Yeah, I Can Hold Myself Accountable

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Loren Feldman:
Welcome Jay, Mel, and Liz. It’s great to have you here. I want to start today by talking about succession. I recently highlighted a story from The New York Timesin the Morning Report that painted a somewhat bleak picture of retirement for business owners. It focused on a particular owner, who apparently had sold his business and was now puttering around the house while his wife continued to work remotely as an executive. She had a team of employees. The story is told from the point of view of the woman who clearly isn’t thrilled that her husband is home all the time, offering lots of unsolicited advice about how she runs her Zoom meetings and manages her team. She starts to wonder what he must have been like as the boss of his own business.

It’s clear they lived lives on separate tracks. He ran his business. She worked her high-level job, while also raising the kids. There’s a poignant exchange where he says to her something like, “Wow, our grandkids are so bright and interesting.” And she responds, “You know, your own children were very bright and interesting, too.” [Laughter]

I don’t want to suggest that any of you are headed in that direction. But I think you might be able to relate to some of that or share some of those concerns. Mel, you recently went through a transition. It’s not the same. For one thing, you haven’t sold your business, you just stopped running it on a day-to-day basis. But having gone through this, I’m curious: How’s it going?

Mel Gravely:
Yeah, I would say, first of all, I pray my daughter, my sons, and my wife would not report that I was that as a parent when I was running the company, and hopefully I’m not that now. So I would have to say it’s going well, Loren. You know, it is a transition, but mainly an emotional one. You know, when I visit the office, no one asks me a question. No one seeks my opinion. It’s not that they don’t care what I think—well, maybe it is that they don’t care what I think. Well, maybe it is.

So that part’s different, from an emotional standpoint. I am working from my home now, but I’ve got so many things I’m interested in doing. And I still do help out with access for the company, and the CEO and I have a formal check-in cadence, and I still chair the board. So I’m still active there. But I’m on a number of other privately-held company boards and I’m active in the community. I’m writing again. So you know, it’s working out pretty well.

Loren Feldman:
You put a lot of thought into this. I know you planned it out. You talked to a lot of other people who’d been through it. Looking back on the way you managed the transition, are there things you got right? Are there things you got wrong? What would you highlight?

Mel Gravely:
Well, first, I highlight the fact that it’s May, so it’s been five months, right? So you know, July or August, it could all fall apart. I could be an emotional trainwreck. I could not resist my urges to go back in and take over. So it still could go bad. But with that said, I think the planning of not just the transition, but what I do with my time, was pretty important, so that I have less room to meddle, less room to worry, less room to get in the way.

I think the other part is being clear why you’re doing it, because it makes it easy for me not to look back. Because I’m very, very clear about why we did it, why we’re doing it now. We probably could have waited one more year, but I think we were in the ballpark of getting the right time frame. So what I would say: I could have spent more time on, been more thoughtful about, is when I purchased the other little company I bought last year, I probably should have given that a little bit more thought. But other than that, I think I’m pretty pleased so far.

Jay Goltz:
So give us some context. Who took over? Did you bring in him/her from the outside? What’s the story with who you left in charge?

Mel Gravely:
Yeah, the current president/CEO, and my business partner—he now owns 10 percent of the business—is a guy that’s been with me for about 11 and a half years, almost 12. It’ll be 12 in November. So we acted as partners for years, to be honest with you, Jay. And he’s a great guy. He’s a construction guy, and I’m not, so he brings a certain sensitivity to the business that I just don’t have. He’s gonna make the company more profitable, because he knows how, and I’ll be out of his way and stop spending money. But yes, he was with us for a long time.

Liz Picarazzi:
When did he get the 10 percent?

Mel Gravely:
He got the 10 percent—don’t hold me to the exact date—it wasn’t at transition. He got the 10 percent in 2020 or so… maybe ‘21. I really can’t remember, but he got it before he became CEO. He was actually offered some ownership prior to that that he declined at the time for personal reasons, but was glad to get it when he got it.

Jay Goltz:
So what’s the long-term? Because, you know, I’m eight years older than you are, but at some point, we’re gonna die. [Laughter] Do you have a long-term plan? Because my wife, her father died when he was a year younger than me. And she has brought up to me, like, “What if?” And I don’t have a great answer at this moment? I’m certainly working on it. But do you have a great answer?

Mel Gravely:
I don’t know if it’s great or not. Prior to me leaving as CEO, we had a two-pronged plan. One was an emergency plan: What would we do immediately? And then the other was: What will we do long-term? Keep in mind that this business, although privately owned, is stewarded by a fiduciary board of directors. So there are seven people who are in a position to protect the company as it moves forward. So if something were to happen to me, at least there are stewards of the business.

But now that I’ve transitioned to chairman of the board and majority owner, the plan is a little bit different. So the long-term plan? I don’t know. We’ve got a long-term framework. It starts with the board. My oldest son is on the board. His brother will join. His younger brother will join in June as an advisor to the board. So they’ll learn how to be fiduciary agents of a privately-held company. Maybe they’ll get the itch and want to join the company, but that’s not an expectation. So right now, if you said, “Mel, what’s your plan?” It is to own the business as a family forever and teach the familial successors in: How you motivate a management team and be good stewards of a family asset?

Jay Goltz:
So of the seven people, do any of them work in the company?

Mel Gravely:
Yes, they do. The board seats are held in proportion to ownership. So I control four seats. There’s another entity that owns 20 percent of the company. They have two seats. And my partner and now CEO holds his own seat. So he works for the business. I guess I kind of work for the business. Everyone else is outside of our company. So two of the five are employees.

Jay Goltz:
Your situation is 100 percent different than mine. I have no board. I understand it sounds like, for you, that works fine. And it makes sense.

Loren Feldman:
Let me ask, Mel, did you create that board? I know you bought the business. Did you inherit the board? Or did you create it?

Mel Gravely:
No, I created a board the first few months that I bought the company. There were only three people at the time, because there were three owners, and so everybody had a seat. And then as we transitioned ownership, and I wanted to expand the role of the board, we grew it. And so the board members are either selected or negotiated with the owners about who sits in those seats.

Loren Feldman:
What motivated you to start the board?

Mel Gravely:
Two reasons: One, I think I needed to be held accountable, because we all have those things we keep doing that are not that smart, but we just keep doing them. And so I needed some accountability there. And I don’t like it—actually, I dislike it. But it’s been very, very important. The second reason is, I don’t know how you go from generation-to-generation without the continuity that a board can provide for you. And so from that standpoint, if you really want a multi-generational business—

Loren Feldman:
And you were thinking about that way back when you first bought it?

Mel Gravely:
Oh, absolutely. Multigenerational was the reason I wanted to grow a company of scale. I think you know a little bit about what I’m out to prove, but yeah, at the very core of that is this has got to be multi-generational, and that, above all else, is important to me.

Loren Feldman:
You mentioned the business you bought last year and that you should maybe have put some more time into it. What was the motivation there? Did you buy this business as something that you expect to really focus on, now that you’ve kicked yourself upstairs from your main business?

Mel Gravely:
Actually, I bought it because I always loved this business. I was hoping that I could convince Triversity—the company that I was exiting to—over time, to see the value in it and add it to its portfolio of companies that it owns. And so that was the motivation, right? They were not buying in. And so I decided to buy it myself, and convince them over time that it was a good idea.

Loren Feldman:
It’s a construction-related business?

Mel Gravely:
Yeah, it’s facilities management. So it’s the grunt work. Plus, you know, little patches of drywall all the way down to mowing grass and moving snow and cleaning out gutters and cleaning windows. It’s the ultimate execution business. But good companies during even bad times, they’re going to maintain their facilities well. And so to me, it was an offset to the economic kind of trends that construction can lead itself into. But it is a tough business. And the company I bought, I misdiagnosed their challenges. And now I’m in a situation where, now I understand the challenges, and they’re tough ones.

Jay Goltz:
How many employees are there all together?

Mel Gravely:
In Triversity or the new company?

Jay Goltz:
No, everything under your purview.

Mel Gravely:
150 people, maybe, total.

Loren Feldman:
And the new company, are you managing it on a day-to-day basis?

Mel Gravely:
No, there’s a president in place. If I had five years, he’d be great. But I don’t have five years. And he’s got to giddy-up a little faster. He’s bright. He knows this business super well. So I would have to say he’s managing the day-to-day. But I’m very involved, Loren. I’m very involved. And I’m not used to being very involved. So it’s a challenge.

Loren Feldman:
Can you give us a sense of what the main challenges are? Why is it a tough business?

Mel Gravely:
Yeah, the fundamentals are, this company, when I bought it, had one customer. So that, to me, is not a problem, because they had an amazing customer—a very large customer for this kind of business. And we were performing very well for them. So I was confident that our ability to perform was going to be a base for us to grow this business. What I misdiagnosed, I thought they had a management problem. They had a structural contractual problem with the customer that is just… We were actually paying the customer to show up every day. And the team just didn’t know it. I had never seen negative gross margin before, literally never seen negative gross margin. And when I saw it, I just knew it was a mistake.

So that’s the biggest challenge. The good news is that it’s a great customer. We’re working through new contract terms, new bill rates, that will put it back to profitability. But you know, when you dig a hole as deep as we dug it, it just makes it a challenge. The second thing about this business, it is very cash intensive. When you do business with big customers, 90 days are good terms. And so you’re paying weekly, because that’s the kind of employees you have, and you’re getting paid in 120 days. So the cash that it can consume is significant. So you add the cash that it consumes to lack of profitability, and it becomes very difficult.

Jay Goltz:
Wait, wait. See, this is what’s interesting about this podcast. We’re very different. Everything you’ve been saying up till now, it’s like, “Yeah, that ain’t me.” I mean, we’re on opposite ends of the spectrum. You’ve got a bunch of partners; I have no partners. You’ve got one customer; I’ve got 40,000 customers. You finally hit on something. Okay, I got my arms on this one. What’s with 120 days? Why do you have to wait 120? And what if you say to them, “You need to start paying quicker”? Why do you have to live with 120-day payment terms?

Mel Gravely:
That’s a great question. You don’t have to, but you do have to if you do business with them.

Jay Goltz:
So you think, this particular customer, if you say, “We can no longer finance this at 120,” Do you think they’ll find someone else that will do it for 120 days?

Mel Gravely:
I guarantee it.

Jay Goltz:
Wow.

Mel Gravely:
Now here’s the nice thing. If you’re smart, though, and you’re profitable, you just build a carry into your business model. But you’ve got to build the carry into your business model. And if you don’t, then you’re going to be really hurting. Triversity, the construction company, does business with the same customer. We’ve never had a problem with the 120 days. We have some problems with our subs that can’t wait that long. But we’ve never had a problem with 120 days, because we’ve built it into our business model.

Loren Feldman:
Are you looking for other customers?

Mel Gravely:
No. Well, here’s why. I’ve got to make sure that I can cash-flow a new customer. The worst thing I could do today is get a new customer. The customer would have to pay me upfront, and at scale, those are hard to come by. When we get this model straight, though, I’m confident. The customer and I are very clear about this. We can get back to 120 days. We can continue to deliver at the A-plus level that we’ve been delivering. And then we can start to add customers.

Jay Goltz:
You say you have negative gross margins. I assume you’ve got to charge more, right?

Mel Gravely:
Oh, absolutely.

Jay Goltz:
Okay, so my question is: Are they going to find someone else if you raise your prices where they need to be? Are they going to find someone else who’s going to go ahead and do it cheaper because they don’t know the difference? Is that a question mark?

Mel Gravely:
It’s not a question for me at all, because we’ve been very clear: Please do find someone else that could do it at this price, and they can have it. You know, when you get super clear about it, the customer gets super clear, too. And they’ve been great. Because what I said is, “I’m going to show you everything, all the costs. And you tell me that you’re paying for what you’re getting.” Now, they never admitted, “We’re not paying for something that we’re getting.” What they did say is, “We’re willing to talk to you about the pay, to raise the rates.” So they’ve been great about it, to be honest with you. But it’s not their job to make sure I’m profitable. They want me to be profitable. It’s not their job.

Jay Goltz:
So, the interesting business question to me is, the people that you bought this from—I’m gonna guess they didn’t have the proper accounting people in place to recognize that they were doing it at a negative gross profit. Is that true?

Mel Gravely:
That is correct.

Jay Goltz:
It comes down to accounting.

Mel Gravely:
It does. And an idiot that would buy it without believing the pro forma because this company did not have the model change. I’m gonna try to keep it short. This company did not have financials when I bought it. It didn’t even have employees when I bought it. The two owners prior to me were loaning employees to this business and charging the business 10 percent margin for the cost of carrying those people. So they had no purview into what it was actually costing the company to do this because they didn’t care. Because they were both getting 10 percent on all their employees. Where they did care was, they couldn’t seem to cash flow. That’s why I misdiagnosed. I thought they just had a bad model and they weren’t managing it well. It was worse. They had a bad model. They weren’t managing it well. And they had no idea what it cost to deliver the service.

Loren Feldman:
Are your friends at Triversity who decided to pass on this purchase aware of your challenges with it?

Mel Gravely:
They’re not only aware, they have shown up like the troops that they are. The people who have figured this all out are my very talented CFO and controller at Triversity. The human resources at Triversity are now the human resources in this little company. They are showing up to save my bacon. The CEO is kind of like, “Dude, could you get this over with? Because we’ve got work to do.”

Jay Goltz:
You know what’s funny about this whole story is, like I said, every single thing I ticked off that you were going through, “Yeah, that’s not me. That’s not me. That’s not me.” And now? “Boy, that’s me.” I’m having the exact same issues with accounting, with figuring out: Wait, I’ve got four businesses. We’ve been allocating expenses to them. And oops, that’s wrong. And I’m in the same spot you are with the accounting thing, which gets to: I’ve never met a company that’s super successful because they’ve got great accounting. Though I’ve met lots of them that failed because of bad accounting. So, accounting is critical. That’s the moral of the story for today. Accounting is critical.

Mel Gravely:
Well, I think accounting and finance—and they’re different in my mind, at least. You know, accounting is making sure I’m allocating costs correctly. The finance is around strategy and projection, and it drives what we buy and all of that.

Jay Goltz:
Yeah, absolutely.

Loren Feldman:
Liz you’re a ways away from needing to think about succession issues. But does this conversation get you thinking about it at all?

Liz Picarazzi:
Yes, it does, in that, when I retire, I think I probably will retire, but I’ll have some sort of limited business interests. I’ve often thought, if I sold my business, then I would have some years of angel investing, partly because it just would be really interesting to me to be a part of that. But hearing Mel’s tale, I would be very cautious to take on a challenge like that. Because it kind of sounds like the opposite of retirement—sorry, Mel—to be honest. [Laughter]

With succession, I haven’t done a lot of thinking about it. My daughter is 18. She’s going to college in the fall. She knows that if she wants to be involved in the business, she can. Like many 18 year olds, I don’t think she’s going to be interested in that for a while. So in terms of familial succession, that’s something I think about. But also, I’ve got incredible employees. And I have no idea how exactly I would structure it, but if I had a way without going the whole ESOP complicated route to enable my employees to run the business, to own part of the business, I would be interested. Whenever I hear here on the podcast, or I went out to Fort Worth for 21 Hats, and I hear about ESOPs, I just kind of close my ears at this point, because it all just seems so complicated.

But that’s kind of what I have in mind. If I did have an offer to sell the business, that seems like it would make a lot of sense, particularly if it would free Frank and me up to do a lot of things we love to do. I love to travel. I love gardening. I think that may sound crazy that I would really want to give up my business to pursue gardening and travel. But the truth of the matter is, I think I probably would. If I could have a lot of cash in the bank from selling my business, and I could just pursue hobbies, like home renovation and traveling, I would.

Mel Gravely:
Yeah, Jay mentioned that he doesn’t have a board. You don’t either, Liz?

Liz Picarazzi:
I do not.

Mel Gravely:
But Jay, you almost said it with a sense of pride.

Jay Goltz:
I’d have to think about whether it’s a sense of pride. I mean, I hear what you’re saying. That’s a lot to process. And I’d have to figure out who would be on the board. And certainly, listen, as you know, I spent a lot of time looking at ESOPs over the last couple of years and have come to understand that one of the things that I should be thinking about is having a board. And who would it be? And how involved would they be, given that no one has any equity in the business? Though, in your case, you had no choice. That goes with the whole thing. So I just have to think of the word.

Loren Feldman:
Wait, why do you say Mel had no choice?

Jay Goltz:
Well, he had people that own stakes in the business.

Mel Gravely:
Yeah, but I could drag them around like I own them, because I own 70 percent of the company. So, no, I didn’t have to do a board.

Jay Goltz:
But it was more natural because they have stakes in the business, so it makes more sense that they’d be on a board. In my case, I guess it’s on my to-do list—not guess—it is on my to-do list. Because I do need some people here who can help give some direction or whatever for the day that becomes necessary. I guess it’s not that I say it with pride. It’s so unfamiliar to me that I really have to get my head around it. I’ve been doing this for 45 years and never had anybody to answer to.

And also, when you said you need someone to hold you accountable, I laughed to myself, because whenever I would join a business group, they’d go, “Well, it’s good because you can be held accountable.” I always say to myself, “Yeah, I can hold myself accountable.” I don’t need to be in Vistage to have a group of guys holding me accountable.

So that’s just the world I’ve been in, though I can’t argue with the fact it’s good. Listen, I have one of my kids here. He’s holding me accountable every day. He’s bringing up stuff that I should have been paying more attention to, and he’s absolutely right. So I am getting some of the accountability thing. So it’s just unfamiliar territory to me, and I’m having to get my head around it, with the knowledge that I do need to do that. That’s just something I have to work on. But again, just totally unfamiliar. And you have to think about it. And so this is all very interesting.

Mel Gravely:
Liz, what are your thoughts on the board thing?

Liz Picarazzi:
I’ve often thought of creating something informal. I mean, I’m 100 percent owner of the business. So I don’t have board seats that I need to give to investors. But I’ve thought of it less as a board of directors, and more as a board of advisors. And a few years ago, I thought about trying to convene a group, like physically or even by Zoom, all together, maybe quarterly. And I gave up on the idea because I felt like that was sometimes too much to ask of people. And that what I’m really looking for is to get advice from people, that I should just seek out the subject matter experts in areas that I want to move into.

So let’s say I wanted to get into more municipal contracting, or I wanted to get into higher ed, or I wanted to work with more multifamily developers. These are all areas where I’ve made good inroads into those markets. But if I could have advisors that would say, “Hey, you might try this, this and this, you may call this person,” that would be incredibly useful for me. And if it were the right board of advisors, I think people get something out of that. People like to help people. And if they offer a strategy that ends up working for my business, that makes everybody feel good.

So I do have some interest, in that it’s been on my list for a long time. But I know recently, we were talking about really having a budget to take people out to lunch. And this may sound really simplistic, but I was thinking that budgets could be like, considerably less than having a board of advisors where I just take interesting people out to lunch that I think might be able to teach me something. That could be really useful.

I do get a lot out of EO, and it’s not really an accountability thing. There’s a piece of that. But a lot of it is being in a network for whatever question that comes up that you can ask the question in a huge group. In my case, EO New York has 200 members. And I’m most likely going to get an answer, and it’s going to be a good referral. So if we’re saying Board of Directors, no, that’s not something that’s in my near future. But board of advisors? I think I could be doing more on that. And doing it more in a dedicated way, where, say, I take one or two people out to lunch every month. And then I get to look forward to it, too, by having an interesting conversation in a nice restaurant.

Jay Goltz:
Or just having lunch, just being able to have lunch.

Liz Picarazzi:
Actually taking time to have lunch, yeah. But sometimes I’ve thought about it too. Like, I’ve spent really dumb money on Google AdWords over the years, which got me nowhere. A few years ago, I said, “I’m not going to spend a dime on Google AdWords or Facebook or any of those. And I’m going to take that entire budget and put it into having lunches and doing things with people that can actually make a difference in my business.” And so that’s sort of my approach to how I take in outside involvement and perspective.

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