Former Big4 Reveals Process He Uses Business Owners To Increase Valuation
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Former Big4 Reveals Process He Uses Business Owners To Increase Valuation
In this episode, let us learn how to manage excellent business transactions with our guest Vipin Sigh. He is a business intermediary working out of his corporation Murphy Business, one of the largest and most successful business brokerage firms in America. He spent 20 years as a pioneer working with global corporations in Sales, Risk Management, Finance, and Consulting teams in large organizations. In addition, Vipin helps to facilitate the sale and purchase of small and medium-sized businesses. He is a cross-functional business leader with experience in Management Consulting and People Management with teams as large as 150+ employees.
Hear his insights as he shares valuable tips on how you can scale up your business and manage it with utmost simplicity. As well as guide us through how he uses business brokerage as a tool to assist individuals in growing their business. Stay tuned until the end because he will give three critical takeaways that you would surely don’t wanna miss!
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Heath: Welcome to the Business Transformation Podcast. My name is Heath Gascoigne and I’m the host of the Business Transformation Podcast and this is the show for business transformators who are part business strategists and part business designers, part collaborators, and part negotiators who have moved past just design and includes oversight of implementation of those transformations, which means it also includes stakeholder management, coordination, and negotiation. If you work in strategy development and implementation and work to ensure that it’s aligned to the business design and technology, then you’re probably a business tranformator. This is the show where we speak to industry experts and professionals to share their stories, strategies, and insights to help you start, turn around, and grow your business transformation.
Welcome to the Business Transformation Podcast and in this episode, we’re talking to one of those industry experts. We are talking to Vipin Singh, who is a, well, we call ’em right now is helping small to medium organizations ahead of their potential sale or increasing the valuation on sale and we just had a quick conversation offline before starting. Vipin and I, we have a common organization we’ve worked for together in the past, maybe not at the same time or the same location. Vipin, as previously mentioned, consultant in financial services at PwC dealing in finance and strategy and transformation advisory, including operational model design, which is something dear to my heart as my book is around that. Reorganization business level profitability analysis, risk management and regulatory compliance and a few activities in there, mostly including operating model design, restructuring transformation, liquidity risk management assessments, especially have a CFA background, would be a strong focus here on finance. Also, I see there, treasury activity consolidation, risk assumption issues, dependencies, log management, unit testing, planning and tracking so everything has to do from about design and implementation from both the business process and looks like from the technical side. Wow. So a lot of experience there as well as more recently as director and consulting and analytics at Visa and then sitting, you also sit on the board there at Ponce Bank as advisory board member and a principal consultant at Vouch Consulting, advising small- to medium-sized businesses, including startups on strategy, finance, and risk management. And most recently, which we were just talking about briefly about Vipin’s current role in advising small region organizations increasing their evaluation ahead of sale or potentially going for sale and maybe we were talking just offline there about something that I find is a big interest about where the organization makes changes is in its processes and Vipin been talked about there some common things that need to be done in terms of increasing valuation and one of those is very, well, having organization documented. Now, I’ve worked on big projects that have had thousands of staff impacted, 50 odd locations around the country, they’ve been running the organization for 20 plus years, and they have nothing documented. So, Vipin, from your perspective, when you go into the clients in these small to medium organizations, I’d imagine, at some point in time, they’ve got some form of documentation. What sort of form of documentation you find? They well understand the level they need, it’s consistent, it’s in a good standard, there’s no standard, what happens, what do you do?
Vipin: Yes. So thank you for having me on this and most of my comments will be focused on small- and medium-sized businesses. We can definitely jump into conversations on what the big businesses do, but I guess you’ll have other guests to talk about that as well, because my past was working with very large banks and financial institutions so they have a very different structure, given all the regulators who are constantly monitoring them. But when we talk about small businesses, I would say that what I see is a lot of disparity in terms of how they are documenting their processes and procedures. Most of them I would say in the small business space, Main Street businesses, don’t have anything when it comes to process documentation. They would love to have it but they don’t. I’ve also seen some businesses which are doing millions of dollars in revenue but they don’t even have a website. So, if I was to start my documentation, I would say that most businesses should obviously be looking at and starting with sales and marketing and, you know, that’s where your revenue starts. So before you start thinking about documenting your HR processes and, you know, some of the other back office processes, you need to start looking at how you’re selling your product, what does your product mean, what does it stand for, why are you in business, what was the reason that you started your business, and having a website is a good starting point so you can put some of this information for other people to have some context. But I believe that a lot of the small businesses are essentially running out of the relationship that the owner has built over time and maybe the business is more than 30, 40 years old before internet was a big thing and, you know, the owner never got around to building their website or hiring someone to build their website, he or she doesn’t believe in having a web presence, so they never spent time on it. But I think that should be the starting point. Then beyond that, we can talk about documenting your financials well because that’s a very important part of any business valuation. That’s where typically the questions start. So, we need to have a good sense of our revenue, our expenses, our seasonality, anything we have in terms of our customer data. If there is customer concentration issues, a new buyer could get concerned about it so you need to have good information on all of these areas.
Heath: Okay, so you have an approach that you follow and that approach usually starts with understanding, first of all, the big question is, well, what form of documentation do you have for the organization, in terms of, as they say, its operating model. And what do you currently have documented? And then your starting point there is, externally, how are you achieving sales and what’s that process, sales and marketing, look like? And then you bring it in house and go, okay, now, their back office, the support their ability to make the organization to make sales is the back office where maybe HR, the financial things, receipt, money was received, goods are created and sold and shipped, et cetera. So, is there even a point before that about, you know, I think you mentioned about why they’re in business, like the vision maybe or mission. Where does that come into it, if at all?
Vipin: So I think that’s very important because we are trying to sell a business which, in essence, is an idea or someone’s idea. It started in someone’s garage or someone’s back office and you need that story, that passion to be conveyed to a buyer and that’s what we are trying to get to when we are asking about why are you in this business, so everyone can understand the numbers, everyone can figure out how the business makes money. But is there a fundamental reason for this business to exist? Or if a new technology comes around, will that business sort of disappear because that fundamental reason will get challenged? So, if someone is just monetizing a trend, which maybe will not be long lasting, that business might not have a lot of buyers, whereas if someone is doing something which is deeply rooted in the community and has certain fundamental beliefs behind it and it’s kind of transformational and has applications for a broader society, then that’s a business that really has legs and can grow a lot so that’s what we are looking for.
Heath: In terms of, let’s say, your potential clients, there are a couple of things, that the business has scale, and I think you mentioned this earlier on the call before we started was in terms of revenue, how big do they need to be and what sort of times revenue they do when you start — does it usually have like a 1X, 2X or — and after you’ve put this documentation in place and a new operating model or, you know, a new strategy to take them to the next level or next genre, what sort of times, for doing this work, if you have to sell it to a client, okay, you currently got some form of documentation, you have 1X times your revenue valuation right now and we do this piece of work, it’s gonna take us 3 to 6 months and we might, out of that, maybe generate some more revenue or maybe we don’t, we should expect an uptick of three to five times valuation. Is there a formula you use?
Vipin: So it’s not a formula-based approach, it’s more about telling people how the market typically looks at it. So we, in our business brokerage, where we look at Main Street businesses, which are the smallest businesses like a hair salon, a dry cleaner, a laundromat, a liquor store, a restaurant, and we go up to lower middle market-sized businesses, which could be $10 to $20 to $30 million in revenue or value and these could be small manufacturing, construction companies, distribution warehousing companies. So, what we are telling our customers is that there is a difference in how businesses are valued based on the size and the size is, in a lot of instances, driven by how well managed the business is. So, if it’s a single person or a single location restaurant, it’ll operate at a very different multiple as compared to a franchised location that has hundreds of stores all over the country. Because to get to that point where you are operating hundreds of stores, you need a very well tested model. So it could be a franchise, like a McDonald’s or a Burger King, or it could be other big chains like Darden Restaurants has chains like Red Lobster, et cetera, where you’ll need professional management, you’ll need documented processes, you’ll need a strong team that will have to follow all these processes, because it’s not just about documenting the processes, it’s also about implementing and following those processes and improving those processes over time. So, all of that matters. So, in terms of finance, directly answering your multiple question, when we look at very small businesses, the multiples are more like one or two times earnings, so not revenue but earnings in terms of what the owner is able to keep for himself or herself.
Heath: You mean their profit is in earnings?
Vipin: Their profit, yeah. But as these businesses start growing and they cross, say, a million dollars in profit, then those multiples are more like two or three times. Now, if we are able to take this business to a $5 million in profits, now we are going to talk about four to five to six times. So, the numbers change as your business becomes more sizable and a lot of that is because of those processes that are needed to make that business sizable.
Heath: Okay. So, when I come on to big projects, generally, you’re talking really three things, there’s a current state, there’s a future state, and then there’s a transition transformation to get from A to B. And in most cases, the current state is ad hoc processes, ad hoc done reactively, there’s no standardization to it, there is very little documentation or consistently out of date. And then the future state looks like, you know, it’s the almost the mirage on the horizon. It’s a beautiful thing but it’s almost intangible, unrealistic that they could ever get there. And in trying to sell it to the client that we need to document at least some part of it. Like I’ve been on a large government transformation, they had 53 sites around the country and they wanted to reduce them down to three and the headcount was like 1,500 down to 450 but they’re gonna reallocate those staff to different parts of the government organization and so my starting point was we need to baseline the current operating model. And the sponsor said, “Look, Heath, there’s 53 sites around the country and they do business 53 different ways,” and I said, “Great, just show me one. Just choose one, we’ll call it the best case, a benchmark.” For some, it’s gonna be aspirational but for some, it’s gonna be below par but it’s gonna be achievable for everyone and it’s gonna represent best practice. And then he says, “Well, I disagree.” But at the end, he agreed. But at the end of it, after all is said and done, after the project was finished and the delivery was asked, he said three things, “Thanks for the Target Operating Model and the roadmap but also, the third thing is you documented the undocumented business.” And I said wow. The thing that scared him, and I think it scares a lot of clients, is that when they get consultants turn up and say, “We want to document what you do today,” and then they think, “Oh, my goodness, we’re gonna spend forever documenting how things are today,” and they’re like this — want to say, look, they’ve been living the pain for 20 years. They know what the pain is. They live it every single day. And I said, “Yeah, but you talk to 10 different people and they got 10 different views of the same pain and not two views at the same so let’s just agree on one view.” Do you encounter that and how do you get around it?
Vipin: Yeah, so one of the reasons I entered business brokerage and you mentioned in the introduction that I have another consulting company, Vouch Consulting, was essentially what you just described that I sort of tested the market in my own way and spoke with a few of my friends and colleagues and few potential clients and understood that people have this hesitation when they think of consultants, they think that this is an unending project, we don’t see an outcome at the end of it, we don’t know the value that the consultant would deliver so why even bother, right? So, business brokerage to me was a more tangible value proposition for someone who’s looking to sell their business. We bring to them market insights based on our experiences so Murphy, the company that I’m showcasing here in my background, it’s a national business brokerage company, we have 100 plus offices in the US and Canada, 200 plus agents and advisors. So when I am talking on behalf of Murphy, I’m sharing experiences that I’m gathering from all these different individuals who are in the market on a regular basis, dealing with different industries, different issues, different challenges. So, the hope and belief is that the clients value that diverse perspective. They are not just hiring me for my experience but they are hiring me for the collective experiences that I bring to the table. And I think that’s resonating much better than if I was trying to go at it on my own. Some people are very successful doing it on their own and build their own brand and, you know, that’s great, but I felt that, especially when it comes to helping a business owner from a different industry, unless you have that experience, you can’t really talk intelligently about it and that’s what I wanted to do and, you know, to help all different small businesses. I wanted that team and that’s how I approached the market.
Heath: Okay, so you’ve got some good leverage there by having a broad team, a diverse team, and possibly a national wide team as well, Canada, so you got a lot of leverage that you can pull on there for other various sites. From a client’s perspective, probably a similar company like this that have gone through a similar process and you have an approach that you can show, “This is what it’s going to look like and the value I can provide.” So, if like — and I see a similar kind of struggle with clients that I go and see, when they think they’re gonna call in a consultant and I think they rate the three Es of really calling in a consultant is for the efficient, effective, and the expertise, the experience and efficiency. That’s the reason why you bring in a consultant. They’ve done it before, they have experience. The expertise, they’re good at it. And efficient, they’re gonna do it fast. They’re not gonna learn on the job and learn themselves because they’ve done it before. So, when you — like the hardest part that I see that come out of these big projects in that example, the 53 sites, the sponsor said — I said, “I have six steps in my process and number five is design. After we’ve worked out, you know, our vision, our governance, our current operating model, our benefits that we’re going to get and changes, and then five is design where we put all the changes that we’ve agreed within the scope of the project to address the pain point, this is step five design,” and he says, “Great. I want you to start at number five.” And I said, “Well, you want me to start at number five without first understanding step number 1, the focus, why we are doing this in the first place, step number 2, the controls and governance, make sure we’ve got the right people in the room taking the decisions from the right people and the scope of our design principles and the scope for the project and we’re managing our risks and assumptions and our step 3, about understanding the current operating model and pains and opportunities we wanna take advantage of. So you want me to start at five without even understanding any of that?” And he said yes. And his scariest thing was when he said there’s 53 locations around the country, there’s 53 different ways of doing it, because he thought that if we’re going to understand the current operating model, we’re gonna be there forever understanding what they do today and this — I think I’ve seen it before, even recent clients, that this process mapping part, which I feel is a major part, to understanding what the people do and their processes on a day-to-day basis. Little cottage industries are being created around process mapping. And even to the point where the business users have been told to go to a specialist two-day off-site training to learn how to use or do process mappings. I don’t think the business actually needs to do my two-day course on how to do process mapping, it’s the consultants that will do the mapping, the business just needs to understand the map, not need to be certified in the process mapping. How do you go about that part of — when you say okay, we need to document the state. I’m sure you get some — do you get some pushback from the business? You go, okay, we’ve got a quick way of doing this, there’s two ways, with a light touch, we’re doing the detail. How do you go about that?
Vipin: So, in our world, when a business owner wants us to jump to step 5 and not spend time on the first four steps, we typically have partners who are specialists in each of those areas. And, for example, if someone is just looking for legal advice, we would have a partner who has been in the legal space, is licensed to provide legal advice in that state and, you know, we can easily refer them to that individual. Because what we want to avoid is, you know, spinning our wheel, having a client struggle with the process, not being able to understand why it’s taking so long and then thinking that, you know, we are charging them for something that they don’t really need. So, you know, in the business brokerage world, we try and keep it simple. But if I put my consultant hat on, I definitely agree that if I was trying to help a client end to end and if someone says, “Start with the last step first,” and I don’t have the current assessment, I don’t understand the process, they don’t want me to do the process mapping, it’s gonna be very challenging and, you know, I would ask them to either bring to me those process maps that they think they have or, if they want me to design it, then they would need to walk me through their process so I can design it for them, right? So there are no shortcuts —
Heath: There’s no avoiding it.
Heath: There’s no avoiding it.
Vipin: I think one of the points you made about, you know, the leadership agreeing and thanking you at the end, I feel like most of the transformation projects are successful or they fail because of the leadership. So, if the main person at the top who controls the budget and has the authority to make decisions is with you, behind you, that project will be successful. There will be problems, there will be team members and, you know, out of the 53 locations, maybe 50 will fight you and not want to help you and want to do things their way, but if you have the support of the main person who owns the company or who has the budget and, you know, he’s the one who’s hired you, you can work through all of that. But if you don’t have that and if you’re constantly arguing with that individual and, you know, you’re getting into discussions which derail you all the time, that is going to be a very challenging project which I think, at the end, you might earn some fees out of it but the client might not be happy. A lot of this is referral based, you know? You want to have a happy client at the end of it. So step one should always be to figure out is the client going to be on board with your approach? Does he or she appreciate the value that you bring to the table? Is there mutual respect between the two of you where you understand that they are hiring you for a reason and that reason is very clear? It’s not, “I doubt you but I’ll bring you on. Let’s see how it goes.” Those projects are very challenging.
Heath: Yeah, yeah. I have a current client at the moment, they thought that the process of managing their capital projects, and without giving too much away, this one project process called the common project process was one process, common, and that was morphed into about a dozen and my instruction was to crush them all together, harmonize them, and then digitalize it. And I said, “Wait a minute. So this one common process was not fit for purpose so people made it fit for their own purpose and they created 12 versions of it and now you want to be crushing them together and digitalize it?” And I said, “The reason why it’s separated because it wasn’t fit for purpose but now you’re trying to make them all into one process, I don’t think that’s what you really want to do. And then you’ve told me that you’re in one market at the moment and you wanna be into multiple markets but you want to integrate it all together.” I said, “I’ll tell you what’s happening with your process, all right? Your process is doing — not — they said, “We want to optimize it.” I said, “What you’re actually doing for this capital projects process is that you’re doing two things. You’re creating or enhancing existing business capabilities. Either that’s gonna save the business and make money, or it’s gonna save the business and you’re gonna lose money. But if you do it really well, you will make money but you reuse these assets again, these business capabilities, and it will allow you to execute your projects faster, with less risk, with less duplication, and you can turn the ship whenever you want.” And they said, “That’s what we should do. That’s what we wanna do.” I said, “But that’s not what you told me. You know, you told me something completely different. And now you call the project optimization.” I said, “Optimization is making us faster. And let’s say, if you wanna be faster, we’re still gonna head straight into the rocks. I think what you’re trying to do is you’re trying to turn at the same time so it’s transformation.” They said, “Yeah, that’s what we want.” I said, “Okay, now, if we go — I recommend we make a change to the project name and get rid of this optimization because we’re not doing optimization, we’re doing transformation. And now, because we’re now a transformation, I’m gonna talk about the big elephant in the room behind us and that big elephant is the transformation projects have got a massive 70 percent failure rate and you took the key part here, as the four reasons of transmission failure. First one is lack of business user involvement. Number two is lack of senior leadership support, changing requirements and incomplete requirements.” I said, “I think we’re pretty good on this business user, we’ve got a lot of engagement, but we definitely are lacking in his leadership.” And they said, “Yeah, yeah, we are. I said, “So now we know what we’re lacking in. It’s not to say we’re lacking in it, that’s it. No. Now, who’s gonna fill the void?” If you had — perfectly, you said it — without that leadership, you’re dead in the water, right?
Vipin: Exactly. Yeah. These days, there are tools like RPA tools, right? Where if you want to optimize a process and digitize it, you can do it. But to do that, step one is to figure out is your process working well right now, because if you automate a bad process, you’ll just end up repeating the bad process several times. You don’t wanna do that so —
Heath: Rubbish in, rubbish out —
Vipin: — step one is to just — Exactly.
Heath: Yeah, so I generally find — and I’ve actually had a couple of guests on recently and they are technology guys and so their preference, I think, you know, the confirmation bias or their natural disposition would be technology. This is a hammer and every problem is technology and, therefore, this technology must solve all problems. But they would even say technology is the enabler to first understanding what was the problem and then, if technology was part of the solution, then, yes, instead of there’s a lot of — I’ve seen guys even in this current project who have a background in RPA and they are just chomping at the bits to let’s see if we can automate the hell out of this thing, and then, whoa, whoa, whoa, whoa, automate what?
Vipin: Yeah. Automate a broken process so you end up with lots of broken pieces and nothing works. And then, yeah, you’re creating a disaster, like a Frankenstein that no one wants.
Heath: Yeah. It’s almost — like I see that with risk management is, in risk management, it’s like at the start of the project, there’s a risk management meeting that runs for a couple hours and people were told they have to turn up and they turn up and they go, “Oh, here’s two hours of my life I’ll never get back but I’m gonna unload all the possible rates that I can possibly think of and just know that it’s registered in a log. I hope to hell and I’m never here, again about it.” And they think that the actual documentation or the recording of a risk in a rate, in a risk log is now managing the risk. No, that’s called recording the risk. And then no one manages it, no visibility of it throughout the whole process until one day, there’s a massive issue where that risk has now become an issue and now everyone has the down tools for, in some cases, a couple of days or a week, go in order to put this fire out now, and then everyone else is, you know, do you find that?
Vipin: Yeah, so talking about risk as I spend a bunch of time doing that with banks so it’s never about just documenting the risk. It starts with assessment of risk. It goes down deeper into identifying each and every risk, so what you just said, Yes, you need to start with logging all the risks that you can see and foresee. But then the journey just starts there. Then you have to talk about how do you remediate those risks? How do you mitigate those risks? How do you address those risks? What is the risk that you sort of leave on the table? Because you can never eliminate all the risk. Part of the reason a business owner runs a business is because he or she is almost enjoying managing a certain amount of risk. And when you manage risk, that’s when you get your returns. If you eliminate risk, then you might as well keep all your money in like a savings account and, you know, there’s no risk there, I guess, if it’s insured and all.
Heath: Yeah, no risk, no return, yeah.
Vipin: Yeah, so to get any return, you have to have risk, but you need to manage the risk. Good business owners, in my view, are good risk managers and they kind of know going into any decision what their downside is, what their upside is, and they’re constantly balancing those two, you know, for my downside of $X,000, my upside is $X,000,000, right? So, yes, this is a good decision to make and I’ll go into it. It’s not like gambling, it’s a much, much better probability of success. That’s what people are doing and, yeah, the more you can calculate — and, again, going back to our conversation on process, you get better at it when you start documenting how you decided on making a decision. You need to have that logged in some way or form, that last year, you made these five decisions in your one-year budget, these were your assumptions that you will grow these products, you will grow in these customer segments, and this is the outcome now so let’s see what worked, what didn’t work —
Vipin: — let’s then improvise the bond areas which did not work well. And if something worked well, let’s put more gas on it. Let’s automate that piece because that we know is working very well. That’s where I need to digitize it and, you know, put the rocket fuel on it. But then there are some areas where things are going out of control and I need to keep it close to me, I need to run it manually, I want to be talking to that customer because that’s a high risk, high reward customer. I cannot have an offshore location take care of that customer. I cannot automate it and have a bot take care of a certain issue because it’s a high risk issue. So that’s how you kind of create your matrix and you decide which ones are ready for automation or not.
Heath: Okay. So a couple of things there, one about past decisions or I think you talk about record keeping around decision making about the assumptions that are made informed or going into why decisions were made and, historically, looking back about what were those assumptions. I’ve been in meetings where previous board decisions were unpicked because people were either the membership of that board was agreed but the delegates who would now be part of a quorum of decision making, not of that quorum wasn’t, let’s say, agreed. So then people later on would unpick the decisions that that board made and then they go in a circle of, “Oh, my goodness, we’re getting nowhere now because people are unpicking our past decisions.” So how do you encounter that and how do you get around it?
Vipin: So, I think going back on a decision, in my view, if it’s for the right reasons, it’s probably okay. I don’t really see that as much because, especially, again, in the small business world, some of this is not very well documented so board meetings are more of a formality that people might have something to file their annual report with the state regulator but they’re not really having a board meeting. Most of the decisions are made outside the board. But I personally think that it’s good to have a discipline around having that board structure, you know, have some outside board members who are experts in their field who can challenge you and question you so you’re not just kind of sitting in an echo chamber and people are just nodding to whatever you say. So, there is value in having a board. But, yeah, if someone wants to make a change to a board decision, it should go through a formal review process, if possible. Again, people should lay it out as to why they disagree with a certain board decision. And maybe there’s value in their disagreement and if that’s the right thing to do for the business, there’s nothing wrong with changing. Now, it shouldn’t be constant and all the time and you want to have some direction that you’re following and if you’re changing your decisions constantly, that sort of reflects poorly on your board’s capabilities of making good long-term decision. But if you have invested enough time in a certain approach and it’s not working and you can show it with data and you have experts behind a change in approach, it’s worth consideration.
Heath: Okay. So you — what are your board structures that you recommend for your clients? Like on my projects that, I recommend, at the project level, we’ll take decisions up to a design authority, which is mostly made of a business design authority that you separate business and technology and business leaders will talk only about business, mostly because technology guys are so familiar and so used to these design authority meetings, if the business themselves have not got their ducks lined up and they go to a meeting with technology guys and technology guys have, in most cases of these big transformations, because money is spent on technology, they effectively have the talking stick and whatever they say, you know, is recommended or goes. So, if business goes to a meeting of technology guys and they haven’t got their ducks in line, the technology guys would just eat them alive. So I recommend business design authority separately from the technical design authority and then they collectively come together in a solution design and if they need to, from that point, take it to a project board or program board at the executive level and say, “Okay, the business have agreed on this, technology have agreed on this, we’ve collectively come together, and now we want to get this approved.” You’re also talking I think similar but also with external governance with maybe non-executive director boards that have an executive, they have more like, say, industry expertise that they are offering —
Vipin: Yeah, I think it’s common. It’s recommended. But, again, it’s more of a big, large company structure concept. Smaller companies typically don’t really have that. But then there are other groups where business owners can participate in, you know, it’s like a local Chamber of Commerce, you could have other industry associations where business owners can go and share ideas and get feedback. But a well-structured board is definitely a valuable resource to have and, you know, that’s what advisors are for, that’s what consultants can add value in. So it’s not just delivering on one project and then finishing it, it could be a longer term relationship with a board advisor who can constantly keep you updated on what’s happening in the world of business, you know, what they have seen in other companies. So, as you’re running your company, you need that input from other competitors and peer group resources as well.
Heath: I’ve seen advisory boards, they have different structures for, let’s say, structure as in remuneration, because there’s some that’ll work on pro bono, for free, and they’ll get some that will work on — some, you get advisory boards where you just, you might want to get a celebrity, a person who sits on your board who doesn’t do anything other than looks good on a presentation, or you get guys that they pick up a phone and they make connections or even a third level maybe, if there’s such a thing, that they pick up the phone and they do recruiting.
Vipin: Yeah, all of those, I think. Even large companies use that approach. There are non-executive chairman of large banks who are essentially there because they have the strong client relationships, you know? They are, you know, recruiting new clients, keeping existing client relationships going, you know? They are sort of the voice for their industry. They sit on the board. They also talk to the legislators and the government when it comes to lobbying for certain benefits or provisions in a new law or, you know, something happens in the country where do you need voice of the industry in Congress or the government wherever the decisions are made, so a lot of these rules are very important.
Heath: Okay. So this really ties in with that leadership part with transformations and change projects, without the leadership, you’re gonna struggle. This is talking — this is leadership, but this is possibly external expertise there to give that advice on the, because when I talk about transformation and the work that I do, is really with three parts, I call it the three Ls: levels, layers, and language. Layers within an organization, strategic, operation, and implementation projects and they speak a different language. Strategic, they speak, you know, market share, return on investment, you know, big conceptual issues, macro level. And then operations is dealing with like staff turnover attendance. The language is different and then the detail is different and, of course, at project level, business process mapping and notation and developers that encode, that language is another language and the level of detail is like the nth degree level of detail. So, when talking about leadership here, you’re talking with external advisory board, this is at the strategic level. What about at the operational level, what sort of leadership is there?
Vipin: So I think from an operational point of view, it’s more about people skills, it’s more about having empathy for what everyone else is bringing to the table and if you’re in a role where you’re managing people, you need to be sort of a little more clued in to what’s going on in the employees’ personal lives beyond just, you know, the day to day work, because as much as you want to separate work from personal life, they are not truly separated. If someone is having a bad day at home, it will have an impact on his or her work and vice versa. So I think when it comes to operational leadership, people need to have stronger understanding of where their team is emotionally and how to manage resources, you know? You need to have enough experience to provide good guidance. You need to have respect for everyone’s contribution to the team. If there’s something that requires your own intervention, you should be willing to roll up your sleeves and do it. You know, it’s all about the servant leadership model. It’s not about give directions and expect people to follow directions, you have to be willing to be the leader who is going to bring coffee for the team while the team is delivering results for you so, you know, you need to keep them happy.
Heath: Okay, so there’s — the summary there would be emotional intelligence for your team so you understand your team. I think, you know, not so long ago, the focus of outsourcing roles to India or low-cost locations, it was a big thing, you know? It was very trendy to outsource offshore a lot of roles. And then it wasn’t, and then they brought a lot of roles back onshore, for many different reasons, even though it was more expensive to bring the roles back onshore, I think some of the unintentional side effects of — or I’d say knock-on effects of offshoring was the customer experience wasn’t as they’d hoped. The customer support and service wasn’t to the same level. And I think what I’m seeing now with working from home is there is — there’s no spokesperson right now I can see for culture. What is, I think, like Apple would be probably famous for their culture as is Facebook, as is Google, I think offices around the worlds modeled themselves off Google, where everything’s playful because everyone would, you know, these creative zones. And now everyone’s working remote, from their home, the thing that no one’s talking about is that the culture is getting killed. What do you think?
Vipin: Yeah, so that’s a big part of what I think is going to be the challenge for the next generation of leaders, because I don’t think this work from home phenomenon is going away. It’s not just a COVID phenomenon that after this phase ends, people are going to rush back to their offices. So, whoever is going to be in a position where they have to lead people needs to get well versed with creating that culture without having everyone sit in front of you, without the ping pong tables and free snacks and food. Because culture was always much more than that. Some companies tried to bring it down to that level, where they felt that just a nice office with all the facilities is enough whereas how we treat employees, how we talk to them, how they talk to each other doesn’t matter. But I think that truly matters and that’s —
Heath: Oh, yes.
Vipin: — something that, you know, when people are working remotely, that’s what they would really want to know and understand and feel. And there is a company that I’m working with going back to my working from India days and they are trying to bring that into their ethos where they are providing offshored services but from a remote work model perspective and, you know, their philosophy is that if the employee experience is good, the customer experience has to be good. So, you know, they start with the employee experience first, they want to make sure that their culture is well respected by their employees and they are sure that that will help the customers also feel the same level of —
Heath: I think that’s —
Vipin: — service.
Heath: That is very admirable to employee experience will translate into a good customer experience.
Heath: Yeah, yeah, yeah, no, very nice. Very nice. Okay, so now as a — what would — you call yourself in the business brokerage firm, would you call business brokerage consultant or that’s the title —
Vipin: Yeah, the title is just a business broker. Sometimes we call ourselves business intermediaries or business transition specialists but, essentially, we are matching buyers and sellers. So similar to real estate brokers who would help with buying and selling real estate, we help with the buying and selling of businesses. So, I have no qualms in using the phrase “business broker.” Sometimes, it’s not considered to be as trendy so some of the people who do higher ticket deals, they would call themselves M&A advisors, obviously, you know, at a higher level, it becomes investment bankers, but I could be like an investment banker for Main Street or, you know, lower middle market companies, so doesn’t matter. It’s the same work.
Heath: Okay, so the takeaways for a particular prospective client for you, your approach of when you get engaged, one of the first things you do, to sum up what we just talked, the main parts, is that you’re a big fan of documentation, and that you need to have some performance, your organization, your operating model documented. Not just a business owner’s perspective but a consultant going into a new engagement with a client, like me and the government with the 53 sites, or even the previous clients, that you’ve gotta have your organization documented. Now, there’s a way in about you do it. You don’t want to over engineer and spend forever, creating a little cottage industry, but you need to have a baseline. So that’s the starting point. Your approach is that sales is crucial so let’s make sure that we understand the sales and marketing process first so that we know how we are winning business, getting business, servicing clients, and to bring that from external facing to internal to getting our backyard, back office sorted to make sure that those processes are, let’s say, at least documented before we start improving them. I think you talked about earlier about basically rubbish in, rubbish out, you know, process automation, what are you going to automate if the process is rubbish? There’s no point in that. The technology guys would just say go, “Let’s just automate everything anyway,” and then you just lose a lot of time and money because you’ve just automated a rubbish process. So that’s the starting point. There’s a few, and you talk — the focus, but the financial side. We didn’t talk specifically around the main report so I’d assume the profit and loss, the balance sheet cash flow. Any other particular…?
Vipin: No. In terms of — those are the main financial statements. Some business owners, they don’t even have that so we have to just rely upon their cash register, you know? Show us your sales from whatever you can on your point of sale system. But income statement, balance sheet, cash flow statement. Tax returns are important because we wanna see something that is, you know, that’s something you’re paying taxes on because, otherwise, there’s a risk that someone is inflating their revenue or inflating their earnings because they’re trying to sell at a high value. So, we want to see tax returns to confirm that it’s a reliable number.
Heath: And these would have to be audited returns, right?
Vipin: Ideally. Sometimes, they are; sometimes, they’re not, especially for smaller companies, it’s not audited so we might get something that a CPA, an auditor has prepared but sometimes that’s not the case.
Heath: Okay. When you say smaller, so we’re talking smaller as in less than a million revenue or less —
Vipin: Less than a million, yeah.
Heath: Okay. All right. And you talked about some of the fundamentals, so fundamentals being like their vision, their mission, make sure their organization’s business fundamental objective, why they’re in business for in the first place. I think that you mentioned a key risk there about if the business is really just developed from the owner’s own relationship with a particular client, that could be a risk for the organization as is a key supplier or key customer risk if that one customer leaves. So I think from a consultant’s perspective, or even a particular consultant going into a client, you’d want to first understand the current operating model and have that documented. You’re looking external, how they attract and win business. Their back office is how they are supporting those sales and marketing activities. They’re making sure that the vision and mission is very clear, like I talked about in the vision, the vision and to the strategies and so that each strategy has an objective and each of those objectives has a measure. That’s how we can measure our progress towards achieving those objectives. And also then we know when we have like a SMART concept, you know, specific, measurable, achievable, realistic target. So we have all those. You talked a lot about — in terms of documentation, it wasn’t just having these documented, it was you need to —these are documented as well as this is what the businesses are actually doing, what they are actually using for implementation. Because it’s one thing to have it documented, which is I’ve seen beautiful PowerPoint presentations, thing of art, but the business look at it and go, “That’s interesting but how does that help me?”
Vipin: Yeah. It’s not implementable. It maybe has good visual appeal but has no appeal to the employees who need to understand and implement it. So, yeah, the value of PowerPoint presentations sometimes is limited when it comes to actual implementation. That’s where you need to get into more details and, yeah, where documents, things like that work better.
Heath: So it’s — I think there’s a million tools out there and I think the key is to use the right tool for the audience, as opposed to, as I’ve been on previous projects where they sent the business off to learn Business Process Modeling Notation, BPMN, and they forced the business to use Business Process Modeling Notation on any process maps that were created. How’s that — and I even see it. It’s not very good. It’s like a normal presentation. Understanding your audience and then using whatever tool or language is appropriate for that audience.
Heath: Yeah, and you talked about leadership, which is a big thing, and there’s two types of leadership there. There was — or three types maybe: the strategic leadership, to make sure that you’ve got the support on your projects, there’s operational leadership and you talked about — I summarized that and emotional intelligence, understanding your team. And you talked about making sure that employee experience is good because that will translate into good customer experience, which I’m a big fan of. I think that’s logical. Some people might not understand that thing, might be a leap of faith. And you also talked about external leadership, using external parties, maybe the non-executive directors or external boards that offer their external perspective at the strategic level.
Heath: Okay, and the last one was about the ethos, that you were saying this is a new trend, this was about the employee experience translating into customer experience, making sure the employees are happy first. Employees are happy, customers will be happy.
Vipin: That’s right, yeah, and I’m probably borrowing from Sir Richard Branson. I think that’s his key message. Every time he talks about this, he’s always keeping that front and center.
Heath: Mr. Branson. There is a quote of his that I quite like using all the time about simplicity in complexity, about any idiot can make something complicated, the genius is in simplicity. Words that effect, making it simple.
Vipin: Yeah. Even Albert Einstein, I think, had said something similar. Given how smart he was, he believed in simplicity. If you can’t explain something in a few words, you haven’t understood it.
Heath: Exactly. Yeah, that’s a beauty. I’m gonna quote you on that one. Okay. All right. So, Vipin, thank you very much. That was — as a final takeaway for our guests of similar transformation backgrounds and consultants and even maybe business owners that are gonna do what you’re doing here and helping them increasing their valuation, what would be the three takeaways that you’d leave for them and say, “Okay, if you’re about to go for a sale or increase your valuation, the three main things that you would do, make a step change to make this happen faster, watch out for the roadblocks, these things will always hang you up, what would they be? What are the three things for them to look out for?
Vipin: Right, so I would start with it should be a business that if you were going to buy something now, you would buy it yourself. So don’t try to hand over a hot potato to someone else hoping that people won’t figure it out and, you know, you’re done with it so you’re just too tired to run it and someone else will run it for you. It should be a business that is appealing even for you and only because you’re maybe at a point where you truly are just looking for young blood to take it over, that’s why you are looking to sell. Number two would be that financials are very important and one needs to give it time for business financials to be at a point where it’s going to pass the muster of due diligence. Buyers really dig into the numbers and you need to have good financials. You might need good accountants, CPAs to help you with that, but focus on your financials before you list. And number three would be give it some time so don’t try to sell a business in panic. It’s almost like you should be selling your business when you don’t really need to sell your business. Because if you’re in a rush, if you feel like you’ve run out of options, the buyers will sense it, you won’t really get good value for your business. So you need to give yourself time. Business should be growing, doing well, you know, should not be in a downfall, no one wants to catch a falling knife, so you need to make sure that the business is positioned for success. And then you’ll have lots of buyers, you’ll get the value you look for, you’ll be able to sell it quickly. You won’t have any of the challenges that a lot of small business owners face. But all I said, it’s easier said than done so, you know, if you need more advice, more guidance, talk to people like me, advisors like you. We position businesses for success and be willing to ask for help. There’s plenty out there.
Heath: Okay, awesome, very good. So, I will put your contact details in the show notes so people can get a hold of you to, you know, if they’re pricing their business or about to go through this process. When you say when the business is growing, do you talk about ultimately it’s a double-digit growth there should be or should these business owners should go, okay, single-digit growth is still good?
Vipin: Some of the growth is dependent on the economy, the kind of business it is, like if it’s a restaurant, if it’s a very sort of Main Street business, promising double-digit growth will be wrong on our part. It is all about what’s the demand. If it’s a technology business, which has huge demand in front of it, you know, their double-digit growth might be very easy. So, growth depends on several factors. The new owner should be willing to spend on growing the business in terms of marketing, et cetera, you know, hiring more employees. So, yes, growth can come but it can come at a cost so are you willing to leverage your business and grow it faster or do you want to stay away from leverage and grow it slowly? Some business owners don’t want leverage and, you know, they would rather just grow slowly so there’s nothing wrong with that. And, yeah, so depending on industry, depending on the economic cycle, growth results can vary a lot.
Heath: Okay, awesome. So, yeah. So no cookie cutter approach. It’s almost bespoke to each organization or each company, based on many things, including the industry they’re in. All right. Okay, Vipin, we’ll wrap it up there. Thank you very much for your time. Thank you, ladies and gentlemen. Thanks for joining. Thanks, Vipin. Enjoy the rest of your day stay there, okay. Thank you.
What is business transformation? This is a two-part answer. The first part is what is business transformation, and then when is the change the organization goes through deemed a transformation? Firstly, the definition. Business transformation is where business changes the way it does business. That is, it changes how it creates and delivers its products and services, its CVP, its customer value proposition to its customers. It doesn’t necessarily change what it does, but it changes how it does it.
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Hi, I’m Heath, the founder of HOBA TECH and host of The Business Transformation Podcast. I help Business Transformation Consultants, Business Designers and Business Architects transform their and their clients’ business and join the 30% club that succeed. Join me on this journey.