Common Growth Obstacles - Richard Munro (J0117)

Welcome to the Exit Coach Radio show, the show for baby boomer business owners who are looking for cutting edge information as they plan their 3 to 10 year business succession and exit. Every week we interview top professional advisors for. The best tips, strategies, and precautions so you can be well planned. And don't miss our one minute exit coach tip of the day on exit coachradio.com. And now, here's your host, the exit coach, Bill Black. Welcome back, everyone. Now let me ask you a question out there. Do you want to create and execute strategies that significantly increase your sales and profits? If you do, then you're gonna want to listen carefully to the next guest and, and really think about this. We're talking about significantly increasing sales and profits and the value of your business. It's Something we talked to a lot of people about and they really need to work on this. A lot of people think their value is their profit and loss and their balance sheet, but that's not necessarily what's going to get you home when it comes to selling your business. So my next guest is Richard Monroe from Newport Board Group LLC. He's a managing director here in Southern California, and Newport Board Group is a tremendous organization. Ah, national organization maybe even international, no, not, not, but, but, but it, it's growing very rapidly, but welcome to the show, Richard. Thanks for coming on. Thank you very much, and you know, ah, I've known you for quite a while and, and you've always been working with business owners who have, ah, this need to kind of unlock their potential of their, their growth and their profitability. Um, so tell us a little bit about, um, your, your last few years and then how you joined up with Newport board Group and where that's headed. Well, the last few years, I had my own, uh, consulting company here in Southern California, although I also did assignments in Northern California and Texas during that time and um I usually engage with the The owner or the CEO of a business who is in some place and wants to get to a better place. They've got some problem they haven't been able to solve. They've got some growth challenge or competing alternatives that they need some help with, uh, with a fresh pair of external eyes to look at and help them make those kind of critical decisions for their business that will ultimately significantly move the needle on enterprise value. Yeah, so it's, it's guys that are probably really pushing as hard as they can. They, they just think they possibly can't, they just can't possibly push any harder, and they need a fresh set of eyes coming in to say, well, have we tried this, have we tried these other structures, or let's identify where the roadblocks are and get those out of the way. You know, we're all human at the end of the day and really we, we are where we are because of what we've always done. And so, um, business owners are almost exclusively working in the business every day. They're usually the founder, they've still got the founder's vision. Um, and they, they may have grown nicely to a 20 $30.40 dollars, $50 million business, but they get stuck at some point. And the question is, you know, how do I become a $100 million dollar business or a $200 million business? Or what is the opportunity for me out there in front? And typically, they need somebody with an external perspective who's worked in dozens of companies and has more than 30 years career, seen what works, see what doesn't work, um, to bring that fresh perspective and kind of open their eyes to what that Potential could be and then help them put the strategies in place, both creating them and executing them to unlock that potential. So then that's a tall order. I mean that you need a you your um experience has uniquely qualified you to do this for, for individuals and it's, it's a tremendous, uh, asset to be able to come into someone and say let's get started with this. So how do you start with client business owners to figure out. How you can make their businesses much more profitable and valuable. Well, I think I always like to start out with, you know, what the owner's expectations are, um, where are they now? So I have to gain an understanding of where they are now. What would they ideally like to achieve and how much time have we got? Because clearly, if an owner, um, says that they're looking to sell their business in 9 months or a very short time period or maybe they have an unrealistic expectation of what can physically be achieved, um, then you have to manage that expectation and there's only so much you can do. But what uniquely qualifies me is that, um, over a 30 year career, Um, I've been a CFO in multinational corporations and a CEO in multinational corporations as well as private companies. So what I bring is a unique kind of blend of those two skill sets and a holistic 360 degree view of a business. Often when I walk in the front door of a business, within an hour or two or a day or two, I've literally got probably a better read than most business owners on their business. And um because I'm a chartered accountant in New Zealand, which is the equivalent of a CPA in the US, I've got very strong financial skills. So, um, the numbers sing to me. I can look at operations, I can hear an efficiency, and I can very quickly advise the owner on where the low hanging fruit is and where the strategic options are. So it's really, um, the experience comes from not having an MBA degree. It actually comes from actually being an operating CEO in many multinational companies. So the, you know, the, the been there done that, they been there, done that. that experience, ah, when you walk into some, what are some of the common things when you walk into a company and you say, boy, there's There, I've seen this before. I've seen it way too often. What are some of the common problems that you see when you walk into a business? Well, what I particularly try to do when I meet a business owner for the first time is not go in with any preconceived notions, even though I might have seen that particular business model or industry before, I try to suppress those things and really ask intelligent questions and try and understand the business before I try and Um, profess knowledge or solutions, because every business is different. So the Newport Board Group, what we really focus on are the four Ms. You know, does the company have a compelling value proposition in its market? Um, does it have a business model that's scalable, right? So they're the first two M's because growth demands a, you know, some competitive differentiator with your competitors and some ability to scale your business, um, uh, to some future goal or state. Um, the other two are management, and typically what I've found is that Um, leadership, um, is an issue in, in most companies that are stuck. Um, it's not that people are bad, it's just that maybe we just don't know which way to go. And once again, a fresh pair of eyes very much adds a lot of value in that. But typically the people, the management team that get you to 5 million or 10 million aren't going to get you to 20, and at 20, they're not going to get you to 50. And often the inhibiting factor is this culture of, um, uh, loyalty to the founder vision rather than a cultural performance. And the fourth theme, of course, is money. And they're really the four pillars on which businesses need to have a strong foundation to be able to grow. What was, so I, I got management and money and I heard you say value proposition. Is there an M in that somewhere? Um, that's the, ah, compelling, um, um. Mission, uh, no, the, um, sorry, the value proposition, it's the market, the market, yeah, it's the market, it's the business model, it's the management talent, and it's the money. I got you. OK. All right, thank you. So, um, of those, you know, I hear so often from M&A people that that buy venture capitalists that buy businesses, ah, people that sell businesses that they put a strong Waiting on that management issue, it's the people, how do you feel about that? Um, I think that's accurate, but I think the the market and the scalable business model are equally as important. I mean, a good management team with a poor go to market strategy is not going to be successful. So I think you need all four, but strong management teams for private equity firms in particular are important because they're not, they're the ones who are going to run the business every day and execute on the agreed strategy. Now the whole title of the Newport board group of which you're, you're a partner in, um, it leads me to think. That's what a board does is help set the mission, you know, that they don't, you know, the, the vision of the company, they help with that, right? So how helpful is that for a business owner that doesn't have a board? Ah, is that part of what Newport Board Group can bring to the table? I know there's a tremendous amount of resources available. Ah, it is. I mean, our strength, um, as a national, um, ah, professional partnership is 94 partners with very deep domain experience in many different industries and Um, all of whom have got at least 20 years of experience at president CEO level and have served on public and private boards. So we bring very senior strategic advice to companies. So if they don't have a board, yes, we, our partners can be very helpful in helping them craft and execute that strategy. And to the extent that myself or my other local partners here in Southern California don't have that particular We can get it very quickly from our other partners across the country. Yeah, and that's, uh, what I wanted to get to was we were just talking about an individual who, who brings a boutique experience with institutional resources. That's right, and that that's exactly what we're talking about here is this, this communal gathering of 94 partners. That's, that's a huge number, and I've met several of them and they're Ah, each to his own just like yourself, very experienced individuals, so the resources that you can bring, ah, assuming you're properly organized to be able to say, hey, I've got a situation over here, um, and I know that was your industry for 30 years, help me, help, help out, you know. You know, use the brain trust of the group to help out. Well, it goes beyond just the, uh, domain experience in the particular industry, uh, whether it's advising the CEO of the company or whether it's sitting on their board as an advisor. Um, we're there as active participants. We're not passive. If we're sitting on a board of directors, we don't turn up, uh, once a quarter or once a month to read the minutes and collect the check. We're there to add value to the company. And if you boil, I think if you boil all of the collective experience of Newport partners down to a single sentence, um, based on our experience, it's significantly moving the needle on enterprise value. Whatever way that takes, a new strategy, a new division, a new market, a new product, you know, um, tuning up the business itself, um, bringing the management team on, helping them create an, uh, a fiduciary board to guide the future development of the company, it's all about moving the needle on enterprise value. And how does an engagement get started with, with, ah, Newport, uh, board group with you guys? Is it, is it, uh, starts with a consultation and It starts with just a simple conversation. No, no obligation. Um, we're happy to meet, uh, business owners at any time. Um, we'll bring the relevant Newport, uh, partner resources to bear. Uh, we want to understand, um, who they are, where they want to go, and how they want to get there, and then we'll bring our experience to bear, um, to help them execute that. Um, all of our engagement agreements are very friendly. They're typically 30 day renewables. So if you don't like us for some reason. Um, you don't have to continue working with us, but we just don't have many of those cases. So we're very friendly to work with. We're very quick, we're very effective, um, because our experience enables us to do that. Just one other thing I'd like to add, but it's not just our, um, practical experience and our background careers that brings value to Um, companies that we engage with, we have relationships, you know, very firm relationships with over 350 private equity firms across the US and probably over a couple of 100 investment banks across the US. And the reason why we're attractive to them is because we bring a deep bench of operating expertise that from a private equity point of view can help them at any point in their investment cycle. And from a, um, uh, as we were talking earlier this morning, from an investment banking point of view, it's about helping investment banks with their clients get more deals done every year because we're experts at getting companies capital ready so that when the investment bankers come along, their job's easier, the company is potentially worth a lot more and so the client wins, the investment banker wins, and we've been part of that success story. Yeah, and that's what a lot of people are looking at now. They're thinking maybe in the next 3 to 5 years is when they want to transition out and they're starting to think about that, but you can't just go to market because as we've been hearing, uh, last couple of days at meetings I've been to. You know, 9 out of 1095 out of 100 business owners walk away from their initial discussion because the value's too low. They haven't done the work on the, they think that the, the, they're making a nice living and that's going to turn into this huge value. And the other statistic we heard was that. Um, over half of business owners surveyed said they know what their value is and yet they haven't had a valuation done in the last two years. So it's all, it's what they think their value is in their head. And so what that translates into, they go to the, they go to say, OK, I'm going to sell the business. Ah, walk away from that meeting thinking I thought it was worth a lot more than that, right? And so that's where groups like Newport Group come in to say let's, let's make it worth that or more. That's the frustrating aspect for most business owners and their financial advisors like investment bankers because they have a high desire to get a transaction done, but the value gap is just is just too great. And I think that you can't just wake up one morning and say, gee, I think I'll sell my business, uh, this coming quarter. It's probably a 6 to 9 month marketing process, and there's a process of probably at least 1 year or maybe 18 months or longer prior to that. To just get the company ultimately positioned to optimize its value in the marketplace. So to me, it's kind of a bit like, um, you know, wanting a good credit score, right? It's, it's like, you know, the time to get a good credit score is when you don't actually need it. And the time to, uh, work on optimizing the business, the value of your business is now. Prior to an event, and it's not even about preparing it to sale for an optimal value. I think it's about giving the business owner the, the maximum amount of options that they have. And in some cases, as we've heard, um, the intervention of experts like us early on in that value creation process for clients has actually led them to be by side engagement clients rather than sell side, where they've built a strong cash war chest in their business. And they're positioned to take advantage of weaker competitors, build their market share, um, become a much bigger business, and as we know, businesses that are significantly bigger have higher multiples than smaller businesses. So there's lots of ways here that business owners can win. Yeah, you got to look out the box, outside of the box sometimes as far as where your growth is going to come from. We heard a story like that this morning where a business owner thought, you know, I've pushed it as far as I can, and And, ah, they, they realized from an analysis that this business was in such good shape that it should actually be acquiring other businesses and grow that way and create a much bigger multiple. So it's, it's always interesting to hear the perspectives of people that are out in the trenches doing it and, ah, and Newport Board Group is, is someone, uh, a, a company that you can work with someone like Richard on a boutique basis and And from his office he has access to a huge amount of resources. So you know, we, when people hear 94 partners, I think they, they think of big law firms and they think, oh my gosh, it must be terribly expensive, but when is someone too small to call you? I mean, or, or when is the right size for them to think about calling your firm? I think that um we probably we can engage with businesses um at most levels, but I, if I'm thinking about our sweet spot, it's probably businesses that are doing more than $25 million revenue and up. Um, it doesn't really matter how much up, whether it's a $50 100 dollars, $250 500 million dollars, um, or more. We've got people that have experience in all of those levels. Um, we can also engage with businesses that are, um, doing, you know, maybe 10 $15 million revenue, and they're growing so fast that they just need that guidance. Um, they're almost a victim of their own success. And that's a great time for us to have an initial conversation. And, and as far as engaging, you know, we're not going to be, um, the advisors, uh, that use up the last dollar in cash. You know, we can work with clients in very flexible ways, um, uh, with monthly retainers and with, um, uh, cash bonuses where appropriate. So Um, we're easy to engage with. Um, we get it done quickly, and, um, but I would say typically we're looking for businesses that are doing 20 to $25 million or more revenue. Sure. And, and that's where you can bring the greatest number of resources to bear. And again with the, the reputation of the group and its founders and its members, ah, in the, ah, the management and private equity community is, is fantastic, so it gives you all those resources in all of those, those areas as well. That's exactly right. We have, we have extensive links, uh, throughout the business community, throughout the United States, um, you know, we have a partner in, um. Uh, Texas, who is a former NASA astronaut, and come and he was, uh, flew 4 shuttle missions and was commander on 2. That's pretty cool. So for an aerospace and defense company that's maybe looking to increase value and as some sort of future transaction. Ah, and wants to create a board, Tom Hendricks would be a good candidate for that. We've got another partner who, uh, is the former president of a Fortune 500, um, industrial gas company. We've got another partner that has deep inroads, deep relationships, and most of the major retailers in the United States. So we can bring much more than just leadership expertise and how to run a business properly. We can bring valuable connections in multiple industries. And financial resources to bear as well. What, ah, tips or precautions could you give our listeners if they were asked to be on a board or part of a board situation? Um, you know, I would sort of say that, um, to repeat a piece of advice that I was given several years ago, there's no, Richard, there's no glory to being on a board. And unfortunately, I think some people have that mindset. If I take on a board position, and I've been a public company director in the US and a private company director as well. Uh, it's about what value can you bring? And it goes back to the ethos of Newport Board Group. We're there to move the needle, we're there to accelerate the, the business, the development of the business and its valuation. So I think it's about, um, And just being very clear about what the roles and responsibilities of a board director are, which I am and many of my partners are, it's about having experience on boards and, and being able to differentiate between governance and management in the business because the role of a board is really about overseeing the business strategy. So it's management's responsibility to come up with a plan. And to bring the strategic ideas and and the and the vision, if you like, to the board. It's the board's role to oversee that. And to hold management accountable and to monitor management performance against the agreed plan. And it's also to monitor risk management. And unfortunately, often management in a business, they think they've got great insurance, they think they've got all of their risks covered, but something can come from outside left field like a cyber threat or a cyberattack. And most people unfortunately don't know how to handle those things, and we have people that do. OK, so If you were considering being a board member, um, think about what you're going to bring to the table. What, what, what are you gonna bring? What value are you gonna bring? Do you have, because on a board, typically if you're going to bring on a couple of external independent directors. You probably want someone who's a financial expert, um, and then you want someone who's an industry expert, who brings industry relationships, can open doors, bring strategic value to the business. And often actually creating a board, and I'm talking about a fiduciary board, not an advisory board. Um, I think a lot of people when companies think that it's too expensive, it's too hard to do. It brings tremendous value. It brings a a level of objectivity. To the development of the business that's valuable. Um, and also I've been in situations with companies where with, um, a father and two sons who were at each other's throats. And one of the things I suggested was that they form a board because bringing two independent board members on would help to kind of manage those family dynamics as well as contribute to the business. Mhm. Great tips, great advice. And Richard, how can our listeners get in touch with you if they would like to learn more about what you do? Ah, they can call me at, uh, area code 949-916-6500. They can email me at richard.monroe@. And that's the Scottish spelling M U N R O at Newportboardgroup.com. And they can also visit, uh, Newportogroup.com and look under people and market leadership, and they can find my bio and local bios in Southern California and 19 other markets in the country. Well, I really appreciate you coming on. It's been very interesting. There's, there's unfortunately we're out of time, but there's so much here. I'd love to have you back another time so we can delve back into this because I think the notion. Ah, just of the board structure is something that our listeners want to hear more about, but also these growth strategies, and it's intriguing to hear what happens for these bigger companies, these, these $25 million and up companies. What do they, what do their structures look like and let's. Contrast them to maybe our our typical listener who might be a little smaller than that so they can get to that level. Absolutely. The, the same principles are applicable at whatever level you're at. And if you work on the business and if you're disciplined and objective, then you can achieve that value that you're looking for. And Newport board Group is Newportboardgroup.com. Newport Bogroup.com, fairly simple. OK, so take a look there, listeners. Check out their resources, ah, find Richard, give him a call, and, uh, talk to him about what maybe Newport Board Group can do for your company. We're going to take a short break. We'll be right back, so please stay tuned. Thank you for listening to Exit Coach Radio.