The CEO Mandate

Everyone, wherever you're calling from today, we've in our studio today we have Michael and Tulio, a couple folks that I work with and are absolutely fabulous at this. We've got several people in the in the audience. I encourage you if you would like to join, just raise your hand if you're actually here. If you're live streaming like on LinkedIn, you can't do it. But if you want, I can send you a link. You can come in. But if you raise your hand, we'll bring you on the screen, particularly if you've got questions. It makes it a little bit more interactive. You can come on and drop off, just so that you know that. So with that, let's go ahead and get kicked off. So in the next 60 minutes, we're gonna do something most CEOs actually never do. We're gonna calculate 2 numbers: the EBITDA you have today and the EBITDA someone has already decided that you would deliver. The gap between those 2 numbers Is your job. It's actually why you were hired to come in. You're at point A. I like to think of that as day 0. And you're going to go to point B, which is what we call day 1,000. Like, you're going to achieve this number. This is not in your strategy deck. It's not in your culture work that you get everyone to buy in. It's the gap. It's what you were hired to deliver. So, bring your own P&L up on your screen. Bring the number that you're afraid to say out loud. If you don't have it in front of you, go get it now. This only works if you're using your own numbers, not mine. Now we're gonna run through our numbers together so you can see them, and we're— if you'll put your, um, uh, your numbers in the chat, or if you come on the screen, we'll actually use yours. Uh, but this is a calculator we're going to do, and it'll be a live demonstration. I'm Bill Canady. I've got 30 years operating companies. I'm CEO of a couple of big private equity companies in the powersports industry And in industrial products, this is just a credential. Let you know that I've been doing this a long time. It's not the subject of this. The subject today is you and the hundred days that in front of you. Now this is a working session. It's not a webinar. Type in the chat. Turn on your camera if you want to. As I said before, I'm going to ask questions, and I hopefully you guys will join along. If not, Julio, Michael, and I self we will toss this thing back and forth and. And guys, just if I get rolling too much here, just, you know, get, you know, pull me back a little bit from it. So, all right, let's see if I can get my screen to advance. This is one of the great things about technology today. We can do all these kind of cool things. All right. I found the clicker button.

Good for me.

Command isn't a feeling. It's 4 things you either hold or you don't hold. There's no surprises in it. Your chair never hears no. He doesn't hear bad news. You're the person that sits between people looking at it financially. What's the return I'm going to get to the people who are task driven? That's your team and what they're going to go do. The worst thing you can do is surprise your chair, surprise your team. Second, you got to be on pace every quarter that you're going to be going through. Has a gate. You need to know by day 30 where you're focused and where you're going, not day 80. When we look at this, we'll go through about 70% of CEOs get replaced during the hold period, during the period they're there to achieve it. It's not because they're not competent. You get the role because you're competent. It's that they get behind. That pacing piece is a big deal. You're going to want to be data-driven. And by data-driven, you know, the bridge is the math that we're looking at. If you have less than 20% of the information, you're simply, uh, uh, making it up. If you have more than 80%, you've probably taken so long, you're off pace. Other people have already passed you. You're gonna have to live in the ambiguity about what it takes to be successful. Your experience, your team, working closely with your board, your advisors around it, people mentoring you. This is a big deal. And finally, I think this is the most important one. Results matter. Comp is not tied, or comp is tied directly to a number, uh, and we're all coining activity off of this. If you, if people are showing up and saying, hey, I did the best I could, I gave it everything I got, that's probably true, but you can't be a best efforts company. You actually have to score some points. You know, Michael and I have worked together across many companies, and I think he sees it more than anyone else. People come in and say, I did the best I can. Michael, what do you do when you see that? Well, I mean, we can't be separate. That's really— Your mic might be messing up a little bit, Tulio. Do you hear that as well? Or is it coming through clear for you?

No, I am listening interference.

Yes. All right, we'll keep moving on. Tulio, I know you've had some of the same experiences. People will tell you they did the best you could, but you still did not, uh, didn't get it done.

Effort is nice, but we gotta get results.

Gotta get results. 300 in baseball sends you to Cooperstown. Uh, in private equity, it sends you to the showers, right? They, uh, it's a, uh, they're going to expect you, uh, to not only have the number. Uh, it said, oh, Brian's idea was Mike turn off the camera. I think his dialogue was spot on. Mike knows what he's talking about. You want to try it with the camera off and see if it now say something?

All right, is this any better?

Oh my God, it is! All right, this is, uh, Riverside seems pretty taxing on my little machine here. But, uh, but I mean, if someone says we did the best we could, um, you know, it wasn't good enough, we really need to understand the root cause of it, get a countermeasure in place, and do something different. Because, um, because we can't be best efforts only. Yeah, it's unfortunate, and you're going to want to believe them Because it is true. But the, uh, the real, uh, the real, uh, piece is, uh, we're on a time clock and it's counting down. So you got to land it. If you can't have all 4, if you don't have no surprises, be on pace, data-driven, results matter, you do not have command and control. Now, when I say command and control, I'm not talking about your micromanage. This is not the military, even though I use a lot of military examples. It's, do you understand what's going on? Do you have a plan? Are you on pace with it? That's command and control. You are in charge with it. All right, let me take us to the next slide here. So one question before we go anywhere— hope that did not click up— one question before we go anywhere is, can you state your board's number? I had a call the other day from a gentleman who's running a big fund that invests other people's money. You know, you see these guys, they're, they're out there, they're accountants or money managers, whatever. Uh, they, they sold the company. He came in as CEO, did a fantastic job, uh, with it. And the number one customer, uh, left. That number one customer is 56% of the business. So he calls me up, he goes, what am I going to do? And I'm like, the first thing you have to do is get aligned with your board about what that does to the model. And I said, so what do you ask him? And he gave me all his strategy. This is not a strategy question. The board, your investors, your LPs, your owners— what if you're private or public? Like, whatever, you're owned by someone. Maybe it's you. They— this is an investment for them. What does this do to that return? That's the conversation you need to be having. Yeah, it's great if you get working capital and you have to go do that. It's great if you can get AP or AR going in the right direction. You can get growth. You've got to have all that. That's just being a competent operator. But you have to talk to them in the language of their money's at work. They're looking at you maybe a few hours a month, maybe a few hours a year. Make sure that you understand wherever you are, that number that you're working to is actually the number that they are. And you need to be able to say it without actually, uh, uh, uh, having to open a file. You got to be able to have it right at your fingertips. And not just the news, not to say, oh, it's 50. Let me tell you what it is. Let me tell you how I handicapped it. So does everyone have a number? Just type in yes or no if you have it. I'll wait a second. Because Brian, if I can get you guys typing on this thing, maybe I'll convince you to come on stage here. That'll be kind of cool. All right, I'll respond to them as we go through them if anyone would like to do it. But if mostly no, if you see, if you're saying that and you got it to yourself and your answer is mostly no, that's an honest and truly it's the most common answer. The first role I took, I would spend my time really with my team. Saying what we're going to go do to hit the number. I did not, uh, I did not spend my time thinking about how it was actually, uh, uh, relating. Welcome, Michael. It's good to see you on here. I know we talked the other day. Uh, so if someone says yes, then you're going to have the easiest hour in the room. Stay anyway because I think you're going to learn a lot about what you go do with this. All right. Now let's go to slide 4. See if I can get this to work. Before we touch the math, I want to reset on something because it changes who this hour is for. Most people here, this is the first 100 days we're talking about. And I think a lot of people think it is the, uh, uh, Andrew, hey, great answer. We don't have a board because we have a startup. Well, unless it's all you, someone put some money in there. Maybe it's just your wife and your in-laws, or you pass the hat at the country club, somebody's expecting something. If not, at least hold yourself to it. So that's a, that's a great answer.

Right, right.

The first 100 days isn't about— maybe you're a brand new CEO. If you're not sure where you are today, if you don't have a clear plan, you're at day zero. The moment that you embrace that you've got to have a number, you've got to have a plan to get there, your strategy's got to get you on and on, you're now at day one. So whether you started yesterday Or this is your 11th year sitting in a chair. Let's get you to day one. Let's get you a path forward without having to feel ownership of the things that maybe didn't work the way you wanted. All right, so you can be four years here, still batting. It is still batting at day zero. A lot of people never get out of it. Those are the ones who wind up leaving the role. That's at 70 plus percent that happens during because the clock is already running. Another piece. If you're setting in the company as a new CEO, and I'm just gonna talk through private equity, and they've owned this business for 2 years before you got there, that clock actually started 2 years ago. It's not the day you started. It's the day that they started owning it. And they're gonna wanna be out the door typically within 5. The average hold period is about 7.3 years. And we build our plans to 3 years. We call it 1,000 days because you've gotta have time for maturity to set in. So if you buy a company in year 2, you're not typically going to get your synergies and everything out of it in year 3 so you can sell it in year 4. It— you, you want to buy your companies, as an example, as fast as you can in that first year so you get the rest of the whole for them mature, or you buy them right at the end so you just get the multiple accretion there. That means you got to buy low, sell hard. It's harder to do. We'll talk about that. But here's the part I want you to hear. You are not behind. You just have not started. These are different problems. And the second one, the second one is fixable this week. And I think that's critical to understand. Don't beat yourself up because you did or didn't do. That's just where you are. Start from where you are. The best time to plant a tree is 20 years ago. Second best time's today. We're at today. And being at day zero doesn't mean you have nothing. You have revenue, you have a team, this is a customer. Uh, you're building things. Andrew, I know you're doing a startup, uh, off of it, but you've already got the idea. You've launched. So you've gone from the hardest part, which is nothing, to something there. Some people on this call, like myself, Tulio, and Michael, uh, are, uh, uh, um, been doing it, you know, in this company. I'm currently CEO. I've been at this one 3 years. The other one, I've been at 5 years on it. So it gets harder to do it because now I'm the problem, right? Right. And then one more thing and then we'll get to work, right? Uh, most of you've never been given a mandate. You get the job, you sign your contract. The thing I love about private equity, we're all typically on the same contract as far as what we're being measured against, uh, off of it. So we know what it is. It's surprising the amount of people who actually don't go look at that number, don't run that LBO math, and then take it back to the chair or the board, not in the board meeting, Offsite and say, am I thinking about this right? Did I handicap this right? Is this a sensitivity analysis? I know we're expecting multiple, uh, uh, appreciation, uh, uh, but guess what? Rates are up, or— and so it's not gonna— have those conversations and have them on your choosing versus the board calling you and get it. So, okay, here's the 3 questions I have for you next. And, uh, guys, jump in, put it in the chat. Raise your hands if you like, and we'll invite you up so you can hang out with us. This is what all the cool kids are doing, all right? Do you own the number or was it handed to you? That's my first question. Do you own it or was it handed to you, and have you ever defended it? Put them in the chat as we go. We'll answer them. Second one, can you name— all right, Andrew, you got it, man. You're owning it. Can you name the few things that still matter this quarter, or does everything, does everything look important? Brian, you were handed to it. That's the most common one, right? The deal, the partners figure it out. They run the math. You come in, they say, hey, it's 100 or it's 50 or it's whatever. That is the most common one. Handed to us. Yep. They've always been handed to me. I have never been far enough up the food chain To be the guy who was running the, uh, the, the model on the first one. All the deals I do after that, I own the number, right? The banker has to agree to it, the owner has to agree to it, but they're looking to me to see if I can do it. So once you sit in a chair a little while, you actually get a little bit more out of it. All right, here's the third question. Does your team— does your team, not you, not the board— does your team own the plan That's going to deliver that number, or is it still you? This is a big one. Does— is it you or is it the team? Did you build it, hand it to them and say, this is what we're going to go do, or did they build it and you made them defend it? That's, that's really the difference. If you answer these things honestly and you're at day zero, that is not a, uh, a diagnosis to feel bad about. It's just where the clock starts, right? Be honest with yourself. All right, Michael, you build it. Bruce, you're accountable. Fantastic, that's exactly right. Uh, and Andrew, it's split across the team with, uh, you supporting the initiatives. That's very common. What I find that really works is you own the number. I call that the goal. You own it and you're the translator. You translate the board's data to the team's task. You're that decoder ring. The moment that everybody agrees that that's the goal and they believe it's possible, the team tells you how you're going to get there because they'll have to go execute on it. And it, and it shifts. You go from maybe dominating the conversation to now you're actually— they're saying what they're going to go do and you're opining on it. And that's when you can feel the shift in the room. All right. So, let me go to my next slide here before I forget. Here's the math of the seat, guys. This is, this is what we're all facing wherever you are. 70% of PE-backed CEOs are replaced before the exit. Now the exit's about 7.5 years. 7.3 is what all the McKinseys and Bains and those guys are really bright, so I'm sure it's right. Here's what you have to get through to not— it's not because you're not competent. You wouldn't have got the job if you weren't competent. Under 6 months You've got to establish credibility. That means you typically are going to have 2 board meetings in that, or 2 meetings with whoever it is. It might— yeah, uh, you know, uh, Andrew, it might be just you looking in the mirror. Maybe it's you and your wife or whatever, but there's going to be 2 formal check-ins. The first one is going to be a honeymoon, and they're going to not believe whatever you say. It's just going to be taking the temperature. They're going to walk out of that meeting saying one of 2 things: I have no idea how he's going to do it, but man, he's a nice guy. The second meeting, when you come back, if you cannot connect the dots— and I'm not talking black smoke and mirror or white smoke and mirror out of it, right? This is not magic— to say, my goal was the number of the board, we've already agreed, we've talked about it, the team's plan that they own gets us there by here, and you better handicap it unless you're betting for perfection. We like to talk perfection, but it really doesn't work, right? So under 6 months, you get to establish credibility, sometimes shorter, sometimes longer, but that's the average. 7-year average is where the hold is. Between 18 and 24 months is when you get fired if you don't get this first part right. It takes them about a year a lot of times to recruit a CEO. So just think about that, right? You know how long it took to recruit you. You are statistically more likely to get fired Than cashing out. Let that sit there with you. You're coming in; the rewards are great if you can do it. The odds are against you. Well, that's true in life. That's okay. That's why we why you get the big bucks if you can do it. It's harder today than it was ten years ago. We went through the greatest decline in interest rates in the history. That decline in rates instead of giving it to the banks got shifted to multiples, and you paid it out to. Sellers. We were in— we wanted to be the seller, right? We buy it all to go sell it. Now the banks are pulling it back. We're not at 2% interest rates anymore. If your company's slightly, uh, uh, uh, uh, challenged, you're going to be SOFR plus 5, plus 9. So all of a sudden you're looking at 15%. Your cost of capital is 20%. We had one deal we did, they wanted 24%. Couldn't get the money, right? So it's hard. This is where we are. All right. Now, you're not replaced for capability. What are you replaced for? You're replaced when they quit believing in you. They don't believe you can do it anymore. Be the greatest guy ever. Take them all out drinking after the board meetings. You can do whatever you want social. It will not matter. This is a business and you're going to be the one that's going to do it. So Bruce, you said it earlier. You're accountable. They are looking For you to give them the plan, do not expect them to come figure out what you're doing. You're gonna have to meet them where they are on it. All right. So when they start believing, you start looking, and sometimes you don't know, but you'll know that them changes, right? Hitting the plan, by the way, buys you time, but it does not buy you belief. I have people come in on my teams, and they'll be like, "We had a good quarter," and I'm like, "You don't have a clue why you have a good quarter. You can't even explain it. Though you rode the wave, the whole markets." Having a good quarter, which is very common. I'm happy, you know, thank God it's better than— but it's not a command and control situation. You did not pull the pricing lever. You didn't look at what, uh, the directs were. You didn't run your, your, uh, your, uh, uh, your ratios around the right to grow. You didn't do any of that stuff. And so you're just reporting out the news. And when you do that, you become a very different type of CEO. Right? There's 2 different types of currency you have, and the, uh, the most CEOs only ever manage the first one. I had a good quarter, here's what happened. You just reported the news. And next quarter, our forecast is this. And if you're in any type of industry at all that has variability and you don't have vision to the, uh, end users— many of us use 2-step distribution or manufacturing, you're probably selling it to just a distributor, then selling it to a dealer, or, and it goes on and on. You don't know what they're going to do because they don't know what they're going to do. And the only way you'll know is if you're in a business with a backlog. And depending on the cycle of that backlog. So one of my businesses, uh, there's projects. I'm not a huge project person, but I know 6 months. I got one I know a year in advance exactly what it's going to be. Now that's wonderful because I hit that forecast. It's terrible if the forecast isn't what I want it to be. Julio, you've seen a lot of these.

That's right. And I think that what you were saying is really important to have a clear goal in mind, because it's the only way that you can ask your team to develop the plans. And I think that it's worth pointing out that maybe it wasn't said before, that the reason why you as the leader don't want to personally develop the strategy or do the plan to achieve that number It's because you want your team, who is the one who is going to execute all these actions, to own the plan to, to really get to that number. And when you do that, then you really notice, and the board can tell that the business is heading in the right direction. And then you buy credibility. If you don't do that, you can really tell at some point that you don't have your business under control.

Absolutely. Well said. I think we lost Michael. I think his his video messed out of him. If anyone wants to come on the show, raise your hand. We'll see it. I believe we'll see it, and we'll let you in. And particularly if you got questions to do. So okay. So what's the issue? The board speaks in math. Moic multiple invested cash. That means they put a dollar in. They're gonna want three bucks back. Sometimes it's two and a half. Sometimes it's four. Certain industries they want twenty back. More is always better. They talk in EBITDA. They talk in exit multiple. They want a bridge that reconciles the tactics, the task your team is doing, controllable tasks, which means it's not market. We always put market in. We're, we're, we're price takers there, if you will. It's not geopolitics. We can't control what anyone's going to do. They talk in math. Your team talks in tasks, headcounts, roadmap, daily fires. They want clarity and timelines they can hit. You sit at the intersection of that and you have to have the language of both sides. The most common thing that happens is the CEO really becomes an operator, which is very good, but they're running that business. Now that makes you competent in it, but that really doesn't get you a seat at the table, uh, uh, and driving the long-term vision of the company. You, when, if you're that, and if you're private equity, You're gonna get this lovely thing that they have. It's called an operating partner. And all of a sudden, you're gonna get a call and Michael, who acts as an operating partner in many situations, calls and says, hey, I'm just gonna sit in on your meeting. It's not because they don't trust you. It's because you're not giving them the information on it. You are the only— this is the only role in the building that is required to speak both the numbers and the tasks to get it. And you gotta know the audience that you're with. The translation is unpaid, it's invisible, and it runs through your calendar. And you know when you're doing it right or wrong by who's starting to show up in your meetings. All right, all of a sudden, are you getting an every 2-week 30-minute, uh, with the board or, you know, someone from the sponsor saying, hey, let's just walk through that plan. I just, I want to see how you're growing it, right? Again, it's not that they don't trust you. You're just not giving them the answer. And when you see you get extra help, you know, I'm here to help. You should look internally. These people aren't curious lightweight. They want to run. They want to run their business. The private equity firm we're with manages over fifty billion dollars, and there's like forty of them doing the whole thing. And there's like twenty four principals. These guys are geniuses. I mean, absolutely best partners I've ever been with. The last thing they want to do is come run my business. So if they show up. The message is there. Look for that. The cost of the gap for you is 6 to 12 months if you don't have that aligned for it. So now all of a sudden the plan they put in was 5 years, that's probably what you signed up for. Now it's 6 years, 6 and a half years. It's how you get stretched out, uh, with it. Uh, then now they realize it's going to take longer, time value of money. They're going to start coming in, they're going to show up to your meetings And your autonomy is gone. Okay, let's go to the next slide. So we've talked about this. There's one document here that, uh, that, uh, uh, uh, hits it all. I think I just covered this slide, so I got all excited and went too fast. There's one document that ends it all for you, and this document is a single artifact that I like to use. Your board is never going to require this. I've never seen one. They should require it. They think they give it to you through your contract and the models when you came in, you know, send you the strategy. Has anyone ever used a document that they created to go back to the board that walks through the math of the investment thesis? We call it the CEO mandate here, right? Anyone ever did that? Just put it in the chat. Andrew, did you do it with your, uh, with yourself or your investors? Michael, how about you? Have you given them back their own math? Let me know. Just put it in there. There you go. No, it is worth the time. If nothing else, this is not something you really do for them. This is something you do for yourself. This is something that you need to understand with it because if you don't understand it, how are you going to get anyone there? The unaimed arrow never misses. So what we're going to do next Is we're going to walk through how you get these, uh, how you get this document, what it looks and feels like from it, how you start with the LBO model, and it goes through it. So we're going to try to build that first page for you, a first page for you. Now I say things like, this is for your board, you should get it signed, you should sign it. All that is just making sure people knows what's going on. They're not going to require it. They think they've already given it to you. Uh, and, uh, needing to do more isn't, isn't that big of a deal for them. So Bruce, did you, did you, did you do yours? Did you do one? Have you ever done one? All right, let's go to the board's number here. So the 3 things that we're going to do is we're going to reconstruct the, uh, uh— oh, Bruce is heading to his first job! Congratulations, Bruce! It's a great time for you, man. You're truly at day zero. Uh, uh, uh, you reach out afterwards, I'll share you all my war stories with it.

All right.

So this is just a great time. All right, so the board's number, you're going to reconstruct the LBO. Since Bruce, you're new at it, I'm gonna be a little bit— you probably know more than I do, but that's the leveraged buyout. So when you're doing a deal, they'll have a, a, a, a junior partner, an associate, something like that. They're going to have these big spreadsheets that everything's going in. That's the math of the fund tied to what they've committed to their LPs or limited partners or GPs and all that. And many of these guys have their own money in it. If you're a good part, a good fund will. But that math, you actually own delivering it. Now, the thing that gets people is you wanna do the deal. You really, really wanna do the deal. It's exciting. You're a master of the universe. So you will agree outside of that call, you and your CFO will be sitting there going, I don't know, but if we can't get this thing to 4x, it doesn't work. And you come back and they go, yeah, yeah, we got it. 4x. Well, you just committed, and that commitment's real off of it. You got to do this math. Now, if you're coming in, and Bruce, you, that math's already done. I bet you're, are you going into an existing company or are they buying it and you're coming in with it? Do you know yet? You might, you might not know yet. All right. We'll keep going. So off of that, right on, Andrew. Congrats. So, so Uh, uh, the SEC is the MOIC. That's the inverse investment on invested cash. All that is saying what return do they expect that they want. Many of your contracts will have escalators in it. So we put a dollar in. If you go from a dollar to two dollars, you get no payout. That's very typical, right? There's costs that go in all that stuff. So just getting their money back, they don't care.

Right.

It was— it's a loser. Getting to 2 generally gets you paid out, but it's at some percentage of the max. So it's not going to be 100 typically. Sometimes it will, particularly if it's a turnaround, but it might be 80%, it might be 50%. So if you don't get above 2, you're generally at a zero. 2 to 2.5, maybe you're 80%. 3, you're 100%. And then a lot of times you'll have escalators Uh, uh, uh, that take you up from there. So we don't— this, this isn't about that. Just know that how far you overshoot, it gets, it gets really great. And so, uh, Bruce, you're going in an existing one and they're about 18 months in. So they already had kind of either one of two things. They bought it for the— from the person, the guys, I always say. I mean, man or woman. And they're exiting now. Uh, generally they want them to stay 6 months to a year. But it also could mean It's not working well. Generally, they replace the CEO when it's— if it's going well, everybody wants to stay at the party. So you probably got some kind of turnaround on it. Uh, they still have their original model. They think they're 18 months behind. You're excited, you got a day one job. You take 6 months to go do a listening tour, they're 2 years behind now and they're going to be grumpy. So, uh, speed will be your friend here. Okay.

That is why, Bruce, this document for you is particularly important because the operating word here is alignment. You really want to be well aligned with the board, the investors, to be able then to develop a plan, a strategy that gets you or to give you a fighting chance to actually get to that number.

Yeah. Bruce says, just repeating, business is doing well, CEO's not collaborating with the board. When you get there, you're gonna be surprised how poorly the business is doing because if it was doing well, even if the guy's a jerk, they'd keep him, right? And I mean, I know, I mean, there's ethics and morals and all the other stuff. But generally, you've got to be so far over the top to get fired while delivering the numbers. So I know I took one about three years ago, and they said, "Yeah, it's not. It's not good." I should have magnified it by ten times because when they say it's not getting along, there's issues. So prepare yourself; it's coming. All right, and then so you know what the thesis was? That's the LBO numbers going to give you that. Then you got the MOIC. That's how much that you have to make or you have to deliver to get paid and your team, what they're expecting. And then you want to lock it on one page. It sounds so simple, but putting a document between you and your chair or your investors or the whole board, uh, is really powerful. I like to do it outside of the board meeting so I can have a back and forth. It's more of a safe environment. And then on the board meeting, I'll include it in the packet. That's generally how I do it because it just memorializes it. And I'll do a sensitivity analysis, and I generally will go with the negative, uh, side of it. So if to hit the number means, you know, in the middle of that sensitivity chart is 100%, I'm going to be planning maybe I only hit 80% because it'll drive me to get more EBITDA, make me go faster. It gives me a higher likelihood of being successful. So that's just a personality, uh, uh, a piece of it. All right, so where do you get the LBO number? Uh, they have the model, uh, if they haven't given it to you, but go back to the original SIM. That's the, uh, confidential information memorandum. They'll— they call them SIPs and SIMs. It's the book. It's what comes out, comes from the bank. The banker typically builds it. Use that, get the model, do it yourself, or do it with you and your CFO or whoever your finance person is. It is really important to own that, to feel it in your soul so you understand the triggers, because as you get into it, you're gonna need to know what they are. Run the MOIC conversion. Make sure you understand where the breakpoints are. It's the equivalent of knowing your forecast. You're coming in— see, we're in September. I got a quarter and about, you know, 18 days left in the month. So I got, you know, and plus I got Christmas and Thanksgiving. So I kind of know what I gotta hit and I know where my levers are. Well, it's the same thing with your number. What does it look like when I've got the full year? I'm using as an example in forecasting versus I'm in my last quarter, my options get limited. You wanna know all that up advance so you're making your decisions early. It's like the speed of acquisition. If you don't actually run that and look at it, you think you do acquisitions in year 3, They gotta be great for year 3 if I'm on a 5-year period. Lock it into one page, the target, the timeline, 5 assumptions, the 3 unknowns. Sign it by you, even if you never give it to the guy. Sign it by you, right? And then land it with them. If the number is wrong, if they don't agree, everything that you built is wrong. The most common thing many of us are going through today is The businesses were bought, uh, in during the pandemic. Multiples were high, crazy high. Uh, that's come down. Interest rates have gone up, and we're underwater on our balance sheet. Now, if you're going in— so 18 months ago, Bruce, you know, they didn't buy this during the pandemic, right? That's 2 years ago. We've kind of been out of it. That doesn't mean they didn't overpay or whatever, but the situation today is vastly different than it was 2 years ago. Make sure the math is still working because what they put it in is what they put it in. You want to set that number where it should be, uh, and then create a path that gets them back where it is so they understand the hill you have to climb so the expectations are met. Nothing worse than disappointment. All right. So let's go to slide 10. So let me just show you this here. Now I'll see if I can get to the other side of it. Tulio, how are we doing on time?

We are 34 minutes in.

Okay, we started a couple minutes late, so we're, uh, uh, uh, we will try to end right on time, but maybe we go 5 minutes long. If anybody's running tight, let me know and I can go faster on these things. So this is really for you. I do this every day with it. So entry EBITDA, I picked round numbers. I tend to be in the middle market side, so most of the businesses I run Uh, are generally around $1 billion. You'll get them to $500 million, $200 million, and my goal is to get them $1 billion to $2 billion, right? So, uh, revenue. I like the spaces that come in at $50 million EBITDA, $75, $100 million, and then in essence doubling that. Part of that's going to be organic, part of that's going to be inorganic. The math all works the same. I just tell you that. So I'm just using numbers that I talk to a lot and how we think about it. Okay, so $50 million EBITDA entry. We're going to try to run one of yours. So if you got a different number, or if yours is just, you know, 10%, then just divide. If it's 10 times bigger, then we'll just multiply. But it'd be great if somebody wants to put some numbers in. Okay, so $50 million EBITDA. This industry pays out of EBITDA. So the language you use, you know, I've ran private companies, they like net income, they like operating income. It doesn't matter, it's all the same thing. What I mean by that, it's just a number you can agree on with a specific definition. EBITDA is not the same thing as operating income. It's not the same thing as net income, but proxies that work. This industry talks in EBITDA. All right, we are generally going to do something about 50% debt, 50% equity. If the markets are rolling and we're doing great, then we might get 6 on it, right? So instead of putting 50%, maybe put 60% debt in. You bring in a really good plan, the bank might give you credit for another turn of it. And banks love it because the more you can lever it up, the more it juices the return. As a CEO, your covenants are typically going to be tied to 10 times. So once you get outside of 10 times, you start having restrictions on what you can do, and they become very draconian. So if you start with a 6-time debt, you only got 4 more rounds you could get 4 more levers up. You start with a 3 times, you got 7 more times the debt you can put on it. And those become important if you're going to be buying companies. So just keep— and plus you got to carry it, and the more— the closer you get to your covenants, the more it would be. When I ran public companies, we tried to keep it between— Tullio, what were we at? 1.5 to 2.5. We'd buy a deal, get us up to 2, 2.2 times, lever it up. We thought we were crazy because we want to maintain our investment grade, let the cash flow blow it down. So that didn't— we were in between that 1 and 2 mostly. Would you agree?

Uh, I think that at some point we reached 3.5.

We did a big deal. Yeah, we did a big deal. That's exactly right. In the board meetings, we had to go meet with the analysts, but we did it and it was great. It was trying to be a fantastic deal. But investment-grade public companies are generally below 2.

Yeah, and I think that the key point there is what you mentioned. It was related to the debt. because our debt trader in the market— and we, we were investment grade, we wanted to, to keep it. Or, well, actually, we were BBB. So—

We did after we did the deal. And the reason that's important, uh, an A company pays a lower rate than a B company, and a C company pays a higher rate, right? So, so the more you can be at the top of that— now, if you get it down to zero, your investors are going to hate you because you get no leverage. You got to have the leverage, and we can run the math So anyway, uh, $250 million in debt, we put half in. We— so we $500 million, 10 times, half in in debt, half in in cash, and we wanted 2.5 times off of that. At a 10 times exit, I need to get my EBITDA to $75 million. If the multiple took one step back, it's going to cost me about, I don't know, $8 or $9 million more bucks. So this is just how to think about it, right? Okay, so I'm going to— if I'm really good here, we'll, we'll, we'll, we'll see. I'm going to switch this over to a live demonstration, and, uh, you guys can, uh, uh, see how good it is. All right, now this tends to show up a little bit small on it, but I can zoom in. See that? But if I get too much, let me know and see it. So Everyone see that? Just put yes or no in the box. I'll wait a second here.

And just so you know, guys, this, uh, tool is available on our website on the8020institute.com if you want to play around with it. So feel free to do so.

It's free. You'll come in and do it. Thanks, Andrew and Bruce, Brian. That's great. So I'm just— let me scroll down first. So here is the tool. You run your own numbers, it gives you this. This is the organic side. This is the sensitivity analysis. If it goes for you or against it, this is how much the return where it comes from. Then this is the you're going to buy businesses, right? If you're going to hit your number, right? Because if you're at $100 million and you got to get $200 in five years organic in an industrial company, that's going to be hard. I mean, at 10% a year, it takes you 7.2 years, right? At At 10% a year, it takes you 11.1 years to triple it, right? So, so we— that's way outside of what we wanna be. No one's gonna accept that. This is the inorganic side. You buy and hold. And then this tells you which ways to get there, buy and build it or do it organically. Then this gives you the bars, right? The waterfall chart walks you through it, tells you the MOIC that's delivered. And then if you deliver the full results of the organic plan, what would it be? So this is your— it does all the calculating for you. You only need a couple of numbers to come in. Okay, so well, look at that, I'm already on the wrong thing. So let me get back to the top, and I pre-plugged this in. Does anybody want to put in a number? Bruce, you're coming in, you may not know your number yet. Uh, Brian, you, uh, um, uh, Andrew, if you do. Otherwise, I'm gonna go with it, but throw numbers in, guys.

I'll do it.

So Uh, this is, uh, yep. Don't know. I wouldn't expect you would. By the way, that feeling, you got to get rid of that feeling. You got, you got to not just quit feeling it, you got to go fix it. Start talking them through the now. If you've taken the job, if you've signed the contracts, start talking now. You know, it's rare to say yes on Friday and start on Monday. Generally, there's at least a few weeks. Tell them right now, send me the model, send me the strategy. They may or may not want to share some of the confidential stuff, but you you should have signed all your NDAs and everything. They'll they'll give it to you. Just tell them what you're doing. Say I want to understand this logic behind it. So okay, so I'm gonna do mine. So I said this fifty million. Actually, this is one I did. It was seventy million. I came in our entry multiple. You're at SVP, man. Just just get in there and help them. It doesn't matter what what level you're at today. This is. You're here on this call. You can become the trusted advisor to this, and if you're coming in speaking this language, your stock value, your personal value is going to be extraordinarily increased. You start having a much more interesting, sophisticated conversation. Okay, so we were at twelve times when we bought the business off of it, which when we sold it, we sold it for fourteen. So we got. We did well. Terms of EBITDA that we put in there. So this is you can do percentage, net debt, and everything. So we put in 50% is is where we wanted to be. You see that? You see, and it's it's a little bit sensitive. Okay, we wanted to hold it for five years. It took us a little bit longer than that. The MOIC we were looking for. The return on our capital was three. The exit multiple at the time we thought we would exit at sixteen. The market was you know about two years ago. The market in industrial companies peaked about sixteen. You still see them higher. I see eighteen, twenty. You got you know you're in data centers today and you're selling a recurring revenue. We'll we'll we'll you'll do great. Tulio, we'll get you the link on this thing. So it's no no problem. And by the way, you just go to BillCanady.com, look under free tools. That's right. We're getting ready to upgrade it and make it into a course. Right today, today it's just this model, and if you don't understand it, it gets a little, little, little, little, little crazy. Okay, so calculate it. The other piece on it. So, so your required exit EBITDA at seventy to get a three times return. I had to get it to ninety one million. Ninety one million. That was it. All right. Ninety two million. That gives me a 3x. So they put in, you know, the, the amount, uh, $25 back. Growth per year, EBITDA growth 6%. I like to lever my EBITDA, so that means I got to be at least getting 3 to 4 on the top because you won't flow through. If you're getting 5 on the top and 2 on the bottom, you are not getting flow through. You're gonna get a good talking to. If you're getting 5 on the top and 10 on the bottom, good job. What we love is 10 on the top, on the bottom. We want to 2x it, right? Then this tells you what the enterprise value was, how much equity we put in, how much debt we put in. Target— I got to get that thing to 1.2. That's a big number. Turns out to be easier than you think it is if you do it right. Check this paydown. So cost of debt, 20% of EBITDA. So that's just telling you the math behind it. If I get it to 17, I need $86 million. Well, Well, guess what happened? I sold it at 1492. Wasn't enough. I needed 105. Now here's the interesting thing: I actually got it to 180, but I had acquisitions in it. And okay, where did the return come from? It came from 31 percent in this case was EBITDA that was worth 262 million, a debt paydown. I got 25 percent of my value back by. I kept my cash flow good. I paid it in there. And when you think about what does that mean, it tells you here how it's paying it down. So you're deciding, I paid down 50% of my debt. Um, uh, uh, it's valuable to you and you get return off of it here. And then the rest of it was the re-rating, taking it from this whole thing, 44% I didn't get, right? I did not get, uh, 16. I got 14. And so instead of that, look at that, it went down to 25%. It was harder. But what did I do? I started buying. And you, and you do it fast, right? We would do 7 to 10 companies a year. We went through a period we didn't do any. Interest rates went crazy. Buyers' expectations were here. Our ability to pay was there. So you can't always control it. Uh, we acquired I want to say about 46 is probably right. Uh, I'm gonna put 50 just as a round number. The multiples we were running was, uh, I had— I bought a couple as low as 3 and 4. Those are just kind of tuck-ins. Then I bought some at 8, 9, and 10 that this is where I do it. But most of the time we were running right about a 7 multiple. My synergies, in other words, the cost I got out, the growth I got rid of, most of it's going to be consolidation size of it. Uh, I, I targeted and delivered more than that, 30%. All right, let's see, I got to quit, uh, hitting the darn button. Okay, so I got 30% out of that. And then this is how is it funded by. You're going to fund it yourself. No private equity wants to put more dry powder in. They're constrained by their contracts. They may be a billion-dollar fund, you only got half of it, and you It is almost impossible to put it in, uh, because you have dilution issues and the current investors don't wanna be diluted and neither would you. Okay, so what did that mean? The arbitrage. I created $560 million worth of value by doing the deals. The multiples I really paid were 8.8, uh, off of it. And the effect on my, uh, uh, EBITDA was 5.4 times. So I acquired $50, I got $15 million worth of synergies. That was mainly cost out and pricing. I added $65 million, I deployed $350 million, and when we sold it, worth $910 million. That's just about exactly right. And so my acquisitive side added 5.4 turns. That's a big deal. That's a, that's a winning hand. Okay. If I stayed just doing organic, just doing organic, I had to deliver $35 million of EBITDA to grow it. With the ability to do the deals well, and that's hard, you know, you can do the deals, but do them well, I could actually have $5 million less. I only needed $30 million to get there. But you got to integrate these things. So, uh, instead of it being $30 million. So $35, you read this, I was able to take $5 million off, and the rest of that was the acquisitive. So you go faster and you can go further. The biggest issue I see, people overpay for the deals. And when you overpay for the deal, you cannot recover. You'll never get that back. So the debt at the exit, I— you remember I was going to pay some of it down? Well, I went up. I did pay down debt. I just Uh, uh, uh, put $65 million on it through acquisitions, and I actually didn't have to grow it organically at all. That's kind of crazy, isn't it? Okay, so this is what it looks like. I need a, uh, uh, about a 14% less, or 114% less organic lift. So where does it come? So I started at 70, I acquired 50, my synergies got me 15, I need to get 130. My equity exit at was 1.2. We sold it for about 2.4. That's where we wound up at, and we were a little bit over three. Everybody got paid. Great, great outcome. Bankers happy. Not a home run. It wasn't like Yeti or somebody. This is a working industrial company that we took it to the next level. That's how this works. Now, if you know that the impact is terrific because you come out of that meeting with your chair or whoever's on your board. The next thing you're going to go do is, guys, we got to do deals. That's what you're going to go back and say. Now, if your company's in shambles and the operations— it— you go buy more, a baby doesn't make a bad marriage better, right? You got to be able to handle it. You got to organically get the business where it can handle it, uh, with it. If you take a year to get started fixing your company and then a year to buy the deals, you cannot recover. This is why your first meeting is get a goal is in week one of star. This is why you do it.

All right, Bill. Yes, sir. Time check. We have about seven or eight minutes left.

Okay, we're gonna go back in so you guys can see that it's in the link here in the chat with it. Let me take us back to the piece. Hey, are you guys enjoying this? Do you see it like put a yes or no in there? We'll we'll for sure change it up as we're going. Okay, all right, back to the presentation. So those are the numbers, that's what it looks like. Where are you at and, uh, and, uh, and what are you gonna do with it, right? So, uh, the number— this is just understand your team. This is about how much labor does it take to actually go get it, what resources do you have to own. This is looking at it through the labor piece of it. We want about 2.5 bucks coming out every time, uh, for a dollar you put. You put a dollar in of, of total employee cost, you should be getting back 2.5. We run— it's called the right-to-grow ratio, uh, RTG. It's— you want to improve it. If you're at 1, well, it's not great, but that's where you are and this is what you're getting. Imagine if you get it to 2. If you're at 3.5, well, that's great, but you still got to grow it, so you got to get it to 4, right? Does that make sense? So it's a It's a, uh, it's a, uh, it's a where are you at, how do you improve. Here are the levers you get to pull: price, cost, organic, M&A, and working capital. It's in this order. The reason is how fast it comes through. Price, the day you pull it, when that thing shipped at the new price, it flows through and it's frictionless. It is the most powerful. You might pay a little bit extra in commission, but you don't need a new warehouse to do price. Cost is contract-driven. If it's a direct cost It might take long. If you're making pumps, you got to get new castings, might take 2 years. If you're a FedEx contract, it's as quick as you can get it negotiated. You can typically get that done 90 days or less. Organic, you can get it quickly. They already know you and trust you. If you've got to go take it from someone, they're going to fight you. The customer's got to trust you. Generally takes 2 to 3 years, particularly if it's an engineered product. If you're selling a service, might be quicker. M&A, well, that takes the longest to get. You have to court these folks. And if it's a deal, so Bruce, you're going in, They probably already got a pipeline. Now, if your company's in shambles, you may, may slow play a little bit, but you're gonna have to play it because it takes a while to go there. It's like getting married. Imagine how long that took you. So, and then working capital, you wanna release it. You walk through your factories, you walk through your warehouses, that is just stacks of cash there. Release that so you can invest in the business. All of these stack up. Every one of these, every one of these are controllable by you. The only thing you can't control is the market. You have no idea what weather, uh, geopolitical wars, tweeting, nothing. You have no idea. Control and focus on what you can. You lock that number with your team, uh, you know, you make sure that they understand it. You've got it, it's there. Make sure— this is the big one, uh, uh, uh, that they're tied to it. If you're paying on revenue growth but you're getting measured on, um, Uh, uh, EBITDA, you got a comp problem, right? And then one accountable and one person. They say one throat to choke. Have that. Make sure you understand it. You're all over it. Then stay, develop, or exit, right? That is, do you have the right team? You probably do, but you're most likely going to have to make some changes on it. We'll talk about that later. Install the rhythm. This is the operating cadence that you need if you're going to be successful. These are— I have monthly business reviews, MBR. Some call them MORs. Depending on what you do. That is a KPI meeting, looking in the rearview mirror. Did you get it? The second one is a QOR, or Quarterly Operating Review, or Quarterly Business Review. That is a strategy meeting saying, given what happened this quarter, what am I going to do about it? We have those every quarter, so our changes are small. Then the crucible is taking this document with those numbers, you, your team, your board beating up on it. Two versions of the same board meeting. One, you don't have any idea. You're happy to be there. You're so smart and smiley, and you're going to tell them you're going to raise prices, and they're going to be thinking, "What is the IRR going to be?" Or "What is the MOIC?" Or "But how am I getting paid with this?" Doing this type of thing, you're in command and control. Okay, we have a program. We call it the Command 100. We work with people to do this, but coming out of this, you can do a lot of it yourself. We have some free tools. So whether you want to work with us or someone else. You need to get yourself aligned. You get 100 days, you get that till that first board meeting, really to have the information. I told you they'll give you 6 months, but within 100 days you need to have the beginnings and you need to start on it, right? Get your numbers signed, get your team aligned, get a strategy around it. Sounds like a lot, and it is. That's why you have to go fast. Our program that we call the Command, uh, 100 is actually, it's really a 4-stage program. The first one works around getting your number. The second one is the strategy to deliver it. The third one is the structure that you need. And the fourth one is the cadence that actually gets you there. We've talked a little bit about these. If you're interested in it, at the next couple slides, there's a QR code. I'm rushing now because I know we're over. Hopefully everyone's still here. But if you're interested, click on the QR code. We'll talk with you about it. I don't know if we can help anyone, probably not. But if we can, we will. If not, we're happy to talk with you on it. So, okay, one more way to do this. You can do it yourself. You've learned a lot on here. Bruce is, uh, uh, he's got— he's already got his LOI he's gotta go through. Brian is, uh, here. I mean, guys, you— this is— it just— it's experience. That's the only difference, right? Do it yourself. Do it with your peers. Do it with me. I'm sure there's other people out there. Difference between them and, and, and us is, well, we've done it. Okay, what does it do? What are the results? We typically deliver 350 basis points. Every 100 basis points is 1% of margin, right? It's a way to think of it. In the first year, we typically find— that's what I deliver in my businesses, that's what we deliver with people— you generally will experience 30% in one quarter. That's because you start with pricing. You— there's a way to do— you can't be heavy-handed. They'll stick with certain amount. You go too far, they'll leave you. And over about 420 basis points or 4.2 points, you'll identify— do you get it all in? Sometimes, depends on your cycle, right? Uh, this is not for everyone. This is not for everyone. Uh, uh, you know, we are for people who are focused. They're at that day zero. They need to get command and control. They need to get to day one. And then there is a cadence to go through. You can go through whatever pace you want. We run this over 100 days. Every week there's deliverables. We do it through a cohort program. You work with you, you work with your team. We actually see each other. So Brian, you, Michael, Andrew, you're coming, you're using what you're doing, and you have a partnership that you can really grow. And people really do love that. So, all right. So here's a QR code, uh, here on it. You can also see it's billcandy.com. Book a discovery call with me. Tulia, can you put that in the chat? If you may not have it, uh, handy. Off of it, but scan it right here. Let's see if it's on the next page. There you go. Still on this next page. So just do that. It's a thirty-minute call. I book it for an hour because sometimes I go long. You can tell already that that I've gone long here. We'll talk about scope, what we can do. If we can help, great. No problem. Okay, that's it, guys. That's the whole thing. Any questions? Julio, thoughts? Final words.

Sorry, I was just sending the link on the chat where you can book a call with Bill. Well, guys, I hope this was useful to you. Bruce, best of luck with your new job. Something that I'd say, because Bill is too humble to say it, is that honestly, Bill is a guy who knows a lot. He's been through this, both sides of the equation. He's helped a lot of CEOs and up-and-comers to take control of businesses with great results. So if that's your situation, being the CEO is a lonely job. So if you need someone to, you know, get some advice and get some sounding board guide, Bill is a great guy to do that.

So Brian, thank you for your first of all, Tulio. Thank you for that. Tulio is extraordinary. Tulio and I have been together. Oh my God! Going on twenty years or something. I think we were. I was ten, so I'm gonna go with that. So I sound younger. Brian, that's uh that's very kind. There should be eight hundred, but we've had good attendance today. You know, this is nichey stuff. It will be on YouTube out there, and everyone who didn't attend or whatever. You, uh, the link should be mailed to you. I take a look, I try to clean it up a little bit so it's not so, uh, you know, uh, uh, Yankee, uh, with it. But, uh, thank you all for being here. Thank you, Bruce, Brian, Andrew, Michael, and on and on. The rest of you I didn't get to. Uh, this was a great day, and, uh, have a great day, everyone. Take care.

Thank you, guys.