Priscilla Shumba (2): If you're a founder who's feeling the pressure of big decisions, when to hire, when to hold back, when to let something go, this is the conversation for you. Because scaling is not just about getting bigger,

it's about making better decisions.

Today's guest is Nick Jain, co-founder of Eagle Rock, CFO Services. Nick has the kind of background that makes you Pay attention when he talks about growth. He graduated top of his class at Harvard Business School spent a decade as a professional investor and helped scale three businesses to over a hundred million dollars across trucking software and e-commerce.

Today he works with companies that are doing 5 million to $50 million. Helping them run leaner, protect cash, and grow smarter.

Priscilla Shumba (2): Nick, , I'll just dive right in, when I founder says I'm ready to [00:01:00] scale, what's your first set of questions or guidance?

Nick Jain (2): Firstly, Priscilla, thanks for having me on the show. Jumping right into it, I think I'd asked two questions. Number one, what are your unit economics ? Basically, are you profitable on a unit basis? And secondly, if volume scaled to five x tomorrow, can you actually handle. It. And I think for a lot of organizations, number one, they don't know what their unit economics are, which is terrifying because it is the very first question any venture capitalist or private equity firm will ask.

And that's my background, by the way. And the second question is like a lot of organizations, they just want more revenue, but they don't understand that they will fall flat on their face if they're not organizations set up. And that can mean people, processes, technology to handle a five x increase in volume.

Everybody likes hypergrowth. Most organizations are not set up for hypergrowth.

Priscilla Shumba (2): Everyone wants more money. . They don't think about all the things that have to come with it for it to be sustainable. Now, Nick, you've been a turnaround, CFO in different businesses. What is a turnaround, CFO, and then how you think about turnaround.

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Nick Jain (2): Sure. So [00:02:00] a turnaround, CEO, and I've been at both a turnaround, CEO and a CFO. Is when a company is broken. For some reason, companies break typically due to three reasons. Number one is they're poorly run. Number two is something bad just happened in the market, right? Something macroeconomic that is nobody's fault.

And thirdly is they could be a good company in good macroeconomic circumstance, but their capital structure's not correct. Basically, they borrowed too much money and they have to pay a lot of interest payments. And you often see this in private equity backed scenarios or other levered companies that basically borrowed too much and got themselves into trouble.

So a turnaround executive like me is hired basically a company's in trouble, usually through one of those three methods. And our job is basically to do three things. Number one, immediately stop the bleeding. When a company's distressed, customers start leaving because , they don't want to do business with you knowing that you might not be around in business tomorrow.

So that's number one. Immediately stop the bleeding. Number two, stabilize the company financially so that the company doesn't disappear or go into bankruptcy. And then number three, grow the company once it is in a position of [00:03:00] stability and strength.

Priscilla Shumba (2): at what point are they calling you in? And when you're coming in, what are you looking at to know that this is not like a dead situation. How are you thinking through it?

Nick Jain (2): I wouldn't take the job if it was a dead situation. Folks like me before they show up to a company and waste years of their life, they try and do diligence on a company. We ask for the financials and we look for the data and we create a business plan as part of the interview process. That's the easy part.

Knowing it's not a dead company very rarely that somebody like me is going to show up, be surprised that, hey, I actually entered not into a company that is. A good company in a bad place, but just a bad company overall. So the thing that you do when you show up right away is look at where the company's inefficient because almost all companies tend to have some level of inefficiency the good times, no one worries about being efficient you know.

If your name happens to be Facebook or Google, you can be spending billions of dollars on stupid things and it's okay. 'cause you have tens of billions of dollars on other things. When you are a distressed company that is potentially weeks away from [00:04:00] bankruptcy the executives unfortunately have to make a lot of really tough decisions.

And sometimes that can mean layoffs, but other times it just means we're gonna force the company to run better. , We're gonna force customers to pay on time. If customers always like to pay late, and that's okay when you're doing well, when you have a lot of money in the bank account, but you can't wait that extra week or two weeks for customers to delay payments when you are on debt store.

So that's the second thing. Look at all the places where the company , can be more efficient and enforce that. And number three is you need to have a day by day plan. So unlike companies that are in hyper growth mode where you can have , a one year, three year, five year vision.

For a distressed or turnaround company, you're really playing day by day for the first several months. You are literally making sure the tactical things get done every single day. And that's really important because again, when you're three weeks away from bankruptcy, potentially you have to worry about every single day, every single hour.

You don't have the luxury of time.

Priscilla Shumba (2): I'm thinking of people who are, buying businesses of people who are retiring. There's a lot of that kind of talk in the entrepreneurial space [00:05:00] and to the person who doesn't have, a mathematical background and experience coming from venture capital the people who are thinking about, okay, there's, a mom and dad shop down the street they're selling, they look like they've been doing well. What am I gonna come in there and doing?

How can I spot those efficiencies? If you can talk to that person, Nick.

Nick Jain (2): Sure. So what you're defining is called the kind of search fund model or small business acquisition model or what's called the golden tsunami, at least in the United States, golden Tsunami, something like that, of all these people who own small businesses that are about to retire. So you're absolutely right.

This is a hot topic of discussion. I think there's three big things that when you're buying one of these ultra small businesses, like the local hardware shop or the local flower shop or small construction business, there's three things you have to really worry about. Number one is how important is the owner ?

The person who founded the business, the person who's retiring, how important are they to the business? Because in a lot of businesses, the business is just the owner or the founder. And if they go away, the business goes to [00:06:00]zero, almost overnight. 'cause all the customers are their friends, their relationships.

People they've built up over decades. You wanna avoid businesses like that. Secondly is, the good news is a lot of these businesses, they are still running the way that they would've in the 1970s or eighties. I have friends that have bought businesses that they didn't have to be rocket scientists to make better, but they just implemented technology.

I have a small rental property business. And my construction contractor, he and his wife still do their accounting on paper. Literal paper, not Excel, not QuickBooks, not your favorite accounting system on literal paper. And I tried to explain to him like, man, why don't you pay 50 bucks a year and get a real accounting system, $50 a year for a business that's making a million dollars of revenue?

And he is ah, I just, we're old. We don't want to deal with this. And, that's his actual words in a text quote. We're old, we don't want deal with this. But that could save so much time that he and his wife spend on accounting right now. And I think that's the second thing. Look for technological opportunities.

The third is look to make sure the business has a reason to exist. There's a lot of these small businesses that candidly just exist because they were at the right place at the right [00:07:00] time, but they're not real businesses and they don't have reasons to be there. There's a neighborhood flower shop that exists, right?

It loses money every year. I know the owner reasonably well, and I asked her why she does this, she just likes flowers. She's retired. She made her money doing something else. That's not a good business for somebody to buy. So to make sure the business has a reason to exist, it's not just a hobby for someone who's in post-retirement enjoying selling flowers or donuts or baking or whatever it is they're passionate.

Priscilla Shumba (2): there are times when people do buy these businesses and of course it doesn't work out. Maybe you can speak to the common. Reasons why you think the business is viable, you think if you buy it, you could make it work.

What are the comments traps

Nick Jain (2): I think three things. Firstly is there's something called seller's discretionary earnings, , usually for businesses we talk about ebitda, but when you're a founder owned small business, you don't really have ebitda. You have a bunch of money left over at the end of the year, and the founder or owner pays himself or herb himself, whatever they want.

So there's a term called sellers discretionary earnings, which is basically like EBITDA [00:08:00] before the founder pays himself or herself in these small businesses. And I'm not talking like high growth tech, venture backed business, I'm talking your typical mom and pop construction business, the local stores, the restaurants, things like that.

, The first problem that a lot of buyers of these businesses make or mistake is they are not considering how much, what the SDE seller's discretionary earnings really is. Because the founder may be paying for their own company car, they may have a lot of hidden expenses in the company that they're paying themselves, not illegally, but secretly that are not on the accounting books.

And that's something you screw up when you don't realize those are real costs of the business that aren't accounted for, that you now have to pay because you are a new person coming in and running the business. The second is. Look, a lot of buyers of these businesses are folks like me coming from finance or professional services backgrounds where we've accumulated a bit of wealth.

There's a big difference between running a professional services white collar business. Where you are a digital worker and a real business that sells real physical products. My first real job, I'd spend my entire career in [00:09:00] Wall Street, and then I worked at a trucking company with warehouses and forklifts and hundreds of thousands and thousands of physical pallets of stuff weighing , thousands of tons.

That's a very different world because like you may have an idea for how to make the business better, but then you have to move 3000 pallets from one side of the warehouse to the other. It doesn't happen magically like an Excel spreadsheet where you move stuff from one tab to another. That's, I think the final thing that a lot of folks miss out on that the real world is a lot harder than a digital world.

And the businesses that folks are buying tend to be in the physical world, not the digital. World.

Priscilla Shumba (2): Yeah. That's something for people to think about when I saw your background in math and physics, I wondered, what that discipline has done to help you understand business or what would you suggest to someone who doesn't have that kind of background to help them to understand things from a different angle?

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Nick Jain (2): Yeah, so math is very much near dear to my heart. That's what I study. That's what I'm passionate about. That is how I approach the entire business world, and I think math teaches you. Two really important things, or any of the hard sciences, I should say, not just math, physics, chemistry, any of the hard sciences.

[00:10:00] They tend to teach you two things that I think are really unique that you may not learn in other disciplines or in walks life. Number one, they tell you that there's three types of answers. There's right answers, there's wrong answers, and there's unknowable answers.

There's actually certain things you can prove in math that you could never actually know the answer to, which is very funny, right? So you learn that there are right answers, wrong answers, and there are unknowable answers. Secondly, you start to think in terms of probabilities. Whenever you make a business decision, it may be the greatest business decision, in the world, but it's only ever 90%, right?

Because you're not accounting for the fact. That , there may be a war in a foreign country that's never built into anybody's Excel model. So you start to think in terms of probabilities. And what that means is you can start to think in terms of experiments in traditional business logic, like what I learned in business school.

You build a great business strategy and , you hope it's going to work right. However, in science you learn to take a lot of small experiments because you don't know which one will work, but you only need one of them to go right. So those are the two approaches that kind of stuck with me for my training [00:11:00] and the way I apply them in the business world is number one, when somebody, my colleague's, bosses, employees say I think this is right.

I say, show me proof. I may love you Priscilla. You may be a wonderful employee, a wonderful boss, but none of that matters. It really matters is what evidence do you have for your argument, not how smart you are, not where you went to school, not how credible you are or how charismatic you are.

And the second thing is when running a company, we make sure at all the companies I've run, not to take big giant bets, but to take a lot of small ones, figure out which ones work, and then rapidly scale those up.

Priscilla Shumba (2): It's interesting that you said you don't look at all these things that. Typically people look at, they do look at where you went to school. They do look at what success you've had in the past, and they don't often ask for proof. Now, when you are hiring Nick maybe talk me through that, how that applies.

Hmm. 

Nick Jain (2): Sure. So when I hire, I literally don't look at which school you went to. And I say this as someone who has had the privilege of going to some of the fancy schools in the world. I don't care whether you went to fancy schools. I've hired people who only have high school degrees for jobs that would [00:12:00] normally require college degrees.

And the simple reason is none of that matters. What matters to me is the skills that you demonstrate, not where you went to school. And that's really funny. He's I've had discussions with people saying I'm so smart. I'm like, that's great that you're smart, but prove that you have the skills.

So that's number one. I'm almost never looking at really even where someone went to school or where they worked. Like it's nice that they worked at Google again, doesn't matter. I really care about do they have the skills necessary for the specific job and company that I am doing.

, I guess that's the biggest thing. Like we're very focused on not looking at the merits of the person's resume, but the merits of the person. And that is something that we've employed at all. I've run, or co-run three different companies at this point. Every single one of them.

All the hiring processes that I've led or been involved in directly or been the decision maker, have never looked at a person's school. Doesn't matter to me whether they went to a famous school or no school at all, or somewhere in between. , 

Priscilla Shumba (2): Nick. Give me an example of a situation where you'd say, okay we're looking for this kind of person. And when I'm looking at skill, I'm [00:13:00] referring to have they done this or , are they able to do this?

Nick Jain (2): And so I'm focused on the, are they able to do this? Not have they done this, because there's a lot of people who've done it, for example let me think of a specific job. Okay, so there was a company I was running where we were hiring a controller, which is called the Lieutenant. I was the CFO of this company and I was hiring , one level below me, a controller. And I ended up hiring someone who had an accounting background. 'cause that was a critical skill. But during the interview process, I tested everyone, not just her.

Everyone got the same accounting test. Saying prove to me you can do, it's great that you have a CPA qualification. But more importantly, demonstrate , , these important rules about accounting. And they weren't just accounting rules, but they were what's called managerial accounting, which is understanding not just that you can account for the numbers, but explain them in a way that makes sense to the business.

So every single one of the people that went through the process had the same test. , By the way, some of the accountants failed the test. It wasn't a particularly hard test, but some of them failed and they just clearly didn't have the skills to succeed in an environment where it was important not only for you to , record the numbers accurately, [00:14:00] but to demonstrate managerial understanding of them.

The second is, they, I ended up hiring. She didn't go to a fancy school. She had not had this specific job before in a company of this size, but what she demonstrated was she cared about the skills. The one or two questions she got wrong on the test portion. She went and figured out how to do them subsequently, and she cared about the right answer.

And she was diligent. And those were the three things that really mattered because this was a tough, again, turnaround situation, and you needed someone who could be accurate, work their butts off, and also be willing to learn because this was a learning situation for us all, including myself.

Priscilla Shumba (2): Able to apply to that specific business that you are hiring for? 

Nick Jain (2): Yeah. With the caveat, I think, I am going to say a bit of a an outlandish thing, which is I think people place a lot, place an overemphasis on industry knowledge that you have been in healthcare or been in technology, or been in industrial. And I think those skills a good employee can ramp up on them in one to two months, which anyways, most employees are useless for a month or two anyways.

So [00:15:00] the fact that someone has to learn new industry language or industry knowledge, that's the easy part. What is far more difficult is for someone to learn, , the skills and habits that have been accumulated over decades. You can learn about tech or healthcare in a month or two. You can't learn how to be a diligent human being or to be conscientious.

Or know technical accounting skills. 'cause those take years and years of practice to master. No one wakes up one morning and realize, says I'm all of a sudden a conscientious, hardworking human being. If you weren't that yesterday, you're not gonna be that tomorrow. Or if you weren't a great accountant yesterday, you might be one in six years, but you're certainly not being one tomorrow.

Priscilla Shumba (2): no, that's good. Thank you for making that distinction. Now I've lost my train of thought, but lemme go back to this.

Nick Jain (2): No worries. 

Priscilla Shumba (2): for scaling I know that I want to earn more , but like you said, maybe the business isn't ready to scale.

How do I prepare the business to be ready to scale, or what am I thinking about? What am I looking at? And especially in terms of metrics as well.

Nick Jain (2): Sure. with one caveat. Not everyone wants to scale, right? I was actually just watching a [00:16:00]YouTube video yesterday, an interview with, someone from your neck of the woods in Australia, they are a four or five man person. Team. Not man. Like I think there's two women and three guys four or five person team, and they run a business that's about I think 200 a thousand Australian dollars a month in MRR.

So $2.4 million. And they don't wanna scale. 'cause $2.4 million spread across five people is a lot of money. They're not trying to build the next unicorn or billion dollar business. It's a business that they a hundred percent bootstrapped a hundred percent own. And they're fine with that. So I do wanna emphasize that not everyone wants to become a billionaire, and not all businesses should want to scale or can scale all their businesses.

By the way, none of them can scale even if they want it. They're all micro businesses that are going to be stuck at that level, and they're okay with that. For those who want to scale I think you need three things. First is you need a business and a market that is scalable. So if I sell, I'll make a really silly example.

If I sell a hundred thousand dollars purses, there's only, a few thousand people in the world. That $100,000 purses, right? That is [00:17:00] not a ever going to be a billion dollar business. Now , there are multiple billion dollar businesses for a thousand dollar purses, right? That's why there's Louis Vuitton and Michael Kors and Hermes, and all these fancy brands.

But there's very few brands that sell a hundred thousand purses and none of them are billion dollar companies. So you need to have , a market that is big enough to accommodate a scalable business. Whether that be the billion dollar scale or the $10 million scale. The second thing is you need to have the systems set up that will allow you to scale, which is you need if you have 20%.

More customers tomorrow, can you onboard them? Can you serve them? At a high quality without breaking your business, without stretching it? And number three, you need a repeatable process. And this is the something I think a lot of businesses don't do well.

Is , they can accommodate more business or revenues by throwing more people or technology at it. But that's not necessarily a repeatable process. Good businesses are basically like machines. You throw stuff in one end, it comes out the other. Nothing changes at all. You just run the machine faster.

Priscilla Shumba (2): most [00:18:00] people do think, okay, if we're gonna produce more, let's get five more people or let's get, 10 more people. You mentioned the term micro business. What are you referring to? How do I know I have a micro business? 'cause you said a micro business that's not gonna scale anyway.

Nick Jain (2): Sure. So two quick things. So firstly, it's okay to throw people at the problem, but you have to, the people you know, and I'll be very clinical about this. Your business is scalable. If the people you're throwing at the problem are cogs, they're not special people, but they are just, people who have a very specific job that is very well defined.

They're not creators, they're doers. Okay? They are, middle management or individual contributors that you just throw at a problem. , A silly example is. There's certain coding problems that don't require, in the pre ai era, that don't require genius coders, they just require more coders writing more lines of code.

So it is okay to throw people at a problem as long as that is the unit of consumption of the business model. So for example, if you run a consulting business, the way you scale the consulting business is you throw people at the problem. You [00:19:00] just throw smart people at the problem and you add more customers.

Same with most professional services business. On the micro business, look, ask yourself honestly, like how many people are out there that would buy this product. So if your name happens to be McDonald's and you're selling burgers, turns out there's around two or 3 billion people on the planet who wanna buy burgers, right?

Lots of people wanna buy burgers. If you are selling a hundred thousand dollars purses, , intuitions can say, first of all, not that many people can afford a hundred thousand dollars purses, but even those who can, most of them don't want a hundred thousand dollars purse. They have better things to do with their money or time.

So I think that's the way you figure out most easy if you're a micro business. And by the way, microbusinesses are okay. There's a lot of people who own what's, micro businesses or lifestyle business that make 50, a hundred, several hundred thousand dollars a year, and they're okay with that.

It. But if the market size is not there, your business is inherently going to be a micro business.

Priscilla Shumba (2): It's interesting that you talked about consulting. You had a consulting background at some point. Now, what do you think is the biggest. Difference for people who move from [00:20:00] consulting to what you're doing now, because we have a lot of listeners who , are experts, I'm talking consultants in terms of, let me just say experts.

And there's a lot of struggle where now where they try to structure their own business..

Nick Jain (2): Yeah, I started my career in consulting. I think the biggest shift between consulting and being an operator of a business is consultants get to focus generally at the C level or, pretty close to the C level. And so they're thinking about strategies and analysis. Running a business involves a lot of grunt work.

It requires unglorious, work that does not require a lot of high intelligence or fancy degrees, just, it's just like doing stuff. And I think a lot of people who start, our working in fancy, high-end white collar jobs struggle with the fact that , when they move to operations or running inside a real company, a lot of the work is really boring and unglorious and no one gives you credit for it and it doesn't make you feel good about yourself 'cause you don't feel smart that you came up with a brilliant insight when you're dealing with it.

Cleaning up accounting data at 10:00 PM at night or walking the warehouse at one in the [00:21:00] morning just for safety checks. None of those are glorious things, but they're absolutely critical to making sure a business. Runs. And I think that's the bit, that transition from thinking in high level strategy to doing the unsexy work of running a business is a challenge for a lot of people because it's incredibly boring all the time unless you really love it.

I happen to love walking around warehouses in the middle of the night. Maybe not the middle of the night, but like I do it because it's fun , go learn about a warehouse.

Priscilla Shumba (2): Yeah, that's a good distinction. I think those who are listening who fall into that expert category, I think they'll identify what you're saying. Interested to know your experience. You said the first time you were with a trucking company, and I'm wondering that turnaround experience, maybe you can speak to the insights. 'cause I'm thinking of a person who maybe is trying to turn around their own company or is trying to think through what potentially, if I was trying to turn around the situation, what would I do?

Nick Jain (2): Sure. Yeah, my career very quickly started as a consultant, then spent a bunch of time in private equity, and then after that, had become an operator of real companies. [00:22:00] So look I won't get too specific because it's a company owned by somebody else, and it's my former employer. But I'll say this, , it goes back to what I said a few minutes ago, which is in a turnaround situation, you really have to focus on understanding.

Is this , a business that is fixable in the first place, right? If your business model is going to be broken because of some macroeconomic factor that you don't have control over. So let's use a very practical, real time example. Oil, I think spiked to more than $120 a barrel because of the wars that are happening in the Middle East.

If your business relies on oil prices being cheap and oil is expensive due to a war, you have a bad business. You can't fix that necessarily, and you should actually just think about selling or winding down your business. Or alternatively, there's businesses that like sell something that, you know is no longer needed.

A, a classic example is paper, right? society has been consuming less and less paper as we've moved more and more digital over the last two or three decades. So being in a paper business may not be the best place in the world, and you've seen that a lot with paper mills shutting down across at least the United States.

So think about if your business is fixable. If it's fixable [00:23:00] in ways that are under your control and not driven by external factors over which you have no control, then it falls down to tactically. Do what you can immediately in days and hours to make that business. Lean mean and efficient. So you have to cut costs.

You have to make processes efficient. You have to make sure customers pay you on time. Number two, go talk to your lenders. If you have lenders or capital providers, lenders, equity holders, tell them where you are right now. Say look, , we're working our best to turn this around, but we do need time.

Say that now rather than when you are one day away from running into bankruptcy. And number three, be willing to work your butt off. Like turnarounds are really difficult situations. They require a lot of effort from the key decision makers who need to be on more or less 24 7 for months.

Priscilla Shumba (2): That's a very important distinction where is it? External. Is it the microeconomics or is it something within your business? 'cause I think sometimes being the person who has started the business, separating yourself and making that decision to say, like you said it external, maybe letting it go is something that is quite [00:24:00] difficult 

Nick Jain (2): yeah it, humans are attached. We make relationships and connections. It's like the old joke about a toxic relationship when you're a teenager. , The joke is, and I've thankfully never been in one, but like the joke is not the joke. I shouldn't say this 'cause it's a little insensitive, but it's a bit of a, not a meme common occurrence that people get into toxic relationships and you just ask them, why didn't you just break up? Because it's really hard to break up, and that's no different than with a business, than with a human being. People end up being with toxic employers, toxic boyfriends, toxic girlfriends or just businesses that are parasitic.

It's great if you own a business, but that business can really be a parasite on your life.

Priscilla Shumba (2): Very true. . Tell me how you can spot that there's growth potential in your business, and how to look at that in terms of is this premature scaling or is this just right for scaling? And if you can give me the exact numbers, like what metric am I looking at?

Nick Jain (2): Sure. So the two metrics that you need to care about are unit economics , by the way, these are both classic things that any venture [00:25:00] capitalist will look at. So I'm not giving genius advice here, it's something that kind of any investor would know.

The one most important metric. Which has two different names, either unit economics, or LTV to CAC ratio, which is your lifetime value divided by your customer acquisition cost. So how much money are you going to make from a customer and profit over the next five or 10 years versus how much do you pay in marketing and sales effort to get that customer today?

And good companies tend to have an LTV to CAC ratio of above three. So that means they think that for every $1 that they spend on sales and marketing, they think they're going to win a customer who's worth $3 in profit to them. Businesses below that typically don't actually get any venture capital that does make them bad businesses, but they at least are hard to fund with venture capital.

And business above that are tend to be really good business that can scale really quickly because again, if you think about it, you're putting in $1 of sales and marketing and you get $3 of profit out. That's a good business to be in. So that's the way you decide if your business hits that measure.

You should do everything possible to scale as quickly as possible, whether that be bootstrapping or with external [00:26:00] capital such as vc.

Priscilla Shumba (2): , We just touched upon it a little bit, but it's a bit of an unpopular topic. You mentioned a little bit about when it's time to walk away. You talked about external factors that are outside of your control. When do you think as a founder. Persistence is the way or persistence and that tension between sunken cost and identity.

Nick Jain (2): Look, what I'm about to say is hard. Too many co-mingle our identity with our employment. Whether that be a job, whether that be the company you own, work is very important to many people around the world. It's a core part of who they are, but we shouldn't forget the reason we show up particularly as a business owner, it's nice to have a mission, but the mission only is part of it.

A business is there to make money, and at the point at which the business stops making money and no longer has a path to continue making money, the choice is very simple. Or you ask yourself, am I doing this out of passion or am I doing this out of a profit motive? And it's [00:27:00] okay if you're doing it out of a passion.

I mentioned there's this woman I know who runs a flower shop. She loses money every year, but she's doing this because it is her passion. She's not trying to make money, so that's okay. But for those who are running businesses, largely based on economic motives to make money, to feed their families, to, buy private islands, whatever their economic motivations are, then you have to be ruthless on is this a good business or not?

And if it's not a good business, you need to find a way to exit it as quickly and as profitably as you can. Sell it to someone else who might, you know, who either does know it's a bad business, which is a, what a lot of people do. I don't recommend that's sketchy ethically, or more realistically, sell it to someone who can run the business better.

Priscilla Shumba (2): Yeah. The way you think about, it's quite logical and I can see that Matt, either a yes or it's a no, then base your decision there. What do the best leaders do you think do in successful turnarounds?

Nick Jain (2): I think the most important thing is they move fast. , Moving fast I think is the most important thing because you do not have six months or 12 months to wait. You often have a matter of weeks [00:28:00] before the business becomes irreparably damaged.

Priscilla Shumba (2): So I think for the founder that's listening, if you're in that situation where you know you are a leader for turnaround, that advice move fast. And it's about the daily tactical things.

When you're talking about something that's daily and tactical, what are we talking about?

Nick Jain (2): Sure. I'll give a very simple example what's called collection. So in a business you typically have bills to pay and you have invoices that you've sent your customers and they're supposed to pay you. In the US there's something called net 30, which is from the day I send you the invoice, you're typically supposed to pay within 30.

That, that's what the contract says in most US contracts or that's the norm. Anybody can obviously negotiate below or above that if they want, but the norm is 30 days. In a turnaround situation, customers may be paying 35 days or 40 days or 60 days later.

You need to be calling them every single day saying, look, the contract says 30 days. You need to pay 30 days or faster, or, I'm gonna charge you fees or just stop providing you service. And that's a really difficult thing for a lot of, business owners to do and go tell, basically be very [00:29:00] firm with their customers saying, you owe me money.

Pay up. ' cause no one wants to be mean to customers. But look, they owe you money and you have payroll to make, you have to pay your own employee.

Priscilla Shumba (2): Is that often the case? , How common is it that it's an issue of how quickly are you getting money in and how quickly are you getting

Nick Jain (2): Almost all, especially in turnaround situations, it's not the sole problem, but is a lever. . You ask me for an example of something you can do every day in good turnaround situations. They are on top of their revenue collections. They have to be. . It's not the only problem they have to fix, but it is.

Something that if they don't fix right away, then their business runs outta money, can't make payroll and the company collapses. the three parts of a business are revenue costs and capital structure. So the two other areas where businesses end up being, less than good parts of turnaround situations is cost. , When businesses are doing really well, they tend to spend money in irresponsible ways.

That is okay because you can be wasteful when you're rich, when you start being poor or falling on harder times you have to be a lot more thoughtful about where you spend money. So there's a lot of expense management [00:30:00] and, rationalization that happens when you are running a turnaround situation on the cost side.

And then the third piece is capital structure. , There's lots of businesses that have great revenues, they're good at costs and yet they just screwed up their capital structure. They borrowed too much money and interest rates went up, or they borrowed too much money in the macroeconomic climate changed, or they financed their business improperly.

Those are three problems that you will always see. Either the business is in a situation where it's revenues that are going down. Or its costs have exploded upwards, or it's just got a bad capital structure that needs to be fixed, at least in the us. For the third solution, it's actually reasonably easily fixable, which is called chapter 11.

So the US has a set of laws that for good businesses that just have bad capital structures, you can go through a Chapter 11 bankruptcy and restructure your capital structure without affecting the real business itself.

Priscilla Shumba (2): Now I'm thinking like now in a situation where the war people are not sure what's gonna happen and that is likely to affect costs and for businesses who that. Affects, their core costs in a [00:31:00] really big way. What do you think for that founder, for those kind of businesses as we look out to we don't know what's gonna happen in the situation of the war?

Nick Jain (2): Sure. So honestly, I dunno if I'm the most qualified person to talk about macroeconomics. All I know is, , war is happening in the Middle East, many countries and people are affected. Thousands of people are fleeing or being killed, which is unfortunate regardless of your politics. And oil prices are going up because the Middle East is obviously an oil rich region, both in production as well as transportation.

So a lot of businesses are going to feel that not only direct businesses that are affected by oil that has oil or petrochemicals as an input such as car companies, but also, oil is a core input to our energy complex. So anybody that uses energy, which is by the way, everyone you and I are on computers right now, are the cost of our electricity is going to go up over the next, few months if it isn't already.

, That's going to affect people in Europe a little bit more than, yeah I don't know about Australia, but it's definitely gonna affect people in Europe and Asia a lot more than the United States, which is self-sufficient in its oil [00:32:00]prices. Or self-sufficient in its oil production, I should say.

So I don't know the answer advice to get founders other than saying costs are gonna go up. The only good news is they're going up for everyone. 'cause we're all affected by macroeconomic shocks.

Priscilla Shumba (2): That's a good reminder that it's happening to everyone. Before I go into rapid fire, looking at AI and the future of business, do you have a thesis on that 

Nick Jain (2): Yeah so my business 

is literally about running ai. So I think AI is gonna do two things that people are underestimating. The first is that it is going to replace. A lot of white collar workers much more quickly than people anticipate. AI is incredibly smart. It's incredibly fast. It's incredibly cheap.

There's gonna be a lot of automation of white collar jobs, including extremely prestigious jobs. Law firm associate hiring in some of the best law firms in the world is decreased because, they realize that instead of hiring people from Harvard Law School or Yale Law or other good law schools they can just use ai.

And that's terrifying when the world's best law firms do that. But the second thing is. There's a lot of services that were not economically viable two years [00:33:00] ago that are now. For example, my business, I provide high level financial advice to medium-sized businesses. Today because AI does most of the work for me.

I can offer that service very cheaply. If I had been offering this exact same service two and a half years ago, I would have to charge my clients 30 50, let's call it $50,000 a month, which many of them can't afford to pay, so my business could not have existed. Three years ago, and these clients wouldn't have access to these services.

But because of the types of businesses that AI now enables being very cheap, I can offer incredibly valuable services to these clients. They can get a service that they couldn't get before, and I can still make a living off of it.

Priscilla Shumba (2): Very interesting. I think that's the thing that is being overlooked. If I could get into a rapid fire question with you, Nick to close off. The best sign of business is ready to scale.

Nick Jain (2): Unit economics are positive. The LTV to CAC ratio is greater than three.

Priscilla Shumba (2): The most common founder mistake when they're thinking about scaling,

Nick Jain (2): They don't have the systems that will enable them to handle more customers.

Priscilla Shumba (2): The number one thing that private equity taught [00:34:00] you about business.

Nick Jain (2): That capital structure is important and is a source for value creation.

Priscilla Shumba (2): Tell me more.

Nick Jain (2): Sure. So everyone thinks about revenues and costs, right? That's great. That's the core of business, but what capital structure is, okay, you have all these profits, how do you slice them and share them between the government, between equity holders, between debt holders, between preferred shareholders, and all sorts of other fancy capital structures?

How do you have your different corporate entities? Turns out you can make businesses more valuable by putting them in different corporate entities or having some debt and having some equity, or having some preferred shares., It's a little too complicated perhaps to dive into right now, but it is a tremendous source of value, roughly, I think the math says, at least in the US context, good capital structuring increases the value of a business by around 12 to 18%.

That's pretty cool, right? For just moving things around on a piece of paper. Really, you're not changing anything about the business, but you can make the enterprise 12 to 18% more valuable. So on a billion dollar business, if you structure the capital right, you're making it 120 to [00:35:00] $180 million more valuable.

That's pretty cool for just moving stuff around on paper.

Priscilla Shumba (2): Very cool. The number one decision that you would never outsource as a founder or as a person turning around a company.

Nick Jain (2): Product. At the end of the day, a company is a product wrapped with a bunch of other things, whether that be finance, whether that be marketing, whether that even be your CEO. Candidly, the product is the one thing your company literally is, and you can't outsource that or service whatever your business actually does.

Priscilla Shumba (2): The key metric in every turnaround to keep your eye on as you're running your business.

Nick Jain (2): The trend of EBITDA margins or the trend of profitability, let's call it that profitability needs to be trending up every single day.

Priscilla Shumba (2): no. This is a good conversation. I think the people who listen to this will get a lot out of this, especially the focus on the daily tracking the profit, knowing when you're ready to scale and knowing when this is a situation that you shouldn't scale or you should walk away from. Nick, thank you so much and thank you for giving your perspective on.

How you think about this from a [00:36:00] mathematical way and the advantages that gives a founder. Nick, tell me please, where people can learn well about you. I will link your organization .

Nick Jain (2): Perfect. My organization's name is Eagle Rock, CFO. We provide AI powered fractional CFO services to medium sized businesses, typically five $50 million. We have customers now all over the us We're planning on having some Australian customers in the next couple of weeks. So we're pretty excited about that.

Eagle Rock cfo.com, that's our website. , My email and my business partner's email are all on there, so feel free to reach out.

Priscilla Shumba (2): Oh, thank you so much for this conversation. It's been really insightful.

Nick Jain (2): Thank you so much for having me on your show.