As you know, at GEO, we love interviewing management teams. This practice helps us get under the hood to understand everything we can about a stock we’re looking to invest in. By the way, we also published a breezy article called “7 Interview Topics You Must Discuss With Company Management.” You can find the article at GeoInvesting.com.
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However, I want to expand on this topic and discuss five key aspects of the management interview process that you might want to also employ. I’ll list the five right away, and then I’ll get into them.
- Topic 1: Understanding how management has handled adversity in the past
- Topic 2: Understanding the company’s kind of marketing strategy
- Topic 3: Insight into new product or service development
- Topic 4: Additional revenue opportunities from existing customers
- Topic 5: How well does the company understand its industry and competitors?
There’s obviously a lot more things to dive into when interviewing management teams, and I will expand on this topic over time, but these five topics are a good place to start.
1. Management History and Journey
So, let’s start with the first management interview topic. If you participate in the live management interviews we host at GeoInvesting, the first question I ask management surrounds them telling me about their history and the journey that brought them to the company they are currently leading. In particular, I’d like to know some of the challenges they have faced in the past as well as with the current company, and how they have addressed and conquered those challenges. This is really important. You want to understand how CEOs have reacted to these challenges, and what they learned from them. My experience has been that great CEOs rarely make the same mistake twice. It’s almost like you don’t want to invest in companies that have never had issues with their current management team, because you don’t want to be the first one to go through some big mistakes with them.
Also, it’s not just about digging into past missteps. Sometimes I am just trying to understand how CEOs have solved basic problems. Are they problem-solvers? Being able to solve challenges is what can separate the good CEOs from the great CEOs, and can really help you develop conviction in companies, especially when a company may be going through rough patches. Having confidence in the team will go a long way in preventing you from panic-selling when the company hits a rough patch or markets are crashing.
2. Sales And Marketing Strategy
A second management interview topic I like to get into is to understand a company’s sales and marketing strategy. If there is a common theme I have seen for failed businesses, it’s failed marketing strategies. This is important because, as you know, a company can have great products and services, but failure can set in if it does not have the right plan to go to market or to continue to penetrate the markets they are in, or if it’s lacking marketing capital. Not only do you want to understand the marketing strategy, but you will want to understand how much money a company spends as a percentage of revenue versus its competitors.
Now, lack of capital to grow is a point I want to stress because it’s a common issue in the microcap space. In these cases, you need to find out if marketing support exists through establishing channel partner relationships, where your customers can help you sell your products. Or maybe the company can lean on resellers or distributors to help promote products and services.
I get excited when I find companies that don’t have a big direct sales force but have been able to maintain some type of market presence. That’s an interesting tell showing that sales could go into overdrive if the company chooses to turn on its marketing engine.
I also want to look at past marketing campaigns or activities to see what kind of return on investment they earned and what strategies have worked or not worked and why. And don’t forget that looking into a company’s marketing strategy and history might include talking to members of the sales and marketing team.
3. New Product and Service Development
The third management interview topic I want to discuss is new product and service development activities. We want to make sure that management is continuing to find ways to make their products and services better. Not only does this help companies maintain market share and keep customers happy, but it can help companies find their way into new markets. Although not relevant in all cases, in certain industries, you want to make sure that the company is putting a certain amount of revenue into R&D.
A really important thing to keep in mind is that new products or services can come with higher margins. On a related note, it’s important to find out where products and services are in their lifecycle. If a company has some products that are long in the tooth, you could start seeing margins fall. So, you will want to take extra care digging into their product pipeline. The ebb and flow of margins is particularly important when investing in tech companies.
4. Wallet Share
The fourth interview topic is on wallet share gain opportunities, which refers to getting more revenue from your current customers. It is one of my favorite traits I look for when hunting for multibaggers. It just makes sense to be able to kind of figure out, well, “How do I get more revenue from that customer who already trusts me?” I particularly look for these types of setups in turnarounds or boring companies just waiting for new “easy lay-up” growth catalysts. Wallet share gains can result from introducing new products or ancillary services to current customers or finding cross-selling opportunities among different company divisions. You can also find these setups after a company makes an acquisition. I always ask CEOS: “What products or services are you not offering your customers that you could be offering them, and/or that your comps are offering in your market?”
5. Industry Comprehension
And finally, the fifth management interview topic that you need to delve into is making sure that the company understands the industry they’re operating in. Some questions to dive into include:
- What are some new trends going on?
- What are some of the new problems that customers are facing that the company could solve?
- Is there anything going on in the industry that might actually make some of the company’s products and services obsolete?
You are also going to want CEOs to understand their competition. Related questions include:
- Who are your competitors? I know that is an obvious question, but you will be amazed to learn that many management teams don’t have a deep grasp of who their comps are.
- What do your comps do better than you?
- And what are they doing worse than you?
You are also going to want to gain an understanding on the pulse of the M&A activity in the industry, especially if the company’s growth strategy includes consummating acquisitions.
- Are acquisitions getting more expensive?
- Is the industry fragmented, offering lots of acquisition opportunities?
These are just some of the questions you will want to ask.
Hope this all helped. I am confident that adopting these five interview steps will help you cultivate your management team interview process. Thanks for your time.
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