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Alliance Partners, Business Practices

Why You Need A Big Swift Kick

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Big Swift KickToday, we’d like to showcase an alliance partner that could rock your world: Big Swift Kick.

Big Swift Kick specializes in sales consulting and sales-force-optimization. Their mission dovetails naturally with ProAction’s, because where we find ways to reduce your wasted inventory and improve how your portfolio company fills orders, Big Swift Kick’s focus is on maximizing your organic growth.

Ideal Candidates

If you’ve come to us, slow or stagnant growth is probably already a source of frustration for you. You’re convinced your company should be thriving, but you can’t find the problem, and you’re starting to wonder how well your sales team really knows your customers. You may even have brought in a consultant to track down issues in the sales department and implement new strategies, with limited success.

We’ve found that Big Swift Kick is remarkably effective for firms with $20 to $500 million in annual revenue. Management portfolios that avail themselves of BSK’s services typically experience several common issues with regard to their stale portfolio companies: leadership is spending too much of their valuable time micro-managing sales. They worry about lagging sales growth and pricing stability. And they can’t seem to get answers from the management team about why sales numbers are off.

Tough Love

Big Swift Kick’s motto is “Exponential Growth Using Science and Candor,” and they aren’t kidding. One topic they’re frank about is why past consulting firms may not have been effective for you. In their experience, experts become biased in favor of their preferred solutions. They arrive expecting to apply them. As a result, you pay for a “one-size” solution, when your company needs anything but. Big Swift Kick doesn’t mince words about this. According to them, no one who offers you a “solution” without a thorough diagnostic has any business giving you advice in the first place.

In contrast, Big Swift Kick takes a more holistic view, with no pre-diagnosis. They also have an innovative way of ensuring radical honesty during the consulting process. They use a performance-based pricing model. They’re the only consulting firm we know of that does business this way, and it knocks down barriers you didn’t even realize existed. BSK will challenge you on the areas where your underperforming company is dragging its feet, because total honesty is the surest route to success for all parties, themselves included. We can tell you from experience that the team at BSK are savants. Their remedies will surprise you, and challenge your thinking!

Constant Contact

Big Swift Kick keeps their ongoing client roster small, so they can provide plenty of personal attention. Their reports are detailed– as much as 100+ pages per sales rep! They’ll evaluate your sales force and approach to show you a clear path to increasing organic sales, then develop and implement a plan to make your company sales superior. BSK understands that you have targets to meet. They keep changes incremental, so you don’t have to survive a major disruption to your sales operation.

Building the best sales force can be like throwing spaghetti at the wall. It’s hard to tell what’s working and what isn’t. Big Swift Kick provides the intel, the strategy, and above all, the candor to get your portfolio company on the right track. We’re proud to be partnering with this innovative group of people.

Business Practices, News

Value-creation in Middle Market Private Equity – Of Corporate Culture and Capitalism

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John Lanier is a close alliance partner for ProAction and a good friend.  He is a value creation guru and has an unmatched expertise in business strategy. 

He recently wrote a great piece regarding Corporate Culture and Capitalism. In it, he addresses analysis paralysis within organizations and the ever-ticking value-creation clock. It’s a wonderful read, and I encourage you to take the time to read the piece in its entirety. Also, be sure to follow the link below to the Middle Market Methods website to learn more about their business. 

Middle Market Methods™

Download (PDF, 112KB)

Corporate culture may be singularly the most potent ingredient of value-creation.

Middle Market Methods™ offers a toolbox of cultural, growth, and efficiency value-creating solutions to portfolio companies of private equity firms. The premise is that best practice adoption correlates with a smoother ride during the investment hold period, resulting in higher exit multiples. Additionally, deal team time is liberated from operational surprises to invest in new transactions.

Business Practices

Lean As An Investment Thesis – Lean Principles

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A couple of years ago we worked with a packaging company that had about $6 million in EBITDA. Initially, we projected that the company could increase EBITDA by about $1 million through the application of Lean principles. These opportunities weren’t hidden, just overlooked. There was a lot of work-in-process inventory. Some periods had high overtime, others excess capacity. Poor controls and a loose inventory strategy led to lots of frazzled customers, and the company compensated for these issues with expedited shipping.

By applying Lean principles, the company realized not $1 but $2 million in EBITDA improvements within 6 months. But here’s something that might surprise you: they also saw a 20% increase in capacity. In short, not only did existing business become more profitable, but the company could grow by 20% without adding additional capacity.

And those margins kept growing! Within a year, the management team actually realized $3 million in increased EBITDA and $1 million in reduced inventory. The company manufactured a 50% increase in EBITDA and built $30 million in market capitalization without increasing revenues.

Lean is a Philosophy

This is the difference between treating Lean principles like a one-time implementation plan, and the philosophy they truly are. Those new to the idea sometimes worry that adopting Lean principles will inhibit growth, but as you can see, that’s the furthest thing from the truth. In reality, waste often accounts for a substantial amount of your capacity, and reducing it puts time, money, and infrastructure back in the resources column. Transforming the culture of an organization around Lean principles yields very specific benefits, including increased scalability of operations, reduction in stagnant inventory, and a virtuous cycle of improvement.

Will Lean Impact Your Company?

When estimating the potential impact of implementing a Lean model, there are some key indicators we look for. The most obvious problems involve inventory. We’ve already mentioned work-in-process materials. Excess inventory is another classic marker. The flipside, of course, is back-orders. All of these issues indicate that operations are not balanced correctly with customer demand, which is a problem we can help you fix. Unusually high levels of scrap, rework, and warranty costs are further signs of waste that can be eliminated.

Another indicator we often see is a lack of metrics and post-mortems. In companies that don’t monitor key performance indicators, we typically find opportunities for at least 10-15% improvement, and productivity goes up when KPI’s are reviewed during the shift or work day. After all, the fastest way to identify and resolve a problem is to take a look at actionable metrics while the events of the day are still fresh in your mind.

Another thing we investigate is downtime. We measure companies against the theoretical maximum production their facility could produce, then track down the source of any discrepancies between capacity and actual output. That’s where you have room to transition from cost savings to growth opportunities.

Lean Applies to All Business Models

Many types of companies can apply Lean principles. Obviously, with manufacturing companies we look at WIP inventory that’s languishing. We identify under- or ineffective utilization of existing assets. We quantify the extent to which excess product is tying up capital before there’s actual demand.

But Lean is just as useful for other models. In healthcare, it can be applied to patient care issues, like registration and wait times. Lean can help reallocate resources to address actual patient population and flow. It can streamline revenue cycle management.

Distribution companies can benefit from Lean as well. On time, complete and accurate fulfillment of an order is the distributor’s equivalent of good production. When working with these companies, we focus on pick times and accuracy, slotting methodologies, and manning tables and controls.

With business services companies, we can apply Lean to the processes that directly create the value customers pay for, as well as supporting processes that involve documentation, invoicing, and collection.

Lean Improves Higher Business Functions

The truth is, any company can benefit from applying lean to its support and administrative functions, like accounting, supply and demand planning, and even forecasting. While these areas do not directly add value to customers, they do impact a company’s ability to maintain an environment in which you can add value to customers and get compensated appropriately.

The main thing to remember is that Lean is not something you implement and then walk away from. It’s a philosophy, one which needs to be socialized until it’s a company-wide practice with champions at all levels of management. Fully implemented, it means less hands-on monitoring for your organization’s top leadership, enabling them to be more vision-driven.

Applying lean to your portfolio company will pay for itself in the short term with EBITDA and working capital improvements. In the longer term it will also develop additional capacity and a virtuous cycle of improvement. Make Lean part of your investment thesis and drive it!

Case Studies

9 Boxes Full of Financial Improvement – The Case of Pricing

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When a mid-market company is delivering great profits and cash flow, it’s probably human nature to think, “We’re doing great” and get a little too comfortable. Rose-colored glasses don’t reveal where performance is well below where it could be.

Even when there’s every incentive to find out why a company’s results aren’t so good, it’s still tough for management teams and boards to spot all the areas where results can be improved. Conventional financial and operating metrics just don’t go deep enough.

Both causes of fuzzy vision pose a big problem for incumbent owners and management teams, because very, very few companies are performing at their full capabilities.

For private equity groups, though, management’s fuzzy vision presents a great opportunity:

  • PEGs can develop better information during diligence and use that to advantage in their offer price.
  • Post-acquisition, they can implement the improvements highlighted during diligence and rapidly boost performance and enterprise value.

9-Box & Pricing

The ProAction Group’s 9-Box analysis is like having x-ray vision. It reveals the potential that lies beneath the surface to bump up EBITDA and lower the assets required on the balance sheet. It’s a powerful tool for PEGs that invest in manufacturers and distributors of standardized products.

In addition to showing where production and inventory management can be optimized, 9-Box analysis also indicates opportunities for pricing improvement.

Bob Sherlock of Marketwerks, a ProAction Group alliance partner, observes that “Management typically thinks that their prices are all right on the edge, about as high as they can be. They hesitate to take pricing action for fear that they’ll lose profitable volume. But every single company we’ve worked with was underpricing at least some of their products, for some customers, in some geographies and transaction types. The least risky pricing move in the world is to find where customers would willingly pay more, if you weren’t giving them the opportunity to pay less.”

“ProAction’s 9-Box analysis lets us see areas of underpricing, drawing inferences that we can validate in other ways,” Sherlock says. “The #1 factor in pricing is external—the prices at which enough customers will buy. But it’s also essential to understand prices at which the company should be willing to sell. The 9-Box process gives us insights into both of those.”

Case Study: Who is deciding pricing strategy?

9-Box Case Study

We have a real world case study of a 9-box analysis. Here are the actual conclusions:

Case Study Conclusions

  • Pricing, inventory and approach for “A” customers and “A” sku’s show that leadership understands where money is made. We got the important stuff right!
  • Pricing strategy seems focused on managing “A” customers well. B and C customers get preferential pricing today.
    • Increasing external customer margins to meet “A” Customer margins would increase B & C customer revenues and net income by $575,000. Driving B & C pricing to 4 points above A customer would drive $1.2 million in net income.
  • B & C customer orders drive $390 & $115 in Variable Margin per line respectively. This does not cover labor, overhead, order management, pick & pack and handling costs.
  • About 75% of our line activity drives less than 10% of our variable margin.
    • We need to adapt our processes to manage each segment of our business

The best sales people for this client drove superior pricing at their “A” customers. The more desperate sales people were allowed to decide on pricing at “B” and “C” customers, and it showed. This showed that the company did not have good pricing controls in place. Addressing this drove an increase in EBITDA that was the equivalent of adding over $8 million in new sales.

In addition, 10% of the sales of this company drove 75% of their gross margin. Yet, the treated all SKU’s and customers the same. Seeing this in black and white enabled the management team to develop new channels, adopt some pricing policies on freight and lead times and update their production scheduling approach to protect “A” customers.

In this case, the 9-Box helped the management team see the impact of running the business like a life-style family business. The changes needed to drive the additional EBITDA also increased the service levels to “A” customers and reduced day to day stress throughout the company.

See the link below to download this case study.

Conclusion

While the 9-Box was designed to address inventory strategy, it also brings black and white visibility into actual pricing strategies in practice. It gives the management team, and their owners, a stark and sober look into opportunities to make all of your business segments profitable.

If you would like a copy of the 9-Box Case Study referenced above, click here.

About Bob Sherlock – Marketwerks, Inc.

Bob Sherlock works with executives of manufacturing and B2B services companies whose sales teams lack a compelling answer to “Why should I buy your solution from you—especially when you’re more expensive?” or “Lower your price.”

He helps his clients get paid what their solutions are really worth—and attract customers willing to pay more when they see value.

Bob is president of Marketwerks, a consulting firm focused on those objectives, and the author of Daring Caution: The Executive’s Guide to Pricing Improvement. Earlier, he was a ProAction Group principal, and founder of a venture-funded logistics service provider. Bob previously served as VP—Marketing for Wickes Lumber, and held increasingly responsible marketing and sales management positions in four GE operating businesses and on GE’s corporate marketing staff. He has an MBA from Dartmouth’s Tuck School of Business.

Portfolio Companies

Stale Portfolio Companies

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There are times when a portfolio company’s potential is simply not being realized, and you’re having trouble getting to the bottom of why. Management struggles to explain the gap.

This presents a couple of problems. The first is that the “stale” company not only drains your time and energy, it also impacts the performance of your fund. Without actionable information, you invest a disproportionate amount of your resources trying to improve the company’s performance without substantial results. But the other edge of that sword is that an unprofitable organization isn’t easy to divest. You can’t seem to move the needle, but you can’t successfully market the company until you do.

Real Numbers

That’s where we come in. It’s our job to take this problem off your plate temporarily while we investigate. We go straight to the heart of how the company is being managed today, providing you with a clear look at how that’s affecting performance levels. We cut through the communication issues that are holding you back, and find the operational changes and opportunities that will close your EBITDA gap. We can normally complete this review in less than a month. Then we go over the results in detail with you, with your management team by our side (we do this WITH your management team).

Expert Counsel

When we sit down with you to do a deep dive into numbers, financials, and our observations on your current processes, our goal is to build a bridge between the company’s performance and your expectations. We’re very frank and open about what’s being done right, both because you need to know, and because acknowledging these successes helps your management team react to constructive criticism in a proactive way. We don’t saddle management with blanket mandates. You’ll know what factors are constraining change, and we’ll recommend countermeasures to remove those obstacles. This focus on the how, rather than just the what, helps eliminate frustration within the management team by giving them a clear course of action.

Collaboration

Once everyone is on the same page, we engage in collaborative problem solving with your team. We’ve found this is crucial to the transformation process. With all parties invested in a positive outcome, we’re able to eliminate wasted effort and recover the evasive earning potential.

Recently, we completed this process for a private equity firm with what they described as “a $5 million portfolio company doing $3 million” in EBITDA. The plan we developed in conjunction with their team has put them on the path to achieve $4.5 million in EBITDA. We worked with another portfolio company 6 months before they entered an exit process. In this case, while we reported on the overall potential for EBITDA improvements, we focused on the equity firm’s short term goal of accruing as much EBITDA as possible before the exit. This ten-week project drove $900K, not in one-time, but in annualized savings.

If you’re feeling handcuffed to a languishing portfolio company, there’s probably plenty of frustration to go around. Bringing in a third party sidesteps any ongoing conflicts and encourages buy-in. Ultimately, it gives you an actionable plan within a workable timeframe. If the idea of an endpoint to your portfolio woes makes you breathe a sigh of relief, reach out to us. We can help.

Uncategorized

Welcome to the ProAction Team, Greg Hayward

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Dear Guest:

I am pleased to announce that Greg Hayward has joined The ProAction Group.  As you would expect from ProAction, Greg brings over 30 years of leadership experience in manufacturing and operations.  We very much look forward to integrating Greg’s ITW strategic planning, commercial, engineering and operation experience; M&A skills & experience; and the focus that the 80/20 mindset brings into our client work.

Greg began his career almost 30 years ago and rose to a General Manager role at multiple ITW divisions. During his time there, Greg had full P&L responsibility including strategic planning, financial planning/accounting, sales/marketing, distribution and direct channels, manufacturing, R&D/engineering, new product development and team building/talent development. Since leaving ITW in 2011, Greg has been providing consulting services in a variety of short and long term capacities.

For Greg’s complete bio and the ProAction website, please follow this link.

Please join me in welcoming Greg to the ProAction family!

Resources

The ProAction Group’s 9-Box System

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Owners and CEOs are constantly working to improve EBITDA and trim waste at portfolio companies. However, no matter how proactive you’ve been in the past, it’s possible to reach a plateau. When you’ve addressed every clear opportunity to reduce waste, but it’s often difficult to identify next steps. This can leave you feeling frustrated, your efforts diluted as you do shallow dives into different aspects of your business looking for places to streamline.

It’s natural to find the process overwhelming, because correcting it requires a deep dive into your company’s data. When your focus is on the day to day running of operations, you may find yourself thinking, “How will I carve out the time?” Your best intentions end up being derailed by more immediate matters. That’s understandable– and that’s why we developed the 9-Box tool. It’s designed to find the dormant potential in your company, through three key ideas:

Triangulation: We begin by looking at your business from multiple vantage points. We’ll draw knowledge and insight from a variety of stakeholders (from the line workers to the C-Suite). In this way, we can provide you with the practical and raw insights you’ve been seeking even if you’ve been trapped under the hood– and we can identify exactly where your hidden, untapped capital might be. Triangulation gives you a sober direction in which to move.

Segmentation: Customers are not equal or the same.  Products are not equal or the same.  Many companies, in fact, treat customers and products the same.  This leads to companies making good money in some segments and actively giving it back in others.  By segmenting your business we expose the patterns and give you clarity.  Clarity that will help you tailor your approach and retain what you earned.

Experience: Theories and models are great, and they can be dangerous.  Decisions about how we treat customers, plan inventory and set pricing should not be left solely to a model.  Experience ensures that practical choices are made and poor decisions are avoided.  During the analysis stage of the 9-Box process, we’ll bring key players in your organization together, combining their expertise with ours to make the bold leaps that will consistently yield the increase in EBITDA you’ve been looking for.

So many companies are draining their own capital without realizing it.  Perhaps their pricing controls need attention, or maybe they’re maintaining the same level of inventory in every item across the board. The company might be giving equal attention to segments of the market that account for very little of its revenue. Somewhere, your company has capital tied up in resources on which you won’t see a return. We can find and free up those resources.

We’ve worked with more than 30 private equity firms, and 170 of their portfolio companies, to tackle this challenge. Let the 9-Box tool be the offensive line that cuts through everyday distractions, and creates room for you to charge forward and make the bold moves that will drive your EBITDA up and working capital needs down.

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News

Preparing to Work with Private Equity as an Operating Partner, Timothy Van Mieghem, a partner at The ProAction Group

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If you’ve been in the private equity sector for any length of time, you have probably come across the work or articles of The ProAction Group at some point. Having helped numerous private equity clients do better deals, and operate better companies, that sell for better multiples, they’ve earned a reputation as giving their clients an unfair advantage in dealmaking, operations, and exits.

Today we welcome them to our workshop to share with you how they work with Private Equity, and how you can as well.

And here’s how and when Timothy Van Mieghem, a partner at The ProAction Group, works with PE firms:

  • The ProAction Group helps PE firms win good deals (and avoid bad ones!) through our pre-close Operational Diligence. In short, we answer the question “How much more EBITDA will you earn when you ‘run the company right’?”
  •  They help portfolio company management teams as they transition from an entrepreneurial approach to a scalable, process driven leadership path.
  • They help PE clients maximize the value of portfolio companies through the implementation of operational excellence (Lean Manufacturing, Global Sourcing, Sales and Operations Planning, Inventory Strategy).
  • The ProAction Group primarily works with PE firms that:
    •  Are pushed to bid higher multiples and want to know they can “get it back” through operational improvements before they ink the deal.
    •  Are frustrated because performance at a portfolio company is falling below plan and they are not getting a clear explanation from management.
    •  Are growing tired of the time and energy they have to put into managing a portfolio company. They are damaging a lot of brain cells and not moving the needle.  Lastly, ProAction’s staff are all experienced operators, bringing the methodologies they learned and applied at Toyota, Emerson Electric, Danaher, and other leading companies to the middle market.

Listen to the webinar here.