#322 - Reg Zeller - CEO @ CaneKast - Rolling Up Foundries & Making Manufacturing in America Great Again

Reg Zeller: Yeah. We're not quite the only game in town, but there were 4,000 foundries. Okay. A lot of them started back. Typically, we were in the forties, so we came back from the war. People didn't know what to do. Suddenly, they built a thousand-square-foot cinder block building and stuck a foundry.

And so we went from just in our specific type of small aluminium foundries about 4,050 years ago. There were 770 before COVID-19, and there were 650 post-COVID. Based on my conversations, 20 to 50% of those will leave business in the next five years.

Chris Powers: So what, what took us from 4,000 to 700? Consolidation or just people going, okay, China overseas and then. Are any of the ones going to go out of business that you're interested in, like buying the assets?

Reg Zeller: Yeah, so we've got, we've talked to the vast majority. When I say the vast majority, I've spoken to over 600 of them, and these are specific niches, small foundries, and they have.

For instance, every single problem imaginable that a searcher wouldn't want. They have high CapEx costs. They take a lot of working capital. There's critical personnel risk everywhere, such as customer concentration. They keep everything they say not to buy in a search fund. Is it a foundry or any small manufacturing company in the U.S.?

Chris Powers: Okay. So what you said, you're like, we're the only game in town. And I said, when I hear that, I'm like, usually there's a reason why nobody else.

Reg Zeller: Now, let's see, seven, almost seven years ago, precisely seven years and two months, maybe one month. I'd never stepped foot in a foundry before I bought my first one.

Less than six months later, we owned one. Now we own seven and probably hold 30 of these things. But even then, think of a timeline in the 80s and early eighties, when we started to ship many more products overseas. There was a lot more supply than there was demand. And then, as you got further into the eighties, especially into the nineties, we moved a ton of stuff overseas.

And then, no one went into the industry. So, if you think of the nineties through today, stop having people enter these industries in the eighties, especially in the nineties. There are no people left either. So you have to train everyone or buy multiple millions of dollars worth of equipment that you only get payback on if you have enough of them to eliminate enough people and get enough work.

So right now is a great time to be in it, but for you to come and compete with us, it would cost you 10 million in capital to build one of our facilities. And at that same time, you would then need to find 20 workers. Where would you find them? It would help if you went to see customers.

That is typically an 18-month sales cycle. I mean, it is, you name it. It is one nightmare after the next, but this is also why, when we started looking at this, I talked to many different people in the foundry industry specifically. And they told me I was an idiot for thinking about buying it. They're like, whatever you do, do not buy a founder.

You will hate yourself. It is a terrible, terrible, terrible decision. In my mind, I thought about it ultimately the other way. I said, I agree with you. I understand. I think about it. I can last three years, five years, seven years, whatever. Get over that hump now I have moats. We had a concise window of time because, if you think about it, the 30 years I bought my first one, it was many of the guys. It is almost exclusively large guys that work in these boundaries because you're slinging 40 pounds of hot metal for 10 hours a day or hundreds of pounds of sand you're moving around.

So we don't see, literally, many females, period. These guys were 58, 60, whatever, and now seven years later, they're gone. So you've seen 20% of the foundries go out in the last seven years, but you've probably also seen 80% of the knowledge.

Chris Powers: Okay. To get this out of the way, What's a foundry? There may be only one thing.

Reg Zeller: There is only, well, I mean, so the software guys like to find fancy names. They have software foundries now, chip foundries, and other things, but traditionally, foundry has been around for 6,000-plus years. It's the first known casting is a frog from Mesopotamia. It was something like 5 500 or 5 800 years ago. They think and what you do, mainly melt metal porn into some form. We are in nonferrous, primarily aluminium. Nonferrous means without iron.

So you can have different materials for the rest of what you would have: steel, iron, etc. Yeah, all you do, depending on the type of metal, you heat it anywhere from 1300 to 3000 degrees. And then there's a negative impression of a form, and when you finish pouring it, there is the product.

Chris Powers: Of the 700 that stayed in America, could those have all gone overseas too?

Or is there a reason why 700 stuck around and didn't go overseas?

Reg Zeller: They would tell you hard-headed. There was some volume left, but it was tough. And that's also why there's so many, I shouldn't say so many, why the ones are available to buy now because you see people coming back, there's more work.

We, the pendulum swung way too far. When I talk about this, people think I'm just 100 per cent here, in US-based manufacturing. I am nuanced that we need manufacturing here. We need manufacturing in Mexico, India, and China. There's a reason to have each one of those. And so the ones that stayed. They had tough times.

A lot of near bankruptcies and or bankruptcies or doing things they weren't comfortable with. So, on top of not having the people, none of their kids also came into it. So when I talked, I learned that only ten foundries in the country are in our wheelhouse, where the kids are even involved today.

So they're doctors, lawyers, computer programmers, engineers, anything but working in a foundry. So when we buy, I often have conversations with their kids, grandkids, whatever it might be. And they're like, we had no idea this was feasible, but we have one we're trying to buy right now.

He's convinced one of his kids will return and work in it. And that's why he doesn't want to sell. And I've talked to this kid, and they're like, Dad will have an evil plan when he finally sells to you because I'm not coming back. He's like, this is like Dante's fourth circle of hell here.

It's hot, it's dusty, it's dark. It's like where you have to serve hard times practically.

Chris Powers: Okay. Then you set the stage there, but what does a typical foundry you're buying look like? And are there massive foundries, or are they all pretty small?

Reg Zeller: No, no, no, no. The vast, vast majority of foundries are large.

So, 70 per cent of the foundries are in this country. Are private equity owned or captive, meaning they serve Boeing's or Tesla's or whatever the world being captive or private equity owned being their million thousand or a million square feet, hundreds of thousands of square feet, whatever it might be for us?

We're substantially smaller. We have no reason. That's part of our thesis; this works across all small manufacturing, and I've been saying this for however long I've been on Twitter. These podcasts geographically dispersed are essential to small customers, especially in geographically or at least numerous facilities that are critical to large customers.

So, when they see the larger you get in any footprint, the larger the quantity you need to go chase, whereas we're completely the opposite. We find smaller facilities; I won't say precisely because that'll give away part of what we do well, because there is a sweet spot in that, but the foundry where you can get the correct number of people, the right type of automation, the right size facility, the right government you deal with class B industrial, the NIMBY is alive and well. You fire up a foundry, and you get a lot of problems. So you can't have greenfields anymore, or it isn't easy. So, you have almost to buy existing. And then when you buy existing, it comes with all those other hosts of problems. And that's why private equity wants nothing to do with this space, as small as we are. They want the big thing, the hundreds of employees, thousands of employees in one facility, etc.

Chris Powers: Well, how big are yours? Like ten employees, 20 employees, is it numbers? How do you think about size?

Reg Zeller: It depends. I mean, so people in automation trade-off. So we're going to be a piece of equipment. We're selling Q1 right now. I won't get into details. It doesn't matter. The specific is that it can take up to 50 jobs with three people. And that will also do as much work as 30 facilities. So we're the only ones that will buy this piece of equipment.

We'll have the only one not in a captive facility in North America when it gets installed in Q1. But what that allows us to do now is. That layout can be relatively small. You could put that in 10,000 square feet and pump out 20 million a year, but it would also cost you 5 million to install.

So, the only way to do that is to get the network benefits. First, you must get a large size and then move back into it. And again, if you're a captive foundry or one of the significant private equity on foundries. You would never want to come and deal with a small quantity that we deal with.

It's just not worth your time and effort, and that's why we keep them smaller. So it can be as little as I'm guessing. Our smallest one right now is ten employees and 12,000 square feet. The largest one is probably 70 employees right now and 80,000 square feet. So, it bounces between.

Chris Powers: All right. we got into a quick.

Reg Zeller: But no introduction.

Chris Powers: There's no introduction. Now we're going to do.

Reg Zeller: A manufacturing guy crashed your real estate podcast with no intro. Some so many people have already turned off. They're like, no, no, no. We know the first has gone rogue. We've lost his entire audience.

Chris Powers: It's an entrepreneurship podcast now. We love rebranding.

Reg Zeller: No, but is that because of the real? Is that because of the rates and everything else in real estate?

Chris Powers: Oh, yeah, I will be a manufacturing guy here pretty soon. This whole podcast is a disguise of how I will get into this industry.

Reg Zeller: I love it.

Chris Powers: We're returning to where we just finished that conversation. You worked at G.E. for a while. It would help the discussion to give the listener a background of your origins. And the question is, what was great about G.E., and what did you learn at G.E. that you're bringing forward?

If anything?

Reg Zeller: you know, ultimately, the one thing that corporate does well is that they give you a lot of stuff you shouldn't do. My company will make PowerPoint presentations if I can do something about it. We won't waste time in meetings like it's a running joke.

Josh and I do not have standing meetings. I'd like to know if we've ever put a meeting on each other's calendar. Really?

Chris Powers: So you call each other when you need to call each other?

Reg Zeller: Typically, it's mid-morning. So Josh usually gets up in the morning and gets his workout in. He runs a local office and goes away to the office work.

And then when he's on his way back to his house when you need it, he'll call me, and we'll talk for whatever, 20 minutes, hour, whatever time it is. And it's when we both call each other, say, hey, do you have five minutes in an hour later? We'll finally get off of it. So that's the usual way we handle it.

Chris Powers: And is that just like communication through osmosis that you trust you'll be communicating about most things?

Or do you all have a cadence of, like, we talk about this on Mondays?

Reg Zeller: No cadence, no plan. We get whatever's. We'll talk about the critical and typical part of why that is. And don't get me wrong, the company still has a lot of meetings. Josh runs all the day-to-day.

I run all of the inorganic strategy, mergers and acquisitions, that type of stuff. So when we talk, it'll generally be Josh who will have a question like, Hey, I've seen this. I haven't seen this before. Hey, can you help with this? Hey, do you have thoughts on this? Or whatever it might be. My perspective when I call Josh will be Hey, this opportunity presented itself, or I'm thinking about this. What are you seeing? Or do I need more information on this? Talk with a team, or, Hey, this person pissed me off. Yell at somebody. Cause I'm going to fire them when I speak to them. So you play bad cop. Yeah. So I'm the bad cop.

There's a funny random aside, but we had one of my buddies come in that's in our EBIT daddy group, which is. Twelve guys that have holding companies. And I'm confident he brought me in to scare the rest of his CEOs. Like, Hey, listen, you could work for that guy. All right. So be happy, but anyway.

Chris Powers: Okay. Let's cross Josh. It's an integral part of the story. Did you all meet on Twitter?

Reg Zeller: We did.

Chris Powers: Okay. And how did this marriage, this beautiful marriage, come to be? So, all jokes aside, I imagine operational chops when you see it. There are a lot of people that could have filled this role. What happened?

Reg Zeller: So the whole story. Overly simplistically, the person who used to be the president of our organization per se came in more of an engineering project, that type of work. And the more significant we got, the more the operations got, the less he liked the role, the more he wanted to return to what he appreciated, liked, knew better, et cetera.

So then we just had a clear opening and realized. We need someone in the company to take this on at this point. It's something that I can do. I don't do it as well as Josh, and I wouldn't like it. So, really, for us, I had no idea, especially at the time I didn't plan on hiring Josh when I first reached out. I had just seen him, and he was the only one talking about manufacturing.

And so by talking through that manufacturing part, he was more or less saying. Hey, here's what I'm doing. Here's what my past has been. It said, I'm like, this is perfect. And then, when the person left our company, I just reached out and said, Hey, I realized that you aren't interested in doing anything part-time or consulting or any of that anymore.

I'm just contacting you because you're on my list forever. I haven't had time. You're another person talking about manufacturing. And so, anyway, how did that start? There's still a time on our calendar, and it's me, Josh, and our two wives, where we say Josh slash Reg anniversary with a bit of heart after it because that's the day that I reached out on DMS.

I wrote up, I said, Hey man, I want to talk. And he wrote back and said, all right, well, how about we do this? Like next week, when you have some time, you reach out, like, text me, if I'm available, I'll call you back. If I'm not available, then, like, I'll ping you, and if you're not, and if we go for a week like this and we haven't connected, then we'll finally put something on the calendar, and all I get to go is like, oh my god, a guy that hates me, like, this is perfect, like, we're good.

And then, I was randomly going to pick up parts, called him on the way, he answered, talked for an hour and a half, so, yeah, it just started that we talked about it, same thing. No, you don't want to do this. And he said, all right, well, I like what you're doing. I have this, and he walked down through his thing.

I want to run operations. I've told this part of the story many times, but I realized that I can only run operations if I own the place, even though I don't want to do it. And so he said, let me think about this. And he came back and said, how about for 18 months, I work for you guys. I help you get to the point where.

We can turn over, uh, essentially a COO job to a current director of ops, but I'll fix everything in the meantime. And then, during those last six months, I'll help transition in, and you helped me figure out how to buy a business. Again, this is where our stories diverge, but that is what happened.

As I said, I have a way better plan. Don't like you don't want to buy a business. You don't want to run the company. You want to avoid finding it. You want to run up. I want to avoid running ops. Just come and take this. I have a way that you can have. If you don't want to talk to me, that's fine.

I'm not going to have an issue with this. So Josh flew up, and yeah, it's been great. I tell Josh that I tell many people that most of what I hire people is more gut field than anything. There are guys like girly that have. An unbelievable process, and I hate and suck at processes. So, I just had this feeling, and after talking with Josh for a couple of hours, and then I had him up, like, I had every intention, and I spoke to my wife, and I was like, I wonder when he's going to get back to me.

She's like, well, have you offered him the job? I said, " No, he already knows he has the job; he just needed to return to his wife and discuss it. Dax is like, Hey, by the way, was I clear that you have this? He's like, well, not exactly. I was like, that's probably on me. Sorry about that.

Chris Powers: We share that superpower.

I can't tell you how many times I've been told in my career. I thought they understood what I meant, and they did not understand it. But Johnny's probably looking over here going. So often, I'm like, Johnny, did we get this? And he's like, you only partially communicated that that had to be done.

Reg Zeller: We talked; this is a superpower slash failure. You asked Josh or my wife, like, I was very clear about what I wanted. And, like, you have to say those things out loud. It's like, Oh?

Chris Powers: All right. Then, speaking of what you want, so you. You leave corporate America; you're on the fast track to becoming a C-suite executive, which was your version of hell.

And then you said, why not start rolling up the country's most challenging, possibly most complex industry? What is your big, hairy vision for all of this? We will work backwards, and then we'll get into what it's like to buy these companies and what happens.

Reg Zeller: Yeah. So, overly simplistically, I grew up in a small town.

Fundamentally, we need US-based manufacturing. Again, we need all of it, but the pendulum swung too far. We could bring it back. COVID accelerated that substantially. And it's happening.

Chris Powers: It's happening. Oh, it's nearshoring as a thing.

Reg Zeller: It's unbelievable. Like we just talked about this morning, an opportunity to bring back 4 million for the sales of one product.

And there's a thousand of those out there. We have a facility, a company right now. If we could go spin up an 80,000-square-foot foundry, they would fill it with 100 per cent because they want to restore it. So it is 100 per cent happening. But So, let's go back to when I started; I just wanted to make us-based manufacturing work, and generally speaking, at the time, it didn't matter that it was foundries.

That was what came up for sale. And I walked in, but in the long term, if you ask what it is, ultimately what CaneCast is right now, my wife and I don't have kids. We'll never have kids. We have a French bulldog that, while she's expensive, is probably going to use only some of it.

Everything we have goes into a trust, and the employees will inherit it. It's not going to be an employee-owned company. It will be more like the cardio model, where it will be a sustaining, enduring private company built on the idea of maintaining US-based manufacturing.

So boundaries are first, and edges will not be last. Because of our systems, processes, and everything Josh has set up, there will be. My ability to figure out strategically and do the M & A side of it, like those two married together when we're done with boundaries, will help us find the next thing to roll up and the next thing and the next thing.

And so ultimately, if you ask me 100 years from now. Cane cast won't be the name. There'll be another holding company and another holding company and whatever. Still, ultimately, that will be the thing that made small manufacturing work in the U S because of Josh's systems. We can now drop that in right now.

We know we're typically 20 to 30 per cent more efficient cost-wise than anyone else we take over. And then we also know that as we go through it, everything looks just like the foundry, and it's 85, 90 per cent similar. So we can do this. Now we're just going to have to find the next one.

Again, shiny object syndrome is one of the main issues I have. So, I have to stay focused long enough to have that happen. But we're one year, two years, three years away from that; at this point, we'll be going on to the next thing.

Chris Powers: Okay. So you have any to go now?

Reg Zeller: We have seven. Technically, we bought seven businesses.

We've spun other ones up. We'll probably have to buy another 15. Yep. But now, with the new systems, we can do that multiple times a year. Used to be once every first one is like 30 months, 18 months, 12 months apart. Now it's three months if we need to do it.

Chris Powers: Okay. So you said there's about 600; you've talked to all of them.

What do you tell them when you call them? Obviously, like, Hey, we're buying foundries. We'd be interested in buying you. Is that the general first conversation?

Reg Zeller: No, usually it's this is mine. Mine is much more about the long game. We go and talk to a lot of them that will research. So, if I return to this, our simple model is our insight. Initially, every 500 miles, we needed to put a facility.

The reason was that the small manufacturers that needed our products would come in. For them to want to come to see us, they tried to get up in the morning, get their kids to school, drive-in, shake hands, have lunch and a couple of beers, go home and be home in time for dinner that also allows us to deliver in one day.

To do that, it's roughly 250 miles or so. So there's just a bunch of 500-mile concentric circles on my giant map. And so we went in there, and we looked. After the people I've talked to, and then go find out from vendors, customers, whoever, who the best one is in that area, chat with them, but you usually don't know who's going to sell and when, so I've just spoken to all of them, and then I continue on a regular cadence.

Monthly, quarterly, whatever, just chatting with them, Hey, what's going on with you guys? Here's what we're seeing. Here's how we're handling it. Oh, can I help you with this? Or is there something that you guys want to make this product for us? Like whatever it might be. And then whenever they're ready.

Some come out immediately and say, Hey, I know you're buying these. It's very different today than it was five years ago. Why? Because we're just known, we're the people that if someone is going to sell their small aluminium foundry in this country, typically we'll say nonferrous. Still, then that confuses people; we'll use aluminium.

Exactly, that's what I'm trying to do. I never use nonferrous; I have to return to this, so we call it aluminium today. Whenever people sell a small aluminium foundry in the country, we'll get the call somehow; either they'll talk to someone they know or already know about us because we spoke, whatever it might be.

But many of those, like we, have one right now that I think based on over the weekend conversation, I've been talking to this guy for three years. I think he just broke and decided to sell. And it happened when they finally had to file their 2022 taxes. And they realized how little money they were making.

And I think he's just done. So, it's both easy and hard. But because we don't do any outbound, now it's just me talking to people. And eventually, they'll be like, would you be interested in buying this? And then it's either a yes or no. It's like, yeah, I'm willing to buy your customer list.

Or yeah, I want to buy your whole foundry facility, whatever. It all depends.

Chris Powers: Okay, so I call, and I'm like, Hey, I'm ready to sell. You probably call Josh, and you're like, Hey, here's this deal we'll buy. He starts spinning up a plan of how that'll integrate with, and we can get there in a second, but what your process looks like from the day you get that call to the day You bought the deal.

Reg Zeller: Yeah. I should back up one step behind that because we're doing a rollup, which is why I like rollups more than holding companies. What's the difference? So it's a spectrum, but everybody who talks about the whole coast thinks of Berkshire. Peanut-brittle, and it's all cherry Coke.

If anyone believes you've been sold, it's a grand marketing scheme. But so what will typically happen is I'll get, call it, five different numbers that I know there that I need to know and a 15-minute walk through your facility. And I'll estimate the value, whether or not I am willing to buy it.

Whether we'd buy the whole thing, just a part of it, what we would do with it, etc., it's that fast now. So if the company decide they need to refresh me like, okay, we sent this, and I'll be like, all right, well, based on what I know, flip back through the notes, you're probably in this general ballpark here.

Then I tell him all right, so everybody's on the same page. I want to use your time effectively. Suppose these things can go up or down based on these things. You know, if you have much higher customer concentration or your equipment's way worse than when I've seen it, or if I've never seen it, like if I give them, it is a formula, but it's, and I always tell them like, this is just the rough way to think about it.

The way we value is different, but we give them that for me. And then once they're like, yep, we get it. No problem. We understand. Then, usually, I'll jump on the plane, talk with them, and get a plan in place. And then once we get to that, it's spinning up. We have to do due diligence. Checklist.

And I've tried to skinny that down because most of the stuff we need, like if the bank requires it or the title company needs it, we'll leave it there. And then there are the few numbers we need, but we try to avoid asking for the rest, especially if they're not running through a broker.

And they've bought it from their parents or their grandparents. They've never gone through this process. Legalese is going to scare them, at a minimum. More likely, they're just going to get pissed off about it, and they don't want to talk about it. And then, on the other hand, they don't know all these different processes, so we have to make it super, super simple.

And, A lot of times, they don't want anybody to know about it. So they don't want their admin. They don't want anyone else in the company to know. So we make it as simple as possible to down to if we need financial data or something like that, typically it's QuickBooks, what these guys will use, we have them.

Okay. Do you have QuickBooks online or QuickBooks desktop? Okay. We have this. Okay. Follow exactly this. Click on this button here. Do this, do that. Do they, and it'll spit out the data we need. That's what we've had to get to. So we make it as ungodly, simple as possible. And that's pretty mand, so we usually will get like our executive team knows everybody we're looking at right now or most of them.

So then we turn it over to them within two to four weeks around there and be like, all right, it's now. You're going to get this. It is going to be coming at you. Here's how you need to integrate. But before then, they don't need to be involved. They need to run the day-to-day. And Josh is running less and less of the day-to-day.

Now, he's building the systems out. He's getting close to the end of it. That's why we're within one to three years of being able to move on. Now, the team that has to do it, they'll figure it out, okay? Here's what we'll have to do to move them into our ERP. Here's what we'll have to do to get bank accounts on credit cards or whatever else it might be.

And again, now it's just a checklist. Simple.

Chris Powers: And what's the total length to transact? 90 days?

Reg Zeller: I mean, it's much more driven by outside, so if we need to do environmental studies or title work, that will always be our gating factor.

Chris Powers: To confirm the difference between a hold co and a rollup hold Coke, you could have many different businesses in different industries.

A rollup is more homogenous.

Reg Zeller: Damn. I didn't even get to that answer. I got to bring you back. Yeah. So hold Go is just multiple disparate businesses that are not connected in any way, shape, or form a rollup for us. Or for anybody very similar, the same business inside an industry.

So, in our case, all aluminium foundries are small aluminium foundries.

Chris Powers: What's the other word?

Reg Zeller: Yeah, it just means no. Ferris, as everybody knows, knows the periodic table.

Chris Powers: I think they do know I do. We are the lowest common denominator of people, so we get into it. You said I buy either part or all of the business. How do you determine if you will purchase part of it? What would be a situation where you're just going to buy a piece of it?

Reg Zeller: Two main things. We won't touch any of that if they have environmental problems, including lead. The other side will be if we don't need their equipment. So, okay, you guys can have everything. We'll pick it up. We can pick up their customer list and build it much more efficiently in our facilities than they can there. There's, and we don't need that geographic location. If the real estate doesn't make sense or whatever doesn't work out when we buy it, we'll say, Hey, we'll buy it.

We'll move it even if we don't own something. So our terminology Beachhead would be our facility in one, like we have in Minneapolis, Kansas City, Cincinnati, South Carolina, and you're like, okay, that's our Beachhead. And then we'll go and find tuck-ins around that and roll those into that facility. So the workers can still work for us if we need anything.

We don't need their equipment. We don't need their building; if it's environmental, we don't touch anything that's led. So they still make leaded bronze in this country, very tightly controlled, but you're also begging yourself to have environmental problems, and we don't touch it. So if anything pops, anything pops in phase one, the sellers often don't even want to go down the phase two path, but mainly, we get to that.

I don't want to be a real estate guy. I want to be doing something other than remediation. I want to be a founder and build a product.

Chris Powers: Okay. When I hear like, we'll buy your customer list, but you'll keep all the rest. What do they have left? Or are you just saying that those businesses only value their customer list?

Reg Zeller: Yeah, it is. Even now, because so many boundaries have either gone out of business or will be going out of business, the equipment is typically scrap value. Some of it will be more than scrap, but not much. And so we'll generally give people the option if it gets to that point.

One of three things we can say is that we want to buy their assets, which is rare. But anyway, we'll see; we'll give you X per cent of the trailing 12 months, whatever your sales are following, especially if they're negative margin, which is shocking to people. We have a lot of negative margin foundries in this country that we buy.

And so we'll say, because you obviously can't give them a multiple on negative margins. I'd like you to provide me with the business and some reason that I'm interested in that, but you can provide all your money upfront at the close. We'll hand you a check. You pass us everything. We're good. The second option is to take a smaller percentage of trailing 12 months and then a percentage for year two and a rate of year three in sales, meaning, and many times; I would take that if I were them, but.

Because then we're going to take that, we're going to raise their price. We will get more sales, whatever it might be inside. Like they would make a lot more money, but the money's being spread over three years versus immediately, and then the third option would be we'll value their assets.

We'll get an appraisal done and pay them whatever asset appraisal value.

Chris Powers: All right, here comes a dumb question. Do they know their negative margin?

Reg Zeller: So before COVID and stimulus. The answer was yes, even the tiny people that ran it like a chequebook; they, at least it was small enough that they could run it with cash and how that chequebook worked once PPP and EIDL and ERC and all the rest of that hit it's the wild west.

And this is why I said starting. Last fall, when they, you know, in September and October came around, they realized that they needed to raise their price more from 2020 or 2021, but they were getting stimulus. So their checking account was going up, and their accountants finally sorted through their mess and said, by the way, you lost money last year.

Then they typically went through 2022, and again, two months ago, the last month and a half, they've been folding their account. You lost money again this year. So yeah, they used to do that, or they used to know that, but then when the stimulus hit. They got behind; they couldn't believe management had to raise prices as much as they had to.

We had commodities up 50 or 100 per cent in some spaces. Labour was up 20-30%. Insurance in the foundry industry is an absolute nightmare. So everything was massively up, and they were getting, they asked for like 3 per cent or 5%. And we're like, we raised the price 50%. Or, depending on the company, but many times we buy these, they're way undermarket because they have customer concentration.

If that one customer leaves, they are completely bankrupt and out of business. It'll quickly go under rather than slowly go under. So they are in the wrong spot, and it's a different animal for us, but yeah, it's not sophisticated. I mean, we still see places. We bought one five years ago that was still being run with paper and pencil, never actually double bookkeeping accounting. He was filling in two spots in his paper and pencil, like tea, like a ledger.

Chris Powers: I love that guy.

Reg Zeller: It was amazing. I was like, and then my, all right, so this is a little bit of a war story, but my favourite part about that is that he said, I'll get these books digitized, but I want the table. So, like his actual table that his grandpa worked on, that he worked on, that his dad, whatever. Did their accounting in? That's the thing he wanted. That was his one personal item. He took out of the entire place.

Chris Powers: I freaking love people like that, man.

Reg Zeller: It was like an old drafting table; I hadn't seen one in 30 years. You know, they existed.

Chris Powers: That's my favourite part of America. That's like real America right there.

Reg Zeller: The incredible part is he was making good money, too. He would; it was every night he would send someone around. They would check every single part.

It's like they knew where every single part of their facility was. Every single time. Now, granted, they were tiny, but still, three generations. That is how life is.

Chris Powers: Okay. So you said that you usually don't buy the assets, and that's because you already have them or cause they're usually, like, they need to be more usable.

Reg Zeller: Yeah. We'll typically take a piece of them. We usually buy these things, but they usually aren't, so they have to be maintained. They're so old. It's just not used to it. We've got so much extra equipment because we bought so many, and then we consolidate, and then we buy new equipment, and we'll fix up the existing equipment we have, and then we'll essentially mothball it.

So even when we buy it, like If we were to get it, we would upgrade with our old equipment, which is more excellent than their existing equipment, or we'll just put it on a brand new automated equipment, and it'll do 30 times more per hour than what their old equipment would be.

Chris Powers: So, how do you do due diligence on equipment? Do you walk around with a hammer and ding on everything? And if you hear a particular sound.

Reg Zeller: No, I look at it.

Chris Powers: Literally. And then you can look at it and say, we already know there's something in the market that can do 30 times production of that. Or do we already have that in the inventory? And Josh has created an inventory mastermind system.

Reg Zeller: Yeah. And that's why I said that the significant part about rollups is that they are just walking. The first time I did this, it took 45 or 60 days to decide that I would understand enough to make an offer. And now I can do it in seven minutes.

So let's walk through, and I'll see the equipment. I was like, Oh, I know that specific type of equipment had this problem. And I ate if you guys rebuilt this, no. All right. Well, that's entirely trash. You guys are probably having difficulty making moulds on that. And they're like, what?

I'm like, yeah, I bet the thing, like it shifts. I'm like, well, cause that should have been replaced 20 years ago.

Chris Powers: If I didn't know you and you walked into my business and in seven minutes knew yes, or no, I'd either be like, this guy doesn't know shit I'm about to take into the cleaners, or I would be mortified that, oh my god, this is a stone cold killer.

Reg Zeller: Yeah, usually it's much more, it's typically more the second the more we talk. How about that? Yeah, no, trust me. Initially, they're like, this young punk, I will fleece them. And then by the end, they're like, damn it, we better sell this thing now because here, that is, he's just going to own everybody around us.

Chris Powers: We're about to get to what happens after closing, but I want to return quickly. You said, you know.

Reg Zeller: Once we get past closing, I know nothing. Cause that's Josh, right? Do you mean like phone a friend for the rest of this?

Chris Powers:  Well, somebody has to give a speech or something. You have to provide some speech.

Reg Zeller: All, I can't wait. We'll get to it; we'll get through the rest of this.

Chris Powers: But you said it's not an esop. We're putting it all in a trust, letting it be employee-controlled. And then you told the Cargill model? Explain a little bit more about that. I've never heard anybody say this before.

Reg Zeller: Okay. So, overly simplistically, it is one of the largest privately held companies in the world, but they are more, so I'll back up a little bit on what scared them. I can swear in your podcast or not. Faunerman, like, it just comes out. Like, it isn't pleasant. Just beating it.

Chris Powers: Come on, be your authentic self.

Reg Zeller: Yeah, okay. Anyway, I went to Vanderbilt and got interested in the family. Then we moved up to Connecticut, went to see the Breakers and other houses and saw all the different things they built, like the Biltmore.

And just watched a family tear apart one of the greatest fortunes of all time, really fast. And the idea of, obviously, I'm not having kids, but. It doesn't matter to me conceptually when I did this; I wanted to start this to make U-based manufacturing work. I always say I didn't want it to be that my nieces, godsons, or some random employees won the genetic lottery, and suddenly, they've got 200 million in their bank account.

That's just asking for significant issues. So, we created this with the idea that we would form it. I went down a particular path, and my biggest worry about it was how we would professionalize it without becoming a corporation that does things like make PowerPoints and doesn't add any other value in the world.

Ultimately, some of that will be inevitable. Still, the idea would be that there will be a professional board and have experienced presidents, CEOs, C-suites, all the different managers, etc. The reason it was so important to me to do that is not only just the manufacturing side but every time I see ESOPs, so initially, I've seen a lot of foundries that have ESOPs, a lot of small manufacturing that have ESOPs.

The biggest issue with employee ownership is that everybody's a boss, and nobody's a boss. So, it works in prominent white-collar places where you have a structure. There's a, you know, there's a pecking order. Everybody gets it. But in a blue-collar shop where you have a general manager and then a bunch of people, maybe there's some supervisors, but now all of a sudden.

If ten people on each own 10 per cent or 8 per cent or whatever, it just tears apart at the seams. We wanted to find a different way of saying, okay, here's what you have to do over the next 50 years. It is your charter that you have to go down, which made for some exciting times, let's say, with our trust attorneys.

The idea would be that they have to go down that path and do this. And there will be a professional organization built around doing that. And we'll see if it's revocable. Now, it'll be irrevocable as soon as my wife and I pass what it'll amount to. So, in like a hundred years, I hope so. Although the rate this cough is going, once I pick up those non-filtered cigarettes, I bet it's not going to last that long.

Chris Powers: All right. Real quick on nearshoring on shoring, whatever we'll call it. You said there are a thousand products you could start bringing back into the country. Not just foundry products.

Reg Zeller: There are millions of millions.

Chris Powers: Okay. It is something that you're passionate about. But it's also profitable. And you've seen that there's a way to make this a good business. I assume you're not a nonprofit.

Reg Zeller: I am not a nonprofit. I'm not a charity.

Chris Powers: What is it going to take for more people? Because when I hear you say there are millions of these, the entrepreneur in me goes, I'm just going to start looking down the list and bringing product back. What would happen if you had a ten10-year vision, or what are the dominoes that will happen to where this starts happening more rapidly?

And if China came out tomorrow and created some law or something, is there anything that could prevent shoring from accelerating or is the cat out of the bag?

Reg Zeller: The simple way to look at it is that the pendulum swung too far again. We're going to stay a hundred per cent back. We're not going back to the 1930s.

That's never happened, and there's no reason for that, but two main things have happened. One, we swung too far, and two, technology is way better today than it was 30 years ago. So it's inevitable that some of this is coming back. The biggest problem and hindrance for us in the U.S. is people and the structural base around what you need. So here's a simple example. This room has lights, cameras, and microphones for anybody not there. You could go. Any of this will have all the supporting infrastructure around what you need to do simplistically in China. In the U.S., it doesn't exist.

It's gone. It did exist. We still need to build up that level in the U. S. To go after that. So, it has to start simple, and it has to get more complex. I shouldn't say that if it's too late; it's pretty much like a barbell. You have the simple stuff we can do today, and then you have a long skinny.

There's less, and then there's the high-end complex stuff. That we can do as well; it's all that supporting infrastructure in the middle that we do not have. We didn't want it, partly; we might not want it. There are a few other pieces inside of there. So that's what's ultimately driving this.

Now, there are also a lot of different pieces. China has a lower cost than it was 30 years ago. You know, low price, now it's Africa. Good luck figuring out how to get a foundry in Africa and getting parts over here. It will be accurate, really hard. China's doing it as we speak.

But you know, in things like Vietnam and others, you're chasing low cost, but eventually, that runs out, and then we can still replicate the difficulties and what it would take to solve the supply chains. We can solve this with technology, such as automated physical equipment and backend systems.

It is where having a balance sheet is. And the network effects that we have, we can put in both the automation from a physical equipment standpoint, and then again, back to all the systems that Josh is building, we are just way more efficient, like I've had numerous private equity companies that have seen what we've done.

Say we want to come and buy your systems and drop it into every one of our operating companies. So that's important. So the question is now left to this: How do we get more people to do it? It has to continue to grow. It has to be one at a time, but it has to go back where you start with one. It's just going to be a three, five year, seven years long, like what we've gone through, you have to be able to start to train people, you have to be able to start to build enough that, you know, it's a balance sheet ability that you have enough product to push through the automated equipment that you have enough money to hire people like Josh to do this, that second part or the third part there, we're trying to shortcut and I can get into this in a minute. Still, we're trying to take Josh's systems, and we'll essentially give them away to other manufacturers for them to use the systems we have that we've built that no one else can afford.

That's going to be our contribution because, again, this is where my passion lies: to help other people be able to do this. And now, so what can derail this? There are two major macro environments. The economy can always go up and down in long-term cycles. The other big part is that a few other things were shut down two or three days out of the week during the Beijing Olympics because they needed to conserve power.

Well, now COVID's gone. So that big glut that we had with supply chain problems, getting it. People in manufacturing or saw the lack of toys on the shelves heard about the hundreds of ships off a long beach. Those are all gone. There's none. So you have a very hungry China.

Now they've got two or three more days of production coming, and you have supply chains. Physically shipping that want to be able to help. So that is a massive, massive problem coming. And that's what I told people: COVID was great, but many people didn't invest in their small manufacturing companies during COVID like we did.

And now they probably need more time when that tidal wave will be, and that's why we're seeing 20 to 50 per cent of these small manufacturing and small foundries. I don't know, but all manufacturing just disappeared because they're just going to be flooded.

And, you know, they're in their 60s or 70s. Their workers are older. They don't have the balance sheet to maintain it and probably lived on stimulus. So their prices are wrong, and it's just a perfect storm of things that will run over them. And this is why we're being so aggressive and getting out in front of it to ensure this works.

So again, currently foundries for us, we'll get many other ones. But in the meantime, we're just going to help people. We can get into that at some point in time as well.

Chris Powers: But explain that real quick. So you're saying what you just said: China's built back up, and they're fully producing again, which creates another advantage for them because they can still make it cheaper than Americans.

Reg Zeller: Yeah, they are cheaper. They're not nearly as cheap; they used to be eight times or ten times different. Now, it might be two or three times or 30%. Still, yeah, the big deal, and this is the other kind of macro environment we in the U.S. can't figure out how to get out of our way from an energy perspective, they're building untold amounts of nuclear facilities, solar, wind, coal, they don't care. But it, well, the biggest issue is coal. Generally speaking, it is less efficient than we are now. It is an energy-intensive industry. As we have in foundries, roughly speaking, we might, I'll use several 10 cents a kilowatt hour, eight cents, 12 cents, depending on where we are in the country.

Nuke will be one and a half cents, or once they install the infrastructure for, let's say, solar, wind, and then you have batteries, it's effectively free. So if in foundries where we have, call it 10 per cent or some other energy-intensive industries might have 20 per cent of their total cost structure is energy.

And now China's got an 80 per cent efficiency gain on it. I'll never, it's impossible. They've now just literally wiped out. 10, 15, 20 per cent and now what used to, you know, all of a sudden it went from, let's say, 30 per cent is now back up to close to a hundred per cent, you know, difference or used to be eight X.

Now it's on a three X, now all of a sudden, it's five X again, and what used to be 8 000 for a container, 13 000 for a container is back to two. And instead of taking 13 hours, now all of a sudden, or 13 weeks, it's six. So it's a tremendous long-term trend. We must get over some terrible short-term things to get us there.

And we need a government that wants to help us do this right now.

Chris Powers: I think the perfect bow on that as it relates to China is California, so graciously cleaning up, uh, San Francisco for the dictator of communism took years, couldn't get it done. Then, all of a sudden, it took a couple of days.

Reg Zeller: Yeah, I was down. We were going to a concert. We were out in Napa, and the meatpacking district was. That was a war zone. We were there in June and July. That was like a third-world country.

Chris Powers: Zombieland.

Reg Zeller: Yeah, it was wild. But anyway, the point is to get back to your end. There will need to be a lot of macro stuff to solve that.

And again, we have a ton of NIMBY problems here, as people know, and, you know, I tell the story frequently, and there are hundreds of thousands of square feet in a redone used to be warehouse and manufacturing facility. I went to buy some and was like, Hey, I need 50 to 100,000 square feet in this facility. I want to consolidate all these places.

I talked to him, and he asked me what a foundry was. And I told them, Hey, we heat it. We melt it. We poured in. And they're like, yeah, sorry. And we said we wanted industrial manufacturing. We enjoyed coffee shops and, or, sorry, coffee roasters and breweries and candle makers. It's not like we want to have this walkable. I'm like, I'm not your guy. Good luck.

Chris Powers: All right. I can't get off this part of training people. It is like an issue in the blue-collar world, no matter your industry. But I would imagine being in a hot. However you describe the room,

Reg Zeller: Dante's fourth circle of hell.

Chris Powers: Dante's fourth circle of hell. No kids dream of doing this in high school when they're older. How are you all bridging this gap?

Reg Zeller: A lot of, so we have two, let's say three. There are certainly some people that love it. They love working with their hands. They come in in the morning. There's a stack on one side and to the other; by the end of the day, they've made a part that goes out the door.

And that's a deer stand they use, a golf ball washer, or whatever they can point to. And they can be proud that they're artists and artisans who made something like a golf ball washer. Like where you pumped, we made them. Yeah. We create; oh, yeah.

Great customer of ours. Anyway, my story is whenever I tell things anyway. There are two other types. There's a lot of immigrant population. So, folks, this is something we can train everything. You don't need a high school degree. We can teach everything as we go across our facilities, and we have an entire training matrix.

We've had to create a training Academy, another one of those moats. Suppose you go back to, you know, critical personnel risk. We have it in spades where if anyone is near our size, they don't have nearly; I shouldn't say that there is nobody our size because we currently look like five separate small foundries rather than one big one.

But we have all the networking and all the resources available that one big one would have. We are scattered. But, you know, we have a chief technology officer. We have Josh as president and CEO. We have a director of ops. You see, we've got numerous engineers kicking around. We have equipment that no one else can buy.

We have you; I'm not important. I will live in my wife's name. I still have never taken any more than the mandated minimum. We live off my wife's salary. So anyway, that's no joke, but the idea of training people, though, is now what we have. We bring someone in, and we know what they will do.

We're going to start with this. You're going to watch this loom video. You're going to read this thing. You'll talk with this person after X amount of time. Then you're going to do this role, but we have that. And we do that at our very base blue-collar worker up to the levels above it, but those people come in, so it doesn't matter.

If you love it, great. You're going to be passionate. You're going to go through it. If you're an immigrant, we will take you through that. If you're someone who made terrible decisions when you were young and you just got out of prison, you can walk right in our door. And as long as it wasn't too violent, I'll caveat that in a second, or something like you stole from someone, we're welcome to give people second, third, whatever chances.

And partly people talk about this, they're like, well, What if they like some physical crime? I was like, well, here's the thing: after 10 hours of 1400 degrees and slinging a hundred pounds, I've never seen anybody get in a fight the day at the end of a foundry. It doesn't happen because they're all completely exhausted, but yeah, honestly, that's what we do. We know we need to get well-educated people to come into that. But on the other hand, we still need many blue-collar folks today. We still will go forward, but we're getting more and more white-collar.

So we have a lot more controls and engineers. We have a lot more programmers. We have people running the machine shops. We've got, you know, eventually, we'll get into 3D metal printing, whatever it goes. So we're still on the very cutting edge. And again, back to the differences. If you have one of these, you can't afford that.

So we're turned on to the small group. We have way better efficiencies and this whole plan for training them. And it doesn't matter where it is. So all that stuff, going back to the corporate thing, how I learned. As a manager of people, we're now distilling that down. So our first line, the first time they get promoted to supervisor, has specific training to go through.

Manager, another set of training to go through. And we bring them all together. I'm a big believer in building culture. So that means, like, you're going to come in, we just did this six, eight weeks ago, whatever it was. We brought them in and trained them for four; we gave them a tour of the facility so they could see what a well-functioning foundry looks like.

The one in Minneapolis is three times or two times more efficient than anyone in our existing facility and is three or four times more efficient than any other small foundry in the country. So we can show them, Hey, here's what we need to get everybody to here's four or five, six hours of training.

And then here's 10 hours of debauchery with us where we're just going to build culture and have a good time. All those pieces get into how we eventually train people.

Chris Powers: We will build culture one beer-pong cup at a time.

Reg Zeller: In our case, it was a golf simulator. Foundry guys only play golf with me.

So, you know, other than that. By the way, this will take a long time.

Chris Powers: No, this is great; look, this is for one audience. I'm not done yet; you'll know when I'm done.

Reg Zeller: I go from here because you're getting out of real estate. It'll dash. All the questions you want to know.

Chris Powers: I want to be your landlord. By the end of this, I want to sign some leases. Okay, one thing you also said that was interesting. I was talking about it this morning at breakfast because I have a guy I know well who's been on the podcast. He manufactures things for the aerospace industry and talks about many of these businesses, their moat being the equipment's embedded cost. You could never recreate the company because of the cost of equipment, staffing and everything else. Can you go on further? Because I can, in one way, you're telling me I don't even buy the equipment sometimes.

But what do you think about that as being part of your moat, the equipment?

Reg Zeller: Yeah, so you have to think about equipment differently. A lot of that is used equipment that we've already fixed up. So specifically to us, I'll say, and then I can speak about it more generally with manufacturing in the U.S. typically, we've had to maintain that equipment. That was part of how we initially got over the hump. And then by maintaining that equipment or fixing it up and getting it to the peak of its efficiency and what we did with all of our systems and people to get more product out the door, we made enough money to be able to jump over that chasm and now by that 5 million pieces of equipment you could never buy.

So yeah, that creates a moat, but you need to have enough. That is why I said you need that time to get there. Yeah, if you want to set up our facility right now, the one that we're putting this into, we'll have a total of 6 million into a facility. That's taken 50 years to get 20 million a year in sales.

Your timelYourld have to be so long, and without just building this, we probably got the last 30, or by buying this last one, we got the last 30 or 40%. So we had, let's say, an ability to buy the equipment and pay for it after six years. Now we finally purchased the seventh one that gets us finally over the hump, where it can pay itself back.

But we've 10x'd our business to do that. So it's something other than what you can do because it's not sequential. It's not like, Oh, I'm going to buy this equipment. Suddenly, all these customers are going to show up. It's typically an 18-month lead time, 12 to 18 months from the time you start talking to a customer until they're going to move the product to you.

So the timeline is there, the equipment. And so now with that equipment that customers have, just because we have extras of it because we've bought this new stuff, we've got old stuff that is still, you know, let's say to buy new, it'd be a hundred thousand dollars, let's say per piece of equipment, real simple, cheap stuff.

And if you want to rebuild it, it'd be 30,000, but we're just saying for us. It's not worth the 30 grand; it's worth 3,000 currently because it's scrap, that's why. So, now more generalized with that, the bigger you get, especially if you don't have multiple facilities, the larger you can buy equipment.

And yeah, for some aerospace guys, this happens with machine shops. That's why I wouldn't say I like machine shops. You can buy a million-and-a-half-dollar piece of equipment and a great programming person, and you can be a competitor of almost everybody in a machine shop. You need to spend 10 or 15 million dollars on a foundry.

Aerospace guys, right? They'll have 250-ton presses that'll cost you millions and millions of dollars. They'll need a building to put it in. Again, everything still has this: you have to have customers, and they're not, you know, aerospace, anyone, doesn't matter. It's going to take some lead time.

It's not like buying something off Amazon where you're like, Oh, I want that. And I think about it today: there's a considerable lead time. And again, it comes back to the other model aspect: if you still need to get something that exists, good luck getting it permitted in our country.

So, there's an element of partly equipment, partly just how you'll stand up and get your permits even to be able to have. Some large, you know, if you're an aerospace manufacturer, let's say you're stamping parks, whatever it might be. That's a loud situation. Nobody will let you come into their park and, you know, whether it's even an industrial park.

Hey, we had a nice and quiet office environment. Suddenly, this guy has got 110 decibels, you know, press running from four in the morning till seven at night. It's just that your noise pollution people are going to come out. I mean, it just, so it isn't quiet. Even in foundries, we don't have anything that would be that noisy, like stamping parts.

But you're still knocking parts together. They're moving things. You know, it sounds like you've been in an extensive industrial facility; there's a reason why they say you have to wear ear protection inside. You've got a consistent 80, 90, 100 DB environment, just ambient. It just happens everywhere.

And then there's other things that you suddenly get to 120 or 130. That's like jet engine level. Sound barrier. That is why equipment is one part, but the entire ecosystem and infrastructure need to be more robust regarding small manufacturing.

Chris Powers: Do you worry about 3d printing?

Reg Zeller: Not at all. We already incorporate 3d printing and some of the stuff we do. Most of the stuff is 3d metal printing. It'd be the same reason. Why would a customer go out and spend today? It'd be 4 million to 10 million to buy it. Why would they ever do that? They wouldn't use it all themselves. People don't want to use those assets.

It could be a better return on investment compared to what you can do to invent a new product. So it's going to continue to come to us. We pay attention to it. And so when it's time for us to, instead of having a muller, an overhead sand system, and automated moulding equipment, we'll buy a 3d metal printer, stick it in a clean room, and be off and running zero. I was deathly afraid of it six and a half years ago. Now, it doesn't mean one thing to me,

Chris Powers: But you all could 3d print for other people or not.

Reg Zeller: yeah, we definitely could. It's just the value just isn't there. It'd be, will it ever be there?

Simple parts for aluminium. I'd say never, but it won't be in your and my lifetime. Real complex geometries. Things that care about tiny amounts of difference and the price almost don't matter, like, let's say, saving money on a 747 that flies every day. Yeah, you care about an ounce vast; most people could care less, so they just don't; it won't matter. You're for us; we have done that simple type of part for 20 years.

Chris Powers: We won't have to get into all the post-close stuff.

Reg Zeller: It's straightforward. I can tell you. So we closed on our business on April 14th; Josh had seen them essentially two weeks beforehand.

We signed the documents on the 13th, Thursday or whatever it was. On Monday morning, Josh told everybody that this was the first time Josh had taken it right from the beginning. But again, if I go back to it, Josh and I talk about it as two different sides of the same coin. I do all the inorganic stuff.

He goes organic. The first time he was on, he bought our facility. So sorry, Josh runs all. Josh is focused on organic growth and day-to-day operations, making sure whatever we own today continues to run. I concentrate on strategically. Are there other things we want to look at in the big picture for the company? What companies do we want to buy?

Who do we want to buy them? How do I put that network together? Because it's not like I can say I want to go; I'm in Fort Worth. I want to buy a foundry in Fort Worth today. I can't, that's not my decision. It's the seller's decision. So I've got to have 300 options out there, 35 of which I want to buy right now.

And whenever that pops up, I have to figure out, like, okay, this guy decided he wanted to sell. Like when the guy in South Carolina walked away, we walked away from the deal last year, and he called us in February. And I was like, great because I'll have to realign every plan that Josh and I had made over the prior two days.

That was renewed. And we're like, all right, but that's this. So that's my job. So yeah, literally April 17th, 9:00 a.m. And we have it down to, like, precisely what we do when, so we know we let everybody start on Monday morning or maybe Tuesday morning, they work their shift, they get their product going, so they have to go back to something at their first break of the day.

We come in there and tell them, " Hey, by the way, we bought the business last week, and what we do is we have the seller go up and say, " Hey, here's what happened. We want it out. Here's what these guys, here's why we sold to them. And then he just turned it over to Josh. So, and then beyond that, we've got specifics, you know, as soon as they get out of that meeting, it's going to go through wildfires throughout the industry.

So Josh and the seller got on the phone and started calling all the key customers, and all the key vendors said, Hey, what do you know is the situation? We know many people, so that's not a big deal. Then, typically, it is Thursday of that first week. So, let me back up. We go Monday at noon. We bring in food.

We let them because we were right after the 9 a.m. meeting. They're entirely shell-shocked, and they freaked out for three hours and then came back and had their lunch. We bring a pizza. We let them ask whatever questions they want. Like, all right. And we're like, nope, we already told you this isn't going to change. It isn't going to get better. We're going to invest. We're not shutting you down all these things. And then typically, Thursday, we kick the seller out and shut down early, bring in beer, pizza, whatever again, and say, Hey, it's been four days. Nothing's changed. You guys like it.

What's good, bad. Now the seller's gone. You trust us enough. By then, Josh had walked around and talked to every employee, and then they aired their grievances. And you'd expect the airing of grievances to go most of the time with these sellers, but employees usually aren't big fans ultimately, and that's it.

Chris Powers: And what do you do with the grievances? Do you like it? It's one thing to hear them. It was probably some that you hear that you're like, yeah, I think you're always going to be pissed off about this. If you're pissed off about that, but then obviously, there are some things that I guess you just rank prioritize how you're going to fix those things.

Reg Zeller: Yes, so we are very upfront about it. We say, listen, we're not promising anything. You can tell us whatever you want. There's some stuff that we know we're going to fix. We, you know, Hey, we don't have this benefit. Okay? We have that. We offer 4 0 1 Ks. You're going to have 4 0 1 k. Simple answer. There'll be other stuff they don't like: we did this and that.

Okay, we'll take it under advisement. But we say we're not changing anything for the worse across what you guys do. You're going to have what you have. If not better, we only promise changes once we know more; we say, Hey, we're first week, first month, first three months, whatever.

Chris Powers: First ten years.

Reg Zeller: Yeah, whatever it is. But usually, my general take is that unless it's a turnaround or some other distressing reason, there's no reason to start changing stuff as fast as we can, and we will in the case of output. So often, we'll input like we have a different way. We pay people. Incentivize them to get more work out the door.

That stuff happens very quickly. We don't mess with the other stuff, but that's also because we bought so many. You guys are doing X, we're doing Y and all these other facilities. We need you to get here. But once you get here, and the reason we do that is then we can invest, put more equipment in here, move more work in here, and do whatever that needs to be. So there's a reason behind it.

Chris Powers: And most of the time, the employees don't know that the business is being sold while it's happening.

Reg Zeller: It's only happened to me one time, and I was very annoyed that it happened. I am okay with the key people finding out ahead of time.

Chris Powers: Why does it annoy you?

Reg Zeller: Because they'll catastrophize when we show up, they'll be freaked out. Oh, my God, they're going to shut this down. They're going to cut our pay. They're going to miss our benefits. They're going to whatever it might be. And I would much rather he the keys and let me talk to them specifically again because we don't have critical man risk.

Suppose someone leaves; big deal. I'll helicopter somebody in from somewhere, and we'll take care of it. Key customers, if they go, like I want to. And now it's Josh prior, but I want us to be able to control the narrative, and I want them to stand in front of us and understand, Hey, here's, these guys are better at this.

They're investing, they're growing, they're here for the long term, whatever it might be. Every seller will never be able to mimic what Josh and I's passion would be: what we want and how we want to say things.

Chris Powers: And our customers ever like. I'm out of here. Everybody's reasonable once they hear the story.

Reg Zeller: Yeah. We've always had everybody leave.

Chris Powers: Yeah. They have a few other foundries they can go to.

Reg Zeller: I mean, it's usually the other way. We typically get price increases.

Chris Powers: We were new, and the cost is increasing.

Reg Zeller: Well, again, so, and many times when there are key customers, like when there's customer risk, this has happened to me.

A couple of times, but one specifically, we had two customers that were 80 per cent of the volume of the business. And I talked to him ahead of time, and I was like, listen, I'm not; you need me to do this deal, or else this place is going out of business. I can show you the financials. You can go bid me out.

I know market pricing. I won't take you guys to our regular pricing, but here's it. The day we buy this, this will be your price. So that you know, period. They went out, bid us out, came back and said, yep, no problem.

Chris Powers: But that was pre-close during your due diligence.

Reg Zeller: That's just because they were so big.

Chris Powers: And, does the seller ever in that time go, well, shit, maybe I should raise the prices and keep this thing.

Reg Zeller: I mean, there's a lot of them that do that post close. But yeah, I mean, but part of it is, again, when you have two customers that are 80 per cent, and you have barely talked with the industry, you're scared to death.

They don't have a position of strength. If those two customers walked away, what are we going to do? Okay. No big deal, we're out. Either you guys are going bankrupt. Or you're going to take our price increase. So there's no real downside there for us. Those two customers I don't, would never want to buy a company and lose.

It was 50 percent and 30%. I would always want to keep one or both of those. There's only a little value left. There's still value for us because we needed the capacity and whatnot. But at the same time, that 80%, we wouldn't have noticed. In the grand scheme, they are so different.

Chris Powers: And so you said we go in at 9 a.m., they get a little shell-shocked. They take a three-hour break. We come in; we're eating some pepperoni pizza. We're starting to soften down. Then there's like four days of getting to know everybody. And then you said it's we're staying the same. It's just redoing the incentives. Increasing capacity, and then you're raising prices.

Does anything besides that come to mind? That's just like all of these foundries need X, and maybe it's what you're doing on the backend through at corporate that you can provide them. Do you guys reshuffle the equipment and make the assembly lines look better? I always picture Marcus Lomonas going in these businesses, and the warehouses look like hell, and he always makes them look all, you know, sweet and tidy.

Reg Zeller: Moving equipment will sometimes happen long term, rarely short term because once you reconfigure, you have a multimillion-dollar project.

Chris Powers: And some of that shit can break too.

Reg Zeller: A lot of it old can break, whatever. So usually, we will only if it's simple; maybe there are simple layouts and, you know, spaghetti diagrams, some simple lean concepts, perhaps that stuff, but only a little beyond that. The biggest thing for us is the active involvement of the employees. What we have learned, though, is that the sellers into us are entirely different.

That's the big thing. We initially said, Hey, we won't change anything upfront. Then, we needed to learn how to handle sellers. Now, we're very clear: the first four weeks, we tell them the day we close, you stop doing you and any of your family members leaving. Your job is done as of today.

All you have is four weeks where you teach us, and we'll assign somebody. So we, before close, tell them, like, write down all the stuff you think you do. They'll inevitably forget things, but that is neither here nor there. Josh, now, we'll go down, or Eric, whoever, we'll go down and write a name next to each family member's task.

And then, for the first four weeks, their job is to teach whoever that name is what they do. So, they no longer plan, buy, or talk to customers per se. They don't do any of that; they hand that over. After four weeks, we kick them out of the facility for week five.

Say, Mr. Seller, you are not going to be here. Your family members are not going to be here. And we see how those names on that list cover it. They come back for week six. We go through the same process. Like, okay, what did we miss? What do we have to train on? Whatever it might be. They get booted out in week seven again, and then in week eight, we do the last one. We say, okay, based on this, that two kinds of sink or swim sessions.

What are the last things we need? What's your post in eight weeks? What else do we need? How do we get a hold of you if we need whatever? But then, yeah, after eight weeks, our sellers are gone. We don't want them in the facility at all. Things change so fast. The velocity at which we operate, which you know, is an engineering geek term, but both speed and direction freak out sellers.

It can be pricing, processed, or operative, so we make them stop that day. We don't teach them the new ERPs, our systems and processes, a new payroll, or anything else. It's you acquaint us with what you know, and the faster you're out the door, the happier everybody will be.

Chris Powers: Is there even much going on by week eight, or do you have that in the system? If there's, like, if week gates of a lot going on, something's not happening.

Reg Zeller: Yeah. So the last three times we've done it. They have not made it past week six; they didn't return for week seven.

We're good. Just let us know where we can get a hold of you. Like, we'll give you that extra week. We can create that eight-week structure in our purchase agreements so everybody knows what it is. And then we'll just be like, Hey, you're, we'll give you, you can go next week and disappear.

Chris Powers: All right. That's what that's it, home. If somebody wanted to get in touch with you so that you can help more foundry owners disappear into the abyss and go live their lives, how can people get in touch with you?

Reg Zeller: At Reg Zeller on Twitter or X or whatever we call it now is the easy way.

I'll eventually find the D.M. Tag me online, and someone will find me in the mess then. I will be willing to help anybody. I used to say I'll help anybody with anything. Now I'll do the research ahead of time because the number of times I've answered the same question where I can be like, I could Google that, or I could search on Twitter and find this, like, don't bother me with that stuff, but send me something in advance or specific question or whatever. I'm happy to do that.

Chris Powers: You're the man.

Reg Zeller: I appreciate it. Thanks, Chris.

Chris Powers: Thanks, man.