Every challenge is an opportunity. The greater the challenge, the greater the opportunity … if you can see it and capitalize on it.

When many makeup brands were suffering from retailers being closed or having less foot traffic during coronavirus lockdowns, Isaac Duostar, CEO of luxury cosmetic brand Doucce, saw the opportunity for e-commerce cosmetic sales. His company’s approach to sales, as well as their culture and purpose, had them perfectly positioned to grow during a time when many similar brands were struggling.

Full Transcript Below

Scott Peper 0:40
All right. All right. Hello, everybody. Thank you for joining us today. My name is Scott Peper. I’m the CEO Mobilization Funding. I’m really excited today to bring a guest to you Isaac Duostar. He’s the CEO of Doucce, say it’s a beauty brand. He’s also a friend of mine, a client, someone that we’ve worked with before has a super interesting story. I’m very excited to share some of the specifics with you guys. And without further ado, welcome, Isaac.

Isaac Duostar 0:56
How are you? Man? How’s everything?

Scott Peper 0:58
I’m good. How are you?

Isaac Duostar 1:00
Good, busy. We’re in the middle of holiday season. So you can imagine, especially the New World, we’re living in a lot of the DTC businesses, you know, picking up and we got to kind of just keep working with that. Yeah. And then, you know, a couple of stuff that you guys helped us out with those big orders, you know, they’re more, you know, campaigns more than anything else. So the, the feedback is coming in as well, obviously. So, things are, you know, kind of settling down as we wrap up 2020.

Scott Peper 1:35
Well, I’m looking forward to hearing the rest of your story about 2020. And where you come from in 2019. And I know some of that, that some of that original struggles and how you’ve been able to utilize some of those lessons learned. So without further complication or warmups, I would just jump straight into it.

Isaac Duostar 1:54
Let’s do it. My name is Isaac Duostar, CEO of Doucce, we’re a color cosmetic company, based out of New York City. Our mother corporation has been around for 20 plus years, but Doucce as a brand has only been around since 2008. Those early stages, I think we’ve developed and grown significantly over the past 12 years as a brand. We are luxury brand, so distribution is a little bit difficult. But at the same time, I think you know, being a luxury brand into the luxury sector makes things a lot more interesting and you know, allows exponential growth very quickly. We do business all over the world. Primarily, you know, our initial start was in the Middle East. But you know, over the past five, six years, we’ve turned our attention to the United States, Europe, Latin America, and you know, East Asia as well as a result. And you know, we’re looking to grow and expand then 2020 has been a rough but great year, I think for us more than anything, and we’re looking to capitalize on it.

Scott Peper 2:52
I love it. Yeah, well, I really appreciate you join on this. It’s we have we do a lot in construction and a lot of manufacturing, but a lot of our content tends to be construction based, right. I have our manufacturing clients and others just hear your perspective, your approach how you’re handling the course telling your story, but also how you utilize the finance and help drive your volume course, you will be found quickly with manufacturing clients end up in the same struggles from traditional banking or traditional volumes size purchase financing, as our construction clients almost it in some ways, it’s the same context. It’s really weird. So, right, you use that and did it perfectly. And you know, you You’re so cool to share your feedback with us. We don’t get that a lot. So I really like what what I like and appreciate you doing that. Thank you first, but it’s cool. I think other people can benefit from hearing how you do it.

Isaac Duostar 3:50
Oh, absolutely. I think you know, so, as a company we never had, we never had enough funds to begin with. And that’s the reality behind you know, that you had the initial investment in a company, which was a couple hundred thousand dollars on in my industry where you have many, many skews, all of a sudden, a couple hundred thousand dollars becomes nothing, it disappears very quickly. And it’s great. In a sense, where Okay, can you your money, there’s turnover on that money, where are you turning it into inventory. And if you can sell your inventory fast enough, you’re seeing a turnover, maybe four or five times a year, which is wonderful, at the very least in terms of you know, then you have the profit and everything else that comes along with it. But then you have these massive orders that you can process, you’re getting orders, you know, you’re growing as a company, but you don’t have the capital. And the reality is the bank credit line, or anything you can get from the bank immediately isn’t going to solve your problem, because it’s going to cap out, you all of a sudden need half a million dollars to make this work. And it’s just sometimes not enough, when you start working with suppliers. Sometimes they’re willing to work with you, there’s a reality behind it, okay, like, you know, we’ll give you terms on this, or give us a smaller deposit and we move forward. But then you have like, for example, we have a new project that we’re working on, I think you guys can come in very handy as kind of starts to get finalized, it’s a completely new supplier, they’re not going to trust me with any terms of credit for the reality is, they’ve never worked with me, they know of me, they’ve been wanting to work with me and the company, but at the end of the day, they’re not going to put a couple hundred thousand dollars at risk just off the top of that, especially in this environment that we live in. And that’s where you guys are coming immediately, you know, the financing is there, we give it to pay them before we ship. And you know, it doesn’t affect my standard cash flow throughout the year or, for that matter a month or two that we’re dealing with this, where it makes it really easy to kind of, you know, pay this make our money. And you know, and continues to keep doing this as we grow. Because it’s something that you know, it doesn’t affect my actual cash flow. And it allows me to get those bigger purchase orders that I want to get but can’t afford to get.

Scott Peper 5:45
It’s a good point, you bring up an excellent point because you know, when we when we’re talking to potential clients or current clients, it’s just it’s a similar story. You know, they’ve they’ve been grinding as hard as they can. They’ve been marketing everywhere they have they’ve been putting pieces together grabbing this to grab that to make this happen. The whole time marketing, marketing, marketing, and all of a sudden, what you’ve been wanting your whole time in business is that customer the new one that comes in or the existing customer that finally gives you the 15 more SKUs and all of a sudden they do it and you’re like, Oh crap, what do I do now? I just got this million dollar order. I just got this couple hundred thousand.

Isaac Duostar 6:25
Yeah, yes, it’s a a million units at a time for us. I think one of the things you guys help us with with that it was a million and change units. That’s a significant amount of you know, pieces for a company like us. That’s like Estee Lauder quantities and in the cosmetic industry that it’s fun when I need to reach out to suppliers, one million units, they look at me like Are you sure? And then you say yes. And then when you succeed, and the funny thing is some of the sales reps move to a different company, this has happened to us already. They WeChat trying to get your, the you know, they pitch themselves to the that supplier of their, hey, listen, we’re going to come in and we’re a good sales reps, we can bring you a new client that’s already doing these high volumes. And there isn’t that many clients in industry that can bring volume like we are right now. And all of a sudden that becomes very important for them. So you know, they’re willing to work with us, the clients, my clients are willing to work with us on these big numbers. But you know, the monetary funds need to be there for it to actually happen. And that’s the reality behind it.

Scott Peper 7:15
So can you tell a story because you know, you you know, just to give a little background, you had a very successful business, its existing for plenty of period of time. You have current clients. And when you came to us, you had a really unique scenario that was really quite frankly exactly how we just described but instead of me characterize it in general ality maybe you could just take a couple of minutes to tell them, hey, here’s the scenario I had. I went you went out and looked at the marketplace to try to find a way to finance it and you ultimately found us and we were able to move through the transaction. Maybe you can just talk about what you guys did.

Isaac Duostar 7:51
Yeah absolutely. So, as you know, as a company, you know, every company has ups and downs and the reality is 2019 was a rough year for us, it was a lot of adjust, it was an adjustment period. And as a company that relied a lot on specific clients, those oranges didn’t come in for that 2019 year. So put us in a very tough position in terms of the cash flow. So instead of building out that initial cash flow that we had built out, we’re very running low on cash. And we were spending a lot more on marketing to kind of position ourselves for 2020 and 2021. And, you know, obviously, it’s paid off right now, because we have a lot of new clients coming in through the door. And then you had this pandemic happen. So you’re already kind of low on cash, and you’re maneuvering, you got these orders. And all of a sudden, everything just stops for you know, more money, people aren’t paying, everyone is kind of standing in there waiting to see what’s going to happen next. On that moment, you clients are kind of worried about their products, because you know, these are some of these things are actually guaranteed, which makes it a lot easier than more contracted versus just let me purchase the inventory and put it in here. And let’s see what happens to it. This is a very clean transaction where client purchases significant amount gives you six months to deliver, you go ahead and produce it. And I don’t even see the merchandise, it goes directly from factory to clients, without anyone ever touching it. And as this was happening, all of a sudden, your supplier turns around and says, Well, listen, we living in a very difficult time period where we’re not gonna let you ship these products without giving us at least some sort of deposit. When this is not this was a supplier that will give us 60 days credit, which is perfectly fine for us. It took us that amount of time to turn around the money, we would get the money. But all of a sudden, you’re playing with new rules and you know, new game completely. And that’s where, you know, I reached out to somebody who ended up introducing us. And it was like, hey, like, this guy’s perfect for you guys. And that’s where Scott and I met. And yeah, you guys plugged right in. And we did this for I think two or three different ones already. And it just gave us a lot more, you know, anyway, and honestly gave me so much more calm and relaxation, that I was able to start focusing on the business and growing the business differently. Because I know, I got mobilization funding behind, I know I can go ahead and get these purchase orders, I know I can, you know, reach out and really get those big orders where my profit margins are significantly more. But I wasn’t able to do that before, because I had to pay out the money ahead in advance and wish we didn’t have. So it is a very direct transaction. And you guys just kind of came in a plug right in, where you plug that hole of where that monetary funds where it’s going to be at the time. And as soon as that hole gets plugged in that entire sales cycle starts flowing significantly better, significantly easier. And I think more calm across the board.

Scott Peper 10:29
You know, changing gears on it a little bit. I’m curious just to hear, I think what everyone will really benefit from is just hear a little bit about your your story, your thoughts on business? I mean, you pivoted tremendously through COVID. I mean, you guys have operations in New York City of operations in Long Island, you have people you’re ordering suppliers internationally, you’re selling online, all across the US and other places, even outside of the US. It’s a pretty diverse business, both supplier side coming in and who you’re selling to, I think it’d be really beneficial to talk about your your company philosophy and culture, how you pivoted through COVID what what adjustments you’ve made, and how you really thrived and survived making these modifications. I mean, look Coronavirus, has touched everybody. I mean, people might have been open, but their suppliers were closed, that’s a problem. But their customers are closed. I mean, there’s all different issues and you navigating through just about every one of them. Talk about that a little bit, let’s let’s see what wisdom you can pass on to everyone to kind of, you know, stay calm. What you do.

Isaac Duostar 11:15
I can’t take a lot of credit for it. I think you know, sometimes your product, your circumstances, I think that’s the first step. Being the 2019 was such a rough year for us, I think we had already scaled down and kind of from a monetary standpoint, tighter budgets, where you know, if we needed to let someone go, unfortunately, we already had done that. And we were already down to a core skeleton crew to make sure the company functions and operates until we could, you know, get a lot more cash back into play, and really build from there. And that was always the plan for 2020. So initially, I think we were able to absorb the shock a lot better than most brands or companies to begin with, because we were already in that position of Okay, well, you know what, we’re already there. We don’t have to do what other companies are going to have to end up forcing to do. But at the same time, I think working with very strong suppliers across industry, where you know, even during a shutdown, they were concerned as essential even though they don’t produce essential products, but they were the manufacturing arm of you know, for example, we produce 60% in Germany, Germany is back on lockdown, again to an extent and our factories are functioning perfectly fine. You know, there are a lot of automated factories so they need minimal staff to function as is in addition to that, they’re just major corporations that, you know, they weren’t, you know, the government’s weren’t letting them shut down regardless, they’re the backbone of the industry. And I think that that in a way we lucked out with, when choosing my luck, that isn’t these are suppliers. But I think choosing the right suppliers to work with from day one, instead of trying to cut corners, and dealing with the big boys, and you know, people who produce not just for us, but they produce for the bigger brands and industry. It gave us a sense of security and, you know, kind of stability during this time period, as much as Yes, we had issues, you know, in terms of credits, a little seminar, you know, our credits were cut in half. And we were not, we’re not being extended credit, but they were producing and they were moving very quickly through production. In addition to that, having really good relationships with their clients, and always being, you know, very candid myself personally, I like to be very transparent with my clients off top my head. And especially if they’re larger clients, I don’t necessarily hand them off to sales reps within the company. They know who I am, they deal with me directly in person at times. And they felt comfortable, I think we give them a sense of security, understanding if they reach out to us. And we say we can deliver a specific product, they’re in really good shape. And I think that’s what really paid off, where, you know, they came to us, we had actually one of the things we work together was it wasn’t even planned. It was the company, they had orders coming in, suppliers couldn’t deliver the product to those specific brands who were supposed to deliver it to one of our clients. So instead, they end up reaching out to us directly and asking us, Hey, can you deliver 200,000 years, and just luck on the draw? Like, Yes, we can. And you know, they, they come to you, and all of a sudden, it gives you a nice little boost. So I think one of the clients that actually happened to was, you know, revived our business when we hadn’t done business with them for a couple of years. And he revived the business and you know, we’re looking for big, big 2021 with them. And it’s shifted dramatically for us. And it was really great to see, you know, they had that trust and confidence, I think is part of it is always being very forthright and upfront with your people and letting them know what’s happening, even no matter how bad it is, is best to be direct, and you know, paint them the picture. So when reality is when things do hit the fan, they know you’re going to be very candid and direct with them. And they could at least trust you during times of uncertainty. And you know, people just not being very communicative in regards to what’s actually happening.

Scott Peper 14:51
You know, listening to you talk about this as a couple key takeaways that I think are important for that I want to really accept and point out. But what you said a few times that I heard is, performance is the key, like performing performing on your word, performing what you said you’re going to do, taking orders and fulfilling the ones you know you can and if you can’t telling them and setting proper expectations of what you can do when you can do it and why you can’t just in a very transparent manner. I’d bet that even in some of those scenarios that didn’t only help you keep the business you have, but it probably earned you additional business. Yeah. And probably made sure customers knew that, you know, I’m thinking somebody years somebody that can count on so you’ve turned what normally are negatives into, into positives. Yeah. The other thing you said that I thought was really key that you learn from 2019, which I think is great foresight. Because I have a saying in our office, I actually heard a mentor of mine say that, you know, things happen for you, not to you, you know, and in the moment in 2019, you probably felt like a lot of stuff was happening to you. And it was probably nothing compared to what we —

Isaac Duostar 15:55
Yeah, we lost a lot of sleep in 2019.

Scott Peper 16:00
And you know, that all 2019 did was ultimately prepare you for what was about to happen in 2020, which I don’t know all the intricacies of that. But 2020 is probably maybe even arguably could have been a lot worse than 2019. If you had the same infrastructure and you were doing all —

Isaac Dustar 16:20
Yeah, you and I would not be speaking today if that was the case. And that’s the reality behind it. Even you know, we have a credit line with JPMorgan Chase, and PR that they have to reach out to us quarterly and ask us for some paperwork. And hey, I can how’s business going? And you know, he called me more business banker gave me a call, like this is about a month and a half ago. And he just goes, Yeah, listen, I know, we asked for quarterlies and stuff like that, but I think we’re just not going to do it for 2020. This might be and probably half of 2021 because, you know, no one’s business has grown and you know, have problems. I’m like, Well, you could take a look at mine. Were triple what we were in 2019 right now. So if you if you want to give me extra credit, by all means, and he was like laughing, he’s like, I don’t think they’re gonna give you anything. But that’s unreal to hear. And he was like, no, it put us a little bit more at ease to hear Hey, great, Okay, you know what people are doing bad. Makes sense, obviously makes sense businesses down across the board for so many people. But not only did we take this pandemic and grow, but you know, we’re setting the groundwork for future years from a year that was not supposed to be great for a lot of people and you know, as well We were sitting down and talking to a couple of the partners. It was, it was like, you know, like, it could be so much worse for us. And just like we’re on cruise control, in addition to just like, you know, the standard core that is this was on cruise control. But we all of a sudden had this growth spurt that we weren’t even expecting, we were going, we knew we were going to double, we knew that was going to be the case, because reality is 20, we knew we would get back to what 2018 levels were in 2017 levels were inside of 2019. But we weren’t expecting to, you know, profoundly grow. within that time period, especially during this pandemic.

Scott Peper 18:00
You know, for the people that are listening, that’s what I want people to take away from that. And what I certainly am going to is, what you learned in 2019 allowed you to make the adjustments to pivot to put yourself in a place where you could have an opportunity to succeed the next time. And you know, life works in cycles and businesses the same way. For, what happened to you, Isaac in 2019, is what a lot of people are going through right now in 2020,

Isaac Duostar 18:27
if not worse,

Scott Peper 18:28
you know, if not worse, and so if you can survive and thrive and really make the adjustments during this really hard time. And by the way, mobilization funding has had its own struggles. During this time, we’ve done more than a boat, we’ve made adjustments, we’ve worked with our customers, we’re working with our bank, we’re in a great spot. But it took a lot of work and effort to make these adjustments to the last six, seven months. And what we decided to do is a lot of what you decided that we made the adjustments we got to where we needed to be we try to help as many of our customers we can initially really putting out all this type of different content and marketing we did while we were we’re slow and now we’re keeping it up. But the key piece there is what you learned in 2019, you made an adjusted from so that when the next cycle came, you were able to thrive from it instead of get hurt from it. And I want folks listening to this to take this opportunity what’s happening in 2020, if it is hurting you make those adjustments because we’re going to quickly be in another cycle. And that cycle will give you the opportunity to thrive from the problem that you’re having.

Isaac Duostar 22:08
You adjust and you know, I think if you give up that easily, you know, you just have to know it, you have to take risks is the reality behind it. I don’t think everything nothing is going through risk free. I think you know, 2019 was a wake up call for us. But you know, we took those necessary risks going to 2020, we dragged our feet a little bit, we you know, we made those adjustments, but at the same time, opened ourselves to additional risk going into 2020. But you know, we had to capitalize on it, that was a reality behind it. And I think you know, pandemic or not, we want to capitalize on it. And you know, we’re going to move forward regardless of the matter. But just as things have played out, it’s just expanded our business significantly. And I think you know, opportunities come at you when you least expect them. And that’s really what happened here. And, you know, this morning, I can’t say much about it. But I had a very interesting conference call. And it came out of nowhere. And I think it’s going to be it as I was ascribing it to someone else, it’s the biggest fish in the sea, you can fry. And you can really, you can really capture and that’s happening for us in the European Union. And you know, it little by little, I think that that positioning that will give us full grow into 100 million dollar brand without us realizing what’s happening when it’s happening. And you know, if you and I are having this conversation three years from now, I we might be a completely different company, because of it. But you know, I think it’s the opportunity. A lot of brands got kind of washed out in my industry during this time period. And a lot of brands who didn’t survive, for example, like these are public numbers, like our shishido group of companies, they were down 30% in a span of two quarters, that’s significant, you know, Estee Lauder, and L’Oreal not so much because they have mass brands. And you know, they adjusted better, I guess, if you want to call it but you see to where, you know, they focus specifically on luxury, and you know, dealing with specialties, perfume areas such as Sephora, and Ulta. And department stores, where, you know, their retail business had come to a complete halt. They suffered greatly, but you know, brands like myself who you know, adjusted and already knew the market was going towards we were already on the econ business, that was our main focus. And it allowed us to maneuver and because of it where, you know, we’re able to bring new products in towards the end of this year, versus someone like finish you see to a group where now they’re just trying to sell stock, where they don’t even have a proper holiday campaign because they have so much leftover from the past six months in terms of stock. And you know, people are fed up and they’re like, you know what, listen, like dirt. Dirt clients are like, well, we can’t sell your old stuff. Because we need some new stuff. They’re in a position where they can’t just create new stuff because I have all this old stock that needs to you know, they have monetary issues with so it opens the doors for us where you know, brands like us who are, you know, big enough to survive the situation but not big enough to fail. Guess if you want to call it, we’re able to kind of, you know, survive and thrive. And now start capitalizing on those, you know, the shortcomings of the bigger brands and the shortcomings of being too small to, you know, for you to get through this.

Scott Peper 22:33
Yeah. Speaking of brands and philosophies, you have an interesting one, I mean, you you, your brand philosophy says, you know, discover your own individuality. And I think you talk about that both internally inside organization and outside your organization. Talk a little bit about how you came up with that as your branding slogan, how you utilize it internally and externally, and kind of what it might have done was done.

Isaac Duostar 22:55
So this is just me being frank, I think it took a long time for us to get there. I don’t think that was something that was you know, the company was started with this slogan, and that was kind of it. That philosophy took years and years and years to really, you know, get there. I think when the partners first started the company, before I was really deeply involved, at the time, they had an idea, they had an idea for a brand, they had an idea for look other brands, but there was no real story to the brand. Unfortunately, there, they came from a beauty industry and a fashion industry, merged heads and created this thing, which again, looks great. But there was no story behind it when you know, when I first started, you know, dealing with it, and you’re like, what’s the story, I’m like, there isn’t a story. Reality is, this is a brand. It’s a high performance, and it looks great. But that was kind of really it. And it took us a long time to really start developing that philosophy and concept behind it, where I’m like, Okay, so what makes us different? Why are we different? And kind of playing on that different tone? Like, well, you know, what, the world is changing reality. And, you know, I think everyone you know, beauty specific, there’s no real term of beauty anymore. Yes, you can say this person looks great. But getting there is 400 different routes, people are taking, you know, the same concept, you Everything is sorted, evolve, there was no more, you know, one uniform concept of this is what you have to do. And I think as society was changing, we kind of played right into it. And as we started developing these products, like, Well, okay, this is a multi use product, for example, that was like, you know, once major step, this is great. And then we had this thing created called a free Matic system, where essentially, it gave you the tools to create a makeup palette, however you chose to make it. And it was like someone did the math in office is kind of just like a joke. It’s it’s 1.7, septillion different ways of creating a palette. So he really like, Okay, if you make this, it’s super, super unique to you. And as truth is, I swear, if you see some of these orders that come in, on our website, I look at these things, I’m not just for my own understanding of marketing, and I’m like, Whoa, I know, Not in a million years, I did this, I would have even thought about doing something like this, and I created a system. So I think that was the basis of it in terms of, you know, creating something that allows people to really express their individualism, and discovering who they are versus being told who they are. And I think that played a key role in terms of, you know, developing the brand, but in addition to just kind of our company culture and hiring, instead of, you know, being very uniform as a company in which I, I’ve been, I’ve been a very structured person my entire life. And I think this was harder for me to understand, than even other people as we were hiring, I’m like, I need so much diversity in my office all of a sudden, and, you know, things started to change drastically, we were very female oriented, for a very long time, because it’s a pretty brand. So obviously, but then, you know, that we had a mix of guys coming. And we had different ethnicities and backgrounds or races being thrown in there, we had, you know, we had all sorts of people on this office, and we still do so and then comes 2020, where all the sudden, you know, we had this uproar of, you know, inclusion and you know, talking about things, you know, the social mechanisms on how this country is working. And we started having people reach out to us, and beauty brands were hit really hard, where, you know, they were reaching out during the whole Black Lives movement, initially at first. And people were literally messaging us, not just us, every band was getting messages, and we’re being forced to reveal, okay, what is your board look like? How many people in management are people of color and whatever, and I was livid. I’m like, well take a look at whatever they want. Because we are like the United Nations in this office. And it was such an interesting thing for me to look at. And it was we literally have people of all sorts of backgrounds, shapes, colors, whatever you want to call it. reality is we have everything. And it was on like, Look, we are there were so diverse already that I don’t think people realize that. And it was nice, it was very refreshing it you know, didn’t get hit, like nobody had anything bad to say about us. And you know, it was it was very easy going and mainly because of the way it was all plant. So I think we played into that before. Things have already gotten where they are today. And I think It plays into our company culture, and our products. So it kind of everything has come full circle at this point.

Scott Peper 27:19
I appreciate you going through that, because it is interesting. And it’s important. And I think a lot of companies, particularly in some of our other segments of business are really focused on inclusion, diversity, just differences of thought, even let alone the presentation. And people have known. And it’s important not only to what’s going on today in society, but also the customer base is changing, and whether what I’m going to what business you’re in appealing to more people in your, in your focus is, is really key. So I think it’s cool that you guys came up with that brand and kind of grew into his cool story and how you did that.

Isaac Duostar 27:58
Yeah, people don’t believe it. But this, there’s a truth behind it. It just kind of happened on its own, we just let it play out. And more so than forcing the issue, but we’re working on some new things, new brands, specifically. And they have their own ethos and brand stories of their own. But you know, I think they were done right from day one, where, you know, we started to kind of pitch them to clients Little by little, without people really getting the heads up of what’s happening get. And they have their they have their own stories of product sold stories, and you know, whether it’s on the packaging, to the name of the products to the name of the actual brands, and you know, we’ll get into later on, but essentially, they have their own concepts. And their I don’t know if they’re strong enough as though says is because reality is they’ll say it developed because of what was happening versus you trying to make a story and telling that story. This is I think it just kind of as time has gone on, we’ve become the story, the brand has fallen into the reality of life and social mechanisms that are kind of controlling society in today’s world, which aren’t going to change, I think this is the new norm. And it’s a good one. It’s not a you know, I think this is something that everyone has to start, you know, really taking a look at, um, not just in the United States from on a global scale, and world globalism. Israel five years ago, I think traveling was no or what it is today. But now all of a sudden, before the pandemic, we had people visiting countries that they never thought they would ever go to. And as the world is mixing, and you know, people are like I know people who are working in different countries, just because they want to work in a different country, they want to test different, see what the world has to offer. Are they gonna ever come back to New York? Probably, I think they will at some point. But you know, that exchange of culture is significance. And as the world is opening up, as you know, I think more countries are more keen to you know, exchange culture and you know, go about life as is, this is just going to become more and more important, us being accepting and you know, discovering who you are as an individual passing it forward. In addition to being accepting about other people’s individualism, it looks like as well.

Scott Peper 30:04
What’s one thing you wish? Well, two questions I have for you before we close out. One is, what’s the one thing you wish you knew at the beginning of your career that you’ve kind of learned along the way that you would want to share with our audience?

Isaac Duostar 30:18
This is a quote, and I think I was young and stupid. And, you know, life is a journey, not a destination. And I was so quick to try to get somewhere instead of kind of working through it. And I think, I guess I made a lot of judgment calls I shouldn’t have early on, but I think you learn from it. And that’s the reality, I think, you know, don’t try to enjoy it more than anything else. But you know, live it out, write it out there, you know, from rags to riches as a great story. But at the end of the day, it takes time to get there. And you know, patience is a virtue. And it’s key in terms of when it comes to growing a business and you know, going forward in life.

Scott Peper 30:59
I have a saying that I believe in that says you just can’t remove time. From the equation. It’s the thing. The ride is part of the fun. You know, I don’t think any of us are where we want to be. There’s certainly there’s probably certainly thresholds that you can cross over where you feel like you’re there, you made it to a degree.

Isaac Duostar 31:17
It’s like Elon Musk still has problems every day he wakes up, he’s not where he wants, and he’s done so many things that people can’t even imagine. So reality is, yeah, you’re you’re never really there. Doesn’t matter what you do.

Scott Peper 31:28
Enjoy it. Exactly. I couldn’t agree more. Um, I really appreciate you going through the time with us today on the horse on this top. I think it’s very helpful. I love you sharing the just sheer appreciation and thought process I’ve always been really admired since the first time we met not only with your business and what you have, but I could just tell the way you handle yourself your style. You know, I was at first drawn to it, but I’ve really grown to appreciate that really who you are. And

Isaac Duostar 31:34
I appreciate having like being part of this. And honestly, and I’ve said this to you in private before, but I admire your company culture you guys are building, I reached out to you in private about that, I thought it was very cool and very unique. And honestly, from a financial firm, I wasn’t expecting that, more than anything else. I’ve dealt with many different financial firms. And reality is you guys operate like a brand, how we would operate, how I would essentially reach out to a client, I’m trying to, you know, acquire, where we were, kind of give them this ridiculous packaging, and, you know, everything else that comes along with it, and you guys really, you know, stand out in the crowd, and that they’re, you know, and working with you guys has been such a breeze and, you know, you guys totally understand who you are and what our needs are. And you know, you’ve made it very seamless, you know, if we need to do it, you understand this needs to be done. And you know, we can rely on, you know, expect that from you guys.

Scott Peper 32:48
You see me smiling, because it’s really what we try to do for you articulated that way, and be so close or dead on to what we try to do is it’s very rewarding. It’s actually humbling to hear you say that it’s I appreciate it. And, of course, we really do try. So it’s great to hear you say that we don’t get to hear that. We don’t get to know enough. Like we hope that’s when people

Isaac Duostar 33:06
Believe me I actually do wear my mobilization funding t-shirt. I actually do wear and there was another one. We had a couple in the office and one of the partners came into my office. He’s like, what is this? I’m like, Oh, it’s one of our you know, financers? Like, Can I have it? I’m like, yep, and he like he word it comes. But I got a couple of compliments on it. He took off his shirt and put it on and like went outside and came back as midsummer. He’s like, I got a couple of compliments on this shirt. I’m like, well, it’s yours now. So yeah, it was awesome.

Scott Peper 33:31
Well, I appreciate you saying that. I love it. I’m glad that you, you did. And I just appreciate you sharing your story as I do. I’m glad that you willing to do this. I just wanted people to hear it know that there’s there’s definitely cool pathways out there. They’re not all easy. What what looks great comes with a lot of hard work and perseverance and failure, which you’ve already articulated and talked about. And just your candor and genuineness and abilities, willingness to share is great. And I want to be able to know that I just thank you very much.
Everyone, if you thought this was great, please share it. I hope it served everybody. Well. Thank you guys for all joining us. And remember, if there’s anything we can do for you, or if you’d like to reach out to Isaac here, check out his beauty brands and everything else, we’ll leave the contact information right here on the on the screen for you to see. And again, thank you very much and have a great rest of your day.

Isaac Duostar 34:15
Of course. Thank you guys so much. Appreciate it.

Transcribed by https://otter.ai

While many Americans learned to work remotely during the COVID-19 pandemic, most manufacturing jobs simply could not be done anywhere except on the factory floor. That meant closing their doors until safe protocols for re-opening could be established.

Luckily, the shift towards re-opening has spurred an increase in hiring demand. Manufacturing is not only bringing employees back to work but also looking to hire. To survive, recover and thrive, manufacturers must review their production and talent ecosystems to determine what changes can be made and which essential roles will support those changes.

“Businesses have learned a lot through this pandemic,” says Mobilization Funding CEO Scott Peper. “Most have realized they can do more with fewer resources, their team is capable of doing great things when they all work together, and they are working very well with new products they never made before for customers they never had before. The talent they thought they needed at the beginning of the Pandemic is not the talent they need now. With this hiring comes a whole new type of position for many manufacturing companies.”

With the crossroad of being stuck in a skills gap and now so many people searching for work post-COVID, how do you find the right candidates, and where should you begin? We partnered with Skye Recruitment Solutions, the leader in strategic recruitment for manufacturers, to gain insights on which jobs are most likely to be at the top of the list and what to look for in the best new hires for your manufacturing business.

The Top Manufacturing Jobs You Should Start Hiring For

“We’ve been seeing a positive shift in volume and level of the positions that our clients are hiring for right now, and so we’re learning quickly how to navigate the current talent pool, and discover what skills and talents are making the most sense for the current state of manufacturing.” Says Brian Fowler, CEO at Skye Recruitment Solutions. “it’s especially important now, as people are searching for their own job security, that you dive deeper into finding the right people for your business plans, source strategically, and understand the market.”

Here are some of the hottest jobs we’re seeing in manufacturing today:

Plant Managers: $58k – $185k/yr

• Why now?
  • With recent changes in the expectation of quality, productivity, and safety inside manufacturing, there is a growing need for people who are responsible and experienced enough to ensure things stay aligned in the right direction, while continuing to push operations forward post-COVID.
• Who’s standing out?
  • Skye Recruitment Solutions says the best placements made have been people who are mid-career and have experience in long-range plant expansion, conversion, equipment planning, installations and purchases. Key experience in balancing budgets, a good safety record, and a solid set of references have been emphasized by manufacturers looking for motivational leadership and tightening up their plant management.
• Resume keywords:
  • 5-10 years in a manufacturing environment like yours, LEAN, Six Sigma, leadership, communication skills, budgeting, training, project management, plant maintenance, quality, WASTE elimination, EH&S, Bilingual, continuous improvement, safety, R&D

Plant managers have traditionally balanced workforce health with risk management and plant operations. In the post-COVID era, these forward-thinking leaders will know how to create an agile manufacturing plant— ensuring employee health and retention through automation, big data, and cobotic environments. Their responsibilities now include not only operations and talent management, but most likely a level of data analytics and industrial technology.

Automation/Controls Engineers: $58k – $120k/yr

• Why now?
  • Now, more than ever, the prioritization of creating a lean manufacturing plant has been brought to the recruiting table. On a daily basis, an Automation Engineer applies improvement strategies for better quality standards, cost-effectiveness and reliability. They support new product development efforts and can help to automate plants.
• Who’s standing out?
  • For many manufacturers transitioning to smart plants, finding people who research, design, develop or test automation, intelligent systems, smart devices, or industrial systems controls are being prioritized. Skye has found success with people who have moved into Automation roles in their careers in similar industries.
• Resume keywords:
  • 10-20 years’ in manufacturing. automation, robotics, design engineering, project engineering, LEAN, Six Sigma, product design, fabrication, assembly, PLC / HMI programming, electrical controls, power systems, mechanical schematics, Allen-Bradley, Omron, Mitsubishi, programming, project management, NEC, NFPA, 70E, OSHA, BSEE and MBA in Electrical Engineering

These high-level engineers will be required to develop an evolutionary plan that integrates both the physical and digital elements of a plant’s environment and production. Engineers with the skill set to research solutions, build simulations, and lead cross-functional teams to launch new digital and human applications within the plant are creating the vision for the future of manufacturing, and also leading the march toward its horizon.

Maintenance Mechanics/Technicians: $18 – $38/hr

• Why now?
  • During the pandemic, it appears manufacturers buckled down and maintenance roles were some of the first cut as they kept old machinery operating to save budgets. Now that demand is back up, and in some cases bigger than ever, technicians that can perform preventative maintenance as well as repair major issues are becoming a critical need.
• What to look for?
  • Additional IT skills, such as machine health monitoring and predictive monitoring are becoming part of the scope. Travel expectations allow for experience to move into Field Service as well for plants with multiple locations. A good work history and long-term mindset is becoming a requirement for success; and an attitude that aligns with the company’s culture, whatever that may be, is playing a major role in worker retention and quality of work.
• Resume Keywords:
  • 12-25 years’ of maintenance experience, troubleshooting, preventative maintenance, testing, CMMS, safety checks, pneumatic & hydraulic systems, GMP & OSHA requirements, maintenance, installation/service/repair/resolution, electrical controls, mechanical, power systems, PLC, CNC, machine repair, blueprint reading, AC & DC drives

According to FacilitiesNet, “what executives often fail to understand is that the maintenance and engineering team is the one component of all organizations that is 100 percent control of 100 percent of assets and buildings. This means the maintenance team is in control of an organization’s revenue and profits.”

Good maintenance mechanics and technicians of the post-COVID manufacturing industry will need to be prioritized inside the organization and will be looking for leadership that champions their value.

C-Level Executives $90 – $300k

• Why now?
  • There has been an impending wave of leadership preparing for retirement and the response to the virus has ignited the requirement for succession planning in several plants. Additionally, there’s a need for leaders that can help with evolving into automation and mass expansion. There is also hiring happening in new leadership roles like Chief Engineering Officer or even Chief Financial Officers, where these jobs were once handled under the CEO or President.
• What to look for?
  • Manufacturers are now searching for leadership that aligns more with their values and can adapt and evolve a company culture. They’re looking for more focused experience with growth at their pace and ideal size rather than specific industrial experience. Leaders who are articulate and collaborative, but who have grown their own career over time have seen the greatest success in getting hired with our clients.
• Resume Keywords:
  • Specific to the position, but typically at least 10 years of progressive management/leadership experience, proven track record of success, proactive style, sound judgement, relationship management

Manufacturing leadership pre-COVID was overwhelmingly from the Baby Boomer generation. The pandemic triggered an early retirement exodus, and that has left many companies looking for new leadership.

Hiring new members of leadership team has now become an opportunity for bringing fresh ideas and innovative concepts during a time where everything is being carefully monitored and shifted. However you feel about it, says Peper, now is not the time to try to fill two roles with one leader.

“As a business owner or leader, you must know what you are good at, and more important, what you are NOT good at. You cannot perform every executive function at the best of your ability, and if you try to, your actual duties will suffer,” he continued. “Hire for what you don’t do well, and then hire the best damn one out there.”

Hiring the Right Talent for Top Manufacturing Jobs

In March and April of 2020, 1.4 million manufacturing jobs were lost. However, a surplus of talent does not guarantee you the pick of the litter, either. Smart manufacturers will use this opportunity to develop a long-term vision for the talent pipeline, and invest time and energy in finding the RIGHT person to fill that role both for the present and for the future.

“Don’t scoop up the first person that checks the machine box, take your time and invest in learning about what’s available and what the ultimate goal of the role is, even when it comes to the lowest level hires. Retention always saves money,” states Fowler,  “and you don’t need to find them yourself; but if you do hire a partner, make sure they understand your industry and the challenges you’re facing, be transparent, and communicate those goals. A true partnership can make amazing things happen for your business.”

Purchase Order Financing, or PO Financing, is a type of commercial financing that leverages the purchase order from your customer as collateral for the loan.

What Is PO Financing?

Purchase Order Financing offers you cash before the work starts, which makes it an attractive option for manufacturers with tight cash flow. PO financing is based on your purchase order, your customer’s credit, and your supplier’s reputation. A lender will charge an interest rate on the advance, usually somewhere between 1 to 6 percent per month.

How does PO Financing Work?

Funds from Purchase Order financing do not go into your company’s bank account. The money is sent directly to your suppliers. This ensures the money is only used for the materials or supplies needed to perform the work on the purchase order. After the work is complete, you’ll send an invoice to your customer like normal, but the customer will pay the lender directly. Once payment is received, the lender will repay the borrowed amount, plus any fees or interest due, and forward the remainder to you.

For example, let’s say ABC Manufacturing produces heavy-duty, preservative-treated wood for utility poles, marine pilings, and agricultural structural posts. ABC owner Lee gets an order to provide the pilings for a new marina. The purchase order is worth $750,000—a huge opportunity for her company—but, she doesn’t have the capital to order all of the necessary supplies. She works with a PO financing company to secure a loan of $245,000, which allows her to pay her suppliers and fulfill the customer order. After she submits her final invoice, the customer pays back Lee’s lender, and Lee is sent the remainder. The PO financing allowed her to take on a larger order than before, fulfill the order on-time, and STILL make a profit. This additional profit streamlines ABC Manufacturing’s cash flow, allowing her to start the next job without a cash flow crunch.

The Risks and Benefits of Purchase Order Financing

One of the greatest benefits for business owners is that Purchase Order financing starts before the job. It’s definitely less risky than Merchant Cash Advances, which promise fast cash but too often end up delivering a crushing cycle of debt.

On the other hand, PO financing relies on the credit of your supplier and your customer, rather than on you and the job’s contract. Many Purchase Order financing companies also ask that the business expect at least 30% profit margin from the total order. That might not give you pause, but how certain are you of your numbers?

Accurately estimate your profit margin every time.
Get our free Project Cash Flow Tracker
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Is PO Financing Right for Your Company?

Purchase Order financing can help you free up cash before a job starts, but is it the BEST option for your manufacturing company? The short answer, of course, is: It depends. Do you already have an existing line of credit with your supplier? Don’t borrow money from a third source when you can get the materials you need on credit straight from the supplier. Instead, borrow for the things you can’t get on credit.

PO financing from a reputable lender, like us, empowers you to start work confidently. Without this financing option, you could miss out on new customers and larger orders that ultimately will help your business grow.

Manufacturing business owners want to grow and thrive like any business owner, no matter what the future brings. The COVID-19 global pandemic made reaching that goal a lot harder, with supply chain disruptions, operational shifts, and financial consequences all pressing down. The manufacturers who survived the spring and summer of COVID-19 now have to continue surviving AND position themselves for growth in 2021. What does that look like? We partnered with Dare Capital to bring manufacturing & banking experts together to arm manufacturers with the information, insights, and tools they need to succeed.

 

Missed one of our previous webinars? No worries. Click the link to watch a video or read the transcript.

The Future of Manufacturing

Planning for the Present

Becoming Bankable: Full Transcript Below

Adam Boyd  0:04

Good morning, I want to welcome you to Mobilization Funding and Dare Capital manufacturing series. Well, I’m really excited about this topic today. And we’re going to go ahead and kick off and I’m gonna introduce our guests here in a second. But I want to welcome everyone to the third webinar in our series for manufacturers. We’ve been really excited to do this with Scott Peper and the team of Mobilization Funding. One Welcome back, Robert Conley, and introduce him and Scott in a moment and I’ve got my colleague from Dare Capital Casey Conlon here as well.

So briefly, this the series we’ve done this summer has really been focused on the manufacturing, industry and Mobilization Funding has helped greatly in that they focus on purchase order, WIP and contract financing for manufacturers. Their unique loan program makes funds available for use before you actually invoice for products, with the capital you need on hand you can order raw materials, make payroll, negotiate better terms of suppliers and function more smoothly overall, their loan program is based on your contract or PO not your credit. I encourage you if you’re in manufacturing, if you’re a lender, you need to learn more about what they have, whether you need them now or you’ve got a client who’s gonna need in the future. So, go to mobilization funding.com. So, Scott’s going to have a chance you’re going to hear from him. He is truly one of the good guys in the industry. And I’m excited for you to hear from him today. It’s also brought to you by Dare Capital. Dare Capital specializes in finding small to midsize businesses that aren’t the perfect fit for a bank line of credit for whatever reason, they’re often growing too fast for traditional on credit. They’re really young, quite often under two years of age or they’re in a turnaround mode, many operate on progress or milestone billing have a hard time finding someone who understands their business or can help them close gaps in their cash cycle. The result is that they can’t get the working capital they need to grow. And so, we specialize in AR financing for those companies.

So my guests today are and this is where you’re going to be patient as I learned the slides, Scott Peper and Robert Conley, two wonderful guys, Scott’s the CEO of mobilization funding, and we’ve been working with, with Scott and his team for a while now, from the beginning, I’ve been impressed with his insights into building growth strategies for business owners that allow them to reach their financial potential and their other goals. His company Mobilization Funding, as I said, helps construction manufacturing business owners stay cashflow positive, and grow their businesses was a perfect guest to speak on the subject of becoming bankable. Robert Conley, I’ve known for 10 years or more now. 30 years of business experience and 10 years in private equity. He’s mentored and trained in private equity strategy and operations by Dr. Jim Ashton. And most recently, Robert was the CEO of Bagcorp where in four years he doubled sales from 25 to $50 million. He doubled first year EBITA from breakeven to 1.2 million, and he retired $3.6 million in debt via sales and utilization of efficient asset. So, he’s also a great one to talk about these issues. Both guys are phenomenal, really excited about what they have to say. So, guys, welcome for being here.

Robert Conley

Thank you.

Scott Peper

Thanks for the opportunity.

Adam Boyd  4:52

Absolutely, absolutely. Um, so guys, COVID-19 has thrown a lot of challenges to manufacturers. They’ve survived huge win, and they should take a moment to recognize that but now it’s time to continue surviving. What you do what they do over the next six months determine whether they’re recovering or growing in 2021. So, before we jump into some of the questions, we’ve talked about what have you guys seen and heard from manufacturers over the last few months during the pandemic and where they are now?

Scott Peper  5:17

Robert, let me go first and on that I did um you know it prior to the pandemic and the Coronavirus really kind of sold the whole spectrum I think manufacturing had all the normal concerns of a regular business and managing cash flow, finding good suppliers, consistent suppliers or supply chain terms being paid from their customers in a reasonable amount of time, managing employees, when to spend capital on certain manufacturing lines and then of course, just the general terms of a business what is the typical capitalization of the business. Is the debt load or the or the management of that debt on a monthly basis hurting or preparing the company? And then of course trying to figure out how to grow and get new customers.

I don’t think much of that’s going to change coming out of the pandemic, in terms of what you’re seeing in the spectrum of it, I think there’s two big things coming after is: there’s not going to be as many manufacturers, because some of them just couldn’t make it. We’ve seen some customers that are really in a tough spot, actually, because of the PPP loans and the EIDL loans, the two of them and the fact that they never, their business never really stopped, those two loan programs and access to capital actually drove them out of what was otherwise a really big disaster. We also had clients who got stuck in certain markets where  their employees are being paid, sometimes one and a half to two times more to stay home with the way that they were being compensated from the unemployment tax benefits, that it was really hard for them to get kickstarted again. So, I gave you the whole spectrum. I think it really depends on manufacturing is a broad term, it depends on what you’re manufacturing and who your customers are. I think the food manufacturers really saw a big surplus. We had a company that was a salad dressing company, you know, they were cranking through the entire pandemic, before, leading up to it, they had some cashflow problems, but you know, the PPP money and the EIDL money, frankly, you know, brought him right out of it. That’s general, I think we could dive into some more specifics, but I think from a big picture perspective, that’s what I would offer.

Adam Boyd  7:31

Robert, anything you want to add on to that?

Robert Conley  7:35

I, the fundamentals of business, regardless of the business that you’re running, are always critical. And manufacturing companies very specifically, are always challenged with the utilization of working capital and whether it’s pre-coronavirus, or current. Pre-Coronavirus, they’re dealing with normal working capital scenarios situations. You know, push out payables, fill in receivables, minimize inventory which supply chains effects, right because if I get a long supply chain I’d push in or inventory in. And so that at least from the guy that I was mentored for, by when you can understand how to facilitate and tactically manage those pieces, things can improve or get worse. The one thing that affects them more is the forecasting. So, if you’re not, it’s one thing because you’re running kind of a flatline for the most part. When you aren’t able, we don’t have that log in, you’re looking to forecast sales, and you have a lead time and you’re trying to satisfy a customer demand for You’re making decisions about working capital capex, etc. And the manufacturing environment is the most difficult one to try to figure out those equations for. In so I would say that those things will never change, regardless of as Scott said, they’re always going to be there. And so understanding how to facilitate those decisions, whether it’s based on customer demand, expected customer demand, or current backlog is there’s a lot of refined pieces that can come out of out of thinking through those situations, in structuring your business correctly, to meet whatever it is that you’re trying to accomplish.

Adam Boyd  9:47

So, it’s not necessarily going to get a lot easier. That’s what you’re saying. Now I’m hearing.

Robert Conley  9:53

If you can forecast, if you can understand the forecast customer demand, I think it’s you. I think if you hold on improvement, or anything related to the home or food? Yeah, you’re probably reasonably comfortable with your forecast. Except that it looks like that. It’s on this hockey stick, which is really difficult. Yeah, it’s good, difficult. Yeah, you’re not. It appears that all bets are off, although on the s&p and those kinds of things, companies are annihilating their forecasts in lots of scenarios. Scott?

Scott Peper  10:32

I couldn’t agree with you more. I mean, in some ways, the, if your sales are outpacing your capacity, it’s a really easy strategy. You do whatever you can, and you throw everything you got at it, because it’s not there. But to Robert’s point, if you all of a sudden, you’re you end up with one, one month, two months of inventory on hand and you’re used to only having two weeks, that cash constraint puts on you and sales starts to decline. What do you do then? I think the other piece that we didn’t touch on either is just talent and culture management. If you had a great culture going in to the to the pandemic, it probably helped you a ton to get through it. If you had a poor culture and talent was low, the training was poor or you were in need of doing training, you probably, those problems probably showed up real in a real big way through this pandemic. And I bet those folks that are really struggling right now to get a hold of that, yeah, it’s complex. There’s a those are two things that are really difficult to do. And you can’t just have one meeting and fix that problem. That’s a that’s a long-term strategy shift that needs to be worked on and nurtured daily and weekly. And that’s hard to do and a tough time whether you’re either growing fast, or you’re just in a tough time. Yeah.

Robert Conley  11:47

Can I say something to that? Use a little anecdote, which is to Scott’s point. I’ve been taught manufacturing by some of the best cats around that we’ve been extremely successful and one of them, guy name Dick Fagan, his favorite sayings, because we always did turnarounds in kind of, you know, highly complex and, you know, family kind of environments, and the statement is, fish stinks from head down. And the leadership in most organizations, because the lack of understanding of the components that drive the business is the biggest issue in most companies today. And the leaders don’t know that they need to step out of the way in most cases, because the people aren’t being utilized and maximized in the structures that enable the business to grow. That would actually make them more money if they weren’t running the business and running the people into the ground to Scott’s point. Yeah.

Scott Peper  12:49

You know, to add to that, I think a lot of people are getting the most out of their employees right now. And employees, team members, even you are more than willing to step up and they can drive hard and do monumental things maybe work at 150% of their normal capacity for three months, four months, six months, maybe longer if properly incentivized. But I think right now, a lot of these leaders need to really decide what is the limit that I can push these folks before I bring new people in, just because you’re having a great time now and the bottom line may look better, or you’re even more efficient. You can’t run people in 150% of that capacity forever. No one’s also taking vacations right now. So, all of a sudden someone takes a vacation. What happens? Yeah, about that time, I think people particularly leaders and management really need to start looking at Okay, what what’s going to be normal again, maybe I settle into what maybe it’s 120% capacity is the new norm isn’t but not 150 or 200 day you’re running some people. And I think employees are willing to do anything for a company that’s they love and admire, particularly the leaders that are there. But you got to be honest with them and you didn’t really either Really incentivize them to continue that pace, which is probably unsustainable, but somewhere match that incentive with that extra production, as well as the less amount of people that you have there now, so you can get a more efficient model that can last long term. And you’re probably getting pretty close to that right now.

Adam Boyd  14:17

Well, Scott, you touched on something that I would love for you guys to kind of pull out your crystal ball. I mean, you’ve talked about, we’ve got some people staying at home because the incentives from the government are greater incentives for going back to the business. We’ve got people potentially either running at 150%, because of increased demand. We just talked to a company that manufactures and sells bikes this morning. And they’ve seen sales quadruple because of COVID. Everyone is kind of locked down. So, we’re looking forward and they’re having to get more out of their people, they’re having to invest more. Or you may have people who just they lost some talent, and now they’re having to do the same level of production with fewer. So, what particular financial challenges do you anticipate, those of the manufacturing industry need to be prepared to face for the rest of the this fiscal year. And I’ll start to you, Scott.

Scott Peper  15:11

I think all their normal challenges are going to be there, they’re just going to either have a bigger light on them, or they’ll show up in tougher spots to touch on the touch on culture and people. You know, because there’s more people on employed, there’s more talent available to so and a talent doesn’t necessarily mean there’s going to win those jobs and opportunities come about your best people, if you’re not taking care of them are going to have a lot of options to go do things people cleanse their businesses and when they rehire, they’re going to learn from the mistakes or the things they wish they could have done differently that maybe they couldn’t have been a normal climate COVID allowed them to kind of clean the slate and when they go to bring people back, they’re going to have a new concept of who do I want to hire, what do they want to look like? What is that position like? How do I want to incentivize I’m in the savvy business owners and leaders are going to find the best talent. That doesn’t mean just because the unemployment rate is high and people aren’t working, that they’re going to pull that talent from that pool. It certainly May, but they may pull people are going to look your employees don’t have you’re always going to be looking at jobs and your current people if you’re not taking care of we can easily go look at a nice opportunity and move from one place to the next and you might be hiring from that pool instead. So, I think that’s one thing. I’m also I think, where and when to spend capital and invest in your business. I would really be concentrating right now if I was in manufacturing, how do I get leaner and meaner on my balance sheet? How can I what’s my strategy to pay down any debt I have especially if you had some new visa EIDL loans for 12 months, you have to make payments but you’re going to start to have to and yes three and three quarters percent money for 30 years is probably more inexpensive than any other note on the business. But how can you pay some of those other debt down free up that debt burden on a monthly basis so that you can still remain as profitable as you are now, even when your sales might settle in. Those are the things that I’d be really focused on if I was in manufacturing right now what I try to do.

Adam Boyd  17:17

Robert, you know Scott touched on people and culture, as a two times CEO in a manufacturing shop, is that an unrecognized financial driver that manufacturers aren’t paying enough attention to? In your experience?

Robert Conley  17:35

I would say that the short answer is yes. I don’t believe that, so, one of the things that you missed the question that’s up on my board, but I’m gonna answer your question as well but is what challenges will manufacturers face for the remainder of 2020 steps: on the balance sheet, and you made a reference to a bicycle for a company that had quadruple demand, and they’re willing to that demand. One of the things that happens in businesses from my experience is that we overestimate the future, right? In this hockey stick that a black swan event will create is not what the normal the new normal is going to look like, you’re going to have a smoothing effect on that demand. So, if you’ve seen this fight, you will know that trees don’t go to the sky. And so understanding that you can invest a ton of money right now to try to what you’re really try to do is you’re trying to squeeze the juice out of this particular fruit as much as you can. And what I would submit to Scott’s point is that if you squeeze this juice at an optimal level and don’t over invest in your business expecting this this this hockey stick like effect to continue, then you will strengthen your balance sheet through this opportunistic time. And you will, here’s what I consider: if you raise the bottom rung of the ladder. And your ability to compete in the aftermath of this will be stronger. Okay. And so, you know, it’s just again, it’s the smart or the aware kind of utilization of capital that’s being provided to you because of a unique occurrence. So, I’m being realistic bottom line.

I don’t care if it’s manufacturing to answer your question, business of any kind. I’m working with a coatings company right now, got an investment in and I, you know, there is a lot of structural components that business “leaders” miss in an organizational chart. If you go to business school or anything else and you look at organizational structures, they have to have accomplish a mission whether the Egyptians are building pyramids, or leader is building a structure to accomplish whatever the goal is. And so, you do it layer by layer. Same thing is true an org chart, if you get the right people to leverage the talent that’s going to be available in the market to Scott’s point. And you put them in the right box, and you define that box well, and all the boxes that are next to each other’s boxes understand each other, and it’s a big problem, and they’re all kind of working together and those boxes connected by lines of information because that’s what they’re processing, then the organization begins to accomplish more. And the leader, if they don’t understand that which is not abnormal, they many times don’t, has that’s the responsibility to leaders to connect those boxes with clarity and transparency, so that that structure maximizes itself to accomplish whatever that mission is. Strategy is not a whole bunch of things. It’s a mission, we want to have this level of market share, then you set about the tactics, which is what the organization has to do to go and accomplish those particular missions. And so, yes, leaders miss those pieces, and they throw people and money in different things, an imbalance and lack of understanding the organizational structure. Does that make sense?

Scott Peper  21:30

Yeah, you make a great point. Robert, I’d like to add one thing I made me think about that, you know, you think about that organizational chart. I think a lot of leaders if they’re missing and I did it myself for years prior to ever really realizing it. You give somebody the box, so to speak in the org chart, here’s your job, and here’s the job description. And then you say do your job, right. And old school way I was great. But you know what happens now and everybody doesn’t matter whether you’re in your 20s or 60s. Some people need to know what that box and job is actually working towards, not for them individually, but for the business purpose. And sometimes it’s a mission, and sometimes it’s a purpose, but aligning that job and that description and how it layers in and depending on where they are in the layer cake, their job, they may, they may have two or three other positions that boil up before it really they can really draw that line to what their role is in the purpose of the business and how it helps. And to connect those dots for each individual person is really important because then they know how valuable and important their job is. And sometimes it’s just having the information for the next step to make the right decisions. And that step to the next. And I think that’s one thing that gets missed a lot, probably the most, in my opinion that they meet that could if you just align what everybody does to what that purpose and mission is and how they play that role in it. Everybody starts to see how their rules come together because they all know how it gets to the top piece and that I think that makes a huge difference. For an organization.

Robert Conley  23:01

So, to that point, we use a tool, I use a tool called Operations Review and, you know, taught to use it, understand what it means and, and really it’s a monthly meeting where all managers departments and all the employees come to this meeting, and everybody presents kind of where they want to work we’re doing it’s there’s no right or wrong. It’s not a punitive environment. We’re not trying to you know, by God, correct anything in that. What we’re doing is really is to Scott’s point is creating transparency, top to bottom side to side. And what most leaders, and I don’t care if it’s an HR leader, or CEO or CEO, they say go get a job description. When you go to the web, and you approximate these job descriptions, from job to job to job. You’re like, well, this is close. No, it isn’t. Because you’re processing information for each other on behalf of the customer. That’s the manufacturing process that you’re going through every day. At Bagcorp, I said to the group was, look, I want in order to be able to go through this organization, such a level of understanding that no language is required. But think about that for a second. If an organization understands itself and each other connected why’s that they just feel things go through like this right? Will the customer feels that the organization feels that you have operating leverage, you have lots and lots of things getting done in short periods of time? And so that learning is the process that you need to go through to figure out but it’s not easy. But I’m suggesting that what Scott saying is, right, it’s that it’s that information processing, that is a manufacturing process. And you can go into complex ways to understand in, but it’s not that complicated. And it’s not a ubiquitous job description that fits for all companies. It is for your company, and say, just do these five things. I mean, if you do those 100% Oh, my God, the world gets beautiful for the people next to you, they’re taking the information and passing it along the line on behalf of the customer.

Scott Peper  25:15

Yeah, and you don’t have to come up with new things to say, the one message just over and over again. So, everybody knows and it’s consistent. And they know you mean it, and you’re serious. And that’s where it’s going. You don’t have to kind of create new thoughts and ideas every day just to make it interesting. It’s interesting all by itself, but it needs to be consistent.

Adam Boyd

It’s good. Robert had something.

Robert Conley  25:35

I again, I feel very, very grateful and appreciative for the mentoring that I’ve received, Jim Ashton said, and he’s a PhD in structural mechanics for MIT and Harvard Baker scholar. And I say that because I want to give him the credit for being able to do the things that I’m going to reference. He said, Robert, I can do the most complicated math formulas in the world. Literally. Better not that valid people unless you’re solving that specific problem because people don’t do complex and they don’t do fast.

Adam Boyd  26:11

They don’t do complex. They don’t do fast. No. All right.

Robert Conley  26:17

There’s been true.

Adam Boyd  26:23

Yeah. Good. Well, let me ask you guys. You know, in we’ll start with you on this one again, Scott. How do you when you’re looking because Scott, you’re financing a lot of these businesses, how do you assess their financial health? What are some of the key indicators or metrics you’re looking at? And I’ll ask Robert the same.

Scott Peper  26:39

Yeah. So, in our loan product, we’re short term to solve a specific scenario. And so, what we want to assess is really two things. Before we assess the scenario for which the customer is actually coming to us, the general financial health for us is a barrier that’s just where are you now? Can you sustain me Maintain where you are and what you’re doing. Whether that’s your debt coverage, can you are you paying your bills? Are you cashflow positive? Are you cashflow negative? Or are you just you’re making money you have good margins but you’re being squeezed by your customers just dragged out too long to too many days outstanding or you’re growing so fast that your supplier terms just don’t marry up to the your cash flow yet. So, you’re just a little bit of a struggle, but are you making money? And can you make it work? Or do you need this one project, or this one customer so badly that if God forbid something happened to them, it would bring the whole business down. That’s the first thing we’re assessing. So, for us, and it’s just for our loan product, we want to make sure that someone’s there, they’re okay. They don’t have to be great. They don’t have to be financially solvent they don’t need most of our customers aren’t even bankable. But they do need to at least be able to be surviving and moving through where they’re at in a current state. Once we assess that then we’re going to look at the financial viability of the project or the purchase order that you’re working on. So if you’re in a good state, but you have a project that has razor thin margins and a ton of risk associated to it, even if the PO dollars huge, it’s not necessarily going to help you. But if you are in a state where you’re sort of in a, you’re kind of humming along your bumps in the road, but you now have all that work you’ve done has now led you to this great opportunity that you do have good margin and it is a higher dollar value. And you need the financial backing to just execute on that purchase order without putting stress on what otherwise is just okay, normal, cash flowing business. That’s perfect for us. That’s what we’re looking at. We want to make sure we can finance that opportunity so that you don’t have a pain point in your normal business. Your normal business can continue to operate while you take advantage of this new growth opportunity to have those What we’re really assessing and how we do that is basic financials, bank statements, cash flows, seeing what the capitalization of the businesses, are they able to manage their normal expenses, AP, PE ratios, and then their overhead costs and debt coverage. Those are the things we look at to determine the first part viability of the company. The second part, we just build out the cash flow model, and we do it with them and for them, if they don’t have it already, or will utilize what they have, but we’re going to determine what is the cash, what is the margin? When is the project or project purchase order cash flow itself? And then can we help if we if we help provide the fuel that’s needed to either pay for labor or buy these materials? Is our product going to help them and can they pay the pay the financing cost of that capital, but also does it drive their business forward? Can they bring the money in faster Can they do it quicker so they can do it more efficient and actually save money or increase their margin? Those are the things we’re going to look at and then we present that to the customer so they can see exactly what it’s going to cost. And really our, our cost of capital is really nothing more than in that scenario than one of the line items as in their cost of goods sold. Of course, it’s not cost of goods sold, it’s not a material, but in that purchase order, the financing costs themselves because of the nature in which our loan is going to pay for goods that are otherwise associated to that. It really allows them to look at, Okay, you know what, I have this great opportunity, and it’s at a 25% margin. And, but I don’t have a way to do it, or I can use this funding for mobilization funding, I can get it done. And I’m going to have a 23% margin or a 24 and a half percent margin because I’m going to be able to dry use this cash to drive efficiency and actually executed quicker, faster. And here’s what my margin impact is. That’s really what we look at and we try to make sure we provide all that value to the customer because we’re not just a lender. We really want to have them understand the growth opportunities that they have in front of them. And how best to execute on it using cash because most customers, most of our customers, they don’t have it an endless amount of cash to execute on orders. So, when they do, even if it’s in the form of a loan from us, there’s a lot of efficiencies you can drive there versus just doing it the same old way with alone. Yeah.

Adam Boyd  31:18

Robin, you ran Bagcorp and other companies. What were some of the key indicators you were looking at determine financial health? I know most people are looking very often just sales, and that’s a bit of a straw man. But what were the things that you were looking at that other people may not think of as often that are leading indicators for the health of the company?

Robert Conley  31:45

So, I’m going to build on what Scott said in if you if you think about financing, and you need financing. There are elements of your working capital, or your capex that are out of sync with some aspect of your business. I think that’s fair statement. And so many times and I would say most scenarios in manufacturing, and one of the places that a guy who guys like you would go and look is inventory. Because most people, you know, you’re talking about terms, he talks about all this stuff in very general ways. What you’re really trying to do is take the available pool or bathtub level of cash, and invested into things that give you back cash, right? That’s the net. And so, I can go and hire people. I can go and invest in inventory. I’m effectively providing credit when I provide receivables to people and I’m taking credit I get payables. Right. And so, as I take that bathtub level of cash, and I deploy it in those ways, I don’t see good CFOs are really hard to find. Just because they have a title CFO does not mean that they’re a good CFO, but it’s been my experience at least. And the mechanics that go into these pieces can go into what’s called a 13-week cash flow model. And it’s really a marrying up of those effects, right, because I have customer demand, or expected customer demand. And what happens is the entrepreneur, the business owner, says, I’ve got this big pool of something that I need to mine, right, I’ve got this little thing that I’m after. And if I build all this inventory, I’m gonna sell it to that and I’m gonna mine that gain right. Well, when I mined that gold vein if I take records, it’s beautiful, right? Because it just comes right back. And if I estimate that even close, and I’ve got levels window I’m holding but not too much, right? But if I provide credit, then that mining of that gold vein, depending on that people pay causes the inventory now to turn into two forms of financing, right? I’m taking it out of my cash and I’m giving it to someone else is going to pay me later. Now I have to match up payables to those pieces at a rate, typically, our payables to be two to three x my receivables number, right? That’d be like your scenario, right? Because I’m getting cash faster than I’m actually paying it out. So, the raw materials that I’m turning into revenue, which then equals profit, right, whether it’s face margin, contribution margin, operating income, I don’t care how you look at it. Those are all financial kind of constructs as the numbers flow through the financials, but utilizing those metrics and knowing why do I buy that raw material, how long does it take me to turn it into inventory or an invoice? How fast do I collect that invoice? How fast do I have to pay the person that provided me raw materials? And how much do I make? And how often Can I do that? That’s what you guys are looking at every single day. And the lack of understanding as to what those pieces really are, is what causes companies to get out over their skis. Every day. I don’t care what business you’re in. I really don’t manufacturers is very complicated because margins are skinnier, and investment is high, right? Because I have to sequence those things along that line. And so, if you spend time sequencing those things, and that 13 week cash bar rule gives you the ability to kind of hone in on how you do that. Then you’re watching your cache really moved consistent. Simply, as opposed to having guys like you guys come in and say, you know what you’re doing on the cash flow, here’s what your cash flow looks like. They’re like, Whoa, you can do that same work. If you just take those elements, put them into some Excel model, and begin to watch them how they behave. And then you’ll take customer demand, and you’ll marry it up with how you deploy the cash. And then you’ll be able to see how your business is developing health or sickness, if you will. Hopefully, that makes sense.

Adam Boyd  36:35

Well, and if it doesn’t, they can always reach out to you guys after the fact and ask more questions.

Scott Peper  36:38

And we have a cash flow model that we’re I’m happy to share with any attendees that we could send it out. We have a full instructional guide on how to use it. And it’s a great starting point. It’s very basic. It gives us the basic information we need. But it’s plenty detailed enough for someone that doesn’t have something like this in place to totally get a sense So where things are going and then start to add what they want to it but it’ll give them the ins and outs as Robin just explained.

Robert Conley  37:05

You should take Scott up on that.

Casey Conlon  37:08

Yeah, it’s got I got I got a question addressed to you. It says what was a borderline funding opportunity that mobilization rejected and what was the reason why?

Scott Peper  37:22

What was a borderline funding opportunity? Yeah.

Casey Conlon  37:26

Someone looking, working for funding for you guys you’ve rejected on board on opportunity and why did that very specific?

Scott Peper  37:35

Um, okay, so I’ll give you two examples. We had one last week. financial health of the company was excellent. Normal doing well, fine. They’re trying to get a new customer and they It was a quite manufacturing but it was a purchase order financing. They’re trying to get a new customer, so they bid the bid the product really low. They didn’t have all their costs in line yet so some of their supplies that they had estimated were going to cost actually end up costing a lot some cases double. Anyway, what it did to their margins was it really ended up with a razor thin 5% margin. And in some businesses 5% margins are excellent and that’s great. But in the world that we live in, it’s not it’s too thin from a financing perspective, because they’re the other two problems were they weren’t paid quick enough to Robert’s point they were paid by credit card or paid COD upon delivery. Great No problem, but they weren’t they were actually paid on a 60-day term. And so when we put it in the cash model and showed it to them, and show them what that was going to cost them for, regardless of our financing costs, actually, even if they had their own capital, forget ours, before financing costs, their margins were going to be reduced so much that they actually this opportunity was going to suck all the cash out of their business and the terms they had with their supplier or their AP but they had to pay, they would never have the cash to do it. So, it was meaning they were going to get the new customer execute on the order make 5%. But they’re going to use every bit of cash in their business to pay down other AP because at 30 days, they were gonna, they already owe their accounts payable more money than they had in current AR. So, there’s new opportunity wasn’t gonna be available to pay down that AP, which then would have put their supply chain at risk if they couldn’t get new orders. And over the next 60 days, they certainly anticipated on getting new orders. And that’s again, we so we denied that loan, because if we provided that that would have that would have helped them from the AP side, but all they would have done was brought in revenue and a negative margin or negative cash flow, then bend margin, but after financing costs, and just time is too risky. That’s one example.

Another example I’ll give you the opposite of that had an excellent p o with super high margins, but they had financed themselves with so much debt already to get the business to where it was at and then Without thinking it through had gotten some really wrong forms of debt they were so they didn’t want to sell any equity. And I can certainly understand why you never want to do that if you don’t have to. But what they did in turn was they brought in debt at what I would call equity debt, meaning it cost just as much for the time it’s there, if not more, and that also pulled all the cash out of the business. And even though they had this great opportunity, we would have financed all day long 100 times over and worked with them forever. It was almost like the drain; they were circling the drain. And if they didn’t continue, they’re trying to outsell their way out of it. But the problem is they had already sold so much margin of their future margin to the pay this debt and the debt was too much at too high of a cost with not enough time to pay back. And so, by pulling all the cash out of the business, on the other side, not with the new people, but with the current business. It had the same effect and problem and we had to say no to that. And so those are two Examples and almost probably eight times out of 10. Those are the reasons why we say no to alone one of those two reasons or both.

We’re not the right fit for someone who is, hey, look at this huge problem I got myself into, and can you help me sell my way out of it, that that’s not typically how it’s going to work for us. And a lot of times, it’d be very blunt. It happens with merchant cash advances. Most companies that have utilized the merchant cash advances have put themselves in such a bad spot, cash flow wise using them, that it makes it really hard for any other type of finance or to come in and finance them because there’s not enough cash in the business.

Adam Boyd  41:43

Well, this leads me to the next question, Robert, how do you as an operator and as an investor distinguish between good and bad debt? Scott talked about some debt being so expensive, it’s really equity. How do you determine between good and bad debt?

Robert Conley  42:02

I mean, I genuinely like Scott’s explanation. The second one, specifically. I mean, most of them, but we’ve been talking about is the mechanics of what make a business run. Your money in, you have costs that are time phased related to those top line revenues. And if you understand that time phasing if you will, then you can quickly see and I would say there’s a — I’m aware of this book, there’s, it’s Good Accounting. And it’s by the same guy that wrote the Go, go out. And really it kinda treats all costs as a face sort of really variable costs that come out great contribution margin and then everything else has got fixed. And it gives you evens and understanding how you where you are in that cycle. Debt is a genuine cost. If it’s at higher rates, it has a higher level of negative effect on the amount of money that you’re harvesting on a weekly or monthly basis. Adam, Jack Long said I did daily cash flow forecast right not just weekly. And so, the higher the expense of debt, the more that your daily cash really technically is learning, right? Because if you don’t understand the microscopic aspects of how money is flowing in and flowing out. You don’t see the pockets that you hit because you go. Right? In so expensive debt has a very high cost on the energy of the business, if you will. And so no, all that is bad. But if you don’t understand how those mechanics and your business work, and this is I’m talking about in your gut in your in all this feels like this to me, but like see it, understanding it understanding how those reorganization then you can make that decision that looks good to Scott’s point ends up being really bad, right? I had a similar situation. So, I looked at recently to do a turnaround on their debt. I mean, there were so Over levered, it was ridiculous, there’s no way they were going to dig themselves out of that hole on an earnings basis. The only way you’re going to do that is to wipe the slate clean and reset all the debt because you can’t dig yourself out of the cost. And so, you know, what we really I think find ourselves talking about is guys like you guys who understand what are the mechanics that cause the numbers to filter through the financials, and how they affect the business and what you end up doing is teaching people and then either giving them good news? Yeah, your stuffs pretty good or bad news? I can’t do this deal. Right? But if the owner or executive had that awareness starting out, they’d be informing you as to where they were coming to you to the financing and you’d be like, you’re a lovely, here’s the money. Yeah.

Scott Peper  45:55

And Robert touched on a key point I really want people that are offering This webinar to listen, I think it was subtle, but it’s really, really important, particularly for the types of businesses that I think we see in finance the most. There are two things with debt. Everyone thinks of cost. And I have customers asked us all the time, what’s the cost? What’s the cost, I said, you know what the cost is irrelevant at the moment. But there’s two main problems that you can be over levered, which means you have just too much debt, it can be the lowest cost debt on the earth, you just have way too much of it. And the cost of that payment each month, hurts your cash so much. That’s  the short definition of over levered. The other side of it is you could have the right kind of debt dollar amount, and even at a high cost, but it’s in but it’s in the wrong terms, meaning you’ve got the money you need, but how fast you have to pay it back in the manner in which you pay it back or the manner in which you get it or how you can use it are so bad for your business that it just doesn’t fit. So even though it’s a good rate. In a good amount, it doesn’t work. And that’s really where I see more of the problem because we’re not inexpensive on paper compared to a bank or debt, we’re not inexpensive debt. Which is why when you heard me talk about how we look at the cost, if you have an opportunity to do a 20 or 25% margin product, or project that otherwise you wouldn’t be able to do because you don’t have the money you need, and you need an extra orbit and amount of money in it, maybe 50% of the actual purchase order amount. And you’re not collateralized with a property, but you just have that po for someone to give you 50% of a PEO it’s going to be fairly expensive. However, if you can use that money specifically for that it only cost you 2% of your margin. Well now Okay, you have a 25% margin opportunity. And yes, you borrowed a lot of money to execute on it, but it only cost you two or three or 4% even at that even at the highest. But now you still made 21% and an opportunity you weren’t able to You now have 21% of that pile of cash to Robert Sims to bring into your business and the structure if you keep doing that, and you properly put some discipline to the to the use of that cash when it comes into your business, you can take what otherwise is expensive debt and cycle it quickly and all of a sudden, six months, seven months, eight months down the road, or certain amount of dollar amount down the road, you now have all the cash you need to continue on that path. That’s the that’s the huge difference that is so important. Robert, hit right on the head, but I’m wanting to really reiterate this point. The terms of the debt are almost more important sometimes on the cost.

Robert Conley 48:39

That earlier Scott was merchant funding, when you may not want to tag that, but I’m going to tag it because if you have a lockbox and they’re drawing, weekly, daily, some kind of increments, then you aren’t getting all of your cash and they lock it away from you. And now you’re in this. Oh, I’m trying to catch up to what my cash needs are. And that dead. It could be so cheap that no merchant that’s gonna be too cheap. But the bottom line is, is you’re literally giving up daily, which you won’t have that in your model. Right. Excellent. You are you are. You’re trying to get through a straw.

Scott Peper  49:25

Yeah. I mean, if you’re a retail shop and you bought you have a merchant cash advance, and it’s appropriately sized and you pay it daily and the same point you’re charging credit cards every day. Fine. No problem. No, you’re a business you get paid every week, every two weeks, once a month, and you think you’re gonna make daily or weekly payments and it’s gonna be okay, you are literally just taking a bad problem and kicking the can down the road for 30 days or 45. But when that problem shows back up, it’s now on fire and it’s 16 Anybody that anybody that would provide that debt to you the first time, okay, they understand. But if they say, here’s another cash advance to solve that problem again, the lenders don’t really care about your business or they don’t know enough to tell you and guide you correctly. Either one is gonna have a negative outcome for you. One means they’re a bad person. The other one means they just don’t know any better. But that’s the problem. And then those are the situations I think folks get into. That’s unfortunate. But you know, simple things. Again, if I was going to say simple, I would listen to this one point. If you earn revenue daily and profit daily, then you can handle a daily payment. If you don’t, then you can’t.

Adam Boyd  50:47

Huh? It’s that simple. Yeah, that’s good. I think the net you guys answered these questions. And I think we’ve got we open it up another hour and a half with the next slide, I would like to ask you guys, what’s the one thing manufacturers should be thinking about? Going into 2021? And I’ll start with Scott, you know, start with Scott and we’ll go to Robert but like, one thing is that it is, you know, curly from city slickers. Yeah, one thing, what’s the one thing you’d say? lenders need to be talking to their clients about or manufacturers that we’re talking to? They need to be thinking about and then if Casey’s got any questions, we can go to those. But, Scott, one thing that you could be encapsulating everything you’ve discussed so far.

Scott Peper  51:39

So the question really is, what’s the one strategy or thing if I was a manufacturer, that I would guide or help offer up that you really want to grow in 2021 in this climate that you can, it’s going to help you the best. I want to put a caveat to it depending on your business, and what your strategy is. With it will guide what I’m about to say, if you’re our manufacturing business, that’s your top line revenue is the most important thing. You got to make money, but you’re driving top line and because top line you get to a certain top line, it’s going to allow you to immediately be purchased or acquired or something of that nature, then that’s a different, that’s one strategy if you’re trying to be the most profitable, and you see your manufacturing business as a business, you’re going to own a long period of time and you want it to be sustainable. I’m going to address that secondary version first. I think you need to take what we’ve talked about and Robert laid out very eloquently with a cash flow model. And you need to find that if you don’t have that, you’ve got to find it either some type of CFO and not anyone’s the same somebody that knows that cash flow really well, to show you two things, what to cash flow of your businesses and then take it one step further. What is the cash flow of each customer in your business, because you may find out. And most businesses do if you have a lot of customers, certain customers are gonna be a lot more profitable than others. And it could be because of the supply, not any fault of errors, but maybe the supplies you buy for one customer, you have better terms with and you can execute better. And if you know those margins, you can drive at the customers that are going to help you create more cash in your business. And that is the key for you. It creates so many opportunities, and sometimes it might it’s easier said than done. But what I mean by that is if you have the data and the numbers and you understand the cash flows, it’s not hard to make the decisions if you know that all of your customers are lined up and around. One of them is breakeven neutral under your current structure. And one of them produces a 35% profit but your average profit is 20. And you’re treating all five customers the same. It’s not hard for you to get that information. Now you might say well, why am I even sell them to this customer I’m certainly not going to give him a price break or you know what, it’s certainly there’s no problem with me taking the risk to go to that customer and tell him I need a price increase. And if they say, No, who cares, you’re actually going to make more money with less revenue. But without the power and the tools that Robert walked in, walk you all three are with the cash flow and a good CFO, you’re, you’re really never going to have the ability to even make that decision. And so that is the most important thing I would do if I didn’t have that ability, or I wasn’t capable myself making those decisions. And by the way, I’m not I have an excellent CFO, and I’ve been blessed with someone who produces a spreadsheet for me that anybody on earth can read and say, Well, I want to do more of that and less of that. But I could have never put that together for myself. No, no chance. So, it’s, it’s amazing. I say that because I’m one of those people that couldn’t do it myself. So, when I have that sheet in front of me, it’s like, it’s like making elementary grade decisions. It’s really easy like a guy want you to your point. In the face that hurts, don’t please do that anymore. And or this is great, I feel awesome. You know, hand me a stack of money. You know, it’s that easy to do. But it’s not easy to get the information to that pattern. So that’s the one thing I would really do is make sure you get that talent whether you outsource it or bring it in, into your business, you’ll make your life way easier.

Adam Boyd  55:23

Robert, we’ll turn to you one thing you just said, hey, there’s one thought I want to leave people within manufacturing, they want to survive and grow in 2021.

Robert Conley  55:32

Strengthen your balance sheet, said again, strengthen your balance sheet back there. Everything we talked about, rolls it into strengthening your balance sheet. If you want to go assuming that you’re looking at is 2021 is the opportunity you’re going to exit this vulnerable period. Then the balance sheet is where growth comes from. Hard Stop.

Adam Boyd 56:080

Hard Stop. Love it.

Scott Peper  56:08

Pay that debt down you sooner I mean pay paid down your business is profitable.

Casey Conlon  56:17

Yeah, Scott, we had we had a question for You are mentioning 2,3,4 percent coming out of the margin on that purchase order earlier was were you speaking to PO finance or AR Finance? In that example, this is from Matthew in the audience today.

Scott Peper  56:36

Um, you know, if you think about traditional financial aid, what I’m talking about is really the margin on the job. So, let’s just say that someone has $100,000 RPO and it cost them $80,000 to execute on that labor, cost of goods, material, etc. So, they’re going to by the time they do what they normally do it, they invest $80,000 over 60 days. period in their business forget financing at all. I’m just saying just take a business say, Oh, I got $100,000 PTO, this is what it costs me to bring the raw materials in. It’s a week’s worth of labor to make it, I ship it, and a week, a month I get paid. And that whole episode is creates $20,000 of profit. And you can’t do it because you don’t have $80,000. What I’m suggesting is if all of a sudden you borrowed some portion of that 80,000 let’s call it $50,000. And for round numbers sake, it cost you $5,000 to borrow that 50. So instead of 80,000, and now cost you $85,000. Well, that would be five additional push that now you’re only making 15%. So, the 20, 15,000 instead of 20,000. But you’re able to actually do that work, you’re able to really take on that piano that you otherwise wouldn’t have. That’s what I’m talking about where that 5% $5,000 using that round numbers. I’m not saying that’s the cost of our loans or anything, I’m just trying to give an example of what I hope is a question to give an easy example using just simple round numbers.

Robrt Conley  58:09

Again, I just want to give you a perspective to build on that. In every single case, you have a pie, you have a margin pie that you’re slicing up. And what Scott’s saying, I think simplistically is, is that everybody gets a pie. And if you take cash, in order to go get that pie that you otherwise can’t get, if someone takes a sliver of that pie, don’t get hung up on the sliver that they’re taking, because you’re taking the larger portion of that pie as a benefit for the money that’s being provided. It’s just like a tool and mining. I don’t care what you’re going after. If I don’t need to go rent a jackhammer to go through something and it cost me then it cost me I’m just taking Now out of this pie, now I get the majority of the pie. And people get all worked up about how much they’re giving someone to go do something. That’s not the point. Don’t step over dollars to pick up dimes. Look at that piece and see how much of the pie are they taking? Oh, this seems like a lot. Not really, because you’re getting the majority of that pie by that person that money. Don’t down the road, do it again. Right? Don’t worry about it. Don’t get hung up on somebody else. You know that you’re making and wash, rinse, repeat. You want that tool over and over and over. If you could do 50% on $100,000, you can do it faster. You don’t need to worry about the financing God give up your percentage of PO and move it and do it again.

Scott Peper  59:52

Yeah, and if you’re used to ordering your products from your suppliers and paying them in 30 days, and the cost is x but now you have this ability to go to your supplier. And let’s say you use the exact same example it costs you $5,000 to borrow that 50 in that example, but now you take the 50 when you have it and you say, Okay, well, you go to your supplier say, Hey, can I buy? What if I pay you COD, maybe they give you a 3% discount or a 2% discount? Well, you just, you just shrunk your costs in half. And now you’re not because you had the cash, you weren’t able to do it more efficiently. Instead of costing you 5000. You lowered your cost by instead of 80 down to 77, for example, and yeah, you added maybe 5000 of cost instead of 80. It now cost you 82. Well, you’re able to save add call add financing costs, but save in maybe negotiating through suppliers or we have customers on the construction side of our business because they have the money for a payroll and labor. They’re able to do the work and weeks faster, they say a week’s worth of labor. Other customs of ourselves. I’ve never had the case like this before to us, you know what, I’ve done this this whole time I’ve slept at night, because I’m not scared of how am I going to make payroll? or What am I going to do and you know how to pay a lot of money for that. Matter of fact, I just had a customer Tell me last week, Scott, this is not a big deal. Three weeks ago, I used to spend just at least one week a month chasing all my customers down for three days a week to take the money they owed me at a discount so that I could make payroll. And they would take three, four or 5% less from those guys all the time. So, there’s, you just got to look at the way

Robert Conley  1:01:36

No, no, no, I just gonna have a good build of that, which is, I’m not trying to take business away from you guys. But go to your suppliers and ask the same question. Because that’s all you’re doing really, fundamentally, is if you said, Hey, would you take a price increase in order to give me longer terms as to the longer terms for Christ’s sakes? You know, the last thing you never asked? You never get in you say, oh, by the way this looks happening. Here’s my financials. Here’s what looks like, hey, like that, but you don’t need Scott or their capital, you go with your suppliers, put the leverage on them, give them a portion of your margin that and continue to grow that way.

Scott Peper

Don’t do both, though.

(Laughter)

Scott Peper  1:02:29

Our purpose and mission is to help the people we come in contact with and what you just suggested, Rob those ideas. Those are the things that we come up with all the time, we lose business or deals if you want to call it that all the time, because it’s something we suggested they go do to try to make it better and then they able to work it out with their supplier, their customer, and that’s fine. It’s not a big it’s not a problem at all. Because now the supplier structure, they’ll go get the work that they said no two are the purchase order. They said no to before and they will need us later. It’s a long game. You don’t need to win every game, short, long game, so we’re, you know, we’re here now,

Robert Conley 1:03:04

One of the things that customers do. Most owners do think that having more vendors is better for them because they get price discounts. It’s not, we can sell the vendors in every single company we ever go into. Because if you go in and concentrate your business in, in, in smaller numbers of vendors, you think it’s risky. It’s risky all the time. But if you go get smaller numbers of vendors, larger numbers of your business, find that those vendors will do amazing things for you. If they’re the right vendors. You will find opportunities with that as true thing that you go do. Just that’s it.

Adam Boyd  1:03:48

Guys, we’re at the top of the hour, we’ve gone over a little bit. I just want to encourage folks, Mobilization Funding has some phenomenal resources, check out their site and their YouTube channel. If you have questions about operations, about sales marketing, I’d encourage you to reach out to Robert Conley. You can find him on LinkedIn. Find Scott there. Scott has a lot of great content. If you got any questions, reach out to us, and we’re happy to point you to those guys. So, Scott, Robert, Casey, thank you all for being here. Appreciate your help. Have a great day. Thank you.

 

Transcribed by https://otter.ai

In the beginning of 2020, the future of manufacturing looked bright. The 4^th Industrial Revolution brought innovations that would make manufacturing leaner, smarter, and more transparent. Digital transformation promised more jobs, and the biggest dilemma faced was a widening skills gap and subsequent shortage of talent.

Then, coronavirus quickly swept across the globe and industries were forced to respond. Supply chains broke, inventory sat unclaimed in ports, and manufacturing plants across the U.S. had to close their doors—some temporarily, and some for good.

For some, the future altered irrevocably. But for many, the future we once had is not only still possible, but inevitable, and now closer than we thought.

There is no doubt that the manufacturing industry in North America is determined to survive and move forward. Working through a major crisis reveals gaps & weaknesses in operational processes that may have otherwise been brushed aside and saved in the “parking lot”. It seems impossible to make meaningful change when your company is in survival mode, but manufacturers that noted and acted on lessons from the pandemic are more prepared than ever as they become more agile, sustainable, and adaptable.

Manufacturers that are helping the industry rebuild have made a mindset shift, operational changes, and an investment in technological solutions. Their priorities may have shifted, but they have been required to make decisions that are accelerating them into their future even sooner than planned.

Prioritizing Safety Spotlights Efficiencies

Manufacturers were hit hard during the initial wave of coronavirus. As the adage goes, “You can’t build jets from home.” A report from Industry Week found that 40-50% of the manufacturing workforce was unable to perform on-site work. Now that the workforce is starting to return in many places, a new view of safety has become a prominent concern.

Putting employees’ safety first has always been a priority, but the pandemic brought forth challenges never considered. Provisioned with the recognition of a new risk capable of shutting down a facility entirely, having a protected workforce is even more important in maintaining morale and productivity.

Employee safety starts with new standard protocols such as temperature checks, wearing PPE, and hand-sanitizing stations. These are all low-effort and low-disruption tactics that support and protect your workforce. Other changes we’re seeing include operational shifts that can be leveraged as opportunities for improvement.

• Refining shift hand-off meetings to focus only on critical and improvements and efficiencies
• Town Hall meetings are conducted as recorded Zoom events—opening communication lines, creating cohesive cultures, and building confidence safely
• Creating new shifts (nights, weekends) and spreading out workforce is allowing greater flexibility for employees and also potential production opportunities
• Cross-training and mentorships are promoting a transfer of knowledge, improving employee retention, disaster preparedness, schedule flexibility, and overall productivity

A Refined Collaboration of People & Automation

With safety a more prominent concern in general, many manufacturers are turning to automated solutions sooner than they planned. The shift toward automation has proven to be smart financially and is a necessary evolution in the industry, but it has not eliminated the need for a human workforce.

In fact, automation supports manufacturing workforces. Automation programs help keep production moving during potential shutdowns or staff limitations, and makes social distancing on the floor easier as facilities fully re-open. Automation creates operational efficiencies, reduces workplace injuries, and attracts a new, younger pool of talent.

Traditional manufacturing has an aging workforce, and many chose retirement during the initial wave of the coronavirus. However, there is a shift in perception happening with baby-boomers retiring and newer leadership pushing smart factories and automation. The perception of manufacturing as a dead-end, low-paying, and dangerous job will fade as state-of-the-art technology and cutting-edge processes become the new normal. Roles such as Predictive Supply Network Analyst or Robot Teaming Coordinator are putting an emphasis on digital and soft skills and bridging the gap between robotics solutions and human workforce.

During March and April of 2020, 1.4M manufacturing jobs were lost. That is a lot of skilled workers looking for new opportunities.

“The pandemic has left tens of thousands of incredibly talented individuals searching for new opportunities. What we’re seeing now is that successful industrial organizations are taking advantage of this to not only scoop up the best of the best, but transition their entire business, and even their leadership, into a smarter, more innovative and nimble direction.” Brian Fowler, CEO of Skye Recruitment Solutions says.

“Where we once saw a candidates’ market and a gap in available talent, we’re now seeing larger pools of candidates competing for opportunities. But this means it’s even more important to be specific and strategic in hiring people that align with a more forward-thinking future that aligns with the new business goals.”

Investment in Value & Reliability Creating Predictable Success

Robotics, automation and big data give the power to make smarter, more informed decisions about growing but, they also all require an initial financial investment. As does hiring new employees and investing in training programs.

Successful manufacturers are not afraid of making smart investments, but they are ensuring the expenses are being used strategically to ramp up output and efficiency. The coronavirus response shut some manufacturing companies down for good, which ultimately means there is more market opportunity than ever for the survivors.

“The COVID pandemic has caused a lot of problems as we all well know,” says Mobilization Funding CEO Scott Peper. “The truth is, for those businesses that made it there is less competition for you now than before. There will be manufacturing businesses that look back on COVID-19 as one of the best things that ever happened to their business, and there most certainly will be ones that think it was the worst. I suggest you make the decisions to ensure you are on the right side of those two groups.”

Smart financial decisions are being made that support long-term growth through selective equipment investments. For example, if a company has experienced a surge of orders and is patching up old, less reliable machinery just to keep up with demand, now is the time to consider investing in either reliable workers to handle maintenance and troubleshooting or newer, more reliable equipment. Every hour that a machine is functioning properly is an hour of regained productivity.

Additional investment is being made in machine health monitoring and predictive maintenance techniques. Machines are working as much as possible for as long as possible utilizing data. When a plant monitors itself, output improves due to fewer shutdowns, and less extensive repairs are necessary should a shutdown occur.

Creating a Post-COVID Business Plan

The world has been changed forever by the coronavirus. It has touched every person, every nation, and every industry. Manufacturing is no exception, but it is exceptional. Manufacturing will survive the coronavirus, and many manufacturers are emerging leaner, stronger, and hungrier than ever.

It can be hard to see opportunity in a crisis, but it is important that business leaders outline a revived map of their company’s path through the next six months, and the next year after that. Now is the time to dust off the business plan and re-imagine it through the lens of the post-COVID world. How will goals change? Will they change at all, or will there be new tactics and opportunities to get there?

“Coronavirus has caused some uncertainty and challenged everyone, especially leaders and business owners,” says Peper. “If you are uncomfortable — good, you should be. Embrace it. Most great things come from first being very uncomfortable. Accept the challenge, make some new decisions, and drive hard at your new goals.”

Manufacturing is ready to continue its journey into the 4^th Industrial Revolution. Now more than ever, not despite the pandemic but in many ways because of it. Things may look different now, but the future of manufacturing still looks the same: filled with potential.

This article was produced in partnership with Skye Solutions. 

Manufacturing business owners want to grow and thrive like any business owner, no matter what the future brings. The COVID-19 global pandemic has made that a truly legendary feat. Supply chain disruptions, operational shifts, and financial consequences are all pressing down on you, making your goals seem insurmountable. They are not. The truth is manufacturing in America can emerge from this pandemic stronger than ever. It will take a strategic plan that addresses your goals for the future AND the pitfalls of the present. That’s why Mobilization Funding & Dare Capital have brought together manufacturing & banking experts to arm you with the information, insights, and tools you need to succeed.

Full transcript below

Cole Harmonson  0:11  Hey everybody, welcome. It’s Cole Harmonson with Dare Capital and you know what time it is for the Dare Capital dialogues this week brought to you along with Mobilization Funding, and Dare capital which both of us provide capital on manufacturing and construction projects. Today, we are joined by Stephen Shang and Robert Conley. They are both longtime entrepreneurs in this space and have a wealth of experience operating, running, growing selling businesses, and today we’re going to talk about what’s going on with the changes in the space regarding pre-COVID, post-COVID and how you can deal with it. So, we’re very excited to have these guys joining us today, we’re going to go ahead and get started with the background. We’re going to start with Mr. Stephen, tell us a little bit about your illustrious background and how you went from Silicon Valley into the current business that you are running today. Thanks for joining us.

Stephen Shang  1:22  So, um, thank you for hosting this. It’s really an honor to be on here. And hello to all the participants, hope everyone’s doing well. So my background, I came out of school, went to a management consultancy, but then got the startup bug and so went to Silicon Valley and started pretty much about seven different companies and raised about $90 million in equity capital pissed it all away and all I have to show for it is a picture of me with blue hair. But in 2002, came back to Austin and said, Look, you know, can we really build a real business? And we thought about a lot of different industries and we saw the portable storage industry is a very interesting space. So, we started dropping storage in 2003. And that was really just buying containers and renting them out for $125 a month or so. My VC friends were joking at the time like, oh, wow, Falcon storage is that gigabyte or terabyte technology? Like, it’s uh cubic feet. But then over time that that portable storage business evolved into what it is today, which is Falcon structures, as we worked with containers, more and more shipping containers, we found that there was a lot of applications for them in building them into workspaces, living spaces, equipment, enclosures. And so, we really transformed the company from just a little portable storage company to now a manufacturing company that serves pretty much the entire US Caribbean, in Africa.

Cole Harmonson  2:42  Wow. That’s great. Thank you for that. Robert, tell us about yourself.

Robert Conley  2:50  ­­I refer to myself as a mutt. (laughs)

Robert Conley  2:55  I bought my first business at 21. Owned it for six years. Just kind of went on to do we help other companies grow. Sales and Marketing is kind of the base of my background. Went back to business school at 37, which is a little bit rare for most people and got what I consider to be a great education. Went on to apply that education with, and I give this gentleman this, like I state his credentials to give him respect and to kind of help folks understand how close to the heartbeat I felt like I was, but I went to work for a gentleman named Dr. Jim Ashton, Jim’s a PhD for MIT in structural mechanics and Harvard Baker scholar. And he started the F16 Fighter program for General Dynamics and went on to produce the most defect-free, on-budget, on-time airplanes that have been produced. And he took that that formulation and kind of created a management framework and tools around that. And when I went to work for Jim, we were doing private equity LBOs, kind of in the industrial space job shop manufacturing. And we applied those tools and principles throughout. And because we were a small group, we did not only the kind of financial engineering, but we worked with executives, took executive positions within the companies, to get them turned. And we typically bought under-managed businesses. So super-cool environment to take that business school knowledge, kind of entrepreneurial background, and then really refine it with a brilliant individual over, you know, a 10-year period. And so, we were industry agnostic as long as it was complicated. And in and so with a gentleman like Jim, he said to me one time he said, I can do most complicated math formulas in the world, Robert, but unfortunately, it’s really not that valuable unless you’re solving that specific problem. He said, because People don’t do complex and they don’t do fast. And so, we typically we’re dumbing down manufacturing complexity into simplicity, which is a challenge. And so, you know, that’s really what I’ve been doing. I just finished a turnaround, my actually partner is doing that. He’s the CEO now. And it still works. It’s very effective. And so that’s quickly how I got to where I am at this moment.

Cole Harmonson  5:30  Awesome. Well, great. We look forward to digging into some of that as we go along here. We’re also going to have an audience poll today. So, I know the audience has been growing and you just joined us. Today we’re again we’re talking about planning for the future in terms of what’s going on in manufacturing and we want you to take full advantage everyone now is Zoom efficient these days. We want you to take full advantage of the chat function, ask questions. We want this to be participatory exercise. So please feel free to, to join in. And we are going to have a poll question here in terms of what you think is the peak of disruption behind us, and maybe not what we wish to have happen. But what we believe is going on Yes, the peak is behind this or no, it’s not or, man, we don’t know you’re not sure. So, feel free to join in that poll. And we’ll talk about that at the end as well. But thank you guys all for being here. And again, please feel free to use that chat function liberally as I’ve got my partner, Casey Conlon, on the ready for questions. So, thank you guys very much.

Cole Harmonson  6:53  So, let’s talk about before COVID let’s talk about some of the biggest challenges in manufacturing. Let’s start with you, Stephen, tell us, you know, what you think is going on? And what was going on sort of before all of this disruption happened?

Stephen Shang  7:16  Yeah, for us, you know, before all this disruption happened, I think our biggest challenge was really, like Robert was saying, more of a Sales and Marketing Challenge. We had a certain physical plant that we had built up. And the question was, how do we utilize that to the highest level of efficiency, and really grow into this niche that we’re filling with container-based structures? And so, a lot of head scratching was really focused on sales and marketing, and how to how to dominate those markets. Gotcha.

Cole Harmonson  7:47  Robert, same question.

Robert Conley  7:50  So, one of the tenants that we work with and by the way, I forgot to say thank you for having me and welcome to everybody. I haven’t done a lot of these. So, I get a little bit lost sometimes. So, in manufacturing long supply chains are ugly supply chains. And I think there’s been a pretty consistent misunderstanding that low price is the siren song that you’re after and what we believed in. And typically we wouldn’t choose an overseas supplier if we could avoid it, even if you pay a little bit more. And, and so, I think that pre-COVID the universe was working on what I consider to be a flawed principle of long supply chains and low price, or what you should be pursuing. And what you really should be pursuing, at least from my perspective, is the close supplier that can satisfy you in short lead times with relative values of inventory and competitive price. And by doing that you effectively flush the system of working capital a bit. And reduce inventories. You do a lot of really cool things for your business. And so, I think, you know, if you look at manufacturing today, that probably is one of the opportunities that pre-COVID wasn’t really being viewed or looked at. And post-COVID or during COVID is in. I mean a high level of scrutiny right now because of the disruption and the inability to actually deliver products that you’re relying on those long supply chains to bring to you.

Cole Harmonson  9:48  So, for those of us who are not familiar with some of this industry jargon regarding long supply chains, could you just flesh that out just a little bit for us?

Robert Conley  10:00  Sure, I can probably give you an example. In the last company that I was running, we bought a finished product from India in China. And as we strategized, in this 50-year-old family run business that we were doing a turnaround in, what the premise was, is how do we buy our fabric product, because we have manufacturing in Mexico, closer to the heartbeat? You can buy it pretty cheaply in India. But if you looked at the unit economics, Jim always said raw material costs are not that materially different between, even if it’s high volume, between manufacturers. And so what we did was is we went to try to work with a fabric supplier in Mexico versus buying that same fabric from a supplier we’re getting finished product from an India. What we found is that the costs, our price for that product, weren’t materially different. And if you look at the long supply chain, so, if you go FOB or XWorks India, you then start — So you got to pay for something XWorks India on their dock. Now, you start a 34 to 45-day process of moving that material to you. Well, now my cash is being used in that process. And so, it really, fundamentally if I compress that down to effectively my backyard, I reduced the risk what if my container falls off the ship as an example. Now, it doesn’t happen very often. No, but does it happen? Yes. What if they’re late? Well, all of these things add risk to you being able to supply your customer with their finished product, if it’s A value add component that you’re buying, or the finished product if you’re buying it, so that risk is not preferable if you can avoid it at relative costs of supply. We might say that clearly enough.

Cole Harmonson  12:18  I think so. Stephen, I don’t know if you have anything to add to that, or if you share that same philosophy, I’d love to hear your thoughts on the differences.

Stephen Shang  12:29  No, I think I think Roberts encapsulated pretty well. But yeah, long supply chains are ugly supply chains. I would totally agree with that.

Cole Harmonson  12:37  Got it. And do we think that that sort of post-COVID look at reality is just because of all I know, the sort of the nationalistic sentiment, I think is going on across the world now. Do we think that that is going to substantially change? Or how do you guys think about problem now?

Stephen Shang  13:02  I mean, so our raw materials are shipping containers, right? So, it’s not the stuff inside the shipping containers, but we need a consistent flow of shipping containers coming in, from Asia, from Africa, from wherever. And I’ll say, you know, if all you believed was kind of the news and the nationalistic kind of news at the reporting on and all that you would think that shipping has ground to a halt. But based on our data, it slowed a little bit when the COVID first hit, but now it’s back to kind of the levels that were used to be at prices. Albeit they are a little bit higher, but I wouldn’t say they’re so much higher that we can’t absorb those costs or pass those costs on to the customer.

Cole Harmonson  13:42  Yeah, I would echo that sentiment. I have a client in the Port of Los Angeles who does nothing but shipping containers, and there was a dip in volume, but it’s back now. Although I feel like there’s more diversification and I’d like to just get your thoughts on how someone could diversify and in their supply chain if you know they were relying on China, will that still be the case? You know, going forward, you know, what will the relationship with China kind of morph into if any changes?

Robert Conley  14:27  So, I got a LinkedIn question from a woman who’s making garments the other day, and she was wanting to move her manufacturing back to the US. And what I would say is, is still consistent with what I said earlier, which is, um, textiles left the US and probably rightfully so those organizational structures, unions, different things cause prices to increase on labor basis. But if you look at our neighbor, Mexico, the unit economics and I believe strongly in unit economics, the unit economics of Mexico are not dissimilar from China. The capabilities of Mexico are very strong and the ability to move supply chains from a long distance to a near distance with preferable tariff structures, etc. is very valuable. Now, is there a risk? And is there a concern with being able to assess those supply chains? And I would say yes. All suppliers are not created equal and promise a lot deliver very little sometimes, but I think that China could be displaced in certain realms. Not all because they’re very good at many things and very fast and governmentally sponsored to invest in infrastructure. because capitalism structures are not. So, it depends. But yes, it’s very possible. what we would call high tolerance industries. There was something where you’re using a micrometer or where, you know, fractions of a hair distance between panels or parts matter. Those could return to the US in a nanosecond, the oil industry has had some experience with those things. It’s really a matter of being able to support that. I think that will some people find it hard to figure out. I don’t know if I answered that correctly or not. Clearly,

Cole Harmonson  16:40  There are no wrong answers here at the Dare Capital Dialog, so thank you.

Stephen Shang 16:49 Well, I would add that to that, too. I mean, yes, there definitely is risk of trade war, kind of sitting out there. And as a Chinese American who grew up in Oklahoma, my perspectives probably don’t represent the majority. But I’m reminded of as you know, my daughter about two, three years ago was starting to learn how to read. And she just was looking at me and said, Dad, why does it say everything is made in China? Right? And I mean, it’s legitimate if you think about it. And so, if we’re really going to kind of take all these different supply chains where we have so much product flowing into our country, so much capital flow in there, and then some product is going back as well. I mean, it would be extremely difficult to pull the two countries apart, to really disrupt kind of international shipping at that level.

Cole Harmonson  17:36  Yeah. And not to, you know, have a moral component about this. That’s not the that’s not the conversation. But is there the move to American manufacturing, is your take on that, that it’s more hype than anything else or is will it, will we onshore, will that actually happen? Or can it even happen? And if so, then what’s kind of the time frame?

Stephen Shang  18:11  So, I can speak about containers itself. Like to manufacturer containers in the US with US labor in US steel, you know, is probably two to two and a half x what it costs to do in China. So, the question then is, you know, Does that even make sense? And can we catch up to that kind of productivity and cost gap? I think it’d be extremely difficult. I think the offshoring of manufacturing that we’re seeing, like Robert saying is really for some pretty technical high value-add type products in China, and then India, for that matter will continue to produce some of the more commoditized type items, data.

Cole Harmonson  18:54  Any follow on there, Robert?

Robert Conley  18:59  So, my belief is that humans are a bell-shaped curve. And we revert to the mean over and over, meaning that we try to learn from history or current experience, and then we return to the crimes we’re comfortable with. The reason that Jim Ashton liked job shop manufacturing is because he liked solving complex problems. And I would submit that growing a manufacturing base in the US is a challenge. Very doable, but that for the most part, the human component will cause themselves to want to do something and then actually return to what’s comfortable and familiar versus taking the longer road which is changing their paradigm. I think it’ll happen in certain instances, opportunistically, but broadly speaking, I hope, I hope for Mexico, because I like Mexico and I like that environment. You can do a lot there that they benefit. If they’re smart, they will work on that. But, broadly speaking, I think Stephens corrected. You know, it’s not likely to be disrupted upon the whole.

Casey Conlon  20:33  Yeah. Stephen, there’s a question here from the audience. You mentioned there’s two and a half times the cost for those containers, what’s driving that cost increase?

Stephen Shang  20:46  I think part of it is just we don’t have steel foundries in the US to really spit out the kind of steel that you need to build containers with. And then the other component of that is just the labor rates there are just insanely low and — it’s a pretty, it’s not a complex weld that you have to put on it. And so, they’re able to achieve big cost savings. So, both material and labor.

Robert Conley  21:11  I also think from a Chinese perspective, one of the things that people don’t weigh in enough in relation to that is the government sponsorship of the companies that are producing the products, whether it be steel, labor, robots. Because I would, I would argue that a lot of those containers are probably made with robotic welds. And so, you know, the ability to set up a robotic line, what robotic tooling line that’s 100 yards long, with a government paying for a good portion of it, well that company doesn’t have the same unit economics or economics that that a US company or any other company would have. And so, you’ve got a strong imbalance in understanding why that’s true and an unnatural scenario with Chinese governmental support, skewing what would otherwise be very challenging, like capitalistic basis or free markets basis. From a supply chain standpoint, if that makes that makes sense.

Stephen Shang 22:18   Yeah, makes a lot of sense.

Casey Conlon  22:22  And I think, kind of following up a little bit different tack you mentioned, obviously the Chinese government subsidies help lower their costs. We have another audience member asking, you know, the NAFTA agreements been in the news or the rewrite lately. Have you seen any effect on that because of COVID talking specifically us to Canada or us to Mexico, the effects there?

Stephen Shang  22:48  I don’t do that much business with Mexico or Canada. So, Robert, have you had an answer that I don’t have a strong opinion?

Robert Conley  22:56  Yeah, we bought, we had about 700 employees in Mexico. I’m very aware of the NAFTA agreement in, in really the NAFTA, the new NAFTA is a very positive thing for all parties, let’s just say. You know, it still has the good effects in it. There were some aspects that, you know, the government was trying to kind of unweight it, if you will, to have Mexico kind of support some of its own costs in certain ways. But you know, we bought a company a Mexican company in 2019 as a vertical integration play and phenomenal, great investment, great conditions. Plenty to work with, I strongly recommend and am in support of strengthening the North American continent between all three parties.

Casey Conlon  24:04  How do you feel, you know, talking about the China trade deal as a follow on? Do you feel like it that will get done? Or how do you plan to that?

Stephen Shang  24:16  Again, I have a strong background in that either.

Robert Conley  24:25  No, it’s okay. I mean, this stuff is, so, I love it. I spend a lot of time in lots of different aspects of it, but I think you need to get a helicopter out on the Chinese deal and take a longer-term perspective of what’s occurring globally. When you talk about oil reserves, arguing about islands. I think there’s some aspects of the Chinese agreement that are more about leverage over the long term, not about the target scenarios and the Chinese have a very long-term perspective of what they’re accomplishing. And the US is not as good at that and needs to be better at it. But you’re talking about a global superpower. Changing the economic landscape, globally speaking. And in GDP right now is redistributing itself on a global basis. And they’re trying to siphon off as much of that GDP as is possible. You know, as it is it kind of changes the places that it goes. You got to watch out for China. I mean, bottom line, you got to watch out for China.

Casey Conlon  25:54  Awesome. Thanks. That’s, your answers are definitely been helpful, Robert. Appreciate it. We’ve got some more audience questions that we’re gonna go with. So, kind of jumping in here. You had mentioned, Robert, earlier the government sponsorship within China, do you see any role of for us defense, either the Department of Defense or any other organization in terms of US government sponsorship?

Robert Conley  26:22  I’m not I’m not sure I understand that question well enough to answer it’s more.

Casey Conlon  26:31  I’ll see if a Jason is listening. Maybe he can chime in. So, I’ll read it just straightforward. It says speaking of government sponsorship, do you see any role for US defense in this?

Stephen Shang  26:43  I’m able to take a stab at that. You know, we have traditionally done a lot of work with Department of Defense. And what we have seen is that some of these very large private contractors, defense contractors, they become part of this kind of industrial military complex where they’re just intertwined with the government. And you see people kind of leaving the government and going to work for these companies immediately. Right. And so, it did. We may not call it sponsorship here in the US in the same way that you know, China, when you start a business, the government really is a second or third partner in that business. But I do think there is quite a bit of support for these, especially these defense contractors that are part of that complex.

Cole Harmonson  27:32  That’s a good thing. So, let’s talk about and by the way, I know we were I think we had this plan for 30 minutes and I knew it would go longer. I just want to let everybody know if you do have to jump off you will be able to find this on YouTube on the dare capital channel on YouTube or you can find it in my Twitter feed at @coledoescapital and then we can also send out a little link to everyone, just in case you have to jump off, but our audience seems to be growing, not shrinking over time. So, so this is a really great discussion, we want to keep going. Thinking about, sort of with COVID situation, where we are today. What do you guys think the biggest challenges are for operators to think about? And then what are the steps that these operators can take in order to mitigate some of these challenges? So, problem and solution with COVID? So, maybe, Stephen, you want to kick us off on that one?

Stephen Shang  28:46  Sure. I would say, you know, as we’ve thought about it as a leadership team at Falcon, I think the number one challenge that we see out there is worker health. Right. And so obviously on the manufacturing floor as we’re still running, you know, how do you keep everyone healthy? How do you keep everyone productive? How do you maintain the levels of efficiency or increase from there when you have to socially distance? Those are kind of the more obvious answers. But there’s also the aspect of worker health for the office staff or the overhead in a manufacturing organization, because a lot of those folks start working from home to protect the worker safety on the manufacturing floor, and they become untethered. And so you really wonder about the mental health of those employees, how do you keep them engaged and all that and I think the opportunity there that we really seized upon is to really up our game as far as transparency goes. And I think in the last 90-120 days since all this has been happening, I think with that heightened transparency you know, really sitting down laying out what is the 90 day plan all the things that you and I learned in EO, Cole, you know it would really applying in spades now, and really being intentional about it, versus pre COVID you kind of took all that stuff for granted to some extent. Like oh, yeah, business is great business is great, you know, but now really focusing on worker health, as it has become the opportunity. And I think the companies who do that well, who can demonstrate leadership and then demonstrate transparency because really, nobody has the answers. And as a leader, you’d be faking it if you said you did. I think that’s really going to separate a lot of winners and losers in this environment.

 

Cole Harmonson  30:32  I feel like I’m always faking it, but Okay, I know I love that. I love I love Your love that on the mental health side, I’m curious on that. You know, that’s a, that’s a very personal area for people even to admit. So I applaud you for jumping in on that and just even acknowledging folks. Because I mean, what I’ve seen and again, we talked to thousands of lots of employees if you just count all the folks that we talk to, and, you know, anxiety, fear, people’s, you know, job security, you know, I mean, there’s a lot of processing, if you will, that’s happening with folks these days. And, you know, sort of the tools for doing so, are, are very limited, I would say, at a corporate level, or even folks even wanting to have that conversation just generally. So, you know, the, the caring and the empathy piece, you know, just to just even work, quote, unquote, hold space for that is, is, I think about 90% of it, but I’m just curious, how do you how do you even get into that with your team?

Stephen Shang  31:52  So, I would say there are two ways. One is pretty simple, and I think everyone could pull something like this off but the second one I’ve had to be more intentional about. The first one, you know, in the Rockefeller habits, Vern Harnish talks about doing your, you know, five-minute huddle every day. And typically, we would do that with the office staff, which is about 25 folks. We’d all get in the conference room, we would do that well, when COVID hit. You know, that was the last thing we really let go of, because that was just a daily rhythm, a daily habit that everyone kind of synced up felt connected because of that. And so now that we were all virtual, we kind of go on teams, and we still do the same huddle. And you know, I spent 15 minutes before the huddle, just prepping my mind, to be upbeat, to be optimistic, to tell my funny dad jokes that aren’t really that funny, right, just to get that so that when we do hit that we kick off the day correctly and really come together. Once again albeit through a different medium. The second one’s been harder for me, but I mean, I’m sure you can relate. You kind of get into your daily routines and you have like a to-do list of you know 20 tasks, you get all these emails coming at you now people are pinging your Microsoft Teams, and just never seems enough time to do all the things you need to do. Well, two days a week, I come to the factory. And I actually make space in my schedule, that’s just whitespace, not to hit all those to-do list items. But to just walk around, go talk to the factory workers, spend time with them, ask them how they are, asking how their family is, and not being in a rush about it to genuinely care for those that you’re responsible for. And we found that that, that’s I think, really helped us kind of hold together mental health piece because they can tell me about their fears. They can tell me about what they’re excited about, you know, and that’s been something that that I’ve had to be disciplined about doing and not letting my day get away from me.

 

Cole Harmonson  33:46  Wow, that’s strong leadership. Very strong. I applaud that very much. I think people need that and I think people are looking for that sort of stability, if you will. Robert, how about you what do you think are some of the biggest challenges and you know how to how to mitigate those are operators going forward?

 

Robert Conley  34:09  I agree with you, my heroes strongly tenants and connecting to people. And you know, one of the things in the frameworks that I use is really they’re fundamentally about people. And, and so you know, people deserve to be treated with dignity, respect and a non-punitive environment. When you realize there’s 168 hours a week, and as a single individual, there’s really not a lot you can do in those 168 hours that’s going to truly drive your business forward. He realized quickly, you need others and, and so, you know, I think one of the things I’m proudest of most in most companies that I have ever taken over or, you know, been involved in is, is a cultural change. Related to what Stephen is getting at. And that’s putting people in front of whatever the decisions are, whether it’s guiding the team, enabling them to understand what pieces they hold in the business and why it’s important and how that work goes into each other. And you know, that transparency, we use a tool called Ops Review every month, where, it’s basically we’re, you know, CEO, CEO, CFO, etc, come together, every department presents kind of where they are, what they’re working with challenges, they’re having successes. And what happens is the organization begins to teach each other and when an organization sees each other, that empathy begins to grow within the organization, not just for the work and the customer, but for each other and how they fit into each other. And in the leader, we have another saying, Fish stink from the head down. And so, in Stephens case, you know, the fish is doing, you know great things and helping people feel connected to the business. And that’s a missing piece in a lot of cases, at least from our experience of taking under-managed companies. So, I completely agree transparency, consistency, being patient, being tolerant, understanding, caring about others, those parts of business are not well formed enough, nor are they pushed enough in the business environment. Because leaders get locked into their egos or they’ll get locked into the mission or they get scared like over forecasts, or whatever it is, you know, and I’ll touch on this which is, if you if you don’t see me see you pay attention, what companies are reporting and the things that are happening in the universe related to COVID, forecasting is so difficult right now. The Black Swan effect, no one’s been through this, there isn’t a way to get concrete about most of these things because it’s, it’s like pushing down on a sponge, you know, it’s gonna pop out different areas. And so, it may not be the right visual, but this is really challenging right now. And being patient with the team or the organization to know that this too shall pass. But people are doing the best they can right now. I mean, in a lot of cases, I think that’s all you can do. So, you know, forecasting is very challenging right now, for all companies do it, from every single thing that I hear, have conversations about and understand. I don’t care what size you are.

Cole Harmonson  37:56  Yeah, I’d love to, if you don’t mind typing that link into the chat for the panelists, and we’ll get that published out that tool you mentioned sounds like something that everybody could benefit from. In terms of we got an audience question here, around challenges. A quick overview of the cost of goods increases due to logistic issues. And what is the plan to keep that low?

Stephen Shang  38:30  We’ve not seen dramatic price increases on our raw materials. We have seen it kind of shipping the final product would be a truck that seems to have gone up slightly. But I think that’s being offset somewhat by the price of fuel going down as well. So, it’s not something that we’ve identified as a as a big threat. If it does increase, we will definitely just increase our prices and see if the market will bear that.

Cole Harmonson  38:54  Yeah, spot rates I think have gone up just because there’s been a lot of trucking companies and logistics businesses in the US that have gone out of business because of, you know, too much supply. So also, this is specifically for you, Stephen, regarding I know you mentioned earlier sort of pre COVID that your challenge was on the sales and marketing side. Is it more of a challenge now and how have you worked with that?

Stephen Shang  39:32  Um, is it more of a challenge? I would say it’s, it’s a different kind of challenge. I wouldn’t say it’s more or less of a challenge. It’s a different kind of challenge. You know, before it was really we a big part of our business which exposed to oil and gas and with kind of COVID hitting and then the price of crude oil going negative and everything like that a lot of the oil and gas market is just a bloodbath. But you know There are two challenges we presented to our team in the first 90 days. One is like, okay, we’ve been hit by COVID we’ve got a product that can be applied to a lot of different industries, can we pivot to some industry that that may be using container-based structures? And if so, how do we go after them? How do we develop the products and all that? And then the second thing is, is you know, one of our other themes was sharpen the saw and that one was much easier to implement in the sense that Okay, we’re pretty good at what we do. But you know, what, if you’re sitting around at home and you have to do sales, marketing, sometimes it’s just it’s really hard to get inspired to, to make those calls or to really write that content. How can we sharpen the saw and so we really revved up the sales training in the first 90 days pretty dramatically and really focused in on that now the first part of UK so what else can we go after? You know, I just my team was just blew me away because one day said okay, let’s develop a COVID line of products, which are COVID testing labs, you know, mobile hospital rooms, Things like that, that you can put inside a container. And in a matter of, you know, a few days, they came up with the draft of it. And then a few weeks, they had fully published all the marketing collateral. I’m like, why can’t we do this and pre COVID? Wow, they came out with an amazing line. And we were able to get that out to the industry. And we’ve seen some really good hits on that. But then the other one was the sales team, they really focused on listening to the customer more. And so, you know, who’s doing well, in the COVID crisis? Well, grocery stores are doing well. Well, can’t we do like you help them with curbside pickup? Because that’s what they are needing. And so, we’ve been building a lot of curbside pickup units to give grocery stores additional space for that. And so, it’s that you know, it there’s that saying that if you focus on problems, you’re going to just come up with more problems. You need to figure out why you can’t succeed. But if you focus on opportunities, well then when luck hits, you’re going to be ready to take that right. And so, I think our team has done just a fantastic job on keeping their head up and focusing on what opportunities are really out there.

Cole Harmonson 42:01  Love that. I love that. So, to kind of sum up regarding challenges, and mitigation around those, and I’m curious if you guys have anything else to add, that really it sounds more like personnel issues. I won’t call it HR, but I’ll call it culture and being able to listen, being able to care, show empathy, and being able to, you know, actually do something about that and deliver to your team, which is always a challenge. But I guess what I’m hearing you say, both of you say is that most of the issues are centering around, you know, caring for the people on your team. Is that a good summation? And anything else to add, before we kind of move on to what, what are the opportunities?

Stephen Shang  42:57  Yeah, I mean, if you really kick it up to a whole other level, On the caring for the people on your team, when COVID first hit, you know, I think a lot of us were confronted with a choice, because we didn’t know how bad is gonna get or how long it was going to take. Maybe we should just hunker down and shut down or lay off a bunch of people and all that, right. I mean, those were decisions that we as president CEOs were faced with. And, and, you know, I really did a lot of soul searching and that like, you know, I love my people, and what’s the best way to care for them? We’re going to stay open, right? We’re gonna, we’re just gonna go for broke if it’s gonna last for a long time or whatever, you know, but we’re going to do that’s going to be the most important thing we focused on. And fortunately, it worked out for us. But there could have been a scenario where it would have just been, we all crashed and burned.

Cole Harmonson  43:43  Yeah.

Robert Conley  43:48  I, I will say that. And again, I applaud Stephen, like, what a great guy and a great guy to work for and those are the case. So that’s it. That’s a beautiful thing to hear. I would say, because I’m a bit different in that, you know, I’ve entered companies that are broken most of the time. And most of the time, what we say is that we’re freeing employees from their captors. And, and COVID from my perspective, is an emergency response to something that should be consistent throughout. You know, in in so, I don’t give a, but sometimes I say things very candidly, I apologize, that’s harsh, but I don’t give leaders a lot of credit for responding to something they should be doing all the time. And, you know, in the emergency because, you know, every single thing organizational chart ultimately is about operating leverage, and the better that the individuals feel, feel connected to and otherwise Understand the box that to you no matter what chart and the better the leader works with them, it connects to them, the more that that structure because that’s what it’s called organizational structure is able to produce more, and ultimately is literally about the human inside the box. And so, you know, I brought doughnuts and coffees and tacos, you know, on Fridays myself, stopping by the store. You know, these connections to humans is what people get pissed off about every single day in business every single day — they’re underpaid or undervalued, they’re not communicated with. And so when a leader steps into that particular position, and is patient and understanding and guides humans to the targets that businesses are trying to achieve, amazing things happen both in their personal lives and in the company’s life. And so, whether it’s COVID or it isn’t COVID I think leaders have to look at themselves very distinctly, and do more of what Stephen’s doing, and get out of themselves and into their people, you know. My karate instructor said, Don’t, you know, put your ego in your back pocket and let’s go to work. And you got to care for your people. So COVID can be an excuse for those things but the bottom line is these things should be happening and should have been happening for a long period of time and need to continue to happen regardless of emergency what’s in front of us.

Cole Harmonson  46:33  Agree 100% and I’m just having to throw this out there as we’ve been doing these dare capital dialogues and discussions with leaders across various industries slash things, we’re interested in. One of those things is culture. Communicating with your team, I would say I’m a throw out three sorts of tools here. I think that are helpers in accomplishing the things you guys have been mentioning. One is Workify, that’s an Austin based company here that it’s a sort of listening tool to measure culture to actually help you put some teeth behind some of the things that you put you know forth in your culture, that’s Workify. And then we had Rob Lynch on and talking about the Rockefeller habits. So a lot of folks have heard about that and there’s a book and then the tool set that we use is called Khorus.com, KH O R U S .com, and that tool is meant to help you keep some of those rocks that you establish in your Rockefeller habits present and communicated transparently across the team. And that’s Khorus.com as well. So as far as tools, at least for me as leader, you know, I need some something concrete you know, so I can look to it and say, okay, we either are doing this or not, we’re either listening or not the thing I liked about Workify so much is that it has an anonymous feedback function so people feel free to it’s like, Cole, hey, you’re full of shit. You said this, you did this, like, you know, how did this all work out? So just helps you kind of put some, some teeth behind it. I don’t think we have any more open questions I want to kind of move on to the opportunities that you guys see on the horizon that are coming up because of COVID specifically, what on your mind as far as opportunities that are going to be occurring for folks and how to take advantage of those. Robert you want to start?

Robert Conley  48:47  I’m gonna go back to forecasting and you know if you, if you buy and sell companies one of the things that private equity hates are, you know, the one percent of the market share or etc. And one of these things can cause us to go do is to, and I think Stephen said a minute ago, which is, we went back and try to listen to our customers and hear them better. And what that really is related to is doing it from the ground up. And you know, when you build a structure from the ground up, whether it’s the weld strength materials you use, or the humans that do that work to connect to the customers, the markets. I think that’s probably one of the biggest opportunities to realize, Oh, crap, we win this or lose this one customer at a time. What is it that they want and need and how do we forecast those needs built in? I think on my LinkedIn profile, I have a piece that Dr. Ashton wrote for Harvard related to understanding how deep you can go in your core business. Value is destroyed by moving outside of their core. But if you build your business up and you really focus on the customer, I think these are the opportunities and times where you realize, oh crap, we didn’t understand that doing well. And there’s a better way to understand it and getting granular and knowing why people buy from you what’s important to them, what they care about, is a way to strengthen your business during a time of what we’ll just call pandemonium, if that makes any sense.

Cole Harmonson  50:37  Got it. Understood. Stephen, same question.

Stephen Shang  50:41  So, we see plenty of opportunities in container-based structures, but I don’t think that’s interesting for the group as a whole. I think if we’re speaking about manufacturing, like what opportunities are there in manufacturing, I see two global themes that we are positioning ourselves to capitalize on the first one Is counterparty risk. And I think with COVID with, you know, companies going out of business and things like that, I think people who are looking for suppliers looking for manufacturers, their purchasers, their CFO, all that they have a heightened awareness of counterparty risk, which may not have existed in 2019 or 2018. And so being able to position a manufacturer as Hey, look, we’re the guys you want to go to, because we’ve been around and we’re going to be around, we’re going to take care of you, you’re not gonna have a disruption to supply chain, I think that’s a huge opportunity. And if companies that are healthy right now aren’t trying to figure out a way to talk about how they’re healthy and how they can help, you know, supply the materials that that their customers are wanting, that should be something that is, you know, mission number one. The second one would be, you know, the talent that is on the market right now. For example, one of the things that we just turn on the spigot on hiring as Director of Sales and I think During the kind of pre COVID days, man trying to get people to even apply for that was close to impossible. And our HR managers told me we’ve had like 30 applicants in the first two days, right? And half of those people are unemployed, unfortunately, and half of them actually are in current positions, but looking for a change, because maybe they see the writing on the wall. So, I think there’s a huge opportunity to bring on some talent in kind of this time, and the question is, when do you do that? From my own, you know, capital conservation standpoint.

Cole Harmonson  52:33  Got it. On the capital preservation, I mean, the, the counterparty risk. Could you talk a little bit more about that? I don’t know if I fully understand what you’re, what you’re saying there in terms of how to how to take advantage of that. How would one think about moving themselves there?

Stephen Shang  52:58  Yeah, so it really is I mean, the way that we’ve implemented at Falcon is twofold. One is what we’ve done is, you know, in the last four years, we’ve really invested in being a thought leader, its kind of a cliché term, in our industry. There are a lot of people thinking in the container-based industry. So it wasn’t that hard to become a thought leader. But to position ourselves as the authority on a lot of the trends that are happening in the industry, the other part of it is to really demonstrate Hey, look, you know, this is our track record. This is how we’ve responded in times of crisis. This is how we responded in COVID. And you know, what, we’re going to come out of this stronger and that’s more of a messaging, to potential customers so that when they’re looking at us versus, you know, Brand X, they’re gonna say, Man, you know, yeah, Falcons more expensive, but Brand X, I just don’t have the confidence that they’re going to be around to deliver on this entire project.

 

Cole Harmonson  53:51  We’ve seen some opportunities come about because folks across the globe are now requiring cash up front up front. And so, they can position themselves as almost distributors here in the US because other folks can’t afford to put down the cash. And that’s, again, what Mobilization Funding, you know, they help sort of pre-invoice funding, once it becomes an invoice then, you know, folks like us and asset based lenders and factors can then, you know, provide the working capital necessary. But I’m curious if you had seen any changes on the working capital side, in terms of what folks are requiring, you know, as, as you’re looking at your vendor list.

Stephen Shang  54:41  I think people are much more understanding when we do charge people for, you know, bigger deposits upfront, but I do think there’s a unique opportunity for folks like Dare to gain market share over like banks, because I think a lot of banks from a working capital funding standpoint because they have to reserve that cash and they’re less certain that they, that’s leaving kind of a market gap for that type of an instrument.

Cole Harmonson  55:04  Yeah, we’ve certainly seen more of that. And, you know, banks, I think are going to be in risk off mode.

Robert Conley  55:13   It’s interesting, is what you guys are really talking about is balance sheet strength. And, and balance sheets are not well understood by many, many people in business. And, you know, ratios and the ability to explain the value of those ratios, to Stephens point, about counterparty risk, what you’re really asking is, can you sustain me? Are you going to fail? And, and the ability to, to illustrate a balance sheet strength position is a is a pretty powerful message to send when you’re taking cash from, from customers. And it can, I think you have to agree with Stephen completely, which is, it actually can — if you can illustrate the strength of your balance sheet and why they’re cash is safe with you — really differentiate and give you probably that pricing power that you know, you can pay for certainty, you know, kind of thing from a messaging standpoint. And so, I think that’s a, I applaud you for having that perspective on counterparty risk. It’s a nuanced awareness of the market and I, as you said, banks are risk off how banks are always risk off, but if you understand the balance sheet and the nature of receivables, payables and you know, aging and different things of that nature and inventory hole I mean, question mighty you know, if you go strong balance sheet, you have the potential to win big in this particular environment. If that makes sense or not, but I like me some balance sheets.

Cole Harmonson  56:55  We’ve got a couple more questions here. We’re gonna throw those in and then We’re going to move to the last part, which is predictions in closing thoughts just right after we answer these guys. Yes, questions.

Casey Conlon 57:09   So, one question here. I know the four of us are all in Texas, but the question was where kind of what are your best, better and then you know, bad states to locate a company, specifically in manufacturing in the US. Where would you say, okay here are the best here’s okay, and then don’t locate here. A lot of laughter I know we’re all in Texas.

Stephen Shang  57:42  That might be too political of a statement, I’ll just say there’s a reason that Gigafactory is looking at, you know, camping out to two exits from us here in Falcon.

Casey Conlon  57:52  Got it. Robert, I think your laughter says your position pretty well here. So, no worries, that thing

Robert Conley  58:02  3800 companies left California. 1900 of them I believe, you can check the statistics and please don’t you know, give me if I’m if I’m really out of line here, but believe about a very large portion of those companies ended up in Dallas. Texas is, and I think what you’re really talking about at the end of the day is, regulations and business are like oil and water. And so when you find states, forget about political bendings, leanings, that welcome with low barrier, whether it be tax or otherwise, OSHA, you know, socialistic perspectives, etc. on business, you can you can count on those environments being challenging and remaining challenging. Bottom line. Done. I can tell you I may be unpopular for that. But low regulations are your friend as it relates to business. And I’m not talking about disrupting the environment.

Cole Harmonson  59:19  Casey actually changed the question, you know, to be a little bit more politically correct, because it was, why is Texas so much better than every other stae? Thank you for doing that. The very adeptly there, Casey, I think we got one other.

Casey Conlon  59:35  Yeah, we’ve got one last question very specific. It says, I have to import or export lithium batteries in Japan, their material safety data sheets, the form is still the same, but do you think because of COVID they can be quarantined? I did I read this word for word. So

Stephen Shang  59:57  I’m sorry. I have no expertise in neither of those things.

Robert Conley  1:00:01  MSDS sheets mean, I’m not so. But I think that anything you’re coming from locations where infection rates are high can be quarantine. I know that from an international Import Export standpoint, just having played in those arenas, all materials that have caustics in them, as batteries do, you know will have Import/Export requirements based on every government that you’re dealing with. And so I’m not sure I understand the question, but I mean it in these times, you can expect for governments to make knee-jerk reactions related to anything that they deem as being risk related.

Cole Harmonson  1:00:56  We are we’re going to go we’re going to go over lightning round here to you guys, which sounds fun on predictions, and we’ve got a number of topics supply chain diversification, Internet of Things. 3d printing, how to collaborate work, work force diversity. So lightning round supply chain diversification, Stephen go.

Stephen Shang  1:01:27  It’s good to keep your supply chain happy and yes, we are looking for alternate sources we have any suppliers on here watch out, but yeah, it’s a good thing.

Robert Conley  1:01:40  A fundamentally believe in small numbers of suppliers with high concentrations of those suppliers that can prove they can deliver within the criteria we have very specific criteria that we help them understand. Many companies will try to spread their purchases out and attempt to get better pricing, we find that that doesn’t work, as well as concentrating purchases with competent, capable proven companies.

Cole Harmonson  1:02:13  Gotcha. Gotcha. Okay. On to Internet of Things. How is IoT gonna change supply chain management? and How else will technology change in manufacturing operations from this? Stephen, your first lightning round.

Stephen Shang  1:02:30  No strong opinions on that either way. Don’t know.

Cole Harmonson  1:02:37  That’s a very fast answer.

Robert Conley  1:02:40  I can give you an example of a potential IoT effect in the last company that we were running. We were talking about putting RFID tags on the units that we were producing. If you think about the, as an example, I’ve got a stack of material and I’m doing vendor managed inventory. where I want to be just in time, once that stack shrinks to a certain point, being able to read when a bag or something leaves a stack and begins to travel. If you understand the count in that particular IoT environment and you have something that can track it, then you can be more just in time in that vendor managed inventory environment. Now, technologically speaking, it’s, it’s somewhat complicated to set those environments up and can be cost intensive. But trackability and IoT, ultimately, the window industry saved a ton of money and IoT by understanding how parts degrade and maintenance etc. There’s a lot there, but infrastructure is typically the problem in getting IoT to the point of concept from concept to practical applications. So beautiful pie in the sky. Think about it in the 2000s as being able to deliver the software that you can that you can sell, and actually a company have the ability to make use of that software that they purchase, hopefully getting all this value from it, you got to mature into it. So IoT has got a future when it really gets recognized as industry specific, I think

Cole Harmonson  1:04:28  3d printing will lower the barrier of entry for new, less capital-intensive manufacturing companies?

Stephen Shang  1:04:41  We are not currently using 3d printing. It’s really hard to 3d print a container. I know Evan Lewis is 3d printing concrete homes, but what more power to him on that but yeah, I don’t think we can 3d printers Pick your dinner.

Robert Conley  1:05:01  Yeah, I had I had a quick discussion with a young man on 3d printing this week or last week, maybe it’s 3d printing is just machining in a different form. And speed is critical specs are always critical that you know, 3d printing has got to come a long way and it certainly is perfectly valid in all industries is valid. The question is, what’s the infrastructure cost setup to get 3d printers to produce it the rate that a company needs, retail you’re talking about is displacing labor. If you do a unit economics on it, you know, it’ll be viable and high tolerance environments, maybe more so than others, but it’s a combination of machining and robotics. You know, from that perspective, and certainly viable, but, you know, maturity is required, and changes required in organizations to actually be able to benefit from it. And, you know, there’s advancements happening but fast all the time.

Cole Harmonson  1:06:04  Collaborations as far as the industry partnerships with universities and others, is this going to spark new innovations new ways of working together? Stephen go.

Stephen Shang  1:06:19  Are they actually having school this fall?

Cole Harmonson  1:06:24  I think they they’re all saying yes, we’re having school and then at the last minute they’re gonna slip over to What?!

Stephen Shang  1:06:32  I do think there are a lot of great ideas that come out of universities. It’s really like working with University of Texas, how, how do they have a technology transfer program and a licensing program that works for industry and works for academia. And so, I think it’s really University specific.

Robert Conley  1:06:49  I spent I spent time on the phone with a guy that’s very engaged in material science, um, a few days ago, a good friend of mine and he actually works with university He says on multiple boards related taking technology outside out of universities and I think the focus on those products and those technologies that are coming out and it was becoming larger, he said to me, there’s been 1000 research papers produced on a hydrophobic coating from universities in the last 48 months. So, you know, universities are a very, very key part. commercialization of those particular products is a challenge in the manufacturing environment typically is going to be the place that those things take place. Manufacturing doesn’t do hockey sticks. I think Stephen would attest to that. And, but universities have lots and lots to offer. It’s the ability to understand how to commercialize those things. That’s the real challenge, but there are definitely people out there that are working with them and working on those things at this time.

Cole Harmonson  1:07:58  Nice Last lightning round question, work, workforce diversity. How does a diverse workforce impact financial performance? No one wants to touch that one.

Stephen Shang 1:08:19   No, I mean, I’m pretty diverse myself. I just was hoping Robert would go first for once.

Cole Harmonson  1:08:23  No.

Robert Conley  1:08:28  So, part of the philosophy, the frameworks and tools that I use that we use, all humans are created intrinsically equal, hundred percent. However, in an organizational structure, you find whether it be through pay scales, or other ways of understanding people and their capabilities. You can’t look at it Diversity is being the thing you’re after. But what an organization and unfortunately, you know, when you’re a capitalistic society, which I would, I would submit that economics drives the universe period disconnect from that if you like, but what an organizational structure should be agnostic to diversity, because what an organization is looking for is the best person for the role that is required to propel it forward. And as an organism, as and that is what an organization is. You want the health and well-being of the organism to be supported by every single box that you put into it, regardless of its diverse nature. Now, that may be very wrong from political standpoint. But stack the deck with the best people you can find Regardless, and things end up happening in a very beautiful way. And again, all humans are intrinsically equal, deserve dignity and respect, and should be treated with the value that they bring, which is immense when you get the right person.

Cole Harmonson 1:10:21  I think you’re running for office. That’s awesome. I think you’re running for some sort of office. That was a great answer. Thank you for that. Stephen prop.

Robert Conley  1:10:31  Man, these are true beliefs.

Stephen Shang  1:10:35  I mean, the only thing I could add to that, and Robert, that was masterful. Thank you. Thank you. Thank you. The only thing I would add to that is, you know, we’ve got about 80 employees at Falcon and the way that it was just organically grown was it created a very diverse workforce. We have Hispanics, we have blacks, we have women. I mean, it’s just we have me, right? So, it’s a very diverse workforce, not by design, but because that was kind of how it grew. I think how does a diverse workforce impact financial performance. I think when you build it like that, almost like a meritocracy would Robert saying, you’re going to have a very good workforce, and you’re going to have a great financial performance. If you build your workforce, purely for the sake of looking good, or satisfying diversity requirements, then it will probably negatively impact financial performance. Not always, but it may do that, right.

Robert Conley  1:11:32  You’re such a bright guy. I mean, I, you know, here’s the thing, I believe what you’re trying to do is get a company to mesh, right, you’re trying to get individuals to mesh. And what happens is, is that people are smart, they come to work to do good things and want to be in a company that’s doing good things. All of these are parts of these principles and components that we use in running a company. And so, when you get a company, what you have is these individuals, and what they’re doing is they’re looking each other and they’re always looking And each other. And so, what they want is to know that you’re trying to put them in connection with the best person on the other side of the work that can be put in. And so, they know when you don’t do that, and guess what happens? they separate. And so, if they separate, do you get that structure to come together? No, you don’t. And so, we can kid ourselves into believing that we’re going to do something for the betterment of the universe. But if economics are the driver the world around, I don’t care what country you’re in, then and look at all of the countries are trying to become capitalistic but can’t separate from socialistic tendencies. Well, the bottom line is, is it’s about value. And the closer that you can that lattice work together to support whatever it is you’re trying to do the mission you’re trying to accomplish growth. You know, whatever it is, you’re the right person in there. Forget about it. Every single person that’s in that structure then begins to move. And guess what happens believe, because you are guiding the organization do something that is the best thing that you can do for each other, increase strength within it.

Cole Harmonson  1:13:14  I love that you guys are bringing the heat today. Really appreciate it. We put this slide up last, the best way to predict the future is to create it. And I know if it was left in the two of your hands, we’d all be in a better place. So, thank you very much. Any closing thoughts you want to throw out there? Again, your time is very much appreciated today. The floor is open to whoever wants to go first.

Stephen Shang  1:13:45  All right, Robert, I’ll take this one. Um, I mean, Roberts exactly right about forecasting. I don’t think anyone out there that can put out a good forecast. We told our board we’re not looking any further than 90 days out because it’s just, you know, ridiculous to try to do so. But when I would say about the future one, one very strong belief I have about the future is that, you know, if you’re constantly looking to the past and reminiscing about when we got to go to restaurants, when we got to go on business trips, when we went to football games and stuff like that, there’s no way you’re going to see what future is coming at you. And so, I think the future, the people who win in the future are those who are looking forward and not calling it a new normal or anything like that. But just looking forward to where the opportunities are coming from. Right. As opposed to just constantly thinking about the past. Being nostalgic and all that. Yeah, forget about that. Eyes wide, open, facing forward, see what’s coming, and then make adjustments as you need to who knows what this world is going to look like, but it’s going to look different. And that’s how you win the future is you’re able to assimilate that data and take action on it.

Robert Conley  1:14:55  Yeah, no, I do. I what you just said from is, you know, fear trepidation, if you if that’s your reality that will be your reality. And look, go back. And there’s some graphics out there that you can look I found on LinkedIn. But if you look at the pandemics and the Epidemics that have happened throughout history, we’re experiencing one, they’ve experienced some robotic plague, etc. You name it. Where are we today? We’re farther. All Things have continued to push forward. And the bottom line is that back to the humans are a bell-shaped curve, we move through this. And in business, you know, you’re talking about a disruption, not a decimation. Now, certain industries and things are gonna be decimated. But that’s a circumstance. It’s not the reality of the universe. as it sits markets are not going to completely disappear. You know, global trade and things aren’t going to disappear. They shrink Which is whatever scares everybody. And then you go, oh my god, the sky is falling. No, you just got smaller, you know, got a little closer to you. But the Universe Today is the same as it was before COVID. Today, you have the potential to get a higher probability of dying than you did before. But the universe is still the same. It’s going to be the same. And so, preparing for the sameness to return is to build on Stephens is I agree with him 100% look forward, deal with reality, dealing with the pain that it creates. And just move through it. You know, this too shall pass.

Cole Harmonson  1:16:48  Nice, nice. Well, we put this last slide up here. And it’s got everyone’s contact information. We’re gonna again, send this out to everyone. They can have a link to it again, it’s also on the YouTube channel for Derek capital. And we encourage you to go look at that or share it with your friends or whatever. If you found this valuable today, go and comment and follow us on the YouTubes and all of the other socials. I would do want to mention, too, that we have an upcoming webinar with the CEO and President, the chairman of Keystone bank. On August 4, he’s also a fellow austinite and fellow iau member as well, Jeff Wilkinson. We’re going to be talking about how community banking is going to play its part in the upcoming recovery out of where we are today. So, we encourage you to join us for that if that kind of stuff is interesting to you. And once again, thank you guys very much, Casey, thank you for participating and joining them. Robert and Steve You guys were excellent, excellent guys to have on and we really, really appreciate your time. We will see you next time. Hey,

Robert Conley  1:18:14  Yeah, absolutely I want to say one thing. So, Stephens got a full-time job right now. I’m just playing with things. But if there’s help that I can provide to someone that’s been on the call or that, you know, I’m 100% open and willing to have some dialogue about any of these things. So truly don’t hesitate to reach out if I can be valuable to you happy to do that.

Cole Harmonson  1:18:35  Yeah, we do some follow up with everyone who participated. So, we’ll make sure we include everyone’s contact information. So

Stephen Shang  1:18:41  I’m calling Robert after this. He’s got some really good ideas.

Cole Harmonson  1:18:49  Alright, thanks, guys. Everyone. Have a great day.

Transcribed by https://otter.ai

How do you determine whether a candidate will be a good fit in your company? Many hiring managers base the decision on skills and experience alone. What these managers do not seem to realize is that a good culture fit is equally, if not even more important. Hiring with your culture in mind can improve your new talent outcome, increase retention, build greater camaraderie among your team, and even increase productivity.

Why Culture Matters

Whether you have intentionally built your company’s culture or not, your workplace has a culture. Even a toxic culture is, in fact, a culture. It is the personality of your organization, and it greatly affects how your team performs. A negative culture has serious business consequences, including greater risk of workplace accidents. Employees are also more likely to leave a negative workplace culture when a new opportunity presents itself, and if word gets out about your culture it becomes harder to hire new employees.

Hiring a bad culture fit can have serious implications to your company’s productivity and employee morale. Companies are like any other community — they function on a network of agreements, compromises, and shared goals. When someone enters the organization and starts to make waves, it disrupts everyone on the boat. Processes start to fall apart,

A Good Culture Fit Should Be Part of Your Hiring Strategy

Increasing employee retention, decreasing employee turnover, increasing productivity, and cutting recruiting expenses are all good reasons to make “culture” part of your hiring strategy. How do you hire for culture? The first exercise is to understand your own culture so you can find a good match.

Once you know who your company really is, you can seek out candidates with similar values, work philosophies and personality traits. If you are a team of collaborators, put “likes to collaborate” in your job posting requirements. If your company isn’t great at communicating directions, be honest that you value “independence and self-direction.” If your company’s work environment is filled with stress, conflict, and aggression … maybe work on that before you hire someone new.

Improving Your Culture to Improve Recruitment

If talking about your company’s culture makes you cringe, there’s good news — you can change your company’s culture! And we mean YOU, specifically. Culture needs to be embodied and modeled from the top of the organization, so the change starts with you.

Define your company’s values.
What do you stand for? How do you want your company to be thought of among your peers, partners, and the larger community? You must first define the values that are true to you as a business leader, then implement those values throughout your organization.

Bring your team into the fold.
Culture cannot be mandated; it must be grown. That means sharing your vision and values with your team and listening to their feedback. Encourage an open dialogue of where your company is now in terms of culture, where you want to be, and ideas of how to get there.

Intentionally changing your culture may lead to a few uncomfortable moments — be prepared for it and remember the goal is worth the effort. If you are modeling the core values every day, your team will start to follow your lead. And if one or two of your employees don’t, it may be time to let them find a place where they are a better culture fit.

Set culture expectations early.
Make your vision and values part of your hiring strategy and on-boarding materials. Discuss your expectations with potential new hires and check in with them often during their first few weeks to make sure they are experiencing the values first-hand from the rest of your team.

Charles Covey, President of Alphapex, a waterproofing company based out of Austin Texas, says new recruits get introduced to the core values immediately. “They are in the on-boarding paperwork. They have to read them, they have to understand what they mean, and they have to agree to uphold them.”

Recognize employees who live your values.
Employee recognition doesn’t have to be complicated or expensive. A verbal “that’s the way we do it!” from leadership can mean more to an employee than a formal Employee of the Month certificate. It’s all about authentic recognition and feedback. Encourage your employees to recognize and reward each other when they are upholding the company values and promoting a more positive work culture.

Reflect and refocus often.
Everyone in construction wears a lot of hats and taking time away from securing new work and managing projects to focus on something “soft” like culture might feel like a waste of time. It is not. As soon as you stop prioritizing culture, it starts to slip. You have to work at culture every day. Make it part of every team meeting, every business decision, and every new hire.

Focusing on your culture, and hiring good culture fits, will improve your reputation among your candidate pool, build employee loyalty and increase retention, and create a workplace people are genuinely proud to be a part of.

The manufacturing industry was uniquely impacted by the coronavirus pandemic. For the first time in history the industry’s workforce, product demand, and supply chains were all affected at the same time. One of the greatest challenges was cash flow. Manufacturers, much like construction contractors, often operate on tight profit margins and while PPP loans and other government programs helped, many other sources of financial aid dried up.

Manufacturers had to safeguard their businesses and prepare for the long-term consequences of the pandemic while continuously pivoting in response to short-term situations. Even now, as the country reopens, there are new questions and challenges.

The need for information from expert sources familiar with the manufacturing industry has only grown. That’s why we partnered with Dare Capital to create a 3-part webinar series just for manufacturers, Planning for the Present, Preparing for the Future. 

In this video, our CEO Scott Peper joined Adam Boyd of Dare Capital and Douglas Arthur of Windsor Capital for a discussion of how manufacturers can survive 2020 and prepare for growth in 2021.

Watch the recap below.

Don’t miss the next webinar in the series, The Future of Manufacturing. You can register by clicking here!

The construction industry is built on relationships. Having a background of mutual trust and respect, on top of a history of solid performance, can catapult your company over the competition when it matters most. If you are new to the industry, this is intimidating. You need the jobs to build the relationships, and you need the relationships to get the jobs. Creating a set of core values for your company and broadcasting them to your customers will signal to a GC or owner that you are a solid worker and an aligned partner. Core values will win you more business, attract and retain the best talent, and give you and your team the most fulfillment from the work you do.

Core Values Defined

Core values are the principles that guide YOU and consequently your company’s actions, the individual actions of your leadership team and employees. They are the foundation of your corporate culture — how you speak and behave toward each other, your customers, your larger community, and the world at large.

Core Values Start with You

In an article from Winning the Business titled Improving the Win Rate for Your Organization, growth consultant Jeremy Brim writes,   “the biggest determining factor in win rate and the growth trajectory of organizations … is the behavior and commitment of their leadership and how that is cascaded down through the organization.” You have to create a culture of winning. You do that through established  values of perseverance, integrity, and excellence.

It’s okay if your core values are aspirational – they should be. Present them to your team with an action plan that takes you from aspiration to reality. Values must be statements that truthfully and accurately embody your company’s culture. If not, they are meaningless at best and harmful at worst.

Values Matter Every Day

To reap the benefits of core values, you have to actually live them. In the HBR article, Make Your Values Mean Something, the core values of Enron are listed: Communication, Respect, Integrity, Excellence. That sounds great, until it was all revealed as lip service.

You can’t put your core values on the wall, or on your website or letterhead, and call it a day. Just as in the rest of life, words and actions build reputations in the construction industry, not fancy displays with no substance. You have to embody, and live in each day, the core values of your company. This is why they have to start with YOU. Every day, in every decision, you must allow your core values to guide you.

Remind your team to allow the corporate values to drive them when making decisions and acting on behalf of the company. When your core values are a living practice shared by your entire organization, rather than a dead-on-arrival document, you all act according to those values. Acting with integrity and respect earns you a reputation for having integrity and being respectful. Striving for excellence in everything you do creates a reputation of excellence, because it becomes your and your team’s standard.

Establish core values to guide how you will work — then go do the work.

Core Values Drive Sales

Core values define culture, which guides actions. This includes how your sales team approaches new opportunities. Your core values are the cornerstone of your sales culture. When your entire sales team is aligned in their approach to new business, you get consistent results you can bank on.

Your core values set you apart from the competition. They create a positive identity around your company. They become part of what your company is known for. That can be a powerful influencer during the bidding process.

Imagine a steel erection company, we will call them Sam’s Steel, submitting a bid to a GC they’ve never worked with before. Sam’s core values include statements such as:

• We are accountable to our customers, our community, and each other.
• We always communicate with as much transparency as possible.
• We are committed to excellence in everything we do.

The bid includes a schedule of the way they will go about doing the work, how they will invoice for it each month, a cash flow prediction, breaking down the startup costs for the project, estimated weekly expenses, and how they finance their schedule and project costs.  It also includes a testimonial from another general contractor. In the testimonial, the GC says that Sam’s Steel was great at communicating, open about challenges and ready with solutions, and that they performed excellent work with no major issues.

The GC can see that Sam’s Steel is already living by two core values: transparency and accountability. The project cost breakdown shows the gaps in cash flow, and the subcontractor has wisely already solved the problem for the GC. The testimonial lets the GC trust in Sam’s Steel plan and gives them peace of mind that the work will meet and exceed their standards. The trust comes in the details that Sam has provided and provides the comfort to the GC that Sam knows what he is doing!

Core Values Drive Hiring

There is a common misconception — in the construction industry and others — that skilled labor goes where the money is. The truth, according to the data, is that money is rarely the primary reason an employee leaves a job. In fact, according to a report from Hays US published in Construction Dive, 65% of surveyed construction professionals would take a pay cut for their ideal job. Even more telling, the #1 reason given for employees leaving was … CULTURE.

Create a culture that is hard to leave. Live your values with your team as much as you do with your customers.

According to a report from Manila Recruitment, 80% of employees leave due to bad hiring decisions. That means their resignation is on You. If a recruit can’t perform the work, you failed to hire the right person. If a recruit doesn’t share your company’s core values, you failed to hire the right person.

Make your core values known at the beginning of the hiring process. Talk through them with recruits. These are our expectations. This is the code we live by. If someone does not align with your core values, they are better off elsewhere, and you are better off without them. Not because they are bad employees, but because they throw your company’s alignment off-balance. It only takes one employee who does not believe in acting with integrity, for example, to frustrate and demoralize the rest of the group.

Core Values Drive Personal Fulfillment

As the leader of your company, I can guess that you spend a LOT of time at work. Why not enjoy that time more, by being surrounded with people who share your principles? They don’t have to share every opinion you have (in fact, that would be boring and limit your creativity), but they move through the world making decisions based on the same set of values that you do.

That is what a team built on core values gives you.

When your team is built on values, their performance, both on the jobsite and off, can be a source of pride. Invest in their ability to live those values in their own personal lives, and the feeling of pride and fulfillment only grows. You are now building a business with a purpose.

When core values guide your company’s actions, you reap the reward of new business, better employee retention, and your own personal happiness.

Like what you just read? Then you will LOVE our newsletter. Our CEO Scott Peper shares his personal journey to live a life and lead a company driven by purpose and guided by core values. We also include industry news, upcoming events, and our latest videos, blogs, and digital guides. You can subscribe by clicking here.

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Make Core Values Part of Your Business…

In the decade following the Great Recession, many American manufacturing business owners have struggled to secure loans or lines of credit from traditional banks. As a result, a host of new and different manufacturing finance lending options have sprung up to help manufacturers looking to expand, better manage their cash flow, purchase new equipment and more.

Manufacturing is a capital-intensive industry. Companies need financing to buy and repair heavy machinery, order raw materials, as well as cover labor, shipping, and overhead costs. Cash flow pinches are common and without the right funding partner, a business will be limited in how much it can grow or overcome obstacles. Often times this puts unneeded stress on the business and the business owner(s).

While there are plenty of organizations that offer loans to manufacturing businesses, it can be especially difficult to figure out where to start. The first step is to identify what type of manufacturing finance loan you need. The majority of manufacturing business needs can be split into one of three categories: Real Estate, Equipment/Machinery, and Cash Flow/Working Capital.

Here is a guide to help you better understand what types of loans are available for each of these three most common manufacturing business needs.

Funding for Real Estate

Do you need to purchase a new space for your business to operate? Or is your current property in need of renovations and/or an expansion?

Finding a real estate loan can be a challenging and arduous process. Often credit scores for both the business and individual owner(s) are important factors in being approved for a real estate loan.

Often these are term loans, such as a Business Mortgage Loan or a Business Construction Loan. Like a home mortgage, these are long-term loans repaid over a period of between 5 and 20 years. There are some lenders who can issue Immediate Term loans to purchase or develop the property with repayment limited to two years or less.

Real estate loans often require a certain Loan-to-Value Ratio, which is the amount of the mortgage divided by the appraised value of the property. The higher the Loan-to-Value Ratio, the more difficult it will be to qualify and the more expensive the loan will cost. In order to offset that ratio, a down payment is often necessary. In addition, the lender will require a lien or other forms of security on the property.

Types of Business Real Estate Funding:

CDC/504 SBA Loan is another government-backed loan, the 504 SBA Loan must be issued through one of over 260 Certified Development Companies (CDC’s) and are almost exclusively designed for fixed assets, such as a real estate purchase or renovation.

While not restricted to real estate, an SBA 7(a) loan guarantee can function as a Business Mortgage Loan backed by the Federal Government’s Small Business Association. SBA 7(a) loans are up to $5 million and can cover up to 90% of the property’s value.

Hard Money Loan or Commercial Bridge Loans are types of short-term funding that allow a business to buy or fix commercial property before refinancing to long-term mortgage. Interest rates are typically between 8% and 13%, but also come with additional fees that often include closing costs.

Traditional Business Mortgages are in many ways similar to a residential mortgage. The big difference is that a Business Mortgage can only be made for commercial properties, which are those that generate income and are often zoned that way. As a residential mortgage, business mortgages require a down payment and are then paid off in equal monthly installments spread out over the mortgage’s term.

Tip: Your town, city or state may have an economic development office with programs to help your manufacturing finance efforts. That may involve a program to cover the cost of your down payment, or grants to help upgrade machinery or training.

Equipment or Machinery

Equipment and Machinery Financing can be split into two categories: Rent/Leasing or Equipment Loans.

Renting, Leasing and Equipment loans are common options when shopping for heavy machinery and equipment. The big difference is that a rental or lease agreement is one in which you agree to pay for the use of another company’s property. Meanwhile, a Term Equipment Loan is for the title and ownership of the equipment or machinery. Both types frequently require a down payment and then equal monthly payments for a set period of time.

Where to get them: Term Equipment Loans are offered by a host of different lenders, from large banks to your equipment dealer, local credit unions and alternative lenders. Interest rate and terms are often dependent on your personal and business credit history, and most lenders place a lien on the equipment or machine as collateral.

Cash Flow Shortages 

Outside of real estate and big equipment purchases, there are countless reasons additional manufacturing finance efforts would be needed to better manage cash flow.

Cash flow refers to the funds coming in (revenue) and going out (costs). It is inevitable for a business to find itself in a cash flow pinch at some point when revenue falls short of costs and expenses. These cash flow pinches can be caused by accelerated growth in the business, a slow-paying customer, unexpected expenses, natural disasters, or a ramp-up in business where you need to increase labor or make a big material order. But at the end of the day, the mortgage or rent still needs to be paid, payroll needs to be met, and materials ordered.

Many businesses use multiple strategies to overcome cash flow pinches without taking out a loan. Those include:

• Negotiate with customers to get a partial payment up-front.
• Ensure the business has cash reserves in place to get through slow periods
• Communicate with material suppliers or vendors to secure extended payment terms, allowing more time to pay invoices.
• Say no to new revenue opportunities – turning down new business is not what owners typically like to do!
• Sell equity in the business to a new partner who will provide the needed funds.
• TIP: Selling equity is the most expensive type of funding you can ever take out, as it is permanent.

Line of Credit for a Manufacturing Business

If those efforts still won’t cut it, manufacturing business owners should turn to a local credit union or traditional bank and apply for a Traditional Bank Line of Credit. That will allow the business to borrow as needed up to a certain amount (called a Credit Limit) and then make at least the minimum monthly payment until you have the funds to pay it off.

Lines of Credit from a traditional bank or credit union generally have lower interest rates than if secured through an alternative lender, and the business only pays interest on the amount borrowed at one time.

Work In Progress (WIP) Financing

Another option for businesses is to finance their raw material and labor costs associated with the production of orders, referred to as Work In Progress (WIP) Financing. In this loan option, the lender will purchase the needed materials on behalf of the business, which will then create the product. Upon delivery of the product, the customer will pay the lender, which will deduct the cost of the materials plus the interest and financing fees, and then pay the remaining balance to the business. This allows the business to grow and fulfill orders while financing that growth with a portion of their gross margin on the order versus their overall business. This product can also be referred to as Purchase Order (PO) Financing, however, each is slightly different depending on the type of business and its needs.

Factoring

If a cash flow pinch occurs at the end of the production cycle and outside funding is needed while the business waits on payment for a particular invoice, a good option is to Factor that receivable.

Factoring is when a receivable or invoice is purchased by the factoring company via a direct Assignment of that receivable or invoice from the companies’ customer (referred to as an Account Debtor). The factoring company will advance anywhere between 60% and 90% of the verified invoice amount to the business, and when the factoring company receives payment from the Account Debtor, it will deduct the amount of the advance, plus interest and fees, then send the remaining portion to the business.

Tip: Be aware of the specific terms of the Factoring Agreement. Some companies will charge a flat fee per month (1 – 4%) if the invoice is paid within 30 days, but can go up significantly after 30 days if the payment from the Account Debtor has not been paid yet. If your customer takes too long to pay, that rate hike can be a major dip into your profit margin on the job.

Learn more about how to calculate your true profit margin

Merchant Cash Advance (MCA)

Merchant Cash Advances (MCAs) are offered by many alternative lending companies around the country. While not specific to manufacturing, MCAs are available to companies that do not necessarily qualify for other lending products.

MCAs are available based almost exclusively on the amount of cash/deposits flowing through the business bank accounts. Funds are generally issued as a lump sum and then the funding provider will begin making daily, weekly or monthly automatic withdrawals (via ACH) from the business account until the receivable advance is paid in full, including all fees and interest.

Typically, MCAs cannot be paid off early. Since this product is a purchase of future receivables typically the entire amount must be paid off in full regardless if the Merchant wants to pay it earlier than the scheduled term.

Funding for Your Manufacturing Business

Whatever type of funding you are looking for, Mobilization Funding is here to help. Our experienced team of professionals can help you to identify the right program or loan to help your manufacturing business achieve its goals, either through our lending program or through one of our trusted funding partners. Contact us today for a free consultation and we’ll help you find the best fit for your business.

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