I was blessed to have experienced the glory days of two industries: computer mainframes in the 1980s and cable TV in the 1990s and 2000s. The career opportunities, perks, and bonuses during those glory days were great, but glory days do not last forever. They end when businesses get disrupted. They end with a painful period of cost-cutting, job eliminations, and major devaluations of 401k funds and stock options.
The obvious lesson is that being the disruptor is far better than becoming the disrupted. Here are a few more lessons I learned from working for both disruptive and disrupted businesses:
Only the Paranoid Survive
Andrew Grove, CEO of Intel during the 1980s and 1990s, wrote the book “Only the Paranoid Survive” after leading the strategic shift from memory chips to microprocessors that grew the company’s revenue from $1.9 billion to $26 billion during his tenure. His main lesson is to watch for the strategic inflection points in your industry so you can get ahead of the curve by planning your next market disruption early enough to replace the inevitable decline in revenue in today’s core business.
While Intel was making its bold move to pursue a new market, Burroughs (a $5 billion computer mainframe company that I worked for) made a bold move to acquire Sperry (another $5 billion mainframe computer company) to form a new company - Unisys. The press referred to this move as the “mating of the dinosaurs,” and it failed miserably. By merging, Burroughs and Sperry doubled their vulnerability to the oncoming disruptive impact of personal computers. The new company (Unisys) lost 98% of its market cap by not keeping pace with Apple and Microsoft’s innovations.
Lesson: Be paranoid. Don’t underestimate the startups attempting to take a share of your market.
Disruption is Risky
Inaction in the face of disruption is the far more common cause of business failure. A bad reaction to a disruptive threat can lead to spectacular failures, though.
In the late 1990s, Time Warner was certainly paranoid about the inevitable declines of their print and music businesses as the internet emerged. They overreacted to the paranoia by going “all-in” with AOL. The deal was based on AOL’s insanely high stock valuation. The subsequent burst of the dot com bubble and disruptions of AOL’s business model by Google and Yahoo were devastating. Time Warner’s decision to merge was one of the worst business decisions of all time.
Lesson: Trying to be disruptive can be a high-risk venture.
Fire Bullets, Then Cannonballs
A good way to mitigate this risk is to adopt the “fire bullets, then cannonballs” approach espoused by Jim Collins in his book “Great by Choice.” Collins suggested that the ability to turn small proven ideas (bullets) into huge hits (cannonballs) counts more than the sheer amount of pure innovation.
Jeff Bezos is the best example of this philosophy in action. He embraced failures at Amazon. He realized that the same culture of innovation that resulted in failed attempts in with phones, restaurants, and videogames also led to successes like Alexa, video streaming, and Amazon Web Services (AWS).
This “first bullets” approach conserves cash reserves too. Bullets consume far less cash than cannonballs. If your cash reserves are as deep as Apple’s, you can attempt to go “all in” on a new product idea (iPhone) that will completely obsolete your biggest cash generator (iPod). The rest of us are better served by firing bullets first.
Lesson: Find the balance between investing in disruptive innovations and preserving cash reserves.
Experienced Financial Leadership
Perhaps some CFOs who are less scarred from experiencing disruption (as I was with Unisys and Time Warner) are prone to be one-sided in the balancing between cash preservation and investing in innovation. After all, building and protecting cash reserves are at the core of what we CFOs do.
Experienced CFOs know that those who fail to invest in disruptive innovations will have their cash reserves drained when they lose market share to successful disruptors. We know that businesses must “disrupt....or be disrupted.”
To learn more about how your business can add an experienced fractional CFO from The Florida CFO Group to your team, click here.
In February of this year I started training for RAGBRAI XLIX- The Registers Annual Great Bike Ride Across Iowa that took place from July 23rd through July 30th. To prepare I researched the recommended training regime and modified it to allow more time to build up my bad left knee. My training partner and I followed our plan(s), for the most part, and I’m happy to say we both road the whole event without any issues! What, you might ask, does this have to do with budgeting. Well, you see, I am a fractional CFO that works with multiple companies and a strong proponent of budgeting and tracking results to budget. During the close-to-500 miles cycling across Iowa, I had some time to reflect on how my preparation for the ride (after massive intimidation at the prospect) allowed me success. Alas, my mind shifted to my finance persona, and I realized there were many similarities to budgeting (I truly was not delirious).
I’m going to break this down into two components:
For RAGBRAI my training partner and I prepared a detailed plan. We researched recommendations and arrived at a plan that would build up our endurance and allow me to strengthen a weakness (my knee). We had a clear vision of what we wanted to accomplish in our training, and we developed a detailed plan to carry out that vision. We trained about 50% together and 50% independently due to some divergence in our training goals, but more significantly, due to the training plan calling for 3 to 4 rides a week. It was impossible to coordinate our schedules to that level. We also planned what our days at the actual event would look like, how fast we would ride, the number of stops we anticipated at the towns along the way, etc.
In budgeting, a company’s management should discuss/research what they want to accomplish in the coming year. The team should have a clear, shared vision or goal of what the year will look like. Then they should put together a budget that financially demonstrates how they plan to accomplish that goal. Through a detailed budgeting process, it will become clear the level of risk involved in the ability to achieve the plan. A detailed budget should also allow clarity on strengths that are being leveraged or weaknesses that are being shored up. Developing the detailed budget plan within the management team will allow each participant to recommend adjustments they believe are necessary for achievement of the shared goal given their scope of responsibility. This will also give management what they need to have full ownership in the budget.
Back to biking. We tracked our 6 months of training against our plan. If a step in our plan didn’t pan out (such as a ride being rained out or my getting COVID) we adjusted our plans moving forward to continue to work toward achieving our goal. When we left for Iowa, we felt we had trained appropriately and felt as secure as possible in our ability to complete RAGBRAI. Then on July 23rd we started our adventure with 6 other team members and 17,000 total riders. The first day of the ride we encountered far too many riders at our chosen start time, it was no fun and our desired pace was impacted. A week of riding like that would have been torture. We were slower than desired at the beginning of the first day’s ride due to congestion but then as the day progressed we found ways to get ahead of the crowd. As a result of this experience, we targeted starting our rides one hour earlier for the remainder of the event and that made a significant difference. Each successive day was fun and we accomplished our goals. The midcourse adjustment to our riding plan paid off.
As a company enters a new year the budget should be fully vetted, approved and communicated. As the year unfolds, actual results should be compared to the budget and analyzed so that mid-course corrections can be made. The best budgets have thought given to monthly or quarterly segments and don’t just take an annual number and divide it by 12 months or 4 quarters. If things go off track the management team needs to determine how to get back on plan and this will be made easier if significant effort and attention has been given to developing the detailed budget plan. The important thing here is to use your budget as a tool and not as an all or nothing proposition. Manage your budget as a team and assign the appropriate team members the responsibility for each line item – creating clear accountability. Avoid assuming budget shortfalls in revenue will be made up later in the year unless your business is seasonal and this would be a normal expectation. Address issues quickly since this will give you more time for corrective action to get you back on track.
In conclusion, whether you intend to bicycle across Iowa or have a successful financial year in your company, your chances of success improve significantly with a well thought out plan that you can use as a tool to achieve your goal. Contact us if you feel your business could benefit from the expertise and leadership of one of our fractional CFOs.
Would it surprise you to learn that research has shown that 50 to 70% of mergers and acquisitions fail to achieve the expected result (Lovallo and Kahneman 2003)? What about that 90% of mergers result in some type of lawsuit by shareholders (Secher and Horley 2018)?
You may be asking yourself, like I did, why mergers and acquisitions fail so often and why they continue to be undertaken when the failure rate is so high. As to the first question, there has been a plethora of research into why these acquisitions failed to achieve the expected result. Many researchers have investigated pre-merger activities, such as valuation, bidding wars, unreasonable expectations, and poor strategic planning. Other researchers have looked at post-merger acquisition activities to include the integration of both people and systems, poor leadership, and general market conditions. However, there is no consensus as to the main reasons they fail and what failure means to most individuals.
Since 90% of mergers end in some type of shareholder lawsuit, most of the research performed to date was to ascertain whether the value was achieved from the merger, which centers around public companies and share price (Secher and Horley 2018). The share price is indeed a good measurement, but there are so many components to the share price that it is hard to gauge that measurement as effective in determining the overall value of an acquisition. This measurement is almost entirely focused on the acquiring firm's shareholder value. There have been a few recent studies that have attempted to understand whether the acquired firm's shareholders received the value that they expected as well (Mundra 2016).
My understanding of the research to date is that both for the acquiring firm and the acquired firm, the misalignment of value tends to come from the timing involved in the process and the process itself. Consider that on the sell side of an acquisition, it is usually the entrepreneur or a few of the senior team that decides when it's time to sell. That decision is usually based on an emotional decision like retirement or an imperative decision such as liquidity needs. It may not be the best time to sell the company both in the market and with the evolution of the company itself. Remember that if the company is in a high growth period, that is usually a good time to sell, but usually, the company is sold when the product has matured. That's better for the buyer but not necessarily better for the seller.
Alternatively, buyers tend to develop a strategic merger and acquisition process because they must continually increase their portfolio of companies and their revenue to stay in the market and keep share prices high. Because of the target company identification process, it may not be the best time to buy a particular company and the process may be rushed if they feel a bidding war is coming along or if the market is changing adversely to their position.
What does this mean for both the buyers and sellers in the mergers and acquisitions process? This means that the timing of an acquisition or sale should be given more weight in the strategic process that both sides develop. Rarely does the strategic plan give weight to the business cycle of the acquiring or acquired firm and is done as usually once a target firm is identified from the acquisition side, it is put into a project management plan that leads to closing the deal. if during the process, the right time to purchase this company was put into consideration process, it might lead to better expectations of value.
This is also true for anyone trying to sell their company. If all sellers looked at the entire lifecycle of their companies, and then shows the best time to sell for them, that might increase their value expectations as well.
Through all this, the best approach is to have a good advisor that can look at the process objectively outside of the expectations of the shareholders and senior management and define a timing scenario that can help both the buyer and seller.
Donald H Noble is a Partner at the Florida CFO Group specializing in Mergers and Acquisitions, a Professor of Corporate Finance, and a Doctoral Candidate at Saint Leo University studying Mergers and Acquisitions. Don frequently guest lectures at The Institute for Mergers, Acquisitions, and Alliances (IMAA), The Funding Strategies Panel, and other teaching opportunities.
References
Lovallo, Dan, and Daniel Kahneman. 2003. “Delusions of Success.” Harvard Business Review 81 (7): 56–63.
Mundra, Ankesh R. 2016. “Impact of Mergers on Shareholder’s Value Creation.” Doctoral dissertation, India: Devi Ahilya Vishwavidyalaya. https://www.proquest.com/docview/2314083592/citation/B06D94B9454240F6PQ/9.
Secher, Peter Zink, and Ian Horley. 2018. The M&A Formula: Proven Tactics and Tools to Accelerate Your Business Growth. Chichester, UK: John Wiley & Sons Ltd.
Can a blog article have a soundtrack? I am including a few iconic song titles in this one to set the stage for my piece on how Human Resources and Finance are the rhythm section of business.
Cue: Satisfaction (Rolling Stones)
HR and Finance are the “back office”. We aren’t out front like Mick and Keith. We’re the rhythm section. We’re like Charlie and Bill laying down the rhythm track from the back.
The key to a good rhythm section is how the drummer and bass player really listen to each other so they can blend their talents, creating something special. It’s like when the CFO really listens to HR so they can create a strategic plan that optimizes the human resources of the business. And it’s like when HR really listens to the CFO so they can create recruiting, training and compensation programs that are tightly aligned with the financial and strategic priorities of the business. When HR and Finance blend their talents well, businesses end up with a whole group of rock stars.
If we’re going to be a back office, let’s be a legendary one.
Cue: Respect (Aretha Franklin)
Legendary back offices instill values…. because values are what give a business its soul. The legendary HR and Finance professionals find a way to reinforce the values of the business while we are out there doing our HR and Finance thing.
The legendary back office infuses soul into the business much like the legendary Muscle Shoals Swampers who added their soulful rhythm tracks to the songs that helped make Aretha Franklin the Queen of Soul.
Cue: Dance to the Music (Sly and the Family Stone)
Legendary back offices create energy. Some accounting and HR departments can suck the energy out of a business with their bureaucratic ways, The legendary back offices energize a business with their excellence and their enthusiasm.
The legendary back offices create energy like the legendary rhythm section of Sly and the Family Stone who got everybody dancing to the music.
Cue: Ain’t No Mountain High Enough (Marvin Gaye & Tammi Terrell)
Legendary back offices inspire teamwork. Now I’m not talking about every day ordinary teamwork. I’m talking about the “Ain’t No Mountain High Enough” kind where no mountain, river or valley will keep us from backing up our teammates.
The legendary back offices back up their teammates like the Funk Brothers backed up the stars of Motown Records.
HR and Finance can create the backbeat that drives a business toward success. Let’s be legendary!
Special thanks to Sommer Sherrod and Ricky Baez for letting me do this talk on stage at their DisruptHR Orlando event. And very special thanks to Kim Shaw for being the Tammi Terrell to my Marvin Gaye in the sing-along segment of my talk. Watch this video to be wowed by Kim’s vocals.
What will I do for an encore? Register for the Oct. 20 Disruptapalooza event to find out.
Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country. Unless you’re a child prodigy, you probably weren’t a manager the last time inflation was this high—in 1982; it was 6.16%, last month it was 9.06%, today it is 8.52%.
Inflation consumes cash, eats margins, and lulls managers into a false sense of security as inflated revenues rise A company’s situation can erode very quickly, leading to takeover or bankruptcy. Business owners & CEOs who are fast to react and flexible in their approach can not only survive but prosper in this challenging environment as they seize opportunities afforded by less nimble and smart competitors. Those who react slowly or choose the wrong strategy and tactics will be weakened and may even go bankrupt.
Here are a few critical action items that Business owners & CEOs should focus on to review and manage their businesses through inflationary times:
Communication - The Business owner & CEO, CFO, and CHRO must be very public in the business and constantly share their insights and reasons for many of your decisions.
You are changing the way your business works, and you are asking your employees to follow you on this journey. To avoid confusion, be transparent by explaining the critical business objectives.
Cash Flow - During inflationary times cash is king. Finance should set up a dashboard that reports the KPIs that most affect cash flow and update it daily. The essential meetings in every organization should review the dashboard and take corrective action as soon as a deviation from the plan is spotted. Differentiate between strategic and nonstrategic spending.
Working Capital - Set goals for working capital and cash. Do not let inventory and receivables grow or even remain where they are today. Squeeze out every bit of money.
Continuity of the Business - Invest only in activities that ensure the company stays solvent and beats the competition.
Revenue - Grow real volume, real revenue, not inflationary revenue. Master and manage the balance sheet.
Fix your bottlenecks - They may be in production, the supply chain, the hiring process, or the ship to cash cycle. As inflation grows, any waste or friction will become more expensive.
Costs - Now is the time for cost reduction, consistent with the critical business goals. Reassess your spending habits. If inflation is making it difficult to stay within budget, take a moment to reassess your cash flow and where it is going.
Human Resources - if “cash is king,” the employees are “the queen.” They need and deserve the attention of the senior staff. And the CHRO will be under as much stress as the Business owner, CEO, and the CFO.
Compensation plans need to be changed to reflect what is happening in the company, competition, and its immediate business environment. Maximize loyalty and reward programs. HR must ensure fairness and explain the changes so that everyone can understand and accept them.
Automate - In addition to labor cost savings, automation can promote stability in an organization. Technologies like robotic process automation (RPA), workflow, and intelligent document processing can free up workers and make each person much more effective at creating value.
In conclusion, By playing both offense and defense, you have strengthened your company, making it more effective and efficient and have position your company to outpace lea-proactive competitors long after the volatility ends.
No one wants to hear this, but soaring prices on food, gas, and entertainment may be around for a while longer, likely another year or so. That is primarily due to the Federal Reserve's plans to raise rates a couple more times through the remainder of this year. If they see demand as still being high enough to call for a couple more rate hikes, then there is certainly potential that inflation could continue to creep up a bit more from here.
So, what can you do? Keep breathing and do your best to budget accordingly. Things will settle down eventually, though we may just have to get used to higher prices.
Relations between the United States and China have long been challenging in many areas but have become progressively more fraught in recent times. Some of the flash points include trade sanctions, authoritarian governance, human rights abuses, technological competition, and militarization of the South and East China Seas, including the Taiwan Strait.
The US ‘s long standing policy of strategic ambiguity to China’s claims on Taiwan (recognizing China’s position, but also supporting Taiwanese independence) has being severely tested by Speaker Pelosi’s recent tour of Asia, which included a visit to Taiwan, and drew a strong response from China in the form of military drills in the Taiwan Strait. China states that these drills are now complete, but that it plans to carry out regular patrols, which has further stirred up regional tensions. Disruption to shipping seems to have been short-lived, but with around half of all the world’s container ships passing through the narrow waterway, there is a risk that the threat of further military operations will have some impact on supply chains.
China has also suspended cooperation with the United States in the fight against climate change as part of a range of measures in response to Pelosi’s visit. Regular dialogues between the world’s two most powerful armed forces have also been cancelled, making it harder for them to prevent accidental conflicts. Beijing also said it would stop cooperating in tackling the drugs trade, fighting crime, and repatriating illegal immigrants. These actions are likely to make companies reconsider their supply chains, potentially making global supply chains less efficient, adversely impacting long term growth, and further increasing prices.
In another example of the general fall out in the relationship, President Biden recently signed into law the Chips Act, which aims to subsidize the development of semiconductor production in the USA. The Biden administration may also be planning an export ban to China of high-end semiconductors and manufacturing equipment that use US technology, in order to obstruct its bid to become self-sufficient.
The cumulation of all the above points of friction has created an increasingly tense relationship between China and the US and many other Asian countries. However, both superpowers appear to recognize the very dangerous downside to pushing the envelope too far in overall terms, and that mutual co-operation wherever possible will lead to a better outcome for their respective countries. The situation is finely balanced, and it is to be hoped that the calmer heads will prevail in both Washington and Beijing, thereby avoiding any further escalation of the existing tensions.
Every business should have Performance Metrics (also called Key Performance Indicators or “KPIs”) to provide objective measurement of how the business is performing. Businesses need meaningful metrics that offer business leaders insight not only into how the business is performing overall, but into the underlying health of the business and any changes therein. Meaningful metrics are invaluable in alerting management to favorable as well as unfavorable trends taking place, and allowing time for appropriate actions to be taken. Some meaningful metrics to consider in our current economic environment where the potential for a recession exists are Efficiency Ratios. These ratios measure how efficiently a company uses its assets to generate revenue and its ability to manage those assets. Companies that are more efficient with their resources are often more profitable as well.
Efficiency Ratios include the Inventory Turnover Ratio and the Accounts Receivable Turnover Ratio.
Inventory Turnover Ratio. The Inventory Turnover Ratio is calculated by dividing cost of goods sold by the average inventory for the same period.
The higher the ratio the better, as it indicates the company is able to sell goods quickly. This reduces working capital requirements, inventory carrying costs, and risk of obsolescence. A declining Inventory Turnover Ratio should be analyzed to determine the cause(s) as it could forebode important changes in the business, such as inventory obsolescence or economic slowdown, and allow business leaders to act more quickly.
Accounts Receivable Turnover Ratio. The Accounts Receivable Turnover Ratio is a metric that measures how effectively the business collects its accounts receivable. This ratio is calculated by dividing net sales by average accounts receivable where net sales is sales on credit minus sales returns and minus sales allowances.
This metric is commonly used to compare companies within the same industry to determine if they are performing better or worse than their competitors. Lower or declining Accounts Receivable Turnover Ratios should be analyzed to allow business leaders to adjust credit policies more quickly when economic slowdowns affect the business. In addition, such an analysis will allow management to maintain adequate bad debt reserves and minimize write-offs of uncollectible accounts receivable.
With the potential for recession looming, businesses that continually monitor the performance of their inventory and accounts receivable will be able to adjust more quickly and minimize any negative impact of an economic slowdown.
The Florida CFO Group presented its annual speaker series, Grow. Optimize. Protect., in Tampa Bay on May 10, 2022, at the Feather Sound Country Club. The partners thank our co-sponsors, Truist Bank, and JP Morgan Chase, as well as our six speakers for making this a fun, enlightening and educational event.
All the speakers currently work in the Tampa Bay business community providing their perspective, insights and advice on topics critical to the success of all businesses and small- to medium-sized businesses in particular.
Christy Vogel shared several marketing automation tools and techniques that can help turn suspects into prospects and customers with great efficiently, regardless of the amount of staff your organization dedicates to marketing.
Christy and her firm Marketing Direction have provided her clients with outsourced marketing teams since 2009. With over 25 years of marketing experience, Christy understands how vital marketing leadership is to the success of any organization.
Kelly Crandall discussed six sales trends that should be on every company’s radar in 2022. These include changes in the last year that impacted supply chain and staffing, created major hurdles for companies to overcome, and necessitated innovative sales practices.
Kelly is a former entrepreneur who founded Next Level Strategies, LLC., to provide Sales Consulting and Outsourced VP of Sales services to help business owners and companies achieve record-breaking sales results.
From The Great Resignation, to hybrid work models, to a focus on mental health, 2022 is poised to be another year for the history books. Stephanie Lacy discussed HR trends and what employers should be prepared to provide to boost employee experience and hiring success this year.
Stephanie is the Founder and CEO of hrEdge Consulting. She has been in the Human Resources industry for 20 years, leading progressive HR initiatives.
Jonathan Bowman provided insights on how the Entrepreneurial Operating System (EOS) can help your leadership team get better at three things: (1) Vision shared by everyone in your company, (2) Traction®—instilling focus, discipline, and accountability throughout the company, and (3) Helping your leaders become a more cohesive, functional, healthy leadership team.
Jonathan is a lifelong entrepreneur who founded his first company at age 22. In 2013. Jonathan implemented EOS to trigger his home health business’s turnaround, doubling revenue over the next three years and leading to a successful exit. Since then, Jonathan has devoted his time to being a Certified EOS Implementer, facilitating 350+ sessions for more than 50 entrepreneurial companies throughout Florida.
Like receiving spam and malware emails, executives are constantly bombarded with cyber security tips and advice. Donald H. Noble provided an overview of cyber security exposures, best practices to minimize threats, and techniques to protect your company now—without all the fluff and the buzzwords.
Don has over 20 years of financial management experience across various industries and specializes in first- and second-stage, fast-growing organizations, and Mergers & Acquisitions. Before becoming a CFO, Don was a technologist for both the US Air Force and for many international companies.
Emery Ellinger shared sage advice to help small and mid-sized businesses sell and realize the value created through years of work, including: (1) the most important things you can do to prepare your business for sale, (2) five key value drivers, and (3) the seven deadliest mistakes when selling your business.
Emery is the CEO of Aberdeen Advisors, Inc., a Mergers & Acquisitions (M&A) advisory firm he founded after having built and sold his own multi-million-dollar marketing company. Emery has expertise in all areas of M&A and has successfully completed hundreds of transactions, including mergers, acquisitions, divestitures, and financings.
Not all CFOs are created equal, and one critical differentiator is broad experience working across industries and with different types of businesses. I, like all of my partners at the Florida CFO Group, rely on just such a mix.
These consequential industry experiences coupled with financial sponsorships afford small- and medium-sized business (SMB) clients access to an accumulation of honed skill sets that can be applied across unique company profiles to maximize the mission as a fractional or interim CFO.
My own career experience includes a mix of publicly traded, private enterprise, and family office experiences where I provided insightful financial and trusted strategic counsel to owners and CEOs of SMBs.
I have also worked across dissimilar industry verticals, including automotive manufacturing, energy, aviation, logistics, retail, distribution, financial and professional services. Far from being self-made, I am extremely fortunate to have been mentored by a number of nationally applauded multi-billion-dollar private equity sponsors throughout my career who valued my diverse industry accomplishments.
What are the lessons of these travels?
“Run your business like it’s for sale” is an engrained PE portfolio CFO adage in which everything revolves around maximizing shareholder value. Underlying financial, accounting, and treasury data within almost every business is quite similar, and a universal metric derived from this commonality is free cash flow. Whether scaling operations, organically growing the top line, managing the middle through cost controls, or acquisition integration / accretion, business success is measured by the cash generated. The double entendre “your cash is flowing, know where”, is the holy grail of the CFO mission.
To elevate and evolve the team, business owners and CEOs can expect to receive operations oriented communicative narratives well ahead of financial results, an incredibly strong sense of urgency, humility, and energetic intellectual curiosity leading to an accelerated and thorough understanding of the client’s business.
Do diverse industry experiences build stronger CFOs?
You can bet money on it. Rely on a fractional or interim partnership with the Florida CFO Group.
I first met Roddy Premsukh in June 2021. At that time, Direct Components was 19 years old, and had 18 employees. We had totaled about $12 million in gross profit the previous year, and on the surface, were humming along just fine.
Little did I know that hiring a fractional CFO for a few months would change the course of Direct Components forever.
When Roddy arrived, his overarching influence within the company was apparent. Not only did his financial savvy play an enormous role in reshaping Direct Components, but his business-minded actions and culture-focused attitude made him indispensable almost immediately. Roddy’s partnership in the Florida CFO Group allowed him to collaborate with other CFOs on a regular basis, and this extra knowledge base set him apart in his ability to bring fresh ideas to Direct Components.
After only a few short months, it was clear to me that Direct Components’ future had to involve Roddy. Soon after his arrival, Roddy instituted a comprehensive budget for the first time in our company’s history. He reworked our sales commission structure to make it more competitive, developed a program for net terms, and implemented drastic improvements to the company’s policies surrounding risk tolerance. With much of Direct Components’ business coming from overseas, Roddy set up processes to change the sales structure to secure payment from clients, and inventory faster from vendors to broker quick-turn orders before inventory disappeared. This helped broaden the scope of the supply chain for the company and led to increased sales and aggressive growth. Roddy also implemented a brand-new Enterprise Resource Planning System ensuring more synergy across the company.
That wasn’t all, as the working world was still feeling the effects of remote work and COVID-induced shutdowns, Roddy realized that having employees in the office was essential to the success of Direct Components. This was not an easy undertaking during a time when many employees were looking for the flexibility to work from home rather than being required to work in an office each day. Despite this barrier, Roddy was able to set up a program to ensure that employees could work safely from the office, which included enhancing the benefits plan for the team, redeveloping the commission/compensation structure for sales reps to make it more competitive, and staggering work breaks between teams to minimize workplace exposure. Simultaneously, the office culture that Roddy was able to help implement made it attractive for employees to be at work every day rather than at home. In addition, Roddy coordinated an office expansion as the company more than doubled in size and worked with a landlord to secure extra space in an additional new building at no cost.
All-in-all, Roddy has had his hands in just about everything that we have done as a company over the past year. And as a result of his dedication, Direct Components totaled $97 million in gross profit in 2021 and has grown from 18 to 65 employees, with plans to grow to 100 by the end of 2022.
It is not every day that a company sees 10X growth in profit, a doubling of physical office space, and a team tripling of team growth all within a year, but Roddy has been the linchpin that has pushed Direct Components to do just that. Roddy turns words into actions and actions into results, and Direct Components’ numbers prove it. In November 2021, we transitioned Roddy out of a fractional role and hired him as our full-time CFO/COO.
As if the success of Direct Components was not enough, Roddy was recently recognized by the Tampa Bay Business Journal as one of the 2022 CFOs of the Year. In addition, Direct Components was named one of the 2022 Top 50 Electronics Distributors by SourceToday.com. Roddy’s arrival was absolutely one of the best things that has ever happened to Direct Components. We would not be anywhere near where we are today without him.
Roddy joins Betsy Bennett, Joanne Dempster and Joe Price as Florida CFO Group partners that have previously been honored with CFO of the year nominations.
If you'd like advice or to partner with a fractional CFO, simply CLICK HERE.
