100-Day Plan

Thoughtful 100-Day Planning

Reduce Risk Without Adding Time

In today’s competitive M+A market, the push to close deals quickly is stronger than ever. Fewer proprietary deals are on the table and more firms are bidding on each opportunity. As a result, a lightning-fast but still effective buy-side diligence, complete with a vetted 100-day plan, is critical to a successful investment.

100-day plans drive immediate value creation, and put the company on the right track for long-term success. Whether it is designed to change strategic direction or accelerate the current strategy, this plan has several characteristics:

  • Based on a solid assessment of the company rooted in direct observation
  • Customized to the company
  • Integrated with diligence and completed before deal close
  • Created in collaboration (or not) with current management
  • Aligned with investment thesis

From these ideas, a detailed, formal document that includes achievable initiatives and appropriate incentives is created. Loughlin Management Partners’ five-part process outlines a practical guide to operational diligence and development of a successful 100-day plan.


Part 1: Preparation

Prior to visiting the company, potential buyers should make thorough data requests. In addition to financials, request operational metrics, dashboards, key contracts and organizational charts. Companies that are either reluctant or unable to provide data should draw extra skepticism. While this is a potential risk, it is also an opportunity: a firm succeeding despite a lack of information availability likely has significant upside.

Looking at the provided information, ensure that you compare to the industry standards. How are their KPIs performing compared to peers? Is their inventory turning faster than the industry? Is SG+A twice that of a similar company? Often, broad market performance hides company-specific deficiencies and can lead to a poorly performing investment.

Labor, a much maligned expense, is likely not an issue. Unless overtime is greater than 25%, or there is excessive headcount (again, compare to competitors), direct labor (especially wage rates) is rarely the problem.

Better bellwethers for labor inefficiency are in two areas: organizational structure and variable pay. If the organizational chart has more than three layers of management, or if there are many managers with only one or two reports, there is likely a problem.

Comparing fixed to variable compensation also provides a barometer of efficiency: sales functions should have a minimum of 50% variable pay, and management should have a minimum of 10%, with higher levels having more of their pay on the line. Alignment to performance, especially in a growing middle-market company, is critical for success.


Part 2: People

Ensuring the right management team is in place is a primary goal for any 100-day plan. Without the right people, the best processes or newest technology will make little difference.

When meeting with senior management, focus on three things:

  1. Involvement with Operations
  2. Relationships (familial and otherwise)
  3. Skillset

The best management teams establish a visible presence without interfering in day-to-day operations. If the C-suite is constantly putting out fires, they are likely not focusing on long-term growth. This is often an indication that middle management is underperforming, or do not trust their subordinates. Conversely, complete disconnection from the front line business generally results in cost inefficiency (working capital is typically the most obvious area) and poor decision-making.

Especially with rapidly-growing lower to middle market companies, personal relationships between senior management and employees can be sources of risk. The appearance of nepotism can be as damaging as actual nepotism. Informal relationships often create back channel communication pathways, undermining middle management.

Lastly, and perhaps most importantly, is determining if this is the team that can execute your strategic vision for the company. Middle market CEOs are usually entrepreneurs, strong at launching a company, but not necessarily good at scaling. Alternatively, they may be strong in a single function, like business development, but have little idea how the product is manufactured. In that situation, have they built a competent team around them to complement their weaknesses? If not, that problem likely trickles down to middle management as well.

Often some of the best insights come from middle management, line supervisors and employees. Is there a strong middle management layer? Or does the COO, for example, have 20 direct reports? Investigate how deeply data drives day-to-day decisions. If dashboards or KPI reports are hard to come by, they are probably not using them. Finally, are the employees happy, with a strong sense of job satisfaction? It sounds like a simple question, but dissatisfaction is a symptom of deeper, business related issues that can undermine profit.


Part 3: Process

The first indicators of strong process are robust safety programs and tidy workspaces. During facility walkthroughs, make a point of investigating off the tour path. If cleanliness is lacking, it’s likely that more complicated processes are being shortcut as well.

Pay particularly close attention to inventory. What are the dates listed on materials and product labels? Is there a layer of dust on the boxes? Is there inventory sitting between each process step? These are indicators of poor production planning and scheduling processes.

Beyond production, one of the most critical processes to investigate is customer and product profitability. Simplistic pricing models often hold significant opportunity for easy top line growth, and incomplete or out of date costing can hide weak products or unprofitable customers.


Part 4: Technology

After the right people and processes are in place, technology may help you wring the last 20% of value out of an organization. In fact, technology tends to be a scapegoat, clouding root causes, which are more likely related to process.

When looking at systems, hardware is the first area to investigate: are there robust disaster recovery and business continuity protocols in place? Is the data center cold and well maintained? How old is the hardware? Server hardware older than five years and personal devices older than three years will likely require replacement.

Second, look at software. Is the ERP up to date? If not, why? If customization is causing the delay, there may be an issue. How accessible is data? All levels of the organization should have simple access to information appropriate to their roles.

Last, and often overlooked, review the security program. Did you have to sign in to get in the building? Were you issued a visitor badge and escorted? Who can access the data center? Does the ERP have role-based security enabled? Or can anyone see all of the data? Security is a critical component in risk management and, depending on the industry, it could also be a legal requirement.


Part 5: Conclusion

Often in the push to finalize a bid, bias to close quickly can result in unmitigated or unknown risk. As a result, many firms use third party advisors as a way of independently verifying the deal thesis as well as expediting the process. LM+Co’s deep operational and financial knowledge, as well as our fast turnaround time, have made us a natural choice for conducting middle market diligences, developing 100-day plans and leading project execution.

A 100-day plan addresses the risks and opportunities identified during diligence, and is developed prior to deal close. It is a detailed document, tailored to the company and suitable for high-level project planning.

To begin, separate the items into logical initiatives, and then quantify the effects. If there is no financial impact, it is likely not a value creating project. Once the list of initiatives is final, arrange them into a reasonable timeline, and add a buffer period to account for delays. 100-day plans are not bound to this timeframe; it’s more important to establish an achievable deadline. Finally, assign the right talent and incentivize them appropriately. Many project plans fail because improvement initiatives take a back seat to customer demands.

A well-architected 100-day plan serves as a common vision between you and senior management, minimizing investment risk and maximizing value creation. And there’s no downside: it can be incorporated into your diligence process without added time and, given the potential return, at minimal expense. With a strong 100-day plan in place, your investment can immediately start to build value.

Choosing the Best Road for a Successful Exit

whitepaper

You’ve sourced a proprietary deal, invested millions in a company and dedicated countless man-hours throughout the past several years enhancing the business. Now it’s time to sell and realize the return on your investment. But today’s uncertain market is telling you otherwise. In a period defined by low earnings growth, financial sponsors are finding it difficult to exit their portfolio companies with strong returns on their investment. LM+Co’s Private Equity Value Creation team has developed and successfully implemented three roadmaps that ensure a smooth ride and provide financial sponsors with a market-ready plan that establishes the company’s value creation history and future growth potential.

LM+Co’s Reengineering Guidebook

Loughlin Management Partners + Company has extensive experience implementing LEAN and Six Sigma best practices for our clients. Under the leadership of Managing Director John Krupar, our award-winning Performance Improvement practice has successfully transformed dozens of companies, both publicly and privately-held, across a number of industry sectors using techniques that John has effectively employed over the course of his 30-year career. John has reviewed and compiled the best practices from more than 50 of his own LEAN, Six Sigma, Theory of Constraints and other Value Creation deployments over the past decade and consolidated the results of this study into a Reengineering Guidebook that captures the most significant elements for successful deployment of an organization’s transformational change.

As companies continue to navigate through an ever-changing economic landscape, it becomes more crucial to innovate and modify the way business is done. Reengineering is on the front line of this effort; reducing operating risk from current processes and implementing Technology + Operations Management initiatives that make the company more effective and efficient.

Reengineering programs impact all aspects of the income statement and balance sheet, including expense reduction, asset and revenue productivity, taxes and cost of credit. Reengineering’s positive impact more broadly affects an organization by improving quality, the employee experience and client satisfaction. Healthy companies continually develop and execute strategic reengineering plans to ensure maximum effectiveness and efficiency – looking not only at what they do, but how they do it. These organizations have and will continue to simplify and standardize policies, processes and procedures across the enterprise. They will align accountability with responsibility. These cornerstones of ongoing reengineering efforts will become part of an organization’s culture moving forward.5 LeversLM+Co’s Reengineering Guidebook illustrates an effective model for implementing and accelerating transformational efforts through the introduction of a set of best practices. The model and concepts are scalable and can be tailored to fit most situations and environments. They are also adaptable to a range of engagement sizes, from applying to the full organization or focusing on individual departments, functions or business units.

The Guidebook includes a thorough discussion of each of the five critical success factors John has identified through his diverse experience, including roadmaps, best practices and examples. It is important for readers to note that when your firm implements reengineering, it should be embraced as a means to accomplish your business strategy, rather than the strategy for your business.  Given this important distinction, Guidebook readers should remember that our Guide is a study of John’s experience deploying reengineering and not a “how to” manual.

LM+Co’s 47-page Reengineering Guidebook is an essential read for managers, business heads and reengineering experts. For your complimentary copy, please email your contact information, including name, company and email address, to [email protected] or call 212-340-8420.

LM+Co proud to sponsor OGIS New York 2015

Loughlin Management Partners is proud to sponsor and participate in the Independent Petroleum Association of America’s 21st Annual Oil & Gas Investment Symposium New York.  There is no better way to stay connected with the major companies and investors in the Oil & Gas industry than this outstanding event.  We look forward to not only reconnecting with our contacts in Oil & Gas, but also making new connections as we continue to grow our practice in this dynamic industry.

Learn more about OGIS New York 2015

From Black Belt to CEO: 10 lessons you learn along the way and why you should never forget them

In 1998 you were a black belt and now, 17 years, later you are the CEO of your firm. Have you called Jack Welch, Mikel Harry or your MBB to thank them for believing in you? If not, it’s time to do so. But what comes next? You go big on the 10 things you did to get to where you are today.

1. Remember that effective change is a product of the technical solution and its’ acceptance.

So how do you address the acceptance issues and leverage all of the intelligence in your organization and your supply chain?

  • Get to know all of the people across your organization – know their names and faces cold. Set up a breakfast with the three to five people a week that are critical to the success of the organization and recognize their contribution
  • Lunch is reserved for your consultants, suppliers, industry gurus, bankers and board members
  • Dinner and drinks (and the occasional sporting event) are reserved for clients
  • Wake up thanking your people, learn new things at lunch and wow your clients at dinner with all that your organization can do.

2. Single Source of Truth – In God we trust all others bring data.

There should be only one source of data on the business – the CFO must have the financial data and the COO the operational data. If the data is wrong, tell your people to work through the CFO and COO to make it right. No one brings their own data to the meeting – there is just one set of books in your company and the measurement system is tested.

3. Strategy – big word – what is it that your company does that others can’t?

Will anyone pay you for that? Is it enough to be viable?

4. People – if your business isn’t viable, and you don’t have a way to pay your people, it is a moral imperative to tell them before they leave a perfectly good company to join you in your quest.

5. Manage the Enterprise Value of the company.

The equation is easy: EBITDA x Multiple = Enterprise Value. But what are you doing to make them both go up? EBITDA is critical but Multiple is your challenge.

6. Limited resources – what are you going to mass your energy around?

7. Your problem/opportunity statement – be clear and make sure your people are clear on what they are doing.

8. Ask ‘why’ 5 times and after you’ve mastered asking ‘why’ five times, start asking ‘why’ 15 times.

9. Employ people that are more talented, hungrier and more aggressive than you.

10. Go big and go bold but place your ego on hold.

These 10 lessons are the building blocks for any successful CEO. They got you to where you are today and will always help you face what comes tomorrow. Most of all, never forget the biggest lesson of all:

11. Regardless of what happens during your tenure as the CEO, the worst thing that will happen is you crash and burn and tomorrow you take a job as a black belt – the best two years of your professional life.