Reg Zeller's 7 Foundry Acquisitions Shake up the Industry
Summary
In this conversation, Jon Stoddard interviews Reg Zeller, a serial acquisition entrepreneur who has successfully acquired multiple foundries. Reg shares his journey from working in Fortune 500 companies to becoming a business owner, detailing the acquisition process, the importance of building relationships with sellers, and the challenges of cultural integration. He discusses his strategic approach to growth through acquisitions, operational excellence in foundries, and the future of foundry operations in a changing market. In this conversation, Jon Stoddard shares insights into the complexities of financing and acquiring small businesses, particularly in the manufacturing sector. He discusses the importance of SBA loans, local bank relationships, and innovative financing strategies as businesses grow. Stoddard emphasizes the significance of operational leadership, risk management, and the art of mergers and acquisitions. He also reflects on the challenges of scaling businesses and the role of technology in enhancing manufacturing processes. Ultimately, he aims to create a legacy in small manufacturing and offers advice for aspiring business buyers.
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Transcript
Jon Stoddard (00:00.236)
Welcome to the top &A entrepreneurs podcast today. have a guest, Reg Zeller. Reg is from Aram Foundry. He's done a number of acquisitions. How many acquisitions, Six so far. We literally signed our LOI for our seventh one about an hour ago. Congratulations. He's a serial acquisition entrepreneur. So we are going to talk about that story, Reg. I love it. How did you get started? I see on LinkedIn you did
You worked at a number of Fortune 500 companies, right? Yep. Yeah. So the simple answer is grew up in a small town, knew a lot more people that did small business type work than anything else ended up inside of big corporations for 17 years, ran into a bad boss. It always thought this will be great to do something myself. So ended up doing exactly that. Ended up, that would have been August of 2016 started looking for a business.
found it first business actually had ever walked through. was a foundry or a small business that I'd looked at, looked at a bunch of Sims, but nothing really caught my eye. then found this one walked in four months later, bought it.
Yeah. So where did you find it? Was a broker or? Yeah, I'd networked a little bit and it was someone who knew somebody and said, Hey, this sell, biz buy thing, which it took me a long time to figure out it was actually biz buy sell to go figure out where it even find this business to look for type of thing. But yeah, it was being done through a local broker, a husband and wife. It was one of those things where dad had started it back in the forties. And then this guy had taken it over who was in his late sixties by the time I bought it.
and none of the family wanted to be involved. So yeah, kind of the classic, especially in the manufacturing side of small business. It's kind of story one on one. Yeah. You're a, so what made you decide to work on? Talk about boring. mean, this is a Andrew Carnegie got his stuff where you're bill buying these foundries, but these are non-ferrous foundries, right? Yeah, correct. Yeah. So it's mainly aluminum. Generally speaking for people, what it amounted to is when I
Jon Stoddard (02:12.792)
graduated, undergrad in electrical engineering, everybody that I graduated with and into computer software, etc. I went in and did more manufacturing, generally speaking. So it was one of those things where just continue to grow up in manufacturing. When we were working, there's my last four years roughly of being in corporate as a general manager, one of the divisions at General Electric and just thought that there was a real need for local US based manufacturing.
I there's absolutely a need for product being manufactured in Mexico and India and China and everywhere else. But there's also a niche of products and a need to build those here in the U S so didn't really care what manufacturing I'd run so many different manufacturing operations in my life that it was, I would say a little bit of, and a widget didn't really matter to me what widget it was happened to.
find a foundry for sale that I could buy 100 % of with an SBA deal. And, you know, here we are, five and a half years later and about to number seven. That's fantastic. so what, what do foundries in the middle of middle of the country look like in, revenue and multiples and, know, what's the seller, was the seller kind of, reasonable about us asking for sure. Yeah, we actually
You know, for them, it was much more about their legacy. Again, this is what I've found a lot of times. These things have been family owned. know, typically it was a lot of times grandpa came home from the war in the 40s, started a business and they're in the, in the middle of the country. They're no different than if you're on the coasts, we own them. You're kind of all over the country right now. So that's the big thing is that, you know, it's like all small businesses. well, maybe not all, but
Also many where from two to five times earnings type numbers, the more impaired they get, the lower that multiple is. We bought a few of them for one or two times earnings, but you know, the same thing, some of the neighborhood of 60 % of foundries across the country are already private equity owned. We're below what private equity or micro private equity would look at for individual shops. But now that we've put all these things together, certainly
Jon Stoddard (04:30.818)
have lot of conversations with the private equity guys or strategic buyers interested in what we're doing, but we're not for sale. We're going to keep, you I own a hundred percent done everything with debt. We're now past the place where, you know, we're under traditional debt financing. So, you know, now it's just as fast as we can. Yeah, you can only borrow, what is it? 5 million bucks from SBA in a 10 year period. Yeah. Yeah. So mean, you get, get, you get,
up to a total. And there's a lot of banks that'll get you a secondary loan to get you to, you know, seven, eight, $9 million. But, you know, once you get into that 15, 20 and above, anytime you get, mean, they used to kind of a hard number was $5 million before you get into traditional financing and becoming a little bit looser with that over the last few years, just has been so much money sloshing around in the system. But at the same time, this is really
I would say an interesting market that, you know, once you get to it, it doesn't look any different in traditional finance, when you get above that $5 million for sure. you know, it's. what is that first business you looked at and you decided on how many times did you visit drive to there and meet the owner and develop in this relationship and making sure that, you know, he looked into your eyes and goes, I like this guy. He's going to continue my legacy.
I think and take care of my employees. Yeah. Yeah. So we met, I think we met three times, at length. kind of a first visit and then brought my wife back for the second one. And then a third one, we did a couple of deep dives, throughout probably a two, three hour period. then we met not at that place, but as we progressed down, met them for coffee a couple of times, met some of the key customers, met some of the key employees.
et cetera, so that they wasn't interrupting per se the day to day operations, but at the same time, you know, had this plan and this path of what direction they were comfortable with us going as well as that we were comfortable with doing it. And so it's an interesting story because we actually, our bid was a million dollars under what the top bid was. so it was getting multiple bids. would
Jon Stoddard (06:56.487)
yeah. yeah. There was 50. There's 50 some bids on the on the facility within the first I think, three weeks, four weeks being on the on the market with LOIs, I should say. Wow. That's a lot of bids. mean, you know, coming from California, and you look at all these technology companies, right, you would think that a foundry would just sit there for months and months and months gone. Yeah, yeah, now they would. Different story. Five, six years. I mean, there's a lot of businesses, I think.
I mean, there's a lot, a lot of foundries. It's really hard to do business in California for foundries and some of the environmental and whatnot. But yeah, the highest number of foundries, the biggest concentration in the countries, between the Rust Belt and California, big thing out there, California is aerospace. We're just choosing, I don't want to deal with the government regulations. We will not be buying a foundry in California.
I don't need that headache in my life. We've got enough of them as it is. Yeah. Well, so what do you think convinced the seller to go with you and a million dollars under other bids? Yeah, there's two things. One was obviously the relationship that had to get developed. think people, especially if you're going to buy a small business, that tends to be very rare that people understand that, that it is about the relationship. This is their baby. You know, they've probably worked in it since they were a kid.
or the business may have been around before they were, they knew all the customers, all the employees, you know, they've been to weddings and graduations and funerals and whatnot. they, you know, especially if they've owned it for 30, 40 years, they've got plenty of money. They, it's less about the money and it's more about continuing a legacy and ensuring all of their folks are taken care of. And then the other side, you know, he understood the seller that if we would have done
as an individual financer of what some of the other bids were in lean years, we would have had a real problem dealing with debt service. So he went and penciled it out and kind of said, all right, well, I kind of understand roughly speaking what your payments are going to be. And I understand what bad years may occur. And we don't want you to have to do anything dumb, know, cutting workers, firing workers, or
Jon Stoddard (09:23.181)
you cutting costs and hurting kind of the brand and the legacy, or are you personally having a problem? So, you know, we're rather like, agree your number, we understand how you got there. And we agree with the concept that this protects you from the downside and protects our business for the longterm. Did you make some kind of guarantees like, Hey, we're not going to fire people. You know, we're going to keep the name. We're going to keep the legacy or change things too much, like scare people. No, I think that, I mean, it's just.
If you go buy a business and you don't know anything about it and you start changing things all the time, you're going to get what you deserve. So that's a whole different story. It's like starting any new job, you know, take 60 or 90 days at a minimum to learn, build trust, build the relationships. The only thing I say to everybody is at a minimum, don't change anything in your workers' lives unless it's purely for the good. And there'll be ways that they'll interpret things that you think are good that aren't. So
If it's short of giving them a raise, everything else, they're going to figure out how to catastrophize and have a problem with it. So you have to be very careful. You know, can tell them, Hey, we're changing you over to this payroll system, but you actually are going to be paid, you know, differently, but more or Hey, we're changing benefits. Their healthcare benefits are better. And somehow that turns into, my God, they're cutting costs. Now they're going to fire us.
an interesting rattle to go down right there. like, I didn't I didn't quite get from point A to point B by saying that I was making your life better. I'm gonna pay you more and benefits are better. Yeah. And, and somehow that'll be viewed as a negative. So, you know, we just, it's just a kind of a do no harm mentality. But it was just talking through them. They kind of told me what they their view of the world was, told them kind of what I was looking to do with a business and how I wanted to handle it. Wouldn't say that
You know, revisionist history would be nice to say I planned on doing this big roll up across the country like we're doing, but I an idea it was possible, but. That wasn't, it wasn't a roadmap that you wrote down and say, Hey, I'm going to acquire seven foundries. No, I mean, we, I'd done some &A roll-ups in my corporate days. So I certainly knew it was feasible, but I couldn't barely spell SBA is the joke I normally make. I had no idea how you find financing. I didn't.
Jon Stoddard (11:48.203)
know what a business broker was or how these things actually transacted in the small space. Now everybody knows of search funds and ETA and all these acronyms. Then someone asked me like, you did a self-funded search and entrepreneurship through acquisition. And I didn't know what that was 18 months ago. So I don't know. just went to a bank and gave them cash and they gave me money to buy a business. That's the extent of what I knew about how any of these terms worked and how
And so it's been an interesting. So what did you do with the business? mean, let's say first hundred days, you didn't change it. Did you put things in place to improve it operational excellency or just. It was mainly now. mean, it was more about learning the industry. We didn't really do hardly anything. The business was. Lacted down over the last few years. mean, the old owners, they had no desire. And this is pretty typical in any of these small businesses.
They didn't like, know, they'd been at it. They had money. They didn't, they could have grown. They just chose not to want to have to spend that amount of time. They weren't pushing themselves. They were, they were spending three months a year in the Bahamas and two months a year on their, at their lake cabin and, spent a bunch of other time driving around the country in an RV and, know, would get back to him, get back to customers in 45 or 60 days. So, know, wasn't, interesting.
interesting situation, but good way to change the simple stuff. we started telling our customers that we were open for more business and that, you we just did nothing more. Kind of the only thing that I instilled in our folks, which is pretty simple to think about is number one, it, you know, keep employees healthy and safe. Number two, take care of customers. Number three, build a quality product. Number four, deliver that on time. And then number five, think about profit. And that's about the only thing that we did early on.
And just by doing those, say simple things, getting back to customers, making sure that we were doing the right thing. was that, let me ask you that was that hard because those, that culture kind of rolls downhill from the founder. if you're, whoever's there right now is not getting back, mean, how did your new culture jive with this old culture? Yeah. I mean, they were, they were happy to see the business grow. And I mean, they had a great culture already. It's just that.
Jon Stoddard (14:14.381)
you know, the new business they weren't interested in doing the existing business. They had teams in place. Everything was great. Take care of the customers, do whatever they needed to do. But it was like, yeah, new business that takes a lot of work or, you know, I'd rather hang out on my boat in the middle of the Bahamas. And I totally get that when I'm 67, I really hope I'm doing the exact same thing to be honest with you, but hopefully the business is not reliant on me in any way, or form by then. I've really screwed something up. So, you know, the culture adapted really well.
That's one of the big things we actually look for. Same thing I used to look doing &A inside of corporate America. It's really hard to fix culture. It's brutal to merge two different cultures together. So that's another thing we look for. Yeah, I don't think you can. I I've read some books about that billion dollar mistakes and it's always the culture that doesn't jive. Yeah, yeah, that's for sure. It's you know, now we've got a playbook, we know exactly what we're running, but we still go in.
So there's roughly speaking in these small boundaries that we have, there used to be about 770 of them pre COVID admittedly, I don't know exactly how many there are. We've talked to a little over 600 of them across the country. So we have an exact playbook of where we're going to go next, how we're going to do it, which ones we want to buy. know, we know who's got the best, we can perceive at least to be culture, but they have the best reputations, good people, whatever it might be. So.
We tend to go find one in an area that becomes what we call our beachhead. And they already know you. They know who you are. They've got your email address and they're. Yeah. When they, if I don't know them, like, the one we're buying right now, I talked with them three years ago. And so he and I, he said, Hey, went through this stuff. I won't get into details. Doesn't really matter. said, but jump on an airplane. Let's figure out how to get this done. And so we've done a couple other details, or a couple other deals. Our last one we did in Cincinnati.
I hadn't talked to them because they were technically a captive foundry. And so they just knew and they talked to somebody in the industry and they said, yeah, call Reg. He's buying these things. What's a, you have to enlighten me. What's a captive foundry? Sorry. So a captive would be just building something like if you're a Ford, you own your own founder and you're only building products. Okay. it. it. it. Got For us, we would be at more of an OEM foundry.
Jon Stoddard (16:38.497)
So someone can come to us, we'll build open to bids from anybody. it, different barrier is different. The first one, Ermark, did you have, did you take the role as general manager or president and go to the office every day? Or did you have a number two that you worked with an, install or hire a GM? Yeah. So there were people who were running the shop, kind of the day to day manufacturing. And there were people who were running.
the office side of it, but I really took on more or less everything else. So, you know, my background, having done GM work, GE, you get finance, whether you like it not, I've got an MBA as well. So helped out a bunch with some of the finance with our office manager who didn't have that background. And on the other side of it for the folks who were, you for me, it was really marketing sales.
Just ensuring people are getting called back, taking care of customer problems. And then it was really about networking and growing and getting to know our folks both internally and then the people that we were working with. so the big thing with the people that we were working with that I found out was that I would literally just go grab small part deliveries and I would go meet people and I'd find out exactly what was going on at our customers. And they'd like, it's great. You brought this your other competitors. don't.
deliver on time, they've got this quality problem, they've got this and so then, you know, it leverage points. So I probably learned as much just getting out, talking to people, developing the relationships, et cetera. And so with that, and I think a big part of it was as then people spread out. So if you were a buyer at one company and you moved to a different company, then all of a sudden it became, Hey, those guys over there are doing really good work. We should go talk with them.
that just kind of started to spread from a customer standpoint and then from a competitor standpoint, as I just went around. So first 18 months, I pretty much ran all the day to day. And then six months spent going to buy the second one and six months integrating it and then turned it over, hired a president to run everything. And since then I haven't done any of the day to day. I'm literally now just kind of a CEO &A.
Jon Stoddard (18:57.133)
That's really my own goal that I have left in the company. Why did you buy the second one? What was the inspiration to go? I know that you had the &A experience and other jobs was, your ultimate goal to say, just want to acquire more or I'm trying to get the multiple up where one plus one equals three. What was it? I had no idea. Multiple arbitrage. And what I've learned now is had nothing to do with my thought process. It was purely that.
we had some equipment we needed to control our own destiny. And it was a million and a half dollars to buy that piece of equipment. And I could go acquire a business for 225,000 with a book of sales as well. So, you know, I guess. That's an awesome idea. Yeah. And so it was, it was substantially easier to go acquire, pick up, move in and, and integrate the two facilities. know, so it, so that acquisition, would say,
probably, man, I'm gonna have a tough time guessing at it, but it probably returned us 20 X within the three years we've owned it. How'd you finance that? You didn't need to go to the SBA for that. No, we just did. We did an equipment financing loan through a local bank and then cash. Yeah. So it was nice and easy. was... Is the seller still with the business or is he off? None of our sellers are involved in any of the businesses. We typically...
Especially, mean, partly, right, we end up buying these when no other family wants in there in their 60s, they've kind of run it. So we don't have anybody that typically lasts much more than six, eight, 10 weeks. First time we did one of these, it, you know, it was, it was a weird situation. But yeah, they were out of the business in six weeks for the most part, they came back and helped me, but they're like, yeah, you're doing well. Don't worry about it. You're good. You'll be fine. And yeah, we're going on our boat in the Bahamas. We're good. We're done.
Good for them. Yeah. Yeah. So why did you buy the third one? I mean, now we have a couple of options to control your destiny. You know, it was either to get a one plus one equals three or just I got to acquire to grow bigger. It's like the, our key insight imperative. Yeah. It was just, we just realized that there's a, it's a simple bifurcation of customers in our world. One is the big.
Jon Stoddard (21:18.413)
you know, GE, Honeywell, Siemens, you name it, the big manufacturers in the world, they're happy to give, know, 90, 95 % of all their purchases from foundries will be overseas. And then they'll want to split up their last 5%. They don't want, you know, they want to make sure if your small foundry burns down, they have a secondary supplier. Well, in our case, as soon as we got multiple facilities, we eliminated that risk. So now we'll get a hundred percent of their business. We just become an easier, it's like, Hey,
deliver a quality product on time. The rest of it, don't really care about the other side of our customer. So there's kind of like a vertical integration. Yeah. But it's just, it's geographically dispersed though. Right. So we're in right now we're in Minneapolis, Kansas city, Cincinnati, and New Hampshire. And then we've got others, the big, the one we're doing right now that I mentioned, and then we've got 13 others that we have kind of lined up that are in the, the funnel that are going to go through.
the process at some point in time as well. But then sorry, then the other side, the second set of our customers are the small local places. know, grandma had an or grandpa had an idea, dad had an idea, it was a small company, whatever it might be. And they love to be able to get up, get their kids off of school in the morning, drive in, shake hands, you know, have lunch, head back home and time for dinner. And so then they, you know, within, they have to be within kind of four hours to do that.
So we just have big concentric circles all over the country. And we go in and investigate in a local region who might be the best boundaries to look at to purchase and who we'd want to tuck in after that, make a map, go talk to everybody. And we just realized, you the more we can do that, the better off we are. So, I mean, that's what Amazon does. We got a, you know, Amazon distribution house and it's like, can place an order today and maybe get it at 4pm. Yep. Like that is just crazy. Yeah. And it's so it's
It's not quite that fast in the time. Of course not, but it's the same strategy. Yeah. It's just, instead of having to get every single thing bigger, you know, and it's not really a hub and spoke. It's more of a mesh network mentality. So we can move, we can run center of excellence type. Concept. So, you know, we're now large enough that we can buy the best founder equipment pretty much in the world.
Jon Stoddard (23:40.493)
You know, we can do that at a small founder. can still serve small customers. We don't have to go chase big customers. We don't have to go chase low margin, unprofitable work. We're able to balance and say, that production should be run over there. Like we're slow here, you know, or this is a more efficient machine. should be building it there. And so that's kind of how the network affects just the scale efficiencies continue to compound.
on each other. yeah, you know, that's if you ever read the Andrew Carnegie's biographies, you know, he talks about that. He's like, they had to update the foundries every, I don't know, five, 10 years, yeah, to get better efficiency, because more and more people were getting into the business of steel. Yeah. And yeah, that's kind of going the other way. Now there's less and less people getting into the business of foundries, especially in this country, right. But I think that it's
It's one of those things where and that's a running joke. It's funny. Pete mentioned Carnegie because that's what my buddies, they think this is more just hilarious right there. GMs at places like Metta and Microsoft and Amazon. Literally that's my golf group I have this afternoon that I'm going to play with. And I think it's hilarious that I'm in the foundry industry. So I always get the picture whenever I say I'm going to do another deal and can't show up for golf. Then I get the little picture of Hey, Andrew Carnegie.
He died with, out and he friends too, just like you're going to at the rate you're going. So the running, but he was the richest man in the planet for awhile. Yeah. don't have to worry about that. I've, that, that won't be my, that won't be my life, but yeah. How did you, start financing these others like the Patriot, superior Cushman. So we did after we got done with the SBA. you can only get to that. We mentioned that 5 million and then a few on top of it.
The SB is a great program. It's about the only option where you're going to start, you know, as initial wanting to buy a small business. But after you get through it, get a few more, build a track record of success, you can go to some of these smaller local and regional banks, especially ones that have done business with these places forever. So the one that we did, for instance, I'll just use one as an example, the one in Kansas city, the grandparents that had the foundry initially,
Jon Stoddard (26:01.719)
were friends with the grandparents that started the bank. And so they'd known them for 50 years, hey, we need you to help to like finance this to get this done. Don't want to do an SBA deal. And so the bank said, all right. I think, wait a minute, first of all, you're selling the business? Yeah, we're done. Yeah, we're done. Yeah. So it was one those things. Kids didn't want to be part of it. They wanted, and so literally we just did a deal and they're like, hey, we understand the business. And I think.
I'm going to make the number up, but it's in the ballpark. They're like, all right, we'll finance 90 % of the real estate and 80 % of the assets. So it blended to be, you know, we, think we had to put down 12 % or something in cash to do the deal. Well, that's been pretty typical. And now that we're larger, we don't, you know, we're in the traditional financing, like I mentioned over $5 million. So now we just get to the point where.
know, we're going to banks, we're going to refinance our entire debt stack right now, restructure all of our companies, take advantage of kind of that C Corp holding company model with a bunch of different Cs and LLCs underneath moving everything around for tax and legal purposes. But then ultimately from that structure, then when we redo the debt stack, I'm just going to go say, Hey, I want 4x EBITDA or 5x EBITDA and
you know, more or less every 12 months we'll review and that's about it. But it allows me to have a hunting license to just go do whatever we need to do. I don't need to be having conversations about individual deals or whatever else, as long as I meet the covenants and continue to grow. I'm buying it too, it's pretty easy, right? You buy it 2X, continue to grow. You never have to worry about that 4X number. So that's where we're at right now.
just a, it's a totally different animal for finance. Is that talking to private equity or hedge funds or somebody else to give you a kind of a, a basically rolling bank? Yeah. No, that's, we're going to do that with a, with a regular traditional bank. okay. So start typically, you know, you do over 5 million and even you can find some regional folks that are interested in lending across the country and they might get you to, you know, 50 million, let's say in total debt and
Jon Stoddard (28:16.277)
As you get bigger, you you get into the 10, 15, $20 million EBITDA numbers. You just bank, you just grow with the banks as they go. Yeah. So where are you at with the, size of the businesses you're buying? Are you buying the larger 2 million, 10 million EBITDA businesses? Yeah. I mean, we tend not to want those. We certainly don't want 10 million. but you know, something that for us, we want to say small, you know, stuff that private equity doesn't want to buy that individual buyers probably can't buy.
that fit in our roll up picture. So it's, you know, it's, we bought some as small like some of the tuck ins done like $130,000 a year, which is interesting that one that we we did for one X at 130. And it's going to do a million to this year. And so you figure right now, we're probably the new we could probably get seven, eight, nine pretty easy on a multiple for private equity where we are so divided. Well, that's the total holding company, right?
Yeah. Yeah. So we can buy it. We can do this a lot. We can buy them at one or two, especially the impaired businesses. That's where the tuck-ins really add a lot of value. The beach has your kind of main businesses you're not typically going to get. Those are probably more around three or four, but we can still typically double at a minimum, probably 30 to 50 % increase in profitability within a couple of years. And then we'll pretty much double them once we get them to scale and size. So, you know, we'll be
you know, eventually it'll be on some of these tuck ins or adjacent type of businesses. Do you, it, you see them because you can bring customers immediately to them. we, the tuck ins, we actually buy and shut down and move into one facility. So it be a geographic. I see eliminating competitors. Yeah. yeah. I mean, it's partly that it's, most of those shops wouldn't aren't sellable. So we're
But you got the equipment for them, which would have cost you a million. We'll give them, you know, we can take out the customer base because the other option really, right? We always offer all those employees jobs because we're local, right? So we'll go buy our first one in a geographic area, then we'll buy them around, buy up some of the competition, if not all the competition around. There's a lot of them, and they're not big enough.
Jon Stoddard (30:38.637)
can't go buy $130,000 company. It's impossible. couldn't pay that there's no debt service. There's no, mean, how would you do it? Yeah, we can essentially buy the book of business, take the equipment that we need, scrap the rest and then the sellers can sell their real estate. And, you know, that's kind of the playbook that we've had. And I mean, that's not a, I don't know. I don't know if it's a novel playbook, but we haven't seen it in small manufacturing yet. And so we're just continuing to run this and
Josh Schultz, he's the president. He's just in operating savant. He's going to come in, we're going to do this. So this will be the first manufacturing platform we roll up, but we'll go do this exact same thing in another three, four, five years. Once we've done the foundry roll ups, we're going to go figure out the next one we want to go do and just keep replicating. Yeah. Where did you find him? Twitter.
Twitter, on like SMB Twitter or something or what? SMB Twitter. Yep. That's a huge, huge community. And he and I happen to be so I had a, I had a past president, the one that I hired, like two and a half years in, he was with us for a couple of years and decided that he wanted to go back and do what he used to be doing. And Josh was one of the few other folks in SMB twit that were really big into
everything that we were doing from a manufacturing standpoint, he was talking about operations and quick version of the story is he more or less said, Hey, I'll, don't really want to do consulting. I don't want to work for anybody else. I just want to be able to run ops, the only way I can really run operations and do it my way is I've learned I'm going have to own it. And so I said, well, that's great. How do you know how you want to structure it? And he said, well, I'll help you 18 to 24 months, but then at the end you need to help me buy a business.
so that can go back and run ops. And I was like, you, you just want to run operations? Like that's what you really want to do. You don't want to be a CEO. And he said, no, I'm like, I have a way better plan than you just coming to work with us for like 18 months. How about just come on as like the president and COO. You don't have to barely talk to me for all I care if you don't want like I operations is not my thing. Dotting eyes and crossing T's from a daily basis. I can do it through and A just cause it's, know.
Jon Stoddard (32:55.689)
once, twice, three times a year process. I still hate it. hiring, I will soon be hiring an associate. I've decided after doing this last process. What's the part that you hate about it? Anything that's detail oriented. Like once it gets into the- Do you have an HD or something or just- I'm certain I do. Yeah. It's just like, I don't know the best way to say it, but the individual stuff, I feel like the clogs my brain up that-
I'm worried about making 97 decisions today just never works out well for me. It's way better. end up making none. Yeah. Yeah. Like, and this is we joke about. Josh and I easily have the same impact on a company each year, but you know, he makes a thousand decisions or helps his team make a thousand decisions. I might make one or four. Josh and I talk all the time, but I love just the and A side of it. I spend a ton of time.
just developing relationships, talking with people. It's the running joke on a scale of one to 10 and extraversion where 10 is a lot of about a 63. So I need to be out. I love just figuring it out. And then the art of the deal is a lot of fun. As soon as we get it to like, you're done and you're moved on. Yeah. It is so terrible. Like this is, this is what the running joke was about this too. Like the first one I bought, I was so excited. Couldn't believe like driving in.
first 18 months probably like, my God, I actually own this thing. The second one is probably like six months. The third and fourth ones were, I think I made it like four months when we were in New Hampshire. I made it like two months for the fifth one, a month and a half in Kansas city. I think I made it about two weeks for the last, the one we did in January because Josh, was busy the first two weeks. And his next one, I signed the LOI today and I'm like, huh,
here we go again. So that timeline is compressing much, greater to the point where I love getting that sign, but now I'm definitely going to an &A associate something here to start taking care of this. Make sure I don't miss anything. So if you're an &A associate, get yourself on Twitter and follow Reg. Come find me. You want to learn how to build and run businesses.
Jon Stoddard (35:21.879)
We'll give you a credit. It's like that story from that Uber, Travis Kalanick, his first vice president business development from Twitter. Yeah, hire me. Yeah. You want to do this? Hire me. Exactly. It'll be that thing. There you go. So you do definitely have plans to wash, rinse, repeat on this. Yeah. Yeah. We've got a pretty easy, I mean, right now, if we had the bandwidth,
to absorb companies, really integrate them well. And Josh is doing a much better job of that every step of the way. And we had infinite financing, which the financing will be a lot easier to do than the integration. I mean, we'll have an easy path to a hundred million plus in sales with this. And with these seven or, or with, we'll probably do, I think we'll probably do another 10 ish to get to there. Yeah. It'll be probably three, four years, something like that.
maybe five, depends on, you part of it is, I can't make these deals happen. It's, it's the sellers that get to make the decision. Yeah, you only have a pool of like 700 now and then you can lead a horse to water, which you can't make a drink unless you make them thirsty enough. Right, right, right. Yeah. And I refuse to overpay. So we'll pay what they're worth and what we can make them run at, but that's about it. yeah. And that's just the, so we'll have an X plan and
you know, we're developing things on the side where we'll just be able to go drop in the operating system of how if you're running small manufacturing in this country, you know, we'll be able to give you stuff, leverage, cutting edge ERPs, and then all the backend systems we're putting around. And those are all shared within the holding company? Yeah, that's that's how we do it today. But then we'll figure out right, the next thing becomes, do we want to be selling that? You know, do we want to have our own operating system?
turn expense into a profit center. Yeah, exactly. We want to be leveraging this, this out. we want to, we're creating because we've outgrown most of the ability. You'd actually outsource a lot, you know, fractional CFOs or accounting or marketing, like we're building all these backend systems. So we've got one that we're building right now in the Philippines. We've got one we're building right now in Monterey. So we've got our people hired that are doing
Jon Stoddard (37:43.499)
data analytics and people that are able to program. Josh is an AI ML guy. So we're going to be putting in some of the no-code tools and some of the coding capable of seeing insights inside of the systems. Well, if you want one or two or three of these, you just have no ability to get that. So why don't we go give people leverage on how, and most of the platforms, right? They're not built to do small manufacturing. And there's tens of, there's hundreds of thousands of these things. mean,
there's just in Minneapolis alone, there's probably 2,500 machine shops in every single city that makes a product, which is quite literally almost everywhere, which people are shocked like, yes, that still happens in places like San Francisco and New York City and whatever. it's still, it's not readily apparent and visible, but they're still there. And so all of that is a potential market or, you know, we don't know if we want to do that's as much as.
helping other people try and figure out how to leverage this and making us more competitive in local manufacturing, which we obviously need to be as we learn throughout COVID. So now the question becomes, what do we go do to figure out next? Do we go roll up another industry? Do we figure out how to help other industries make it? I mean, it's already not about the money for us. So it's got to be about something. It's got to be about a legacy. It's got to be about putting a dent in the universe.
I say this and I don't, it's the reason why I didn't put my name on the top of the company. But I really want people to turn around in 10, 15, 20 years and say, Hey, those folks over at CaneCast, they literally changed the way that small boundaries worked. And then we'll come up with a different name and do the same thing in some other industry or our bookkeeping or whatever else might be to help enable folks. So I think we'll do it again. I mean, we have the playbook now. There's not really, you know, it's been
was five and a half years. Five and a half years of misery, but certainly two, three years worth of misery. Hard work is done now though. now it's execution. If you were to all the people behind you going, Hey man, I'd love to follow, do exactly what Reg does. What do you recommend like the steps and dragons to avoid or to do this, that? There's so many things.
Jon Stoddard (40:00.499)
I'll give a shameless blog and it's not just me, but the SMB Twitter thing. You gotta go follow it. That didn't exist five and a half years ago at all. At least not that I had any knowledge of the, the books that are, you know, Walker, Devels, the, the Biden build. there's all kinds of ETA resources. There's so many things out there that'll tell you about how you go buy a business. And if you think about how the number of people that start and are successful,
versus the number of people that buy in our successful is like a 10 X difference. Yeah, I've done the startup game. Yeah. It's like, it's a million, like, you know, that one movie, it's a million ways to die in the West. Yeah. And that there's, and, know, and any of the Lindy principle behind you in small business, right? Where it's been around for 50 years is a really good likelihood. It's going to be around for another 50. So with or without you. Yeah. Yeah, exactly. That's the best part with or without you.
And so to me, that's where, you know, there's so many resources out there to learn the simple answer. I always tell people, let's say you want to jump in. don't care. Pick your W-2 income or pick how much ever money you want to take out of your business. Let's say it's 250,000. Multiply that number by three or four. That's the minimum you want to go look for in SDE. If people aren't familiar with that term, it's essentially EBITDA plus seller's benefits. So salary, cars, whatever.
So if you want to make 250,000, go look for a business at a minimum of like 750. You can probably buy that for 4X that's 3 million bucks. You probably need 10 to 15 % for an SBA. you know, know that really simple like, all right, I need $300, $400,000 and I can go buy a business. Then after you look through that, you know, it's just a standard strategic &A understanding, right? I mean, there's a lot of things, you know, a lot of elements to look for.
the ETAs of the world, which especially search funders, they look for things very different because they hate, they would hate my business. I'm like unbuyable for those folks because we have high cap backs and all the things that they would hate to see. But you asked steel, man. are Carnegie. got to pronounce that right. You're right on that earlier. Yeah. Yeah. But yeah, like it's a, and when you look at that, you gotta go figure out like what you're willing to accept. You can't go buy a deal for three X. You're going to have hair on it.
Jon Stoddard (42:26.989)
It's going to have customer concentrations. No perfect customer. There's no perfect deal. There's never ever. And then so I talked to people that are looking to buy all the time and they want to eliminate everything. I'm like, not going to eliminate it. You're just going to figure out how to deal with it. So figure out what you, if you're a great sales guy, don't be so worried about customer concentration. Cause you're going to get it. If you're a tech person and that's what you need. Great. Get in there and don't worry about it. Cause you could probably go solve the problem of what a key person leaving would be. So figure out what you can minimize and risk.
from your background or what you can hire and then get after it. It's figuring out the customer most. It's all the stuff that Porter's Five Forces and the standard marketing plan. And you don't have to sit down. I hate these folks that.
they write out a giant business plan or the bankers ask for it. don't do that. It's called procrastination. It's always the Mike Tyson, like everybody has a strategy until you get punched in the face. I like thinking out through it and making sure you understand the assumptions and whatnot. But for the most part, it's really about just finding something that you personally want to be part of that you add value to and that, you know, it's
on the bigger side that you can figure out how to mitigate risks that either you bring in or risks that the company brings to you. Let me give you a point there because we, looked at an IT firm yesterday, had a meetings with the sellers and most of their programmers were in Serbia. said, look, great. I just don't know anything about Serbia. Serbia is really closely attached. The only country that didn't sign sanctions with Russia, just not a hundred percent sure. So we passed on the deal.
is too much risk. Yeah. Yeah. And never know. And again, like, and there might be somebody who's from Serbia, knows somebody in Serbia, who knows what that that's totally fine for that risk. Like, yeah, that's mitigated. Yeah. Everybody's totally different. So what I look at is a deal that is unsellable or unviable for most people, totally impaired. I love it. Like, great. You guys, we literally did this on one deal. Their top two customers were over 80 % of the deal.
Jon Stoddard (44:41.003)
But as soon as you dropped them inside our network, it meant nothing to me. Like, I don't know, they're like 3%. As a platform company, that would have been difficult as a, yeah. But for us, once you jump it inside all of us, it's like, okay, no big deal. mean, so it's a different risk mitigation. But at the same time, there's other things that we like. Our first one, we had the major risk that I initially identified, and this is still the same problem. It's actually substantially worse. And it's why foundries are almost impossible to buy now.
as individual buyers. You think about when everybody started to go overseas with product in the eighties and nineties, all that knowledge then left. So there are some people, but there weren't people coming in in their twenties back in 1994. And so you fast forward all those folks when we bought this company the first time five and a half years ago, they were in their early to mid sixties. Well, if you look at the industry six years later, you know, 80 % of that knowledge is gone.
That's it. You know that there was a episode of Bill Gates, some kind of Netflix and talk about the brain drain for nuclear power plants left. So we say nobody here knows how to build nuclear plants. They got plans, but they haven't done one in such a long time that yeah, yeah. Built one in 30 years or whatever. You kind of forget because there's not a lot of people that are left. Yeah, there's no experts, right? But that's the exact same thing. So that's a so we know we that was far and away my number one risk.
that I saw as a, doing the first acquisition. So we went in our first three deals, actually, no, actually our first, well, three or four of our first five, we kept the key people on in a non working. was just knowledge. So the one guy we paid to just stay on it, he wanted to retire. We kept him on at halftime. So he didn't have to do any physical work. All we did was train people.
We hired someone to help write down processes we learned, and we've done that now two or three times. So now we've got a training academy, essentially that we're building all the same knowledge. We can move people across our foundries. We can solve that key man risk. We don't have it like every other place we go talk to. Those are definitely good routes for a bigger fish down the road. mean, it's the basis you're creating. Yeah. Because you know, and that's where.
Jon Stoddard (47:01.217)
You it's funny, whenever we joke about this, we were like, it's like, you actually had a plan. I'm like, yeah, some plan, some scum. You figure it out as you go. But, yeah, but that's the big thing is, you know, once you minimize the risk and identify it, then you just got to do whatever it takes. And you can't, you know, the biggest thing, especially if you're to buy a small company and you have key personnel risk, you just can't be held hostage by that. You have to figure out how to eliminate that risk or else, I mean, you're essentially just owning the company for someone else to.
take advantage of you. You got to figure out how to minimize risks there. Same thing with big customers. It's no different. Got to diversify away. You can't let one big customer dictate. Can you fix it? I mean, you got to ask yourself, can you fix it? Right. Reg, thank you so much for being on this show. This was very informative because I love this direction on this in the detail. So yeah, thanks for having me on. love it. I'll tell anybody that's listening anything else.
Not everybody should own your own small business, but if you choose to do it, find me on Twitter at Reg Zeller. There's a huge group. Like I will do anything I can to help you. I will not encourage you to do it because it's a miserable lonely existence at the beginning. get me wrong. Well, a lot of people want to live through that misery though. exactly. But hey, once you're in, I'm happy to help. Yeah. Thank you so much. Yeah. Thanks, John. Yeah. And if you liked this show, make sure you hit the like button and the bell so you can see more content like this.
Thanks, Reg. Thanks, John. All right. Cheers.
