Bill Canady on The CEO Show with Robert Reiss

Hello America. I'm Robert Reese and welcome back to the CEO show. We're here today with Bill Kennedy. How are you, Bill? I'm doing great, Robert. How about yourself? I'm doing great and so glad to be with you. So, as all of you know, 600,000 listeners, we always start off and I say Bill is the CEO of X. However, this is going to be different because Bill is currently running two different companies under same private equity, but They're both over a billion dollars and the way he does it is through this unique process called PGOS which is profitable growth operating system. So all of you you're going to hear a a lot first you know first give a a snapshot of each of the two companies that you're running OTC Industrial Technologies.
Sure absolutely. So the two companies one is OTC uh it used to stand for Ohio Transmission corporation, but we shortened it to OTC because everybody thought we made car transmissions, but that's that's not what we do at all. It's a industrial products manufactured, distributor, headquartered in Columbus, Ohio. Uh just about a little bit over a billion dollars a day. Uh and does industrial things like pumps and compressors, stuff for automotive, all that sort of thing. And the second company uh is a company called Arrowhead Engineered Products, and they're about a billion and a half, and they're out of Blaine, Minnesota. That was in a total different industry. It's in power sports. So things for motorcycles, ATV, UTV. Also has outdoor power equipment stuff for lawns and and tractors and you know agriculture, you know, stuff like that. So wonderful companies. I've been blessed to to to help on both of them.
So here's the first question. You take over a a company. What has to happen in the first 100 days?
You know, let me start first and try to set the stage and it's different every time. So if you think on one hand the company is absolutely in trouble. They're on fire. It is they they have not made it to the crash site, but they can see it from the nose of the plane. That one's on one end. On the other one is a company doing very well. Absolutely. They think they're doing great, and many times they are. The easiest one to lead is the company that's in trouble. Always easiest to lead because when when things are going bad, people need help. They recognize it. You can take a drowning sailor throw an anchor to him, he'll catch it, right? He just he'll take any help he can get. So, as a CEO coming in, it's almost counterintuitive. The tougher the situation, the more they're going to embrace what you've got. Now, it's not always the case. You still got to treat people with respect and dignity. You got to come in with thoughtfulness and caring. Uh but if you come in, a company in trouble will embrace you and embrace your system. So, you show up on day one and the gift that God gives you is having a company that needs your help. So, what do you what do you say? Your first thing is do you call an executive meeting, a board meeting, town hall? What do you do? Do you send an email video of you?
Yeah, I Yeah, that that Yeah, that that would be terrific, right? The uh if I wish I could do it that way. So, typically there's some pre-work you do before you get there. So, you you find, you know, you get the opportunity and what and uh and uh what they are uh what you're going to do is you're going to sit down with the board before before you even start, you're going to understand really what their goals are. And as a CEO, the the CEO, you have really just two jobs once you get there. One is to set the goal, right? And then the second piece is to hold people accountable for achieving it. In order to understand that goal, if you're in private equity, the goal is really uh determined by by whatever your contract is. And in private equity is typically you're looking for 3x the equity that you put in, right? So if you put a dollar and you want three bucks back and you typically want it in three to five years, right? Sooner is better. If you're in a private company, it's whatever the goal or the or the uh the need of the owner. Uh sometimes that's taking care of their community. Sometimes it's looking at their employees. Sometimes they just want a bigger boat. It's whatever it is, but you can always be assured it's the dividend. They want that dividend. It's what them and their family and their investors are living off of. And a public company is run for the benefit of the shareholders. And generally in a public, it's the hardest one to run uh at the beginning uh of the quarter. It's uh you know their vision and mission. By the end of the quarter, they're looking for that next penny so that they can you know hit what they promised the street. So as the CEO, you show up on day one, you already know what the what your owners want. You've done the math. The thing I do is I immediately call a meeting. It's in that first week. Uh and uh it'll be offsite. I take myself and my team and I ask them what is our goal? Because in private equity, I love private equity. It's so pure. You're focused on bettering that company. And by bettering that company, making it worth more. It's the only way you can do it these days. Uh those people in that room are tied to the same contract I am. And the majority of the time, they have no idea what they're aiming at. So I get them focused on what that goal is. And let me give you an example. So let's say you are your goal is you put $50 in this company. The private equity firm is, you probably got your own money as well. And the goal is to 3x that, right? 3x the value of that. So, you'll have to do a little research. You'll have to understand how the industry values your company. And uh and a lot of times, I'm just going to use just madeup numbers. And I'll keep it simple so it doesn't get too confusing. But when you sell a company in my industry, typically the value is 10 times whatever the IBIDA or the earnings, the the money you're makes, 10 times that. So, if you paid $50 for it, you've got to get that thing to three times the value, right? So, you've paid $500 for it, you've got to get it to $1,500. That's your goal. In order to do that, you generally got to 3x the earnings. So, you sit down with your CFO, you do the math, and you make sure you have the capital structure possible, right? And there's a lot of different ways you can look at it. You go into that meeting, you ask it, "What do you think we need to be?" And at the end of the day, when you walk out of that, you need everyone aligned around that. The goal is to go from 50, times it by three, just making it simple, to 150. We all have to stack hands on that. Now, that's really important. That's not optional. That's what you signed up for. That's what the contract you sign is set into there, right? So, that's day one. We do that working together, right? It's amazing how people react to it. They'll go, "Well, it's to do this." Nope. We just got to get it to 3x. Simple, but not easy. So h how do you really get everyone aligned? Like what happens if the board gives you the information, Bill, and you know that it's wrong and that strategy is not going to work and then you have to get that alignment of strategy. This is very fast you're moving. Yeah. Absolutely. So it's interesting. The board does not set the strategy. You can have a board that wants to set the strategy that can move into operating uh cadence and you see that particularly uh in public companies where you'll have activists investors and all they'll say well you need to split your company apart or in a private company well we want to K with this and all that that's why it's great in private equity they are purely typically money motivated and they going to have you're going to have the uh the way of uh of setting the strategy with you and your team so if you come in and you sit down with the board and they tell you what their goal is and in the case I made was it was three extra values it is a pure situation and as a CEO you are in the best situation you can be. Now, you have to decide, is it possible? Sometimes these things aren't possible. They might have paid too much for it, but uh if it's possible and you believe it, you're in a good spot. If you're in another spot where the board or your owners are trying to operate, it's going to be tougher, right? It really is going to be tougher for you because a board, if you think about it, uh Robert, how often does a board actually meet with the company?
Could be once a quarter. You four times a year. They don't they don't actually The board I'm on Several boards they don't want you to meet operationally.
No, most boards are like here do do and and as they should be, you know, be good people. A lot of times my boards uh uh uh particularly will say things like how's the team doing? You know, how are the people right? They want to know about the people, are we on track? Is anything going wrong? They, you know, they really want to support management. So for for this exercise, it's a little easier uh just to assume the board's in a good spot. They believe in you. They believe in your team until you prove it opposite. Right? Because the board ultimately has only one job. If they don't believe in the CEO to get rid of him, right? If they believe in the CEO, then their job is to support them the best they can with the tools that they have. So, if you find yourself in a different situation, you might better sharpen your pencil because you're probably going to be looking for a new job before long.
So, let's go into something you're saying, building a consensus. And first, you're doing with the management team. How do you It seems like everything you're doing, people might take 50 days and you're doing in one week. But h
That's right. Because
how do you build the consensus when you have someone who says, "No, I don't agree?"
Yeah. It turns out to be easier than you think. Uh but but it'll get a little messy for you. So So what I do is I go in there and I already have the math in my hand. I have pre-met with my CFO. We've sat down. We've looked through the numbers and we believe for whatever reason that the math is possible. And it's going to take a couple things. is one is dry powder. So, we need some access to capital because they're probably going to have to go buy something, right? So, we need access to that. We need to understand uh that we can carry our debt capacity, things like that. We need to see where the company's at. Do we have operating capital? All the things. So, the CEO or excuse me, the CFO is my right hand. He lets me know that in his considered opinion, we have the wherewithal to do it. But we got to go grow this thing, right? We got to grow the bottom line and the top line. Perfect. private equity math is get 10 on the top and 20 on the bottom, right? So, whatever you bring in, whatever you grow it, you're going to want 2x coming out of the bottom. It's just leveraging, right? People love to see it. Doesn't always work that way, but that's perfect math in the private equity world. Grow your top line 10% annually, get 20% out. So, we're sitting there. I'll take give you the one I did last one of the last ones I did. I took over OTC, right? So, it was during the pandemic. Uh, it was 2021. We were right in the the middle of it all and uh I had sat down and Adam who's my CFO just a tre best one I've ever worked with uh he and I are sitting outside the conference room uh and uh I had flown to Columbus and the funny thing was everyone had kind of moved at this point no one was even in the office anymore so I called them all in we meet at the Hilton hotel they're inside the conference room he and I sat down with a piece of paper and we determined that in order to get where we needed to go we had to grow the business at least 9% Right? We were about 70 million in earnings. We needed to get to 200 million in earnings. We need to grow it at 9% rate and we're going to have to go buy a hundred million. A hund00 million worth of companies. 100 million being the bottom line, right? And I remember laughing because the average size deal that they had done up to this point was $2 million in earnings. We're talking just earnings, right? I was like, we're gonna do we're gonna do 50 deals in a you know, I was like, there's no way. The company is history had been doing you know, four or five deals here and there, you know, over. So, we knew how to do deals, but not at that rate. So, we go in, we're sitting in this nice conference room. It's awfully quiet in that hotel, for those of you who work during the pandemic. And uh and we're staying there. We go around and we just talk about who we are and what we're here for. So, I call the question. I go, "What is our goal?" And we I actually had the contract with me that we we all on the same contract that said what the how you got paid out, right? And uh and everybody in that room had a little bit of money in that uh that piece. So, they go around and it's all over the board. So, I get up and I write on the whiteboard, our goal is 3x and if you look at the math to get 3x, it's $200 million. I said, that's that's irrefutable. That's where we got to be. Now, the question for everyone in the room is, can we get $130 million in growth in three years? Now, depending on the business you're running, and you know, I mean, I've know a lot of people in some industries uh three 130 million is nothing. Others one is tough. No matter what you're doing, growth is always hard, right? And throw a pandemic in, it makes it even harder. So, we went around the room and we talked about what we believe this industry could do based on our experience. And people thought normal growth in the industry was GDP plus price. So, it was 5% was kind of what we thought that the normal growth in the industry. Some years the company had achieved it, some years not so much, some years overachieved it, but we thought that was possible. So, then we had to figure out where the other 4% was going to come from, right? And we have this conversation because my goal is nothing more than to get them believe it's possible. Like, it's not easy. It shouldn't be easy. And it's not like, you know, a a Hail Mary, right? It's a it's not a a diving catch. It's got to be something where we feel confident we can just walk across the finish line, right? So, we spent a whole day on that. We spent a whole day talking about it because this is the piece that you asked about, Robert. If they don't don't believe it's not going to happen right they have to see it in their heart in their minds that I can actually do this and I want to be part of it because it is not going to be easy now this is the key and this is the step that I think a lot of people miss uh and it makes all the difference for me is once I get them believing in the coal once I get them believing in that we can get there they develop the strategy I don't actually develop the strategy now why do you think I make them develop the strategy?
because then they own it then they own it because if I tell them and I always know in my head what I think is going to be the right answer but it's not always the right answer if I force my strategy they will come back as they say see I told you this was not possible but if they own it and so I I'm an ex-military guy I was in the Navy and so I think of a lot of things I love history right I love looking at all that stuff world war II is a particular favorite and so I think about you got a general who says we're going to go take this hill whatever ever that hill is. He's not out there in the on the muck and the ground. Sometimes his troops are all over the world. They're heading for this particular hill. Uh the troop has to own it because they know what the goal is. Get the hill, but they're going to see things that the general does not see. So, I recognize that. I need them to understand our tools and process, be competent with their tools, and I need them believe that they can actually get there. They have to generate that. So, by saying to them, give me your strategy. Now, I give them a grand in total of about 30 days to come up with a strategy which sounds almost impossible but the reason that it's so short is we we're going to focus in what we already do right so if we were in the pump business which is what we were we were not moving into the restaurant business we weren't going after hospitals it was things that used pumps right so this is an experienced team in many cases that that's what you get you're the new person they're the experienced and you say given what we do already where are you going to find this growth right and So that began. So we did a little exercise, right? And I didn't know any of the answers even though I had the strategy plan. Remember, I'm brand new. I said, uh, you guys think this is possible? And they're like, yeah, I think so. And I said, let's just do an exercise in this room. Let's name our top 10 customer. Now, I didn't have any of the data with me, but they did, right? And I So they wrote it out. The number one was Toyota, right? Toyota $40 million a year, right? We go all the way down this list. Like three of them are automotive, the ones you would expect, right? uh because we do about 25% of the business in automotive uh and then everything else after that. And I said, "Okay, that's just the top 10 customers. How many customers do we have?" We have 8,000 customers. 8,000 customers, right? How many suppliers? 14,000. Way too. We probably need 1,00500. 14,000 suppliers. 8,000 customers. We lay put the top one on there. We put next to Toyota. How much do we do? 40 million. Then I asked them, "How much could we do?" Now, I'm going to put some rules on that. I said, "Well, it can't be new products. It's got to be the products we already have. It can't be new territories, right? Cuz we're not going to China. We're not going to Japan. We're we're going to we we're a US-based company. Tell me what our entitlement is, what we should be selling. These are products we already sell them in locations that we're not, but they're in our territory doing it right. What What do you think it could be?" And they went around this room and as a group, they agreed it was $250 million. I said, "Wait a minute. Before we go anywhere else, we have enough at the first customer that gets us past the $130 million." Yep. Enough right there. Products we're already selling them in the areas we're already at. We're just not getting all of them. I said, "So, it's we just need the one customer." Well, it took more than one for sure, but that's what we had it in front of us. And that's what 8020 is all about. You identify your biggest customers. You identify the products you sell them that you make a lot of money at and you go sell them more. In that top list of customers was over a half a billion dollars of sales that we called our entitlement. In other words, we didn't have to go any place new. We didn't have to come up with any new products. They were already there. We just weren't selling them their share of wallet. We were not getting what we were entitled to.
What a great story. So, we have just a few minutes left. Answer this um you've said that there are three different types of leaders,
right?
Correct. Just explain to everyone because CEOs want to know now they already know thanks to you how to grow their business dramatically. What are the three types of leaders?
This is critical that everyone's got to know their role and the CEO has to make sure it happens. So the first one is the visionary. Typically it's the CEO. This is where we're going. Remember the general that's the hill we're going to take. That is critical. The general, the CEO, the visionary has to make it a condition of employment. We are going there. There will be no naysayers on this team. We're all going to be aligned. The second group is the operators. That's the presidents, the VPs, the people who run the business day in day out. They have to follow the process. Most condition of employment. We're going to follow this process to go win. You're going to own the strategy. You're going to assemble the teams. You're going to organize yourself in it because if you own it, you'll believe it. If you believe it, you'll own it. And the third one is what we call the prophet. Like Moses coming down from the mountain Muhammad coming down. They are the trainers. They're the people who tell you the knowledge, tell you the process. So we identify people in our company. Sometimes we'll bring in outside people, consultants to help us if we don't have the knowledge. Uh and they will teach us and show us our our way of doing it. They're the one that shows the way. We have a process you mentioned before the profitable growth operating system uh that uh that we use and it's just five simple tools right it's it's talent it's strategy it's 8020 it's M&A right and it's lean or segment it's just a tool and we've all learned them but we have our own take on it and we and we're we're all going to use one language we're all going to if you have a waste problem you don't bring in six sigma in our industry you bring in lean that's what we are that's what we're good because lean is good at getting weight rid of waste based six sigma is good at getting rid of variability. You're going to use our tools and process. Now, you don't have to use them all at once, right? If you're going to have HR, of which we all have people, you're going to use the same form. So, I don't bring in everything, right? Many of the companies already have the tools and process. We just codify them and say we're going to follow this. And particularly, we use 8020 because look, you can take lean, one of the most powerful processes I've ever used, but you can throw a million dollars at a nickel problem. 8020 will tell you where the math is. It will tell you where the numbers are. It tells you where the money's at. When we knew Toyota, we could solve all our problems. And I looked at it, we didn't have anyone fully focused on Toyota. It was just another customer. We put a whole office together that did nothing but focus on Toyota. We doubled that business. You know why? Because we took care of Toyota. We put inventory in them. We had people in their factories every day. They got it. They asked the question, they got the answer the same day. We put a whole team team around it. I didn't come up with it.
And and there you have it. You You just got a PhD in turning a company around. A question to you is if someone wants to find out I know you've the books the 8020 CEO and then from panic to profit where what is the website people should go to? Just start with my name, Bill Kennedy. B I lc an ay.com. Everything's right on there. You can certainly find me. I'm happy to help any way possible.
and there you have it. So, everyone remember, you just got a PhD in leadership. Boy, this is terrific. Uh, number one, know the math before you go into it. Know what that math is. Work with your CFO and you're looking at 3x if it's if it's private equity. Number two, the best way to go is actually if the company's in trouble because that's when you're going to get the buy in. And number three, if you really want the buy in, learn from Bill and let them develop their own strategy. Give them just 30 days and they'll do it and they might find the top companies who are their best clients are the ones to just focus on immediately. Great having you on the show, Bill. Robert, I can't thank you enough. This has been terrific.