Ralph Clark is a technology company CEO who is equally committed to shareholder value and making a meaningful societal impact. Leading ShotSpotter since 2010, he has been dedicated to helping law enforcement agencies provide equal protection for at-risk, underserved neighborhoods, reducing gun violence and restoring police as trusted guardians of the community. Clark led the transformation of ShotSpotter to a SaaS based business model ultimately taking the company public in 2017.
With more than 30 years of corporate, financial and organizational leadership, Clark was previously CEO of GuardianEdge Technologies Inc. where he drove its acquisition by Symantec. Earlier in his career he worked for IBM, Goldman Sachs and Merrill Lynch. Clark received the 2019 EY Entrepreneur Of The Year® Award for Northern California. He is a former board member and chair of Pacific Community Ventures, former board member and chair of the Oakland Boys and Girls Club, former trustee and Vice-Chair of the Oakland Museum of California, is a member of Harvard Business School’s California Advisory Board and is a trustee of the American Conservatory Theater. He holds a B.S. in economics from the University of the Pacific and an M.B.A. from Harvard Business School
Ralph joins me today to discuss ShotSpotter and the mission to reduce and prevent gun violence through the use of acoustic gunshot detection technology. He discusses the alignment and balance of law enforcement as the consumer, the company’s interest and the investors. He shares with us the differences in using violence interruption interventions and law enforcement interventions. Ralph shares with us the metrics behind the success of ShotSpotter. He shares his story of growing up in Oakland and working for GuardianEdge which brought him to ShotSpotter.
"So you had this layer cake, different series of preferred with different rights, different privileges, different investors, all with very different outcomes, depending upon, you know, what that outcome was. So you can imagine that was anything but aligned around there, the beautiful thing about going public is that, all that preferential layered cake gets smashed into one thing called common, we're all aligned together, management, every single investor, both the previous private investors, as well as the new public market investors, we're all common now. So we all have this, we all have this shared, same shared lens through which to look at, you know, success, or failure.” - Ralph Clark
Today on Startups for Good we cover:
- The benefits of a mission-driven company for the employees
- The friction in the relationship between communities and law enforcement
- Utilizing the technology to enforce poaching and blast fishing
- The importance of reducing blast fishing on the whole ecosystem
- How to maintain power and communication to the acoustic gun detection units
- What net promoter score is and how valuable it is to a company
- The moment when he adjusted the business model against cultural resistance
- The decision to go public and some advice during the IPO process
- The concept of Long Term Greedy
Connect with Ralph on LinkedIn or Twitter or email him at rclark@shotspotter.com
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Transcript
Miles
Welcome to startups for good, Ralph. Thanks for coming on.
Ralph
Thanks for having me. Miles. I've been looking forward to this.
Miles
Wonderful. I'm excited to learn about ShotSpotter. And your history before that. Let me start by congratulating you on Entrepreneur of the Year 2019, Northern California from Ernst and Young, it's a great achievement.
Ralph
Yeah, thank you very much for that. It was my second try. I think I was part of the process in 2017, as well and learned a lot, I met some really interesting people. And I think the second time was a charm for me, in 2019.
Miles
Now, we often have people on the podcast or early in their journey as well. And companies that your stage already public growing is, I think, going to be really interesting for audience. So I'd love to hear your perspective on what it was like participate in that program and why you think you want?
Ralph
Well, I think a lot of it has to do with the company that I've been involved with now for the past 10 years. As I think you mentioned in the intro, I'm the president and CEO of shotspotter, Incorporated. And we provide an acoustic gunshot detection technology that police departments use to be able to respond to and investigate incidents of outdoor criminal gunfire. And the reason this work is so important, the technology so compelling is that we obviously have a gun violence issue in too many of our at risk underserved communities here in the US, and actually some places internationally. But most people don't realize, by and large, a significant portion 90, 95% of that gunfire goes unreported to police. And so our technology really is the digital transformation of that process that allows for police departments to be immediately notified in a very precise way, whenever anyone fires a gun. And because they're immediately notified, they're able to respond to these incidents, investigate them, and over the course of time, hopefully be able to reduce and prevent gun violence, which has a very interesting social purpose, social good outcome, hopefully, as a result of that. This, you know, super aspirational, to be involved in a business that is helping prevent and reduce gun violence and bring some sense of normalcy to many communities that are suffering from ongoing processing gunfire. And then on top of that, it's a pretty interesting business as well that we pivoted to a managed services subscription based business model when I joined the company back in 2010. And so we've been able to grow it, grow it profitably, and then ultimately, take it public, in 2017, so I think all that stuff together, probably made a pretty interesting, unique story. And then in addition, I think maybe people just took pity on me for having gone through the process in 2017, and decided to cut me cut me some slack and allow me into the entrepreneur of the year program for Northern California, but even, then I'm super grateful.
Miles
Yeah, that's wonderful. I bet they just got a chance to know the story more. How do you think that mission driven part of the company fits in with the public company profitability part? Do you see them ever at odds? Are they going together?
Ralph
You know, they go together completely. So when I when I think about purpose, and why I almost kind of draw like a Venn diagram for, for your listeners out there a Venn diagram, you can kind of think of kind of three circles that have some amount of overlap in the, the circles could basically represent various stakeholders. So in our case, you know, we have, I would say, kind of police departments and communities that they serve. And then another circle might be the company in terms of the employees and partners and vendors and like and then the third circle, I think, you can consider the investors private initially private market, or you know, private investors or venture capitalist PE investors. And then now more recently, public market investors in the more you can have a sense of purpose and why the more overlap you can get amongst those circles, which means there's less friction, there's much more alignment. And so if people are thinking more about the why or the purpose, they're thinking less about how they optimize maybe their own individual interest, because you're, you're looking at something bigger than your interest and it's a result of all those stakeholders, kind of thinking you know, more globally or more aspirationally in terms of purpose, and why it creates less friction, and the less friction you have in running a business, you can, you know, be more profitable, you can have more impact, you can create more return, you can create really interesting opportunities for employees and partners and the like. And it just all seems to work because you have great alignment alignment is I think, critical to successful growth businesses.
Miles
Now, that makes a lot of sense to me. So that mission also helps on the employee side in terms of creating that alignment as well?
Ralph
Yeah, no, 100% I think one of the things that attracts a lot of our employees to the company is that, you know, it's a an interesting technology be we serve a really noble purpose. And you know, we're in Silicon Valley, where we compete with, you know, the likes of Facebook and Google for kind of, you know, talented employee base. And we just don't have the resources, the typical financial resources to maybe compete with a Google and Facebook, but we have something that they don't have, which is more I consider noble purpose in terms of helping law enforcement serve on a much more equitable basis, the needs of address underserved communities, and I think people feel really proud to work with the company. You know, I think we pay people relatively, you know, nicely. But you know, again, we're certainly not competing with the benefits, and maybe salary compensation of, you know, Facebook and Google in the like, nor is anyone going to be a zillionaire working for ShotSpotter. But I think you can feel really good for the work that you put in. And I think what's really cool about our company, too, is that we're so connected and in touch with our customers in responding to these gunfire alerts and getting these stories back of how they're making a difference, because they are able to maybe aid a gunshot wound victim and save their life. Or sometimes you actually do, you know, sadly, have to have law enforcement interventions where you, you know, recover a gun or you arrest a serial shooter or the like, I mean, those are really, really rewarding to kind of hear those stories and know that you're making a difference, or, you're making, you're part of making a difference. We're not making a difference exclusively by ourselves. But we're a part of an overall difference that's been made in some of these communities.
Miles
That's really electrifying, real world difference. That's more intense than what you hear the rhetoric from some companies. I'm curious. We've seen maybe it's media driven, but we've seen communities and police officers law enforcement be portrayed as at at odds. And do you feel like with police and law enforcement as your customers, Do you ever feel like any of that sense of they're at odds with the community? Or is it serving both together?
Ralph
Well, no, I think I think that's real. I mean, I think in many communities, there is a, I would say, a friction laden relationship between communities and police. I mean, you can't ignore that fact, with all of the conversations you're hearing around, you know, you know, defund the police, Black Lives Matter movement, etc. These are real conversations. And I think that's part of the thing that makes our work, I think, so relevant in that we've been preaching for a long time, that technology can be, again, not the total solution, but it can be a part of the solution to help police departments drive much more as a community trust and support. When people say defend the police. And this is a really interesting call. I was writing about this literally five years ago and some blog posts that I did, but you know, it's interesting to see how the conversations move forward. And in terms of kind of deep on the police. I don't think most people, you know, literally mean, defund the police as in cut their budget. Some people on the extreme might mean that but I think by and large, what most people mean is they want to reimagine re envision how policing gets done, and at risk underserved communities. And at the heart of it is what they're saying is we don't want to be over policed and underserved at the same time. And that's what happens in too many of our at risk underserved communities. They're being over policed and underserved at the same time, you say, Well, how can that be? How can you be over policed and underserved? And I say you can be over policed and underserved when, you know, police are kind of adopting a occupation, tile, occupation style, warrior mentality in some of these at risk underserved communities, which by and large are law abiding people that are subject to are victims of very few criminal elements. And so when you have very broad stop and frisk postures, and you know, you're literally harassing people in these communities, by and large, that are law abiding individuals, that's an example of over policing, and at the same time you're doing that you You're not showing up when people fire a gun, because again, we know 90 95% of the time guns are fired, please, people don't call police for a lot of reasons. But in which we can talk about later, but they don't call, which means there's no police response. They're being underserved in that regard. Because if you took that same police posture, maybe five or six miles away in the more affluent part of the same city, you'd never have that you wouldn't have police stopping and frisking people in the nice part of quote, unquote, the nice part of town. And you certainly wouldn't have please not show up when a gun was fired in the nice part of town. And that's something for me, that's something for me, that is quite personal, having grown up in Oakland, California, and you know, having lived there for a number of years, there's a place that I grew up in, and then there's a part of Oakland I live in now. And to know, the contrast of how policing gets done as an example, and, you know, to different communities within the same city really makes it very clear what people are talking about when you're talking about the friction between community and police, I think it's a good conversation to have. And I'm excited about where I think we can go collectively, as a society, if people are going to listen to what people are saying when they say, defund the police. And, you know, reimagine how policing gets done. And again, technology that you know, can help drive much more precision or in police. And I like to say, and I'll just end on this pump. This point is like, communities don't need to be policed, they need to be served. You hear people talk about community policing. And I kind of reject that notion of community policing, because that by and large, I think criminals need to be policed, they communities need to be served. And that's the mindset and vocabulary we need to use, if we're going to improve the relationship between address underserved communities, and the law enforcement agencies that are bound by oath to serve and protect, not police serve and protect, that's very different.
Miles
I like that framing, that makes sense to me. I grew up in San Francisco. And remember visiting Oakland, and even how much downtown Oakland has changed. And some people like that some people complain about that, and tried to open an office in downtown Oakland. And I think 20 2012 No, 2011. And I had a lot of our employees complain, we weren't able to do it. The time has changed.
Ralph
Well come now.
Miles
Definitely. Oh, well, my third business we did we did open?
Ralph
You did? Okay.
Miles
In downtown Oakland. so brilliant. Finally, we got people to recognize I was mentioning it because you you were talking about Oakland is competing for talent with Silicon Valley. And I think the geographic notion of Silicon Valley has expanded.
Ralph
Yes,
Miles
To include Oakland now. And I think that's fascinating. As someone who's grown up in the Bay Area. You were talking about gun violence? And what can be done to prevent it. I'm curious to know your perspective more broadly on it. In addition to what ShotSpotter can do, are there other opportunities that we should be taking advantage of?
Ralph
Well, I think for for gun violence prevention and reduction, I think all roads lead through focused deterrence. And what I mean by focused deterrence is that when you realize that the vast majority of incidents of shootings and shootings equal more than homicides and gunshot wound victims, by the way, it's anytime anyone uses a gun in a criminal way, which, if you're shooting a gun outdoors, in a lot of cities, that's criminal criminal use. The fact of the matter is that the vast majority of gun violence is perpetrated by very few individuals, this is very much a peredo problem in that, you know, a small handful or small percent of shooters drive the vast majority of shootings 70, 80%. And so when you have strategies that can quickly identify those very few offenders that drive most of the gun violence problem in either have, you know, I would say carrot interventions or stick interventions, which drive deterrence, you can prevent and reduce gun violence, I think the two need to go hand in hand. And so what I mean by carrot and stick, so there's a lot of, you know, kind of violence interruption, strategies where, you know, they've kind of bring people together and they say, hey, look, I need you to, you know, put down the guns and behave better. And if you do, do those things, here are some things that we can do to support you and basically turning the lever or putting down the gun or whatever. And I think many of those programs have proven to be effective because again, I think they understand at the heart of it is that focus intervention is where you have to focus your energies and efforts And it's like Willie Sutton. He says, Well, you know, why do you rob banks? And the reply was, well, that's where the money is you got to go where the money is where the payoff is. And the payoff isn't in having trying to have broad based interventions, it's really around trying to have interventions for the folks that are, you know, driving most of the problem. So those are the carrot interventions. And then sadly, you sometimes need to have the stick interventions, which are the law enforcement interventions where, you know, when law enforcement can identify and build a case around any individual or individuals that are, you know, involved in gunplay, that they have the ability to make very, you know, strong cases, arrest convict, and then sentenced these folks. And oftentimes, sadly, you have to have, you know, federally enhanced sentencing to really kind of create a deterrent because for some people, you know, going to state jail is a place to go get their MBA and criminality, you know, it's, you know, somewhat local, they can be there with their, you know, associates and, you know, their, you know, their family members and friends or whatever can visit them. But if they send you up on a federal charge, it's not going to be two years, it's not going to be local, you're gonna be across the country, and Marion, Indiana, or something like that. And the sentences are long in their heart. And so, you know, you make a couple examples out of folks like that, then then you can have impact on reducing gun violence. And I think it's, um, you know, a lot of people talk about, you know, economic development and things like that. And all those are very important things. From a long term perspective, I think it's important to realize, when you have a lot of communities in distress, literally, they're bleeding out. The first thing you got to do is stop the bleeding. You can't You can't talk to the bleeding patient about, you know, managing their, their weight. You know, yes, yes, they might be overweight. Yes, they might have hypertension. But we have to get to that later. The first thing is to stop the bleeding. And the way you stop the bleeding is you stop the shootings, and the way you stop the shootings is you focus on the few individuals that drive the shootings. Very straightforward.
Miles
Yeah, I've seen I've seen that kind of targeted intervention at work, when I lived in New Haven, for example.
Ralph
Oh, yes, yes. Yeah, New Haven was a very strong practice practitioner of that. I don't know who your mayor was, at the time. I knew Tony Hart, who's the mayor of New Haven, but that's probably after your time. I would imagine.
Miles
I lived there for a little bit under Mayor Hart. De Stefano was longtime Mayor before that. I remember both of them. I'm curious about the environmental side of this, and how big of a part of the ShotSpotter business that is? Because you've been using the technology for anti poaching. And I hear about blast fishing as well. Is that right?
Ralph
Yes, yes, I'm impressed. He you've done your research. And so it's, it has very de minimis impact on our financials, but our you know, traditional financials, but in terms of the ESG return, or impact return, it's significant. And it's for a couple reasons. One is we're doing something that Well, let me step back and describe what we're doing first. So, in the case of anti poaching, we basically put our acoustic sensors ShotSpotter works through the use of distributed sensors, that have the ability to ignore ambient noise, but recognize and timestamp impulsive noises, pops, booms and bangs. So when someone fires a gun, when three or more sensors detect it, because the sensors are in different locations, were able to use the time differential that each sensor detected the pop boom, or bang and triangulate or pinpoint the exact location of that pop boom, or bang, within typically 30 to 60 seconds of the trigger being pulled. And we perform some pretty sophisticated math to be able to, again, triangulate or pinpoint that location, and then go through a couple classification steps to confirm that that pop Boomer bang, in fact, was a gunshot versus something that was just a pop boom, or bang. So that's how the system works. And we were challenged to figure out how we can apply the urban use of ShotSpotter in to the bush in South Africa, where they're dealing with the issue of poaching. And so the good news is because it's relatively flat and relatively quiet, we, you know, we typically deploy, you know, 10 sensors per square kilometer in our urban deployments in the Kruger National Park in South Africa, we can spread the sensors out much further because they just have to compete with a lot less, you know, noise, if you will, and it's relatively flat. So there, we deploy almost kind of one sensor per 10 square kilometers. So it's almost the inverse. So that's kind of cool. But then what was really challenging is like, okay, you know, how do you get comms and power to these sensors because our sensors require both. They require power to kind of keep them the sensors up and running. And they also require comms to be able to, when they do that detection, and timestamping, they have to be able to send that timestamp information back to the, to the cloud, where it's doing the heavy lifting of the location analysis and classification and analysis. So that turned out to be a really interesting project, we solve the power problem with a combination of solar and bow battery. We also then have the challenge of where we deploy these sensors on the infrastructure deployment, typically, in urban environments where deploying them up on top of rooftops, sometimes utility poles. In this particular situation, our first implementation, we did it in front of on trees, which were, you know, kind of, you know, challenging to say the least. And then on a second version, because we're able to downsize the battery and solar panels, were able to put kind of almost like this stake in the ground that the senator could go up on. So that was kind of that was, that was kind of cool. And we, they have been able to detect, and alert on a few poaching events in just about every time that's happened, there's been a successful Ranger intervention to intersect or intervene with the folks that are doing the poaching, and almost like, in a very similar way to urban gunfire. In the poaching context, you have certain poachers that are prolific poachers, I mean, you know, you have some people that are accidental poachers. But you know, the folks that do most of the damage in the Kruger are just a handful of folks that are really super skilled around being able to mostly come in from Mozambique, you know, track out there, they might track out there for a few days before they poach. And then kind of go make it make it make their way back across the border. Well, when you have a shotspotter alert, because again, same situation, you could you could fire a gun in the Kruger and even if someone would hurt it, they couldn't tell exactly where it was coming from. And the idea that they would have heard it would probably, you know, not not be realistic. I mean, people tend to find out about poaching events, once they see the buzzards kind of flying around over the carcass of the satellite of the of the rhino. So, we've been very, very, very successful in having some successful Ranger interventions with poachers, the word obviously gets out. So it's been a bit of a deterrent and the rhino poaching in the coverage area where we are part of the Kruger has gone down considerably. So that's pretty cool. We then also took the challenge to how to figure out how we can reimagine the technology to be used in the case of fish blasting, same principle, these are explosive impulsive events that are happening because people are throwing incendiary devices into the ocean, creating a boom, bang, and then the dead fish kind of pop up to the surface, they grab them. And I always thought it was the issue of overfishing. But and that is an issue. But the bigger issue is, and this shows how ignorant I am. But I learned quickly. The big issue is that when they when they do blast fishing, they destroy the coral reef. When you destroy the coral reef, you destroy the feeding ecosystem for the fish. And when the fish aren't able to eat, then the fish aren't able to be commercially in fished, which then is the protein source for over a billion people in Asia. And it's a tipping point that if you know the coral reef goes, I mean, you have a real food protein security issue in Asia. So we were super excited with the support of some other nonprofit, you know, institutions to deploy our technology to show the outset called the art of the possible more on a proof of concept basis that we could, you know, reimagine our sensors making them instead of acoustic sensors they become what's the word I'm looking for? Well, they become acoustic sensors, but in the ocean context and the water sonar sensors, like a sonar base sensor, I guess, still using the time of arrival techniques that we have. And there you can even deploy fewer sensors per linear coverage area because of the way that you know that that sonar, you know, boom, you know, travels quite efficiently through water much more efficiently than air. And so that's that's kind of interesting. And now we're at the point where we've proven the art of the possible and now we'd like to figure out a way how to commercially scale this thing up to really have impact.
Miles
That's neat. If I could take you a step back, I'd love to hear about ShotSpotter from a numbers perspective. You know, the metrics that you track whether they're financial employees or customers?
Ralph
Sure So, we have about 120 plus employees in the company. Currently we're serving, interestingly, about 110 plus customers, mostly domestically, but some, we have a couple of deployments internationally. We're a public company, as I mentioned, and we were we went public in 2017. Revenue wise, we we've guided our analysts this year to 44 and a half to $45 million of revenue. And for next year, through a result of a tuck in acquisition that we've done, because we're extending our platform beyond inclusive gunshot detection, we've guided to 58 $60 million. So we're, we're a company that I'd like to believe kind of punches in well above our weight. In terms of impact, although we're relatively small, from a revenue point of view, we're quite efficient, I think we're one of the few, I would dare say only SAS companies that has the ability to break even on a $10 million quarter or $40 million run rate. And that's because we're just hyper efficient, because of the vertical that we serve. And the fact that we have kind of created this category that I would, you know, humbly, say we have a monopoly position in with very high barriers to entry. So we don't, we don't have to compete with folks. So we have a lot of leverage at the pricing line, we also have leverage in terms of our go to market, we don't have to boil the ocean for customer discovery or spend a lot of money for customer creation. And our R&D is relatively tight and efficient, because we've already invented that, you know, that thing called acoustic gunshot detection. And again, we're not in a feature war with another competitor. So we can kind of moderate our investment in R&D. I mean, we continue to invest in R&D to make it cheaper, better, faster, etc. But we're, again, not in a huge feature race war. So we're able to grow top line revenue nicely, yet our expenses don't have to grow at the same rate that top line revenue grows, because again, we're producing profit already and have a very strong balance sheet in probably the thing that I'm most proud of, in the company numerically why that doesn't kind of show up in terms of gap financials, which we can talk more about in detail later if you'd like. But we're huge in terms of thinking about customer success and onboarding and how that translates into net promoter score as a company, we, I won't say I don't want to offend anyone that's religious, but we're almost kind of worship at the altar of NPS Net Promoter Score, which for your listeners out there that aren't familiar with NPS, it's, you've probably been exposed to it, but maybe not aware of it. And that's when someone asked you that what's called a net promoter score question on a scale of zero to 10. How likely would you be to recommend said product or service to one of your friends, colleagues, or whatever. And the idea is, if you say, a nine or 10, that makes your promoter, if you say, a seven or eight that makes you neutral. And then six and below is a detractor. And then to get to your net promoter score, you take the percent of detractors, or excuse me, you take that percent of promoters, and then you subtract the percent of detractors, and that gives your NPS score. And for us our most recent incarnation of NPS, we scored a what's called a world class category of 70%, which is, I'm going to say it's almost like Apple, Geico, like, so that's really something we're quite proud of. Because our our customer eco set is a really tough one. I mean, our customers, our police departments, Chiefs of Police and deputy chiefs, and they can be super critical. They're tough, they're tough. They're tough, folks. They're tough graders. They're not warm and fuzzy folks. And so the fact that we can, you know, have that level of loyalty with our customer stakeholders is really quite remarkable. And again, I think that feeds back into our efficiency, because when you have strong Net Promoter, relationships, they tend to work as a very effective sales people, actually. So the word of mouth thing is real. And that's what NPS is all about.
Miles
Yeah, that's a fabulous NPS score. Congratulations on that. I'm curious to know, do investors want you to track impact metrics?
Ralph
The ones that we have currently in our ecosystem? I would, I would say they liked that idea, but they haven't been demanding of us in that regard. yet. That's something that I think we're going to take on in 2021 next year. I have some familiarity with that having spent time as a board member for a number of years and then last two years, I was chair of the board of Pacific Community Ventures, which was a hybrid. Call it kind of venture capital loan fund combined with advisory services that was, you know, driving living wage jobs and at risk underserved or under invested in communities. And they're, they're all manner of measurements that we were tracking, to talk to or speak to the impact, there's a whole world around that. And I just know too much about that, too, not to not take advantage of that opportunity, in the case of shotspotter. But I think, you know, first things first, you know, you kind of crawl, walk, run, and then fly, I think that's just kind of getting our sea legs as a, you know, traditional public company, I'll be at a small micro cap public company, kind of getting our sea legs around that. And then we could get a little bit fancier with, okay, you know, here, here's some ways that we're measuring impact in terms of, you know, the things that we're doing on the environmental side, or, frankly, the things that we're doing, you know, with respect to urban gunfire, and helping at risk, underserved communities be better served by police, it's always been interesting to me that the people seem to when we're out, you know, talking to folks, the investor class and Wall Street, they seem to react more positively to our work in Kruger than they do with our work in Chicago, St. Louis, which I find kind of interesting. But
Miles
Now my personal values would put people first. Yeah,
Ralph
You would think but I mean, I do get it, because I think this really kind of speaks to the issue of, and this is why such a fascinating time, I can see the silver lining with all the challenges that we've had in the year 2020. I think one thing that a silver lining that's happened on this whole process is that I think by and large that because, you know, the society has been exposed to like the you know, the the frailty of life, and the because of the pandemic or whatever, you're just your empathy gene gets turned on. And that's why I think we have so much oxygen around kind of Black Lives Matter, then you have the George Floyd situation, where I think people are now beginning to understand that like, Hey, you know, there there are these, like, amazing discrepancies between classes of people based on you know, economic class, or based on racial classes or whatever. And there just seems to be much more empathetic around that today, then maybe they were kind of prior to the pandemic and George Floyd.
Miles
So that's a positive and a lot more attention this year. We'll see what it leads to in terms of actual change.
Ralph
I'm hopeful.
Miles
I am. I'm curious to know more about how you got involved with ShotSpotter originally?
Ralph
Yeah, so great question. Um, so I've been the CEO of a company called Guardian Edge that was acquired by Symantec in that which at the time was a fairly high profile acquisition for Symantec, and it turned out to be a great acquisition for the investors in Guardian Edge where they have pretty significant cash on cash return. So by and large, it was, you know, as successful m&a transaction are around for everybody, all the participants, all the participants, the buyer, the sellers, the employees and everything. And so my name, I must, must have popped up on two radar screens, because I started to get some calls from headhunters. A few. And then I got this one for ShotSpotter, which was really kind of interesting. The company at the time was based in Mountain View. And as I mentioned, lead lived in Oakland. So I was somewhat vaguely familiar with ShotSpotter, being a resident of Oakland. And I had the notion that says, Well, you know, this is like police technology, gunshot detection is like, I mean, that has nothing to do with my background, which was, you know, the number of years at IBM, you know, selling mainframes and then working on Wall Street as an investment banker, and then being a series of software, growth companies, more around the security space and storage space, but certainly, acoustic gunshot detection wasn't in my portfolio or bag of tricks. But I was curious enough, I said, I'm a curious person, I say, Well, you know, I know it's deployed in Oakland, I have some friends that are an Oakland Police Department, I just want to go down to Mountain View and take a look at what they what they do and had the the opportunity to meet the founder, company had been around in 2010, approximately 10 years. And they were struggling, which is one of the reasons they were looking for a CEO. And I met the founder, Dr. Bob, who's like this incredibly brilliant mathematician, engineer, but also quite humble. And I described it as a beautiful person that had, you know, invented this technology and left his job. At Stanford Research Institute. He had been using math principles to figure out the epicenters of earthquakes and things like that. And he had the notion that he could apply these same principles acoustically to help police be notified of incidents of gunfire and then be able to respond so he kind of quit his job and start thinking hood, hoodwinked a couple of MIT PhD mathematicians, as co founders. And they, they started a company and they had some limited success. I think selling it to early adopter agencies that high price point. But any event, I met with Dr. Bob, I just really, I really dug him. I was like, oh, man, it's like, Man, you quit your job in Stanford Research Institute to go do this thing. It's like, That's incredible. And, like, I see what you guys are doing. But like, you know, you guys are getting ready to drive this thing over a cliff, trying to charge at the time on their legacy call their legacy business model was selling a, you know, premise base cap x high priced solution at $250,000 per square mile, and $40,000 a year per square mile annual maintenance. And although they had some sales, they literally had sold to the most early, early, crazy, early adopter agencies that you'd find in there's a handful of them. And then after you get the handful, and then there's everybody else. And so these are like agencies like San Francisco and Boston, even Oakland to this regard, where they have budgets to go do things. And Jerry Brown was actually the sponsoring Mayor at the time, then Oakland got its version is very small version of ShotSpotter. So you can kind of get the idea of who the early adopters are. But if you spend any time talking to most police agency, there's no way in the world that go to their city council asking for, you know, a half million dollars $2 million to deploy a quote unquote, acoustic gunshot detection system. That's just, that'd be a complete non starter. So it's like, you know, I like what you do. And I just, I felt like, you know, you think you guys are doing some really noble work, but the way you're doing it is not, you know, scalable or sustainable. And so what happened was, and and I don't think I'm the right person, because I don't you know, I don't come from law enforcement. I don't know anything about law enforcement or anything like that. I don't own a gun, never want to own a gun never touched the gun. You know, and so it's like, yeah, you know, I, I'm not the person, but I think maybe I can help. And so I started kind of coming down once, maybe twice a week, I must, I must have done that for like, about a month. And then it was like three times a week for the second month. And I was like, wait a minute, I'm actually working here and not getting not getting paid for. So I started developing I guess I well, because I was kind of doing due diligence at the same time just kind of getting comfortable with like, okay, is this something that I could do, because at the time, I wasn't sure I was even going to go back to work after we'd sold Guardian edge to Symantec. I was gonna do more kind of non profit, philanthropic things. But I start, you know, I just started really kind of falling in love with the purpose and mission. And then I realized that says, hey, I might not be perfect, but I think I might be perfect for this role. I mean, and so I said, Look, I'll I'll take the job, but it's on the proviso that the investors in the board would support a fairly radical business model pivot, where we would go from this cap x premise based solution, kind of one time perpetual software license model, to a lower cost more affordable, in my opinion, easier lift manage services model, where we charge an annual subscription fee. And the price that I picked was $40,000, a square mile, which was the maintenance that we charged on top of the, you know, perpetual software license of $250,000 per square mile in my vision was I oftentimes, I go back and look at my presentations, if we dropped the price down, $40,000, we're going to take off, we're gonna have like 1000 customers in in three years, I should have been fired so many times between now and sniping, fighting, because it didn't, it didn't quite work out that way, as a little bit more of a of a struggle. But it was definitely the right thing to do. Because it allowed us to cross the chasm to more of the non early adopter, I'll describe them as early to mid majority customers, where price and complexity are real friction points. So we're able to reduce that a lot. And we've taken what I determine and I say all the time internally is like we're long term greedy. And what I mean by that is that, you know, we look at that relationship as a 15, 20 year relationship. And so when you look at it through that lens, you know, at the time, you know, charging $40,000 a square mile, if you can have that $40,000 a square mile over 15, 20 years, then it looks kind of interesting. But that's the bet that you're making. And this is where customer success and NPS and loyalty is so important, and subscription based business models because you got to count on the renewal because if you don't get the renewal then economically doesn't work. So they, they support it that you know, business model vision, even though I'd said we're gonna have 1000 customers, I guess maybe they knew better. We didn't. We didn't have zero customers, but we didn't have 1000 and we started the trek and changing the culture and a lot of things that we had to do product service delivery wise to kind of deliver this Service, we've been able to take the price up from $40,000 a square mile to now we're charging $70,000 a square mile, offer some other services around ShotSpotter. You know, do you know, establish the incident review center where we're basically having all the alerts come into this centrally manage IRC before pushing the alert out to the agency, and really helping them drive best practices, adoption and things like that to kind of create more stickiness. And, you know, that's our story. And we're just kind of, you know, grinding it out. Customer, by customer, we're very grateful for everyone that we're able to get in, bring on to the platform and watch them enjoy success. I wish it would happen faster. But I think this is the type of thing it is a relatively novel way to go about policing that. It just takes a little while to get people to appreciate, you know, the why it's important to respond to and investigate all shooting, just not respond to homicides after the fact.
Miles
Now that story sounds to me a lot like a refounding moment where the company was founded again, as you came in and said, well, we're gonna go in this direction of subscription based, we're gonna have to build service, customer success into our culture, we're going to build this Incident Response Center. And we're going to be judged every day by how we're performing for clients, not just selling them hardware. That does sound like a fundamental shift in the business.
Ralph
Yeah, no, it was. And I think, you know, we expected some some headwind and making that Oh, boy, I have to tell you the story. More of the headwind was internal that was external. In fact, it was interesting at the time, we had a we had a sales leader in the in the company that was trying to maintain as well, okay, you know, because they knew that I was pretty deterministic and making this business model shift. And so they weren't going out right resist it, but they were kind of passive aggressively resisted in the way, the form of the passive aggressive resistance came was in the form like this. Hey, brilliant idea. Well, we're all in 100%, on managed services, subscription based business model, but you know, we think we should preserve the option to sell it the old way, too, for those customers that want it that way, ie, the way we like to sell it. That's the passive resistance. And oh, by the way, you don't see Salesforce, trying to sell a, you know, perpetual license for Salesforce, a premise based perpetual software license for Salesforce. They offer it one way, and that's the way we're going to do it. And, you know, if there's one or two customers that don't want to do it that way, then we're just going to have to come around and catch them later, when they're ready to do it. Although it's I'm really struggling with why a customer would resist, you know, spending $40,000 a year for something they don't have to own right, and that they can terminate after a year versus spending $250,000. And then $40,000, you have to explain to me, what customer, even a municipal customer, what city would want to do that or why that would be the preferential way of them doing business. But it wasn't about that it was really about, you know, the sales leader wanting to sell it his way. So we had to deal with that resistance.
Miles
And so you got through that cultural resistance, the investors and board supported this business model shift that you're talking about? Yes. And that was critically important. Where did the decision come to go public? You've seen so many tech oriented companies staying private longer, although there seems to be somewhat a rush for the public markets in the last six months. Where do you Where do you see things differently? Why did you want to go down that path?
Ralph
I thought we had a really interesting, compelling story that despite our relatively small size, that if we could find a group of investment bankers, and we were very clear, it wasn't gonna be like Goldman Sachs, where I'd work for a few years or like a, like a Morgan Stanley, we couldn't have gotten through their commitments committee process, but we felt like if we could find an entrepreneurial investment banking partner or a team of investment banking partners that believed like we believe that we have a very interesting, compelling story, that we think there would be some investors that would be interested in that we could be successful, as in having a public offering and then also, more importantly, be successful. For operating as a public company, because I think, you know, the IPO is just like the first step. I mean, it's like the, you know, the, the event, but then you have like the ongoing events that happen, as we're joking about early before we get started here, like quarterly earnings calls and like, and so that we found that group of partners, more entrepreneurial banks that supported that vision, we've done a lot of work to prepare ourselves to do that. And I think having had the experience I had in investment banking, and being an agent in a number of IPOs, that was very helpful in terms of, you know, what, what's kind of required to put yourself in a place where you could have, you know, repeatability, really tight processes around, you know, accounting, closing, etc. So we felt we felt good about that. And what motivated me for the public going public process was, we're talking earlier about how important alignment is, in reducing friction in having kind of shared, having a shared view or shared lens, on you know, how to go about doing things, our capital structure was anything but aligned, I would say, you know, as a private company, prior, my joining that had, you know, several rounds of capital raises, and so you had this layer cake, different series of preferred with different rights, different privileges, different investors, all with very different outcomes, depending upon, you know, what that outcome was. So you can imagine that was anything but align around there, the beautiful thing about going public is that, all that, you know, preferential, you know, layered cake gets smashed into one thing called common, we're all aligned together, management, every single investor, both the previous private investors, as well as the new public market investors, we're all common now. So we all have this, we all have this shared, same shared lens through which to look at, you know, success, or failure. And that was really important to me. And then there was just an issue of the liquidation stack that had been liquidation preference deck that had been built up over time that if the company had been acquired, you know, prior to going public, and we had to kind of pay that liquidation preference off that mean, that again, that kind of gets to the the interest, you know, the common shareholders, which were basically the employees would have just gotten smashed with that amount of liquidation preference coming off the top, before being able to come back in pair pursue with the other preferred. So now, what we had to do was convince the people that had those, you know, those rights and privileges that they're their long term outcome was actually better off as a public company, if they could believe in they should believe that we could execute as a public company that yes, there be giving up some preferences. But in the long term, if we could execute as a public company, like I had every confidence that we could, that they would be better off in the long in the long term in the medium, I would say the medium to long term and they, and they were And by and large, our biggest investor, prior to going public is still our biggest investor today. In fact, that investor bought shares in the IPO along with myself in the CFO have been has been a long term shareholder ever since.
Miles
That's great. Do you have any advice from your experience as the actually going public the IPO process? I mean, my experience, as a founder taking a company public was that I didn't feel like the customer, that the investment bank was probably in the end more focused on the institutional investor. What was your experience and any advice that comes from that?
Ralph
And your feeling toward correct? That's the nature because they, they see you one time, and they see the post market investors all the time. And that's just the nature of the beast, I would say. I think there's a lot more transparency probably in the process now than there was I think, you we were a educated company going in because I I've been on the other side of that as an investment banker. I mean, so there was not going to be any, you know, you know, nefarious skullduggery played on us, just in that regard. I mean, you know, so for example, you probably, I would imagine you have the same experience I had to but we just kind of pushed through it. It's like, you know, wanting wanting to know how the book is building. Right? Because they don't want to tell you that right. As you're going through the roadshow. Did you have that experience?
Miles
Yeah, certainly. And you know, one target price and then some different number coming out of thin air the very last minute
Ralph
Yeah, so for us in that gets to how the book is being built. So the thing is, the tension is that you know, they don't tell you how the book is building because if you get the idea that's oversubscribed by x, then you're going to be asking for you know, Relatively irrelevant question, well, gee, is five times oversubscribed, then like, why is five times oversubscribed at $11? Why are we pricing it at $11? Right? Shouldn't it be $13 or $12? Or, I mean, whatever, something north of that. And they also don't want you to let up off the gas, in terms of your last set of meetings, you know, one on one meetings and presentations and like, if you quote unquote, think it's in the back. So we kind of went through that a little bit. I think, for us, we understood the pricing mechanism, I think, my DNA is around in case you missed it, or, you know, maybe your readers your listeners haven't heard is like, I think long term greedy relationships, partnerships over the long term, right? reputational in everything else. And so for me, you know, I want to try to price this in a way that it wasn't going to be a zero sum game where we will be feeling great. And then the investor would be feeling bad. You know, you know, we win, you lose type of thing. But by the same token, I don't want it to be that the investor wins, and we lose either. So like seeing this thing, you know, we're going to pop three x or something like that, that would have been a really bad outcome for the bank and for the company, we would have made it so because that's just completely unacceptable. We had an our board was had some experience in this too. So it just wasn't myself. But we're like we took the idea says, look, we want to price this in a way that we encourage investors to invest the time and energy to get to learn the story and want to accumulate shares in the market afterwards. And so we're expecting, if we, I think we priced it at a range was, I think our range was nine to 11, or something like that I can't recall. But we ended up going public at 11. And we expected and wanted the price in the aftermarket in secondary training to kind of go up tibbett ran up to, you know, 13, or 14, or whatever. In the short term, we weren't going to be upset around that. And that's kind of the way it played out. And what we till we built a really strong investor base, and then over time, they were accumulating their positions right now, I think we're trading just under $30, we've traded as high as $60, which seemed a little a little wild at the time, that was two years ago. But you know, our view is that we want to build a long term, valuable company and the folks that were there with us, in the early stages and have come along for the ride sense if they're thinking long term, the way we're thinking long term, it's going to work out really, really, really well. Again, this is a, like an intrinsic value kind of Warren Buffett, you know, we're very efficient, you know, strong believers in capital allocation as well, on terms of buying shares back when, you know, we feel like the price is less than what we view our intrinsic value to be. We've done some really interesting value adding tuck in acquisitions. Most recently, the one we announced last week, where I think hopefully, you know, public market investors look at the the management team and say, you know what I can I can trust my capital with these folks. And I'll get I'll get a good return and able to feel good about the return to because this, this is a company that's, you know, doing good and doing well, at the same time.
Miles
I think that's a great place to wrap up. I like that sense of long term greedy means building relationships with your key stakeholders. Where can people follow you online?
Ralph
Sure. So I'm on LinkedIn, I think under Ralph A Clark, I think I've got a Twitter handle out there too, as execdad, I'll just comment that anything I say on Twitter is my own personal views and not that necessarily of the company's. But check me out there. And of course, anyone wants to email me, email me at rclark@shotspotter.com and Miles, thank you so much for thinking of me and inviting me to participate on your on your podcast.
Miles
Yeah, it's great to have you. Thanks so much for joining us. wonderful story.
Ralph
Awesome. Great, continue to be safe and do well and I will chat with you soon.
