For operating partners, and the advisers who bring them deals

The Quality of Earnings Came Back Clean. The Founder Still Prices the Big Jobs Himself.

The financial diligence tells you what the business earned. It does not tell you whether it can keep earning it after the founder's last day. That gap sits below the deal thesis, in how the work actually runs, and it is the gap I close.

An adviser hands you a value-creation plan and leaves. I install the operating model, run it until it runs without me, and hand it over. Since 1983, in manufacturing, services, software and construction, through every cycle in that span.

The condition of the machine is an operating question, not an accounting one. Nobody in the diligence room is paid to answer it.

Founder-led businesses, $5M to $50M in revenue. Canada and the United States.

What stops a deal is usually an operating condition

Bain's Global Private Equity Report 2026 names poor earnings quality and customer churn among the red flags that stopped deals in 2025, behind price. Both are operating conditions. Both are what a business produces when the way it works lives in a few people's heads, and neither is visible in a financial statement until it has already happened.

Bain & Company, Global Private Equity Report 2026. Read at source 27 August 2026. Bain's sample is its own deal flow and its client base, which skews large.

Three places the condition shows up

Earnings that arrive through one person. The founder prices the big jobs, holds the top three relationships, and carries the rules the business runs on in his head. The earnings are real. The question is whether they transfer.

Customers who are loyal to a person. Churn after close is the discovery that the relationship was with the owner, not with the business. It shows up in the second year, which is after the diligence closed.

Work priced by memory. Quotes built on a standard cost nobody dated, changes done and never invoiced, hours that never reached a customer. The margin is thin and nobody can say which job it left on. The three leaks are set out at Where the Margin Went.

None of those three is fixed by a valuation. A valuation names the number and tests the assumptions under it. Nobody in that room installs the thing that changes the number.

Most implementers get the order backwards

The firms that install operating models at enterprise scale start at $500,000 and eighteen months, and they advise. Below that tier, functional specialists each handle a piece. Nobody handles the whole thing at $5M to $50M, and nobody stays.

The deeper difference is the order of operations.

Technology multiplies whatever the process already does, including the mess, an argument Michael Hammer made in Harvard Business Review in July 1990. Without the process, the tool automates confusion faster. Without the people running the process, it is expensive automation nobody uses.

That is not a marketing distinction. It decides what gets installed in a Build, in what order, and what is still running in the third year of the hold.

Is the owner ready for a system?

Feasibility turns on one thing: an owner who can step out of the way. Five questions, each testing something different. Ask them before the LOI, not after.

1. If you stepped away for 100 days, what happens to the forecast?

   Tests dependence on one person

   The answer needs no statistic beside it. An owner who cannot answer inside a minute has just answered.

2. Where do you take outside advice, and when did you last act on it?

   Tests openness

   BDC, with Statistics Canada, found in March 2014 that sales grew almost three times faster after an advisory board was formed, and that only 6% of SMEs had one. Correlation: the owners who form boards may already be the ones who listen.

3. What did you change last year because someone showed you a better way?

   Tests whether the barrier is knowing, not willing

   Bloom and others, Quarterly Journal of Economics, 2013: in a randomised trial, adopting standard management practices lifted productivity 17% in the first year, and the owners had skipped them for lack of information rather than lack of will. Indian textile plants, large ones. The direction travels; the number does not.

4. When do you want to be out, and what is written down about how?

   Tests the clock

   CFIB, January 2023: 76% of Canadian owners expect to exit within ten years, and 9% have a formal plan. Member survey, self-selected.

5. When an employee brings a better way, what happens to it?

   Tests whether people are treated as an asset

   No single study proves the whole chain, and each link is tested. Workers made happier at random produced 12% more (Oswald, Journal of Labor Economics, 2015, a lab setting). On Gallup's business-unit data, satisfaction tracks profit (Krekel, Centre for Economic Performance, 2019, correlational).

Three of five answered well is a business that can take a system. Fewer than that, and the first hundred days are spent on the owner rather than the operation, which is a different engagement at a different price.

Three rungs, each earning the next

Fixed scope, stated outcome, priced before it starts. Operator of record by default, co-delivered with the portco's own leadership where the pieces being installed do not need full authority.

In four decades I have not seen a $5M to $50M business where the first pass of a Blueprint did not find more than the Blueprint cost. Seven figures in a Build is my record, not a guarantee, and the Blueprint is where we find out. Not every business has that much sitting in its leaks. The Blueprint is priced so the answer costs the same either way.

Before the LOI, or before the sale

The Operating Condition Review

Ten business days inside the target's operations, run by an operator rather than an analyst. You get the condition of the machine, in writing, before you sign. It claims operational and people diligence, and the cultural read. It does not touch financial, legal or commercial diligence, which belong to the QofE shop, counsel and the commercial adviser, and it is built not to compete with any of them.

Ten days. One report, roughly twelve pages. Fixed fee, quoted on the call. Fixed on purpose: a variable fee on a diligence item is an incentive to find more of it.

What it is not. It is not a quality of earnings report and does not replace one. It does not price the deal, opine on the multiple, or say what the business is worth. A condition report is not an install plan: this produces the first, the Blueprint produces the second, and a buyer who stops here has a true picture and no plan, which is the correct outcome if a picture is what was needed.

For the adviser who sees it first

A fractional CFO, a transaction accountant, a lender or a valuator sees the operating condition before anyone else does, usually eighteen months before the owner admits it. You hold the relationship. What you do not hold is someone to send in who will run the fix rather than describe it.

That is the role. You diagnose, I install, and the owner stays your client.

• The five questions above are yours to use. They are written to be asked by a CFO across a table, and they qualify a business for a system before anyone spends a dollar.
• I come in on your introduction, under your framing, and I report back to you as well as to the owner.
• Nothing I install competes with what you provide. The Blueprint produces a map and a priced list. It does not produce a valuation, an audit or a tax plan.

The first conversation is about how you would bring an operator in and what you would need to see first. Thirty minutes, and it is wrong for you if your clients are below $5M or you already have an operator you trust.

Same system, three industries, three eras

Three engagements where I owned the result. Each figure carries its window and the objection a sceptic would raise, because a number without either is not ready to be read by someone who does this for a living.

Two more where I contributed rather than owned the result, and I say so. VT Controls ran from $4M to $9M in 24 months with me as a contributing operator. ProGuide is where the method was refined so it could move between industries, at a multi-million-dollar manufacturer and a billion-dollar blood bank, and it is a learning story rather than a results story.

Frequently asked

Questions from operating partners and advisers