Dan Ginsberg and Rob Gorin discuss examples of how they assist companies to leverage untapped, internal data resources and deliver actionable insights that help address a variety of operational challenges.
Click Here for Transcript
Steve Katz: Our discussion today centers around the utilization of enhanced analytics and reporting, to help drive effective integration. And we’ll be speaking with Dan Ginsberg, who’s Managing Director at Hilco Performance Solution Advisory Platform, as well as Rob Gorin, who’s Managing Director of Getzler Henrich and Associates, also part of Hilco’s advisory, to get their thoughts and insights on this topic.
Steve Katz: So with that said, Dan and Rob, thanks for joining us.
Dan Ginsberg: Great to be here, Steve.
Rob Gorin: Thank you, Steve. It’s a pleasure to join you.
Steve Katz: Well, we’re really glad you’re here. And to get us started, Dan, let’s turn to you. One of the things that really intrigued me most, as I was reviewing some of the background in preparing for our talk today is just how many long-standing and well-known businesses seem to be behind the curve from data analytics and reporting perspective. What I’d like to ask you first is, why, based on your extensive work with companies across a wide range of industries, do you feel that this is the case? Because, one would think that many of those businesses have more than sufficient resources to put these systems in place, right? So, is it a matter of prioritization? Do they just not see the value? Or, is something else at play here?
Dan Ginsberg: Steve, I think that’s a great question because the answer is really all of the above. Most of the companies that we’re interacting with, and by the way, our focus is on the middle market, and that would include lower middle-market companies, as well as those that are reaching into the more than a billion dollars now in revenue. So the middle market is a rather large segment. And, I would say that the majority of the businesses in that group absolutely understand the value and power of data. And they are not typically lacking in resources required to use that data.
Dan Ginsberg: But, what most of these businesses are encountering is a bit of complexity in how to apply these tools in particular areas of functionality, whether it’s in finance or the supply chain, shop floor operations, distribution networks. It becomes very complicated when you’re looking to apply data in multiple areas within an organization. And that organization likely has some silos of departments or of certain types of business activity.
Dan Ginsberg: And, if it’s a middle-market company, that has some private equity or similar type of investment in it, which is the majority of middle-market businesses in America, it’s likely that they’ve done some acquisitions over the past few years, and that the organization is made up of actually the sum of multiple add-on acquisitions that together create the comprehensive platform business. And, having data that cuts across all of the subsidiaries and add-ons, in a consistent standardized format, with the ability to drill down into actionable granular data, is kind of difficult to get at for businesses at that size, at that type of complexity, when they are changing ownership every five years or so.
Dan Ginsberg: So I think the real kind of answer to the question is, there are a variety of reasons as to why data and reporting are, as you say, behind the curve, mostly having to do with the complexity of buy and build businesses, working over a short period of time, and then technical difficulties working across disparate systems, different software applications, different locations, maybe even different currencies and languages at times. And, those types of challenges are inhibitors for organizations to have enterprise-wide data analytics and reporting solutions in place.
Dan Ginsberg: What you do see often are smaller analytics and reporting capabilities, within silos, or within some of the acquired businesses, where through scrappy efforts, some parts of the organization have been able to get some type of automation and intelligence from the data, but have difficulty in expanding that forward. What we have been looking for, over the past few years as data has become more and more important to day-to-day operations, is a value proposition that we can assign to data analytics and automation projects, which make it a lot easier for the stakeholders to see the value and realize that value the short period of time, making the investment a whole lot more at track.
Dan Ginsberg: And, what we discovered on working with a variety of different types of businesses is that automation and analytics typically bring the type of efficiencies to a business that are an order of magnitude greater than what could be achieved through typical process improvement and blocking and tech. And those types of benefits mean that an organization can do more off of fewer resources. And so the value prop is heightened in today’s market, where there’s limited availability of labor resources to fill core management roles, as well as administrative support roles. And automation and reporting have been the solution to filling those gaps, not with employees, but with automated solutions and using data in intelligent ways to basically close those open positions and make the current workforce much more productive than they were before they had these tools.
Steve Katz: Okay, well, accomplishing more from fewer resources, I think that’s a pretty clear advantage and an appealing prospect. Rob, when we talked about engagements, I’m guessing it’s more often than not a situation where your team’s called in to help solve general operation challenges, perhaps the kind that have created an issue in terms of a business’s ability to remain competitive or gain market share or otherwise perform effectively. So, with that in mind, can you talk a little bit about how frequently the presence of analytics and reporting deficiencies comes to light through your diligence process on those engagements? And then also, if you can, take us through how you’re able to demonstrate the impacts of that gap and what kind of reception or buy-in you’re able to get in terms of implementing those types of changes as part of your proposed strategy.
Rob Gorin: Yeah, Steve, it’s such an interesting topic, right? And unfortunately, we find so often that there is an issue with the data and with mining the data and using it to really generate the benefits that are hidden in there. We have a saying in Getzler Henrich that, we follow the data. Wherever the data takes us, that’s where we go, to help identify opportunities to improve the company. And so much of what a business does drives off the data, right? We all talk about gut feelings and those types of things, and those have their place, but you really want to be driving off the data. It will really help you determine where to go and how to make improvements.
Rob Gorin: The data that a company has is one of the most crucial assets it owns, but it’s often not treated that way or not used to help the company unlock its full potential. And, so many companies believe that they truly are the master of their own data, be it some IT systems or Excel, or even sometimes still pen and paper, believe it or not. That said, so fine that the majority of the time, the availability of accurate data is just so much of a major issue.
Rob Gorin: And, how do you know if that’s something that you’re facing? There’s some clear warning signs that companies often either don’t notice or just overlook. Some of those signs are, do you have an abundance of one-off Excel spreadsheets? If everybody’s bringing their own Excel spreadsheet to a meeting, that’s a problem. You really want your system to be helping you drive this in a very efficient manner, as Dan mentioned earlier, the whole concept of automation. You want this to happen easily as possible, still maintaining accuracy. Lengthy times to generate standard reports or analysis. Every time someone tells me, “Boss, it’s going to take me a long time to figure that out,” and it’s something that is inherent in their business, it’s a critical point of their business, that always causes worry or concern.
Rob Gorin: If you find the different business areas, finance, sales, marketing, operations, if they all have numbers that don’t match or don’t sync up, that’s really important. That is an indication of a siloed business, and in between silos is where revenue goes to die. So, if there’s a lot of different opinions on what the numbers say, that can be a problem. Healthy debate is good, but if I’m bringing a different subset of data than the department next to me, that becomes a problem. And then finally, if the data’s just not linked, again, if it’s just siloed data, that’s a problem, because data in a vacuum doesn’t tell you everything that it can be telling.
Rob Gorin: So, the second part of your question is, okay, so you have this situation. Now you’ve identified it. How do you generate buy-in? And that’s a big part of what Dan and I do because you want… It’s not just about doing something to the company. It’s about changing the company’s operational and emotional DNA and helping them own whatever changes and improvements that we can help bring to bear. And so, there are a couple of ways. Sometimes, we’ll just take a small sample size of data, and we’ll quickly analyze it to show that this profitability that you thought you had doesn’t really exist, or that it doesn’t align with reality. Lots of companies tell us that they have a healthy margin, but no cash. Well, if you have a healthy margin and no cash, it only can be one of a few things. Either you’re not spending your cash wisely, our margins aren’t what you think you are.
Rob Gorin: If you can identify those areas within the company, so that we can address the pain point, so you use the data, figure out, analyze the situation and address the true pain point, not just the symptom. It’s a lot like going to the doctor and saying your wrist hurts, and the doctor works on your neck. “Why are you doing that?” “Well, the problem starts at your neck, so if I figure that out, the nerve that runs down to your wrist, I’ve solved the problem, not just the symptom.” And that’s a lot of what we’re doing here, to help understand what’s causing the pain in the proverbial wrist of the company, and how do we figure out how to solve that?
Rob Gorin: And then finally, make life easier for the staff. If you can explain an unsolved issue, if you can save somebody time and energy, time is the most valuable resource we have, if you can save them time and energy in their job and frustration, and ultimately lead to increased profitability, that really gets people excited. So, at the end of the day, if you make someone’s life easier or better, the buy-in usually follows. I think that’s what we’re looking for when we’re attacking these problems.
Steve Katz: Yeah. Great way to explain it, and I love the very relevant examples. And I also like the medical analogy of actually diagnosing the problem, not just looking at the pain. So, thanks for that. And I think I’m just going to stick with you for a second on this next question, because one of the things that you and I have talked about in the past is, how important automation is in terms of making data from various back-end systems actionable, in order to drive not only operational decisions, as you’ve talked about, but also to ensure that financial reporting, internally and externally to stakeholders, is delivered with a high degree of accuracy and in a timely manner. So, without getting into any confidential client details obviously, I’m thinking it might be helpful if you could take us through an example of how you and the team have actually tackled both ends of that equation for businesses. And if that sounds good, let’s start with the operation side.
Rob Gorin: Absolutely, Steve. I think that’s a really great way to look at this and to bite it off in chunks. So, I’m going to run you through a case study. Obviously, the names have been changed to protect the innocent, but this has a lot of common elements across organizations of all sizes. And so, the setting, the company is a $300 million consumer products company. It sells to the big box stores. It sells to mom and pops. And then it sells via e-commerce, both off their website and through Amazon, all the various ways that companies access e-commerce today. So, we walk in the door, and management says, “Good news. We’re a healthy company. Everything’s good. We have a 40% margin.” And, that’s wonderful. But if you have 40% margins, as we talked about earlier on $300 million, where’s the cash? Why are you having a liquidity crunch?
Rob Gorin: And so for that company, the first issue was really driving home and understanding the difference between gross versus net sales. Interesting topic, but that’s for another podcast. So, ultimately, we’re looking at $300 million, 40% margins, no cash. Further, the company is using their data, the cost data that they’re pulling out of their systems, as a basis for determining product pricing. So I’ve got to go meet with the client, with the retailer. What does it cost me? Historically, what is the numbers? And I’m going to build my pricing off of that. They’re also using that data to determine, “Which customer orders do I fill first? And which products do I manufacture first?” Because you always want to focus on those that give you the best bang for the buck. So if I’m going to get a bigger return from manufacturing product A than product B, that’s where I’m going to focus.
Rob Gorin: Obviously, there’s a disconnect somewhere here, because as I said, they’re out of cash. Liquidity is near zero. So what do we do? We pull six million lines of invoice-level data. Sounds unbelievable in its scope, but that basically represents the previous five years of sales. We happen, in this case, to use an analytic tool called Alteryx, which is an engine that will help us run some algorithms and really understand the data. And then ultimately, we presented it through a dashboarding tool called Tableau, but there are obviously others out there as well.
Rob Gorin: But we’re able to link the vendor invoices with customer sales, and generate true product profitability, truly understand, not just historically, but today, right now, with the raw material that’s in our factory, what are the costs? And it’s a particularly important in an environment like today, where inflation is hitting, and yesterday’s numbers, last week’s numbers, don’t give you a true picture for today. And then you have to make some kind of assumption for tomorrow too. So really understanding timely data, and what does it look like today versus yesterday, is really, really important.
Rob Gorin: So we run this analysis. The output is, I don’t know how to describe it other than pretty shocking. So, we walk in. The company thinks that they have 40% margins. We find out that across the board, they’re running at 13% of margins. It’s a dramatic difference from 40%. Further, they have over 2,000 skews, and less than 200 of those skews are truly profitable and driving the profit. All the other skews are actually negatively impacting profit. And finally, the company is actually losing money on its second-largest customer. So you might as well tape dollar bills to the side of the boxes as you’re mailing things out the door because you’re literally just giving money away, in this situation, to your second-largest customer. It’s interesting. Sales were stunned. Operations were not quite as stunned. They had some sense that it was taking harder and longer to do some of these things.
Rob Gorin: So what happens next? So now you have this data. We understand profitability by product. We can roll it up by customer, taking into account all the various allowances and backend deals that happen with customers. We rationalize the skews. We go through the 2,000 skews. We look at them, really understand where the data, where the money is coming from, and eliminate almost 40% of their skews, and then 40% out and improve their margins. There were a couple of customers that we had to “fire”. We just couldn’t make money at the prices they were insisting on receiving. Interestingly, side note, a couple of months later, some of those customers came back to us because they couldn’t find the prices in the marketplace, and now they were willing to talk fairly.
Rob Gorin: And ultimately, we changed the pricing process, so that it better aligns with costs. So we’re less concerned with the historical aspect of it than we are the recent aspect of it, which is really important. We’re using these reports for profitability, for strategy, for pricing, for understanding, “What do we manufacture? Where do we want to focus? What do we want to advertise?”, et cetera. The analysis, this takes four weeks and costs under $100,000. And obviously, the follow-up, in some of these other projects that we talk about, take a little bit longer. But to just generate these responses, the end result is that this $300 million company has its first quarterly profit in three years. You talked about buy-in earlier. Generate profit like that, people buy-in and they got very excited.
Steve Katz: Yeah, I can imagine. It’s really incredible, honestly, that insights like that can remain hidden right inside a company’s own backend data, yet be so quickly leveraged when you know how to do it.
Rob Gorin: Absolutely.
Steve Katz: All right. Well, thanks. Very poignant example. Dan, let’s turn to you for the second part of my earlier question. Can you walk us through an engagement now, that was more along the lines of needs associated with lender or investor reporting?
Dan Ginsberg: Yeah, absolutely. So, as Rob just took us through a case study at the operational level, really down from the shop floor, all the way up through finance, and how an organization uses analytics and automation tools in a variety of functional areas. So, he talked about finance. He talked about procurement, talked about sales. Even human resources and compensation are affected by this, when commissions for sales effectiveness are applied to product profitability. So you could see how this reaches deep into an organization with a number of different tentacles and how complex that can be.
Dan Ginsberg: If we take this up one order of magnitude, and look at it from the stakeholder perspective. So from the private equity sponsor and from the lender perspective is typically how we are seeing these things with the type of work that we do. And there’s a great demand for integrity and data, with drill-down capabilities there as well, but in a different context and for different means and different purposes.
Dan Ginsberg: So from the PE sponsor’s perspective, they want to ensure that what they acquired is tracking against its investment plan and that the financial performance is within a range of expectations. And that they’re working their way towards their exit strategy, achieving the value part of the plan. And, what a number of PE sponsors have encountered over the past, I’d say, decade, when the buy and build strategy has really come into full force, is that even seemingly small acquisitions can have very large data implications on the entire company. And this was discovered when middle-market companies went out and bought smaller, more founder entrepreneur-oriented businesses that they could then roll up to a platform. Those smaller businesses tend to have been on more antiquated financial systems, or simpler systems like QuickBooks, than what might be required from a larger organization. Even some are working off of Excel only. Challenges exist when trying to fit the QuickBooks data and the Excel data into a larger enterprise system.
Dan Ginsberg: And, from a PE sponsor’s perspective, they’re having difficulty even getting consolidated financials on a quarterly basis or a monthly basis. And most private equity firms are now running management meetings on a monthly basis. So, there’s quite a bit of difficulty encountered in the finance departments and throughout the organizations when they try to generate those findings on a monthly frequency. So those are types of issues that a PE sponsor may have, and just trying to maintain performance monitoring, and guide the investment along the path, is actually really difficult to do, when you have so many disparate systems and data from many different sources.
Dan Ginsberg: When looking at it from the lender’s perspective, I think the issue is almost intensified or amplified from what the private equity sponsor experience is. And this is because lenders have very specific covenants in their agreements around the money that they provided, in form of debt, and how the financial performance of the underlying company must be, relative to that debt, usually on a quarterly basis, but it can be monthly. It can even be weekly in situations where there’s limited liquidity.
Dan Ginsberg: And so, a recent example is a client that we had that’s in the energy space. They’re a manufacturer. And, they’re owned by a private equity sponsor, and the sponsor was in the midst of an exit process. And they had an LOI of a buyer. And in order for that transaction to be completed, the operating company was in need of refinancing an asset-based loan for around $20 million, and line up the rest of the financing for the acquisition.
Dan Ginsberg: And, the lenders that they were working with for the ABL shared some disappointment with us early in the process, saying, “It took you over a month to deliver the data that we requested, in order for us to underwrite this loan. But, we actually need this from you on a weekly basis. We need to understand your bank borrowing position each week, in order for us to be your ABL provider, not each month. And so, if your organization’s not able to provide that data on a weekly basis, we’re sorry, but we will not be able to be your lender.” And the little footnote to that is, “We’re sorry. You also will not be able to exit from this investment. The deal will fall through.”
Dan Ginsberg: And so the sponsor and the company, and everybody involved, certainly did not want to have that type of outcome. So they brought us in to help them figure out a way to automate the processes happening inside of finance, as well as in their field operations, such that they could generate a bank borrowing base certificate on a weekly basis. So we went in there with a very small special ops team. And this was during a period when there were significant COVID restrictions in the office place. We were still able to manage through that. And within four weeks time, we were able to generate a bank borrowing base on an automated basis, using all of their data from a variety of different sources. It then took us another two to three weeks to train controllers and other staff within the finance organization at headquarters on how to replicate this process each week.
Dan Ginsberg: And so, in just a period of roughly seven to eight weeks, not only did we automate what was a highly manual process, but we trained the organization in performing the work going forward. We were able to secure the lender for that ABL. The exit process was able to be consummated, and they’re now under new ownership. And so, it was a successful outcome for all the parties involved. And they continued to use these tools, not only for bank borrowing but for other types of financial analytics. So we’ve ultimately raised the capability of their finance staff. They’ve been able to close positions and increase the compensation for the people who are working within finance at HQ. So that’s the type of result we would expect to get from an investor-led perspective. And then from there, the organization takes it down the operational paths that Rob was talking about just a few minutes ago.
Steve Katz: All right. Well, guys, believe it or not, we are running out of time. It goes quickly when you have so much good, insightful information to talk about. I do think that those two very different cases really serve to illustrate very well the wide-ranging potential and the impact that a business’s own tapped data resources can really have.
Steve Katz: So, listeners, you heard it here. Whether you’ve been losing money quarter over quarter, and you’re not sure why, or if your lender’s looking for reporting in a timeframe Dan was talking about that you haven’t been able to achieve, given the limited finance department resources that might exist, the ability to generate automated, actionable insights to solve those types of issues is likely more accessible than you think, and clearly, the teams at Hilco Performance Solution and Getzler Henrich can help you to make that happen. So, Dan and Rob, thanks again for joining us today.
Dan Ginsberg: Thanks for having us on. Really appreciate it, Steve.
Rob Gorin: Thanks so much, Steve. It was a fun conversation.
Steve Katz: Yeah, it was great. Very insightful. Appreciate your time. And, guys, how can people best get in touch with you. Dan?
Dan Ginsberg: Well, the best way to reach me is either by email or phone. Feel free to contact me directly at D as in Dan, G as in Ginsberg, I-N-S-B-E-R-G @hilcoglobal.com, firstname.lastname@example.org. Or you can reach me directly by phone at (847) 504-2453.
Rob Gorin: Same here, Steve. Either email or phone is great. My email is email@example.com, R-G-O-R-I-N @getzlerhenrich, G-E-T-Z-L-E-R-H-E-N-R-I-C-H.com. Or call me anytime at (917) 696-5565.
Steve Katz: All right. Well, thanks again, guys. And, listeners, I really encourage you to reach out to Dan and Rob to learn more, as we really just had a chance to scratch the surface on the topic here today. And we hope that this Hilco Global Smarter Perspective podcast provided you with at least one key takeaway, that you can put to good use in your business, or share with a colleague or client to help make them that much more successful moving forward. Until next time, for Hilco Global, I’m Steve Katz.