Episode 13: Never Be Satisfied with David Darmstandler
Joe talks with Datapath co-founder Dave Darmstandler about growing a company through acquisition, developing company culture with a dispersed workforce, and how his background informed his business philosophies.
Transcript CoDave Darmstandler:
And then my grandfather was a big influence on me. He was a two-star general, worked for the president, worked in the Pentagon, and then was a successful businessman. I was probably annoying as a child, but I would just call him, sometimes collect calls and just... He was a general, so conversations were never long. They were maybe sub five minutes, but I took a lot from him and I would just ask him tough questions about business, or how did he get from here to here. And I was always going back to be curious. Anybody that was successful, I would always want to know how did they get from point A to where they are today.
Speaker 2:
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Joe Muratore:
I'm pleased to introduce our guest today, Dave Darmstandler. Dave, we've known each other a long time, and I look forward to talking about your business and your life. Let's start by reflecting on your company. I looked it up. You've got eight times on the Inc. 5000 list, two acquisitions last year, 60 employees, you co-founded the company in 2005. Tell us about your company, what you're doing now. I understand it's cybersecurity and managed IT services. I'm a real estate guy. What the heck does that mean? And what kind of business are you building?
Dave Darmstandler:
Yeah, absolutely. Well, first, thanks for having me, Joe. This is our 15th year with Datapath, founded back in 2005. A buddy of mine, James Bates and I grew up together here in Modesto, and founded Datapath. Originally, just doing IT services, just hourly work. Over time, we just saw a demand and need to branch out into some what's called managed services, where we essentially for a flat fee help IT departments manage their IT. Now, also, is kind of we've extended into managed security services, where we keep the network safe from the bad guys, right? So we're watching that line for companies and making sure that their networks are safe.
Dave Darmstandler:
So it's been a fun ride. We've got team about 60 now. We've just finished our last acquisition this last July, which was a little bit scary due to COVID. So we were in the middle of that transaction right when COVID happened, but we decided to charge forward with it anyways. It's turned out to be great. But really thankful, we've got offices. We're headquartered here in Modesto, and obviously we're here in the new headquarters that we just built, about 14,000 square feet. We've got an office in Fresno and office down in Irvine.
Joe Muratore:
Yeah. Well, getting to 15 years in business is no easy feat. I think the stat is that 70% of businesses go out of business in the first five years. And about 70% of the ones that survive the first five years go out the second five years. To get to 60 employees, that's quite an endeavor. I know you have a business partner. Maybe you could talk a little bit about how did you get to this level, what were some of the snags. To get here, you had to have gone down roads that didn't work, some that did. What were some of the stopping points? What were the inflection points? And maybe talk about also what's it like to do that with a business partner.
Dave Darmstandler:
I mean, for starters, obviously people walk our headquarters, they see our website or they talk to us. Everything looks great, but it doesn't tell the story of the bumps in the road you've had along the way. So I think we've definitely had more failures than we've had successes. I think what's helped us get to where we are is we're not afraid to try new things. So we consistently stay curious, which can be good or bad. So we are constantly just asking what's next and what can we do better. Even internally, we talk about that a lot, that we're probably harder on ourselves than anybody else's, but it's create a culture where we're never satisfied, which I think has really helped us to get to where we are today.
Dave Darmstandler:
Same thing with a partnership, right? Just even a marriage, partnerships are... They're tough, right? Really for it to work, you really have to have people that at the core want the same thing. But in the case of James and I, we have two totally different ways of getting there. It's worked for us. We now understand how each other work, but it took 15 years to figure that out. We really are sharpening each other because we're very different in the way we approach problems or where we want to get. I tend to be big picture and James is very tactical in the details. We both played our strengths well at this point. We know where we live, which is great.
Joe Muratore:
You said that phrase, never satisfied. I think in business, we all pick up a little phrases that are guideposts or principles that we live by. I suspect that's one of yours. That's what I've observed. That's probably why you got to this level. Can you talk a little bit about that? What does never satisfied look like in your business and how do you manage and grow with that?
Dave Darmstandler:
I think part of it is just staying open to where you never feel like you've arrived, right? I mean, I think a big part of it for me is even before we're having this meeting here, I have a open calendar for anyone on my team to schedule a call with me. One of our youngest guys schedule a 10-minute call with me. My first question to him is, "Tell me what's great and tell me what sucks." Right? "What just isn't working for you as a team member? What's not working for our customers?" I'll hear that from our customers as well, but those guys on the ground floor have a totally different perspective or seeing something I might not be able to see.
Dave Darmstandler:
And so just never feeling like we've made it, I think is just part of it that we're just constantly pushing to become better as an organization, make it a better place for us all to work, make it better for our customers, have a bigger impact on our community. These are all things that we're just constantly... I feel like sometimes I'm pushing a boulder uphill, but we're constantly just never quite there. It can be an exhausting feeling, but I think it's better than feeling complacent or feeling like you have arrived, you get fat and somebody else starts to take your customers, right?
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Joe Muratore:
What's really interesting is that the thing that drives, especially entrepreneurs. Tell us about your childhood. Tell us about what makes you you, what built the DNA that said, "I'm going to create a company. I'm never going to be satisfied. I'm going to grow a substantial organization." Very few people do that. Why have you done that? Tell us about that.
Dave Darmstandler:
Yeah. Yeah. I mean, as we were talking about earlier, Joe, I mean, obviously, I grew up poor. So my mom, single mother. My dad wasn't really around much at that point. So we grew up on government aid and we were in a pretty rough neighborhood. The neighborhood we were in had been condemned at one point. It was not ideal living, but as a kid, you don't really know, but you do know that you don't have enough food or you can't necessarily... Our utilities were being turned off on the regular. So it clicked probably around 10 years old and I just went, "Okay. I'm not going to be poor." So it wasn't necessarily been money-driven, it was just, "I'm going to push and I'm going to make something of myself so I don't have to live like this and definitely my family will never experience the fear of being without."
Dave Darmstandler:
And so I started getting interested in business at a young age. I mean, I went as far as just reading back then, I was right reading obviously the stocks and the newspaper I could get my hands on and understanding how those worked and then starting little businesses as a kid. Even James and I, one of our first businesses would just mowing lawns when we were, I think, 11 years old. So all of those things were just little nuggets of picking up how to do business, which looking back, we were obviously naive, but we've picked up skills in that, right? I mean, you picked up negotiation, right? Even if you're negotiating with an old lady to mow her lawn, there's some form of you're taking something in.
Dave Darmstandler:
And then my grandfather was a big influence on me. He was a two-star general, worked for the president, worked in the Pentagon, and then was a successful businessman. I was probably annoying as a child, but I would just call him, sometimes collect calls and just... He was a general, so conversations were never long. They were maybe sub five minutes, but I took a lot from him and I would just ask him tough questions about business, or how did he get from here to here. And I was always going back to be curious. Anybody that was successful, I would always want to know how did they get from point A to where they are today, right? What things did they do?
Dave Darmstandler:
And oftentimes I've found, and you probably have to, life is strange, right? There's not just a point A to point B. There's definitely some zigzags along the way. Still, to this day, I don't feel like I've really accomplished much. I think that's definitely part of it is just continuing to remain humble and know that the older I get, I feel like the less I know, and I think my grandpa was very much that way. So it was inspiring to have somebody available to me at that level that... And that was from grade school through to high school and even into college. I called him just about every week, let him know what I was working on. Sometimes he would just blatantly tell me how stupid something sounded. And it was that direct conversations that helped to shape me.
Joe Muratore:
So you're probably... How old are you now? About 40?
Dave Darmstandler:
41.
Joe Muratore:
41. So there's the ten-year-old Dave, there's the 41-year-old Dave, there's a lot in the middle that's created the, I guess, composite of who you are now. So taking that, what are you trying to accomplish? Maybe you're halfway in your life. What's next? What are you building?
Dave Darmstandler:
Yeah. I mean-
Joe Muratore:
Not as a company, but as a person.
Dave Darmstandler:
I want to find some ways to make a positive impact on this world. Part of the way I've done that now with Datapath is really investing into my team members just personally, right? Whether it be helping them figure out how to buy a house or helping them figure out how to come up in their lives. And that brings me tremendous satisfaction to know that I can make a positive impact on that individual and their family. And even zooming out further, there's just some things I'm really passionate about continuing to help the community at large in that same factor, so helping people come up. A lot of that has been through just helping really early stage entrepreneurs that I don't have any financial investment, or any skin in the game per se.
Dave Darmstandler:
I'm not going to make anything out of it, but if I can help them in their journey to get their company off the ground and provide great jobs and do the same that I'm doing for my own team members, that brings me tremendous value. So I've probably worked with, I don't know, 30 plus startups. Sometimes for years at a time, helping them get from really early stage just idea to... Some of those I have put money in later on. But early on, it's more just hours of phone calls or meetings and coffee and helping them shape and generally whittle down what they're trying to do into something that's actually possible, right? Something that's actually makes sense and they could actually put their effort and time into and get a return.
Joe Muratore:
So let's pivot with that and talk about investing. You have a business. It presumably throws off profit and cash. I imagine you spend some time thinking about how you're going to reinvest in your business or reinvest personally. You're doing two acquisitions a year, two or three. It sounds like you're doing some venture capital stuff. So talk about how you're investing and also where you're seeing a return and how you think about that, and maybe how you and James think about that.
Dave Darmstandler:
Just on the is the business level, I mean, we are constantly reinvesting in the company. So a lot of the profits stay into invest in things like this headquarters or those acquisitions, or even new technologies that we're working on internally. So that's a big part of it. But there is a point that you go, "Okay. Well, I don't want all my wealth wrapped up in this single company." It's not necessarily fear base, but it's like, "Hey, it can only generally take on so much cash or so much activity to time." So we want to continue to have some investments outside of that.
Dave Darmstandler:
So probably over a decade ago, we started picking up real estate, particularly when it was pretty cheap. So we bought a series of residential income properties and some commercial properties. And so those have really helped us to just establish a level of wealth or longterm. We analyze those constantly and we'll make adjustments to that portfolio as needed, if something's underperforming. But definitely, we like real estate as another side of our investment. And then just personally, I have made investments in riskier stuff. So we'll invest in some startups. Or even as far as my wife and I are invested in a cannabis farm. So we've got some really interesting [crosstalk 00:14:39], but all of those have been... Yeah, exactly. There's all kinds of puns you could probably make off that investment.
Dave Darmstandler:
But I mean, yeah, it's always been a people-first aspect. So the leadership that we meet with, those are really who we're investing in. It's not so much what they're doing because we know that may change. Even in the case of this cannabis business, they actually made a pivot and they've focused a lot. They found a much bigger demand in return on CBD. And so they've now are one of the larger CBD, I would say, farms. They've got a number of services around CBD. So those, we know that's going to change, but as long as we align, I would say, values with those individuals and we believe in their skillsets and that their drive and they're going to work hard, I mean, that's how we've made those riskier investments is we're really investing in those people. And that's through-
Joe Muratore:
How can you tell if a person is the right person? How can you know who to bet on?
Dave Darmstandler:
Yeah. I mean, that's a really tough one, right? I mean, obviously, it's time with that individual. In the case of that investment, I mean, I went down and spent time with their facility and met with their team members. Generally, that's how I know is usually when I talk to the guy that's not doing the lip service, when I talked to the people on the floor. Do they have respect for the leadership? Do they have respect for the boss? Is there a common mission? And that's really difficult to accomplish, right? So I know if they have accomplished that and everybody knows where they're headed, which is virtually impossible. I mean, something that I always like to think of is the church would be perfect if there's no people in it, right? Same thing with a company.
Dave Darmstandler:
I mean, getting your family on the same page is one challenge. Getting a group of people from all different walks of life go in the same direction is extremely difficult as a leader. So if they can accomplish that, to me, that's a great sign that they're on the right track. And then obviously there's the standard boxes you should check, that they have integrity, that they've got a level of ethics, that they're somebody you would want to have a beer with and you align from a value standpoint.
Joe Muratore:
Or maybe a joint with.
Dave Darmstandler:
Yeah. Yeah, exactly. So just the-
Joe Muratore:
[inaudible 00:17:06].
Dave Darmstandler:
No. I mean, I prefer the gummies. No, that's what's funny about that one too. My wife and I struggled. I mean, ethically we struggle with that one, but they were focused on medical so we felt a little bit better about it that way. Not that I shame anybody for having some gummies or whatever, but I don't want to put money into something that's going to make someone's life worse, right? I don't want to put money into something that somebody just can't kick as a habit. Not to say that's the case with that drug, but I mean, it's... But when we saw what they were doing around the medical aspect, and then CBD, we were like, "Yeah, that aligns with us great. That's right up our alley." But yeah, that one's been a funny one for sure.
Joe Muratore:
With your business, we're here in Modesto, California, and this is your headquarters, but you also have a Fresno location, you have an LA location, what's it like managing employees in other spots? How do you build that respect on the floor for the ownership remotely? What's your plan for further acquisitions and building a cohesive company in lots of locations? And for that matter, why have all those locations? Why not centralize?
Dave Darmstandler:
I mean, for starters, working with a team that's spread out the way it is, I know something I just do as a habit is I just literally have a spreadsheet, as simple as it is, and I keep track of the last connection date and time with each team member. I try to connect with one to two a day in a minimum. Keeping that in mind and continually doing pulse surveys and company-wide Zooms, as far as the company-wide meeting, those are all things we would have done in-person prior, but it's almost like we didn't miss a beat even with these other offices down South and stuff like that. I mean, it's allowing us to just ensure that on a daily basis that people are staying connected.
Dave Darmstandler:
But yeah, it's definitely difficult, for sure. Particularly, as simple as it may sound, even though we're all in California, the cultures are very different in each one of these communities. So we are centralizing a good portion of it here in Modesto, which is the reason for the larger headquarters, but there is a geographical need, just bodies on the ground, and that's both in what we do. That's primarily when we're supporting large networks, you got to have a network body on the ground if there's an outage or something like that. So that's part of it. And then there's just a value to face time for the customers. So even though we are a remote service, knowing that we can send somebody from Datapath that represents us out to a customer to spend some face time with them, there's always something you see that you can't see over Zoom or you can't see on the phone or a conference call. And it just means a lot to people to know that we're coming through and just spend some quality time with them.
Dave Darmstandler:
We're going to try to pick up one to two new companies a year, if we can, depending on their size. It's not an easy task to find the right target for sure. It's difficult because there is a lot of factors. I mean, your customer bases have to align. Your services have to align. Your teams have to be similar culture-wise. And so it's definitely a unique find. I wish there was like a Tinder app or something for it, but there's not. And then you've got a pretty good size investment by the time you figure out whether it's going to work or not. You've spent quite a bit of time with those individuals before you pull the plug or you decide to move forward.
Dave Darmstandler:
The last one took probably about a year between the time we met them. We flew to each other's facilities. That just gives you an example. There's a lot of emotional aspects too, which is what often slows things down, right? I mean, people have worked hard to build these businesses, so to offer to fold them into your company is sometimes a compliment and sometimes it's really-
Joe Muratore:
[crosstalk 00:21:12].
Dave Darmstandler:
Yeah, it is. And it's an emotional pull at them to make that leap, right? They're taking a lot of trust in us that we're going to do the right thing.
Joe Muratore:
Mm-hmm (affirmative). Let's conclude maybe talking about the future. What are two or three trends that you're seeing maybe in your business, or as we talked about sometimes the future of office space? You certainly have a fair amount. How do you see the future playing out for your business? What are some trends you're looking at? And what's your perspective?
Dave Darmstandler:
Many of our customers that I'm on, particularly the large ones, what's interesting to me is that what seemed to used to be a really tight hold on where your people are located and how they work, I think probably influenced by these large tech companies are telling people to obviously you don't ever have to come back to the office. These companies that are smaller are now saying, "Hey, we don't care where talent is. We're going to hire them where they are. They can stay there. We're going to use them." It's not going to work for every role, but I think some of these more specialized roles, particularly when they can't find those people locally, I think is part of it.
Dave Darmstandler:
The other side of the coin of that is we're seeing a struggle for the remote workforce, right? So particularly around collaboration, I mean, if you think about it, at Datapath, so we just hired a couple of new people over the last two weeks, and think about being onboarded as an new employee, right? And you don't ever come into the office and you don't ever meet your coworkers physically. So building that rapport and that relationship all digitally has its limitations, right? So it's kind of like think of it in two worlds of analog and digital. I think there's some things that can only be done in person. I think we're going to see more of that. I think these organizations that think, "Hey, we're going to work remotely and we're going to be able to collaborate at the highest level and innovate," I don't see it.
Joe Muratore:
It strikes me as a piece of identity. We work really hard to figure out who we are as people. And when you're in a company setting, you begin to take on the identity of that brand and that company, and that facilitates a collaboration.
Dave Darmstandler:
Exactly.
Joe Muratore:
If people can't build a sense of, "I'm a part of Datapath. Datapath's a part of me. These are my peers and my friends," then it's hard to give your very efforts from home on the computer-
Dave Darmstandler:
Yeah, I mean, it's-
Joe Muratore:
... if it's not who you are.
Dave Darmstandler:
You can't. You can't. It's difficult to build the culture. I mean, it's difficult to build a culture. I think you've got to have a home, right? I think this concept of like, "We're going to be this distributed network of professionals," I think it will work to some degree. I know there's some more of those who have said it. Dropbox has basically said, "No one's ever coming back to work again" in a recent article. In our businesses, as an example, we obviously are managing people's data. It's really at the core of what we do, right? So we're helping them ensure that their technology is stable. It's up and going. It's secured. So for us to not have a physical location at all, I think would really make customers uneasy, right?
Dave Darmstandler:
And so I think long-term, as much as this remote thing is so hot right now, I think as hopefully the pandemic starts to slow down over the next year or so, I think the return to the office is inevitable. I think that people are going to want to. We have it even now, where I think out the gate, people are like, "Oh yeah, I get to work from home." And then now they realize that everyone else is stuffed in at home with them and they're like, "Hey, please tell my spouse I'm required to come back to work." I do it. I don't think we're going to necessarily out the gate go back to five days a week at the office if it's even allowed, but I think we'll definitely have, I know we're already doing it here, a rotation where people can come back in and work even three days a week in the office.
Joe Muratore:
I look at a lot of your acquisitions, and they're life-stage acquisitions. It's someone who built a large business and has reached a maybe in their 60s or 70s and is ready to be retired. And frankly, a lot of the real estate we buy is in a similar situation. Families have owned it for a long time and they're ready to do something different. So it's a little bit different from a regular roll-up, I would think. This is that you're satisfying a different need. And it takes more patience and a more hand-holding and more emotional support, but I suspect you're going to continue to find a niche there that's different from a large private equity group going around, buying up a bunch of these at full market price.
Dave Darmstandler:
Money is one factor. Chances are though they have some money stocked away somewhere. They've done some investing on their own or they don't have a lot of debt generally by they reach that stage. And so they're concerned far more with the mission and where you're going and what you're going to do with their people. They like the story more than the check sometimes. There may be a difference. Sometimes we're paying more and sometimes we're paying less and they go with us anyways based on that story, right? It's almost like they want to be part of the story going forward and not just walk away and wash their hands of it. They want to know that what they built continues and doesn't just get destroyed.
Joe Muratore:
Yeah. Dave, I really appreciate our time together. You've been a inspiration to me over the years, and I'm glad to do this. So, thanks so much.
Dave Darmstandler:
Thanks, Joe. Thanks for having me.
Speaker 2:
Thank you for listening to Durable Value, an investors' podcast where we demystify commercial real estate with safe, sound investment strategies to help you balance your portfolio. If you enjoyed this podcast, be sure to rate it on iTunes or wherever you get your podcasts. To learn more, visit graceadapartners.com, where you'll find more information, investors tools, case studies and more. This podcast is hosted by Joe Muratore and Ryan Swehla. It's produced, edited and mixed by Melodic, with intro music by Ian Post. Thanks again for listening, and we'll see you next time.ming Soon