TOP CEO: Direct Digital Holdings - 'The Battle for Balance' (With Mark Walker)

Ben Kaplan  00:00

Hey, this is TOP CEO the show about CEOs making tough decisions featuring CEOs from startups, scale ups and fortune 500 enterprises. TOP CEO is a business school case study, telling the story behind the story, and what you can learn from it from those who have faced the fire. And come out the other side. Welcome to the TOP CEO podcast.

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Mark Walker - DDH  00:33

So when we looked at should we stay private? Or should we go public, my business partner and I looked at those scenarios and said, Imagine

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Tom Cain  00:40

you're the CEO of Direct Digital Holdings, a company that's a master at connecting advertisers with the right people, your speciality, understanding different cultures and communities. And using that knowledge to make advertising more effective and personal. Your business model, a seamless fusion of technology and strategy that bridges brands, with communities, fostering diversity and supporting growth. We

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Mark Walker - DDH  01:09

knew that the following year with 2022 performance was going to be stellar.

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Tom Cain  01:14

But as the head of this innovative company, you face challenges that would make others quick.

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Mark Walker - DDH  01:20

You know, we're smart guys, we can figure it out. Let's look at taking the company public ourselves.

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Tom Cain  01:25

You want to take this company public, but fate has other plans.

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01:30

It began on the night of February 23. A special military operation for assault is unfolding across Ukraine

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01:37

unprovoked invasion of Ukraine, there are reports of noises being heard that could be explosions.

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Mark Walker - DDH  01:42

So Putin decides to attack Ukraine, the day we decide to go public. So you can only imagine the public markets were in complete and total turmoil at that time.

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Tom Cain  01:54

You face advisors doubting the timing of your IPO, a delicate equilibrium between profitability and growth. In tandem, you gaze upon the challenge of understanding and appealing to diverse audiences. And sticking to your unique plan despite doubts and pressures are typically

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Mark Walker - DDH  02:11

you see the stocks, bikes to ungodly numbers, ours actually went down

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Tom Cain  02:17

these challenges define your daily life, but they also shape your success. Will you take the company public despite world events? Can you balance growth and profitability? Can you stay committed to your cause? This is the story of Mark Walker, CEO of Direct Digital Holdings. And this is The Battle for Balance.

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Ben Kaplan  02:43

Mark, I think one thing that's interesting about your story and your decision on whether or not to go public and all of the factors in that. It's an interesting entrepreneurial one, because it starts out with you want to raise money to grow, but you want to retain control of the company. So talk about that tug of war, because sometimes those things are opposed. No, absolutely.

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Mark Walker - DDH  03:09

And I appreciate you having us on here today to give you a little bit of background of kind of the quandary we were in and how we came to that solution. When we first started understanding, you know, our platform and also wanting to grow in understanding that we needed to continue to raise capital to do that, at that top point I'm you, you're always looking at a myriad of options. And the typical ones that most companies will look and most CEOs will look at are, you know, should we look at the private equity route or the BC route, we definitely knew that we had opportunities to go that route to raise capital. But what we also saw was, if we were to go that route, because we felt like our value prop was a lot different. And just to give, you know, the viewers a little bit of colour, our company Direct Digital Holdings, we were founded in 2018. And in 2018, we are a programmatic ad tech platform that leverages technology to buy and sell media. What's interesting about our platform it makes us a little bit more unique is that we sit on two parts of the value chain. We have a biocide platform, we work directly with about 250 300 different clients and customers directly helping them by media. But then we also have the sell side platform, which is actually our Colossus SSP. And it actually helps publication sell media focused on multicultural audiences as well as general market audiences in the fact that we had two different platforms that underneath one umbrella, and it sat on two parts of the value chain gave us a very unique value prop. And so when we looked at Should we go private? Should we stay private? Or should we get VC money to grow or private equity money to grow? Or should we go public? We knew that if we weren't the private equity or the VC route, and we will lose control of the entity, but also we knew that our economic thesis of having a buy side platform and a sell side platform under one umbrella and leveraging technology to buy and sell media, we need that the private equity of the VC firm would either split us apart, or the other option that they would do is put money into us have us work, and then flip us to go public anyway, so they could get their accent. So my business partner, and I looked at those scenarios and said, like, you know, we're smart guys, we could figure it out. Let's look at taking the company public ourselves, and actually go the public route, and grow in the public entity, as well as let private investors through the public market invest in us and sit in a typical seat of a private equity firm or VC firm. And that was the path that we decided to choose, which was non traditional. It's typically how companies back in the 60s and 70s, would actually do to try to raise capital, it was the path we thought was best for us. And so it allowed us to maintain control of the entity, maintain control of the equity, allow a public investors to sit in a typical seat that a private equity or VC firm would, and let us grow in the public market. What

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Ben Kaplan  06:03

is interesting, and we'll get the sort of the challenges and the obstacles that present themselves is the timing of this, because we're talking about end of 22, beginning of 2021. I think you're thinking about this. And obviously people know that point in recent history is like hardcore pandemic, where we're coming to realise that this isn't just a little thing. This is a big thing. By that point. We know that lots of uncertainty around this, including uncertainty around the markets themselves and are things are drying up. And there's about to have, we'll get to in a second. But other geopolitical events are about to be on the horizon. We don't know about it yet. So what was the thinking at that point? Between timing in all of this, right? Generally, you're an entrepreneur and you're like, hey, you know, we want to ride a wave, we want the winds that are back winds don't seem at our back, probably coming at us a bit, or if they're swirling, and we don't know where they're gonna go at this point.

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Mark Walker - DDH  06:57

You're absolutely right. When we started, the process, ended 20/21 2021 Actually, we had the wind at our back, a couple of our competitors started going public, the valuations were definitely favourable, and things were looking up and up. And then the market at that time coming out of COVID, especially in the ad tech space was bidding, kind of the digital revolution, it was really the culmination of, you know, 1020 years of work, where companies definitely seen the value of having a digital presence. So that was definitely coming into where we started the process. By mid through 2021. Like you said, the wind started swirling, the valuation started coming down. But at this point, we are already, you know, well within the process of IPO. And then there's a lot of heavy lifting that you have to do on the front end on trying to get your 8k Finished. And, you know, working with the SEC, working with attorneys working with investment bankers, but you have a

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Ben Kaplan  07:52

lot invested because one, you had to get your whole team to have this big event, you got to get them lined up to you got to get your finances in order. And there has to be audits and people have to sign off on highly regulated process and you're in there. And valuations are starting to dip things are swirling. So what is your thought process at this point? Is it just we soldier on? Because this is our thesis? And we're still going or at that point? Are you getting advice the baby pull back? Or where are you at that point,

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Mark Walker - DDH  08:22

probably by the end of cute by the middle the end of q3, we started getting the winds to start slowing down. Our some of our investment bank advisors at that time felt like, Hey, we should slow down, we decided to continue to push through because we felt like as long as we could get a window to actually execute before Christmas, we thought, even evaluations that come down and the markets were starting to change. And there was a little bit of hesitancy, we felt like because of our economic thesis because of our company performance, we should be fine. So we kept soldiering on, even though at that time, we were starting to get some headwinds to slow down. And addition, you know, being an entrepreneur and the fact that, you know, my business partner and I, we felt like sitting in a position of having a majority control made a lot more sense for us. We also felt like we knew that the following year, we felt like 2022 performance was going to be stellar. So we felt like there was no better time for us to go public than when we knew our company performance was going to be as strong as it was.

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Ben Kaplan  09:23

So it's counterbalancing meaning you have factors outside your control like macro economic factors that maybe are not ideal or as good as they were previously. But your company's in a good size counterbalanced by that that you have things coming up and you felt that would support the effort at the timing now,

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Mark Walker - DDH  09:39

that's exactly the so even though we knew that the macroeconomic winds were gonna might be tough. We felt like our internal business and we felt very bullish about how our business was going to perform. And I saw it as an opportunity, one to gain more credibility in the marketplace by being publicly traded, but number two, opportunity for us to really try to capture more market Share by the fact that we would have a strong balance sheet strong capital position, or capital stack would have been very nice. So we felt like even if 2022 was going to be a rough year for the market, we felt like our company performance can outperform it, as well as give us really the kind of leg up for us to have a positive 2023. And subsequently a 2024.

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Ben Kaplan  10:21

If you enjoy this show, you'll love TOP CMO with me, Ben Kaplan, has never been a better chance

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Tom Cain  10:29

of opportunity to do that.

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10:31

I would definitely encourage marketers to be engaged in the product development process, because you're banking, your truck

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Ben Kaplan  10:37

brands, great moments, but it's the great brands that crave movements. And that's the spirit of justice. This is the podcast where we go around the globe to interview marketing leaders from the world's biggest brands, fastest growing companies and most disruptive startups available wherever you get your podcasts. One of the issues on valuation, as we sort of continue the story is that maybe a good analogue would be if any of our listeners has ever purchased a house or sold a house. What I mean by that is you look for comps or comparisons, right? You're like, Okay, in this neighbourhood, I got the same number of bedrooms and the same number of bathrooms and a similar vantage point on the streets. And it went for X price, therefore ours is going to be why because we have these differences. The issue overall too, with the market is what's happening in the ad tech space overall. And are there comps? And did you feel like you had that? Or do you feel like, we have to like almost tell the story that we're so unique and singular, because how we're structured some of the special things we do that we're just not going to have great comps, we need people to like do this more on faith are our core financials as opposed to someone else's financials they're comparing us to Yeah,

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Mark Walker - DDH  11:53

that is twofold. I mean, you're always gonna get compared against your competitors. And and now that we're a publicly traded company, I can't talk about, you know, our valuation in the marketplace. But what I can say is, you're always evaluated against several competitors in your performance against that for our own company. And at the time, when we decided to do the IPO, we actually felt like we had a strong financial position in the marketplace, that we felt like that would overcome any kind of negative downtrend as a relates to the comps of when we went public back in the early 2020, to February. So again, weighing the macro versus the micro. And understanding kind of where we were going to be positioned as a company really helped us to kind of fight against some of those headwinds, and also be able to communicate the story of financial performance. Even though we felt like you know, the first part of the year might be bumpy as a relates to the macro economic trends, we felt like our company performance will be able to start telling a positive story. That's really, really the focus of what we have tried to do, which is focus on the fundamentals. So we felt like with sound fundamentals, that will help us get a positive story out into the marketplace. You

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Ben Kaplan  13:08

mentioned the unique side of this sort of buy side and sell side that you had kind of both marketplaces in the space. But also, do you think was it a factor at all the fact that you paid special attention to media that can reach multicultural audiences or multicultural media? Is it the fact that you're? And I know you discovered later that, wow, there are there hasn't been enough black owned companies IPO? And I think he is maybe we're the ninth overall. But does that factor give you a special market in any way just to differentiate yourself? Because sometimes multicultural media is thought of this, like, other lane over here that not a lot of people pay attention to. But do you think that you paid attention that maybe was another unique factor? Yeah, I

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Mark Walker - DDH  13:51

think I think we had a couple of unique factors, I worked our vintage one, financially sound conservatively run organisation mean being

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Ben Kaplan  13:58

profitable, meaning you're not just like growing at all costs, you're actually making American currency. We

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Mark Walker - DDH  14:04

are creating positive EBIT a positive net income, and we've been growing 100 plus percent year over year growth, not too many companies are going to fall within that domain. If you're looking for growth companies out in the marketplace. That was number one. Number two, we're the two markets that we have been going after on the buy side of our business. We focus on middle market competence as five to $500 million in top line revenue, with a significant portion of those being in the education space, energy space and what we call the destination marketing organisations or public private partnerships that drive tourism dollars into certain regions. Those are the three criteria that we focus in on for the middle market. We knew that that market, whether if companies took an economic downturn, because we're focused on the middle market, we saw that we had a really diversified approach specially servicing roughly 250 clients on that side, an opportunity to grow that side. Business at a profitable and predictable rate of 10 to 20%. Year over year was our sell side platform focused on multicultural audiences, as well as the general market that we knew was the real opportunity. And the reason why is based on the 2020 census, 40% of the United States is actually geared towards multicultural audiences, that is African American, Asian American, LBGT Q community, and Hispanic American and African American communities, we knew that if that represented 40%, only 5% of the marketing spend is actually geared towards those audiences, the forward outlook is eventually that's going to have to get to 40% of the US of the market experience is going to have to match the population. And so we felt like back in 2018, if we made a focus in a drive towards capturing that much of the publications and eyeballs in those marketplaces, and bring him to the programmatic ecosystem, then in the long run, it would pay off as our economic thesis. So

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15:59

if we propel this further along, I mean, we're we're kind of mid 2021, we're moving along towards the eventual IPO, which I believe was in February 2020. To take us through the the end of that year, because there's other things happening, breaking out. And did you at all get any other advice? Because I think what's interesting about your decisions, as chairman and CEO is kind of stay the course, stay the course, stay the course. But there's a lot of things going on. And at what point were advisors and others who are experts in IP in your ear, saying, Are you sure? Are you sure? We shouldn't? At what point are you all in and we are staying the course because we believe in what we're doing. And we believe in tuning out the noise and focusing on the signal and the signal comes from us. Yeah,

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Mark Walker - DDH  16:44

I mean, starting in December, you know, some of our advisors, you know, we're definitely pushing us to wait, you know, there's no, no stretch of the imagination, you know, that that was part of the conversation. And some of our advisors felt like it would be best for us not to go to market or to take a different type of valuation. And my business partner and I, we knew that our company was economically sound, we knew we had a very good growth trajectory in front of us. And we felt like we were in a strong enough position than any company, because the truth of it is, is we didn't need an exit at that time. We were profitable, we had good growth trajectory, we're flowing good cash flow. So it's not like other companies, hey, if we don't IPO now, we're never, we're not going to get out there, we made a calculated decision to stay the course. Because what we kept seeing was, our performance will eventually pay itself out. And being public and having access to the public market capital, if needed, will actually afford us a lot more latitude and flexibility that will be protective, from dilution for the overall organisation. So for us, we still looked at the long term play, and why we wanted to go public in when we ran that hypothesis, it still rang true even in December, even though for us, a lot of our advisors felt like it might be more prudent for us not to go public at that time, when I will say is because we have historically done things in a non traditional way. It really paid off for us. And so we were happy to go down this path. And my business partner and I, we look at a lot of different scenarios. But we kept running the hypothesis because we went public or even started this process with a different hypothesis and different economic thesis. It really paid for us to keep stay the course because we were structured differently than other companies that have normally been in our position.

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Tom Cain  18:45

The year was mid 2021, and the decision to go public was riddled with complexities. Challenge one advisors were pushing to wait, doubting the timing of the IPO opinions were split and pressure was mounting challenge to the need to maintain a delicate equilibrium between profitability and growth. Would they grow at all costs, or remain financially sound? Challenge the mission to capture the multicultural market, a segment often overlooked, but representing 40% of the United States a daunting task, but one they felt could redefine their place in the market. As the clock ticked, their unique approach and non traditional stance was questioned, doubts arose. Advisors wavered. But they remained steadfast. Their belief in their economic soundness, unwavering even as their challenges loomed large. So what was the resolution for Mark and his team? Let's find out as we unravel the next chapter of TOP CEO have

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Ben Kaplan  20:04

to bring it through the story all the way through. You get to February, the actual day, you're gonna go public that Friday when Putin decides but not Friday, and something else happens in the world on that Friday that that is unforeseen and affects world history. And what is that? And then what happens? Yeah, so

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Mark Walker - DDH  20:22

Putin decides to attack Ukraine, the day we decide to go public. So you can only imagine the public markets were in complete and total turmoil. Literally on the day that we decide to IPO, you know, 200,000 troops were piled up along the border out all while we're going through this process. And you know, the sabre rattling that started turning real in the day we go public is the day that Putin decided to attack. So I have to say, What's the best market IPO performance? Where typically you see the you know, the stock's bikes to ungodly numbers, ours actually went down. And it's been a, you know, a fight ever since. However, because of the position we sit in, we knew that we were going to grow the public market. And, you know, you could look at our company's financial performance in comparison to our peers. Yeah, I would say we're definitely on par. But I think that's been because of company performance. Well,

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Ben Kaplan  21:17

and so as a public company, I mean, you go there, there's major geopolitical events when you go public, but you feel confident in your decision. There's a lot of factors, not just that, but there's a lot of uncertainty about are we in recession, recession, absolutely impacts ad buying is going to impact your business, there's factors outside of control, it's going to impact your top line revenue, of course, how do you start, then thinking about and adjusting to being a public company, because I'm interested in this kind of the next chapter for you, because you start on this path, because you want to retain control. And it gives you a way to raise capital and retain control. And in some ways, if you talk to CEOs, you know, they have VC investors or private equity, and they don't have control. It sometimes feels like if you talk to someone, it's like working for someone else. And sometimes when you start your own company, you maybe did that. So you wouldn't be working for someone else. And suddenly you take investment money and does but public markets, different animal also, right? Because now, certain things that you could do before, you can't really do there's a certain amount of discipline you have to do. There's regulation, of course. So how does that affect your story, how you think about things a CEO adapting to life as a public company?

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Mark Walker - DDH  22:27

Yeah, when you adapt to a public company, you do have, it's not like you're working just for yourself, you're working for public stakeholders. But but the way that we look at is our interests are directly aligned with our other stakeholders and our other shareholders that are in the marketplace. The reason why they're aligned is because my business partner, and I own the majority of the publicly traded stock, but then also the investors who come in for the other 20%, as shareholders, they're in alignment is just the same. But the good news is with the board that we actually have in place, they provide a significant amount of experience and guidance and advice, um, to help us navigate through the public markets. Yes, there's definitely a lot more bureaucracy that you have to put in place. I can't say the professional fees are a lot less being private versus being public, and actually a lot more. But there are good controls that you put in place and governance that you put in place, and make sure you're building a company that's built for the future and built to last. So we view it as you know, there's good best practices that we'll get to put in, that's a lot different from us being private, for us being public. And we think it gives us a lot more credibility, transparency and accountability by being public. So does it require more work on my part and my business partners part? Absolutely. Are there more professional fees? Absolutely. But I think there's the pros actually outweigh the cons of being public?

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Ben Kaplan  23:55

And what is your advice for others who are maybe thinking about going public, the ones that are in a similar situation to yourself, or maybe not the typical company that you expect that public was not doing it for an exit? You're doing it from, like you said, growth reasons? How would you advise to weigh your options?

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Mark Walker - DDH  24:15

I would say, you know, I kind of believe that you look at Silicon Valley now, there's been a whole reset of how VC firms and private equity firms are looking at companies, the days of unbridled growth at the sake of cash burn, and for just market share alone. I think those days are over. I think if you're running a conservative, smart company that's profitable or that's flowing cash flow, and you still have a healthy growth rate. I think there's other alternatives for you to look at. To try to raise capital direct lenders. We work directly with some of them with non dilutive capital that they can provide to the equation especially if you're flowing cash. But I also think the public markets is something I would take into consideration, it's not cheap, I will tell you that no stretch of the imagination is cheap. But I would tell you that it's also an option to look at, especially if you bring to the marketplace, a unique value prop that might not necessarily be understood fully from a private equity or VC firm. I think there are other options out there. They're non traditional, but I definitely think they're worth exploration. That'd be my advice to many entrepreneurs out there.

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25:28

And for you, what additional skills have you had to gain? As a public company? Personally, as leader of the company? Have you had to think about leadership differently? Have you had to acquire other skills that maybe you didn't think about before?

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Mark Walker - DDH  25:45

Yeah, absolutely. I mean, your risk management skills start, you start percolating those very quickly, around risk management, your HR skills have to pick up your marketing, PR investor relations, all those pieces, you find yourself every day and multiple conversations where you're just constantly switching hats. That's the one thing that I will say that stepping in the CEO spot, specifically a publicly traded company, the days of me just being an operator kind of over, I am an operator for 60% of my time, but 40% I'm actually dealing with public company, issues where Dylaney the work of board, I'm dealing with risk management, I'm dealing with accounting of finance, I'm dealing with lawyers, dealing with HR, you're kind of touching all those different places, all for different reasons. And in being a public company, you just wearing a lot more hats, and in, you know, different conversations that you normally wouldn't be. If you're just an operator,

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26:44

is that a challenge to focus your time and put first things first and let the inbox for the day dictate what you need to do versus the vision or path? How do you balance all of that.

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Mark Walker - DDH  26:58

So some of it is firefighting, if you will. The other part is making sure you're judicious and have touch points to make sure the business is doing what it does. You know, being an entrepreneur being an operator, you always enjoy the business side of it versus the administrative side. So make sure that you are able to keep a pulse on the organization's when the most critical things and and that's one of the things I think as an organisation would do very well.

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Tom Cain  27:24

On the very day of going public, a world event sent shockwaves through the financial market, the Russian

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27:31

President Vladimir Putin has launched a major military operation against Ukraine.

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27:36

Across the country, Ukrainians woke to explosions lighting up the dawn sky. Stocks

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Tom Cain  27:41

plummeted. A dream IPO turned into a nightmare. The papers signed the company poised for public triumph, that feat had other plans.

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27:56

tensions between Russia and Ukraine appear to be having a negative effect on US markets with nervous investors dumping stocks, adapting

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Tom Cain  28:04

to a new public reality, regulations, scrutiny, professional fees, and endless hats to where Mark Walker and his business partner were undaunted. They embrace the transformation, finding alignment with stakeholders implementing governance and navigating through uncharted territories. With challenges met and wisdom gained, their journey was far from over. The pros outweigh the cons. The Vision remained unshaken. But let's find out what the future holds and where Mark aims to steer the ship.

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Ben Kaplan  28:49

Finally, how do you then manage what your next two or three or five years look alike with different forces that focus you on different things meaning there's a certain amount of focus for the next earnings call. There's a certain amount of focus that causes you to think about short term thinking because public markets think about what your prospects look like in the near term. How do you try to balance that overall with longer term thinking and hack? Maybe it's something you know if part of your story is staying the course and staying the course of what your vision is? How do you stay the course on things where the public markets might not agree? They might think that's not a good idea. But you believe it is? You

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Mark Walker - DDH  29:27

know, it's twofold, right? It's making sure that you have good people in place to take care of the day to day in the week to week in the month to month view. But it's also being able to ensure that we as a company are maintaining that vision of where we're trying to get to. And you know, I would say the next three years, we look at our organisation in three year increments just because technology changes every day. And it changes pretty fast. And you know, you're trying to make sure you're navigating the left in the right turns all the time. And so that's one of the things that you try to do is set a three year view vision, but then make sure you have the right people in place to make sure that they're able to drive it and get it there in. So it's being able to manage the duality of both. That makes this a delicate balance. But our team has been able to do a very successful and a good job on it. Final

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Ben Kaplan  30:15

question. What is do you think the superpower that you draw upon most as CEO, the thing that most contributes that you're able to do that determines your success? And what is the superpower you'd like to have to get your company to the next phase? Yeah,

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Mark Walker - DDH  30:29

it's the big thing that we push internally is one is service. We believe we're providing service to our clients of service to our customers to try to drive incremental value and an incremental dollar into their organisation. So I view it as my job and my leadership's job is to make sure I'm servicing the people that are touching the front lines of our clients and customers on a daily basis and trying to remove boulders out to make their jobs a little bit easier. So what I try to instil on to our leadership team is, hey, you're in service to everyone who works for this organisation. As type of leadership that we implement inside of our organisation. We think that it serves well because if, if I'm serving my employees to make sure that they're able to accomplish what they can, then they're able to service our clients the way that they need to, in order to deliver value for our customers. And that's if you ask me what the superpower is, is service.

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Tom Cain  31:28

faced with the daunting challenge of an IPO strategy, Mark story unveils the tale of assessment, belief and decisive action. The maze of conflicting advice was intense, the resolution, it's about knowing your company's worth. Evaluating the landscape and taking the bold step when the time is right. Balancing growth and profitability, expand or save a question that echoes through the holes of every ambitious venture. The solution is a masterclass in equilibrium, find your rhythm between growth and fiscal discipline, and you won't just survive, you will thrive staying committed to their plan. The external pressures were enormous, the methods non traditional, but wavering was not an option. Stick to your vision and hold your course. And even the storms of doubt will lead to a haven of success. And with that, it's case closed

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Tom Cain  32:45

this was brought to you by TOP Thought Leader. Find out more at topthoughtleader.com

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