In this episode, we discuss the other parts of the presentation as it relates to the company overview getting into other aspects of the presentation for the trustee and the valuation firm. The value of having a solid presentation, regarding how the company operates, the leadership team, the business processes that are repeatable, and provide a functional mitigation towards the business. This is the one opportunity that we have to put a factual, solid understanding of the way the company operates, including how the strength of the company provide a sustainable long-term ESOP.
In this episode, we discuss the other parts of the presentation as it relates to the company overview getting into other aspects of the presentation for the trustee and the valuation firm. The value of having a solid presentation, regarding how the company operates, the leadership team, the business processes that are repeatable, and provide a functional mitigation towards the business. This is the one opportunity that we have to put a factual, solid understanding of the way the company operates, including how the strength of the company provide a sustainable long-term ESOP.
[0:11] Everybody this is the theesopguy We are continuing on a journey to an ESOP hope you're having a wonderful day let's kick it off.
[0:19] Nutrition Thanksgiving child number 150 Pierre groan speaking.
[0:30] Music.
[0:40] You feel I've made a mistake I apologize to my community number 52 please step forward.
[0:52] Jonas has not been assigned a position Jonas has been selected we were not Hasty this time we could not afford another failure.
[1:02] Jonas possesses all four attributes intelligence Integrity courage and what I can name but I cannot describe the capacity to see beyond.
But I must warn you your training involves pain pain far beyond anything we know are you strong enough.
[1:25] Do we think Jonah.
[1:28] Don't worry today you guys won't have to go through pain or anything like that so this of course is going to be Giver, part 2 of our last what we talked about last time on the ESOP site visit, customer or company overview and how important it is to dig into the details of all that and so what I liked about this as we set as we start out and we segue from, the continuation of the last episode which was on The Giver.
Same movie just using a different scene obviously this is where Jonas gets selected as the memory The Keeper of the memories of the.
It's quite a big honor of their community that they're living in so it's a huge honor and.
[2:17] What we're going to talk about today is really just kind of a continuation of what we were going what we were going through last time and what we, had talked about is this ESOP site visit that happens in this is where we debut the company and really get into a lot of the details related to the company on behalf of.
Or for really for the purpose of, helping the trustee and the valuation firm better understand how the company actually operates and so that there's information behind all the numbers and so we were using this idea to really help, to bring color to the situation says as I left off, the last episode with everything really changes once you do that because it really does give everybody a lot more clarity in terms of their assessment and their evaluation of the business itself.
So this is a necessary step on the ESOP process for you it's really this this episodes really there to help you.
[3:18] Continue to prepare for your own journey to an ESOP and how that's going to how this is going to work in this is a to me one of the very important parts of this of the process, so we're kind of magnifying the process through the site visit and so we've taken the very first, which was under the headline of Broody we did the football movie we went into the industry overview how important that is to set up the the the presentation correctly, then give her part 1 was really about the understanding the company overview and what everybody you know who they really are, we dealt with their culture The Entity structure we dealt with the employees the key people today we're going to get into the other part, part two of the company overview and all the things that are there to go through so with all of that thank you again for listening this is an episode of the theesopguy journey to an ESOP which is a free resource for those that are, thinking about taking their own journey to an ESOP and its really designed to prevent to provide.
Detailed information that will hopefully help you better understand the Employee Stock ownership plan and it's in the way it works in terms of selling your company.
Or not your company but maybe you're part of a company that that the owners are interested in.
[4:35] Wherever you find yourself if you're brand-new to the podcast thank you for joining today and we're excited about this episode please go to our website though at journey to an ESOP.com and in basically can download all the episodes if you want from that point.
But again we're happy to have you here today and as we kick off into this next part is really getting into the details of this I wanted to.
[4:59] Also encourage you if you do know somebody that's thinking about doing an ESOP please share that share this with them because I think it's probably the best way, for people anyways is word of mouth and if you like it and it's helpful for you maybe it's something they'll be helpful to your friend as well.
[5:17] So picking up everything from where we left off we really did talk a lot about processes to when we finished and how important it is and we're illustrating the company overview.
One of the things that we want to try to nail down with the trustee in the valuation firm is it's a business isn't really.
[5:36] On in and of course this is going to be true as it is true right it's not dependent on one person too.
[5:46] Manage everything that's happened in the company and if that's something happens that person, or you have to replace that person and you have a whole different standard of things happening so so the way we deal with that is processes and so what I wanted to kind of start off with is where we ended up with is make sure.
The process is you do you may not have them all written down but you might be challenged to present the details of what the way that those processes work within a lot of these different areas and.
[6:15] So one of the things that we were discussing last time was the employee side and how important it is for the key people.
And I think that to finish that part off to I wanted to say in that part of it you're going to want to show a little bit of how, you do recruit if your companies constantly recruiting new people or recruiting Talent again what would what would be the process of doing that and, what's the statistics around that process so if you're hiring people, how has it worked trust turnover wise so getting percentages numbers that kind of thing is helpful and.
[6:53] If there is a ongoing recruiting process is there a person in charge of that, are there certain approaches to that that's been that have been more successful how important is it for the company to fill positions in order for the company to continue down the growth train, and so that's that's going to be something that the trustees valuation firm is going to want to know.
Because it's a key area or key business risk if the company can grow but they can't find the people which is a kind of a major issue in our country really for the last couple of years since, really after covid pandemic and so how is how did the recruiting processes work, what's your what's your success rate that can kind of really be helpful to kind of show you know what's out there in some cases, there are companies that have no problem finding people and they get people when they need them, in other cases it's super hard to find people and so then their strategies and processes built around managing through that issue.
[7:58] Along the same lines with the employees there might be questions around the employment agreements things that the employees are responsible have, for we have signed an agreement to, protect the company from potential issues where they might leave and you know you set up a new company or whatever compete that kind of stuff so so employment agreements might be a topic that that gets brought up as well in this category.
[8:28] So so in that so the next thing we're going to kind of Segway into is is really digging into the.
What I would say is a process the processes that.
Come back to delivering the products or service and or both products and services so kind of this is the what is the company actually do or do they produce.
For their customer and we dealt with a little bit of this at the front end of the industry overview of actually what the customers actually buying, because they have you have to kind of nail down what industry they're in but in this in this part of it we really want to dig into the products and services themselves and there might be.
Um A host of different things what I usually try to do is look at the website and look at marketing material and figure out how you're communicating to your customer about what you actually do so marketing materials are always pretty helpful to look at that.
[9:28] But we want to know what to dig into the value, of these products and services to the customer from the customers perspective so what are what we could call this as maybe the value proposition that your products / Services provide in the industry and so.
Defining those specifically might be helpful as well to determine the the mix of products and again services in your Revenue Matrix So within the revenue side you might have, some composition of hey we're selling this much in percentages of these types of products and slash services, and some kind of being very generic about that but it helps it helps to understand the.
[10:15] The breadth of the company's offerings and the obviously the more breadth of offerings the more diversification of products and services the more diversification of customers, and the other set of side or the other part of that Spectrum if you go with the other side is okay we have one product we sell it to One customer we have one service we sell to One customer right, that's super concentration right and so we're trying to kind of provide some information related to that some products and services are, connected to other companies and you might need need for instance royalty payments to in order to sell part of what you sell is a product or you might need, have certain legal rights in license agreements to do, to provide those products and services so so some of the risks related to delivering products and services can be, legal legally bound and also then have a legal risk related to that so in the event of.
[11:15] Hey we lost our ability to you know be licensed to sell this let's just say you're a distributor and you have an exclusive, distributorship but they move that to a new company right so that's the risk of your potential service going out in, our product going away you know immediately so sometimes I'm keying in on something to I mean I really do try in terms of ESOP site visit, is to really nail down the things that as we think about these categorically and try to nail down.
[11:51] The risks related to these things so if it's a service or product that kind of thing what does that mean at the end of the day to the valuation firm.
Continuity predictability I would just say kind of in general.
Similar to how I would talk communicate with the bank about these kind of things as we want something very predictable.
[12:14] We want it to be I mean almost really boring the fact that we do this we've done this for 100 years it's the same thing over and over we know we make money at it that's that's actually a very good, being a conversation app on the other side of that is all we just started this we not sure exactly where it fits in the marketplace, we don't have a lot of history on it and we're kind of guessing at what the future is right so you can see how when we're dealing with the risk conversations we want to try to be.
Obviously you know everything I say is not about like saying anything different than the truth we want to be absolutely, 100% honest and truthful about how things work but what I'm saying is that you need to understand how, the those things position themselves among the risk and these are things that should be have been dealt with early in the valuation model I anyways, so let me just give you a hypothetical if your products and services.
Have been historically one thing but the whole company's pivoting you know just to get hypothetical scenario two new products and services that you don't have any proven track history on and you're building a forecast around that, that's going to be seen on the valuation side for the trustee as a much more risky proposition than a company that's been doing the same thing over and over again, has an established market share everybody knows who they are they like their products and services and there's a future for.
[13:39] So all that being said you're going to need to do some work on detailing out what those are.
And the value proposition from the customers perspective and really the sustainability of that as being your your primary sources of revenue going into the future now we're not there yet but we are.
We're always going to be not only hitting on risk as well we're also hitting on the support related to the eventual forecasts that we're going to present, for the company the financial forecast so obviously the financial forecast has a in a sense it's got the, potential for the sustainability of Revenue and those kind of things built within that.
[14:24] So as we go through the products and services a natural segue, is to dig into the sales and marketing processes so big question here for the company overview is hey how does the company continued to build.
[14:44] Grow.
Repeat repeat Revenue processes to where they're they're they're going on and off so you can have composition of Revenue can be the question mark here could be hey how much recurring Revenue do I have versus how much non-recurring revenue do I have.
And this can be definitionally important to really understand.
With the details and then and again I really like the the movie that we're talking about the giver because it has everything to do the details really matter.
And this this as I segue out into this, movie thing it's like there's this idea that that lets just leave out this stuff and everything will be fine but that's not the case with anything in this case the details related to how the revenue does recur.
Is it contractually based is that contract contract going to be renewable at what year does it renew.
Is it recurring like a business where.
You have customers every year they come back to you every year because they are very loyal to your company as that's the nature of the recurring revenue or is it you're a sole source.
[15:58] And you have 100% proprietary right to sell the product or service nobody else has that right so that's that's a very strong recurring source of Revenue in the demand is high the supply is low.
So so keeping in like that idea that recurring Revenue itself when you just talked about it.
Is so wonderful but at the same time it's a matter of like what is that really mean in that now non-recurring Revenue would be areas where you're just like well.
[16:28] We think we have this much work next year we don't know what we're going to have and so all that other work all that other Revenue starts falling off and and a lot of times we're just going to have to go out and you know again replenish the work and we're used to that, so we might have a history of repeating that but in the sales and marketing process what we're going to get into more specific to the.
From a risk perspective is I would say more specific is the business development process like how does the business development actually work.
[17:02] Within the process itself.
[17:05] You're going to want to define the Who's involved in the business development process one of the main things in this question is going to be.
[17:15] If the owner.
The selling shareholder or pluralize that or the founding founding member of the company if those people are involved there's nothing wrong with that but the question is is what's their future in the company and if they're like the main person.
In the process itself.
They're in there for whatever reason now they've sold their stock they're going to start to you know do less and less than we need to answer the question early.
[17:45] How is the company going to repeat the business development process as effective as they have historically and, as we set that up the financial forecast and if we are looking at growing the company how are they how are we actually grow that process.
So one of the things might be.
In the business development process it may be as you talk about The Who and the business that's involved and it's going to be the what they're actually doing.
In terms of sourcing revenues are they getting it from conferences are they getting new business from cold calling are they getting it from sales team are you know are they going through a very established process of.
Writing a proposal delivering that proposal you know going through data related to the win-loss ratio of those proposals so obviously that's super important to to nail down in.
Again back to the same thing as kind of a beaten drum but the more we can get very boring predictable.
Processes that produce results historically with good data the best.
[18:54] The more we're going to mitigate the risk of that being an issue in the future because of disruption related to the ownership transition.
Or a potential like well let's just say we have a high level person that's not an owner that's really producing a lot of the revenue like that's definitely a risk area that we have to that we have to think about.
There are situations where in the business development process that there is a.
[19:26] Potential for disruption in your industry that would show from the first part of the presentation back in like the Rudy episode I did where you're looking at hey we have a.
You know a trend towards.
Instead of going one way which is the the instead of growing we're seeing the trends actually go down and we're going to we're going to face some disruption in the next five to 10 years that might be something that has to really be addressed here as well.
In terms of all the other avenues that the company is exploring I had a few years ago I had a company.
That this is before we started the project before covid and then covid happened we took the piece out project off and then we came back on later after covid-19.
[20:13] But one of the things that was happening is they had a high degree when we first started looking at a high degree of concentration within one industry, and because it covid a kind of force the issue anyways because they were that part of the business really went away pretty quickly and they had to go back and really, dig deeper into their business development process now.
In that situation they had already started that before before we even started talking about it so they already had kind of a heads-up or a, an advanced process working around, that before so so it was actually pretty you know actually pretty good in the end because it helped them to kind of really push forward with a lot more.
Energy and focus and they were able to really get dig deeper into their process and we're able to build some new completely new Industries into their composition of client mix.
And so that really helped the companies in those last couple years after covid really grow in value and and really strengthen what I would say is this business development process.
[21:22] So if you know that there's potential disruption or there we know that there's a concentration and you just have to do you have to kind of you have to address that really head on to make sure that everybody understands what's what the plan is, now on the business developed process part of the part of what I would say is important as understanding and explaining how the customer, makes a decision in their buying process and maybe it's maybe they're selling business maybe they're selling services or products to the government for instance.
And we know that the government cycle is you know typically through the budgetary process and at the end of the year they're going to maybe, pay more and we historically have the data on that so really understanding how the process of the customer works as well in conjunction with your business development process I think is really helpful.
To to kind of make sure that there's.
[22:13] Thought around you know how it really works on both sides not just hey we do all these business development processes and they just kind of yield results.
It's always helpful to have you know some type of.
Data like the is the company's already tracking so I'm for instance is there a pipeline report in that pipeline report.
You know for the last several years what do you showing in wins and losses what are the average size contract so it's the average size, sale of if its products and how much are people buying, at any given point in time so the more data you have with that the pipeline and then just related to the sales history is helpful to understand.
As we try to explain going in the future like the question is going to be how does a company continue, how does a company meet its forecasted targets is going to be really the centerpiece question so we're setting that up as we go through that as well.
[23:16] Now sometimes business developed processes and.
Salespeople and all that can be relatively you know an expensive part of the business but it needs to be baked into the.
Cash flows in the recipient and the respective cash flow burden if the company is growing.
I had one client where they were going to grow the business in the forecast and they figure it out, by every salesperson and they had a salesperson come in they had sales training, obviously they have commissions and all that so net net net we could predict in the forecast if we add this many salespeople, what's the net cost to that but but ultimately what's the net contribution to cash flow based on the statistical thing so there's a there's a lot that you can glean from the business development process now.
That comes back to marketing and when I think about marketing and how what we're going to try to demonstrate here is.
Every company in there and specific Industries has certain requirements and.
Processes that they deliver related to marketing and marketing or would be the how do you how do I communicate this out to the customer base to the new prospects of the new type of customers, how do I what sort of materials am I using if it's if it's if it's just.
[24:38] Printed material how am I using social media who's on the marketing team what sort of innovative things have they done from a marketing perspective, in some cases some companies from a marketing perspective get published and they're able to be show hey we have we have these Publications they draw people and companies to us and, other cases this is how we leverage the conference from a marketing team standpoint we do these certain campaigns and so so the reason I mean there's there's obviously a lot of overlap between the marketing processes in the business development processes, but I do think that there are very important to delineate between the two and they both lead to I think really solid results.
Now that's I would say that's a lot of detail related to the both the sales and the marketing areas of the company, I can't tell you how important like I can't stress to you that this is probably one of the most important parts of.
Of helping the valuation firm understand.
[25:42] The way that the companies built because there's the question is can they continue to grow the business can they continue all of those things so so this.
This is very important and I think the main thing too is the people that are talking in this meeting at this point if you have in the company a high level.
Key executive who's in charge of the biddy process or in charge of marketing that reports maybe these people report right to the CEO I would have them talking in the meeting as long as that works for everybody and there and there's.
You know there's consensus built around hey we really does the marketing the management team is is up to speed and this in these areas because they're going to be able to tell, a lot more effectively how that actually works because they're on the front line now I would imagine a lot of CEOs already involved heavily in those processes it's not like they can't tell it but we want to tell the story and the customer and the company overview from a lot of different, perspectives by doing that having a key person speak to those things that we're going to establish the depth of the management team.
[26:49] In the depth of the management team is really important from a risk perspective on the company so so that's going to be really really important for, the for the for our discussion and in this presentation to make sure that everybody is on the same page with that.
[27:10] So going from there one thing that kind of comes up every once in a while and it's in its it can be it can be very very unique and and really different but the main the main thing here is is there any proprietary.
[27:25] Product where you have, maybe even a patent or multiple patents on a product or is there something copyrighted is there something specific that is protected by the company that gives, your company rights to sell, something that nobody else can do so obviously that would be a very very big the advantage that we want to we want to demonstrate so if there is, proprietary content for proprietary rights then have those debuted in your in your presentations and make sure that you there really clear.
To the to the valuation firm as you go through the that part of the presentation.
[28:08] Now speaking to that the other side of the coin is this is you really at this point you're going to want.
To really help them understand who you guys who the company competes with so there's going to be a section here that says hey this is our competitors this is how we you know see the complete the competition there may be.
Data around that like you might have some data around you not just who the competitors are but maybe understanding maybe the sizes of their companies, it's very difficult to get market share information but if you had some idea of the market share that's always helpful.
And immediately part of the competitive.
Discussion as far as hey we do have competition or in some Industries we have a lot of competition and other issues it's not as much, is really helping to then connect the dots between the competition in the industry how your business is in that relative space and then following up with, the company's competitive advantages which we might have named a few already within the state of proprietary types of Rights but competitive advantages are going to be.
Alignment with what you do really well.
[29:20] From a organizational standpoint from a process standpoint from products and services standpoint from a people standpoint alignment with all of those things in your resources to the customers.
Needs and valuing and that will kind of rebuild what I was talking about before with the value proposition.
So the more depth we can show within those categories the more we can really.
Again in a different way in a different light debut the strength of the company and how it participates in.
The marketplace with all these different customers and how that becomes a very relevant.
[30:08] Part of the valuation firms analysis is that obviously the more the the higher the competitive advantage and.
The strength there gives them a strong mitigant against having a new competitor come in or having you know something happen overnight where there's disruption and the model itself or the future of the business.
[30:30] Sometimes within this area I think it's helpful to think about how competitive advantages are.
You have thought through and discussed and one thing I would say first is from a bigger picture standpoint is that as a very healthy company.
[30:48] One of the things you look for is whether or not.
They are able to say no to the wrong type of customers so having a very strong client customer acceptance process I think is important, you know they're as companies get older they realize because they've they've, made a mistake by taking on a certain type of business that really wasn't in their core competency or they've jumped into some things that are just not really productive profitable for them so so in those cases that kind of information can help to dictate, Target Target process where we're Target marketing to specific types of customers, or types of jobs or types of you know delivery of of what the company actually does and so I think it's important, really dig into those examples but then process wise as we keep coming back to the process idea, that we bake that process into it and here's here's where how it would work hypothetically we get to evaluate this new opportunity.
And it's in the know bucket because of these factors and we move on we don't spend a lot of time after that doing anything else because it just doesn't fit.
[32:02] The ones we do go after we know we can either win or there's other reasons behind it they fit Within, the thing so so client acceptance customer acceptance of think is really key to a healthy competitive Advantage as well when you're able to really know how what you do aligns well, with your customers.
[32:26] Sometimes in the site visits I've seen different companies do this in different ways but sometimes there's a very good way to.
Illustrate the quality of the product itself or the service sometimes that's been done through.
Videos that the company has put on maybe commercials that they've used or even videos I've seen videos of companies where they've actually, produced, to help customers understand how they do what they do from a marketing perspective but how they actually do the work you know they had I had one customer who took a time-lapse video times lot it was like one of those speed up versions of a video that took from the beginning of the job to the end of the job and showed the time that they were able to get the job done and it's pretty effective and I think that's always helpful to show things, showcase some things that you might do visually for somebody that doesn't understand how your business Works especially if you're trying to, Esa illustrate your competitive advantage in comparison to other companies.
[33:39] So those are those are super helpful things and as we as we think about some of the other parts of what we want to just demonstrate.
For the company overview we want to definitely look at how the.
We measure you know terms of success goes so there are some companies that are very good at measuring the customer in likes a customer engagement surveys or customer surveys and I know that one, some people use the like this the scoring system.
Company or customer would kind of rank your like with one question would you refer our business would you refer us to a somebody that was a friend of yours you know stuff like that that might be really helpful first from a data point if you have those kind of surveys to show, you know again the backdrop of all that.
[34:34] Another another area that's important is is in terms of the structure of how revenue is created so it could be contractual.
It could be if you're building your customer on a time and material basis how does that work could be fixed price it could be like a lump sum it could be a blend of a lot of those things but they want to get an understanding of.
If you do have contracts or.
To say basically a company customer gives you a purchase order and you fulfill the purchase order there needs to be some kind of discussion on.
You know how that actually works and what are the the main drivers of potential risk their can a customer back out of the contract and if have that has that ever happened before.
Um so there's a lot of specifics to.
That that will be helpful to really under right from the valuation perspective you know what are the risks behind all that.
[35:36] Going forward one of the things I kind of want to end typically on is we've just kind of discussed a lot of aspects of.
You know your company overview that would be the present day like this is all stuff we're working on but one of the things I like to try to finish the company overview with is hey these are some in of these are some initiatives that we're going to take as a company, over the next year and really what's important to us is we want to maybe install these are just hypotheticals just say for instance, for us to accomplish in the next 12 to 24 months of our Horizon strategically.
We want to implement a new software program that integrates inventory with our accounting system that could be something I'm just giving you a hypothetical, we want to we have a person that we're going to hire and a specific geography that isn't there yet and so we're targeting that that's a that's a strategic, initiative that we want to accomplish we want to.
[36:40] Peanut basically reduce our landscape or we want to reduce our leases and we want to streamline more remote work, our remote work for so we're going to reduce the number of leases and so so you can kind of see what I'm saying like one thing that we did well in the press and the company overview is really presented what we do how we do it but one thing that you want to leave them with is is what are we going to be doing, why is that important and I would say one of the things about that is important to think about is is it shows that the company is always Forward Thinking.
And it's important that that kind of gives you an opportunity to think strategically a little bit without overly committing to something, that you're doing the keep in mind the only the only caveat with that is that if it's going to cost some, some invested dollars that question that I always confirms going to have is hey is that on the forecast already if you guys already paid for that software is that a million dollar expense that we're going to have to deal with in the cash flow, so keep in mind if you do have something that's cool and Innovative in the future you want to make sure that you think about that in terms of what you're actually presenting.
At the same time if you're going to do it and it's in.
It's something that you should have thought about already in the forecast so it may be that you have to come back to the forecast and update that for for those types of things.
So with all that I know that was a little bit like a lot of well it was a lot of detail but I think hopefully it was helpful to you.
[38:08] When we pick back up on the next part of this we're going to cover the remaining part of a site visit which is going to include the, financial highlights and the transaction discussion on the ESOP side so thank you guys for listening today and I hope that you have a wonderful day and enjoy your next step on this journey.