In the mid-1980’s, Jim Noble, founder and CEO of Noble Systems, launched his first business, which was a call center that eventually grew to field and make phone calls for large for-profit and not-for-profit organizations. Over time, Mr. Noble experienced a growing need for technology to automate processes and improve productivity in his contact centers, and because the necessary technology did not exist in the market at a reasonable price, he built his own. That series of events set in motion the creation of a new product which laid the foundation for Noble Systems.
Mr. Noble grew the business from a four person operation in the late 1980’s to a profitable and innovative technology company, which is about to eclipse 70% in recurring revenue (given its software-as-a-service model). Noble Systems is a global business today that derives 35% of its revenue and EBITDA1 from non-U.S. customers and has hundreds of employees around the world. The company provides a full suite of technological solutions to a customer base of collection centers and agencies, cable, phone and Internet providers, fundraisers, market research firms, mortgage companies, newspapers and publishers, among others. Its products include workflow tools to automate and improve efficiency for outbound dialing campaigns, inbound calls (routing, queuing and customer account information, etc.), agent scripting and contact center management and reporting. BBH sat down with Jim Noble to discuss his experience founding and growing his company, how he approaches innovation and the benefits and challenges of being owner operated. The following is an excerpt from the conversation.
BBH: Tell us about your personal and professional background.
Jim Noble: I grew up outside of Pittsburgh, and my dad worked as an electronics technician, I was exposed to computers from a young age. In fact, had a at house before there was an IBM personal computer. a teletype and a paper tape reader, and I learned to program it myself
I went to the University of Pittsburgh for one year, but I was bored and impatient with college. I also wanted to begin earning money, so I went to work for Time Life in their call center business, and after that for a call center subsidiary of Hearst Corporation. In 1985, I left Hearst and started my first company. As it grew, we worked with a number of large companies and political groups, and at our peak, we had 3,000 agents across nine call centers in the United States. Because we could not find high-quality and affordable technology companies to help improve productivity at the call center business, I created Noble Systems as a spinoff.
BBH: Tell us more about the genesis of Noble Systems.
JN: When I owned the contact center business, we bought a number of different technologies to improve operations, but they were extremely ineffective. I had to learn how to disassemble and reconfigure them to meet our needs and add value. When the technologies were running, our productivity was strong; when they were not running, our productivity was zero. At the time, there were very expensive solutions in the market that I could have implemented, but their value was not commensurate with their price. So, out of pure necessity, we developed our own technology, and because we were in the call center business, we knew what the technology should do and how it should do it. We think that our domain expertise is still a strategic advantage today, as most competitors in our industry began as pure technology companies.
The call center and technology businesses were very symbiotic for a number of years. The call centers were a proving ground for our technology: they served as beta sites to test the software and elicit feedback. Additionally, successful employees in the call center business could transition to the technology business to be trainers or provide customer support. Over the years, the call center company grew, but then plateaued to some degree, while the technology company, which began as a small boutique, kept growing. 1999 was when the two companies were nearly the same size in terms of revenue and profitability, and I decided to sell the call center business because I could not continue to run both companies and “take them to the next level.” It was an easy decision: call centers are great businesses, but even those that are well operated might only eke out an 8% profit. In the technology business, on the other hand, because of the significance of intellectual property, companies can have much greater earning potential.
BBH: Discuss the early days of Noble Systems including the development of your employee base and the workflow technology that is at the heart of Noble’s business model today.
JN: When we embarked on developing Version 1 of the software, we decided that there was a feature set that we absolutely needed in our contact centers. I knew that if we had technology with this feature set, we could double our productivity, which is very meaningful at a contact center. If a customer is paying on a results basis – each completed survey administered for example – then contact centers can make twice as much money if they can double productivity.
When we created Version 1, I hired outside contractors to create the telephony component and to develop the software in line with my design, and I managed the project. The cost to develop the software was about $400,000, which was a fortune at the time. I was taking all the money I was making at my call center company and feeding it into the technology creation. We began using Version 1 at my contact center in 1987, and in 1988, through word of mouth, I sold one or two before Noble Systems was even spun off. When I made those sales, Noble Systems did not have any employees, so I installed the software myself, trained the customers on how to use it and dealt with problems if they arose. Obviously that arrangement was not scalable, so I determined that we needed to build a company around the software if we were serious about selling it.
From the outset, we did not design the technology to be hard coded or specific to just the type of call center work we were doing. We created it with broader applications in mind. For that reason, in 1989, I spun off Noble Systems, the . For the first few years at Noble Systems, I was the engineer and visionary that was directing what the next feature would be and improving current features, and my dad was operating the business and selling to customers. With no marketing budget, over a few years, my dad sold around 100 the customers we had were very satisfied and loyal. After 4-5 years, my dad decided to which I became more involved and oversaw both companies.
BBH: Discuss some of the key learning experiences along the way that helped to shape Noble Systems into what it is today. What was the most challenging moment in the company’s history?
JN: There were a number of challenges. We were a tiny, bootstrapped company in Atlanta, and we were competing against three to four other $50-100 million dollar public companies that were well funded with large budgets. It was a David and Goliath situation. In the early days, we had to be selective about who we sold the technology to. The large, public competitors were selling to the Fortune 1000, and it was difficult for Noble Systems to compete with them. They could easily dismiss us as “four people in a garage in Atlanta” to potential customers.
One benefit we had was that there was always a guaranteed revenue stream because of our sister company. At the call center business, we were making good use of the technology and making money with it, so we could afford to pay Noble Systems a reasonable rate for the software and pay for support. That covered the payroll. Aside from the sister company, we pursued mostly small- and medium-sized businesses, but we were opportunistic with larger clients and would win a new one each year. We grew and were profitable every year without taking on outside equity or debt, and then, after ten years, Noble Systems was a $10-12 million revenue business per year. At that point, we had just enough of an enterprise customer base that we could find our way into the door of larger companies.
We took a different path though. Today, and even back then, many people think of a valuable product idea, bootstrap it until they can prove the concept and then find equity from venture firms to grow the company. We didn’t take money from anyone until we had solid revenue, profitability and EBITDA.
BBH: You talked about the lead up to Version 1.0. What was the evolution of the business from there?
JN: For the first ten years, the product was “dragged to where it needed to be” by my call center, and then gradually, by other outside customers, as we gained more of them with differing needs. Initially, there was a never-ending list of improvements and enhancements necessary to expand the capabilities of the technology. Sometimes we re-arranged the priority, however, if for example a customer was willing to pay for the development cost of the enhancement to receive it in a compressed timeframe. But, we made it a point all along to never add features to the software that were so specific to a customer that they could not be used universally, or that hampered our ability to upgrade or support the version of the software.
BBH: What are the benefits and challenges of being the owner-operator of the business?
JN: Being the owner-operator of a business is not for everyone. It is not for the faint of heart. It might be different for those who start off with an idea and use other people’s money to fund the business, but it’s different when it’s your money. In the early days, there were times when my mortgage was two months behind. I had a stack of paychecks in the drawer that I could not cash because we did not have enough money in our bank account.
Very early on, at my contact center business, we got behind and owed the Internal Revenue Service $22,000 in payroll taxes. It obviously was not deliberate on our part, but they told us that we had ten days to pay the back taxes, or they could have closed down the business. We had to think creatively to come up with the money because it was a fortune to us at the time. In the early days, I was working twelve hours per day, six days per week and eight hours on Sunday. Finally after ten years, when I had two young boys, I decided to still work twelve hours per day, but only Monday through Friday. I have spoken about some of the downsides of being an owner operator, but the upside is that once you cross the threshold where the company is not struggling anymore, the amount of money you can make is not limited and you control your own destiny. There was a price to be paid to get to where I am now, but if you really love what you do, and you are challenged by what you do, it really is not so bad.
BBH: What are the things that “keep you up at night” as an owner-operator?
JN: There are always “landmines.” Being as large as we are is positive and negative. We have offices around the world, and Noble Systems has a strong management team, but operating a company with managers who are 16,000 miles away is more challenging. I worry about complying with ever-changing government regulations, though we try to stay ahead of regulations and capitalize on them to a degree by developing our software to help our customers comply. Patents can also be cause for worry. In the early days of the company, we could not afford patent lawyers or to file patents, even though we were producing new, valuable and interesting innovations. As a result, there was a company with ample funding, and they filed a number of patents, even on things that we could that we invented years before them. Despite that, they extracted a patent license from us in 1998 because even one legitimate patent would have made it difficult for us to stay in business. But, I kept that in mind. Then, as Noble Systems grew and became very successful, I eventually decided that we were going to “go from worst to first,” and I hired two full-time, in-house patent lawyers.
BBH: That is a nice segue to innovation. As a technology business, how do you empower your employees to innovate?
JN: We have a culture of innovation that we try to nurture. We encourage each employee to be an innovator – even our non-technical colleagues. One does not have to be a technologist to be able to identify a problem, and that person may not even know if a solution is possible, but there are others who do.
Everyone in the company globally has an incentive, both economically and from a recognition standpoint, to innovate. All Noble Systems employees who believe that they have a patentable idea can propose it to our patent lawyers, who will help polish the idea. If we then agree that it is patentable – which does not necessarily mean that it is, since it could be turned down – and we file a patent on it, the employee receives name recognition on the patent, a bonus, and if the patent issues, a plaque of the patent. There have even been times when we filed patents that we did not believe would be terribly useful to the business or that we thought might not be approved, but, we filed them anyway to encourage our employees to innovate.
BBH: How successful has the Noble Systems patent program been?
JN: Today, Systems has over 100 patents issued and pending. Our patent lawyers say that over the last two years, on a per employee basis, we have had more patents issued than Google or Apple.
The best patents those that are not used today. You have to look into your crystal ball to patent what you believe in the future will be the standard. We have half a dozen patents that have issued and are very promising, but today our software does not use them. a patent though usually the first. They will typically just buy a patent license, or, in the case of a large company, buy the patent. This year, we will likely begin to monetize our patent portfolio through licenses, as we have identified a few companies that we believe are infringing on our patents.
BBH: You spoke earlier about sourcing ideas from customers. Do you still? What about competitors?
JN: Absolutely. Most of the time, it is collaborative. Many times customers know what their pain point is, and that is the opportunity for Noble Systems to create a solution. A number of the patents we have filed have been a result of Noble Systems employees working with a client to solve a problem and having a eureka moment, in which the employee not only comes up with a solution to help a specific client, but a number of clients.
We also try to keep up with what competitors are doing, and sometimes that can be the genesis of a patent. Clearly, you cannot recreate exactly what a competitor is doing and patent it, but the opportunity for us lies in the fact that we know how to operate contact centers. We like to say that we have forgotten more about running call centers than most of our pure technology competitors know. So, sometimes we see a competitor try to solve a problem for a customer, and we realize that they solved a problem, but that “they took three left turns” to get to the solution, and “we know how to turn right.” Oftentimes we are leapfrogging a competitor with innovation. We are not trying to copy them; we are trying to do it better.
BBH: Discuss your approach to strategy, expansion and financing the business. Do you involve your other managers in these decisions?
JN: Yes, I involve senior members of my management team. With respect to acquisitions, for example, every employee knows that we are an acquiring business, so I receive emails ten times per year from employees throughout Noble Systems informing me about an interesting company We also involve some outside financial advisors and professionals. Debt, credit facilities and debt capacity have been an education that has taken shape over a number of years.
In 2007, I began using debt for acquisitions because I decided that we were going to grow the company not just organically, but inorganically as well. I had my CFO start the process, and he shopped several banks. Before we selected a partner, I met with the underwriting team and made it clear that if they were to lend to us that they needed to be committed to funding not only the acquisition I wanted to make at the time, but future acquisitions. The reason is that banking relationships are not easy to tie and untie. Throughout the relationship with our bank, I have always tried to stay apprised of the debt markets – in terms of prepayment penalties, initiation fees, interest rates, margins, LIBOR floors or anything else – so that we continue to have favorable terms in our credit facilities.
BBH: What were some of the factors that led you to seek outside minority capital for the first time in 2008/2009, and how did you go about evaluating potential partners?
JN: For a number of years prior to 2008, Noble Systems had reached the size in terms of revenue and EBITDA, where, though private, we were attracting attention from investors. We had entertained conversations with potential investors several times along the way, but we had never identified the right partner or valuation. Many of those were transactions in which an investor group wanted to own the majority of the company. Then, the global financial crisis came along, and though Noble Systems was performing well, a financial services professional I knew asked if I would consider taking on a high-quality, minority partner to allow me to take some “chips off the table.” That conversation is what led to me to partnering with Brown Brothers Harriman on a transaction.
Another reason for taking outside capital is related to what Warren Buffett once said: “When the tide goes out, you see who is swimming naked.” When the crisis hit, some of our smaller competitors were in trouble, so it was also an opportunity for Noble Systems to make acquisitions. We had enough cash flow and borrowing capacity to complete the transactions without outside capital, but taking equity was appropriate given the risk of acquisitions and leverage.
BBH: You seem to have commandeered significant loyalty from many key employees who have been with Noble Systems for several years. What do you think are the factors that led to such loyalty and high retention rates?
JN: I would be surprised if it was one reason because we do have an incredible retention rate for all employees, not just the leadership team. The company has only been in business for 25 years, and the average tenure for a Noble Systems employee, including those who started yesterday, is about 6 or 7 years. For senior management, the average tenure is probably 12 to 15 years. One reason may be that there are no politics here. If you are excellent at your job, you will be well compensated, valued as an employee and in a position to progress. We have hired employees at $40,000 per year with no experience at all, and two years later, they were making $100,000 plus.
BBH: Do you think about succession planning, and what is your approach to it?
JN: Yes, I have thought about it. There is not an official succession plan, but there have been periods of time in the past when we have proven that the company can function fairly well without me. In 2001, my younger brother, who was 40 at the time, was diagnosed with a rare form of cancer, and they told him he had a very short period of time left to live. I essentially checked out: I put my team in charge and spent four months with my brother dealing with treatments. And, the company did not fall apart – development did not stop, customers were not unhappy, the bills were paid and we made a great deal of money.
Part of the reason that everything was fine is that I have great people, and we have strong systems in place, which are key. Even when a problem bubbles up to me, I am never interested in fixing that problem. I am interested in fixing whatever missing or broken system caused that problem to happen in the first place. Systems are incredibly important for creating a scalable business. It is important for any entrepreneur to know that they will have to reinvent their company regularly and significantly if they are lucky enough to grow it. Operating a $2-3 million-per-year company is completely different than operating a $10 million company, which is then completely different than operating a $25-30 million company, and so on. After 25 years of instilling in employees the value of systems, and having hardly any turnover, I have a management team of 20 people that makes decisions largely the way that I would.
To get back to your initial question, there is no specific succession plan. I have told people before that I would like to have a successor at some point. Building the systems, processes and organization of a business, however, set the next person up for success.
BBH: Jim, thank you for your time and insights.
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1 Earnings before interest, taxes, depreciation and amortization.