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welcome to this presentation of growth leaders essentials a continuation in our series i'm steve nelson uh the ceo of capital insight partners along with meadows bank we're very proud to sponsor this series uh we welcome you for joining us today we thank you as well i'd like to introduce gary covert gary is an executive advisor and coach he helps senior leaders and their teams execute at a strategic level develop talent and innovate continuously without burning out gary is also a mckay ceo forum's chair mckay's mission is to populate the world with inspiring leaders something that really resonates with gary our lead presenter today is joel strong joel is the founder of chief value officers and an advisor to owners and ceos of growing businesses utilizing his strategic value acceleration process he helps his ceo clients transition into cv chief value officers this helps them maximize their company's enterprise value and move their business from ordinary to extraordinary so with that i turn it over to joel strum thank you steve uh and welcome everyone to our growth leaders essentials number five the title today is missing uh the missing c-suite position that creates gotta have businesses and the way we're gonna be doing this today is like we've done our prior ones uh gary is gonna be talking back and forth with me quite a bit and uh asking me some tough questions to see if i can pass the test um so it i think it adds a lot to our process when we do that so uh so let's jump right in uh today's webinar is decided to create a it a little bit differently uh we're gonna we're gonna cover three big ideas for ceos today and if you happen to be watching this and are not a ceo that's okay you can talk to your ceo about this uh when we're done and and help your company and you'll have a great understanding of where your ceo should be going so so let's jump in with idea number one your most important job as a ceo is to take the role of the cvo and that's that missing c-suite position the the chief value officer of the business can take the business and maximize its enterprise value you know every time i go to do a webinar like this something happens outside of the webinar that really relates back to this and for the last week or so in fact couple weeks we've been ordering gifts for the holiday gifts and every day i keep getting indications that things are late and they're going to be delayed and we can't count on it getting there and yet just this morning before um before this webinar started something that we ordered from amazon yesterday showed up this morning before 10 o'clock this morning there it was on the front door and to me what that says is when you look at amazon and you look at jeff bezos he took the role or takes the role of the ceo of the chief value officer because what he's done at amazon is he hasn't let any little piece of that company or his job uh affect where amazon went and how it went he watched every point of it and he kept his eye on the future and building value he didn't care that early on i guess the shareholders cared for a while but early on he kept saying we're not going to focus on whether or not we're losing money today because someday this is going to be a great company and keep that in mind as we go through this morning's uh short short webinar so what's your role as the cdo your role as a cvo like jeff bezos did was to look to the future set a value creation goal and then lead your company toward that goal it sounds simple this morning i know but it's a little more difficult than that uh but the whole key here is to really take this role to heart to become the ceo of the company to take that uh that mindset and work that mindset through your team so that you're continually looking to the future you're continually looking for that goal that you're set and you're leading your company towards that goal um so joel joel said i would jump in with uh with questions and i have one if if i may interject uh joel uh tell me tell me a little bit more about setting this value creation goal what does it look like you know do you go public with it things like that uh i'll answer the questions backwards yes you go public with it because the whole organization has to know what your focus is as a ceo the best way i can set or tell you about a goal is using an example so a number of years ago started working with a closely held business the owner it was a family business the owner the founder looked at the business and said look uh we we've hit a 15 million dollar level or a plateau i know i can't grow this business much further and yet we want to have a goal we want to we don't want to just go along at 15 to 20 million dollars or so and they sat down their family sat down and set a goal of 100 million dollars in sales in 10 years and sell the business for a ridiculous amount of money that was their goal and they they continually focused on that they continually set their uh their game plans their strategies their strategic plans on hitting that goal and within about well it actually was a little over nine years they were just approaching 100 million dollars and they decided that timing was right that they were going to sell the business and they and they got a ridiculous mark or multiple for their business and they walked away from that family walked away from that business with 350 million dollars not quite in their pocket because they did have to pay some taxes um but uh but 350 million dollars would pay to that company for that company and it was way beyond what the normal multiple was for their type of business and that's because they did the kind of things that we're going to talk about this morning they set their value creation goal they stuck to their goal and they didn't they didn't flinch if a few come a few times during the early parts of this growth uh they weren't making the kind of money that they thought they should be making yeah yeah okay so and just a clarifying point before we go forward because i know people want to know how they did it was uh was it the value creation goal it's the exit goal was public or was it the sales price the uh the annual revenue uh you're so you're so good gary uh it would be it's the point that we're gonna be 100 million dollar a year company they did not talk about the sale uh obviously as we got closer and closer to that because they were a fairly large small business uh it wasn't it didn't surprise let's put it this way it didn't surprise anybody when the when the bids started coming in but one of the things that they really focused on is really what we're going to talk about as a big idea number two as the cbo you you really can't sacrifice long-term value for short-term profitability that's that was one of the key things that that company did and management did and ownership did is that they kept their they kept their target on the on the goal they kept looking for where they were heading are we getting closer to that to that 100 billion dollar high profitability goal that we set and and so you know what i tell my my ceo clients is that you really have to keep your eye on that future prize i don't know you have to watch you obviously have to make money you have to be profitable but you can't let that blind you to the fact that you're going so you need to invest in things like infrastructure the infrastructure that's going to get you there you need to invest in the right people the right team the people who may cost you more than what your quote budget should have been for that at that level what you're doing is you're building for the future um you're building a team as i like to say that will where the company will catch up to the team as opposed to the team catching up for the company and then you have to create and follow this value creation roadmap i mean that's that's the key but really that's that box up in the top left-hand corner is what's really telling you what you need to be doing you need to invest in your future if you're going to have the value if you're going to hit that value goal successfully yeah which i i think is uh more challenging than ever given you know that we have so many uh disruptions contingencies and things related to the pandemic and all the dominoes that have fallen after that so are there some things that you've seen that your clients do or to keep their mind focused on the future or particular habits or you just say you know wake up and stick with it yeah you know to your point i mean if things are going on like they are now uh and even during that 10-year span that this company was focused on that 100 billion dollar goal there were economic issues that happened at certain points during that those 10 years you know you may have to pull back on some of the things you may have to bring it back a little bit your goal may have to be you know if if the goal is 100 million and it's not the 10 years then maybe you need to extend it out a little bit or maybe you need to uh bring the the goal down a little bit but the idea is that you can't let yourself get so focused on today even with some of the issues you know what what i've seen companies do and i i'm i've seen it more times than not is that they seem to build really good habits during hard times and they fall into bad habits in bad in good times when well we're going to get those sales anyway things are going to happen people are going to keep buying our product uh there's a demand out there so we kind of let our guard down so i think it's important that that cbo focus on that that future prize whether it's a good time or a bad time they can't let themselves get sloppy when things are really good and they can't let themselves get over indulgent when things get get bad so keeping that eye on that future prize investing in the smart investment in the infrastructure i'm not saying we spend money without thinking about where we're going you still run a tight ship but but the idea is is everything we're doing day to day getting us closer to that goal thanks and i i wrote down your uh you can be quoted later uh i create your good habits and bad times yeah it is true it's true you can see that quite often if you really look at a company that's really doing great and you look and go wait a minute all of a sudden the economy slows down or something happens in the industry and those companies are going you know what we let our guard down we don't know how to deal with with bad times all right so big idea number three you maximize enterprise value by creating a great company and this is where um we get a little off what's normal what people think about all the time because my belief is that enterprise value comes from more than just your ebitda and gary i know when you've asked me this a number of times make sure we talk about what ebitda is that's earnings before interest taxes depreciation and amortization uh in effect it's your profit it's your cash with your available cash and most formulas for value on a company are are done by taking ebitda and multiplying it times a industry wide multiple a rule of thumb multiple um and it varies from that so you know some companies maybe come into three if it's a five or a six times either that multiple and um and companies come in to buy other companies or people buy other companies based on a a multiple like that and what what i have seen over the years over the many years that i've been doing this is that value comes from building a great company and the way you get the value if you go to sell the business is that that multiple gets huge it gets if you throw out the industry multiple and you come up with that uh that ridiculously high moldable is in case of this uh 100 million dollar company selling for 350 million dollars uh you get double digit multiples and then you get companies fighting over it you know potential buyers fighting over the the the company that's for sale because they are a great company and they uh the i once you once you've hit that point of being a great high value company you get a lot more benefits than just going to sell your business at a higher multiple um you know companies are own ceos tell me well i don't need to worry about being a cbo because i'm not planning on selling this business well i'd rather be a owner of a high value great company than a not so high value not so great company because i get a lot more benefits than just the value i may get if i do decide to sell it for one thing i value great companies usually do make higher ebitda your profitability goes up so while you've got the company you're growing it uh if you've got a great company it's producing a lot more profitability uh it gives the owner options the owner of a great company can sell the business can keep the business can pass it on in the next to the next generation can easily find someone else to run the business while they go to hawaii and what they're checked on the beach while they're having a drink uh great companies give you more than just the dollars you get and the sale the third thing that it does besides the the hive sale price is that it gives your your family your heirs uh and the family that owns the business it gives them a value insurance because if you've got a great company and something should happen to the owner to the ceo flash cdo of the business a great company keeps on working keeps on going people feel bad people send flowers but the company two days later is operating as well or better than it was when you were when you were involved so companies that are not at that stage companies that don't get to that point what happens is uh the day after the loss of a founder or owner or ceo uh the value starts to drop and uh your the heirs don't know what to do with the company and if they don't get rid of it quickly to it's going to continue to depreciate in value so so building a high value company is is a lot more than if you are looking to sell your business yeah you brought up some really great points and you started talking about family i had this thought uh for later you can make we can answer it later or you can now if you feel it's appropriate but very quickly um so you're talking about ceo and being the cbo but for some organizations some businesses you've got somebody who's been named the ceo but they're not the only owner maybe there's a family involved or other partners involved in meeting some thoughts on how to in uh put that cbo mindset into partners or other or what's the dynamics or how would you well in a lot of cases in a lot of cases the um the the owner studio the founder ceo at some point and the the company i was using as an example uh was a that happened there uh the ceo the founder ceo got the business up to 15 million dollars they wanted to hit their value goal was 100 or their future goals 100 million dollars in sales and the ceo was smart enough to understand that he could not take the business to that level he had no experience doing it we brought in a ceo from the outside that was not family and that ceo was given instructions from their from the shareholders that said here's our goal and so the new ceo the non-family ceo became the non-family ceo with support from the board that you know whether he was a family member or not now has to take that and push it down to the rest of the organization because everybody has to understand from the board on down through the ceo whether the ceo is family or not and the rest of the organization what's the vision where are we going and what's what's the right behavior for someone who's running this business or who's managing a component within the business uh i don't know if that answered your question that that that did because you're talking about that dynamics they uh uh kept the mindset but delegated the activities right exactly i think what seems to be important is to make sure we've got alignment that this is where we're going as an ownership group alignment is critical it's critical and it's you know i remember having a conversation with gary once about the idea that the one way to help get value into your business and and create that great company is make it so that the ceo is not critical to the long-term operation of the business though the more reliant the company is on the ceo the less the value um and i've had companies i've had potential buyers walk into companies find out that the owner was totally critical when it came to the future of the business and they walked out because as one as one buyer once said to one of my clients this company is one heartbeat away from disaster and we can't take that risk one more point on this whole idea of what makes a company great um talked about strategic value although we haven't gotten into detail in it today and we don't have the time obviously to get into the detail here but basically when i look at a company and talk with a cvo about what they need to be doing to create a great company we really look at the company in what we call four pillars we look at the financial side of the business we look at the operational side of the business the strategic piece of the business and then the industry itself that they're in and there's a lot of detail a lot of components that uh go on to a checklist here of saying do you check off all the boxes and what we found over the years is that all four pillars of strategic value have to be strong and have to be supporting that value uh if there's a if there's a glitch in one of the in one of the uh pillars and you know if you think about four legs of the table if one of them is not that strong either it's going to be a lopsided rocky table or it's going to give way and crash you know so even though i i said that example of the ceo who lost his sale because uh he was too important to the business the rest of the strategic pillars were were really strong in his business but that one operational pillar or the one component of the operational pillar that says how important is the ceo to the ongoing value of the business uh that particular pillar killed the sale so his value went from an initial estimate of about 25 million dollars that we could sell this company for it went down to zero because the buyer was not going to make a sale at any price he wasn't going to buy that business until the ceo fixed the that problem until the company could fix that problem so that's how important a component within any one of those uh strategic value pillars uh is and if you can really create good strength in all four of those pillars uh you can create a company that everybody wants and if everybody wants it the value's up and it's what i have termed for many years i've gotta have business it's the one that everybody bids on everybody tries to push the value up on because you know they're sitting there looking at potential acquisitions and they go i got to have that one and if you've got to have that one you're going to pay more for it and you're going to pump the value up um it's like anything else that in life if you've got a got to have the price becomes left and left of of a factor in the in the decision so this you know the as far as the four pillars are concerned in the details if anybody wants to go to the chief valueofficers.com website there's a uh there's an assessment they can take to see how strong they are in any one of those pillars actually all four of the pillars and they get a strategic value score and they get a kind of an idea of where they stand in that and most importantly they get an idea of where they should concentrate to fix what may be hurting their value so the three big ideas that we covered today as we're getting close to the end of our half hour is to number one the ceo needs to take on the role of the cvo because if he or she doesn't do it who's going to do it it has to be that that person and that person has to have the support if it's if that ceo is not family to your point gary if that family is if his ceo is not family the family behind that has to be uh on the same page and the people in front of that ceo have to be on the same page number two don't sacrifice long-term value for short-term profitability the the there's always that you know in a public company uh every quarter they're giving results they're they're reporting on their uh on their earnings and it i believe that hurts some companies future value growth public company value growth as i mentioned earlier jeff bezos didn't seem to worry about that and look where it got him so as a private company the advantage we have is that we don't have to worry about reporting to the uh to the public about what our value what our profitability is on the short term and finally number three maximize your enterprise value not by strictly the ebitda but by creating a great company and that that is really the focus because if we can still set that goal of being a really great company then and we get our four pillars really strengthened um we've got so many options for our business we can sell it and pocket a bundle of money or we can hold on to it and collect money we can pass it on to the next generation or to other employees and we've got we've got a choice so gary i don't know whether there were any more questions i know you've been asking some and and yeah i think we've got to wrap up here in about just a minute or two but i'll ask a quick one if you can answer it briefly so when i work with executives one of the uh predictable success factors of them being able to be as good an executive as they want to be is time mastery and just even simple things like having an executive assistant you know just to get things off their plate manage their calendar things like that's critical success factor so in your opinion what are some of the critical success factors for a ceo to be able to be a cvo well you know i'll use that example as a perfect one if i'm so focused on short-term profitability i don't hire that person because that whatever 30 000 a year or whatever it's going to cost me is going to come away from my bottom line well i can't do that because it's a it's going to affect my ability to grow the business so the biggest critical success factor that i've seen is again the investment in the infrastructure i need the right person i can't have a uh an accounting senior accountant when i'm at the point where i need a cfo i can't have a um an untrained uh engineer when i need a master degree engineer to really make this happen i can't imp on those kind of things the systems i have my enterprise system the computer system my um my equipment and the people i hire in the in the in my if i'm manufacturing in my plan those are the things that i can't get hooked on because they are critical success factors great suggestions and with that how about steve maybe you could wrap up let me just wrap up with one quickie thing and then i'll let steve go there's 30 seconds um coming in january of 2021 is my new book uh eeo to cvo moving your company from ordinary to extraordinary if um if you want you go to my our website chief valueofficers.com you can sign up for a launch notification and plus if you do that you'll get a uh attendee your webinar attendee discount that we'll make sure you get for the book so uh that's coming i hope you'll get some explain explanation of of strategic value in there for sure love it thank you joel so from from my chair as an investment officer uh what you said particularly big idea number two truly resonated we believe that the decade of the 2020s are a time to go on offense so investing in infrastructure making the long-term investments to bring success really resonated with me as an investment professional and i know that meadows bank being a great business bank in both nevada and here in phoenix is eager to help on the capital needs we're happy to help on the investment side i want to thank gary covert and especially you joel this was really informative i thoroughly enjoyed it and thanks to all of you who participated we welcome you back after the holidays on january 5th for our next series in the growth leaders essentials webinar thanks