Cash flow statements are king with Drew Blacker (Founder, SME²) | E32

In this episode of ‪What Worked, Tyler interviews Drew Blacker, Founder of SME², a financial consulting and investment banking services firm. Drew talks about the need for businesses to understand their financials to make informed decisions. Drew shares his insights about:

• Knowing yourself in business (and sports)
• The importance of understanding a cashflow statement
• The different founder archetypes and how much they know about finance

We'd love for you to connect with us:

• Mike Wu
• Tyler Rachal
• Drew Blacker

Hire the best nearshore and offshore talent:
https://www.hireframe.com/

Transcript

Tyler Rachal
Hello, hello. Welcome back to another episode of What Worked. I'm here with an awesome guest today, Drew Blacker, founder, owner, proprietor of SME². Drew, I'll let you kind of give your own introduction, but I'm going to say in my own words, it's a fractional CFO, financial strategy services company. Rather than me just fumbling through it, If you don't mind, tell the What Worked audience who you are, what you do, and all that jazz, and how you got your start in this as well.

Drew Blacker
Yeah. Well, thanks Tyler. And it's great to be on. I appreciate you guys bringing me on. SME² has its roots really originating in a great experience I got back in Chicago. So, I worked for a small and medium sized investment bank there, which I really appreciated for a number of reasons, but one of the key facets of that was getting to really see a holistic view of the American economy. The nerd in me really enjoyed studying economics and also public policy before that experience. So getting to actually go in and work with companies from pre-revenue tech startups, all the way through decades old steel fabricators who were looking to sell, was eye-opening and made everything real for me. 

Tyler Rachal
Sure

Drew Blacker
And I think that the experience I got later on at business school doing strategy work and organizational management really fleshed out my capabilities, which really came in handy actually at United Airlines, which I did after that. So I was helping the main FP&A group and informing the C-suite on its strategy to track operations, track cash flows and track investment so that they could adjust their strategy and operate as efficiently as possible, right?

That's the professional basis for where I came from. The personal side of it is that I have an athletic background and from that I came to really love actually coaching and teaching. And I realized that I had an opportunity to really combine the two with a consulting approach to corporate finance, strategic finance, whatever people want to call it. And so SME² is really intended to be the go-to resource for companies who want to write their next chapter. It could be their first chapter, it could be their last chapter or any chapter in between, and really provide empowerment to those clients by providing custom tools and really tailored, high attention advisory to them as well to figure out those big next steps, next initiatives.

Tyler Rachal
Yeah. I want to jump into a couple of things there. Cause you said a bunch of stuff that definitely caught my attention. First, what, you know, and, and, and we talked before this obviously, but we did, I don't remember covering this. What was your sport? What did you play? And you said you like to get involved in coaching?

Drew Blacker
Yeah, so I was most competitive at squash, actually. My first job, though, back when I just turned 15, was coaching tennis. I was also a tennis player. And throughout my life, I have had, coaching gigs like on the side or fill up some time. My favorite one of which was actually being the head coach of a JV high school tennis team. 

Tyler Rachal
Killer.

Drew Blacker
Yeah, only like a year out of undergrad. So that was just a lot of fun. But yeah, it really showed me how rewarding it can feel to see people learn something new and figure out how to use it for their own benefit. And that really is what I try to weave into how I approach my clients for SME². I work with them to build the tools that they need, but I go beyond just that and just delivering it, I actually show them how to use it to, again, empower them so that ideally they don't need me like all the time. And, over time, they need me less and less. It brings that level of reward that I really like going for.

Tyler Rachal
You're the opposite of most consultants. You're actually trying to work yourself out of a job. Whereas I feel like, and I say this lovingly, my wife is a consultant at Deloitte, what's the purpose of this project other than to sell the next project, right? That kind of feels like a thing. A random thing for you, you were a tennis player. I've been around athletes my entire life. I was an ice hockey player. And it's funny, you say squash, I went to high school in the Northeast and squash is very popular.

Drew Blacker
Okay. Yeah. So we're two of the like 50 people who understand it.

Tyler Rachal
That's exactly what I was going to say. And I'm now living out in California and I truly have this question, I just don't know if they have squash here. I mean, I haven't been looking for it. I've never actually played it myself, but I remember it was a big thing. I mean, the school that I went to would send kids regularly to the top college programs. And it would always be this person, very unassumingly like, oh yeah, that person's the number one ranked squash player in the country. And, know, I'd be like, really? I, you know, just know her as Sarah.

Yeah, so that was always interesting, but here's my question for you. This is a very random one. True or false tennis players might have the worst tempers, of any sport. I was around tennis players in high school. I was around hockey players all the time and the tennis...

Drew Blacker
Yeah, I was gonna say, you're a hockey player.

Tyler Rachal
Hockey players have tempers, but the thing is it's so physical that you can actually get some retribution pretty quickly. Like you can act on your temper in a way that fits within the guidelines of the game. But I think there's this element of tennis where it's like, call it a gentleman's / ladies’ sport type thing. And I think it's too suppressed. 

Drew Blacker
You have opportunities to physically obstruct the other guy and make it a more physical game. You can definitely do that.

Tyler Rachal
And it's so contained, you're literally in a box.

Drew Blacker
Yeah. I would say that you kind of need to, and this might be a theme in our conversation, you need to know yourself to know whether letting off steam and throwing a two and a half second tantrum helps you or hurts you or takes you out of your game. And that kind of only comes from experience. But once you know what works for you, then you can make the most of it. 

Tyler Rachal
No, it makes sense. As you say this, I’m thinking about, this is not tennis per se or squash, but I'm thinking about pro golfers. And if you look at right now, Scotty Scheffler, right? Top of the world and it's very clear to me that he has that, whatever you want to call it. He's got that competitor fire, it's very clear that he's very upset, of course, naturally when he's not doing well or whatever it might be. But right at this moment, it just does feel like he mentally knows himself extremely well. He knows how to have a bad hole come roaring back versus you look at a lot of these guys that are kind of the top golfers. And I can see them and they talk about it, they go through these kind of valleys where their mentals are getting the best of them. So anyway, no, I appreciate you letting me go on that tangent.

Drew Blacker
Yeah, sure.

Tyler Rachal
It's just sometimes for my own satisfaction here on the podcast, I'm just digging into these things. Now I will say another part for me personally, and I will weave this back into what you talked about, which is really knowing yourself. I have to just ask, you mentioned your investment bank experience, being at a boutique one and getting to see this wide range of deals. And you mentioned a tech startup, pre-revenue and the steel company decades in the business. I do have to ask you, were there any businesses along the way that you really enjoyed learning more about?

Drew Blacker
I don't want to back out of giving you a real answer, but ultimately I feel like, pick whatever cliche you want, it's about the journey, not the destination, just going through and learning the wide variety of sometimes crazy things that businesses do and they do it is really impressive. Well, actually, one that comes to mind was a business in, I believe it was Hazelton, Pennsylvania. It's just a unique name of a town that I remember. This business was a used oil garbage disposal business. 

Tyler Rachal
I love it already.

Drew Blacker
Yeah, I know. The dirty job kind of businesses are often kind of the coolest because it's the last thing so many people think about while at the same time being like the most critical when you really think about it.

Tyler Rachal
Yeah, absolutely.

Drew Blacker
And, yeah, those dirty businesses are often beautiful businesses and they're profitable, they're great businesses to be in. And certainly seeing businesses like that, it really just brought me down to earth, which some folks who don't get out and see the real world and get that variety really appreciate. They think that every exciting new business is going to be just a pure tech play. Not the case at all. I mean, I love me some tech. And it's obviously really sexy and exciting. And I've worked with a number of clients in that space. But people can be creative in other spaces, auto part manufacturing or even construction, like general contractors, the kind of the classic one that a lot of folks might think about.

Tyler Rachal
Without a doubt. I'm nodding furiously. You mentioned dirty jobs, right? A fun anecdote is that I'll tell you, I looked into some of the dirtiest of jobs. And those companies? They will not sell to you for a reason. Septic cleaning companies, porta potties. I mean, obviously, you have I think it's Andy Gump is the big one. But  yeah, these things are just cash machines and those owners will not even indulge you to take a meeting. They just know they're sitting on a cash cow. So I totally agree with your notion. There's a ton of money in those businesses. 

I will now take this full circle, you mentioned different businesses that you encountered, and I imagine a lot of different business owners and managers. My assumption as a business owner myself, is they're not all making the most out of their financials or their finance strategy. What is it that you would say to most of those types that really could be doing more? Because I know that's a big part of your business.

Drew Blacker
Yeah. First, I would say you are correct. There are a lot of business owners and managers who are not making the most of their financials. And I don't necessarily blame them by any means, right? Because accounting and financial statements is a language unto itself and it can be confusing. Sometimes it almost seems like some things are confusing by design. Especially if you haven't gone through the rigorous education, that just is needed oftentimes to get a solid understanding of it. I would say that you can be great at whatever you're great at, just as we've been saying. You can be a visionary tech person, you can be a high quality service provider. But, I think people don't appreciate, it's like they don't know what they don't know when they are not able to read the language of accounting and financial statements.

Tyler Rachal
Sure.

Drew Blacker
and actually this is coming from a guy who is not a CPA. I'm not a CPA. There apparently are issues with the CPA licensing process, whatever that those, that institution is trying to figure out. 

Tyler Rachal
Ha ha, noted.

Drew Blacker
The point is that it is a language that takes effort to get to understand. And of course the selfish plug is that's what I can do for businesses. But I think some helpful context in appreciating this is that before business was something to study, which even having gotten my MBA, it's still kind of strange to me that business is something that you can study because it involves so much stuff. But before that concept really existed in higher education, what did people study if they did want to go into business, what, 20, 30 plus years ago? It was accounting, right? And it's not that accountants are incredible because of what they do, putting in journal entries, it’s really about the end product of their work, which is the financial statements themselves. And so if you can learn at least enough of the language to read an income statement, read a balance sheet and, you know, hopefully read a cashflow statement, then you're going to be able to pick up on how things are going into business. You can tell a lot. They are intended to be a clear window into the operations and financial performance of a business. That's why you have the big auditors and public companies. Everything comes down to what they release in their financial statements. Like that is what it is.

And so, especially somebody who's looking to grow their business, once they have a good understanding of the language of accounting and financial statements, just to the level that they need, it all of a sudden becomes a real tool. A real tool to see how revenues are coming in, are they actually getting paid? Actually, a quick digression. One of my favorite points to hammer whenever I've helped some friends early on learn this language is what is the only singular line item on the balance sheet that everyone should know that gets its own full statement. That's cash. It's this one little line item on the balance sheet.

Tyler Rachal
Okay. Yeah. You were very nice and not calling on me right there. I was like EBITDA? 

Drew Blacker
No, it's cash. So bringing it back, the solvency of a business, it's viability is being captured in there. But you get to see the details of how it's flowing in, how it's flowing out. Having a dynamic working tool that shows you even, what happens if we change some assumptions about our pricing or assumptions about our operations, what if we change our team in this way or that way? How does that manifest in actual performance? Am I going to be kicking off a Renaissance for this business or am I going to be digging the first three feet of its grave, right? 

Tyler Rachal
Totally, yep.

Drew Blacker
Going through that exercise of constructing a dynamic working financial model, it forces managers to do a couple things. First is obviously to think about the numbers, but when you actually slow down and have a conversation that takes 10 minutes to think through where is this expense on dues and subscriptions going? Then it's like, okay, I actually am thinking through what is really happening day to day. If I was thinking about expanding to a new location, that's a serious conversation to go through the numbers, but it forces the manager, the owner or manager to actually appreciate, oh my gosh, this is big. Is that making sense?

Tyler Rachal 
Yeah, totally, it makes complete sense. And I'll also turn it around into a plug for your business, right? I am very, very fortunate, but I'm also intentional. I pick my partners as best as I possibly can. My wife is a great partner in life. She aligns with me in all the right ways, but also brings things to the table that I definitely don't. And we joke also that she's the family CFO, right? And CEO, let's be real, wives and moms, they run the show, truly. But also my co-founder, Mike, so shout out Mike Wu, who anybody who listens to this podcast regularly already knows Mike, he's one of the other hosts of What Worked, but he's the CEO of Hireframe. And what I'll say is that it completely resonates with me what you're talking about. I am probably financially illiterate, in the sense that I have no background whatsoever in finance and accounting, I wasn't even a business major. You mentioned public policy, I was a policy major of all things, but not my forte at all. 

And what's incredible is that just about every quarter Mike and I will sit down. And he will provide this kind of analysis where he's doing a lot of what you're talking about that you do for your customers. He's doing it for me. And it's incredible, the best way I would describe it is it centers you. Now I'm a small business owner, so it's probably even a little bit different for me than say the owner of a large steel company. It's been around for decades, right? But I still think there's some similarity. So much of it is emotional. So much of it is fighting the flavor of the day of the week where you kind of have a certain feeling. There's something about your business that frustrates you. There's something about your business that's aspirational that you want to be. But there is something about when you're able to pair those feelings up with the truth -  the truth is in the numbers. And like you said, cash. That’s the type of guidance that Mike is bringing to the table in our relationship. I'll be like, Hey man, I've got this great idea for a new service, a new role that we want to target, a new go-to-market strategy, whatever it is. 

Drew Blacker
Yep, there's always temptation.

Tyler Rachal
Yeah. There's always something new, right? But then it's like, and I'm a big fan of Arrested Development. I always find myself saying there's always money in the banana stand and the version of the banana stand is, he'll oftentimes center me, provide a great counterpoint where he'd be like, let's look at our customers, right? Let's look at which ones are bringing in effectively the strongest cashflow, which ones represent, potentially a foothold in a market that we want to expand more into. It's not binary this or that, but it is based on real data. And that data is incredible. It just kind of centers me and allows us to have this great conversation about where to go strategically. 

And very little of it is in-depth financial analysis. Like I'm sure he's done some of that behind the scenes, but most of it, honestly, is about the literacy. It's kind of just explaining this is, this is what this number means. And this is why this is concerning or why this is an opportunity. We have plenty of those conversations too. It's like, Hey, we're probably not being aggressive enough in this particular area. Our spend is quite low. And he'll explain to me why. So anyway, I think that every business should have a Mike Wu and that might be SME², Drew. So yeah, just something to think about. That's my plug for you. 

I will say, sort of rounding that out, have one quick follow-up is what are the common things that you do see when you talk about, it could be opportunities that you see to make more of a business's financial strategy? What's the kind of quote unquote low hanging fruit?

Drew Blacker
Yeah. I'd say the most common one is a good problem, which is that in a pretty young company, its owner wants to grow. And growth is awesome, but only if it's good growth.

Tyler Rachal
Sure, totally.

Drew Blacker
There are qualities of growth. If I wanted to, I could grow into consulting on general contracting and construction. But I don't know anything about that. Aside from what my clients tell me, I cannot be an actual advisor on a site.

Tyler Rachal
Well, if it's okay, I'll give you a real example from Hireframe, if that works for some bad growth, right? In, our space, right, I hate this term, but Hireframe would probably be considered a premium staffing service provider in the sense that we're not bottom of the barrel. And I make that very explicitly clear. I know what bottom of the barrel is. I've been working in this space largely for call it, you know, 12, 13 years. So a long time and the reality of my business is that our number one cost is salary. You can show me any business can be like, well, this staffing provider down the street, they only charge you $5 a month to have a person or whatever it is. And my counter always to this is that the squeeze happens on the personal level. That's just for a million reasons. It's never a good solution for anyone. Even if you can find a rabbit, you can pull a rabbit out of the hat and find someone for a very cheap salary, who's willing to do a job. If they're any good at that job, then they're naturally going to find another job that pays them more as they should. 

And so anyway, the example there is that there's a million different models in my space. Hireframe is a staffing, you know, the staffing model. We bill a flat monthly rate per resource. But there's a million in one of these other kind of like, I don't want to be, be flippant and call them fly by night companies. Maybe they'll be around for a very long time, but they're internet companies. So they do kind of pop up really quickly. Funny enough, I get pitched by a lot of them because they don't actually look at what Hireframe does. But I see them and I see their business model and we could have infinite growth for Hireframe. If we were to go down this path of bottom of the barrel, if we were to say we're going to basically be the cheapest provider. But, yeah, it's not good growth because you end up basically in this predicament. You effectively have a revolving door of talent, where the churn is so high that, to me, the customer kind of loses sight of the cost savings if they feel like they're dealing with a new person every single month. So yeah, that's my quick bit about bad growth.

Drew Blacker
Yeah, there is both bad growth and I think you went through a good example there. There's also growth for its own sake. To go back to the old adage, cash is king, if you're not talking about literally building a giant international conglomerate in something, if your volume, if your top line volume is growing and the number of locations is increasing. But if at the end of the day, you're making even just the same amount of cash, your gross EBITDA is ultimately the same, then what are you really getting from it? And sometimes those kinds of expansions actually do fit into a coherent strategy, like a long-term play totally makes sense. I'm not at all saying that growth is bad, but I think a lot of folks they get something going with one location. And before they have that really down, they say, man, I can do this in two more places next year. And, sometimes, it works out, obviously. But I think that coming from my background, U Chicago, numbers dork, it's like what gives you confidence in, in taking on that expansion?

Tyler Rachal
My partner and I talk all the time about opportunity cost, right? And opportunity cost is the actual cost, right? So the example, a dumb example that I'll give is, let's say in Chicago, I've got Tyler's yummy ice cream shop, right? And I'm crushing it with my Northbrook location. And I'm eyeing up Evanston, which I know you spent some time in.

Drew Blacker
Yup.

Tyler Rachal
What my partner and I will talk about, we'll talk about, there's the cost of opening that, right? Of course, all the things, right? The rent, the machines, the labor, the recruitment costs of the people, et cetera, et cetera. But then there's also the opportunity costs, which is what, how much of my time is going to be dedicated to getting the Evanston location off the ground to a point where it's even making a little bit of profit. And then in the meantime, if you look at, cash is king, cashflow. Let's say my Northbrook location is steadily yielding, let's just say it's a really rocking ice cream store, it's doing like 300 K in cash every year, which would be amazing, right? I'm like the most popular ice cream store.

Drew Blacker
That's amazing for a highly seasonal business.

Tyler Rachal
I know Chicago of all places, listen, it's really good ice cream. Maybe we're putting protein in the ice cream or something. We're getting the gym goers. But when you think about it, right, what it does is it, is it brings up some really great questions to ponder. And the question is could I add another 100 K in, in cashflow to my Northbrook location by looking at some other opportunities? So maybe it's like I can push catering, I can push wholesale or whatever it might be. You start to ask these questions around opportunity.

Drew Blacker
I think really like going through the work of actually getting the numbers down into a model, in itself is a valuable exercise to evaluate whether you're really going to be along for this ride, if you're really committed. And that's even before seeing how everything comes together in actual financial performance. Is any of this effort hitting my bottom line in a positive way?

Tyler Rachal
Totally. My partner always comes back to these things where he says, here's what would be an ideal outcome. And then we just always ask ourselves the question, is the juice worth the squeeze? And I think it's always interesting. I go back to that there's always money in the banana stand. The banana stand looks a lot better when you look at it you're like, man, I'm going to pretty much dedicate my entire year to this with the potential upside of X amount of dollars in additional cashflow. When I could just sell more ice cream out of my Northbrook location and look at other things too, look at other growth opportunities. 

This all makes a lot of sense. Are there different kind of, I don't know, call it owner business owner types, archetypes, different manager archetypes that you encounter. I guess the kind of range would be like degrees of financial literacy.

Drew Blacker
Ah, degrees of financial literacy. Well, the first upfront answer is of course. There are different personas and they come in all different levels of financial literacy. I would follow that up by saying that while there are types, I'd say the vast majority of us have different components of these various personas. Groups of them are most easily understood by breaking them down into a stage of the business, right? So you have your early stage folks, your growth stage, you have actually your steady state, which is not talked about enough, I think. And then you have your kind of crazy, everythings, folks who do everything. 

So on the early stage, you have your zero to one-ers, the people who love creating something and like getting it done and moving on. You also have your dreamers. And I'd say kind of the negative side of this is what I call the mad scientist, which is someone who is oftentimes highly competent in a field of study. And the classic example is literally a scientist, in materials research or something like that, who might even have technology down, have any brand new material or whatever it is, but they are happy to sit in their shack or lab and tinker all day. If they're able to figure out how to get funding to like keep them going, then they'll do that, but they're not productizing. They're not transitioning to cash generating operations. So if anyone's listening to this podcast, thinking, man, I have this incredible new alloy that the defense industry can pay billions for. I'd say, okay, like, that's awesome. Let's make sure that we're making forward progress to create a profitable business that people want to help you with to deliver that promise of that technology. 

I always feel like the historical podcasts or books or anything that talk about great inventors of the past. They'll say, oh yeah, they came up with this amazing technology and they were great business people. These are the ones we read about. There are tons of those folks who are not also great business people and their technology doesn't necessarily have the impact that it otherwise might have.

Tyler Rachal
I love this. I'm, I'm just resonating on many different levels. First of all, I totally agree, it's not talked about enough that there's a fine line between Steve jobs and insert person that you've never heard of. And Steve jobs for as much as people fantasize about all the stuff about him that is unique or quirky, right? It was like, didn't wear shoes, didn't shower, ate only one thing for forever. Apples? I don't know what it was, but I know he was very experimental about his diet and all that stuff. But really at the heart of it is, what was he? Yes, he definitely had a flair for invention, but the people that made the products, that really wasn't him, that was other people. But really he was a masterful marketer. He was a marketer and I wouldn't say necessarily good managers, probably not with the best description, because I think that when you're that uber-successful, I think there's a fine line, you get people around you that are like willing to tolerate you, I guess is what I'd say. Cause there's so down for the mission. He'd probably be canceled in today's times. 

Drew Blacker
Well, he's effective. Good has other connotations, but he was effective.

Tyler Rachal
He's effective. Yeah. Totally, but I totally get that archetype and full transparency, my family, we err on the side of mad scientists. We love tinkering, We love thinking about things and and you name it around the table always ideas and then it's like taking those ideas and putting them into action and then. 

What I will say is I've actually talked about it a lot on What Worked, one of the big dangers, and I'm sure this comes out in the finance side of it, but one of the biggest dangers of the mad scientists is that the echo chamber that they're in, which is really just themselves. I always call it, you become obsessed or in love with the problem. You're not in love with the actual selling of the solution. And sometimes you're solving a problem that nobody has asked you to solve. And so it's like that inability to get out of the lab and actually talk to people. But anyway, you just struck a chord. So I wanted to rant there for a second. I'm not sure if it actually fits the question, but yeah.

Drew Blacker
Yeah, yeah. I very much agree. I think in the growth stage, you have folks who are salesmen, right? You want salesmen, people who can just rev up operations and they love building almost parallel to that. I'd say are the empire builders, you know, people who get addicted to the early success of a business and then they start thinking, my gosh, I can do everything, you know? 

Tyler Rachal
They want to dominate. Yeah.

Drew Blacker
Yeah. And there are examples of that historically too, but I think, in the economy today and the competitive competitiveness today, you got to be a lot more careful about again, the inputs to how I think of the financial success of a business, right? Is the strategy aligning? Are the numbers there? Are you able to actually survive in the long haul? So again, bringing that the strategy side of things into the numbers is critical. And also almost downstream from the mad scientist in this stage are what I call the arts and craftsmen. They have a business, it's growing, it's doing fine, but they're, they're so caught up with putting together a new deck every month, and they know they need to grow. The business is technically at that stage, but they're kind of, what's the turn of phrase, it's like they're treading water. There's a lot of splashing, but not a lot of motion.

Tyler Rachal
Yeah. And it's almost a different version of paralysis by analysis. 

Drew Blacker
Yeah, yeah, exactly.

Tyler Rachal
I always say that it's a lot easier to create a new deck, then it actually is to just pick up the phone and make a cold call. Cold calls are scary, right? But it's like, if I make a new deck, then again, it's like you said, it's another version of the mad scientist where you're kind of in an echo chamber. You are basing a lot of what you do based off of your hunches versus just talking to customers. And it's like,, let me just tweak the product a little bit more. Let me just tweak the marketing a little bit more. And sometimes it's just like, you just need to do.

Drew Blacker
Yeah. A lot of business success in any space is ultimately just brute force, right? Like thinking at your desk doesn't get your solution out there and in generating revenue and actually growing the business, which actually for all of the talk we've gone through of like being cautious with growth, and bringing it then to the steady state manager. 

Tyler Rachal
Yeah, I was gonna ask you what's this like? 

Drew Blacker
This is one of my favorites, because nobody talks about it but it's highly relatable. I've worked with these, with these business owners, men and women who have done a great job getting through the early stages of the business growth stage. And then they're crushing a great living. Ultimately, their business that is whatever, tens of millions of dollars of volume, hasn't really grown over the last five plus years. But they're maintaining a 10-15%, EBITDA margin, hopefully. But they have a great living and they do a great job managing. They hold onto their bookings, their revenue, and they figure that out, but they're not the empire builder, right? These businesses are some of my favorites that I've seen. 

PE investors, bluntly, would especially love them because they've been on cruise control for a while. Maybe they're not as lean as they could be and maybe there are growth opportunities out there that these owners, the founders, just don't want to go after. And their valuation is maybe going to suffer a little bit because they're only at like a 10 % EBITDA margin. When somebody who has seen a lot of businesses comes along and identifies this steady state manager, I think that is one of the best opportunities they can find. Cause it's more straightforward to get the business on the valuation side or sorry, more straightforward. And there's a clear path ahead to grow the business and realize the return. And so it's great if a client of mine has been that steady state manager, doing what they do, whatever that is. I think bringing in somebody to really contextualize their business and their performance for them could be particularly valuable because I think there are opportunities out there.


Tyler Rachal
Without a doubt, you're making me think of one of the ones that got away again, would totally fit this category. They were a pastry box company supplier. So think of your stereotypical pink pastry box that you would get like some donuts in. They were just putting along, you know, steadily doing, you know, a really great cashflow, just like clockwork and there was some hair in the business, like anything else with that sort of business you have like a key accounts risk. Where they had a very large grocery chain use them. And if that account were to go away, that could be a big problem. There were some really just crystal clear opportunities for growth where, this is really pulling on my heartstrings as someone who's just a total food lover, but bad food lover at that. They were talking about expanding into pizza boxes, which I'm like pizza and donuts, two things. They were identifying those, but yeah, to your point, it's just such an interesting thing. When I think about the owner of that business, it was a story that you've probably heard all too much. It was the second generation, right? So the guy's father had started the company. Son was now running that. Son, of course, they have a great living, son was obsessed with the beverage space. He was experimenting with powdered beverages. And so he wanted his own brands and he wanted to sell and take that money and be able to focus it on this startup that he was looking at. But sometimes you have this great thing, but you're just, so used to it that you don't even realize it's like, dude, you got a business that cash flows steadily. It’s a great company and, donuts, right? Fairly recession proof. 

Drew Blacker
Yeah. And sometimes you can figure out a strategy that aligns with your core business to expand into those new areas. And sometimes even through the best due diligence and thinking, it just doesn't work out. But you don't know that it doesn't work out until you've tried it. And that's totally fine, as long as at some point you say, okay, it's not working out, you know, and cut your losses and think about where else you might want to try. But don't just keep digging and I think that's where, again, the idea of being sober about where you look for financial performance is really critical. And I think that bringing in somebody, particularly bringing in a third party, this is one of the benefits of actually not having enough cash to pay for your own full-time CFO, can come in handy. Because somebody like me can provide like a real outsider's perspective and give it to you like real straight and make sure that we don't just have blinders on, everyone is appreciating the full picture.


Tyler Rachal
Totally. Did we miss any archetypes? Any folks?

Drew Blacker
Well, I had one last one, which is those folks who can do everything. And personally, I believe that Steve Jobs was one of them. I call them the albino unicorns. All right. 

Tyler Rachal
Yeah, totally.

Drew Blacker
The typical one, give or take whatever you want on politics, but Elon Musk has gone through every stage for businesses in multiple spaces. He is one of these crazy freaks of nature or fantasy land that gets how to do like every, every stage.

Tyler Rachal
And he's an example of a guy that he meddles and it actually turns out well, versus a lot of other owners will meddle and it'll turn out very poorly. So it’s just whatever that is, he has power when it comes to just, I hear people talk about two things when it comes to many other things too, of course. But the two things that resonate with me is they talk about his awareness of whatever is the most pressing problem for the business, the most important problem. And then he will go and he will immerse himself in that problem until it's fixed. And he'll sit right next to, he doesn't care what level you are. He sits next to the person that is overseeing the exact thing that's going wrong. And he ruthlessly, you know, drives at it until he solves that problem. 

You hear about that. And then you also hear about the fact that because of his ambition, he's also able to recruit, basically people that are also, and I say this lovingly, freaks like him that are just incredibly intelligent and they literally do want to occupy Mars. So he's got that piece too, but he is a one of one. Do totally agree with you.

Drew Blacker
Yeah. I will say, I do think that there's this pseudo persona in this category that I think can realize similar capabilities to those folks who somehow just have it. And I call those the students. Like there are people out there who are just like real students of business and they love small businesses, they can get in there and they accept any challenge in a business as a one to three year thesis assignment, right. And they'll get in there and figure it out and they're highly capable, highly motivated. And especially as you get more and more experience, you can approach more of that kind of unicorn or albino unicorn status. 

I think just being aware of how somebody can capture any of these personas is valuable. And even noting that sometimes some of these personas really come down to actual character types of people. And that's why you often see that, when a company transitions from early stage, it's gone from zero to one and now they're looking to grow or maybe they have grown and now they need to really solidify their place in their industry. Oftentimes the management will switch over because it takes different, different characteristics to really optimize in those different stages.

Tyler Rachal
Yeah, that makes complete sense. I go back to the age old, everyone says what got us here won't necessarily get us there. You bring in different people. The analogy we always used in my old startup was the dirt road analogy, which I bring up all too often on What Worked. But it's this idea, you said it earlier and it resonated, you mentioned the zero to one-ers. I probably resonate most with a zero to one-er. I do know that when the time comes, and I do hope that day comes where Hireframe is edging on being more of a, call it like a bureaucratic, large kind of slow moving machine. Guess what? I can say this, and any Hireframe folks that are listening to this, I can tell you this with certainty - I will be off that train. Because this guy's not meant for a suit. I'm not good at it. So I can tell you that with certainty, but I will work like hell to get you to that point and if we get there, it'll be a good thing for everybody. 

This has been an awesome conversation, Drew. I do love to ask guests, if you’d humor me, you've given a longer pitch for your business, but if you were to shoot like a quick infomercial spot, basically take this time to speak to that mad scientist, to that steady state business that you love so much, why should they work with you? What sort of things can you do for them?

Drew Blacker
Yeah. I'd probably start off by saying that starting a business and managing a business is tough. And if you're trying to do that without really knowing your business by the numbers, it's going to be a lot harder. And you're exposed to the risk of missing on a critical piece of judgment in figuring out what next steps to take for your business. And so, through FP&A and capital markets assistance, we look to apply a collaboration with clients to get that custom financial model together so that you have an effective tool that really speaks just to your business and lets you get the most insights into how operations are going, but also what the future can look like.

Everybody knows that once you put a plan together, you know, it's going to be wrong because, you know, nothing ever goes according to plan, but having that base is critical to making sure that you actually make progress in at least in the right direction. And really having the fundamental understanding necessary to make good decisions and also, when you have that understanding, it's a lot easier to convince potential investors and your own team of what steps you're taking. And you get buy-in and you have confidence, not just in the path that you need to take, but also as you're actually going, SME² aims to be really the go-to resource for anything financial that businesses are going through as they really take on their next big initiatives.

Tyler Rachal
Awesome. I will summarize that very succinctly by saying Drew will help you know your numbers so you can make better decisions and you too can be financially literate. I'm pointing to myself actually right now. My thing exactly. Man in the mirror here. Drew, this was awesome. I will say that really your background, I talked to a lot of fractional CFOs, is just really impressive. Your breadth of experience is really wide ranging. And so I think you could help truly any business. So hopefully there's someone out there who's listening. If you are listening to this and you do want to get in touch with Drew,  I will ask you, what's your preferred channel? Do you want to shout out your email? Do you prefer they hit you up on LinkedIn? What's your preference?


Drew Blacker
Yeah, I would say go ahead and message me directly. It's dblacker, just like my name dblacker at smesqd.com. So my website, you can also check out it's at www.smesqd.com. And there's also, if you don't feel like emailing me, there's a message tool in there.

Tyler Rachal 
A contact form. Yep.

Drew Blacker
Yeah. But, happy to talk with anyone to, you know, see if we can help out.

Tyler Rachal
Totally. We'll link Drew's website in the episode description. So anybody who is listening, he'll be very easy to find. And I can attest he's super responsive. So hit them up and, again, Drew, this was an awesome episode. I really did enjoy the conversation. 

Drew Blacker
Likewise.

Tyler Rachal
Very excited to see what comes of SME² and for the rest of you What Worked folks listening, we'll catch you on the next one. Thank you so much. And if you do know of someone really great that you think would be an awesome guest on what worked, this goes to you too, as well Drew, please do let us know. Some of our best guests have all come from referrals. So please hit us up. All right, everyone. Thank you so much, Thank you, Drew.

Drew Blacker
Of course. Yeah.

Thank you.