Conversations: Crystal Rutland, Who Founded Particle Design and Sold It to Wind River in 2021

Conversations After working inhouse at Intel, Crystal Rutland founded Empirical, and then Particle Design. The focus of the company was on meaningful innovation in emerging technology; the team worked with Samsung, Dreamworks and Hyperloop One. She sold Particle to Wind River after five years.

Tell me a little about the company you built.

I ran a UX-design agency. Our customers called us a mini IDEO. We did a lot of futures work; I came out of Intel and started my agency after I left Intel, and they were our first big customer. We worked with companies like Jaguar, Land Rover, and Samsung, doing concept-design work. For example, we would ask, “What is AI and computing going to look like for Intel’s chipset roadmap?” Or, “What would cars look like five years from now? What current technology that exists today, like AR, or AI, is going to influence how they are going to design their cars in the future?” We looked at the infotainment systems, and how the communication happens between the driver and the car.

When I sold the company, we were a small team. We’ve flexed up and down over the years, and at one point we were up to 32 or 33 people, maybe closer to 40, with regular contractors and stuff. But at the time of selling, we were like nine or ten people.

When we were small initially, even our clients who loved us were hesitant to give us large projects, because it would represent too much of our revenues. Once we were able to get bigger in size, we were able to take on more interesting large-scale projects. And then once I scaled back down, we already had a reputation for doing those larger programs. We basically became this boutique agency that was doing these huge projects, even though we weren’t very big. And that’s the stage we were in when we got acquired.

What was the culture of the company like before you sold it?

Our culture was very loose, very self-organized, self-driven. We never had account managers, or project managers, or anything like that. Everybody was a UX designer or a researcher, every single person except for the office manager or the finance person. Every person who was there was actually doing UX work. So each team member had to be very self-organized and self-driven. There were different levels of experience, but no hierarchy: it was completely flat. It was extremely collaborative.

I had an employee, and she wasn’t a great fit for the company. She was really bright and I really liked her a lot, but when we sat down for a one-on-one one day after I’d been running the company for five or six years, she said, “I just don’t understand who’s in charge. It’s very inefficient.” She was very frustrated with the way the process worked. And I was frozen, and thought, “Oh my God, who is in charge? I’m so irresponsible. How can I be running a company and not have an answer for her?”

I slept on it, and walked and thought for a couple days, and in our next one-on-one, I was like, “Okay, here’s the deal. This was a great question you asked me, and I’m going to tell you. The idea is in charge. Everything that you’re describing in the process might feel inefficient, but in the long run, it’s literally the most efficient way to move forward with the right designs.”

She left the company. But it was a really, really good crisis moment. The process can feel chaotic and it can feel inefficient, but it drives clarity rather than chaos. This wasn’t a culture for everybody, but it was a really important reflection of how culture starts with leadership. It was a very important reflection of how I work and live in the world and approach creativity. So we always hope to build an environment where the idea could be in charge, and the idea could take the lead and help us understand where we should go.

Why did you start to think about selling?

I was so exhausted. I was just done. I actually had been done for a while. I said to myself, “Okay, I’ve got this five-year plan. I don’t want to do this for five more years, but I could do it in order to get an exit.” So I knew that I was working towards an exit.

I just loved it, and there are so many things that I love about running a company. But I was just really tired. I had raised my son as a single mom, and when he was in high school, I started the agency thinking that by the time he graduated and was done with college, I would exit.

It’s a lot of work building a company, so you want to get something out of it. You hope that it leads to being able to do something else interesting afterwards. I didn’t want to think, “I put all that effort in it, and for what? I’m just going to walk away and build something else again?” Building something is fucking hard. It’s really hard. When we were up to 30 to 40 people, it was awesome because it just became like an engine that was sustaining itself. But the numbers were also so big at that time that it became scary.

What was the hardest part?

Business development. It was very exhausting being responsible for all of those salaries. There was a point at which, when we were up to a really big company, our overhead was like $350k to $400K a month. It was so expensive that, if some transitions happened with our customers and there would be a falloff, it would be like, “Well, shit.” When your overhead is that much, you can flip underwater really fast. It’s what made me want to scale back.

I always felt like I was on a razor’s edge. With four-to-six months of bad management, I could go underwater. I could flip this thing underwater in a way that I could never recover in my personal life. I could never make that kind of money to get out of the kind of debt that it would be. I was personally guaranteeing almost everything, because the bank wasn’t going to give me anything. So I was personally guaranteeing my property against the business.

I’ve worked my whole life; I’m a single mom, and I was very poor growing up. It was a Herculean effort for me to get from where I started to where I am now. And the idea that I would’ve asked my family to sacrifice for all those years, and then I would be not only bankrupt, but in a hole that took me years to get out of; that was unacceptable to me.

It just became really scary. If at some point I could’ve transitioned to where the business wasn’t tied to my personal finances, then maybe it would’ve been fine.

I always wanted to have cash flow four months out. I had a line of credit; I would have a three-month runway with no debt, and then a couple months after that with debt. But I was never, ever more than six months away from just total collapse, ever. Even at the $400K-a-month point.

Because even though I had big clients, it was like they were still on quarterly and annual-budget cycles. Nobody was signing me a two-year contract. I would have a client for two, three years constantly, and most of my clients just kept going. I had very little client turnover for the most part. But still, you don’t know. If all of a sudden they get hit with a budget crunch… I had a lot of contracts that were mostly renewed quarterly, but they could also just get dropped.

Tell me about what happened when you decided to sell the business.

I said, “Okay, I’m getting ready to sell this, I think.” I had a list, with first tier and second tier companies that could acquire us. I had three customers that I was working for regularly, and I had an interest in having them acquire us; that was my first-tier list. These were customers that I trusted and that I could say to, “Hey, I have something to tell you… here’s what I’m thinking of doing.” They were three people who I wanted to tell anyway, because we were doing really important work for them, and if they wanted to have us finish some things out, I wanted them to also just have the heads-up.

There was interest, and it became very clear that one particular customer became an early front-runner. Wind River, who acquired us, pulled out ahead.

How did they start to pull ahead?

Through the conversations, it became clear that we would be able to all go as a team. They were going to want us to retain some of our culture. I have a one-pager on our culture, and I supplied it to my executive sponsors at Wind River. The people who were in charge of their acquisition process were excited about that culture sheet, and told me, “We like this. We don’t want to hurt your culture when you come in.” Everyone says that, and I know there are mixed results, but the results have been pretty good.

When it became clear that you were going to pursue something with Wind River, what happened next?

We had two sponsors inside of the organization. They pitched it internally to their corporate development team; the Head of Corporate Development reached out, and that’s when the brass tacks started. Within three months of the initial conversation where I told my clients, “I’m looking to be acquired,” I was in conversations on brass tacks, maybe even sooner. Because they wanted to move really quickly. In the original conversation, they wanted to close within 90 days. It actually ended up taking eight and a half months. We really thought it was going to close sooner, because it was all agreed upon. But the back-and-forths, it just takes a long time.

How did you get to a number that you agreed upon so quickly?

I’m pretty sure I let them make an offer that I then replied to. I had a number in mind. And the way I arrived at the number that was going to be acceptable to me was basically one-and-a-half to two times EBITDA. EBITDA is pretty close to gross in my business because there’s not a lot of overhead. Most of my costs are labor, which is not accounted for in EBITDA. So basically it was one-and-a-half to two times gross revenue.

I arrived at that number by looking around online. I’m a service organization, not a product organization. My value is my people and their expertise, and you don’t really get a big return for that. Luckily for us, right before we started talking brass tacks, we happened to sign just a huge contract, the largest contract I’d ever signed by far with a customer. And it was a full year, not quarter by quarter.

Because it was longer term, it was a big-size contract and it had some degree of built-in stability. That looked really attractive to the buyer, because it signaled that “these people can pay for themselves, too, if they finish out this contract.”

In addition to the money in the transaction, we also discussed stock in their company. They were run by an investment company, and their company was likely going to sell to somebody else in a short time, within a few years after we were acquired. That was their stated goal: to find someone to acquire Wind River. And so the stock became important to think about because it might be worth something. I didn’t focus on that, because the stock would only be of value if they found a buyer, and who knows what price they’d find that at, right?

I was very lucky that Wind River actually did get acquired within a year of them acquiring us. So not only did all that stock actually end up paying out, but then there were new deals that were part of the acquisition that came to me and some members of my team.

In addition to the money and stock, what was really important to me was that the team was going to stay together, and that we were going to have a place inside this company. They were going to retain our brand, our website, our name, everything was going to be retained. And they did it. They still actually refer to us as Particle Design, even though we’re part of their company.

The culture part wasn’t in any of the paperwork. They said, “Well, we can run our company however we want. We’re not going to pre-commit to you. Once you get in here, we might decide we don’t want you all to be together. We can’t promise you that you’ll stay together. But we’re saying that is our intention.” It was one of the first parts of the conversations that I was having.

Before we selected Wind River, one of the potential buyers we were talking to almost certainly wasn’t going to bring us all in as a whole team. That immediately put them in last place. The team part was really important.

The other thing that was important to me was that the purchase price was not contingent on me staying with the company. They could give me extra bonuses and stuff to try to retain me, that was cool. But my price was my price. And if I got in there, and I hated it, and I wanted to leave, I was still going to get paid. That was also a really important negotiating point, and they were fine with that. They just put a clause in there that if I left without due cause, they could delay paying me for three years.

There was some penalty. They wanted some reason for me to stay. And I was like, “Okay, that’s fine.”

I also had to sign a pretty steep non-compete that I wouldn’t go to another agency, and that I wouldn’t go work for one of their competitors as a lead UX for five years. My lawyer told me, “That’s a pretty severe non-compete. I would go for three years, not five. I wouldn’t sign a five-year non-compete if I were you.” But I just went ahead and did it. I don’t know if I regret that or not. Five years is a long time. I would actually probably recommend that people take my lawyer’s advice and sign a shorter non-compete.

What other regrets do you have about the compensation package, or things you wished you had done differently?

I regretted the purchase price pretty quickly.

I thought, “Man, I really didn’t ask for enough.” I was a little too afraid of the deal not going through, because I was so tired. I was a little bit too fear-based. I was just exhausted.

All of this happened during COVID, and I was actually in Vietnam working on lockdown with a client that we had there. It was just a really very exhausting time. Just when the country was opening up here in the US, I went to Vietnam and they were just shutting down, because we were on different schedules of fighting COVID.

So imagine: I was trying to finalize the deal and I was trying to keep up on all the work, and on the heels of being in lockdown for 18 months, I went to a foreign country to be in lockdown there, and it was a much more severe lockdown.

It was just a lot. I was working from a little bit more of a fear-based place than I like to operate from. So I regretted that I didn’t push back harder on the price. Luckily for me, the company then got acquired, and all of the perks associated with that acquisition got me to where I wished I had been on the price, and now I’m just in a pretty good spot. But that’s a real luck thing. It’s a very unusual situation where you get acquired, and then who acquired you gets acquired. That’s very unusual.

How much more do you think you could have negotiated for up front?

Probably like 20–40% more. What we do is so unique, and it’s very difficult to express value when you’re a service company and it’s really based on your talent. But I think they would’ve gone with 25% more, without a doubt.

But I was just tired. I said, “I really want this deal to go through and I want to move into a new phase.”

I remember talking to someone who sold his company many years before I did. He told me, “Crystal, it’s not about your purchase price. It’s about your compensation, and your bonuses, and everything that the company wants after you get acquired. Almost everyone is disappointed with their purchase price. Because it just really isn’t that much at the end of the day. Once everything is factored in, once taxes and everything else is factored in, most people feel pretty flat. So make sure you’re negotiating your position, and your salary, and your benefits in the new company really well, because that is a part of your purchase price. You should just think of that as part of your purchase price.”

He had given me that advice many years before, and I was so far away from selling the company at that point that I was like, “Okay, whatever. That’s a privileged position.” But I found it in retrospect to be very true. And I was keeping it in mind when I was negotiating what my position would be in the new company.

Were the things like your new compensation and your title in writing in the contract you signed?

No, but it was in an attachment; it was like a Human Resources document. I don’t think it was even an addendum in the contract. I think it was just in a different document that was not signed, but that we agreed to. It was emailed to me that this was going to be the situation, and I remember being surprised by that. Titles and salaries—I don’t even think they were referenced. I just trusted them.

You mentioned the deal took a lot longer than the 90 days they originally intended. Once you had the negotiation part done, what took the most time to get the deal done?

We very quickly agreed on the price. We pretty quickly agreed on the other things. And it still just took forever. The negotiation was at least 100 or 150 hours, and maybe 35 or 40 conversations. It was a lot. And then they sent me a list that had all the documents they needed. My VP of Finance and Operations was the one who pulled it all together, and she probably spent a couple hundred hours on that, and then I probably spent a hundred hours. It was a lot of hours. It was so much time.

So they had this very huge Excel spreadsheet for corporate acquisition, for acquisitions. It was like 180 or 250 rows in this Excel document of things for us to fill out. A lot of them didn’t apply to us, they applied to other kinds of companies. But probably 60 or 70 of them were filled with things we needed to get to them. It was insane.

And then that looped back-and-forth a couple times, and we had to revise it. I kept asking “What is taking so long?” It would get to us, and our lawyers needed a week to review it and to get them a response, and then their lawyers needed a week or two to review it and to get us a response.” And then pretty soon it’s like five months later.

I was doing this from a hotel room in Vietnam. There was just a lot of fear of like, “Maybe this isn’t going to go through. It’s taking so long.”

Another thing that stretched out the timeline was that their board had to review everything. Originally, they didn’t approve the salaries that we requested for the team, because the new salaries represented too much of an uptick from what they were earning at Particle.

Particle was a really unique agency. We were doing really cool work, and all of our people were super senior. Almost all of the team took a significant pay cut to work for us, because the work we did was so cool and so interesting. There’s a reason our clients called us a mini IDEO; there are so few places to do the kind of work we were doing. We were competing against frog and other very large, very reputable agencies, and winning. We were doing cool shit, working with companies like Hyperloop to explore the future of transportation.

HR did get their salaries up to the very max of what the board would approve, but it was really hard for the board to understand that people would work for less at our company, and I had to argue why these salary upticks were important.

Are you glad you sold Particle?

My acquisition is a best-case scenario in many ways. Everybody at Wind River seemed very transparent. We felt like, “These are our people; they have a similar culture. Even though they’re really big, they have more of a startup culture. They seem to welcome people to talk.”

During the negotiations, my business partner and I were having a lot of conversations like, “What do we think it would be like to be in this culture?” We did a lot of due diligence before we even approached anyone for buying us, thinking, “What is that culture going to be like there?” We took our best guess at what the culture would be. We said, “We’re not going to sell to anyone—unless we get desperate—who doesn’t have a culture that seems similar enough.”

I was very clear on what I wanted out of the sale. It took some work to get to that clarity: a lot of walking, and meditating, and writing, and talking with my partner. It was very nice to have somebody else who I trusted involved.

And when we got into Wind River, it turned out that we were 100% correct. Our sponsors vowed to us that they would protect us once we got in, and I had a high-trust relationship with those sponsors. I had a meeting with their CEO well before I agreed to be acquired. We had a really, really great conversation. And after that conversation, which also took place in Vietnam in a hotel room over Zoom, I thought, “Yes, this is going to be good.” And it was, and it still is.

Do you have any advice for people considering selling their companies?

Yes; here are my “top 6 advice hits”:

  1. Get as clear as possible about what you want before you start the process of selling your company. What is most important to you? What will you not compromise on? What does my post-acquisition day to day look like?
  2. Make sure you have a great lawyer and financial advisor. Even though I had a lawyer and finance person, they were not the best and so I missed out on some important advice and was mostly alone in navigating the process.
  3. It isn’t just about the purchase price. Make sure you negotiate a good landing position and salary / bonus / stock package for yourself and your management team.
  4. If your culture is important to you, make sure you discuss it early and often. I sent our buyer an excerpt from our Employee Handbook which helped them understand our culture. I used it actively and intentionally to serve as a conversation starter and indicator of what it would be like to work with the senior management inside the acquiring company.
  5. If your team is important to you, protect them. Keep them at the center of conversations with the acquiring company. If you cannot agree on everything you want pre-acquisition (I could not), make sure you have frank conversations about what you will expect from HR post-acquisition.
  6. Get the highest title you can in the acquiring company. This will ensure you have the most control over your destiny post-purchase.