This episode features a conversation with Thoma Bravo Senior Partner A.J. Rohde, Thoma Bravo Principal George Jaber, and HCSS President and CEO Steve McGough.
AIR DATE:
February 20, 2025
LENGTH:
18:35
DISCLAIMER:
This podcast is for informational purposes only and does not constitute an advertisement. Views expressed are those of the individuals and not necessarily the views of Thoma Bravo or its affiliates. Thoma Bravo funds generally hold interest in the companies discussed. This podcast should not be construed as an offer to solicit the purchase of any interest of any Thoma Bravo fund.
Transcript
[MUSIC IN]
A.J. ROHDE:
Hi, everyone. I'm A.J. Rohde, senior partner on the Discover Team at Thoma Bravo. And this is Beyond the Deal. A bonus episode of Thoma Bravo’s Behind the Deal. I'm here today with Steve McGough, president and CEO of HCSS, and my man George Jaber, who's a principal, been with me for ten years and played an instrumental role in this investment. Steve, I'm going to start with you. Tell our listeners just a little bit about the company HCSS.
[MUSIC OUT]
STEVE MCGOUGH:
Well, HCSS, this is our 39th year in business. We developed software for the construction industry, mainly the heavy highway, heavy civil contractors. And it's mainly operational software. So you can think from a construction company estimating job costing, dispatching safety plans, equipment, maintenance, telematics, everything operationally that a company would do. And then we tied 45 semi-accounting ERP systems, QuickBooks for our smallest customers, and SAP for our largest.
A.J. ROHDE:
When you look back at your time, and feel free to jump in here too, with HCSS and TB over the last three years, what has surprised you about our partnership? Your first experience with private equity? Give us the down and the dirty.
STEVE MCGOUGH:
Probably how helpful a well-functioning board of directors can be for someone like—
A.J. ROHDE:
Is that what you call us?
STEVE MCGOUGH:
For someone like myself, because I'm a big fan of John Wooden, and he always used to say: “play a game you can win,” which means play to your strengths. And I think that the board does a really good job of holding us accountable and making sure that's we've always got a good line of sight as to what our strengths are and making sure we have that nailed down completely. And then probably what surprised me even more because I didn't give it a lot of thought, but Thoma Bravo and so many software companies of varying sizes, and you guys sit on a number of boards, so you keep us honest on our processes and more importantly, give us a lot of feedback on things that might cause us issues as we continue to scale the business.
GEORGE JABER:
It's two-way, though, too. I mean, Steve is a no “B.S. kind of guy.” He always says it how it is. If it’s wrong, we're going to fix it. If it's not working, we're going to stop doing it. Yeah, it's very it's the Texan way.
A.J. ROHDE:
And Steve and Mike really implored us early on to understand what made the company special. And you were very clear upfront. Like, let's understand– let us help you understand the rhythm of the company before we start to implement some of the process.
GEORGE JABER:
Speaking of leadership style, Steve, in an interview, you once said, “True leadership starts with selfless service, respect, loyalty, and integrity.” Could you talk a little bit about your leadership style?
STEVE MCGOUGH:
Yeah. Yeah. George, I believe that my leadership style was really cemented around two distinct times in my life. One, you just mentioned a number of the core values of Texas A&M. And so for my time there, a lot of a lot of the leadership traits that I have were develop then. But probably more importantly, from a modeling standpoint, when I was young, probably middle school age. My dad had his own business before he passed away, and I would ride with him in the summers because a lot of his customers were across Texas. And I saw firsthand how he had genuine interest in people treated them with respect and dignity. And it didn't matter if it was a janitor sweeping the floor at the company or the CEO of the business. He treated him the same. And that always stuck with me.
A.J. ROHDE:
Tell our listeners what the three rings are. This is something that really stands out with the company, and I want to make sure everyone understands.
STEVE MCGOUGH:
We answer the phone in three rings or last 24 hours a day to the person that can help you.
GEORGE JABER:
What happens when I call in the issues that HCSS issue? Well, my printers not working, and Microsoft's not working. How do you handle that? And do you just kick them back to—?
STEVE MCGOUGH:
We answer it. Our people, in general, they take the call. And so you'd be surprised. Every year, we take a look, and there's a lot of questions that get answered in and outside of—sometimes, they’re quite honest with it “Look, you're the only person I know I can call because if— you know, if I called the helpdesk at Best Buy or something, I'd be on hold for three hours” So that's, we just take them.
GEORGE JABER:
Yeah. You know, before we buy a company. We did. We talked to about 100 customers. And I remember when we were doing diligence, Caroline Kjorlien, our vice president on the deal, and she's also a board member.
A.J. ROHDE:
Superstar.
GEORGE JABER:
And we were on a call together, and we heard one customer talk about how HCSS fixed his printer problem.
STEVE MCGOUGH:
There you go.
GEORGE JABER:
It wasn't the software. It was the printer. And he went through and helped them fix that. And that's and that's when you really understand, you know, the technical support function.
A.J. ROHDE:
Yeah, a special connection.
STEVE MCGOUGH:
You can never get you never get in trouble at HCSS by helping the customer.
GEORGE JABER:
Yeah. Steve, What's something about HCSS that no one knows that you wish they knew?
STEVE MCGOUGH:
Well, there's, there's a couple from a people standpoint, it's a great place for people to build their careers. If you look, a lot of people have moved through the ranks and advanced their careers at HCSS. But I think also so many people don't realize how our software fits other vertical industries. And while we're seen as a heavy civil, heavy highway, and we're number one in that space, we're quickly becoming number one in the power communication utility markets as well. So if you are a self-performing contractor, meaning that you have crews that you send out to do production-type work, there's a good chance we've got a product that fits you.
GEORGE JABER:
It's true. It's not just roads, bridges, highways.
STEVE MCGOUGH:
Absolutely.
GEORGE JABER:
Yeah, and everyone thinks about roads and bridges. When they think about HCSS, as I said, it’s so much more than that.
STEVE MCGOUGH:
We love that type of work, too. But we do find other markets, and we've got a lot of customers in those as well.
A.J. ROHDE:
And the same customers are branching out their own business into some of those areas.
STEVE MCGOUGH:
Yeah, for sure.
A.J. ROHDE:
Yeah. Can we switch gears a second to talk about scale scaling up the challenges that come with scaling up, some of the considerations? You started the company. I think it had 40 employees?
STEVE MCGOUGH:
That's about right.
A.J. ROHDE:
Today, we have over 500. Talk about scaling a company to that size. And talk about some of your learnings.
STEVE MCGOUGH:
Well, when you're when you're scaling a software business. I learned really quick that your Coster and your people so you talk about going from 40 to 500. I think it's important that you have a financial metric that's a gut check that's easy to see. And for me, especially when you're looking at hiring, speeding that up or slowing that down. And for me, that was always a revenue per employee. Strategically or looking at the business itself, I always like to look and see from our customer's lens what's going to be the same five years or ten years from now and pour 90% of your effort into innovating and making sure those products are successful in and around that. And it's a little counterintuitive because most people want to know what's going to change in five years or what's going to be different in ten years from now. And we have such a connection with our customers. We want them to come back in, and we want to earn their business year after year. We want them to be able to want to do business with us over and over again. And so, for me, that's been a recipe for success because no one's going to call me up five years from now and say, “Hey, Steve, I wish your estimating software was running a little slower.” you know? Yeah. And then probably just the last, and this is a big one: You have to overcommunicate to your employees and be transparent because it's like in 2008 and 9 when the economy turned down, we had employees whose family members were being laid off or threats of being laid off. We were doing great. But they were anxious, and there was a lot of anxiety. So instead of them wondering, “Hey, is this just going to be a knee jerk reaction? If we slow down, I'm going to get laid off.” We went in and put in some objective measures around here's exactly the five steps we'll take on a trailing three month net income, let's say. And so people understood. We never got to any of those. Actually, some of our best years were through that time. And quite frankly, it gives construction companies the ability to slow down and implement software. So it, it worked out for us. So those are probably the biggest things.
A.J. ROHDE:
It's that bootstrap mindset.
GEORGE JABER:
You're so transparent with your employees, too. I mean, you—
STEVE MCGOUGH:
Probably more so than everybody is comfortable with. But it's just part of the culture.
A.J. ROHDE:
It starts with hiring the right people, though too, you know? And I think you have a very simple method for finding the right employee. So, can you tell our listeners what that is?
STEVE MCGOUGH:
Well, when I interview someone, I always have to make the assumption that our people have already vetted him for their skill set. So I assume that that's done. And I'm really looking for two things: passion and grit. So, from a passion standpoint, when I'm asking you questions about business or even your personal life, do you get excited about something? Do you light up? Do I see that spark in your eye? Because if you don't, you're going to show up to work with that same level of enthusiasm. And personally, I think mediocrity is the biggest challenge for any business, especially smaller businesses, because if you allow it to creep in and worse if you allow it to stay in, it will crush you. And then grit, just from the standpoint of people that have been through adversity in their life and come out the other side as a better individual tend to do really well in our organization.
A.J. ROHDE:
Yeah. For sure.
GEORGE JABER:
Steve, What's something that you wish you had known at the beginning of your career?
STEVE MCGOUGH:
Oh man, George, I'm sure there's plenty of them, but one, you don't have to be the smartest person in the room, but you do have to make the room smarter by being there. And I think you do that even because you're never going to be the subject matter expert on a number of things. But you do need to be able to ask curious questions, probing questions. I think if you do that, you get all of the things that you need out of that conversation on the table. And I'll give you one other. And this is probably a big one for me, and that's work on things that are in your control. I have a picture of Ernest Shackleton's ship on my desk that's frozen in the ice and his crew's playing soccer. And it just reminds me that, you know, Shackleton could have had his crew cut the ship out of the ice, but it's just going to refreeze at night. It's out of his control. So, if I can work on the things I know that are in my control and quit worrying about the rest, I think if I had known that day one, I would have at least slept better. How about that?
GEORGE JABER:
You're always very prepared.
A.J. ROHDE:
Oh Yeah. Yeah.
GEORGE JABER:
A.J.., what about you? Something that you wish you had known early in your career.
A.J. ROHDE:
You know, empowering young people is a really, really, really important and valuable capability that you're able to give someone in an organization. And in order to do that, you have to have confidence that those people are ready to make those decisions. And in order for that to be true, you, as a manager and as a leader have to be there for those people at a very young age. Accessible, Open, Honest.
GEORGE JABER:
Sounds familiar.
A.J. ROHDE:
Yes. Flat organization. Have a nice tension. Give and pull between advice and listening. And so when I was younger, I started at a very hierarchical company and I saw the opposite of that. And so, as we've grown here as a firm, as you well know, we pride our institution on being able to empower and let you guys have agency over those decisions. In order to do that, I've got to be in there with you. You've got to be in there with Caroline. Caroline's going to be in there with Harrison, and so it really that's a cultural element, and Orlando was always very generous of giving that to me. And so I think paying that down the line is really important. Steve is always there for his employees. The board meeting is a very flat discussion. Anybody can speak up. Those types of things I think are really important to an organization thriving.
GEORGE JABER:
It's good advice.
STEVE MCGOUGH:
You know, from that. It also breeds upon itself the type of people you attract.
A.J. ROHDE:
A hundred percent.
STEVE MCGOUGH:
What would you be doing if you weren't in private equity?
A.J. ROHDE:
Me?
STEVE MCGOUGH:
What would your career look like?
A.J. ROHDE:
[laughs] I'd be a coach.
STEVE MCGOUGH:
Would you?
A.J. ROHDE:
Yeah. I coach a couple of sports cause, like football and soccer, and basketball, for my kids. And, you know, I probably tend to be a better coach of kids who are ready and want to win versus that first time coach who is just trying to wrangle, you know, a bunch of kids who are maybe a few of them are out to lunch or picking their nose. But I think that that final push of focus, motivation, energy, excitement, kind of like that tough coach, you know? You never wanna love and end up loving. I think that's a role I feel pretty well. And if I weren't doing this in this world, I'd be doing the exact same thing, probably with the same jargon and the same pontification, you know? Just to a different set of humans solving different problems. So that's probably what I'd be doing.
STEVE MCGOUGH:
So George, what about you? If you weren't in private equity, what would you be doing in a career?
GEORGE JABER:
I would want to run a company. I would want to run a company. And you build it for the future. You hire really good people. You empower them, just like we've talked about. And I'll be honest, I'm not that picky about what type of company it is. You'd want one that's integrated in the community, just like you all are in Sugarland and you'd want to grow it for 20 years.
A.J. ROHDE:
You're such a curious guy. You'd be a student no matter what you decided to do.
GEORGE JABER:
I would love it.
A.J. ROHDE:
Yeah. Yeah, you'd be good at it. Okay. Now, we love to give our listeners a little moment of levity here. So at the end of Beyond The Deal, we like to do what we call the Rapid Fire round. So these are not prepared questions for you, Steve. You just got to answer them on the fly. George is going to start. And these are, these are like a little personal. So, you know, feel free to dive into it. And we're going to rib you a little bit here. So, George, you start with the first question.
GEORGE JABER:
Yeah. Steve, you made the mistake of telling us once that you used to be a powerlifter. Give us your record for benching, deadlifting, and squatting.
STEVE MCGOUGH:
Well, you’re probably right. It was a mistake. [laughs] Telling you anything along those lines. But it's been almost 45 years ago. But from a squat standpoint 622, bench 402, and deadlift around 586.
A.J. ROHDE:
Such a savage. I'm going to be nicer to you.
GEORGE JABER:
When you walk into your favorite Mexican restaurant, “El Tiempo” what do they call you?
STEVE MCGOUGH:
Oh man, really? Well, they call me El Jefe, but it's not, but it's only because I'm the one that's paying. [laughs]
A.J. ROHDE:
[laughs] You've earned that distinction. Yes. Yeah.
GEORGE JABER:
Yeah.
A.J. ROHDE:
Can I ask one?
GEORGE JABER:
Yeah, go ahead.
A.J. ROHDE:
You know, you're a big football fan. Yeah, a big Aggies fan. Yeah. It's been a tough life.
STEVE MCGOUGH:
Yeah, it has been a tough life.
A.J. ROHDE:
But you have moments of positivity. But when will the Aggies next win an SEC title?
STEVE MCGOUGH:
It would be their first, and that and hopes eternal. So, like next year we always start off the year with the goal of being a national champion. I guess one way to get there is to win the SEC championship. So I'm going to say next year, 2025.
A.J. ROHDE:
I love it. I love it. You've heard it here first, folks.
GEORGE JABER:
What's the largest fish you've ever caught?
STEVE MCGOUGH:
My son Ryan and I, landed around 100 pound Wahoo out of offshore Galveston, which was quite, quite the trip for tracking it down. Let's just say.
A.J. ROHDE:
How long did it take to pull in?
STEVE MCGOUGH:
About 45 minutes.
GEORGE JABER:
Yeah. You texted us a picture of that.
STEVE MCGOUGH:
Yeah, I'm sure I did. I think we had a state record, quite frankly. I think we just didn't realize it. We thought it was a lot smaller.
GEORGE JABER:
I have a lot of photos of the fish you've caught.
A.J. ROHDE:
They're metaphors.
GEORGE JABER:
Yeah, that’s true. Steve, what was your first impression of us?
A.J. ROHDE:
Oh man, here we go.
STEVE MCGOUGH:
No, actually, I was shocked that you guys didn't look like investment bankers. And I've run across a lot of private equity guys. Yeah, we at HCSS for years, we would get guys out of private equity that would call us and say “Hey, are you interested in selling your business? Do you want to take capital? Do you want to do anything?” We would, Mike and I would each tell them the same thing: No, but if you're ever around Sugarland you should stop in and say Hi.
A.J. ROHDE:
Until they all started showing up at your front door.
STEVE MCGOUGH:
They all started showing up, and then we just quit that. So, but, you know, I think you guys fit into our culture really well. And so it's it's been good.
A.J. ROHDE:
Yeah. We agree. I always ask a music question, given that I'm a drummer. George is a guitarist. We’re in two bands together. Led Zeppelin or George Strait?
STEVE MCGOUGH:
I would say George Strait. If you'd asked me, Tom Petty or George Strait, it would have been Petty for sure. But, you know, George is a local guy in Texas that made it big.
GEORGE JABER:
Favorite petty song?
STEVE MCGOUGH:
Yeah. There’s no – you wrecked me, probably.
GEORGE JABER:
Yeah. So, yeah, we play that one actually.
A.J. ROHDE:
All the time. Yeah. Yeah.
STEVE MCGOUGH:
Got a question in Rapidfire question for you guys. Are you playing at at the annual shareholders meeting this year in March?
A.J. ROHDE:
You know, our invites been lost in the mail [laughs].
GEORGE JABER:
For our viewers and listeners, we have a Thoma Bravo band and we play at some of our events, our LP meetings, our holiday parties. And we played one year and performed in front of Steve.
A.J. ROHDE:
Yeah, yeah. We're still waiting for our second invite.
GEORGE JABER:
Yeah, we haven't been invited back.
A.J. ROHDE:
What’s going on with you Orlando?
GEORGE JABER:
Yeah, yeah. I knew I messed up that song.
A.J. ROHDE:
Exactly.
GEORGE JABER:
Steve your favorite saying? and I think I know what it is, but I want to see if I'm right.
STEVE MCGOUGH:
Win the morning, win the day.
GEORGE JABER:
Yeah, yeah, yeah.
STEVE MCGOUGH:
I’m just an early riser. I just have this. I do better with routines and I do better when I'm up early in the morning and just seems to make my day go better.
A.J. ROHDE:
Yeah. Yeah, we agree. We agree. Okay. All right. Well, now that we know El Jefe, nickname El Jefe, is in the studio with us, I want to thank you so much, Buddy four, for being here for doing this with us. You truly are a world-class friend, operator, business partner. We really think the world and we could not ask for more. We're so happy you joined us here today. So, thanks for joining me. and George, it was fun for us to do this together.
[MUSIC IN]
A.J. ROHDE:
And so to learn more about HCSS, visit hcss.com please. And we'll be back next week with a brand new episode. Thank you, everyone.
GEORGE JABER:
Thanks, everyone.
STEVE MCGOUGH:
Thanks.
[MUSIC OUT]
DISCLAIMER:
Certain statements about Thoma Bravo made by portfolio company executives are intended to illustrate Thoma Bravo's business relationship with such persons rather than Thoma Bravo's capabilities or expertise with respect to investment advisory services. Portfolio company executives were not compensated in connection with their podcast participation, although they generally receive compensation and investment opportunities in connection with their portfolio company roles and in certain cases are also owners of portfolio companies, securities and or investors in Thoma Bravo Funds. Such compensation and investments subject podcast participants to potential conflicts of interest.
