073: Howard Shore - You’re Losing a Million Dollars Right Now!

Are you thinking about how to grow your business with near and offshore staffing, but you're also wanting to make sure that it's reliable, cost effective, and really well done? I think docsa talent is the way to go. Here's why. They don't just fill your jobs. They bring integrity, top talent, and a people first approach that's hard to find. I've known the people at Doxa talent for over 20 years now and I say that you can count on them. I have. Talk to Docs of Talent and you won't be disappointed. Go to docsatant.com Bill G. Again, that's doxatant.com Bill G. One more time. Doxatalent.com Bill G. Check it out today. All right, today's show is worth a million dollars. I'm not kidding. Your business is a leaky bucket and there's probably more than a million dollars leaking away that you could find in a very short period of time. Listen in for how and where that might be. Foreign. Hello and welcome again to the Scaling Up Business podcast. I'm your host and Gazelle's business growth coach, Bill Gallagher. On the show with me today is a fellow coach and an author of your business, Leaky Bucket. Howard Shore from Florida is going to talk with us all about where to find the leaks in your business, plug them up fast and recover that money that you're just losing. So this is not a top line show. This is a bottom line show and we're going to find you cash. Welcome to the show, Howard.

Thanks for having me, Bill.

Yeah, so much fun. So we've talked for a while and I heard you speak about your book at our last summit and I thought it was really great. I was happy to have you on the show right away. I think it'd be great to just talk about your journey as a coach, where you first began to find the leaks in businesses and how you've come to specialize in this. What had you write the book. So tell us a little bit of your story.

Well, it started out I owned my first business when I was 18 and I also worked for three Fortune 500 companies that were industry leaders, worked for two middle market companies that were also industry leaders. And I've worked with thousands of leaders. And one of the things that I realized after working in all these companies is we all live the life of Dilbert. I don't know if you've seen the comic strip, but I used to swear Scott Adams was following me around everywhere I went. And I was seeing Lots of what I call leaks everywhere. So there was just money spilling out right before everybody's eyes. And it was just astounding to me that everybody could be working so hard and we were not getting as much traction as we should. And then it just dawned on me that not only was I causing a lot of change in the companies that I was in, that I could go and I could help a lot. Where I saw that the help could be was most people are very good at working in their business, but they don't spend enough time working on their business. What I mean by working on the business is focusing on strategy execution. And people, when they do a lot more of that, they're actually able to capture a lot more of these leaks. The other thing that I saw, which I also loved working on a lot lot, was working on the long term and having the discipline to focus on the things that would elevate businesses for the long term versus the short term. It seemed to me that most of the folks that I worked with, even in those really great companies, were very short term focused. And so I knew I could help. And that's why I became a coach about 14 years ago.

So long time coaching, coaching lots of different companies and sort of seeing this, I know from both my own experience as a CEO and, and then also clients that in those periods of growth, especially where we see the top line growing, that's also where the leaks increase because we're like, we let all kinds of things slide. And I can think of a couple recent instances that cost me more than millions of dollars where I let things slide. As we were going like, ah, it's all going to work out, right? There's just so much more money coming in, new clients and new products, things like that. And then you wake up, you're like, wait, my cash is dwindling and I should be doing better. This and my profit and my gross margins were like that before and now they've gone down. What happened? Right?

Yeah, you got that right. And we've seen some companies that revenue was going gangbusters and they were going to go bankrupt. And actually one of the leaks I love to talk about in the book is chasing revenue everywhere. And therefore you love revenue, but you don't have a business model.

Yeah, my wife likes that. I'm like, look, honey, look how much, look how much what our sales are. She's like, tell me about the profit and cash.

Awesome.

She keeps it real. So why don't you give us a couple of examples where you've applied this leaky bucket analysis where you've gone on the hunt for cash and tell us what you found.

Well, actually, I just finished going through the numbers with one of my clients this morning. They, and I don't like to use the names of the companies because obviously people don't like dirty laundry. But actually, this particular company was already, when we started working together, considered one of the top companies in their industry. We'll call the CEO Juan, and Juan is in the restoration industry. So for those of you who are listening, the restoration industry is one of those businesses where if you have a fire or flood, you call up a company like his, they get out there real quick and they work with you and your insurance company to get your house back to or business back to where it was before that fire or flood happened. And his company is one of the best in their area in taking care of that. And when he called me, he had actually been working with one of the best consultants in their space with regard to the processes working in the business, again, of how to do everything really well when it came to. To restoration. But he was not happy with his revenue growth and he knew he could have more profit. And just so that, you know, in this industry right now, most companies are suffering profit dilution because of what's going on in their industry. And in addition, they're not seeing as much revenue growth unless you have and you're in one of those areas like Houston, where you just had a big storm. But regular revenue growth has been hard to come by over the last several years. So he called me up and he liked this idea of the leaky bucket. And by the way, leaky bucket is also how am I losing? Top line. So that gets to strategy. You go around the equation, strategy, execution of people. So in leaky bucket fashion, I got with him and we sat down with his team and we looked at. First of all, we helped them put new meeting rhythms in place, which included a planning process. We took the leadership team together and we said, all right, let's start working on this business. You guys are really good at working in it, but let's get on the business. And part of our work was also to look at that leadership team. We changed out a few of those leadership team members and we really got them focused on what was going to change, how they made money change, how they executed. And we got them focused on how they held people accountable and really focused them on different types of priorities and focused on the right numbers and what changed for them. Now, fast forward this year, their bottom Line just changed. Their profit grew over 80% this year and their top line grew over 30%, which is highly unusual in this industry right now. And that was with no acquisitions. That was all organic. To give you an idea, that net profit margin grew about 50%, and they already had what was considered good numbers for their industry. A second example, before you move on.

From that, I also work with a restoration client. After making some people changes and some changes in some of their execution habits, they also saw a significant rise in top line, bottom line. But I think that what it is is when you get the team right, you get people right, you get execution. Right. Then when those moments, those opportunities show up, you're in a position to capture them, to win them, to execute on them. Where if the team's wrong, the execution is off. Then the events happen in the world. In the case of Restor, like something catches fire or there's a flood or there's. Right. So something catastrophic happens, which happens all over the world, all the time. But in those moments, if your execution, your people are wrong, you don't manage to get it, or you get it in such a sloppy way that you don't make money on it. Right?

Totally agree. And I want to expand on execution a little bit. So I like to call execution accountability. So a lot of people look at execution as a lot of people being busy. I like people doing the right things in the right way, and that means that we're making sure that they're not hiding in plain sight and that they're working on the right things. And so I'm really about, do we have the right accountability systems in place? And also do we have a culture of accountability? So in this particular case, we made sure that not only did we put the accountability framework in place, but their culture supported that framework. Otherwise, you can put a framework like planning in place, but then they just go and do something else. And they made sure they did both of those things.

Well, to underscore what you said, busy is like a cultural cop out. We have, how are you doing, man? I'm so busy. It's great though, right? Right. And the notion of being, look, I'd rather hear we're exceeding all our numbers. And I went to the beach, right, Because I got my stuff done and I'm good. We're like, we're meeting and exceeding. You want to stretch, you want to see people with hustle and hunger, but somebody who's always busy, like, oh, just I can't handle it. And their head's down, they're you know that's, that's crap. Right? And, and I, I know I caught myself saying it just reflectively. I'm super busy doing what I love is the catch. Right. So I add in doing exactly. I'm as busy as I wanted to be. I'm doing the things I love and should be doing versus I'm so busy I can't get anything done. Right.

Well, what I'm super proud about this client is not only is there profit more than 150 times what it was when we met two years ago and their growth is they're almost double their size. What they will tell you is the CEO works probably half time right now and the general manager who used to do a lot of everything, now that we've elevated the leadership team, is taking a lot more vacation, is having a lot more fun in the business and is getting involved in more things outside of the business. And so she's really happy that, that she's got a life now.

I think a lot of leaders worry about that aspect of it. They have guilt about taking time off. But if you're taking time off, if you're managing your well being, you're working in a, in a maybe not balanced but a healthy fashion and you're, you have think time and you have recovery time, you have family time, you have a little mix of this. It doesn't have to be all equal but, but there's a broad, it makes you a whole healthy kind of a person and the quality of your business decisions is better, your effect and your team is stronger. So leaders who are always there, always working, always, and I had one like that. Their team suffered. Their leaders were not strong. The accountability was weak because the leader was covering for everything rather than pulling back. It also diminishes the value and the saleability of your company. If an owner, leader, founder is deeply involved in the business, it's not nearly as saleable as if they're completely hands off. Right?

Correct. Correct.

So tell us about the other client. You were about to tell us a second case study.

So I talked about Bob at the event last week and so Bob called me. They were a different story. So Bob calls me up and so he owned a skincare company. They actually manufactured, distributed and also retailed skincare products. So you know those pads that you take the makeup off of your face stuff to get rid of acne, make your skin last so that you look 20 when you're 50, that kind of stuff.

You're clearly not a grooming guy, right?

I am Definitely not. And it clearly wasn't my business. Right. But at the end of the day, so they had the online retail business and then they did contract manufacturing and then they also showed to those big box stores like TJ Maxx and those where you have those big tables and sell a lot of stuff. And so they had these different channels that they sold into. And so they came to me because they had grown 52% over the last year. So the CEO was really proud of that revenue growth and that was a breakout for them after a lot of years.

52.

Yeah. They were like, man, that's really awesome. But the CEO knew that revenue wasn't everything. And so he was looking at his leadership team and these people got great socially, but there was a lot of drama going on. They weren't getting along very well as a leadership team. The other issue that was going on was he expected when his revenue was going to grow. Just like you said earlier, he expected his profit margin was going to go up.

That profit margin, it'll all stay the same, right? No, it never happens.

His margin was really small when he was smaller and he really expected that margin was going to increase and it did not. And so that really worried him and he couldn't figure out why. And so again, in leaky bucket fashion, we got back together and we figured out that this team was great at. They might as well have been firemen. And they were working in silos. The left hand didn't know what the right hand was doing. So again we had to pull them up and get them to work on the business and start figuring out what was going on in different departments. And what I helped them see very quickly was their business model changed. And if they weren't careful, they probably had about 90 days left before they were going to go bankrupt. And they had no idea they had grown 52% and they were at about $10 million in revenue, but they actually generated minus $200,000 of cash flow over that 12 months. But very rapidly were burning cash, inventory ballooned and they were not paying attention to that. Receivables were growing and the cash model was just a really bad cash model. So we very rapidly did a couple things. Number one is we changed out some leadership team members again. We also found that they had a lot of team members hiding in plain sight. It was amazing. It was like people were going, yeah, I came to work today and I did nothing. And I still got paid. And actually they got rid of about 25% of the workforce almost immediately when they realized that they didn't have to have all those people sitting around to handle the volume that they did. They very quickly came up with strategies to get rid of inventory. They realized that they beefed up their online marketing team and revenue on online didn't change $1 over the course of a year. So they increased their marketing budget for online by a million dollars and that revenue didn't change. So there were a bunch of things we put into place. We put in meeting rhythms again. We actually got the entire organization aligned, really focused, laser beamed and in the course of nine months we took that had 3.5% net profit and got them up to a 20% net profit company. They generated $1.6 million of cash flow in a business that had previously generated $200,000 of negative cash flow. Now if any of you wonder what do you do when you generate that kind of a change that quickly? They went out and did an acquisition and then entered the hair care products business and really were able to start pushing a lot more product through their existing customer base. Really started changing their model and they were able to pick up a deal really cheap with their own cash. So now they had cash and they no longer needed debt. They were out of their lines of credit and it really changed their game. So just focusing on strategy, execution and people. Oh, and by the way, I forgot to say we actually dumped a product line which was really a bad product line for them.

So they kept online, they kept contract manufacturing, they get rid of anything.

We actually shut down the contract manufacturing. That business model turned out to actually be not a good business for them to be in the long term. So we really refocused them away from that and really focused on them on being just the one thing and then getting rid of and focusing on building a brand online. The other thing was is online they had about 10 websites and a lot of different brands which really didn't make a lot of sense. So we narrowed it down to so.

Process of doing that. So we've done and talked about that before using profitability analysis, Pareto principle, you've heard it as 8020 rule, that kind of thing to pick and focus on key areas. You went to work on execution habits on the team on a whole variety of things to throw up cash and then left them in a position of acquisition, right?

Yes.

That is pretty amazing, right? To go through a variety of situations like that and be able to find them. So what do you start in with first? What are you doing with the companies when you go into this? What are the key Things are there some big things that folks should do right away?

Well, so the first thing everybody has to realize is these companies are not negligent. These owners are just like you and I, and, and we like working on our products, we like working on our services. And let's be honest, we have all suffered from allowing too much mediocrity in our business. And let me know, let me kind of give you an idea of what I mean by that. So these leaks, and I'm going to tell you, they're all leaks, are happening in every one of your businesses. So let's give an example of like a strategy leak. So the typical strategy leak that I'll see everywhere, or almost everywhere is you have some form of chasing revenue everywhere. What I mean by that is you'll go into the marketplace and you'll rarely want to say no to revenue. You'll see how you can serve everyone. But the very, very great companies, whether they're Apple or Kia, Ikea or companies like that, they really serve only 7 to 12% of the market. And they've decided that they're really going to serve that part of the market well. Their marketing, their branding, their products and services are designed for that 7 to 12% of the market. And they decide that they're going to be really appealing to that segment of the market and really unappealing to the rest, which takes a lot of courage. And when they do that, they actually grow faster by focusing on a smaller market. But it's really still a very big market. And so that's a leak. When you don't do that, it actually causes your operating cost structure to go up, your marketing budgets to go up. It causes confusion in the market when you don't stand for something. An example of common people mistakes that we all suffer from is, and you know those people on your team that, that aren't up to the task of doing their job, you should have fired them a long time ago. And you keep them for lots of reasons. And you know, they might be your cousin or family member or, you know, and let's go past those people. Cause that's a whole nother animal. But you've got a lot of people that really aren't living up to what you needed and you don't replace them. That's a leak. And they're costing you a ton of money. If they're in leadership, I'm going to say five to ten times their salary. And if they're not a leader, anywhere between one to three times their salary is what's it costing you to keep them in that seat? That's a very common leak that every company has. So for every seat you're keeping somebody that is not performing at a reasonably high standard and living all of your core values, you're sucking cash. And then if you go to the execution side, let's be honest, when was the last time you went into a company and they said, man, we've got this communication thing down pat, Everybody's on the same page. It never happens, right? So every time we allow poor communication to consistently happen, lots of mistakes happen, customers get upset and it's costing you a ton of money not to continually try to perfect that. Those are leaks going on all over the place, it's causing bad processes and it's costing you to have to replace customers or it's costing you not to get customers. So that's what I talk about when I talk about mediocrity. So the first thing I try to do is, where's the mediocrity? Let's just knock off the low hanging fruit and let's stop doing the stupid things you already know you're doing. And it's easy money, right? Then we talk about mastery, right? So that strategy execution and people, let's be honest, all right? Not even I, when I graduated college, not you, Bill. Even though we do this together, we didn't graduate college and say, listen, I want to be the grandmaster at strategy execution. People. We didn't, right? We went out of school and we said, listen, whatever we just studied or whatever businesses we started. Like I started in printing and graphic design and typesetting, all right? So I was going to be the grandmaster at that. It wasn't strategy, it wasn't people's execution. But you will never be great in those businesses unless you master those three things. And so that means you're going to have to constantly learn, you're going to have to constantly perfect and you're going to have to constantly tinker with those things and get better. And when you do, you're going to pick up a lot more cash. But the problem with most business owners is they don't want to do that. They want to focus on talking to customers, working with customers and working on perfecting their products and services. So when they make that shift and when I help them make that shift, they start getting more cash because these things work hand in hand. And then the last thing is, I want you to start looking at financial statements differently. So here's the thing, something we didn't mention earlier. And I don't talk about a lot, but I happen to be a cpa. So if anybody looks at my bio, I'm a cpa. I'm not the best CPA on the planet. That's why I didn't last very long in the business. If your numbers are directionally correct, folks, I'm happy. Happy doesn't make for a very good accountant. I don't like crossing T's, I don't like dotting I's. But here's the reality, all right? Financial statements are very good at capturing absolute numbers. When you bill somebody, it captures that. When you collect, it captures that. When you spend money, it captures that. But here's what it doesn't capture. When you kept that wrong person, it doesn't capture that mistake. When you don't have a strategy, it doesn't capture that you don't have a strategy. Or when you have a bad strategy, it doesn't capture how much that's costing you. When you have salespeople that can't close deals, it doesn't capture that. When you have bad processes that you're too stubborn to fix, it doesn't capture that. So my challenge to you is you have to come up with different measures. And when you start measuring the right things and you start capturing what those leaks are costing you, you're going to see it's really big numbers and that's where your KPIs start coming in. So start capturing the deals that you didn't close. So you had leads and you didn't close them. What were those worth? And then how many of those deals should you have closed? You're going to see. I've had companies that I've gone in. I remember one company that called me and they were like, Listen, we're 10 million dol dollar company and we want to get to 20 million. I said, great. Just out of curiosity, how much was the pool of money that you could have closed last year? They did over $200 million of bids in the previous year, $200 million. And I said, how much of that did you close? And they said, about, you know, 5 million. I'm like, you don't need, you don't need to go out. You don't have to fix your marketing problem. You have to figure out out. And then I started asking him, so why didn't you close all of that business? And they said, I don't know. I said, you better figure that out before you start filling more into your funnel. And then I asked them the analogy. I Said, if your bathtub is full, do you put more water in it? And he looked at me. What kind of question is that? I said, well, that's what you're talking about doing by increasing your marketing. Right now your bathtub is full and you're just letting the water spill over the top. Let's stop it from spilling out.

So the coaches will often use the power of one worksheet. We'll also use the cash conversion cycle to find some of these things. I did a company under $10 million this last quarter, and we went through power of one worksheet with their actual data, and we found more than a million dollars of easy opportunity in cash and profit a little bit more on the ca. The profit side. But there was easy money to be had. There was small little improvements to only four of the seven variables, and there were three that they decided to focus on.

Great tool. It's great that you use that. And I highly recommend that we not only get them to commit to that, but we get them to look at whether they're making progress on what they committed to every quarter.

A staffing company that came to one of our public workshops went through the cash conversion cycle along with other people in the workshop. She had an insight. She went back. She cite that workshop produced more than $120,000 worth of value for me. She went back, implemented whatever changes she insight. She didn't share what those were, but I didn't hear the specifics. But she was very lit up about the time spent in that worksheet. So it's great to see that and just to then underscore. So first cut you're doing is cutting away at mediocrity. So getting away from the things that we're like. And the phrase that comes to mind for me as a coach is I've got bigger fish to fry. I've got bigger fires. People are like, I don't need to deal with that person over there in that department. I've got bigger things going on. But that person over there in that department that you haven't let go forever because you're just like, well, they fog a mirror. They can click and clack a little bit. And so they're getting something that's better than nothing right now. And I need to focus on this. I'm prioritizing. But in fact, that person is taking time from the whole rest of the team because they're unproductive. Their work has to be redone. They're toxic. They don't fit your culture, and they're never going to win in your environment. If you really ask yourself, you've got to let them go so that mediocrity first. Cut out the mediocrity. Not just people, but your execution and so on what you're doing, that's sloppy. The second piece is mastery. Where are you really looking to raise the game, to tighten things up, to reach for something extraordinary? And where are you just putting up with good enough? Then you talked about digging beyond the financial statement to find the pieces of cash that are not revealed by a typical financial analysis. And going into that, these things combined, you say you regularly find more than a million dollars in the first year just by going to work in this way, right?

That is correct. And I do use that power of one tool to foster that discussion.

Yeah. I've got a team that's going to start using it next week. Let's tell people what you've got. A questionnaire that is helpful to find some of these things for people to go to work on. And I want to point people to that. We'll put this in the show notes as well. But if you'll text the words leaky bucket to 646-4959-8667, we'll give you an assessment tool that will help you find some place to look at and where to go to work on. That's from your book. Your book is your business is a leaky bucket, right?

That is correct.

You can find that on Amazon. We'll put a link to that as well in the show notes. And then the company is Activate Group Inc. But we'll point people right to that. So go ahead and text Leaky Bucket to the phone number and go through the assessment process. See what you can find out. See what you can do. I want to thank you so much for being on the show. I want to tell our listeners, if you'll go to our website, scalingupbusiness.com, same name as the podcast, you'll find a growth kit with worksheets and an agenda and instructions on how to begin doing your own quarterly planning, annual planning series, as well as an introduction to the book Scaling Scaling up. So you can begin to start to get your team on the right page and doing the right things to grow successfully. Of course, we're here every week with a new podcast with another coach, a thought leader, a client or somebody with some story to tell in the world of Scaling Up. I'm so glad. Thanks for coming on the show with us today.

Thank you, Bill.

All right, see you Next time everyone.

Bye bye.

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