Full Transcript – #17 Practical Founder Podcast interview with Echosec c-founder and former CEO, Karl Swannie, Echosec
Greg Head: And we’re live with Karl Swannie, the CEO and co-founder of Echosec in the scenic city of Victoria, B.C., Canada. Hey, Karl, welcome to the Practical Founders podcast.
Karl Swannie: Thanks, Greg. How are you doing?
Greg Head: I’m doing great. I’m here in Dallas and it’s about a micro percentage as scenic as where you live. You’re in between Seattle and Vancouver, the idyllic town of Victoria. Have you seen any wildlife today that would just amaze normal people out here in civilization?
Karl Swannie: You know, I took my dog for a walk this morning. There were a couple of eagles. There were some blue herons and a couple of seals. You know, it’s a beautiful place to hang out.
Greg Head: That’s a normal place for a startup. You’ve had a really interesting journey with your company, Echosec, which was recently acquired. So maybe we’ll just start with the end in mind. I know you weren’t with the company just recently here. It’s been a little journey. What is Echosec and what happened with the FlashPoint acquisition?
Karl Swannie: Echosec now is now a member of the FlashPoint family and I’m very, very pleased about that. I was still a shareholder in it. If I can suggest to anybody, if you can possibly retain shares in the company that you have, it’s absolutely fantastic. And actually the shares that we had also a percentage of that rolled into FlashPoint. So I’m very, very pleased with all of that transition.
Karl Swannie: Echosec started as really a threat detection tool. I’m originally a geographer by trade. I started years and years ago doing 3D maps for things like universities. And when we would do these big, beautiful 3D maps that they would use to describe the university and show people how the university is going to change over the next 10 or 15 years, we were at the forefront of those kinds of things, these big, beautiful maps. Then planning departments needed to actually see where people were hanging out. They wanted to know where to put up signs, they wanted to know where to put emergency services, that kind of stuff. So we started mapping Twitter with no external metadata associated with it, no personal information along those lines. But it definitely showed patterns of travel and where people hung out and actually where you could put emergency services and things like that.
Greg Head: So people’s tweets, which are publicly available information.
Karl Swannie: Right, only if they’re publicly available.
Greg Head: People’s tweets had some information in the tweet itself or in the metadata of the tweet, where they were or whatever, that you could access and aggregate and discover interesting pieces of information that geographer types would think about.
Karl Swannie: It was absolutely fantastic live data for us to work with. It was great and it is great. And I was only interested and still am only interested in what people make publicly available. If you make it private, I’m not interested in it. There’s enough information out there that people have. We had about 250 different types of data coming into the system at any given time, so just the aggregate information of what is going on in a location. Played with it a little bit on the side and, you know, really didn’t put any value into it until…
One day we were just playing around and I went over our local military base and suddenly came back with a lot of information, a lot of posts and locations that I thought about, more of us of sort of a security threat. We knew that we couldn’t really sell in Canada. Canada has different rules as far as security goes. So we started looking more into the US and that’s actually, I mean, let’s face it, the population of California is Canada, right? I think actually we have a smaller population than California. So we went down there and we started showing a few people. We spun out Echosec as an entity unto itself. And I was extremely fortunate. I had met Owen Matthews, who was part of the Matthews family in Canada, and they had a family fund. But he did a great job in introducing me to Mike Anderson, Nick Turner, and Jason Jubinville, they were master’s students from the UVic, the University of Victoria. So I sort of took them under my wing as partners, part of the original founding team. And together we just started growing this product out and it took a really, really long time for us to find product-market fit. But once we did, it was extraordinary.
Greg Head: And you were getting this data and were you seeing it visually like on a map? That was the visualization. You’d say, Show me something and there’d be red zones and you’d say, Gee, what’s over there? And then you’d see what’s going on. Something like that.
Karl Swannie: Yeah. If you were looking for the keyword “bomb,” if any tweets came up with the word bomb in them, that’s what would see those pop up around the world. Now, you know, that being said, a lot of people are like, this is the bomb. Or, you know, there’s a lot of slang that’s used around the world. One of our good examples was when Russia originally invaded the, sorry, “came” into Ukraine or entered Ukraine. Years ago, we actually watched the tanks rolling down a highway in Russia prior to crossing into Ukraine. And it was people out, you know, it was just normal people out there taking pictures and posting them to social media via VK, which is the Russian version of Facebook. And it was outstanding. It was an incredible experience to watch. And at the time we didn’t really have the customer base to be able to just show anybody. We didn’t know what to do with that kind of information, but it was still an incredible experience. My belief early on was that we were going to sell to journalists, we were going to sell to a lot of organizations that could actively use this kind of thing. But then I quickly.
Greg Head: It was a news finder.
Karl Swannie: Oh, yeah. But then I and I’m a bit of a news junkie, so I was like, okay, this is going to be fantastic. I think anybody that’s ever gone through 9/11 or one of those things, can’t help but be a bit of a news junkie. But then, of course, you’re watching these things going on and you very quickly realized that news outlets have no money to be able to afford tools like ours. It’s very, very challenging for them to come up with budgets to be able to afford. You need a team of 20 at least to be able to organize and be able to continue to develop a tool like this, plus paying for your feeds plus all the rest of it. It was very challenging for us to sell to that market.
Greg Head: Between, This is cool, maybe we could sell it and it has the acronym that it now has the OSINT – open source intelligence. Like how long did you wander in the wilderness seeing if anybody would buy this and what you could build and could we build it and would it be useful?
Karl Swannie: I mean, we were a product for eight years before we had our first acquisition. I would say the first two years, I developed the prototype with a friend of mine and it was a very good prototype. And my team will always give me a hard time about this, but it was actually a functional prototype. I could draw a box on a map and it would come up with a bunch of posts in that area from various social media sources and actually give me some relevant information so I could go to the middle of Syria, I could go to North Korea, I could go around the world and actually come back with information that I wouldn’t normally ever see. The team of really Mike and Nick came along and they were like, Okay, we’ve got to make this more scalable. It’s got to be able to actually not blue screen in front of you. So they took on the front end in the back end and really rebuilt the whole thing. And that was sort of year one, year two.
Karl Swannie: And we did have access to Facebook data, which was publicly available, and Instagram data was also publicly available. There were a lot of publicly available sources that have since become more private, which is fair. You know, there is, believe it or not, a new social media type coming on every single day. So there’s no shortage of information that’s available to people in the open-source intelligence world. So we were from 2014 to about 2016 just building out the IP and the infrastructure that we needed from 2016 to 2018. We were really working on getting those initial customers and we tried a free version of the product. We tried a $40-a-week level of the product. And you know what? It was incredibly successful. We had thousands of clients. But my support was killing me. It was absolutely killing me.
Greg Head: You would have thousands of clients paying you $40 every month. 40 bucks, right?
Karl Swannie: Yeah. And then not and then calling me up and complaining because they weren’t being able to find information that they might be looking for, which was most of the time stuff that you shouldn’t be looking for anyway. So you know, we had proven at that point that we had a market just not a very profitable market.
Greg Head: So you kind of had “There’s a thing we could build and this is the cool thing.” And then you go to find customers, this the solution, looking for the problem, right? The people that had the problem, who would pay you, and so forth. You know, sometimes you start with a lot of times you start with the opposite. You have somebody they say has a problem and you say, would you pay for that problem? Then you go build something that’s generally recommended practice. But you had this thing that was looking for a problem that would pay you.
Karl Swannie: Oh, yeah, that was that’s the easy way to do it. We did it the hard way. We did it the hard way all the way through. So we absolutely had a great product. And during that time I brought on a great product manager slash, you know, marketing manager. Her name is Paula Hingley. She really shaped the way that we actually went out and talked to customers and they really started to focus on open-source intelligence, because early on, open-source intelligence was a thing, but it was a very, very niche thing. You know, fell under signals intelligence. It was a very military thing. Nobody ever actually used it, like it was not as common as it is today. I mean, I would walk into a security forum or something along those lines. Nobody would have a clue what I was talking about until I drew that first box on the map. You know, absolutely blow people away with how much information we were coming back with. And she really shaped the way that we went to market with that product.
Greg Head: How did you stay alive this whole time?
Karl Swannie: We met Owen Matthews early on and Owen Matthews was part of the Matthews Fund, or the Wesley Clover Fund out of Ontario, his dad is Terry Matthews. I’m not sure if you’ve ever looked up Terry, but Terry is an absolutely phenomenal guy out of Ontario, Canada. I think he was the first Welsh billionaire.
Greg Head: Was this a random thing or did you say, Jeez, we need money and you went and knocked on all the funding doors and did the angel pitches? Because you didn’t raise any big funding. You raised everything but big VC funding. You did it about six different ways, in a practical sense. How did it occur to you to get family office money from a wealthy family who is very prominent in Canada?
Karl Swannie: Honestly, it was our first conversation. My first conversation with Owen and Terry was very, very early on. As I mentioned to you earlier, I went over Canadian military base and I was like, Oh, man, this is awful. This is, I mean, there’s a lot of information here that I don’t think that they know is being projected out to the world. And if a guy like me finds it, you know, chances are somebody smarter than me is going to find it. So I had those early conversations with Owen and Terry, and that’s when Owen jumped on board and Terry jumped on board. And they set us up as part of their Alacrity Fund. So it was a family-based fund. And it started off being equity and moved towards debt later on in time. But that was just because of the Canadian tax base system. So we ended up raising debt from them. And then later on we raised a little bit of debt from TIMIA as well.
Greg Head: Most practical founders talk about there’s this problem and it’s very specific and there’s this crowd of people that are screaming about the problem in a vertical industry or in a specific niche or something. This one is different. You’re a practical founder, but with kind of a harebrained idea. I mean, There’s all this data and we’re going to put a different lens on it so people can see from the chatter that’s going on very important trends and threats and indicators and data and so forth. There’s a huge data industry. It wasn’t really a vertical thing. This wasn’t just for the government, right, or security or it was it.
No, not at all. I mean, we kind of fell into the security space out of necessity. I mean, we went out, we attracted a lot of customers and then we realized that we couldn’t keep going that way. We were losing money on the support side of things.
Greg Head: Were the customers too small or were they all just completely different? Everybody, every customer was a snowflake and you couldn’t figure out how to serve them.
Karl Swannie: Too small, all with individual needs. And then we did the big ballsy move of raising our prices from $40 a month to about $10,000 a year per license. We lost I don’t know how many customers, and I would still apologize to them today for making such a dramatic change. But we had to survive. And with doing that we got bigger clients that had proper project management, that had proper training for their employees, that were actually using the software, the analysts that were using the software. And it was the most unnerving thing I’ve ever done in my life because I knew that we had customers, but that price change was huge. And when you’re in the middle of it and you’re not sure, you’re not 100% sure that it’s going to work out, and you just take that leap of faith and it’s like, okay, this if this works, this could be good. And then all of a sudden you start realizing, Oh, my support costs are going down, my infrastructure costs are going down, my communication is improving. The requests that I’m getting for the software actually make a lot more sense now. They were clear, concise, and consistent between multiple clients. It was a big move for us, but it was one of the things that changed the direction that the company went in.
Greg Head: So was that like you, you had this cool idea. You could see all kinds of use cases. You kind of went wide almost B2C, business to consumer, like anybody could buy it. And then you kind of saw what the signal was. Your software is kind of a signal-to-noise thing. There’s a lot of noise and you find that important signal there. And then you kind of did the B2C to B2B shift, right? You selling to individuals isn’t going to work. We’re going to die. We have to make a change. We’ve got to go sell to businesses with bigger checks who know what they’re doing. And is that what happened? You just finally said this isn’t going to work. We’ve got to do something drastically different.
Karl Swannie: Absolutely. And you know, all the credit to them. One of the original founding members, Jason Jubinville, actually sold this to a couple of very large customers. And that made the transition so much easier.
Greg Head: So you could see that use case and you looked at that unit economics and went, Wow, if we could have a thousand of those, that’d be a big business.
Karl Swannie: That would be fantastic. And one of the things that we did early on. And we did it really successfully when we had communication with TIMIA for later fundraising, with debt raising, was that we broke our customers up into cohorts. After that experience, we knew that if we broke our customers down to the cohorts, you know, we had a lot of customers at the 10,000, we had a lot of customers at 100,000, and we had a couple of the million-plus.
Greg Head: They were paying you $1,000,000. Okay, good. That was good. We climbed a mountain there to a million-dollar revenue.
Karl Swannie: We climbed fairly quickly at that point. The ones that the lower cohort, churned on a fairly regular basis, and the ones in the middle churned but they had the potential to jump into the bigger cohort and the bigger cohort never churned. And once we broke it down into those cohorts and presented that to other investors, be it debt or equity or whatever, people automatically zoom in on the bigger cohort. They’re like, okay, how do you get more of those? Yes, I’m interested in investing, even debt, or whatever it happens to be. It really changed the way that we focused on our customers as well because, you know, we listen to everybody, but if you get feedback from a $1,000,000 customer, suddenly you’re paying a lot more attention.
Greg Head: Funny how that works. So you experimented for a couple of years, and you tried to sell it in a bunch of ways for a couple of years. How long did it take for you to get to the Sell on it for 10,000 and then for people buying it for 100,000 in a million?
Karl Swannie: Four or five. Five or six years. And then everything was going smoothly and we were, you know, we were starting to become EBITDA positive and I felt really good about things. And, you know, you start getting those regular emails in from VCs and I was getting probably three or four a day and I’m like, okay, I’m not really interested anymore. And so one guy emailed me and I was like Screw off, I have no reason to talk to you. And he emailed me back saying, No, please, let’s have a conversation. And that ended up being Jeff from the Tusker Fund, which was a search fund out of the States, and they eventually ended up being the acquirers of Echo.
Greg Head: You raised some kind of family office debt there, and then you raised some venture debt from TIMIA with Mark in Vancouver. And so that’s venture debt. So that’s instead of raising equity, selling a piece of your company like the VC game and angel investors, you were raising debt, which means you would pay it back with interest. We’re starting to be profitable and saying, I don’t need to raise equity, I just need a little cash to accelerate things. Is that what your mentality was?
Karl Swannie: Essentially, by that point we were like, We’d been at it for a long time. We hadn’t raised any VC money. Why raise VC money when you start to become profitable? And then, of course, COVID hit and COVID was the biggest threat the world’s ever seen. So our valuation was going up at the same time because we were selling threat intelligence software. We were also in SAS defense software, which is a very hot market and still is. Certainly, when there’s a recession or any time of economic downturn, governments invest in things like roads, bridges, dams, and security software and security itself. So it’s a good spot for it’s a good spot to be.
Greg Head: So you weren’t just slowly growing and profitable. You were accelerating quickly and profitably.
Karl Swannie: We were hitting all the magic numbers that everybody looks for, you know, the 10% month over month, you know, all those beautiful numbers. We were exceeding those or hitting them or exceeding them.
Greg Head: Why did you take that call? Did he not sound like a typical VC or said Are you looking for money?.
Karl Swannie: At that point, I had a great team. I really enjoyed working with them. I really enjoyed coming in every day. They were fantastic. I had always promised them that there would be an exit, and this exit presented itself and it presented itself with a guy that I believed was going to do a great job and actually care about the company.
Greg Head: To come in and run it. So this is not like coming in to buy the company completely.
Karl Swannie: Essentially what he did is he had a group of investors already lined up and his job was to go search for a company that he could make better or more profitable or whatever it was. He could actually execute his skill set into that company. And his skill set was sales and management. And at the time, I’d been doing it for eight years. I was tired. We had a chance to take some chips off the table and give it out to the team. There was an employee stock options pool. It was almost my obligation to make sure that this company ended up in good hands and all my staff that were working for me for years on promises. They did not accept the wages that Google or Microsoft or Amazon could have offered them. They continued to work for me. So when the search fund came along, Tusker, and Jeff was in charge. Jeff Oldenburg came on as CEO. It was a beautiful, beautiful transition, as far as I’m concerned anyway, and he did an absolutely great job. And literally, a year and a half later, the company was then acquired by Flashpoint and that was funded by optics.
Greg Head: So a search fund has money and a CEO in waiting who want to come in and take a majority. Unlike an outright acquisition like Flashpoint or private equity, where they take majority share, but then they still have a gun to your head to say, let’s go faster, now. They came in and took a majority share of the company and Jeff came in to run it. And you said, Jeff is the guy that could take it up to the next level. And it sounds like in a year and a half he kept growing it and then sold it again, which means he made his turn for his investors.
Yes. He did exactly what he said he would do.
He was good for your employees and you because you had rolled some money into that acquisition. You didn’t sell it outright. And so you guys there’s more clapping, a second round of clapping when Jeff and the team sold it, but you didn’t have to row the boat after Jeff came in, right?
Karl Swannie: No. And you know, I’ve worked for big companies. I’ve worked for small companies. I love small companies. I loved it when we used to be able to go down, have an Airbnb, go to New Orleans, eat, hang out, drink beer, and enjoy yourself. When I get above 30 people, and I’m saying this as I’m rolling out a new company, I found that at about 30 people, I find it very challenging for my type of personality to manage that. And I think it’s because we started off with really the four guys in a 10 by 10 room, and if you wanted something changed, you could action it that day. You could influence the direction of the product literally with one conversation. And then it got to a point where there was, even internally at 30 people and I complained at 30 people there was too much bureaucracy, it did feel like everybody had something to say and it would slow things down dramatically rather than just being able to go, Hey, we’re going to go and do this. So I love the 0 to 20 people.
Greg Head: Yeah. And it was the 0 to 1 of creating the business out of nothing and creating a new category, doing something that hadn’t been done before. How big was the company when the Tusker Fund and Jeff came in to take a majority share and run it from there?
Karl Swannie: I’m going to say we are about 32 employees. We are based primarily in Victoria, Cardiff in the UK, and we had one guy working out of South Africa at the time we had a few people in the US, but they were just out there on their own.
Greg Head: So you had some remote employees but you were able to build this out of Victoria. Did you ever start selling it to Canadian customers or was this mostly to the U.S. and everybody else?
Karl Swannie: Mostly the U.S. and everybody else? To be quite honest, you know, as a Canadian, When we do what other countries do, especially in the security sphere, it tends to be afterward after everybody else is. But again, I mean, it’s a factor of our size, which has always worked in is as an advantage to me. People tend to trust Canadians almost more than they trust their own people. So it’s always worked out to be advantageous for me. And then and if anybody who lives on the West Coast knows, Victoria has been. Near sourcing for San Francisco and LA for years. I mean, we would do big projects up here because we were $0.70 on the dollar, so it made sense to do big projects. So I’ve always worked, you know, north-south, I’ve never really worked east-west. I’ve never spent much time in Toronto, or Ottawa. I mean, it wasn’t really until Echosec started kicking in. I have to go out and have to go out to Ottawa every once in a while. It’s a very different experience living here. And we’ve got an international airport. It’s 40 minutes for me to from here to Seattle. I was down visiting the Voyager capital guys, I guess last week, and literally, it’s a 40-minute flight from my harbor into their lake, walk up the street, and there they are.
Greg Head: Boat plane to boat plane. We don’t do that in pretty much any other part of the world. You started in 2014 and we’re now in 2022. Flashpoint just acquired the company outright. Is Flashpoint is a larger threat intelligence data company? Is that right?
Karl Swannie: The best in the world–now!
Greg Head: Yes, they just got better somehow! So how long was it from the idea to the final sale, this journey?
Karl Swannie: It was eight years. The core of the product remained consistent throughout until we’d actually gotten to a point where we had requests from our larger clients to do a little bit more on the dark web. Because we were very, very good at making sure that we gleaned and put out the information to the end users that they were looking for and that they had access to view. So there were a lot of restrictions around what we could use for data sources and what we could actually deliver which is absolutely fantastic and great. You can either fight the regulators or you can learn to work with them, and we learned to work with them really well. So we hit a point where there was a lot of need and a lot of interest in actually finding out what was going on in the dark web. So we actually turned all of our scrapers onto the dark web and we came up with a product called Beacon, which was actually one of the first dark web search engines. So then we had a combined product that was both doing this geospatial What was happening now, also What’s happening in the dark web.
Greg Head: So geospatial means you could start with a map and say, What are the threats? And then the dark web doesn’t have a map, obviously, but you could search by topic and navigate.
Karl Swannie: I would use the geospatial side to find out what I was interested in, in a particular location. Then I would use the dark web search to go deeper to see if there was anything more there. And it was used for things like personally identifiable information breaches and insurgency operations. If there was anything going on in the world. It was very easy for me to look into an area like Syria and see what was going on. Fraudulent documents when Brexit was hitting. It was amazing how much you could buy a passport for, that kind of thing. Human trafficking was a big one as well. If we could find any information on social where somebody might be or vice versa, take the dark web and then flipping it over to the social to see if we could find patterns there. So a lot of it is just pattern recognition. You know, you’re not getting a lot of pinpoint information. You get a lot of very meta information about a particular area, but it’s very good for figuring out political instability…
Greg Head: So the magic here wasn’t in this publicly available data that other people had and other smart Russian engineers and Chinese engineers and everybody had. What was the magic for you? Was it that you guys just had the best user interface so people could go, Oh, I see it.
Karl Swannie: It was quick, it was fast, it worked well, and it had that map that everybody understands. Maps existed before language. So you could look at it instantly and go, okay, there’s my problem
Greg Head: Is that the superpower of geographers is there’s data everywhere and when you put it on a map, we see the world differently than the rest? Is that how a geographer sees the world?
Karl Swannie: You know what? My team would absolutely agree with you. All the people that I’ve ever worked with would agree with you. 100% is that it’s the only way that I view the world. And it’s a funny thing because I can land in any part of the world, walk anywhere in the world, walk there, walk around once, go back 20 years later, and still know my way around. But if I get introduced to somebody at a conference, I’ve forgotten his name 5 minutes later. You know I’m terrible that way. That’s why I live on LinkedIn. But I absolutely think of everything as a geospatial problem, and I think it’s just the default.
Greg Head: So you went from B2C to B2B selling to businesses, then bigger deals and I guess governments. Was it security threats that was the use case or were there all kinds of geospatial insights that were useful to companies? Where did it end up?
Karl Swannie: Honestly, largely the security side. I always thought there was always more to offer and there was more that we could show them, like where their particular assets were and what was coming out of the assets. But eventually, you get to the point where you have a baked product and you just need to focus on selling that. You know that it works. And if you’re going to support your team. And when COVID hit, I think everybody did that two-month freakout. And it was that process that really doubled down on the sales side. We needed not to focus so much on R&D and more focus on just straight-up sales.
Greg Head: Geoff came in with the Tusker Fund and acquired the share and started running the company and you step down as CEO during the COVID turn, right?
Karl Swannie: Yeah. I got the velvet handcuffs for a little while.
Greg Head: Well, let’s talk about that for a moment here. How did that feel? Was it, I’ve taken this as far as I could go and people have no idea how frustrating it is for me to do this and I’m glad somebody is taking over. Or was it, I just wish I could keep going longer, but it’s a way to capitalize the company and pay off their shares?
Karl Swannie: Well, it was bittersweet, to be quite honest with you, because I raised my family in a housing co-op. I had pretty much risked everything and I didn’t come to Victoria with a lot. I came here for university and we had debt from that. And my wife had some, some as well. And we were very, very frugal about many, many things. The chance to get out of that situation and buy a house in Victoria, because houses in Victoria are as expensive as they are in San Francisco. So it was a chance for us to do that. Giving up the team side was very, very hard. And as I learned about myself, the inability to affect change in any way when you have the velvet handcuffs on is incredibly frustrating because it was up to Jeff.
Greg Head: So you were a board member, not an executive leader.
Karl Swannie: Exactly. And I couldn’t undermine what Jeff was doing because he was doing a great job and he was learning the product and he was learning all of that kind of stuff. But at the same time, I really couldn’t do anything helpful or useful anymore.
Greg Head: That is so very difficult for entrepreneurs.
Karl Swannie: To be honest, they always say that you should have a plan. I had no plan like I had no plan if the company sold. I didn’t actually believe it was going to sell. I thought for sure it was going to fall through at the last minute. If you’d asked me the day before, I would say we were a day away, but a million miles. And then all of a sudden everything got sold. And just a funny aside story. Owen Matthews, who’s done this a million times, actually had bought a Nebuchadnezzar of champagne, which I don’t know if you know what a Nebuchadnezzar of champagne is, but it’s like 50 liters of champagne. It’s a huge, massive bottle. He had bought one three months before and stuck it into a friend of ours fridge at his house knowing that we were going to actually do it. So, I had people around me that were supporting me that way. They knew it was going to go through, but I didn’t and I had no plan afterward. So it was a matter of like, go, go, go, go, go, go. And I would be, you know, reading a 600-page document coming back from the lawyers every single day and, you know, marking all the changes and making sure that I had actually understood them and then rereading it. Because by the time you’ve gone through this for three months, you don’t understand, it’s just going in one ear and out the other. It was kind of a six-and-one-and-a-half-dozen thing. And, you know, I think that’s why we lasted about a year before starting another company, my partner and I.
Greg Head: Yeah. So what was that like after the money from the partial sale of the company, it wasn’t the entire sale, hit your bank account, and you were relieved of your CEO duties, you’re a board member. Well, the next board meeting is in three months. Don’t come to the office every day. That’d be nice. Like, did you have a week of, Wow, this is amazing? And a founder two weeks ago on the podcast said it was the best day of his life when he got the money and then 6 hours later is the worst day of his life when he didn’t have anything to do and his identity moved on.
Karl Swannie: It was so surreal. It didn’t mean anything. It was in my bank account and it didn’t mean a thing. Didn’t really change anything. I was still living in the same place. We hadn’t bought a house yet or anything along those lines. So it was the most surreal moment. I don’t think I’m alone in this. I assume that there are many, many failures that still have the lagging PTSD that goes on for a year afterward where you’re still waking up at 3:00 in the morning worrying about whether or not you’re going to be able to make payroll or whether a contract’s going through or you’re just waking up randomly because you’ve just become so accustomed to waking up or stressing out about something. So I was still going through that for a really long time, much longer than I expected. I’m still going through that. And I realized as well that I needed to get better hobbies. Like I play guitar and I fish, but you can’t do that, you know? I mean, I was used to my weekend being filled up with strategic planning and catching up on emails and that kind of stuff. Of course, I wasn’t used to having time. That’s just weird.
Greg Head: That’s just weird. So how long was it when you enjoyed your time or recognized your time before you said, I got to do something again, Let me start playing again.
Karl Swannie: I was actually offered a job as a GIS expert about three or four months after I left and they offered me. At first, I said no, and then, it was from Middle Eastern gas works and they were looking for Canadians. I think they offered me enough that I couldn’t say no. In retrospect, I probably should have said no. But it was a great offer and a great team. And so it was really three or four months. And I needed it. At that point, I’m older, and I have two kids and a dog. And it became, to be honest with you, those three months became driving the kids around and walking the dog. I love doing what I do. I absolutely love it. And I always have. My wife’s always known that about me. The ability to travel, have conversations with guys like you, and figure out these problems as they come along is what I live for. This to me is like building with Lego. I always built the model and then broke it all and built towers and that kind of stuff. This is what I live for.
Greg Head: So a GIS system is a geographic information system. It is the geospatial technology world.
Karl Swannie: My life before this was primarily as a GIS analyst, and then I worked in land information systems and environmental management systems.
Greg Head: So you were a geospatial nerd, I guess. Were you a technology coding nerd, a data nerd? Like, did you code this thing yourself? Were you a technology guy To start this?
Karl Swannie: My team would say no.
Greg Head: Okay, no, you were the hacker.
Karl Swannie: I was the guy that would kludge things together. I think actually like most people do, kludge things together and learn as I went. And I think that actually paid off for me in spades later because then you start doing the same sort of things with lawyers, bankers, accountants, and customers. None of this comes instantly. It’s not like you become a CEO of a profitable company overnight. You have to go through the process. And unless you’re in love with the process and love with the pieces of the process and treat the pieces of the process like baking or whatever, you’re never going to be successful at it. You have to be able to have those conversations with your lawyers and you kind of have to enjoy it or else it’s never going to work.
Greg Head: I guess Flashpoint acquired it. It’s around a $100 million sale. I guess that’s the reported number. Is that what we could say?
Karl Swannie: I think we can say that we delivered $100 million in shareholder value over the last two years.
Greg Head: That’s really exciting. So you found a home for this company and this technology and this solution that will continue to change the world. That’s very exciting. And you know, you’re not the guy that’s going to run a 1000-person organization and buy everybody else.
Karl Swannie: And oh, it takes a special person. If you have not met Josh from Flashpoint, he’s an incredibly charismatic guy. The ability to communicate with everybody in the room.
Greg Head: So I would call that a CEO. Right? And you turned out to be like the entrepreneur. W would say. And when it got a little heavier, like, yes, it’s too heavy.
Karl Swannie: Yeah. And, you know, I’ve taken some lessons from talking with him. Certainly. I think if we had moved forward, if I was to move that into a bigger organization, I would actually look at possibly getting a president to run the day-to-day stuff. And actually, I always loved having an open-door policy for all of the staff to be able to come in and have conversations. But having the number of reports being a little bit less and having the KPIs being more formalized would probably be beneficial to the next version of the company.
Greg Head: It’s just so hard to see that when you’re doing it for the first time, starting it and like the payroll is in your head and you’re just connected to every customer and every line of code and it’s really hard to, it usually takes a whack on the head, to let go and move up up the level.
Karl Swannie: Yeah. It’s incredibly hard to dissociate yourself from the support team, because you want to help with every customer problem and you should help with every customer problem. But you should also empower your team to be able to support be able to answer those questions and they should be able to report back to you on what the major ones are. Same thing with your finance, same thing with your operations, same thing, the whole nine yards all the way through the organization. They should be responsible for their own things. And I think once people are empowered, they have an emotional connection to its success or failure, and they have an emotional connection to their ideas and making things come to fruition for the good of the company. And eventually, just become the big bobbly head that talks a lot.
Greg Head: Yeah, well, that’s a role too. And it’s really important and it is part of the game. Like the, let’s say, $5 or $10 million heading towards $100 million, that’s the game. So you’re going back to the game that you play which is creating new things and instigating in new markets. Are you starting with a target customer with a problem first and then building what they need? Or do you have another cool harebrained idea to go sell to somebody?
Karl Swannie: I am absolutely this time starting with a problem. And it’s a problem that, you know, my business partner Mike and I have known for years. We’ve connected again. He was part of Echosec and we’ve continued on with, and we have two other partners as well that are amazing, and they’ve actually got a great breadth of experience, which was unusual for us. I mean, we originally started off with a team that really didn’t know anything and we had to teach everything. So this time to have a team that is actually fully baked is amazing. But what we became really good at is making sure that people like yourself got the information that you were allowed to see that was compliant with laws, all that kind of stuff. And that’s what we were really good at. And so what we realized was needed out there was more data governance. And so we’ve come up with a data governance platform that has some incredible use cases. Absolutely brilliant, completely unique. All of the things. And run by a very, very experienced team.
Greg Head: And is this the team that helped you create Echosec, or is this a different team?
Karl Swannie: Well, Mike and I created Echosec. One of them came from another company. Our finance person came from another company that actually sold to Microsoft. She is amazing and speaks our language, which is incredibly hard to find. And our chief of operations, he’s been around for helping companies like ours, I think we met probably ten years ago, so we’ve known each other a long time. And he’s one of those well-renowned guys that everybody likes. He’s one of those well-loved individuals.
Greg Head: So this is the second-time founder advantage. You can start with a lot more learning behind you, right? You can leverage your lessons learned and you can hire hotshots right out of the gate.
Karl Swannie: Pretty amazing. And it’s funny because my wife always gives me a hard time if I told her the odds of success as an entrepreneur doing a startup, she would have probably thought I was fricking nuts and encouraged me to get into another field. Now, the odds of success are exponentially higher. And I can see why now. I mean, the conversations that we have with VCs, I understand what they’re looking for. They understand what we deliver. We’re very clear on things. We’ve gone through this before. We’re just building out the product right now. But I can already answer the questions that they’re looking to have answered. We have a team that can do the financial projections two years in advance. I mean, it’s one of those amazing.
Greg Head: And two years from now you’ve been through what that looks like.
Karl Swannie: Yeah. I’m so much more empathetic now to investors and the funny thing is, we don’t really need investors for this next play. I mean, we’ve been well paid with Echosec.
Greg Head: You did everything but raise big funding. You did family office funding with equity that turned to debt. You did venture debt. I don’t know if you had any grants. You did a search fund, which is kind of a private equity-ish, and then to a full acquisition. Are you going to go for VC funding this time? Or are you going to stay off the main road?
Karl Swannie: I am having conversations about it largely just because, in our space, if you want to get into some of the larger organizations, it’s good to have the foundation that includes people that I can only get on my board via having those kind of relationships. But I think we will retain the majority of the shares, of course. And it’s very strategic. I mean, we’re much more strategic about it going forward than we were with Echosec. We didn’t know necessarily what we were looking for in a customer or help in any way, consultants or anything along those lines. And now now that we’ve been through it, we’re very precise and we have very clear rationale as to why we want to have certain people on board. It’s very, very different the second time through.
Greg Head: So would you say that you have better than 50% odds of success here? This is just a loaded question to an early-stage entrepreneur. Like, of course it’s going to work. But looking back, the odds were really against you to make Echosec turn into what it did, right? And it’s like the odds are, It probably won’t work, but there’s a chance. Y What do you think the odds are here of winning the game? Is it better than 50% odds you’ll do something cool with this?
Karl Swannie: Yeah, I mean, absolutely for starters, I am such an optimist, and my team has always called me the optimist. Yes, this will be successful. How successful is always up for debate and how quickly we get acquired or how quickly something changes, who knows? We’ve lived through many things in the last ten years that have completely changed the economic environment that we live in. We are setting ourselves up and we have enough of the experience now to kind of roll with the punches a little bit more. And the team that we have can roll with the punches a little bit more. So it’s not a question of for me of whether or not it’s going to be successful, it’s going to be how successful and how quickly.
Greg Head: Great. If you were to say one more thing to practical founders out there who are listening that you learned in your journey had no idea when you were getting into this, but now you’re doing it a second time. What is the one thing you would lean on to help them be more successful?
Karl Swannie: Really breaking down the economics of the business. When you make that first sale, that’s the first time that you’ve done 100% growth. That’s the time to have the meetings for debt, if you’re looking for debt, Debt for us was always a bit of a backup, and then thankfully, we needed it at some times. Certain times customers wouldn’t pay and that kind of stuff. But certainly understanding your economics of who you’re selling to, your value to them, all of the things associated with the business economics. Things like churn, and so on, are incredibly important to understand. To think abstractly about how to illustrate those for success. As I said to you before, one of the biggest strategic things we have ever done is breaking these things into cohorts so we can separate the wheat from the chaff. We could separate the nuggets of value from the end user. We could separate the value from our debt investors, from our debt finances, and from our board members. That is the piece that you have to be very, very good at and you always have to be working at.
Greg Head: So the unit economics of the average customer and the SaaS metrics of your business and how they fit together and in a geospatial, glowing orb (laughs).
Karl Swannie: Actually thinking about it spatially, I mentally map these things. That’s why I have a harder time answering these things as like one thing to do because they’re also interconnected.
Greg Head: I know it’s a very related integrated world out there and hopefully a little bit safer because of Echosec and the things that you’ve created. So Karl, thanks for being on the Practical Founder podcast and sharing your stories, and having a few laughs there. And congratulations on your success and best wishes on your next company. We’ll have the links to your LinkedIn and all these companies in the show notes. Thanks again for being on the podcast.
Karl Swannie: Thank you, Greg. It’s been a pleasure.
Karl Swannie was a geographer working in the scenic city of Victoria, British Columbia, Canada, when he started analyzing social media data based on location. He quickly saw there was valuable real-time information that was not being used, so he started Echosec Systems to find a practical use for those insights.
After several years of experiments and hard startup lessons learned, Echosec finally shifted from being an inexpensive news/insights tool to a comprehensive threat intelligence platform for large organizations.
Echosec Systems is now a leading open-source intelligence service (OSINT) that uses publicly available information (PAI) from social media and other sources. They help public and private organizations improve situational awareness and identify threats using geographic insights with real-time data.
Echosec was partially sold to a “search fund” called The Tusker Fund in 2020 and Jeff Oldenburg came in as CEO to scale the company, which he did. In 2022, Flashpoint acquired Echosec completely and the business continues to grow.
“When we sold the majority of the company the first time and the money hit my bank account, it was so surreal. It was in my bank account but it didn’t mean a thing. I didn’t really change anything.
“I assume that there are many, many founders that still have the lagging PTSD that goes on for a year afterward where you’re still waking up at 3:00 in the morning worrying about whether or not you’re going to be able to make payroll or whether a contract’s going through.
“I went through that transition for a really long time, much longer than I expected. I’m still going through that. I wasn’t used to having time. That’s just weird.”
In this episode, Karl explains:
- How they started as an inexpensive B2C solution and then pivoted to large B2B deals with big organizations
- What it’s like to be a Canadian software company selling a threat detection service to large organizations around the world
- How they finally started to scale when they focused on the largest customers with the biggest needs
- How he worked with a private investor to start the company but used venture debt to grow it when they were profitable
- What a “search fund” is and why this was a great fit to partially acquire the company and bring in an experienced CEO
- What it was like to sell the company and not be the CEO-in-charge any more
- What he learned about himself in this journey that he is applying to his next venture
Echosec Company Facts
- Founded: 2013
- Description: Echosec Systems is a leading open-source intelligence (OSINT) provider using publicly available information (PAI) for threat detection
- Practical Funding Type: Small funding and debt from Canadian investor Owen Matthews, venture debt from TIMIA Capital,
- Number of Employees: 32
- Acquisition: Partially acquired by Tusker Fund (a “search” fund) in 2020 then fully acquired by Flashpoint in 2022, for “about $100 million in total investor returns.”
- Location: Victoria, British Columbia, Canada
- Karl Swannie on LinkedIn
- Echosec on LinkedIn
- Echosec website
- Flashpoint website
- Alacrity Canada (Owen Matthews)
- TIMIA Capital (Mark Bakker)
- Jeff Oldenburg (Tusker Fund then Echosec CEO) on Linkedin
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