Podcast Transcript

[00:00:00] Sean: G’day everyone, and welcome to the ScaleUps Podcast where we help first-time Founders learn the secrets of scaling so they can fulfill the potential of their business, make big decisions with greater confidence and maximise the value and impact they can create in the world. I'm your host, Sean Steele, and I'm joined today by Michael Fingland - Founder and CEO of Vantage Performance. Welcome Michael. We were introduced not long ago to north of 40 million, and he said to me that you are an absolute gun, so there's no pressure for you today, but just for those who don't know a bit about your background, I just think what you and your team have done advantages, is really a very compelling, let me illuminate them a bit.

[00:01:17] You've been there for 16 and a half years now. You've got this incredibly unique and successful model that you developed and in terms of outcomes, I'm sure people will agree with me, this is pretty staggering and you guys have done 170 turnarounds - 1 7 0 turnarounds with companies, you know, 10 mil to 500 million support every time in doing those, you've got a 85% success rate in completing turnarounds, 14 turnaround awards your team has achieved, you've preserved almost a billion-dollars’ worth of financier debts. But the real kicker is the 20 thousand jobs you guys have saved completing those turnarounds. And I just think that's an extraordinary chapter, and I know you guys are far from done yet. Is that right? How did you feel when you hear those numbers?  

[00:02:02] Michael: Yeah, I mean, we just had a 16-year anniversary party actually, where we sort of brought all those things together and yeah, it's very humbling. As you say, it feels like we’ve only just started and, like most scale-ups ourselves, you know, Jim Collins and Vern Harnish, some of those that led the way in terms of the discovery of all those tools and systems that achieve that. But, like Jim Collins particular talks about an overnight success and often most businesses don't really start to scale until they've been going for 15 years. So, for us, it feels like we're just starting at the very humbling and as I said… well, as you alluded to, that job saved for us as well. That's why we do what we do.

[00:02:44] Sean: Yeah. I love that. I remember actually interviewing Kelly Broderick from Clean Works. And one of the things that she'd been given advice early on was; you just have to assume that you need to be this in 20 years. If you actually want to build something that's material, that it's moving, it's got its own momentum, its own life force, and so you just have to assume that it's going to take you 20 years. So, don't expect to get to 10 and have built a unicorn.

[00:03:06] Michael: And it's never a straight line. It's no matter how successful you end up being, it's never a straight line, I can tell you.

[00:03:12] Sean: Yeah, that's exactly right. And I know that your company is also now, you know, even though you're a turnaround specialist, given all the knowledge that you've got, you're now deploying that towards companies that want to fast track their efforts to scale so they might not be in trouble at all but they're actually now looking to scale and your teams that have built this fast-track progress, I want to make sure that we get a chance to chat about that today. But I've invited you on today of course to talk to our typically first-time Founders, companies in the 10 mil or 20 mil revenue range most often, and really to see if… it's quite a challenging exercise really, to think about; Well, out of every, without it becoming too generic, out of everything that I've learned, given you saying 170-200 rounds, what are some of those key things that you think Founders really need to get right if they want to scale up and the things that they need to focus on, how to help them succeed, and that might be avoiding certain things, or it might be accelerating certain things, but let's start with you. How did you get into doing turnarounds in the first place? Like, what was your sort of career path that led you to here?

[00:04:13] Michael: Yeah. I mean, I guess you could say it was almost by accident because when I finished my Bachelor of Business degree, I was very keen to get into a chartered accounting firm. And back in the early 90’s, really the only firms really employing work with those in the insolvency space. So, I joined a specialist insolvency firm called Jefferson Stevenson here in Brisbane and worked with the team there for four years. And whilst we achieved a lot of…I guess by insolvency standards, a lot of success, for me, there was still something left to be answered. No matter how good of receivership or voluntary administration you might do, you might get the financials out, but often there's still lots of carnage left behind, and it's not just the financial collateral damage, but it's also the social damage that the real people impacts that you often don't hear about, the knock on effect of bankruptcies and suicides and a whole and a family breakups, there's the real people impacts. But back then in the early 90’s, mid-90’s, now there was nothing, there was no turnaround industry per se. There was other insolvency at one end and blue sky and strong companies at the other end. And there was no one really providing that solution in that middle ground, where business started to start to slip towards that insolvency space. And it wasn't until I went to the UK with Ernst Young in 99, where I even discovered turnaround, it was a burgeoning industry there, they are still 15 years ahead of us. UK is about 20, 25 years ahead of Australia in terms of a fully-fledged turnaround industry. And for me, that was a no-brainer because there was something missing in insolvency for me because you couldn't really help solve every crisis. All the best you could do… clean up the mess is best you could for want of a better word. So, for me, it was a natural progression into turnaround where I've stayed ever since because you can when you're working with businesses for weeks to 12 months out from that otherwise sort of proverbial brick wall. And for me, that was just a natural progression to help save every company that we came across as opposed to helping clean up clean up the mess.

[00:06:23] Sean: The funny thing is Michael, I don't know what image I had in my head of like, who is a turnaround specialist but you're so incredibly calm that I just… you know, you assume that the insolvency guys are generally going to be really deadpan, like, there's literally no emotion, there's nothing that you can throw at me. I'm like one emotion, like the range is about 5%. And then you assume that the turnaround guys are going to be like, they are essentially scalers who are finding an opportunity. You just did it, and it's almost more of a vulture style opportunity, like here’s a business that we can get in and we can scale, but we can get access to it cheaply and then sort of build the other side. But that's not your demeanour at all. And what I love about your company is that there's a real heart to it, and I feel that in the conversations that we've had so far. So can you maybe talk to me about some of these lessons. So… well, let's start with the first one from your perspective, what's something that you think that Founders really need to focus on, and what's maybe a story or an example from your past that it would help to illustrate why your belief is that that's something that they really need to pay attention to?

[00:07:28] Michael: Yeah, I guess first and foremost, understanding their cash flow and then you hear that talked about a lot, but what I mean by that though, is having a really robust 13-week cashflow in place. And that's something we do on every single job, whether it's a turnaround or a scaling up engagement, and even if a business does have a cashflow, it might be a week out or two weeks forecast, which is useless, really, it needs to be 13 weeks. And why it's so critical and every business we've worked with, whether it be Orchy Orange Juice, Dreamworld, Patriot campers which we helped scale up very early on even before we've been engaged, we show the leaders, some of the tools that we'll embed or anyone in this space will embed.

The cashflow is usually the thing that they gravitate to very quickly as to what they're going to receive, because most entrepreneurs have been yearning for visibility in their business, but they haven't been able to get it from their accountant because most accountants don’t know how to… and then some of them, again, I'm talking more about, not the big four in the second tiers. They know how to do this, but it's more than the next layer down, which is usually who's advising their one to 10 million business. And so, there've been yearning for this visibility in their business and why it needs to be a 30-minute cashflow or 90 in hundred days is because that's typically how long it takes for cash to flow through the business. From buying the raw materials, processing it, invoicing it out, getting the cash back and that 90-day window, if you like, all the various leavers in your business are represented in that window. So, you get great insight into a client's business by truly understanding their 13-week cash flow or their 90-day cashflow, and the visibility, and the understanding that entrepreneurs get as their business gets bigger because they understand it when it's smaller, that they can touch and feel everything. But as it starts to get bigger, and it gets out of their control. That's where they lose that visibility. So that's whether it's a… and you'd be amazed, and we've worked on some very large, listed companies who don't have rolling 13-week cashflows in place It is the first…

[00:9:45] Sean: So, is your suggestion that, a typical 13-week cash flow is updated once a week but for the next... or daily?

[00:9:50] Michael: Everyday. Well, it depends on the state of the crisis. It could be weekly, or if it's a turnaround, if you're in crisis or in really rapid growth mode.

And 1/3 of our turnarounds are businesses that were growing 30 40% because they have a trade and they run out of cash. So, they might be showing revenue and profit growth. But their debit collection, their inventory, everything gets out of whack, and they end up with overgrowth, their finance facilities, and they actually then get into a cash crunch.

[00:10:17] Sean: Can you just go back because I think that stat really would surprise people, 30% of the businesses that you end up working with are actually growing at 30 or 40% a year. They run out of cash because, you know, I think that's incredibly hard for a Founder to get to like; Surely if I'm going that well, finance is going to be like... financial just sort of happen because people will be clamouring to get access to help me, support in my business. But that can change on a dime, like especially if you don't understand your cash conversion cycle and that time lag is too long and you don't have an appropriate working capital facility or you don't understand it well. Yeah, it feels like a thing where cash flow would be the absolute sort of bare minimum to one.

[00:10:57] Michael: It's the first tool you have to put in place. And what happens is, revenue is growing and entrepreneurs get understandably excited by that growth. And so, they keep taking on more and more revenue. But if your creditors demand payment of 7 days, 14 days, 30 days, and your debtors are now blowing out to 30, 40, 60 days, but you're excited because revenue is growing. But if your debtors are taking longer to pay than creditors, and you're building up lots of stock, so if you're sourcing stock from overseas, often you have to buy huge containers full of stock to get it from overseas to get the economies of scale. So, if you haven't affected that in to your cashflow, you’ll run out of cash very, very quickly. And the step that I came across a few years ago from Jim Collins from his decades of research and some of the tools in his books are foundation of what we've put into our business. And that's where fast track came from, was putting all these tools into our business initially. And then we realised; Hey, this is a program that we can sort of tack onto the turnaround once they’re stable. And that's where the ‘aha’ moment came from. And his stat is that he researched and behind each Jim Collins book is a 10-year study on how business has got to a hundred years, what do they have in common, had businesses get through a major disruptive event like we're going through now, whereas others have failed, how did once mighty businesses collapse. So, each speech book that he released, was on the back of 10 years of study and a really incredible stat to the one we just talked about is 50%. And this is in the US, so 50% of businesses that had a record year of growth, collapse the next year.

[00:12:40] Sean: 50% of businesses that have their record year of growth, collapse the following year.

[00:12:50] Michael: 50%. Record year of growth, the following year. That's how rapid it was because the business gets out of control. And what happens is, if you haven't, as you said before, really understood your working capital cycle, which is, and how many days does it take to buy something, to convert it into a product, sell it and collect it. If you don't really understand that, you don't have finance facilities that support that growth, then very quickly you start getting creditor pressure, you get into sort of panic cycle, you're starting to cut corners that can create product quality issues, and that starts to spiral. And then you can get into a financial crisis where earnings are now starting to plummet, even though revenue might still be up and then the financials look at the business and go; well, things aren't quite right here. And then if you don't arrest it really quickly, you end up in that downward spiral, and you end up collapsing. And for us, it's been incredibly consistent over the years 30%, without fail of our clients that come to us in a turnaround situation, have been growing at a rapid rate.

[00:13:52] Sean: Well, I think that's fascinating. And so, one of the things that I think and I imagine this is a very early-stage intervention is actually just looking at the payment terms. What terms debt is paying on? And what turns you having to pay creditors on? Do you find that that just evolves organically without any thought, and you're paying people in 7 days and debtors are paying and you're in 30, or 45, or 60, and no one is really thought to actually go back to those creditors and go, why are we paying these people in 7 days? Like, would they take 30? Would they take 60? Like, do you find that just tends to sort of evolve without really a lot of thought?

[00:14:28] Michael: It does and it gets out of their control because they're so grateful for all this custom that they're getting, and the suppliers that are supporting them, they’re too afraid to go back and ask for those better terms in case customers might go elsewhere or suppliers might stop supply or change course. But back to that sort of ideal size client, if you like or the client base that you're talking to, and as you know 2/3 of all businesses don't make it to five years, right? It's a well-known stat, give or take, and only 20% get to 10 years and beyond. And it doesn't mean they're making money, just means that they've survived. So, you know, those odds are stacked against you, and part of the reason, if you get through to the first five years and you've beat the old, so to speak, but that next stage of growth, which is where businesses go from 10 through to 50 mil turnover, that's the next big trap. Because to actually get through to 50 mil, you have to up-size every part of your business because you’ve outgrown your management structure, your finance facilities, the internal control environment around debtor collection, quality control on the production line, whatever it might be. All of those, you have to upsize everything. And typically, you're growing at that rate of knots through that revenue gap. And that's the next biggest trap for businesses and why must most businesses don't make it, collapse during that transition. And the irony I guess is, all of the upsizing that you have to do to get through to 50, whether it be finance facilities, management, structure, systems controls, we'll actually take you through to a 100 - 150 or more that's to give you some insight into how much investment in every facet of the business needs to be undertaken to actually get you through today and then beyond. And if you're doing that really quickly, as you say, things just get out of control naturally because you're so busy meeting orders and meeting customer demands and trying to deal with HR issues, and then all the various other stakeholders that are demanding your time.

[00:16:36] Sean: Quite often not, I see that the business might be growing at the rate that's going to get them there, but they've still got the same team.

And therefore, very quickly you're outgrowing your capability, because you've got a whole bunch of people who haven't been to 50 before, don't know what's required to get there and therefore aren't helping you mitigate risk along the way, aren't helping putting in the right structures that are actually going to scale. Again, to your point they automated workflows or systems or processes or financing facility to good governance or... when you think about those, all those different upsizing components, are there some more than others that tend to bring people unstuck that you think are actually a bigger issue than others in that scaling from 10 to 50?

[00:17:18] Michael: Yeah. I mean, I'll come back to your why and purpose in a sec, but I think one of the big traps that fast growth businesses get into is, is they chase the big shiny new customer that ends up becoming 60% of the revenue, 80% of the revenue. And it's, whether you're working for big supermarket chains or, a big industrial conglomerate, a mining company, it's exciting because your revenue can triple, quadruple overnight. But once you become… and to serve as such a big increase in revenue to that one customer, you have to take on lots of debt, typically you have to invest in a lot of capital, whether it be production lines, or machinery to fulfill that contract. And all of a sudden, you're now at their behest and very quickly, they start turning the screws on your pricing and your payment terms and everything, knowing that you can't now leave that client, because if you lost that revenue, you now can't service all this debt you've got.

So being really, really cognisant of… you know, it's a difficult thing though, because you've always wanted to grow this business. And all of a sudden, you've got this opportunity to go from five to 15 million overnight, and they don't have those systems in place and the smarts around managing contracts of that size. So, really important. That's another big trap is as they grow quickly, they simply just accept whatever contract is put in front of them by this magic customer because they're too afraid to ask for some from change in terms. So, there's not their responsibility…

[00:18:52] Sean: And it can also be quite… let's just say it's a contract, right. Let's say it's got a defined period, so you get to scale the business up massively. I interviewed recently Glenn Keys from Aspen Medical. And he'd taken on a significant contract where over the course of four years they had to double the size of the business, and then the contract that they knew the contract was ending, so the contract was coming to an end, but then in order to scale the business back down, you’ve got some really difficult decisions to make, because of course a whole bunch of things have been normalized by then, you've got capabilities you don't want to let go of, you've got new systems that now cost more, you've got all these things that have actually scaled up, but then all of a sudden the business has got to scale back and that's incredibly painful. They had to make some real decisions about, how do they keep investing? Do they take a loss for a period? How did that make the most out of those resources? But that can be… so, what I'm hearing from you is there's a real risk of people getting a bit too ambitious, ending up with a really significant dependency and you end up with almost a bit of a lopsided business because what tends to happen in my experience is, you win a big contract like that. And it's like watching a group of kids play basketball. Like the whole clump of them follows the ball together when they're in the under eights, they all start running over here, because they’ve all got to service the magic contract, but what's happening to all of that diversity that you were building, incremental customers, all of that's disappeared because everybody's focused on the big fish. And again, you're just actually increasing the dependency, not reducing it. So, it can be a real sort of poison chalice, can’t it?  

[00:20:22] Michael: Yep, it can, one of the key stats that we have found from to time again is never… and one of the key terms to long-term success for business is never let one customer become greater than 25% of your revenue.

[00:20:35] Sean: 25%, I guess that's the minimum threshold, no more than 25% from one customer.  

[00:20:40] Michael: Yup. That's right. It's a really critical. And you'll go over that threshold from time to time, but always have a focus on growing the pie. So never let one become too big because you might lose that customer because another competitor undercuts you, and then they need that really painful downsizing process, or they turned the screws on you, which often happens, and because I know you can't leave them without collapsing or going through significant pain for a number of years to try and grow yourself out of it. So, just a bit of a market keep aware of and contract management around taking on big new contracts and understanding the finance funding requirement for that which comes back to you if that new 13-week cash flow in your three way forecasts, which is another critical tool that most businesses don't have in place, because it tells you…

[00:21:25] Sean: Can you just for those who maybe haven't been exposed to a three-way forecast, I was just talking with a client just yesterday about a three-way forecast. And it was just it was a new concept to them and their accountant. I could tell very quickly, their accountants actually never had to put one together. They may deal with a balance sheet and the cash flow and profit and loss but they've never actually had to build a constantly updated three-way forecast. Can you talk about what that looks like?

[00:21:45] Michael: Yeah. And it comes back to this notion, I guess that a lot of business owners and management teams don't understand the difference between cash and profit. Now, if you're in a retail business, then your sales each day equate to your cash receipts, but that's only a small percentage of the economy. So, what a three-way does, it's the profit and loss, your balance sheet and cashflow are all linked together, and it gives you the best medium to longer term view as to how your working capital is going to change over time, because you might be making 30% profit on paper. But if you're in a stage where you're investing a lot of capital in infrastructure capital expenditure, whatever it might be your cash actually might not be negative. So, without your three-way cashflow shows you the difference between revenue and cash over that period, but you need to understand by month over the next one, two-three years, how that significant growth you're going through, or if it's a turnaround, if we're going negative where the gaps are going to turn up in cashflow. So, it's linking those three things together to show you how your working capital cycle is changing over time. And you can model different scenarios, to then show you how much cash your business will generate, and how much it needs to generate to actually achieve the repayments to loans and dividends and a whole range of other things. So, without it, you really can't do any long-term planning.

[00:23:11] Sean: I think I'm with you, I think it was actually probably my favourite report to receive every month was actually to look at our proper three-way forecast. Because I was essentially just looking for the red number, right? You go straight to the cash flow and you go, we've got a problem in four months’ time, like we might be fine for the next 90 days, but because we're actually doing a three way forecast properly, and we know what our P&L looks like, that's what everybody starts with and think about it in those terms. But if that doesn't match up with your cash portfolio, how are we actually going to fund that? What do we have to do now on all the different levers might be able to pull our own cash, whether that's financing, whether that's debtors, whether that's creditors, how do we optimise that cash conversion cycle to help to reduce those sort of red risks?  

[00:23:50] Michael: Yeah. And that's the critical bit. So, your three-way sort of kicks in with a 13-week cashflow finishes, so you've got that complete visibility. And the important point you just made there is around your working capital cycle. So, typically, by the time you implemented an initiative, it can take 30 to 90 days to show up in the cashflow, which is why your cashflow needs to be 90 days. So, whether you're growing quickly or you're in a turnaround situation and you're implementing a whole bunch of initiatives, it can take three months to show up in cash. So, it will show up in the profit and loss perhaps straightaway, but it could take three months to show up or four months. So that's why you need both of those tools. And I can tell you now, and I’m pleased to sort of be able to say this in the last five years, particularly financers. Now, if you're looking for funding, if you're in a turnaround or in a high growth state, you need a 13-week cashflow and a three-way forecast. They are looking for those documents because they know if you've got those in your business, you've got great rigor and understanding of the drivers of your business. So, you don't say you're closing that expectation gap. And I say this all the time in turnaround, it's really a game of confidence. It's all about confidence, closing that confidence gap, or increasing the level of confidence that they've got in your business to say, are you a business we want to back, whether you're in high growth mode or in in a turnaround situation. So, they are critical tools.

[00:25:11] Sean: I think and that equally goes for investors... because you're looking for someone to take a minority position or a majority position. And you know, I have this conversation with private clients regularly, I'm like, you need to be thinking about if you're not thinking about taking on capital or an exit for three to five years, you need to have the management discipline in place, so that when they look at that business, they're going to go, this is a low-risk business, these guys are all over their numbers. They've got all the planning and strategic and execution rhythms required, they understand their financials very well, their working capital is in good order. I'm not coming in, if you want to optimise the multiple fundamentally, and you want to optimise the number of people you could expose the business to take on that capital loss strategic partner, they're going to want to say great business, and those are the ones who are actually going to pay over the odds, because you're a low risk proposition, and the one who looks a bit scrappy, and just doesn't have it together.

[00:26:04] Michael: Spot on. It's all about lowering the perceived risk in the transaction, whether it's a turnaround and you needing your financial stakeholders to support you, or it's a sale process and you're looking for the high multiple, if you can lower the perceived risk of the company, you can either get the funding you need. And that's why we've had so much success in that space, because we were putting all these tools in really quickly at the front end to improve our visibility of the business. But we know that, and we use them as a selling tool if you like to prove to financials or shareholders coming in private equity that we're across all the key issues and more importantly the management teams across all the key issues, all the strategic options, the various different scenarios, how this plan could play out. And that we've got contingencies to deal with each of these. And it lowers the perceived risk of giving further support to that business. Or if I'm a potential buyer, why am I going to pay five times versus three times? Because if you've got all these tools in place, then you can say to the firm that’s doing the financial DD or the operational DD you compare us to our competitors, I bet they don't have the limit cash flows three ways, one page strap plans, all have a really clear understanding of their why and their purpose and how that flows into their marketing and recruitment collateral. All of those tools…

[00:27:22] Sean: When you think about what's the question you're asking when you're thinking about whether am I going to pay three times or five times we like if I'm actually going to pay for five years’ worth of earnings. So, in the assumption, if there was no growth, then essentially, I'm waiting for five years of earnings to be able to get that money back. Well, that's a long period of time. So, you're going to want to have a pretty high degree of confidence that these things are going to grow and what gives you confidence that it's going to grow. They're on top of it, they've got a strategy, yes, they're executing on it, but they're also aware of all the things that you're hoping you don't have to come in and provide support for because they've actually got it internally within their internal capability.

[00:27:53] Michael: Yeah. And just back to your original question too. I mean, a 13-week cashflow and three-way, two fundamental gaps that most businesses don't have that a scaling up quickly or get into turnaround. And the other one is a really clear understanding of their why and their purpose. Now, they clearly had that most often they’re not at the beginning because they were really passionate why that they leave a well-paying job to take a risky decision to go and set up their own business. So, it's usually quite visceral and real at the beginning, but as they start to grow and someone sitting talks about this nauseum is that as a business starts growing, if you don't as an entrepreneur and the management team keep embedding that purpose into every new hire that joins the business, it starts to get frayed over time, and as a business owner, you're told you have to delegate a lot of things as you grow up. And that is you're entrusting your supervisors now to do the recruitment at the next level and the next level. So, you ended up in a business that’s now doing 10 or 15 or 20 mil, and the real clear understanding of their why and their purpose and how that cascades into the business has become fuzzy. So now you've lost your competitive advantage because if you've got a really clear why and purpose, then people will come and work for you, customers will gravitate to you. So, you end up with a much stickier business. If you've lost that over the way, then you'll just hiring people who are looking for a paycheck. You've got no real point of difference in the marketplace. So that's why you start to lose some traction as you're going through that that revenue barrier. So reinvigorating and rediscovering that and making sure it's really clear in your recruitment collateral, and in your marketing collateral is critical to help kickstart the business again to get through to that 50 mil turnover.

[00:29:36] Sean: I think it's 100% spot on what you're saying and I think it also helps to avoid the risk that I see emerge a fair bit in that 10 to 15 mil range of forgetting who the core customer is, and forgetting not only who the core customer is, but making sure it's the customer that you can help the best, but it's also a profitable customer. And so what I find is, the bigger the business gets, and the more therefore you're sort of building costs in around a growth momentum and a growth rate. And maybe you've got some shareholders and they're adding pressure to your growth rate, and all of a sudden, the business starts taking business they should say no to, because someone's sort of, kind of putting pressure on them to keep growing the top line at a certain rate. So, they start doing stuff that's not adding, unprofitable products, and unprofitable services and servicing new customers and they sort of start to lose their way. And usually when they come back to the why, like, why are we here? What’s our massive transformative purpose, who are we to our customers? What customer really trying to serve? What difference are we trying to make to them on their journey? Like what, who, and then all of a sudden, they strip a whole bunch of things away, they get more focused again. There's usually like the sort of coming back to; oh, that's right. That's who we are. That's what we're here to do. And all of a sudden it enables the next stage of scale because they can really deepen their relationship with those customers, deepen their products and services, add more value, and what inevitably happens, they reduced, their margins improve, their customer acquisition costs go down like a guide a lifetime value, all these great things start to happen, but it's really easy to fall into that trap when the pressure is on for revenue growth. Do you find that happens?  

[00:31:13] Michael: Yeah. Well, all the time. And one of the big traps that we see is that growth for growth's sake, that they are chasing the revenue target without really understanding what that revenue, whether it's profitable revenue, how it impacts on their cashflow. Again, it's a circular point. You're chasing all this revenue growth but to get that new customer, you've got to agree to 120-day payment terms. But they accept it because that's going to take another step along that journey. And then all of a sudden, you're paying creditors 14, 30 days to service that customer, but then they're only paying you every 90 or 120 days, but it could double your business, so they take it on. And one of the keys to turnarounds invariably, and I would say probably at least 50% of our turnarounds, one of the key, there's always one or two big changes and strategy that's required. It's our fundamental model, and that's why most businesses don't get there is that they’re not prepared to make the big decisions, those one to two big changes in strategy. And often it's about pulling back in that. And to get to where they are, they've quadrupled their product range. They've opened up new service lines, new divisions, new states, and they don't have the financial systems in place because they're growing through that really quickly to really understand their profit by customer, profit by product. So, they don't even know where they're making money. So, they might even be looking at their profit loss every month. Fantastic. But they have got no idea which customers they're making a huge profit on, which ones they actually losing money on. So, one of the keys to turn around so that they can consolidate and grow again is to actually cull 30% of their product lines. And that's a very common outcome in a turnaround. You have to cull, you know, obviously when you've done that profitability analysis, you then try and increase the prices of those products where they are loss making. And when you show directors the fact that they had blown away, how much money they're actually losing. And so, if you can't get the prices up, or restructure those divisions to make them profitable to keep that revenue, then you have to pull it back. And that the turnaround can happen really quickly, and then you're growing quickly again, but around a much taught a core product and service offering, and then you're back on that growth trajectory, but it's stable growth. And one of the big traps we see often with project management businesses or construction businesses is, for every five contracts, you'll have two where they're making huge amount of profit. You'll have one they're breaking even, and two that they're losing just as much. And the key for them is to work out, even if the two that we lost money on, even if they'll break even the profitability is like a hockey stick. But because they don't understand the tender process, the multi management process to make sure these projects are staying on track. So just that visibility, the financial visibility that we talked about before, you've got to put that in place really quickly, so you can start making those decisions.

[00:34:17] Sean: One of the things I like about the concept you're talking about when you start shedding those non profitable products, essentially, you're sort of getting rid of all the distractions, right? Getting rid of an unprofitable-customers, the non-profitable product and service lines. But one of the things that does as well from people perspective is it gets everybody focused only on the main game again. And actually, people start having fun again, because they know what they're sort of, really there to do. And they love to be able to spend more time with those customers service them better, do a better job, they come to work, and they leave work feeling better about that job, because I know they're delivering something more meaningful because all the noise has disappeared, but now no longer have 30 or 40 or 50% of their role doing all these tiny little things that actually weren't adding much value, they're really doubling down on the stuff that matters. And everybody gets energy from that, because you feel like you’re succeeding more.

[00:35:04] Michael: Yeah. And one of the well-trodden tools is uses is the Pareto principle, the 80-20 analysis, and often particularly in a turnaround you'll find that 20% of the customers are products that contribute to 80% of the profit, give or take 5% other side. So, often 30 to 50% of your product range or customers, you're losing money. And so, you've got all this overhead that you've had to tack on along the way to service businesses or service customers or products that are marginal at best or even loss making. But it's difficult because, entrepreneurs have been told grow or die. So, you've got to keep growing top line of growth, but without those systems in place that they're actually creating a bigger hole for themselves. So, it's hard to convince an entrepreneur that they've grown from 15 through to 50. And a third of their products are losing money or … the customer loses money, because they've got to downsize the business to grow again. But that's the reality.

[00:36:02] Sean: They might have to drop back from 50 to 30 to actually get to 75 or want to get to 100, did they have to be a step back to build a more profitable business and understand the customer better. And I heard that actually, in an interview with, for those who get a chance to listen to it for Robbie from the High Pages, and they went through exactly that process. They sort of discovered they'd built some capabilities. But as a result, they sort of had changed their identity as to who they were there to serve. And they ended up with all these distractions and all this sort of... So essentially, that was starting to lose touch with their core customer base. So, then they shed all that, they double down on the customers, they really understood that developing more products and services specifically for that customer. And then a lifetime value is going through the roof. The company has doubled in the last three years they've gone public like that was major... You can make that change in any way, any stage on that journey. But it is so easy for it to occur just slowly. It's very incremental, it evolves a little bit time over time.

[00:36:59] Michael: Well, importantly, they don't actually know who their ideal customer is. They've never gone through a process of having to actually articulate it in 20 words or less. Tell me who your ideal customer is, what size are they, what emotional state are they in, what are they really looking for? So, that's part of your why discovery, your rediscovery process is really understanding your key customer, and that creates a whole range of new enthusiasm and fun in the business as you say, because you got clear again on your why, you know exactly the type of customer that you're willing to say yes and no to, and it's hard, but it's one of the core disciplines in long-term successful businesses. They know the most important question is, they know what to say no to, they don’t just say yes to everything. And discipline is the key, creating that culture discipline in a business as you're growing is fundamental because it gives you the rails to stay in and don't get distracted by the shiny new customer or product or opportunity to expand out of here, if it's not part of your core central purpose, then you will end up succeeding without this one.

[00:38:06] Sean: So, you talked about getting clear on purpose and your why the customers, most profitable customers, which product lines and so on, probably talked about the necessity for good cash flow planning and three-way forecasts and so on. What else do you think is important in the context of if there were another couple of items that you go you know what, this is stuff people get wrong, or this is stuff that actually really needs to be core and central that we've seen help in a turnaround situation. What else?

[00:38:29] Michael: Yeah, I’d say two or three things. So, one is we're big on just one-page dashboards, everything in our business and with our clients is if you can't fit on a page, then you don't really understand it, because it's a discipline. If you can get your strategic plan onto one page, then you've gone through enough iterations to make it really clear. Same with your management pack, one page management pack. So, these are tools that every entrepreneur should have in their business, but certainly one page management pack, one page dashboard, and a really clear, you know, Jim Collins talks about the flywheel. Well, a couple of things, but what are the four to six things that if you look back over the success you've had to date, what are the four to six things that really drive the momentum in the business, that if you do this, it can't help but lead to this and that then absolutely can't help, but lead to this and getting really clear, it's deeper than a business model kind of review it. It just unearthed the DNA in your business as to what has built that momentum to here. But the key then is to then ask yourself, okay, what are the three to five… And this is a continuous process every quarter, what are the three to five things that we can do to each cog in that wheel to strengthen it, to get momentum growing even faster and faster? And that becomes your sole focus, is that how do we strengthen each part of that wheel to build that momentum and just staying focused on that, but…

[00:39:58] Sean: Love the fly wheel model. Or do the flywheel model with every turnaround or only in the fast-track programme? Or how does that play out?

[00:40:09] Michael: Once they’re transitioning, we do certain elements of our scale up program, fast track in a turnaround, but there's only so many things you can do because we're really focused on survival. And it's a bandwidth issue too, because you're still dealing in crisis. So once the business is stable and we're sort of plateauing and we're back on the upward trajectory, that's when we then start implementing Jim Collins Hedgehog, which is aligned with Simon Sinek’s why process, what are you really passionate about? What can you be the best at, in your industry or number one or two? And if there's only one KPI that you could track, what is that? And it calls it the economic engine, but what's that one critical KPI that you focus on, a flywheel and a whole range of other tools, the ideal customer all these things to give them much greater insight into their own business so they can create even stronger foundations which is the key to get through that next sort of big revenue jump.

[00:41:05] Sean: Can we just go back one step because I think it'll probably be in the minds of many of our community is what's the commercial model for the people on your side? So, who pays who, in the context of a turnaround? Okay, I'm a business like I feel like I might be in trouble. I've heard about these guys they do great job and turnarounds. I don't really know what that means. But I should probably give them a call. I give them a call. I get Michael on the phone. How does this work financially, commercially? Who makes money? How does it work?

[00:41:32] Michael: Yeah. The first concern a client might have is, I can't pay my creditors, how can I pay you. And which is why you focused so much on that first hundred-day stabilisation plan. You're unlocking lots of working capital, lots of cashflow. And that's because you've in the space, if you've completed a number of turnarounds, the financers trust you. So, they know that if you're in there, they're prepared to give you more time and support. That could be more funding. It could be payment holidays, a whole range of different levels of support, which unlocks cashflow, negotiating payment plans with the creditors, tax office, all the rest of it. So, there are usually 40-50 levers that you can pull in that first hundred days to free up a lot of working capital that most management teams just don't know where to look because they're not doing it every day of the week. So that's why we focus very much whilst we're working out the plan and understanding the key issues, the key options, all the rest of it. It's critical in turnaround that you're doing that 13-week cashflow, a hundred day plan, stabilisation process, working capital process in parallel because most turnaround books you've read, it'll be to conduct a strategic review and then source some funding and then do stabilisation process or whatever. You have to do those things in parallel at the very beginning. So, you can show to not only just the management team, but the financiers that there's a lot of cashflow here that we can unlock over the next 7 days to 12, 13 weeks. So that's critical, and then they realised that your fees are minuscule. And another thing we track is, and most people in the space should be tracking is their return on investment because typically in a turnaround, certainly what we track is in a 12 to 18 times return on fees is what we generate in terms of extra cashflow earnings, whatever it might be. So, once they understand that, they realise that not getting engaged is not the right answer because you can show them quickly how you can generate a lot of cashflow in that first few weeks. And the other critical part of that is the fee model.

So, from day dot, it actually started from when it came out of a chartered accounting environment, hating sixty-minute time sheets. So, I thought the very first decision I'll make is, that no time sheets, which meant weekly retainers, and what I didn’t realise at the time is that that was a critical model in turnaround that no one else was doing because everyone is still charging hourly rates because that's the model and problem with that is, and the key to turnaround is you've got to build trust quickly with your client. And one of that is you've got to be out onsite all the time, which is a key part of… one of the things that we do is, you got to be out on site all the time. Because you've got to build their trust quickly because they’ve got to come up and agree with those one or two big changes that are critical that they haven't been able to make up until now. And not having hourly rates because, if you're still on hourly-rates, they're worried that every time they pick up the phone, there's another charge, another charge.

So having just a fixed weekly retainer with milestone bonuses is the model that works so well, and instead it was designed for another reason in the beginning, but the owners engage with you a lot more and they are prepared to use you a lot more, more of a sounding board and very quickly, you've got their trust very quickly. They're prepared to make the big decisions. So, weekly retainers, or monthly retainers with milestone bonuses that you agree together. So, it could be achieving a refinancing. Getting profit from here to here, achieving a sale of division if that was critical, restructuring your finance facilities with financiers to give you the breathing space. So, being prepared to back yourself and risk your own fees to achieve the desired outcome that we've all signed up to. Because it just binds everybody, all key stakeholders, it's part of the reason why financial is trust us so well because they know that we're prepared to back ourselves and we wouldn't be putting forward a plan that we didn't think was going to work because we're not going to do that. And let wouldn't be in our business either. So, it has so many multiple benefits. And if you have any listeners that are looking to engage somebody in this space, ask them to commit to a retainer and successful model, because it'll tell you how confident they are in what they do.

[00:46:05] Sean: Yep, I agree I think there's nothing more powerful than the alignment of someone's commercial model with the outcomes of the customer like that's the model that always work. Yep.

[00:46:15] Michael: That goes back to confidence. As I said before, it's all about confidence. And that is another way of showing confidence that we believe in the plan, board believes in the plan. And so, it helps increase the confidence of financiers, are the stakeholders who are supporting the business.

[00:46:30] Sean: So, does it tend to be an engagement where someone's engaging you for a period of time to do this work, achieve these outcomes and at the end of that so it's essentially fee for service plus success and then at the end of that, that tends to be it or do you then ever take equity positions in the business for the next stage of growth beyond that, okay, does that...?

[00:46:46] Michael: Yeah. I mean, our model is we just agree a fixed fee for the first four weeks where you've done the review, you've come up with a plan and you've got everyone aligned with a plan and you've got that stabilisation work underway. And then you move into a longer term, maybe another three months or 12 months of that weekly retainer milestone bonus. So, that's typically, I mean, most turnarounds are 12 to 18 months. That's the typical timeframe. So, three to six months to stabilise it and then make some of the bigger decisions to get it back on that growth trajectory. And then that's when you transition them into that growth phase again, and that's what, obviously we roll out of that fast track program, or you just simply might be playing a very light touch role, but you might be asked to go on their board in an official capacity or board advisor, some of our fees can be converted to equity, depending on what's asked of us or is there alignment on that, and most of them in the listed space where it's much easier because you've got a liquid opportunity down the track. But yeah, it's really what's required.

For us, as I said at the very beginning, for everyone that has joined the firm along the way, because we had a really clear articulated why in our business and we've attracted people that believe just as passionately as I do about saving jobs and avoiding insolvency. So, it's just such a no brainer because no matter what you're doing in business, because it makes your job as a leader so much easier because everyone is thinking like a shareholder in the business, because they're aligned with whether they are or not, they're acting like it because they believe passionately why this business exists. So, it just makes your job as a leader, your management team's job so much easier if everyone in the business is aligned because they've joined the business because of that why. And that's the why I was talking to before is, if it gets fuzzy along the way, you've stopped hiring people by default who are passionate about what you do. So then makes your job harder as a manager to motivate them and keep them on track because they're there for different reasons. So often, when you go through a wide discovery process, you'll end up losing some people because they know you're kind of reinvesting in this purpose. And this is the course we're going to go on. And they may not be bought into that. But that's the right outcome. That's the right outcome.  

[00:49:13] Sean: So, we're getting close to time if there was ... I don't know whether you've had the full opportunity to give us every one of those kinds of comments if there was one more of those key focuses for Founders. Is there something that we've missed there that you'd really like to share with the audience?

[00:49:30] Michael: Yeah, I think and you've seen, I guess, a bit of an explosion in the space. I mean, as you know, being a CEO is a very lonely role. You're meant to know all the answers, which is a fallacy. The really successful CEOs know that they're not the smartest guy in the room or the girl in the room. And they've built a network of people around them that they can go to. So, one thing I really encourage and there's different networking groups, where you network with 10 other CEOs, get a network together. It could be formal. It could be informal but surround yourself with other CEOs who are all dealing with similar things that you've dealt with either they've solved them before and they give you some free advice or just that network every month of interacting with other leaders, because it is a very lonely role and they self-perpetuate that. So, surround yourself with peers and that you can brainstorm with. And the other critical thing that I've learned over the years, and you alluded to it before is, why do I look so calm? I came across a whole range of tools probably six, seven years ago around meditation, Wim Hoff, breathwork work and ice baths and all of that. So, we offer all of that internally to our staff, because when you're dealing in crisis… I mean, we are dealing in crisis every day. It's either a turnaround or this, or they're growing so quickly that either way cash is tight and they're dealing with all that. So, we need extra tools to help us be more strategic and give the advice to our clients that they need.

But for every senior leadership team, whether it's investing in your Headspace or nutrition or exercise, have those three pillars in your own regime, in your own daily routine, I said choose your own poison, whether it's meditation, breath work, yoga, exercise, do something every day that invests back in your mental strength if you like, because it's a key part, again, a key part of why businesses succeed in those that don’t, those that can use those tools to strengthen their own strategic thinking and be better at managing things under pressure, they'll make better decisions. Whereas you've got other directors who was stressing out, they’re flip flopping all over the place and causing lots of collateral damage in the business because they're not managing their stress. So, an effective stress management regime, and I said, it doesn't really matter what you do, as long as you're doing something on that space, choose one of those things, float tanks, I've got my own float tank, because they really work, but they're not for everybody. I do an ice bath every couple of days, and I do the breath work, all those things laying on top of each other, make you a more effective leader, so you can handle stressful situations as they come. And I didn't learn that until 10 years in and I wish I had learned it or taught it when I was at school. So, investing in that side of your development is so crucial. It's just as important as having cash flows in three ways and because managing stress and being able to make really strategic decisions under pressure, you can't underestimate that and all those tools give you that edge over your competitors.

[00:53:02] Sean: Absolutely, yeah. I couldn't agree more with you in terms of this self. A couple of things that are just super interesting there. I don't think I've almost stopped asking the question when I talked to Founders about the most challenging times they could you lean on because actually, almost every one of the successful founders I've spoken to have had some kind of a group of peers, as you just described that come from all different sources, some are in young presidents organisations, YPO, some are in entrepreneurs organization, EO, some are in CEO club, and there's lots of them around, and I think more and more have emerged because it is so lonely and you learn so much through the lens of other people going through hard stuff that you can take into your own business. And when you're a CEO, it gives you a safe space to actually be vulnerable and go, you know what? I'm really struggling with this one. I have no idea what I'm doing. I know everybody thinks I should know what I'm doing, but I'm just absolutely clueless right now. Someone helped me and I think it's incredibly powerful.

My wife and I, our date morning every Sunday after we go out for breakfast is to do exactly what you use to do. We do compression boots and infrared sauna and cold plunge pools and hot plunge pools. And that rhythm works for us. But because, to your point, it gives you your capacity back. I think it's like every day when you're in a high stress environment, whether that's stress, you're putting on yourself or it's stress that's happening outside you, either way founders have got one of the other going, and I feel like this just slow diminishing of your energy and your capacity and what it doesn't just tops you right back up, doesn't it? Whether it's daily or it’s weekly, whatever the model is, but you've got to have something that replenishes you, and it's important that you find that.  

[00:54:45] Michael: Yeah. I mean, as you know, in business, everything you're doing as a leader or senior management team is trying to work out how to get an edge on your competitor. I can guarantee you investing in that stuff. So, we offer meditation, yoga classes, all those things to our team. And I don't care what they do, pick and choose your own adventure, but offering that to the team, because I know that they're going to develop those stress management skills so they can become under pressure when you got a client that's where chaos surrounds them. Because we'll make those key decisions and they'll make those key decisions much quicker and attraction happens faster. But to your point about the, all those support groups, the most liberating thing is they realised that lots of other CEOs have made dumb decisions too. And you realise; well, yeah, they're really difficult. And you look at the most successful businesses, Apple almost collapsed. Look at where it is now. There are so many businesses now that they would say, oh, they're a huge success, but they went through that page and almost collapsed. So, every successful business…

[00:55:50] Sean: Absolutely including the really successful ones. You also take people off a pedestal, I think when you meet the people who are you know, their businesses 10 to 20 times the size of yours, you get actually no different to me, they've just stayed out for longer, or they happened to be in a model that's got sort of more revenue attached, or they've figured some things out that I haven't great, I can learn from that, it's, it's actually quite liberating to realise that they're not all geniuses, and you're not a complete idiot.

[00:56:12] Michael: Yeah.

[00:56:14] Sean: Michael we're sort of close to out of time, but I would really like to acknowledge you. I'm thrilled that we have been introduced, because I think you've got a fascinating business, but philosophically, everything that I've learned in my time in scaling organisations, has been reflected so poignantly by the insights that you shared with the audience today, things that I've learned along the way that no one teaches you, that just stuff you figure out all the time, usually because you've screwed up a whole bunch of things along the way, and you go, oh, that's actually a really good idea to have a three way cashflow, forecast model and have my 13-week cashflow forecast. Just everything that you've said has reflected my true experience in scaling organisations across any of those different stages, whether that's a 30 to 50 or a 0 to 6 or 0 to 3 or whatever that stage may be. But I love that you have built this organisation with clearly a very human centred approach. You're really there about saving yes as a commercial model that sits behind it. But fundamentally you're purpose-driven, you're clear about it. You practice what you preach, all the things that you talk about in your fast-track model and the way you do turnarounds, you've applied in your own business. There's a real authenticity in your organisation. And I think that's really unique and I think it's really wonderful.

So, I really appreciate you sharing your wisdom with the audience today. I think you've said some things that people are really not going to have been expecting, which I think is great. And I think they're also just right on the money, and they're being proven. So rather than somebody writing a Jim Collins book and hearing about the flywheel and going; maybe that only works for like big American companies that happened to be in the study and it's not really relevant for me. And you're going, hang on a second, we've done 170 turnarounds in Australia in a businesses exactly like yours. And we implement this in every single one of them and people are going, may it actually does really well. It gives a real validity to stuff that they've probably heard about in terms of some of the frameworks and models that you've talked about. So again, huge thank you from me. I know the audience will have got a lot of value out of today, so thanks for coming on board and sharing your wisdom. How do people get in touch with you or follow along with what you and Vantage are doing?  

[00:58:25] Michael: Yeah. Our website, vantageperformance.com.au, we're on LinkedIn. We've got two YouTube channels and podcast channels you'll find around turnaround tips and general sort of scaling up type podcasts. But also to you, everything we do is all about improving the rate of business success and that's all about, if you think of a typical funnel, turnarounds, we're working here to help stop them from going down the chute, and then everything we can do and this is where your podcasts is so critical too, is it's all about reducing the funnel and the more best practice management techniques you can get out there. And podcasting is a tool that's become so important to this piece, to get that knowledge out there to educate leader through podcasts that is yours on all those critical tools that all long-term successful businesses have in common. So, luckily we can reduce that funnel and reduces the number of businesses that that end up getting into strife and that's where we both passionately believe in achieving. So, thank you to your podcast and all the work you're doing in this space as well.

[00:59:38] Sean: My pleasure. Well, thanks very much, Michael, from Vantage. Folks, I hope you enjoyed the show today. I'm sure you did. There's absolutely no way you could not have got value from everything that you've heard from Michael today. So, a huge thanks to you. Of course, before you go, if you're getting value from it, please jump on Apple podcasts, leave us a review, subscribe to make sure you're getting updated when new ones come through, team absolutely love it, helps other people find the podcast. If you'd like to know when new episodes are going to drop or you'd like to get access to tools or resources or downloads that are provided by our guest, then please jump to the website, pop your details in there, and we'll make sure you get access to those.

If you're more in love with the socials, you can jump on the socials we’re everywhere that you can imagine, and the handle is @scaleupspodcasts. But remember that there's only one thing that can actually truly prevent you from even having the opportunity to scale. And that is giving up when it gets hard.

I can imagine there's many of Michael's clients that could have got very close to going, I'm actually too embarrassed to call anyone like stuff's tough. And I maybe just need to get off the train right now, but actually picked up the phone, made a phone call. So, stayed unshakeable in their faith that they were going to be able to get that, but how to be ultra-flexible and their behavioural flexibility, made a phone call, asked for help and all of a sudden got to stay on the train and as a result, had a better outcomes. So, stay flexible in your approach, but unshakeable in a faith that you're going to get there. You've been listening to the ScaleUps Podcast. I'm Sean Steele. Look forward to speaking to you again next week. Thanks so much, Michael.

‍