Sean Joy – CEO Journey within Chenmark

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(6:08) – What are some interesting lessons you learned and experiences in restructuring?

(12:52) – What are some habits you have today as a CEO that you can tie back to prior experiences in restructuring?

(14:40) – How did you connect with Chenmark and what about it was appealing to you?

(16:52) – What were the roles you had when you first joined the organization?

(20:27) – Were there any learning curves early on in your role as CEO?

(22:06) – How much debt was in the business?

(23:39) – What are some ways that you manage cash throughout the year with a heavily seasonal business?

(27:33) – What are some of the add-on services you’ve implemented to increase revenue?

(31:46) – What are your criteria for cutting vs. keeping products?

(32:47) – How much time and energy do you spend on pricing your products?

(38:10) – How dynamic is your pricing?

(39:28) – What other improvements are top of mind for you?

(46:26) – What strongly held belief have you changed your mind on?

(48:51) – What’s the best business you’ve ever seen?

Alex Bridgeman: One piece of experience I know we talked a lot about that I’d love to hear more on is your experience in restructurings and turnarounds. What are some like interesting lessons and experiences you had from that role that you had?

Sean Joy: Yeah, great question. It was a great experience. I worked with a lot of smart, hardworking people that it was a pleasure to work with them on all these different situations that we ended up in. Keep in mind, this is not a scenario where we’re actively looking for distressed businesses that we think are a good opportunity. We’re sitting within a debt arm and just sort of dealing with the problem children that hit our desk, essentially. I would say, broadly speaking, the first thing that you’ll learn in restructuring is you learn to focus on the cash in the business. You need to have a good handle on the cash flow dynamics of the business, how much runway you have left, and be able to project that out, so you’re not met with a surprise two days ahead of time. As you can imagine, if you’re going to need additional liquidity, that’s something that you’re going to want to communicate with your investment committee well ahead of time and have very good rationale for why they should be allocating more capital to this business that has only struggled since they’ve been a lender to it for the last probably at least 7 to 10 years by the time we own the business. So you have to make a somewhat compelling case why we should be putting $50 million in to support this business versus just liquidating it. And I fortunately never went through a liquidation. The businesses I worked on were all businesses that we had taken over through generally restructuring or sometimes portfolio acquisition. And we would make a case and the partners would, in all those cases, agree that it was a business that made sense to continue supporting, that there were brighter days ahead, and they had gotten into the position they were in for a variety of reasons that were ultimately somewhat solvable. But beyond cashflow, I’d say there’s probably three other themes that came up frequently. And then there was a lot of nuance to each individual deal. But the other themes would be, one, the unit economics you have to have a good handle on. And honestly, that was something that I would expect wouldn’t be something that you really need to worry about it because these are pretty large companies. I mean, they’re all US or North America based, but sometimes global operations, hundreds of millions of dollars of revenue, operations all over the world. It’s pretty shocking that they would be, for example, selling products ultimately at a loss to a major customer. So we had a company that we were working with, and after digging in for the first month or so after we took it over, we realized they were actually losing money when they sold to Walmart. And they just didn’t really realize that because they’re looking at a pretty simplistic view of the unit economics, but they weren’t looking at sort of the full P&L that could be directly attributed to that customer. So they weren’t looking at the specific returns from that customer or the freight to the customer or the work capital implications or everything. And we really tried to layer in everything we could that was directly attributable to that customer. It doesn’t mean we would start allocating 6.5% of the CEOs time, but everything that was reasonably attributable we would try to burden when we’re looking at the gross profit per customer, or what we call contribution margin, to get a little bit further down the P&L. And shockingly we were losing money at several customers. And it really changed the picture of what we were doing, how we’re negotiating with certain customers, where we were focusing. And that was something that came up somewhat or a lot more frequently than I would have expected for this size business. And it is a focus at Checkmark as well. But I guess I just wouldn’t have expected to see it in sort of like a larger middle market private equity space, especially after a company has been privately owned for that whole period. But I think you run into some weird dynamics with these sort of orphan assets that are overlooked for a long period of time. But beyond unit economics, the other two big pieces would be just making sure you have the right team in place. So typically, we would be replacing the management team, or at least most of it, because the existing management team had gotten them generally into the predicament that they’re currently in. And so that was usually the first big step was trying to find somebody with some industry experience, preferably some CEO or at least leadership experience and a plan and a vision for turning the business around. And we could work on developing the plan, but some sort of framework, an idea of what they want to do with the business. And we would bring in always a new CEO and generally a lot of new C suite team members to support them with their help after we brought in the CEO and maybe a new chairman of the board or something like that. And then once we had the team in place, it’s making sure that their incentives are fully aligned with our incentives, which usually at the time we’re taking over was not the case because they would be cut in at the equity level. But the equity’s underwater at that point, which is why we’re taking over because business has $400 million of debt and an enterprise value of $350 million. That’s a problem. So if they’re cut in at the equity level, their incentive is only really to make these- the company moonshot type bets. Because if it goes to zero or it goes to 400, it makes no difference to them. It only makes a difference to them if they get to $500 million of enterprise value because they’re now clearing the debt, which is a problem because we don’t want them to be taking exclusively super high risk, super high reward debts. We want them to claim for also keeping the $350 million of enterprise value that’s already in place that’s at least partially covering the principal value of the debt. So you really want to make sure that your incentives are fully aligned. If they have sort of asymmetric upside, and you don’t because you still have all of your principal at risk, that’s a problem.

Alex Bridgeman: Given this experience in restructurings that you’ve had, what are some habits you have today as CEO that come from that experience? Like what things do you do or check or monitor or really care about that you can tie directly back to that experience?

Sean Joy: Yeah, great question. I think it’s really a focus on those three things. And I would also say it’s honestly pretty similar to what Chenmark already focused on. So it wasn’t like I was coming out of left field with a focus on cash, unit economics, and having the right people in place. Those are, broadly speaking, three similar themes that are relevant to pretty much any investment or successfully running any business, whether it’s a restructuring of a middle market PE business or its regional commercial landscaping business, it doesn’t really matter, you still need to make sure that you know your economics, you need to make sure that you have a team who can execute at a high level consistently, and you need to make sure that they’re incentivized to do so. And so all three things that I focus on, maybe somewhat more cash focused than some people, I guess, or maybe somewhat more paranoid about legislation or liability or things like that because I’ve seen a lot of those issues. But I would say, in general, that Chenmark has a healthy level of paranoia, which I think is honestly really important as an operator or as an investor, and certainly a focus on all those three things that I mentioned.

Alex Bridgeman: It’s kind of funny, a CEO has to kind of walk this fine balance between optimism and paranoia and make sure you’re right in the middle on most days. How did you connect with Chenmark? And what made the model so interesting to you?

Sean Joy: Yeah, so I initially heard about Chenmark on another podcast. And don’t worry, I won’t advertise other podcasts on your show. But I heard about them, and it just sort of stuck out in my mind. I wasn’t really familiar at the time with the search fund space or the Holdco space, small business Holdco space or whatever term you want to use. It was really, at least up to that point, only familiar with more of the traditional finance career paths. So I just thought the whole thing was pretty interesting. I always wanted to be in small business. So that piece was very compelling. I think that was probably the primary selling point for me that I had the opportunity to potentially run something myself sooner rather than later. And so, I reached out and started going through the process, the interview process, and the more that I talked to people and got to know the team and listened to other podcasts that were James Fisher Palmer interviewed, the more I felt like it’d be a great fit. And fortunately, it’s been a lot of fun so far. I also, once I started learning about the space, thought about the search fund traditional self funded route, but I’ve always kind of been more of a team sport than a personal sport or one on one sport kind of person. I just feel like it’d be honestly a bit lonely to do search fund by yourself. I know you have outside investors, but I just really like having somebody to bounce ideas off of, talk about your problems with, and it’s nice having not only like the support infrastructure that Chenmark has but also just a team of other operators who are going through, if not the same challenges as you, very similar challenges that are going through or have already gone through who you can talk with and share lessons learned with, and I personally really appreciate and value that.

Alex Bridgeman: Yeah. And so when you joined Chenmark, what kind of work or roles did you have? And any key learnings from those experiences before the CEO role?

Sean Joy: Yeah, so when I first started at Chenmark, I moved up to Portland, Maine, where they’re based, which is an awesome city, highly recommend it if you’ve never been. And I was helping with search and sort of one off ad hoc projects, almost like a consulting type project, for individual portfolio companies with really whatever they needed an extra set of hands on. They were typically some type of analytical work where I had a lot of experience already, spending way too much time in Excel and things like that. So doing more of that. And the search and the sort of ad hoc products for the portfolio companies wasn’t totally new. I would say it was pretty similar to what I was doing in the restructuring world. The difference there was these companies were generally not losing money and generally performing so that was a nice change of pace. And then after about six months in Portland, I moved to a commercial landscaping business that Chenmark owned in Massachusetts, and I took over as CFO there. And that business was going through a tough stretch, which I think was probably part of the reason that they wanted me to go down there because that was sort of my background up to that point was working on businesses that were having some sort of issue. And really what had happened there is they had fixed multi year fixed revenue contracts, and their input costs were rising dramatically, as we’ve all seen in the news plenty that the cost of labor is increased dramatically, the cost of gas was increasing dramatically, fertilizer is increasing dramatically, used cars or new cars, the prices were increasing dramatically. So basically every major input cost into the business was up double digit percent or sometimes 100% plus year over year. And revenue was fairly static, at least on a per hour basis. So what we needed to do was reprice the book of business as quickly as possible. So usually, you’re trying to minimize your customer churn. But in this case, we’re kind of going the opposite direction and really just trying to focus on our more profitable customers and turn the book as quickly as we could to reset pricing on as much of the book of business as possible. And fortunately, the team there, after I left, has done an awesome job, and they’re having a huge bounce back year, which is a lot of fun to see. I’m glad I played a small part in that, but it’s been awesome to sort of see them execute throughout this year and see where they’re at today because it’s worlds apart from where they were 12 months ago. But yeah, that was a great experience to be in the seat and actually managing people and working on the ground with a team at a small business, which is just an extremely different experience versus working with a much smaller team at more of a board level rather than having one on one conversations with a ton of different people at a small business.

Alex Bridgeman: And when going from the CFO role to the CEO role, at that point, you’ve been managing people and running- or managing a P&L and some of these other things. But were there any kind of final learning curves that you had to make early on as a CEO to fully get up to speed with what that role required?

Sean Joy: Yeah, I think the CFO role prepared me fairly well for that. But I would say what was surprising was the amount of time that you’re going to be dealing with personnel issues, especially at the landscaping company because it’s a services business. So you need a lot of people to deliver, ultimately deliver those services. So there were 200 plus people across multiple locations, and you’re spending, at least at the time, I was spending a shocking amount of time dealing with those personnel issues. On a day to day basis, I would say it was really taking a lot of the actual workday, and then it was going home at night and trying to get the finances actually done. But that was not something that I [inaudible 21:31] much in the office. And we’re also going through a pretty large transformation, getting rid of some of our less profitable customers, reducing the size of the overall business, selling assets, just slimming down to become a smaller but much more profitable operation. That was a good sort of learning experience where I think it was more of a management role than maybe a traditional CFO role because we were undergoing so much change, and I was playing a larger part in that.

Alex Bridgeman: And how much debt was in the business? Was it a pretty minimal amount or not at all?

Sean Joy: Not a lot of debt. Chenmark is pretty conservative, at least relative to like the more traditional private equity model. They’re not levering anything up six to nine times with multiple tranches of mezzanine debt and off a highly adjusted EBITDA number. It’s just a very different world. So there was some debt, but it’s a lot less than the world that I was coming from, at least. So typically, it’s two, maybe 3 turns of debt, which is pretty modest, at least in my opinion.

Alex Bridgeman: Yeah, that feels pretty conservative relative to a more traditional PE structure. I bet that made your turnaround job a little bit easier, knowing that that’s one less thing to worry about, too.

Sean Joy: Absolutely. Absolutely. Definitely helps. Yes, it’s even more to get out from when it’s that much more debt. Though, to be fair, when you’re the debt holder, you’re restructuring your own debt. So it’s not like you have to work with another party. And if the cash interest is what’s crushing the business that you’ve taken over, then you’re going to be converting some of that to pick interest and just increasing the principal of your loan. So you can play around, but when you’re in the position we were in, when we had taken over, we’d be the debt and the equity holder. So it’s kind of all fungible at that point; you’re just moving things around from one bucket to another.

Alex Bridgeman: Yeah, that makes sense. So you mentioned you watch cash really carefully. And with a boat tour  business, you mentioned that most of your revenue comes within kind of an 8 to 10 week period of the year. What are some ways that you manage cash throughout the year where you have that degree of cyclicality or seasonality?

Sean Joy: Yeah, well, fortunately, most of our costs are variable. We do obviously have some fixed costs, but people is a very- so if we’re not running cruises at certain times of the year, our payroll expense goes way down. Our rent is variable. So most of our large buckets of expenses are variable. We obviously do have some fixed costs, like our utilities, but it’s not huge. So the nice thing is that it fluctuates enough that we don’t have massive losses in the offseason. But still to your point, you do need to manage it. So you need to, well, you should project out to see what you’re expecting to happen in the offseason. And you want to be forecasting that so that you save enough buffer to make it through your offseason from November to February until you pick back up next year and really start generating cash again. There’s also working capital management to help improve. There’s no real AR because people just pay as they come. There is inventory, though honestly, I would say, I’m not as worried about carrying excess inventory in this type of business just because our margins on the inventory are pretty incredible if you’re selling a plastic pirate sword that you’re buying from China. It is pretty significant. So I’m happy to carry a little extra inventory and make sure we’re not getting stocked out. Because one of the changes I did make was going direct to as many suppliers as we can. So rather than buying from distributors in the US who are marking up the inventory 100 plus percent and then just reselling the exact same plastic pirate sword to us, we’re going directly to the manufacturer, which could be in China, it could be in India, it’s a mix, but typically not in the US. And we’re able to get a lot better pricing on those, but we have to buy them in bulk. And shipping takes months because it’s coming over on a giant ship. You could send it via air freight as well, but it’s obviously much more expensive. So if you can plan ahead and buy directly in bulk, I think in this case, it’s worth it to be a little bit less working capital efficient. If we had all of our inventory coming on one shipping container, which would be a beautiful thing, which is not currently the case because it’s really a variety of suppliers for these different items, which is basically all toy merchandise for kids. So especially on the pirate ship, there’s just a ton of different toy stores, toy guns, hats, bandanas, eye patches, parrots, you name it, it’s quite an array of different merchandise, which sells quite well at very attractive margins. And then on the dolphin cruise, we also have merchandise on there as well. But we’re buying from a ton of different suppliers. So it’s coming over piecemeal. If I could find a supplier who could make everything for us, it would probably be two full 40 foot shipping containers, maybe three. I mean, it’s a lot of inventory. Just swords alone, we will sell well over 10,000 toy swords in a year, which is pretty crazy.

Alex Bridgeman: Yeah, that’s amazing. Kind of building on that further, one thing I’ve found interesting from our conversations but also chatting with Trish about her business up in Maine, the other tour boat business, is how many additional services there are or products you sell beyond just the ticket itself. So you have- you’re selling the tour boat ticket, but you might also sell food and drinks on the boat or you have trip protection, this pirate show that I had no idea about that sounds awesome. But can you kind of walk through like, okay, here’s like the base fare, the base service we offer, but then here’s all the other services and how they interact together?

Sean Joy: Yeah, absolutely. So you have your base ticket price, which is different for adults, kids, seniors, infants, etc. And then you also have, at certain times of the year, potentially peak pricing for your most- your sort of highest demand cruises. That’s something we implemented this year to just try to essentially capture more of that demand curve. Some customers are more price sensitive or it’s more elastic for some customers versus others. So we want to be capturing as much of that as we can. And then beyond that, once you get on the boat, there’s a variety of things that we sell as well. We have a full bar on both boats, we sell food, and then a wide array of merchandise which could range from a shirt that’s branded to a hat that’s branded to sunscreen, Dramamine, all sorts of different toys I was just talking about, or also photos. So when you get on the boat, you take a family photo, and then you can get sort of a printed out photo with a frame around it. And as you can imagine, the margins on photos are also quite attractive.

Alex Bridgeman: Yeah, I bet they are. How many of these were kind of new products or new services that you and Trish decided, oh, these are kind of interesting things we should add versus how many kind of came in with the business when you acquired it?

Sean Joy: Yeah, I would say it’s actually mostly the reverse. So for me, what I’ve been doing is trying to focus on our higher velocity, higher margin SKUs. We had between the two boats over 120 different SKUs of merchandise that we were selling, which is quite a bit. So especially if you’re going to start trying to order everything in bulk to get better pricing, you’re not going to want to order 125 SKUs in bulk. And some of the items that we had were selling really slowly, we’re selling like one a month, whereas another or to put it in perspective, on a per guest basis, we’d be selling like .001 per guest. Whereas we had another item that’s essentially comparable or potentially even a higher margin selling 18 per 100 guests. So it’s a really, really wide array on the velocity and then also on the margin. So if we can focus on the high margin, high velocity items, we can buy much more efficiently and improve our margins quite a bit. And I think, personally, from my perspective, it’s good to have some sort of variety, potentially something for parents, something for kids of different age ranges, for boys or for girls. But I think really, it’s most of the time, the family comes into the galley, there’s some different things and the kid wants to get something so they will get them sort of whatever, what’s interesting, whatever is there, or grandma’s coming in with her grandchildren, and she wants to get some memento for herself. But generally speaking, if you’re allocating dollars toward one item, you’re taking it away from something else. So if we can focus on our best selling, highest margin items, we can ultimately be a lot more efficient both from a purchasing perspective and a working capital perspective.

Alex Bridgeman: How do you decide which products you’re going to keep? Like, what are your criteria for we’re going to keep this product versus we’re going to cut this one? Is it simply a matter of how many you’re selling, or are there some other factors that come into it as well?

Sean Joy: For me, it really comes down to velocity, so how many were selling per 100 guests is how we typically look at it, and what the margins are. And then- but looking at both what our margins are today, because a lot of the inventory we bought from US distributors, typically, our margins were in the 40 to 50% range. But if we can buy direct, we can do quite a bit better than that. So looking at what our margins are, what we think they can be, and then going out and getting quotes to make sure we can validate that. But it’s a combination really of the margins that we can get and the velocity of how quickly we can turn that over so that we’re not sitting on a box of something that’s selling less than one a month for years.

Alex Bridgeman: How much work on pricing and figuring out the right pricing structure for each of these things have you spent time on? We did an article in the handbook with Trish about finding the right pricing matrix for your tickets. I find pricing really interesting, like having a- sometimes there’s like- there’s value to having a really high end product that’s really expensive just to make like your best selling product look cheaper in comparison. How much of that kind of pricing experimentation did you do or have you been doing?

Sean Joy: Yeah, that’s a great question. I think it’s probably the most impactful lever you can pull and often a lever that small businesses are reticent to pull for a variety of reasons. But I typically talk to the team. So when we review financials every month, which they absolutely love doing, I typically talk about the changes in the business in terms of three different levels, which are pricing, productivity, how efficient you can be, and then profitable new business, can you add incremental new business, of course, assuming it’s profitable. But pricing, to your question directly, is in my opinion the most impactful and that’s certainly been the case at least for our business, because any improvement you’re making there, 100% of that is dropping straight to your bottom line. So if you’re able to increase your price per guest by $3, it doesn’t sound like much, but if you have 130,000 passengers, that’s $390,000 directly to your bottom line, which is pretty impactful for the size of businesses that we’re talking about. So for our business, what I did was essentially look at all of the other competitors in the area and looked at the pricing for our business for a family of four on a per trip or a per hour basis because they are not all the exact same length. So we try to look at it a few different ways to get an idea of roughly where we are. And there’s some nuances there. Some people offer a free drink with your ticket or whatever. But generally try to get a feel for where we are in the market relative to all the competitors in our area. And when we looked at that, we stacked up these 20 odd different dolphin tours in the area, we were in the bottom half on pricing, from a pricing perspective. So we were relatively inexpensive. And we’re actually the original dolphin cruise in the area. We have the most reviews, the highest reviews, been around the longest, largest boat, air conditioned cabin, which nobody else has. It’s just like if we think we’re delivering a good service, and I think we are, the whole team agreed, they think we’re delivering a good service, we have the best reviews, so according to our customers, they think we’re delivering a premium service, why are we not priced like that? Why are we priced like one of the lesser services in the area? And so we reset our pricing to essentially be not the highest but towards the top, depending on how you look at it, per trip or per hour. And then we also implemented trip protection. So you can add 10% onto your cart essentially to protect to be able to reschedule or cancel at any time up to just before your cruise, or otherwise, it’s a final sale. So that’s effectively another price increase. And then we also implemented peak pricing. So at our most popular times, so our sunset cruise in June, which sells out four days ahead of time, it’s going to be $2 more per ticket versus the 1pm cruise, which is a lot less in demand because it’s not as scenic, it’s a lot hotter, whatever it may be, but just trying to sort of smooth that demand curve out and capture more of the demand curve where certain customers have a higher willingness to pay. So all of that was quite significant to our business. At the end of the day, we actually had a lot less guests this year because we had a lot less tourists in Florida. I did have a concern, so we raised prices. And then, you’re looking at year over year trends. And you’re seeing your guest counts are down. It’s like well, was that really the right decision? Did I end up- are guest counts down because there are less tourists in the area or are my guess counts down because I raised prices or some combination of the two. But fortunately, we are able to get some pretty good data for the area. We are able to get hotel occupancy data, we are able to get aggregate boat tour data from some of the OTAs that have a bunch of different boat tours that they sell tickets for. So when we looked at all that data, we saw that we were in line with or actually a bit better than the year over year trends from a raw customer count perspective. So it didn’t seem to, at least, affect our customer counts really at all and made quite a significant difference on the bottom lines. That was a big topic and something we looked at and changed pretty quickly within my first few weeks after taking over. And I think that’s been, honestly, probably the most impactful change from a pure bottom line perspective that we’ve made thus far.

Alex Bridgeman: And how dynamic is your pricing? So if I want to book a tour in July, but I’m looking in February, is my price going to be different than if I look in May or June for that same ticket, that same tour?

Sean Joy: No, it won’t be. It’s not as dynamic as I would like it to be. Right now it’s just set. A ticket in February or April is going to be a bit less expensive than a ticket in the summer or at least a ticket at a certain time in the summer.

Alex Bridgeman: If I’m booking in February, like an airline, if I book six months ahead of travel versus the day before the flight, like they’re probably going to give me way different prices for each of those bookings.

Sean Joy: Yeah, so we’re not that dynamic yet. For us, it doesn’t like serve as it gets closer to the cruise. So you could theoretically buy a ticket two minutes before in June that somebody else bought in February, and the price will be the same, assuming we haven’t raised prices. But yeah, the price should be the same. But generally, we’re selling out for those summer tickets a few days ahead of time. So you kind of have to get it a week ahead of time or so just because in the summer, there’s so many visitors, tourists coming to the area that you’re selling out well ahead of time, fortunately.

Alex Bridgeman: What other, besides pricing, which I could talk about for hours, but what other projects or improvements are top of mind for you at the moment?

Sean Joy: Yeah, so the other things that we- the other sort of primary levers that we’ve pulled to make a difference to the bottom line have been productivity. So examples there would be we moved to mobile check in. So previously you had to come to the ticket booth, talk to a guest services agent, get your ticket printed out, and go to the boat. They take your ticket, rip off a stub, keep a little stack of stubs, and make sure they have the right number and don’t go above the 149 passenger limit. So instead of all that, what you do now is you just walk up to the boat and say, “Sean Joy, party of two.” They check you out on a tablet. The tablet is fortunately very good accounting. So it keeps track of how many passengers are on the boat. And it’s honestly just a much easier customer experience. They don’t have to worry about going to the ticket booths. So if they’re running behind, they don’t have to go wait in line at the ticket booth. They can just go straight to the boat and get on. So I think it’s been better from a customer experience perspective. And it also saves a pretty shocking amount of time for the guest services team. So we’re essentially able to go from five people in the primary ticket booth at any given time, and plus we have a secondary ticket booth as well, but so five people down to two or three. So that was a pretty significant time saving and ultimately cost savings because of that. And they are then able to focus their time on answering customer questions, on selling new tickets, on higher value add activities rather than just printing tickets. That was a big one. And then sourcing, well, I guess, procurement, which is essentially just not buying from distributors and trying to go direct for everything you can has been another big project that we’ve been focusing on to get vendors for essentially all of our major SKUs and where we can buy things directly. So those were probably two of the biggest productivity gains that we’ve had. And we’ve offset that a bit by paying people more and increasing benefits. But that’s also reduced our retention, or sorry, increased our retention, reduced our turnover, which is cost and time saving in and of itself as well. And then the other big thing that we’ve focused on is just adding new incremental business. And what you want to be careful of here is making sure you’re not just adding another cruise time and shifting people who would have gone on another cruise to that additional slot. If you’re keeping the same number of passengers and adding cruises, from a bottom line perspective, you’re going to be worse off. So what you want to do is make sure, at least to the best you can, and you’re never going to know 100% because that’s not a control experiment in the lab. It’s a small business. And it’s messy and there’s a lot of variables. But you can look at the data a number of different ways to try to get an idea. So we knew we historically struggled- Well, first of all, we never ran on Sundays. So we started running seven days a week, at least during the busy time of the year. And the question there will be, well, is that truly additive? Or are you just pulling people off of Monday or Saturday trips, and they’re going on Sunday instead, but now you’re having the same 800 customers that you would have had within that three day span, except you’re paying for the cost of six additional trips. So the way we looked at that is we would look at the delta between Monday and Tuesday, Wednesday, or Saturday, Friday, Thursday, and see how that compared year over year and then the raw numbers as well. And there is some cannibalization. But I think it’s about 80% incremental, roughly. So I think it still makes sense. It’s more revenue additive than it is EBITDA additive but still a net positive from a bottom line perspective. But even more impactful and much more important than that for us was it enabled us to be a lot more resilient because we’re able to hire an additional captain. So rather than having two captains who each run six days a week, which is a very fragile system, because if anything happens with other captains, you’re down. And again, keep in mind, this is a seasonal business where 80% of your earnings are in a 10 to 12 week period. If you’re down because somebody has a family emergency for several days in that period, it’s quite painful. So rather than having just two captains with two crews, we hired a third captain. So we could do a 5/5/4 schedule, which made us a lot more resilient. So we actually did have family issues come up in the summer or a variety of issues when people needed to call out at the last minute, and we were able to accommodate that, which makes the business more resilient, which is a much better experience for the employees because they’re able to shift things around when other things come up in life. Running boat tours is not the only thing that they may have going on in their life. They need to be able to deal with personal issues as they come up as well. So providing them with that flexibility has been huge for both us and for the employees themselves. And then beyond that, it’s just trying to add additional cruises where you think it’s incremental to what you’re doing. So for example, on the dolphin cruise, we historically just didn’t really have success with morning cruises. So rather than running any of our 8:30 cruises, we were just starting the day at 11. But if you’re selling, another way to know if it’s incremental is if you’re selling out all your cruises from 11 on, anything you add is going to be incremental. So, this year, we experimented with adding one morning a week, and it was there are free doughnuts included. Well, it turns out, people love free doughnuts. So if we just have one morning cruise, and it’s a dolphins and doughnuts cruise, and you get free doughnut holes on board, that sells out, so that’s great. So we can add that as well. We can try an adult cruise. We can try a specifically kids oriented dolphin cruise. But basically we just keep running these tests of different types of cruises to add capacity, especially at the time of the year where we’re already selling out the majority of our cruises, and we know anything that we can add will be truly incremental to the business.

Alex Bridgeman: What strongly held belief have you changed your mind on?

Sean Joy: That’s a really good question. I think one of the things that really surprised me in the restructure world especially was I think entering the workplace, there’s like, sort of at least for me, an inherent assumption that people would generally act rationally and within the best interests of the business, keeping that in mind, in what they’re doing. And what we saw quite a bit, especially when incentives would get out of whack, is both people doing crazy things that were really damaging to the business. And again, this is somewhat of a selection bias because I’m only looking at the problems. But I’m just continually surprised by what people were doing. And then sometimes even keeping in mind that their incentives were not aligned with ours, it would just be completely irrational behavior that some people will get into this sort of like hero mentality where they had to put the company on their back, and they were doing things behind the board’s back and hoping that their longshot bet to save the company would work out. But I was, yeah, I guess just pretty shocked at the level of irrational and seemingly crazy behavior that you can see in the workplace. That’s just not something I expected to see sort of coming out of college and entering the workforce.

Alex Bridgeman: Yeah, that’s pretty wild. Any interesting examples or notable ones that pop out to you?

Sean Joy: Without going into too much specifics, essentially, hiding evidence or directly lying about a new product that may not be working at all, but it was sort of their brainchild. So rather than coming clean and showing the actual evidence, they’d be making up stories and hoping that they would get there at some point, but it did not work out. So yeah, there were some pretty crazy examples of shocking behavior that I didn’t expect to see in the workplace at all.

Alex Bridgeman: Like a small version of Theranos. Like you’re hoping that eventually it comes together.

Sean Joy: Exactly, exactly, yeah. Less Enron, more Theranos . But fortunately, it all worked out. And we obviously had to replace that person but got another competent person in place and got back on track with the products that were actually functioning, which is pretty critical.

Alex Bridgeman: That’s good. What’s the best business you’ve ever seen?

Sean Joy: Another good one. But keep in mind, I spent most of my career focused on the worst 5 to 10% of companies within the Aries portfolio, and specifically about five very poorly performing businesses at any given time. But I know that, at least from just a characteristics perspective, there are always these b2b software businesses that are in the portfolio that we’d talk about and [inaudible 49:24] visa had 97, 99% retention rates, essentially complete ownership of this small niche where every single person in the space operating kind of needed to have that software, and the only people that they lost were clients that were no longer in business. I mean, they’re just these absurd- I think those niche b2b software businesses are just great business models and fortunately were companies that I never really had to worry about or spend much time on.

Alex Bridgeman: Thank you, Sean, so much for sharing a bit of your time. It’s fun chatting about pricing and restructurings and all the things going on in Chenmark. So thank you for sharing a little bit, I’m excited to have you again soon on the podcast and hopefully see you at a conference one of these days.

Sean Joy: Yeah, absolutely. It was a pleasure chatting with you, Alex ,and looking forward to doing it again soon.

Alex Bridgeman: Thank you for listening. I hope you enjoyed the conversation today. If you enjoyed today’s episode, please consider leaving us a review and telling a friend to help more folks find Think Like an Owner. I also want to thank our show’s sponsors Live Oak Bank, Hood & Strong, Ravex Group, Oberle Risk Strategies, and Oakbourne Advisors for their support. For full episode transcripts and more information, please visit our website at alexbridgeman.com/podcast.