Why 70% of PE CEOs Get Replaced Before They Have a Plan | CEO Mandate Workshop

Bill Canady: Hello, everyone. You've got Bill Canady here today and Tulio Bracho. And we are excited to be here. Tulio, how are you doing?

Tulio Bracho: I'm doing very well. excited to be here in this workshop and sharing with all of you guys.

Bill Canady: Absolutely. Tulio and I have worked together, I believe it's going over 20 years now. If if it's not, it sure seems like it. So we we both started when we were we

Tulio Bracho: For sure.

Bill Canady: were like 10 years old. So our goal today for the next 60 minutes, we're going to do something most CEOs never actually do. We're going to calculate two numbers. The EBITDA you have today and the EBITDA, someone's already decided that you would deliver. So if you're running a private equity business or public or or a private, someone has figured out where you're going. So just for the sake of simplification, we're gonna talk private equity. Candidly, they all work the same. The difference is just the ownership structure. So we all have the numbers we've got to deliver. We've all got profitability, people And everyone's looking to make a little money. So we'll we'll speak through the language of private equity. today you're at, we're just gonna make up a number, you're at $50 million. Your goal is to get it to $125. That's $75 million, that's your gap. That's what you're going to be working on. So it's not your strategy deck, it's not your culture work, it's filling in that gap. Now, to get that gap filled, you got to do things like culture. You got to make sure you have a good strategy. You got to have an annual operating plan. You got to have all those things if you're going to be successful. I've got over thirty years operating businesses, buying them, selling them, running them as CEO, today I currently run a company of just north of a billion dollars. Tulio, as I said, we've been together for over twenty years. Tulio, you'd like to introduce yourself?

Tulio Bracho: Yeah, sure. So as Bill mentioned, we've been working together for a while. I'm mainly been helping him with the strategy development in the companies that we've worked together and also doing operating improvements for in the commercial side and operation side. So it's been a long journey and a rewarding one.

Bill Canady: So those are our day jobs. And honestly, we're not here to talk about our day jobs. It's just our credentials to say, we know what we're doing, we understand where you're at, we know how to help. but it's not the subject of it. The subject today is you and the next hundred days that's in front of you looking at a horizon of a thousand days. So if we come in and you take a role, regardless of what it is, particularly if you're the CEO, the board expects you to get up and going within a hundred days. So that's about three months, give or take. After six months, if you haven't got the thing stood up, they're gonna lose a little confidence in you. We're gonna talk about that. And people don't lose these jobs because they're incompetent. Candidly, if you get hired, I'm gonna give you credit that you know what you're doing. It's when they lose faith. It's when you haven't got clarity with yourself, your team, aligned around with your ownership structure of where you're going. Look, command isn't a feeling. it's four things that you either have or you don't have on it. The four that I talk about, and I believe you can run any c company in the world with this. The first is no surprises. Bad news, fish and relatives all stink after three days. If you're working somewhere and things are happening, particularly things that you don't want, you got to tell someone. If you're the CEO, you need to have an environment where people can believe that they can come share news with you and not great news. And not get killed over it. So no surprises is absolutely key. As the CEO, you never want to surprise your chair. It's the worst thing you can do. That person needs to know what's happening, and you don't want to show up on your first meeting and tell them what's going on. Call them outside of it. Second one, be on pace. Everything has a right pace to take and be on. If you go too fast, you leave everyone behind, you're gonna lose them. If you go too slow, you're the bottleneck. off of it. So every quarter has a gate. You need to know what you're doing by day 30, not day 80. You need to be on the right pace off of it. Third one, be data driven. If you got less than 20% of the data, you're just making it up. Sometimes we have to do that. We have to take and make questions as we go on it and if you got more than 80% you probably have waited so long everyone else in your industry has passed you by. So if you're gonna be successful you got to deal with that gray, that ambiguity In the middle between 80% and 20%. Between knowing nothing and knowing everything, you're going to make a lot of tough decisions. And candidly, this is where the fourth one comes in. Results matter. We cannot be a best effort company. You, if you're going to be successful, you have to win. In baseball, if you hit 300, you go to Hall of Fame. in private equity, if you hit 300, you probably go to the showers. We're got to be more successful than that. if we're going to take in and win here. So results matters. We got to get we got to score some points. So listen, if you can't hold all four, you don't have can't command of the business, you just have activity, and ultimately you're not going to win with activity, is having command and control of the business as you go. All right. So there's one question that we need to answer before we go anywhere. And that is can you state the board's number? And what I mean by that, your investors, yourself, maybe you're invested just with your spouse, whatever it is. Do you have a number that they have signed up for? When an investor puts money in your business, they're looking for a return. And typically in private equity, that return is 3x. It's $3 of return on every dollar of an equity. So if you pay $100 for a company, $50 of its equity, $50 of debt, they're looking for $3x on that $50 of equity. while paying off the debt. So this is really critical to go do it. You need to know that number. You need to understand where it is, what it is, and what it's going to take to get there. And there's five levers that will get you there. Once you know and you've got the plan, you're at day one. Now, one thing to really keep in my mind here, if you are a new CEO coming in and the and the LPs, the general partners and the limited partners have owned it before, their day one started a long time ago. It may be day one for you, it may be day a thousand for them. So keep that in mind that just because it's you're new doesn't mean they're new. And they're gonna want you to catch up. Our goal is to get you to that number. We're gonna talk a little bit about that today. And afterwards, if you guys like to talk offline, we're happy to do it. So we're absolutely happy to to do that with it. So before we touch the math, I want to reset on something here because it changes who this is. for the folks for the next hour. Most people hear the first hundred days and what they think it means is the hundred days in a new job. As I said earlier, that's not what it means at all. Day one is not your hire date. Day one is the decision that you make to go achieve that goal. That's when you're starting from. So no matter where you're at, the moment you have a plan and a number, you know exactly how you're going to get there. So whether it was four years ago you started You still may be at day zero. Perfectly fine. We got to get you past that. All right. So the math of your seat. Let's just talk about where you are and what you've got to do to to get there. 70% of all private equity CEOs, 70% are replaced during the hold period. In other words, during the time that the business is on. Why so many? It's not a competency issue. It's within six months, you did not go from a day zero to a day one. In six months, you get generally two board meetings. Board meetings happen every 30 days, give or take, depending on where you start. The first board meeting is a honeymoon. They're gonna be excited you're here. They're gonna say the nicest thing about you. If you don't have a plan coming in that six months, they're gonna start wondering: can this person actually get us there? Do they know where it's at? Now, this is important because the average hold period today. The average cycle that it takes before a company gets ready is seven years. It's slightly more than that. It used to be shorter than that. Most people talk in three years. We talk a thousand days, which is slightly less than three years. But the idea on this is within three years, you're going to have a plan, you're going to have executed on that plan. And within three years, you should be fully running that plan. The rest of that hold period is just allowing it time to mature. Doing more deals, getting more EBITDA, getting more profitable, everything in it. Within that first six months, you need to be able to articulate that plan. If you can't, the typical period that you're going to get let go is between 18 and 24 months. Now, why 18 to 24 months? It takes a board about a year before they'll find your replacement. That's all it is right there. So they lose faith in six months. You don't have a plan. They start going out. They got to get the board aligned. They got to figure out how to replace you. It's going to take them 12 months. So if you're feeling not great and you're somewhere in that window, you need to look back and see, are you still at day zero? Do they understand how you're going to get there? That's the math and how it works, folks. So it's not, it's not pretty, but it is what it is, right? So you're not going to get fired because you don't know how to do the job. If you got the job, by the very definition, they believed you had the credentials to do it. It's when they stop believing you can actually achieve the goal they hired you for. And what's the goal they hired you for? 3x the amount of equity they put in. And equity is their money. So they paid $100 for the business, they put in $50, they borrowed $50. They're expecting to get back $150. That's typical. Sometimes it's 2X, sometimes it's 4X. Typical is 3X, is what they're looking for. So keep that in mind. You'll know where you are. Now, why is your job so hard? You're the only translator in the building. Boards speak in numbers. They speak in things like MOIC, the multiple of invested cash. They speak in things like internal rate of return, EBITDA, right? Earnings before interest, taxes, depreciation, things like that, right? So it's kind of the operating earnings. They speak in those types of numbers. Your team speaks in tasks. They speak in, I've got a fire to put out. I need to hire someone. I need to shut down a factory. I need to move a factory. I need to greenfield a factory. Whatever it is. So you've got a quantitative group looking for a return, working with a group who works in tasks. You are the interpreter ring. You are the one who's going to put this together. And if you don't get those two aligned, that's where the disconnect comes. If you find you're the one putting together the strategy, you're the one determining where you're going. There's going to be a disconnect. The board will think it sounds great, but it won't be it won't be real. Your team, you'll be talking to them about, look at all the money and everything we're going to make, or look at what this is. You've got to get those two connected. That is the job of the CEO. How do you bridge that gap? There's one document that it will do it for you. The board is not going to require this document. Your team's not going to ask you for it. It is your job to develop the document and put it together. Right. And we call it the charter. So the document is you take the original thesis that the business was bought under. And by the thesis, I'm talking about what was the reason that people thought you could triple the equity value of the company? What's the reason? What is it gonna work? Right, what is that insight? What is that special number? So you start with the number. I want to go from 50 to 150. And the way I'm gonna get there is we're gonna do the following things. Part of that's gonna be organic growth. Part of that's gonna be inorganic growth. You have to write all that down. Where is that information gonna come from? It's gonna actually come from your team. They have to own it. Once you've put it together, you need to make sure that that is defended, that it can be, you can answer any questions on it. And once you're ready, you're gonna take it in front of the board. Now you don't show up at the board meeting, this thing all ready to go. You're gonna talk about it. You're gonna talk about with your team, you're gonna talk about it with your board members individually, you can talk about with your chair. well before the board meetings. And we talk about it that you're going to get it signed. What we're really saying there is you want you and your chair to be absolutely aligned on where it's going because when you buy these companies, they're not perfect. Something's going to be wrong with it. You're gonna have to make sure you and your team are perfectly aligned with the board. If you're not, the odds of failure go up dramatically on this. Okay, so let's how do you get the board's number? You go back, you take that model. Every business I've ever ran, we have slipped off the plan. If it if it was so simple, we could write it down and just execute it. But things happen, right? Competitors get a vote. The economy gets a vote. Somebody tweets something out. A big customer leaves you. All sorts of things like that happen off of it. So how do you get the number? Go to your board. you take the original thesis along with the LBO model, the leverage buyout model. They probably didn't give that to you when you got hired. Generally, it's an FP&A person that will do that. Understand how that was put together. Then run the MOIC conversion. Multiple, MOIC means multiple on invested cash. So that's the actual money they put in. The multiple we talked before, a lot of times it's a three. So you run that model. So they say we were gonna triple it. This is what it looks like, and these are the things that we went into. You need to get access to the model. It doesn't have to be perfect, but you do want to know what was set up, and then you need to convert that document, because it'll sometimes be quite robust, into a simple one-page document. It just basically walks the P&L and balance sheet down that you can sit down with your with your team. This is critical that you have that and it's critical that you sit down with whoever's on the investment team to make sure you understand it and you understand it the way they understand it because sometimes they don't actually know what it is, particularly if you've been a a hold it's been there for four years, sometimes people forget exactly what it is. So you're gonna run through that model, you're gonna get aligned around it and you're gonna lock it in on one page. And if it's wrong, which is perfectly fine, things change, get it corrected. If you've been in a hold for four years, that means you were coming out of the pandemic, maybe they bought it high, it's not going well. You need to get it aligned around the, the, the new numbers. So one of the things I thought I would do is walk you through how you actually find the numbers. Now the thing I'm gonna show you is is actually on my website it's for free you can do it. But we're going to walk through your entry EBITDA, the multiple you paid, the debt at closing, and then the multiple invested cash. Let me just kind of show you what the model is. So this is on the Bill Canady website. You can go, it's called an LBO model. You can plug your numbers right in. Let me tell you how you read it. So you put in your entry EBITDA. Now in private equity, everything is bought and sold off of EBITDA. You can argue EBITDA is a good number or a bad number. It doesn't really matter. It's what the industry in and of itself. When I was running private companies, a lot of times we would talk around net income or operating income. And in public, it was always, you know, how much per share we were earning. In private equity, it's EBITDA. So you put the number in, you put the multiple you paid. And then the leverage, how much you borrowed, you can do it from turns of EBITDA percentage of per purchase price or just the amount. Doesn't really matter. It'll do the math for you. How long you think you're going to hold it for? What the target MOIC. Now that's important. If you're in private equity, that number is going to be in your contract, how you get paid. Then what do you expect to sell it at? So if you bought it for 10 times, like we said, do you expect to sell it for 10? When do you expect and what the multiple would be? You know, years ago when we were doing this, you got multiple expansion just by hanging out. Now you got to run the darn thing better. and then how much you expect to pay down the debt. Over here, this is all self-calculating. It'll tell you how much EBITDA you to do it. The first piece here is all organic. It walks you through it, and then it will say what that will be at different multiples, and then how much of that, where does the return come from? Then this last piece on this is around if you actually do deal. So you can you can run some sensitivity analysis. How much you buy, what the what the multiples of those you pay and the calculation. And then it tells you at the bottom, path A, if it's all in organic, path B is if you actually do deals. If you're in private equity, we live to do deals. That's our rocket fuel, right? and then at the how it's all added together. So let's walk through one here and see exactly what it's gonna be. So, all right, I'm gonna do a deal that I did. Unless somebody wants to give me anybody want to give me your own numbers? Otherwise, I'll just do my own. Put your numbers in as we go though, and I'm happy to run it. So the deal I one deal I did, this was a couple deals ago. This was a 70 million dollar EBITDA business. That's what it was we bought it. So it's about 700 million on the top, 70 on the bottom. So we paid 10 times for the deal, and we put 50% in debt. So we we put five, we put half to turns, right? So we bought it for 10, half of it in debt. We thought we were gonna hold it for five. We held it for seven. Well, you know, pandemic and all that stuff. and and our MOIC that we wanted was three times. exit multiple, when we sold it, we sold it for 12 times. Thank the Lord. We got two turns on it. That made a big difference. And we paid down about half the debt with it. So I'll leave that the same, right? So entry EBITDA was 70, as I said. So I had to grow this thing to just over 102 million dollars to give a 3x multiple. And my internal rate rate would have been 17%. So I so doing that on a 12 times a seven-year hold period. Now look, if I could have got in five, 25% return, 3x, 70, and I'd still be at 102. That just means I gotta get there two years sooner. So hopefully that makes sense to you. So my implied growth per year. 8%. Now, if you're an industrial company, 8% is a real deal, right? I mean, it's you generally going to get three on price. Inflation helps us out a little bit there, a couple percent there, that's five. The rest of it, you got to go get with initiatives. A lot of these deals are 10% or 12%. Understand, this is not easy to get in slow growth industries. You're in AI today, you know, 8%, you'd be laughed at. It's like they want like a thousand percent, infinity growth, right? But if you're Knuckle draggers like we are, it's a little harder. So, okay, so all right, so seven years what we had that ran the IRR down, but we kept our multiple the same and implied growth per year was six percent. Okay, so then here's my sensitivity. If I've got a 13x to get my 3x MOIC, right, because that's how we're getting paid. If I've got that, I could have got there at 94 million, just over 94. 12x is at 11 as at 102. If I got a 10x, everything's the same, just I didn't get the same multiple. I got to add 20 more million to it. That's a big lift. Is that making sense, everyone? So this would tell you what you do. Now let's add some deals to it. So where did I get my return? 46% of it came from EBITDA growth. 25%, 25% came from debt pay down, and 29% came from Was because I got two turns more. Make sense? So paying down debt does help you on your multiple. going up two turns helped by 30%, but it was all the EBITDA growth that got it. So of the $700 million equity value, and again, you can come up here and see enterprise value 700 million. When I exited, I got to sell that for $1.2 billion. Okay, but what else did we do? We started buying like crazy, right? So it was both a a Acquisition and organic growth, right? And we bought we buy about thirty million dollars of EBITDA. Our average purchase price on those were seven. I got some at three or four. I got some at 10, right? You got to depict what you got. And ooh, let's go back to seven. So they got little sliders on here that'll help you. Synergies, we got about 35%. So Synergies is think of it as cost out. Okay, so add on capital was funded by acquisition debt. We had to net it out. So the private equity firm did not put more capital in. You'll find that's typically true. They're not going to put more capital. They if the in order if they do, it'll dilute it and the LPs hate it when you get diluted. All right. So I bought 30 million, averaged seven. I got 35% synergies, and I paid for it all at the end. So my gr gross spread that that gave me by doing this was additional $276 million. So what I really paid was 8.2 multiple on that. 8.2, right? My effective add-on. was 5.2. So I crushed it down between my capital and the EBITDA. So I took a couple turns out. I acquired 30 million. I got 10 million of synergies with it. That really gave me 40 million dollars. I deployed 210 million. You can play with the numbers as you go. And when you're doing synergies, don't say it's gross because you can't get guaranteed, but you can guarantee call synergies. Good way to get fired, promise things you can't do. All right, so you bally're at add-on effective at 5.2, right? I took a couple turns out by by with my synergies. Blended my platform. Remember, I paid 10 for this thing. I paid 10 for it. So my platform multiple blended down to 8.2. I took two turns out. I'm selling for 12. That's going to help me a lot, right? So how did that help me? I re-rated it all at 12 and a half. If I stay just in organic, just I'm sorry, just organic. I had to go find $32 million. Had to go find the with my deals. I only needed $0.00 of organic growth. That takes a lot of weight off. Now, if I can get the growth and the deals, well, hey, now we're talking about something here. So required exit at this with by itself $102. Required exit with the deals, $119. So I bought 30. I only needed nine more of it. Debt to XD, 385, right? From acquisitions 48 was that. Organic bill to go get 9 million. Well, what did I actually do? Right. So I started at 70. I needed to get to 119 in order to go get my three times on this thing. My equity value at the exit, a billion fifty. A billion fifty. And I did it mainly through deals on that, right? We actually took it to 200 million because we organically grew it. with it. So we held our organic and we did the deals and we came out just right at 4%, right? So we'll look at there 142 million exit value one 1.3, 3.79. We actually did a little bit better than that. So I wasn't getting exact to my numbers. This is how it works in here. You need to know this. If you're in private equity and you can't run this model, you're flying by blind. You're going to go into your board and you're going to talk things like, hey, my working cap's looking better. And and I got this initiative going on. They're talking in these numbers. If you're gonna be an equal seat, you've got to say, I'm doing all these things to deliver this number. That's your job. If you can't talk that way, you're gonna probably get an operating partner or someone like me who comes hangs out with you because we've got to be the interpreter. You're acting as pure operator. If you're going to grow and be successful, you've got to be the interpreter because you've got to get your team talking about we're hiring people, we're closing footprints, we're doing whatever, but the board wants to make sure they're gonna get paid back, right?

Tulio Bracho: time is a key factor because everything has to happen fast in order to get the return, the desired return. the the team, the management have to build those acquisition capabilities, not just to find the deals and buy them and integrate them, but actually to to make the new company make sense and be attractive for the new buyer. And most of the revenue or the EBITDA gains, as Bill will show in that example, comes from acquisitions. But that doesn't mean that of course the other organic parts are not relevant. They are relevant and you have to have a good story for that. But it's just a matter that you really have to have a strong capabilities in the M&A side and combine that with What is business as usual in the organic part of the business?

Bill Canady: That's really well said. You know, it takes a lot of effort to go and do it. You're gonna need to pull every lever that you can pull. it just, you know, let's be honest, right? It it does it doesn't it doesn't just naturally flow flow itself right out of there. So so yeah, it's being understanding your math and understanding what what what people what your board wants, If you understand it, you can have a conversation. And so when you take the role, you generally get a hundred days, and we'll talk about what that looks like. You generally get a hundred days to figure out all these numbers that you're seeing here. What your entry EBITDA is, that's going to be obvious. Your CFO will tell you that. Where are the multiple? So these are all the things that they signed up for. You have to give them a plan. A plan that they believe in so that you keep the right to be the CEO and drive it through. Your team, who's tied to the same number, they should be on the same contract, needs to know that you are leading them somewhere. This is an extraordinarily important job. This is what the CEO does, right? The board exists for one thing hire and fire the CEO. That's it. You, as a CEO, exist for one thing to deliver the plan so everyone here can only get paid. But you can have a company that grows and prospers and looks after everyone. In order to do that, understand where you're going. The unaimed arrow never misses. If you don't know where you're going, how do you know when you get there? Okay, so these are the numbers you need to look at. You can find this piece right right as I said before on the on our website. So the number that you're at today. that's the gap compared to the number you'd be. So it's exciting, it's wonderful. You if you love it, it is great. If it's going in the right direction, it it couldn't be more exciting. If it's not, it is the most pressure-filled, stressful thing. You'll wake up at 2 a.m. covered in sweat and going, my God, what am I going to do? So, so watch your gap. Okay, so one of the things you need to look at is. What assets do you have to own? What assets do you have to control? What people do you need to have on your team? We talk a lot about the earn the right to grow. So the RTG number is basically taking your material costs, the stuff that you have to buy in order to produce whatever it is you are selling, dividing that by your fully burdened employee costs. That's everything it costs. So that's their benefits, that's their hourly rates, divide it in. So If your material margin is 100 and your employee cost is 25% or $25, right, then you've got a 3x or going in that, right? Or 4x or whatever it is. Take your total cost and divide it into your material margin. If you are two times or less, you're gonna be caught, we call it in the red zone. If you're above that, you can see it here, you're kind of in the yellow around two, plus or minus 25%. If you're over two and a half, you're in the green zone, you should be investing heavily. Now, this comes with a caveat. If you run your numbers today and your business is doing okay and you're below that, then what we're really saying is you need to get better. But a service company's ratios are different because all they're selling is people's time. That number will look worse. If you're in a consulting company, if you're in a Manufacturing company, that number will look better. So understand where you are. So this is just kind of a rule of thumb. And basically, no matter where you are, you need to get better. If you are firmly in the red zone, then you may have too much structural cost in your business compared to what you're actually selling, right? So material margin with equals gross margin without direct labor cost. So basically look at the material margin is the all the stuff that goes into whatever it is you're selling. This is why a service company looks bad. You're really serving selling man hours, right? Whereas let's say you're selling a pump. The steel to make the pump, the cost for the rotors, the seals going in, the bolts, the base, all of that, all of that is material. Don't put freight in, right? Don't put overhead like you're building all that, just the cost of your product. And what that does is it shrinks it, shrinks it down a little bit for you. So, so every dollar I spend on material of what I'm selling, how much of the of a human being's cost goes into to make it? It's a really nice number. It can say, are you getting good ratios out of it? This is a nice number to understand where you are and It's kind of like what do you have to own in order to get a return? How many people do you have to have to get a return? Moving more and more to an asset asset-light business, automating, doing that using AI will help you drive that number up on it. But regardless of where it is, just improve it. Start with that. Okay. The numbers that you're going to take and use to be successful, there's only five levers you can control. Everything else is out of control. You will see on there, there's no market. You cannot control what's happening around the world. Your first number that you're going to look at is your price and mix. It is the easiest one to get off of. It is also the least friction. So if you go today, you raise your prices, whatever your buying cycle is, it will start coming in. So if you're selling a commodity type product that's on no contracts, the next order coming in with no backlog, going to ship out at a new price. If you're selling a highly engineered product and it's a backlog, your backlog six months, then it's probably not going to impact anything for six months. So just know what that is. That is the frictionless one to come through. You don't need a new building. You don't need more people to do it. You're just charging more. That's where everybody starts. Typically, if you do this right, we will see about a 30% profit improvement in the first year out of just pricing. You go too aggressive with it, you run them off, maybe not right away. You go not enough aggressive with it, then you start losing money. But this is the number one. Cost is number two. Now, if it's an indirect, like a freight cost, it's generally just a contract you've got to go negotiate. If it's a direct cost, we talk about pumps, you got to go get new castings and you got to get those out of India. For me to get castings out of India with a new vendor, a new foundry is gonna do it, it takes me two years before I have an approved product. So recognize whatever you're doing, the big hitters are gonna be in direct cost. It takes the longest, right? The quickest is gonna be indirect cost, where you stay in hotels, who does your freight. what rental cars you use, what's your cell phone? Those are typically one contract away from it. Organic growth is number three. So first one, six months or less, you get a major impact, a lot of times within 30 days. Cost is generally six months to eighteen months before you see it. Depends on what piece of the cost you're doing. Organic growth, if it's someone you're already doing business with, with a product you already have, you can get that really quickly, almost immediately. If it's you got to get in their product lifecycle, it's a new customer, it can take three years. So somewhere we generally say within a year to three years, you can start growing the business. It can be quicker if it's existing, if you're in your core. M&A, you need to start on day one. Now, if you have a broken company, you don't have good operating. procedures, you can't figure out how to go do that. You you don't want to add a company into something that's going to make it worse. So I always make the joke that a baby doesn't make a bad marriage better. Same thing here. If your company's not ready, it's going to be hard. But if you are doing deals, you need to get those deals going in the first year because it takes a while to get the synergies. You got to do them early. So either do them really early so you have time to capture it, or do them really late in the hold period. So it's just the multiple that you're paying. So you want to buy lower multiple businesses, and they will sell at the multiple of whatever you're selling at. So M&A is critical. You saw earlier how impactful it can be. And then finally, working capital. That's as you walk through your factories, you walk through your warehouses, all that stuff setting there, that's your working capital. That is stacks of cash. Get that out as fast as you can because it's how you're going to fund everything else is through your working capital. Now, what's the people do? They quit ordering stuff they sell a lot of because they know they can burn the working capital out. And then they got nothing to sell and it upsets everyone. So if they're going to get rid of working capital, make sure they get rid of the stuff you don't need. All right. That is that is absolutely critical. M&A's a risk at the beginning. That's the trick of the whole thing. You have to get it done early so you have time to make money, but your business has to be capable of handling. As the CEO, you're gonna have to make that decision and the board will listen to you. They want to do deals. Private equity exists to do deals and they will convince you to do it faster than what you want. If you don't do deals, then you don't get all the benefit of having those deals done, and it's more on the organic side. So it's a tough spot to be in. That's why you make the big bucks. Okay, keeping going here. So you got to lock that number in with the team, right? So you're you're you paid, remember we said 100? You got 50 that you put equity in, you got to get it to 150. How you're going to get there is you got to lock this in. And we've got four steps for it. So first we call the Rule of Three. I even wrote a book about it. It's the three people. Tulio and I, we've always made a great partner together because we handle these roles, right? So the visionary, that's the CEO role. Where are we going? Where are we going? We got to lock that number in. We got to get everyone aligned. That's our job. The Prophet, the Prophet is the person that tells you how to get there. They're the expert in the processes. They are the experts of what is subject matter experts. They will train you. Sometimes it's consultants, sometimes it's outside people, sometimes it's inside people. Typically, you'll hire someone on the outside to train your team and they become a Prophet for you. And then the operator, that's the person that runs it every day. So I'm a CEO. I have presidents that work from here. They're the operators. Sometimes they're VPs. They own the daily action of it. So you, as the visionary, as the CEO, if you're trying to be the operator, and in smaller companies, you'll be both, of course, but if you're trying to be it, that means you're not only owning the vision, you're owning the execution. If it's true that you have people who should be executing and you've disintermediated, you took it away from them, you'll never get there because it'll be your plan, not their plan. Those are the three roles. You got to make sure your comp is tied to it. So if you're paid off of EBITDA and you're paying everyone off of revenue, you're going to fail. If you're paid off of EBITDA and you give everyone profit, you're going to fail. EBITDA means people get paid on EBITDA. We're all coin operated. Get that plan across the businesses. Get rid of everything else. That's not that. The only challenging one typically is sales. They're a lot of times they're paid on revenue, which is fine. You got to get them tied. To some type of gross margin. Otherwise, they'll get revenue go up and you'll make less money. You can do it through getting them paid on gross margin. Or you got to put a pricing guru in. So they lose the ability to do pricing. Make sure whatever initiative you come up with, you have one owner, right? One throat to choke, call it whatever you want, but they got to own the number, the date, and how they're going to go do it. And then as you're looking at your team as the leader, you got to decide, can they do it? Is this person can they get you? Are they excited about? Do they know how to do it? So it's the kind of the, you know, stay, develop, or exit. Typically, on the third step when you're reorganizing the company, you'll see about 50% of your staff will turn over. Right. They just won't be ready to do it. They can't go fast enough. Maybe they're a legacy and they say we've tried all this before. Whatever it is, they're not going to want to do it. You got to make that call. You got to install the rhythm. You got to have operating meetings on it. So We have an operating calendar. Every month we have MBRs. That's where we're looking at KPIs, a lot of names in here. KPIs are key performance indicator. So the monthly business reviews, that's the cadence of the meetings. Those are backwards looking. The quarterly meetings, they're forward-looking. Those are strategy meetings off of it. You got to have people doing countermeasures, not excuses. Don't just say, well, we tried. No, no. What happened? What was the root cause? And what are you going to do about it? And then the crucible is you put all this together and you have to defend it in front of everyone so that number becomes owned. That number becomes owned. Very important for it. Okay, two versions if you don't go through this. The first one is you know what to do. I'm telling right now, you guys are all coming, you know what to do, but you got to get buy-in. You got to get buy-in from your board, you got to get buy-in from your team. With the mandate, by putting these types of documents together, by having a plan, you go from you're trying to do it on d instinct, you're tap dancing, to you got a real plan. It is owned by you have command and control of it. The board knows what it's doing, and they're backing you in it, right? There's no surprises, and every lever is owned. Right. So in a hundred days, I don't care if you've been there for four years or it's your first day, a hundred days from now, you need to have a a contract, if you will, a document that states we are here and here's where we're going, and you need to sign it, your team needs to sign it, your board needs to sign it. You need to make sure everybody not only understands what that number is, but they own how you're gonna get there. You need a bridge that takes those five items, the pricing, the M&A, the cost out, everything. This is where it's coming from. I will assure you of one thing. Whatever you write down is not what's going to happen. It will be something different. However, by having it, it gives you a place to start. It's like any other thing. Things happen along the way. But if you have ownership and buy-in, they will know how you got there and they will help you get through it, right? So a plan and a bridge on how you're going to do it. Run your MBRs, your monthly business reviews. You can call them operating reviews, whatever you want to call it, MORs, MBRs. It's all the same thing. Looking at your KPIs. Tulio and I, we can show you how to do all these things and get ready for your board presentation with it, right? So, what is our program? How do we do it? It's a 100 day program to get you through. We start with your number. Within two weeks, you've got that number buttoned up. by the time you get to day 45, you've got a strategy. The strategy is owned by your team, It's not owned by you. If you own it, it's for sure not going to happen. They'll tell you that. Then you have to reorganize your company. So you pick. One, two, or three things that's going to get you there, you got to shift the resources. Just cause you have people doesn't mean they have the time to go do it. You got to free them up. And then you got to have the cadence that where you're doing this and you're looking at it. Because you've got a thousand days to get this company in the position. You're not gonna, you might get lucky and you sell it in that thousand, but most of the time you've got to, you know, plant the trees and they got to have time to mature. So you get mighty oak trees. That takes about three years in private equity. And then you've got to. Run that business for the next five years while it's getting ready to be sold. Okay, there's more than one way to do this. So you can read a book, We got lots of books. I'll show you that. We even give a book to you on it. with it. You can do it yourself. You can absolutely do it yourself. A lot of people do it yourself, some people very, very successfully. It's how we all learn it. You can do it with peers. You got people in your company, maybe your board member will help you, they'll mentor you through it. Or you can do it with people like me, people who've done this. We've done Billions of dollars, hundreds of deals through the years. We are, it's what we do every day off of it. So you can pick on why you want to go do it. the self-serve door is open. So, we've got new books out. We've got lots of cool things. We've got audio, videos, all sorts of training pieces that you can do. You can do it in a group setting. So the book, you know, books cost 30 bucks, right? Books are super cheap. You can buy them on Amazon every day. we've got field guides that you can fill it out so you and your team can go through it. with it so the self-serve door is there you can do it one to many where you can join a group we have groups that you can show up on monthly basis you and your peers can lose listen to it you can also do it one to one so all sorts of things out there lots of things to do it what what are our results that we typically get we will generally identify about 300 350 basis points for those of you don't know a basis point it takes a hundred basis points think them as pennies to make one so If you go up by 100 basis points and you're at 5%, now you're at 6%. Whereas a 1% increase or 10% increase is a different number. So we talk in basis points a lot. We'll generally identify 30% over the course of the year. If you're starting out at say 5% just because the math's easy, you can generally get the eight or nine percent that first year. You'll get will you deliver it on here? It depends on what you pick, but you will for sure have identified it off of it. Working with people like me and doing it, this is not for everyone. It's like these jobs are not for everyone. you've got to find a path that works for you that will absolutely help you do in there. If you're sitting in these roles today, you're getting ready to assume the roles, we can absolutely help you. If you're looking for the material to go do it, that's self-implementing. And we have the material, there's lots of great material out there as well, right? But if you're not willing to make the hard decisions, if you're not willing to come in and make the tough decisions, this these programs are not for you. I'll show you the website of where you can come and pick a book. We have a whole website on here, and here's the book. So the 80/20 Institute Tulio and I run this. it's online, and this is books that we have on here. There's courses and everything for this. So we've got video courses. you can buy a big course bundle, You can get access to everything. Anything digital, you can download and keep, right? Your team can come in, and if you want to be part of our coaching program, that kind of helps you go through it. The 80/20 Institute that Tulio put in there, this is the publishing arm of this. So you can see the book. So Nerve Center is a SIOP one. Strategy Management Process, SP. This is how you run your calendaring to get your strategy developed. We have the Strategy Deployment Process, right? Something to Prove is how you hire good people. The Rule of Three is how you set them up to go and do it. So we've got Cost Is a Choice. That is dealing with purchasing. So all these books on here, you can come in, you can pick it. Here's the video courses around eight twenty for eighty twenty strategy pricing. They're all on here. you can see people that we've worked with. These are other people for it. Here's your pricing and packaging, as I said before. So you can buy the books on Amazon. They run from 12 bucks up to 30 bucks. So we Try to take and do it for pretty inexpensive. If you're looking for strategy, you click here. Here's a strategy masterclass. Here's what it looks like, and you can come and see. So it's kind of cool. So we're pretty excited about these things on here. The strategy course is seven videos, about two hours worth of video training that Tulio and I and others put put together on this for it. Now, back to the best part. As I told you, you can come on. Yeah Look at that. So scan right here, and you can take and pick what you want. This is the website to go through it. and if you want to book a call with me, you can scan right here and you can you can absolutely do the call. Take your phone, scan that with it. Get your free book here. You can pick you can pick any of them on there that you want for it. And if you decide to book with me. it's 30 minutes, right? You'll come on, we'll have a conversation. We may not be able to help you at all. But we've been in your seat in your shoes. We are in it today. Happy to chat with you, to answer anything. If we can help you, sell you a book, sell you a course, do an audible book if you'd like to listen to them in in audible for it. And or you can join one of the class. Just depends on where you are. Depends on exactly what what you got going on. So if you go in, it takes you to a website and you can pick any one of those books, download it to any reading thing that you have. Kindle, Nook, PDF on your phone. there's another one on there called BookFunnel. It'll put that on there if you want, and you can read it right off of that. and you can Pick a book, it's totally yours for free. So Tulio, any final words of wisdom?

Tulio Bracho: Yeah, what I would also mention guys is that if any of you actually want to get into this because you are living the situation that Bill described, trying to get a a number for your investors and you have you are time constrained, I would encourage you to visit the 80/20 Institute website and check out the CEO Mandate program because in that program we actually work with you to help you move faster. you'll get results, you know, faster. And if time is actually at a premium for you, it's worth considering.

Bill Canady: Well, guys, it was great having you all on here. Thank you for participating with it. Thank you, everyone. Have a great day.

Tulio Bracho: Bye bye, guys.