This morning, I met with Fred Deichert, chief financial officer of Midwest Terminals. Midwest Terminals, founded in 1999, is a company based in the Toledo area that loads and unloads cargo. The transportation modes in which the company specializes are rail, vessel, truck, and pipeline. Mr. Deichert is a parent of two Maumee Valley alumni, a member of Maumee Valley’s Board of Trustees, and past president of the board. Mrs. Spurgeon thought it would be good if I met with him, as he is a successful business professional who is connected to Maumee Valley.
The first question I asked was which three financial metrics are most important to him when considering a business opportunity. For him, these are cash flow, cost of capital, and size of the project.
However, Mr. Deichert says that there are also nonfinancial aspects of a business opportunity to think about; his three most important ones are the proximity from home, the competencies needed to successfully deliver the project, and the time of year. In regards to the competencies needed to successfully deliver the project, he gave the example of Magic Wok deciding that it wanted to bring in ingredients for its restaurants by vessel. He says that this would be difficult because of how perishable goods are being transported. Midwest Terminals has no prior experience transporting perishable goods or knowledge of food safety, so the company would have to think very hard about these challenges in deciding if they wanted to move forward with this business opportunity.
His point about being close to home relates to what the Business Opportunities Task Force was discussing at Tuesday’s meeting. Mr. Deichert’s reason for a business opportunity close enough to home is so that the business opportunity could be effectively managed. Our task force discussed the implications of a Maumee Valley expansion outside of the country, which could be geographically very far. To me, it seems like such an expansion for Maumee Valley would require someone from the school to directly oversee day-to-day operations in order for the expansion to be everything we want. Mr. Deichert seems to feel the same about business and what he does with his work. Obviously, it is much easier to manage something when it’s closer to home, which is why it is one of his most important nonfinancial aspects of a business opportunity.
When I asked him how he makes sure that a business opportunity is consistent with his company’s long-term goals, he had a very simple philosophy: if it meets the three most important financial and nonfinancial aspects discussed above, then it would probably be OK. He said that the company will occasionally try something new, but he and his colleagues will take a look at the opportunity very closely before moving forward with it.
Overall, I learned a lot from interviewing Mr. Deichert today and I hope to incorporate his thoughts into my model in one way or another. It was very interesting to see the similarities and differences in perspectives of what a controller would do (see blog post 1-6-2016: Amy Yustick, Dana Holding Corporation) and what a chief financial officer would do when evaluating business opportunities.
Well summarized, Poom. I find the "time of year" metric to be an interesting one. Why is that important? Is this metric particular to Mr. Deichert's business or is this a metric that applies more broadly?
ReplyDeleteThis metric applies to more than just Mr. Deichert's business. He gave me an example for the school as follows: if Maumee Valley wanted to run boarding camps as a business opportunity (which we already do, the Summer English Program), time of year would be important. We would be unable to run such camps during the school year, because our facilities are being used, teachers are busy, and the Dayal House is full. But we could do this in the summer or during Spring Break, when space and teachers become available! This is what he means by "time of year."
ReplyDelete