CEO, Ascend Software
While Rob Southern (MBA 2017) was growing up, he heard a lot about his father’s career running a series of businesses via one of the first search funds ever created. As a Tepper MBA student, Southern raised his own search fund via a strong network of investors he connected with through the Swartz Fellowship.
Southern’s acquisition, Ascend Software, helps businesses automate invoice processing and reduce their administrative costs.
How do you define a search fund?
A search fund is a two-phase investment vehicle that enables a recent MBA graduate to search for a company to buy that has a history of profits and growth. The MBA graduate or search fund entrepreneur raises an initial round of capital from investors to cover expenses during the search. Those investors then have right of first refusal to provide the acquisition capital to buy the business the searcher identifies. Upon acquisition, the searcher steps in as president and CEO, replacing a retiring founder or owner, to grow the business over the long term.
What sparked your entrepreneurial journey?
My dad graduated from Harvard Business School in 1983 and ended up doing what was pretty much the first search fund ever with the help of a professor of his. My dad bought an insurance form printing business. He owned the company for 10 years and a day before he sold it and provided a great return to investors. He subsequently did this two more times in entirely different industries — never operating more than one business at a time — and then stepped away from operating companies. He started investing in younger versions of himself, people who were in an MBA program and wanted to run their own companies. So this was kind of “dinner table conversation” for me growing up. My dad had made a career of buying, running, and selling businesses.
When I graduated from college, I wanted to do well by doing good. I was interested in environmental science and sustainability, and I merged that interest with advice from my dad to go work for a small, privately held, rapidly growing company that could provide lots of opportunities for additional responsibility and professional growth.
I ended up finding a company called EnerNOC that was pre-IPO but venture-backed. I worked there for six and a half years and got exactly what I wanted out of the experience. The company had $35 million in revenue and 150 employees when I started, and $400 million in revenue and 750 employees when I left. I got to help hire hundreds of people, build new teams, enter new markets, gain management responsibility, and really see what was possible from the inside.
My dad used to say there were two requirements to pursue the search fund route: You have to be willing to go anywhere and do anything. You have to be geographically and industry-agnostic. Up until I had that first experience out of college, I couldn’t live with either of those things. But after six and a half years in clean tech and seeing more of the country, I eventually decided that I could have a great quality of life in places outside the Northeast, and I was less interested in the mission of the business I was running and more interested in providing a rewarding working environment for employees and value to customers, whatever that product or service may be. So once those two criteria were back on the table for me, I decided to look at business schools.
Any time I can piggyback on the vetting process of somebody else that I trust, I do, because it saves me energy and effort. The Harvard Business School professor my dad worked with had gone on to start the Center for Entrepreneurial Studies at the Stanford Graduate School of Business. I called him and I asked, “What are the best entrepreneurship programs in the country?” Tepper was in his top five. I am a data-driven person, so I also liked Tepper’s focus on analytics. Between those two things, that was all I needed to know.
How did the business school help shape your path?
It was always my intention coming into Tepper to raise a search fund, which made me a little unique. I met Dave Mawhinney [MSIA 1990, Associate Teaching Professor of Entrepreneurship, Executive Director of the Swartz Center for Entrepreneurship] at a networking event in San Francisco, and I ended up applying for the Swartz Fellows program. I used money from the Swartz Fellowship to travel in my first year and meet investors and get acquainted, and then I went back to them in my second year to raise the search fund. I completed that process in January 2017.
I graduated in May that year and my wife and I had a baby. We moved to Portland, Maine two weeks later and I took two months off with the first child, and then launched the search in August of 2017. I reached out to software business owners who had been at the helm for 20 years and that did not appear to be private-equity owned or venture-backed.
In my 10th month, I reached out to Lee Blattner, who founded Ascend Software in 1997 and we started getting to know each other. I ended up making an offer, and we closed on Nov. 6.
A lot of my coursework from the entrepreneurship track, specifically the Lean Entrepreneurship curriculum, I’m just starting to put into practice now. We’re a small company. We are not venture-funded. We fund our growth from existing cash flows, and that means we can’t spend a million dollars on marketing campaigns. I learned other ways to be resourceful, ways to motivate employees and build high-functioning teams.
There’s a constant reminder of a thousand different things I should be doing. If I hadn’t gone to Tepper, I would only think that there are a hundred things I should be doing.
What is your elevator pitch?
Ascend provides accounts payable invoice processing automation software to large and medium enterprises. We can help those companies reduce their costs per invoice from $15 to $18 to under $2 — so a tenth of the cost.
One of the things I learned from Dave: If you’re going to start a business, your product used to need to be two to three times cheaper. Now it’s 10 times cheaper. We really can enable more enterprises to reduce their invoice processing cost to a tenth of what they are paying today.
What is your philosophy behind acquisition?
Businesses that are good candidates for search fund acquisition often have underfunded their sales and marketing functions — and for understandable reasons. One really important component of the search fund model is to focus on companies with a history of profits and growth, and a high degree of contractually recurring revenues.
Basically, Ascend met all of those. It was a little on the small side, but it was a very scalable business model. Specifically, the software-as-a-service component is growing rapidly. It had incredible customer retention rates and long-term contractual relationships with its customers.
I felt it was likely to benefit from an overall move to adopting cloud-based, software-as-a-service solutions for back office functions. One of our key partners is a leading, cloud-native enterprise resource planning software company that is a darling of the large publicly traded software-as-a-service community right now. Salesforce is probably one of the original leaders, but this particular ERP is doing extremely well. They’re signing lots of Fortune 500 businesses. They’re benefitting from a bunch of tailwinds. We supplement their offerings.
When I was deciding whether or not to buy the business, the number one thing I had to determine was whether customers were getting value out of the product. The way I figured that out is I looked at growth, profitability, and retention. Now that I’m on the inside, I need to make sure I understand why and how customers are getting value out of the product so that we can communicate that and get better at selling the product.
I liked that it was profitable. I liked that it was growing. I liked that it’s in an industry and a business model that’s gaining more and more traction in that market segment.
When I walked in the door, it felt like there was no paper lying around saying, “This is our mission statement. Here is how each team’s goals align with that. And here is clearly stated our value proposition.” So we’re writing that now. People know it, especially the sales team — they know in their bones what it is — but I don’t think we’ve communicated it consistently and clearly quite yet.
What “big ideas” will you pursue next?
I’ve only been on the job for six months. I’m still learning, not making any major changes. That said, if something’s clearly broken, we’re trying to fix it. When the team says, “This thing is really broken,” I help them fix it. In the meantime, I am listening and learning, and trying not to break anything, because fundamentally, what we bought is working. So I’m now at a central point where I’m starting to understand the impact of any changes I make. Over the next six months or so, I’ll be figuring out what my mission is and starting to plan a way to execute on that.