Video Transcription:

Mike Minard:
Okay. So Franklin, we've been chatting in between meetings this morning and talking a lot about, I guess the industry narrative that's going on. And I guess the narrative that's been going on even not just recently in the really past couple of weeks, but even for the past couple of years. So, we wanted to sit down and shoot this video, kind of a really raw video.

So, shooting with my phone and thought we would record some of the thoughts that we have. So, maybe try and do this as, since we're doing this impromptu, kind of an interview-type process. Because in the past, when we've done these videos, it seems like, not just our clients but industry people like these videos because it gets our thoughts out there.

So, really what we're talking about is what some of the recent news that we're seeing with people or firms that are raising VC money. And so we wanted to talk about that because that is a major sticking point in this space right now. And I know that the recent narrative is how pretty much our competitors or companies we might go head-to-head with for clients, how almost all of them at this point have raised money, significant capital and the narrative that we're seeing in the past few days at least that all tech companies kind of have to. I don't want to spin it that way but just kind of that conversation that hey, because of the rollups, like Moxi, is one of them that took on funding. KvCORE/Inside Real Estate, they took on or that is on their next round, if you will, versus what our approach has been and is.

Franklin Stoffer:
Yeah, absolutely. So, I guess the way that I want to start this is talk a little bit about conversations that I've been having because obviously it's a hot button issue right now in the industry with brokerages that are looking to establish long-term partnerships with technology companies. Every single time I'm meeting with a new perspective client, this conversation comes up. They really want to know who they're going to be working with. It's hard for companies to know who they're talking to, if a tech firm is owned by other entities.

We're seeing more and more in the industry, this narrative being pushed that if a tech farm is going to be around in the next couple of years, needs to have substantial capital backing it, which in this case typically means that then the technology vendors are raising money.

So, what I really wanted to do is get your thoughts to share with our prospective clients and our current clients and really let them know what our approach is in this space, how have we been able to stay competitive at leading the industry with technology solutions and really how Delta operates is so different than a traditional tech firm and it's a really huge benefit of ours.

And I just wanted to talk through what your thoughts are in this sector for technology when it comes to raising capital, what that means, what are the pitfalls that come with that and why Delta doesn't do that.

Mike Minard:
Yeah. I think to understand that, maybe spend even just a few minutes talking about Delta's history because Delta does have a history of capital being injected. And let me talk about that for a minute because I think that speaks to this narrative.

Basically Delta was actually formed in 1994 so we're going to be in our 25th year of business, which seems kind of crazy, but I've only owned the company since 2000, so '94, the company was created. A few years later, capital was raised, a few million dollars was raised. The company moved from Oregon down to Sunnyvale, California. The company, in that time, in about a two-year window or so, went through that money. This'll seem very ironic to people watching this video, but at the time, it was called Tigerfly. The company built a national MLS platform that they were literally shopping for and they wanted 40 million out of the platform and because of the dot-com bubble that happened in 2000.

If you don't know what that is, Google it. There's a great page on Wikipedia about it, but pretty much that's what happened to Tigerfly. They raised that capital, they were at a spot where they needed their second round, but the dot-com bubble, for anyone who is familiar with that, I was 28 at the time. It was just a very interesting time if you're into technology. But basically there was no more money being put in. No more checks. Dot-com companies were closing left and right.

So, the opportunity came to Tigerfly was going to close and I went in with a couple of other business partners and we bought Tigerfly and then rebranded at Delta Media Group and then took off from there. But that right there is a perfect example of what can happen when you take on funding and because of economic timing, needing a second round. No, the money's not going to be there. We're closing our doors. That could be the extreme.

But since 2000, Delta, we've been profitable every single year and we've grown the company since 2000 up through today. But I think that story is really important because Delta was at a turning point in 2016. That turning point was I actually wanted to push the growth of the business. I wanted to push technology. We had been looking at VC funding. It's funny when you see the names of who invests. They're very familiar names. They still chase Delta today. I don't know if they will after this video, but I really don't talk to them that often anymore.

But in 2016, I wanted to push the growth and had partners that really, that wasn't what they were looking at. More, "Hey, let's maybe sell, let's maybe get more money out of it." And so I bought out my partners.

The narrative that you have to have VC funding to really grow is just flat out not true. As a matter of fact, if you're in my office, you've probably seen it. I don't know if you've noticed it, but for a few years I've had my bulletin boards something printed out. It says, "Be willing to grow slowly so you survive."

And I think that anyone that, because I can tell you the reason why I was looking at funding years ago was because okay, I really wanted to really push growth rapidly, rapid expansion. So that's what a lot of the money in the space is for that rapid growth, but we've never really needed it. And I think that goes back to how we build our platform from the beginning, which actually predates us acquiring Tigerfly or Delta Group.

Again, you can't comprehend the platform unless you're in here and see how it works and how it empowers us for rapid development. It's our own platform. So it's not like something we could go buy it somewhere, but we have a platform that facilitates that.

For us, how did we become one of the, let's say three leaders in the technology space in real estate, it's because of time and the platform and the vision. And I think the differentiator there is we're highly profitable, but yet we can grow fast, too. And we know the stories, especially in the past, I would say three years, the stories of the companies in our space that grew quickly and then they crumbled under their own weight. We're being very careful not to do that, keeping an eye on that.

But I think when it comes to growth and needing VC funding, well, we just don't need it. I mean, the reality is for us today, Delta today is a family-owned company. I own 100% of the stock. We have succession plan in place. Yeah. This is long term. This isn't one of those where, "Hey, let's ramp up and I want to exit," because, to be honest, I could have exited in the past two years for a phenomenal multiple.

Franklin Stoffer:
Talking a little bit more on that angle, so what does it mean for a technology company typically that takes on this amount of funding? What are the challenges or what do people, what should they expect?

Mike Minard:
Yeah. So, and the VCs are up front with you. I know a lot of them. I have plenty of friends that have current, not in the real estate space, but they've taken on VC funding. And that world is very upfront. I mean, and here's what I mean by that. When you take on VC funding, there is an exit plan at the beginning.

Put yourself in the VC's shoes. If you had X millions of dollars, whatever you're going to invest or buy a company for, you're doing it for a monetary return. It's that simple. I mean, all of us are in business to make money. Yeah, hopefully we're enjoying what we do. We do here, but there's always an exit strategy at the beginning. Begin with the end in mind. For the majority of the VCs that I would talk to, that exit is a three- to five-year exit. I mean, that's just, again, they're upfront about it that there's no shying away from it. If they're going to invest five million, they want the home run. They would like to have 50 back in three to five years. Worst case, hopefully break even in three to five. So, there's always an exit and always the next.

I think here's a great story. So, I have another friend that he sold his family company and had been in the family for a few generations. He went ahead and sold it, exited because of the family dynamics at the time. And I believe that was three to four years ago in that time. It has since sold twice over. In the VC space, there's rollups that happen. It's just common, especially on the dot-com side. To be frank, whenever I talk to VCs, that's some of what they're looking at.

Some of them were looking at Delta saying, "Hey, we want a role in these other acquisitions we've done underneath," because they were familiar with our platform a little bit and could see the automation in it.

So, there is an exit. That's not what I'm into. I'm not into, "Hey, let's grow something and sell it in three to five and then do something different and grow it and sell it in three to five. And then ..." There's people that do that and it's fine. It's not what we're doing.

Franklin Stoffer:
Right. So, operationally or from a brokerage's perspective, what are some differences that you think are important to note? Because Delta is one of the very, very few. In fact, we were looking this morning. It's hard to find another technology provider that offers websites, CRM, and integrated all-in-one solution like we do that has not raised significant capital.

So, in a brokerages perspective, looking at Delta and comparing to other providers in this space, what is a big differentiator that you see comparing, well, we don't have VC funding being pumped into us. Is that something that you think is detrimental in any way compared to a company getting that capital? What are the pros and cons you see in that space, because I know how I feel about it, but I'd like ...

Mike Minard:
Yeah. I think just understand. So, here's why the VC exists, in my opinion. Again, all this is my opinion, but from my perspective, the reason VC exists, because if you take a look at Delta and at least the money that's been invested into the platform of Delta, we have over $30 million invested in the platform itself. We're not talking, "That's how much revenue we've done." No, that's what's invested in the platform. We invest millions every year into R&D. That rate is increasing, but we're doing it off of our own cashflow and profits or what normally would have been other profit. We have the staff here that keep developing things.

So, I've always come from the perspective and of the opinion that, if someone were to come to me, I didn't own Delta, and they said, "Hey, we want to go and compete with Delta," I'd use that. It would take 30 million in funding to just compete. Now, that's from a startup sense, and you'd be up and running in probably 18 to 24 months.

So, there's that side of it that you're having to raise capital, but the other side is, because a lot of that is for R&D or acquisitions or it could even be talent acquisitions. Depends on who we're talking about. But part of that though, too, is you're having to compete with all the automation we have. And yet people don't comprehend that. It's like, my dream would be at least a hundred million dollar year company with 30 people.

So, I know a lot of people in this space tout automation for the industry. We don't just tell automation for the industry. We automate our own stuff too. And you know that. We don't talk about it much. Try and keep it a secret, but our competitors that are similar size have at least two to three times the staff that we do.

So, how is it that that our onboardings can be so smooth or how is it that we can do them so quickly, or how is it that we've driven down the price in the industry of set-up fees, or how can we offer the features we're offering at the price we do? It's through those automations. So, there's that side of it too.

But the other side is, because the only time I take for granted owing people money. I was part of another startup where we raised money. I can tell you it's not Delta, but the pressure there is immense. And I have since gotten out of that. I was just happy to get my money back out. So, you definitely look at things differently when you're sitting there three, four, five years later saying, "You know, I want my money back," as an investor. You treat the business different because I can tell you, I was passionate about that business when I invested in it and got in it and helped create the business itself. But it got to a point where it was just money and it's like I just want out because I'm not writing any more checks. It's not hitting numbers. Get me out of this.

Franklin:
We've seen it in this industry, the vendors that take on that funding that obviously need to get money to take that exit is the people inside of that tech firm get into this mentality of they have to sell at all costs and we have the luxury and the benefit to [crosstalk 00:14:44].

Mike Minard:
I don't think they have that. I think they're just stuck in a situation because I can tell you, from an investor side, you find yourself in situations where it's like, I could do better things with that money I have tied up or in times like this, I've often wondered, because as you know from a sales side, we've had a phenomenal win ratio with clients. We can count on one hand the number of deals that we wanted, but we lost in the past couple of years. We've won almost all of them. That's a good feeling, but also we reinvented ourselves in 2016. The amount of R&D was increased since 2016 and actually, the partner buyout is almost complete. We're increasing R&D by seven figures next year, even on top of what we're already doing.

But we even get to a point and sometimes we've questioned, like I play these games, like what else would we be developing, what else would we acquire? Because when we see some of our competitors and some of the acquisitions they've done, they've done acquisitions that, from our perspective, they're doing that to simply respond to some of the things that we've developed and launched. And we didn't go into debt, so to speak, to do it.

Another good example is us getting into launching Ad Wizard, an ad platform built into our platform for just our clients at this point. We did it for not necessarily business reasons for us, but we thought we could do a better job and do it for our clients if we wanted our clients to see a better ROI on what they were spending.

But the reality is, we do that and we launched with no debt whatsoever and nothing out of pocket, so to speak, a side business doing in excess of a million in revenue in less than a year. We're not even pushing it yet.

So, were empowered to do different things off of profits. Anyone in a SaaS type space, there's something called the rule of 40. I know investors look at that. I've looked at that as I'm looking to do acquisitions right now. I'll just explain it because a lot of people are watching this. Some people might know what it is. Others are like, "What the heck is a rule of 40?"

Well, there's a rule of 40 for SaaS, S-A-A-S, software as a service. Rule of 40 is basically a metric that investors use to say, "Is that business healthy? What's its profit margin? What percentage and what's its growth rate, what percentage year over year?" If those two numbers total 40, that's one of the metrics that can be used to say it's a healthy company. We're just under 60, and that number's increasing. But I've made that strategic decision to say, "I don't want to increase it. I want to add more people for R&D or for onboarding," because I don't want to do what some of our competitors have done in the past where they basically implode under their own weight.

But let's get back to the narrative that you have to raise capital to be competitive or you don't. As a startup, you might have to or if your business isn't mature in the sense of been in business for awhile, good profit margins, good cash flow, out of debt. Those things go a long way towards giving you options and opportunity.

And here's how I look at it, too, is we're building something here that's not just to change and empower the real estate space, but it's also for the team that's here. That's why we don't have high turnover rate internally here, that's why I want people to have careers here, not a startup job and then move on to something else. You're young. I can say that. Yeah, you get that. You understand that. And we watched some of our competitors with that too and even some of their online reviews of their past employees.

Nobody's perfect. I don't want to paint that picture, but that matters to us and it simply matters because I view all the staff here, all the team members that this is something that I want a business or a job, if you will, or company that you can retire from. You know what I mean?

Franklin Stoffer:
Right. And that's a great tie-in to the last thing that I wanted to cover for this video is talk a little bit about something we don't talk about enough, which is leveraging our history in that. We've been around now, going into our 25th year, we're one of the longest standing all-in-one technology providers in the real estate vertical. And we've done that as an independent entity, which is extremely rare. And just talking about how important it is to be a family-owned company moving into our 25th year and beyond that, all the things that we were first to the market with, which more will be coming on our website on that stuff soon. Big overhauls coming there.

But just talking a little bit about what we've seen so many competitors of ours that have gone through this cycle already where they take funding and then they're gone within the next five years, because a conversation that I have as I'm talking with new prospective clients is, well, where do you want to be? What is Delta's goals in the next five years, 10 years? Are you planning on taking on funding? What is your strategy? And I think that's a big conversation that anybody looking to make a technology shift needs to be conscious of when they're talking to technology providers, especially as a potential recession looms in the future. And Delta's already been through two of those.

So, having the ability to be a stable and reliable partner, how we've managed to do that. And what your general thoughts are in the industry as a whole, looking back at some of the competitors that we used to run into and just those general cycles that happen.

Mike Minard:        
Yeah. Boy! Where to start with that? First, let me be direct in the answer. What are we looking for? I'm not looking for any funding. I'm not taking any funding. Well, I mean, I've had in the past two years crazy offers. Some of those offers, it's like, well how much is enough? Delta's healthy. It's enough for me.

So, that big and I start to view it then. Well, yeah. I can get a massive check approaching nine figures, but what do I owe to the team here because I might be the visionary, but it's the team that's built Delta. I feel I owe it to the team in a healthy manner, which, as you know, just some of the things we're doing in here with trying to take care in the company here.

So, there's no funding on the radar whatsoever. On top of that, it's taken the lesson of Tigerfly, that part of the dot-com bubble, they ran out of their funding. And at that time they were burning massive amounts of cash. They had to sell. They didn't have a choice. They had to sell.

So, from a Delta perspective, we weathered the storm. And I think this speaks to how we've run Delta. The Great Recession, we weathered that. In the midst of that, we helped fund and start up another business in the midst of that, which made us tight.

So, if it weren't for that other startup, things would have been much, much different. So I would never repeat that mistake again. But with that said though too is, everything being talked about in the news about the next recession coming. If it happens, it happens. I mean, we're ready for it. We've planned for it. Our business model and our accounting model accounts for it without that. So, we're good there. So, we'll weather the next one.

But also I want to say this, so looking into the future. I've been up front with this. My plan has been all along actually since we bought Tigerfly, ironically enough, I've always had this in the back of my mind. Our platform is built for it to go into other verticals. We will be doing that. We've been waiting for the proper timing. We wouldn't do it with the same staff here. You know that. So we won't take away from the real estate space, but I figured that we can grow about tenfold in the real estate space right now is reasonable and we're going to push for that in the next two to three years here. We're starting to push harder and harder. That's probably why people have been hearing of Delta and you're seeing our name. It's not because we're buying the business or paying the consultants who are running crazy amounts of ads. We're letting our customers tell our story, and most of our sales are through word of mouth.

And so, what the vision of Delta is, as you know from a tech side, we're pushing technology. We know where we're number one and best in the industry. We know some areas where we're maybe number two and those areas are changing soon. But as much as you've seen us change in the past three years with technology and all the things we've brought to the real estate space, that is continuing. I mean, that that piece is not changing. It's certainly not slowing down. It's going to expand a little bit, but with more focused as well because we're going to continue the pace of our development but with an increased pace of UI/UX changes and updates and a lot more AI coming from us. Stuff that, as you know, we've been working on and it's stuff that doesn't exist in this space that I believe will fundamentally change some things. Especially, I don't want to get into it yet. But, anyhow, that stuff's in the works and it's been in the works.

So, that's where I want to push the automation in real estate. It's the empowerment of the bricks and mortar business model is what it is.

Franklin Stoffer:       
So my last question for you that I'll end with is you talked a little bit about how Delta has weathered the storm, so to say, and the potential of a recession in the future. If it happens, it happens. Do you have any predictions or any comments you'd like to make regarding technology companies that have taken funding and what a potential recession could do to impact those firms? Anything at all that you could kind of tie into that, just to compare and contrast.

Mike Minard:        
No. Each one's unique, and I don't want to get into the specifics. I have my opinion of specific companies and where they're situated. I don't want to share that. I don't feel that that would be fair to them because it's my opinion. But I will say this, that there is pressure in a distraction that comes with taking on the funding. Well, I saw that very clearly in the business that I was part of where, in essence, I was an investor, as were a lot of other people and some of the decision-making that tends to happen because there are decisions that happen in here that from a monetary standpoint for Delta, they make no sense.

Yeah. We'll do some things where it costs us money. Where money were tight, or from a VC perspective, it probably wouldn't happen. It's almost, I don't know, but almost growth at all costs. As you know, there are times where we don't push growth because we want to make sure onboarding is healthy and a good experience. I'd rather not onboard people as quickly or sell as quickly to new clients and know that we're giving a great experience or the best that we can and always improve it.

But I will say this though too, is, having other friends that have taken on funding, I see them in a different position, because one thing that gets talked about, at least from a VC standpoint or from a business standpoint, is onboarding costs or what's the capital necessary for onboarding and conversations along those lines.

And, as you know, we've over the past 12 years have highly automated that aspect of our business, but not to the point of where some of our competitors, we see that, okay, they can onboard you quickly and at a very affordable price, but it's almost like, "Here's what you get," whereas, you know in here we can do the same thing, but it's like, okay, here's basically a thousand combinations of options and even more customizations. What do you want to do? And you can customize it if you want.

So, I think they're going to see added pressure there. I will say this, I think you're going to, especially going into 2020 and in through 2025, you're going to see a tremendous amount of pressure. I look at it this way, when we can build a product in here on our cashflow with just, not the entire team, not even a quarter of the team, just a small portion of the team working on what we consider to be a feature. And we're launching it in a competitive manner against someone that exists in the real estate space that is, let's say, raised nearly 10 million in funding. Yeah, we might only be doing 5% of their revenue.

But think about that for a minute. We were able to pay for it with a tiny portion of our team and build a product and launch it and be generating over a million in revenue. We're already competing and winning business against someone else in the space that has nearly 10 million in capital invested. Yeah. Then, we're sitting there saying, "Okay, do we want to push the growth of it or do we just want it to be just something for our clients?"

So, I think you're going to see that added pressure. And I have to say this and this is how I'll close my thoughts with that. I do my projections on the next recession and watching those things. And all I can tell you is, during the next downturn, there's no way I'd want to be in a position where I owed money, especially millions, to anyone or had that pressure to grow because that growth always takes twice as long. Probably have real estate company owners watching this. It takes twice as long as you planned. It costs twice as much as your planned. It's always harder, twice as hard as you thought it would be. There's rare cases where it's not, but the majority of the time it take a lot more work, a lot more capital and takes a lot longer, but it's worth it. That's what we're building here.

And from my perspective, I mean this wouldn't be completely my family legacy, but I'm working to build a family legacy. I have kids that want to be involved in the business and are starting to get involved in the ... I'm not that old yet, but in addition to that and I'll say this, it's not just family because my wife comes from a family-owned company. They're in their third generation. There's something about that healthy pride, where it's a 75 years old, 80 years in business. And so, I'm even investing in people here and you know that, investing in people here with development and business development. And that's longevity. If was looking for short-term growth or VC funding, I wouldn't waste my time with some of those things.

And here's one thing, and I don't know these exact stats, but I'll just share this. I heard this from a couple of sources in the past month. As a matter of fact, Google this. You can find the articles on it. I know I'm going to have the ages wrong, but Google the average age of a privately-held company versus a public company, because anything VC, it might be private for now, but there's typically a plan for a rollup of some sort and then go public and is the most common. It's not 100% but look at the average age, because I want to say that the privately-held companies on average lasts, I think it was 60 something years and publicly-held companies last on average, and this was, I want to say it was actually less than 10 years. I forget what the exact number is but that kind of fits, just that tenure of how long did they stay around or how long has that ownership around.

And the question I would have is three years from now, what's going to be the direction of the company? Not Delta, but anyone that has VC funds, because that does change and you do make decisions that are more financially-driven than business- and client-driven, thinking of your client in mind, their health. Sometimes you have to sacrifice that when you have to answer to someone else for money.

Franklin Stoffer:           
Right. So, in closing, disagree with the narrative that you have to take funding to stay relevant.

Mike Minard:         
Yeah. I strongly disagree with the narrative we're seeing. I respect some of the people that are sharing it, but I think it's a strategic narrative from our competitors because we're able to win a significant number of contracts that are of size without funding. And I would say this. Look at all the features and products we've launched in the past three years. And I know we haven't been as vocal, but that was somewhat on purpose, not wanting to grow too quickly. As you know, we've been hitting our growth numbers. We're starting to push that a little bit harder, but let me emphasize and I think here's the value of a family-owned company that wants to be around 30 years from now is we're willing to grow slower so that we know we can onboard in a healthy manner and train in a healthy manner and have a good experience.

And it's not, "Hey, you need to grow. You need to sell 10 times more next year." Because our question is, "Okay. Well, that potential is there. Can the team handle it? Can that platform handle?" There's more questions too that go beyond a team. It's more of the platform.

So, as advanced as our platform is, we're doing more work there to prep it for more growth. So, anyhow, yeah, I would say I don't agree with the narrative that VC funding is needed and Delta Media Group is more than happy to play in this space without VC funding. And we're having fun doing it. And I enjoy having a family-owned ...

Here's how I would summarize it. I really enjoy having a family-owned company with a great team here that loves being here, serving the vast majority of our clients. I think almost 100% of our clients are family-owned. They get it. They know what that's like, and I know what that's like and we're having fun doing it.

And let me just say one thing, is you start to say, "Look." With the VC funding, I'm sure you can come up with some stories that happened in the residential real estate space where funding was raised to grow the real estate company. Then, basically that investor was able to sell that company when I don't know if the family really wanted to. I will never be in that position.

Franklin Stoffer:      
It's good to hear.

Mike Minard:        
Yeah. So anyhow, we wanted to share that. We were having a conversation and thought we would share it, so thank you.

Franklin Stoffer:  
Thank you.