I met with a middle market company last week. It was owned by two charming brothers who had grown it over 20 years into a successful $30 million manufacturing business. We were discussing preparing the company for outside investment. If you ever listen to the NPR radio show Car Talk hosted by the venerable, Peabody-Award winning Tappit Brothers, Click and Clack, you have an idea of the type of guys who owned this business and how much fun I had talking to them.
While touring the facilities, one of the owners was talking about their differing management styles and said his brother practiced what he called ‘Management By Dumpster Diving’. Each morning, he would tour the facilities and each time he passed a dumpster or waste can, he would poke his head in to see what was there. It was a 24-7 operation, so this was his primary way of determining the waste and efficiency of the operation the night before. The dumpster diving brother claimed he learned a lot of interesting information about his company and employees over the years. The other brother claimed he was preparing for a future life on the streets!
This highlights what I love about entrepreneurs and why they need to make changes when they bring in outside investors. Entrepreneurs are there everyday, doing whatever they need to do to grow the business, taking risks, getting dirty if necessary, inventing their own methods and solutions that fit their unique business and personal management style. Private equity groups are not going to go dumpster diving to determine the previous day’s waste. Larger companies with offsite ownership need systems and policies in place to measure and report KPI’s such as raw material usage analysis and production efficiency. It’s not necessarily better or worse than the dumpster diving approach. It’s just a good example of how a management process that works for a company at a particular stage of it’s development will not work as effectively as it grows and the ownership structure changes.
As an interim CFO for companies like this, I can help identify the necessary changes and implement them, before or after the change in ownership. Please contact me directly if I can help your company or private equity group in this capacity. For 7 tips on being successful as an interim CFO at private equity portfolio companies, click here. And feel free to share any interesting management techniques you’ve come across and post them in the comments below or tweet them to me @middlemarketCFO with hashtag #ManagementByDumpsterDiving.