Denali Advanced Integration CEO On Remaining Private, Passing On M&A

‘Private equity puts the founders or the owners under tremendous pressure to follow certain kinds of rules to make sure that the business is always operating at the highest possible level, and it doesn’t become a hobby,’ says Denali CEO Majdi Daher.

Denali: Another Definition Of Growth

Denali Advanced Integration in June will be celebrating its 30th anniversary, and has since become a global solution provider with a presence in 13 countries. However, unlike its peers, it has done so in the last few years with a focus on serving only the very largest enterprises. Denali CEO and Co-founder Majdi Daher, who claims he was only five years old when he formed the company with his two brothers, told CRN that the company built a business model that can manage the long sales cycles that are prevalent when dealing exclusively with Fortune 500 companies.

“You need to have no less than 5,000 or 10,000 employees for us to basically call you,” Daher said. “I know, it sounds arrogant, but our model is really built to go after very large enterprises. So no one customer has less than 12 to 15 contact points. You can’t do that with SMBs.”

That business model was built with no outside investment, and no private equity, as well as no acquisitions for at least 21 years, Daher said. But, as he said, it’s a model that works for Denali and may not work for everyone.

“Our organization, our strategy works for us and it’s not something I go preach to my friends and say, ‘You should do this,’” he said. “I never tell anybody they should do anything. People should run their business the way they see fit for their own business.”

There is a lot going on at Denali, and a lot of lessons to be learned. That is why this is the second part of a two-part Q&A CRN did with Daher. Check out the first in which Daher talks about the outlook for 2022 and why no single technology can be called a solution.

In its 30 years, has Denali Advanced Integration had any outside investment, or has it pretty much grown on its own?

We’re three brothers. The parent company of Denali is called 3MD. So it’s [Chairman and Co-founder] Mohamad Daher, Majdi Daher, and [Board Member and Co-founder] Mitch Daher. We’re the three MDs. But no, we’ve never had any outside investors, and that’s one of our big differentiations. We’re privately held. So we talk about sustainability instead of profitability. Nothing wrong with private equity-owned or public traded companies. Their metrics are uniquely different. We learn from that. So obviously we have financial discipline, we live for profitability, but we don’t look for quarterly returns if that makes any sense. So everything we do has a two- to three-year return. That’s a long-term investment. And that enables us to really partner with a customer, even some of the vendors. I remember [telco provider] Cradlepoint. We were one of its first customers. They had just got bought by Ericsson for a billion dollars. When we did business with them, they were a $40-million company. We took their solution--they make amazing technology--and we made it global. We created a channel for it and it was incredible. And that’s the advantage. I always say we need to be big, but we always need to behave small. Being private enables you to do that, to make decisions that in the long-term are for the customer instead of a decision that is dictated by how do I optimize my margin.

I asked about investment because we’ve noticed a lot of your channel peers are increasingly taking private equityand venture capital funding. Does that impact the competitiveness of the channel?

Yeah. Private equities are fantastic because they bring a discipline to a founder that they on their own don’t have the tools or the resources to be able to do. So private equity puts the founders or the owners under tremendous pressure to follow certain kinds of rules to make sure that the business is always operating at the highest possible level, and it doesn’t become a hobby. Because let’s face it, you get to a certain point in your life and you get bored or you made enough money, and you’re like, ‘Ah, I don’t care.’

With us, it’s a little bit unique because we have the kids. Not just the Daher kids. We’ve been around for 30 years. I have employees whose kids are in the business. I have customers whose kids are in the business. And it’s funny, I call ‘em kids like between the age of 25 and 35. They’re not kids. So the idea about building a multi-generational business is extremely exciting for us. And that’s kind of what keeps us going and why we adopt the financial discipline and why we adopt the things that a private equity-owned or a publicly traded company would operate under. However, not with the demanding margin that they do. So our margin is less normally than those organizations, but it’s done by design because we take that and we invest back in the business. We don’t take money out. We don’t do any of these things. The money stays in the business, and the business has been growing tremendously, organically. The last time we did an acquisition was in 2001. So all of the growth that we’ve been doing is organic. No acquisitions. We’re not buying revenue.

Given that your last acquisition was in 2001, does Denali have an M&A strategy? Or are you purposely staying away from acquisitions?

Acquisitions are interesting. People think companies are the only things people acquire. You’re forgetting you’re in the business of acquiring new customers. You’re in the business of recruiting and acquiring new talent and new people. You’re in the business of acquiring and building new technologies and offerings. So the reason, in my opinion, people go buy something is because they want to get to a market faster than they can do it themselves, whether it’s a talent pool, whether it’s a technology that they have, whether it’s a customer set. However, being private gives us the luxury to pick which way we want to go. In the last 15 years, we’ve been working very, very deliberately on building a technology portfolio and the right people to support that portfolio. And we didn’t really do much sales you know, from a customer acquisition perspective.

And in the last five years we started working on figuring out how do we work more with customers. And something that a lot of people might not know is, we don’t have a lot of customers. We adopted this idea about fewer but bigger customers. We have less than 100 customers. Twelve years ago, I had a thousand customers. That’s a big change. That was done by design. That means, if somebody tries to come and buy us, it’s a poison pill. Nobody would buy you if you have less than 100 customers, right? Like it’s too concentrated, too high risk, all these things. And again, it was done by design. So that’s one of the things that I described our organizations is we’re very deliberate.

Now I’m not saying we’re right and everybody else is wrong. What I’m saying is our strategy works for us. There are organizations who are significantly amazing. I admire these, all of my peers, and the channel itself is just amazing. However, our organization, our strategy works for us and it’s not something I go preach to my friends and say, ‘You should do this.’ I never tell anybody they should do anything. People should run their business the way they see fit for their own business. But for us, we’ve adopted this idea about fewer bigger. We depend on our portfolio to grow our business. And that’s why we have to have a specific type of customer and criteria to engage with. We cannot do business with SMBs. That’s not our business. That’s not our target. That’s not who we do business with. You need to have no less than 5,000 or 10,000 employees for us to basically call you. I know, it sounds arrogant, but our model is really built to go after very large enterprises. So no one customer has less than 12 to 15 contact points. You can’t do that with SMBs. So we’re very expensive to engage. Let’s put it out there.

It’s easy to imagine training new salespeople and telling them they need to get new customers, but not from that huge pool of smaller potential customers.

Yeah, we put ‘em through therapy for about three months and then we get ‘em going. But yeah, our goal is Fortune 500 customers. And like I told you, we have 100 customers, so we still have an opportunity for 400 more, at least. So we’re not in the business of not to gain a customer. We actually add somewhere between three to five customers a year, which doesn’t seem a lot. But those customers are the most difficult to recruit and bring in, and have the longest sales cycles. But definitely there is an effort to add customers the right way all the time, because if you’re not growing, you’re dying.

So how big is Denali? Could you talk a little bit about the revenue or employee count?

We’re privately held. ... We grew significantly in 2020. So in 2019 we were about $500 million. In 2020, we hit a billion, well, $950 million or something like this. And in 2021 we grew by about 50 percent.

Do you expect that kind of growth for 2022 as well?

It’d be nice, but that’s not our projection. [I believe] the world consumed more technology then companies actually needed the last two years because of fear. There was a lot of FOMO, fear of missing out, in enterprises. So people just overate technology and over-consumed technology in 2020 and 2021. And I truly think, from a technology consumption perspective, 2022 will see a slowdown compared to 2021, because people are going to try to figure out what the hell did they buy? What are we going to do with it? How we utilize it? So we’re expecting a little bit of a slowdown in 2022.

That FOMO, that fear of missing out, is the cloud maybe an area where people have over-purchased?

Well, not just cloud. I mean technology overall. Cloud is a little easier to pull back from, but I’m talking about physical hardware. Physical hardware consumption and capacity building, I truly believe, because our customers did it. And the customer sets that we have is an indication for the rest. They’re the cloud builders. I don’t want tell you who they are. [But] they’re Fortune 500. And they have consumed technology a lot, and literally they’re going to have to slow down just to inventory what on Earth did they buy. So we expect a slowdown. Our trajectory for 2022 is about 20 percent growth. Which is still big, if you think about it, but when you are growing at 60 to 100 percent clips, 20 percent seems like a small amount.

Today’s political environment is changing. Is there anything that you see coming out of Washington, D.C. that you think might impact how the channel does business in 2022 and beyond?

I promised I wasn’t going to go political, but hey, let’s go. Why not?

It is interesting. COVID demonstrated how governments should stay out of private business. They just don’t understand it. They live in such a theoretical world that it’s impractical. Some of the rules that they’re trying to implement, they’re simply impossible to deploy. How do you go mandate vaccinations for instance when there is no vaccines to provide or tests to give. So you’re mandating with penalties for businesses that you have to vaccinate your employees and/or or test them, and you can’t provide either.

Number two, we’re in the largest labor shortage in modern history. And you’re putting all these mandates and again, the science says you’re going to catch it. It doesn’t matter if you’re vaccinated or not vaccinated. If you’re vaccinated, you’re going to be at a lower risk of dying or hospitalization. But they continue to have a conversation about how getting is like the end of the world. And to me, that demonstrates a lack of understanding of what the real world looks like. And that’s disheartening, to be honest, because I expect that governments should understand what’s good for the people and what’s good for businesses at the same time, if that makes any sense. The rules they’re putting them to place are putting a burden on businesses like us to police something that we’re just incapable of doing. We’re not in business to police vaccines and medications. That’s not what we do. Instead, they’re basically delegating it to us because they think it’s a smart idea.

[Also], I truly believe that we’re seeing a disparity between governments around the world and their ability to make sound decisions about how to battle pandemics or a crisis. So for a global company like us--we’re in 13 different countries--it’s exhausting. It’s confusing. The rules are awful. Our people are just unable to move from country to country. I was in the U.K. [in December]. I couldn’t get to Amsterdam. I couldn’t get to Holland, literally, because of the testing rules and how you have to test. So commerce is getting absolutely annihilated. And nationalism is on the rise, not that it needed any help. But COVID definitely enabled this nationalism idea and isolation.

So something is going to have to give This is not sustainable. I don’t know what the rest of the world thinks, but the way we are operating right now and how governments have been so adamant about their way to make a point is really unsustainable. And it’s not healthy for business. And I truly think in 2022 businesses will suffer because of those rules. We depend on the rest of the world. I mean, what COVID demonstrated by the way is kind of like technology: You cannot be alone. It’s impossible. We are very dependent on the rest of the world. I don’t care what country you are. The U.S. is the greatest country that ever existed. We’re highly dependent on everybody else. And COVID demonstrated that countries should work together, not alone. So that’s as political as I’m going to get.

Anything else, Majdi?

Yes. I believe that businesses have a social responsibility to support the communities that they operate in. Denali has a pretty big footprint in the philanthropy world. I was in India earlier last year, right before Delta hit. I came back and Delta was just rampant. So I called one of our healthcare providers, the second largest, Providence Health. And I actually called another client of ours who focused on the distribution of healthcare equipment. And I said, we have to do something in India. And it was amazing to me with how these multi-billion-dollar massive organizations moved so fast to provide ventilators, vaccines, masks all the way in India. Here I am just, a single person, and I was able to start that campaign. So I believe that we have a responsibility and an obligation to do something to help our communities. ...

Companies, in my opinion, have an obligation to give back, and to give a hand up. And that’s something that I’m very proud of in our culture that we do every single day. We partner with not just our clients, but with communities where we operate and our people live. And we encourage people to give back. Capitalism gets a bad rap quite a bit. But people don’t understand that the U.S. by far eclipses all other countries in how much we give back. Not just in the States, but all around the world.

So that’s something that my team always makes sure that I talk about. I don’t want to seem like we’re bragging, but really we do it because we want to encourage other people to participate and give back. So that’s very, very important to me and it’s important to our organization.