Host Bryan Pearce, Director of Strategic Business Planning at Gray, Gray & Gray, interviews John Cerulli, CEO of Acumentrics in Walpole, MA. Acumentrics has been a trusted market leader in critical power solutions used in military and commercial applications since 1994. John has over 25 years of experience in both financial and operational management in both public and private companies and is currently leading the strategic planning refresh for Acumentrics. During this interview, John discusses how he has strategically grown and expanded Acumentrics' business over the years to meet the changing power demands of their customers.
Host Bryan Pearce, Director of Strategic Business Planning at Gray, Gray & Gray, interviews John Cerulli, CEO of Acumentrics in Walpole, MA. Acumentrics has been a trusted market leader in critical power solutions used in military and commercial applications since 1994. John has over 25 years of experience in both financial and operational management in both public and private companies and is currently leading the strategic planning refresh for Acumentrics. During this interview, John discusses how he has strategically grown and expanded Acumentrics' business over the years to meet the changing power demands of their customers.
Bryan Pearce 0:12
Hello and welcome to Strategic Thinking, a podcast series produced by Gray, Gray & Gray featuring CEOs, founders and other senior business leaders discussing what's happening in their industry, and how they are strategically guiding their companies for growth. I am Bryan Pearce, Director of Strategic Business Planning for Gray, Gray & Gray and your host for this series. I'm excited to share with you these conversations with innovative business leaders in New England and beyond and I am confident that our listeners will gain many insights that they will find valuable for more rapidly growing their businesses regardless of their industry. My guest today is John Cerulli, CEO of Acumentrics in Walpole, Mass. John has over 25 years of experience in both financial and operational management in both public and private companies, and is currently leading the strategic planning refresh for Acumentrics. Prior to becoming CEO, John also served for 11 years as Chief Financial Officer of Acumentrics. John received his BS in Accounting from Bentley University in 1993, and has served on the Board of Directors for several not for profit and charitable organizations. While consumers, business and military all rely increasingly on dependable, portable power for our tools and devices, many elements have to come together to provide the stable primary and backup power necessary for the applications that users depend upon and this is a multi billion dollar global market with double digit growth forecast for most segments over the foreseeable future. So John, thanks for joining me today. It seems like the power business is a very exciting place to operate.
John Cerulli 1:56
Thank you, Bryan. It's a pleasure to participate in this series. Gray, Gray & Gray has been a very strong, loyal, trusted partner of Acumentrics, dating back to 2004. So I thank you and your colleagues for everything that you guys have done for us over the past 17 years working together.
Bryan Pearce 2:18
Well, thank you, John, and we look forward to your insights today. So maybe a good place to start is - Acumentrics has been a trusted market leader in what I would call critical power solutions used in military and commercial applications since 1994. How have you strategically grown and expanded the product range of the company over the years to meet the changing power demands of all of your customers?
John Cerulli 2:44
We changed our selling strategy approximately five or six years ago, where we recognized that our customers, primarily the United States Defense Department and various other government agencies, was lacking the power expertise to solve the power problems of these very large integrated systems that they were fielding. So what we did as a result is we shifted from basically selling a commodity or a standard 2500 watt or 1000 watt system to what we call total selling solutions. We would engage the customer early on in the process so that we were part of the designing of the power solution. When we talk about power solutions, it's a combination of not only our uninterruptible power supplies that are ruggedized for very harsh, challenging environments, such as the military faces on a daily basis. But it includes power distribution units, it includes cables, it includes transit cases. It includes everything else that you would consider to be an all in power solution so that when the customer is getting this product, all they have to do is basically turn on the switch and everything is there for them. I often compare our business to the photocopy paper or the printer paper that goes into a printer. Nobody buys the paper before they buy the printer. But in the military or the Defense Department, they're looking at these very large integrated systems and very often, those systems won't run without power. But power is never a leading indicator of the sale. So as a result, we're constantly having to kind of adapt our product line along the lines of what can we morph from our existing product portfolio, what can we blend with it to deliver a total solution so that system at the end of the day - remember, the printer doesn't work without the paper. So the system at the end of the day has everything it needs so that as soon as the applicant needs that system to work to save their lives, in many cases, the power turns on. And that's what we started to do about five or six years ago and candidly, it provided for us an enormous amount of stickiness with our customers. Stickiness is a tremendous thing in any business. It provided certain barriers of entry to fend off competitive threats. It actually allowed us to maybe increase your average sell price, increase your gross margin slightly, by creating that total solution for your customers. And it really helped turn around our business. When I say turn around, I should say, catapulted our business to where over the past five years, we've enjoyed rather high double digit growth on an annual basis. So it's beared a significant amount of fruit for us.
Bryan Pearce 5:45
John, that's great and well done to you and your team. One of the things that you mentioned as part of the sale of the strategy is really engaging with your customers and understanding their needs and requirements - single most important thing for you?
John Cerulli 6:04
We have a variety of sayings at Acumentrics, and one of the things that I try and preach the most, is relationships. Relationships matter to me, as I said, at the beginning of this phone call, we've had a relationship with Gray, Gray & Gray for 17 years. That means something. That means that if I have a question that I need answered, Gray, Gray & Gray is there for us. It also translates to Gray, Gray & Gray trusts what Acumentrics is doing. So take that same relationship to our customer base. If we can establish relationships with our customers, such that they're confident that we're going to deliver them the right solution, we're confident in what they're telling us, it helps shape our technology roadmap, it helps shape our forecasting ability for our planning of production against supply chain. It matters. To be in business for one offs, is a very challenging, non rewarding effort. I'll walk away from one off business because I'm more interested in developing that trusted relationship.
Bryan Pearce 7:13
Well said. Well, you mentioned supply chain, which I'm sure has been a challenging part of your life over the last year and a half or so. As we all know, the supply chain for many electronic and battery components has been significantly impacted by shortages due in large part, I guess, to the COVID pandemic, perhaps other causes as well. And I wonder, what advice you would have for other companies that are seeking to make their supply chain more resilient, and some of the ways perhaps, that you've managed or are managing through this current challenge?
John Cerulli 7:47
I'll tell you, I think supply chain went from being just another ordinary business category to perhaps one of the primary strategic business challenges any business faces today. It's been wild over the past 16 to 17 months. In every business, in every environment, in every industry started with the beginning of the pandemic, as far as people being fearful of toilet paper shortages. And look at what happened. But rip that forward, now 18 months, factories have had to shut down because of COVID risk. There's been disruptions all along the supply chain, which has forced businesses to basically rip up the old supply chain theories of just in time inventory or maintaining a 90 day availability in the supply chain pipe to really push inventory turns and things that we've all grown up on in business, you know what I mean? It's completely upside down today. So Acumentrics, was forced in 2020, to take a defensive position, and basically bring on site, upwards of 90 to 120 days worth of inventory at any one point in time. So our inventory is bloated, probably, I don't want to brag, I'm not bragging about this in any way. But I'd say our inventory is probably 50% higher than it needs to be today as a defensive position because I cannot afford to have disruption to my production schedules because my customers, ie the government and the United States military, is waiting for orders that I'll be penalised if I'm not able to deliver on time. So I cannot afford disruption in my supply chain, but it comes with consequences. So increased inventory equals significant cash burn. So you're taxing your financial reserves, you're taxing your facilities because you need more space to store more inventory. How you're handling that material, dealing with your lovely auditors such that you're not going to necessarily have to take slow moving inventory reserves and be faced with all those things. It's an incredible task that needs to be managed literally almost on a daily basis by our operations team. Fortunately for Acumentrics, we have an incredible team that is literally laser beam focused because it has ripple effects throughout the entire organization. As I said, obviously, it contributes to margins, obviously, it contributes to cash utilization. It's critical. And it's something that we talk about on a daily basis. Now push that forward two, three, five years. Anytime you start talking about strategic planning, you can plan to grow at double digit growth, you can plan to grow into new areas, into new product. But if you don't have that supply chain figured out well in advance, to be able to meet that growing demand, you might as well stop now. So that's why I say I think the supply chain has become an element in every strategic discussion.
Bryan Pearce 11:10
So John, you talked about engaging customers. I assume that a lot of those same principles have applied as you've dealt with your supply chain, your suppliers, and I guess communications must be incredibly important to try and get your fair share of the product that is being produced by the suppliers and let them know what you need going forward.
John Cerulli 11:32
100%. That relationship speech that I gave earlier, translates to every single stakeholder in the organization, which means customer facing, which means employees internally. It means your professionals associated with the organization. And of course, your vendor base. I'm only as good as my vendor base is. So if my vendors have disruption, ie translates to disruption or complications for us, and you can't afford that. So you need to be out in front of everything. And the word you brought up communication is vital.
Because you need to constantly be communicating with your vendors, because you have to hope that they're telling you the truth. And I will tell you, in today's world, I think even the information you tend to get from trusted resources in your vendor community is suspect and it's not done maliciously, it's not done because they want to lie to you. Sometimes they don't know, they don't know what's on that container that's coming in, they don't know what's showing up on their dock, because I go back to the recent lumber shortages - the skyrocketing lumber prices that we've all seen during the springtime of 2021. That's not as a result of, you know, I'll say Home Depot or the lumberyards having a problem. That's because the logging industry was shut down for a period of time. So it's not necessarily the person directly behind you, that's creating the problem. It could be three or four layers deep in that supply chain that is actually the disruptive part. And that's why the communication is vital.
Bryan Pearce 13:19
John, what is your prediction in terms of when a lot of these snafus in the supply chain will work themselves through and we'll return to some semblance of normal, you know, in the major commodities and so on that are important in many companies supplies?
John Cerulli 13:38
My honest opinion is the end of the year. I keep saying we need to ride this out to the end of 2021 and in 2022 things should rebound. I say that, but we sometimes like to lapse into the excuse mode. So right now there's a convenient excuse known as COVID as to why a lot of businesses are struggling to operate or can't operate. And obviously, it's been an incredibly traumatic event to our world. And obviously everybody has been impacted in one way or another. And you can't hide from that. But at some point in time, you have to re emerge from that. And I'm hopeful that we're doing the right things as a society, as a world to reemerge from that successfully. And so I think it will take time, a lot of these things will take time to balance back out. But it's a new world in regards to how things are being manufactured. Again, from a supply chain perspective, I mean, look at what the Governor of Massachusetts said yesterday regarding the shifts that the state of Massachusetts is making for the new impending remote workforce that they see for the next decade plus. When Acumentrics officially moved to a remote work environment in March 18 of 2020, we thought it was going to last two or three weeks. And here we are talking about being remote for the next decade. Because we've learned to adapt well. Businesses being able to adapt from a remote working environment, or changing how they've done business for years and decades, has ripple effects in supply chain. So, you know, you're not going to need certain things for these large 100,000 square foot, million square foot offices. That changes the supply chain. So you could see how, here's another example - I think it was ketchup, there was a tremendous shortage of individual packets of ketchup, because for so long ketchup was being packaged in large industrial size containers for the restaurant industry. Well, when nobody's going into the restaurants and everybody's doing takeout, that doesn't help you. So there was a dynamic shift in all of the packaging for ketchup in the country, where they had to now shift to the small one ounce packets. That doesn't happen overnight. And then to turn it back on, so that the restaurant industry can get back up to speed with what they need, takes time. And so that's why I say, I'm hopeful that it transitions back to whatever the new normal is by the beginning of 2022. But I still think we're trying to figure out a lot of stuff.
Bryan Pearce 16:25
Yeah, no question about it. But appreciate your perspective on that. John, next question, I wanted to go back a little bit on customers and products. And obviously, a big part of your business historically has been the US Department of Defense and military customers and so on. I wonder how you think about that in an environment where perhaps defense spending gets pared back a little bit, or at least gets put on hold for a period of time in some areas? And how do you think about diversifying the products and services that you're selling, potentially, to more commercial customers?
John Cerulli 17:08
That's one of the biggest questions Acumentrics has faced for the past five years, and is likely to be the biggest question that Acumentrics faces for the next five years. We have long wanted to diversify our revenue to include at least some part of non defense revenue. And what we've learned is that, especially in this new changing world, identifying what I like to call the new new is risky and it's scary, and sometimes very, very, very challenging.
Not that it's something that we don't want to do. But I think you have to tread carefully, especially in today's world. Putting out large investments to identify potentially new product, new markets, new customers, is far more risky in today's world and environment, as opposed to leaning on what we've done and what organizations have done successfully and well, for many, many years. As it relates to the specific core marketplace that we're in with the military, while yes, I could see disruption to overall aggregate military spending, you opened up the podcast today with a talk about the expanding size of the marketplace for remote power, primary power, backup power, power conditioning. It's incredible today how much more power is needed with everything that we do. How often do you say on a daily basis, I need to charge my blank? Imagine that rippled across the world with every individual, and every system is constantly looking for power. And as a result of that, we're seeing actually far more opportunity in our core sector than we ever envisioned. So yes, Acumentrics, with the help of one of our core board members, has been doing some significant strategic planning over the past five months for the next three to five years. And we're learning that there's a lot more room to grow in our core. And being in the core is probably a safer, more reliable return on investment for us right now than trying to branch off into the unknown and new markets with new product. Not that we won't do it at some point in time, but in today's world, we see ourselves investing heavily back into the core marketplace, because we think we can find equally enough growth there as we've had over the past five years, for the next three to five years.
Bryan Pearce 19:41
It's interesting and I guess that's really where the benefit of these close relationships with your core customers come from and helping to co develop with them what the future might look like. I guess, if you're a soldier carrying a heavy pack around the field somewhere you can only carry so much weight in that pack. And so I suppose a big part of it is just how do we take the power feeds that we have and continue to find ways to make them miniaturize lighter, or whatever phrase you want to put on it?
John Cerulli 20:15
So I want to take a couple of steps back in that statement in regards to the relationships that we talked about earlier, the very thing that's carried Acumentrics since Q3 of 2020 through to today. We've been able to rely on the relationships that we've established for the past half decade, and pull in business, assign new business, to help support our business and continue our growth. As I said, identifying the new new is a very difficult thing in this COVID world. You and I can both work remotely, I'm sure there's a lot of other of our colleagues working remotely, but you can't necessarily test a weapon system in your backyard. Your neighbors frown upon it. And a lot of other people just say, no, you can't do that. So access to military bases, access to your partners is critical to developing the new business opportunities that will carry you into 22, 23 and 24. That's what's just now starting to reopen for Acumentrics, because it's been shut down for the past 12 months. Civilian access to bases has been shut down. Civilian access to certain testing sites for the government has been shut down. So again, developing the new new even in our core, has been a challenge for us. Your other statement in regards to the perpetual need to get smaller and lighter. That's been at the core of Acumentrics' technology roadmap for the past decade. It started with our very first product that measures basically for you, which translates to about a seven inch high, 2500 watt system that weighs about 150 pounds. We're now down to literally the size of a hardcover book, 100 watt, two pound unit. And we've gone all the way down from 4u, 3u, 2u, 1u and now what we call our pack power to serve that exact need that you just talked about as far as remote, individual used, carried type power. And we call them a small form factor UPS because it's not just the battery. You can charge and discharge at the same time, it's got smart USB ports, so it allows you to do a lot more with one. Like I said, I think it's about six inches by nine inches by about two inches thick, two pound, 100 watt unit. And it's a pretty interesting product that we've introduced to our product portfolio, seeing traction in both our core marketplace and our non core opportunities that we've seen. But yes, that constant drive to get smaller and lighter, eventually soldier worn is what they want to get to at some point in time, is incredibly important.
Bryan Pearce 23:15
It's fascinating how you've been able to shrink the size of those things over a period of what a decade or so?
John Cerulli 23:22
We introduced the for you product back in 1996 and to tell you the truth, we expected that product, for the most part to go not end of life but to be less than 10% of our revenue stream literally five years ago. And today, it's still in the 30 to 35% range. So despite the quest of getting smaller and getting lighter, that core product, which we refer to as our B2K is still a juggernaut. And it's still widely used throughout the world.
Bryan Pearce 23:55
Fantastic. John, that takes me to my next question, which is something that we've talked about in the past here, which is the importance of innovation and the distinction between invention and creating something brand new, the new new perhaps as you describe it. And innovation and continuous innovation, which is much like you've been describing here with UPS, where continuing to just make it better and better and better and lighter and all of those things. And I wonder what your perspective is on both invention and innovation? And then also particularly how do you create this culture of continuous innovation in an organization?
John Cerulli 24:37
So you could probably have an hour long show just on this question alone of innovation versus invention. And to me I like to think of it as invention is the quest of trying to discover something new. You know, I gotta go find a new mineral on Mars to do this x better. And that's a challenge. That's a challenge for everybody today and if you look at and again, we're not necessarily a battery business, but if you look at the dollars and the resources being poured into battery technology, from the old fashioned lead acid batteries to lithium batteries to LFP batteries, to now, in the next evolution is solid state batteries to what Tesla is doing. Billions and billions and billions of dollars of research are being poured into what's the next great battery? That's invention. To me innovation comes with basically starting to ask the very basic question of "Can I do this better?". Is there a better way to do what I'm doing today? And if there is, that, potentially, is innovation. As I said in the beginning of our podcast, when you talked about, where's our growth come from over the past five years, when we introduced that selling strategy of total selling solution to Acumentrics, and candidly to our marketplace, that was innovative. It was an innovative approach as to how we sell to our customers and how our customers receive and see Acumentrics. That was a game changer for us. And it's that type of basic question of, if you can answer, "can I do this better?", that's innovation. And that's why at Acumentrics, what we constantly try and challenge ourselves with. And I asked people who join Acumentrics in regards to, I want you to be a change agent for us, because a fresh set of eyes is good in every single case. And if there's a better way, for us to do something, please introduce it to us, because that's the thinking that we want to foster at Acumentrics is that, although we've been successful with what we've done for the first 26 years of our business life, there's always an opportunity to grow, there's always room to improve. There's always a pursuit that we should chase to be better as individuals and as professionals and as of course, an enterprise and operation.
Bryan Pearce 27:04
So it really comes right back even to your recruiting process?
John Cerulli 27:08
Absolutely it does. I try when I interview people, and I don't interview everybody in the organization, but I ask the question on the surface, because I don't necessarily want to have people join Acumentrics that are afraid to ask a question because that can be disruptive.
Bryan Pearce 27:31
Excellent. John, the final thought that we might explore here is, as you think about your strategic planning process at Acumentrics, there's always this tension between revenue growth and maintaining profitability and profit growth. Every expense dollar that you invest, to try and create new products and services, may help out on revenue in the short term, but obviously, it takes a while for profitability to follow. And I just wonder how you approach that and how you strike the balance?
John Cerulli 28:02
Well, I'll let you know if my thinking is correct after my board meeting next week, where I'm going to ask my board if I can spend some of my anticipated profit this year. It's a constant battle. Not battle - it's a constant challenge in regards to you have to spend money in order to make money. We have to make investments in our organization. One of the things with our strategic plan Acumentrics is looking at is that if we anticipate significant growth on our core market, I need to invest dollars today in 2021 to start to harvest that. And one of the challenges in Acumentrics' core marketplace in which many of your other business may see as well is the sales cycle can be 12 to 24 plus months long. So I need to, as I often say, if my sales team is working today, June 14, or July 14, of 2021, those revenue dollars that they're working to earn today are for 2022 and 2023. You have to see that growth. So for us, I've got an incredibly supportive board, an incredibly supportive shareholder group that has been with us for a very long time, that understands the fact that we need to spend some of our profit today in return of getting the growth that we anticipate. And they also trust our management team and myself, obviously, to get back to the right profitability margins that a company like Acumentrics should be at. So I think from my perspective, what you're going to see with Acumentrics is probably some level of compressed profitability over the next 24 months, while we invest into the growth strategy for the next 60 months. And then a significant upturn in both revenue and profitability within the next three to five years. Now fortunately for Acumentrics is we've been profitable for a very long time. We have a very strong base to our business. So one feeds the other. We've been fortunate.
Bryan Pearce 30:17
Yeah, I think that's really great. I was actually talking with some people earlier today about, you know, the company lifecycle that we're all familiar with. And, you know, as you enter more mature markets or your company achieves maturity, what do you need to do to continue that uptick in the growth of the business and avoid decline, and it sounds like you're doing a great job of that with continually investing, hiring people that are innovative, continuing to create a culture of innovation, and certainly really working hard to understand the needs of your customers and your suppliers. As they all have to come together, the people, the suppliers, and of course, your customers. So, John, really appreciate your insights today. Any final comments before we sign off?
John Cerulli 31:07
No. And again, I just want to go back to the relationship, again, that we have with Gray, Gray & Gray and the partnership that we have, that if I can only use that as the perfect example as to how to run a successful business and survive during times like we've had over the last 18 months. You need to rely on the people that are around you. And it helps a lot to build those relationships and that trust. And it's a fun business to be in, when you can call upon friends and those trusted relationships to celebrate the wins.
Bryan Pearce 31:45
Well, John, thank you and thank you for all that you and your team at Acumentrics are doing to keep our military and our first responders safe and able to care for all of us. Take care now and thank you for your time today.