Because we buy smaller companies at Decada, we often get ourselves into businesses that lack operating maturity. We have to go build it. But as a small business holding company, if we buy too many companies with low operating maturity at one time, we’re in for a world of chaos. So each quarter we sit down and grade each of our companies on a 1-5 scale. The aggregate score across our 5 companies often reflects how stable or tumultuous things are in our portfolio — so this score that tells us when we’re ready to make our next acquisition. We aim for a 3.0+ aggregate score. Today we’re at a 2.2. We have progress to make internally, so we’re not actively looking for acquisitions externally. Here’s a short thread on how our Operating Company Maturity Scale works. I’ll share why we developed it, how we use it to set expectations with our operating leadership teams, and what we do to raise our score. To start, a lack of operating maturity can look like: - Undocumented processes - A new or less experienced leadership team - Pen/paper systems - Significant key person risk - Unpredictable financials - Low culture / eNPS scores - A constant barrage of fires… Sometimes in small business you feel like you’re a sneeze away from everything breaking. We work to solve that and build in more durability. Long term, the pathway to realizing our mission at Decada Group is to guide our companies down 2 paths: Financial Growth. This is self explanatory. By driving earnings, we’re able to hire great people, expand the business, and realize our mission. Improved Operating Maturity. By improving maturity, we build durability, redundancy, and autonomy into each of our companies. This sets a clear expectation for our operating leadership: strong earnings are great. But if it requires a lot of hand-holding or duck tape to keep the machine together, we still have work to do. In other words, we care about more than just raw EBITDA results. We have to get there the right way. EBITDA is easy to measure. But the other part felt squishy and subjective. So ~6 months ago we created a rubric to bring in some objectivity and to make it a scoreboard. The maturity scale helps set another important expectation: how much involvement to expect from us. Great leaders want autonomy. They want to be left alone to succeed. So if you’re operating in the 4.0 - 5.0 territory, we’re out of your hair. Think of us as a board of directors, available to approve budgets and big decisions. But we trust you with the rest. If you’re operating in the <2.0 range, expect us at your side in the trenches, running meetings, assisting with hiring, and implementing systems and software. Here’s how our Operating Company Maturity Scale works. We have 8 pillars of operating maturity: - Durability of Growth - Team & Culture - Operator Leadership - Operational Maturity - Management Team Maturity - Leadership Redundancy - Financial Predictability - Financial Position They’re imperfect, but get us there directionally and I’m sure they will evolve with time. We grade each pillar on this 1-5 scale: 1 - Nonexistent. Business does not demonstrate this competency in any capacity. 2 - Basic. Business demonstrates this competency only to a very small extent. 3 - Intermediate. Business demonstrates this competency - but does not apply it consistently, needing regular support. 4 - Advanced. Business demonstrates this competency regularly and is proficient in dealing with it, needing little support. 5 - Master. Business is a master in this competency and applies it at the highest level. A role model for others. Each quarter we sit down to grade our businesses across each of the 8 pillars. The average across the 8 pillars sets the overall score for the company. As a 2.5 year old holding company with mostly new acquisitions being led by mostly new leadership teams, the score is increasing each quarter. When a key person departs, the score tends to drop. The average of all 5 companies creates an aggregate score for Decada. When we acquire a company, the company's score starts low. That’s fine, it’s part of the process. Because we only buy businesses we plan to own for multiple decades, it’s worth it to us to burn down EBITDA to make one-time investments in time and capital to get the business on a successful multi-decade trajectory. We call that our carwash (name stolen, with gratitude, from @chenholdco) and see our involvement in the <3.0 range as a one-time investment to build long-term sustainability. The long-term goal is to assist our companies in getting in the 4.0 - 5.0 range, which looks like: - An exceptional, seasoned CEO with industry experience and a vision for the next 3-5 years. - A strong, experienced leadership team. - A strong balance sheet. - Strong redundancy across key people and process - Great results across the board. We view this as a decade journey. One foot in front of the other.