Street Lessons from Being "In the Arena"

Often, companies are not sure how to get in the digital arena and need guidance about starting points; functional leaders might not know enough about current IT and technology leaders might not know enough about how the business makes money. 

 

In our work over the past eighteen years with more than 1,300 companies, we’ve applied the notion of implementable initiatives that middle market leaders can get their heads around. Here are four areas in which you can use digital to make substantial gains in sales and efficiency—and do so quickly.

 

Scaling Your Business

ESTABLISH A TWO-PERSON TECH ADVISORY COMMITTEE THAT REPORTS TO THE CEO

Technology solutions are now within reach of middle market companies: implementation risks and price points are rapidly declining, and investment returns are quickly increasing. Many middle market companies do not have executives fully aware of today’s technology stack, let alone a vision of what will be accessible within the next several years. Establishing a two-person technology steering committee ensures excellence in decision making, prioritization, investment returns and risk mitigation. Why two people? Two people with different perspectives can provide adequate debate and alternatives for CEOs to learn from and ultimately decide.  

 

GET INTO THE CLOUD

If you are generally pleased with your ERP system, but the system is server-based, upgrade your current system to the cloud version. If you find that your systems are a liability to business operations, strongly consider running a process to select a new, cloud-based ERP system. Getting into the cloud provides your company with regular upgrades and connectivity to other tangential applications that can add value to your company and its customers.

One warning with this initiative—ensure that your executive leadership team is fully on board—systems conversions are complex, and if done correctly, can enable the creation of tremendous value. Conversely, we all are aware of firms that have endured painful system installations, and the root cause is usually poor systems wisdom and leadership. 

CONVERT YOUR BIG DATA TO BIG INFORMATION

Many middle market CEO’s tell us they have volumes of data but lack timely, actionable information for their operators. The key areas are product and customer level margins, sales mix changes/dynamics, cost accounting, and discounts and allowances on pricing. Once this information comes to light, sales growth, margin enhancement, and informed challenges to long-held business assumptions become drivers for EBITDA growth.

Having someone on your finance team (internal employee or outsourced consulting) at the controller or FP&A level that is well versed in data science and analysis is now table stakes for business success in the medium term.

Increase Sales

NAME A NATIONAL SALES LEADER

Customers across most industries are changing the manner and extent to which they engage with their vendors and partners and the omnichannel concept that has been consumer companies’ reality for nearly a decade, is now making its way across most industries. Middle market companies need a leader who understands their industries and the workings of direct to consumer/business approaches. Furthermore, the digital sales leader will provide you and your team with wisdom related to optimizing results working with digital marketplaces and supermarkets such as Amazon.

ENHANCE CUSTOMER ORDERING EXPERIENCE WITH ROBOTIC PROCESS AUTOMATION

Friction or delay in the customer inquiry and ordering process are revenue killers in 2020. Firms that pursue frictionless customer communication strategies will see themselves regularly increasing market share over the next five-plus years. The use of “digital robots” via Robotic Process Automation (RPA) and a growing rank of artificial intelligence agents are becoming possible with price points and execution risk consistent with the needs of the middle market. Look into it.

DEVELOP A RECURRING REVENUE OFFERING

Over the last several years, firms such as Microsoft have amended software businesses to a subscription model and the value in this model becomes more profound following a global pandemic. Subscriptions based models benefit the customer in the form of regular updates to their cloud-based software and avoidance of higher up-front costs and also helps Microsoft in the way of revenue cadence and, over time, higher revenues.

Furthermore, these recurring revenue models make it more likely that additional customer needs will be first posed to Microsoft. Successful businesses in 2025 will have a meaningful percentage of their revenue based on a subscription/recurring nature. Get started now so that you have a solid argument with buyers of your business that there exists a recurring revenue platform at your firm. 

Managing Organizational Risks

RESPECTING THE CUSTOMERS’ PRIVACY RIGHTS—A NEW MANDATE FOR 2020

The 2018 passing of the California Consumer Protection Act (CCPA) has been seen as a landmark consumer standard for privacy protection in the United States, and many States are replicating the language in newly formed privacy laws

In addition to protecting consumers from misuse, this legislation is far-reaching:  from providing for a comprehensive ‘opt-out’ feature, ensuring visibility as to the use of personal information, and steep legal recourse for violations. Reputational and financial risks are high.

CONTINUOUS INFORMATION SECURITY STEWARDSHIP

The stories of companies large and small being infiltrated with malicious software and hackers have become a frequent boardroom dialog. The more experienced companies share the same sage advice: at the executive level (not just IT), make necessary precautions and investments for cyber-attacks, educate your workforce regularly on the perils and requirements to protect customer and employee information, and regularly deploy information security testing.   

Manage Costs

STREAMLINE INEFFICIENT BACK-OFFICE PROCESSES

Previously we commented on Robotic Process Automation to help with order entry and on-line customer experience. The back office also provides fertile territory for RPA use cases that would have six-month pay backs. From order to cash to procure to pay in finance and employee on-boarding and benefits in HR, the use of RPA will return hours, if not days, to your organization. 

ACTIVATE BROAD PROCUREMENT INITIATIVE

In selling a business and the power of the purchase multiples, every dollar shaved from the trailing twelve months of EBITDA will likely result in a five to ten dollar increase in enterprise value; if bidding out services saves $200,000, there would be $1.0M to $2.0M increase in pre-tax purchase price. We have found freight, insurance, telecom, maintenance, supplies, and professional services to be areas of opportunity. 

MAKE CAPITAL INVESTMENTS THAT ELIMINATE OPERATING EXPENSES

With purchase multiples where they are, you should also look at making capital investments that eliminate ongoing operating expenses. Furthermore, given the current tax code, there is a high likelihood that any capital investment can be wholly written off in the year of purchase, meaning a $100,000 piece of equipment after taking account of the tax benefit would result in a $60,000 cash outlay.

In closing, a shift in a CEO’s mindset around innovation, technology, and cash flow helps in today's environment and creates revenue and cost advantages to a business that are force multiplied by the power of a purchase multiple for those who are so inclined to engage in a partial or full sale. These moves can create anxiety for organizations, but to quote Roosevelt, “It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood.”

Tom Bonney is Senior Managing Director at CBIZ CMF
tbonney@cbizcmf.com
www.cbiz.com/cmf