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Industrial Automation Companies

The Sound of Automation: How IT Impacts Business Value

Posted on August 15, 2022 by

Bryan Powrozek

Bryan Powrozek

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In this episode we talk with Brent Yax, CEO of Awecomm Technologies, specializing in IT management for small to mid-size companies. Brent and Bryan discuss how investing in cybersecurity and IT impacts the value of your company.

Podcast Transcript:

Brent:

An outcome that you want is to grow the profit per each employee that you have within the organization, right? So if my investment in IT is built all around that, every dollar I’m going to spend is going to create more profit per employee. I’m looking at, how do I simplify process? How do I automate process? How do I enable productivity? How do I make one person do the job of five? All of those different things can focus your IT spend and IT investment. The companies that have the highest profit per employee have the most mature IT, generally speaking, the most advanced IT, generally speaking, and therefore get the most value when you’re getting appraised.

Speaker 2:

Welcome to the Sound of Automation brought to you by Clayton and McKervey CPAs for growth driven businesses.

Bryan:

Welcome to the Sound of Automation. As always, I’m Bryan Powrozek with Clayton McKervey. But joining me today is a special guest, Brent Yax of Awecomm. Brent, how are you today?

Brent:

Not too bad. Thanks for having me. Appreciate it.

Bryan:

Yes, no, thanks for coming on. And especially given the topic, this is something that it’s one of those topics I think everybody knows is important, but not too many people understand it. And so cyber security being, especially for my clients, they’ve kind of got to look at it from two sides, right? They’re looking from their business side where are we doing everything to protect our business in that, but then also from the customer side where they’re implementing these industrial systems, which are more and more becoming the target of cyber attacks and things like that. So I thought it’d be great to have you on and share some of your insights. So before we jump into the questions, just give me a little bit of your background and kind of what Awecomm does for its clients.

Brent:

Sure. I’d love to. So my name’s Brent Yax with Awecomm Technologies. I’m the CEO. We specialize in really IT management for small and mid-market organizations. So anything from maybe 20 employees all the way up to about six, 700 employees. My background specifically was in tech. I was a consultant for a enterprise resource planning organization. I did that for a number of years traveling around. And then I moved over into Awecomm where I took over with really, how do you build successful IT implementations and execute IT projects within organizations. And that’s where I’ve been for about 23 years now.

Bryan:

Excellent. And we could probably, there’s so many different directions we could take. We could take a discussion on cybersecurity and IT, but the one that is really come up a lot recently with the clients that I’m talking to is, and we’ve done a few other episodes on this, is this idea of value, right? And especially right now, as you’re seeing kind of the silver tsunami as they talk about the business owners who are looking to transition out, they’re maybe some of them for the first time are coming into this concept of value and are surprised by some of the things that may drive up or drive down the value of their business when they go to sell. And like anything else IT can have that kind of an impact. So when the companies you’ve looked at and evaluated their IT and cyber security and things like that, what are some of the ways that the business owners might not be thinking about, but could negatively impact the value of their business and bring it down?

Brent:

Sure. It’s a great question. And it is, I think viewed a lot more now by some of the PEs, some of the venture capitalists, when people are looking at doing M&A, they’re starting to look at how are they determining what the appropriate value for that organization is going to be? And when you talk about the negatives, what we see on that is there’s a couple things that I think business owners tend to do. And maybe it’s subconsciously, maybe it’s conscious, when they’re looking at exiting a company, one of them is they start to minimize some of the expenses. They want their balance sheets to look a little bit better. They want to make it look like they have a little bit more net income and maybe they do generally speaking when they’re operating the business.

So they start pushing away costs. From a tech perspective, that means they’re not upgrading the systems or potentially not taking on those cap expenditures, the new servers, the new workstations, the new desktops, the new networking equipment, so on and so forth. So they’re just pushing those back. Well, for us, it’s pretty obvious when that happens, right? You see a productivity hit, you see a little bit of a culture hit from an employee standpoint, because everything’s pushed off. You know that you’re going to have that investment that’s going to come up right when you make that transaction. So say you purchase the business and now we have this huge capital expenditure I have to do. So the PEs and the venture caps and other businesses looking are smart, and they understand that. And they’re going to take that right off the top line for the business when they evaluate it.

So you’re going to lose money there. Another thing that we’re seeing is that when you look at a company that has a mature IT, generally you can identify how advanced they are by how they spend and how they budget for IT. So we put it into three categories. One of them is run, which is basically all the expenses in IT that you need to just operate a business. Everybody has them, it’s like paying for your email. You don’t really have an advantage, but you have to have it. It’s a disadvantage if you don’t right. Then there’s sort of the return, which is all the investment that’s structured around, how can I get more out of this? How can I make it more productive? How can I simplify process? How can I eliminate overhead, those kind of things. And then you have sort of the R and D side of it.

So when you have those three categories of spend, if the vast majority of all of your dollars go into just running from your IT budget, that’s usually a fairly immature IT. If you have a good ratio of like, say 60% is in run, 30% is in things that give me return some kind of a process enhancement, I’m investing in productivity, those kind of things, and maybe 10% R and D, that’s a very mature IT budget. So just by looking at how that spend is, I can tell you if I’m going to be hit with a ton of expenses when I buy the company or not, or they’re very mature, they’re running well, they’re pretty fluid. They’re optimized well, and therefore the value’s a little bit higher.

Bryan:

Yeah. Excellent. And interesting thing there to me, and we see the same thing on the accounting side, if you’re working with a small to mid-size business from the accounting standpoint, usually you’ve got an office manager who’s handling the bookkeeping and HR, and maybe even potentially wearing the IT hat as well. So folks who aren’t necessarily trained in this area, and through no fault of their own, they’re doing the best they can, but they just don’t know what they don’t know. And so that’s a potential area where Awecomm can kind of step in and take over that piece of managing the business or help develop that business for them. So while yes, a business owner may look at it and say, oh, this is an additional expense, it’s coming with added protection that you know you’re maintaining your equipment properly. You’ve got the right cybersecurity softwares everything in place but then also it’s not going to have that negative impact on your business, if you go to sell.

And potentially even what we’ve seen is depending on who the buyer is, if the buyer already has an IT department, then they know, hey, this expense comes off the bottom line, because I’m just going to roll that under our umbrella and makes them even more, potentially more attractive as an acquisition.

Brent:

Absolutely. Yeah. And I mean, it’s really about mitigating risk and creating value, right. So an organization like us or like you, we come in and we look at what are the high levels of risk and where are they at and how do we eliminate those? And then we look at ultimately, how do we create performance here? How do we create value here?

Bryan:

Yeah, yeah. We have that. We have that conversation a lot as you sit down with the owner. And personally, I like to, if I can get on as early as possible and you’re having those conversations, hey, what’s your goal? I mean, is your goal to transition this business to your children or something like that or maybe even your employees? Okay, well then maybe bringing the IT and bringing the accounting in house makes sense because you’re going to grow it, and it’s going to get bigger and you just want to bring those resources in. Maybe your goal is, hey, I’m going to grow this thing for the next 10 years and then sell it to private equity or a strategic buyer or whatever. Okay, well then let’s keep this thing as skinny as possible. And you go from there. So no, that’s excellent. So we talked about some of the downsides. Let’s talk about the upside. What are a couple ways that you can use IT to increase the value of your business?

Brent:

Yeah. So going back to sort of that ratio. And we look at it that way, because we know that in our model, the run return retool kind of model, the more investment you do in that middle category, right? The return ones, those are things that have an established ROI with them. So for example, if I implement an automation for certain processes, and because of that, I can have one person do twice the amount of work. So as you scale, and as you grow, now you’re hiring less people. Right? So you’re creating that income generally by doing that because you’ve created a ton of productivity and a ton of automation. So we look at that ratio, and if you can get that ratio to a point where you have a lot of investment in those return type things, we know that you’re creating a ton of future value and future capability.

Right? So as that business expands, that business will have better profit margins. And that’s what we look for, right. So that’s a thing that creates tremendous value because when somebody’s poised and positioned for that, we know that as they grow, they’re going to be way ahead of their competition because in an upturn, great, they can expand, they can grow. But even in a downturn, when they control that profit margin, they can start squeezing competitors, right. So that’s extremely valuable there.

Bryan:

Oh, yeah.

Brent:

So that we look at. Also, we look at profit per employee. So as a company continues to invest in IT, really an outcome that you want is to grow the profit per each employee that you have within the organization, right? So if my investment in IT is built all around that, every dollar I’m going to spend is going to create more profit per employee.

I’m looking at how do I simplify process? How do I automate process? How do I enable productivity? How do I make one person do the job of five, right? All of those different things can focus your IT spend and IT investment. And if the outcome is I’ve increased profit per employee, that’s a very powerful dynamic, right? So that’s a KPI that we always focus on. And we look at it across your industry, which companies have higher profit per employee. The companies have the highest profit per employee have the most mature IT generally speaking, the most advanced IT generally speaking, and therefore get the most value when you’re getting appraised.

Bryan:

Excellent. So from kind of shifting back to Awecomm for a second, can you guys handle that full scope? Right, because I’ve seen automation within finance and accounting arena. I’ve seen automation within the operations and product development side. So you guys are really able to come in and look at that big picture and help select the solutions that might be appropriate in those different areas.

Brent:

Absolutely. So there’s a ton of solutions out there, right? I like how you say select because part of it is just getting through the weeds and finding what could work and what are the opportunities that you have. Another thing is really just what do you already have right now that you’re not using, right? So we do a ton of training, just education on, here’s the tools that you already have, here’s ways in which you can use them to simplify your lives. Here’s how you can get more productivity out of these certain things. And a lot of people are using either Google suites or Microsoft suites or whatever their back office tools are. And they’re probably using 10% of the capabilities in them already, right? So how do we get that to 90? And those are just some big steps that you can do without even necessarily buying new things.

Bryan:

Yep, exactly. It’s funny, the number of conversations I’ve had with clients about, hey, we want to upgrade from QuickBooks because we feel we’ve outgrown, and we don’t know. It’s like, well, let’s step back. What are the problems you’re having? And moving on from QuickBooks, may be the right solution may not, but let’s talk about what those issues are. And the number of ones you find out, it’s like, oh, well you just need to configure it this way or you need to set this up, which really goes back to that other point we talked about. When you’re working with small to mid-size businesses, it’s not a skeleton crew, but everybody is wearing multiple hats. You don’t have time to research these things and understand every function within QuickBooks or all the capabilities within the Microsoft suite. You know the ones you use, Outlook, Word, Excel, and you move on from there.

So really bringing in an expert who, like you said, can look at this thing and say, okay, is it a training issue to get you up and running? Is it layering in another application? Because that’s the number of clients I’ve worked with, you’re like, oh, but yeah, we use Power BI now. And when we lay that, it’s like, okay, it might be the right tool. It might not. But just because it’s over here already available to you, let’s not just go with that one because that’s what’s there.

Brent:

Yeah. You hit the nail in the head though. It’s usually just a resources issue, right? I mean a small company, you are doing 50 things. There’s just not enough time in the day for all these, to solve all these problems. So the quick fixes, like let’s just add something. Add something.

Bryan:

Exactly. And since we were talking about the small to mid-size business owner and some of those things, so if you’re sitting across the table from say it’s a five or a $10 million a year company, he’s got 30, 40 employees and really wants to kind of take their business to the next level. What kind of advice do you have for them from an IP perspective to really move from this mindset of IT being a cost center, right. We got to buy new computers. We got to pay for this subscription to really being a creator of value for the organization.

Brent:

Yeah. So there’s a couple things that we try to instill in the conversation with our business owners. One is a lot of times you look at KPIs, key performance indicators in IT, and they’re based on technical metrics, right? They’re based on how many support calls were there or what was my uptime or some type of performance around IT. What they really need to be doing is setting baselines around business metrics. So what is my separation rate for my employees? What is my ability to attract new talent? What are my profit per employee? Those type things. When you start setting these business metrics as your KPIs and then tie all of your IT strategy and IT investment into those business metrics. So is this investment I’m making in IT helping me attract more employees? Is this investment I’m making in IT helping me retain those employees?

What is it going to do to culture? What is it going to do to client experience? What is it going to do to my profit margin? What is it going to do to profit per employee? When you start making all the decisions on what you’re doing future for the future of your IT environment, based upon those business metrics, you start converting it from being kind of that cost center which are like just CapEx going to it. It’s just dollars are continually feeding this pipe, into more of a strategic view of IT where you’re saying, okay, over time, my investments here are yielding this type of return based on these performance metrics for the business that I have. You start shifting it into the mindset now where I’m going to create value here. I’m going to create some return on these investments.

Bryan:

Yeah. No, and that’s actually something you mentioned earlier, when talking about the revenue per employee and using that is kind of a gauge for their IT maturity. That’s something I’m going to take back, because in the automation world, particularly like system integrators, companies going out and setting up the automation, they’re essentially a professional service firm, right? So they look at revenue per employee all the time, but they’re looking at it from a standpoint of, okay, how much work’s going out the door? How are my employees doing in terms of their utilization, their realization on jobs? But I don’t think they’re really connecting that dot yet on, hey, what are we doing internally that can make them more efficient to get this done? It’s always hiring more people or getting those things done.

But yeah, really then using that almost in a six Sigma sense, right. Using that as your control of, okay, if we’re going to implement this new IT system, we’re expecting to see our revenue per employee go up because now they’re going to be more efficient in doing these certain things. And so as you probably well know from your business too, I mean the employees in a professional service firm, that’s your equipment, right? Your utilization of those people, the more you can turn the hour worked into a dollar revenue, the better off you’re going to be.

Brent:

Absolutely.

Bryan:

And so that’s an interesting take on it. At least I’m going to take away and start using with my clients.

Brent:

And it’s sometimes interesting too, to do both of those, do the revenue per employee and profit per employee, right. And look at them both in comparison because you should be able to control the profit per employee by investment, right. But in revenue per employees, productivity, right. So both of those things are great indicators of how well your strategy’s working.

Bryan:

No, that’s fantastic. Well, Brent, this was really good for me. I know, kind of preparing for this session and learning a bit more about what you guys do has kind of given me some new ideas of how I can start talking to my clients and hopefully the listeners are taking away a few things here that can help them in their business. If somebody heard something you said, or was perhaps interested in talking to Awecomm about coming in and evaluating their IT processes and seeing if there’s a way to improve things, what’s the best way for folks to get ahold of you?

Brent:

Yeah, absolutely. So obviously you can hit our website. It’s awecomm.com. That’s a-w-e-c-o-m-m.com. You can hit me directly on LinkedIn, just Brent Yax. I’m on LinkedIn, I’m on Twitter. You can find me anywhere. You can also hit our, we have a group email, hello@awecomm.com. That’s a great way to get me and my entire team.

Bryan:

Awesome. Well, Brent, thanks for coming in today. Thanks for the time. And yeah, we’ll keep the conversation going.

Brent:

Great. Thank you so much. I appreciate it.

Bryan:

Awesome. Thank you.

Speaker 2:

Thank you for tuning in. Don’t forget to like us, subscribe, and share on social. To learn more about Clayton and McKervey visit us at claytonmckervey.com. That’s C-L-A-Y-T-O-N M-C-K-E-R-V-E-Y.com. We thrive on finding the solutions for you.

Bryan Powrozek

Senior Manager

As the leader of the firm's industrial automation group and host of The Sound of Automation podcast, Bryan helps owners free up cash flow and scale their businesses.

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