speaker-0: The hardest thing to do in the business is fire a customer to fire revenue, get rid of revenue. But when it's bad revenue, it's not helpful. And if a customer sees no end or you see no way of turning that bad revenue into good revenue, it's destroying value to the company. What we found is the customers that tend to have the largest revenue had the lowest margins, if not negative margins. And what happened is over time, previously, customers say, we're going to be generating all this business for you. We want a reduction in price. And because people didn't understand the implication of that, now you're producing goods for this customer below the costs involved in you actually generating negative performance for the business.
speaker-1: you Hey everyone. Welcome to the next moves. My guest today is Ashley Daffle and he's an individual that I've known for the better part of almost 20 years. And I love these conversations that I have with Ashley and I've always thought that I should spend some time with them, recording them so that I could share them because the way he thinks about things has really affected the way that I designed clarity, built the organization, the advice I give to clients. And what I want you to see within this episode is It's really a playbook on how senior finance leaders can assess, accept, execute a PE-backed role, including turnarounds, and looking at it from starting with people. ⁓ We're going to talk about why they fail or succeed before you even hit the spreadsheets. This ties to your team capabilities, the mandate you're given, and also your capital partner at the table. So join me in welcoming Ashley. Ashley, thanks.
speaker-0: Thank you.
speaker-1: Actually, you've always told me that the mandate matters. It's the foundation for everything that follows. So I want to ask a very simple question, which is before you even look at the organization, look at the numbers, the details, what conditions for you had to be true for you even to consider the role?
speaker-0: First for me was looking at private equity, their operating mandate in terms of, prefer to have a short-term hold, for three to five years, or they're much more of a longer-term hold. They'll hold organizations, portfolio companies for 10 to 15 years. That tells you a lot about their mindset and how they want to add value. My preference was to steer away from the short-term holds because that was always million around as driving valuation as fast as possible. Not always having the same focus or emphasis on the real intended purpose on the portfolio company. And coupled with that is where is the portfolio, where's not the portfolio company, but rather the PE firm, where are they in the investment cycle within that portfolio company? If they're an organization that likes to hold for that's choose a number seven years and then year six and they're replacing the management team, that alerts you to there's something going on in that portfolio company that they're not happy with and this might extend into much longer haul. So digging and understand why the private equity firm is at this stage of the investment cycle making the significant changes that there are. The second piece from years around the operating mandate that you have coming in into this organization. Is it just to fix financials? Is it to be a business partner? Is it to be the eyes and ears of the private equity firm? What is it that they really wanted? Dig in and understand that. For me, it was always around, I wanted to be a business partner. And so if the private equity firm was looking primarily for a financial accountant who has depth and breadth in IFRS, that wasn't me. I want to be a business partner. So understand very clearly what does the private equity firm want with this new CFO that they're putting in place. And my preference is not to call it a CFO, but rather call it a chief business officer. And the third element is governance. What is the governance structure like? Does the portfolio company have an independent board? Do they have regular board meetings? Is there an independent audit? done on an annual basis. When you look at the, there is a board, who chairs the board? How many people have private equity sit on the board and what the board members, the independent board members, what's their experience? What do they bring to the table? And are they going to bring the quality of thinking and challenge the CFO and CEO, the top person to challenge them in terms of what the struggles are and how they are going about solving some of those struggles. And if those governance mechanisms are not in place and not clear, for me, it would be a cautionary sign. Okay, so what is governance? Is it just really then the private equity firm dictating? They the de facto CEO or is there truly a solid governance structure in place to guide and steer this organization?
speaker-1: I mean, we've talked and you've found yourself in places where you're even trying to make payroll when you take over something. And I would guess you're on a relatively short leash at that point, or was there explicit authority and freedom to change? Like how, how was that experience unique?
speaker-0: So that particular situation was, it was very late investment time horizon for the private equity firm. They were trying to figure out what do they actually do in this particular company. I was jettisoned in and as you said, within my first two weeks, we couldn't make payroll. So they had to do rapid refinancing.
speaker-1: Did you know that when you joined or was that?
speaker-0: ⁓ No, no, no, that's the thing is half the time, I don't think private equity quite, they know there are issues, but they don't quite understand the depth of those issues and depth of those challenges. So in that particular organization, when I joined, there was a pretty broad mandate given to me. was actually, you've got to get in there and ⁓ they didn't say it as much, but it was implied you're the last resort. before we do a shutdown or we push this thing into CCAA. And I said, well, what does that really mean? And they said, you can do whatever you want. Just make sure you involve us, keep us fully informed of what's going on. And we want to know what's going on because we've got to this stage in investment time horizon and we had the wool pulled over our eyes. So get in there and tell us what's going on and fix it and clean it up. I then said, well, what does that really mean from a finance team perspective? And they said, just do what you have to do. And I said, okay, does that mean I can spend money to save money? I said, absolutely. Just tell us what you need to turn this thing around. then, so within six weeks, I was there for two weeks, we ran out of cash. Within six weeks, we had refinanced all the debt. And then it was a focus on cash flow and rebuilding the team. And I just. I partnered very, very close and probably just told them all the horror stories. I didn't hold anything back. ⁓ and we then developed jointly, developed a pathway to turn this company around.
speaker-1: Okay. So I want to give a timeline here, which is you step in, you start uncovering and realizing what it looks like. You're communicating back. This is over a matter of weeks and there's only so much that you can do. And you have a team and that team is probably your finance team that you're working with. then it's also your broader leadership team and you're identifying areas that need to be changed. And are you then constrained in your ability to execute the next stage of the plan by the capabilities of the individuals internally? that the next constraint? Okay. So what happens?
speaker-0: So it was in finance. So the first thing I mean, run that particular organization, run out of cash, pay, make payroll. First thing had to do was get cash flow forecast sorted out. And so when I went and started assessing the team pretty quickly, the team was basically just want a bit of bookkeeping team. We had an APR function. We had a bit of tax. had a bit of, ⁓ of course payroll. And that was pretty much it. It was. really just bookkeeping. And so when I asked the team, I want to see cash flow forecast. This is after week one, I asked cash flow forecast. It was a blank stare. So I knew pretty quickly, had a first, my first order of business was to get the cash flow of the business forecasted and addressed. So there were one or two shining stars and I just pulled them aside and I said, this is all we're going to focus on for the next two weeks. We're just going to put ourselves in the room and fix cash flow. But the back of my mind was always running. got this team that can't perform. But it's that chicken and egg. ⁓ I needed to prove to private equity that I got this deeper challenge on the team. I needed to sort out the cash for the organization so that I didn't run out of cash again. I had the bank sitting on the banking syndicate sitting on my back saying, you made certain forecasts and promised to us we want to see that delivered in the short term. And so you're running, you're trying to solve these multiple things all at the same time. So once I'd got kind of a cash flow sort of box and I was 80 % happy with the kind of variance I'd get out of the cash flow forecasting, because it became very apparent through that whole process to me that I needed a complete change of the finance team.
speaker-1: Sounds like there's a series of decisions that must have come out of that so quickly. And if you look at it, you talk, you talk a lot about customers, understanding the customer, orienting the organization to serve the customer. Like what is the impact of each of these things? And I, like that frame. And my question is use this as an example, this organization, another one, like talk about some of the changes that this analysis is driven from who you. who you deal with, what is your market, like what are the material changes? Because you've been in not small organizations, I would say in private organizations in the hundreds of millions of dollars and you've been a part of multi-billion dollar companies before. So I'm asking you like what are those decisions once you start doing this analysis, like give me like one, two, three happened very quickly and that changed the company. Because it does change the company the way that people think.
speaker-0: things I asked for pretty quickly. Once we saw I the cash was stabilized. Once I started putting a strong finance leadership team in place and we can come back to talk about what that means later. What does strong team mean from my perspective? What I quickly need to figure out is customer profitability. How were we performing from a contribution margin at a customer level? It didn't exist. And so one of the, when I brought on My first one, one of the second or third senior leadership team person on board in finance, what, what I called a strategic planning analysis, different from financial planning analysis. Cause I wanted that higher level of thinking that I was talking about earlier on. So I bought on this strategic analysis, but I said, the first thing I'm to solve it as custom profitability and spend a lot of time figuring out. Probably the customer level and that showed fascinating results. found results at north and it was. What we find is the customers that tend to have the largest revenue had the lowest margins, if not negative margins. And what happened is over time, previously, the customers say, ⁓ we're going to be generating all this business for you. We want a reduction in price. And because people didn't understand the implication of that, now you're producing goods for this customer below the costs involved in you actually. generating negative performance for the business. So we spent a lot of time that we actually then made some hard decisions. We made decisions to go and revisit all those customers and offer them some alternatives. Number one, to say to them, we need to have a significant price increase or minor price. One of the price was to meet the new margins and we defined what the new margins we were looking for. defined those new margins. What is the margin profile we want to set customer to achieve that margin profile? We're to push up the price by X. If that's too much for you, Con Handler, we understand that. Then we should have a different conversation on parting ways. And it was about 50-50. So half the customers, the hardest thing, the hardest thing to do in the business is fire a customer to fire revenue, get rid of revenue. But when it's bad revenue, it's not helpful.
speaker-1: ⁓
speaker-0: And if a customer sees no end or you see no way of turning that bad revenue into good revenue, it's destroying value to the company. So, like 50 % of our customers, we let go.
speaker-1: Hold on, 50 % of the unprofitable customers you like?
speaker-0: So, we're disengaged.
speaker-1: where half of your customer is unprofitable as well. So you're really talking 25 % of the total share.
speaker-0: Correct. we did that. that was number one. So we did the problem. And then what we did the same time store, we can't keep bringing these customers in. So we then worked with the marketing and sales team said, this is the profile of a customer we want. So that we're looking for from a margin perspective. And by the way, we have found out certain customers from certain segments are just not great customers. Give an example, automotive sector. The margins are horribly thin. And when you deal with automotive companies, if you don't perform and you meet the significant penalties, as we said, well, why would we want to be in that business? Let's get out of that business and let's go where there are higher margins. It's sticky at customer base. And it's very difficult for the customers to get out of the relationship. For example, medical, medical products. So we then spend a lot of time on the market redefined the verticals and segments we would play in. the segments I would not even consider anymore. They're out, we just want to look at them. And then within the segments, we want to play in what is the margin profile. That changed the thinking of the organization significantly around vectoring the company around margin profile as opposed to revenue profile. And what fell out of that exercise, we found we had 13 manufacturing facilities across the world. We now had excess capacity. And so we said, okay, we need to consolidate our operations into fewer sites. And so we actually shut down three facilities and consult. So we reduced the overhead. After quality of the revenue, up the value of the customer base and had a significant Arctic on overall performance. And, at the same time, I mentioned only on operating leverage. we could drive our operation delivery significantly. So we changed the whole, by that data analysis and having the finance team, a solid financing team, we changed the whole profile of the company in terms of who we target as our customers and the kind of profile we want out of those customers.
speaker-1: So you, you re vector on your customers, you redefine and you say, are redefining based on revenue quality. And once you do that, there's a cascade of changes that fall out, including restructuring operations, dropping certain sites. Like those are material changes. So what time horizon are we talking about for all of this to unfold where those significant changes or decisions had been made? How long does that take?
speaker-0: one year, within a year. the reason why, and this comes back to your original question, Joe, and what I said, where are you in the time horizon of the investment cycle of the private equity firm? They were backing right up their normal exit time. And so this was a get this thing fixed ASAP and we want out. ⁓ we were in a fund, I think we were the one of the last two portfolio comes left in that particular fund. They were had a transaction on the last one. And so we were, we were now the last one in the fund. They wanted to close that fund up and wrap it up. And it was fun. They had done really well. And of course I wanted to report to, to the investment team, how well they had done. So within a year we had, I completely changed the team. Refinanced twice. We actually managed to do a dividend to. about changing, about re-vectoring the whole focus. We did the whole customer profiling. We shut down facilities and year two and three was not just based on tweaking some other things and working off that fundamental, all those changes we had made, working off those and driving performance. And we, I mean, I can't mention numbers, but we took the EBITDA up 10 fold from when I took over.
speaker-1: My God. And top line revenue was similar or small.
speaker-0: Actually, offline living was less because we got rid of the customers. We got rid of the non-performing customers. But by doing that, we drove up the value and we shut down some of the facilities. So we got rid of some of the overhead. It's like quality, better quality revenue. When I come in, the quality of the revenue is much better. So we had lower revenue, but much better, deeper dark financial performance.
speaker-1: That also reduces. I think it's important to note that you ended up as CEO of two organizations. That's an interesting transition. Like you're in a very different role. Or did you see it as a different role?
speaker-0: did not. My mindset going into both of these organizations where I landed up as the CEO was one of chief business officer and not one of a CFO. I'm not a CPA by background. And this is a joke for me, actually, one of the things you asked me earlier on when I was recruited in both those organizations and I spent time with a private equity firm. I was very Dragan, what do you want from a CFO? What do you want? And I was very unopened and honest. I said, if you want a technical specialist on tax and IFRS, I am not the person. So let's just not even go there. And in both instances, they said, we do not want that. You can go higher for that. We want a business partner. We want somebody who understands business, who can partner with the CEO, who wasn't there at the time. a new compartment with us. So my mindset was going in was I'm the chief business officer and I'm there to take financial data and use it, analyze it to transform the business. And so my thinking was always way beyond just here and now and whether it be just getting the finances done. was just, I've got to solve this bigger business issue around, I've got the wrong customer profile. got wrong leadership teams, I did assessments on GMs, went to CEOs and we have to change GMs out, we've got to fix this. So it was always just my mindset. I'm a Chief Business Officer, I'm not a Chief Financial Officer.
speaker-1: So you've talked about the owner. You've talked about the private equity. So there's the ownership, there's the board, and then there's your leadership team. And getting everyone aligned. It early is a win and waiting too long is painful. So my question really is like, how does getting this alignment activate or a lack of alignment neutralize you? And where do you see a breakdown most often?
speaker-0: If there's no alignment and there is no willingness from either of those three parties, ownership, governance, assuming there's a proper governance structure in place. If there's no willingness to get that alignment. You beat your head against the wall. And that was key for me when you said, Joe, come back to one of the original question, what must be in place to join? There's gotta be that willingness. And I encourage people to look and take on these roles because they're not easy. They're tough roles. Make sure there is going to be alignment or at least there's a willingness to get alignments in on these three elements.
speaker-1: So how do you tell if it's real?
speaker-0: You feel it. That's the only way I can really say you feel it and you'll feel it and you'll sense it through things like board agenda. What gets on the agenda? What gets the time on the agenda? Do we have, do we set aside 20 to 50 % of the time each board meeting to discuss strategy, to discuss alignment, to talk about the tension between exit valuation and the purpose of the company. Do we spend time talking about strategy? Do we spend time exploring what's happening in the markets and how we can position ourselves, reposition ourselves? Where does the energy go? The one board meetings, a board agenda. So that's the first thing I'd always ask for. Give me board agendas, me the last four board agendas. I don't need to see the detail. I just want to just give me the topic and the amount of time and I'd quickly do an analysis. How much time in board meetings goes to discussing alignment related issues? I look at balance scorecards, they had any balance scorecards, and I look at them say, well, how much time is spent on the non-financial elements? And we'd spend a bit of time, let's take employee engagement. If employee engagement scores are down and it's a key scorecard element, how much gender time does that get? And why is it done? What does our customer satisfaction survey say? How much airtime does that get? So you'll sense it and feel it through that. And the other way you'll feel it is private equity. They will the owner who's still partner, who's in the business, what his or her tone or language or questions they're asking because they're driven by what they've got to achieve. Everybody's got a boss, right? And you'll also get a sense of if you're dealing with more than one person in the private equity, how much alignment is in the private equity firm for the outcome of the portfolio company. If you find partners are giving you different ⁓ directives or different sense of information, you can quickly pick up this private equity aligned here or not. So if they're not aligned, within private equity, they're not aligned what the end objective of the portfolio companies, you'll pick it up through talking to multiple private equity ⁓ partners or principals. You're picking up through a bold agenda and you'll just sense it and your team will start sensing it. Your leadership team will start sensing it. They'll actually voice it you. They'll say, don't feel aligned here. Something's missing here. You've got to watch for those signals.
speaker-1: So with that dissonance, if we're talking about you're sensing it between those three groups, ownership or leadership. What does that affect if not resolved?
speaker-0: Trust is a big that's a trust. Trust for a little bit. You start asking yourself the question, am I trusted in the role that I mean? And that leaves other questions of if it gets too unhealthy, it's an am I capable? Why are they doing this? Right. So there's a capability and then what that impacts to what you said already. My sense, it leads to decision paralysis and action paralysis. Because if I'm not trusted and I don't feel this deep sense of trust, and I don't feel this deep sense of capability, it's then what am I doing here? And the safest thing then to do is to retreat. Slow things down, double check everything. The risk tolerance goes much, much further down. So I think it slows the whole execution speed of the organization. It slows it down. If I didn't have some of the firm, I didn't have the main data I had, for example, actually, if you think it's right to shut down facilities, shut them down. Just tell us, just communicate with us. Just don't do it on your own. Just come back and say, this is what I think we need to do guys. Okay. We're aligned. Go.
speaker-1: That's huge. So you're leaning into those and having hard conversations. So if I look at this now and I look at the change in your career, I mean, when we started, we went to school together and did our MBAs and like where you were then and where you are now, it's wildly different. If I'm speaking to the audience that will watch this, there's many finance leaders. I sit down with them and they're like, being asked to take on the COO job. It's a very, it's a common move, right? The CFO to the COO. less common from CFO to CEO, right? There is, there is often a CFO to COO then to CEO. That's something I have seen, but less straight from CFO to CEO. Like what is, if people are thinking, can I do this? What is that critical ingredient that lets them make that shift? Right? From a capability standpoint, what do you think matters?
speaker-0: Self-awareness, number one. Where am I? What are my strengths? What are my weaknesses? With a view of just being really honest with self and saying, these are my strengths and weaknesses. I think about a COO role or a CEO role, what does that role need and how do I bridge that? It's also, and with that self-awareness becomes self-confidence. I can do this. ⁓ I've got all the smarts, ⁓ we've got the ability. Let me go into this without fooling yourself. All right. So this is not a, not a fool's game. This is the awareness and the confidence and the concept. I don't have the skills. How am going to go get them? So I would strongly encourage if, there are people out there and it's a CFO, it's somebody's in a CFO role and they're strongly technical in their skillset and what they do, because that's just how they've been brought up. And they want to want to move more into a broader area. Go and broaden the skillset. Go do an MBA, go do an 18 month MBA and then choose the right MBA that's going to help you focus on your weaknesses. So you can bridge those weaknesses, but go and do something about it. let's do the self analysis, critical analysis, where my weaknesses or my gaps to get to more where I want to get to and how do I close them and go close them. That should be my big recommendation. It's difficult for me to say one particular thing because all of us are different where we are in life and our skill sets and what we've achieved and whatnot. So we all are different stages. So do the self assessment, but an honest self assessment and go close the gaps. Work on yourself first, do strategy on yourself. If you can't do strategy on yourself first, you will not build your strategy in a company. So figure out from, ask yourself those questions. Where do I want to play and how am going to win? Ask yourself those questions first. You can't do it for yourself. You won't be able to do it for a company. I think you need to be vulnerable. If you're going to move into those roles, understand your vulnerability and it's okay to share it. Sometimes you think the vulnerability, you can't share it because I need to be this mature leader and I can't share the vulnerability, but it's okay. to go into a role and I've had to do it and say, guys, I don't quite understand the market here. I did that in one organization. I went to chief marketing officer and said, I don't quite understand it, but I will learn it, but teach it to me. Help me understand. When you share the vulnerability, it creates a magical relationship connection moment. That you're not the B all in all and by the way, no CEO or chief finance officer knows it all. There is nobody like that. You need the team. When you show vulnerability, it signals immediate team and trust.
speaker-1: Look, I think that one really needs to be punched home, especially what you did with the chief marketing officer to go to someone who is responsible for driving awareness and engagement and like brand awareness, ideally conversions and to say to them, I don't really fully understand this market. Can you teach it to me? think knowing that you can do that, having had to do that in my own life where I'm like, look, I come from this market and I'm moving into this market and I'm trying to create. a model of it and I'm failing. That's incredible. Now, I guess there's a degree of trust that you have in that individual that they're not going to back channel that to the other partners that could make a decision, but you have a mandate at that point, do you not?
speaker-0: But I think Joe, great point. I did it in meetings with everybody. So we could all be vulnerable, right? And then I'd say, okay, we, I would honestly say, you're not all great. You're good, but we're not all great. So where all do you need help? And we used to open meetings or problems with where do you need help from somebody else? How do we help one another here? So we used to open meetings like that. So we used to create the vulnerable environment.
speaker-1: Awesome.
speaker-0: and then we support one another. I did it to avoid the back channeling and we'd write in the middle of it, we're in thick of it, and we're solving this as a team.
speaker-1: Excellent. I've got some rapid fires for you. If you don't mind going through these. ⁓ Give me a non-negotiable before accepting a turnaround. Roll.
speaker-0: understanding the PE's objectives.
speaker-1: Okay. Number two.
speaker-0: I'm lying on them. I'm on them. So if you're in a turnaround role, say, how long have I got here, Mr. or Mrs. P partner? Are we talking one year? Are we talking two years? we talking three years? Five years? How long we got and what's my mandate?
speaker-1: Do you contract for that as well to manage your downside, is if it's different, am I taken care of?
speaker-0: Through the options. Absolutely. And you better do that through your options. You know, if I'm going to drive value and if I don't drive value, what am I going to get? Now there is an imbalance of power at that time of relationship. So you may not get what you want, but you should make sure that if there is a stellar exit, that you're going to get your fair share of
speaker-1: Okay? What is a capability that you hire before you decide to focus on systems?
speaker-0: strategic. person's planning partner. So taking FPNA up a whole bunch of levels, because unless you can get access to good data about the business, and assuming you're on a short runway, you're going to struggle. You need that data as soon as possible. And this particular example that I, the one, I need to sort out cashflow, but I got there working with a small team. just pulled in a small team and those who were committed and we got there 80 % of the way there. So we were there. But if I didn't have the strategic planning partner that helped me and said customer contribution margin and excess capacity and capital utilization. If I didn't have that, I wouldn't have driven the speed I needed to, to turn the organization around.
speaker-1: True or false? Systems are never what you need. Or are at a state that you need them when you join a company. ⁓
speaker-0: True. They never, they never just say, and you've got, you've got to stop blaming systems. You got, when you get into it, you can't say, ⁓ the system to give them the data. I don't care. Figure it out. Get me a proxy. Do something else. And particularly if, if you're in a turnaround situation, PE is not going to put new systems in place. They're not. It's too risky. So take what you got and figure it out.
speaker-1: a belief about leadership that you've changed your mind on. I've listened to somebody had before.
speaker-0: No, no, no, no. think over the years I've learned to be more vulnerable. think there was a turning point about 10 years ago, I read some work by Brene Brown on leadership and it was all about vulnerability. And I thought, I got to do this. When I took up my first CEO role, I, student from the entire team, did a, we went 13 facilities, three different languages, and I did a broadcast to the whole team. And I said, I'm going to try it here. And I was vulnerable. told them what I did not know about the business. I told them how it's going to be there to support them. was going to tell them how I was going to close the gap. that sharing that vulnerability just brought instant and genuine vulnerability. There's another, you've got to be genuine about it because people pick up if you're disingenuous. Sharing that brought so much connection in such a short period of time. I can't tell you how many leaders got home and said, we grateful we here. You here? We're going to help you. We'll support you. Vulnerability is critical.
speaker-1: Well said. Actually, thank you for doing this.
speaker-0: Thank you, Joe. I enjoyed the time. I appreciate it.
speaker-1: Thank you very much.
speaker-1: you Hey everyone. Welcome to the next moves. My guest today is Ashley Daffle and he's an individual that I've known for the better part of almost 20 years. And I love these conversations that I have with Ashley and I've always thought that I should spend some time with them, recording them so that I could share them because the way he thinks about things has really affected the way that I designed clarity, built the organization, the advice I give to clients. And what I want you to see within this episode is It's really a playbook on how senior finance leaders can assess, accept, execute a PE-backed role, including turnarounds, and looking at it from starting with people. ⁓ We're going to talk about why they fail or succeed before you even hit the spreadsheets. This ties to your team capabilities, the mandate you're given, and also your capital partner at the table. So join me in welcoming Ashley. Ashley, thanks.
speaker-0: Thank you.
speaker-1: Actually, you've always told me that the mandate matters. It's the foundation for everything that follows. So I want to ask a very simple question, which is before you even look at the organization, look at the numbers, the details, what conditions for you had to be true for you even to consider the role?
speaker-0: First for me was looking at private equity, their operating mandate in terms of, prefer to have a short-term hold, for three to five years, or they're much more of a longer-term hold. They'll hold organizations, portfolio companies for 10 to 15 years. That tells you a lot about their mindset and how they want to add value. My preference was to steer away from the short-term holds because that was always million around as driving valuation as fast as possible. Not always having the same focus or emphasis on the real intended purpose on the portfolio company. And coupled with that is where is the portfolio, where's not the portfolio company, but rather the PE firm, where are they in the investment cycle within that portfolio company? If they're an organization that likes to hold for that's choose a number seven years and then year six and they're replacing the management team, that alerts you to there's something going on in that portfolio company that they're not happy with and this might extend into much longer haul. So digging and understand why the private equity firm is at this stage of the investment cycle making the significant changes that there are. The second piece from years around the operating mandate that you have coming in into this organization. Is it just to fix financials? Is it to be a business partner? Is it to be the eyes and ears of the private equity firm? What is it that they really wanted? Dig in and understand that. For me, it was always around, I wanted to be a business partner. And so if the private equity firm was looking primarily for a financial accountant who has depth and breadth in IFRS, that wasn't me. I want to be a business partner. So understand very clearly what does the private equity firm want with this new CFO that they're putting in place. And my preference is not to call it a CFO, but rather call it a chief business officer. And the third element is governance. What is the governance structure like? Does the portfolio company have an independent board? Do they have regular board meetings? Is there an independent audit? done on an annual basis. When you look at the, there is a board, who chairs the board? How many people have private equity sit on the board and what the board members, the independent board members, what's their experience? What do they bring to the table? And are they going to bring the quality of thinking and challenge the CFO and CEO, the top person to challenge them in terms of what the struggles are and how they are going about solving some of those struggles. And if those governance mechanisms are not in place and not clear, for me, it would be a cautionary sign. Okay, so what is governance? Is it just really then the private equity firm dictating? They the de facto CEO or is there truly a solid governance structure in place to guide and steer this organization?
speaker-1: I mean, we've talked and you've found yourself in places where you're even trying to make payroll when you take over something. And I would guess you're on a relatively short leash at that point, or was there explicit authority and freedom to change? Like how, how was that experience unique?
speaker-0: So that particular situation was, it was very late investment time horizon for the private equity firm. They were trying to figure out what do they actually do in this particular company. I was jettisoned in and as you said, within my first two weeks, we couldn't make payroll. So they had to do rapid refinancing.
speaker-1: Did you know that when you joined or was that?
speaker-0: ⁓ No, no, no, that's the thing is half the time, I don't think private equity quite, they know there are issues, but they don't quite understand the depth of those issues and depth of those challenges. So in that particular organization, when I joined, there was a pretty broad mandate given to me. was actually, you've got to get in there and ⁓ they didn't say it as much, but it was implied you're the last resort. before we do a shutdown or we push this thing into CCAA. And I said, well, what does that really mean? And they said, you can do whatever you want. Just make sure you involve us, keep us fully informed of what's going on. And we want to know what's going on because we've got to this stage in investment time horizon and we had the wool pulled over our eyes. So get in there and tell us what's going on and fix it and clean it up. I then said, well, what does that really mean from a finance team perspective? And they said, just do what you have to do. And I said, okay, does that mean I can spend money to save money? I said, absolutely. Just tell us what you need to turn this thing around. then, so within six weeks, I was there for two weeks, we ran out of cash. Within six weeks, we had refinanced all the debt. And then it was a focus on cash flow and rebuilding the team. And I just. I partnered very, very close and probably just told them all the horror stories. I didn't hold anything back. ⁓ and we then developed jointly, developed a pathway to turn this company around.
speaker-1: Okay. So I want to give a timeline here, which is you step in, you start uncovering and realizing what it looks like. You're communicating back. This is over a matter of weeks and there's only so much that you can do. And you have a team and that team is probably your finance team that you're working with. then it's also your broader leadership team and you're identifying areas that need to be changed. And are you then constrained in your ability to execute the next stage of the plan by the capabilities of the individuals internally? that the next constraint? Okay. So what happens?
speaker-0: So it was in finance. So the first thing I mean, run that particular organization, run out of cash, pay, make payroll. First thing had to do was get cash flow forecast sorted out. And so when I went and started assessing the team pretty quickly, the team was basically just want a bit of bookkeeping team. We had an APR function. We had a bit of tax. had a bit of, ⁓ of course payroll. And that was pretty much it. It was. really just bookkeeping. And so when I asked the team, I want to see cash flow forecast. This is after week one, I asked cash flow forecast. It was a blank stare. So I knew pretty quickly, had a first, my first order of business was to get the cash flow of the business forecasted and addressed. So there were one or two shining stars and I just pulled them aside and I said, this is all we're going to focus on for the next two weeks. We're just going to put ourselves in the room and fix cash flow. But the back of my mind was always running. got this team that can't perform. But it's that chicken and egg. ⁓ I needed to prove to private equity that I got this deeper challenge on the team. I needed to sort out the cash for the organization so that I didn't run out of cash again. I had the bank sitting on the banking syndicate sitting on my back saying, you made certain forecasts and promised to us we want to see that delivered in the short term. And so you're running, you're trying to solve these multiple things all at the same time. So once I'd got kind of a cash flow sort of box and I was 80 % happy with the kind of variance I'd get out of the cash flow forecasting, because it became very apparent through that whole process to me that I needed a complete change of the finance team.
speaker-1: Sounds like there's a series of decisions that must have come out of that so quickly. And if you look at it, you talk, you talk a lot about customers, understanding the customer, orienting the organization to serve the customer. Like what is the impact of each of these things? And I, like that frame. And my question is use this as an example, this organization, another one, like talk about some of the changes that this analysis is driven from who you. who you deal with, what is your market, like what are the material changes? Because you've been in not small organizations, I would say in private organizations in the hundreds of millions of dollars and you've been a part of multi-billion dollar companies before. So I'm asking you like what are those decisions once you start doing this analysis, like give me like one, two, three happened very quickly and that changed the company. Because it does change the company the way that people think.
speaker-0: things I asked for pretty quickly. Once we saw I the cash was stabilized. Once I started putting a strong finance leadership team in place and we can come back to talk about what that means later. What does strong team mean from my perspective? What I quickly need to figure out is customer profitability. How were we performing from a contribution margin at a customer level? It didn't exist. And so one of the, when I brought on My first one, one of the second or third senior leadership team person on board in finance, what, what I called a strategic planning analysis, different from financial planning analysis. Cause I wanted that higher level of thinking that I was talking about earlier on. So I bought on this strategic analysis, but I said, the first thing I'm to solve it as custom profitability and spend a lot of time figuring out. Probably the customer level and that showed fascinating results. found results at north and it was. What we find is the customers that tend to have the largest revenue had the lowest margins, if not negative margins. And what happened is over time, previously, the customers say, ⁓ we're going to be generating all this business for you. We want a reduction in price. And because people didn't understand the implication of that, now you're producing goods for this customer below the costs involved in you actually. generating negative performance for the business. So we spent a lot of time that we actually then made some hard decisions. We made decisions to go and revisit all those customers and offer them some alternatives. Number one, to say to them, we need to have a significant price increase or minor price. One of the price was to meet the new margins and we defined what the new margins we were looking for. defined those new margins. What is the margin profile we want to set customer to achieve that margin profile? We're to push up the price by X. If that's too much for you, Con Handler, we understand that. Then we should have a different conversation on parting ways. And it was about 50-50. So half the customers, the hardest thing, the hardest thing to do in the business is fire a customer to fire revenue, get rid of revenue. But when it's bad revenue, it's not helpful.
speaker-1: ⁓
speaker-0: And if a customer sees no end or you see no way of turning that bad revenue into good revenue, it's destroying value to the company. So, like 50 % of our customers, we let go.
speaker-1: Hold on, 50 % of the unprofitable customers you like?
speaker-0: So, we're disengaged.
speaker-1: where half of your customer is unprofitable as well. So you're really talking 25 % of the total share.
speaker-0: Correct. we did that. that was number one. So we did the problem. And then what we did the same time store, we can't keep bringing these customers in. So we then worked with the marketing and sales team said, this is the profile of a customer we want. So that we're looking for from a margin perspective. And by the way, we have found out certain customers from certain segments are just not great customers. Give an example, automotive sector. The margins are horribly thin. And when you deal with automotive companies, if you don't perform and you meet the significant penalties, as we said, well, why would we want to be in that business? Let's get out of that business and let's go where there are higher margins. It's sticky at customer base. And it's very difficult for the customers to get out of the relationship. For example, medical, medical products. So we then spend a lot of time on the market redefined the verticals and segments we would play in. the segments I would not even consider anymore. They're out, we just want to look at them. And then within the segments, we want to play in what is the margin profile. That changed the thinking of the organization significantly around vectoring the company around margin profile as opposed to revenue profile. And what fell out of that exercise, we found we had 13 manufacturing facilities across the world. We now had excess capacity. And so we said, okay, we need to consolidate our operations into fewer sites. And so we actually shut down three facilities and consult. So we reduced the overhead. After quality of the revenue, up the value of the customer base and had a significant Arctic on overall performance. And, at the same time, I mentioned only on operating leverage. we could drive our operation delivery significantly. So we changed the whole, by that data analysis and having the finance team, a solid financing team, we changed the whole profile of the company in terms of who we target as our customers and the kind of profile we want out of those customers.
speaker-1: So you, you re vector on your customers, you redefine and you say, are redefining based on revenue quality. And once you do that, there's a cascade of changes that fall out, including restructuring operations, dropping certain sites. Like those are material changes. So what time horizon are we talking about for all of this to unfold where those significant changes or decisions had been made? How long does that take?
speaker-0: one year, within a year. the reason why, and this comes back to your original question, Joe, and what I said, where are you in the time horizon of the investment cycle of the private equity firm? They were backing right up their normal exit time. And so this was a get this thing fixed ASAP and we want out. ⁓ we were in a fund, I think we were the one of the last two portfolio comes left in that particular fund. They were had a transaction on the last one. And so we were, we were now the last one in the fund. They wanted to close that fund up and wrap it up. And it was fun. They had done really well. And of course I wanted to report to, to the investment team, how well they had done. So within a year we had, I completely changed the team. Refinanced twice. We actually managed to do a dividend to. about changing, about re-vectoring the whole focus. We did the whole customer profiling. We shut down facilities and year two and three was not just based on tweaking some other things and working off that fundamental, all those changes we had made, working off those and driving performance. And we, I mean, I can't mention numbers, but we took the EBITDA up 10 fold from when I took over.
speaker-1: My God. And top line revenue was similar or small.
speaker-0: Actually, offline living was less because we got rid of the customers. We got rid of the non-performing customers. But by doing that, we drove up the value and we shut down some of the facilities. So we got rid of some of the overhead. It's like quality, better quality revenue. When I come in, the quality of the revenue is much better. So we had lower revenue, but much better, deeper dark financial performance.
speaker-1: That also reduces. I think it's important to note that you ended up as CEO of two organizations. That's an interesting transition. Like you're in a very different role. Or did you see it as a different role?
speaker-0: did not. My mindset going into both of these organizations where I landed up as the CEO was one of chief business officer and not one of a CFO. I'm not a CPA by background. And this is a joke for me, actually, one of the things you asked me earlier on when I was recruited in both those organizations and I spent time with a private equity firm. I was very Dragan, what do you want from a CFO? What do you want? And I was very unopened and honest. I said, if you want a technical specialist on tax and IFRS, I am not the person. So let's just not even go there. And in both instances, they said, we do not want that. You can go higher for that. We want a business partner. We want somebody who understands business, who can partner with the CEO, who wasn't there at the time. a new compartment with us. So my mindset was going in was I'm the chief business officer and I'm there to take financial data and use it, analyze it to transform the business. And so my thinking was always way beyond just here and now and whether it be just getting the finances done. was just, I've got to solve this bigger business issue around, I've got the wrong customer profile. got wrong leadership teams, I did assessments on GMs, went to CEOs and we have to change GMs out, we've got to fix this. So it was always just my mindset. I'm a Chief Business Officer, I'm not a Chief Financial Officer.
speaker-1: So you've talked about the owner. You've talked about the private equity. So there's the ownership, there's the board, and then there's your leadership team. And getting everyone aligned. It early is a win and waiting too long is painful. So my question really is like, how does getting this alignment activate or a lack of alignment neutralize you? And where do you see a breakdown most often?
speaker-0: If there's no alignment and there is no willingness from either of those three parties, ownership, governance, assuming there's a proper governance structure in place. If there's no willingness to get that alignment. You beat your head against the wall. And that was key for me when you said, Joe, come back to one of the original question, what must be in place to join? There's gotta be that willingness. And I encourage people to look and take on these roles because they're not easy. They're tough roles. Make sure there is going to be alignment or at least there's a willingness to get alignments in on these three elements.
speaker-1: So how do you tell if it's real?
speaker-0: You feel it. That's the only way I can really say you feel it and you'll feel it and you'll sense it through things like board agenda. What gets on the agenda? What gets the time on the agenda? Do we have, do we set aside 20 to 50 % of the time each board meeting to discuss strategy, to discuss alignment, to talk about the tension between exit valuation and the purpose of the company. Do we spend time talking about strategy? Do we spend time exploring what's happening in the markets and how we can position ourselves, reposition ourselves? Where does the energy go? The one board meetings, a board agenda. So that's the first thing I'd always ask for. Give me board agendas, me the last four board agendas. I don't need to see the detail. I just want to just give me the topic and the amount of time and I'd quickly do an analysis. How much time in board meetings goes to discussing alignment related issues? I look at balance scorecards, they had any balance scorecards, and I look at them say, well, how much time is spent on the non-financial elements? And we'd spend a bit of time, let's take employee engagement. If employee engagement scores are down and it's a key scorecard element, how much gender time does that get? And why is it done? What does our customer satisfaction survey say? How much airtime does that get? So you'll sense it and feel it through that. And the other way you'll feel it is private equity. They will the owner who's still partner, who's in the business, what his or her tone or language or questions they're asking because they're driven by what they've got to achieve. Everybody's got a boss, right? And you'll also get a sense of if you're dealing with more than one person in the private equity, how much alignment is in the private equity firm for the outcome of the portfolio company. If you find partners are giving you different ⁓ directives or different sense of information, you can quickly pick up this private equity aligned here or not. So if they're not aligned, within private equity, they're not aligned what the end objective of the portfolio companies, you'll pick it up through talking to multiple private equity ⁓ partners or principals. You're picking up through a bold agenda and you'll just sense it and your team will start sensing it. Your leadership team will start sensing it. They'll actually voice it you. They'll say, don't feel aligned here. Something's missing here. You've got to watch for those signals.
speaker-1: So with that dissonance, if we're talking about you're sensing it between those three groups, ownership or leadership. What does that affect if not resolved?
speaker-0: Trust is a big that's a trust. Trust for a little bit. You start asking yourself the question, am I trusted in the role that I mean? And that leaves other questions of if it gets too unhealthy, it's an am I capable? Why are they doing this? Right. So there's a capability and then what that impacts to what you said already. My sense, it leads to decision paralysis and action paralysis. Because if I'm not trusted and I don't feel this deep sense of trust, and I don't feel this deep sense of capability, it's then what am I doing here? And the safest thing then to do is to retreat. Slow things down, double check everything. The risk tolerance goes much, much further down. So I think it slows the whole execution speed of the organization. It slows it down. If I didn't have some of the firm, I didn't have the main data I had, for example, actually, if you think it's right to shut down facilities, shut them down. Just tell us, just communicate with us. Just don't do it on your own. Just come back and say, this is what I think we need to do guys. Okay. We're aligned. Go.
speaker-1: That's huge. So you're leaning into those and having hard conversations. So if I look at this now and I look at the change in your career, I mean, when we started, we went to school together and did our MBAs and like where you were then and where you are now, it's wildly different. If I'm speaking to the audience that will watch this, there's many finance leaders. I sit down with them and they're like, being asked to take on the COO job. It's a very, it's a common move, right? The CFO to the COO. less common from CFO to CEO, right? There is, there is often a CFO to COO then to CEO. That's something I have seen, but less straight from CFO to CEO. Like what is, if people are thinking, can I do this? What is that critical ingredient that lets them make that shift? Right? From a capability standpoint, what do you think matters?
speaker-0: Self-awareness, number one. Where am I? What are my strengths? What are my weaknesses? With a view of just being really honest with self and saying, these are my strengths and weaknesses. I think about a COO role or a CEO role, what does that role need and how do I bridge that? It's also, and with that self-awareness becomes self-confidence. I can do this. ⁓ I've got all the smarts, ⁓ we've got the ability. Let me go into this without fooling yourself. All right. So this is not a, not a fool's game. This is the awareness and the confidence and the concept. I don't have the skills. How am going to go get them? So I would strongly encourage if, there are people out there and it's a CFO, it's somebody's in a CFO role and they're strongly technical in their skillset and what they do, because that's just how they've been brought up. And they want to want to move more into a broader area. Go and broaden the skillset. Go do an MBA, go do an 18 month MBA and then choose the right MBA that's going to help you focus on your weaknesses. So you can bridge those weaknesses, but go and do something about it. let's do the self analysis, critical analysis, where my weaknesses or my gaps to get to more where I want to get to and how do I close them and go close them. That should be my big recommendation. It's difficult for me to say one particular thing because all of us are different where we are in life and our skill sets and what we've achieved and whatnot. So we all are different stages. So do the self assessment, but an honest self assessment and go close the gaps. Work on yourself first, do strategy on yourself. If you can't do strategy on yourself first, you will not build your strategy in a company. So figure out from, ask yourself those questions. Where do I want to play and how am going to win? Ask yourself those questions first. You can't do it for yourself. You won't be able to do it for a company. I think you need to be vulnerable. If you're going to move into those roles, understand your vulnerability and it's okay to share it. Sometimes you think the vulnerability, you can't share it because I need to be this mature leader and I can't share the vulnerability, but it's okay. to go into a role and I've had to do it and say, guys, I don't quite understand the market here. I did that in one organization. I went to chief marketing officer and said, I don't quite understand it, but I will learn it, but teach it to me. Help me understand. When you share the vulnerability, it creates a magical relationship connection moment. That you're not the B all in all and by the way, no CEO or chief finance officer knows it all. There is nobody like that. You need the team. When you show vulnerability, it signals immediate team and trust.
speaker-1: Look, I think that one really needs to be punched home, especially what you did with the chief marketing officer to go to someone who is responsible for driving awareness and engagement and like brand awareness, ideally conversions and to say to them, I don't really fully understand this market. Can you teach it to me? think knowing that you can do that, having had to do that in my own life where I'm like, look, I come from this market and I'm moving into this market and I'm trying to create. a model of it and I'm failing. That's incredible. Now, I guess there's a degree of trust that you have in that individual that they're not going to back channel that to the other partners that could make a decision, but you have a mandate at that point, do you not?
speaker-0: But I think Joe, great point. I did it in meetings with everybody. So we could all be vulnerable, right? And then I'd say, okay, we, I would honestly say, you're not all great. You're good, but we're not all great. So where all do you need help? And we used to open meetings or problems with where do you need help from somebody else? How do we help one another here? So we used to open meetings like that. So we used to create the vulnerable environment.
speaker-1: Awesome.
speaker-0: and then we support one another. I did it to avoid the back channeling and we'd write in the middle of it, we're in thick of it, and we're solving this as a team.
speaker-1: Excellent. I've got some rapid fires for you. If you don't mind going through these. ⁓ Give me a non-negotiable before accepting a turnaround. Roll.
speaker-0: understanding the PE's objectives.
speaker-1: Okay. Number two.
speaker-0: I'm lying on them. I'm on them. So if you're in a turnaround role, say, how long have I got here, Mr. or Mrs. P partner? Are we talking one year? Are we talking two years? we talking three years? Five years? How long we got and what's my mandate?
speaker-1: Do you contract for that as well to manage your downside, is if it's different, am I taken care of?
speaker-0: Through the options. Absolutely. And you better do that through your options. You know, if I'm going to drive value and if I don't drive value, what am I going to get? Now there is an imbalance of power at that time of relationship. So you may not get what you want, but you should make sure that if there is a stellar exit, that you're going to get your fair share of
speaker-1: Okay? What is a capability that you hire before you decide to focus on systems?
speaker-0: strategic. person's planning partner. So taking FPNA up a whole bunch of levels, because unless you can get access to good data about the business, and assuming you're on a short runway, you're going to struggle. You need that data as soon as possible. And this particular example that I, the one, I need to sort out cashflow, but I got there working with a small team. just pulled in a small team and those who were committed and we got there 80 % of the way there. So we were there. But if I didn't have the strategic planning partner that helped me and said customer contribution margin and excess capacity and capital utilization. If I didn't have that, I wouldn't have driven the speed I needed to, to turn the organization around.
speaker-1: True or false? Systems are never what you need. Or are at a state that you need them when you join a company. ⁓
speaker-0: True. They never, they never just say, and you've got, you've got to stop blaming systems. You got, when you get into it, you can't say, ⁓ the system to give them the data. I don't care. Figure it out. Get me a proxy. Do something else. And particularly if, if you're in a turnaround situation, PE is not going to put new systems in place. They're not. It's too risky. So take what you got and figure it out.
speaker-1: a belief about leadership that you've changed your mind on. I've listened to somebody had before.
speaker-0: No, no, no, no. think over the years I've learned to be more vulnerable. think there was a turning point about 10 years ago, I read some work by Brene Brown on leadership and it was all about vulnerability. And I thought, I got to do this. When I took up my first CEO role, I, student from the entire team, did a, we went 13 facilities, three different languages, and I did a broadcast to the whole team. And I said, I'm going to try it here. And I was vulnerable. told them what I did not know about the business. I told them how it's going to be there to support them. was going to tell them how I was going to close the gap. that sharing that vulnerability just brought instant and genuine vulnerability. There's another, you've got to be genuine about it because people pick up if you're disingenuous. Sharing that brought so much connection in such a short period of time. I can't tell you how many leaders got home and said, we grateful we here. You here? We're going to help you. We'll support you. Vulnerability is critical.
speaker-1: Well said. Actually, thank you for doing this.
speaker-0: Thank you, Joe. I enjoyed the time. I appreciate it.
speaker-1: Thank you very much.
