The Hidden Value Blueprint: How to Find and Release Massive Hidden Value from Ordinary Businesses

7/22/2019 The Hidden Value Blueprint: How to Find and Release Massive Hidden Value from Ordinary Businesses

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www.BrianDelfield.com 1

The Hidden Value Blueprint:How to Find and Release Massive Hidden ValueFrom Ordinary Businesses

A Theory of Constraints (TOC) awareness guide

for investors, M&A pros, and private equity firms interested inexploding enterprise value and return on investmentin seemingly ordinary, everyday businesses

By

Brian Delfield, CPACo-Founder / Partner

TOC Equity PartnersChicagoMilwaukee - Louisville


2/24

A quick message from Brian11:35 am, near Milwaukee WI, USA


Dear Friend-

My partners and I at TOC Equity Partners invest in boring businesses, then

systematically improve and grow themusing the repeatable Theory ofConstraints (TOC) management process introduced in this guide.

Perhaps you can learn something to help your business? or maybe you mightbe interested in earning strong returns investing in our deals? Either way, Imglad we are starting a relationship via this guide. Take a little time to study itscontents, I think you will find it different and enlightening.

Regards,

Brian


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What is an ordinary business?

An inventoryand/or work-flowintensive business involved inmanufacturing, distribution, and/or retailing activities selling physical

goods and/or providing ancillary serviceswere not talking the next Google orFacebook, just a good oleconventional biz, operating in the real world.

How do you quickly find and releasehidden value from them?

The little known, but highly effective, Theory of Constraints (TOC)management process provides the proven blueprint for identifying and

extracting hidden value from these businesses via systematicallypropelling sales growth and bottom line improvement.


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The Theory of Constraints (TOC)Management Process

the secret sauce for exploding results in ordinary businesses

A little known, but highly effective business growth and performance improvementmanagement process, developed by physicist, turned management guru, Dr. EliGoldratt (author of The Goal).

It is the secret ingredientfor identifying and extracting massive hidden value in

minimum time from seemingly ordinary businesses, often in sleepy and competitiveindustries. It has been successfully demonstrated by hundreds of prosperous, but veryquiet, implementations world-wide across diverse industries.

Real opportunity does not come from following the herd...TOC is a disrupt ivemanagement technolo gyfor doing things differentlyin conventional businessesand creating substantially more upside.

It is a proven and repeatable approach that this author and his partners master in thereal world.


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TOC 101Get Fast Results Now

TOC capitalizes on an inherent flaw in conventional management ways, something it

describes as local optimizationwhere a business or supply chain is commonly brokeninto smaller pieces and parts, theoretically for better cost and profit control, but, which TOCunconventionally reveals, actually leads to many hidden undesirable bottom line effects.

TOC holistic analysis identifies these hidden undesirable bottom line effects as readyimprovement opportunities involving too much inventory,lost sales, customers, &margin, overly long lead times, unnecessary expenses, and/or overlooked

productivity levers.

The TOC improvement process quickly moves the conventional business away from thisflawed local-optimizationto bottom line leverage-able, holistic-optimizationin the processcreating massive financial results and enhanced service levels from the ensuing reducedinventory, shorter lead-times, increased productivity, more sales & margin growth, and along-term competitive edge based on guaranteedproduct or service

availabilitydelivery speed and/or commitment reliability. INSTANT RESULTS:

2x instant profit and cash flow improvement in 9 months or less.

LONG TERM RESULTS:

10x long-term profit and cash flow improvement in 4 years or less.


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Two Real World M&A Opportunities

1) Flip-the-Switch opportunities

Mature businesses with organizational infrastructure, held inventory, and

conventional modes of operationImprovement comes quickly by changingflawed, local-optima, inventory and work-flow management policies to captureinstant sales and enabling a guaranteeddelivery speed, commitmentreliability, and/or product availability competitive edge that propels next levelgrowth. Typically the bigger the business, the more awesome the systemsbottom line leverage.

2) Business-Building opportunities

Entrepreneurial businesses that lack extensive infrastructure, but exhibit hugeinherent scalability, nimble technical expertise, and/or under-exploitedgoodwill...where flawed industry-wide practices can be quickly exploited &leapfrogged to grow sales and margin via a service-level competitive edge

built around guaranteeddelivery speed, commitment reliability, and/orproduct availability.


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TOC Benefits to Investors

Gain an inherent margin of safetythat puts a floor on minimum financialreturnssay 20% CAGR?

With TOC, even if an investment deal is hit with a down economy orbusiness misfortune, the inherent improvement and competitive edgeavailable can overcome these challenges and produce above averageprivate equity returns.

Get potential outlierfinancial returns from very ordinary businessespossibly reaching 100% CAGR?

When combining TOC upside with a reasonable economy, a decentindustry marketplace, and a good management team, the potential foroutlierprivate equity returns is real.

Create improved and increased deal flow TOCs different perspectiveprovides more eligible good investments

because of the hidden potential that TOC identifies in many businesses.


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Why is there hidden valueopportunity in these businesses?

Most conventional businesses are run via traditional modes of operationthat focus on something TOC calls local optimization.

Local optimizationinvolves the proverbial slicing of a holistic businessinto smaller pieces and parts, and then managing these pieces and parts

for individual optimal performance, incorrectly concluding that the sum ofthis optimized local performance rolls up to create optimal business-wide,bottom line performance.

TOC reveals this common management approach as a severely flawedmode of operation that inadvertently creates undesirable bottom lineeffects and leaves dramatic overlooked improvement opportunity for those

who choose to think and manage differently as most in their industry willnot.


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The undesirable bottom line effectsfromlocal optimization

You end up carrying way more inventory than what is truly necessary.

You have much lower business-wide productivity and experience muchlonger process and activity lead-times than what is truly possible.

You inadvertently lose out on significant amounts of both seenand unseen

revenue and customers.

You inadvertently co-participate in competitive incestas most in yourindustry are doing the same things operationally and have similar flawedparadigms about what is feasible or possible, leaving the door wide openfor those who think and manage differently.


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How to quickly improve and unlock value?...put in play TOC guided, holistic business optimization

Understand that conventional businesses at their core, are holistic,interdependent flow systems controlled by a system constraint, and where thatflow systemcan extend outside of the business to downstream and/orupstream supply chain links.

That not all pieces of this business system are created equal, the constraint iswhat limits and leverages bottom line performance, non-constraint areas needto take a purposeful back burner.

That there are very few trueconstraints active at any given time inside anybusiness system.

Almost without fail, if you find and leverage the activeconstraint, you willstimulate massive, and quick bottom line improvement.


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Follow Five Simple Stepsthat will stop flawed local optimizationand

instead unlock instant bottom line improvementthrough holistic optimization

1. IDENTIFY the holistic system and SELECT its constraint

2. Decide how to EXPLOIT the holistic system constraint.

3. SUBORDINATE & SYNCHRONIZE everything else to the exploitdecision.

4. ELEVATE the constraint to create next level holistic system performance.

5. REPEAT the process, do not let inertia set in


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The activeconstraint can reside inthe management thinking,

business policy, or physical flow dynamicsof a business via:

Wrong operating practices, policies, and procedures.

Flawed metrics, cost accounting, and budget math.

Faulty beliefs about markets, customers, & selling process

Physically limited resource capacity and availability.


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Possible Constraint #1flawed inventory logistics

Even in well run product businesses, TOC analysis reveals substantiallymore aggregate Inventory than there needs to be.. needlessly tying upworking capital and increasing carrying costs.

This way-too-much-inventoryis rarely in the right place at the right time,devastatingly, and often invisibly, causing lost sales and customers.

Sometimes a local-optima aversion to holding inventory at allcan add tothis problem of lost sales and lost customers.

These problems are caused by the wronglocal rules in the inventorymanagement process, which can be quickly rectified by switching to therightholistic rules provided by a proven TOC improvement toolkit.


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Fast TOC Results #1from inventory logistics innovation

25% to 50% reduction in aggregate inventory...creating a correspondingrelease of working capital cash and reduction of carrying costs.

10% to 50% instant bump in sales by having the right inventory in the rightplace at the right time to meet existing demand. You increase sales

revenue and land more customers by improving SKU availability andguaranteeing it to existing demand.

1,000% potential increase in 4-year EBITDA by strategically increasing thecollection of rightSKUs and SKU families guaranteedavailable for sale

based on optimal shelf mix velocity.


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Possible Constraint #2flawed work-flow practices

In any work-flow intensive business, when activities and resources aremanaged according to local optimarules, business productivity andoperating margins are often artificially and invisibly depressed.

These local optimarules cause work-flow activities to take much longerand use more resources than what is truly necessary... ...invisibly driving

out lead-times in production, work processes, projects, and sales funnels,plus adding unnecessary operating expense, even in so called LEANbusinesses.

Switching from the wronglocal optima work-flow rules to the rightTOCholistic rules, quickly improves speed, reliability, and bottom lineproductivity.


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Fast TOC Results #2from work-flow practice innovation

10% to 50% increase in business wide productivity and capacity fromexisting physical resources.

10% to 50% improvement in operating margins from this increasedproductivity, and more free cash flow from less cap ex needs.

25% to 75% reduction in work flow lead-times and 95%+ reliabilityachievement on work-flow promises . You dramatically cut lead-times andmissed dates in production operations, work activity processes, projectmanagement, and sales funnels, often by more than half.

1,000% potential increase in 4-year EBITDA from the rapid response andreliability of product and service related deliverables...propelling a decisive

competitive edge and more sales growth via dramatically enhanced andguaranteedservice levels to customers.


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Possible Constraint #3flawed money math

Money Mathinvolves the tools and mindset used for businessdecision making and measurement. It can be management accounting

processes, budgetary processes, pricing & quoting process,financial justification formulas, and performance metrics.

In many businesses pricing and product mix decisions are based on allocation-basedproduct costing, which is another form of local optimization, leading to

lower pricing and less profitable product mix decisions.

In most businesses there is a flawed belief that department efficiency metricsand budgetary cost control drives holistic profitability. This misguided faithindepartmental optimization can be shown to drive the wrong behaviors andactions that invisibly degrade holistic bottom line profits.

In most businesses the concept of lifetime customer value is overlooked ormisunderstood causing tremendous waste in marketing and sales efforts andmany lost revenue dollars.

Replace the wrongmanagement accounting, measures, and mindsets withthe right, TOC-inspired, management accounting, measures, and mindsets.


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Fast TOC Results #3from money math innovation

10% to 20% quick increase in bottom line profits by optimizing pricing,product mix, and shelf mix decisions based on holistic managementaccounting math.

10% to 33% increase to bottom line profits by managing money making

and efficiency via holistic metrics and budgetary processes versus localdepartmental metrics and budgetary processes.

10% to 50% more in sales from identifying, calculating, and managing oflifetime customer monetary value components, including: front endcustomer acquisition economics, back-end sales frequency, recency, andcontribution margin, plus referral generation value.


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TOC Enabled Productivity Increases

1. Instantly reduce unnecessary expenses with new foundproductive capacity and lower inventory levels

Eliminate much overtime and overflow outsourcing expenditures.

Reduce payroll operating expense via normal attrition.

Reduce inventory carrying cost expense.

2. Quickly free up cash with new found working capitalproductivity

Lower aggregate inventories mean more available cash.

3. Dramatically grow sales revenue with much less capitalexpenditure investment and overhead expense creep.

More productive workflows and logistics drive way more sales volumethrough existing facilities, equipment, and staff



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TOC Enabled Sales Increases

1. Instantly Capture Lost Sales

After TOC dramatically improves product availability, commitment reliability, and/ordeliverable lead time along with increasing resource and working capital productivitywecapture very easy sales that we previously knew existed, but couldnt fulfill or provide for.These lost sales are instantly captured in daily demand patterns with no increase inoperating expense. All contribution margin drops directly to the bottom line.

2. Quickly Stimulate Hidden Sales

After our TOC enabled service level and productivity improvementswe frequentlystimulate demand from existing prospects and customers that we did not know existed.ineffect new service levels bring new business or repeat business from people who we knowbut had needs we did not know. These hidden sales are quickly captured with no increasein operating expense. All contribution margin drops directly to the bottom line.

3. Strategically Grow New Sales

After our TOC enabled service level and productivity improvementswe enable a decisivecompetitive edge that we can bundle with a strong guarantee and offer it to the market in acompelling waystrategically landing new business and capturing more market share.These new sales are typically grown with only small corresponding increases in operatingexpense. Most contribution margin drops directly to the bottom line.


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TOC Grow New SalesStrategy

B2B Manufacturers, Distributors, and Resellersmove from traditionalprodu ct-based sel l ingof features and options to purchasing agents tobus iness deal sel lingof bottom line benefits of enhanced service levels toexecutivesenabled by the self-created competitive edgeofguaranteed speed, delivery, and/or availability and its strategic impact tonew and existing customers.

B2C Retailers and ResellersEliminate the chronic problem of individualstore and/or warehouse product shortages and surpluses via TOC-enabledrapid product replenishment and replacementto quickly and easily growsame store and catalogue sales & profitsvia self-created, world-class

product availability of fast, medium, and even slow runners with NOadditional promotion or merchandising costs required and with much lowerinventories.


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What to do next? Individuals, Institutions, and Family Offices:

Get info about investing in the TOCEP fund. Private Equity Firms:

Get info about co-investing with TOCEP in larger deals or

Discover our investment recoverypartnerships where we put money and advice inplay to help you improve underperforming portfolio companies.

M&A Pros:

Talk to TOCEP about your deals in manufacturing, distribution, and retailwe havea unique way of seeing value and upside where others may not, plus we haveimprovement partnership programs where we can put money and advice intomaking your clients much better M&A opportunities.

Contact Brian Delfield: Brian [at] BrianDelfield [.] com or 414.329.3590

Fund website at www.TOCEquityPartners.com

Do want to learn more about the Theory of Constraints Management Process?Ask Brian to send you his Free TOC Discovery Kit


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About TOC Equity Partners (TOCEP)Investment Fund Partners Buying Businesses & Supercharging Results with TOC

Mark Hadding, Savvy Deal Maker & Strategist

M&A pro and equity fund expert; 35+ M&A transactions; leveraged buyout expert, Siemens AG globaleBiz director; Emerson Electric M&A, Arthur Andersen CPA; BS, ORU; MBA, Harvard BusinessSchool.Age: 46; Resides: metro Chicago, IL.

Henry Camp,Season ed Supply Chain Expert

Globally-recognized TOC supply chain thought-leader and experienced entrepreneur; owner-operator oftwo successful distribution companiesShippers Supply and Idea LLC;huge Adidas retail successstory; BA, Univ of VA; Age: 56, Resides: metro Louisville KY

Brian Delfield, Proven Operator & Implementer

Experienced operator-manager; multi-function C-level leader for entrepreneurial & middle marketcompanies; expert in TOC manufacturing & distribution, direct marketing, internet marketing, sales

process engineering, human resources, info technology, & operational finance; Arthur Andersen CPA;BBA Univ WI-Oshkosh. Age: 47; Resides: metro Milwaukee, WI.

TOC Expert Operating Partners and Consultant Implementers

TOCEP has a global network of TOC expert, business operating partners and consultant implementers,which are proven resources that are part of our capabilities footprint, giving us very scalable dealbandwidth, and unconventional insights across many business types and industries.

www.BrianDelfield.com


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About The Author: Brian Delfield

Brian is a private equity entrepreneur who buys inventoryand/or workflowintensivebusinesses with untapped hidden valuethat are involved in manufacturing, distribution,and/or retailing activitieshe and his partners then unlock this "hidden value"via aproven performance improvement and business building process thatsystematically grows top line sales and explodes bottom line profitsall with the the goalof providing outlier financial returns for his wonderful investor-partners.

Being a former, and very unconventional, Big Six CPAwho spent 20+ years successfully

running middle market businesses across a spectrum of industries and niches...he nowleverages his deep "operator"expertise with his own and other investorscapital to buyboring businesses and turn them intoROImachines.

Being schooled and practiced in the contrarian performance improvement and businessbuilding ways of the Theory of Constraints Management Process (TOC) he approachesbusiness truly differently and can spot, leverage, and execute opportunity in ways others

simply cannot see.

Along the way, and just for fun and relationship buildinghe teaches top level friends,colleagues, and associates like you some of his secretsand if you can just stretch yourthinking a bit, his lessons will help your biz results leapfrog ahead...and if you can't?? ohwell, that's fine...you can always remain a few steps behind ;-)

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The Hidden Value Blueprint: How to Find and Release Massive Hidden Value from Ordinary Businesses