Bob East is the owner of East Harding Inc. & Advanced Cabling Systems. He received a BSBA in Finance and Administration from the University of Arkansas at Fayetteville. Bob's past positions include positions at Little Rock National Airport Commission, Arkansas Game and Fish Foundation, Associated Builders and Contractors, Arkansas Nature Conservancy, Vision Little Rock and Downtown Little Rock Partnership.
Episode Transcript
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00:06 Matt Waller: Hi. I'm Matt Waller, Dean of the Sam M. Walton College of Business. Welcome to Be EPIC, the podcast where we explore excellence, professionalism, innovation, and collegiality, and what those values mean in business, education and your life today. I have with me here today a Walton College alumnus, a member of my Executive Advisory Board, and the founder and CEO of East Harding Construction and CEO of Advanced Cabling. Bob East, thank you so much for joining me today.
00:48 Bob East: Thanks for having me.
00:49 Matt Waller: Yes, well, you have such a rich and interesting business history. When you graduated from the Walton College, did you have any idea that you were going to be doing some of the things that you have done in business?
01:05 Bob East: No, I really didn't. I was in business school just because I didn't know what else to do, and I took business courses and I remember one of our professors asking us what we would do in Fayetteville if we were gonna start a business. And at that time construction was booming, and so people were talking about buying apartments. And so I said I was gonna start a construction company, because I'd been working for a contractor in the summer. So that's really kind of all I knew. So when I got out, I went to work for a small contractor and worked for two years for them and then quit when I was, I think, I was 24 and started... It was Robert East company at the time, so I was very young, very naive and didn't know very much at all about business. And it's come a long way.
01:57 Matt Waller: So, Bob, I wanna focus a little bit today on Advanced Cabling, because that's the company you just sold.
02:06 Bob East: Right.
02:08 Matt Waller: And so if you wouldn't mind tell me a little bit about the early story of how you found the company, how you decided to buy it and why you thought there was so much potential, which you were clearly right. [chuckle]
02:20 Bob East: Well, I had a good friend that owned Dassault Falcon Jet in Little Rock. It was actually called Arkansas Aerospace, and they finished Hawker airplane interiors in Little Rock, and he and I became friends and we did a couple of real estate things. And through him, he and I purchased a business in Fayetteville called AMO Electric Company and that was a company that sold electrical supplies. And it was a good business, gave me a good background in just how a business like that operates, but the problem with it was the competition in Fayetteville got to be so difficult. When we purchased it, there were three electrical supply houses in the north of West Arkansas, and when we sold it about six years later there were 13. And during that time, we overcame a lot of problems, and I learned a lot, as I said, but through that process, I saw how important low voltage and fiber-optic cabling was becoming. So, I just kept that in mind and I found this little small company called Advanced Cabling, and it had three people that worked for it. It had a revenue of about $300,000 or $400,000 a year, but it gave me the chance to get into the low voltage, and at that time the computer networking area. And all we did at the time was install computer cabling. So, it was very tiny, but it just gave me an opening to get into what I thought was gonna be a great opportunity and that was the computer business.
04:02 Matt Waller: And that was in the late '90s, right?
04:04 Bob East: Late '90s, yeah.
04:06 Matt Waller: That was the height of the dot-com boom when you were in any of this.
04:11 Bob East: Height of the boom and just before the bust, about 10 years before the iPhone, and two years before 9/11, which was 2001. And that kinda changed the world outlook on security. After that really nothing was the same from a physical security standpoint. So that and just the explosion, the whole dot-com era ushered in the data way of life that we have today and it was... You look back now and you look at the Internet and buying things on the Internet, and it was just primitive back then compared to what we do now.
04:54 Matt Waller: And I wanted to capture this to really capture your entrepreneurial mindset, because you were installing all kinds of advanced cabling during the dot-com boom. 9/11 happened as you said, and all of a sudden you saw, "Oh, there's gonna be a huge opportunity in the dot-com boom." You took advantage of that, then you saw the opportunity to take advantage of the security boom that was coming, 'cause you knew after 9/11 things like CCTV installations, fire alarms, everything like this was gonna boom. And so, you went all in on that by 2002. Was it hard to convince people that that was the right direction to go or...
05:40 Bob East: Well, you know, my initial thought with Advanced Cabling was to take the cabling part of the business and add all kinds of new disciplines like fire alarm, access control, network cabling to that business so we could be a one-stop shop, because I was a contractor and I knew that a contractor would rather have one company doing all of their low voltage work. And so, my goal was to train our people, you know, pay for their training and get them where we had a barrier of entry to the computer business that not just a single company could do. So, we consciously added all of those disciplines. And then, when 9/11 happened, just the sheer magnitude of the increase in security was almost overwhelming. And then, of course, the demand for data and bandwidth, I mean, I remember the day we heard the term bandwidth and we said, "Hey, that's a great word. We're gonna start using that word." But it just kept going and we kept adding people that brought us expertise in training people, and then the business just boomed. And of course, that never was a... We didn't raise money, it wasn't a venture capital thing. It was just us, just growing and we put all of our profits back into the business and the opportunities came and we took advantage of them.
07:12 Matt Waller: Well, in your background as founder of East Harding Construction, you've been in construction a long time. And so, on the one hand, you were seeing the needs of the market, the demand for bandwidth, the demand for security, but on the other hand, you also had intimate knowledge of construction. And so, I know by 2005, you had a strong computer-aided design department and you were able to serve construction clients better than anyone else because of that.
07:52 Bob East: Well, construction gave me a real insight into the needs of people that were building buildings and then I did a lot of development in the '90s and the early 2000. So I could see the needs of an owner, a building owner, even of somebody in the newspaper business, or the security business, or any business that use construction, I could see what their needs were and how to get there. And so, I was able to really solve a lot of problems that they had that I knew how to solve with my cabling business, and I saw the opportunities there. So that's really why we kept adding disciplines to advanced cabling because I saw that need in buildings and it was just... You know, nobody was doing that full service. So it was really a new part of the industry that we were there at the beginning and just, I knew that that was gonna boom the whole... I mean, it was gonna keep booming so I just kept adding people and disciplines. And I was lucky enough to hire two great people early in my career. And in fact, we had several wonderful people that were with us in 2000 and still with us today. So I was lucky in that area.
09:15 Matt Waller: And then, by the late 2000s, you were really expanding your services, not only to include bandwidth and security, but also AV and Intercom-type systems.
09:32 Bob East: We started seeing the demand in other cities and of course, Northwest Arkansas, as a natural expansion area. So we had an office up here in it, it did pretty good. But then, we saw the demand in Tulsa and Oklahoma City so we expanded into those areas and we just kinda played around the edges of the market. We didn't have to have a huge amount of work. We'd have a good person up there that was an installer executive kind of guy and would do small jobs. And because we could do everything in a project, the AV, the... Well, at that time, we didn't do AV but we could do the access control, fire alarm, all of the low-voltage cabling. The people would just give us bigger and bigger jobs, so that's how we grew the offices that we opened. We didn't have to start with a huge overhead, we started with a small overhead. We had great service, great employee benefits that helped us attract people and we just grew organically.
10:37 Matt Waller: Now, I know that you went through the great recession 2008, 2009. How was your business affected by that?
10:49 Bob East: You know, that's a great question. We grew about 15% to 20% a year through the great recession. We had no recession. We grew continually. We expanded into schools, education work, some healthcare, and the demand was just there. Our company was poised to be there at the right time and we never had any... We grew the most consistently and the fastest during that recession.
11:23 Matt Waller: That is so amazing. [chuckle] Now, I know by 2011, you acquired API Systems Group. Would you mind telling us a little bit about that?
11:33 Bob East: Well, we were always on the lookout for other companies, but I'm a conservative guy and I never wanted to borrow a bunch of money to buy businesses. We looked at dozens of businesses, but every time you looked at them, a really good business was millions of dollars to purchase it. And I didn't wanna be in that kind of debt, I thought I could grow organically with much less risk than that. And so, we found a lot of smaller companies, or not a lot, we found... I think, we bought three companies, but they were smaller companies that had some recurring revenue. They were kinda owner-founders that were just a little bit overwhelmed by the business and so we bought these three companies that we got some good customer base.
12:25 Bob East: We didn't really add a huge amount to our volume, but we did get some good customers, we got some good people. And again, we just bought businesses that really made sense to us, and we were not gonna overpay for companies, so we were very selective. But we had trouble finding acquisitions because we'd look at their balance sheet and income statement, and they were just not good, which is a great lesson to tell you that, you know, your financial statements are really how you run your business. And if you can't read a financial statement, you need to learn. And you don't have to be an accountant because... I might have told you before I practically flunked accounting in the Walton School of Business, but I learned how to read a financial statement and there's a difference. And so many of the businesses we looked at had just the most pitiful financial statements that raised more questions than they answered. Our joke was when an owner has to sit down and start explaining stuff to you on their financial statement, we marked them off of our list, 'cause we don't wanna have to have explanations.
13:41 Bob East: We'll look at the balance sheet and income statement that shows really what's going on, and then we'll ask questions but if you don't have a clean balance sheet and income statement, if you have to explain all kinds of numbers, then you've got a problem. That's really... It's key to running your business and so many people do not understand that. And I don't care how big your business is, you have got to understand your financial statements. You've gotta be able... A lot of big business people run their business from financial statements. They don't get out in the field and see how many nails you bought. They look at the financial reporting at the end of the month and then you just have a feel of your financial statement about how well you're doing. That should be one of the main things you strive for in your business is understand and have a clean balance sheet and income statement.
14:39 Matt Waller: Let's now talk about this acquisition by ADT.
14:45 Bob East: Well, the security business has had a lot of consolidation in the past 10 years and most types of businesses that that happens to it accelerates faster and faster as companies are trying to add volume and territory to their businesses, and it attracts a lot of venture capital. So, we've been approached many times by people wanting to buy our business, but we didn't want an earn-out. We wanted a good price for it because our business was very profitable, and it was really a part of our life. My partner, Michael Kennedy and I, we loved running it. Michael ran the business day-to-day, so things were going good and we weren't looking for a buyout, but as the business grew... I'm a lot older than Michael and since I was about 55, I've been a big believer in financial planning, because I've seen so many businesses that don't have a financial plan and something happens, either business falls off or the owners have a fight or an owner has a health problem and the value of the business just plummets.
16:00 Bob East: So, I wanted to have a way to get out of Advanced Cabling and have it keep going, have it going and being owned and run by a really top notch business, so we just had not found those people until a company in Boca Raton, Florida called Red Hawk Fire & Security approached us last March and... I don't usually go to the initial meetings, Michael Kennedy goes, because we usually come back and say... He comes back and says, "It's a joke. We don't wanna talk to those people." But he came back from that and said, "These guys are great. They're straight shooters, and we might need to keep pursuing this."
16:43 Bob East: So, we did, and the more we heard about it... I talked to the guy myself, and I was expecting a kind of a corporate, buttoned-up kinda guy, but he was a super nice guy. He was very low-key. He came from a field technician background, and he knew the business and he was talking our language. So, we talked and talked and finally got to a letter of intent. We went through about 90 days of discussions and really had several stalemates. So, we just said since we're not under letter of intent, we're really not interested in pursuing this if you guys can't hurry up and get this done. Well, it turned out that in the middle of that letter of intent, the largest security contractor in North America, which was ADT, had unbeknownst to us purchased Red Hawk. So, when we found that out, we thought the deal was off, but then they came to Little Rock and talked to us, and they said they're extremely interested in continuing our discussions. And so we talked. We had a lot of back and forth and a lot of difficulty but after meeting the ADT people, they came to Little Rock and talked to Micheal and I, we decided it was still a good fit, nothing changed, and so we pursued the deal.
18:08 Bob East: So, it took about nine months to complete what should have been a two-month deal, but we think it's a great fit. Our management team stays in place 100%. None of our people have any... They're not gonna be laid off. We're just gonna continue. Actually, we're gonna keep the name for at least another year, Advanced Cabling. So, Michael Kennedy gets to expand his footprint. He's gonna be in charge of the middle United States. And David Roberts is gonna run our Advanced Cabling footprint. Their intent is to grow. They've told us they don't know anything about Arkansas or Oklahoma, and they're not gonna come down here and micromanage our team. So it just was what we were looking for, and it gave us a chance to realize some of the value that we had built over the years, make sure that our company was continuing in a great vein and had the expertise and capital behind it to keep growing. So as much as I hated to do it, having built something like that for 20 years from a three-person company to almost 200 people and six offices in three states, it was very hard to do, but I was very concerned about my people, but I think we did the best thing for them. And I know that it's much better to go out on top than try to do something when a problem arises.
19:40 Bob East: You know what? I think one thing that I've said to everybody, it's... I've had a lot of congratulatory emails and phone calls and that's great, but I can tell you that it's bittersweet giving up a business that you put so much into and you know the people and they've worked so hard for you. And our whole focus in the business is to build a great culture, give great company benefits, great training, and the people will be glad to do great work for you and that happened at Advanced. I'm gonna really miss those people and miss the camaraderie and the success that we've enjoyed together, but it just was the best way out. It was really the only way out. It was inevitable. The timing was good. As many congratulations as I've had, I need some condolences, too, [chuckle] 'cause it was difficult to do, but I think we did the right thing.
20:41 Matt Waller: Well, Bob, we're proud of you. We're glad you're a Walton College alumnus, and you've accomplished some really amazing, great things in business in Arkansas and generated lots of wealth for many people.
20:56 Bob East: Well, thank you. I do remember in the old business building my classes over there, and I never thought that... I mean, I was going to college to get out of college like most people, but I learned a lot. I looked back at some of the things my professors told me then that I remember. And I've really enjoyed owning businesses and doing businesses, and I'm thrilled to see the Walton Business School as big as it is and the things that you're teaching your students, they're so valuable.
21:31 Matt Waller: Thanks for listening to today's episode of The Be EPIC podcast from the Walton College. You can find us on Google, SoundCloud, iTunes, or look for us wherever you find your podcast. Be sure to subscribe and rate us. You can find current and past episodes by searching Beepicpodcast, one word. That's B-E-E-P-I-C podcast. And now, Be epic.
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