The world has increasingly become data-driven. Yet, not many businesses understand the weight of its importance, especially when it comes to driving towards success. Nationally-recognized data leader and published author, Anthony Algmin, speaks with Domenic Rinaldi to shed light on why we need to take advantage of data in our businesses. He talks about how data impacts businesses’ mergers and acquisition both from the seller and buyer’s perspective, how data helps a company improve, and how data creates a competitive advantage. Taking us further into the subject, Anthony explains the concept of Data Leadership through his own personal experience with clients. He taps into the risks involved and provides some tools that could help you evaluate the quality of data. Leverage the use of data in your business now before you find yourself lagging behind the rest.
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Leveraging Data For Your M&A Transactions With Anthony Algmin
In this environment of cybersecurity, data breaches and leveraging your data to have a competitive advantage, it’s important to have a data strategy. How does the concept of data leadership factor in mergers and acquisitions? How data quality, security risks, and infrastructure assessments should be handled during M&A transactions? What are the problems you run into if you don’t evaluate these components before taking your business to market or acquiring a business? We are being joined by a nationally recognized Data Leader and published author on this topic, Anthony Algmin. Anthony, welcome to the show.
Thanks, Domenic. It’s great to be here.
I’m excited to get into this because I’m going to learn a bunch from you. Data is something that has become much more mainstream in 5 to 7 years, especially with cybersecurity and data breaches. Let’s start at the base level. When I hear the word data, and what most business owners hear the word data, it seems like there’s big albatross and you’re not quite certain how to get your arms around what that is. It almost seems such a big topic. A lot of people ignore it because it comes across as being such a big topic. What’s your definition of data and how should people view it that it doesn’t seem like such a daunting piece of their business?
The way I think about it and this is a useful definition for all business owners out there, is that data is the closest thing to the truth we have inside our businesses. Data can take on forms of whether you’re talking about financial statements. Also, you’re talking about operations and manufacturing assessments, you’re talking about cashflows or you’re talking about personnel and files. Anything that has information in it. It’s through the understanding and application of that knowledge that our businesses function. In many ways, and it’s a cliché to say, but it is the lifeblood of organizations. You don’t have a functioning business without data and we’re all information workers. We’re using data all the time. We’re not necessarily labeling it as such.
I love that data is the closest thing to the truth in your business. Let’s take an even further step back. Why don’t you talk a little bit about your background and how you got to this point in your career? Let’s dive into how data impacts mergers and acquisitions from a seller’s perspective, from a buyer’s perspective, what are some of the best practices? Let’s start with a little bit about you.
My background is a little bit interesting to be doing what I’m doing. It’s given me a perspective that few in my data management community space have. I’ve always been a fan of business, entrepreneurial and loved commerce, finance and things like that. When I got into the marketplace after graduating undergrad with a business degree, I said, “I want to do something that impacts business and helps it get better.” I found technology fascinating, but I didn’t want to be a person banging out code in front of a computer terminal. That didn’t interest me. I’m like, “We’ll see if technology can get involved, but I want to do business stuff.” I ended up the first decade or so of my career working in technology in financial organizations, trading firms or research firms or investment advisory types of things.
I started building all of this technology, databases and systems. It wasn’t because I wanted a career in technology, it was because this was a great tool belt to do things in business. While I’m surrounded by IT people and database administrators and all of those people that love the technology for technology’s sake, I love the technology for business’s sake. I had an opportunity during the market downturn to go to an MBA program while I was working for a trading firm. The markets were going crazy around us. I’m working in a trading firm, seeing the volatility day in and day out and I’m going to school at night learning about the fundamentals of what makes the business work.Data is the closest thing to the truth we have inside our businesses. Click To Tweet
From there, I transitioned into a career in consulting. It became a management consulting strategy and then data analytics on top of it. I had this technology background and I had been building the systems. I was putting it all together to realize how businesses need to function by using technology, by using data to improve what they do. I’ve been a consultant for many years and had an opportunity to be a Chief Data Officer for the Chicago Transit Authority for a time. That was interesting and then continued my consulting career and eventually got to the point where I’m like, “I’ve been doing all of this stuff and I seem to have a different perspective on this than anybody else. I need to put this into a book.” I put it into a book. I had my framework. I had these things that I’ve been developing for decades. I realize there’s something here. It became this application. It’s applied data analytics, applied data management.
How do we take all these technology systems, data value, data artifacts, assets and all of the stuff and turn it into something that matters for businesses? That’s what the book is about, what Data Leadership is about and what my business is about. I see many organizations out there. You walk into a boardroom, everybody gets it. Yes, data is important, but what do we do about that? What is it that we take from this stuff that we inherently know as important? We see organizations around us being successful with it. How does that impact us? How do we do it? That’s what my mission is about, is to help organizations that are going to have a tough time going forward. If they don’t solve this, I want to help them solve it.
Let’s start with the owner of a business. Whether they’re preparing to sell their business or not, being a business owner myself, I look at all the data that is swirling around my office. The data is in multiple platforms more and more. Its cloud-based platforms. Data resides in many different places. If you’re an owner of a business and you want to get your arms around data so that you can have all the proper information and take the right actions, how do you pull all of that together into a meaningful place that you can not only analyze it but then make decisions based on it?
The key is being pragmatic, recognizing that, “There’s way too much data.” It’s funny because organizations will talk about, “We need to monetize our data.” Data monetization this and that. You realize there’s not a customer for that. No one’s walking around saying, “I could use more data.” Everybody has got more data. We weren’t even trying to get. What you need to think about is where does data value come from? The important thing is to say, what makes data valuable? The value of data only comes when it’s applied to something, when it’s used to drive an improvement in the business process where your business does something different than it would have because of the analysis that you’ve done of the data.
That is important because when you think about, how does a business create value? It’s either you’re going to increase revenue, you’re going to increase your top line. You’re going to decrease costs and your bottom line, or you’re going to improve your risk management. It’s important to think about that separately because the time horizons and the measurements are different than the top line and bottom line. If you think about in those three dimensions and understanding even that question can be somewhat daunting at times and say, “Here’s the data we think we have. How might we use some of this to improve one of these other three things?” Start to draw what that is.
If you say, “We have this database that’s sitting on Susie’s laptop over there and she takes that laptop home every day. Maybe we might want to make sure that the laptop is encrypted. Maybe we might want to make sure that our customer data isn’t on that physical machine that’s going back and forth on the trainer every day.” Things like that are relatively simple. You don’t have to do huge, enormous, multimillion-dollar projects to get value out of data. A lot of times, it’s simple changes to how your business runs. That allows you to move one of those needles in some measurable way. As you start to do that more, you create bigger impacts. That’s what should drive our efforts around data as opposed to saying, “How do we become the next Uber? How do we become an autonomous car?” It takes a lot of steps before you get there. Think about the next step you can take. That’s where, how do we do one thing to improve the value that we’re creating with the data that we have?
That’s good practical advice because data as a topic can be overwhelming. A lot of people will push it off because there is much to it. If you take one thing and see how you can learn from that, improve it and then move on to the next thing, that’s tremendous. As it relates to M&A, how does the concept of data leadership or data itself factor into M&A transactions?
The first and most obvious way is that data’s risk. The data in effectiveness represents an enormous risk to any business. That includes a business that you’re maybe looking to sell or buy. By having an unknown represents something that you can’t take measured action on. The important thing is to first be able to assess, “What is our data? What might that data look like in terms of its impact on revenue costs or risks? Should we be using it for what we could? Where are these holes that if filled may represent business opportunities that could lead to a better price or lead to better outcomes for this organization that’s functioning?” Those are the things that I look at when I’m working with businesses to say, “Where are these opportunities to leverage this in ways that maybe haven’t been done? Maybe it might be staring me in the face if I come in and help, but it may be completely oblivious to people who haven’t worked with data in this kind of capacity before.” That’s what we see a lot of times, especially in the small and midsize businesses. They don’t have those resources on staff to be able to find those opportunities.
Maybe to be illustrative here because I always find that examples are a great way to get the point across. Can you think of a client that you’ve worked with where you came in and help them with their data? As a result, either improve the value of their business or improve the salability of that business because you did something with their data?
One thing I should know that the fewer layers of abstraction, the fewer steps removed from the actual business outcome you are by what you’re doing with data at the more likely you’re going to realize that actual value. If you’re doing something that needs twenty different people to take action before it leads to anything, it’s probably going to be harder to achieve that versus if you say, “If I understand this one metric, I can directly reduce my costs or directly increase my revenue.” One of the best examples and probably easily relatable for most of your audience is something as simple as a restaurant. A restaurant could be the number of customers that they have on any given day is going to be important for how much from a supply perspective they have? How many orders of bread or pies or whatever they make and raw ingredients?
There’s a direct correlation to cost. There’s also a direct correlation to the cost of the staff. If you’re working in a restaurant environment and you notice, “Some days we’re stone, we have way too many people on staff that are here and some days we don’t have enough people to go around. Why might that be?” The first thing from a data perspective that I would want to look at is how does weather impact your business? There are easily free sources of information out there saying, “What was the temperature? Was it rainy or sunny?” Look at your business I’m hoping you have some record of sales daily of what you’ve done.
Can we correlate that simply to weather and get to a point where we could say with some degree of precision, “Maybe you should bring on one more people, or maybe that the bubble person has them stay home or be on call, but don’t have them come in and incur that cost.” Try to start tracking your costs more directly to a simple predictive model of what might happen based on some externality that you can get data on. Whether it’s a great one, and in my opinion, every small business, even every family business should be looking at weather as the potential for how they twist those knobs of their operations.
Let’s take it to the next step. I know that you’ve been involved in M&A transactions where a buyer was involved and maybe overlooked the data component and got you incorporated into the process afterward and you uncovered some interesting stuff. Maybe you can talk about some of those scenarios and we’ll come back to best practices.
One of the experiences that I had in this space taught me a lot that I’ve used an embarrassingly long time. It’s representative of what you see in the M&A space that it’s still a good example. I worked for a company where they did a lot of acquisitive growth. They were buying other similar types of companies. This was in the financial space that they were effectively looking at it like many M&A transactions are. As buying cashflows, buying these customer accounts, the assets and then needing to incorporate them, service them with their larger service footprint. Hopefully, everybody is as happy and everything goes well. I was on a team that had to take whatever that acquired from those customers used to get in terms of reporting and financial statements and get them into the new system without making them all mad and they leave. They had various requirements and if you immediately transition them to the new system, they felt like they were numbers.A transaction is potentially the biggest change organizations face. Click To Tweet
Those customers would go in and the acquisition wouldn’t be a good deal anymore because a higher percentage than predicted of customers would have left. It’s much a data function. I had to come in and start to make reports, make customer-facing artifacts look like they used to have and then eventually over time integrate them within the systems of the acquiring firm that those customers stayed happy. Even though when you make that purchase at the firm level, you see them as numbers and cashflows. They are real people and they are going to leave if you can’t continue to service them in a way that they would be accustomed to. This is important. You’re a part of the data conversation. That data only creates this data value that we talk about by causing change, changing business processes and what your organization is capable of.
Change is naturally scary to people. If you don’t acknowledge and handle and treat that fear or that potential for unexpected consequences to the things that you do, then you can be missing out on a great amount of value in any transaction. A transaction is potentially the biggest change the organizations face. When you’re bringing in a new firm or you’re selling an organization, there’s going to be the risk of flight from your employees, customer base. There’s going to be change to how the business process works and oftentimes for good reason because you want to make things more efficient or what have you, but that’s where people like me tend to get called because an acquiring firm will come in and say, “We bought this firm. We have no idea how to get them integrated into the paired organization. How do we do it?” A lot of times, they’ll leave them alone to function. That doesn’t maximize the value of the investment that they’ve made.
In that example that you cited with that financial firm, what should they have done differently so that you weren’t scrambling after the acquisition got done to make clients comfortable? What advice would you have to offer them if they had involved you upfront?
The first thing they should have done as part of the due diligence and before the purchase was even made was to get a sense of, how different from a culture perspective, and the client base was of the firm being acquired? That would have given them some insight, “We’re going to need to devote some resources to making sure this is a smooth transition for them.” That’s what matters in the value of the businesses. What do those customers expect? What do those customers need to be successful? We need to make that as smooth as possible. The fact that they didn’t even think about that until the firm had already been acquired and customers started leaving, we had missed out on a tremendous amount of time that we could have been doing good things to make them stay.
We were in triage mode when we were trying to help transition them more effectively versus, we could have been much more proactive in strategic and how these organizations came together? There’s a risk a lot of the time because things move fast and people want to make the transaction happen. They don’t stop and think what is the work involved in making the most out of this once it’s done. Hopefully, if we start doing that before the transaction, before we even have a buyer, if the seller is thinking about, “How do I maximize the value of this business that I’ve spent my life’s work creating?” Get on top of that. It’s a personal thing. It’s a data thing certainly, but it’s about the core functions of your business and how they might change once this business changes hands.
It’s a good point to understand how you might have to change and adapt is important. A sponsor of the show, The Keystone Group, specializes in integration, who talked a lot about this. Do your integration discussions early and often because that will make or break the success of the transaction on the back end. When it comes to data involving people like you who are experts at this will only make for a smoother transition and a higher likelihood that the transaction’s going to be successful.
At a minimum try to bring in even some baseline analysis into your diligence process, whatever that looks like. Spend a little time saying, “How does data factor into this and where are the opportunities here?” If you don’t have that on your internal team, hire a consultant, hire somebody who can help you do that. Think about those things upfront because it will be a competitive advantage. If you’re on the buy-side and you can look at that prior to formalizing the deal, you’re going to have information that potentially other buyers won’t. Until this becomes commonplace, there’s a huge opportunity for acquiring firms to understand what they’re purchasing better than a lot of the competitors out there.
Are there tools that are available to people, whether an owner of a business who wants to maybe get their arms around data or an acquirer who wants to better analyze the data, that people can apply that will easily allow them to evaluate the quality of the data that’s there?
It comes back to your traditional maturity model, maturity assessment types of functions. It’s not much about the tools. We look at the tools a lot. We look at what the artifacts are. The important thing isn’t the artifacts themselves. Look at the size of databases or the applications we’re using. That’s somewhat helpful but the important thing is the story, what does this data mean? What does it do? Where are the holes? Do people think their data is terrible? Finding a way to understand some of those stories, I don’t think there’s a tool that can do that because every organization makes up in the systems that they’re using or the way they work with data or the way they don’t work with data. Those are the things that come from looking at the operations.
It’s more of an operation and business process analysis type of function versus being something where we could say, “Here’s a profiling tool that could show us all of that.” Because it needs to pull out a story, I don’t know of a tool that could do that. Even the AI and machine learning types of models might give you some quantitative analysis that would be helpful. It would be supplementary to the actual story of the data versus the artifacts that you’re seeing measured directly.
With much of our data moving into the cloud, with all these SaaS-based companies and applications that are being adopted by businesses every day. When I look at our business, we must have 7 or 8 different cloud-based solutions for different parts of our business. With the movement towards the cloud, is that going to change the way that people are analyzing their data or will it change anything? Will these companies start to get involved in helping you analyze your data? I know none of them to do. They provide the application and they’re great at providing the application, but they don’t help when it comes to analyzing the data.
This is such a classic challenge because the people that are building these cloud-based or as a service solution, what sells those is the functionality that they’re providing. They focus their time and attention on giving you the best functionality possible. As an afterthought, they’ll add in some reporting because they know you need that. That’s not what makes the decisions for people. People don’t make their decisions based on the reporting that comes out of one of these tools. They make it based on the functionality inside of the tool. It’s probably at a point where people are starting to have higher demands on that reporting function, but it’s still to the point where you’re not making those decisions that way. The software companies are responding to that. In a bigger sense, one of the challenges is making sure that when you create data and you’re using an online tool. Make sure you’re not getting into deals where you can’t get to that data underneath. One of the things that I find striking, and it’s always fun to be striking even with on-premises applications, is that a lot of times they want to charge you more to get access to your data. In the 2000s, 2020s and beyond, that’s not acceptable. You need to be able to have unfettered access to your data at all times for whatever you want to use it for.
Ownership, because there are some platforms that want to co-own your data.
To me, that’s a deal-breaker but to a lot of people, they don’t even know to ask that question upfront. That to me is non-negotiable. You need to have unfettered, complete access and ownership to your data at all times. What you can do and what’s important, this is the general rule. If you have an application of on-premises, off-premises doesn’t matter and you want to get insights from that application, chances are the built-in reporting tools for that application are going to be sufficient. Once you want to combine that information with information from another system or multiple other systems, that’s when you’re going to want to get to a more standalone analytics solution or data warehouse. Something that’s pulling information from a bunch of different places and specializes in that mashing them together and giving you an ability to do analytics on that combined set of information. That’s where a lot of the value is because your operational reporting and metrics are built into the systems and you’d get a decent amount of knowledge from that. It’s when you start to look at things like, “How does this thing that I do in system A over here impact what we’re doing in system B over here impacting our net revenue at the end of the day?”Every business needs to be in the data business. If you're not, you're missing an opportunity. Click To Tweet
Anthony, I’m assuming that’s where you would come in for a lot of business owners. You would help them weigh through what’s important if they’re not capturing the right data, helping them understand how to capture the right data and consistently capturing that data. Is that right?
Yes. It’s a core thing that we do. We help them build the systems or at least point them in the right direction of applications and tools that can help them do those things. What we find is what’s most impactful is helping organizations learn the process, “How do I take analytics?” Things that are interesting and turn them to things that matter. One of the things that we see in companies big and small or what have you, people do interesting things. They were like, “That’s interesting. I’m going to dig into these numbers or whatever.”
You’re interested and you saw this interesting stuff and you saw the line go up and down and then that sits there. It doesn’t do anything else. You’ve got to get past interesting. You’ve got to get to the action. You’ve got to get to a change in a business process that drives one of those three measures that we talked about. Until you do that, you’re buying toys. You’re doing interesting things but you’re procrastinating from what matters, which is making your business better. Those connections, teaching that mentality, helping people navigate all of the complexity. We do all of that. The most important thing is to say, “Learn something that can help you do something that you couldn’t do before.” Find where those are and go from there.
Are there any parting thoughts or comments that you would leave with the M&A Unplugged community as it relates to data and potential M&A transactions?
I would say, find ways to apply data in even the simplest ways and do it. Recognize that every business needs to be in the data business. If you’re not, you’re missing an opportunity and you may be at risk competitively and in the future if it’s not already happening. This is a wake-up call to start digging into it. Find a way to look into it and remember that your data is your business. It’s not part of your business. It’s not something that could help your business. It is that truth under what you do. If you can learn how to look at it and use it to your advantage, you can make those prospects for your organization that much better. Regardless of where you are in the journey, whether you’re buy-side, sell-side, middle of a transaction, start to get smart around data, and you’re going to do good things. Protect things and help the future of your organization be as successful as possible.
It’s a great advice and good information. You’ll be a lot smarter and it will make for a much better transaction. Anthony, this has been wonderful. If people wanted to get in touch with you, how can they reach you?
Anthony, thank you. I appreciate you being here.
Domenic, thank you much. It’s been a pleasure.
Data seems like a topic that’s slightly off course from our typical discussions as it relates to M&A, it’s not. There’s going to be a point in time in every transaction where buyers are going to want to dig in information and you need to understand what that information is. You need to understand how you used it while you were running the business, how it can be improved? From a buyer’s perspective, you need to understand how to interpret that data and what you’ll do with the business post-transaction in order to integrate it into your business more easily or move the needle. Either moving the top line, improving the bottom line or reducing your risks.
It was tremendous information. Data is not something to be overlooked in an M&A transaction. I want to thank you, Anthony, for being here. If you would like to learn more about the process of acquiring or selling a business, please visit our website at SunAcquisitions.com or feel free to reach out to me at [email protected]. I look forward to seeing you again on the next episode. Until then, please remember that scaling, acquiring, or selling a business takes time, preparation and the proper knowledge.
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About Anthony Algmin
Anthony J. Algmin is not only a nationally-recognized pioneer of data leadership, he is the author of the very first published book on data leadership: Data Leadership: Stop Talking About Data and Start Making an Impact!
Additionally, he is the Founder of Algmin Data Leadership, LLC (ADL), a company helping businesses transform their future with data leadership. Offerings include speaking, training, and coaching services. ADL’s Data Value Guidebook provides organizations with the direction to build momentum in their data leadership journey.
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