Technical Debt & Transformation: How to properly assess in Manufacturing

Jenny Mueller: Fabulous. Well, we'll have a whole nother conversation about our food favorites on another day. But Jeremy, why don't you go ahead and tell us a little bit about you and maybe a little bit about the work that Assemble does.

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Jeremy Norberg: Awesome. Thanks Jenny. Yeah, I'm Jeremy. I'm the co-founder and CTO of ASMBL and ASMBL is a team of problem solvers. We work and help big companies work smarter, using cool technology and creative ideas, with the real goal of saving money, making things run smoother. And then ultimately we love to help our companies beat, the competition. As it relates to private equity and PortCo's and things like that, we are, we're very interested in helping with value creation and value acceleration using technology as the cornerstone of that, since that is our main thesis of what we do.

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Jenny Mueller: Fabulous. Well, with that, let's dive right into the good stuff. And honestly, Marc, I would love to kind of start with posing a question to you. I've found that really over the last few years, I've been hearing a lot of buzz in the manufacturing space around businesses starting to maybe recognize that these legacy systems that got them where they are today may not be the systems to get them where they need to go.

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So from an investment and strategic value creation standpoint, how do you guys kind of gauge that from like, how do those legacy systems, I guess, impact a manufacturer's overall operational efficiency and market competitiveness?

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Marc Jourlait: Great question and what's interesting is that it aligns very much with our investment thesis. We look for complexity and usually complexity means there's an IT and technology debt so they've been living off of either Excel and Post-it notes or they just have unsupported platforms or non-integrated ERPs. Case in point, the company we're hoping to close on next week has made 29 acquisitions and guess how many ERPs they have?

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Jenny Mueller: 29. Ouch.

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Marc Jourlait: So which is perfect. And so we look for that somewhat masochistically because we know that that complexity means there's a lot of inefficiencies, lot of opportunity, data blindness. They have no idea kind of what's going on. Have very poor inventory management, very poor forecasting on everything from actual physical widgets to their cash forecasts and their working capital. So we kind of seek it out because we know we can go fix it.

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If we were in a of a growth fund, we probably would avoid those like the plague. But we've factored that into our value creation thesis. And we obviously want to invest heavily in fixing that IT debt, technology debt in the first year or 18 months if we can. I always like to do it within the first calendar fiscal year of the ownership so that we can then launch the following year two of our ownership hold period.

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With a proper ERP and full visibility on the financials and the operational performance. And a lot of it, companies we buy are family owned or founder led and therefore why spend money on IT CapEx when you can take dividends and go fund your, jet and go fly around. So we make the other trade-offs. So we think a lot of manufacturing companies, small, medium sized, you know, family owned founder led has not invested in the IT stack. And that's everything from the operational side to even cybersecurity.

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We do audits before we purchase and then we do regular audits on on cyber sec. And it's frightening how exposed they are and they're just right to be targeted for ransomware. And so we button button that down real fast. We identify it pre close and then hopefully shortly, shortly thereafter after close, we make sure they're they're pretty secure.

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Jenny Mueller: Okay, great. And honestly, Jeremy, I feel like your ears are probably ringing over there because I think that one thing that you probably see as a consultant in this space is those families that are the traditional holders of these companies saying like, hey, if it ain't broke, don't fix it or it's too risky or it's too expensive.

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From that standpoint, when you're going into these scenarios where you're helping folks modernize legacy systems, how do you mitigate that with teams when you're running into those challenges or those detractors?

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Jeremy Norberg: Great. Yeah, great question. I, you know, the, to kind of put an exclamation point on Marc's, on Marc's comments and observations of these companies.

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The other part of these is a lot of these CapEx expenses that they've done in these IT systems and these legacy ERP systems they did in the early 2000s. And so, you we'll walk into companies that have their ERPs running on a desktop computer underneath of a desk. And so from a security perspective and, and all of these other parts of it, it just becomes, it's just extra hard. and it works because the people that were involved in the original processes have been doing the same process for 20 years, 30 years. They even took maybe their manual processes and then just put them into the ERP and so they just continue on with these processes. So it's kind of a big thing.

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One of the things that we do see the most of, almost all of this has nothing to do with technology. The technology almost becomes the easy part. It's really, it's about people. Change management is a big issue with this. I think one of the advantages that we see and one of the reasons why we love working with PE is that when PE comes in, they have positional power. And so there's an emphasis on the ability to be able to actually infect change quickly. And so you can actually kind of break the juggernaut of change management a little bit, but you still have to make sure that your people in their PortCo companies don't feel like they're just be becoming run over by a freight train of technology. So we think that that's really important.

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The other, you know, the other big thing around, uh, around technology, any technology change is disruption. Um, and it's to us, it's, it's actual production disruption. Like what happens when you take out that ERP, you know, how long is it going to be down for? And then mitigating and trying to figure out how you do that best as you possibly can. And then making sure that the things that you're replacing, that there is actually a  return on that CapEx. We think that that is something that we take into consideration. And again, I'd like to reemphasize, we didn't even talk about technology with that. Those are all just like strategic things. Again, because the technology, there's so many great software tools that are out there right now. It's just a matter of making sure that you're making the right decision to actually to use them.

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Marc Jourlait: If I could up tail on that.

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Jenny Mueller: Go ahead.

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Marc Jourlait: Jeremy noted that some of the stuff was redone in like the year 2000. We tend to look for ERPs that are at least 10 to 15 years, if not 20 years antiquated because they're usually no longer supported. And the arcane knowledge required to run them is still in the company, but that obviously is not going to last our hold period. We have inherited some companies that are working on 2005, 2009 instances of quote unquote ERPs. They're on site, they're on someone's desktop computer sitting under someone's desk. No disaster recovery, no cloud.

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And it's so we love that because we can do a step function into the 21st century with a proper cloud based ERP. And the other point that think Jeremy made is the ROI as private equity owners. We don't have time for huge customization and a five year SAP implementation because that's just not the business we're in. We're going to sell this PortCo in five years. So we need the ERP implementation to be 12 months roughly. And we're going to go standard off the shelf.

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You know, shrink route as standard as possible and then maybe adding a BI layer on top so they can do all kinds of slice-and-dice to the data. we're not really into customization because we just won't get the ROI and we won't be able to sell and get our money back to the next owner. So there's an urgency and a standardization of upgrading the ERPs that think PE drives in particular given our hold period.

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Jeremy Norberg: Yeah. And I just to add one additional to that one, is the, this, the idea of taking off the shelf and, trying to just use less as less custom as possible. The, the issue when you have an owner led or founder led company, they are going to protect their original processes to their deathbed, but when PE comes in, they have the advantage of not having that constraint. so that you can actually, the technology debt is so much married to the process debt of the company. And so when you can actually address the process debt, then you fix the technology with off the shelf product. That's when you get the substantial return on that investment of adding the tech in.

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Jenny Mueller: Very nice. Hey, Mark, question for you. And I know that you kind of alluded to this a little bit, but well, and I feel like we could probably talk about horror stories all day long, but I don't think we have enough time today. You mentioned that you're often looking for people with ERP systems that are, I guess, businesses that are 10, you know, running ERP systems that are 10 to 15 years old. Can you speak to any other kind of technical indicators or signs that a business might be in need of a digital transformation?

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Marc Jourlait: Well, if they can't produce data rapidly and have it at their fingertips during our pre-closed due diligence, that's already a telltale sign. If the CFO is not able to just produce this slice of the data, we want to see by customer, by product, variable contribution margin. If they can't pull that up easily, and if the data quality doesn't tie out, then we know that there's an issue there. So that's the first telltale sign.

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The other thing that we tend to notice is when we start talking cash flow, 13 week rolling cash flow forecast, a lot of these companies being family owned, founder led, don't have much debt on them. Cash is kind of a, it's there and they just use the P&L and they don't really use the cash flow statement or the balance sheet. And as long as they're somewhat profitable and there's cash to tap into, they're fine. As you know, PE, we're usually somewhat leveraged, therefore cash and debt service are important.

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And we know that one of the telltale signs is when the CFO or the CEO don't talk about cash generation and cash flow and the ability to pay down debt or just convert their earnings into cash, we know that there's a deficit there from an IT standpoint because it probably means they're flying blind on what's their APAR, where's the cash, what are they doing with it. So we bring that to Jeremy's earlier point about process debt.

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If they don't manage cash with a APAR and working capital process, then our antennae are highly attuned to that and we say, we know there's an IT need and a process need that needs to be fixed.

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Jenny Mueller: Great, thank you for sharing that. I'm always interested in what precursors there are to identifying these white whales that have tons of growth potential behind them.

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Marc Jourlait: The other telltale sign is when you ask them how they built their forecast for the following year. And if it's chewing gum, rubber bands and Post-it notes. And we, with the PortCo, we're hoping to close on next week. This was maybe two months ago when we first met with them, the first management presentation. And I think I asked them, how do you build your 2025 budget slash preliminary forecast?

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And it was kind of a tops down, what did we do last year? Let's add 3% across the board, peanut butter, and there you go. Versus the bottoms up from the sales team, they're using a CRM, which usually means they don't have a CRM. You ask them how are they managing their funnel? How do they compensate their reps? I all these gaps that you can identify usually translate directly into an IT gap. And that's certainly the case with this portfolio company. There's a lot of IT debt that we're going to have to go fix in year one or year one and a half.

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Jenny Mueller: Yeah.

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Jeremy Norberg: So you're telling me Marc is that the back of a Chili's napkin that doesn't count?

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Marc Jourlait: It could be Chili's or TGIF depending on, you know.

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Jeremy Norberg: Which part of the country you're in.

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Marc Jourlait: Yeah, exactly. But it's still the same napkin.

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Jenny Mueller: Well, and Jeremy, I'd say like on the flip side, when it comes to the world that ASMBL works in, I'd pose the same question to you. How does ASMBL go about helping these companies assess technical debt? Is there any like specific metrics or tools that you use as part of the assessment? At least ones that you're willing to share with us?

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Jeremy Norberg: Yeah, yeah, I would say that the lowest tech part of our tool set is really a checklist. We do that really as more of an organizational project way. Because there are a number of questions that you need to ask that will get you to where you can do a more formal evaluation and actually build a report out of what can potentially be changed.

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The other one is is that we also make sure that some of those questions are really kind of open-ended because we want to leave, you know some off-ramps for discussing other processes I think one of the you know, one of the challenges that we often run into it's not the it's not the systems and processes that are in the daylight it's the system and processes that are hiding in the corners and that nobody wants to talk about.

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Or worse there you know, to Marc's point of you have single points of failure in terms of who's supporting those, those solutions. Those are the ones that we really want to try to get to. And oftentimes they, you know, there's a, there's a bit of protectionism goes back to people. But yeah, checklists that's, you know, I would say that would be our biggest number one tool is making sure that we're, that we just follow our checklist. We get all of the questions and answers that we need. And we, and we do those checklists based on, on core functional areas of the company, you know, where we focus the most on is in, operations, sales and marketing. And so it's fairly easy for us to actually have checklists to ascertain where they are in their, you know, kind of technology and process in each of those functional areas.

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Jenny Mueller: It's sometimes shocking to me how some of these extremely large manufacturing businesses have gotten to where they are today with the tools and processes they're using. I mean, again, don't want to go down a rabbit hole of like horror stories, but I think I've run into so many scenarios where one person basically holds the key to the functionality of a certain tool, whether it be an ERP system or an e-commerce platform.

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And if they fell off a cliff or got hit by a bus, like the company would fall apart because they wouldn't have that one person that holds all that historical knowledge.

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Jeremy Norberg: Yeah, we like, we like-

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Marc Jourlait: It is fascinating to see how big these companies can get despite themselves and the inefficiency that are there, the lack of visibility and tools to manage the business. Yet there's still hundreds of millions of dollars in revenue, tens of millions of dollars that even up and they muddle along and they produce enough dividends for the family to fly the Gulf Stream or whatever and enjoy life.

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But boy, they could be a lot more efficient. I think that's the power of PE is we take companies and make them a lot better. And I mean, our batting average is not a thousand, but in general, PE is like 70, 80% success rate. We make companies better and we preserve more and create more employment and a higher tax base. I think there's maybe a negative image that PE is maybe in some cases rightfully deserved, but I think we're a huge force for good in the capitalist system where we take companies that aren't necessarily as productive, as profitable, as growing as they could be or should be. And we allow families to get a liquidity event to pass on to do their estate planning. And I think that's a lot of what we do is we take these diamonds in the rough and we can fix them. And IT is one of those big things we can fix. And I think it's great for the overall ecosystem of just healthier companies. And it's good for the IT industry.

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It gives them a constant base of small medium companies that are hopefully going to become medium to large and they're going to need IT.

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Jenny Mueller: I always joke about this with people, but what I've seen as I've like jumped into this this industry is that there there are so many hundred million dollar plus companies out there that have always been family held and they're in the process now of doing that estate planning and kind of deciding like what do we do next with this company and they try to pass it down to the younger generation and the younger generation is at a point where they're throwing their hands up and they're saying like I don't want to be a part of the family business, dad. I want to be a coder. I want to be an influencer on TikTok or whatever it might be. And then I think that's how they're going out and getting these really impressively sized businesses getting shopped by private equity. And they're probably ending up on your plate for due diligence. But it's, it's just interesting to see that shift because I do think it's created this level of comfortability for generations. And now these younger generations are just not they're like that's boring you know like I don't want to go around interested in making widgets bolt business yeah exactly absolutely.

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Marc Jourlait: That's what we like. We like to offer a liquidity event to the families and then go invest in the companies and provide equity also to all the employees, which is usually not something that family-owned companies do, right? They have bonuses, but they don't have equity, skin in the game for the hundreds of thousands of employees that are part of the family business. And so I think we unleash that entrepreneurial spirit, that ownership mindset, and we can invest in making these companies more resilient and better poised for growth. And IT is just a huge foundational pillar of that. that's certainly part of our investment thesis is look for stuff that's complex and kind of screwed up operationally and I, certainly IT these to be a mess and then we're like great, we'll roll up our sleeves and go fix it.

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Jenny Mueller: We'll take it. This looks like a fun challenge, are you at liberty to, and obviously you don't have to use like specific names or anything, but you've been in this space for a long time. And is there like a one particular example of a successful digital modernization strategy that you can share that's like a scenario where it's significantly, excuse me, significantly improveda portfolio company's valuation or even just their operational performance?

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Marc Jourlait: Yeah, without mentioning names, I'll take a PortCo that we bought almost five years ago that had a legacy ERP system with a brand that's well known for way back when in the time machine. think Cobalt and Fortran were still being used at the time and punch cards. And we bought it and it was during COVID, so it wasn't the right time to necessarily do a major lift on IT, but we opportunistically bought another company and merged the two together. And that was the kind of cataclysmic collision of the two asteroids that we decided, okay, that's what we're actually going to use to go redo the full IT stack. And we did. And all of a sudden now the company has been able to forecast cash, their financials are super accurate and timely, and they just have information at their fingertips.

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And that, I mean, what a difference from when we bought it five years ago where they couldn't, you they couldn't find themselves out of a paper bag with an Excel spreadsheet and couldn't predict anything, didn't have any cash visibility, were usually wrong with their financials, always had to come back and restate them. And so that alone has just been hugely transformational for the company. And then all the other things they've added on top. So they've added a CRM, they've added very modern, robust marketing tools for demand generation, a great CRM and Salesforce management layer.

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Call center technology. I mean, just the full stack has been even implementing some AI, know, chat bot, customer service, self-service for customers. It's been transformational and the company's valuation, you we haven't sold it yet, but we get independent valuations on a quarterly basis from an external third party. And this company is on or above our glide path for our investment thesis from four or five years ago. And I attribute a lot of that to the IT digital transformation we did and obviously the leadership there that, that embraced it, but that's, think, a great story. I fully expect us to recover all of our IT and digital transformation investment multiple times when we exit this portfolio company.

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Jenny Mueller: Those are such fun stories for me to hear I could probably nerd up nerd out on that with you forever but I think that it's it's really fun to see that transformation and then I imagine that you take your learnings from these and go try to find another one in in theory and you know there's no one-size-fits-all solution but in theory go replicate that process and and do it again for another business or another twenty forty fifty businesses.

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Marc Jourlait: Yeah, there's a little bit of not cookie cutter, but at least a playbook that's similar. As I mentioned, you batten down the hatches on cybersecurity because that's the biggest concern is you get ransomware and you no longer have a company. And that kind of puts you out of business real fast. Or usually it's not a very positive cash outflow that you have to go pay someone to keep your company afloat. But after that, yeah, there's a quick assessment. We do a pre-close and post shortly after close. We do a full IT deep dives, you know, kind of roadmap assessment. And then we launched that shortly after we have the keys to the house and we decide, we're gonna go invest, we're gonna do ERP year one, we're gonna go do CRM and BI and whatever.

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Some of the other operational aspects, like an HRIS system, a of these companies don't have that. And do you actually know how to manage your workforce? And can you invest in the human capital you have with a proper HRIS? So that's another usually blind spot where HR was managed here again with the same Post-it notes as before, just the backside of the Post-it note to manage people.

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Jeremy Norberg: Yeah, an example of that is like from an HR perspective is try changing the benefits package and you can't because they have no way of rolling it out to their team. And so they've stuck with the same benefits company that they've had for the last 25 years and with no shopping around because they don't even know how to deal with it. How would they roll that across 500 employees on using Excel?

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Jenny Mueller: It is an ever, ever evolving challenge, I imagine. And, and honestly, Jeremy, quick, quick question for you. And I know you alluded to this a little bit already, but when you are facing those, you know, established processes and like the resistance from employees.

How do you manage that from like an ASMBL standpoint? Cause oftentimes you're getting brought in directly with the portfolio company on behalf of the PE firm and just kind of curious how you and the team at ASMBL are managing those challenges.

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Jeremy Norberg: It's, a great question. I'm going to sound like a broken record. It really comes down to, it goes back to that people side of things. Um, for us, it's around managing the change management of the teams that are going to be affected by it. Um, the, fortunately for us is that there are so many resources around change management these days. So, you know, we can stand on the, on the shoulders of all the giants, uh, before us that have come up with the, you know, processes and, ways of handling change management in any size company at this point.

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You know, the other, the other part is, you know, again, when we come in with PE, we do have the advantage of, you know, change as part of the menu. So, you know, we can actually move sometimes a little bit faster, but we still want to, you know, take into consideration that there are, you know, the, the PE firm is just as interested in protecting, core employees as we are. And so we want to make sure that whatever we do is just really being sensitive to those folks and making sure that we are delivering solutions that actually, you know, work for them and that they actually potentially have a say in.

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Again, we're trying to make their jobs better to, you know, we're trying to make, add additional value to the company, which is going to be a benefit to them. So once you start to show that and PE does such a great job kind of coming in with those messages nowadays, that it, that it does make it a little bit easier and, kind of, greases, you know, greases the skids a little bit so that we can do some heavy lifting and heavy change, with, with as least resistance as possible.

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Marc Jourlait: To Jeremy's point, the culture is, you know, PE, we're not wed to the family traditions or to the quirky way that they've always done it this way or that way, or only one person knows how to run the thing. We're kind of a fresh set of eyes.

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And we are, in our case, and most PE funds, are majority control, which means we can impose. And we try and do it diplomatically and get people to buy into it. But if there's any resistance, usually it's pretty futile because we own the company and we're going to make leadership changes if needed. If somebody's just not you know either it's not kind of up to the challenge and not on board with the change or resisting it.

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We have relatively little patience. Our fuse is very short on those kinds of things. you you've probably heard the statistics. First time PE ownership, CEOs are changed 70 % of the time and CFOs 80 % of the time. So, you know, people have to be on board with the program early or they, you know, we'll ask them to kindly, you know, move on and retire earlier, go somewhere else. But we, just don't have the time given our hold period, we need to launch the digital transformation year one.

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And get that runway years three, four, five where we can reap the benefits and the dividends of that investment and then sell that to the next owner and say, look, we invested in IT and digital transformation and you're going to pay us fair value, fair market value because you won't have to do the ERP implementation. We've already spent the millions of dollars to go do that. And that's what we expect to get our ROI is on the exit. But we need to start that early. And if we have any internal resistance, and then, you know, it won't last long. It won't end well.

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Jenny Mueller: And Marc, you primarily, at least at Riverside, are working in the lower mid-market, are you prepping these to sell to other PE firms in most cases, or what does the exit look like?

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Marc Jourlait: We are, you know, buyer agnostic. We'll sell to whoever. Well, yeah, I mean, obviously the, you know, the actual bid is and the value that people are willing to pay is important, but we also want to make sure that our PortCo's find the right home. And that can be a strategic. The company we're closing on next week is, and it was announced a couple of months ago. So it's a publicly traded strategic, huge, multi-billion dollar strategic.

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And they bought you know, this PortCo from us three years in as opposed to five years. So was a lot earlier than planned, which is a good thing for everybody. But we're, you know, we're kind of next owner agnostic, but we do want to make sure that it's the right landing spot for our PortCo's. We do care about, you know, all of our children. And we want to make sure it's good for also for the management teams and the employees that, you know, that we've invested in. So, you know, the value that's being offered to purchase the PortCo is probably number one on the list.

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The ease of the process, the sale process, the exit process obviously helps a lot. And certainty to close is high up on the list of criteria. But finding the right homes for our PortCo's, we love, Riverside in particular, I think it's part of our value proposition, our brand and our reputation is we like to leave good references in our wake. And we want to know that our PortCo's are going to go on to thrive under new ownership.

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And who knows, we may end up buying them back. That's happened a few times at Riverside where we bought back some of our PortCo's after they've had a change of ownership and we brought them back into the family and invested into the next phase of growth. So yeah, we want to make sure we're not just transactional. We're making sure that our investments last well into the future beyond our ownership cycle.

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Jenny Mueller: When you mentioned making these businesses appealing to a buyer because you're like, hey, you don't have to take them through this process, this very expensive process, because we've already done that. And maybe this question is self-serving, having come from a previous role where I was selling into private equity. But how do you balance that short-term investment cost of modernization against the potential long-term financial benefit within your firms that you're working with?

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Marc Jourlait: I think digital transformation is kind of a leap of faith, even an HRIS system is a leap of faith. But you have to believe that you'll be able to better manage your human capital. You'll be able to retain employees, attract employees, offer better benefits, have more self-service, reduce some of your fixed costs and some of the administrative overhead. Same thing with the ERP. Could you continue along with Post-it notes and Excel spreadsheets? Of course you could. You just have to throw a lot of human bodies at it and it's not scalable.

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And somebody's going to buy the company five years from now, we'll just discount, you know, whatever $5 million of digital transformation they're going to have to invest. They'll discount that from their purchase price. So yeah, you could. But I think we firmly believe in buying companies that we know we can improve and then leaving them in better shape when we sell them than when we bought them. And so we buy complexity and hopefully sell simplicity and growth to the next owner.

It's a leap of faith, like almost any big investment, multi-million dollar investment, we're to do an ERP, but you have to believe that that ROI is going to be there and somebody's going to pay you for that. And the company is just going to grow faster and thrive. Since you have the benefit of a better IT stack and you've done the digital transformation, you'll attract different talent to the company. You'll grow the people within the company and have them also spread their wings and learn new skills.

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So for me, it's a win-win-win, but it's a little bit of a leap of faith. The board meeting where you review that CapEx investment, you swallow hard and you're like, okay, that's a big check. But then you manage it as aggressively as you can from a timeline standpoint and try and prove out that yes, this was a worthwhile investment. And intuitively, we know that. I if we've worked with any number of companies in my 35-year career, you just know that you need a digital kind of foundation to make a company hum and work efficiently. So it's not too difficult of a stretch to say this is a worthwhile endeavor.

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Jenny Mueller: Yeah, I usually tell people whatever investment you're proposing, you have to do your very best job to ensure that you're also justifying that investment as with the outcome will come a higher valuation or, you know, on the buy side. So, yeah, that's that's very validating for me. So thank you. All right, Jeremy, I'm going to kick something back to you quick.

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As far as, know, I feel like the team at ASMBL is pretty up to date on the latest and greatest. And I'd love to know if there's any specific emerging technologies that you see as, I don't know, I guess I'd the most transformative for manufacturing in the next three to five years. I'd say specifically as it pertains to the conversation we're having today around like legacy system modernization.

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Jeremy Norberg: Yeah, yeah. I it's like, I'm going to just stick with the trend. I mean, it's the robots is really the robots are coming. That's the, the the idea of having higher efficiency of our existing staff and and then the resistance of hiring new staff and instead finding places where we can have in technology kind of do stuff in the background for us, I think is really the area that we're most interested in. They call it AI agents. We think that it's you know, it's unleashing the robots basically.

So those are the big ones. The other one that I think is is, you know, a little, you know, is a little more simple is just we have the the competition from all of the SaaS solutions that are out there across many different, across different functional areas of the business and the competition that's created that we have really good software right now. Like we're in the golden age of SaaS, where things are connecting to each other. You can get to your data. You can, you know, you don't have to be relying just on your ERP is reporting system. You can actually have better reporting through tools that are dedicated to reporting. And it's never been easier to actually do that stuff today. The other one that we think is, the absolute most critical part is low code and no code solutions.

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They're going to continue to be, drivers, of, of just substantial investment. And then also the return on those invest on those investments are going to be higher, faster, just because you're not slinging code that you have to maintain long term. So at exit, you're, you're actually to Marc's point of like leaving the company in a better position. You're not just leaving them with with a ton of tech debt five years from now, you, know, with all of these new tools, we're actually in a position where that tech debt is kept in check for quite a long time. And so those are the things. So in a nutshell, the big ones that were, that we are watching and implementing even within our own business is AI agents, unleashing the robots, low code and no code solutions, and then connecting up SaaS solutions for best in class functionality within our overall technology architecture.

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Jenny Mueller: Fabulous, that's super helpful. Well, I know that we are short on time, but I do want to ask two more quick questions and then we can kind of finish up. But I'd love to leave like a couple nuggets for those listening along today. Marc, question for you. If a midsize manufacturer were to prioritize just one or two modernization initiatives in the next year, what would you recommend and why?

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Marc Jourlait: I think if you don't have a good foundational ERP financial system and whether it's a warehouse management system or just how do you run your operations and how do you count the beans? That has to be number one. And I think we buy companies that usually don't have that. So that's our first order of business. And then I'd put number two, let's say there's some foundational things like cybersecurity, HRIS, just basic stuff there that needs basic hygiene that needs to be put there.

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I put number two would be a CRM system. So you actually can manage your deal flow, your funnel, measure your sales productivity. And particularly if you're going to make a few acquisitions along the way, kind of imposing that playbook to the add-ons that you make. So I'd say that the first thing is having a foundational ERP financial system, operational system.

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And then something to manage the top line, which I translate loosely as CRM. And I think those are the first two things that we tend to tackle. Other things are fancy. mean, AI is nice and all. I'm not sure it's totally applicable to the companies we buy, maybe some portions. It's maybe a little too early yet. So I wouldn't spend much time on that. And some other fancy areas I'd probably put lower on the list. But in our whole period, ERP financial system, operational management and then I do a CRM implementation and those two would be top of my list.

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Jenny Mueller: Great. And Jeremy, how about you? Anything that you'd add to that?

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Jeremy Norberg: What would I add? I all of those things. I think the the the part that we always struggle with is sometimes we're left with some of those decisions downstream. So choosing the right one of those ERP, CRM thinking about your HRIS systems and making sure that they are modern enough to be able to extend and create potentially new solutions around those or new processes around those. Those are, those are one of the things.

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So API first, access to the actual data. again, we get all of most of this stuff for free now, but a lot of times decisions are made, based on, industry specific ERPs or things like that, that become a little bit harder to kind of deal with, in those spaces. But, I would say that we would agree completely on the first two for sure. Especially with that in operations sales and marketing, if you can do those two correctly, you are ahead of most of the competition. And then you can start to figure out how you mature into your technology. And then the AIs and the machine learning can start to actually be a play because you've got your other processes in place.

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Jenny Mueller: Thank you. Marc, how, sorry, this is completely off the cuff here, but question on like, how can you tell when a business has outgrown their like existing financial tool or ERP? Like, I guess what I see is like some of these smaller businesses and maybe not applicable to the like businesses you're buying, but thinking about like, at what point do you know you've outgrown QuickBooks and it's time to implement a like full fledged ERP system?

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Marc Jourlait: Usually, the telltale sign, well, there are two things. One is the lack of a cash forecast. The other one is how long does it take them to close the books? And if it takes them three weeks or more than a month to close the previous month's books, you know they've outgrown their system because you're flying blind. I mean, for me, a world class is, if you can close the same day in a month, that means only a few companies in the world know how to do that.

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Jenny Mueller: Sure.

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Marc Jourlait: I think Cisco was the first one that tried to do that a couple of decades ago, which is amazing. If you can close the books every single day, you can land the plane right on, one penny above the Wall Street earnings expectations. And it's a beautiful thing. But I think within one work week, so if you can close the books within five days, it's great. If it takes you 15, 20, 25 work days to close the books, you know you've outgrown it.

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Jenny Mueller: Alright, well to wrap things up, this does not have to be manufacturing or private equity specific. I'm just wanting both of you to tell me what's one mantra that served you well in your career.

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Marc Jourlait: I've got one that I'll attribute to a Harvard Business School professor who's taught a lot about leadership. And this is something I've tried to apply both in my previous lives as a CEO or leader of large organizations, but even today as an operating partner and chairman of a variety of boards. And the quote goes something like this, leadership is about making other people better as a result of our presence and having it last into our absence.

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Jenny Mueller: I love that. Yeah, that is a good one. How about you Jeremy? What's one mantra that served you well in your career?

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Jeremy Norberg: I like that.

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So mine has been, I had the, I had the absolute pleasure of, working for Apple for 15 years and, including on the, on the rise of Steve coming back. And one of the things that Steve drilled into us, that I, wake up every day and say, as I do not have a patent on good ideas.

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And that keeps you humble and it also keeps you curious, which I think, you know, in our, in the technology business that moves as fast as it does. I think that that's a super benefit and it's, it's, it's worked well for me.

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Jenny Mueller: I love that. So if I asked you who's a business leader you've looked up to or try to model and why, would it be Steve or someone else?

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Jeremy Norberg: Well, it would probably be back to the college professors of Harvard. It would probably be Clayton Christensen. I would say that, Peter Drucker, I mean, I would consider those to be the true, the people that I would want to model and try to, to be most like Steve was amazing, on many, many aspects. But, but Christensen and, and Drucker, would probably jump to the top of my list.

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Jenny Mueller: Sure, how about you?

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Marc Jourlait: I'm not sure anybody can actually model or mimic Steve Jobs, nor would they want to, nor would they be capable of it.

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Jeremy Norberg: Very true. You can dress like him, but that doesn't make you him.

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Jenny Mueller: That's true.

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Marc Jourlait: I'm fortunate because throughout my career, I got to work at some great companies. I worked at Apple and HP and Bose, et cetera. And I got to see some of these iconic players at a very young age, including Steve Jobs. But in my, what, almost eight years at Apple, I saw four CEOs. My eight years at HP, saw three or four CEOs. So I saw a lot of leadership changes. And ultimately, I don't know if there's, it's probably a combination of all those that I would say are the...

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And the book I always go back to is Good to Great. And for me, the level five leadership, so that humble leader that is a serving leadership, I think that's what I try and model. And I try and steal the best traits of all the various leaders that I've interacted with and try and mesh them all together. Jobs is quite the charismatic leader and visionary and amazing presenter.

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So I've tried to become that. But also some other people are much more humble and down to earth. they have other skills, operational skills, that Steve was probably not necessarily world class at. for me, it's a mixture of all the best traits that I've observed from the chairman of the boards that I've worked for or other leaders that I've worked under.

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Jenny Mueller: Great answer. Thanks for sharing. Awesome, well that's all I've got for you gentlemen.