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 --> 00:00:31,440 Stay tuned and let's grow together. 8 00:00:31,440 --> 00:00:34,960 We got a little bit of a public service announcement today, don't we, James? 9 00:00:34,960 --> 00:00:35,960 We do. 10 00:00:35,960 --> 00:00:40,100 How inadequate ERPs impact your bottom line? 11 00:00:40,100 --> 00:00:41,240 Why is this a PSA? 12 00:00:41,240 --> 00:00:42,600 Because we care about... 13 00:00:42,600 --> 00:00:44,160 Because this is your passion project. 14 00:00:44,160 --> 00:00:45,160 Yeah, 100%. 15 00:00:45,160 --> 00:00:51,320 I'd say we care about the people that we work with, we care about our clients, we want people 16 00:00:51,320 --> 00:00:56,080 to be successful, but really, I'm tired of seeing it. 17 00:00:56,080 --> 00:01:02,440 I think it's something that's out there all the time, and I think that other folks are 18 00:01:02,440 --> 00:01:08,480 way too comfortable in continuing to support inadequate ERPs. 19 00:01:08,480 --> 00:01:09,720 Where are you seeing the inadequacy? 20 00:01:09,720 --> 00:01:14,740 Yeah, there's a lot of factors that we see in that, and we can get into some of those, 21 00:01:14,740 --> 00:01:18,700 but I'm generally seeing it across all businesses. 22 00:01:18,700 --> 00:01:25,600 So one of the unique things about TriVista is we cover almost every business vertical 23 00:01:25,600 --> 00:01:26,600 there is. 24 00:01:26,600 --> 00:01:30,920 So from distribution and manufacturing to a business service to a software development 25 00:01:30,920 --> 00:01:32,360 company. 26 00:01:32,360 --> 00:01:37,620 And we try to draw insights as we interact with our clients and say, oh, maybe this group 27 00:01:37,620 --> 00:01:39,000 is XYZ, right? 28 00:01:39,000 --> 00:01:43,320 So from a distribution group, it's IOP is important, and we know that those systems 29 00:01:43,320 --> 00:01:45,140 and some of the planning helps them. 30 00:01:45,140 --> 00:01:50,340 But no matter what the business is, and no matter what the size is, we see inadequacies 31 00:01:50,340 --> 00:01:51,420 every day. 32 00:01:51,420 --> 00:01:52,420 And they're small. 33 00:01:52,420 --> 00:01:53,880 Some are small and some are large. 34 00:01:53,880 --> 00:01:58,520 Some are I'm running QuickBooks, some are I have a big ERP and I don't have support, 35 00:01:58,520 --> 00:02:01,360 and some are my ERP hasn't existed for the last 10 years. 36 00:02:01,360 --> 00:02:03,240 So we kind of see it every day and everywhere. 37 00:02:03,240 --> 00:02:06,280 And I don't want to be doom and gloom, but it is a PSA. 38 00:02:06,280 --> 00:02:11,680 And I'm a kid that grew up in the 80s and 90s, and those PSAs, they were usually pretty 39 00:02:11,680 --> 00:02:15,820 doom and gloomy with some eggs in a frying pan, if you remember those, Mike. 40 00:02:15,820 --> 00:02:16,820 Those are some memories. 41 00:02:16,820 --> 00:02:20,880 And so I think this is a bit of supporting our friends and letting them know, hey, there's 42 00:02:20,880 --> 00:02:23,080 help out there and we can turn this thing around. 43 00:02:23,080 --> 00:02:25,520 How are you seeing it impact the bottom line? 44 00:02:25,520 --> 00:02:27,360 Where is it showing up in the financials? 45 00:02:27,360 --> 00:02:28,360 Yeah. 46 00:02:28,360 --> 00:02:32,520 So on the bottom line, we're seeing it on the operations side. 47 00:02:32,520 --> 00:02:37,280 So really struggling on the operations to be successful. 48 00:02:37,280 --> 00:02:41,800 And some of the new initiatives, we see those fail sometimes because the system can't keep 49 00:02:41,800 --> 00:02:42,800 up. 50 00:02:42,800 --> 00:02:47,600 So when you think about like operational improvement, a thing that we do a lot of times is, you 51 00:02:47,600 --> 00:02:51,840 know, I'm making these changes in my operation and the system needs to come along with on 52 00:02:51,840 --> 00:02:53,240 the journey with me. 53 00:02:53,240 --> 00:02:55,560 And if it doesn't, that's a failed program. 54 00:02:55,560 --> 00:02:57,040 There's capex attached to that. 55 00:02:57,040 --> 00:02:58,680 There's change attached to that. 56 00:02:58,680 --> 00:03:00,480 Bottom line effect. 57 00:03:00,480 --> 00:03:01,480 Customer dissatisfaction. 58 00:03:01,480 --> 00:03:03,400 I don't know where my order is. 59 00:03:03,400 --> 00:03:04,400 My order is incorrect. 60 00:03:04,400 --> 00:03:05,400 I'm having challenges. 61 00:03:05,400 --> 00:03:08,520 It's another one that impacts the bottom line. 62 00:03:08,520 --> 00:03:13,760 And then just generally we see it that there's chances to overspend in this space and you're 63 00:03:13,760 --> 00:03:16,240 paying for a product that you're not getting the true value out of. 64 00:03:16,240 --> 00:03:21,760 You're talking about overspend on the implementation side, on the maintenance side, all the above? 65 00:03:21,760 --> 00:03:22,760 Maybe all the above. 66 00:03:22,760 --> 00:03:23,760 All the above. 67 00:03:23,760 --> 00:03:25,280 My favorite answer. 68 00:03:25,280 --> 00:03:29,920 Let's get specifics on how it's driving operational costs. 69 00:03:29,920 --> 00:03:31,760 I'm glad you caught that one. 70 00:03:31,760 --> 00:03:33,920 That's one that's an important one. 71 00:03:33,920 --> 00:03:39,120 And some of the operational costs that we see is really around, and you touched on it, 72 00:03:39,120 --> 00:03:42,880 is around the support side of it and the folks needed to do it. 73 00:03:42,880 --> 00:03:44,400 And that's your internal team. 74 00:03:44,400 --> 00:03:49,640 You could have four or five people that are doing some very manual processes that are 75 00:03:49,640 --> 00:03:54,720 required to be able to support that need and that system that could be done in a much more 76 00:03:54,720 --> 00:03:55,720 efficient way. 77 00:03:55,720 --> 00:04:00,320 But due to the system not being able to support it, it really drives up those operational 78 00:04:00,320 --> 00:04:01,320 costs. 79 00:04:01,320 --> 00:04:03,360 And those are human hours that you're putting towards that. 80 00:04:03,360 --> 00:04:06,260 And a lot of times you hear when there's like a manual process, you always hear the throw 81 00:04:06,260 --> 00:04:07,260 more people at it. 82 00:04:07,260 --> 00:04:08,260 We can do it. 83 00:04:08,260 --> 00:04:09,260 Well, there's a challenge. 84 00:04:09,260 --> 00:04:12,240 It reaches kind of a peak where you can no longer throw more people at it. 85 00:04:12,240 --> 00:04:14,240 The system has to kind of come in and help. 86 00:04:14,240 --> 00:04:18,220 And then another one is when you have all these manual processes and you have all these 87 00:04:18,220 --> 00:04:23,720 people kind of propping the system up, you have a high probability of bad data. 88 00:04:23,720 --> 00:04:28,280 And we've talked about on multiple other podcasts, data-driven decision making, being able to 89 00:04:28,280 --> 00:04:29,580 really focus on data. 90 00:04:29,580 --> 00:04:34,840 We all know that the base for AI that's coming is good data. 91 00:04:34,840 --> 00:04:39,720 When you're manual and you have this bad, I guess the opposite of rich, unrich data 92 00:04:39,720 --> 00:04:43,720 that's sitting out there, it's a challenge for you to use some automation tools. 93 00:04:43,720 --> 00:04:45,860 It's a challenge we'll make decisions. 94 00:04:45,860 --> 00:04:48,080 It's a challenge to know where things are. 95 00:04:48,080 --> 00:04:51,840 And that poor data can really cause costly mistakes. 96 00:04:51,840 --> 00:04:57,200 And that's from inventory, procurement, reporting, many different venues that are challenging. 97 00:04:57,200 --> 00:05:02,080 So I think really it does drive up operational costs, not all the times dollars and cents, 98 00:05:02,080 --> 00:05:06,900 but it's kind of those soft dollars that just kind of is the vibe that goes to the organization. 99 00:05:06,900 --> 00:05:11,640 So you and I were having a conversation a few weeks ago that I thought was interesting 100 00:05:11,640 --> 00:05:14,120 and relevant to this topic. 101 00:05:14,120 --> 00:05:19,880 We were talking about supply chains and how ERP systems, particularly those that were 102 00:05:19,880 --> 00:05:25,600 outdated or inadequate, whatever label you want to put on it, the impact that that has 103 00:05:25,600 --> 00:05:27,200 on supply chains. 104 00:05:27,200 --> 00:05:31,680 Because I think a lot of executives go straight to what you just talked about, the operating 105 00:05:31,680 --> 00:05:38,120 costs, the headcount, the manual data entry, the manual report outs that need to be done. 106 00:05:38,120 --> 00:05:40,400 But I thought it was interesting when you started talking about the impact on the supply 107 00:05:40,400 --> 00:05:46,440 chain and kind of the downstream impact that that has, especially given how big the supply 108 00:05:46,440 --> 00:05:51,120 chain can be, particularly in certain business types. 109 00:05:51,120 --> 00:05:56,880 You get into industrial environments and 60% of cogs might be supply chain related. 110 00:05:56,880 --> 00:06:00,460 So huge portion of spend. 111 00:06:00,460 --> 00:06:05,780 Talk to me about how inadequate ERPs are impacting supply chain costs. 112 00:06:05,780 --> 00:06:12,000 So I had this boss at one point, we'd go around and tour and so I was supporting global ERP 113 00:06:12,000 --> 00:06:16,160 systems and we were rolling out a new warehouse management system or WMS. 114 00:06:16,160 --> 00:06:21,160 And we really needed this WMS because we globally sourced and then we kind of cross-docked each 115 00:06:21,160 --> 00:06:23,780 other to kind of backhaul and supply each other. 116 00:06:23,780 --> 00:06:28,680 And so we really needed really good visibility into what we had across the organization. 117 00:06:28,680 --> 00:06:33,160 And as we walked the warehouse, he would always say to me, he's like, well, there's a Honda 118 00:06:33,160 --> 00:06:35,120 Civic on that shelf. 119 00:06:35,120 --> 00:06:36,920 There's a BMW on that shelf. 120 00:06:36,920 --> 00:06:41,260 And essentially those dollars that you spend on whether it's raws or finished goods, they're 121 00:06:41,260 --> 00:06:42,760 sitting on shelves. 122 00:06:42,760 --> 00:06:44,880 So excess inventory costs. 123 00:06:44,880 --> 00:06:49,040 We all know during COVID prices went up, folks over procured because they wanted to have 124 00:06:49,040 --> 00:06:55,200 a little nest egg, potentially overpaid, didn't have that visibility and potentially overspent, 125 00:06:55,200 --> 00:06:57,520 definitely had more stock than they needed. 126 00:06:57,520 --> 00:07:03,440 Another place you see that kind of dis-energy of value on procurement is in the M&A space. 127 00:07:03,440 --> 00:07:05,560 We spend a lot of time helping folks come together. 128 00:07:05,560 --> 00:07:08,840 So post merger integration or whatever you want to call it. 129 00:07:08,840 --> 00:07:13,860 That integration side, making sure I have the best price across my organization and 130 00:07:13,860 --> 00:07:19,760 have visibility to that and opportunity for poor inventory practices. 131 00:07:19,760 --> 00:07:21,320 Also it's a very interesting thing. 132 00:07:21,320 --> 00:07:23,080 It's pretty interesting transactionally. 133 00:07:23,080 --> 00:07:26,560 If you don't have it to sell, it's really hard for a client to buy it. 134 00:07:26,560 --> 00:07:32,200 So having stock outs, having the ability to not know when you're going to be up against 135 00:07:32,200 --> 00:07:37,520 that or not procure effectively to build a support that can lead to lost sales. 136 00:07:37,520 --> 00:07:42,240 And the last one is, which is super important business, is the ability to forecast. 137 00:07:42,240 --> 00:07:46,120 Know what's on the horizon, know what's needed to build and make sure those other two don't 138 00:07:46,120 --> 00:07:47,120 fail. 139 00:07:47,120 --> 00:07:49,040 And we talked about the bad data that existed. 140 00:07:49,040 --> 00:07:52,840 If I don't have good data and I don't have that information, like you're talking about 141 00:07:52,840 --> 00:07:58,080 what we're seeing on the supply chain side, people want richer data, better insights to 142 00:07:58,080 --> 00:08:03,280 kind of systemically drive not someone who feels this is what they need, but have a reason 143 00:08:03,280 --> 00:08:04,720 and knowledge that they need that. 144 00:08:04,720 --> 00:08:08,600 If you don't have that visibility, it does create some challenges. 145 00:08:08,600 --> 00:08:14,600 Spend a little bit of time talking about overspend with vendors too, which I found our conversation 146 00:08:14,600 --> 00:08:17,820 about that recently also pretty interesting. 147 00:08:17,820 --> 00:08:22,840 So going back to a couple of those topics, if I don't have that visibility into how I'm 148 00:08:22,840 --> 00:08:27,680 spending and what I'm spending because I don't know what I have, it leads me to be able to 149 00:08:27,680 --> 00:08:33,120 overspend because either I don't know what I need, I buy too much, or maybe they're getting 150 00:08:33,120 --> 00:08:34,640 away with overcharging me. 151 00:08:34,640 --> 00:08:36,640 And we unfortunately see this a lot. 152 00:08:36,640 --> 00:08:41,040 We negotiate and spend a lot of time upfront to negotiate a good fair price for two organizations 153 00:08:41,040 --> 00:08:42,400 to work together. 154 00:08:42,400 --> 00:08:47,960 If that information is not loaded into a system that I can look at the PO and then I can look 155 00:08:47,960 --> 00:08:52,880 at my invoice and make sure they match out and I'm spending what I expect, that it causes 156 00:08:52,880 --> 00:08:53,880 issues. 157 00:08:53,880 --> 00:08:54,880 I can easily overspend. 158 00:08:54,880 --> 00:08:58,560 It's kind of sad because you spend all that work upfront to do that and then it fails 159 00:08:58,560 --> 00:09:00,000 on the other side. 160 00:09:00,000 --> 00:09:04,280 A lot of times also, and I think that a lot of organizations struggle with this, is that 161 00:09:04,280 --> 00:09:06,160 contract management side. 162 00:09:06,160 --> 00:09:07,560 Where do these documents exist? 163 00:09:07,560 --> 00:09:09,480 How do I have access? 164 00:09:09,480 --> 00:09:11,480 Turnover happens, changes happen. 165 00:09:11,480 --> 00:09:13,440 What's that central repository? 166 00:09:13,440 --> 00:09:17,320 And I know that this is one that you're big on, which is the process side. 167 00:09:17,320 --> 00:09:22,240 If I don't have good processes in place and those processes aren't systemically enabled 168 00:09:22,240 --> 00:09:26,840 or supported, by the way, I don't think the ERP is going to be able to drive the process. 169 00:09:26,840 --> 00:09:29,960 I think the good process is supported by the system. 170 00:09:29,960 --> 00:09:34,920 That can really lead the opportunity to overspend with that vendor because those controls aren't 171 00:09:34,920 --> 00:09:35,920 in place. 172 00:09:35,920 --> 00:09:41,440 I think the challenge with that is sometimes you don't even know you're overspending until 173 00:09:41,440 --> 00:09:42,960 it's too late. 174 00:09:42,960 --> 00:09:47,320 That retrospective side, we do struggle on helping people, but I think if you clean that 175 00:09:47,320 --> 00:09:51,600 up, organize, we can start to tighten those pieces up. 176 00:09:51,600 --> 00:09:57,040 We wanted to talk a little bit today about the impact on M&A too, right? 177 00:09:57,040 --> 00:10:00,440 Which somebody might argue, well, is that a conversation about bottom line or is that 178 00:10:00,440 --> 00:10:03,000 a conversation about enterprise value? 179 00:10:03,000 --> 00:10:09,540 But let's spend a few minutes here talking about how ERP systems can impact M&A transactions. 180 00:10:09,540 --> 00:10:14,600 The first thing that comes to mind for me is just simply lower valuation, right? 181 00:10:14,600 --> 00:10:21,080 If somebody's coming in looking at your business, whether it's a corporate acquirer or a private 182 00:10:21,080 --> 00:10:27,360 equity buyer, whether it's a platform business or an add-on acquisition, everybody's going 183 00:10:27,360 --> 00:10:32,440 to look at each business a little bit differently, but most of them are going to want to understand 184 00:10:32,440 --> 00:10:36,020 is the ERP system sufficient to run the business? 185 00:10:36,020 --> 00:10:37,560 Is it under invested? 186 00:10:37,560 --> 00:10:40,080 Is it costly to maintain? 187 00:10:40,080 --> 00:10:45,440 How costly is it to maintain it relative to similar businesses that they've seen? 188 00:10:45,440 --> 00:10:47,280 Is there a single point of failure? 189 00:10:47,280 --> 00:10:53,200 Some rogue individual out there, contractor or full-time employee who is the only person 190 00:10:53,200 --> 00:10:58,300 that knows how to run one of those antiquated systems with tons of custom code. 191 00:10:58,300 --> 00:11:01,880 The more antiquated it is, the more under invested it is, the more expensive it is to 192 00:11:01,880 --> 00:11:03,520 maintain it. 193 00:11:03,520 --> 00:11:09,400 If it's lacking the ability to enable some of those processes, those core business processes, 194 00:11:09,400 --> 00:11:14,080 that's going to drive lower valuations every time, right? 195 00:11:14,080 --> 00:11:19,440 Because you have a highly functioning ERP system that's scalable, that you can go and 196 00:11:19,440 --> 00:11:24,800 do add-ons with, that you can grow sales three or four X and it can continue to find the 197 00:11:24,800 --> 00:11:28,640 right support and it's got the right modules you can grow into, et cetera. 198 00:11:28,640 --> 00:11:30,800 Obviously, that's a more positive thing. 199 00:11:30,800 --> 00:11:35,160 And especially if somebody else, if the current owners have taken the initiative to spend 200 00:11:35,160 --> 00:11:40,240 the money with the system integrators and stand up that functioning ERP, that de-risks 201 00:11:40,240 --> 00:11:44,200 the deal and ultimately sometimes that'll lead to a higher enterprise value or higher 202 00:11:44,200 --> 00:11:45,880 valuation as well. 203 00:11:45,880 --> 00:11:49,520 Tell me a little bit though, during those M&A processes, those sale processes, talk 204 00:11:49,520 --> 00:11:51,100 to me about due diligence. 205 00:11:51,100 --> 00:11:54,400 How are you assessing whether an ERP system is adequate or not? 206 00:11:54,400 --> 00:11:59,320 And at the end of this, I would like to hear some guidance from you because I know you 207 00:11:59,320 --> 00:12:02,960 look at a lot of deals every year and you support our clients and you yourself review 208 00:12:02,960 --> 00:12:05,160 tons of SIMs every year. 209 00:12:05,160 --> 00:12:08,200 And I think it's interesting when I go through the diligence piece, because I'm going to 210 00:12:08,200 --> 00:12:10,440 talk about it kind of on the outbound side. 211 00:12:10,440 --> 00:12:14,000 I think I would like to hear from you and I'm sure listeners would as well as like, 212 00:12:14,000 --> 00:12:17,360 once you receive that, has it affected deals recently? 213 00:12:17,360 --> 00:12:20,840 What are you seeing in the market based on this and how are you seeing this effect kind 214 00:12:20,840 --> 00:12:25,640 of, again, we're talking about how it affects the bottom line or the ability to sell that 215 00:12:25,640 --> 00:12:26,960 business in an M&A process. 216 00:12:26,960 --> 00:12:30,440 Yeah, I think it's a lot of the stuff I mentioned a second ago. 217 00:12:30,440 --> 00:12:37,800 If you're doing diligence on an asset and you find that the ERP system is barely functional, 218 00:12:37,800 --> 00:12:42,440 it's holding on paper clips and glue, you're sitting there thinking to yourself, hey, how 219 00:12:42,440 --> 00:12:46,520 much money is it going to take to stand up a functioning system? 220 00:12:46,520 --> 00:12:50,800 And the risk for a particularly a private equity buyer is they don't know anything about 221 00:12:50,800 --> 00:12:51,880 ERP systems. 222 00:12:51,880 --> 00:12:58,520 So that's complicated, sounds expensive, start having conversations about the risk profile 223 00:12:58,520 --> 00:13:00,640 of the deal becoming elevated. 224 00:13:00,640 --> 00:13:05,280 Quite frankly, one of the biggest things that we've seen blow up deals and one of the biggest 225 00:13:05,280 --> 00:13:11,480 things that we've seen really impact outcomes for private equity investors is having to 226 00:13:11,480 --> 00:13:17,120 way overspend versus what they anticipated during their ownership cycle of the business, 227 00:13:17,120 --> 00:13:19,040 overspend on ERPs. 228 00:13:19,040 --> 00:13:24,760 It's a huge cash drain on the business, especially businesses that have a reasonable amount of 229 00:13:24,760 --> 00:13:25,760 leverage. 230 00:13:25,760 --> 00:13:29,640 And it's a huge distraction if you've got to go and upgrade one of these systems. 231 00:13:29,640 --> 00:13:35,240 So you'll find some buyers who are happy to buy a business with a dysfunctional or antiquated 232 00:13:35,240 --> 00:13:40,120 or insufficient ERP system, but they're going to buy it at a big discount as a result of 233 00:13:40,120 --> 00:13:45,040 that, perhaps a big discount amongst other discounts that they're seeking. 234 00:13:45,040 --> 00:13:49,440 But yeah, no, a highly functional ERP system, it's one of the first things the most at least 235 00:13:49,440 --> 00:13:53,560 private equity buyers so I can speak to more directly are looking for. 236 00:13:53,560 --> 00:13:57,440 And it's something they diligence the heck out of when we're looking at these targets. 237 00:13:57,440 --> 00:14:00,720 So to play that back for a second, and I just want this to be like a plain English thing 238 00:14:00,720 --> 00:14:09,680 for our listeners, do you feel that a deal could be passed on if it had an ERP that was 239 00:14:09,680 --> 00:14:13,080 significantly underperformant or had issues? 240 00:14:13,080 --> 00:14:14,080 Would it be a deal breaker? 241 00:14:14,080 --> 00:14:15,080 Absolutely. 242 00:14:15,080 --> 00:14:21,800 And then the second one is, have you seen deals get discounted based on the ERP? 243 00:14:21,800 --> 00:14:22,800 Yes. 244 00:14:22,800 --> 00:14:23,800 Wow. 245 00:14:23,800 --> 00:14:25,200 I mean, that's pretty impactful and direct. 246 00:14:25,200 --> 00:14:26,200 I would like also another thing- 247 00:14:26,200 --> 00:14:28,960 And it's probably a double whammy, James. 248 00:14:28,960 --> 00:14:32,460 You can probably make some reasonable assumptions here. 249 00:14:32,460 --> 00:14:37,040 Like we've talked about at length, antiquated, insufficient, whatever labels you want to 250 00:14:37,040 --> 00:14:44,120 put on it, ERP systems are probably costing the business more money than they should, 251 00:14:44,120 --> 00:14:47,320 which impacts their EBITDA or their bottom line. 252 00:14:47,320 --> 00:14:52,240 So there's the first hit, but then most of M&A transactions, most of the valuations are 253 00:14:52,240 --> 00:14:56,840 based off of some type of multiple of those earnings or that EBITDA, right? 254 00:14:56,840 --> 00:15:00,280 We hear a lot about multiples of EBITDA, especially in private equity. 255 00:15:00,280 --> 00:15:05,160 So if your earnings are depressed because your ERP system is inadequate, when you go 256 00:15:05,160 --> 00:15:09,240 to put whatever multiplier you put against that, you're going to get a lower number than 257 00:15:09,240 --> 00:15:10,240 you otherwise would have. 258 00:15:10,240 --> 00:15:16,000 If you also are getting a discount on the number you're multiplying by because there's 259 00:15:16,000 --> 00:15:21,040 perceived significant risk or the buyers think they have to spend significant dollars to 260 00:15:21,040 --> 00:15:25,000 upgrade the system, now you're getting kind of burnt from both ends, right? 261 00:15:25,000 --> 00:15:29,360 So not only can it impact your bottom line, but it impacts shareholder value in a meaningful 262 00:15:29,360 --> 00:15:31,760 way, and in some cases, in multiple ways. 263 00:15:31,760 --> 00:15:34,000 So a really big issue. 264 00:15:34,000 --> 00:15:36,500 And listen, deals still get done. 265 00:15:36,500 --> 00:15:40,660 Sometimes they get done at prices that are less attractive to the sellers and more attractive 266 00:15:40,660 --> 00:15:43,760 to the buyers, provided they're willing to roll up their sleeves and do the work. 267 00:15:43,760 --> 00:15:44,760 Interesting. 268 00:15:44,760 --> 00:15:46,880 Now, I appreciate that insight, not to skip out. 269 00:15:46,880 --> 00:15:50,440 And just a couple more questions before I go back to your original question, which was 270 00:15:50,440 --> 00:15:51,440 around the diligence side. 271 00:15:51,440 --> 00:15:52,440 Sure. 272 00:15:52,440 --> 00:15:53,440 And try this to help me out. 273 00:15:53,440 --> 00:15:54,440 I don't know the number. 274 00:15:54,440 --> 00:15:58,440 What do you think of our diligence work is a sell side diligence? 275 00:15:58,440 --> 00:15:59,440 Probably 15%. 276 00:15:59,440 --> 00:16:02,720 But you should make sure everybody understands what sell side diligence means. 277 00:16:02,720 --> 00:16:03,720 Yeah, please. 278 00:16:03,720 --> 00:16:11,400 So in an M&A context, typically buyers do diligence on the targets, right? 279 00:16:11,400 --> 00:16:13,000 The businesses that they're looking at buying. 280 00:16:13,000 --> 00:16:15,400 We call that buy side diligence. 281 00:16:15,400 --> 00:16:20,800 We do a lot of that at TriVista from an operations and supply chain and technology and cybersecurity 282 00:16:20,800 --> 00:16:22,000 perspective. 283 00:16:22,000 --> 00:16:24,600 There are many other folks out there who do different work streams. 284 00:16:24,600 --> 00:16:28,720 You've got the accountants that do their check of the numbers, the lawyers are drafting the 285 00:16:28,720 --> 00:16:30,560 legal docs. 286 00:16:30,560 --> 00:16:35,080 Everyone who's representing the buyer in that situation is conducting what we call buy side 287 00:16:35,080 --> 00:16:36,080 diligence. 288 00:16:36,080 --> 00:16:41,760 What you're talking about now on the sell side is the company that's putting itself 289 00:16:41,760 --> 00:16:43,260 up for sale. 290 00:16:43,260 --> 00:16:48,640 It's the diligence they're doing on themselves and presenting to the buyer to encourage the 291 00:16:48,640 --> 00:16:52,560 buyer to want to be attracted to buying that business, right? 292 00:16:52,560 --> 00:16:58,360 So in an operations and supply chain and technology context, which is where we play, you'll see 293 00:16:58,360 --> 00:17:03,600 things like companies wanting to make sure that they're articulating that they do have 294 00:17:03,600 --> 00:17:06,800 the appropriate cybersecurity measures in place. 295 00:17:06,800 --> 00:17:11,440 Not only do they have a functioning ERP system, but they have a world-class ERP system. 296 00:17:11,440 --> 00:17:15,400 They'll get third parties like us to come in and attest to the fact that they do have 297 00:17:15,400 --> 00:17:20,040 those systems or processes or leadership capabilities in place. 298 00:17:20,040 --> 00:17:23,760 That can have a pretty meaningful impact on enterprise value as well. 299 00:17:23,760 --> 00:17:28,320 If you think about it like this, the story I always like to use is when you go to sell 300 00:17:28,320 --> 00:17:32,440 your house, you're going to hire a realtor, right? 301 00:17:32,440 --> 00:17:36,080 One of the first things that almost every realtor is going to come in and tell you is, 302 00:17:36,080 --> 00:17:37,740 we should stage the house. 303 00:17:37,740 --> 00:17:41,240 If we stage the house, we're going to get more money for the house. 304 00:17:41,240 --> 00:17:45,360 Some buyers, listen, other buyers don't. 305 00:17:45,360 --> 00:17:49,920 And they don't at the risk of maybe getting less money for that house. 306 00:17:49,920 --> 00:17:51,960 But some people are very comfortable doing that. 307 00:17:51,960 --> 00:17:52,960 Thanks, Mike. 308 00:17:52,960 --> 00:17:56,120 I didn't realize it was 15%. 309 00:17:56,120 --> 00:17:58,680 That's an interesting piece of information. 310 00:17:58,680 --> 00:18:02,240 The reason I asked the question and you kind of go through the evaluation and some of the 311 00:18:02,240 --> 00:18:08,200 pieces is I noticed that when folks are putting together a sim, I probably look at a couple 312 00:18:08,200 --> 00:18:09,200 hundred sims a year. 313 00:18:09,200 --> 00:18:10,480 I'm sure you look at way more than I do. 314 00:18:10,480 --> 00:18:11,480 What's a sim? 315 00:18:11,480 --> 00:18:12,720 I know what a sim is. 316 00:18:12,720 --> 00:18:14,640 I'm just making sure the audience knows what a sim is. 317 00:18:14,640 --> 00:18:17,240 You're doing such a good job defining today. 318 00:18:17,240 --> 00:18:18,440 You want to take that one? 319 00:18:18,440 --> 00:18:19,440 I'll take it. 320 00:18:19,440 --> 00:18:22,760 By the way, just so you know, Mike, I was going to ask you the question and say before 321 00:18:22,760 --> 00:18:24,280 you answer, can you define it? 322 00:18:24,280 --> 00:18:26,360 So I just love how much you and I are lined up. 323 00:18:26,360 --> 00:18:27,360 Just take it. 324 00:18:27,360 --> 00:18:30,520 Beat me to the punch. 325 00:18:30,520 --> 00:18:36,440 So sim stands for confidential information memorandum, confidential information memo, 326 00:18:36,440 --> 00:18:41,120 for short, because it's three of the longest words ever put together. 327 00:18:41,120 --> 00:18:43,920 Term very commonly used in the M&A community. 328 00:18:43,920 --> 00:18:45,440 Think about it like a house listing, right? 329 00:18:45,440 --> 00:18:47,840 You go back to the selling your house analogy. 330 00:18:47,840 --> 00:18:53,520 This is where the advisors on a deal will help put together all the pertinent information 331 00:18:53,520 --> 00:18:56,980 about a business that is coming up for sale. 332 00:18:56,980 --> 00:19:04,320 So 60, 70, 80 slides long, customers, operations, IT systems, management team, kind of a summary 333 00:19:04,320 --> 00:19:08,960 of the current state and where the business is trying to go. 334 00:19:08,960 --> 00:19:12,180 It's interesting you mentioned IT systems. 335 00:19:12,180 --> 00:19:17,760 So I look at a lot of them and I review them and a lot of times in preparation to go do 336 00:19:17,760 --> 00:19:23,520 a diligence, which we're going to talk about, but I've noticed that a lot of them do not 337 00:19:23,520 --> 00:19:29,000 include information about the ERP in any depth or any additional information. 338 00:19:29,000 --> 00:19:32,240 And sometimes it doesn't even mention which ERP they're running. 339 00:19:32,240 --> 00:19:36,600 If it's so important to the deal value and so important that folks want to know what 340 00:19:36,600 --> 00:19:41,000 they have and making sure it's running efficiently, obviously it's part of diligence. 341 00:19:41,000 --> 00:19:46,120 Do you think it's a miss that folks aren't including more about the ERP in the SIM? 342 00:19:46,120 --> 00:19:49,760 I think it's an opportunity for improvement maybe. 343 00:19:49,760 --> 00:19:58,720 I think if you have great businesses with great systems and great leadership teams and 344 00:19:58,720 --> 00:20:04,960 maybe suboptimal supply chain, right? 345 00:20:04,960 --> 00:20:10,120 You're probably going to focus on what you're great at and maybe focus a lot less on what 346 00:20:10,120 --> 00:20:11,440 you're not so great at. 347 00:20:11,440 --> 00:20:14,440 Go back to the selling a house analogy. 348 00:20:14,440 --> 00:20:18,480 When you're selling a house in most states, at least I have the impression that in most 349 00:20:18,480 --> 00:20:21,000 states you have to have seller disclosures, right? 350 00:20:21,000 --> 00:20:24,960 So if you know there's something fundamentally wrong with the home before you sell it, you 351 00:20:24,960 --> 00:20:26,280 have to disclose that. 352 00:20:26,280 --> 00:20:30,520 The same is generally true in the M&A community. 353 00:20:30,520 --> 00:20:35,560 But if you think that the home needs a new roof, but you're not 100% sure, you don't 354 00:20:35,560 --> 00:20:37,320 have to disclose that when you're selling a house. 355 00:20:37,320 --> 00:20:39,560 Well, the same thing goes with the business, right? 356 00:20:39,560 --> 00:20:44,160 It's kind of an eye of the beholder type situation where you're selling the business kind of 357 00:20:44,160 --> 00:20:45,160 as is. 358 00:20:45,160 --> 00:20:51,760 The buyers are more than welcome to come and do their investigatory and confirmatory diligence. 359 00:20:51,760 --> 00:20:56,680 But at the end of the day, you're not going to tell all the buyers where the skeletons 360 00:20:56,680 --> 00:20:58,440 in the closet might be. 361 00:20:58,440 --> 00:21:02,760 You may tell them where a few of the skeletons are, but it's not really your obligation. 362 00:21:02,760 --> 00:21:08,240 There's no legal requirement that you have to tease out every nook and cranny of shall 363 00:21:08,240 --> 00:21:11,720 we call them opportunity for improvement in these businesses. 364 00:21:11,720 --> 00:21:14,520 So it's just kind of how things are done. 365 00:21:14,520 --> 00:21:15,520 No. 366 00:21:15,520 --> 00:21:16,880 And I love the house analogy. 367 00:21:16,880 --> 00:21:21,640 I get asked a lot of times by friends, what does it mean when you do diligence? 368 00:21:21,640 --> 00:21:22,720 What do you do for a living? 369 00:21:22,720 --> 00:21:24,440 What is this diligence thing? 370 00:21:24,440 --> 00:21:28,920 And so I always explain to folks, I'm essentially a home inspector of businesses. 371 00:21:28,920 --> 00:21:32,800 And I think that's an interesting segue to talk about the question you had earlier of 372 00:21:32,800 --> 00:21:36,520 like, what do we diligence when we diligence an ERP? 373 00:21:36,520 --> 00:21:38,000 Sure we look at the ERP. 374 00:21:38,000 --> 00:21:42,560 We a hundred percent look at what the system is by name, its support, its version, all 375 00:21:42,560 --> 00:21:45,080 those things, kind of check the box if you will. 376 00:21:45,080 --> 00:21:50,120 But one of the differentiation, differentiating factors I think for us is we look at the business 377 00:21:50,120 --> 00:21:51,960 enablement side. 378 00:21:51,960 --> 00:21:57,600 So one of the things that's unique about the, my team, let's call it, because that's where 379 00:21:57,600 --> 00:22:02,600 the folks are really focused on it, is we hire former operators who have lived and done 380 00:22:02,600 --> 00:22:05,800 ERPs and have at least implemented one ERP. 381 00:22:05,800 --> 00:22:09,280 So one of the things that we love is we love that the opportunity for a diligence, we get 382 00:22:09,280 --> 00:22:14,360 to go on site and experience how the organization, the users are using the system. 383 00:22:14,360 --> 00:22:18,240 So some of our tricks, which we'll be happy to give away to our listeners, you know, you 384 00:22:18,240 --> 00:22:22,560 go to that outbound Bay door and you see a pile of paper back there, you know, they're 385 00:22:22,560 --> 00:22:24,300 not using the system the right way. 386 00:22:24,300 --> 00:22:25,300 And there's an opportunity. 387 00:22:25,300 --> 00:22:28,080 And instead of just saying, Hey, they have paper processes. 388 00:22:28,080 --> 00:22:32,020 What we do is we really dig in on why do they have that and how they're better. 389 00:22:32,020 --> 00:22:37,000 So in our diligence, we look at the system, we look at the processes, we look at how the 390 00:22:37,000 --> 00:22:38,540 people interact with it. 391 00:22:38,540 --> 00:22:41,900 We also go as far to look at who supports it and how they support it. 392 00:22:41,900 --> 00:22:43,880 We look at the cost side of things. 393 00:22:43,880 --> 00:22:46,840 So really try to get this comprehensive view. 394 00:22:46,840 --> 00:22:50,240 And we've talked about this on other podcasts, because we do about those 150 transactions 395 00:22:50,240 --> 00:22:57,040 a year, we have a rich database of benchmarks that were able to score your ERP based on 396 00:22:57,040 --> 00:23:00,560 those factors by industry and by revenue. 397 00:23:00,560 --> 00:23:05,240 So when you receive that scorecard back, if you're a small business, that's a very simple 398 00:23:05,240 --> 00:23:10,140 business and you're doing a great job at it, you're not going to compare you to a business 399 00:23:10,140 --> 00:23:12,360 services business at 10x. 400 00:23:12,360 --> 00:23:17,320 So we really try to bring the diligence close and tied out to how the organization functions 401 00:23:17,320 --> 00:23:22,580 and what the organization does and be as comprehensive as possible because we do feel that accountability. 402 00:23:22,580 --> 00:23:26,040 And I guess for skeleton hunters, for your example that you gave earlier, to help find 403 00:23:26,040 --> 00:23:29,520 those skeletons and bring them to light and not only bring them to light, but talk about 404 00:23:29,520 --> 00:23:31,040 a path to remediate. 405 00:23:31,040 --> 00:23:33,680 So let's change gears. 406 00:23:33,680 --> 00:23:41,080 Let's talk about business risks that inadequate ERP systems present. 407 00:23:41,080 --> 00:23:44,680 You want to talk about a major one in our space, scale. 408 00:23:44,680 --> 00:23:52,320 If I try to take my business up and it's not able to support it, it's definitely a challenge. 409 00:23:52,320 --> 00:23:57,480 I think when we talk about scale, one of the things that we have a conversation a lot of 410 00:23:57,480 --> 00:24:05,000 times with businesses we work with is what is that future roadmap and what are your growth 411 00:24:05,000 --> 00:24:06,160 goals? 412 00:24:06,160 --> 00:24:07,920 Let's bring that conversation forward. 413 00:24:07,920 --> 00:24:11,480 Let's get it on the table and let's have that conversation. 414 00:24:11,480 --> 00:24:15,880 I think one of the things that's overlooked and maybe some of our listeners, if you're 415 00:24:15,880 --> 00:24:20,240 on the CFO side of the house, is that compliance side. 416 00:24:20,240 --> 00:24:22,720 Am I able to support regulatory requirements? 417 00:24:22,720 --> 00:24:26,000 That goes down all the way to sales tax by region. 418 00:24:26,000 --> 00:24:30,160 Right now we're reporting this podcast in Colorado and the way sales tax works in Colorado 419 00:24:30,160 --> 00:24:32,240 is it's done by county. 420 00:24:32,240 --> 00:24:36,440 So it's really a tough one to be able to track some of these counties and their dependencies. 421 00:24:36,440 --> 00:24:39,120 You need a system to ensure compliance. 422 00:24:39,120 --> 00:24:43,400 If you don't have that system, you're doing a lot of manual work to get that done. 423 00:24:43,400 --> 00:24:47,440 And then one of your most favorite topics to talk about because it's on your mind all 424 00:24:47,440 --> 00:24:51,240 the time is that cybersecurity side. 425 00:24:51,240 --> 00:24:56,200 Having a system that creates risk, one of the largest risks to an organization is that 426 00:24:56,200 --> 00:24:58,640 cyber and what do we call it? 427 00:24:58,640 --> 00:24:59,640 Threat vectors. 428 00:24:59,640 --> 00:25:01,640 Yes, I like it. 429 00:25:01,640 --> 00:25:03,400 Somebody listens to the podcast. 430 00:25:03,400 --> 00:25:04,920 We discuss threat vectors a lot. 431 00:25:04,920 --> 00:25:08,600 I think I was our third and final listener. 432 00:25:08,600 --> 00:25:11,780 It was producer Matt, myself, and then you. 433 00:25:11,780 --> 00:25:13,000 I asked my wife to listen. 434 00:25:13,000 --> 00:25:14,000 She said no. 435 00:25:14,000 --> 00:25:15,000 Oh, perfect. 436 00:25:15,000 --> 00:25:21,220 Well, I will tell you, my wife did and provided lots of feedback on how I can be better. 437 00:25:21,220 --> 00:25:22,760 Just feedback. 438 00:25:22,760 --> 00:25:24,000 She said you were excellent. 439 00:25:24,000 --> 00:25:25,840 I was opportunities for improvement. 440 00:25:25,840 --> 00:25:26,840 There you go. 441 00:25:26,840 --> 00:25:27,840 She's right. 442 00:25:27,840 --> 00:25:28,840 She's right. 443 00:25:28,840 --> 00:25:32,040 Just like she's right about a lot of things. 444 00:25:32,040 --> 00:25:36,160 But the cybersecurity side and those improvements and getting those vulnerabilities out of the 445 00:25:36,160 --> 00:25:41,080 business and so there's not opportunities for improvement is a really important thing. 446 00:25:41,080 --> 00:25:46,240 And then the last side, this one could be a little more soft, but those operations risk. 447 00:25:46,240 --> 00:25:47,240 Do I have a gap? 448 00:25:47,240 --> 00:25:48,240 Am I missing something? 449 00:25:48,240 --> 00:25:50,480 Am I not doing something the best I can? 450 00:25:50,480 --> 00:25:54,360 What are those risks to the success of my business that the system's not supporting? 451 00:25:54,360 --> 00:25:55,920 So there's a lot of risks. 452 00:25:55,920 --> 00:25:59,680 So full admission, you know cybersecurity is near and dear to my heart. 453 00:25:59,680 --> 00:26:04,280 Hyper concerned about it in every business that we're involved with. 454 00:26:04,280 --> 00:26:12,160 James talked to me about the cybersecurity risks that are associated with an inadequate 455 00:26:12,160 --> 00:26:13,880 ERP system. 456 00:26:13,880 --> 00:26:17,480 Is there increased risk with an inadequate system? 457 00:26:17,480 --> 00:26:18,480 Tell me about that. 458 00:26:18,480 --> 00:26:19,480 Yeah. 459 00:26:19,480 --> 00:26:22,800 So there's an interesting lens for this conversation that we're talking about how it affects your 460 00:26:22,800 --> 00:26:24,280 bottom line. 461 00:26:24,280 --> 00:26:30,320 You and I both know Wall Street Journal levels of cyber exposure cost folks business every 462 00:26:30,320 --> 00:26:31,320 day. 463 00:26:31,320 --> 00:26:36,760 So to put it aside in the sense that how can affect my bottom line, plain and clear reputation 464 00:26:36,760 --> 00:26:39,140 risk at the top. 465 00:26:39,140 --> 00:26:44,920 But some of those risks in an unsupported system that's no longer a viable system, it 466 00:26:44,920 --> 00:26:46,640 does expose you. 467 00:26:46,640 --> 00:26:54,320 So when I run my ERP on my site, a local ERP that I'm running in my data center, it runs 468 00:26:54,320 --> 00:26:55,360 on Windows. 469 00:26:55,360 --> 00:27:01,160 If I have a legacy ERP that I'm supporting, it could cause my Windows instance, which 470 00:27:01,160 --> 00:27:04,420 is no longer supported to have issues. 471 00:27:04,420 --> 00:27:08,380 Those two are a bit of a symbiotic relationship that one holds up the other. 472 00:27:08,380 --> 00:27:13,380 We know that older systems aren't patched because vendors move on to the newest system. 473 00:27:13,380 --> 00:27:16,000 That creates that exposure from a cyber risk. 474 00:27:16,000 --> 00:27:20,280 But to be honest with you, and this is something we try to really help our clients, is this 475 00:27:20,280 --> 00:27:24,720 idea of moving to the cloud or moving to a SaaS solution and de-risking that portion 476 00:27:24,720 --> 00:27:31,520 of your business and pushing it to a vendor, an MSP, managed service provider, or SI. 477 00:27:31,520 --> 00:27:36,040 Getting that out of your four walls and put on somebody else really is a way to reduce 478 00:27:36,040 --> 00:27:37,280 some of those cyber risks. 479 00:27:37,280 --> 00:27:41,800 And so having that legacy system, that older system sitting in your four walls is just 480 00:27:41,800 --> 00:27:44,280 the same risk you have with old data storage. 481 00:27:44,280 --> 00:27:46,700 It's there and it's a problem. 482 00:27:46,700 --> 00:27:50,440 The last one I want to talk about, because we talk a lot about infrastructure, there's 483 00:27:50,440 --> 00:27:55,960 also this cyber risk of not auditing your controls and access control. 484 00:27:55,960 --> 00:28:00,320 If I have a system, for example, let's say an individual starts at the organization and 485 00:28:00,320 --> 00:28:03,600 they start in distribution and get credentials for distribution. 486 00:28:03,600 --> 00:28:07,040 Then they move over to APAR and get credentials to do that. 487 00:28:07,040 --> 00:28:09,840 Then they take a management role in the customer service center. 488 00:28:09,840 --> 00:28:13,040 And I'm not auditing that trail as they go through. 489 00:28:13,040 --> 00:28:15,760 Those kind of permissions follow me. 490 00:28:15,760 --> 00:28:22,280 And that internal threat vector of disgruntled employee or just a plain mistake, it follows. 491 00:28:22,280 --> 00:28:26,840 And so cybersecurity is not only external threat vectors, it's also those internal threat 492 00:28:26,840 --> 00:28:31,440 vectors to ensure we have those controls clamping down the system, locking it down to make sure 493 00:28:31,440 --> 00:28:34,400 people have the right permissions to be able to do what they need to do. 494 00:28:34,400 --> 00:28:35,920 So that's another threat vector. 495 00:28:35,920 --> 00:28:37,600 Internal threat vectors are common. 496 00:28:37,600 --> 00:28:40,200 Let's think about a middle market business. 497 00:28:40,200 --> 00:28:46,040 Maybe a company has been built over the last, I don't know, 15, 30, 60 years, 100 years 498 00:28:46,040 --> 00:28:47,720 in some cases. 499 00:28:47,720 --> 00:28:54,120 You got a $200 million business running an ERP system for the last, I don't know, 12 500 00:28:54,120 --> 00:28:55,800 years, 15 years. 501 00:28:55,800 --> 00:29:00,680 Kind of generally known in the business that you've outgrown some of its capabilities. 502 00:29:00,680 --> 00:29:04,760 Maybe it's not quite as well supported as it used to be. 503 00:29:04,760 --> 00:29:06,080 But the business is growing. 504 00:29:06,080 --> 00:29:12,320 You've got some really interesting growth opportunities, could be inorganic via M&A. 505 00:29:12,320 --> 00:29:16,200 It could be organic, new product lines, new markets. 506 00:29:16,200 --> 00:29:17,960 Let's talk about that for a minute. 507 00:29:17,960 --> 00:29:21,080 What kind of challenges are you going to run into with an inadequate system? 508 00:29:21,080 --> 00:29:25,060 And ultimately, how might that impact your bottom line as you try and scale? 509 00:29:25,060 --> 00:29:29,080 One of those things is, and you talked about the inorganic, and I'd like to touch on that 510 00:29:29,080 --> 00:29:32,980 because a lot of the conversations I have are around this. 511 00:29:32,980 --> 00:29:39,080 And that's the ability to integrate two groups or two companies you've brought together and 512 00:29:39,080 --> 00:29:44,800 that ability to scale and find those synergies that exist between the two organizations. 513 00:29:44,800 --> 00:29:47,960 I know you've seen this a lot and we've had this conversation, you and I. 514 00:29:47,960 --> 00:29:53,760 The quicker two businesses can come together, have common visibility, whether it's an ERP 515 00:29:53,760 --> 00:30:00,400 or a reporting system, to have that single view really drives that value and allows them 516 00:30:00,400 --> 00:30:06,680 to scale and be able to kind of expand and become all that they intended to be pre-acquisition. 517 00:30:06,680 --> 00:30:10,000 The other one is there's additional complexities. 518 00:30:10,000 --> 00:30:14,260 And we were just having this conversation, I think last night, that one of the businesses 519 00:30:14,260 --> 00:30:18,400 you're on, as the business started to grow, you continually started to look for people 520 00:30:18,400 --> 00:30:19,720 to be able to help you. 521 00:30:19,720 --> 00:30:23,400 And then you actually had to go find people to truly do some of those things that were 522 00:30:23,400 --> 00:30:27,940 additional complexities and bring in those systems to be able to support it. 523 00:30:27,940 --> 00:30:31,440 And I think just like we had to solve, I shouldn't say we, you, I took a little credit there, 524 00:30:31,440 --> 00:30:35,760 as much as you had to solve that, I think others also are on that journey as well. 525 00:30:35,760 --> 00:30:38,840 The larger you get, the more complex it becomes. 526 00:30:38,840 --> 00:30:42,380 And then we've talked a little bit about it, but my risk is also greater. 527 00:30:42,380 --> 00:30:46,560 And I know that that's, you know, every board season we get the call around risk and how 528 00:30:46,560 --> 00:30:47,560 to reduce it. 529 00:30:47,560 --> 00:30:51,640 And maybe that's a good one for you to talk about a bit, because it ties a little bit 530 00:30:51,640 --> 00:30:52,640 to Cyberg. 531 00:30:52,640 --> 00:30:57,440 But like that business expansion with risk, what are some of the things that you see in 532 00:30:57,440 --> 00:31:01,240 the board meetings you're in that people talk about when they talk about the risk side of 533 00:31:01,240 --> 00:31:02,240 this? 534 00:31:02,240 --> 00:31:06,680 I'm sure folks with some different experience, you know, might have some better examples 535 00:31:06,680 --> 00:31:07,760 than I would. 536 00:31:07,760 --> 00:31:13,360 But you know, the first one that comes to mind is when a business is small, you know 537 00:31:13,360 --> 00:31:15,520 everyone in the business, right? 538 00:31:15,520 --> 00:31:21,760 So you're 20 employees, 40 employees, 70 employees, maybe you might be the CEO or the CEO, you 539 00:31:21,760 --> 00:31:24,880 might still know the first and last name of every single one of your employees. 540 00:31:24,880 --> 00:31:29,800 When somebody leaves, especially if you're co-located on a single site, maybe in an industrial 541 00:31:29,800 --> 00:31:33,280 environment, you might know everyone's birthday. 542 00:31:33,280 --> 00:31:37,460 You might know which part of town they live in because you all live in the same town. 543 00:31:37,460 --> 00:31:43,200 And when somebody leaves, you pretty quickly off board them, you remove their access to 544 00:31:43,200 --> 00:31:47,100 the ERP system, you take down their email. 545 00:31:47,100 --> 00:31:52,160 When you're 150 employees, when you're 300 employees, and maybe you've gotten there from 546 00:31:52,160 --> 00:31:56,760 75 to 300 in the last two or three years, maybe it's via M&A, maybe you've been growing 547 00:31:56,760 --> 00:32:02,800 very rapidly, and you go to off board somebody, you might not have ever met them before if 548 00:32:02,800 --> 00:32:05,600 you're the CEO at that point. 549 00:32:05,600 --> 00:32:10,920 And if you don't have the right processes and protocols in place to off board them out 550 00:32:10,920 --> 00:32:16,340 of every one of your systems, you could have just fired somebody who's disgruntled and 551 00:32:16,340 --> 00:32:22,600 nobody really remembered to take their system access away, and next thing you know, you've 552 00:32:22,600 --> 00:32:28,680 got a bad actor in your system messing up all your very important and sensitive data. 553 00:32:28,680 --> 00:32:36,440 And that's really more of kind of an off boarding gap than it is necessarily an ERP inadequacy. 554 00:32:36,440 --> 00:32:39,440 But your risk grows exponentially as you grow. 555 00:32:39,440 --> 00:32:44,980 You start dealing with bigger dollar numbers, you start dealing with more sites, more employees, 556 00:32:44,980 --> 00:32:46,560 more threat vectors. 557 00:32:46,560 --> 00:32:51,280 It's just more opportunities for there to be failure modes across the enterprise. 558 00:32:51,280 --> 00:32:55,480 So certainly, I certainly understand where you're getting at. 559 00:32:55,480 --> 00:33:00,000 And I'm curious to ask you about one that I've seen a bit this year, and a couple deals 560 00:33:00,000 --> 00:33:01,920 actually fall, multiple deals fall through this year. 561 00:33:01,920 --> 00:33:05,200 I think it's a rough M&A market out there generally. 562 00:33:05,200 --> 00:33:09,880 And not to take a tight lens, but let's take a tight lens as it relates to what we're discussing. 563 00:33:09,880 --> 00:33:13,760 But that financial mismanagement, the inability to articulate your financials, the inability 564 00:33:13,760 --> 00:33:15,600 to prove your financials. 565 00:33:15,600 --> 00:33:18,720 And a lot of people say, you know, it was just a COVID bump or those type of things 566 00:33:18,720 --> 00:33:21,280 and the ability to not take folks on the journey. 567 00:33:21,280 --> 00:33:25,120 Do you feel the opposite of what we've been discussing in the sense that the ability to 568 00:33:25,120 --> 00:33:30,000 not articulate those financials or show the ability to that? 569 00:33:30,000 --> 00:33:33,580 Do you think that is also something that's a risk at scale as we start to look at deals 570 00:33:33,580 --> 00:33:34,580 for folks? 571 00:33:34,580 --> 00:33:35,580 Oh, absolutely. 572 00:33:35,580 --> 00:33:41,680 If you can't root cause problem solve, and that might not be the appropriate way of describing 573 00:33:41,680 --> 00:33:46,680 it, but if you are trying to sell your business and a buyer asks you a question, well, why 574 00:33:46,680 --> 00:33:48,520 did that happen? 575 00:33:48,520 --> 00:33:52,520 And you don't have the data to back up your hypothesis. 576 00:33:52,520 --> 00:33:54,920 I wouldn't necessarily say it's a red flag. 577 00:33:54,920 --> 00:33:58,340 It depends on the context of the question being posed. 578 00:33:58,340 --> 00:34:04,840 But if you can't present data that would demonstrate that you understood exactly why something 579 00:34:04,840 --> 00:34:09,720 happened or exactly when something happened, absolutely. 580 00:34:09,720 --> 00:34:15,720 If it's not a red flag, it's certainly something to consider and could easily impact the value 581 00:34:15,720 --> 00:34:20,360 of the business, the speed or the certainty of the transaction getting done, any number 582 00:34:20,360 --> 00:34:21,360 of factors. 583 00:34:21,360 --> 00:34:22,760 Yeah, that's interesting. 584 00:34:22,760 --> 00:34:26,360 And when I was trying to sell you on this, I went and pulled a couple of facts and figures 585 00:34:26,360 --> 00:34:30,080 and we can wrap up on these to kind of close it out. 586 00:34:30,080 --> 00:34:34,920 Because I know one of the things that you really focus on is data-driven decision making. 587 00:34:34,920 --> 00:34:39,960 So I knew that there were some facts and figures that could help you make these decisions. 588 00:34:39,960 --> 00:34:44,200 Do you remember the numbers we discussed on the failed ERP implementation side? 589 00:34:44,200 --> 00:34:47,640 It was billions and billions and billions of dollars. 590 00:34:47,640 --> 00:34:48,640 Yes. 591 00:34:48,640 --> 00:34:52,560 Do you remember what percent of those was a failure? 592 00:34:52,560 --> 00:34:53,560 More than 50? 593 00:34:53,560 --> 00:34:54,560 Correct. 594 00:34:54,560 --> 00:34:56,440 50 to 70%. 595 00:34:56,440 --> 00:35:00,940 And I think that's what kind of drove the PSA side of this. 596 00:35:00,940 --> 00:35:05,480 And I think that's one of those things that it's a good conversation to have for our listeners 597 00:35:05,480 --> 00:35:10,360 to know what some of those are and to understand that there is a high probability of those 598 00:35:10,360 --> 00:35:11,360 failures. 599 00:35:11,360 --> 00:35:12,360 Yeah, it's interesting. 600 00:35:12,360 --> 00:35:17,560 You've got this situation where even if you go and put a new system in today, you may 601 00:35:17,560 --> 00:35:18,560 very well outgrow that. 602 00:35:18,560 --> 00:35:23,680 You may be a great, very well-run company, very well-capitalized, very forward thinking 603 00:35:23,680 --> 00:35:25,700 in your technology adoption. 604 00:35:25,700 --> 00:35:28,440 You're going to outgrow your current ERP system. 605 00:35:28,440 --> 00:35:31,120 You're going to outgrow at some point your next ERP system. 606 00:35:31,120 --> 00:35:34,920 But we find ourselves in this interesting environment, particularly in the mid-market, 607 00:35:34,920 --> 00:35:38,960 where there are a lot of companies running inadequate ERP systems. 608 00:35:38,960 --> 00:35:46,400 But in order to make change happen, they have to take the risk on of the sobering statistic 609 00:35:46,400 --> 00:35:51,760 that 50 to 70 odd percent of these transformations fail, right? 610 00:35:51,760 --> 00:35:55,840 And at a cost of tens and tens of billions of dollars annually. 611 00:35:55,840 --> 00:36:00,600 So it's an interesting conundrum, which obviously this is one of the reasons why it's a big 612 00:36:00,600 --> 00:36:08,200 decision for boards, for CEOs to fund and want to back going through some of these changes. 613 00:36:08,200 --> 00:36:09,200 What's the answer? 614 00:36:09,200 --> 00:36:11,280 How do they do it right? 615 00:36:11,280 --> 00:36:14,200 I think that's a great future episode conversation. 616 00:36:14,200 --> 00:36:15,440 There you go. 617 00:36:15,440 --> 00:36:17,120 Can I close on a bit of marketing? 618 00:36:17,120 --> 00:36:22,480 Because it was a PSA, I thought I'd look it up and try to create a cool PSA tagline. 619 00:36:22,480 --> 00:36:24,200 Get ready. 620 00:36:24,200 --> 00:36:28,040 Get ERPs, the silent drain on your bottom line. 621 00:36:28,040 --> 00:36:30,600 Upgrade now or pay the price later. 622 00:36:30,600 --> 00:36:34,200 So did you write that or was that chat GPT? 623 00:36:34,200 --> 00:36:38,160 I think producer Matt wrote that. 624 00:36:38,160 --> 00:36:41,080 Thanks for tuning into this episode of Growing EBITDA. 625 00:36:41,080 --> 00:36:46,160 If you liked this episode, hit subscribe or follow us on LinkedIn for updates. 626 00:36:46,160 --> 00:36:48,360 Got a topic you'd like us to cover? 627 00:36:48,360 --> 00:36:49,360 Drop us a message. 628 00:36:49,360 --> 00:36:56,360 We'd love to hear from you.