Buyers and Builders
00:25:27 · Chris Rolls
[00:25:27] S1: Sure. So I think the answer to that is it depends on what sort of business it is. So if you take that strata management business, one of the things we did was they have a lot of votes and we implemented a pretty basic cheap piece of technology that allows management votes to happen online. You're not having to hold in person meetings for... You know, to pass special resolutions around buildings. Some of the other things we've done in businesses is we've implemented basic efficiency programs. People are probably familiar with business process improvement or continuous improvement or lean, depending on what you call it. Once you train people in methodologies like Lean, it's not that hard to show them if you can develop the right culture internally that there's a whole bunch of work being done in every business that ever exists that just doesn't need to be done. Is there unnecessary reporting being done? Is there unnecessary work that's being done? Are people not not embracing artificial intelligence? So we have as an as an example, and this is probably a very relevant example, We have a team member, her name is Shelley. Internally, she's our head of of innovation. And what she does is work with our portfolio companies to have a look at basic processes that you can eliminate or automate through AI. So I'll give you a good example. One of our businesses would receive payments from a client. So they... The business is a business that is in the exercise physiology industry and what they do is they rehabilitate injured workers and get them back to work and those injured workers or that rehabilitation is paid for by insurance companies. And insurance company might pay an invoice but the invoice is actually a collection of hundreds of very small invoices. And they were going through a manual process of they would get a payment in, it might be for whatever $10,000 which might be made up of 5,200 invoices. And they had someone there just cross referencing invoices for for multiple hours a week. Something that AI is very very good at just solving. So Shelley jumped in, helped solve that problem. Straight away. You might be removing six to eight hours of work a week. So that's a day a week for a person potentially. So things like that in terms of getting cost out. The other cost is working capital.
00:28:02 · Chris Rolls, Mikk
How can you help businesses collect their invoices faster, pay their invoices later, reduce their inventory, make sure it turns more effectively. Not that many of our businesses have a lot of inventory because they're typically capital light. But even just helping them with their working capital. There's often hundreds of thousands of dollars in businesses by just getting better terms with suppliers, paying them a little bit later, and collecting money from your customers a little bit earlier. You might buy a $5,000,000 business and immediately, over the first twelve months, pull out $400,000 of working capital that the business never needed. So there's lots of examples, but it is very, you know, on a case by case basis. [00:28:52] S0: Let's cover the third one as well. Simply selling more products and services. What's...
00:28:57 · Chris Rolls
[00:28:57] S1: So that's the hardest one. That's the riskiest one. So a lot of people kind of... I I I think most small business owners, particularly people that have spent a lot of time sort of in the startup world, in the entrepreneurial world, their their thoughts about how to grow a business is all about top line revenue. When in fact, the only thing that matters is the bottom line. And even then, not the bottom line, it's the cash that comes as a result of the bottom line. Ultimately, what counts is cash. But most entrepreneurial and entrepreneurial sort of courses and people talk about how to grow grow grow grow grow and they're almost always talking about revenue. And revenue is a terrible measure of growth because it doesn't necessarily correlate to profit. And so it's the hardest it's the hardest one of all. So when we look at a business, we make the assumption that we aren't going to significantly improve sales because that requires an investment which means... Which makes the business more capital intensive. That investment may or may not pay off. Sales in a business are often very heavily dependent on finding the right salesperson and salespeople are traditionally the hardest to employ because they're salespeople, they interview well. So we don't we don't go into a business on the assumption that we can increase sales all the time because that's a risky assumption to make. You can make much more accurate assumptions on things like putting prices up and pulling costs out. That said, we have plenty of businesses that grow but we take a fairly conservative approach. It's a rare scenario where we will go into a business and, you know, invest an extra million dollars or $2,000,000 on growing the sales team or spend on marketing or or that sort of thing. Usually what we're doing is having a look at at how have they grown historically and are there some easy levers to pull in that space. And sometimes there are very easy ones. We're looking at a business at the moment that generates referrals from an organization who sends them work in order for paying them a a a fee on that work. You know, you ask the question of, well, any reason why you don't pay them more and get more referrals? And I said, well, we just like to grow at a certain sort of speed.
00:31:12 · Chris Rolls, Mikk
And if you look at that particular scenario and you talk to that referrer of the work, they're open to sending more referrals. It's just never something that never happens. So once you know your acquisition cost, if it's less than the profit that you generate and most importantly the cash you generate, well you can spend more on generating referrals in that case from that particular source. That's probably an unusual one but it does happen. But if you look at the prices up, cost down, sell more stuff to more people, the prices up and the cost down are the easier of those two levers to pull. [00:31:47] S0: That's interesting way of putting it. Because when it comes to salespeople, you can have them like for a low fixed income and then heavily like, result based, like commissions. So that doesn't really affect the business that much as I've seen the ones I've I've built. So it's interesting approach. You you mentioned this.
00:31:47 · Mikk, Chris Rolls
[00:31:47] S0: That's interesting way of putting it. Because when it comes to salespeople, you can have them like for a low fixed income and then heavily like, result based, like commissions. So that doesn't really affect the business that much as I've seen the ones I've I've built. So it's interesting approach. You you mentioned this. [00:32:08] S1: Yeah. It is. I think, though, that you're right, you can have people on lower fixed basis but the reality is that good sales people know their worth. Sure, certainly some of their remuneration can be commission based but you've still got that risk, you're carrying the risk. And depending on the sales cycle, you look at some industries where it might take six or twelve months to close a sale. And now in those scenarios, you put a new salesperson on and they start to build a pipeline, you won't get any sales for six or twelve months. So you're carrying that base cost for six or twelve months. And of course, the problem with people is they can up and leave whenever whenever they like. So, you know, I'm not saying it's not a a good strategy, but it is a more risky strategy than than some other strategies to to improve profits and and cash.
00:32:08 · Chris Rolls, Mikk
[00:32:08] S1: Yeah. It is. I think, though, that you're right, you can have people on lower fixed basis but the reality is that good sales people know their worth. Sure, certainly some of their remuneration can be commission based but you've still got that risk, you're carrying the risk. And depending on the sales cycle, you look at some industries where it might take six or twelve months to close a sale. And now in those scenarios, you put a new salesperson on and they start to build a pipeline, you won't get any sales for six or twelve months. So you're carrying that base cost for six or twelve months. And of course, the problem with people is they can up and leave whenever whenever they like. So, you know, I'm not saying it's not a a good strategy, but it is a more risky strategy than than some other strategies to to improve profits and and cash. [00:32:59] S0: Coming back to this role, which Shelley has head of innovation. What's Shelley's background, and when did you decided to hire her? Because I think every holdco should have a person like this because we dis... Discuss AI all the time, and it's impossible that... It's not impossible, but I've seen the top top people, and they've been doing this for some people since 2018, 2000 and even '17. They're very, very good at it. So if you start learning this today, Chris, it will take a lot of time. So it's sometimes better to just hire this person. So what's the story behind the hiring Shelley?