flying out there with Steve, our CRO and that's, I don't know, symbolic of what makes you a special CEO, I think is you just get your hands in the weeds, you get in the details. So segue into your leadership style, maybe you can talk about what's made you successful as the CEO of this company. I, I can say from my perspective, from the, from the deal partner and board perspective, it- it's a rare combination of, you know, your market just ice-cold, like, front and back, left to right. You know, this industry, you know the customers, but you're also data-driven. Like, you listen to the information and you sort of let the data guide you to the right decision.
MICHAEL ODE:
Sure.
CARL PRESS:
I'd imagine that took some time to get to where you are today. Like, maybe talk about your leadership style as you see it.
MICHAEL ODE:
I'm glad you're asking me and (laughs) not by team.
CARL PRESS:
We can ask them too.
MICHAEL ODE:
Yeah, yeah, well, can we block them from this?
CARL PRESS:
Yeah.
MICHAEL ODE:
Is that possible? So I take it, hit it on the head. I, I do get my hands dirty compared to, to, to most, I would say. I'm extremely transparent with everybody, not just my direct reports. I'm transparent with everybody. I'd say I'm visible and present. I like to lead from the floor. It's just how I am. I'm a little bit old school, as you said. I like to rub elbows with people. And again, it's not my direct reports. I like to be on the floor, period. Keeps me in tune with the vibe of inside the walls and it keeps me in tune with what's going on in the industry, right?
CARL PRESS:
Yeah.
MICHAEL ODE:
Because you, you need to know both. Always been a data-driven person. So yes, the numbers run the business, but the numbers don't make us successful. The people make us successful, and I think I have been able to take those two things and let the numbers guide us with what we need to do, and then take our culture and the soft side-
CARL PRESS:
Yeah.
MICHAEL ODE:
... and utilize the people to mesh those two together. And I, I think that's what my style is. I'd say the most challenging thing is, I like to be aware of what all my direct reports are doing.
CARL PRESS:
Yeah.
MICHAEL ODE:
And that leads to a, a challenge, right. I want them to feel as though I am aware, I know what they're going through, I'm there to support them, but I don't want them to feel as though I'm looking over their shoulder, and not letting them do their job.
CARL PRESS:
Yeah.
MICHAEL ODE:
So that's a balancing act in an area I think I've improved at dramatically, and we'll continue to try and improve at.
CARL PRESS:
Yeah.
MICHAEL ODE:
Yeah.
CARL PRESS:
Yeah. And, and, and you've found a way to surround yourself with just amazing executives.
MICHAEL ODE:
Awesome. Yeah. The, the, the number one thing is that, that I learned early on is surround yourself with people that are smarter than you, right?
CARL PRESS:
Yeah.
MICHAEL ODE:
So I've been able to do that.
CARL PRESS:
Yeah.
MICHAEL ODE:
And if you continue-
CARL PRESS:
Yeah. Amen.
MICHAEL ODE:
Yeah. If you continue to surround yourself with people that are smarter than you, you're gonna be successful.
CARL PRESS:
Yeah.
MICHAEL ODE:
Right? And give them what they need. And again, the numbers tell us what to do, what the people are, why we've been successful.
CARL PRESS:
Okay. So we now have, at Thoma Bravo, a few different platforms in the construction space, Foundation being one of them.
MICHAEL ODE:
Yeah.
CARL PRESS:
Talk about the end market and the industry itself. How has it evolved? I know it's still probably five or 10 years behind on the digital transformation curve, but it's quickly catching up, adoption of our products is accelerating. Maybe talk about how our customers engagement with technology has changed and is changing and what that means for our business.
MICHAEL ODE:
Yeah. So it starts now that you've seen a generational flip. So you now see companies, construction companies being handed down. And I'd say we're halfway through that.
CARL PRESS:
Yeah.
MICHAEL ODE:
I'm, I'm just pulling that out.
CARL PRESS:
Yeah.
MICHAEL ODE:
Right? I, I don't know, maybe we're 20%, maybe we're 90%, but my guess is we're about halfway through this, this generational flip. And as, as we all know, our children are way more into technology than-
CARL PRESS:
Sure.
MICHAEL ODE:
... than, than our grandparents and our parents were, right? You start to see that happening, but the other thing that you start to see where it directly impacts foundation is the communication between what's happening out in the field and the office is more important than ever.
CARL PRESS:
Yeah.
MICHAEL ODE:
Because it gives them the advantage. And if they don't have an advantage, they can't grow and they can't exceed expectations, and they can't start to pull away from their competition.
CARL PRESS:
Yeah.
MICHAEL ODE:
So the biggest gap... It- it's always funny, you'll talk to a construction owner and let's say I'm a project manager and I walk in their office, and they're like, "Hey Bill, I need a, I need 2 million for a backhoe." "There you go. No problem." "Hey, Bill, I need $12,000 for software." "Get outta my office." So that's the thing that happens.
CARL PRESS:
Yeah.
MICHAEL ODE:
But where you start to hear them listen is when you say, "I need to close the gap between the information I'm getting from the people out in the field with the office." Now, you have their attention, now they're starting to listen and the number one is time collection.
CARL PRESS:
Yeah.
MICHAEL ODE:
Time collection is the most important thing out there. Instead of giving the person that's responsible for payroll, scribble down sheets of paper with coffee spilled over it, people can't put the right job number on there. The cost code... Now remember, payroll, there isn't just... I worked eight hours, it's... I worked on this particular job.
CARL PRESS:
Sure.
MICHAEL ODE:
I worked on this particular, what we call cost code of a job. And that is all absolutely necessary when it comes to construction payroll. So what we've been able to do is create mobile applications out there and that was our latest acquisition with Work Match that allows us to now gather time in numerous ways. You can do it through biometrics, you can do it through your cell phone with a simple clock in clock out, or you can do it the old fashioned way on a computer where you punch in the time, start time and end time. That is how it's evolved. And that is where technology is really going. And a lot of that has to do with if you don't have that, you're falling behind your competition. And the other half is that generational flip is now looking for all of these advantages.
CARL PRESS:
What amazes me about Foundation, and in particular, within our core suite of products, so thinking about accounting, payroll is, there's a few other vendors in the category, and we know who they are, but they're all relatively legacy, and we don't see them in deals very often now. And so it feels like the market has become wide open, and our leadership within the category has grown. Maybe just talk about that evolution from over the last, say 20, 30 years, evolving into the category leader and accelerating ahead of the competition. What made Foundation emerge as that leader and not some-
MICHAEL ODE:
Sure.
CARL PRESS:
... of these other vendors?
MICHAEL ODE:
Yeah. You go back, I don't know, 15, 20 years ago, every deal you walked in there was competitors-
CARL PRESS:
Yeah.
MICHAEL ODE:
... of 6 to 10, right? So you're competing with 6 to 10 people, then you start to see it dwindle down to half of that. And now you see it where after deals there's probably nobody in there, and maybe the other half, there's one, maybe two other ones in there. And what happened is they thought they were gonna survive off of accounting and accounting only. And that's it. That's all they did was focus on accounting. They didn't try to do anything more. And these contractors want more, right? They wanna be able to turn to you for, as I said, the business side of their business, right?
CARL PRESS:
Yeah. Yeah.
MICHAEL ODE:
So you've seen that happen. Then we found this sweet spot between the QuickBooks of the world and then your high-end applications of the world. And in the last five years, we own it. We are the player that people think of.
CARL PRESS:
Yeah.
MICHAEL ODE:
If you're a, a five to, it's getting up there now it's probably more 75 to $80 million contractor. So it's a big gap there. Foundation is who you think about, right? If you're on QuickBooks, you're gonna graduate.
CARL PRESS:
Right.
MICHAEL ODE:
If you're not ready in a $2 billion contractor, you're not looking for some of these higher end ones that have some bells and whistles, but don't have the feature set that you're looking for. We've always stayed true to what our clients need.
CARL PRESS:
Yeah.
MICHAEL ODE:
And number one is going to be that payroll aspect of it. The complexity of construction payroll is second to none. It's always gonna be complex. You have individual that might be working in three different counties, two different states, six different jobs.
CARL PRESS:
Yeah.
MICHAEL ODE:
All in a week-
CARL PRESS:
Yeah.
MICHAEL ODE:
... making different pay rates on every single one of those, paying different taxes on every single one of those.
CARL PRESS:
So much to ask.
MICHAEL ODE:
And you have to job cost, and there's a lot of nuance to it. We were able to put ourselves into that sweet spot of that 5 to 75 to $80 million contractor and continue to give them what they wanted. First, they want, "Hey, make sure you don't take away our features, and then give us more."
CARL PRESS:
Yeah.
MICHAEL ODE:
"Give, give us estimating. Give us that time collection out in the field. Give us a payroll service."
CARL PRESS:
Yeah.
MICHAEL ODE:
And that's what we've been able to do, and that's what separates us. None of our competition did that.
CARL PRESS:
Yeah.
MICHAEL ODE:
Most went upstream and the remainder are gone.
CARL PRESS:
Yeah.
MICHAEL ODE:
They're just gone.
CARL PRESS:
We've now taken the company to, I can say from my perspective, a level that I, I wasn't quite sure we could ever reach in terms of scale profitability-
MICHAEL ODE:
Sure.
CARL PRESS:
... number of customers, number of products, our organic growth. Uh, it, it's, it's just been amazing. From your perspective in the CEO seat, what is the next five years for Foundation look like? What does that involve?
MICHAEL ODE:
Yeah. So, so with 12,000 customers cross-sell is a key. They want more, they want more products. We've talked about it a little bit already and in the, in, in the opening here, and there's only two ways to do that. And one is organic and we will continue to do some of these things organically. We're we, we just released a couple of weeks ago, an HR product-
CARL PRESS:
Yeah.
MICHAEL ODE:
... that we wrote organically, right?
CARL PRESS:
Yeah. And talked about it.
MICHAEL ODE:
But in order to do what we need to do, it needs to be a combination of that organic and that M&A, right?
CARL PRESS:
Yeah.
MICHAEL ODE:
And we have to make more deals. Um, we have to look, we, we, we know the areas, uh, we know payments is a big area, right. We talk about it all the time, and you talk about it on a regular basis. Uh, if we can find that field service application-
CARL PRESS:
Sure.
MICHAEL ODE:
... those are big. So these are big, and I think those are where you can start using the word transformational. So it- it- it's both. And the next five years will continue to be both. You have to be very strategic and thoughtful in which things you can actually develop from the ground up, versus what things are just gonna suck the life outta you. And it- it's gonna kill you. And I think thus far, we've been successful in that, and that's what the next five years will look like as well.
CARL PRESS:
Yeah. Mike, I've loved our journey together. It's been a joy to work with you and the team. Thank you for your leadership. Thank you for your friendship. Excited about what's still to come for the company, and what's to come in our partnership. And thanks for doing this. This was a lot of fun.
MICHAEL ODE:
Yeah, absolutely. I appreciate it. Appreciate you guys having me. And, uh, look forward to spending the rest of the day and tomorrow together and, uh, getting together with the team as well.
CARL PRESS:
Yeah, awesome.
MICHAEL ODE:
Awesome. Thanks.
CARL PRESS:
A huge thanks to Mike for speaking with us today. To learn more about Foundation Software and see the incredible work they're doing, visit foundationsoft.com. And for more stories Behind the Deal, check out all of our episodes wherever you get your podcasts. And be sure to subscribe to Behind the Deal to hear new episodes as soon as they drop. If you like this episode, and I know you did, check out our miniseries Beyond the Deal to go deeper into my conversation with Mike Ode. Catch it on YouTube and in this feed next week. I'm Carl Press. Thanks for joining.
HOLDEN SPAHT:
Thoma Bravo's Behind the Deal is produced by Thoma Bravo in partnership with Pod People. Stay tuned for more stories behind the deal. I'm Holden Spaht, thanks for listening.
Disclaimer:
Certain statements about Thoma Bravo made by portfolio company executives are intended to illustrate Thoma Bravo's business relationship with such persons rather than Thoma Bravo's capabilities or expertise with respect to investment advisory services. Portfolio company executives were not compensated in connection with their podcast participation. Although they generally receive compensation and investment opportunities in connection with their portfolio company roles, and in certain cases, are also owners of portfolio company securities and/or investors in Thoma Bravo funds. Such compensation and investments subject podcast participants to potential conflicts of interest.
