NEXT UP: With red ink stopped, AutoData Systems plots its next move
MEET THE WINNERS
AutoData Systems, one of two winners of this year’s Upsize Growth Challenge, is poised for growth but in need of a strategic direction. CEO Charlie Lehmann is exploring his options with the contest’s experts, supplied by the sponsoring companies. They are Dean Willer, an attorney with Winthrop & Weinstine in Minneapolis, presenting sponsor, and Bridget Manahan of Western Bank. in St. Paul. We present an interview with AutoData Systems’ Lehmann in this issue, and will cover Cheryl Alexander & Associates, a leadership development consulting firm and the second winner, in the October/November issue. Following this interview is expert advice for both companies—which applies to all growing firms—from the new Upsize Growth Challenge blog. Nominations for next year’s contest open in spring 2014.
WHAT THE CEO SAYS
Upsize: Describe your company as it stands today.
CharlieLehmann: We provide customers with handwriting-recognition software so they can survey their customers. We were a smaller division of ElectroSensors, which did well in the 90s and over the last decade it was less and less. Myself and the new investors come in. We see an opportunity. We’re not 100 percent sure how big it can be, but we know it’s there.
Upsize: It’s on your shoulders as CEO to figure that out?
Lehmann: Yeah. We are lucky in that we have time. As of January 2013 we’re cash flow positive and profitable, so what’s our next move? It’s really figuring out our sales process. Before, the sales process was reactive; we were lucky that customers were knocking on our doors. Now we need to be proactive.
Upsize: What about the sales process are you working on?
Lehmann: Who are we calling on? What’s the pitch? What’s the pain point we’re addressing? Sales 101 stuff. I think we can grow a lot in the markets we’re in, which is No. 1 hospitals. There’s a lot of low-hanging fruit, and I think we can get that in the health care space. Education, too; it’s our No. 2 market.
Upsize: Your investors seem to be patient, which isn’t something I think of when I learn they’re hedge fund managers.
Lehmann: I trust them and they trust me. I’ve known those guys, and they are so good and so patient. They’re all deep value, Warren Buffett types. You turn on Bloomberg and there’s so much emotion—where’s the return right now! Our investors, they aren’t emotional.
Upsize: How did you meet Matt Paschke of Leuthold Weeden, who brought you into the deal?
Lehmann: Through Young Life, which is a Christian outreach program. I went to Bloomington Jefferson high school. My older sister was in it so I got involved.
Upsize: So you graduated from William Mitchell law school, were studying for the bar, and they said we want you to be CEO.
Lehmann: It wasn’t so much that ‘we want you to be CEO,’ but Matt brought it to me to see my interest. I had been clerking for a business litigation attorney. I wanted to be in business, maybe general counsel, maybe in business law. Then I got that call. We spoke and I really wanted to do it. I’ve always had an entrepreneurial spirit. Ultimately I wanted to end up in business but the opportunity came more quickly and I’m very glad I took it.
Upsize: You had never run a company before, and really hadn’t even worked in one, post-college.
Lehmann: A lot of people looked at me like, you just got a law degree and you’re doing this? You just spent a ton of money for this? My Dad took the exact same path. He worked for a law firm, but then got involved in small businesses.
Upsize: How had you exercised your entrepreneurial spirit, as you call it, before?
Lehmann: I paid attention to business. I paid attention to the economy. I don’t have a fun story to tell about starting a software company when I was 16, but I’ve always been interested.
Upsize: It strikes me that you’re in the software business, but with paper-based surveys—so low-tech in a high-tech world. Aren’t you concerned the world is moving away from paper?
Lehmann: OMR, optical mark recognition, has been around for a long time. It reads the handwriting of people who fill out surveys on paper. You know Scantron? It’s been around since the 60s. It’s something we recognize, that we need to look at digital, we need to look at where does this need to go. But there will always be a place for paper. Hospitals get more participation from patients when they use paper surveys, for example, and a lot of clients of government agencies don’t have access to computers.
Upsize: How did you get to cash-flow positive in 18 months?
Lehmann: A big help was getting a fresh look at a company that hadn’t had a fresh look for a long time. I asked, why are we spending so much on this, on that? For example, we were paying $1,000 a month for hosting services, and we migrated that service to the cloud and cut $700 a month. It was a lot of cutting expenses, line by line.
Upsize: What was the reaction of employees?
Lehmann: The employees are supportive. They say, oh yeah, why are we spending that? They wanted to help but hadn’t looked into it, either. I was nervous because I was 27 and I look a lot younger. I wondered how they’d react; they were older, had been there a long time.
The first couple of months were tough. You’re doing business plans and strategy, and there’s this whole other aspect—like HR. It was eye-opening and humbling. The most encouraging thing I found is everybody believed in the company and they knew that they needed help. They welcomed it.
Upsize: Sounds like a cool group of people.
Lehmann: Our saleslady was out for health issues when I came in, so we acquired the company when she was out. She told me later she had on her screen saver—“Waiting for a Miracle.” They’ve been great. She has since retired.
Upsize: Tell me more about your focus now on increasing sales?
Lehmann: It’s proactive: Who are we calling, what works, and then let’s scale that. Next we need to establish the marketing budget. We brought on a new head of sales, and he has a lot of experience in business development. My generation is happy to hide behind e-mail and social media and they’re almost afraid to pick up the phone, so it’s great to have him.
That’s another thing I’ve learned. There’s no silver bullet. It’s just work, and figuring out what works. Another thing I’ve struggled with is, you get the vision but it doesn’t happen overnight. It’s not fast.
Upsize: And again, your investors are OK with that?
Lehmann: In honor of their value investing and conservative nature, I’m conservative with money, too. Now we have comfort, breathing room. If I came up with a big plan they’d back it. That’s next on the list, to re-invest and see what we can build. At the end of this fiscal year we’ll have a better sense of where we are. It doesn’t have to be huge, but we’ll do re-branding, we’ll do marketing.
Upsize: How do you deal with results that come more slowly than you’d like?
Lehmann: You have to have a vision six months out, but also you have to have it seven years out, and that’s where it helps to have my advisory board. I’m lucky to have relationships with young guys like me. It’s fun for them, we’re nerds like that. It is five people, we meet over pizza and beer once a quarter, and just talk. I usually try to have an agenda so it’s not just shooting the crap.
Upsize: What’s a turning point for your business, when something happened and your fortunes improved?
Lehmann: It was at the beginning of the year when we brought in our sales leader, and the sales started going up. Every month this year we’re been in the black. For 2012 there were a handful in the black and a handful in the red. This year it’s been every month in the black, and it helps and it adds up quickly. That’s why I’m encouraged.
Upsize: What about the flip side, the worst day at the company?
Lehmann: The tough time was the first couple of months. No one knew what we wanted to get out of it, and it was me and the employees and a lot of unanswered questions.
Upsize: How did you get through it?
Lehmann: I spoke to the investors a lot more and they were good about helping me. It gets lonely, so getting as many people as possible involved and interested helps.
Upsize: I get the impression that you don’t need a spectacular plan.
Lehmann: Especially in the near term, there’s a lot of low-hanging fruit and that will give us the revenue needed to do more. So once we grow our market share then there’s so much more we can do. There are just so many different places this could go once we’ve got the low-hanging fruit.
Upsize: What’s your biggest lesson learned, about running a company?
Lehmann: There is no silver bullet. It’s hard work. You just have to figure out what works and what doesn’t. I guess that’s boring advice.
Upsize: Warren Buffett wouldn’t say so. It seems you don’t have to go crazy and be big. Why?
Lehmann: That’s who I grew up with. I read Warren Buffett. I read value investors. My personality, I’m laid back and the investors are, too. Knowing I’m not going to be Mark Zuckerberg—that’s OK.
I’m here to add value to the company and take the company as far as we can take it. That’s going to create good. These people have jobs, and hopefully we’ll be able to create more jobs and buy more companies. It doesn’t have to be a sexy Facebook. It can be quiet, under the radar. There’s a lot here.
Charlie Lehmann is CEO of AutoData Systems
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WHAT THE EXPERTS SAY
[See more advice for growing companies at the Upsize Growth Challenge blog,
Cast fresh eyes on your company’s expenses UGC experts advise
When Charlie Lehmann was named CEO of AutoData Systems two years ago, his first task came straight from the investor group that bought the company and recruited him: stop the red ink.
The company, a subsidiary of a larger firm, had been neglected for years as its parent went through hard times and regrouped, and while AutoData Systems was profitable for decades it was no longer so.
So Lehmann says he just started asking questions, line by line: Why do we spend this on that? Why do we spend that on this? While employees at the acquired firm were willing to pitch in to right the company, they didn’t have any answers to the questions because no one had asked them for so long.
It’s a simple exercise, but often overlooked as time goes by. “A big help was giving a fresh look at a company that hadn’t had a fresh look for a long time,” Lehmann says. Once expenses were cut he turned his attention to increasing revenue. . Since January of this year AutoData has been profitable every month.
Bridget Manahan, a commercial banker with Western Bank and an Upsize Growth Challenge expert, applauds Lehmann’s line-by-line approach to expenses. “You’ve done a lot of great work in a short time, getting it cash-flow positive, which isn’t easy,” she says.
She says to look forward, too, realizing that as revenue grows expenses will do so as well. “It’s really important to have the sales culture, but as you crank that up, what does that mean for your infrastructure?”
How about you? Do you need to take a fresh look at your company’s finances?
Are you chief cook and bottle washer? Stop it! say our experts
Many entrepreneurs think it’s a badge of honor if they do everything at their companies. But that attitude could actually be holding back their business.
“I’m chief cook and bottle washer,” they’ll say with a laugh, when asked for their title. “I turn on the lights in the morning, know every job in the company, take out the trash and even clean the bathroom if it’s needed.”
That needs to stop, our Upsize Growth Challenge experts say, because a company’s CEO must be focused on the most important, high-level activities if it’s going to thrive.
Cheryl Alexander, CEO of Cheryl Alexander & Associates and a winner of this year’s Upsize Growth Challenge, provides a case in point, although her situation is more sophisticated than the sketch above.
Alexander is the visionary who started her leadership development consulting firm 40 years ago, and today is in the midst of a re-branding campaign aimed at serving the biggest challenges facing her corporate clients.
She has enviable expertise, an impressive client list, her daughter as her trusted second-in-command—yet she spends her time on just about everything other than cultivating and development new clients. “You wear every hat in the company,” says Dean Willer, an attorney at Winthrop & Weinstine and an Upsize Growth Challenge expert, who says that’s typical in small firms. “I would decide that business development is one of your most critical elements.”
It doesn’t matter whether Alexander herself takes the task or she assigns it to another person. “Either way is fine, but don’t put business development on the back burner,” Willer advises.
AutoData Systems ponders over which direction to grow
AutoData Systems in Minnetonka was the perfect acquisition for a group of local investors including Matt Paschke, whose day job is portfolio manager at Leuthold Weeden in Minneapolis.
He and a loosely connected group of finance pros like to buy established companies that have lost their “sponsor,” for whatever reason. “We would search out orphan businesses,” he said. “We’re always on the lookout. We’ve done a number of these and this fit.”
Started in 1993 as a small division of a larger firm, AutoData sells software that reads handwriting and captures data from surveys that people fill in by hand on paper—believe it or not in an online age, still a necessary format for health care organizations, government programs, educational institutions and more.
The investors brought in as CEO Charlie Lehmann, a newly minted attorney and a friend of Paschke. His initial charge was to make the company profitable, which he’s done over the past 18 months.
Now Lehmann needs to craft a strategic direction to start growing again, and for that he turned to the Upsize Growth Challenge experts as one of this year’s two winning companies.
Bridget Manahan, a commercial banker with Western Bank and an Upsize Growth Challenge expert, suggests he break the project into steps. First comes homework, researching the company’s current markets and the competition in each, and tapping knowledge held by that group of investors plus Lehmann’s informal “kitchen cabinet” of advisers.
Then comes communication, in which he discusses the plan with his investors to make sure they’re buying in. “Overall, there needs to be a commitment to the strategic plan,” she says. “It’s sitting down and calling out those goals, and that also means all of you have a common understanding where this is going.
“I always ask business owners I work with, what does it look like going forward?” Manahan says. When that big picture is in place, the tactics to get there become relatively simple to craft.
Specialize or no is dilemma for Cheryl Alexander
Cheryl Alexander & Associates has built an impressive roster of programs to develop leaders in corporations, especially women—80 percent of its training seminars are attended by women only, 20 percent by both genders.
Yet Cheryl Alexander herself, founder of the 40-year-old coaching and leadership development company, is torn. She is knee-deep into a massive re-branding initiative, and she knows that both women and men in corporations need to hear her firm’s message.
“We’re so powerful with women, but if men and women can’t connect you won’t have the engagement and retention” of employees, Alexander says.
“We’re about the human connection amidst the swirl,” Alexander says, so shouldn’t her firm’s services be aimed at both types of humans?
Not to Dean Willer, an attorney at Winthrop & Weinstine who works with many closely held companies. He advises owning a niche.
“I would strongly consider going full bore into being female-centric,” he says, adding there’s a tendency for business owners to think they can go after a broader market and double their business. “The problem is you blend the message and you’re not differentiated any more.”
He believes that having one powerful sentence—“I do this”—helps not only in marketing but also in pricing. “You can probably command higher prices” by being the experts in a niche, he says, rather than competing with dozens and dozens of individuals and firms who play the field.
Bridget Manahan, Western Bank: 651.290.8100; email@example.com;
Dean Willer, Winthrop & Weinstine: 612.604.6633; firstname.lastname@example.org