Eric Hamburg '85 describes how "Engineering Capitalism" Makes Business Deals Work
In an Enterprise Engineering Colloquium talk, Eric Hamburg '85 contrasted the "deal side" of mergers and acquisitions with the "execution side," which is concerned with the "nuts and bolts" of making the deal work. As founder and president of Industrial Renaissance, he has acquired more than 35 business with aggregate revenues exceeding a billion dollars. Hamburg described the key drivers in building revolutionary global companies.
"If you are studying engineering at Cornell," Hamburg told an audience primarily composed of Master of Engineering students, "you know you need a methodology." For Industrial Renaissance, which emphasizes buying and building companies rather than buying, selling and "flipping" them, the essential methodological work comes after the deal is closed, and often involves integrating companies that are using different processes, setting breakthrough goals for them, and focusing on results.
Hamburg described his work as a matter of program and project management, knowing how to "take a company from here to there," with the human aspect as the most important constituent. "CEOs fail most on hiring," he said. "A lot of good managers are not good program managers," but the execution side is "where leaders are made." Those who start on the deal side "may see more of the entire playing field, but they don't come through the ranks and are not likely to be as well rounded with a diverse set of skills when they become CEOs." Hamburg respects seasoned judgment, noting that "good judgment comes from bad experience, which comes from poor judgment. Business is not one experience, it is a cumulative experience."
"We've never invested in a company that we didn't think would be a home run," said Hamburg. This means seeing the potential for exponential growth, for example by increasing inventory turns in order to pay for the acquisition, adding value by providing a "one stop shop" for customers out of a highly fragmented collection of businesses, and setting breakthrough objectives, akin to President Kennedy's call for a trip to the moon and back. "If you already you know how to do it, it is not a breakthrough objective," he pointed out.
A desirable acquisition target is not necessarily one with a strong bottom line, Hamburg pointed out. Rather, he focuses on the gross margins earned by the company as an indication of how much the customer values the product. In fact low bottom line earnings may indicate high potential for improvement.
To succeed in a company like Industrial Renaissance, Hamburg told the students, "you need real skills that can only be acquired through real jobs, and are not learned through merger and acquisition deal making." Nonetheless, academic skills matter: among the skills Hamburg urged students to acquire is financial accounting. "I know that if I push a button here a dollar falls out there, because I studied financial accounting at Cornell," he said. Other topics in the current ORIE curriculum that have contributed to his success include business process re-engineering, management information systems, supply chain management, and just-in-time and lean manufacturing.
After graduation, Hamburg joined what is now Accenture, where he was an early proponent of just-in-time and lean manufacturing. In 1993 he joined private equity firm Kidd, Kamm and Company in order to "learn how to buy companies," and founded Industrial Renaissance in 1996.
The Enterprise Engineering Colloquium is sponsored by the Cornell Engineering Alumni Association.