In this episode, Blue Margin consultant Greg Brown interviews John A. Lanier, CEO of Middle Market Methods. John shares insights into his approach to value creation road-mapping as well as his strategies for identifying areas for operational improvements and addressing the misalignment that commonly occurs between PE sponsors and portfolio company executives.
Click here to watch this episode on our YouTube channel.
Blue Margin helps private equity owned and mid-market companies organize their data into dashboards to execute on strategy and create a culture of accountability. We call it The Dashboard Effect, the title of our book and podcast.
Visit Blue Margin's library of additional BI resources here.
For a free, downloadable copy of our book, The Dashboard Effect, click here, or buy a hardcopy or Kindle version on Amazon.
#AI #datastrategy #datalake #BI
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
John Lanier (00:04):
Welcome to our Blue Margin's Expert Insights Series.
We're glad that you're heretoday. This series was
established for the benefit ofmid-market executives and
private equity firms who arelooking to better understand how
to use data intelligence to putgrowth plans in action and
create higher returns oninvestments. I'm Greg Brown, BI
consultant with Blue Margin, andtoday on our show we host John
Lanier, CEO of Middle MarketMethods. John's consultancy
(00:26):
provides value creationstrategy, roadmap, and toolbox
for growth, productivity, andcultural solutions to portfolio
companies of private equityfirms. The consultancy has
helped more than 170 portfoliocompanies for over 65 private
equity firms with more than 500deliverables, Middle Market
Methods engages clientleadership teams with a road
tested model to rationalizevalue creation priorities,
(00:49):
formulate implementation plans,execute with the inertia of a
thundering herd of bison,celebrate success, then launch
the next round of prioritizeinitiatives. John's professional
qualifications extend past hisconsultancy. He earned an MBA as
well as a doctorate of strategicleadership to enhance his value
creating credentials, anendeavor which led him to author
the book Value Creation in theMiddle Market Private Equity,
(01:11):
available on Amazon. He became acertified Six Sigma Master Black
Belt at GE Capital, is a changemanagement instructor, and an
Excellere Partners ProjectExpert of the year. John brings
a wealth of experience fromdecades of working with private
equity groups and middle marketportfolio company executives.
John, welcome. Glad to have youon the show here today.
(01:32):
The pleasure is mine. I'mlooking forward to the visit.
Absolutely. And John, just tostart us off here a little bit.
Tell us about your backgroundand what led up to the founding
of Middle Market Methods.
I will relate my my career tofour quarters in a football
game, and 20 year increments. Sothe formative years I grew up in
(01:55):
a rural area, I learned values,work ethic, neighbors, teamwork,
all that good stuff that modernindustry consultants aren't a
forging, trying to help peopleinstall, I was bred in it. The
next 20 years was as an assetbased lender- wouldn't trade it
(02:16):
for anything in the worldbecause I learned the integrity
of cashflow, and working capitalthrough the prisms of inventory
and receivables. Third quarteris transitioning to fourth and
is all about lower middlemarket, portfolio companies and
private equity. And what's thetransition? I am very much
(02:39):
committed philosophically topaying forward and the knowledge
transfer. So the things thatI've learned which are found
beneficial by my clientele arenot lost when I take my dirt
nap.
Absolutely. That just strikes meas something that we can really
relate to. Here at Blue Margin,knowledge transfer is one of the
(02:59):
biggest pieces of any of ourdeliverables, in terms of
ensuring that what we put inplace is successful for the
teams after we're gone, afteryou leave, so to speak. So John,
tell us, you know, what's theprocess? What do you use in
terms of evaluating? Whatimprovements can be made in
typical mid market businessesthat you consult with? What does
(03:19):
that look like? Where do youstart there?
Well, I go about it by askingquestions. Let's call that
Socratic technique, because youto have success at anything, you
have to find something for whicha leader recognizes is not up to
(03:41):
par by their standards. Theyseek some assistance for some
reason, perhaps rooted in askill set issue or bandwidth.
Then you have a basis forconversation. Invariably, it
falls in four buckets. It's"what are we going to do?",
which is a strategic comment.
Then the manifestations of thatare in the following three
(04:06):
buckets- where's the growthcoming from? Gotta grow. How do
we keep up with it- which is anoperational comment. Then
finally, where's the talentcoming from? So if you go about
anything with a simpleframework, it can keep you from
straying off into thewilderness. That's what I rely
(04:27):
on, a fairly simple formula.
Yeah, absolutely. You know, I'mjust curious in terms of those
four buckets, and wherecompanies usually fall in terms
of what's keeping them up atnight. What's the thing they're
worried about the most? Do yousee a theme there? Is it is it
that you mostly encountercompanies that are worried about
(04:49):
topics in any of those fourbuckets, or does one stick out
more often than not?
Well, let me revisit the fourbuckets and just give you some
examples, and I think you'll seehow it is. You've got chapters
in a book, and then you gotparagraphs, or subsets of
chapters in a book and analogousto that, for example, my best
(05:11):
private equity clients make ahabit of post close planning. So
why the heck would you do thatif you did all this investment
thesis work? And the answers,pretty straightforward. To be
aligned on the same prioritiesby the same rationale. It's
something that simply should notbe assumed because no diligence
(05:34):
is perfect and perhaps somepeople in the portfolio company,
were not even exposed to theprocess. And they have tribal
knowledge, it is incrediblyvaluable, okay? So when it comes
to growth, you have two subsets.
It is either organic, oracquisitive, or actually could
be a hybrid and often is. Sowhere is it coming from? What
(05:55):
markets? What products andservices? What do I need to
invent because it's not there,which is a product development
signal. Or if It's a shortcutthat can be rationalized by
math, you try to buy it if it'savailable to buy. So those are
two very vivid examples ofgrowth. On the operations piece,
(06:19):
there's this chronic challengeof succeeding bottlenecks, if
you will. Those who are steepedin the in the discipline of lean
manufacturing, for example(which is almost a misnomer, it
applies to everything- lean canapply to services) is you never
quit identifying and rectifyingbottlenecks, because growth
(06:43):
reveals the next one, and it issort of like whack a mole,
there's always got to besomething that pops up, that
needs attention. Then is notjust addressing those things.
It's being more productive. Oneof my passions is, are we
measuring anything that speaksto productivity? Because that is
(07:05):
the essence of a robust economy?
How efficiently do we produceanything? Then the final thing
on people? The subsets arewhere? Where do we find them?
Which has marketing principles?
How do we appeal to them, andqhat we offer here in terms of
(07:26):
opportunity and culture, forexample, so that they want to
join, so It's not just findingthem, they gotta want to join
you. It's their decision. Thenhow do we keep them? This sounds
oversimplified, but I could gointo subsets of each of those,
like a performance management isa big piece of the key. So it's
(07:47):
a basic framework, and thendrill down, but you got to have
a sort of a north star beforeyou put your sextant up to
anything.
Yeah, absolutely. To reallyunderstand the need before you
start moving forward with thatframework. Makes complete sense.
John, given the currentmacroeconomic climate that we
have here in 2023, and just whatyou're seeing with the companies
(08:10):
you're consulting with, what aresome of the most common
challenges that are coming upjust given what we're facing
here in 2023? And perhaps,ongoing uncertainty about the
economy and where we're goinghere?
Sure. And I'm going to keepusing the same framework,
because everything that pops upthat people have questions about
will fit in that model. So let'sjust pick one by example. We
(08:37):
first have to pay attention tothe right metrics. The
unemployment rate without beingtempered by the labor
participation rate can lead youto a false positive or false
negative, depending on yourperspective. So the unemployment
rate per se, is in a reasonablerange. However, the labor
(09:03):
participation rate is the lowestit's been in since pre COVID. So
what's going on there, and forsome reason, people are not
coming back to work. There are alot of smart people trying to
figure this out. So if yourbusiness model is reliant on
people, you have to figure thatout, irrespective of what the
(09:27):
prevailing conditions are. Bythe way, if you can't figure it
out, then you have to come upwith a disintermediating option,
which is automation. One of myfavorite questions, by the way,
that helps figure out where weought to go is "what's keeping
you up at night?" Because theleaders eat, sleep and drink
(09:50):
this stuff, they have to. Theeasiest way to help somebody is
when they want to be helped. Thehardest thing in the world to do
is help someone when they don'tthink they need any help. So I
find it easier to knock out whatis occupying their, their
(10:12):
attention. And even if it in themacro sense may not be the
biggest thing that arguably,ostensibly they should be
focusing on- until you addressthat, we're humans, and we're
wired for fight or flight. Yougot to figure that out before we
can focus on anything. I couldlook in the mirror saying this,
(10:34):
we all operate by some form ofthat phenomenon. So again- what,
within the model, the framework,keep it simple, is occupying
their bandwidth? Let's fix it.
Even if it's not necessarily themost important thing at that
moment is a gateway to get tothe other stuff that may
actually produce more value.
(10:57):
It's just a necessary step andcritical path.
Yeah. You have to bring themalong that path. You can't force
them on that path. You do thatby addressing what's keeping
them up at night. Makes perfectsense. All right, well,
switching gears here a littlebit. John, I mentioned your book
in my intro there, and honestlythere's no shortage of material
to cover in the book. It coversan exhaustive list of topics. So
(11:17):
I had my work cut out for me interms of picking where to go
here. One of the things thatstuck out to me in your book,
one of the quotes, is "Theportfolio companies leadership
team must take ownership of theinvestment thesis and translate
it into daily tacticalexecution. That ironically, they
may not know it always exists."How often do you see this sort
(11:39):
of lack of alignment between theprivate equity sponsor and the
portfolio company team regardingthe investment thesis and value
creation plan? What are some ofthe first steps you take when
you detect that kind ofmisalignment?
There are several questionsthere, I'm gonna try to peel it
back logically. First, it is therule rather than the exception
(12:01):
that there's misalignment. Andthat's not to panic. It's that
what is the degree of variationbetween the perspectives? And
the severity? Let's go back tosomething I may have injected
earlier is that no diligence isperfect. The question is, what
did we miss that;s relevant? Andthe only way you do that is by
(12:22):
engaging. The functional leadershave the business model,
however, the value chain isdefined and saying, Well, What
do you think, and we have to becareful about something else, we
have to be careful about.
Disparate dialects, I'll callit. And I can give you some easy
examples. Private equity peopleuse financial terms, they're
(12:45):
professional investors, not theonly terms they use, but they
use things like value creationand investment thesis fairly
frequently. And it may well be,especially if a founding
entrepreneurs built quite asuccessful business and
attracted these professionalinvestors, has not encountered
(13:05):
that term before or has neverhad. Cause to know what it means
because they made money. Theyknew what they were doing. They
had a successful business modelhad attractive enterprise value.
Okay. So that's the investorsproblem to make sure that they
(13:27):
understand what we're talkingabout. It's reciprocal, by the
way, let's use engineers, byexample, go the other way.
Engineers use terms like overallequipment efficiency, which is
essential to capacity,estimation, capacity estimation
and realization, because youhave to figure out things like
(13:50):
downtime for maintenance onequipment. That's not
necessarily a familiar term toinvestors who have not been
around a lot of engineers. Anddepending on the verticals that
we invest in, you can have somefirst encounters and I can speak
firsthand to this. Another termis something called Failure
Modes and Effects Analysis it'slike, ten to the third power,
(14:13):
how bad is this thing? The threecriteria are- how often does it
happen? How easily detectable isit? And how consequential is it?
Well, look at the O ring fromthe space shuttle that blew up
back in the Reaganadministration. Only happened
(14:34):
once, not easily detectable, butit killed everybody on board. So
there are things that bothparties would bring to a "value
creation" conversation that ismaterial and relevant. But if
you've never encountered itbefore, you don't necessarily
(14:56):
know what it means. Punch lineto this argument- this is a big
thing that you've tripped over,this is a big thing you've
tripped over. The phenomenon isexacerbated by a seller,
typically engaging anintermediary, an investment
banker who speaks on theirbehalf, they help put together
(15:18):
the message and why this isworth of X amount of money,
which is the price we want tosell it for. The m&a firm may be
very much steeped in thefinancial piece. And the seller
basically said, well, that'swhat I hired them for- they're
experts, and it's completelyrational. At some point, when
the deal closes, there may nothave been that debrief of Okay,
(15:40):
these are some of the nuances tobe aware of. And it it can be
assumed that it's assimilatedand acculturated. And I assure
you, that's a dangerousassumption. So that's why we do
the planning thing. So a needy,needy question you've asked, and
it doesn't lend itself to asoundbite answer. So thanks for
(16:02):
indulging that.
No, absolutely. John, I'mwondering how many times you've
encountered someone you know, inthe portfolio company leadership
team, for example, that might behesitant to kind of put their
hand up and just say, "I'm notexactly sure when we're
referring or using this term,like value creation, what that
(16:22):
means for our company." I feellike there could be some
hesitancy and maybe that's howyou help in a way in terms of
being a translator, and helpingto expose where someone needs
more information, or they needcontext, they're just kind of
hesitant to put their hand upand say that they do.
More than you might think. Anddemographically there's another
angle of this, it makes perfectsense. So baby boomers are
(16:46):
almost retired, but thedemographic behind them- just
think about baby boomersrelating to the grandchildren on
stuff like this. Well, your yourmid level deal team investment
professional, is a highlyeducated- tends to be youngish
type of professional with an MBAfrom a really impressive school.
(17:11):
If you don't believe me, lookwhere Harvard MBA graduates
typically go, it's eitherMcKinsey or private equity,
those tend to be the big twolast time I look. Okay, there's
a pattern there. So these arereally, really smart people. But
how often do you think thatsomeone their grandparents age,
or their parents age for thatmatter, that built this thing
(17:32):
didn't necessarily have the sameeducational experience, but
they, they did that they did inthe laboratory of grit? They
did. That's why I loveentrepreneurs, they figure out
how to do it before anybodytells them it's impossible. I
love these guys, and the economyneeds these guys (guys a unisex
term). So how do you bridge thatgap? Well, guess which
(17:56):
demographic I'm in? So I canrelate to them more as a peer
and and the gatekeepers to therelationship for for consultants
like me and YouTube for to theextent that you pursue equity
sponsors, is it the deal team,usually that's prevents
(18:17):
resources to introduce to theportfolio company to address a
certain issue. So I can go backand forth and help bridge some
of these gaps withoutnecessarily leaving any
fingerprints. And that's goodword of mouth advertising, by
the way.
So absolutely, you're hoping toalign teams, you know, and that
can be invaluable. Sometimes youneed that outside perspective to
(18:39):
be able to detect those things,and then align folks around the
same topic or initiative orwhatever it may be. So that
makes perfect sense. Switchinggears a little bit. John, you
describe yourself as a processnerd and ask your clients to go
through these rigorous processesto better understand the why.
Can you tell us why and how youwalk companies through process
(19:01):
mapping exercises? What are someof the insights that usually
come out of these kinds ofexercises?
Yeah. The the single bestinvestor I ever had the pleasure
of supporting automaticallypivoted to process mapping the
business model as the ink wasdrying on close automatically,
(19:21):
why? Okay everything that ismarketable, hasn't customer. The
question is, what do they want?
What are they willing to buy?
There is a value chain,complemented by supply chain
that goes from ideation throughcreation, to get to
(19:44):
marketability, and hopefullyremuneration. So it's concept to
cash some people call it. Wellall these have steps and mapping
This serpentine and in somecases, highly complex flow. It
is very enlightening. And I cantell you, I'm going to be very
(20:05):
careful about a hyperbolicstatement. I have never
presented a cross functionalprocess map, I'll come back to
That in a minute. I have neverpresented a cross functional
process map to a CEO. Withoutsome variation of the following
comment, colon, we really do itThat way. Think about That.
(20:27):
Think about That. So what doesit tell you? By the way,
sometimes I'm asked to Whatshould my org chart look like?
Understand What they want. Butthat's the last thing you do.
You start with What the businessmodel does, and get logical
functional chunks, and then yourorg chart is a byproduct
(20:49):
thereof, because It's eithercreating value or enabling
value, the difference being say,ops versus it, Okay, it is
enabling ops creates value. So,when you go back to That, Here's
What you learn. When you processmap, you learn the flow, whether
It's the right flow or not,remains to be seen. But there
(21:10):
are some things That we could doThat better. You learn if it has
the wrong owners, the beauty ofcross value, cross functional
value stream mapping, you doVisio is you got swim lanes for
owners, and you got rectangularboxes for tasks. And you look at
where these boxes are, as itgoes through. And you find out
(21:31):
who actually does the work?
Well, sometimes you find out thewrong people have it or they're
not really trained to do it. Sohow the heck did That happen? We
couldn't afford That skill set15 years ago, and they've just
had it ever since. Good Soldier,not necessarily the right answer
today. It can be waste, weshouldn't be doing it at all. We
can have not only nobody owningit, which happens, but more than
(21:56):
one person owning it Thathappens. So you get all sorts of
good information here. ButHere's the punchline That might
might be endearing to you as atechnology professional. This is
wonderful input to ask, Whatshould our system be able to
produce on demand? And it tendsto be in about three chunks. I'm
(22:20):
going to be guilty ofoversimplifying here. There are
inputs, and the longer thebusiness cycle, the more
important That is like how longdoes it take to solicit business
before you write an order? Well,if you have no sales forces, and
It's on the web, that'sautomatic, but What if you have
boots on the ground? It's verycomplex, like a a software
(22:44):
solution. You talk a lot, youhave RFI RFQ bid got all This
stuff, it takes a while, Well,how much activity is in This
thing we typically call a phoneto get down from suspect to
prospect to customer That feedsmy process, then I got a
(23:05):
capacity problem. So the firstone is, What is my pipeline
telling me about whether or notI'm going to have revenue a year
from now? Okay. Then the processpiece in the vat, the chunks of
value stream all have a criticalpath, typically. But does the
right information tell internalcustomers and vendors about
(23:29):
their pipeline, so That theyknow how to manage their
capacity know how to order rawmaterials know how to alert
people downline about problems,because they may have to adjust
their schedule. All these fromthese are binary, if you will,
they're bits and bytes That aredata elements and can be part of
a magnificent ERP solution. Andat the end, you typically have
(23:53):
the finance piece That tells younow investors very, very
commonly are talking in terms ofrevenue, margins, EBIT, margin,
great. That tells me if I wonthe game or not, and maybe by
What extent how Well did I winthe game, but in a in an initial
investment, That the accountingsystem can be sort of Spartan
(24:19):
like QuickBooks and on a cashbasis, that's got to change and
It's got to be more robust likea Microsoft product dynamics.
And Okay, the opposite systemWhat What if his job shop which
means highly customized, Well,can you do activity based
costing? What's That? Okay, mycamera system accommodates all
(24:44):
This stuff integrates. And ittends not to be as robust as it
needs to be with the initialinvestment, as it must be. If
you expect to exit within areasonable amount of time, and
for a nice price That reflectsthe quality of earnings, and
(25:05):
what's robustly scalable, soThat if the diligence doesn't
catch it, it only goes downhillfrom there. Because It's going
to be complex, protracted, andIt's not cheap, and cash and or
opportunity cost. It's a bigdeal to install This. So getting
an early read on That isimportant. But I would say That
(25:29):
process mapping, your originalquestion is foundational to it.
But look how much we just saw.
We saw immediate waste, how itshould be managed, What the
system should do. And now we cango through RFI and RFQ
enlightened so we know how tofind if somebody's got a turnkey
(25:51):
solution, or we got to thinkabout middleware and, and What
we can bolt on to This thing. SoI think It's one of the most
important issues and allbusiness. I think It's at a high
level of important and smallimportance in small business,
because It's a bridge they haveto cross. That's not criticism.
(26:12):
They did What they could afford.
But they're talking about beinga much larger company in it
simply harder to manage absentThis stuff at your fingertips.
Right, right. Absolutely. Itmakes perfect sense, John, it
makes sense. A lot of pointsthat I could take from your
response there. One thing thatreally stuck out to me is you
have to understand all of theprocesses of the business and
(26:35):
how you want to optimize those-get that picture nailed. Then
you can start looking for thesystems and the ways to capture
information and data that willin the future, tell you how
those processes are going. Ifthey're really sticking to the
plan, and the layout andorganization that you wanted to
have for the business. Ofcourse, if you come up with
that, if you go through processmapping and decide, here's all
(26:57):
the things we're going tochange, it's important to have a
way to measure and monitor thatgoing forward so that you don't
lose progress in six months,that it wasn't just a lot of
good ideas and conversation thatthe leadership team doesn't have
a way to oversee in the future.
So it makes complete sense. Now,you mentioned one thing that I
want to follow up on, John. Interms of, you know, how you
approach tech diligence,information, diligence for this
kind of business that has been,you know, grown organically and
(27:20):
by a founder. And like you said,they've done what they can do in
terms of putting systems andwhat works in place, they have a
bridge to cross in terms ofscaling up as a company in
fulfilling you know, theinvestment thesis in the whole
period. But in diligence whenprivate equity firms are looking
at tech and systems, What kindof risks are introduced, that
(27:42):
maybe you've seen play out iffirms don't thoroughly diligence
these areas in terms of tech andsystems?
So I'm going to talk about thetwo biggest gremlins from my
perspective about why I don't dothis type of diligence. But I
can help people with theirstatement of work for the
questions that ought to beanswered to know what they they
(28:04):
really have versus what theyneed. All that type of
diligence. The best vendors I'veever worked with and worked for,
I should have said intermediary.
Between the investor wanting todiligence and who they hired to
do the diligence is what does itdo? What does it not do relative
to the investment thesis, whichjust over gave you a good
(28:26):
soliloquy on that? What will itcost to fix it? You can come in
between what with priority. Sowhat does it do? What does it
need to do relative to what wewant? And What order should we
fix This? How long is it goingto take and how much is it going
to cost? That is a technologyroadmap? Okay. And it is a great
(28:46):
value add a tremendous value addthere's something that needs
special mention is is one of theheads of the two headed monster
we need a much deeperunderstanding even a paranoia
about cybersecurity, That I'mnot sure the economy at large
(29:14):
understands to the extent itshould. I was amazed by some of
my behind the curtains,epiphanies about how many people
had paid ransomware and nobodyknew about it. Okay, that's
that's a an indicator. It'sreal. And just the awareness
training for spearfishing typetargeting. It is is worth it.
(29:40):
But Andy Grove was right, onlythe Paranoid Survive. And never
ever, ever let your guard downon cybersecurity. You can't
afford to they can wipe you out.
Okay. And then the other thingwe have sort of talked about, so
I'm just going to give it a nameof moniker but I'm not going to
(30:02):
retread old term. It's havingthe right fingertip information
in the hands with people who cando something about it. Do
something about it, how can Ipossibly hold a production
person accountable forproductivity, a subset of which
(30:25):
is quality, if they don't knowanything about their capacity,
their scheduling, the productionrate, the scrap, they have to be
informed, or else the bar fromDrucker we're literally setting
people up to fail. Okay, nobodyreports to work fail. Maybe a
small portion of people who arejust masochistic, and like to be
(30:48):
hurt, but I'm not one of themThat I've ever met one. Nobody
reports the work to fail, whyshould leaders set their their
people and I think isunwittingly set them up to fail
by not? If they have theinformation, not sharing it or
need the information and notsupply?
Right? It reminds me of aconversation I had recently with
(31:09):
a private equity firm, they wereasking, "are we giving the
right information to ourleadership team? We feel like we
could really bypass a questionover do we have the right
leaders in place?" I mean, notthat you don't need to examine
that sometimes. But their pointwas that if we had the right
information in the rightpeople's hands, similar to what
you're saying, they would makethe right decision. So our
(31:31):
question is not so much nowaround the leadership and skill
set, That always is going tomatter. But we're questioning
more now the information we'resupplying to them, because we
really feel like if we get themthe right information, the right
decisions will be made. Andthey're able to make those
decisions, because they haveThat kind of visibility. This
kind of ties into something elseThat I was gonna bring up, John,
(31:51):
you know, broadly, when youthink about business,
intelligence and reporting, itcan provide leaders That kind of
visibility into how the companyis performing or how their
department is performing. And,you know, you can have reports
and dashboards with all kinds ofdifferent data visualizations,
and summarization. And in termsof financial reporting, which
you touched on. This is, likeyou said, This shows us That we
(32:13):
won the game, This is the sortof end result of all of our
efforts and initiatives and workacross a month or a quarter or
whatever time interval, It'sThat end result. We look at
opportunities here at Bluemargin to provide companies
visibility into the leadingindicators of future financial
performance. So teams can kindof course correct in real time,
(32:35):
they're not waiting until theend of the month to discover
That, oh, we could have weshould have done a lot better in
a certain area. Just curioushow, how often do you see in
consulting with your clients,That they're lacking visibility
into the leading indicators offuture financial performance,
they might have That financialreporting, it might even be
working really Well. But theydon't have that visibility into
(32:55):
those leading indicators. Theycould really benefit from that
kind of visibility.
So I heard two high levelquestions. But I'm gonna preface
my my response by saying keep inmind, my target market is lower
middle market private equity.
It's a It's a really nice areaof opportunity for value
creation in relative terms,Okay. But you got to build a lot
(33:18):
of this stuff, because itdoesn't tend to come with the
package. So I'm going to say isfrequently I encountered the two
questions I heard. All right. Soone, if if I walked in and asked
operators and by the way, mycomments That come out of my Yap
are sympathetic and empathetic,not critical period. If I walked
(33:40):
in and asked him, Do you havethe information you need? That
is the wrong question, and willgive me a worthless answer. And
What do you think about That? IfI walked into an Amazonian
rainforest, and encountered atribe for the first time That
(34:03):
had never seen anybody like meever? And I said, Would you like
a car? You get What I'm talkingabout. Alright, so if you have
to position by What Einsteinsaid, It's more important to
know, or ask the right questionthan to know the right answer.
(34:25):
And that's where I'm going withThis. If you had access to
anything, you want it right nowon demand to help you do your
job more easily. What would itbe? So It's not necessarily a
data question, but you back intoit. Another way to do This. And
again, I have to read This theenvironment and the people to
(34:49):
help craft the right question.
So where are you spending mostof your time on This stupid
manual scheduling thing? Couldyou show it to you Okay, you and
I both know That there are a lotof modules where it gives you a
draft of This based on how you,you load it. And It's like press
(35:11):
a button. Okay. So how do we geton their frequency and see the
world? The way they see itthrough their prism. And if we
can't do That, we're really notgoing to get to the more likely
right answer. You also askedabout the stuff relative to What
(35:32):
I would regard as inputs,process and output metrics,
Okay. And the great ERP topsolution addresses all of That,
not necessarily on the sameplatform, but you can integrate
some of these things. And I willmake a statement That I'll bet
(35:52):
my professional reputation onThat, depending on who your
listeners are, they're gonnascratch your head, but hopefully
they will think about it.
Because their initial reactionis not if I had the in a long
cycle business model, if I hadthe data I wanted, when I want
it on inputs, like the pipeline,and ops, I don't care about
(36:16):
financials, because I alreadyknow What they're going to be.
Okay, there's a there's a moldundercurrents in That That I've
got, whether It's activity basedor standard based accounting.
I've put a premium on costaccounting skills. I don't want
to know I lost the game by 50points after everybody's taking
(36:37):
a shower in the locker room. Iwant to adjust my game plan at
mid first quarter, something'snot working right. football
analogy. Forgive me. But the butthe point is That the we live in
a dynamic world. And how couldwe hope to thrive in business?
Unless we we have That commondenominator, I have What I need
(37:02):
on demand relative to my span ofcontrol. And the code
dependencies within ourparticular business models
ecosystem, I've got to know ThatI've counted. And the message is
more profound in a globaleconomy. Because there there are
(37:23):
places on earth That will alwayshave cheaper labor than Western
countries, always. The questionis, when do I know That that's
my only option? And where is it?
But I want to go down swingingon how Well I can refine my
processes, how productive I canmake it get the waste out. And
(37:47):
and my way we should ask ourpeople, what's not working in
their business models? Becausethey know. And he's Okay. Why
don't we try This? And if theycall for the solution, you get
automatic change management. Sowe are sitting on tribal
knowledge That is priceless,That if there's one takeaway on
(38:12):
all This, if sea levels arelistening to This, That have we
asked the people closest to thework, What they would change, if
they could could if they wereempowered to do it, and why. And
we might surprise ourselves Whatwe learned.
Yeah, absolutely. Absolutely.
It's great stuff, John. Reallyappreciate you being here today
(38:35):
and sharing all your insightswith our audience. What's next
for you? And how can folks getin touch with middle market
methods?
Well, if there's no othertakeaway from this visit, then
the following soundbite- I lovethis stuff. I pull for the
little guy, I love this stuff.
I'm one of you. So I always asksomething to the effect of what
(39:00):
keeps you up at night. If it'ssomething that's in my strike
zone, they know it? If It's not,I don't leave them hanging. I'm
part of an unofficial nerdnetwork, and I will not leave
them guessing about theiroptions, I will introduce them.
So if that type of resource hasany value for solutions
provider, quote, unquote, theeasiest way to find me is go to
(39:22):
the website,www.middlemarketmethods.com.
That's a mouthful.
Perfect, John. Hey, thank you somuch for being on the show
today. We really appreciate it.
The pleasure was mine. Ithoroughly enjoyed this. Good
luck!
Welcome to our Blue Margin's Expert Insights Series.
We're glad that you're heretoday. This series was
established for the benefit ofmid-market executives and
private equity firms who arelooking to better understand how
to use data intelligence to putgrowth plans in action and
create higher returns oninvestments. I'm Greg Brown, BI
consultant with Blue Margin, andtoday on our show we host John
Lanier, CEO of Middle MarketMethods. John's consultancy
(00:26):
provides value creationstrategy, roadmap, and toolbox
for growth, productivity, andcultural solutions to portfolio
companies of private equityfirms. The consultancy has
helped more than 170 portfoliocompanies for over 65 private
equity firms with more than 500deliverables, Middle Market
Methods engages clientleadership teams with a road
tested model to rationalizevalue creation priorities,
(00:49):
formulate implementation plans,execute with the inertia of a
thundering herd of bison,celebrate success, then launch
the next round of prioritizeinitiatives. John's professional
qualifications extend past hisconsultancy. He earned an MBA as
well as a doctorate of strategicleadership to enhance his value
creating credentials, anendeavor which led him to author
the book Value Creation in theMiddle Market Private Equity,
(01:11):
available on Amazon. He became acertified Six Sigma Master Black
Belt at GE Capital, is a changemanagement instructor, and an
Excellere Partners ProjectExpert of the year. John brings
a wealth of experience fromdecades of working with private
equity groups and middle marketportfolio company executives.
John, welcome. Glad to have youon the show here today.
(01:32):
The pleasure is mine. I'mlooking forward to the visit.
Absolutely. And John, just tostart us off here a little bit.
Tell us about your backgroundand what led up to the founding
of Middle Market Methods.
I will relate my my career tofour quarters in a football
game, and 20 year increments. Sothe formative years I grew up in
(01:55):
a rural area, I learned values,work ethic, neighbors, teamwork,
all that good stuff that modernindustry consultants aren't a
forging, trying to help peopleinstall, I was bred in it. The
next 20 years was as an assetbased lender- wouldn't trade it
(02:16):
for anything in the worldbecause I learned the integrity
of cashflow, and working capitalthrough the prisms of inventory
and receivables. Third quarteris transitioning to fourth and
is all about lower middlemarket, portfolio companies and
private equity. And what's thetransition? I am very much
(02:39):
committed philosophically topaying forward and the knowledge
transfer. So the things thatI've learned which are found
beneficial by my clientele arenot lost when I take my dirt
nap.
Absolutely. That just strikes meas something that we can really
relate to. Here at Blue Margin,knowledge transfer is one of the
(02:59):
biggest pieces of any of ourdeliverables, in terms of
ensuring that what we put inplace is successful for the
teams after we're gone, afteryou leave, so to speak. So John,
tell us, you know, what's theprocess? What do you use in
terms of evaluating? Whatimprovements can be made in
typical mid market businessesthat you consult with? What does
(03:19):
that look like? Where do youstart there?
Well, I go about it by askingquestions. Let's call that
Socratic technique, because youto have success at anything, you
have to find something for whicha leader recognizes is not up to
(03:41):
par by their standards. Theyseek some assistance for some
reason, perhaps rooted in askill set issue or bandwidth.
Then you have a basis forconversation. Invariably, it
falls in four buckets. It's"what are we going to do?",
which is a strategic comment.
Then the manifestations of thatare in the following three
(04:06):
buckets- where's the growthcoming from? Gotta grow. How do
we keep up with it- which is anoperational comment. Then
finally, where's the talentcoming from? So if you go about
anything with a simpleframework, it can keep you from
straying off into thewilderness. That's what I rely
(04:27):
on, a fairly simple formula.
Yeah, absolutely. You know, I'mjust curious in terms of those
four buckets, and wherecompanies usually fall in terms
of what's keeping them up atnight. What's the thing they're
worried about the most? Do yousee a theme there? Is it is it
that you mostly encountercompanies that are worried about
(04:49):
topics in any of those fourbuckets, or does one stick out
more often than not?
Well, let me revisit the fourbuckets and just give you some
examples, and I think you'll seehow it is. You've got chapters
in a book, and then you gotparagraphs, or subsets of
chapters in a book and analogousto that, for example, my best
(05:11):
private equity clients make ahabit of post close planning. So
why the heck would you do thatif you did all this investment
thesis work? And the answers,pretty straightforward. To be
aligned on the same prioritiesby the same rationale. It's
something that simply should notbe assumed because no diligence
(05:34):
is perfect and perhaps somepeople in the portfolio company,
were not even exposed to theprocess. And they have tribal
knowledge, it is incrediblyvaluable, okay? So when it comes
to growth, you have two subsets.
It is either organic, oracquisitive, or actually could
be a hybrid and often is. Sowhere is it coming from? What
(05:55):
markets? What products andservices? What do I need to
invent because it's not there,which is a product development
signal. Or if It's a shortcutthat can be rationalized by
math, you try to buy it if it'savailable to buy. So those are
two very vivid examples ofgrowth. On the operations piece,
(06:19):
there's this chronic challengeof succeeding bottlenecks, if
you will. Those who are steepedin the in the discipline of lean
manufacturing, for example(which is almost a misnomer, it
applies to everything- lean canapply to services) is you never
quit identifying and rectifyingbottlenecks, because growth
(06:43):
reveals the next one, and it issort of like whack a mole,
there's always got to besomething that pops up, that
needs attention. Then is notjust addressing those things.
It's being more productive. Oneof my passions is, are we
measuring anything that speaksto productivity? Because that is
(07:05):
the essence of a robust economy?
How efficiently do we produceanything? Then the final thing
on people? The subsets arewhere? Where do we find them?
Which has marketing principles?
How do we appeal to them, andqhat we offer here in terms of
(07:26):
opportunity and culture, forexample, so that they want to
join, so It's not just findingthem, they gotta want to join
you. It's their decision. Thenhow do we keep them? This sounds
oversimplified, but I could gointo subsets of each of those,
like a performance management isa big piece of the key. So it's
(07:47):
a basic framework, and thendrill down, but you got to have
a sort of a north star beforeyou put your sextant up to
anything.
Yeah, absolutely. To reallyunderstand the need before you
start moving forward with thatframework. Makes complete sense.
John, given the currentmacroeconomic climate that we
have here in 2023, and just whatyou're seeing with the companies
(08:10):
you're consulting with, what aresome of the most common
challenges that are coming upjust given what we're facing
here in 2023? And perhaps,ongoing uncertainty about the
economy and where we're goinghere?
Sure. And I'm going to keepusing the same framework,
because everything that pops upthat people have questions about
will fit in that model. So let'sjust pick one by example. We
(08:37):
first have to pay attention tothe right metrics. The
unemployment rate without beingtempered by the labor
participation rate can lead youto a false positive or false
negative, depending on yourperspective. So the unemployment
rate per se, is in a reasonablerange. However, the labor
(09:03):
participation rate is the lowestit's been in since pre COVID. So
what's going on there, and forsome reason, people are not
coming back to work. There are alot of smart people trying to
figure this out. So if yourbusiness model is reliant on
people, you have to figure thatout, irrespective of what the
(09:27):
prevailing conditions are. Bythe way, if you can't figure it
out, then you have to come upwith a disintermediating option,
which is automation. One of myfavorite questions, by the way,
that helps figure out where weought to go is "what's keeping
you up at night?" Because theleaders eat, sleep and drink
(09:50):
this stuff, they have to. Theeasiest way to help somebody is
when they want to be helped. Thehardest thing in the world to do
is help someone when they don'tthink they need any help. So I
find it easier to knock out whatis occupying their, their
(10:12):
attention. And even if it in themacro sense may not be the
biggest thing that arguably,ostensibly they should be
focusing on- until you addressthat, we're humans, and we're
wired for fight or flight. Yougot to figure that out before we
can focus on anything. I couldlook in the mirror saying this,
(10:34):
we all operate by some form ofthat phenomenon. So again- what,
within the model, the framework,keep it simple, is occupying
their bandwidth? Let's fix it.
Even if it's not necessarily themost important thing at that
moment is a gateway to get tothe other stuff that may
actually produce more value.
(10:57):
It's just a necessary step andcritical path.
Yeah. You have to bring themalong that path. You can't force
them on that path. You do thatby addressing what's keeping
them up at night. Makes perfectsense. All right, well,
switching gears here a littlebit. John, I mentioned your book
in my intro there, and honestlythere's no shortage of material
to cover in the book. It coversan exhaustive list of topics. So
(11:17):
I had my work cut out for me interms of picking where to go
here. One of the things thatstuck out to me in your book,
one of the quotes, is "Theportfolio companies leadership
team must take ownership of theinvestment thesis and translate
it into daily tacticalexecution. That ironically, they
may not know it always exists."How often do you see this sort
(11:39):
of lack of alignment between theprivate equity sponsor and the
portfolio company team regardingthe investment thesis and value
creation plan? What are some ofthe first steps you take when
you detect that kind ofmisalignment?
There are several questionsthere, I'm gonna try to peel it
back logically. First, it is therule rather than the exception
(12:01):
that there's misalignment. Andthat's not to panic. It's that
what is the degree of variationbetween the perspectives? And
the severity? Let's go back tosomething I may have injected
earlier is that no diligence isperfect. The question is, what
did we miss that;s relevant? Andthe only way you do that is by
(12:22):
engaging. The functional leadershave the business model,
however, the value chain isdefined and saying, Well, What
do you think, and we have to becareful about something else, we
have to be careful about.
Disparate dialects, I'll callit. And I can give you some easy
examples. Private equity peopleuse financial terms, they're
(12:45):
professional investors, not theonly terms they use, but they
use things like value creationand investment thesis fairly
frequently. And it may well be,especially if a founding
entrepreneurs built quite asuccessful business and
attracted these professionalinvestors, has not encountered
(13:05):
that term before or has neverhad. Cause to know what it means
because they made money. Theyknew what they were doing. They
had a successful business modelhad attractive enterprise value.
Okay. So that's the investorsproblem to make sure that they
(13:27):
understand what we're talkingabout. It's reciprocal, by the
way, let's use engineers, byexample, go the other way.
Engineers use terms like overallequipment efficiency, which is
essential to capacity,estimation, capacity estimation
and realization, because youhave to figure out things like
(13:50):
downtime for maintenance onequipment. That's not
necessarily a familiar term toinvestors who have not been
around a lot of engineers. Anddepending on the verticals that
we invest in, you can have somefirst encounters and I can speak
firsthand to this. Another termis something called Failure
Modes and Effects Analysis it'slike, ten to the third power,
(14:13):
how bad is this thing? The threecriteria are- how often does it
happen? How easily detectable isit? And how consequential is it?
Well, look at the O ring fromthe space shuttle that blew up
back in the Reaganadministration. Only happened
(14:34):
once, not easily detectable, butit killed everybody on board. So
there are things that bothparties would bring to a "value
creation" conversation that ismaterial and relevant. But if
you've never encountered itbefore, you don't necessarily
(14:56):
know what it means. Punch lineto this argument- this is a big
thing that you've tripped over,this is a big thing you've
tripped over. The phenomenon isexacerbated by a seller,
typically engaging anintermediary, an investment
banker who speaks on theirbehalf, they help put together
(15:18):
the message and why this isworth of X amount of money,
which is the price we want tosell it for. The m&a firm may be
very much steeped in thefinancial piece. And the seller
basically said, well, that'swhat I hired them for- they're
experts, and it's completelyrational. At some point, when
the deal closes, there may nothave been that debrief of Okay,
(15:40):
these are some of the nuances tobe aware of. And it it can be
assumed that it's assimilatedand acculturated. And I assure
you, that's a dangerousassumption. So that's why we do
the planning thing. So a needy,needy question you've asked, and
it doesn't lend itself to asoundbite answer. So thanks for
(16:02):
indulging that.
No, absolutely. John, I'mwondering how many times you've
encountered someone you know, inthe portfolio company leadership
team, for example, that might behesitant to kind of put their
hand up and just say, "I'm notexactly sure when we're
referring or using this term,like value creation, what that
(16:22):
means for our company." I feellike there could be some
hesitancy and maybe that's howyou help in a way in terms of
being a translator, and helpingto expose where someone needs
more information, or they needcontext, they're just kind of
hesitant to put their hand upand say that they do.
More than you might think. Anddemographically there's another
angle of this, it makes perfectsense. So baby boomers are
(16:46):
almost retired, but thedemographic behind them- just
think about baby boomersrelating to the grandchildren on
stuff like this. Well, your yourmid level deal team investment
professional, is a highlyeducated- tends to be youngish
type of professional with an MBAfrom a really impressive school.
(17:11):
If you don't believe me, lookwhere Harvard MBA graduates
typically go, it's eitherMcKinsey or private equity,
those tend to be the big twolast time I look. Okay, there's
a pattern there. So these arereally, really smart people. But
how often do you think thatsomeone their grandparents age,
or their parents age for thatmatter, that built this thing
(17:32):
didn't necessarily have the sameeducational experience, but
they, they did that they did inthe laboratory of grit? They
did. That's why I loveentrepreneurs, they figure out
how to do it before anybodytells them it's impossible. I
love these guys, and the economyneeds these guys (guys a unisex
term). So how do you bridge thatgap? Well, guess which
(17:56):
demographic I'm in? So I canrelate to them more as a peer
and and the gatekeepers to therelationship for for consultants
like me and YouTube for to theextent that you pursue equity
sponsors, is it the deal team,usually that's prevents
(18:17):
resources to introduce to theportfolio company to address a
certain issue. So I can go backand forth and help bridge some
of these gaps withoutnecessarily leaving any
fingerprints. And that's goodword of mouth advertising, by
the way.
So absolutely, you're hoping toalign teams, you know, and that
can be invaluable. Sometimes youneed that outside perspective to
(18:39):
be able to detect those things,and then align folks around the
same topic or initiative orwhatever it may be. So that
makes perfect sense. Switchinggears a little bit. John, you
describe yourself as a processnerd and ask your clients to go
through these rigorous processesto better understand the why.
Can you tell us why and how youwalk companies through process
(19:01):
mapping exercises? What are someof the insights that usually
come out of these kinds ofexercises?
Yeah. The the single bestinvestor I ever had the pleasure
of supporting automaticallypivoted to process mapping the
business model as the ink wasdrying on close automatically,
(19:21):
why? Okay everything that ismarketable, hasn't customer. The
question is, what do they want?
What are they willing to buy?
There is a value chain,complemented by supply chain
that goes from ideation throughcreation, to get to
(19:44):
marketability, and hopefullyremuneration. So it's concept to
cash some people call it. Wellall these have steps and mapping
This serpentine and in somecases, highly complex flow. It
is very enlightening. And I cantell you, I'm going to be very
(20:05):
careful about a hyperbolicstatement. I have never
presented a cross functionalprocess map, I'll come back to
That in a minute. I have neverpresented a cross functional
process map to a CEO. Withoutsome variation of the following
comment, colon, we really do itThat way. Think about That.
(20:27):
Think about That. So what doesit tell you? By the way,
sometimes I'm asked to Whatshould my org chart look like?
Understand What they want. Butthat's the last thing you do.
You start with What the businessmodel does, and get logical
functional chunks, and then yourorg chart is a byproduct
(20:49):
thereof, because It's eithercreating value or enabling
value, the difference being say,ops versus it, Okay, it is
enabling ops creates value. So,when you go back to That, Here's
What you learn. When you processmap, you learn the flow, whether
It's the right flow or not,remains to be seen. But there
(21:10):
are some things That we could doThat better. You learn if it has
the wrong owners, the beauty ofcross value, cross functional
value stream mapping, you doVisio is you got swim lanes for
owners, and you got rectangularboxes for tasks. And you look at
where these boxes are, as itgoes through. And you find out
(21:31):
who actually does the work?
Well, sometimes you find out thewrong people have it or they're
not really trained to do it. Sohow the heck did That happen? We
couldn't afford That skill set15 years ago, and they've just
had it ever since. Good Soldier,not necessarily the right answer
today. It can be waste, weshouldn't be doing it at all. We
can have not only nobody owningit, which happens, but more than
(21:56):
one person owning it Thathappens. So you get all sorts of
good information here. ButHere's the punchline That might
might be endearing to you as atechnology professional. This is
wonderful input to ask, Whatshould our system be able to
produce on demand? And it tendsto be in about three chunks. I'm
(22:20):
going to be guilty ofoversimplifying here. There are
inputs, and the longer thebusiness cycle, the more
important That is like how longdoes it take to solicit business
before you write an order? Well,if you have no sales forces, and
It's on the web, that'sautomatic, but What if you have
boots on the ground? It's verycomplex, like a a software
(22:44):
solution. You talk a lot, youhave RFI RFQ bid got all This
stuff, it takes a while, Well,how much activity is in This
thing we typically call a phoneto get down from suspect to
prospect to customer That feedsmy process, then I got a
(23:05):
capacity problem. So the firstone is, What is my pipeline
telling me about whether or notI'm going to have revenue a year
from now? Okay. Then the processpiece in the vat, the chunks of
value stream all have a criticalpath, typically. But does the
right information tell internalcustomers and vendors about
(23:29):
their pipeline, so That theyknow how to manage their
capacity know how to order rawmaterials know how to alert
people downline about problems,because they may have to adjust
their schedule. All these fromthese are binary, if you will,
they're bits and bytes That aredata elements and can be part of
a magnificent ERP solution. Andat the end, you typically have
(23:53):
the finance piece That tells younow investors very, very
commonly are talking in terms ofrevenue, margins, EBIT, margin,
great. That tells me if I wonthe game or not, and maybe by
What extent how Well did I winthe game, but in a in an initial
investment, That the accountingsystem can be sort of Spartan
(24:19):
like QuickBooks and on a cashbasis, that's got to change and
It's got to be more robust likea Microsoft product dynamics.
And Okay, the opposite systemWhat What if his job shop which
means highly customized, Well,can you do activity based
costing? What's That? Okay, mycamera system accommodates all
(24:44):
This stuff integrates. And ittends not to be as robust as it
needs to be with the initialinvestment, as it must be. If
you expect to exit within areasonable amount of time, and
for a nice price That reflectsthe quality of earnings, and
(25:05):
what's robustly scalable, soThat if the diligence doesn't
catch it, it only goes downhillfrom there. Because It's going
to be complex, protracted, andIt's not cheap, and cash and or
opportunity cost. It's a bigdeal to install This. So getting
an early read on That isimportant. But I would say That
(25:29):
process mapping, your originalquestion is foundational to it.
But look how much we just saw.
We saw immediate waste, how itshould be managed, What the
system should do. And now we cango through RFI and RFQ
enlightened so we know how tofind if somebody's got a turnkey
(25:51):
solution, or we got to thinkabout middleware and, and What
we can bolt on to This thing. SoI think It's one of the most
important issues and allbusiness. I think It's at a high
level of important and smallimportance in small business,
because It's a bridge they haveto cross. That's not criticism.
(26:12):
They did What they could afford.
But they're talking about beinga much larger company in it
simply harder to manage absentThis stuff at your fingertips.
Right, right. Absolutely. Itmakes perfect sense, John, it
makes sense. A lot of pointsthat I could take from your
response there. One thing thatreally stuck out to me is you
have to understand all of theprocesses of the business and
(26:35):
how you want to optimize those-get that picture nailed. Then
you can start looking for thesystems and the ways to capture
information and data that willin the future, tell you how
those processes are going. Ifthey're really sticking to the
plan, and the layout andorganization that you wanted to
have for the business. Ofcourse, if you come up with
that, if you go through processmapping and decide, here's all
(26:57):
the things we're going tochange, it's important to have a
way to measure and monitor thatgoing forward so that you don't
lose progress in six months,that it wasn't just a lot of
good ideas and conversation thatthe leadership team doesn't have
a way to oversee in the future.
So it makes complete sense. Now,you mentioned one thing that I
want to follow up on, John. Interms of, you know, how you
approach tech diligence,information, diligence for this
kind of business that has been,you know, grown organically and
(27:20):
by a founder. And like you said,they've done what they can do in
terms of putting systems andwhat works in place, they have a
bridge to cross in terms ofscaling up as a company in
fulfilling you know, theinvestment thesis in the whole
period. But in diligence whenprivate equity firms are looking
at tech and systems, What kindof risks are introduced, that
(27:42):
maybe you've seen play out iffirms don't thoroughly diligence
these areas in terms of tech andsystems?
So I'm going to talk about thetwo biggest gremlins from my
perspective about why I don't dothis type of diligence. But I
can help people with theirstatement of work for the
questions that ought to beanswered to know what they they
(28:04):
really have versus what theyneed. All that type of
diligence. The best vendors I'veever worked with and worked for,
I should have said intermediary.
Between the investor wanting todiligence and who they hired to
do the diligence is what does itdo? What does it not do relative
to the investment thesis, whichjust over gave you a good
(28:26):
soliloquy on that? What will itcost to fix it? You can come in
between what with priority. Sowhat does it do? What does it
need to do relative to what wewant? And What order should we
fix This? How long is it goingto take and how much is it going
to cost? That is a technologyroadmap? Okay. And it is a great
(28:46):
value add a tremendous value addthere's something that needs
special mention is is one of theheads of the two headed monster
we need a much deeperunderstanding even a paranoia
about cybersecurity, That I'mnot sure the economy at large
(29:14):
understands to the extent itshould. I was amazed by some of
my behind the curtains,epiphanies about how many people
had paid ransomware and nobodyknew about it. Okay, that's
that's a an indicator. It'sreal. And just the awareness
training for spearfishing typetargeting. It is is worth it.
(29:40):
But Andy Grove was right, onlythe Paranoid Survive. And never
ever, ever let your guard downon cybersecurity. You can't
afford to they can wipe you out.
Okay. And then the other thingwe have sort of talked about, so
I'm just going to give it a nameof moniker but I'm not going to
(30:02):
retread old term. It's havingthe right fingertip information
in the hands with people who cando something about it. Do
something about it, how can Ipossibly hold a production
person accountable forproductivity, a subset of which
(30:25):
is quality, if they don't knowanything about their capacity,
their scheduling, the productionrate, the scrap, they have to be
informed, or else the bar fromDrucker we're literally setting
people up to fail. Okay, nobodyreports to work fail. Maybe a
small portion of people who arejust masochistic, and like to be
(30:48):
hurt, but I'm not one of themThat I've ever met one. Nobody
reports the work to fail, whyshould leaders set their their
people and I think isunwittingly set them up to fail
by not? If they have theinformation, not sharing it or
need the information and notsupply?
Right? It reminds me of aconversation I had recently with
(31:09):
a private equity firm, they wereasking, "are we giving the
right information to ourleadership team? We feel like we
could really bypass a questionover do we have the right
leaders in place?" I mean, notthat you don't need to examine
that sometimes. But their pointwas that if we had the right
information in the rightpeople's hands, similar to what
you're saying, they would makethe right decision. So our
(31:31):
question is not so much nowaround the leadership and skill
set, That always is going tomatter. But we're questioning
more now the information we'resupplying to them, because we
really feel like if we get themthe right information, the right
decisions will be made. Andthey're able to make those
decisions, because they haveThat kind of visibility. This
kind of ties into something elseThat I was gonna bring up, John,
(31:51):
you know, broadly, when youthink about business,
intelligence and reporting, itcan provide leaders That kind of
visibility into how the companyis performing or how their
department is performing. And,you know, you can have reports
and dashboards with all kinds ofdifferent data visualizations,
and summarization. And in termsof financial reporting, which
you touched on. This is, likeyou said, This shows us That we
(32:13):
won the game, This is the sortof end result of all of our
efforts and initiatives and workacross a month or a quarter or
whatever time interval, It'sThat end result. We look at
opportunities here at Bluemargin to provide companies
visibility into the leadingindicators of future financial
performance. So teams can kindof course correct in real time,
(32:35):
they're not waiting until theend of the month to discover
That, oh, we could have weshould have done a lot better in
a certain area. Just curioushow, how often do you see in
consulting with your clients,That they're lacking visibility
into the leading indicators offuture financial performance,
they might have That financialreporting, it might even be
working really Well. But theydon't have that visibility into
(32:55):
those leading indicators. Theycould really benefit from that
kind of visibility.
So I heard two high levelquestions. But I'm gonna preface
my my response by saying keep inmind, my target market is lower
middle market private equity.
It's a It's a really nice areaof opportunity for value
creation in relative terms,Okay. But you got to build a lot
(33:18):
of this stuff, because itdoesn't tend to come with the
package. So I'm going to say isfrequently I encountered the two
questions I heard. All right. Soone, if if I walked in and asked
operators and by the way, mycomments That come out of my Yap
are sympathetic and empathetic,not critical period. If I walked
(33:40):
in and asked him, Do you havethe information you need? That
is the wrong question, and willgive me a worthless answer. And
What do you think about That? IfI walked into an Amazonian
rainforest, and encountered atribe for the first time That
(34:03):
had never seen anybody like meever? And I said, Would you like
a car? You get What I'm talkingabout. Alright, so if you have
to position by What Einsteinsaid, It's more important to
know, or ask the right questionthan to know the right answer.
(34:25):
And that's where I'm going withThis. If you had access to
anything, you want it right nowon demand to help you do your
job more easily. What would itbe? So It's not necessarily a
data question, but you back intoit. Another way to do This. And
again, I have to read This theenvironment and the people to
(34:49):
help craft the right question.
So where are you spending mostof your time on This stupid
manual scheduling thing? Couldyou show it to you Okay, you and
I both know That there are a lotof modules where it gives you a
draft of This based on how you,you load it. And It's like press
(35:11):
a button. Okay. So how do we geton their frequency and see the
world? The way they see itthrough their prism. And if we
can't do That, we're really notgoing to get to the more likely
right answer. You also askedabout the stuff relative to What
(35:32):
I would regard as inputs,process and output metrics,
Okay. And the great ERP topsolution addresses all of That,
not necessarily on the sameplatform, but you can integrate
some of these things. And I willmake a statement That I'll bet
(35:52):
my professional reputation onThat, depending on who your
listeners are, they're gonnascratch your head, but hopefully
they will think about it.
Because their initial reactionis not if I had the in a long
cycle business model, if I hadthe data I wanted, when I want
it on inputs, like the pipeline,and ops, I don't care about
(36:16):
financials, because I alreadyknow What they're going to be.
Okay, there's a there's a moldundercurrents in That That I've
got, whether It's activity basedor standard based accounting.
I've put a premium on costaccounting skills. I don't want
to know I lost the game by 50points after everybody's taking
(36:37):
a shower in the locker room. Iwant to adjust my game plan at
mid first quarter, something'snot working right. football
analogy. Forgive me. But the butthe point is That the we live in
a dynamic world. And how couldwe hope to thrive in business?
Unless we we have That commondenominator, I have What I need
(37:02):
on demand relative to my span ofcontrol. And the code
dependencies within ourparticular business models
ecosystem, I've got to know ThatI've counted. And the message is
more profound in a globaleconomy. Because there there are
(37:23):
places on earth That will alwayshave cheaper labor than Western
countries, always. The questionis, when do I know That that's
my only option? And where is it?
But I want to go down swingingon how Well I can refine my
processes, how productive I canmake it get the waste out. And
(37:47):
and my way we should ask ourpeople, what's not working in
their business models? Becausethey know. And he's Okay. Why
don't we try This? And if theycall for the solution, you get
automatic change management. Sowe are sitting on tribal
knowledge That is priceless,That if there's one takeaway on
(38:12):
all This, if sea levels arelistening to This, That have we
asked the people closest to thework, What they would change, if
they could could if they wereempowered to do it, and why. And
we might surprise ourselves Whatwe learned.
Yeah, absolutely. Absolutely.
It's great stuff, John. Reallyappreciate you being here today
(38:35):
and sharing all your insightswith our audience. What's next
for you? And how can folks getin touch with middle market
methods?
Well, if there's no othertakeaway from this visit, then
the following soundbite- I lovethis stuff. I pull for the
little guy, I love this stuff.
I'm one of you. So I always asksomething to the effect of what
(39:00):
keeps you up at night. If it'ssomething that's in my strike
zone, they know it? If It's not,I don't leave them hanging. I'm
part of an unofficial nerdnetwork, and I will not leave
them guessing about theiroptions, I will introduce them.
So if that type of resource hasany value for solutions
provider, quote, unquote, theeasiest way to find me is go to
(39:22):
the website,www.middlemarketmethods.com.
That's a mouthful.
Perfect, John. Hey, thank you somuch for being on the show
today. We really appreciate it.
The pleasure was mine. Ithoroughly enjoyed this. Good
luck!
Popular Podcasts
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Therapy Gecko
An unlicensed lizard psychologist travels the universe talking to strangers about absolutely nothing. TO CALL THE GECKO: follow me on https://www.twitch.tv/lyleforever to get a notification for when I am taking calls. I am usually live Mondays, Wednesdays, and Fridays but lately a lot of other times too. I am a gecko.