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The Finance Fix That Prepared a Company for Private Equity Review · Private Equity Data Guy

• 0:00
  It's not like we're only looking at the P and L and looking at one view of the world.
• 0:04
  Because when you're trying to build value in a business, the building blocks are what matters more than the actual financial statements.
• 0:12
  The financial statements are just the end presentation.
• 0:15
  The value of working as a 1099 variety, flexibility, access to the decision maker in all of the assignments, which some of them, you know, might be fairly senior coming out of their W2 job, but they may not really
• 0:30
  always be working directly with the decision maker.
• 0:33
  If you are really deficient, you could end up in a situation where people show up, they take a look at the data room and they just walk away and you have no, no offers.
• 0:43
  And in this instance the banker knew.
• 0:46
  I can't even take this to market because I can't show this to anyone.
• 0:51
  Behind every value creation plan there's a data problem nobody wants to talk about.
• 0:55
  Fragmented systems, metrics nobody trusts.
• 0:57
  And decisions made on gut feel dressed up as analysis.
• 1:00
  Welcome to the PE Data Guy.
• 1:02
  Each week host Graham Crawford talks to the operating partners, advisors and practitioners who are doing the work inside portfolio companies.
• 1:09
  If you care about what actually drives returns in the market, then you're in the right place.
• 1:13
  The PE data guy starts now.
• 1:17
  Sal Tarabassi spent 15 years investing in growth and venture businesses.
• 1:21
  Nearly a decade of it as a partner at MC Partners, managing around two and a half billion dollars in telecom.
• 1:26
  And then Sal crossed the table.
• 1:30
  CFO Pro and Analytics, the firm that he founded in 2021 puts Fractionland interim CFOs into founder led and family owned companies from 3 to 100 million in revenue.
• 1:41
  And Sal takes prep for sale and remediation work from the banks and the sponsors who need a finance function rebuilt before the process.
• 1:47
  He's got 10 people, all senior, all fractional.
• 1:50
  And today we're going to talk about what an investor sees in a finance function that the founder might not necessarily see.
• 1:56
  So Sal, thanks so much for coming on.
• 1:58
  It's so great to have you on the show.
• 1:59
  Really enjoyed our conversation so far and grateful to get to share one with an audience.
• 2:04
  Yeah, likewise, I'm looking forward to it.
• 2:07
  I described a little bit of your career path, but can you.
• 2:10
  And you've operated on multiple sides of the table as well.
• 2:13
  But can you tell me a bit about what led you to where you are now and how this is the right current hump for you in terms of a function?
• 2:22
  Yeah, I, you know, I got to a point in my career where I had learned a lot and I'M I'm generally just a person who's an efficiency and workflow process improvement seeker.
• 2:37
  And what I realized is all the things that I had learned about, you know, working on boards, making investment decisions, you know, obviously dealing with people of, of all stripes, you know, from, you know, entry level staff people
• 2:52
  all the way up to, you know, very sophisticated partners in private equity funds that I had all this know how could really be built into a methodology where we can bring very high grade finance function capabilities to businesses
• 3:14
  that might not otherwise have access to it.
• 3:17
  Because the size of the team that's required and also the people who tend to do that high grade work will gravitate toward much higher salaries in bigger, more well financed organizations.
• 3:36
  And so there's a way with talented professionals like the ones I have on my team to really come in and use our methodology to triage, prioritize and determine what's the path of least resistance with the most value to
• 3:56
  add to the business in the finance function to allow these owners and operators to achieve their long term objectives.
• 4:04
  And the game plan is generally that we become their permanent part time solution.
• 4:09
  And because we've got a methodology and talented people, we can do all of that on a part time basis at a value that's making money for us.
• 4:20
  That really encompasses how we do what people typically call the fractional CFO services stack.
• 4:28
  I talked about this a little bit in the intro, how you say most of your staff are relatively senior folks.
• 4:34
  A couple of new things have obviously come to the table in the last few years, like the concept of a fractional role in the first place.
• 4:40
  I think CFO was the first thing I remember that went that, that went fractional and maybe I think it's been.
• 4:45
  Around for a really long time.
• 4:46
  I've met some CFOs who never called themselves fractional, have been doing this for like 20 years.
• 4:52
  And you think that the role of CFO is just uniquely suited to that.
• 4:55
  I think it's one of the better roles for that because it's very tied into the executive leadership, however you want to define it.
• 5:05
  When we play in the role, we basically are in that executive leadership team, but it's in that part of the organization, it is the way we drive the processes, turning all of their decisions and conversations into financial strategy
• 5:24
  conversations.
• 5:25
  And as a result of that, you don't just come in and like build some infrastructure and leave.
• 5:30
  They really value all your insights.
• 5:32
  And the idea is the insights keep coming, right?
• 5:35
  Because the business doesn't stop evolving and therefore the whole Financial strategy of the business and how it's preparing for its future in terms of growth, financing, exit possibilities, new products.
• 5:51
  We just keep, you know, turning that flywheel with all the new opportunities and questions that when you deliver it, well, it just has a long life to it and at some point an organization may get big enough where
• 6:04
  they can afford a full, full time stack of people.
• 6:08
  But you know, most organizations don't grow quickly enough to be able to afford that.
• 6:14
  So you know, I, I started this business two and a half years ago and I've got pretty much all my clients that I started with two and a half years ago are still clients.
• 6:22
  And that doesn't mean that they're not doing well.
• 6:24
  It just means that they're doing better than they were before.
• 6:27
  We've certainly helped them do better.
• 6:29
  Yeah, I was going to say it means that you're doing well because you wouldn't still be on the P and L if you weren't.
• 6:33
  Right, right, right.
• 6:34
  And, and we add value to them every week, know and it's, and where we, we want to, you know, roll with all the punches that they're taking.
• 6:42
  I, I think other, I think other fractional roles like I, I talk to a lot of CMOs go to market fractional people, CTOs though I don't really see them as much as I see the others.
• 6:58
  They're, they tend to be, I think gravitate a little bit more toward project based even though they can persist.
• 7:07
  But ours really intentionally is always viewed as like, yeah, I just need you to keep, you know, feeding me.
• 7:14
  Agree with that.
• 7:15
  Chief Product Officer is the other one that I've seen.
• 7:17
  Yeah, yeah.
• 7:17
  And that's, that's the one that raises the most questions for me because you know, this person is the heart and you know, I've been a product executive before.
• 7:25
  Like you have to be the heart and soul of that product, which to me means day to day involvement in the business.
• 7:30
  I would agree, I would agree.
• 7:31
  Yeah.
• 7:31
  Because what happens if there's a critical decision that needs making and you know, you've used all your hours for that week or whatever else, it seems harder to be full time the other.
• 7:41
  And we have this in common.
• 7:42
  I think I remember us talking about it last time we spoke.
• 7:45
  I too have mainly mid senior level staff on my team and not a lot of junior level staff.
• 7:50
  And AI is certainly one of the reasons for that because a lot of the more kind of administrative work or operational work, particularly the backend operations of my company is much more efficient and easy to do because we
• 8:01
  both started a company, AI native, basically in the age of AI, is that how you're running?
• 8:07
  Is your back office running, like in a nice agentic way that's saving you from having to hire more junior people?
• 8:14
  Question number one, and then the second part to that question, which is a dilemma that I face as well, is if folks like me and you aren't hiring junior level people, where do the next set of experienced professionals
• 8:23
  come from?
• 8:24
  Yeah, yeah, that's an interesting topic.
• 8:27
  I have three kids that are either in college or one that just finished grad school.
• 8:33
  And that's a big question for me is like, you know, and they're, they're, they're coming out of a really, really good schools with and they're, you know, they've got capabilities, but it's a tough slog I think and I,
• 8:48
  and maybe we're in a bit of a dislocation right now where businesses are trying to figure it out.
• 8:53
  But I, I do know that when I talk to, I know some senior level, very senior level people at large accounting firms and you know, AMLA 100 law firms and, and their view is, you know, eventually we're not
• 9:08
  going to be around.
• 9:10
  So how do the lower levels if, if AI is supposed to do all this stuff, well then who's supposed to replace this pyramid of an organization?
• 9:20
  And I think in services business it's particularly pronounced or at least a little more obvious.
• 9:26
  I don't really have a good answer for it, but I do think that there's a way, I think, to bring in junior people and enable them with AI.
• 9:35
  But you can't take the critical thinking and the why and how out of the process for them.
• 9:45
  And again, I'm speaking theoretically here, but that, that, that just, that's just me having run large teams just like what my gut tells me.
• 9:54
  But to go back to your question about how I do it.
• 9:56
  So my back office is pretty lightweight in terms of like, you know, I've got my own accountant who does all my books and invoicing and all that stuff.
• 10:08
  Then we've got the client work that we do where we do implement some version of AI technology to accelerate some of the things that we do.
• 10:17
  My main back office function that is quite, could be quite time consuming without AI is the marketing outreach work that I do and the maintenance of my, of my pipeline and also just triaging my inbox and managing my
• 10:34
  calendar.
• 10:36
  So, and that I use a lot of AI for those things and it, it works quite well.
• 10:43
  It does save me like A ton of time.
• 10:45
  Yeah, similar, similar.
• 10:48
  And one last data point on the, I believe the children of the future point about people in.
• 10:53
  I have two teenagers myself as well, so it's very front of mind for me.
• 10:57
  You know, often when challenge is on it, people will point to the unemployment numbers and say, well, employment is actually increasing.
• 11:02
  Which is true.
• 11:03
  Right.
• 11:03
  You know, we'll assume those numbers were collected and counted properly.
• 11:07
  I heard an example from an investment banker the other week.
• 11:09
  He talked about how he'd taken an intern on from Northwestern, which I believe is a good school.
• 11:15
  I wasn't educated in this country, so I'm a bit, a bit off the track, off the radar on what schools are good, but I'm told it's a very good one.
• 11:22
  And that intern is living with three other Northwestern MBA grads and they're all employed.
• 11:27
  However, the other three in the house, one of them's a dog walker, one of them is a barista, and one of them is a nanny.
• 11:33
  Not showing up on the unemployment stats.
• 11:35
  But that's not what that system was designed for them to end up doing.
• 11:38
  To end up doing.
• 11:39
  People gotta live, right?
• 11:40
  So people will, you know, those resourceful, smart kids will find a way to get income.
• 11:44
  But it's, I think the unemployment numbers are masking the gap that you and I are talking about here.
• 11:51
  Because, you know, I spent, I remember my first years working at IBM and Accenture, like running around after the partner printing their slide decks out for them and sitting in meetings and taking notes and doing all this stuff,
• 12:02
  which sounds kind of manual and not bachelor's degree worthy work, but it's an incredible learning experience.
• 12:09
  You get to see how the machine operates and you get to learn that critical thinking and you get to understand client work and you get to.
• 12:15
  That's the gap that I worry about that's been created.
• 12:18
  But we'll see.
• 12:19
  We'll see how it plays out.
• 12:21
  I hope the best for all of our children.
• 12:23
  We will.
• 12:23
  We will.
• 12:24
  I agree.
• 12:25
  I agree.
• 12:26
  So let's talk about this founder and business that you helped sell for 20 million.
• 12:30
  And you were careful to tell me last time that you weren't the broker of it.
• 12:34
  What did you fix in that business to help them achieve that sale price?
• 12:38
  And what did the buyer end up paying for that?
• 12:40
  Previously, before you had gone in, hadn't existed.
• 12:42
  Well, so this was a situation where there was a banker involved and the banker identified rightly that there were just complexities and gaps in the financial operation to be able to present this as a business into A sophisticated
• 13:04
  buyer.
• 13:05
  And you know, there's a lot of lower middle market buyout funds that are either doing consolidations or looking to acquire a platform.
• 13:12
  And then there's also, you know, a lot, although I don't know, I don't really know how, how much of the deal flow gets done by these guys.
• 13:23
  But there's a lot of like independent sponsor deals where, you know, a couple of former executives have got, you know, some money in the bank, you know, decide that they want to go out and buy some of these
• 13:33
  small family owned businesses.
• 13:35
  But when you're dealing with potential buyers like that, the financial operation, you know, is really critical to helping them understand the business but also not scaring them off.
• 13:48
  Because if you are really, if you are really deficient, you could end up in a situation where people show up, they take a look at the data room and they just walk away and you have no, no offers.
• 13:59
  And I, and in this instance, the banker knew, I can't even take this to market because I can't show this to anyone now.
• 14:07
  Now the founders took the, the main founder took exception to that and just, you know, always had a point of view that like, oh, well look, you know, you could see that we're making money on the tax returns.
• 14:21
  Why isn't that good enough?
• 14:23
  You know, maybe I'll turn into one of these one day.
• 14:26
  Sal.
• 14:26
  But like founders always think their business is worth more than it is, is my experience.
• 14:30
  So yeah, I'm not even sure he was thinking it was worth more than it was.
• 14:34
  I just think he just didn't appreciate that when somebody buys the business, they're not going to be operating it the way he did and he understands how certain stuff is going to flow.
• 14:47
  They are going to install professional investors and they're going to need projections and that kind of stuff.
• 14:52
  So, so, so the business had had a few, you know, critical issues in the finance function.
• 15:00
  It was two entities that had never been consolidated.
• 15:04
  The two entities were related in their own profit generation.
• 15:10
  So think of like one business was like building stuff to sell, right.
• 15:16
  Like actually like physical things.
• 15:18
  Right.
• 15:19
  And the other business was selling it.
• 15:20
  No, the other business was if they weren't, if they, they would build to sell to third parties and then they would build to sell to their sister company which would then rent out the stuff.
• 15:32
  Ah, I see.
• 15:33
  Because it was the type of, of, of product that had end users and also renters.
• 15:39
  We call that synergy in the business, don't we?
• 15:42
  Yeah, yeah, yeah, yeah.
• 15:43
  And it's, you know, I guess to make it a little bit more concrete for people.
• 15:47
  Think of industrial equipment.
• 15:49
  Like if you wanted a backhoe and you were a large construction company, you would own backhoes.
• 15:56
  If you're a general contractor with a team of, you know, 20 people and you build, you know, one residential house every six months, or you get a new residential house to build every six months, you may rent a
• 16:13
  backhoe.
• 16:13
  That's, that's the idea.
• 16:15
  But in this instance, you had a business that could build and sell them to the backhoe.
• 16:20
  The guys who wanted to own the backhoes or they could build them in the sister company would manage the rental.
• 16:25
  Business, rent them out.
• 16:26
  I see.
• 16:27
  So they didn't have to have a rental business within the buy and sell business.
• 16:31
  Right.
• 16:31
  And they, there was, I think the, the bankers thought that the rental business was a lot more profitable than it was, and it was because they weren't accurately reflecting the transfer pricing between the two entities.
• 16:44
  That was one problem that they had.
• 16:46
  You know, another problem that they had was that one of their ERP systems had some glitches in it and they had like some double counting of revenues and expenses that, that all needed to.
• 16:54
  Get cleaned out plenty of times.
• 16:57
  And then we, then we had to, you know, do a consolidated view of the business that allowed an investor to understand what does this thing look like consolidated and what does it look like, you know, individually and really,
• 17:09
  I think the, the story was, fortunately for them is that, look, the kinds of stuff that we build to sell is fairly differentiated.
• 17:20
  There's not a lot of people that do it.
• 17:22
  Therefore, on the rental side of the business, the, the owner of the whole thing is getting a, a massive value opportunity because of the vertical integration.
• 17:32
  Because if the rental business had to go buy the same stuff from somebody else, someone else, the money wouldn't stay inside the house.
• 17:40
  Right.
• 17:41
  And it wouldn't be profit to themselves.
• 17:43
  They'd be taking a bunch of cash profit margin and giving it to somebody else.
• 17:49
  And now if they were in, if they were in a business where the bill to sell was very commoditized, then you could always make a decision.
• 17:58
  Should the rental business just go to the open market and buy what they can buy?
• 18:01
  Yeah, because the margins are all going to be lower and maybe more manageable.
• 18:06
  But even in that instance, you'd probably justify doing the pricing internally if you already did it, because then you, you know, you keep the money inside the, the family of companies.
• 18:16
  So those are, those are like some of the issues that we went through.
• 18:18
  There were a couple of Other things that we found where they had saved them some money on the tax side.
• 18:23
  You know, another thing that came up with them that I'll, I'll just mention for your listeners is, you know, they're, they're like doing equipment, right?
• 18:31
  And they had never actually explored R D tax credits.
• 18:37
  And the thought was, you know, from their CPA was oh well, you know, they're like an equipment company.
• 18:42
  What kind of R D are they doing?
• 18:44
  Well, it turns out like you could have a very simple conversation with the, the guys on the build side of the business and they're like, oh yeah, you know, we, when we do a new version of this, of
• 18:57
  this piece of equipment or when we do, when we're actually building one for a client, a build to suit type of thing, we actually run tests with it to see should we move certain, should we move this part
• 19:13
  of the, of the, of the equipment 6 inches this way or the other way.
• 19:16
  And all of that is real R D work.
• 19:19
  It's real R D.
• 19:20
  Yeah, yeah, yeah.
• 19:21
  And it, and you.
• 19:22
  And I think because it was like a real sort of like industrial, sort of more blue collar feeling, not like Silicon Valley tech thing, there was like a disconnect with the CPA that they really should be, should be
• 19:36
  doing this.
• 19:36
  So, so that was like another thing that we, we introduced to them which, you know, they were able to go back like 3 years to apply for R and D tax credits.
• 19:47
  I mean, I think that's a really good public service announcement, especially in the age of AI.
• 19:50
  I think there's customers because of course software engineering qualifies under R and D.
• 19:54
  Like if you're building something novel for a particular use case.
• 19:58
  There's a ton of companies out there who are now, albeit AI enabled software engineering, but doing software engineering to build something specific for their own company that they might not realize might be qualified for R and D tax
• 20:09
  credits.
• 20:09
  So those were some of the things we had to put in place.
• 20:12
  And the idea was that we could hand this financial operation and this consolidation function, which was really important for them to be able to rinse and repeat their monthly financial reporting where they can report profitability by entity and
• 20:28
  consolidated.
• 20:30
  And we basically enabled the bankers to have all the data that they needed in order to present the business and be able to discuss each of the sister companies separately.
• 20:42
  And otherwise they wouldn't have been able to go to market without it because they kind of viewed it in a very common sense way, even though they knew they had two entities and that they had different business Models
• 20:54
  done in a way that would be usable by a third party professional investor.
• 21:02
  We talked about you being on both sides of that investment table.
• 21:04
  So you were the investor for 15 years and now instead you and your teams are helping build the numbers that investors are reading on the other side of the table.
• 21:13
  Like, once you moved across, was there something that you didn't understand about what it was like on the company side that you now understand, having done the work for a number of years?
• 21:21
  You know, I think on the company side the biggest thing is the importance of people and teams.
• 21:30
  And also that, you know, I said earlier in the conversation that I'm, you know, an efficiency and workflow improvement person by nature, which is one of the reasons why AI works so well for me.
• 21:43
  But I love it.
• 21:46
  But I, I, on the operating side, I really get an appreciation for the level of thinking of people to be able to be in that continuous improvement mode and understand like, I've been asked to do something and it's
• 22:06
  got 20 steps in it.
• 22:09
  And I've been around and I'm well aware that if a couple of things changed, I could do it in five steps.
• 22:17
  And they just don't take the initiative to try to do that.
• 22:19
  And part of it is the organization just doesn't like, foster innovation from the grassroots, which I'm, you know, I, I try to eliminate that type of thinking immediately.
• 22:33
  Like, you know, everybody's got ideas that are worth thinking about.
• 22:37
  It's just a question of prioritization and how much can you get done in a day, a month, a quarter, a year without like just being distracted with too many things and, and being able to enable that.
• 22:52
  And also then if people on the team are not, don't have that, those kind of intangible capabilities where they can deliver more than what's expected that you start thinking about, okay, I need to find different people that are
• 23:08
  going to fit the kind of culture.
• 23:11
  I think I always, you know, as an investor, you know, you know, when teams are performing or underperforming, but you don't really.
• 23:20
  How do you know?
• 23:22
  Well, you, you can just usually it's like lingering issues that, and things that they say are going to happen that don't happen.
• 23:32
  You feel like they're sort of misguided or not really like being, you know, very objective about what's in front of them.
• 23:39
  And of course, when they're talking to investors, they, they don't want to be the bearers of bad news or describe a difficult situation which, you know, is not really the right way.
• 23:49
  To approach it.
• 23:50
  But it's the spidey sense that you've built up over the years, right?
• 23:54
  Yeah.
• 23:54
  My big thing is like the team and the people with the right mentality and leadership, you can accomplish a lot more than you think.
• 24:05
  There's always a lot of opportunity to make improvements.
• 24:09
  Yeah.
• 24:10
  I often talk about this concept of investor grade data.
• 24:12
  It's a phrase I'm trying to claim ownership of and I use it to illustrate the difference between what I call good management grade data, which a lot of companies have of the data we have is sufficient for us
• 24:23
  to make decisions about our day to day operation of our, of our business and usually get it right.
• 24:29
  Right.
• 24:30
  So it can, it can feel like it's not a problem that runs into issues in the diligence processes.
• 24:35
  Especially with, you know, a PE fund who comes in and they have a very different standard for what they expect in terms of the quality of that data, how well it's sourced, how well it's understood, how well it's
• 24:45
  defined, how consistently it's showing up.
• 24:49
  And the cost of that's heavy because if they come in and don't find that, then they just cut the price.
• 24:52
  Right, Right.
• 24:53
  I always say this to my clients, especially clients that are sort of seeking investment.
• 24:57
  What will not happen is the PE fund will not say, go away for three months, fix that and come back and we'll, you know, we'll, we'll go ahead with the deal as planned.
• 25:04
  They just cut the price.
• 25:05
  They estimate how much it's going to cost to fix and cut the price because the judgment and it's, it's stuck.
• 25:10
  Do you see that happen as.
• 25:12
  Happen as well?
• 25:13
  I mean, in my experience it happens less than the finance function because you've got a hard reconciliation between the P and L and the transactions on the bank account.
• 25:22
  Right.
• 25:22
  So it's harder to go astray compared to say sales, marketing, operations, whatever else.
• 25:28
  But do you see that happen as well and what do you think some of the causes of that are?
• 25:32
  Yeah.
• 25:32
  No.
• 25:32
  Well, when we're involved, we are in the flow of all the due diligence and we get involved in like product pricing, margins, staffing, planning, application of overhead costs to business unit margins and things like that.
• 25:58
  We see the deficiencies there pretty readily.
• 26:02
  It's not like we're only looking at the P L and looking at one view of the world.
• 26:06
  Because when you're trying to build value in a business, the building blocks are what matters more than the actual financial statements.
• 26:14
  The financial statements are just the end Presentation and a really good finance function can say, I, you know, I saw, I see that gross margin went down.
• 26:27
  I can connect that to a specific SKU or a specific client and I can show you that that client's lifetime customer value is lower than the, than the average we expect because of xyz.
• 26:42
  Maybe they were acquired through a different channel.
• 26:45
  Maybe they're buying a product that we modified for them and as a result of it has more costs associated with it.
• 26:52
  Yeah, but you can follow the trail all the way back.
• 26:57
  And that's what I would call an investor grade answer.
• 26:59
  Right.
• 26:59
  Because that's what an investor wants to hear.
• 27:01
  I understand specifically why this has happened and I've seen the opposite case that I've seen.
• 27:05
  If you've got a shaky P and L with a margin that's say hypothetically like 10%, yet all of the business units are reporting 15% and higher margins because of cost.
• 27:16
  You talked about it yourself.
• 27:17
  The attribution of cost or cost allocation is happening inconsistently across the business and allowing everyone's dashboards to be green except the enterprise level, P and L, which is actually yellow.
• 27:29
  Right, right.
• 27:31
  Yeah, that, that definitely can happen.
• 27:33
  If you see that.
• 27:34
  I mean, getting to the bottom of that is probably not that Ch.
• 27:39
  Not that hard.
• 27:40
  You just need to like commit the time and effort to kind of figure it out.
• 27:43
  Yeah, getting to the bottom of why is, is a lot easier than fixing the why.
• 27:47
  Yeah, the fixing the why and also then also being able to.
• 27:50
  Sometimes what's also difficult is being able to push the data to get everybody's else's dashboard to be yellow or red so that they can start saying, well, oh, this isn't as good as I thought it was, you know.
• 28:01
  Yeah, absolutely.
• 28:02
  This, this thing that I, that I've built my reputation on is actually not exactly as it appeared.
• 28:07
  Yeah, we've, we've come across that with, with, with clients.
• 28:11
  We've got one that we just signed up that is testing different marketing channels.
• 28:17
  They're, they've got, they've come from a world where they would pay agent commissions on signed contracts which gave them a very well defined way of acquiring customers that were, was very low risk because the agent was taking the
• 28:37
  risk.
• 28:37
  On managing a funnel, they deliver, close a deal and pay a handsome revenue share to the agent.
• 28:46
  But they realized like, if they want to grow, they've got only so many agents that they can work with that are very effective at managing their own funnel.
• 28:54
  So now they got to take a shot at different variations of that where it's a different kind of agency that's not getting paid on the acquisition, but getting paid on the lead or the scheduled meeting or just running
• 29:09
  their own funnel where they're taking the actual marketing and advertising risk at the top of the funnel and they've got to manage the costs all the way through.
• 29:17
  Now you may think like that, that transition, the conversation sort of focuses on just getting close contracts and you can measure the, the, the, the productivity of the new channels that you're doing based on closed contracts.
• 29:39
  But actually you have to extend it further into repeat purchases or customer retention because different channels might deliver you clients with different types of retention behavior as well.
• 29:53
  So that would be, you know, an example of a client where things are green in the cost per acquisition model and then there's going to be a lot of learnings and making sure that you're mapping all the data
• 30:06
  correctly and giving it to the right decision makers so they understand, especially if it's new to them, that hey, we got to start thinking about a bunch of other ways that this funnel can fail for us or it
• 30:21
  can work for us.
• 30:22
  Exactly.
• 30:23
  We can't just take the company's historical life customer lifetime value and apply that to this brand new customer source that may have a significantly lower or higher lifetime value associated with it.
• 30:34
  And this is the art of leadership, right?
• 30:35
  You've got imperfect information.
• 30:36
  You don't know what that LTV is going to be for this new cohort, but you have to measure it and find out over time and make the decision.
• 30:43
  And the other point on the earlier thing that you made, and I think I've seen this as well, we've got this really productive channel with this high performing agency and the reason they're high performing is because they've got
• 30:54
  great sales talent because they're paying big commissions.
• 30:57
  And we'll take that commission and we'll attribute it to top of house cost and we won't include it in the, you know, the cost of acquisition for this channel.
• 31:03
  I've seen that go awry as well.
• 31:05
  I hate the data sometimes, Sal.
• 31:07
  I shouldn't say this, but I hate the data sometimes, Sal, because if I look at my own funnel, the data screams at me.
• 31:12
  Go to industry conferences and in person events and yet cursors on cursors.
• 31:17
  I used to run Capital One's Martech stack, so I'm really good at Google Ads.
• 31:21
  Right, right, right, right.
• 31:22
  Entirely ineffective.
• 31:23
  Entirely ineffective.
• 31:24
  I'm like, oh, I've got this big talent sitting on a shelf and I can't do Anything with it.
• 31:28
  Frustrated.
• 31:29
  I want to talk to you about the racing team because you're lucky to be able to work with the racing team.
• 31:33
  And I know that, you know, whether it's F1 or not, F1 has had this huge surge in the, in the U.S.
• 31:40
  i know.
• 31:40
  I lived in the UK for most of my life and F1 was always really big over there.
• 31:44
  But I think Netflix has really taken it to another level over here.
• 31:46
  What is life like working with a racing team?
• 31:49
  Please tell me it's fast.
• 31:51
  Yeah, it's fast.
• 31:52
  I mean, it's.
• 31:53
  I had never been.
• 31:54
  So this is a NASCAR racing team.
• 31:56
  I had never been to a, a facility where, you know, the stuff is made and you know, like, the first thing I learned was like new engines, new vehicles, every race, you know.
• 32:12
  Oh, I didn't know that.
• 32:13
  Yeah, it's a little bit different from F1 in that the, the scientific part of the machine is much more tightly regulated in nascar.
• 32:26
  And so, so everyone's pretty much racing, you know, kind of the same thing.
• 32:31
  And it, it's more about, I don't want to say F1's not about the driver because it is.
• 32:37
  But, you know, it's, it's a, it's a, it's a bit more about.
• 32:40
  It's more a partnership.
• 32:41
  Driver plus car partnership.
• 32:43
  Yeah, right.
• 32:43
  Right.
• 32:44
  But yeah, it was, it's, it's, you know, it's a, it's a big operation.
• 32:48
  Not, you know, like billion dollar size operation, but, you know, it's a, it's a big operation.
• 32:53
  They've got like, you know, an awesome facility where they've got, you know, cars in these, you know, you know, perfectly clean, you know, work environments that are just getting ready for the next race.
• 33:06
  And they've got a test track outside, you know, where they, they can do test runs of different things that they're, that they're working on.
• 33:15
  If I remember correctly, the big thing with them is the, the chassis can be reused.
• 33:24
  And of course, you know, crashes are a big cost to the NASCAR team because you got to put, especially if you've got like the ability to put four cars on the track every week, you know, a crash and
• 33:38
  if it happens twice or if there's a big pile up and you're just unlucky, you know, that, that's like a, a, a week to week expense that could really like, you know, crash your P.
• 33:51
  L.
• 33:52
  Yeah, it's hard to model and predict as well.
• 33:53
  Like.
• 33:54
  Right.
• 33:54
  Do you take like the average number of crashes per year per team?
• 33:57
  And then apply that to your projections.
• 33:59
  Pretty pretty much.
• 34:00
  That's kind of the, the methodology.
• 34:02
  And then obviously, you know, like, all these businesses, like F1, there's, you know, a lot of revenue.
• 34:09
  Revenue that comes from the.
• 34:12
  The association, the racing association, and then obviously the sponsorship revenue.
• 34:16
  Sponsors.
• 34:17
  Yeah, there's no shortage of sponsor coverage on those cars.
• 34:20
  Yeah, yeah.
• 34:20
  And.
• 34:21
  And then, you know, how does that money flow?
• 34:24
  What's the pipeline?
• 34:25
  Like, you know, are.
• 34:29
  Some sponsors are really tied in with specific drivers.
• 34:33
  So if the drivers.
• 34:36
  If you're going to change the driver out, you have to negotiate with the sponsor and figure out if they want to pick up the new driver.
• 34:42
  Drivers get injured as well, don't they?
• 34:44
  Yeah, drivers get, get injured and can't race.
• 34:47
  So there's a lot of, you know, just interesting nuances that you don't see kind of in.
• 34:53
  In other businesses, you know, that are.
• 34:56
  That are.
• 34:56
  That are really like, interesting and fun problems to think about.
• 35:00
  Yeah, I love that.
• 35:01
  I'll never forget my first NASCAR race.
• 35:02
  I went down to Richmond and I was with a.
• 35:04
  I was with a sponsor, so I was on the inside ring.
• 35:07
  And I remember before the race, someone saying to me, you know, if you've got conversations you want to have with people, make sure you do it before the race, because you won't be able to.
• 35:14
  And, and my naive head, I was like, oh, I can just lean in close and, like, cup my ear and they'll still be able to hear me.
• 35:20
  It was.
• 35:20
  I was half a lap in before I realized there was zero chance of that.
• 35:24
  Yeah, yeah, yeah, yeah.
• 35:26
  It's, it's, it's.
• 35:27
  It's very loud in there.
• 35:28
  And I still remember the axis as well.
• 35:29
  And I'm sure you've been on the inside ring of one as well, but the axis as well.
• 35:33
  I was standing down by the pit lane, like, and they're literally throwing tires around, and I'm standing next to a pile of still smoking tires.
• 35:38
  Like.
• 35:39
  Yeah, yeah, yeah.
• 35:40
  It's.
• 35:40
  It's an extraordina experience.
• 35:42
  Definitely one that I'd recommend to people.
• 35:44
  So your clients vary in size.
• 35:47
  We talked about, I think, between 3 and 100 million as the RCP definitions.
• 35:52
  I'm sure you work outside that.
• 35:53
  And some of the smaller clients pay for just a few number of hours a month.
• 35:57
  They don't necessarily want reporting.
• 35:58
  They just want, and I think you said this to me last time, just want somebody to talk to.
• 36:04
  What's the value that those clients are buying compared to the bigger ones?
• 36:08
  So the, the paying for you know, 10 hours of, of meetings a month or you know, kind of advice.
• 36:18
  It's not, sometimes they don't even really use all the 10 hours but they, they really need a thought partner for things that they're wanting to work on and improve in their business and they're not quite big enough to,
• 36:32
  or they've got enough of a handle on like the financial reporting and they're kind of comfortable with that.
• 36:37
  These are usually more sophisticated business owners who are in the early innings of what they're doing and they, they really want to be able to talk to somebody as sophisticated as they are about decisions that they make in
• 36:52
  the business.
• 36:54
  And sometimes we might have to go away and like gather some data and run some numbers for them.
• 36:58
  But the idea is, you know, it's like a weekly check in meeting might be with the rest of the executive leadership team.
• 37:07
  They basically want to discuss challenges and things that they're thinking about in their business.
• 37:15
  You know, an example would be, you know, we have an architecture firm that is branching into design, build and potentially even doing spec builds and they've got like a specific construction methodology that gives them some competitive advantages in
• 37:33
  terms of cost to build residential, high quality residential architecture.
• 37:38
  And you know, as a service business, as an architect, if you've been around for a while and you really understand a ton about the construction process but the whole financial aspect of it and the working capital and you
• 37:53
  know, also figuring out like the marketing for spec builds and that kind of stuff is quite challenging.
• 38:00
  Yeah, different game.
• 38:01
  Yeah, yeah.
• 38:02
  And so there's a lot of know how there, but there's also a lot of stuff they don't know.
• 38:07
  So in that, in that case, you know, we have a CFO on our team who's got an amazing pedigree in residential home construction.
• 38:16
  I think he worked at, in various finance functions and he then was the CFO of a family owned home builder and really understands like the advantages of how the scale operators work, what their methodologies are and then also
• 38:34
  the, the mom and pop builder which gives them a lot of know how and awareness to be able to advise this client on, hey, don't do these things, you know, you'll, you're going to make a mistake.
• 38:49
  You know, here's best practices and, and really give them, you know, value to give the owner of that business valued advice as he tries to build this new part of his business.
• 39:01
  I think I know the answer to this because I operate basically the same business in an adjacent space.
• 39:05
  But similarly like I rely on mid senior people I rely on 1099s a lot as well for stuff my deals, because that supply exists right in the Marketplace.
• 39:18
  Whereas maybe 10 years ago, I don't think 10, 15 years ago, maybe I don't think either of us would have so many willing candidates to work fractionally.
• 39:26
  Why do you think that's changed and why do you think folks like you and I are now able to take advantage of that supply that exists in the marketplace?
• 39:33
  Well, I think one is clients are more used to working over video, especially if it's working with advisors.
• 39:43
  And so that gives us the ability to seek out talent, you know, more broadly.
• 39:49
  So I've got like the cfo I was just talking about Greg, he lives in Tennessee and the client is like up by me right in, in the, in the Northeast.
• 40:01
  So but that doesn't matter.
• 40:02
  You know, it's really like the knowledge and the, the professional acumen that something.
• 40:09
  Good to come up with after all then, right?
• 40:11
  Yeah, yeah.
• 40:12
  So I think that that's really the COVID Permission to do work over video is one and then I think the other is that we're.
• 40:21
  I don't know if it's a demographic thing or what, but there's definitely a cresting of mid to late career professionals who, you know, don't need to work a W2 job but continue to want income.
• 40:37
  And they're really looking for what I tell them is the value of working as a 1099 for us is variety, flexibility and access to the decision maker in all of the assignments, which some of them might be fairly
• 40:57
  senior coming out of their W2 job, but they may not really always be working directly with the decision maker.
• 41:04
  Yeah, and I see a real split in it as well, especially as many of the most, especially more senior W2 jobs have gone back to four or five days in the office as well.
• 41:14
  Like there's a kind of rift developing in the workforce, I think for people who price flexibility and people who don't get it anymore, having enjoyed it for three years.
• 41:23
  One last question for you in terms of the trade off for those smaller clients.
• 41:26
  So someone is getting access to what you said, 10 hours a month, for example, is hypothetical example compared to, you know, if they took that money and hired a much more junior finance person, but full time as part
• 41:39
  of their staff.
• 41:40
  Like what's the, what's the difference in advice that they would get and the outcomes that they would get from doing that?
• 41:47
  Oh, I, I mean, I think in the, in the example of Greg and the architecture client and you're saying, would the lower level person be coming from us?
• 41:54
  Or it'd be somebody that they would.
• 41:55
  Hire directly or someone they would hire full time on their books as a W2.
• 41:58
  Yeah, they, they would have to find somebody who's coming out of a construction outfit and has been around long enough.
• 42:07
  To.
• 42:10
  See enough of how one operation works at least to be able to provide advice.
• 42:15
  The advantage of Greg is he's seen like, he's seen four in the top 10 home builders.
• 42:21
  I mean that's, that's a big thing.
• 42:23
  To bring to the table.
• 42:24
  That's a big, that's a really big thing to bring to the table.
• 42:27
  So, so, and, and, and then he finishes or he's kind of like in the conclusion of his W2 career at a home, a family owned home builder that's doing, you know, 20 to 40 builds, you know, a year
• 42:44
  kind of thing.
• 42:45
  Nothing close to what Toll Brothers does.
• 42:47
  So, so he's seeing it at the small scale, at the big scale.
• 42:51
  He's seen it hard, hard to compete with that.
• 42:56
  Right.
• 42:56
  Ten hours of his time gotta be, you know, I don't know.
• 43:02
  I, I don't, I don't know.
• 43:03
  How do you, I, I don't even.
• 43:04
  Because I, obviously I, I handle the same objections as you because we've got very similar, different business models.
• 43:09
  But the, Yeah, I don't think you can do that equation that you, that you just began the story.
• 43:13
  Yeah, I don't think you can.
• 43:14
  I think there's a, the quality of insight that comes with experience.
• 43:18
  I don't think a junior person with a hundred hours a week could, could get to that because you've not been there and done that.
• 43:24
  And then I think with us too, what we do is we really try to bring ideas across clients.
• 43:32
  So that's another advantage of using our model is like we see a lot of businesses with different versions of the same problem or totally different problems.
• 43:43
  And we also know like, hey, this guy had this QuickBooks problem over here and we solved it this way.
• 43:49
  It could be applied over here or there's so many variations and the industry doesn't matter as much as like the lower middle market size of the company where they are encountering similar things.
• 44:03
  Totally agree.
• 44:04
  Yeah, so totally agree.
• 44:06
  I have the same thing.
• 44:07
  I have a list of.
• 44:08
  Here are the 20 data problems that we see over and over again.
• 44:12
  And every client I come up with says, oh, but we're different.
• 44:15
  Like you know, our industry or our company is unique.
• 44:18
  And yeah, every time I see one of the same set of problems in there.
• 44:23
  People are more similar than they think.
• 44:24
  Sal, it's been so great talking to you and having you on.
• 44:27
  We had such a great conversation before and it was just you and I.
• 44:29
  And I'm glad we got to share this one with a.
• 44:31
  With a bigger audience for folks interested in what you're offering who want to find out more about what you're offering.
• 44:38
  Yeah.
• 44:38
  Where should they come find you?
• 44:39
  CFoproanalytics.com is our website.
• 44:44
  You can see the team that's on there.
• 44:47
  Take a look at some of our clients.
• 44:48
  We've got some case studies and a lot of useful calculators that you might find helpful.
• 44:56
  You could also check me out on LinkedIn.
• 44:59
  I've got a pretty active profile there.
• 45:03
  Yeah, so those, those two places.
• 45:06
  Love it.
• 45:07
  Well, we'll put the links in the show notes as well for folks who are at a computer when they hear it.
• 45:13
  Sal, thanks so much for coming on.
• 45:14
  I hope we continue to stay in touch as we make our way around.
• 45:18
  And thanks for sharing all the great stories and particularly the specific examples you showed today, I think will be really valuable for folks listening.
• 45:24
  So thanks so much for those.
• 45:25
  Yeah, my pleasure.
• 45:26
  Okay, take care.
• 45:27
  Thanks for listening to the PE Data guy.
• 45:30
  The place where private equity meets data.
• 45:32
  Please forward this episode to your favorite private equity friend.
• 45:36
  Thanks for listening.
• 45:37
  See you next time.