ET10- Building an 8 Figure Government Contracting Business
From Navy SEAL to Cyber Security Guru Eric Basu Has Had Quite A Ride
Today’s podcast is with my good friend Eric Basu who heads a large government contracting business he started from scratch while originally working on starting a biotech firm.
Eric and I discuss a lot about what is means to be an entrepreneur and how there are no shortage of ideas to pursue and businesses to spot if you are in the right mindset and ready to pursue the goal of being your own boss. Not everyone is built to do it but if you are and it’s what is inside you then you really can’t fail as long as you don’t give up trying.
Although we didn’t talk about it much, I imagine many of the qualities that made Eric able to become a Navy SEAL are the same ones that allow him to start a business and see if through good times and bad. But you don’t have to be as physically tough as a SEAL obviously to start a business but it definitely does help to have a similar “never say die” attitude. Entrepreneurship is not the easy route and it won’t always be fun but is it extremely rewarding and one of the only sure paths to financial freedom that is literally open to anyone.
I always enjoy talking with Eric and have a lot of respect for what he has accomplished. You can reach him by email here if you like or check out his blog on Forbes.
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Matt: Alright. Well, my guest on today’s episode is actually a longtime friend of mine and a serial entrepreneur. Somebody that I admire and have known for a long time of work with and just constantly impressed by the cool things that he’s been able to do. Eric Basu is the founder of Sentek. There are actually a few different divisions of Sentek which he can share with us. Thanks for taking the time to be on today, Eric. Just back up a little bit. Tell us how you got started and kind of where you’ve gotten to today.
Eric: Thanks for that kind of intro, Matt. That’s pretty kind of you. I started off undergraduate degree of Molecular Biology. Wanted to originally get my PhD go on to oncological research. Got a wild hair. In my senior year, I’ve decided to be a navy seal instead. Not parallel past. I did that for nine years at the duty. I got out. I went to co-work for a couple of companies, KPMPG Consulting and PricewaterhouseCoopers. Just trying to figure out what I really wanted to do. I wanted to do something challenging, difficult. Same things that [inaudible 0:05:02.1] with the same things that I want to do in a civilian world. I went to co-work for somebody else as a startup. I work for a man named, Bruce [inaudible], at a company called [inaudible], and it wasn’t Bruce’s startup. He had have 3 startups before that but he and severalentrepreneurs there, I watched these people and I thought, they at the end of the day look at the mirror, whether they’re not successful or not, it’s really on them. They don’t blame their boss. They don’t blame the economy. They don’t blame radian. They don’t come up with reasons why they didn’t succeed. That’s why their entrepreneurs. Someone is wealthier than someone but I thought I actually really liked that as a way to approach life. So I keep the idea. I think I’m gonna I start my own business. And then, I [inaudible 0:05:47.4]. I got an executive MBA. I just finished paying up student loans last week. It’s a great decision. The MBA gave me a lot of perspective. I spent in military which has really nothing to do with business and it gave me a business perspective and then I started the company Sentek Consulting. The reason I started [inaudible 0:06:16.1] in biotech in knowledge systems in biotech companies because my undergraduate degree is molecular biology. And while I worked for KPMPG Consulting and PricewaterhouseCoopers, I worked on some knowledge systems and portions of those. My first beginning venture, I had no idea how hard it was to sell return investment for a knowledge management system. Also, to do anything in biotech industry, you really need a PhD to have credibility. I start about 7 to 9 months. My wife at that time didn’t work. My kids are in private school. I was paying mortgage by doing individual IT consulting gigs for a couple of thousands here and 15 hundred there. The company that I worked for as a startup actually folded so I bought some of their servers and I would sell those on eBay. They are all getting buy in. Then I realized after few months, probably 6 or 7 months of this, I have to find an industry that was paying money or go find a job. So, I actually started focusing on defense contracting partially because I was a navy seal. I actually had the credibility to get in the door of most of the people who are from themilitary certainly court military. But then after that, the sale was up to me. So, I started working on that and it took probably another 4 or 5 months but I got the first contract for $70,000 and that built up my defense business, Sentek Consulting with DPA, to Business Sentek global to what it is right now. We ride around mid 30s and 30 million dollars per year on revenue. Around 150 to 160 employees fifteen years later.
Matt: That’s awesome. I think it’s interesting that I worked in [inaudible 0:08:00.1] too. That’s where Eric and I met. How many people came out of that company and went on to do their own thing? I think it in a way higher percentage wise than a typical company where most people go and get another job somewhere else. But for whatever reason, that company seemed to be full of entrepreneurial types who went on and did their own thing. Eric is one example. I’m another. There are quite a few other people who came out of that as well. You know. “I’m not gonna go get another job. I’m gonna go do my own thing.” We all sort of went on our different ways but a lot of us off to a very successful entrepreneurial career. I’m not sure how that was or what that was but that seemed to be the way it went.
Eric: Yeah. It’s funny. You and I have talked about this a little bit in the past. I think that there are people that are kind of nexicist. Anyway, nexicist are people that form a nucleus and people around them, they tend to spin of entrepreneurs. Bruce was the man I worked for. One of my closest friends, probably one of the smartest people I know just from the pure intellect stand point. Paper millionaire many times before that and the stock all went away but he has spoon off number of entrepreneurs as well. I mean, myself, he has been my mentor board of directors. I think that you interact with Bruce as well. Mark divine and then people from his current company go off and take over entrepreneurial ventures as well but I think some people, some of us kinda need to have a role model. You see somebody who does it. When you try to start your own business, there are always people that will tell you, 9 out of 10 people will tell you, you can’t do it. And there’s always a reason. Don’t give your statistics on people that fail or this or that or there are very realistic reasons. People loved to tell the story about how I barely made my mortgage while I was in a company running. Very few people actually want to do that themselves. Most people want to have a regular job so they know they’re gonna be able to keep a room for their kids heads and but seeing somebody who’s done it before, I think is often the inflection point for people to have that tendency when they say “I think here’s a way it can be done. Somebody who can help me taught me how to do it.”
Matt: Yeah. I think seeing other entrepreneurs be successful and how they operate, it takes some of the mystique out of it and gives you the idea that itreallyis something that is achievable for yourself or you get the idea that it is a possibility rather than just a pipe dream.there’s something that I want to talk about a little bit. It’s an experience you’ve had. When you started your company, it wasn’t just you, right? You’re the only owner now. But this is something I think a lot of entrepreneurs go through – the whole partner, who I will start with? Do I need partners? How partners work? What was your experience in deciding to take on partners or having partners when you started and how that sort of unfold as time went on?
Eric: That’s great question. I’ve actually written blog [inaudible 0:11:13.3]until. I started off just owning the company by myself and it defense I actually had 2 friends who are working in defense and we got together around the table and said “Lets all do this together!” because in defense industry if you’re an audio business, [inaudible 0:11:31.2] 51% but effectively we would have decision authority and sharing the profits 1/3, 1/3, 1/3. So for the past 6 months, myself and one other person came forward, we decided to do it. The third person just really kinda thought the radar would respond to anything. So we went ahead and did it and about maybe 6 months past that, we were doing around 6 hundred thousand a year in revenue. Not bad when we only have 2 employees. The third person came in and said “Hey! You know we are talking about 1/3. 1/3 I’m in.” our response was “That was back when there is more significant risk. We’re doing pretty well right now, we’ll bring you in but the equity is not gonna be 1/3 to what its gonna give you. You need to bring sales and all that.” It was one of all those lessons learned is- it’s one thing I’ve learned over the years is when people come to me and they want to be entrepreneurs, they talk about it, I’ll give them all the advice they want to as long as they can pull it for me. The reason for that is when I try to push people into it. The third partner, I kinda actually pushed him in because he was a friend and I thought it was some kinda of obligation to try to bring him into it. It’s never a good fit ever. And even people that im not trying to partner with them or anything; I just encourage them to do it. I found some of my friends stop talking to me after a while because they were very excited at the beginning and they decided they want to do it but they didn’t want to disappoint me by having – gotten all this information and then – being ruined for you to tell me. I’m actually scared to do it or I have reasons for not doing. I actually, I think it hurt some of my friendships. I say “Hey, you have to do this today” but they actually felt embarrassed because they didn’t do what they thought they was supposed to do. Now, whenever people ask, I still get ask with a regular basis “hey can you help me with this?” I said “as long as you come and ask me I’ll give you as much advice you want for free.” This is all great advice but I’m not gonna push you into anything. You choose to do it. You choose not to do it. Don’t look at me to be your personal life coach and who will push really hard to do this because if you don’t, the only way you’re gonna be successful as entrepreneur in my opinion is that you want it so badly that n your death bed, if you didn’t do this thing, you’d be kicking yourself as you pass to your next life. If you don’t want it too badly, go on.it’s America. There are plenty job opportunities that’ll pay you probably just as much money. You should go to one of those.
Matt: Yeah. No question. I think people have to be internally motivated I mean, it’s great to go and seek advice and it’s great to get help and have mentors but at the end of the day, you’ve got to be the one that wants it. You can’t be pushed into it or forced into it or coerced or whatever. You can, but I think those are the people that are gonna drop off that when it gets challenging, and it will, they are the ones that are gonna fall of and quit or walk away and that can create a lot more hard feelings and a lot more hardship than if they just realized upfront that “Maybe. I’m not just cut out for this and I pushed so hard in the first place.”
Eric: Yeah. I agree.
Matt: You had some partners and then you kinda pulled back and then over time I guess, you’re back to just being the single owner of Sentek, right?
Eric: I’m the single owner, yes. I bought us some line up partners. I went to a divorce over the period of time. Good lesson learned. If you are starting business in California, make sure that you have a sole exclusive property to your business or have your spouse sign up a release. The reason I say that even though it’s a very difficult thing is we talked about this to my partners for a number of times and we didn’t do it mainly because we didn’t want to have the uncomfortable situation. But that resulted to hundreds and thousands of dollars of legal fees vital to the company. There was a point actually in the company where everywhere we look at we said “we thought it was 50/50. The whole company is gonna go down.” You’re gonna remember, We’re small. We are 20 million dollar a year company. The larger companies are going down because of divorces and that’s probably – in community properties, lets say California, one of the most important things you can to is to have a buy and sell agreement. The buy and sell agreement doesn’t mean that you are screwing over your spouse. The buy and sell agreement means at the end of the divorce, you keep the whole thing out of family court and you have independent arbitrary – well, it could be arbitration but mediators – but common to the company. Once you entered in the family court, family court lords tend to be parasites. If they can force a liquidation of the business to get their bills paid, they will do that.
Matt: That is good advice. Anytime you go into a partnership, you should have a plan for a partner exiting or splitting things up and have a formal agreement on how that’s gonna work beforehand and if any of the partners is married, in order to protect the business, you got to take that into consideration too and you know not say it’s an uncomfortable conversation tohave because believe me if its uncomfortable to have when nothing’s wrong, imaging how uncomfortable its gonna be when everything wrong. Another, interesting thing that you did, you started your defense contracting business but then in the process or I guess it’s a segway from that; you also started a different security company, right? A personal protection and security type business in addition. So, what was that like? You’ve already got a full time business going. You’re growing. You’re getting contracts and you’re hiring people and then you decide to add additional company and grow that one. How did that come about and how did it turn out?
Eric: Yeah. That’s interesting. The entrepreneurs have something called entrepreneur EDT. You’re sitting there and somebody says “Hey! I got a business idea.” And entrepreneur responses who? I’m gonna go look at it. It’s really entrepreneurial EDT. It’s really hard to pass up a deal because you feel as an entrepreneur that you’ve been successful at things that most of the people wouldn’t be successful at and so you have a better eye for these things and you tend to want to look at more of them because you think you had a better chance. It’s like going to Vegas. If you never played blackjack, you probably not gonna lose a lot of money at the blackjack table if you just choose not to go there. But if you really feel like you’re an amateur card counter, you got a handle on this, you know all the deals and all that, you might go on there and lose 10 thousand or 20 thousand dollars. You go on there so, as an entrepreneur you feel like you can do this. We lose. You may lose a lot of money but what you tend to lose is your focus and I have advice that said “Figure out what you do really well as an entrepreneur that makes you money then make a lot of money at that. When you’re done, liquidate that or keep it going and take money from that and then reverse a things.” You have to have something that makes a lot of money first. The golden rule [inaudible 0:18:23.1] company, that’s still going. But I partnered with a gentleman from the entertainment industry and we put people night vision goggles and movie premiers to go ahead to go look for people who try to camcord it, pirate the movies via camcorder. That’s funny. You think in today’s that would be [inaudible 0:18:42.8]. But it still is apparently. We did that for about a year. I funded the company primarily through Sentek and after about a year, it just did complete differences with my business partner. Good guy. I really like him but he had different ways to run the business and he and I disagree. It’s one of the partners. So, he got the money person in. they bought myself and the other people I brought to the company out and we made a 150% PROFIT over about a year. It was a nice return of investment from the amount of money that we put in the company but it made us also realize, my advice is [inaudible 0:19:24.5] at the time. It’s present and what they’ll me in the future is that we have a business, go into one business at a time where you put your heart and sell into. There’s a point where you can get your business to certain point where it’s kicking off enough cash and you have a great managing team then, you can actually start to diverse but when you are starting a business, the business is pretty much driven by the entrepreneur. Making the idea, maybe something else, but I mean, if you are personally driving that, sometimes it feels like the sheer force of wealth, it’s not gonna go anywhere. So, the year I was running 2 companies, I really did not focus on my defense business enough.
Matt: Its definitely a challenge. I whole heartedly agree that as an entrepreneur, that’s really what’s in your DNA. It’s hard not to see opportunities. I mean, literally, everyday or virtually every day, I’ll come across something that I think “oh! That could be an interesting business.” Or “that looks like a market gap!” or “that’s sort of cool technology. I wonder what I could build with that” or “that’s an interesting business.” I constantly pull this way and that way with ideas and you have to keep saying No. that’s what I’m gonna do right now. What I’m gonna do right now, I’m gonna focus. I’m gonna just put that knowledge away somewhere, maybe I’ll come back to it. Maybe I won’t. Realistically, four of the five ideas or maybe more than that that I come across and I think the first blush might be good. On a little deeper dive, might not turn out to be good opportunities at all but it are very easy to get distracted and lose your focus. It’s always funny to me when you come across somebody who says “there are no good ideas out there.” Or “I love to be an entrepreneur but all the good ideas are taken. There’s no opportunity left.
I just go “what are you talking about?”
Eric: That’s funny. It’s like you standing in front of huge woods then somebody says “you know, I can’t see any trees here. All I can see is the forest.” Take that the analogy or the cliché backwards. Sometimes, people don’t even know what to look for. So, they assume there’s nothing out there.
Matt: Yeah. Or they imagine that somehow you’ve got to come up with this earth shatteringly new and different idea or invention. Something nobody’s ever heard of before when 99.9% of the businesses out there are just derivatives of other business with a little twist, a little tweak, something different but they’re essentially business that already exist. Their markets already exist. The man already exist you’re just delivering it a little different, a little better on a specific geographic area or whatever it is but you don’t have to come up with a brand new invention. Those are extremely rare. All you have to do is come up with something you want to do and deliver it really well to a specific market and you are in business.
Eric: I can’t even count the number of times I had people tell me you know, it’s exactly like what they told you, “I wish I could start a business but I don’t have some unique idea that nobody’s never had before.” I had some exact same conversation with people or people say alternatively “I had this great idea for business but I just look online and somebody is already doing that idea.” Facebook was not the first social media site. There was something called Friendster. There was something called MySpace. There are many many others before that. So, the first advantage is not necessarily any kind of advantage. Being the 3rd or 4th who does it better than the first one out there can make you, you know in the case of Facebook, one who just keeps the world.
Matt: Yeah. If you look around and you can’t find anybody else that’s doing what you’re doing or want to do, that itself might include that you found a market that doesn’t exist. You may be the only person that wants that or whatever that thing is. Nobody else out there cares about it. Having no competition is not the great benefit that some people imagine it is. Having competition means there somebody out there to beat because there are people buying and you can be the one that they buy from.
Eric: Right. Exactly. It’s a validation of the business if somebody is already doing it. But just because there’s somebody doing it, doesn’t mean they’re doing it as well as they can be and it doesn’t mean that the market is saturated. Another thing I tell people is micro businesses. I think everything else is called micro business that doing somewhere between 500 thousand or million dollars revenue. You can pretty much form a micro business sin any kind of industry. You don’t do something really stupid. If there are 5 garages in one street, you don’t open a 6th garage. But opening a garage or restaurant or lots of other things, if you do it intelligently and you do some market research, you can make yourself a great, class living with micro business. You’re doing about a million dollars a year. You’re netting maybe a hundred thousand a bet of profits. It’s a nice income that you can use to send your kids to college and set up your retirement.
Matt: Yeah and unlike a job that is an asset that you can sell or pass on. It’s not only providing you income but it’s adding to your balance sheet so there are a lot of benefits to doing that. I think that’s a clear path to entrepreneurship that’s neither difficult nor inaccessible in somebody who really wants to get into their own business, there’s literally nothing stopping you in this country which is one of the great things about this country.
Eric: Yeah I agree to that.
Matt: So where does – where do you go from here with Sentek? You’ve been in it for quite a while now. Is it something you continue to grow? Do you branch out? Do you look for liquidity maybe and move on to something else? What are your long term plans?
Eric: Great question. After Sentek gets to the point where I’ve got a very good management team, it takes many years to get here. To be honest with you, the way I got here was making a lot of awful mistakes. But I’ve got a fantastic management team right now that actually does a great job for the company. Let’s focus on other things. Defense business is good because they’re good long-term contracts. You’ll get a 5-year contract for millions and millions of dollars, the downside is the margins are very low. You’re in a danger if you are very careful about watching your margins. You have awful lot of revenue and low margins and you have trouble getting lines of credit. You really can’t do anything with it. One of the things we are looking to do is expanding, and we are doing this for the last 3 years now, expanding our cyber security which is one of the main things on the military side or the commercial center. We had a lot of success with that. For better or for worse, Cyber Security is growth industry. On the commercial side, we’ve been having a lot of success taking. The brand that we have on the military side which is military great cyber security and applying it to companies and more and more companies want that. I think everybody is afraid of getting hacked right now and what ramifications are of not just actually losing funds but losing customers and potentially being hit with regular sanctions and funds. Were doing a lot of that work. So the work industry is a project based. We’ll do a project here and a project there but the margins are much higher. It’s a different sort of model. One challenge I had – I always wondered why defense companies didn’t do more commercial work and I found one of the mistakes that I made over as we went into it, a lot of people who work in defense companies, they don’t even know how to approach the commercial work. They don’t understand the small term contracts. Literally, they have somebody who tries to put up a 50 page contract in place for a $10,000 project. It’s not – you work more time developing the contract than you will actually executing the project. There a whole bunch of things that my sales had changed. It’s taken about 3 years before we really start to really get some attraction on the commercial side now. I really enjoy it because it’s a little bit of different flavor. Commercial cyber security clients have different needs different requirements. [Inaudible 0:27:36.6] military has but just different. Balance in the 2 of those is something I really enjoy quite a bit. And there’s some point where we would split off to do it for other companies as well. I take one of them and run it and hire somebody to run the other company at that point.
Matt: I think people probably heard too many stories about the $400 screw driver and $5,000 toilet and whatever and imagine government contracting is pot of gold but it’s not the reality. There are so many rules and regulations and restrictions on things that – you may have big dollar contracts but to your point, you’ve got to manage them carefully in order to come out on the black of those. You have to do a fair amount of volume and you’re constantly competing for new bids in order to continue the work. It’s possible that you end up going on a dry street, losing out on a lot bids and all of a sudden you’ve got a whole lot of employees without a whole lot of work.
Eric: It’s exactly right. The regulatory environment in California is actually I think one of the worst. I looked at the statistics. In California, the bottom of 3 states to business. It’s funny it actually belong to an organization of small business owners. I just mentioned. I said, “you know, if you had any folks that are moving out of the city, we had about 3-4 business owners that moves out of state. Usually they go to Texas. Some go to Arizona. Some go to Nevada. Simply because of the environment. But if you take that and put defense contract and you got completely different regulations. On my worst days, it’s really frustrating. I remember that’s [inaudible 0:29:18.4] of our companies coming in. for the love of companies, I don’t do defense work. It’s just too hard. I probably have 5 additional people on my overhead staff more than I would have if I were defense contracting company just to comply with defense regulations. It’s one of those things but you get good at it, then you’re good at it. It’s just like any industry. You know how to do it. You can fall into routine for the future.
Matt: it’s definitely a barrier to entry but it’s also a giant pain in the neck. Well awesome, Eric. I appreciate you taking the time to share your knowledge and expertise. If anybody got questions or wants to follow up with you, do you have any points of contact that you want to put it out there for somebody that is able to get in touch with you?
Eric: I’m on email 27 hours a day. Its firstname.lastname@example.org
Matt: Nice. Okay. I’m not sure what all that echo bravo stuff is. But I’ll put a link on the show notes. I was not in the navy field at all. You went over my head there. Thanks again. I appreciate your time.
Eric: Thanks, Matt! This is fun.