TPG Systems Company Story

By Bruce A. Provo, February 2000

Early in my career, I intuitively knew I was good at simplifying complex matters without being patronizing to either my superiors or subordinates. I built systems to support rapid growth, but I wasn’t a salesman. After I started my own business, we built methodologies that were tested in our laboratory of real estate assets and businesses, but it seemed to be wasted on our limited size. Somehow we had to find a way to capitalize on our superior reporting processes. We went through all sorts of stages from believing people would hire us as an “outsourced” financial function, (because we had a better mousetrap), to realizing it really wasn’t about accounting and financial reports … it was about making things simple, communicating effectively and expediting business judgment. So we built training workshops, meticulously detailed by professional course designers, and targeted accountants who wanted to be advisors to their owners, who wanted to make things simple, who enjoyed communicating at a business level … and no one came. Why didn’t they come? We had given up the idea of being a centralized accounting center for real estate businesses, because we could make our fortune collecting tuition. I could see it … in five years … 10 cities; 100 students per city every year; $895 tuition … and bingo, $895,000 of tuition revenues for teaching our tested methodologies. We sold stock, developed our training programs … hell, we even had a thousand recognition “mouse pads” printed for our graduates … but no one came. So I railed at our staff … “don’t all those accountants in the real estate industry know we’re trying to make things simpler for them so they can be heroes. What’s wrong with them?” Then my CFO spoke up in her soft, matter-of- fact way and simply said … “Bruce, it’s not easier for the accountants and controllers.” What do you mean? “They actually have to think harder and do things differently to make it easier for the Owner. They have to explain what’s happened with words, rather than just reporting the numbers.” So what … they’ll do that to make it easier for their owner. “No they won’t,” she responded. I was speechless. My CFO once again stepped into the pregnant pause … “it’s easier to justify one’s importance and even compensation, if your activities are shrouded in mystery. Why would an accountant want to demystify his activities? What’s his motivation?” Well I had the answer to that because I was an accountant. They would want to be viewed as a business person. They would like to advance to a position where judgment is required … they want to be entrepreneurs. Gotcha. “No they don’t,” she said. What? “Most accountants aren’t maverick thinkers. They like details. They report what has happened. They are not operators.”

At that moment I realized that neither the accountants nor the accounting profession were my constituents … they might actually be my adversaries. What a critical error in identifying our target market … but what a breakthrough in understanding what we really were about. We were about “communicating.” Sure you need tools that will condense data to understandable sound bites … but the bottom-line is we want to revolutionize the concept of financial reporting from reams of reports to a “story” any owner can understand and challenge. Is our approach really valuable … are we limited by size? Well in the summer of 1998, we were able to put our concepts to the test. Instead of a two-day workshop on new methodologies, we sold a two-hour corporate seminar on “financial communication” … and not to just a mom and pop real estate company, but to a billion-dollar real estate advisor with offices in 100 cities. Not exactly testing the waters slowly. How will I get these high-powered advisors to listen to me … why am I credible? This is the story I told them …

“As Bob indicated, I have no intention of telling you how to do anything. I’ve only come to challenge you on how well you really communicate to your executives and clients. I was about to say that I’ve had a checkered past, but I don’t think I’ll go that route. I did start as a CPA with Arthur Andersen and then I went with a legendary real estate developer in Chicago. He was a legend in his own time and in his own mind. Through his assets, first as his personal financial advisor and CFO and then as President of all his companies I was exposed to and made deals with or for seven billionaires in the early 1980’s. Let me tell you something about these billionaires. Most don’t read anything. You have to find a way to communicate complicated activities and deals to them. You have to find some way to break the complex down to its lowest common denominator. I pride myself on that ability. I remember doing a complicated sale and refinance of a shopping center with General Electric Pension Trust in the early ’80’s. Hundreds of thousands in fees to lawyers were spent, and I was told by one attorney who had already incurred $250,000 in fees that he really didn’t understand the intricacies of the deal until he received my one page flow chart and timeline. He had this revelation the day before closing. If the lawyers didn’t understand, you can be damn sure the “billionaire” principals weren’t reading the documents. Over the years, I felt that I made great strides in making information understandable to owners, whether it was their cash flow, taxable income, or other information they should understand … but don’t.

In the early 80’s, I began sitting on the board of a major development company in Kansas City. Most of the members of this board had been directors since 1947. We tried to keep them awake. These two-day board meetings were kind of lengthy, but they were fascinating to observe. I observed that the people that worked for us that were supposed to be communicating honestly to the directors were really covering up. We’d have two-day board meetings and they’d give the directors all the hype, all the obvious stuff, all the good stuff … then when the directors were about ready to change their airline reservations to catch earlier flights, management would bring out the financials. Then I started to understand that the directors didn’t really know what was going on financially and particularly not with their cash flow. They either didn’t know what to ask or after 45 years on the board didn’t want to betray their ignorance. Occupancy and reported net income looked good, but no one discussed the balance sheet. The line of credit from the bank never went down. Well, it really wasn’t that hard to lease industrial space if you kept giving away your balance sheet to do it. My legendary developer mentor had been president of this development company since 1949. I replaced him in 1981. I started to revamp the whole company. The other thing that was interesting about the Board of Directors, but also sad, is that they only met with the company’s general manager, never with the other vice presidents. The reporting, accountability and finger pointing rested with only one person. Making only one person the focal point of information seems dangerous. I included all the vice presidents in the board meeting. But these managers, who might have been with the company for 20 or 25 years had never had to talk to the owners at a board meeting. They were paralyzed with fear. So, I would actually have dress rehearsals for these men that are 25 or 30 years older than I was so that they could learn to communicate. I enjoyed watching the interaction of the board and these managers sharing information and questions for the first time. So I have this perspective on business, not only from the financial side, but also from the operating side. We delivered to the owner’s better, more understandable information and created a dialogue with the front lines. The company was energized. Then lo and behold, we sold this business in ’85, I think on December 23, 1985, just before the 1986 Tax Reform Act that crushed the real estate market. Great timing for the owners. Time to move on to something else for the managers.

I started my own business, and my business has grown into a group of companies related to different facets of real estate. We have a shopping center business in two states; we have a franchise finance business for some fast food restaurants in eighteen states; we have a virtual resort business in Florida; a real estate advisory business; a real estate management company and a financial communications company. So, I’ve been on both sides of the equation and I’ve probably done everything that you’re involved in, perhaps not your size or level of sophistication, but I have been at risk. I think you learn the most when your signature is on a recourse loan … and your wife’s! I’m going to spend the rest of my time this morning showing you what we’ve created and why. Necessity is the mother of invention. When we controlled or managed 28 entities simultaneously, I had to find a way to systematize and simplify the information I was receiving … or I’d become a raving lunatic. I will show you, the evolution of our methods and how it developed … actually over a 25-year period; I’ve found that people don’t take the same approach to simplicity as I do. While I would try to make my former legendary employers understand something very quickly, with good concise communication skills, I discovered that my employees assumed because I had a financial background, that was all I needed to figure out their reports. Well, great, what am I supposed to do, read through reams of financial information on 28 entities and then try to interpret what’s going on? Believe me, my quest is really not to work harder while picking up pieces and closing information loops left by others. So, in all this process, we had the normal management company and the normal accounting function. I started to get all these reports. I think we got to the point where we developed good looking financial reports. I challenged our operating people to explain these reports. I’d have people of different levels of experience or different capabilities, (property managers that might be a little intimidated by financial statements), financial people (that might not have been out of their cubicles) and there wasn’t a consistency of understanding. Although we had all the information, I got it in different ways. You know, if two people independently were to write me a memo on the same property operation … I would get two very different memo formats. In some reports there would be more numbers than words. Some reports would have more words than numbers. After multiple revisions, we would have something with a degree of clarity, but it was already ancient history. Unfortunately the timeliness of accounting is not designed for real estate and it certainly isn’t designed to challenge expectations. I wanted to find some way to systematize what we do and how we report it … and make it timely and meaningful. Hopefully, when I talk through the evolution of how all this was developed, you’ll see how the simplicity actually grows through the process.

Our seminar was warmly received. Subsequently we were informed that we fulfilled the objectives of this billion-dollar company … we were a catalyst toward abandoning their “sacred cows” while accelerating their corporate streamlining mission. We did it. We were sophisticated in our simplicity!

Today I am convinced that our story should be targeted to Owners. Even the diligent and financially sophisticated owner shouldn’t have to put pen to paper to figure out what has been reported to him.

Owner … put those papers down … Here’s the Story!