The Non-Ferrous Casting Facilities Business - Reg Zeller of CaneKast - Unusual Profits ep 20

Hey, Michael here. You will now hear some episodes of the Michael Girdley Show that we had branded differently, called Unusual Profits or some such like that. Same show, same person, just me interviewing people and producing content that could be helpful on your journey and mine as well. So with no further ado, here's the episode. Hey, Michael here. Sponsor for today's show is actually a product that I'm a part of called DM Bridge. And what DMBridge is, uh, is a service that we built, uh, to solve the problem that Twitter's direct messaging functionality is a total mess. So we built DMBridge to help you fix that. Um, a lot of the other solutions, uh, do things like requiring you to install a whole nother inbox. We didn't want another inbox, so we created DMBridge. And what it does is it takes all of your Twitter DMs and has them appear inside of your email inbox. So you can reply to them just like it's a regular email. You see them just like it's a regular email. You can search them later like it's one of your regular emails, all just by using DMBridge. So, uh, we're currently live with the product. Uh, would love for you to sign up and become a customer, uh, and check it out. So you can find that at dmbridge.app, uh, and go on there, put in your name, uh, and be either part of the beta or join us as part of the live use of the product. And again, check it out, dmbridge.app.

All right.

Welcome to Unusual Profits. Uh, my name is Michael Girdley. I am your host. This is the internet's number one business, our number one podcast about niche businesses and the amazing people who work in them and run them. I am a huge business nerd. That's what this podcast is about. and today I am super excited to welcome somebody, uh, who I've had really fun discussions with on Twitter. And, uh, I know today's gonna be really exciting cuz you're the first guest at the same level of energy as me, Reg, and I think it's gonna go explosive.

Oh boy.

I think we're gonna end up.

So let's do this.

So, uh, yeah, so welcome Reg. So, so excited you're here. You're CEO and founder of Kancast out of, uh, the great state of Minnesota, right? I'm totally blanking.

That's right. Wisconsin.

Yeah, no, perfect.

Right.

Perfect. All right, let's jump right in. What does Canecast do? What is the business?

Simple. Canecast is my holding company for non-ferrous foundries. Non-ferrous literally just means a fancy word for not iron, which in our case, aluminum, brass, bronze, zinc. But yeah, we hold and roll up foundries right now kind of across the country, if you will. Our overall goal is pretty much from the Rockies to the East Coast that we want to have foundries and be within 90% of buyers.

That's great. So what, so what precisely would you describe as the niche element? So you say non-ferrous, so non-iron. So I'm, I'm an idiot, so I'm gonna have to ask you why, why that distinction. Um, but like, how do you describe your niche as to like where you guys play in terms of size, geography, customer type, all that kind of stuff?

Yeah, sure. So let's start with non-ferrous. First of all, the reason why that's important is that if you look at aluminum, for instance, the melting point is like 1,300 or 1,400 degrees, relatively easy on equipment, or as easy as you can get on equipment in a foundry. And if you go to, let's say, steel or iron or anything else, and all of a sudden you're talking about at least double that, so 2,500 to 3,000 degrees melting temperatures. And so what you're really getting is just something that is substantially more CapEx intensive. It's much harder on equipment. The margins are much lower. You know, we tend to just play in a niche spot where, you know, it's, it's just a, it's a good mix between what we're able to do and how we're able to provide it to a customer in a small facility. So we can have a $3 to $5 million facility that is close to world class per se, where you might need $20 or $25 million to have the exact same thing in a, in a steel or iron facility.

Wow. Okay. It sounds like the facilities are relatively small. They're, they're $3 to $5 million. So like, walk me through kind of what is one of those? What does one of those look like?

Yet. So depending on what you want to do, for us is really— we could probably do something in 15,000 square feet, but normally you're talking about facilities that are probably double that, closer to 30,000, maybe 40 or 50,000 square feet. And what that really amounts to is that you just need a bunch of really big furnaces. And when I say really big, we're talking minimum of probably 2 or 3 million BTUs. To melt metal. And once you get that metal melted, you just need to figure out a way to move it around a facility. And yeah, there, there's a lot of automated ways people think about what a foundry might look like to build a car or anything like that. It's exactly the opposite of what it is for our small facilities. We play— tends to be one of two types of customers. One would be a very large Fortune 500 customer where we'd be selling them the last 2, 3, 5%, the tail portion of their products. Whereas the other side, the kind of bifurcation of what we do is a really small customer where we might be selling them 90 or 100% of their products up to and including, they may come into my office and say, "I have this idea. Me and my buddies sketch this out on a cocktail napkin." They have no idea how to build it. So we help them to figure out how to build it, what channels to go through, the marketing, you kind of name it, just on my background. We can get all over the place with these folks.

Yeah.

Okay.

And then as I— I think I dig it. And then as I look at the holding company and then there's really the 5 different businesses that are underneath it, the immediate thing that kind of steps out is like, okay, you've got a casting business, a foundry, a casting business, and then you have this random thing in New Hampshire that does— That does dock-out. Dock stuff. Uh, what—

so it's not as random as it seems. It's a funny story behind it. The very quick version is that a person had an idea after walking on docks that said everything 30 years ago were made out of steel or iron. You drop it in the water, the first year it would rust, or you'd have wood that was heavy, the same thing, it would go bad quickly. And they had this idea that they could make a dock out of castings. And so what they did is they spent a whole bunch of money, had a large retailer that said, "Sure, we'd love to try this," spent pretty much their life savings creating this business, sold a bunch of product to the retailer, didn't read their contract carefully. Retailer didn't sell a whole lot of the product. And at the end of the season said, "Okay, ready to return it." And as soon as they returned it, or needed to return it, the person had to file for bankruptcy. So in order to actually create or keep this thing going, the foundry that had it, which was Patriot at the time, um, they absorbed them and said, hey, instead of, uh, paying us back this debt, we'll, uh, we'll absorb you and you come to work for us and build us a dock company. And, uh, when we bought Patriot, this just kind of tagged along with it. But yeah, it's, it's a foundry. So this is a specific outshoot of something that we make out of the foundry. It's, you know, 80 or 90% of what those products are come out of the foundry that we sell to direct-to-consumer or dealers or anything else.

Okay. Okay. So that totally makes sense.

So it's not as crazy as what it appears at first. But yep, it's part of the, you know, uncommon, unusual profits, right? So here we are again.

Yeah. Well, hopefully, hopefully they're profitable. Some of my companies have not been for my lifetime.

Well, yeah, we're trying to stay out of that space too.

So does every— does— so you have 4 different foundries. So you have, you know, Minnesota, Missouri, and, and the New Hampshire one.

Yep.

And then there is— then really it sounds like this dock business is just kind of parallel to those things, but also it's— is that— is it a consumer of what comes out of those foundries? So you're buying and— okay. Yeah.

And so, and, and the really— and this is one of it when we bought it, they'd never touched it. The people that buy this RDS dock hardware, they will— yeah, will be driving by our facility, they'll see docks sitting out front, they'll stop in and say, hey, I want one of those. They go put it on their lake house, their neighbors see it and realize, wow, this thing is as cheap, or, you know, cheaper at times than what I just paid. Your dock feels like I'm walking on land. My dock is moving all over the place because it's low-quality components. And then we'll sell the entire lake within the next 5 years as people replace their docks. So if you think about northern New Hampshire, I know you're up in New Hampshire. This is why we were laughing about this as you were stopping by the Chili's in Tilton and all the other Ayn Rand references places there. But yeah, the— they've never marketed, they've never sold, they've never done anything. And if you think about the number of lakes, yeah, there's a few lakes. I mean, but you're talking a few thousand lakes around there, right? Where we are in Minnesota, within a 300-mile radius, when we looked at this business, we've got 30,000 lakes. And so when you look down in Kansas City, Lake of the Ozarks is right there and a bunch of things. So we're actually going to be taking that business. We just purchased it in January. We're actually taking that business and scaling it across the country. I'm hiring someone to, uh, to run this for me. Actually, this is another of the fun Twitter stories. I don't know whether I'm hiring a product manager yet or I'm going to go hire an operator that wants to share in the upside of the profits to go I think we can at least 10x this business within a few years, if not 40, 50, or 100x it. It's crazy. It's an insanely great business.

Yeah, really interesting. And I think that's— we should definitely dig into that, but curious about where you'll plan to take that because it feels like something you almost got for free, but it's not the core of what you do in terms of the founder and co-founder.

Yeah, exactly it. So I came from a product background, product management background, et cetera, in the corporate world. So for me getting that, I was excited. I was like, ooh, I'm not making for someone else now. I can just go do all my own marketing, sales, what I need to do, and we'd be off and running. So it absolutely is an offshoot that is, it's something that we've always talked about, vertical integration, you know, just more products that we make and sell and control our own destiny. So it's certainly something that was on the, the back of my mind, but at the same time, it was just something that fell in our lap. When we signed the deal, they didn't even tell us about it. We were into due diligence and they're like, "Oh yeah, by the way, here's this Doc business." I was like, "That might be worth more than everything else I've seen combined right now based on what I knew of it." So it's kind of funny.

It's like the—

Dongwook.

It's kind of like the Vimeo story when they You know, when I, I'm totally blanking on the name of the conglomerate, but it's a media conglomerate run by Barry Diller. And like they, they bought, uh, this like cheesy college brand and Vimeo came along with it. And now Vimeo is worth just as much as the original holding company is like billions of dollars.

So hoping for that, that'll be my play.

We'll get, we'll get you there. We'll get you there. Um, cool. So let's focusing on kind of the core Foundry business. Like I would love to dig into just starting with like, like the customer experience. So like how, you know, you talked about your customers and they are, you said sometimes large multinationals who get a couple of parts from you to folks that are doing big runs of stuff. Like give us an idea of, you know, how do you segment that customer base? What do they look like? You know, what's the kind of typical way you think about who's who in the, in terms of the people that buy from the foundries?

Sure. So let's start with the— I'm going to call them the Fortune 500, the big guys. You know, obviously that was the world that I came from. And what we used to do is we would buy the exact same thing, a ton of products overseas or in Mexico or whatever, and we would buy 100% from there. And it's great for your high-volume stuff. It's terrible for your low-volume stuff because you can't plan from a forecasting standpoint, from a, you know, when you're going to need certain things, when they're going to go obsolete, when a customer is going to break something. You can't have a 6-month lead time. So we specifically went out and targeted that low volume portion of large conglomerates, you know, the Siemens, the GEs, the Honeywells, the, you know, every major manufacturer you can think of. So when we go after them, we really talk to them. We don't argue about price. We don't talk about really anything other than you tell us how many you need and when you need them. and we'll send you a bill. And so that's been really our, our argument with them. And it, it's a little bit interesting, right? If, and this is the story I, or the analogy I usually use, if you have a $10 million project and you're buying $100,000 from me, your boss's boss's boss's boss, if you're the buyer, will fire you if you argue with me about a 5% price increase because you're screwing up a huge project. You're probably paying fines or anything else, you know, depending on what you're doing. So that's really been— and we're, we absolutely partner with those folks. You know, it's a much more of a transaction. They're just happy when they give us orders, we send them products on time. The less we talk to them, the happier they are, you know. So that's one set of our customer, and it's, it's— I would say those are the folks that really help pay the bills day to day. It's kind of the annuity stream because that's not going away. Then the other side is the stuff that I really got into that I'm excited about, or why I got into it, is the small customers. These are the guys that It might be their dad's company, their grandpa's company. It might be the lady that has this idea and walked in, like I mentioned, with something on a cocktail napkin. My largest customer right now exists. He walked in 4 years ago with this idea and said, "Hey, we'd like to build this." And I went through the conversation of, have you done any engineering, any trademark work, any IP work? Nope, nope, nope, nope. But I've been selling these for the last like 9 months online. No company formed. I was like, you're putting your house at risk. You're putting everything at risk. And so we just stepped every way back. And now, you know, that, like I mentioned, number 1 customer, he's going to do $60 or $70 million in his business this year from zero 4 years ago. And I won't get into specifically what it is, but it is as niche as they come. But just had no idea. And those are fun for us, right? These are the folks, like I mentioned before, we'll do everything, we'll help them. And a lot of them didn't have corporate backgrounds. They haven't jumped into a lot of this. It's just, they grew up in a family business that made a widget. And so whatever we can do to help them is really what we focus on. Again, whatever that might be. I've helped folks with marketing brochures. I've helped folks to think through when they're going to go to retail, what that really means. If you're going to go sell to, you know, a big box retailer, And typically I tell them, you will be overwhelmed. They will make you go bankrupt if you try. This is typically, uh, the stories. But then we tried like, okay, let's not go nationwide if you're going to try this. Let's try 5 stores in the local area. And because here you're going to need to do an initial load, you're going to need to build the inventory back up right after that. You're going to need to deliver everything within like an hour of when they virtually want it. You know, those types of things. And that's what I love. It's so much fun for me to do that. That's— and again, Those are two very different customers, but again, it's a lot of, we make sure we add a lot of value and we don't argue about price. I literally don't discuss price for, they'll say, "Hey, push back a little bit." I know what we add, I know the value, and this is what we're focused on, and that's the way I like it. I always think of our customers as partners that both directions from this, we're adding a lot of value to each other. Yeah.

That's awesome. Well, cool. So lots to unpack there. So in terms of kind of the big, you know, the price-insensitive global multinationals, they sound like they're more profitable for you guys and more steady. What percentage of, say, the business across all of the 3 foundries is those folks?

Probably 40% of top line, probably 25-30% of bottom line. To be honest with you. We, on the smaller guys, we just, because we do so much more for them, we tend to extract more value, but then we also help them to understand their upside as well. And a lot of that, and the reason why is that the multinationals are consistent, same amount. We don't really have to do, we simplify everything out of it. The smaller guys might be, I need 3 of these this week and 10 of these next week, and then all of a sudden they'll need 500 a month from now. And so We'll put inventory on the shelf, we'll take care of them, whatever else they might need. It tends to be, I mean, we make a lot of cash bets and what I mean, tying up cash as far as inventory goes, but that's also saved us. I've got a story of one customer that we're 5x larger with right now than we were 4 years ago. And we've taken all of the competitive business because we understood their business model and we said, hey, listen, if we put these 15 products on the shelf for you guys. You now have how you want to work day to day with your customers. And as soon as they said, they're like, oh, no one else is willing to put inventory in. You guys can do this. This is awesome. And we're going to move everything to you. And we get no bid now. They just come up with a product. I hear direct. I don't even hear from their buyer. I hear from their engineers or my team does now. I don't anymore. They say, hey, here it is, just bid it, build it, keep us competitive. We're awesome. So Again, I prefer to work with those smaller customers just because that's why I got in the business. But the other ones are just, you just make sure that you have that steady stream that's going to pay the day-to-day bills is the way I think about the Fortune 500 guys. And then the other ones are much more spiky, not consistent at times until we grow them over time. Yeah.

So just kind of double-clicking on the buying process. So let's, if I'm one of these random mom-and-pops, Am I— are you typically seeing that they're calling 2 or 3 different foundries and, and you guys are in a build having to compete with other folks in terms of building relationship with those people? Or is it— are these, you know, you're geographically spread, you know, the, the 2 Ms, Missouri, Minnesota, and New Hampshire. What does my customer experience look like as I'm kind of first trying to discover somebody to do what you guys do?

Yeah, so we, we used to— the easiest way I can explain this we didn't do a great job of SEO and any of that. It would be all word of mouth is how we got the vast majority of our customers. And it would normally be someone talk to someone and, oh, by the way, they said you can help me with this thing. And then they'd show up at my doorstep. And so they didn't even— there wasn't any conversation with anybody else. Now, the more we get into finding people online, it tends to be we're talking with a few more. But really, my marketing team, I tell them this all the time, just get them in the door. Once I can get myself or one of my guys to sit down across from them, I'm not worried about losing them. The people that want to go out, if they're going to be on a bid, they're like, okay, we're going to put this out for lowest price. I pretty much tell them we're not going to be lowest price. I'm not going to even waste our time on this. Just not what we do. We're going to be a 10, 15, 20% premium almost assuredly, sometimes more, just because we know the niche of where we play and exactly how we want to do it. So from a customer, if I think about it real simplistically, we actually have a bunch of stuff on our website about this just to help customers. We make it as simple as possible. We make it completely transparent to them. We have a bunch of questions we ask them. It's just a giant checklist in the back. We walk them through the production process, the development process that we have. And so they answer a bunch of questions, and it's kind of the running joke. And one of the casting magazines did this for us. I say, you don't have to be Monet, this is more of a paint-by-numbers. So we just literally push them through there and all of a sudden they're off and running. So yeah, you're looking right there, that's, uh, that's the— that— well, that's been upgraded now, but That is exactly what our facilities looked like, and still some of them do. But yeah, very, very manual process to make product right there. And it is like stepping back in time.

Yeah. For those of you not on YouTube and listening audio, there is a gentleman with long hair, some work boots in a factory that— or a workbench that looks maybe like 1960s era technology at the most.

Yeah, it's probably mid-'40s. And then upgraded to mid-'60s.

So maybe dumb, dumb question. I don't want to get in trouble, but there's no safety equipment for these guys or anything like this.

Is this— these are old photos that was on— this is the— this is the business that we bought in January. If you'd come in my shop now, it is completely different. We, because of all the problems inherent and as you can see in the picture, just to explain for the people, that is a pot of probably 2,200-degree bronze right there. So as you can see, all of that— now that is a much newer photo. You can now see all of the pieces of what they— PPE, personal protective equipment, that you don't have to worry about getting, uh, any metal near you. Um, the last picture was just sand, so you don't worry about it too much. But yeah, it, uh, we now ensure a lot of what we do that, uh, they're in pretty much spacesuits that, that, that molten metal cannot get anywhere near where they are.

Yeah, it's really interesting. I would be, I would be super curious to see what this— we're looking at the facility you bought in January in New Hampshire, you know, it— I'd be curious to see what it looks like today because I hear you talk about it. I bet it looks like a different planet in there because a little bit.

Yeah, yeah.

Well, I mean I, I mean, I personally, like, I want every business and work environment I'm in to be neat and tidy because I think that sends the right cultural thing. We're going to worry about the details around here. And it, you know, this looks like some stuff you maybe inherited from a previous owner.

We did. So there's, there's a fun— if you look at any of these photos, the one thing— so I also tend to be a neat and tidy person. The one we bought in Missouri in May, you can literally eat off the floor. The one you're looking at right there. New Hampshire has such different laws for what you can and can't touch. We can't actually disturb any of that sand once it gets to the floor because of concerns with silica dust. So it's a little bit of a different animal. But yeah, these, these things are— and you make in a foundry, you make things out of sand. So everything is filthy immediately. We install a new piece of equipment and a week later there will be a layer of dust on it. It looks old nearly immediately. Now in this case, in these photos you're looking at, they are— that really is old equipment. But even once we upgraded it, it gets pretty old pretty quick. We say we're real hard on stuff in foundries.

Yeah, super cool. All right. So continuing on kind of the journey of the customer relationship. So Are those— are you— what do your contracts look like? Are there just like, it's PO stuff comes back, recurring revenue, or is it— doesn't sound like it's, it's kind of longer recurring stuff, or how does the breakdown work in terms of stuff?

Yeah, sure. We try and— unless you're a strategic customer of ours that wants us to do a one-off, I stay away from project work. I don't want to— first of all, I've never employed a salesperson. None of the businesses I've owned have ever employed salespeople direct. Some people have gone through like some manufacturers reps that haven't worked, but All the things that we do because of word of mouth and everything that we're handling, we have way more work than what we can handle anyway. So from a standpoint of what we do, we cherry-pick recurring revenue, low to medium volume work, the stuff that we really like from a standpoint of what the customer looks like. We don't have any contracts, we don't sign anything, and we don't expect them to sign. I mean, there might be terms and conditions on some of this, but You know, for the most part, it's, uh, it's business that we know this is going to be in a product line. It may last 5 years, 10 years, 30 years. But, you know, we, we almost never do one-off projects. And we also are kind of a— you want your products back, we're doing a bad job, you can take them. I'm not locking you into anything. I think we're going to deliver a really great experience, much better than everybody else that you're dealing with. So, you know, for anything that we do We're all about taking care of the customer, delivering quality products on time, and the rest of it, we— I shouldn't say we've never worried about it. It's just not something that I prefer to deal with. Once you get the lawyers and the contracts out, that's probably not the partnership that I want to have anyway.

Yeah, super fascinating. So how much of your sales at this point are you personally directly responsible for? It sounds like you really enjoy it.

You mean that I brought in? Yeah.

Now, if, if in the next month, like, how many of the customers are you personally going to speak to and be part of the sales process with them?

Zero. They'll call me when they want to go grab a beer or do whatever, but I'm totally out of it. I have nothing to do with this anymore other than if they want to tell me about their kids or if they want to tell me about something funny that happened, you know, like a personal relationship that we've developed over the years. Certainly there's a few customers that they call and they'll be like, hey, I didn't even realize you weren't working in the business because we haven't talked to you guys in 3 years. So that happens as well. But I don't— I do not deal anything with the day-to-day of the business. As I think your tweet was yesterday, as soon as we— as soon as guys like you and I get involved in the leadership, we're just going to screw stuff up. And that is 100% accurate. If I'm in the day-to-day, look out. That's just— I got it to a basic minimum and put the foundation in place that we could grow it. And then as quickly as possible, hired people that were much better at operating companies than I was. The simple way to say it. So yeah, I don't, I don't touch anything day to day other than, you know, I'm, I'm there for some of these customers when they're small. I mean, I literally know their grandkids. I know their kids. I know what happened, you know, right away in the beginning, we'd talk about their kids going to school or whatever it might be. So we've developed personal relationships, certainly. Yeah, not from a sales perspective or day-to-day operations perspective anymore. They, they know to go to my team because they know much more than I do. And if I have to go find something out, it's going to take me longer to go to my team to find it, to get them the answer, if they just go to my team.

Yeah, I hear you. Cool. Well, and then double-clicking again kind of on the categories of, of products, right? It seems like all the foundries kind of do the spread of all the non-ferrous stuff. So there's bronze, and, you know, the different aluminum, zinc, all that kind of stuff. So, you know, what, what is— are there differences between those things beyond just kind of simple, like, boiling point and stuff like that? Or how, how do, how do you think about those in terms of the whole product suite?

Yeah. So it's literally, it's just different applications. So there's certain things that you want to put into different, you know, there's some of them where you can put like a bronze gear, for instance, inside of an explosion or explosive-proof environment, it doesn't spark. You know, aluminum would spark, you'd have problems with that. So there's a lot of different applications of what you're doing. You know, there's certain things, you know, aircraft or aerospace, whatever, you need to have certain properties. That's ultimately why you choose. And if you don't care, if it's just a minimum strength, but you know, you need something lightweight, minimum strength, we're going to shove you into a low-cost aluminum alloy almost assuredly because it won't matter to you. And then everything else is just an engineering about what your application is. Generally speaking, aluminum is the cheapest and the lightest, and then as you get into any type of brass, bronze, zinc, it's going to be 3, 4, 5, 10 times as expensive and 3 to 4 times heavier.

Yeah. And but the core process that generally appears to happen over and over again in this business is customer wants something, you— they've, they've either engineered it or not, and sometimes you help them engineer it and design it, then you guys, what happens next?

Like you build a mold? Yeah.

And then, and then how does it, how does it go through the process there?

So here's a, here's a really quick version of it. We, whatever the metal they need, we'll melt that metal depending on whatever the temperature needs to be. And everything changes slightly without getting into the details. It doesn't matter. It's the science behind it. Then you have two different general ways that you make it. One is that You create what's called a pattern and you pack sand around that pattern. Overly simplistically, you really are making something that is a top and bottom, and it's a negative impression of what your product is. And literally, it just— chemical properties or physical properties of metal or anything, when it, when it cools, it shrinks. So we literally, overly simplistically, make a mold that is 1.3% larger than what it would be because that's roughly the shrink rate of aluminum. You pour molten metal into an inverse product and then you just break the sand away. The other option— so there's a sand casting process and then there's a permanent mold process. The other process is instead of having a negative impression made out of sand that you have to break every time, you can create something permanently— permanent mold and make it out of steel. And so then you just pour molten aluminum into steel and you can continue to reuse that exact same product over and over again. So instead of getting, you know, maybe 10 products an hour, you can get 30 products an hour, but your price of tooling goes from $5,000 to $100,000 or $250,000. So it's really about volume and what you need and application. But again, just the very simple version of it is we just make a negative impression and pour molten aluminum into it. And then whether that negative impression is made out of sand or steel is just, again, the process that— or the end product that you need, the end application.

Got it. And then so from a customer standpoint, like, I assume certain, you know, aluminum is relatively cheap, but then there's— I mean, bronze sounds expensive. There's, there's a spectrum of tradeoffs, I guess, that make in terms of density, weight, strength and all that kind of stuff, right?

Yeah, exactly right. So generally speaking, at the bottom of the market, aluminum was probably $0.70 or $0.75 a pound. The cheapest stuff right now, that's probably double the same way. I mean, there's the more complex of aluminum, the more exotic aluminum you get, the more expensive it is when you start adding in certain properties. Or certain other alloys. Bronze, brass, zinc probably was lower. The very cheapest stuff, probably $2.50, $3 a pound. So again, about 4 times more. Now that same stuff is probably closer to $6, $8 a pound, although you can buy stuff that's $20 or $30 a pound as well. So it really depends on how exotic you want to get. We try to stay away from the exotic materials just because that normally means you're in a very specialized application. And we just try not to stay— we try and stay out of that, generally speaking, is what it amounts to.

Specialized, meaning you're going into aerospace or could be that kind of stuff.

Or yeah, there's some stuff would be like implants for medical device and things you really don't want to fail. The things that are— if you have failed, if you have failures and it's really bad, like life-threatening, I try and stay away from that partly because, as you can probably imagine, the insurance rates for even making a simple product in a foundry with 1,300-degree metal are bad enough. If you are all of a sudden adding that plus the chance that an airplane falls out of the sky, the air, you know, the rates get, uh, just say a little bit more expensive. So it's very, uh, you're all of a sudden not dealing with the same processes. You're x-raying to make sure that every casting is perfect. You're doing non-destructive testing on every casting to make sure you know, again, something won't fail and the rear axle of a vehicle won't fall apart. So it really is a spectrum of where you want. We tend to stay on the lighter commercial, lighter industrial, commercial and lighter industrial, I should say, applications. And again, you're not, you don't need a specialized application to connect a, a railroad crossing sign, for instance, which is a lot of, you know, there's stuff that we do there. Critical failures don't really matter. It's, you put up another one and you move on.

So yeah, I mean, we, and we've looked at on our other podcast, Acquisitions Anonymous, we've looked at a number of kind of foundries, not foundries, machining shops in particular. And, um, I don't know if you heard that episode, but kind of the thesis we had, and look, we don't know what we're talking about sometimes, um, was that, was that the, you know, the more mission critical and the more high value you could get kind of in some of that machining stuff. Like if you're building for aerospace, those guys are happy to pay for quality and they're not going to nickel and dime you. But you're— what I'm hearing from you is actually kind of putting that on its head where you're saying that being in kind of the more, uh, more general purpose mainstream, less high pressure aspects for you, you see that as actually a better business. And we were, we were wrong. Or is there something I'm misunderstanding?

So yeah, but a foundry and machine shop are diametrically opposed. Here's simplistically why. If you think about the machines you just looked at in the— what looked like it was probably from the 1960s, that machine today, if you were to rebuy it individually, is probably $150,000. For me to outfit a foundry exactly what I have today with the equipment that I have, if I were to buy new, is probably anywhere from $5 to $10 million. I can buy that exact same place because it's free assets per se, just in cash flow for $2 million or whatever else it might be. The issue is when you see that, people are like, well, why doesn't everybody buy a foundry? The problem is, is that you have to have knowledge. If you don't have people, it's impossible to do this. And this— they don't exist. All, you know, 80% of foundries in the last 50 years have gone out of business. Most of them have shifted overseas. All of that knowledge since the '80s early '90s has gone somewhere else. I have to train essentially every single person that I bring in because it doesn't exist. You can't go buy a $2 million, $3 million foundry and expect to operate it for more than a year because you won't have workers left. That knowledge base is gone and retired and there's nobody left here in the country. Now compare that with machine shops. To program a machine is really simple. I mean, you can understand X, Y, Z, You can go spend $150,000 and you can now be as competitive as a really high-end machine shop. Maybe you have to get a couple of $10,000, $15,000 testers to prove that you are making the exact product that you say you're making. But for the most part, the moat to get into machine shops is next to none. Now, if you're dealing with the aerospace companies of the world, they trust you, and certainly you're going to get that. There are people that do that, but You know, the machine shop world to me, and this is why I have machine shops that are only captive to what I do because of the lead times and some of the other issues inherent in machine shops without getting into it. The difference is that for us, you know, we, or for them, I should say, they're competing with everybody. I'm competing with almost nobody. They have a plethora of resources and really easy access to machines. The problem is, is that it's a very capex. If you want to continue to be really good and what you need to do to hold the tolerances required in machining, you need to be spending $500,000 to $1 million a year or every other year on machines in order to maintain, you know, the precision that's required. Just, it's a different world. And so I refuse to even look at machine shops, which is funny because I have a lot of buddies who are in machine shops and they do really well. I just don't want that. That is not my animal. The, you know, the CapEx reinvestment, the, the amount of customers— anybody can program it, drop it in, and, you know, they'll leave you for 3 cents or 5 cents. There's tons of it. And it's really hard to find machinists as well, the good ones. So, and they're, you know, you're going to pay a lot for them as well. They just exist and it's easy to find. And at any time they can go again, put 220 volts in their garage, buy a machine, and they're off and running. And they're now your comp— now they're your competitor.

When you're on the equipment upgrade treadmill, right? Where it's like, okay, the guy down the street, what's the old Berkshire Hathaway thing, right? Where they discovered CapEx was going to eat all their cash for the next 50 years on the way down.

Exactly.

So looking at how old this equipment is and how old it lasts, your CapEx, capital expenditures as a percentage of revenue, has to be pretty minimal in the world of physical products at this point.

For the small shops, they have to be. You can't afford them. Like I mentioned, for us, we've gone through, and this is what we're doing, we're actively upgrading automation because we have the volume and the expertise and we can spread it across numerous places. So for us, we have— the way we think about it is very much of a kind of an SME or COE model where we'll have one facility that will be really great at brass, bronze, zinc. We'll have another facility that will do our permanent mold or high-volume shop. We'll have another facility that'll do the real low volume. So we can invest because we can spread that around. We'll take all the different customers that make sense for us to put into automated machinery, and we can go spend that $2 million to upgrade it. And we also have the customers built in, right? It's not like I'm building, spending $5 million and then go looking for customers, which is what you'd have to do if you'd buy new. And unfortunately, if you buy one of these small ones, then you can't afford to, you know, can't buy a business for $2 million and then go dump $2 million right back into it. Well, I guess you could, just foolishly. But, uh, you, you, uh, you really need to figure out how you move everything around, and then you need the people to operate it. If you've had a shop that's been like what you saw in those pictures of very old manual machines from the '60s, the expertise that you need to go implement an automated piece of machinery— so for us, we can do something that might do right now we're probably getting 50 or 60 pieces a day off of those old machines. We'll drop something in and we'll be able to get 300 a day off of an automated or 500 a day off an automated machine. So historically, these places are— they need capital upgrades because you can't find the labor to do them, and that labor doesn't exist. So I think I literally just wrote something this morning about this that People always ask me on this, they're like, why don't you buy foundries? And I'm like, well, I do, but I would never tell you to buy a foundry because you'll fail. We bought one last year, the one that was up there. Had we not had all of the expertise and ability to absorb the issues that they had, that thing would've gone bankrupt within a year had it been a new buyer. I don't know how to tell people to be first-time buyers to go jump in. It's also why I love it because Every time I talk to the micro PE space or anybody else, they've gone through the same process and realized they can't buy one, they have to buy 10 or 5 or whatever. So I talk to them all the time. I'm like, no, no, I already did the heavy lifting. I'm cool. I don't want your money. I'm not giving away equity. I'm totally fine with the spot where I am right now, where I own 100%. And if I have to slow growth because of it, so be it. But I know what I'm doing. It's a simple plan. Now it's just time over target. Give me 3 years, 5 years, 10 years, whatever, and this will be a $50 or $100 million business that just we, we won't have problems with. Yeah, I shouldn't say that. As soon as I say it won't have problems, you know what's coming right now. Like, we're gonna get off this thing and someone's gonna tell me that that automation went down and I've got like a $200,000 bill. I had to say it. So, um, knock on wood. Now, now I've screwed myself.

So in this kind of smaller subscale foundries, right, uh, domestically you're competing on quality, service, and then speed, speed to market and willingness to do small runs. Like, what is a typical foundry kind of top line for a year in terms of revenue?

So generally speaking, you look at two major— I've talked to the, the Foundry Society, the people that we know, and now that we own four of these things, they think I own as many, if not more, than almost any foundry owner in the country, which is kind of funny to me, but it's not. I mean, it's— I'm now top 1% or 2% or whatever. But generally speaking, you have everybody— every small town growing up had a foundry. And the reason why is people came back from the war in the '40s, they had this idea, you know, they found a 1,000 or 2,000 square foot brick building, stuck a furnace in the corner, and then melted down whatever they could into making products. Those are the 80% that have gone out of business. So there are probably I'm going to make the number up, but of the 780 of these things that are kind of in our specific acquisition that we've looked at, probably 400 or 500 of them fit into maybe $1.5 million, $2 million in sales or less.

Okay.

Of that, you're probably talking about less than 5% are above $10 million in sales. And those are automotive, you know, they're selling to the John Deeres and the Caterpillars and the Fords and the Chryslers or whatever the world. That's— and then there's a huge chasm in between. You know, if you look at— I were to guess, if you looked at foundries between $5 million and $25 million in this country, it would be 1%, 2%. I mean, it's just a tiny number. And what is left is all those people that are under, call it, $2 million, $3 million, whatever. They're all foundry-owned or they're family-owned. They're third generation, second generation, Everyone that I've purchased have been in their 60s or 70s except for one. Folks that their parents or their grandparents started it, next generation grew it. Now, that third generation wants nothing to do with it. They became doctors and lawyers and they saw how hard of work it was and they lived through their parents watching 80% of these things close and they clawed and fight their way to a living. Now, they're probably doing well the last few years to make their retirement, Nobody wants anything to do with those. So it's a really, really odd and tough market. And it's also why when I looked at this thing 5 years ago, I jumped in and I think I jumped in because I didn't know enough, would be the best way. But it worked out well. Revisionist history, you can always make work. But if I knew now what I knew then, there is no way I'd be jumping in to do this currently.

Yeah. And so, okay, so it sounds like a lot of these are in the, like, your space kind of is in the $1 to $4, $2 to $5 kind of top line revenue for a local foundry.

Yeah. If you find them, if you find them between $3, they're pretty rare between even $3 and $5. We, and I think, and I've talked about this before, but we're, there's about 780 that we've profiled. We've talked over 600 of them. The other 150 or so don't want to talk to us. So Yeah, it is a running joke right now that if anybody comes up in our general space that says we're interested in selling or we don't know what we want to do, they'll say, oh, those kids up in Minnesota are buying foundries. Everybody knows it. The— my inbound, I didn't even— I can't find a lot of these folks that have called me. They don't have websites, they don't exist. It is, hey, uh, we're doing $1.2 million in sales, we've been really liking this, it's made our family a little bit of money, now we want to retire, what do you want to do? I'm like, ah, sorry, you're a tuck-in for me. And so what my entire strategy is, is that we go find a geographic area every about 500 miles. And the reason why is because what those small customers want to do is they want to get up in the morning, get their kids to school, drive and see me— not literally me anymore, but see the shop, shake hands, have lunch, see their products getting poured, drive back home and be back in time for dinner. That is perfect. So you have to be about 250, 300 miles away from everybody to do that. So we We do big concentric circles of about 500 miles. We know exactly the foundries we're targeting in each one of those kind of 500-mile increments. We go in there, we talk to the vendors, we talk to customers, we understand, you know, what might be needed in that area. We pick one and say, hey, that's going to be our beachhead, and then we'll go do 2 or 3 more tuck-ins around that. And so when these guys call me, they're doing $800,000 or $1.2 million. I mean, they're almost never making money. They, you know, I have to have a spot there first. I have to have a beachhead. I have to have the best foundry in that area. And then I'll stick it underneath there and, you know, we'll continue to grow. And once you get these things each to $5 million or $7 million or $10 million in one location a year, it just gets to be unwieldy unless you're doing a lot of automation. So we just kind of expand it again.

Yeah, totally dig it. Okay, so kind of the, the 4 to 6 is the goal, and, and totally, totally, you see kind of that, that stuff. One more thing kind of about process. So yeah, we talked about the outputs. What are the inputs, right? So you're buying raw aluminum, sand. Like, tell me about the supply chain and, and how you think about that.

Yeah, it's really simple. We buy sand and we buy raw aluminum, and that's essentially it. There's a few things that are added in there. There's some other additives you need to put in the sand, and there's a few other modifiers you need to have, but really that's it. Just stick aluminum ingot, whichever specific kind of aluminum you need, whichever is specified by the customer project, and melt that, pour it, and you're off and running. And then we recycle probably about— most quoted number is like 98 or 99% of everything gets recycled in an aluminum foundry. So we take that and we add a little bit of sand, new sand to the old sand that we continue to reuse on a consistent basis. And that's really it. So same thing, any excess scrap that you have, you melt back in. There's a certain rate that we're willing to melt let's call it scrap back into virgin ingot, assuming, and we, each customer project dictates that. But yeah, everything pretty much gets recycled in-house. Very little stuff has to go to almost no, actually there's zero landfills because we have nothing caustic or toxic that we use in our facilities. We've gotten rid of all that. So it's just something that, okay, there's excess sand we can't use anymore because it's been used too many times. Then that goes into landfills or actually it's really roadbeds is probably about 99% of what we have. So they build highways on top of it. Or whatever else it might be after we're done with it.

Yeah, super cool.

Cool.

So shifting gears a little bit, we talked about kind of average revenue per foundry, right? In a geographical coverage. So, you know, like if I come in and I'm buying a finished product from you, that's say a $100 gear, right? Yep. Like let's walk through. So what, out of that $100, so obviously you have labor and— Yep. and raw materials. What are the two kind of— what's the percentage that each of those comprise of your costs?

I tell everybody really simple, and I tell my customers this too, it's going to be 25% labor, 25% raw material, 25% overhead, 25% profit. Okay. Just, I mean, it'll vary a little bit obviously, but I mean, it, it's going to be in that ballpark. We have a number, each of our foundries, our direct labor needs to be around 25%. Sometimes it's 22, 23 in the real high value. Sometimes it's 27, 28 in the low value. But, you know, our shop guys, the GMs that are running it, know roughly what they need to do. And we just think about it as it's just a Lego, you know, it's just a building block where you need X number of people melting, X number of people pouring, X number of people cleaning. And we just know that how you add that, we know exactly what order we need to add those in. But that has to come out to be— it'll be around 25, same exact thing. More exotic material instead of being 25, it might be 35, you know, and your labor might be less because obviously that's a higher percentage. Overhead tends to be roughly the same, and that's mainly our headquarters that we're building out. And so, you know, our process as we go through this is each time we add another acquisition, we add somebody that we need at a corporate level that is able to help us where we can't afford it on the individual. You know, we talked about that decentralized thing again last night. Where we try and keep as many things decentralized as possible. And once we can afford something in a local facility to be decentralized, we'll do that. In the meantime, we build central headquarters level stuff to help us, you know, whether it be the latest technology from an engineering perspective or a controller slash CFO, someone to do, you know, whatever else it might be. And then that— so that's part of our 25%. And then 25%, it kind of works out to be profit. Sometimes that's you know, 17, 18%. Some places that's 27%. Again, it all is around there. Everything moves on a sliding scale depending on if it's pretty simple, more commoditized, higher volume product, it's going to be lower end on the, you know, profit, higher end on the people and the material. The more specialized, we just see that shift exactly the opposite. But as long as we keep them roughly within those ratios, each of our facilities has those metrics. And when we look at them, we're higher than industry norm typically by a lot. Partly that's because of our scale and what we're doing now. I mean, we've probably added 7, 8 points at least to our bottom line by going through all of our different acquisitions, back office automation, things we do where we understand our price and our value. We bought one facility and literally we knew how bad they were because they were killing us in our own market when they lowballing so many things. We bought them. I bought them on Tuesday and on Wednesday we sent out a price increase of 50% to every single person. I'd even looked at them like, I know you guys are at least this far under and they were losing money on deals. There was one product they were like, this is their best customer doing $120,000 a year and they were losing $20,000 in profit a year. It was like, well, I can't afford to tape $20 bills to every casting I send out the door, so we got to do something different. And the customers are like, well, we don't understand. I was like, well, the reason why I bought it is because they're going bankrupt. So if you want to continue to have supply of your product, you're going to have to pay more because they've been subsidizing your product for a decade. But yeah, it's pretty common in this industry.

So, and to make sure I understand, when you're— if one of these is running well and you're happy with it, you know, for every dollar they take in, there should be $0.25 going back up to, to corporate.

Right?

That's like, that's— yeah, we build cash flow flying back in if things go—

yeah, that's actually it. I mean, technically I include our overhead. We, we push our overhead out to each facility too, so I don't have a corporate— is not a cost center. Corporate is allocated out. So the 25, the 25 cents in your model is what is coming out in my world, putting in my pocket since I own 100% and the PE guys haven't gotten in there yet. But, uh, yeah, anyway, so, uh, it— yeah, that's, that's generally the way I think industry Typically with a lot of stuff we've seen is probably 15 to 20%. I mean, there's some folks that get 22, there's some folks that get 30 that are real specialized, but we've seen a lot of them that are, you need to be over, if you're not doing over $2.5, $3 million, you're in a hobby and you're probably not making a lot of money. You think you are, but in reality you're just letting all the equipment go bad and you're not reinvesting in, in reality. You know, you're, you're a million and a half, like I mentioned before, your million and a half dollar foundry is worth essentially nothing to me other than a tuck-in. And that is value that I create because I have the business. I'm not going to pay you, you know, because I can make money on it is kind of the way that we normally have those conversations. And then honestly, a lot of people understand that. I don't, I'm not, I think I've only had one person ever hang up on me and get so mad at me that they, uh, they refuse to talk with me anymore, but I don't know. I guess.

And where, in terms of seller's discretionary earnings, kind of for this $2 to $4 million, it sounds like you want to be closer to $3 to $4 million top line for a given foundry. Where are those trading in the market these days? I guess both in terms of actual SDE and what your pro forma is.

So the way we do it is we just explain we are not owner operators. We'll put GMs in. So we go in there, we come up with their SDE just essentially Ebitda plus whatever their benefit they're getting. And then we're going to subtract out whatever family members we need to replace. If it's, you know, the person running the shop and then a bookkeeper, we're pulling that out. And then we typically tell people it'll be around 3x that modified SDE number. If it's really high customer concentration, you know, all the negative things you think about a business, it's probably going to be closer to 2.5 or 2.7. If it's a great business that maybe has a GM and I have to worry about it, that might probably be 3.5. But again, I understand that's trading under what I think a lot of manufacturing in other places are, but I'm not going to say I'm buyer of one, but a lot of these places, there's not a lot of interest unless they don't understand the real market and the problems with it. So I think most of the sellers that I talk to, They understand the situation that they can't get workers and they're not trying to drop this problem on somebody else. They've dealt with it for a long time and they're more concerned about their employees and their customers. So they're willing to work with me and understand seller financing, earnouts, getting that, hey, some broker told them this is worth 5x when in reality they're going to get 2.5 or 3. Again, We're very upfront about why we do it and how we do it, and we just walk them through it and say, in order— we know that we have to be around this number. And obviously it's not just an X number of multiple of earnings. We actually go through the cash flows and what we need, but that's normally what it comes out at once we figure out, okay, now I've got to go dump back in an extra 1, 2% of sales that needs to go back into CapEx. Or I know I'm going to spend $100,000 in maintenance in the first year because I walk through and I can see all the telltale signs that you guys haven't done the right maintenance that you need. Or you don't have the equipment anymore to make quality products and you're probably scrapping 30% even though it's hidden because you think that welding a product or just remelting it is okay. I mean, it's, uh, it, it's just, I mean, it, again, this is, this is what, you know, the value of rollups and doing multiples of these. My first foundry took me 4 hours to walk through and I had no idea what I was doing for 4 months even after I bought it. Now I can walk through and with probably in 15 minutes or 20 minutes, I'll know exactly what we would need to do with a place.

Yeah. I mean, and I think that's— there's a bunch of discussion on Twitter about rollups, centralization, decentralization, and then also like being a buyer and having an edge or not having an edge.

Oh, here we are. I knew we were going to get to it.

So, so anyway, before we get there, right, we may not even get there, but this, this is not, this is not a debate show, by the way.

So I didn't want to be— we're not going to like yell at each other back and forth like, uh, like what ESPN does, who yells louder, or whatever the name of those shows are.

Pardon the interruption. Favorite, favorite show on there, by the way. Um, so let's switch gears if it's all right.

Uh, go ahead.

But anyway, my point with that is like, you— if for anybody listening, this is the way strategic acquirers, like exactly what you're saying, think about deals and why strategic acquirers, which you've become one given your, your unfair advantages, like you have an edge.

Yeah.

Uh, and it's paying off for you, which is like super cool. Um, one of my companies is looking at another business in the exact same space. And like, we have a huge edge over anybody else to look at it. Anybody else is going to poop. It's going to poop on it. And what you're seeing there is when you go deep, like you have, and you have an edge in something, like you can really make a lot of money and get a lot of benefit from, from doing that. So anyway, kudos to you for putting in the hard work.

Well, the one thing I, and this is, I encourage other people to do it. We've literally seen this. It's happened 2 or 3 times in this industry specifically. And I know exactly where these guys are. And they will pump in— they'll get in there, realize exactly the problems that I've identified. They'll have to go put in $2-3 million, one of the people, whatever. They're not going to make it out of the end of this, and I'm going to buy them for pennies on the dollar of what they had before, which, yeah, hey, great for me, I guess, kind of. But it's going to be a lot of turmoil for all those customers and all the, the employees, which is what— that's the conversation I have a lot of time with the with the owners, these people that have been there with these guys for 30 or 40 years. I explained to them and they know, they understand it. Um, and then like I said, I've had almost none of them not have that conversation well. And so it's just one of those things where we're not doing this for the money anymore. It's certainly— we're doing this because we want to build good jobs, we want to supply locally, we want to have US-based manufacturing, etc. That, that's the conversations that we tend to have. And yeah, you're right. Certainly have an edge, certainly in there. And once you get it, and it is a different animal, comparably speaking.

So one quick question I forgot to ask about cash flow dynamics. So how does that look in terms of the business? Are you getting paid ahead of time for some of these things? Are you getting half down? What does your cash flow model look like?

There's two different parts of this answer. When you're developing a new product ahead of time, you may be spending anywhere from maybe $2,000 to $5,000 on the low end to $100,000 plus on the high end just to get the tooling ready to make what it is. Now, in that case, if this is a good customer and we understand what it is, we expect a PO upfront because some of that work goes away from what we do out of house. So we'll have that and say, you know, within— I don't know, I'll make it up— 15 days or cash on delivery for 50% or whatever else it might be. Then for the folks that are, you know, we talk with them all the time, we know them. Once we get going, it's normally half down in 30 days and another half when it's delivered. That's just on the tooling because it gets outside of what we do. We have to have our outside vendors. We get 30 days with them. So I'm not too worried about most of our customers. Now, when we talk about products, new customers that we know nothing about, unless someone can vouch for them, we normally start closer to cash on delivery. Honestly, we've had so few large customers in the recent term, you know, we kind of know exactly who we're targeting and we understand their business and what they're doing. It's normally we go directly to 30-day terms. There's some folks that want to get, you know, 2 net 10. There's some big corporate guys that would love to push me to 45 or 60 or 90, and I'm like, okay, but I'll be perfectly honest with you, you're going to pay me whether you pay me in 30 days or whether you pay me in 90, you're going to effectively make it because you're going to charge— I'm going to charge you a lot more for 90-day terms, just so you know. And they're like, hey, I get it. That's what my corporation wants. I was like, okay, well, you're going to get like a 10% price increase. So awesome for me, man. I have plenty of cash kicking around this business. You want to pay me 10% more on 90-day? I will take that every day. No problem whatsoever. These are giant companies, right? I mean, they're not going out of business. They're not going to not pay me. So yeah, that's, that's not a big deal at all. But I would say if you looked at it, it's probably 26, 27 days in most of our places, generally speaking, between, you know, kind of the netting out of the guys that want to pay immediately, cash on delivery, 2 net 10 versus the guys that are at 45 or 60. And I think just generally speaking, to get this thing going, working capital is always probably— that's the other big thing in cash. We almost always have to dump in 6 figures at every place we buy just because we we like to have everything there immediately and be able to quick turn if a customer needs it. We don't want to be waiting for whatever, you know, 3 weeks to get raw material or something because it's unique. So we'll put a bunch of stuff in there. So we normally think of it takes us somewhere around 45 to 60 days of working capital, and then everyone we're buying right now, we're cash flow positive within about 90 days. So But again, that's, that's minus the cash we have to dump in. So we're very, very quickly, because again, it's 4 years ago, I had no idea what I was doing. Right now, we don't even think about market pricing. We know exactly what we're going to do. We know exactly, and everything changes day one. And so it's just, it's a great way to generate cash very quickly because you build product very quick, and then you get delivered cash very quick, right?

So yeah, pretty, pretty cool conversion cycle. Cool. So switching gears a little bit, like, walk me through how is an individual like your founder and Missouri? Like, how is, how is that staffed? And, and this, how is that, that organized?

Yep. So we, how we typically run this would be, if we have, for every, we think about as direct employees and we build from the ground up. So we think of, if you have 6 to 8 employees, you need some sort of a supervisor, leader, whatever. If you then get 3 leaders, sometimes 2 in the case of what we have there, we really only have 2, but then we'll stick a GM in place to run everything. So we don't— and that's why we try and build it fast enough. If you don't have 3 people, so you're at least 18, you're— if you don't have 12 to 18 folks on the shop floor, then you don't have enough for a GM. And if you don't have enough for the GM, you really need to grow it fast. And so we were— we've only purchased one that is very strategic in that regard, and it happens to be the one in Kansas City randomly. That they were on the smaller side because there are 3 other tuck-ins that I'm gonna have there. I love that business to death, and it's in an 11,000-square-foot building right now. It's got a huge parking lot that was built to be expanded to 30,000 to 50,000 square feet, and there's a parking lot that is right next to it, so I can get— or there's an open lot next to it that has got all the parking I ever need, so I can, uh, I can make that facility go 4 or 5x within 3 years and not have any problems whatsoever. I have a direct path to do it. It's just, do I have the bandwidth of people to get those in? But yeah, so normally, uh, not to obfuscate this too much, 6 to 8 people per leader, 3 leaders per GM, and then anything that needs to be local that we can decentralize, we will. But typically we'll start with almost nothing decentralized. You know, we'll move the bookkeeping out of there, we'll move phone answering, we'll get forwarded on somewhere else, etc. And that honestly, that's the one thing that I'm struggling with right now, is that I want to make these places feel like they're the still the small business with the, the owners that used to be there. So it— I struggle a little bit with that because as soon as I remove that office person who used to answer the phone, shake hands— literally when I was down there, there was two people that walked in and delivered their, their cookie trays that they'd used on their church bakeout the week before or whatever it was. And so as soon as I take that out, right, I'm like, oh man, am I losing part of what's great about this? So that, that's been the one thing that is that simple back office automation and decentralization or centralization, I should say, that I struggle with my head all the time. Is it worth it to pay somebody $30,000 or $50,000 or whatever? Can I find jobs for them at a headquarters level per se to help us out that I'm not just burning it? So that I still have a little bit of that local, local feel to it. And it constantly has become like the thing I've been debating in my head for the last 6 months, almost on a daily basis. I flip, it seems.

Got it. Okay. And then the GMs, they have partial P&L or full P&L responsibility for our location. So we set up—

yeah, we try and make our GMs, especially to start, only have to worry about within the four walls. So we give them specific metrics they need to worry about. We've done some things on a, you know, more of a corporate purchasing, so we know where we're going to be buying from, what the market should be, etc. But for the most part, you know, really the things they need to worry about, because there's so few inputs into the process, is making sure that they have the day-to-day folks, you know, the, the proper number of people on the floor to get the proper output that they're getting. Making sure that they're building the products that they need and, you know, those products are being sent out on time. And then as they, as the facilities get more, their P&L response, or as their P&L grows, their role grows as well. And they continue to prove that they can do it. It tends to be, we come in and we just operate the velocity of what we do. Comparably speaking to the places that we buy is normally so much that The GMs for the first year or two are just there to implement, get our systems running, you know, make sure those things are seamless and get the output up out of the facility. Again, we have some standard procedures. We're like, hey, you need to start doing this, you start doing that. And then, you know, by the way, your output needs to be up 50% in 2 years because here's all the things that you guys don't realize you're wasting time on that we can tell you you're wasting time on because we've just spent the last 4 years fixing all those things. So. Yeah, most of the time just getting these up to speed, the GMs don't have much more responsibility other than what they need to handle on the four walls.

And so you mentioned the GMs will typically have three leaders reporting up to them. So is that like a production, a sales, and a design team, or how does that look?

And so we try and get— yeah, so we try and think of it just what's more blue collar on the floor. GMs, in reality, the way they initially start are almost more plant managers. It's probably a better way to put it a lot of times. In that there's kind of 3 distinct portions of a foundry. There is, I think, kind of the, the metal prep and the getting the, the material, uh, actually made, physically poured, etc. Then there's a second part where you actually have to go through cleaning, which is literally cutting all the excess stuff off, making sure that you polish the surface, whatever might need to happen. And then there's kind of the third part, which involves, you know, a machine shop or some post-secondary processing if you need to make a more intricate part or you need to get it painted or you need to do whatever, kind of a shipping, receiving, quality, whatever. So typically you'll see GMs finishing and kind of shipping, machining, etc. is one leader. The foundry and everything else is a second leader. And then as we grow, that third part grows out of there. So that's why we'll normally put a GM in place before we have that third leader, just because we need to get them get the capacity or the output up so that we can then justify getting more workers and putting that third leader in there anyway. So it's kind of our way of growing ahead of time just because we've seen much more success by having— and it's typically the people that we found that work best are engineers or, you know, with some sort of business acumen where they can jump in and they really under— when something goes down, they have an ability to solve a problem. They understand some level of the physical and chemical properties of what's going on, especially when they're chatting with engineers or buyers. You know, a lot of these are engineering manufacturing type companies. They're able to have conversations at a different level than what a blue collar guy would, or even a, you know, an ops guy would, per se. It— we've found it works a lot better for us to have some sort of technical background. Mainly it's the, the critical thinking, but there's a little bit of the science that's, that's there as well. And then as we grow each individual, like the one we have in Minnesota, there's probably 6 or 7 leaders in that facility right now. So, you know, it just, it just depends on the size and what we need to do.

So where does like sales and go-to-market live? We haven't really talked about that. Do you have that all headquarters or—

Yeah, so here's the crazy part. We've— I have an outside marketing agency that has done a little bit of this. We've never had a salesperson in our life. It's all been word of mouth, and we've been so busy since I've— so the first 6 or 12 months was just understanding what happened and started to do right by the customer. You know, call— in my world, when I started 4 and a half years ago, calling a customer back within a day or arguably a week was good customer service. I mean, this is a real low bar. So we, uh, we just started talking to customers much more frequently, said, hey, we're willing to take more business. We started delivering high-quality products on time, is kind of my mantra. And what would happen was a buyer would talk to another buyer, or that buyer would have two other foundries and they would have problems. And then that buyer, after 9 months or 12 months, would go to another company. They would drag us to that new company, or they would go to their local, you know, buyer groups, be like, hey, this foundry is killing it. All of a sudden I have like 6 guys showing up. I'm like, what? What? Like, I don't, I don't even know who you are. And so yeah, we, and then we just, one of the businesses we bought did a much better job at, uh, kind of an automation online, some of the stuff. And that was another big thing. But we, as of yet, we've had way more demand than we've been able to supply. And so every time I think, like, feels like there's a little lull, I think, okay, I'm going to actually need to go hire a true salesperson. And then I'll get so much work that I don't know, I have to turn work away again. And it's happened.

So maybe another way to ask it, who Who, when, when a customer shows up and you sit down with them, you consult with them, you walk them through the process, you write them a proposal. Who does that? Is that the GM?

Yeah, yeah, it's normally— yeah, that's normally— it'll be— so up until 2 weeks ago when my president quit, it would— it started as me and then it shifted to him, and now it's shifting to— we have a person at headquarters that does some of that, but typically we'll push them off to the GM. They'll get the general requirements, and because we've created this in such a simple checklist type of a template almost to make this happen. I'm not going to say anybody can run it, but it really does paint-by-numbers type of a situation. Answer these questions, we know exactly what it'll be. We can go to the engineers, we can go to the pattern makers, we can go to whatever, we can drop it in their lap, and then we'll have 2 or 3 conversations with them and we'll build them a product. And after that, they submit POs and we deliver it. But again, that's been— yeah, that's a lot of work compared to where we were. This, this is not the way this happened, uh, 4 and a half years ago. It was incredibly high-touch, incredibly manual. No idea what was going on. So many steps were missed, balls dropped, whatever you want to say. But we've now created where I use the— if a surgeon has a checklist to make sure that they don't leave a sponge inside of you, or a pilot does to make sure the plane takes off, pretty confident we can do the same thing. So we've just tried to document every single part of that process, and every time we go through it, we continue to add or subtract or whatever else we need to do to make this really, really easy.

Yeah, I dig it. So, so you did have it up until a few weeks ago, you had it set up that you were CEO, owner. Yeah, you had a president. And then I said, I know I saw another person on the website that said GM.

Yep.

Under corporate. So how is corporate organized in terms of the leadership?

So corporate is changing. Organized corporate, it was organized that I did absolutely nothing day to day as we talked about. Uh, the president handled everything. He kind of managed the customers and the marketing, and then he had an ops person underneath him. The— what we're doing now, that general manager is going to— we're shutting down growth for the most part for the next 4 or 5 months, just because like I mentioned, we're almost already booked through the rest of the year. So with all these new people and new roles, kind of said, just take a step back, let's do the right thing, uh, let's just figure out how to execute on what we have in front of us. And so we're going to shift chairs and the big part that he's going, that we wouldn't have done, or we would have done, sorry, that we won't be doing is that external growth and figuring out where the next acquisition is going to come in the next 6 months. So I'm going to put that off 6 months and redo that. But, you know, historically speaking, I had a president, I had a director of operations who is that GM, and then separate GMs inside of each facility. So now what that'll be is that GM will become the person that runs all of our day-to-day, pretty much a COO, and then individual GMs running everything. And then I won't have a person that would be able to integrate acquisitions in the next 6 months. So talk to me in January and I'll figure out what I'm going to do, if we're going to bring someone else in for that role specifically, if we're going to completely redo the, uh, the structure that I had that I was really enjoying. I'm not exactly positive right now, but But we're working through that as we go.

Yeah. And maybe you talked about it on Twitter and I missed it, but what happened with the president?

And you're welcome to say, "I'm not sure talking about this." No, no, no, no, no. I mean, I'll talk about anything. I don't care. I was wide open about it. What it amounted to is we brought him in to help us grow. And really what that was is I had one facility at the time. I just bought my second. We didn't have all the things set up that I talked about right now about the processes. We hadn't done any other integration, so we didn't have how we bring people into our new systems. It was a bunch of knowledge that we didn't have from a technical perspective. He was very, very high-end. He was the chief engineer at a public company. Guy who I used to work with always said, if I ever go do something, I'm bringing him in to help me build whatever. But what it amounted to, and I had alluded to this accidentally on Twitter, was it's really hard to keep Rockstar employees not just happy but challenged. And so I think part of it was a big element. I just didn't have a job that was big enough for him fast enough, and he got an opportunity to go back and do a really big job somewhere else. Yeah, it's personally totally fine with us. He was never meant to be a long-term operations person, and that's unfortunately because of how fast we've been growing and what we've been doing and haven't figured out a way to bring a real chief operating officer in to help us integrate. He ended up filling that role. Now, unfortunately, that is a role that literally I was hiring for with moving the GM back into that ops role. It would've taken everything off his plate, but in the meantime, You know, we just burnt him out. We, you know, that's my fault. I didn't do a good enough job of understanding exactly what he wanted to do. I thought that he knew more about the direction we were going and what I expected. And so that's, you know, it was just a part that it ended up being a bad fit. Personally, the guy's awesome. He's still a really good friend of mine, always will be, always be someone that will still go hang out with he and his wife. And whatever else needs to happen, you know, that's not a problem at all. It just, it happens a lot in small business, right? You get in that lull spot where you, you grow like crazy, and then you need to figure out how to retrench a little bit, get all the base back under you, and figure out your foundation before you go take that next step. And we were in that, you know, before we got to take that next step. And I think it was just him looking at it and saying, I don't want to do this job for another year, you know, I've got this opportunity to go do something I really want. And I'm totally happy for him. Couldn't be, you know, sucks for us. But at the same time, you know, we had all the bench, we built this out in advance. It's a ton of what we focus on to make sure that we could take care of it. And then as soon as we got that figured out, I mean, it's been an— I'm not going to say it's a seamless transition, but 2 weeks post or almost 3 weeks now, there's not a lot of hiccups. We know what we're doing. The employees were fine. People stepped into their new roles. We're already, you know, redoing succession plans for all the people in their new roles and who's going to be taking the next step on. And so this is why it's just constantly evolving. And when you grow, I mean, we're 5x bigger than what we were 4 years ago. Just kind of a necessary evil that you're still— I know that's not startup growth, I get it. But in a 70-year-old company that pretty much hasn't changed in 50 years, going 5x, you would think that we are moving at light speed because nothing was built for anything like the velocity of what we're moving right now. And so it's kind of a running— I feel like I grow and then I have to go figure out how to be profitable again, and then I grow a lot again, and then we have to go figure out how to be profitable. It's just like a, you know, it's that same thing, the $5 million, the $10 million, the $20 million, you know, each one of these are such different hurdles that you need to get over. You know, we're just kind of in one of those right now with that churn.

Yeah, I hear you. And to go all the way back to the very beginning, and you said you own 100% of the company, you did the first one of these acquisitions with your own savings? And how was that all financed to put together? Yep.

So SBA deal, had absolutely no idea. Like, I knew what the SBA was just because I'd read something. Like, I knew what the small business— I didn't know what a 7 loan was. I didn't know any of this. Uh, someone can go look on Twitter and watch. I had no idea what I was doing when it came to actually financing these personally. I'd done corporate M&A, but I went and looked at the business and I talked to the broker a couple of weeks before the specific one came up. And she told me, "Don't worry about it. I've got one coming. It's already pre-approved for financing. You don't even have to worry about that. Just worry about whether you're going to want the business or not." And I was so naive. I was like, "Ah, this is just like being in corporate where you just call down to the treasury's office and you just get a check." And it must— Yeah. Well, I was maybe a little bit wrong about that. But in the meantime, put down cash that my wife and I had to buy 100%, did an SBA deal with, uh, 10%. So we put down 15%, seller carried 10% note, the SBA did the rest. And then it was so miserable to work with a company, the big bank that they'd gone through. I actually had grown— I'd almost doubled the business in 18 months, went to our local bank, and I said— the one that we'd use payroll with, they have like 3 facilities. I knew the banker personally after 18 months, and I just said, hey man, I don't care, just get me into something that's close to what my deal is with this SBA. And he came back and he was like, all right, so I can't get you the amount of time, it was like 10 years left or whatever. He's like, but if you can do this in 7, I can remove the personal guarantee and we'll do this just a structured, just a regular commercial loan. Own. I was, yep, in, whatever it takes, I don't care. So we bought out the seller note and put this thing over 7 years. Technically, it ended up being over 5, but that's a whole other story. And we're off and running. And then the next one, so yeah, we've done these every time. We've done little deals here and there. The second one we bought in cash with a little bit of help from that local bank. The third, fourth ones we did on an SBA deal, which has been interesting because we're trying to refinance out of that relatively quickly. And then the fifth one, we did with the local bank that they'd used forever. And the grandpa that had started the bank was literally the grandpa that was in the foundry business, was on the board. And then the brother that we actually bought it from was on the board of the bank as well. And the guy, I've gotten to know him really well now, he told me that he didn't think that there was any way they were going to lend to me when I first talked to him because I hadn't known them for at least 45 years. So that was something else. I was like, "What?" Like, "Yeah, we might open a checking account for you." But I was like, "I didn't think there was any way we were going to give you any money." That's awesome. That's a small bank right there.

I hear you. Well, this has been awesome. I think it's just a fascinating business and your clarity of thought on it is really really impressive. So thanks for sharing it with me, and I think everybody else will enjoy it too. You know, in closing, what, what can we do as an audience or people that listen to this? There are hundreds, we are legion. Uh, what do you do to support you? Actually, well, so interesting factoids for you. By making it to 20 episodes, and you're the 20th episode I've recorded, and having more than 100 listeners, you get in the top up 1% of all podcasts.

Are you serious?

Uh, yeah, this one's getting close to about half as popular as Acquisitions Anonymous, which is our big one. These are, uh, so awesome.

Well, I'm gonna put a shameless plug in there. I can't wait to do— let's do one of those deals where I can actually add value on Acquisitions Anonymous too. All right, we'll get some foundries and machine shops. Yeah, exactly, we'll get a bunch of stuff that, uh— all right, um, no, honestly, I, I It's really weird to say that I don't need help. I, I have a plan, I just need to go execute, right? So if anyone knows like really great operators that are Foundry experts, send them my way. Unfortunately, I don't think those people exist. But you know, beyond that, beyond that, it'd be— I joined up, did this Twitter thing, I'm just trying to help. And I will— I'm exactly the opposite way. I love jumping on. I can't tell you how many conversations I've had in the last month, everywhere, from people who have been no idea what they were, exactly the same place I was, not understanding what SBA was, much less how to spell it. Certainly didn't know how to do due diligence in small companies or anything else. And so yeah, follow along, happy to help, reach out, anything I can do to make especially this thing work. And we need people to buy manufacturing. Not everybody needs to buy, you know, coffee companies and Chili's franchises and SaaS. So I mean, hey, people, Jump in. Let's do some, uh, let's do some other manufacturing. That'll be, uh, that'll be fun.

Give me, give me some time. And you are, uh, @RegZeller, two L's, on, uh, on Twitter, right?

Yes, sir.

Super cool, super cool. All right, man, well, great job today. Your passion for, uh, for what you're doing really, really comes through. So thanks for talking to us about it.

I was having to apologize, I talked too long about this. My wife tells me that, she's like, you gotta shut up, no one cares about this level of detail.

Uh, You are my longest episode to date.

I told you, we already knew this was gonna happen. You called it.

Good job by you. All right, man, thanks.

Of course.