Achieving the Exit  |  The SRS Executive Q&A Series   

SRS has produced this series of Q&A interviews to highlight how great entrepreneurs have beaten the odds to exit their companies successfully. As shareholder representative, SRS works with the world's best entrepreneurs once they reach this milestone. This series explores how they got there and what they learned along the way.

Q&A  |  SecureWorks (acquired by Dell)

Mike Cote
Former Chairman and CEO, SecureWorks
Current Vice President, General Manager, Dell SecureWorks

Mike Cote became Chairman and CEO of SecureWorks in February of 2002 and led the company through an acquisition by Dell in February of 2011. Under his leadership, the company grew to become a leading information security services provider. Cote's leadership style is underscored by open communication and a customer-centric philosophy. He emphasizes a training and metrics-driven organization to achieve growth. Cote now heads Dell SecureWorks under the Dell brand.

Q :  What was it about the Internet security market that attracted you to be the CEO of SecureWorks?

There's a saying, "a rising tide lifts all boats." I thought the Internet security market would be a good market to be in from a long-term perspective. SecureWorks also had a great investor base, including big national players, like GE Capital and what was then Mellon Bank, and well-respected Atlanta-based firms like Noro-Moseley Partners. The technology worked and the company had cash. There was $9M in the business, so we didn't have to raise money right away even though we were burning about $900K a month. Finally, it was a challenge from a sales and marketing perspective. I thought if we could get the right people in place, focus on going down the right path and create the right environment, we would be successful.

Q :  What was the basis of the growth strategy you implemented after joining the company?

I'd done about forty-five acquisitions in my career, but I knew we couldn't buy something when we only had $9M in cash. We would have to be able to operate, so the first phase was to fix the operations--I reduced the headcount and focused on people that believed in the vision, which was to become the premier managed information security services firm in the country. I hired a new CFO a month after I joined, a new marketing person the next month, and a new sales director the next month, and we cut the headcount in half. We then put a plan in front of the board that said we wouldn't need any more capital but it would take us about 18 months to become cash flow positive. We didn't do our first acquisition until we had grown the company to $20 million in revenue about four years later.

Q :  How did you leverage your investors' expertise beyond the capital they brought to the company?

I assigned our board members something to do at every board meeting. When I joined, there were fourteen board members at the table. One of the first things I said was, "if you don't have a contractual obligation to be here and you're not here to work, then don't bother coming to future meetings."

In our first board meeting, I gave all the board members quotas for new leads. We were all aligned and we needed new revenue and cash to come in from a new customer perspective. Lo and behold, one of my board members sent me the database for all banks and financial institutions in the United States with contact information for the chief information officers. This was a big break because our first vertical was banks and credit unions, so we started driving hard to call on them.

The board included four independent members, members from the investor base and myself. It was larger than what I would think would be optimal, but it functioned very cohesively and was a board that worked quite well together.

Q :  Over a four-year period, SecureWorks had a 490% growth in revenue. What was the secret sauce in your growth recipe?

We were and are a training and metric-driven company. From a sales and an inside sales/lead gen perspective, we have regular training sessions that are intense, and we monitor and report on how many outbound calls are made and deals are closed. It's critical for a small company to establish a commitment around metrics and accountability. If you didn't achieve results for one or two quarters and couldn't do it the following quarter, you were gone. With this discipline, we drove growth organically via the phone and the web from a central location in the SMB market. We did the same thing with an enterprise sales force that was distributed and going after larger customers.

Q :  You were able to post this growth when the economy started to slow in 2007. How did that impact your business in the financial services market?

In 2008 and 2009 about 90% of our revenue was in the financial services market. One of our customers back then was Lehman Brothers. One of the things we did from a strategic perspective was gain a beachhead in financial services and after establishing a nice revenue stream, we expanded out of that industry vertical. Today, from a revenue perspective, the financial vertical makes up less than half of our revenue. We're now a horizontal play--we do retail, healthcare, utilities, manufacturing, technology firms, media, government, airline transportation, et cetera.

Q :  Was that a strategic decision you made as a result of the crisis in financial markets?

No, I knew we were going to hit a wall at some point. There are only so many financial institutions and we could only grow so big in that total available market. Also, we have a service offering that is horizontal. If we see something going on in Boise, Idaho for financial institutions, we can deploy counter measures to protect all of our financial institution clients. I could do the same for a utility, manufacturing firm, a distribution firm or retail company for that matter.

Q :  Can you give an example of a lesson you have learned along the way?

For a private company, the ability to articulate your cap table and having the right controls in place is absolutely critical. I was the CFO of a public company in a prior life and I was involved in buying many companies, most of which were private. That's where I learned how private company capital structures operated. If I didn't understand how cap tables and preference structures worked, I probably could not have gotten deals to work because I had to articulate why the way we were structuring a deal was fair and reasonable to my existing shareholders and to new shareholders.

Q :  What advice would you give a CEO who is contemplating selling their business to a larger acquirer?

Hire great advisors. In reviewing our transaction, I would say that our external law firm and our accounting firm did a fantastic job in getting the deal done. It's also important to know that I had four independent board members and they each had different backgrounds. One was a former general counsel of a public company; one was a former CFO of six public companies; one is a PE investor who did not have an investment in us so he could think how the PE guys would think; those board members provided a tremendous insight. You've got to make sure you have high quality people around you who understand the pitfalls from a legal or tax perspective.

SRS serves as shareholder representative on the acquisition of SecureWorks by Dell. In this role, SRS manages all post-closing matters on behalf of the selling shareholders.

SRS | Shareholder Representative Services is the global expert in professionally managing the post-closing process to safeguard the selling shareholders' interests in private company M&A transactions. As the shareholder representative, SRS manages all post-closing matters, including working capital and other purchase price adjustments, tax reviews, earnouts, the handling of claims, disputes and litigation, communications with acquirers and selling shareholders, and management and distribution of escrow and expense funds.

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