1 00:00:00,000 --> 00:00:08,040 Welcome to the Growing EBITDA Podcast, where we unlock the doors to management and technology 2 00:00:08,040 --> 00:00:10,160 insights in the middle market. 3 00:00:10,160 --> 00:00:15,480 Join us as we explore innovative strategies to drive revenue and EBITDA growth, interviewing 4 00:00:15,480 --> 00:00:18,440 industry leaders and technology experts. 5 00:00:18,440 --> 00:00:23,340 Whether you're looking to streamline operations, understand the latest tech trends, or lead 6 00:00:23,340 --> 00:00:27,760 your company towards exponential growth, you're in the right place. 7 00:00:27,760 --> 00:00:31,200 Stay tuned and let's grow together. 8 00:00:31,200 --> 00:00:36,640 I was thinking about a deal that we collaborated on last year and spent a lot of time together 9 00:00:36,640 --> 00:00:37,640 working on. 10 00:00:37,640 --> 00:00:41,600 And I thought it'd be an interesting one for our listeners. 11 00:00:41,600 --> 00:00:43,960 We have the expert here, which is you. 12 00:00:43,960 --> 00:00:46,960 You want to just kind of give the background, I know we pre-chatted everyone before, but 13 00:00:46,960 --> 00:00:50,040 give the background on the deal and maybe we can just kind of jump into it. 14 00:00:50,040 --> 00:00:53,400 Yeah, I think expert is a generous term. 15 00:00:53,400 --> 00:00:59,920 Lively experienced maybe would be my phrase of choice, but appreciate the vote of confidence. 16 00:00:59,920 --> 00:01:03,560 Yeah, so I'll give you the background. 17 00:01:03,560 --> 00:01:09,120 James, you and I started working on a transaction in collaboration with one of our private equity 18 00:01:09,120 --> 00:01:14,520 clients about 12 or 18 months ago now. 19 00:01:14,520 --> 00:01:20,080 You were leading the due diligence, the technology and operations due diligence on the deal. 20 00:01:20,080 --> 00:01:28,080 I was involved because we were co-investing in the business alongside our private equity 21 00:01:28,080 --> 00:01:30,000 partner. 22 00:01:30,000 --> 00:01:38,080 And one area that we spent a lot of time collaborating on, you and your team, myself, my team, and 23 00:01:38,080 --> 00:01:42,880 the lead investor was value creation plan. 24 00:01:42,880 --> 00:01:52,080 And value creation plans in private equity are a critical tool that many, if not almost 25 00:01:52,080 --> 00:02:00,040 all private equity firms use in rolling out their investment thesis and driving the positive 26 00:02:00,040 --> 00:02:05,840 growth in these investments and these businesses that they're seeking during their ownership 27 00:02:05,840 --> 00:02:06,840 cycle. 28 00:02:06,840 --> 00:02:11,740 So it really, there's a number of tools in the quiver, so to speak, value creation plans 29 00:02:11,740 --> 00:02:19,800 or VCPs for short are a key quiver in that, a key arrow or a key tool in that quiver. 30 00:02:19,800 --> 00:02:24,520 And I felt like maybe doing a deep dive into what they are for those that are less familiar 31 00:02:24,520 --> 00:02:28,280 with how they work, maybe specifically in the context of private equity, because there 32 00:02:28,280 --> 00:02:30,760 are some important nuances in this space. 33 00:02:30,760 --> 00:02:34,960 I felt like that might be something worthy of spending a few minutes on here today. 34 00:02:34,960 --> 00:02:35,960 I think so. 35 00:02:35,960 --> 00:02:42,400 And I think that's an interesting lead in to helping folks understand, because there's 36 00:02:42,400 --> 00:02:43,560 a lot that sits under it. 37 00:02:43,560 --> 00:02:48,360 And I think for me, coming from the corporate side, I didn't really understand kind of the 38 00:02:48,360 --> 00:02:49,620 nuance. 39 00:02:49,620 --> 00:02:52,360 And I appreciate the opportunity to talk about it a little bit. 40 00:02:52,360 --> 00:02:53,360 Yeah. 41 00:02:53,360 --> 00:02:55,940 And it's a pretty straightforward name, right? 42 00:02:55,940 --> 00:02:56,940 Value creation plan. 43 00:02:56,940 --> 00:03:01,120 I think most of our listeners are going to hear that and say, yeah, have a plan to create 44 00:03:01,120 --> 00:03:03,500 value in the enterprise, right? 45 00:03:03,500 --> 00:03:04,500 Not too difficult. 46 00:03:04,500 --> 00:03:06,480 Not too complex there. 47 00:03:06,480 --> 00:03:11,200 And if you have any familiarity with VCPs in the private equity world at all, you'll 48 00:03:11,200 --> 00:03:16,520 pretty quickly understand that this is really a strat plan, right? 49 00:03:16,520 --> 00:03:18,200 From the corporate side. 50 00:03:18,200 --> 00:03:22,320 Strategic plans, as we all know, may come in various different shapes and sizes. 51 00:03:22,320 --> 00:03:29,080 No real differences when it comes to value creation plans, except for the fact that in 52 00:03:29,080 --> 00:03:34,940 a private equity context, you're working with very hands-on board members, right? 53 00:03:34,940 --> 00:03:40,480 If you're the CEO of a private equity-backed business, you're going to have pretty high 54 00:03:40,480 --> 00:03:43,000 degrees of intimacy with your board members. 55 00:03:43,000 --> 00:03:48,320 It could be very different from maybe being the divisional president of a $500 million 56 00:03:48,320 --> 00:03:51,400 division of a large publicly traded company. 57 00:03:51,400 --> 00:03:55,000 You're obviously going to be working with folks at corporate. 58 00:03:55,000 --> 00:04:01,020 But it's a little bit different when you have a formal board that's comprised of equity 59 00:04:01,020 --> 00:04:07,880 owners with controlling rights in many situations as it relates to the business that you're 60 00:04:07,880 --> 00:04:08,880 running. 61 00:04:08,880 --> 00:04:12,780 And while there are some private equity firms that can be rather hands-off when it comes 62 00:04:12,780 --> 00:04:17,600 to some of this stuff, many of them can be surprisingly hands-on. 63 00:04:17,600 --> 00:04:24,560 And when we think about value creation plans, VCPs, it's very important to have alignment 64 00:04:24,560 --> 00:04:29,920 between those various different stakeholders, that very active set of board members, the 65 00:04:29,920 --> 00:04:34,640 CEO and the executive leadership team of the business, and perhaps even other folks across 66 00:04:34,640 --> 00:04:35,640 the organization. 67 00:04:35,640 --> 00:04:41,840 So not a tremendous amount of differences between strategic plans in the corporate world 68 00:04:41,840 --> 00:04:47,460 and value creation plans in the private equity world, but enough of a distinct set of differences 69 00:04:47,460 --> 00:04:50,360 that I think it's worth talking through those today. 70 00:04:50,360 --> 00:04:55,200 So I'm going to try to cover this fairly briefly. 71 00:04:55,200 --> 00:04:58,400 If folks have more questions or want us to do a deep dive in a certain area, they can 72 00:04:58,400 --> 00:05:03,080 certainly check in with us or shoot us a note, and we'll maybe cue up another episode in 73 00:05:03,080 --> 00:05:04,080 the future on this. 74 00:05:04,080 --> 00:05:07,760 But what we're going to cover today is really kind of defining what is a value creation 75 00:05:07,760 --> 00:05:13,460 plan, talk about why they're important in the private equity ecosystem or the private 76 00:05:13,460 --> 00:05:18,700 equity world, what some of the core components of VCPs are, and maybe some tips and tricks 77 00:05:18,700 --> 00:05:21,280 for successful execution. 78 00:05:21,280 --> 00:05:25,200 We're going to try and tailor this to a fairly broad audience, folks who maybe have a ton 79 00:05:25,200 --> 00:05:30,160 of strap planning or VCP experience, maybe other folks that have a little bit less, maybe 80 00:05:30,160 --> 00:05:35,280 it's somebody's first time being involved in a formal strategic planning exercise. 81 00:05:35,280 --> 00:05:38,980 In the middle market, there's a lot of businesses who maybe have been entrepreneurially owned 82 00:05:38,980 --> 00:05:43,400 and haven't had a really structured strategic planning framework that they've used to grow 83 00:05:43,400 --> 00:05:44,760 the business in the past. 84 00:05:44,760 --> 00:05:48,680 So some of this might be a little bit more basic for some folks, but we'll try and describe 85 00:05:48,680 --> 00:05:53,240 some of the more advanced topics at the same time to broaden the appeal. 86 00:05:53,240 --> 00:05:54,240 All right? 87 00:05:54,240 --> 00:05:55,240 Sounds good. 88 00:05:55,240 --> 00:05:56,240 Cool. 89 00:05:56,240 --> 00:05:58,600 So let's start with definition. 90 00:05:58,600 --> 00:06:04,120 As I've mentioned, a value creation plan is really a strategic framework that's designed 91 00:06:04,120 --> 00:06:11,880 to identify, quantify, and implement initiatives that are going to enhance the value of a portfolio 92 00:06:11,880 --> 00:06:12,920 company, right? 93 00:06:12,920 --> 00:06:17,460 Portfolio company, simple term to represent a company that a private equity firm has invested 94 00:06:17,460 --> 00:06:20,080 and it's in their investment portfolio. 95 00:06:20,080 --> 00:06:23,760 And they're very important tools, right? 96 00:06:23,760 --> 00:06:31,400 Because what a good VCP does is it's essentially, James, it's a roadmap for where we're going 97 00:06:31,400 --> 00:06:34,280 to go over the next number of years, right? 98 00:06:34,280 --> 00:06:39,500 And typically, a value creation plan is starting to take shape before the private equity firm 99 00:06:39,500 --> 00:06:40,920 even owns the business, right? 100 00:06:40,920 --> 00:06:46,400 During their diligence process, they're developing their investment thesis, most strong, well 101 00:06:46,400 --> 00:06:50,320 experienced private equity investors are going to have a very crystal clear plan in their 102 00:06:50,320 --> 00:06:56,200 minds of what they want to do with this business during their ownership cycle. 103 00:06:56,200 --> 00:07:02,200 Now, the reality is though, is that private equity investors don't run the businesses 104 00:07:02,200 --> 00:07:04,000 that they're investing in. 105 00:07:04,000 --> 00:07:06,320 That's what management teams are there for, right? 106 00:07:06,320 --> 00:07:12,080 The CEO, the CFO, the COO, and their direct reports, they need to run the business. 107 00:07:12,080 --> 00:07:16,560 And obviously, they tend to know a lot more about the business in the market than these 108 00:07:16,560 --> 00:07:20,700 private equity firms that are kind of coming in as outsiders in many cases. 109 00:07:20,700 --> 00:07:24,760 And that's really where this kind of VCP plan starts to really take shape, right? 110 00:07:24,760 --> 00:07:30,100 So the P firms kind of coming in with their ideas about where they want to take this thing. 111 00:07:30,100 --> 00:07:36,920 And very early on in the ownership cycle, typically, in the first 90 days of the transaction 112 00:07:36,920 --> 00:07:40,440 closing, they're going to start collaborating very heavily with the management team to make 113 00:07:40,440 --> 00:07:45,280 sure that the management team's strategic plan, whatever that might look like, kind 114 00:07:45,280 --> 00:07:48,440 of merges with the private equity firm's thoughts, right? 115 00:07:48,440 --> 00:07:51,280 Because private equity firm may be coming in and they're doing their due diligence. 116 00:07:51,280 --> 00:07:53,840 They're finding out some things, learning about the business. 117 00:07:53,840 --> 00:07:59,240 They may have some interesting ideas or perspectives or relationships in the marketplace that may 118 00:07:59,240 --> 00:08:01,600 be able to supercharge growth for the business. 119 00:08:01,600 --> 00:08:06,280 They're probably not showing their entire hand to the management team as they're getting 120 00:08:06,280 --> 00:08:07,440 to know them during diligence. 121 00:08:07,440 --> 00:08:12,080 But after they've invested in the business, now we've got this cohesive relationship where 122 00:08:12,080 --> 00:08:13,400 everybody's in this thing together, right? 123 00:08:13,400 --> 00:08:17,000 If we all want to create the kind of economic outcomes that we want to see, we want to grow 124 00:08:17,000 --> 00:08:21,200 the business, we want to improve and grow EBITDA so that ultimately we can sell this 125 00:08:21,200 --> 00:08:26,920 thing to the next ownership group for a significant profit, we kind of got to all be drumming 126 00:08:26,920 --> 00:08:31,600 to the same beat and rowing at the same time in that boat together. 127 00:08:31,600 --> 00:08:36,880 And the VCP is just a really important tool to kind of align those stakeholders around, 128 00:08:36,880 --> 00:08:41,440 very frankly, what do we need to do over the course of the next three to five years to 129 00:08:41,440 --> 00:08:45,800 materially grow the EBITDA of this business so we can create the kind of outcome that 130 00:08:45,800 --> 00:08:47,920 we want. 131 00:08:47,920 --> 00:08:48,920 So quick question on that, Mike. 132 00:08:48,920 --> 00:08:49,920 Sorry. 133 00:08:49,920 --> 00:08:53,960 And this is an interesting insight for me that in this conversation, I don't think I 134 00:08:53,960 --> 00:09:00,840 really truly understood that the VCP flexibility, you just talked about kind of ones done before 135 00:09:00,840 --> 00:09:03,200 the transaction of the deal happens. 136 00:09:03,200 --> 00:09:07,120 And it kind of gets aligned with the manager team and kind of harmonizes, if you will, 137 00:09:07,120 --> 00:09:08,160 that VCP. 138 00:09:08,160 --> 00:09:11,640 So playing that back a bit, is this kind of a living document? 139 00:09:11,640 --> 00:09:15,920 Because again, you mentioned that folks coming from other corporate strategy, right? 140 00:09:15,920 --> 00:09:18,720 It's kind of you write it at the beginning of the year and then you execute for essentially 141 00:09:18,720 --> 00:09:21,800 13 months and then you rewrite it and you execute. 142 00:09:21,800 --> 00:09:25,240 Is the VCP, can we think of it more as a living, breathing document that you're constantly 143 00:09:25,240 --> 00:09:26,240 iterating on? 144 00:09:26,240 --> 00:09:28,460 Yeah, I think it's a good question. 145 00:09:28,460 --> 00:09:29,900 The answer is absolutely yes, right? 146 00:09:29,900 --> 00:09:35,480 If you've spent any time in the corporate world, you've seen most people roll their 147 00:09:35,480 --> 00:09:40,080 eyes when executives start talking about, we need to update our strategic plan, right? 148 00:09:40,080 --> 00:09:44,480 It's like, okay, geez, we're going to spend the next six months in a bunch of not terribly 149 00:09:44,480 --> 00:09:50,680 value added meetings and these days Zoom calls, trying to create a fancy document. 150 00:09:50,680 --> 00:09:54,160 Maybe we've hired an expensive consultant to help us create a fancy document that we're 151 00:09:54,160 --> 00:09:57,560 going to put on a shelf and never look at again for five years until corporate says 152 00:09:57,560 --> 00:09:58,920 we got to dust that off again. 153 00:09:58,920 --> 00:10:05,800 The reality is that well run companies know that strap plans are living, breathing documents. 154 00:10:05,800 --> 00:10:11,360 They need to be updated and refreshed as market conditions change, as leadership changes, 155 00:10:11,360 --> 00:10:16,420 as the business develops maybe new products or customers approach them with new needs 156 00:10:16,420 --> 00:10:18,840 that they think that they can meet profitably. 157 00:10:18,840 --> 00:10:23,760 They really need to evolve and VCPs are no different than that. 158 00:10:23,760 --> 00:10:29,880 So yes, the PE firms, as you mentioned, pre-transaction closing, they were developing their investment 159 00:10:29,880 --> 00:10:30,880 VCs. 160 00:10:30,880 --> 00:10:35,840 Maybe they've developed a draft VCP, so to speak. 161 00:10:35,840 --> 00:10:40,000 They're harmonizing that immediately to the extent that they've got those relationships 162 00:10:40,000 --> 00:10:44,720 with the leadership team post-close, very swiftly post-closed. 163 00:10:44,720 --> 00:10:50,680 And together, the board, the investors in this case, and the senior leadership, the 164 00:10:50,680 --> 00:10:55,360 senior executives in the business are aligning on what are the needle movers. 165 00:10:55,360 --> 00:10:59,040 And I think that's another important thing that I want to talk about as we define what 166 00:10:59,040 --> 00:11:02,240 a VCP is and what it isn't. 167 00:11:02,240 --> 00:11:04,560 There may be some tactical items that show up. 168 00:11:04,560 --> 00:11:10,760 Maybe during diligence we identified that the company has 10 servers in their server 169 00:11:10,760 --> 00:11:15,100 room and they're all no longer serviced, they're outdated, they're not supported. 170 00:11:15,100 --> 00:11:17,160 We need to go buy new servers. 171 00:11:17,160 --> 00:11:18,880 Let's just go upgrade new servers. 172 00:11:18,880 --> 00:11:22,920 That doesn't necessarily have to make its way to the strategic elements of the VCP, 173 00:11:22,920 --> 00:11:25,840 but it may be a very important post-closing item to work on. 174 00:11:25,840 --> 00:11:30,880 So you may have in the first round of VCP planning, you might have some tactical just 175 00:11:30,880 --> 00:11:34,040 go do it type items that get documented. 176 00:11:34,040 --> 00:11:40,120 But the real intent is let's take a long-term, three to five year view at where we want the 177 00:11:40,120 --> 00:11:41,400 business to go. 178 00:11:41,400 --> 00:11:43,240 What markets do we want to be in? 179 00:11:43,240 --> 00:11:45,700 What do we want our geographic footprint to look like? 180 00:11:45,700 --> 00:11:49,360 What leadership gaps do we want to fill? 181 00:11:49,360 --> 00:11:54,280 Where do we need to make upgrades from a technology perspective or from a human capital management 182 00:11:54,280 --> 00:11:55,280 perspective? 183 00:11:55,280 --> 00:11:57,280 Who do we want to go and acquire? 184 00:11:57,280 --> 00:12:02,960 M&A is often a big part of value creation plans with private equity firms. 185 00:12:02,960 --> 00:12:05,440 Most of our listeners are going to be well aware. 186 00:12:05,440 --> 00:12:07,200 Private equity likes to do a lot of add-ons. 187 00:12:07,200 --> 00:12:12,360 We like to do what we call roll ups or the term I like to use buy and builds. 188 00:12:12,360 --> 00:12:17,400 Go buy a business and build it through acquisition, maybe they buy a hundred million dollar business 189 00:12:17,400 --> 00:12:23,240 and go do 10 other add-ons or bolt on investments each at 20 million dollars in revenue. 190 00:12:23,240 --> 00:12:26,280 Next thing you know, you're three years in, you got a 300 million dollar revenue business 191 00:12:26,280 --> 00:12:28,080 that you're trying to integrate. 192 00:12:28,080 --> 00:12:33,440 So that you tend to see M&A show up as a key component of a VCP. 193 00:12:33,440 --> 00:12:36,240 So those are some of the easier ones to define. 194 00:12:36,240 --> 00:12:41,920 Other things that it might include, really it should look at all of the key operational 195 00:12:41,920 --> 00:12:47,040 financial and strategic improvements that the business needs to make in order to support 196 00:12:47,040 --> 00:12:49,120 its long-term growth objectives. 197 00:12:49,120 --> 00:12:54,200 And at the end of the day, the reason we call it a value creation plan is it really is a 198 00:12:54,200 --> 00:13:00,680 tool that should be focused on driving return on investment and aligning the interests of 199 00:13:00,680 --> 00:13:06,360 all the stakeholders involved to achieve the investment outcomes that we want to achieve. 200 00:13:06,360 --> 00:13:13,560 Really you're going to see VCPs have very specific and almost always very objective 201 00:13:13,560 --> 00:13:19,080 performance metrics and specific timelines calling out who's accountable for doing or 202 00:13:19,080 --> 00:13:23,000 leading certain initiatives to make sure that we can, the stakeholders can follow through 203 00:13:23,000 --> 00:13:25,960 and hold everybody accountable to achieving those goals. 204 00:13:25,960 --> 00:13:30,360 You know, so really to take it back from the top here, what is it? 205 00:13:30,360 --> 00:13:32,540 It's essentially a strategic planning document. 206 00:13:32,540 --> 00:13:37,560 It lists out what we need to do, when we need to do it, who's responsible for what, and 207 00:13:37,560 --> 00:13:42,080 what type of enterprise value it's going to create to the extent we're able to successfully 208 00:13:42,080 --> 00:13:44,320 execute these objectives. 209 00:13:44,320 --> 00:13:48,120 And to your point, this is something you want to review regularly. 210 00:13:48,120 --> 00:13:51,920 The boards that I'm involved with, you're looking at this every board meeting and making 211 00:13:51,920 --> 00:13:54,440 sure, hey, has anything changed? 212 00:13:54,440 --> 00:13:58,880 You're refreshing your memory about where we're trying to strategically take this business. 213 00:13:58,880 --> 00:14:02,880 And it becomes just a really important tool to keep everybody aligned during the number 214 00:14:02,880 --> 00:14:08,840 of years that you're going to be working together as executives and investors. 215 00:14:08,840 --> 00:14:12,840 At the board level, to talk about that for a second, just to close that out, because 216 00:14:12,840 --> 00:14:14,680 I like that you mentioned it there. 217 00:14:14,680 --> 00:14:18,440 So I have my VCP, I'm adjusting my VCP. 218 00:14:18,440 --> 00:14:19,440 Thank you for that insight on that. 219 00:14:19,440 --> 00:14:21,720 I'm continuing to work through that VCP. 220 00:14:21,720 --> 00:14:27,120 When it comes to the board, do you feel that most of the time I'm adjusting that VCP based 221 00:14:27,120 --> 00:14:32,800 on market condition needs, or I'm reporting out on that VCP eliciting feedback? 222 00:14:32,800 --> 00:14:37,240 What is the, how's that plan used with that steering committee, and to call it that a 223 00:14:37,240 --> 00:14:41,600 bit when you present that, how's that document used in that room compared to what you're 224 00:14:41,600 --> 00:14:43,960 doing with your management team in your day-to-day operations? 225 00:14:43,960 --> 00:14:44,960 Yeah. 226 00:14:44,960 --> 00:14:52,180 I think that, like I mentioned previously, private equity investors do not view themselves 227 00:14:52,180 --> 00:14:55,080 as business managers. 228 00:14:55,080 --> 00:15:00,280 They view managing the day-to-day aspects of the business as the responsibility of the 229 00:15:00,280 --> 00:15:02,520 CEO and the executive leadership team. 230 00:15:02,520 --> 00:15:08,800 So while I recognize that I said that the private equity group is going to come in with 231 00:15:08,800 --> 00:15:14,120 some type of straw man, or perhaps very detailed version of a VCP when they're buying the business, 232 00:15:14,120 --> 00:15:15,120 right? 233 00:15:15,120 --> 00:15:16,120 So we're going to invest in the business. 234 00:15:16,120 --> 00:15:17,920 Day one, we kind of have a plan. 235 00:15:17,920 --> 00:15:23,880 As much as that is true, they're going to expect very quickly for the management team 236 00:15:23,880 --> 00:15:29,440 to take that input and incorporate it into management's plan. 237 00:15:29,440 --> 00:15:35,040 So from kind of day one, from the investor's perspective, the management team owns the 238 00:15:35,040 --> 00:15:39,200 plan, but the private equity groups want to speak into the plan, and they want to make 239 00:15:39,200 --> 00:15:43,480 sure that their voice is heard, and they want to make sure that their best ideas, at least 240 00:15:43,480 --> 00:15:48,400 that they think they're best ideas, are percolating to the top and are at the forefront of management's 241 00:15:48,400 --> 00:15:50,080 mind, right? 242 00:15:50,080 --> 00:15:53,160 And in some cases, you're going to find that everybody's in lockstep. 243 00:15:53,160 --> 00:15:55,920 It's very clear who's going to do what. 244 00:15:55,920 --> 00:16:00,520 There isn't even that much back and forth dialogue about the value creation plan. 245 00:16:00,520 --> 00:16:07,320 In other instances, and we find this a lot in historically entrepreneurially owned businesses, 246 00:16:07,320 --> 00:16:10,840 you might have a business that does $200 or $300 million in revenue who has never gone 247 00:16:10,840 --> 00:16:17,760 through a strap planning exercise, who doesn't have any idea or any experience developing 248 00:16:17,760 --> 00:16:20,360 or using tools like value creation plans. 249 00:16:20,360 --> 00:16:24,400 So in those instances, the private equity investors or maybe some consultants that they 250 00:16:24,400 --> 00:16:32,560 might engage who have expertise in strategic planning, there may be a lot more hands on. 251 00:16:32,560 --> 00:16:34,680 Anything in between also could happen, right? 252 00:16:34,680 --> 00:16:38,900 You see a lot of businesses maybe that haven't had a ton of M&A experience directly, right? 253 00:16:38,900 --> 00:16:43,360 So maybe the private equity firm is going to be very collaborative in the development 254 00:16:43,360 --> 00:16:46,960 very early on of the M&A component of the plan. 255 00:16:46,960 --> 00:16:52,000 When it comes to actually rolling this out and deploying it, what that cadence looks 256 00:16:52,000 --> 00:16:56,200 like, the communication back and forth, which I think is the root of your question, once 257 00:16:56,200 --> 00:17:01,320 that plan gets developed, it's the expectation of the private equity board members that the 258 00:17:01,320 --> 00:17:04,000 CEO is going to be giving you quarterly updates on that plan. 259 00:17:04,000 --> 00:17:08,520 You may reference it on maybe your monthly calls or your weekly calls with the investor 260 00:17:08,520 --> 00:17:10,920 group if you're the CEO. 261 00:17:10,920 --> 00:17:15,880 Whereas with your management team, the expectation is that a CEO would be meeting regularly with 262 00:17:15,880 --> 00:17:21,960 their management team to get updates on have we achieved X, Y, or Z goals or have we completed 263 00:17:21,960 --> 00:17:24,000 A, B, or C tasks. 264 00:17:24,000 --> 00:17:29,080 You might be updating the board that, hey, we've accomplished these or, hey, we tried 265 00:17:29,080 --> 00:17:32,840 but we failed and here's why and here's the corrective action that we're going to take 266 00:17:32,840 --> 00:17:35,400 to get back on track, whatever the case may be. 267 00:17:35,400 --> 00:17:36,400 Yeah. 268 00:17:36,400 --> 00:17:41,320 I think that side of how that roll up and reporting and continuing to look to that document 269 00:17:41,320 --> 00:17:45,160 because in other episodes we've discussed, the real reason you're in the transaction 270 00:17:45,160 --> 00:17:50,520 is to create that value and having that roadmap of how you do it sounds like a great plan 271 00:17:50,520 --> 00:17:52,640 to align folks together. 272 00:17:52,640 --> 00:17:55,860 So are there any other core components that folks should think about that maybe we haven't 273 00:17:55,860 --> 00:17:57,120 discussed so far? 274 00:17:57,120 --> 00:17:58,120 Yeah. 275 00:17:58,120 --> 00:18:06,320 As I'm thinking through this more, James, the most successful value creation plans that 276 00:18:06,320 --> 00:18:14,560 I've seen, they start with what are the long range revenue and EBITDA goals of the organization, 277 00:18:14,560 --> 00:18:15,560 right? 278 00:18:15,560 --> 00:18:20,800 Where are we driving this ship or this bus together? 279 00:18:20,800 --> 00:18:25,520 And from that, you then kind of back into how you're going to achieve those goals, right? 280 00:18:25,520 --> 00:18:26,800 And we've talked about that a little bit. 281 00:18:26,800 --> 00:18:28,920 What are the strategic goals of the organization? 282 00:18:28,920 --> 00:18:33,640 It could include some of the tactical goals, but it's not just about how we're going to 283 00:18:33,640 --> 00:18:35,280 grow revenue and how we're going to grow earnings, right? 284 00:18:35,280 --> 00:18:40,040 And how you might get there is talk about adding customers or like we've talked about 285 00:18:40,040 --> 00:18:43,560 growth through acquisitions on the cost side. 286 00:18:43,560 --> 00:18:48,080 Maybe the plan would include some cost reduction initiatives like deploying operational excellence 287 00:18:48,080 --> 00:18:52,840 to reduce transactional costs in the business or optimize labor productivity or whatever 288 00:18:52,840 --> 00:18:54,200 the case may be. 289 00:18:54,200 --> 00:18:56,640 But it should also include things like market expansion, right? 290 00:18:56,640 --> 00:19:00,680 Are we, you know, we're big believers too in thinking through strategic alternatives 291 00:19:00,680 --> 00:19:01,960 or what we call them. 292 00:19:01,960 --> 00:19:05,120 You might not be in this market today, but what if you went and got in that market, you 293 00:19:05,120 --> 00:19:06,240 know, how much would that cost? 294 00:19:06,240 --> 00:19:09,660 How much upside might there be from a revenue or earnings perspective? 295 00:19:09,660 --> 00:19:13,100 How hard would it cost to grow into that market? 296 00:19:13,100 --> 00:19:17,800 Pulling out and teasing out very specific operational improvements, the successful plans 297 00:19:17,800 --> 00:19:24,320 will typically include very discreet optimization projects that the leadership team intends 298 00:19:24,320 --> 00:19:25,320 to tackle. 299 00:19:25,320 --> 00:19:28,760 And maybe that's improving ARP processes. 300 00:19:28,760 --> 00:19:33,480 Maybe it's reducing DSOs by improving invoicing efficiencies. 301 00:19:33,480 --> 00:19:38,480 Maybe it's, this is a big one from a technology perspective, upgrading our ERP system. 302 00:19:38,480 --> 00:19:41,440 We see a lot of plans include things around innovation. 303 00:19:41,440 --> 00:19:43,760 What's the next latest, greatest product? 304 00:19:43,760 --> 00:19:48,320 Quite frankly, one of the plan items regarding innovation might be building out an innovation 305 00:19:48,320 --> 00:19:53,840 process so that we as an organization become better at innovating new products on a more 306 00:19:53,840 --> 00:19:55,920 predictable and repeatable basis. 307 00:19:55,920 --> 00:20:01,080 And we want to make sure too, as building out these plans, that it's not just, hey, 308 00:20:01,080 --> 00:20:05,120 we want to grow revenue by X and we're going to do that by a new end product development 309 00:20:05,120 --> 00:20:09,080 process and these operating improvements, but also very specifically who in the organization 310 00:20:09,080 --> 00:20:11,440 is responsible for leading those. 311 00:20:11,440 --> 00:20:15,720 Because what we're going to ask is that those people go away and develop more tactical plans 312 00:20:15,720 --> 00:20:18,280 for how they're ultimately going to go and achieve those. 313 00:20:18,280 --> 00:20:23,240 And I think about the responsibilities of the CEO as it relates to the VCP, certainly 314 00:20:23,240 --> 00:20:30,040 leading the charge and making sure that the team is collaborating to produce stretch goals 315 00:20:30,040 --> 00:20:34,920 and to come up with what the strategies are to be able to achieve those goals, but also 316 00:20:34,920 --> 00:20:40,440 holding the team accountable to building out the more tactical deployment plans for how 317 00:20:40,440 --> 00:20:43,840 those goals are ultimately going to be realized and how those strategies are ultimately going 318 00:20:43,840 --> 00:20:44,840 to be accomplished. 319 00:20:44,840 --> 00:20:51,480 Now, you wouldn't typically see a CEO presenting back to a private equity board of directors 320 00:20:51,480 --> 00:20:54,840 every single one of those tactical activities that needs to get done. 321 00:20:54,840 --> 00:20:59,880 Typically, they're distilling that up to the higher level elements of that VCP. 322 00:20:59,880 --> 00:21:04,160 And one of the mechanisms that they're going to use to communicate ongoing progress against 323 00:21:04,160 --> 00:21:08,920 the plan is through the review of some of the key metrics that were defined as part 324 00:21:08,920 --> 00:21:12,480 of the plan development that would allow them to kind of quickly understand and get ramped 325 00:21:12,480 --> 00:21:15,520 up to speed as to whether or not we're hitting those targets. 326 00:21:15,520 --> 00:21:21,680 Mike, I would be remiss if we didn't tie this back to the name of the cast, which is 327 00:21:21,680 --> 00:21:23,080 Growing Ibara. 328 00:21:23,080 --> 00:21:25,000 So I think you've really established a nice baseline. 329 00:21:25,000 --> 00:21:29,960 You've taken us from what it is, how I create it, how I report on it, which I think is a 330 00:21:29,960 --> 00:21:32,960 good journey so folks can kind of baseline. 331 00:21:32,960 --> 00:21:37,400 Let's bring it back to kind of how is this Ibara hopefully creative, but how is this 332 00:21:37,400 --> 00:21:40,680 Ibara kind of has it tie into Ibara? 333 00:21:40,680 --> 00:21:42,080 How do you see that mechanism? 334 00:21:42,080 --> 00:21:47,320 That can be either you mentioned KPIs and kind of those ties or maybe just kind of functionally 335 00:21:47,320 --> 00:21:49,320 business wise. 336 00:21:49,320 --> 00:21:52,840 What does this mean for my Ibara now that I have this plan and I'm executing for and 337 00:21:52,840 --> 00:21:55,240 how do I kind of think about it from an Ibara perspective? 338 00:21:55,240 --> 00:21:58,940 I think I'm probably going to answer that question maybe in a little bit of a different 339 00:21:58,940 --> 00:22:00,880 way than you expect. 340 00:22:00,880 --> 00:22:11,040 EBITDA is the common measurement that private equity investors like to use to value their 341 00:22:11,040 --> 00:22:14,560 businesses or to value businesses. 342 00:22:14,560 --> 00:22:21,560 And private equity investors kind of eat, live and breathe the EBITDA metric every single 343 00:22:21,560 --> 00:22:24,760 hour of every day of their careers. 344 00:22:24,760 --> 00:22:31,520 And the advice that I would give to folks who are dealing with private equity investors 345 00:22:31,520 --> 00:22:35,600 maybe for the first time in their careers or who are looking at getting into maybe a 346 00:22:35,600 --> 00:22:40,680 private equity backed business environment, you need to learn what EBITDA is. 347 00:22:40,680 --> 00:22:45,320 You need to be well versed in its definition and why it matters to these private equity 348 00:22:45,320 --> 00:22:46,320 groups so much. 349 00:22:46,320 --> 00:22:48,120 And you need to learn to talk. 350 00:22:48,120 --> 00:22:53,540 Your vernacular needs to change to focus on communicating impact to EBITDA. 351 00:22:53,540 --> 00:22:58,680 So I think most of our listeners are going to be able to say, you know what, I understand 352 00:22:58,680 --> 00:22:59,680 how this ties to EBITDA. 353 00:22:59,680 --> 00:23:03,400 I'm trying to grow the earnings of the business to improve the enterprise value. 354 00:23:03,400 --> 00:23:08,600 I think what sometimes gets lost though in value creation plan discussions is as the 355 00:23:08,600 --> 00:23:13,560 CEO, as you're communicating this to your board of directors, putting it in their language 356 00:23:13,560 --> 00:23:18,000 and always making sure that you're focused on driving EBITDA. 357 00:23:18,000 --> 00:23:27,200 So for example, presenting strategies that have a strong focus on how much enterprise 358 00:23:27,200 --> 00:23:33,240 value this initiative is going to create because of how much EBITDA will generate relative 359 00:23:33,240 --> 00:23:36,960 to how much it's going to cost to execute or implement is kind of the way you want to 360 00:23:36,960 --> 00:23:39,080 start talking. 361 00:23:39,080 --> 00:23:42,840 What you don't want to do is say, hey, we want to go and enter this new market and we 362 00:23:42,840 --> 00:23:45,160 think we can grow sales by X. 363 00:23:45,160 --> 00:23:47,840 That's a fairly weak statement. 364 00:23:47,840 --> 00:23:50,960 What private equity investors want to hear when you're giving them an update on your 365 00:23:50,960 --> 00:23:56,360 VCP is, hey, we think that growing into this market is going to cost X, but it's going 366 00:23:56,360 --> 00:23:59,320 to have Y impact to the bottom line. 367 00:23:59,320 --> 00:24:04,480 And we think that we can achieve that in a 36 month window because even if you have a 368 00:24:04,480 --> 00:24:09,520 longer term focused private equity group that is back to you, maybe they're trying to hold 369 00:24:09,520 --> 00:24:12,020 that investment for 10 years or 15 years. 370 00:24:12,020 --> 00:24:18,040 They want to know that the strategies that you're focused on, that they're being asked 371 00:24:18,040 --> 00:24:24,260 to support investment into, whether that's time or hard dollars into, are the needle 372 00:24:24,260 --> 00:24:25,260 movers. 373 00:24:25,260 --> 00:24:30,280 That we're not going to focus on what somebody's pet project is in the business. 374 00:24:30,280 --> 00:24:33,360 They really like that industry and that's why you want to expand into that industry. 375 00:24:33,360 --> 00:24:34,960 They want to know that it's going to move the needle. 376 00:24:34,960 --> 00:24:40,960 And they also want to be around conversations like, hey, should we go and build that capability 377 00:24:40,960 --> 00:24:42,960 or should we go and buy that capability? 378 00:24:42,960 --> 00:24:44,960 How much is it going to cost to do one versus the other? 379 00:24:44,960 --> 00:24:49,760 And how much net impact, how much EBITDA is that version of this strategy going to produce 380 00:24:49,760 --> 00:24:52,720 versus this other version of the strategy going to produce? 381 00:24:52,720 --> 00:24:57,360 So I think that as you enter this kind of private equity ecosystem, making sure that 382 00:24:57,360 --> 00:25:03,360 you're having these conversations and focusing on the impact of the bottom line and presenting 383 00:25:03,360 --> 00:25:08,760 quantifiable metrics that you're going to use to hold yourself and your team accountable 384 00:25:08,760 --> 00:25:13,080 to achieving those goals and sharing with those private equity firms that you intend 385 00:25:13,080 --> 00:25:19,800 to present updates using data, which is going to allow them to make informed opinions and 386 00:25:19,800 --> 00:25:23,480 insights and offer assistance and guidance and support. 387 00:25:23,480 --> 00:25:24,960 That really is kind of the name of the game. 388 00:25:24,960 --> 00:25:27,580 And that's how I think this whole thing ties back to EBITDA. 389 00:25:27,580 --> 00:25:32,480 So I think that's some interesting guidance and feedback there. 390 00:25:32,480 --> 00:25:36,320 You know, I went back and looked, obviously a lot of this, we talked about that transaction 391 00:25:36,320 --> 00:25:38,680 earlier, family run business, great business. 392 00:25:38,680 --> 00:25:41,040 We know that PE kind of targets those. 393 00:25:41,040 --> 00:25:42,680 You did great work on figuring out the co-investment. 394 00:25:42,680 --> 00:25:44,360 We had a lot of really rich conversations. 395 00:25:44,360 --> 00:25:47,320 We had a good dialogue with that management team. 396 00:25:47,320 --> 00:25:51,640 And so I went back and looked at my email in preparation for today's conversation and 397 00:25:51,640 --> 00:25:55,200 found a couple of the questions that were asked along the way that I think maybe would 398 00:25:55,200 --> 00:25:59,560 kind of help the folks kind of summarize all the insights we discussed today and just some 399 00:25:59,560 --> 00:26:02,400 quick hit question answer, if you're okay with that. 400 00:26:02,400 --> 00:26:07,320 So one of the questions I found was, how do I know I've created the V in VCP? 401 00:26:07,320 --> 00:26:11,360 Is it qualitative, quantitative or how do I know I've gotten it and achieved that value? 402 00:26:11,360 --> 00:26:12,360 I think it could be both. 403 00:26:12,360 --> 00:26:16,240 You know, you might have qualitative value drivers. 404 00:26:16,240 --> 00:26:21,560 An example might be you may know going in or the business may decide maybe for the first 405 00:26:21,560 --> 00:26:24,140 time in its history, we need a CFO, right? 406 00:26:24,140 --> 00:26:29,840 We need a institutional grade CFO to help us lead this business, report out our financials, 407 00:26:29,840 --> 00:26:33,920 deal with our financing partners, the banks, etc. 408 00:26:33,920 --> 00:26:37,760 And finding a great one might be your goal in X timeline. 409 00:26:37,760 --> 00:26:38,760 So how do you measure that? 410 00:26:38,760 --> 00:26:40,680 Box check, did you hire them or not? 411 00:26:40,680 --> 00:26:41,680 Pretty easy one. 412 00:26:41,680 --> 00:26:45,520 You know, the tough part is obviously getting a person that you like who sticks around and 413 00:26:45,520 --> 00:26:50,080 you know, can create the value that you think they should be able to long term. 414 00:26:50,080 --> 00:26:53,520 I think on the quantitative side, just putting basic metrics in place, right? 415 00:26:53,520 --> 00:26:58,480 And reviewing those metrics, saying, hey, we want to improve this particular function 416 00:26:58,480 --> 00:27:01,640 in the business by reducing its cost from X to Y. 417 00:27:01,640 --> 00:27:05,360 Tracking that in a simple Excel spreadsheet is simple enough. 418 00:27:05,360 --> 00:27:10,720 Reporting that out on a periodic basis, obviously reporting out the important ones to the appropriate 419 00:27:10,720 --> 00:27:15,360 people you're not going to share with your board every metric that you might share with 420 00:27:15,360 --> 00:27:16,360 your leadership team. 421 00:27:16,360 --> 00:27:19,080 So yeah, I think it's as simple as that. 422 00:27:19,080 --> 00:27:21,720 And the temptation a lot of times is to build really great plans. 423 00:27:21,720 --> 00:27:25,320 You mentioned earlier, corporations build these plans, sits on the shelf. 424 00:27:25,320 --> 00:27:30,220 I love the idea that I have some very kind of midterm goals or information I'm working 425 00:27:30,220 --> 00:27:32,240 towards and then just kind of taking through it. 426 00:27:32,240 --> 00:27:37,040 I think that kind of shows that inertia of improvement and drives a lot of great change. 427 00:27:37,040 --> 00:27:38,040 Okay. 428 00:27:38,040 --> 00:27:43,400 So we discussed kind of the board, we discussed the CEO, we discussed the management team, 429 00:27:43,400 --> 00:27:46,760 which I think all of our listeners can understand because we're making this a bit analogous 430 00:27:46,760 --> 00:27:50,960 to a strat plan and strat plans are in that same vein. 431 00:27:50,960 --> 00:27:55,120 One of the things I think is a failure a lot of times on a strat plan is we sit in a room, 432 00:27:55,120 --> 00:27:59,000 have a really great idea, but everyone struggles on how do I disseminate that? 433 00:27:59,000 --> 00:28:04,000 So let's talk a little bit, this question here was, how do I disseminate the VCP to 434 00:28:04,000 --> 00:28:08,160 the greater organization outside of myself and my direct reports? 435 00:28:08,160 --> 00:28:14,280 I think like with any sort of strat planning, strategic planning exercises, there can be 436 00:28:14,280 --> 00:28:18,160 a tendency to involve the senior leaders of the organization. 437 00:28:18,160 --> 00:28:19,160 And that's a great place to start. 438 00:28:19,160 --> 00:28:22,720 It's obviously a lot better than the CEO having his vision, maybe writing that down, his or 439 00:28:22,720 --> 00:28:27,400 her vision, writing that down on paper and sharing it with the rest of the organization 440 00:28:27,400 --> 00:28:28,840 to some degree or another. 441 00:28:28,840 --> 00:28:36,080 The best plans, strat plans, the VCPs or whatever you want to call them, we believe are cross 442 00:28:36,080 --> 00:28:37,540 functionally developed. 443 00:28:37,540 --> 00:28:43,220 So we talked about maybe the private equity firm has their ideas pre before they've invested 444 00:28:43,220 --> 00:28:46,400 in the business, the management team, obviously they've been running the business for a while. 445 00:28:46,400 --> 00:28:49,360 They have their ideas about how they're going to grow and prosper. 446 00:28:49,360 --> 00:28:55,720 And I think one of the things that is a really powerful tool if you haven't done it previously 447 00:28:55,720 --> 00:28:59,000 is to get a broader audience engaged. 448 00:28:59,000 --> 00:29:04,440 So maybe dipping down beyond the direct reports to the CEO into some of the directors, maybe 449 00:29:04,440 --> 00:29:09,640 if that's the appropriate title in your organization and engaging those stakeholders, right? 450 00:29:09,640 --> 00:29:12,960 Trying to solicit their feedback as you're designing the plan, posing the question of 451 00:29:12,960 --> 00:29:20,040 them, posing the question to them of, hey, if we want to double in revenue in the next 452 00:29:20,040 --> 00:29:25,600 36 months or 48 months, what do you think we need to do to get there? 453 00:29:25,600 --> 00:29:29,120 What do you think are some of the challenges that we're going to encounter? 454 00:29:29,120 --> 00:29:33,760 You'd be surprised what you might learn by talking with the head of IT who goes, oh geez, 455 00:29:33,760 --> 00:29:37,880 I didn't realize you guys wanted to double the business and I didn't realize you wanted 456 00:29:37,880 --> 00:29:39,680 to do M&A. 457 00:29:39,680 --> 00:29:45,940 By the way, our ERP infrastructure fundamentally will not accommodate that. 458 00:29:45,940 --> 00:29:50,840 Which might be an aha for, maybe you're a more commercially focused CEO who just loves 459 00:29:50,840 --> 00:29:53,520 winning by selling more and spending a lot of time with customers. 460 00:29:53,520 --> 00:29:56,040 You might not have a lot of technology expertise. 461 00:29:56,040 --> 00:29:59,400 You might have overlooked something that could be of critical importance, right? 462 00:29:59,400 --> 00:30:05,680 So first and foremost, I think the dissemination starts with disseminating the aggregation 463 00:30:05,680 --> 00:30:08,220 of the best ideas into the plan formation. 464 00:30:08,220 --> 00:30:13,360 So it starts kind of very early on in the VCP development process, engaging every stakeholder 465 00:30:13,360 --> 00:30:15,980 that you think will add value to that process. 466 00:30:15,980 --> 00:30:17,100 That's the first step. 467 00:30:17,100 --> 00:30:22,240 The second step is not keeping them in the dark after you've solicited their great feedback, 468 00:30:22,240 --> 00:30:27,040 going back to the team and saying, hey, through the iteration of the plan development, here's 469 00:30:27,040 --> 00:30:28,040 what we heard. 470 00:30:28,040 --> 00:30:29,040 What do you think? 471 00:30:29,040 --> 00:30:30,540 Any additional input? 472 00:30:30,540 --> 00:30:34,120 And then keeping them apprised of progress for that plan over time. 473 00:30:34,120 --> 00:30:39,480 Now how you actually practically do that and disseminate that information, we think about 474 00:30:39,480 --> 00:30:40,480 strap planning. 475 00:30:40,480 --> 00:30:47,360 We think about VCP deployment and execution governance should follow some type of fairly 476 00:30:47,360 --> 00:30:49,640 rigid framework and cadence. 477 00:30:49,640 --> 00:30:55,320 So it's probably something that the executive leadership team is looking at in detail every 478 00:30:55,320 --> 00:30:59,400 year on an annual basis to say, hey, are we still working on the right things? 479 00:30:59,400 --> 00:31:04,400 Has anything changed in our business that should cause us to relook at some of these 480 00:31:04,400 --> 00:31:05,400 key priorities? 481 00:31:05,400 --> 00:31:07,920 So that happens on an annual basis. 482 00:31:07,920 --> 00:31:12,880 On a quarterly basis, that leadership group, the CEO should be discussing with the board 483 00:31:12,880 --> 00:31:15,760 of directors, here's how we're progressing to that plan, right? 484 00:31:15,760 --> 00:31:18,240 So the board continues to be involved. 485 00:31:18,240 --> 00:31:23,040 On a monthly basis, you would expect the CEO and their direct reports to be working on 486 00:31:23,040 --> 00:31:30,480 status updates to that plan, which could include a broad swath of cross-functional leaders 487 00:31:30,480 --> 00:31:33,080 and stakeholders in the organization. 488 00:31:33,080 --> 00:31:36,880 And ultimately what we're trying to do is to drive accountability down into the org 489 00:31:36,880 --> 00:31:40,800 to, hey, we've defined what the strategies are, we've defined what some of the tactics 490 00:31:40,800 --> 00:31:43,420 are that we need to execute against to get here. 491 00:31:43,420 --> 00:31:45,720 How are we progressing to that plan? 492 00:31:45,720 --> 00:31:51,200 So you may even see some of these conversations show up in some of the weekly functional calls. 493 00:31:51,200 --> 00:31:54,640 And there's different ways of rolling out multi-layered, especially getting into bigger 494 00:31:54,640 --> 00:31:58,120 organizations, multi-layered VCPs or strat plans. 495 00:31:58,120 --> 00:32:01,280 We could probably do a whole episode just on that. 496 00:32:01,280 --> 00:32:03,360 But I think that's how you disseminate it. 497 00:32:03,360 --> 00:32:08,680 Regular, open, honest lines of communication, making sure that those stakeholders who helped 498 00:32:08,680 --> 00:32:13,400 contribute to the plan formation are being kept apprised of progress to date and anything 499 00:32:13,400 --> 00:32:17,200 that would have changed that would materially change that plan. 500 00:32:17,200 --> 00:32:21,960 One thing that's important to note in businesses that are doing M&A, your whole strategy may 501 00:32:21,960 --> 00:32:25,520 very well change the second that you close that first big acquisition. 502 00:32:25,520 --> 00:32:31,640 So completely re-looking at that value creation plan after a large merger takes place, immediately 503 00:32:31,640 --> 00:32:35,840 after a large merger takes place is also something that's important to think about. 504 00:32:35,840 --> 00:32:39,320 I appreciate the comments on that bottoms up approach. 505 00:32:39,320 --> 00:32:41,680 So we do a lot of work, PMI work, right? 506 00:32:41,680 --> 00:32:43,200 A lot of integration work. 507 00:32:43,200 --> 00:32:47,440 And I think that this runs kind of similar to that PMI. 508 00:32:47,440 --> 00:32:52,600 Within those work streams, you're really reaching into that middle management team to petition 509 00:32:52,600 --> 00:32:53,920 ideas. 510 00:32:53,920 --> 00:32:58,800 And I appreciate the comment you made of also re-informing of how those inputs. 511 00:32:58,800 --> 00:33:00,960 So I gave you three pieces of feedback. 512 00:33:00,960 --> 00:33:02,560 You made one decision. 513 00:33:02,560 --> 00:33:06,560 Here's the decision I made based on some of your inputs, some of the needs, and we kind 514 00:33:06,560 --> 00:33:07,560 of meet in the middle somewhere. 515 00:33:07,560 --> 00:33:11,600 So I think that's interesting that maybe the question is less disseminate and more petition, 516 00:33:11,600 --> 00:33:14,480 which I appreciate that view on. 517 00:33:14,480 --> 00:33:17,040 Last question. 518 00:33:17,040 --> 00:33:18,640 Super direct question. 519 00:33:18,640 --> 00:33:20,440 I'm excited to take that tactical. 520 00:33:20,440 --> 00:33:24,960 If you listen to the podcast today, this is something you walk away with and get started 521 00:33:24,960 --> 00:33:25,960 on tomorrow. 522 00:33:25,960 --> 00:33:31,080 Two tips for implementing a VCP post acquisition. 523 00:33:31,080 --> 00:33:42,440 The best CEOs that I've seen are holding a meeting with their new investors that the 524 00:33:42,440 --> 00:33:43,960 CEO is initiating, right? 525 00:33:43,960 --> 00:33:46,480 This is how I think it's done best. 526 00:33:46,480 --> 00:33:50,720 Within the first 90 days of a new owner investing in the business, whether they're a majority 527 00:33:50,720 --> 00:33:55,400 owner or minority owner, a new investor is coming into the business, scheduling a meeting 528 00:33:55,400 --> 00:34:01,640 with those investors that's outside of a board meeting to make sure that you've solicited 529 00:34:01,640 --> 00:34:08,120 and fully understand their investment thesis, to make sure that they have a really good 530 00:34:08,120 --> 00:34:14,440 grasp as to what you see as the biggest areas of opportunity to drive EBITDA growth and 531 00:34:14,440 --> 00:34:18,000 ultimately drive enterprise value in the business. 532 00:34:18,000 --> 00:34:23,200 And having a cross-functional dialogue about that, get in a war room together, lock the 533 00:34:23,200 --> 00:34:28,760 doors, order some takeout and spend four, six, eight hours talking about all the opportunities 534 00:34:28,760 --> 00:34:34,480 that the business has and why you think X, Y, and Z are the most important to focus on, 535 00:34:34,480 --> 00:34:39,240 getting their feedback and maybe they're thinking that X and Y are extremely important, but 536 00:34:39,240 --> 00:34:40,240 Z might not be. 537 00:34:40,240 --> 00:34:41,240 Ask them why. 538 00:34:41,240 --> 00:34:42,680 Why do they think that? 539 00:34:42,680 --> 00:34:48,820 And then spend the first six months building a very comprehensive value creation plan that 540 00:34:48,820 --> 00:34:54,000 takes into consideration their feedback from that initial meeting, plus the feedback that 541 00:34:54,000 --> 00:34:57,400 you've solicited from your broader leadership team and maybe other important stakeholders 542 00:34:57,400 --> 00:35:02,080 in the business and coming back to that board by maybe the second or third board meeting 543 00:35:02,080 --> 00:35:05,560 and saying, listen, here is my plan. 544 00:35:05,560 --> 00:35:11,160 Now in a much more mature business, maybe 300, 500 million, 700 million, maybe a billion 545 00:35:11,160 --> 00:35:16,220 dollar in revenue mid-market business, you may have well-entrenched strategic planning 546 00:35:16,220 --> 00:35:21,480 processes and frameworks and tools and plans that exist. 547 00:35:21,480 --> 00:35:25,200 Some of this advice that I'm giving is probably more applicable to some slightly smaller businesses 548 00:35:25,200 --> 00:35:28,000 who maybe haven't gone through this exercise in the past. 549 00:35:28,000 --> 00:35:33,400 But if I'm a new CEO or I'm a CEO that's now finding myself that I'm owned and have 550 00:35:33,400 --> 00:35:37,440 investors that are private equity in nature, that's how I would do it. 551 00:35:37,440 --> 00:35:39,960 I'd have a meeting within the first 90 days between us boys. 552 00:35:39,960 --> 00:35:44,540 I'd probably try and make sure that that happened in the first 30 days just to show that I'm 553 00:35:44,540 --> 00:35:48,840 taking initiative here on what is, I guarantee you, an extremely important thing to focus 554 00:35:48,840 --> 00:35:49,840 on as a CEO. 555 00:35:49,840 --> 00:35:54,200 I try and have that meeting with those stakeholders very early on and outside of a board meeting. 556 00:35:54,200 --> 00:35:58,360 You can talk about these during a board meeting, but let's have a structured collaborative 557 00:35:58,360 --> 00:36:01,280 strategy session to make sure we're teasing out some really great ideas that everybody 558 00:36:01,280 --> 00:36:06,440 has, getting them down on paper, writing them down always helps, asking which ones they 559 00:36:06,440 --> 00:36:09,740 think would be their number one, number two priority, talking about why I think as the 560 00:36:09,740 --> 00:36:14,520 new CEO, these would be my priority focus areas and then saying, hey, you know what? 561 00:36:14,520 --> 00:36:18,360 I couldn't possibly have a plan developed in 15 days or 30 days. 562 00:36:18,360 --> 00:36:19,360 Give me a couple months. 563 00:36:19,360 --> 00:36:22,920 I want to go engage the rest of the stakeholders, make sure there isn't anything I don't know 564 00:36:22,920 --> 00:36:26,880 about the business that they know about the business that could either hurt or help this 565 00:36:26,880 --> 00:36:28,960 plan or accelerate this plan. 566 00:36:28,960 --> 00:36:32,080 And let me come back to you guys with a really thoughtful first draft of this. 567 00:36:32,080 --> 00:36:36,440 And I would call it a first draft and say, I want your input to the first draft, right? 568 00:36:36,440 --> 00:36:40,200 And iterate with them a few times in the first six to nine months, certainly within the first 569 00:36:40,200 --> 00:36:44,040 year of ownership, because bear in mind, if you're going to work fast, which is the beauty 570 00:36:44,040 --> 00:36:46,640 of the private equity model, we want to work fast. 571 00:36:46,640 --> 00:36:48,360 We want to grow businesses quickly. 572 00:36:48,360 --> 00:36:52,000 We want to create really great economic outcomes and maybe a three, four, five, seven year 573 00:36:52,000 --> 00:36:53,380 time period. 574 00:36:53,380 --> 00:36:55,760 You got to make sure you got a good plan in place in year one. 575 00:36:55,760 --> 00:37:00,180 So you have years two through five or two through seven to go and execute that plan. 576 00:37:00,180 --> 00:37:03,680 And then what I would do, and this is answering your question a second time, what I would 577 00:37:03,680 --> 00:37:07,100 do next then is I would make sure every time I have a board meeting, I'm giving them an 578 00:37:07,100 --> 00:37:08,720 update on that VCP. 579 00:37:08,720 --> 00:37:11,240 And you don't have to ask them to, you don't have to read it to them again the whole time, 580 00:37:11,240 --> 00:37:12,240 right? 581 00:37:12,240 --> 00:37:15,720 You can re-read before that board meeting, ask them to maybe take a look at a few particular 582 00:37:15,720 --> 00:37:20,640 pages that maybe the team has refreshed or updated and continue to make sure that they're 583 00:37:20,640 --> 00:37:24,880 apprised of what's happening and how you're executing to that plan and be prepared to 584 00:37:24,880 --> 00:37:28,480 ask them for additional resources if you need to go and do that. 585 00:37:28,480 --> 00:37:35,000 I think what a lot of CEOs don't realize about the private equity model is private equity 586 00:37:35,000 --> 00:37:37,360 firms actually want to bring a lot of resources. 587 00:37:37,360 --> 00:37:42,120 They want to invest a lot of money into these businesses to the extent that it supports 588 00:37:42,120 --> 00:37:43,120 profitable growth. 589 00:37:43,120 --> 00:37:46,740 So don't be afraid to ask for some big ticket items. 590 00:37:46,740 --> 00:37:50,720 If you think you can accelerate the achievement of the plan, but you need three more million 591 00:37:50,720 --> 00:37:55,680 dollars on some consultants to come in and do X or Y or Z, or you want to set up a new 592 00:37:55,680 --> 00:38:00,440 facility and it's going to cost $20 million worth of new equipment, you'd be surprised 593 00:38:00,440 --> 00:38:01,760 how quickly people are going to say yes. 594 00:38:01,760 --> 00:38:06,120 If there's a really sound business plan that supports the broader VCP that you've all agreed 595 00:38:06,120 --> 00:38:10,240 from day one is the right plan for the business, you'd probably be surprised how much support 596 00:38:10,240 --> 00:38:14,880 you're going to get, but keeping them apprised all along the way in regular updates is certainly 597 00:38:14,880 --> 00:38:15,880 a helpful way to get there. 598 00:38:15,880 --> 00:38:17,360 I like that, adding that third. 599 00:38:17,360 --> 00:38:21,920 So to play it back, number one, have that meeting the first 30 to 90 days. 600 00:38:21,920 --> 00:38:26,000 Number two, present V1 within or version one of that plan within the first six months. 601 00:38:26,000 --> 00:38:29,320 And you added a third, which I like, make sure to report it out and update folks. 602 00:38:29,320 --> 00:38:31,240 Yeah, just keep people apprised to what's going on. 603 00:38:31,240 --> 00:38:36,040 And we've just spent the last few minutes talking about how a CEO is engaging up into 604 00:38:36,040 --> 00:38:40,480 the board, but some same version of the same thing back down across the organization, you've 605 00:38:40,480 --> 00:38:41,880 got to keep those folks apprised. 606 00:38:41,880 --> 00:38:47,200 And there's well-documented ways of how do you roll out strategic plans throughout businesses. 607 00:38:47,200 --> 00:38:52,880 There's tools like goal deployment, strategy deployment, those types of tools, OGSM, OKRs, 608 00:38:52,880 --> 00:38:56,640 there's 400 different versions that different smart folks have come up with over the years. 609 00:38:56,640 --> 00:38:59,520 It doesn't really matter which version you use, as long as you use one of them and you 610 00:38:59,520 --> 00:39:00,520 use it well. 611 00:39:00,520 --> 00:39:01,520 You're consistent about it. 612 00:39:01,520 --> 00:39:03,060 You're chatting with those teams regularly. 613 00:39:03,060 --> 00:39:07,120 You're holding people accountable to cross off those tactical objectives that support 614 00:39:07,120 --> 00:39:10,120 the broader strategy of the business. 615 00:39:10,120 --> 00:39:11,120 Yeah, great. 616 00:39:11,120 --> 00:39:15,520 Funny as we close out today, when I had joined an organization, so I was working, living 617 00:39:15,520 --> 00:39:19,600 in Mexico, I came back to the US to work for a US organization and we had a strat meeting. 618 00:39:19,600 --> 00:39:23,440 And in that strat meeting, they asked me what my BHAGs were. 619 00:39:23,440 --> 00:39:24,880 Have you heard the phrase BHAG before? 620 00:39:24,880 --> 00:39:27,640 I am unfamiliar with BHAG. 621 00:39:27,640 --> 00:39:29,720 I don't think I want a BHAG. 622 00:39:29,720 --> 00:39:31,040 Big hairy audacious goals. 623 00:39:31,040 --> 00:39:32,040 Oh, there you go. 624 00:39:32,040 --> 00:39:33,040 Yeah. 625 00:39:33,040 --> 00:39:36,720 So that was one of those moments that I realized this strategy meeting is going to be a thing. 626 00:39:36,720 --> 00:39:41,800 And so I appreciate you today breaking down this conversation, not at the BHAG level, 627 00:39:41,800 --> 00:39:44,720 but at the detail level where folks can understand what's tactical. 628 00:39:44,720 --> 00:39:46,160 I think there's a lot here. 629 00:39:46,160 --> 00:39:49,560 I took a couple of notes during this and maybe we'll do a couple of follow ups where we deep 630 00:39:49,560 --> 00:39:53,440 dive on some of these things around the KPIs, the communication. 631 00:39:53,440 --> 00:39:54,440 I really like that. 632 00:39:54,440 --> 00:39:57,240 And I know that we have some templates that we use with our clients and maybe we could 633 00:39:57,240 --> 00:39:58,960 talk about what goes into those. 634 00:39:58,960 --> 00:40:01,960 Any closing thoughts before we leave today? 635 00:40:01,960 --> 00:40:02,960 Great for lunch. 636 00:40:02,960 --> 00:40:03,960 Great. 637 00:40:03,960 --> 00:40:04,960 Let's get at it. 638 00:40:04,960 --> 00:40:09,840 Thanks everyone for listening and good luck on your value creation plans. 639 00:40:09,840 --> 00:40:12,800 Thanks for tuning into this episode of Growing EBITDA. 640 00:40:12,800 --> 00:40:17,880 If you like this episode, hit subscribe or follow us on LinkedIn for updates. 641 00:40:17,880 --> 00:40:19,920 Got a topic you'd like us to cover? 642 00:40:19,920 --> 00:40:20,920 Drop us a message. 643 00:40:20,920 --> 00:40:32,560 We'd love to hear from you.