There's something in the psychology term called Johari's window. It's the side that other people see that you don't see, and that's what a business wants to do, a business really wants to have someone to help them see their Johari's window so that they could address those particular issues.
This is going to be a day-in and day-out process. But with a road map or with a plan you'll be able to mark that improvement, and see that improvement, and see that improvement drops right to your bottom line.
I think each business has to really look in the mirror. I’m always talking about looking in the mirror. They need to compare themselves against the best in class.
Jeff: John, let's talk about you, just to kind of start out here on the program, a little bit more about what you're doing with RPR Hawk Manufacturing and Innovative Resources Group. Are those two companies tied together somehow or are they two completely separate entities?
John: Over the past year we have combined Hawk Manufacturing and RPR Hawk into Innovative Resources Group. Innovative Resources Group is a manufacturing company. We manufacture products related to water purification, to water production, that kind of product line. They are mobile, they are in 20 to 40 foot containers, and that's why we’ve cross traded the business because that's where we have found over the last 12 to 18 months that the business has taken us. Originally it was going to be a sales organization and a manufacturing organization, but we realized to leverage our efficiency we needed to be all one organization.
Jeff: John, this is a little bit off topic but I've got to ask you about the types of products that you make or manufacture. You've got that desalination in a box unit. Why is it that we don't see more of these types of things in operation in the state of California where the drought is just crazy and there's a lot of attention and concern about really something that can become more of a crisis because of the lack of water and rainfall we have here. Just kind of wondering. I know that there have been a lot of times in the past, we've heard about these types of things. The drawing board as far as municipalities putting these types of things in service, but we just don't see many of them. We hear about them and use oftentimes overseas. Why is it we don't see more of those in use in the United States, in places like the West where we don't see as much rain as other parts of the country?
John: What we seem to see is that the idea of distributed systems, which is basically what we have, wherein you can distribute the capability over a wide area, provide large amount of water over a very wide area. It's not the way the US infrastructure is setup. Our infrastructure is set-up more in a hub and spoke system where you have a large, central desalinization system or a large central processing system. And then a smaller pumping station all throughout the community. Our system does help out in the efficiency, it does help a number of areas along those lines too. But the change in thinking and the way that places like municipal systems in California and other places need to think.
Overseas they're thinking more along those lines because it gets them to where they need to be quicker. We've spent 100 years building our systems, building our large, fixed infrastructures. Countries like India and China and other places are developing very quickly. They don't have the time to spend 100 years developing these fixed systems. So they're working at ways to get the same capabilities through more of a distributed system. That's kind of the way that we look at it. We could be completely off base. That is the ultimate battle that we tend to fight it's when we do go to Sacramento or any of the places here in the United States. The question always is how does this interface with my current system. And so that's always the question we have to overcome.
The issue always is if you're in something like IT, or sales, or something like that and you want to jump into manufacturing. If you're in sales you want to jump into IT, or something like that, it can be hard. It's a skill set that you have to learn sometimes. And it's a skill, if you don't have it you have it, you have to find someone who can help you work that skill set. Or you're just going to have to trial by error sometimes. It's sometimes the best way to go. So it can be difficult. It is rewarding when it does work out. If you do it right it does end up working out best for you usually.
Jeff: John, good luck to you on that venture. I know that it's a very exciting time for your company and you found a lot of success so far in the markets that you've been able to exploit. Really, very, very exciting indeed in terms of the technology and the hope that you can bring to those areas that need in fact, drinkable, fresh water from the types of systems that your company built. Let me ask you a question John. As an entrepreneur who spent a number of years in IT-related capacities, for those people who might be listening right now, maybe they're doing something, they're thinking about making a jump, maybe doing something completely different from what they're doing and that means investing in a business or buying a business that's already up there, it's already in place, it's already operational that might be completely different, 180 degrees different from what they're doing now. How easy did you find it transitioning to a manufacturing-based business from IT?
John: I spent a lot of my career as an IT director and different things like that, working around manufacturing. For me it was not that hard even though I'd gone from running an IT department, setting up IT infrastructure. In a large case it's still a lot of the same type of processes that I was involved with when I was just in IT. But overall it can be difficult. The issue always is if you're in something like IT, or sales, or something like that and you want to jump into manufacturing. If you're in sales you want to jump into IT, or something like that, it can be hard. It's a skill set that you have to learn sometimes. And it's a skill, if you don't have it you have it, you have to find someone who can help you work that skill set. Or you're just going to have to trial by error sometimes. It's sometimes the best way to go. So it can be difficult. It is rewarding when it does work out. If you do it right it does end up working out best for you usually.
Jeff: One of the things I know that you do John, and you're really a man who wears many different hats. In fact we can go ahead and get that out there right away. You're someone who has really learned and has excelled in a number of different things that you've done throughout your career. One of those things is working with companies to help them kind of re-engineer their business processes. I'm taking that right by the way from your LinkedIn profile as I'm looking at it right now. And you also helped them become more efficient. You kind of helped them to understand those areas where they can save money. What are some of these key areas that businesses you found time and time again are losing their money but for only a few small changes, could probably actually create greater efficiencies and keep more of their money?
John: Right. A large portion is human resources. Those tend to not understand how to efficiently schedule. Whether it's scheduling people or scheduling shifts, or however you want to look at it, businesses tend to think that it's better to what I will call over schedule a shift than it is to know your data points and hit the schedule like what it should be. Now, there are all these issues in following the schedule where a person calls out sick and it makes the schedule harder to maintain. That's stuff you can't control. But if you know your data point, 9 times out of 10 you can schedule your process and your business much more efficiently than you can by just, say, "I know that I need 10 people for this." You many actually need six or you may actually only need four, you may need nine. That is a situation where you can save large amounts of money in a hurry. Again, you have to know your people, you have to know your data points, and you have to be comfortable with just trusting what your data tells you. That seems to be one of the biggest issues.
Now the other issue is IT. Businesses think, I can always spend $100 on a computer here or a thousand dollars on a piece of software here and that'll solve the problem. That's again not always the case. Sometimes it's as simple as if you're using Windows 7 as an example, upgrade to Windows 8. That'll run your system much more efficiently. That'll run everything in a homogeneous way. There's a lot, it's very essentially that you end up looking at, but again, a lot of them are, I'll say probably 80% of the time it’s based around simply knowing the data. And I say that simply because all the data you need for your business is somewhere in your business. And whether you're looking at it through a database, or you're looking at it through sales reports, you're looking at it through something of those nature. That is the data you need to know. And if you don't know if you're going to do miss something, you're going to spend more money than you should.
And so that's where we look at. We look at helping businesses first understanding what their business actually is doing because you'd be surprised how many owners who said, "Did you know that you're spending 20% more on human resources? And did you know you're spending 15% more on supplies, you're spending 10% more on going to Staples and those kinds of things that you should." A business owner will say “I had no idea”. So those are a lot of things that we look at when I go into situations like that and see. Let's find out what you're doing. Let's find all of the different data points of your business. Let's consolidate all those data points. Let's make sure that you know what your points are and then schedule or do whatever you need to do to meet those points. It's a long process. And again, it helps a lot of business owners and when you first start they are very uncomfortable with that because when you look at it... If I go to Staple as an example once every week and now I go once every month, and I go we run out of paper, and I go we run out of all these sort of stuff. No, because you buy it once, you buy it in larger bulk, you buy it cheaper, those kinds of things. All things that you will get to save money. If you save 1% off every single data point in your business you're going to save a lot of money.
Schedule six people, and have one person as a fall back that knows, "Okay, if someone doesn't show up this is my day to go in on the fall back." Those are very easy fixes. But again, they can save thousands and thousands of dollars in a very short period of time.
Jeff: John, it really sounds like once someone has finally got their head wrapped around all of this and sometimes look, it's just a matter of deciding to do it. Today is the day I'm going to take a quick look at this. And then if it takes you longer, maybe it takes a week or a month of analysis to really find out where the money's going and where you can fix things. The fix, in fact, the repair could actually be quite small and not a very complicated type of solution to solve a problem that could be sucking thousands and thousands of dollars away each and every month from someone's business, could it not?
John: Correct. Sometimes the problem is simply going to Staples once a month instead of ten times a month. That's an easy problem to fix. And sometimes that is one of the biggest problems. Or like I said before, sometimes the problem is instead of scheduling three people over on a shift and you have three people standing around fiddling their thumbs, you know your shift is six people. Schedule six people, and have one person as a fall back that knows, "Okay, if someone doesn't show up this is my day to go in on the fall back." Those are very easy fixes. But again, they can save thousands and thousands of dollars in a very short period of time.
Jeff: John, let me ask you a question. Is it your professional opinion as a business owner and someone who's been helping companies for years now run more efficiently and take advantage of these streamlining processes that by saving money like this and running more efficiently, and running lean and mean if you will, that this could really have an overwhelmingly positive impact, not only on a company's bottom line, but really on the value of your business, particularly important for those people who have an idea about possibly selling their business in the next two, three, four years.
John: Certainly, yes. If you are looking at selling your business, one of the thing that a buyer looks at is cost containment. If a buyer looks at it and tries one or two points where you've blown your cost out through the roof, they're going to say, "Okay, this is a great point where I can make some additional money." Well, you as the business owner, you'll lose money because you'll be looking at your bottom line of being “x” and it should be “y”, you get so much above that bottom line as far as multiple that bottom line. If your bottom line is higher than what you get for your business is higher. Again, business owners do look at it from the standpoint sometimes of I don't want to have a huge bottom line because of tax purposes. Obviously, you have to take all that kind of stuff into account too. But, you need to be able to have an efficient bottom line to where when you're arguing with a buyer like me potentially, or you're arguing with a buyer like us, you can say, "Hey, we are selling a zero bottom line. Here's why it's…..here’s the areas we are inflating or however you want to call it….our expenses. Here's all the expenses, if we were running it. If you can get that kind of justification, most buyers will understand what you're doing. A talented buyer will understand what you're doing. Obviously, I don't want to pay 30% in taxes on my income or whatever that comes up to be. The buyer will understand that. But if you're saying, I don't want to pay 30% on my income, and then I can't justify why the business is worth and “y”. Well buyers are going to look at it, "To me it's worth this. Tell me why you think it's worth more?" Just so you know, you're going to become the stuff between the rock and the hard place. You have to be able to justify whatever price you're asking for your business. And the best way to do that is just have faith and be able to prove what you're able to do with this business.
You have to be able to justify whatever price you're asking for your business. And the best way to do that is just have faith and be able to prove what you're able to do with this business.
Jeff: Owning a more efficient business, that's what we're talking about today on Deal Talk, I'm Jeff Allen and I'll be back with my guest John Ragsdale after this.
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Jeff: Welcome back to Deal Talk, I'm Jeff Allen with my guest John Ragsdale, president and CEO of Innovative Resources Group and we're about running a more efficient business today, and why that's important. John, I'd like to ask you a little bit about kind of your own experience in doing this. I often wondered how likely, or how possible it is, and how often this happens that a company wants to grow and wants to expand, and yet at the same time they want to control costs. And I think this probably applies to about 100% of the companies out there that want to grow beyond their borders, or want to grow their product lines. But I was wondering if you could give us a practical example of how a company could grow and yet at the same time reduce its expenses. Tell us how that could be possible?
John: Let me caveat by saying if you have 100 people as compared to ten people, your expenses are not lower. Your expenses as related to revenues, or as related to another data point can decline. It's not necessarily spending less money. It’s instead of spending 60% of my money on expenses I'm spending 58% of my money, or something along those lines. I'm actually spending more money, but my margins have increased. The way we do this is we look at opportunities for us to leverage volume. By leveraging volume we're able to buy things cheaper, we're able to put efficiencies into the manufacturing process through automation, a lot of those kinds of things. That allows us to drop our expenses or our expense margins. So like I said, instead of spending 60% on expenses, we're spending 58% or 55%. But again, we are spending more money. But again, but overall we are making more in each product that we sell because we have a higher margin. The way we tend to do it is like I said, we leverage volume, we go and we'll look at opportunities for us to do a larger volume deals. We'll work those through our manufacturing processes so that we can buy larger amounts of raw materials. Those raw materials will last us a longer period of time. Throughout our entire process then we have spent less per unit than we would've spent it for building one unit at a time. Our goal is always to build akin to 100 units at a time rather than just one, because that way we're able to reduce expenses on a per unit basis.
And we do it through a number of ways. One of the biggest ways is we look at leveraging other businesses' capabilities. We'll go and acquire a business that has certain capabilities where we might be missing, that might help us reducing on our overall expenses, give us assets that we need, so that we buy the assets. It's cheaper for us instead of buying it on the open market. All of that comes in to play as we look at potentially a deal in acquisitions on our side.
One of the biggest ways is we look at leveraging other businesses' capabilities. We'll go and acquire a business that has certain capabilities where we might be missing, that might help us reducing on our overall expenses, give us assets that we need, so that we buy the assets.
Jeff: And so right there again, just a note to those people who are listening today who may be considering down the line, maybe you've already got an exit strategy or maybe you're just getting started in your business and you already know the scalability of your business. And you've got your site set on, whether it be growing domestically or growing overseas, you take on those assets. If it allows you to run your business more efficiently, and you're able to buy quantities, you're able to use those assets that are already in place and are healthy assets. You bring those on. You can really increase the value of your company while increasing the profits, and still not spending that much more money really when you think about it, to own and operate those assets at the same time. So it's really a great lesson to be learned there John and I think it was important to point that out.
We talked about your IT background and I'm just wondering, many of us I think today take the internet for granted. It's here, this is part of it. Checking our emails is as simple as making a phone call used to be. And hopefully people still pick up the phone and they talk to people, and still have these personal relationships and email that does not always translate well for. But do you think that business owners need to do a better job of keeping up to speed on the technology advancements in their industries in order to stay ahead of the competition? Are we starting to see technology evolve so fast with obsolescence six months after something is introduced that we just can't stay ahead of it enough? What are your thoughts about that?
John: Yes to both extents. Yes, business owners need to know what technology is out there. They need to evaluate each advances to how it would benefit their business. If it means that you have to change more rapidly than you had originally budgeted, then you have to change your budget. It is just that simple. Can you change as rapidly in most cases as technology advances? No. Like you said, a new microchip comes out every six months, or every three months. There's no way you can go and buy a new computer every 6 months, or 3 three months. There's no way you could go buy new cell phones twice a year or whatever all those come out now. There's no way you can deal with all the rapid advances as fast as they come. But you still have to know what's there. Maybe instead of upgrading every 18 months you move your upgrade cycle to every 12 months. That is what you need to look at, is what makes the most sense for your business considering the rapid advances of technology. Maybe it's still every 18 months, or maybe that works out just great.
Software, most of the software is moving to the internet. Now a lot of it software as a service. Upgrade really doesn't matter for that anymore. You will always have the most up-to-date software if you use software as a service. If you buy a software off the shelf, then you probably need to look at budgeting and some kind of upgrade cycle to make sure that you continue advance as fast as you can afford I guess, is the best way to say it. But you could never let your software sit and I've seen it where you go into a business and they have three or four generations back of software. With the way stuff, even software's advancing today. You cannot go that far. You have to say one, there's not two generations behind it, only one. That is the best you have to do. That maybe where you have to.... If you're buying software as a package not as a service where you have to upgrade every 12 months or every six months. Well that's the case you have to budget for it.
If your competition is upgrading every six to 12 months and you're not, you are going to be left behind. There's just no way around it. It's different in a lot different industries. The restaurants are always different than manufacturing, but the general rules still applies. You can't be using punch cash registers as you see it in a five and dime store when we were in our younger days. Anyway, you have to be using radiant systems or something like that. You have to be in some kind of upgrade cycle. And if you're not, you are going to get left behind on the technology and software side.
Not everything applies equally. Manufacturing, yes. Our CNC machines change every 12 to 18 months. Do I need to go out and buy 80 or 100 new CNC machines every 12 to 18 months? No. Generally we can get by with just large amounts of software upgrades to retain our CNC machines to the point that they need to be maintained. The companies that make these things, they provide a lot of support for companies like ours to allow us to keep our CNC machines running for five to seven years. So as long as those kinds of things are out there and you get the right partner on those kinds of equipment, you're fine not upgrading every 12 to 18 months. But if you get the wrong partner even on things like CNC machines or punch welders, or whatever, you're going to be in a situation where your competition has something that is a generation better than you and they're going to be more efficient than you, and they're going to get more business than you. Because they might be able to price underneath what you can price and make more money out of it than you can because of the way that their systems works well.
You're going to be in a situation where your competition has something that is a generation better than you and they're going to be more efficient than you, and they're going to get more business than you. Because they might be able to price underneath what you can price and make more money out of it than you can because of the way that their systems works well.
Jeff: John, as we wrap up the program today, and this time has really gone very, very quickly, I want to kind of go back to the beginning of the program and end it with a quick chat on the idea of communication. We here both see where it's communication and collaboration used interchangeably all the time now it seems with business owners who more and more these days are meeting one another, networking with one another to try to work together in some cases. Sometimes you could probably wonder about any hidden agendas that each business owner may have. Sometimes there aren't any and sometimes there actually seems to be kind of a genuine spirit of communication, cooperation, and collaboration to help improve the successes. Why is it these days that we're starting to see more and more of that, where a business owner isn't just simply going through life each and every day at the office with his head down at his desk. But rather that business owners now are starting to work more together. Why are we starting to see this happen?
John: I think a lot of it has to do with things like LinkedIn, and even to a lesser degree at least in business, Facebook, and different things like that. We're learning as a business community, we're learning as a society. But as a business community, as a society we're much more connected than we've ever been, which allows us to communicate more effectively, more efficiently, and easier across industries, across businesses, across countries, across continents, across the planet. It has and it will continue to change the way that we all do business. Even if you're a small bakery, you're going to have networking meetings, which you never did 10 years ago with other bakeries in your local community. Or you'll join groups like BNI or something like that to meet other people that can help you in your business. Again, I think a lot of that comes from things like LinkedIn. We learn through LinkedIn that business owners want to meet each other and they want to know what others are doing out there, that they want to talk to each other. And there's not always a hidden agenda. Like it or not, that is what in the end kind of LinkedIn has given us. It's given us the knowledge, and the ability, and the desire to talk to each other.
Jeff: And on that note we're going to go ahead and wrap this particular edition up John. I want to thank you so much for agreeing to join us. One real quick plug though for you. I want people to know that they can reach out to you if they have any questions about what you do, what you're doing, or how you can help them run their business more efficiently and effectively. Streamline those processes, communicate better, whatever the case may be John, how can people get in contact with you?
John: They can always call me at 843-817-6106, or they can always email me at email@example.com, and I'll be happy to respond to anyone who calls or emails.
Jeff: There you go, John Ragsdale, thank you so much. Hopefully we can have you back on again soon.
John: I would enjoy it. Thank you very much.
Jeff: John Ragsdale, president and CEO at Innovative Resources Group.
Deal Talk is presented by Morgan & Westfield, a nationwide leader in business sales and appraisals. If you'd like more information about buying or selling a business call Morgan & Westfield at 888.693.7834 or visit morganandwestfield.com. And make it a point to check in with us again soon for valuable information and insight from our growing list of small business experts on Deal Talk. My name is Jeff Allen, thanks again for joining us. I'll talk to you again.