Success in professional services isn't about doing more—it's about doing less, but doing it exceptionally well.

In this episode of The IC-DISC Show, I sit down with Raffi Yousefian, CEO of The Fork CPAs, to talk about how extreme specialization transformed his accounting firm from a general practice into the leading restaurant and bar controllership service in the country. Raffi shares the counterintuitive journey of deliberately shrinking his client base to accelerate growth, ultimately tripling revenue within 18 months of selling off 30% of his practice.

We explore how Raffi evolved from serving three industries to exclusively focusing on restaurants and bars, and why weekly financial reporting creates competitive advantages that monthly statements simply can't provide. He breaks down the economics of restaurant operations, explaining why 2% savings in food costs can represent an entire profit margin when you're working with businesses that operate on 5-7% net profits. The conversation reveals how subscription pricing combined with deep industry expertise solves the profession's labor shortage by making firms more profitable and attractive to talent.

What strikes me most is how Raffi's specialization philosophy mirrors successful models in other industries, from medical concierge services to dating apps. If you've ever wondered whether narrowing your focus could actually expand your opportunities, this conversation provides a compelling roadmap.

SHOW HIGHLIGHTS

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About IC-DISC Alliance

About The Fork CPAs

(AI transcript provided as supporting material and may contain errors)

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Special Guest: Raffi Yousefian.

In this episode of the IC-DISC Show, I sit down with Randy from Trinity Bay Capital to talk about how specialized capital advisory bridges the gap between growing companies and the financing they actually need.

Randy spent 17 years in traditional banking at First City and other institutions before moving into capital finance in the mid-1990s. His transition came from frustration with banking silos that prevented common-sense solutions for growing companies. After traveling extensively as a capital finance professional and later serving as president of a bank, he launched Trinity Bay Capital to help companies access everything from asset-based lending to purchase order financing. His approach differs from typical brokers because he pre-qualifies deals using his banking expertise, then targets just three carefully selected lenders rather than shotgunning dozens of institutions.

What makes Randy's work compelling is how often he solves problems without charging fees. One client I referred received three competitive term sheets that gave him leverage to renegotiate with his existing bank, getting everything he wanted at no cost. Randy's focus on matching companies with conventional banks whenever possible, even when capital finance would pay higher fees, demonstrates how his business model prioritizes client outcomes over transaction volume. His internal 48-page reference guide of specialized lenders reflects decades of relationship-building across oil and gas, maritime, manufacturing, and distribution sectors.

Randy's philosophy that "I don't need to work, I do this because I enjoy it" explains why 75% of his pipeline comes from Texas energy companies that conventional banks won't touch, and why he celebrates when clients find better deals elsewhere.

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(AI transcript provided as supporting material and may contain errors)

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Special Guest: Randy Gartz.

Every business transaction has hidden tax opportunities waiting to be discovered, if you know where to look.

This week on the IC-DISC podcast, I spoke with Mike D'Onofrio from Engineered Tax Services, who's spent 17 years helping business owners maximize their tax strategies through engineering-based specialty tax services.

Mike joined ETS after working in corporate M&A and private equity, where he first recognized the critical need for specialized tax expertise during business transitions, and what struck me about Mike's approach is how his firm combines professional engineering expertise with tax strategy to deliver comprehensive solutions.

They handle everything from cost segregation studies and energy incentives to insurance optimization, processing hundreds of cost segregation studies weekly across every property type imaginable.

Mike's philosophy centers on what he calls "HABU" - highest and best use - focusing on their core expertise while partnering with specialists like us for complementary strategies that create immediate opportunities for businesses to improve cash flow.

The conversation reinforced something I've noticed across successful advisory relationships: the best results come from specialists who stay in their lane while building collaborative teams. Mike's emphasis on maintaining human intelligence alongside technology adoption resonated with my own experience that relationships still drive business success.

SHOW HIGHLIGHTS

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About IC-DISC Alliance

About Engineered Tax Services

(AI transcript provided as supporting material and may contain errors)

Dave: Good morning, Mike. Welcome to the podcast.

Mike: Good morning, Dave. Great to be here with you today. Definitely.

Dave: So where are you located at the moment? What part of the world are you in?

Mike: Yeah, well, I'm in my home base today in Charlotte, North Carolina.

Dave: Okay.

Mike: Yeah. I've always liked Charlotte, a pretty part of the country. Charlotte's a beautiful place, man. I grew up in Cleveland, Ohio. Great school, high school, college, so I know the Midwest and I still love Cleveland, of course, a Browns fan and a Indians guardians fan and Cavs. But moved to South Florida right after that, right after college and was living in Fort Lauderdale and West Palm Beach, and we're still based there. Our corporate acres is there, but my wife and I had originally met in Charlotte, and we love the seasons. I love the ability to, I see those mountains in your background. I love the ability, we don't have the same type of mountains as you do, but love getting out to the Blue Ridge and Smoky Mountains, seeing the fall, the leaves, and can get to the beach, can drive down to Wilmington or Charleston in a couple hours. So we're right in the middle. We're bus to be here and have the

Dave: Options. Yeah, it's a great location. You have four seasons and a slightly milder winter than Cleveland,

Mike: That's for sure. It seems like winters have softened up a little bit in Cleveland, but man, I remember the mornings going out to the bus when I was a little kid with snow piled up over my head and the drifts up on the side of the house. I'll never forget those days. That was awesome. That was a real winter. But now in Charlotte, if we get a dusting of snow or a little bit of ice, it's usually gone by noon.

Dave: Yeah. I was born and spent the first 13 years of my life in northwest Iowa and was the oldest of two boys. So I remember having to get up an hour early to go shovel the driveway just so mom and dad could get to work in that. So yeah, my saying is the worst Texas summer is still better than the best Northern Winter is my theory.

Mike: You got it, man. High five to those of us that have shoveled snow driveways, walkways, figured out a snowblower with the chains on the wheels and all that fun stuff that comes with winter.

Dave: So by some people's interpretation, we come from the same place because I've discovered people not from the Midwest, they think Ohio, Iowa, and Idaho are all the same place.

Mike: Yeah,

Dave: They're just all somewhere up there. Yes. It's up

Mike: Somewhere up there in the Midwest. Folks like myself grew up in Ohio and Cleveland and Detroit and Chicago. I mean, definitely they think that's the heart of the Midwest, but they forget about the Midwest. Goes pretty far west. Right.

Dave: It does. All the way to the mountains. So, well, let's get into it. So when did you join engineered tax services?

Mike: Wow, it's been a big part of my life. Exciting journey. Like I said, after college I moved down to South Florida and my background was in more corporate m and a private equity working on the finance side of things in transactions, in private equity back in the day, they would call it kind of strategic intermediary work where we would either work on the buy side or sell side with the client. So I worked with a lot of clients and business owners that were maybe interested in transitioning out of their business. Maybe they were a food manufacturer or distributor. And interestingly enough, one of my mentors in life, his name is Bruce. Bruce was one of the first international CEOs with McDonald's corporation. Oh, really? Yeah, one of Ray Croc's, first five or six right hand key people. Before McDonald's had any international business, the first place that they went outside the US was to Latin America and the Caribbean.

Dave: Yeah. I became acquainted with ETS and about the same time you did, and Julio invited me to South Florida and gave you the tour of the cool office building that you all rehabbed.

Mike: Yeah. Then he was

Dave: Kind

Mike: Enough to, was that the one on a Vernia Street when he had just purchased it? Was it,

Dave: I forget the street. It was like maybe a six story old building

Mike: That's still his building and our corporate headquarters on the corner of Vernia and Olive for any of you that are down in West Palm Beach, and we'd love to show you around. It's a cool building.

Dave: And then he was kind enough to host me at a Dolphins football game.

Mike: I remember those days. Right.

Dave: And for whatever reason, he was considered a bit of a VIP by the Dolphins, so I was able to go down on the field before the game, and I think I even had a photo taken with a Dolphin's cheerleader on each side of me that for whatever reason, it never made it up on the wall in our house. I'm not sure why, if that would've been a problem with my wife or now with a photo of two Dolphins cheerleaders hugging me,

Mike: Dave, I think I have different versions of the exact same picture with myself and some friends. I have a great one with myself and my dad. Maybe we'll use some technology and pop some of those pictures up for others to see when you publish this podcast, or maybe we'll just keep those private for ourselves. But yeah, we used to Julio's involvement with the Dolphins and the family behind the scenes. We did. We did some amazing, not only professionally working with those types of property owners and venues, we did the cost segregation study on the Miami Dolphins Stadium when it was renovated.

Dave: Oh,

Mike: Yeah, I remember that. And a lot of others, Broncos, Cleveland Browns, Miami Dolphins. I did some work on the Bridgestone Arena in Nashville, the Superdome in New Orleans, the Raiders facilities, the Buffalo Bills not allowed to give out any confidential information, but everybody's looking to save in tax and take advantage of whatever strategies are available in the code. But personally, obviously, we love sports and entertainment and being able to build the relationships with our clients, so we had a very cool double founder suite there in those early days that we used to all meet in West Palm Beach, have some fun on the Saturday, take the bus down on the Sunday morning. Yeah. We did that for years, and we still do some of that in Miami and in some different cities. I'll be doing some of it in Charlotte. But yeah, man, those were fun times. We really built amazing relationships still with clients today that actually, I saw a client yesterday that said, Hey, Mike, I was at the Green Bay game. I remember when we were down on the field and one of the Green Bay players said, hi. He is like, Hey, man. That was a childhood legend of mine that I'd always wanted to meet. And then of course, that's really cool. Sometimes we got to meet what Dan Marino and folks down in the tunnel in the Dolphins.

Dave: Well, the other cool thing was Julio intentionally picked a Monday night game that he invited me to, so that made it even more fun. National game.

Mike: Oh, yeah. Makes for a late evening getting home, that's for sure.

Dave: It does. And so I just have to warn you, Julio was a guest on the podcast about three or four years ago, so he set the bar pretty high, so no pressure my

Mike: Oh, yeah, none at all. But I

Dave: Know being a former athlete, you're probably a little bit competitive, so I'm sure you'll want to point out to Julio that you think you did a better job.

Mike: Yeah, just a little bit, Julio, and we spend a lot of time together. We were together yesterday in Fort Lauderdale at an event with a great mix of clients and we're real competitive from a business aspect, obviously wouldn't be great for our clients. He was a wrestler in his younger days. That was also a wrestler, really just to stay in shape for baseball. I was a baseball player. I think you had asked me before, I always keep a couple baseballs around my desk. I like to futz with them when I'm working here in the office, but think about the different strategies, whether you need to throw the curve ball or the fast ball or the riser, whatever it is. I think about just those different grips and strategies. So yes, I'm a bit competitive, to say the least.

Dave: Sure. I know the firm has grown. What's your elevator pitch today? When people ask who ETS done, who ETS is and who do they serve?

Mike: Well, engineered Tax and Advisory had the advisory portion of it as well, because that's engineered tax services been around a long time. We're really good at doing the specific engineering based services that the CPAs or the property owners need to get the bonus depreciation or the energy credits and incentives onto the tax return. So that's doing the cost segregation study as a licensed professional engineering and specialty tax firm, we've been doing those for going on 24 years or doing the energy analysis or helping with, like you do, calculate the construction costs, the transfer costs, the sales tax, the property tax. That's what engineered tax services is excellent at doing as that specialist as that.

Dave: I'm sorry, that's more than just cost segregation though, right?

Mike: Oh, yeah. Yeah. There's cost segregation and bonus depreciation available on real estate, new construction purchases, renovations. So we're very involved. We do hundreds and hundreds of cross segregation studies a week across the country on all different types of assets from smaller single family investment properties and VRBO to manufacturing facilities and multifamily and apartments and hospitality and everything you could imagine up to different sports and recreation stadiums. But that's one subset of what engineered tax does that. Then there's the energy incentives and credits, the 1 79 D, the 45 L, the investment tax credits for renewables like wind and solar and geothermal and turbines and other types of things. But on the advisory side, we work it backwards. That's more the consultative approach with the clients to figure out what is the need. Maybe there's a liquidity event with a business owner that's selling a business. Maybe there's a capital need from an acquisitions point of view or an expansion point of view where some of the IC disc strategies might come in.

Dave: Okay, and speaking of clients, do you think of the CPA firm as your client or the actual end user or both? I think because done a really good job cultivating those CPA firm relationships.

Mike: Yeah, Dave, that's a good question. I first and foremost see the CPAs as our client, but also our strategic partner because remember, we're a specialist. We don't do the full accounting audit and tax filing work for the client. We sit in the specialist seat. I explain it all the time to my friends and new clients when they're trying to figure out what we do. If I was in the medical profession, we would be a brain surgeon or a heart surgeon or some other type of specialist within medicine that works together with the general practitioners and others in medicine on the tax code and helping with the tax literacy, the tax strategy, the specialty credits and incentives like icdisc. How do we bring up those types of situations and opportunities? Usually it's working with that CPA firm to identify the client need and then being comprehensive and entrepreneurial with that client.

Dave: Sure. I've come across other firms that do some of the same services you all do. And what do your clients and CPA firms tell you that makes ETS different and why they have chosen to partner with ETS over another firm?

Mike: First of all, I think about that all the time. That's a question that comes up often. When we started 24, 25 years ago, there was very few firms that were doing some of the things that we do there. There were CPA firms that did cost segregation studies, but usually that was the higher level firms, the Deloitte, the KM KPMGs, the E and Ys, excellent high level firms, but they were really only doing it for their higher level corporate type clients as we democratize the tax code and brought that tax strategy to middle market type businesses, entrepreneurs and investors, the strategy there was really to work as comprehensively with different types of as possible. And the difference to me is first of all, our longevity and our professionalism and our diversity of the type of services that we're doing uniquely as a licensed professional engineering firm that also does specialty tax credits and incentives.

Dave: Yeah, tell me about the insurance company because I'm less familiar with that, and when did you start it? Are you licensed in all the states?

Mike: Yeah, we are. We've been quietly developing that over the last couple of years. I said, my background's from Cleveland, Ohio. Coincidentally, the firm that we partnered with is based in Cleveland, Ohio. When we formed a new entity together, engineered insurance services, went back to all the different carriers and got relicensed with all the top national carriers, all the names that folks would know well. So now as a nationally licensed insurance agency and brokerage firm, we focus on property casualty liability, cyber risk, flood, E and O, D and O, all the things that every company and every property owner needs. But we can do it comprehensively and uniquely because we're already doing the cost segregation studies on a lot of these properties. So we know what the cost basis is, we know what kind of roof it is, we know where it's located. We know the age of the electrical system and all the situations with the property, and also that owner, how they operate that property. That's what, just like the IRS with cost segregation study, they want to see the details and then yes, you can capture the benefits of bonus depreciation. The insurance carriers, they want to write insurance policies at very competitive rates, but they want to see it in detail. They want to understand that building. They just don't want an estimate that a broker submits to them. So we've had amazing success over the last year and a half of rolling out that program, doing it comprehensively with what we're already doing for that client.

Dave: That's really,

Mike: That's the other reason that we're very unique compared because there are some great firms that do cost segregation or that might do an energy analysis or that might do a research and development tax credit study, but very few firms, if any, that know about really take that comprehensive approach to be able to do tax energy insurance and the specialty consulting with engineered advisory with what we're doing,

Dave: Yeah, no, that is great. And one of the other things that I appreciate about you all is that you all really stay in your lane. I feel like on the tax side, there's other firms that do cost and r and d that have just broadened their tax focus even more broadly, pick up things like the IC disc. So it's hard for me to get excited about referring a cost segregation study to a firm that does IC disc, so I've always,

Mike: Yeah, it's a bit of a competitive overlap in those situations.

Dave: Yeah, yeah. It's a less comfortable introduction.

Mike: We have a saying within our organization, we call it habu, right? Highest and best use, what is my highest and best use? What should I be focused on doing for that client? My highest and best use is not trying to understand and replicate your service around icdisc.

Dave: Sure. No, that's certainly been my experience with you guys. What do you love most or enjoy most about your current role with ETS? What really gets you excited?

Mike: Well, my title, I'm not big on titles, but it's managing Director of Engineered Tax and Advisory. So technically what that title means is I direct and I manage, I direct high level client relationships and strategic partnerships and strategies and new product development. I also help manage our, I work together with our executive team to help manage our executives across the country, either if they're in business development, some of them obviously are in engineering or other specialties within our firm or the legal team that does some structuring work for clients, but that's what I do. My favorite part of what I do is the relationships that I'm building with the clients. It might be a brand new relationship. It might be one from 15, 20 years ago, but it's watching that. Yeah, it's watching that CPA firm grow or helping that CPA firm grow and expand or diversify their services or meeting that entrepreneur that has a business and they're trying to understand the tax code, how to lower taxes, how do I increase cashflow?

Dave: Yeah, no, and that's certainly that. Those relationships are certainly my favorite part of the business. The clients, the CPA firms, the other advisors, lawyers, you guys. So man, I can't believe how the time has flown by. So as we're rounding the home stretch, I have just a couple more questions.

Mike: All right.

Dave: If you could go back in time and give advice to your 25-year-old self, what advice might you give?

Mike: Continue to surround myself with people much smarter than me.

Dave: Yeah. I think that's great advice, not only for your 25-year-old self, but any 25-year-old and probably any business professional who's still trying to learn and grow.

Mike: Yeah. One other thing.

Dave: Yeah,

Mike: One more thing. As Steve Jobs used to say, don't focus on, I would tell myself not to focus on what I think the path is at that point, because the path is going to change the strategy, the job course of action, the winds are going to change. Ebb and flow, I always say is my personal mantra. The tide comes in, the tide comes out, but you can always learn to surf. You can't stop the waves, but you can always learn to surf. So don't try to be too tactful in the direction that you're going, because things will change. Companies will change and expect that change is what I'm trying to say. So expect the change that will continue to happen in our lives.

Dave: Okay. Well, yeah, I like that. Thank you very much. So as we wrap up, I really just have one more question, and that is, is there anything I didn't ask you that you wish I had asked V? Anything we didn't talk about that we should have?

Mike: You asked some really good questions. It sounds like we could talk all afternoon if we wanted to. The only thing you didn't ask me is about my family, and actually the thing I'm most proud of, I mentioned I live in Charlotte, North Carolina. My wife Laura, has been an amazing force in our relationship for stability and really helping me to do what I do because being on the road, it's very challenging. But my son Rocco and my daughter Lucia, are getting old and driving now as later stage teenagers. It's having those rocks behind me that really help with this ability to allow me to do what I do with our clients nationally. So I really appreciate them, and that's my other, that is my most favorite accomplishment in life of what I've been able to achieve with my family and do this professionally with engineered tech services and advisory.

Dave: Yeah, understood. Yeah, because ultimately it's about relationships, both professional and personal at the end of the day. Well, anything else we didn't cover or shall we go ahead and wrap it up?

Mike: I think we covered enough for now. I think we might have more to talk about. Again, I have some other ideas of topics we should talk about coming up here in the fall. There'll be some new things that we're doing.

Dave: Let's do that. We'll have you back, not too distant. Future for a part two.

Mike: All right.

Dave: Well, Mike, I really, really appreciate the opportunity to work with you and the whole team, and you guys have taken great care of our clients. We really appreciate that and we appreciate the trust you all have placed in us to serve some of your clients as

Mike: Well. Thanks, Dave. I appreciate you.

Special Guest: Mike D'Onofrio.

In this episode of the IC-DISC show, I sit down with Ronak Shah to discuss his transition from a corporate career at Intel to entering the scrap metal business, to founding a successful scrap metal business in New Caney, Texas. We talk about the motivation behind his career shift and the mentors who guided him along the way.

Ronak opens up about the challenges he faced while transitioning from a large corporate environment to a smaller, more hands-on business.

We also explore Ronak's decision to sell his business and the unexpected opportunities that arose from that choice. He reflects on the experiences gained throughout his career, emphasizing the importance of taking calculated risks and adapting to change. His story offers insights into the value of connecting past experiences to current ventures, even when the path isn't always straightforward.

Finally, we discuss navigating today's fast-paced digital world and the importance of maintaining a low profile on social media. Ronak's journey highlights the balance between professional growth and personal fulfillment, making this episode a thoughtful exploration of entrepreneurship and resilience.

SHOW HIGHLIGHTS

Contact Details

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About IC-DISC Alliance

About Levitated Metals

(AI transcript provided as supporting material and may contain errors)

Dave: Hi Ronak, how are you today?

Roank: Good David, Nice to see you again.

Dave: Likewise, and where are you calling into from? Where are you in the world at the moment?

Roank: I'm at my factory in New Caney, Texas, just a little bit northeast of Houston Great.

Dave: Now are you a native Houstonian.

Roank: I'm not, so I moved out here in 2019 to build this factory and start this business. I think I've been to Houston once in the prior year to visit for the first time and never before, other than perhaps through the airport. So, I didn't know a lot about Houston. I'm not saying that I know a lot about Houston now, but it's been a great place to build a business. It's been a fine place for my kids to grow up.

Dave: It's been good it's been a fine place for my kids to grow up. It's still good. Yeah, it's. Uh, it's kind of a, it's kind of a hidden gem in a lot of ways. Uh, you know houston is, it's got a lot going for it that if your only experience is just driving through town or going through the airport, you know, I mean you hear traffic, humidity, heat, urbanl and you're just kind of like, you know, yeah, it doesn't sound like my kind of place.

Roank: Yeah, well, it would be a lot more believable if you did not have a Breckenridge background behind you.

Dave: True, yeah, that is the Breckenridge background for sure. So where did you grow up then, if you didn't grow up in Houston?

Roank: I grew up in upstate New York so my dad was one of the many immigrants that came over in the late 60s, early 70s. They were looking for people with medical training and background. So he came over from India, lived in New York. I was born in New York City but very soon after grew up in the middle of the Finger Lakes. We moved to Syracuse when I was in middle school and then I went to Boston for undergraduate and I bounced kind of between Boston and London and back to Boston, then to Portland, oregon, which is where I came into the scrap industry and lived for some time in St Louis. I lived there for about nine years and from St Louis to here.

Dave: Okay. So what made you get into the scrap business if you didn't have a family history in it?

Roank: Yeah, it was just very random, my interest in the scrap industry.

I think, the truth of the answer is probably the more interesting one. So after mba I was working, I was an operations guy and I was working at intel corporation in portland, near portland oregon, and loved being in portland. It's a fine place to live. But intel was, I mean, a huge company, right, 80 000 people, and just like the process of making something that was about this big, the the size of the core diet, multiprocessor, microprocessor this wasn't sufficiently interesting to me and I was too far from it, as well as my chain organization. Yeah.

It didn't feel tangible enough, and so that was one part of it. But then the other part of it as well was you know I was there as a worker bee, you know, in a reasonably senior job for someone of my age, but then, you know, in a reasonably senior job for someone of my age, but then you know intel was having difficulty. So they bring in bane and company to kind of work on strategy or whatever and so two of the guys that I went to school with that, I knew well, were like literally working literally seven layers in the organization above me, and I'm like what?

and so I just hit that, I tapped out, I extracted, I was like this is just some horse crap. I, this isn't the place for me. I need to go somewhere where I'm, you know, in a, in a smaller pod, where I can really touch and feel a thing. And so I just started throwing resumes out and wound up at Schnitzer Steel. Now really, yeah, and oh really.

Yeah, and it was great. It was a time of transition for Schnitzer. I don't know if it was a great transition time for Schnitzer. They were transitioning from an older style scrap company to a more professional slash corporate company of the style that it is today. So they had parts of the parts of their business were both things and for sure I liked the old thing a lot and just tons of fun being in places like Boston and Portland scrapyard when they were building big mega shredders and new factories and driving the continuous improvement process there and trying to get metrics around things. It was really a good time. I enjoyed a lot of it. I came to Alter Trading in 2010 and that was wonderful right, I owe so much of my career everything I learned everything to the team at Alter, to Jay Rabinovitz and Rob and Michael Goldstein. I learned a lot there. I did a lot of really fun stuff for them that helped transform the company into the highly successful privately owned scrap company it is today.

Dave: Like on the technology side, correct yeah.

Roank: So I built a few factories, non-ferrous recovery plants to process not steel non-ferrous portions of the shredder and extract more metals out of stuff that would otherwise have gone to the landfill. And it was you know, exciting to do that, and it wasn't just building the factories but really growing out the entirety of the division that became, you know, a kind of center of excellence around that function, and it's an area that you know Alter remains very strong in today.

Dave: Okay, well, I am excited to get into the next part of your story. So you're living in St Louis, working at Alter, being involved in some cool stuff and forward thinking technology. So how did from there? How do you end up starting a company in New Caney, texas?

Roank: Yeah, so it's no reason not to be as open and honest about it as possible. So Alter was amazing. For the first six or seven years I was there, the job was like a nine and a half out of 10. I remember I was in New York going to make this time up sometime in 2013 or something like that. I've been there for three years and the Powerball was like some huge number, like a billion dollars, and so me and some buddies that were in finance, we all bought Powerball tickets and we talked about what we would do if we won the money, and I remember I determined to say I don't know if I would necessarily quit my job, right, like I really love what I do. I still think about that today.

Dave: Did any of them have the same thought?

Roank: No, they thought I was just completely crazy and they weren't necessarily wrong. I think I think perhaps again I loved it, but the point of it is I really enjoyed it. It was fulfilling, I had impact, things were changing. All of that when I struggled is as that phase of what Alter needed ended and I needed to move and assist alter with other things, primarily helping them grow a tier of management that had come from the art management level into being the next business leaders of the company. Just, you know, it's kind of standard transition planning type stuff and succession planning. I struggled with doing that successfully, a role that perhaps would have been viable or successful or satisfactory for me to do had it occurred during a standard line management. You know, hierarchical management structure was hard for me to find value in fulfillment, in and I would say success in doing.

Yeah, as a matrix manager, you know, as a, as a guide, as a internal consultant. I just didn't love it. I hate to put it that way. I just sure, sure and at the same time, alter was going through a certain amount of a a ton of growth, right, a lot of growth that I participated in through acquisition and internal growth as well disbanded organic growth. But it was going through a lot of growth and so the company that felt small and familial at 40 yards suddenly felt just large and 70 for me.

Dave: Too much like it felt too much like Intel.

Roank: Nowhere near that level. There's nothing like that. It remains a really effective, well-directed company today.

But, it felt different for me and I also realized that I wasn't good at that bigger company stuff. You know, my way of thinking about things didn't scale successfully to that level. I would not be the right guy at that level and this is an unfortunate thing to say. But I chose to. I did not want to change. You know, I thought about so.

My boss for many years there was Jay Rabinowitz, who was, until he retired recently, the CEO of Alter Trade. He was fascinating. His ability to grow into the mindset required, the management rank that he was in at the time, or growing into, was phenomenal. And so a guy that if you only knew him 30 years ago was a rough and tumble scrap guy was and you've seen him on podcasts and things like that. It became and presents fully as and fills the shoes of a methodical, thoughtful, mature and a CEO who does a great job of leading A 1,200, 1,500 person organization. You would have never thought that if you only knew him 25 years ago perhaps, but his ability to grow was really phenomenal. For, by choice or by capability or whatever it was, I did not have or want that and so I wanted something dramatically smaller.

Dave: Okay.

Roank: And so I spent a bunch of time not just thinking about it but literally journaling about it. Because when you just think about these type of problems in your mind like hey, what do I want to do professionally? Yeah, you can just ping pong in your brain. And what I found helped me through the process was writing it down. And if you remember, back in high school, your English teacher would tell you to you know write a draft of the story, or an outline, and then a draft and then the final essay.

I mean, I don't know about you, but I would never do any of that crap. But I did this time and I found that, like the first draft was, you know, just vomit on a page of orally thought out concepts and beliefs. And so I wrote it again and it was clear. And I wrote it again, it was clear. It helped me really understand what I liked and didn't like and what I wanted and didn't want from the next phase. And it was a time when, you know, my kids were just about to graduate middle school. If I was ever going to leave St Louis, this was the time to do it.

It was not going to be easy. It was not easy for them to leave St Louis, but that's when. That's how I made that choice. I was uncertain as to what I would do. Right, I was out there both looking at shredder yards to buy as well as businesses. To start, I looked at a wire chopping plant. I ultimately built a heavy media plant. I did look at and made successful offers on a couple of different shredders, but none of that actually panned out and in the end I raised a bunch of money, moved out to Houston, built this thing.

Dave: That is a great story and your kids ended up adjusting okay to, because I believe you live in one of the really nice master plan communities around Houston.

Roank: Yeah, and they've adjusted well. I think my son is glad that we moved down here. My daughter is a little bit on the fence, but she was younger when we moved. Both my wife my late wife and I in many ways would have probably preferred where we lived in.

Dave: St Louis, it was a small town in Kirkwood.

Roank: You're familiar with it, but here it's been great. The Woodlands is a, you know, magical little bubble of a place to live. It's got everything you need. It's 25 minutes to the factory. All of it has been, from that perspective, just fine. When my wife got cancer, we were right here at MD Anderson. You know a lot of that stuff worked out.

Dave: That is great. So tell me what your business premise was for Levitated Metal. So maybe give just a little background. What does the company do?

Roank: Sure, so we're a heavy media flotation platform. What we do is we buy a thing called Sorba and we make aluminum Twitch. But stepping back from that to people that don't know what any of those words mean, our suppliers are the largest scrap metal processors in the region. Right, the states who will buy something like an old 2008 ford 500 sedan that's at the end of its life, yeah, shred it into fist size and smaller pieces, extract all the steel out with a magnet and then extract all the other metals like aluminum from the engine, copper, brass zinc, die, cast through other technologies. That aluminum, copper, brass zinc all is mixed up together in little pieces in a giant pile and that product is called a made up word Zorba by the industry. They make lots of it inside of houston.

probably 15 million pounds to 18 million pounds of it is made every month right I buy that it's useless the way it is because you can't melt it, because it's got too many different types of metals in it and it doesn't make a useful alloy. But if you can get the aluminum out, that aluminum is super valuable because that aluminum you know used to be the engine block of a old car. It's a pretty tight chemistry match to the alloy required for the engine block of a ford f-150 a 2005. So through a density flotation process using water and ferrosilicon, we can change the density of that water so we can actually float the aluminum out.

Dave: Hence the name levitated.

Roank: Yeah, it's not a novel technology. I buy the equipment from some dude in Italy. There are well over 100 of these kind of plants in the world, maybe a little less than a dozen when levitators started up in the united states and a very what it sounds like a simple process is a royal pain in the rear. That actually managed because it's a very analog system with all sorts of weird chemistry and other things involved and a challenging plant to rot. But you know, we do a pretty decent job of it.

Dave: Now, why did you pick New Caney, texas? I've been to St Louis, in fact, I was just there last month. They appear to have plenty of land around that place, you know, especially across the river in uh, is that illinois? That's just east so why? Didn't you just buy some land and do it up there?

Roank: so where these plants, where the competitive plants exist, are relatively close to where their consumers, the aluminum smelters that would buy the recycled aluminum, are, and that's generally already in that area. So there are plenty of plants in that area.

Dave: Okay.

Roank: Down here in Houston. What was the case when I chose to move down here it became very quickly not the case, because two other people also built plants was that there was a large market in Mexico that did not have access to this type of material because there were no media plants in Texas or along the Mexican border. And aluminum manufacture in Mexico was growing incredibly well, much like the rest of their economy, and so what I saw was a consumer need right mexican heavy media plants, a set of suppliers in the texas area that did not have a domestic buyer for their zorba and so good supplier footprint and, at the time, a relative lack of competition. But I didn't realize. So, like two months after the financial raise was done and everything like that was, there were in fact, two more plants that were in the process of being built. They both started, you know, six to 12 months after mine did not so far away.

There's one up near dallas, there's one up in arkansas so it became a little bit more competitive, though in truth that has not really changed the calculus on anything in a great way. It hasn't really improved the deal too much.

Dave: Okay, and it was you started with, just a green field, right?

Roank: Yeah, it was some trees and dirt and 10 acres. It was some trees and dirt and 10 acres and I started with dirt work and stormwater and concrete and buildings and equipment and built the whole thing.

Dave: What year did you?

Roank: start COVID 2020. Oh, it was the heck of a time.

Dave: That was the construction was during COVID yeah. And when did you open?

Roank: Then we started processing. At the end of December we shipped our first 2020 and we started shipping material in full January 2021.

Dave: Oh wow, that really was in the midst of COVID. It was Most of it wasn't?

Roank: that big a deal. There was some delay in equipment delivery because it came from Italy, and so if anybody had a rougher time COVID wise, it was Italy. So it came from Italy, and so if anybody had a rougher time COVID-wise, it was Italy.

So it came from Italy but that might have only cost us a couple months. What was really frustrating and challenging and ultimately we were able to get through it was simply the difficulty of bringing process experts from Europe to the US during the COVID timeline. You know, like I can't tell you how many voicemails I left at the US embassy in Milan to sorry the US consulate in Milan to try to, you know, accelerate the review of the visa for the texts to come in from Italy, but I can tell you how many times somebody probably listened to it with zero, so just a royal pain in the rear. You know, just because the pain in the rear to get that all done, it got done. But those were challenging times.

Dave: So started January of 2021 and, uh, at the time, had you given any thought to how long you might want to, that you and your investor group might want to run the business or own the business? Did you have any thought when you started it about what I honestly thought? I?

Roank: would run it and own it for like nearly 10, 15 years years and grow it over time and continue to be in the space, et cetera, et cetera. It was meant to be a longer term cashflow, not one necessarily built on an exit strategy of selling at some point in the future. That was the original intent.

Dave: How did that-year plan end up working out for you?

Roank: Well, it turned out to be much shorter than that. So, as it turned out, in 2023, we had an unsolicited offer from Murfrees Industries to purchase the business assets.

Dave: Wow, just two years later.

Roank: Yeah, two years of operation later. Yeah, and for a number of reasons, it was the right choice for me and my investors to do the sale and it's been absolutely phenomenally good, I think, for both sides.

The transaction itself, you know, from my perspective, great because you know it was an accelerated exit, but an exit nevertheless, and it still gives me the opportunity to continue to do the same job in the same office every day that I really enjoy doing that. I find great fulfillment and mental stimulation and sense of purpose in without the undeniable and underestimated stress of being a business owner.

Dave: Yeah.

Roank: So that's been absolutely great. It occurred at a time when my wife was battling cancer and took a lot of stress off. Taking that business stress off the table Sure Just made it easier to get through that entire process. Yeah, and it's just been a good. I think it's been fun for everybody. You know Adam and Michael Mervis were the you know fourth generation. Perhaps Adam and Michael Mervis we're the fourth generation perhaps owners of Mervis Industries enjoy having the levitated team in their company. We enjoy being part of it. Both of us have to do better together. It's been really just great.

Dave: That is awesome, because not all transactions work out that well.

Roank: Yeah, I'm sure there's some number out there that I would have sold the company at, knowing full well that I would not have wanted to work there afterwards. I'm sure there is, but I'm glad I didn't have to.

Dave: Because you were I'm guessing you were the. Were you a minority shareholder? Did your? I was a minority shareholder.

Roank: Oh, you were the majority, okay.

Dave: So it was ultimately your call Correct and your but the the deal clicked, checked all the boxes and and were your investors disappointed that they were going to lose their cash flowing business.

Roank: No, they were very pleased with the cash they got all up front. They were fine. That is great. Coincidentally, I did this math when we were doing the sale. I think that the net result of it was the same.

Dave: IRR or plus or minus one within 1% of the IRR.

Roank: That was in the financial presentation for the business itself. Really, yeah, very unexpected. Yeah, again, nothing more than a coincidence yeah what do you, what do you enjoy most?

enjoy the most about the business is building and growing things. What I have realized is that is not sufficient to be a great leader. Right, there's building and growing things. A great leader right, there's building and growing things. But there's also all the other things that a leader should gain and find value in a business that I'm just not personally built to enjoy nearly as much. Right, I enjoy growing the skillset for the people that work for me. I enjoy seeing them be successful, but I don't think I enjoy it as much as I really should, or that a leader really should. In many ways, I think what I've discovered is I almost enjoy being an individual contributor more than.

I enjoy being a leader and in in many ways, that's why I enjoy being at such a small company. Right, yeah, here the leadership I have to do is very direct. It's in the office, with people that are no more than 15 feet away from me right now. It's a very old style of working. You, you know, I have one remote employee and thank God she is very self-directed and capable and intelligent and proactive about reaching out to me, because otherwise she would be really disappointed and I would suck at that job. And so when we talk about you know what do we like about the job? I enjoy the improving of things. I enjoy the new thing to be done. That is not as much of it's not that much of running a business as you would want it to be. Sure, it's not like about a small business, though are just the variety of stuff I get to do I wear slightly fewer hats now than I did before the acquisition, but I was the CFO.

I was, unfortunately, the lead IT guy, even though portions of these functions were outsourced as well. I sold all the metals. Having never sold a pound of metal in my life prior to levitated metals, I sold all the amount and then I was the president. I was the lead on any plant improvement projects of great size that we had again support throughout the organization on all these little pieces. But that's a lot of little hats to wear okay, okay.

That a bigger company would have a head underneath every one of those hats. Sure, so I enjoy being able to do the breadth of those activities. I think it's rare that people can do the breadth of those activities. You and I talk about ICDIS stuff all the time and I would wager at a level that maybe less than five company owners that you interact with are able to discuss the situation. Is that probably correct, or am I? I think it's probably less than three yeah.

Dave: And I can't think of who the other two are, so you might be in a class of your own.

Roank: Yeah, I enjoy that thing right when I think about things that I would have been in a different life. Perhaps tax accountant could be one of those. But man, this is a very different life than tax accountant.

Dave: Yeah for sure I think you made the right call. Well, as we're kind of rounding the home stretch, I've just got a few more questions. One is when you were leaving Intel, if you had a time machine, or maybe right after you left Intel and you had a time machine that you could go back and have a conversation with the younger Ronak 20 years ago, what might you have told yourself? What advice might you have had?

Roank: or wisdom that you might've wanted to share. I don't think I would've shared anything.

Dave: No, wouldn't want to, but I would've wanted that.

Roank: With the exception my wife's death, there is not a single thing that I would have changed that is a you're.

Dave: I asked that question on my guest and you're probably the only one who's ever answered it that way.

Roank: So I would say, yeah, what type of things do people say? Oh, you know the number one, because I'm not just saying that because I don't want to watch other podcasts, I just yeah, well, no, I can give give you the rundown.

Dave: The most common answer is they wish they would have taken a risk sooner. They wish they would have started their company sooner. They wish they'd been more willing to take a chance. Now, granted, many of my guests are self-made first-generation entrepreneurs like you know, are, you know, self-made first generation entrepreneurs like you are meaning? You know they formed the company, but some of them may have worked at other companies. In hindsight they realize, oh, I should have done this five years sooner, you know it. Just, it would have only been better if I'd done it five years. That's kind of. The most common answer is just, they wish they'd played it less safe. You know, they wish they'd taken, you know, more risks in college. They wish they. That's kind of the most. But that one is consistent with what most people say near the end of their life they don't regret the things they did, they regret the things they didn't do. So that tends to be the answer. But that, to me, is a really good. That's a really good answer for somebody who's pretty content with where their life is.

Roank: Yeah, other than you know your wife, obviously, and I see what everybody else describes, but I feel that everything I did, I was learning something that became foundationally valuable.

Dave: Yeah.

Roank: You know there was a period of time I got laid off from Schnitzer in early 2009. And I didn't start up at Alter Trading until, you know, about a year later. But I did some consulting in the middle for a wonderful company, Steel Pacific Recycling in Vancouver Island, Victoria, British Columbia, and I was there for three months and it was a magical time because we were there in the wintertime. The whole family moved up. My kids were very young. We had an apartment right in Victoria. I rode a bicycle to work to the scrapyard.

But I did a bunch of really interesting financial cost accounting structure set up that helped them understand their business better and those were super useful skills when I had to do a chart of accounts setup for levitated metals. We were able to slice and dice our financials. You know extremely well and I don't know if I would have used an erp system nearly as well as I do here had I not had all those little formative experience things in the end I think for me at least.

I don't feel like I had a lot of wasted years throughout any of that time I learned steve jobs, as you say.

Dave: Steve jobs has the saying that you can only connect the dots when you look backwards, that at the time you can't. It's not like you had some grand plan, I'm guessing you know when you left intel. It just you know. Because steve talks about. He took this calligraphy class that he audited in college and, uh, you know, and that influenced everything at apple design and fonts and and other stuff that it only makes sense looking back so that's.

Roank: That's interesting. Yeah, I can. I can see that, and it is hard to connect the dots until yeah until you look back so.

Dave: So here's kind of a fun one. I think you've been a like me, you're a. Well, I consider myself a naturalized texan. My wife's a native texan, so, uh, you know, if you you know. So you're also a non-native texan, but I think you've been here long enough for this question. Tex-mex or barbecue.

Roank: Barbecue makes me fall asleep. I'm not saying Tex-Mex, I've always loved Tex-Mex. So yeah, we've got some great barbecue. Actually, right near the plant Rusty Buckle is some great barbecue. Near my house is Corkscrew, which just got a Michelin star, which.

Dave: Oh nice.

Roank: Yeah, which I still struggle to understand how that all plays out. But Texas I guess you get a star. But I love me some Lupe Torquillo yeah yeah, I am with you.

Dave: Well, is there anything I didn't ask you or we didn't talk about that you wish we had or we should have?

Roank: No, but I'll do you a favor and I'll plug a little bit the IC disc. I know that's not the goal of this podcast, but it is why we know each other. Yeah, so I'll tell this story if I may. Yeah, absolutely, the IC disc and levitated metals.

Yeah absolutely, yeah, absolutely, disc and levitated metals. So I called you on my birthday, three months before I, a little bit before I sold the company, and I had talked to you many times previous to that about setting up an icy disc. We, like many scrap companies, are well suited to the icyDIS because the profile of our sales are high margin exports and lower margin domestic sales, and the value of, as a pass-through entity, being able to translate ordinary income into dividend income, has great benefits to the investors of a company.

I think there's probably some advantages, even if you're a C-corp, but you can detail that kind of At most. I think there's probably some advantages, even if you're a C-corp, but you can detail that kind of stuff out. I don't really know.

Dave: Sure. What was?

Roank: interesting when we talked about it is I was in the process of selling the company and when you sell a company that's done a bunch of bonus depreciation because it built a big factory, there's always depreciation recapture that shows up as ordinary income at the time of the sale and so whatever normal ordinary income there would have been that year it was going to be much, much higher because we would have clawed back a ton of depreciation.

I put a recapture on depreciation. It's ordinary income. We, like many scrap companies again, have an IC discable kind of amount of headroom of income translation from ordinary income to dividend income Well in excess of the ordinary income we normally make in any particular year, and so, like most scrap companies, there should be no reason to pay ordinary income tax.

Dave: Right.

Roank: Again, most scrap companies that are Nazi corpse or whatever. But in the year of the sale, all that extra headroom suddenly became valuable because I was going to have this abnormal ordinary income from the depreciation recapture, and so what would have been X million dollars of ordinary income that would have turned to dividend income wound up being something like 2.5, x, yeah, all of which I was able to use because I had so much ordinary income, yeah.

And your shareholders as well. Yes, absolutely yes, I and my shareholders. And that was phenomenal. And then on top of it, I think I got to. The ICDIS lets you defer some of that dividend income into the following year. So just sat there in our bank accounts making 5% or whatever we chose to do with that money for another year more than a year, excuse me. Just truly phenomenal. The impact of the ICDIS in my space. Not an easy thing to kind of think through. You and I were just spitballing stuff. We popped it up as an option. You had to go back and think about it, but it looks like it works. And I don't know if you have done it before.

Dave: No, yeah, it was just such a unique fact and it was mostly because of how new the business was. Right, if the business had been open for 10 years, we would have started the IC desk probably in year four or five it was coming, and then you would have been using it and then you would have had that transaction, the depreciation recapture, and it would have given you a bigger benefit. It would have happened anyway. It was just your circumstances were so unique is how it all fell out, and I doubt we'll ever see that. That circumstances, because it's so rare to start a business and sell it so quickly, you know I think the takeaway of it is the one.

Roank: So one of the takeaways I have from this is I should have started the ICS earlier, because of the bonus depreciation as a startup of the company and the complete depreciation of the entire factory. In the first year, I and investors had a ton of NOL and net operating losses that were just going to take a while to turn into a cumulative net gain and before that happened we sold the company. I was planning on doing an IC disc in 2024, I think was my expected timeline, which is when we would have clicked over to a game and then suddenly there would have been income that I wanted to translate over into dividend income. But I really should have just done it before into dividend income but I really should have just done it before.

Dave: So the question I should have asked you was if you could go back in time two years and do anything different. Give any advice to yourself. What would it have been? I mean, it's a joke, right? You would have said start the ICDISC sooner.

Roank: The real advice I would have given would have been understand how your NOLs work so that you can do a donor advice fund for the ordinary income you thought you were going to. But outside of that, in truth it's a minor esoteric thing that doesn't really matter.

Dave: And so, since you brought it up I rarely talk about this. Since you brought it up, just a couple quick questions. One, because the cpa firm you use actually has some icdisk expertise and you know you could have used them. So do you recall what aspect of our I remind you.

Roank: Yeah, because you're, I see this guy. Okay, and the thing that I was talking about felt esoteric enough that I didn't want to click just on a cheap bastard. I didn't want to click over, you know.

CPA for billable hours while they tried to figure it out and roll me in a show or something like that. That's not how I want to play now, but the truth is I just needed something done quick and fast because every day that I waited to do the icy disc was another day of revenues that I couldn't utilize. And the second reason is, you know there's a time there's time it takes to create an icy disc and set it up and all that kind of stuff. You have that down to a science and had a method to kind of quickly get me rolling on it. While you and I both know you made a bunch of money on that transaction for a couple of years of work on it, it was completely worth it to me and a very satisfying business and personal relationship that tested both of our intellectual capabilities to kind of put together and work on. I enjoyed doing it right, like when we talk about what we enjoy and work.

Dave: Yeah, that was a fun thing it was, yeah, no, it was for me too, because so yeah, so few of my clients, you know, know, have that much interest, you know, getting into the weeds there, and it caused me to think of some things I hadn't thought about in this. And again, since you brought it up, in the experience, you know, the team was the responsiveness Good, I mean, was the? Is the experience been positive?

Oh yeah, it's been great, yeah what about coordinating with your CPA firm, because sometimes a CPA firm who has an ICDIS practice will sometimes say things like yeah, but it'll be more seamless if it's all under one umbrella right. Umbrella right, I mean, it's the. Did you get the sense that? That it created a lot of of extra work by the cpa firm, or that balls got dropped because you didn't have one entity doing it all?

Roank: I don't think I got that sense, because the cpa firm is made up of multiple people too. That, oh, it's a good point, right? I mean, it's not like the ICDISC person is the CPA that you're working with, right?

Dave: You know, I hadn't thought about that, and you're right, and there's some level of communication that is required regardless.

Roank: Yeah, and that.

Dave: IC-DISC practice, if I recall, for that particular firm. I think it's out of a different office.

Roank: Anyway, I don't think, even if they were next to each other right which are of course not next to each other because they all work remote Even if they were next to each other, still two people having to talk, and so there's still coordination that has to happen, and you know what you're talking about. In the end. There is enough esoterica on optimizing the ICDISC usage, that especially trying to maximize the ICDISC capability that I don't think others really understand and not all of them need to understand it. But what I mean by that is for many companies they can just use the stupid simple approach for doing ICDISC and it'll still let them translate all the income they have right.

In my particular case, it was important to look at the transaction by transaction optimization capability of the ICDISC in order to fully utilize and maximize the amount of income I could translate to dividend income. I use shared logic as my ERP system. There is literally an ICDISC button that creates the report that you care about.

Dave: Right, and so that's one of the benefits of not to interrupt you, but people ask me because, like my, our IC disc business is almost impossible to sell. In fact your CPA firm even talked to me a few years ago about buying the ICDIS practice. The problem is we're not very sellable. We have a huge, we have a concentration risk because it's all tied to one part of the tax code. So they wanted to discount that, or they would have wanted if the conversation on that far. And the second problem is I'm a craftsman, I have the primary relationship with all of the clients. So they would have made me stay around for three or five years and I'm like you know and it would have been tied to some kind of an earn out because they're going to say well, what if the IC just goes away next year? You know we want you to basically keep some of that risk. So I don't know what got me off on this tangent of that risk.

Roank: So I don't know what got me off on this tangent. I hear you, and I've thought about that question on your behalf as well, because from my perspective I think your job is kind of interesting and fun. Right, you get to visit a lot of different scrap yards, talk to a bunch of different scrap dudes about a thing you're very knowledgeable about that you know really could trans dramatically improve their financial position, and yet it's still a tough sell. Right, it should be like selling. You know it's not like selling ice cream to eskimos, and yet sometimes it probably feels that way.

It is that way, yeah, yeah, and also the question of how to. Because you have a couple of people, I think that work for you, right, at least?

Dave: one, yeah, yeah, there's a whole team, yeah.

Roank: And so, yes, if IC-DISC went away, it would be I don't know what else you guys do, but pretty close to the end of the company and that's a rough gig. And you know, the low-grade communist in me certainly is shocked, shocked by all the awesome and incredible tax code optimization tools that exist for business owners tools that exist for business owners.

Dave: I mean between the IC-DISC, new market tax credits opportunity zones right Bonus appreciation just it's Cost segregation, research-.

Roank: Absolutely phenomenal, right, I am now a W2 employee like a putz, you know it's just phenomenal. But if that went away then, yeah, this does die. It's a really difficult thing to try to sell, right. It's the type of thing that, I don't know, if you can't keep some level of skin in the game or risk on it. It feels like the type of thing that if you have the right person in the organization that could be the face, should be kind of employee acquired in some capacity.

Dave: Well, and that opportunity exists Some of my partners, I mean I have a standing offer to basically sell my part of the business and in many ways are you familiar with the inside.

Roank: I am the.

Dave: There's a deep dive of tax yeah, yeah, the structure for us I've already looked at it just doesn't. It doesn't really, it's not not the right fit, but yeah, I thought this thing.

You know the funny thing about the disc it's been around since 1972, but it's been quote going, going away since 1973. So I've been doing this 20 years, and I thought I might have five years before this went away or there was a change. But the key, though, is that and that's true the concentration risk is there, but on the flip side, there's also a premium. You get a specialization premium that comes along with it. It's the reason if you look at a lawyer, the more specialized they are, the higher their billing rate, and so there's a premium that comes with that specialization.

I know what I was going to say, and then I doubled down further where we have a concentration of risk within the scrap metal industry. But the benefit of that, though, is that when I show up to a scrap metal conference, I'm the only one there talking about IC disc, and I'm the one that well, a scrap guy introduced us. I mean, in fact, I won't mention him by name, but I call him my best unpaid salesman. He's referred as multiple clients. For a variety of reasons, they don't use us, but he's still a big fan of uh, of the work we do. So, yeah, and then the. Finally, there's this concept that has not caught on with a lot of americans. But there's this concept of saving Like you don't have to spend all your income in any given year, so there is this concept of you can make money, put it away and then, if the business goes away, you have this thing called like a nest egg, or you know.

So People should think about it, yeah, but yeah my clients, my clients who I have a relationship with, that's. Oftentimes they'll ask me hey, dave, I'm a little worried about you, like as a friend, what happens if the IC disc goes away and I'm like I'll just spend more time there? That's what will happen.

Roank: If it makes you feel better, I don't worry about you. I just think it's a very interesting company sale situation. I just think it's a very interesting company sale situation. Yeah, and you know, when you look at the environment today, you could be a tweet away from getting doged. Yeah, yeah, exactly yeah. So one of the you know, keep your head down and stay quiet, kind of things which appears to be the standard business approach to today's situation.

Dave: It does seem to be.

Roank: Well, hey Ronak.

Dave: I can't believe how fast the time has floated. This has been a blast. I really appreciate it and I hope you have a great afternoon. Thank you, it's good to talk to you.

Special Guest: Ronak Shah.

In this episode of The IC-DISC Show, I delve into the journey of Kripke Enterprises from its humble beginnings to its current status as a leader in the scrap metal and recycling industry. Founded by a husband-and-wife team in 1993, the company has grown significantly with the involvement of their son, Matt. They discuss the strategic moves that helped propel their business forward, including key acquisitions like Mid-South Aluminum and a strong focus on aluminum trading.

Matt and Scott highlight the importance of relationship building and trust in the scrap metal industry. They share insights into how their reputation and values, like keeping promises and problem-solving, have been instrumental in their success. The episode delves into the symbiotic relationships they have fostered with aluminum suppliers, emphasizing the value of maintaining strong personal connections in business dealings.

We also hear about the transformative leadership styles within Kripke Enterprises. The discussion covers how innovative thinking and diverse perspectives, including contributions from those outside the traditional industry, have reshaped the company's culture. Matt and Scott talk about the balance between a hands-off leadership approach and active collaboration with executives to navigate industry changes.

Finally, the episode touches on the future of the recycling industry, highlighting the role of technology and innovation. The Kripke team shares stories of employee growth and empowerment, including unique programs aimed at helping employees become homeowners. They reflect on the potential of a younger workforce and the exciting developments in material sorting and AI within the aluminum sector.

SHOW HIGHLIGHTS

Contact Details

LinkedIn - Scott Chaffee

Show Notes

Be a Guest

About IC-DISC Alliance

About Kripke Enterprises Inc

(AI transcript provided as supporting material and may contain errors)

Dave: Good afternoon, scott and Matt. How are you?

Matt: Fantastic. How are you doing?

Dave: I am doing great. I get to talk to one of my favorite scrap metal company representatives, so it's always a good day for me. So let's get started. Where are you guys calling in from today?

Matt: We are at Crypto Enterprises headquarters in Toledo, Ohio.

Dave: Okay, and I believe that's made famous by the Mudhens right. Isn't that Toledo's claim to fame?

Matt: That is correct, the Mudhens which Jamie Farr in MASH used to wax poetic about.

Dave: Yeah, his character was Slinger, I believe.

Matt: Yeah, you're showing all of our age that. That's how we're starting this interview. We're referencing a show from the 1970s and early 80s, agreed, agreed.

Dave: Well, hey, matt, why don't you give us some background? What's the history of kripke, what year was it founded, who founded it and kind of how we got to today?

Matt: sure, so kripke enterprises was started on january 4th 1993, which that date is important because that was my mom, or is my mom's birthday. Next year, on January 4th, it will be the 30, let's see 33rd anniversary of Kripke Enterprises and at the same time my mom will be turning 80 years old that day. She'll be thrilled that I shouted out her age in the beginning of this podcast. But the company was founded by my mom and dad. They started out with the two of them and one administrative assistant and the goal was to create a non-Ferris brokerage company where my dad could just put food on the table for him and my mom. They had their third kid at the time in college. Two of their kids had already graduated college and really not very grandiose ambitions. It was just going to be a small little trading company to capitalize on what my dad's career had been, which had been in the scrap metal. I know we call it the recycling industry today, but back then we did not. We called it the scrap metal company Sure, but back then we did not. We called it the scrap metal company Sure Industry and that was their goal and plan.

I don't think that really in his mind he was ever going to grow it beyond those three people and I joined them in October of 1994.

So the company was a year and a half old at the time. I had no intention of ever joining the company but my my dad got very ill and I came in and kind of kept the company going while he was spending 60 days in and out of the hospital and, um, at the end of 60 days we agreed to find a position for me and then he said to me point blank he said I really don't want to grow this company, but if you ever decide you want to grow it, I'll support you. It's just you have to do it. And okay, that was kind of the beginning and it took a while for me to get the confidence to begin to grow the company. But that process started from me being the fourth employee and today we're just under 70 employees and locations in Toledo, Jackson, Tennessee. We have a trading office in Florida and then we have a few people that work remote in different cities around and what's your commodity focus?

Our specialty is aluminum, but we do trade in most metals, but still 95% of our volume is aluminum. Maybe even Scott's going to correct me with the numbers, but maybe even 98 percent is aluminum okay, does that sound right, scott?

Dave: yeah, actually 99 okay, that sounds, that sounds good, and so you've had quite a bit of growth.

Matt: Yeah, I think you know I would attribute a lot of it to just finding good people and then ultimately getting out of the way. You know, as an example, scott, who's in this interview. He came in in 2011 with us and was instrumental in setting up systems so that we could scale our business, and you know, one of the things people take for granted is that you really need to. You really need good systems in place in order to scale. You really need good systems in place in order to scale. You can grow your business a little bit at a time if you're doing it with spreadsheets and duct tape and super glue and you're MacGyvering it together, but you really need a good CFO and you really need a good IT person in today's day and age as well.

Scott: Yeah, and to piggyback off of that, I mean the infrastructure is so important, whether it's the IT infrastructure, the bank line of credit, I mean there's a number of different things and once that's in place, I mean it becomes fairly easy. And I would say that you know we've been able to do that several times now. You know we acquired Mid-South Aluminum in 2017. And the single biggest thing that we were able to help out there was the infrastructure, the line of credit, the system, the line of credit, the system. We were able to, you know, bring them onto our system, and you know it took a company and we were able to increase that at quite a multiple so the hopline sales number when we acquired Mid-South in 17 was about what Scott?

Call it about 30 million, and we were able to take it after we joined forces. We were able to take it all the way up to like about 150 million.

Dave: Wow, in a short period of time. That is amazing. And so, Scott, how did you end up here? Did you grow up with a lifelong desire to be in the scrap metal business?

Matt: He did Next question.

Scott: No, go ahead, Scott. You know I can still remember the day. Yeah, so I've been here since 2011. You know, I tell people all the time it was the best move I've ever made, Including marrying his wife. Well, yeah, I'd worked for three large corporations, three international corporations, and even did a lot of international travel. For, and you know it, I can remember I had a mutual friend with Matt and Larry and I can still to this day remember going out to breakfast with them and at the restaurant here in Toledo, and from there I knew, you know, it was a good feeling. You could just, you could tell, I mean, it's got a, we got a great culture here that comes from there. I knew, you know it was a good feeling. You could just, you could tell, I mean, it's got a, we got a great culture here that comes from the top and makes all the difference in the world. Sure, yeah, Sure.

Dave: So tell me more about this Mid-South acquisition. What was it about it? Acquisition, what was it about it? Because you know, so many times you do acquisitions, mergers, and you have these grand plans of all the synergies and growth and everything, and oftentimes it doesn't come to fruition, but it sounds like it did in your case.

Matt: What would?

Scott: you say, made that transaction so successful. What do you think, scott? Well, I, you know, I, I think I think there was a lot for both of us to benefit from. You know it was. The company was basically run on Excel spreadsheets at the time and you know we we had, we had access to a large line of credit with the banks, and so we were able to, you know, tap into that. We had the infrastructure, we brought them onto our system. I think that was probably the relationship that we'd had, or I should say the relationship that Larry and Matt had with the Salih family, and that went back many, many years. I don't know Matt how far back?

20 years before that yeah.

Matt: Yeah, I think that's where it really started. So I think Scott tapped on what made it work from a logistics point of view logistical point of view. But that relationship piece is, you know, when you get into a negotiation, a lot of times they stall out because you start the conversation and people get a little freaked out about well, wait a minute. I'm just not sure that I want to do this because I don't know that I can fully trust you and we both had this longstanding trust of each other. We had been business partners for a long time.

What made it really interesting to us was, you know, if you think about Mid-South Aluminum is a coil. It's an asset light coil distributor, which essentially means coil broker. But where I say coil distributor, our niche is we buy mill finish coil, bare coil, and we have relationships with various paint lines paint lines and we will get it painted to specific colors for our customers and then ship them. You know painted coil that would be used mainly in the bnc market, sometimes into producing signs, and sometimes mill finish that might go into like hurricane shutters or florida rooms or things like that. Where it's interesting for us is if you think about where coil is sourced from. Those are the same people that we're selling recyclable aluminum into. So we become customers of theirs, supplying them on the scrap side of the business. And then we're a customer of theirs on the other side of the business, buying coil from them.

Oh wow, full circle. And so there's times in the cycle where they treat us really well because they really need us to supply them with scrap. And then there's times in the cycle where getting scraps easy but they really need us over here to help them out to take out quill. So interesting we've, because, you know, we kind of have a little bit more leverage, um, in those relationships. And that's become, you know, now, when we acquire mid-south, we, oh, this is going to be great, we're just going to do a ton of tolling. Well, that doesn't always work and, as a matter of fact, more often than not the tolling piece doesn't work. But when it does, it's great, for you know, two different parties. Now that's great.

Dave: And this is one of the reasons that. Now, that's great and this is one of the reasons that you know I picked up. You probably know my very first scrap metal client, Arnie Gashman. You probably know Arnie. Everybody knows Arnie, Right. I think he was in college, at TCU, when his father or grandfather became ill. It may have been his grandfather, Maybe his father wasn't very interested in the business, and then I believe his grandfather passed somewhat suddenly. So Arnie was kind of thrust in to take him the place over at like 22 years old. So yeah, and same thing, he stuck around.

But one of the things I love about the industry and I've I tried telling friends who aren't in the industry that I said I've never seen an industry where your reputation matters more than in this industry. And I said and I tell them, I said I believe my clients will buy and sell a million dollars of scrap metal on a phone call, like no formal contracts. I mean there may or may not even be an email, that that that documents it. But I said, can you, can you believe that they do transactions just on a handshake? And it's one of the things that I find just great about the industry.

Matt: That is a hundred percent true. You know, I would say you know we have three core values that we run our business and we run our business on them, and everyone in our organization can recite them, and they also know that every decision they make needs to be filtered through these three things okay, one is.

One is we do what we say, which you're referring to. You know your reputation. That's how you build your reputation by following through on what you say. Two is we provide solutions.

And you know where we try to differentiate ourselves is people are used to at least in the recycling side of the business. They're used to rejections and downgrades. I mean, things go wrong and my dad's big thing was always don't call up a customer and say, hey, you got a rejection down in Kentucky, because that's what everyone else does. He said let's differentiate ourselves. Instead of saying that, let's call them up and say, hey, we have an issue, a little bit different verbiage, but before you call them already have worked out two to potentially three solutions of this, and they'll keep it. Two is we ran the freight to bring it up to our warehouse in Toledo is blank and we'll go through and clean it for you and evaluate the load.

And a third option is we found this other place that is willing to buy it. If you go that direction. We're still going to owe this metal on the original contract, but this gives you an opportunity to. You know, get out of this loop. And that's the second one. The third one is also what you're referring to. The third core value Relationships are the backbone of our business. Backbone of our business and I think, while unique when we discuss other industries, that is not unique in the scrap metal industry. You know that we will put relationships ahead of making money, that we will say to you know, our employees, employees hey, if you have an opportunity to cement a relationship, don't worry about whether you make money on that particular deal, it'll come back to us many times playing the long game, playing the long game well.

Dave: And I just find life's more fun when you do business with people you know as a customer or supplier. It's just more fun when you do business with people you like and trust. And, just like my wife and I have a saying we don't do transactions, we only do relationships. And that even means because everybody wants like a customers, right, don't complain, pay your bills right Easy to work with. Like a customers right, don't complain, pay your bills right Easy to work with. But my wife and I's theories we aspire to be a customers for all of our vendors because we just find it's more fun when you have a problem and the vendor calls you back right away because you're one of their better customers. And it's just more fun when you're you have great working relationships with your vendors, rather than them feeling like you're going to beat them up on price every time you talk to them.

Scott: Right, but that's another relationship, you know, it goes way back and there is a lot. I mean, it can't emphasize enough how important relationships are. You know, this weekend I listened to a couple of the podcasts that you've done and there was somebody else that mentioned the importance of the relationship, and it is. I mean, that is definitely the case in everything that we do, even with the banks, like, for example, you know, we go through periods where, okay, maybe we're carrying a little bit more inventory than what we typically carry, or maybe the price is a lot higher than what it was six months ago.

It's great to know that we can pick up that phone and say, okay, we've got a temporary situation, maybe it doesn't quite work with our reporting, what can we do? And we'll start talking, talking through some, some options, and I think, because we have a relationship like that with our banks and and others, I mean it makes it makes business a lot easier to do too. And the other thing you touched on was, uh, you know the integrity that is so important and we do what we, you know. And that goes back to another one of our three core values that Matt mentioned is we do what we say. I can remember when I started years ago, larry always used to say, okay, pay on time, pay on time, pay on time.

Because, that is a really important thing. It builds trust, it builds a relationship, adds to the integrity. I mean it is really important and you know it goes a long way.

Matt: That's the other thing, that pay your bills on time. You know it's's. Yes, there's many industries where that is an issue. But when I have friends and in other industries and I'm like, oh yeah, we pay our bills on time, they look at me like why is that unique? You know, everyone pays their bills on time.

Dave: I'm like not in our industry.

Matt: I mean there's, you know there's, unfortunately, uh, you know the road is littered with um, a lot of people who give you the highest price and then make you chase them for, uh, that last dollar and, um, you know, that's one of the. You know, if you say, what is our secret sauce and why do people like to do business with us? One of those things is they never have to track our CFO down and say why am I not getting paid? I mean they, they can set their clock to when the payment comes.

Dave: Sure, well, you talked about the relationships. I remember when I ran into you guys in San Diego last month, you know, I had a chance to introduce you to a professional who might be able to help you all in a way, and then I happened to sit down and have breakfast with you guys and you were, you all were kind enough to introduce me to some, some guys who I didn't know and some others who I hadn't talked to in a long time. So, uh, yeah, in fact I leave tomorrow to go to san antonio for the gulf coast regional event.

Matt: Yeah, I do my guess is there'll be some people from our. I don't even know anymore who goes to which event, but my guess is we have some people who are going to that event.

Dave: I would suspect. So I also suspect it'll be warm, so that's my other suspicion. So, Matt, I believe that a few years ago you kind of changed your role with the company. Is that correct?

Matt: That is correct. So, in trying to think of the year that we named Chad the president, was that three years ago, so 22. So, so for a number. So let me backtrack a little bit further. In 2012, I worked out an agreement with my dad that was going to be a 10-year buyout of his and my mom's shares in the company. As part of that we agreed that I think right before then I took over as president of the company and my dad became the CEO of the company and he maintained that CEO role almost all the way through that buyout, even though I would say the last five years I would call him he was much more of like our lovable founder than he was really leading the company strategy anymore. Everyone would love when he would come back from Florida and come in the office and and spend time here. I took over the CEO role maybe in 2019 or 20 and was president CEO for a few years, and then we identified my cousin, chad Kripke, as president, or that we're developing him to become the president of the company.

Chad is really really strong at risk management and a lot of the. I mean he was one of our rainmakers probably towards the end of his trading career, our largest rainmaker and would put together these monster deals and really good at building relationships. He, you know, I say to people all the time I felt like I was a really good president of a company for a long time, but Chad is 14 years younger than me and Chad is so much better than I ever was at that age I mean he's he's probably better than I was towards the end of when I was president, but he's still learning. He's still learning many things, but he's done a great job in really leading the day-to-day of the company. I'm still learning what it means to.

You know, I've been really, really careful about not wanting to step on Scott's toes as CFO, not wanting to step on Andy Golding's toes as our chief strategy officer, eric Phillips as our COO and wanting to give Chad the freedom to lead. That I probably have erred too much on, you know, kind of a laissez faire attitude of you guys make all the decisions and some of them, actually, almost every single person has come back to me and said, hey, we see what you're trying to do. We'd like you to maybe stay involved a little bit more than you have been and we'd like you to voice your opinion a little bit more forcefully than you have been, and it's a tough mix to figure that out, so I'm still learning what that means to lead more on the longer-term strategy side and less on the day-to-day side.

But it's really been fun and then, also in 2022, I told you January of 2023, these guys that I mentioned, they all came in and wrote a check to buy some equity in the company, and they are now my partners in the company, which has been fun as well, and you know it's.

Dave: that's been a learning experience too, because my only partner prior to this was my dad, okay, oh, that's that is great, and, and I believe that andy is on track to be, uh you know, the chair of uh rima in a couple years right, or three years next year, next year, next year, yeah, okay yeah, so so next, next year, uh, andy's reign of terror begins and, yes, you, I think that it will be very exciting for the industry because Andy thinks differently.

Matt: The reason that he's so valuable to us is, I think, very black and white. Yeah, chad is pretty creative, eric is very black and white, scott is very black and white, andy thinks in all these different technicolor ways, okay, and he is going to bring that to the entire REMA board and it will be uncomfortable. I can guarantee you this. The board will be uncomfortable for a couple of years because he will push the boundaries and will get them to think of hey, yes, I acknowledge we've done it this way forever, or we've done it this way for a long time. I just think this is a great idea over here and I'm going to challenge everyone and there's going to be a lot of people that are going to be very uncomfortable, but the industry is going to be better off for it and I can tell you our company is certainly better off because of how creative he is and the way that his mind works.

Dave: Yeah, because what do you think about that?

Matt: although Scott's the CFO, and I will tell you that sometimes those creative types are not the best at details. What do you think, scott?

Scott: It's funny, andy and I have have like a long running joke that you know he always jokes. He'll say, well, I'm extremely detailed, I'm not, you know, we laughed about it. So, but, yeah, I, you know, I think, I think Andy's going to be great for rima. I think that, uh, you know he's gonna, he's gonna bring a lot to the organization and uh, uh, they'll probably be looking at a lot of things a whole lot differently when, uh, yeah that's into the chair position so, matt, you know, I I believe that that Andy does not have a traditional scrap metal background.

Matt: What was it?

Dave: about him that made you think kind of outside the box and bring in somebody from outside the industry.

Matt: Well, in 2004, my dad and I so 2001, we hired our first trader who was not family and that was Marvin Finkelstein in Florida, and Marvin is our senior vice president of domestic sales and trading and Marvin's been with us since 2001. And Marvin's been with us since 2001. 2004, we had a guy hired who was supposed to start like essentially January 1 of 25. And he called us. I think Christmas Eve, called my dad and he said I really appreciate the offer, I really appreciate getting to know you guys even better. I've gotten cold feet and I have this other opportunity and I'm going to take the other opportunity and I think that's the safer way for me to go. And so we knew that we needed to add someone. At the same time, andy was part of a family business that unfortunately ran into some tough times. They were in the auto glass industry and, similar to the way that, like doctor's reimbursement, changes on the whims of the way the insurance companies want to treat different procedures, that industry was having a seismic shift and they were a big enough company. They couldn't move quick enough to get out of the way, and so andy was uh, andy at the time, in september of 2004, had twins, so he then had four kids under four years old and his family business was kind of disintegrating and and I knew andy, we, we had known each other since we were kids and and, um, my dad had known andy probably since close to when he was born and I I pulled my dad aside and I said, hey, this, this thing with this other guy didn't work out. You know, andy is out there looking and he doesn't have any experience in our industry, but this guy is really creative and could be a great sales guy for us. My dad said if you think you can work with him and you don't, and you're not nervous about your friendship getting ruined, then bring him in, let's talk to him. And by February of 2005, we had an agreement worked out. He started and he was was. I mean, he had to learn the metals, he had to learn the industry, but one thing he didn't have to learn was how to be a salesman and how to be creative and okay it.

It probably took me maybe three or four years until I started getting comfortable with his crazy ideas. That and they weren't. They weren't crazy, they were crazy to me. But once I got comfortable with, hey, this stuff that he's suggesting it's working. Maybe we should, maybe I should get out of the way and maybe I should get out of the way, and, and you know that success and him being successful encourage us to add Eric Phillips and encourage us to add Chad Kripke.

And then we grew to the point that we needed a real CFO and, you know, instead of my dad just coming back from Florida and saying, all right, what do you guys, you know, where are we at, what should I do? And so that, really, you know, starting with Marvin, going to Andy and then adding the others, those were all key moments and, um, a lot of the people we've added did not have, uh, scrap metal or recycling experience prior to joining here, and I think that has actually worked a lot to our advantage to get fresh eyes on things. And instead, instead of someone saying, well, here's the way you do it in your industry, someone coming in and saying, why do you do it this way and can we do this differently?

Dave: No, that makes sense. I can appreciate that different perspective that he was able to bring Scott. What do you enjoy the most about your role with Kripke?

Scott: Well, I'll tell you what I mean. I think you know I mentioned my background and you know it's just, it is so refreshing to be here compared to, I mean, we're, you know, we got a great culture. I mean we stress that all the time. You know it's so different than you know, what I had previously. I mean we're still, you know, we're still, you know, reasonably small in the grand view of things, so we can change on a dime, you know, we're, we're, we're nimble, we're, you know, and that's the great thing. So we find, we find that if something isn't working, let's, let's do something, try something else. And you know, I I would say between between being able to to quickly change and, you know, I would say, between between being able to to quickly change and, you know, have make a real difference, um, that in just being someplace where the culture is so important, you know and and people feel part of the team.

I mean, I, I, you know. I would say that that those are probably two of the biggest things that I enjoy, you know, working here.

Dave: So OK, that makes sense.

Scott: It goes throughout the entire organization.

Dave: So, yeah, I like it. So, Matt, how about you? Same question to you in your current capacity what do you find most enjoyable or satisfying or gratifying in your current role?

Matt: I love seeing growth in other people. I love seeing people grab opportunity. Seeing people grab opportunity, and you know I love the stories of someone coming in as a. You know I'll use Eric Phillips as an example. Eric Phillips, in 2008, gets hired to be our warehouse manager. As we decided we were going to move more into. You know, on top of the brokerage, we were going to concentrate also on having a physical operation for reworking and consolidating loads. And he comes in and within probably eight months, my dad pulled me aside and said you know, we really need to bring him up front. He needs to be a trader. He's got everything. He's got all the skills to do that. My dad was really, really good at warehouse manager. You know currently is a COO and a partner in the company, and you know I love seeing that.

And then you know we have some other programs that are a little bit unique. We have we want to make people's lives better, not just our customers, but I'm talking about, you know, where Scott references the culture. We put together a program five years ago, I guess, that we put together a new homeowners program and we want to help any of our employees who have never owned a home. We want to help them get a home, and so we put together a six-month financial education course where they do, like these, lunch and learns, and we have a local credit union that comes in and leads these classes, and as long as they go through those courses and as long as they've been with us for one year, then we'll uh, we'll, give them a twenty five hundred dollar uh, at least they have to put up at least twenty five hundred themselves, which, of course, you're gonna have to do that to buy a home, but we'll match up to $2,500 and then we'll give them a hundred dollars a month for three years towards their mortgage.

How cool is that? So, you know, keep in mind we're we're pretty small, but we've had five people in the program. We currently have another four that are in classes right now in a series of classes, and of those, I believe that as soon as three of them, as soon as they're done with the course, are going to be ready to buy their first home. So it's, it's exciting and you know, you know, of course, the side benefit of that is it does act a little bit as a golden handcuff. Sure, you know, let's face it, someone's not staying on a job for 100 bucks a month. Yeah, but it does give them something to think about. These guys help me with this and, and if they help me with this, what else are they going to help me with down the road?

Dave: Now, that's awesome. So did all five of that first group buy houses then?

Matt: We have, we've done. I think this is our fourth different class yeah, so we've had, we haven't had. Sometimes we've had people go through it and say I just want the financial education piece of it because I don't really understand. I hear people talk about credit score, but I don't really understand what it is or how I could affect it. That might be one of them. I hear people talk about what a mortgage is, but what is a mortgage and how does it work? And you know, and then some other people. One of the classes is how do you set up a budget so that you don't, you know, you, you, you don't think getting the house is the finish line. The finish line is making sure you can afford the house.

Dave: Yeah, of course, of course. So you have had some people buy houses from the program.

Matt: We've had five people. We have five people that we have put in new houses.

Dave: Yes, that's awesome. I mean heck, that's almost 10 of your workforce yeah, that's, uh, that's a little under that.

Matt: Yeah, a little you know, I would hope you're an account you. You do our icy disc. Your numbers have to be your. Your math skills have to be better than that, david. Well, that was a bit of. It's about seven percent. Well, that's where my that's where my marketing angle came in right.

Dave: Just it sounded more appealing to say nearly 10 there you go. But if we look at, but if we look at the percentage of your employees who'd never bought a house before. Now we're talking, you know 20, right?

Because some of your employees you know already owned a house before you know they came to work here. I think that is awesome. So, scott, I'd like to just digress just a bit. And so you had another service provider for the IC desk before we came along, and I think I you know, we talked to you for several years. I'd known Matt for a long time, and one of the things we talked about was that I thought we could do a better job from service, kind of turnaround time. And then I also said that we bring a more thorough kind of calculation to the table. And I'm just curious I know this is kind of unscripted, but how and this has been a few years how has that been? Did we live up to the expectation? Is there anything that you were disappointed by?

Scott: Yeah, no, for sure, I mean we, we, we can't thank you enough, dave, um, if, if I think back, I think we have. We moved our icdiscs over to you. What three years ago I can remember, we met in nashville yeah, something like two years ago, and I think you'd already had our disc for a year at that point. Does that sound right?

Dave: Yeah, I think so.

Scott: Yeah, so you know we, I know that you and Matt had been in touch. I think I, you know we, I think you and I had been in touch.

You know, before we made that move for for some time move for, uh, for some time, we, you know with, with our previous provider, you know, maybe the response times weren't quite what we had been looking for or expecting and okay, you know we had a couple years of that and uh, and then I can remember matt and I started talking and uh, um, I remember I, uh, I, and I remember I sent you a note at some point and then we started the discussions then and you know we made the move and it's worked out really well for us, not only with the response times and, you know, moving quickly through all the work that needs to be done, because you know it always comes up, the disc always comes up around around the tax deadline date of April 15.

So you know it a little bit of a time crunch of the turnaround you know with your firm is is great, but the other, the other important thing here is the additional calculations that that you've been able to do the last couple of years. We've it's it, it. It takes a little bit more detail, but you take it to the next step and you're able to find some additional tax savings with those additional steps that you do Over the years going back, yeah, since 2011, our tax savings with the ICDIS has been anywhere from, say, a few thousand dollars up to the $60,000 to $70,000 range. Okay, and it's been interesting since you took it over, dave, we've been. The last two years have been in the $60,000 to $70,000 range for tax savings.

Matt: So I do think it's interesting. I referenced that Scott became a partner in the company right around that time, dave. So I think, now that some of his money, his personal money, is at stake, look at what he's doing. He's really trying to, you know, maximize all these relationships to make sure so it worked.

Dave: It worked, matt. It worked exactly like you hoped it would Well. Thank you for your kind words. The team will enjoy hearing that. Your kind words. The team will enjoy hearing that. I know when we were first talking, you'd said that the turnaround time with the prior provider was maybe as long as several months, and I told you that our guaranteed turnaround time is one week from the time we get all the data, and I think you were skeptical One week.

Matt: Yeah.

Dave: I think the most recent year with some of the more detailed stuff. It may have been a little more back and forth, but kind of from the time we get the final numbers we uh until we turn around the disc return because you know it's kind of like paying your bills on time, right. So we manage over 500 ic discs and whether we take a month to do them all or we take a week to do them all, it's still the same amount of work. The only difference is if we take a week, our clients on average get the work done three weeks sooner than if we take a month. Just like when I was in college I had these friends that were always paying their bills five days late and I'm like you know it costs the same amount of money to pay them five days early Actually less, because you know there's no late payment fees and stuff.

So yeah, no we and the other provider, I believe, didn't specialize in just the IC desk. When all you do is one thing, you know, you develop some efficiency. So then anyway, I don't want to make this too much about me. Thank you again for your kind words and your feedback. And you know anything ever not to your satisfaction. You'd be sure to let me know. I can't believe how the time is flying by. I've got a couple other questions as we wrap up, guys, and I'll start, I'm going to start with Scott first. That way you can't steal Matt's answer. So if you could go back in time and give advice to like your 25-year-old self, Scott, what advice might you give yourself, knowing what you know now?

Scott: yeah, it's, it's for myself personally. Uh, our, our younger daughter is going to be graduating maybe as soon as a year, and she graduated from college with a finance degree, not not. I have an accounting degree a little bit different, uh-huh. Um, my, my advice to her is probably don't start out with a large corporation I would.

Actually I would. I've had a discussion with her a couple of times. I think there's can learn a lot more working at a smaller company whatever, whatever kind of company that is you get. You get a lot more exposure to, uh, to different things. I mean if, if I were to say to do one thing differently, I'd probably say that that would be, uh.

Dave: My advice is go to work to my my younger, 25 year old self is to maybe don't over uh, don't over in index on large companies because that's their pitch. Right, you'll be exposed to more stuff you can rotate around, but that you might have considered a smaller operation sooner. Is that about?

Scott: something, yeah, exactly.

Dave: No, great great advice.

Scott: Okay.

Dave: Mr Kripke, how about you? What advice might you give to your 25 year old self?

Matt: So I would say, I would tell my 25 year old self that in 2025, you should bet the farm on JJ Spahn to win the US Open to when the US opens, no one will have seen it coming. You'll make millions of that. Just mortgage the house, do everything, whatever you can throw at it. The real answer would be don't worry so much.

I think we all have a tendency when we're young that everything feels like a big deal and everything feels like the end of the world, and things just have a way of working out. It doesn't mean that life is perfect. It doesn't mean that you're not going to have challenges. You know, kripke Enterprises had its share of challenges over the years that we've had to fight through. My wife and I have had our share of times where we had to band together as a team to get our family through difficult times and those aren't easy. But don't worry so much. Things have a way of working out as long as you put your, you know, as long as you put your nose down and go to work, to work through it.

Dave: That's great. I think it was Mark Twain that said I'm an old man and I've known a great number of troubles, most of which never came to be Something to that effect. I've always loved that. Well hey, what did I not ask you guys that you wish I had?

Matt: um, I would say I thought you did a really, uh, good job as an interviewer. I think maybe, if we want to talk a little bit about the, the future of the industry, yeah, let's do that. The the other thing that I'm, you know, obviously, obviously technology, you know, not just AI, but AI is going to change every industry, including our industry. People are going to find a way to harness it and put it to work and technology is going to change our industries for the better, which is exciting.

Scott: Change our industries for the better, which is exciting which is exciting, but yeah, it's exciting but scary.

Matt: The way that we're going to be able to. You know, the dream for years, at least on the aluminum front, has been the ability to really dig deep and really be able to sort material to the nth degree, it back to specific alloys, and it feels like we are almost there. We're really. We're probably 90 to 95 percent of the way there and I think that is going to be really awesome for aluminum. Scary, because any change is scary, and but there's always going in. People say well, you know what does that mean? Does that mean that there's going to be the haves and the have nots? People can afford this new technology and people who can't.

My guess is that's what they were saying years and years ago about shredders and years before that about whatever the new equipment was that the industry is constantly evolving. It has to evolve to get better from a technology perspective. What I'm very excited about is, over the last I'd say, six, seven years, scott, we've really added some new traders and most of them are younger than you know. We had an older trading team and most of these people are younger, so good, and so they learn things so quickly and they're interesting and they really the future is bright. And because they're so young, I've gotten to know the people that they meet in the industry who are also younger, and I know a lot of times we're guilty, as I was at one point that young, hungry guy. Now I'm the guy with gray in my beard and no hair in my head and um. And a lot of times we are guilty as old people saying the young people, they don't like to do this or they don't do this sure.

I will tell you there may be things that they don't do, but there's so much better and so many other things and I think the future is bright for our industry. We've got really good young people who have entered it and are leading it now.

Dave: Oh, that is. That is great. Thank you for for adding that. It was actually on my list and I think I just was sidetracked. Scott, how about you? Anything we should have talked about or that you wish I'd asked you about?

Scott: Yeah, I mean you know Matt touched on it briefly I mean, I think the whole AI thing is going to make a huge difference. Maybe five years from now, seven years from now. We're not there yet, but but I mean I see that being a huge, a huge change for us in the not so near future. I mean it's you know, some of the stuff that they're working on right now it's going to get us there. But you know, on the financial administrative side, I think that is going to be the biggest change that we're going to see in the future.

Dave: And we see it and we all see it every day. And since we drive the same brand of cars, you know I drove, I drove a,400 mile trip with my wife a couple of weeks ago and this was the first time ever that she sat in the passenger seat the whole time. She didn't need to spell me to give me a break and I people don't believe me I drove about four miles of the 2,400 miles and that was probably a dozen times that I intervened for five to 10 seconds, mostly for convenience and politeness. You know I needed to get over three lanes and the exit was a mile away and I just, you know, wanted to just make it happen. But yeah, we've all seen that AI firsthand, haven't? We Sure have Well, excellent, Well, guys, I really appreciate your time and I also really appreciate the trust that you've shown in us and our team, giving us a chance to demonstrate the value, and just really want to let you know how much we value the relationship. So I really appreciate that right back at you.

Matt: We value the relationship with you. Thanks for giving us a chance to talk.

Dave: Today was fun yeah, that that sounds great. Well, you guys have a great day. In case the listeners haven't figured it out, so yesterday was the US Open, the JJ Spahn victory that Matt was talking about. What an amazing, amazing win that was. That was exciting, that last after the rain delay was.

Matt: I mean it wasn't. I'm sure it wasn't fun for any of them, but boy was that fun to watch.

Dave: It was. It was at that, well, hey. Well, thank you guys very much, and if I don't see you sooner, I'll see you in St Louis or in Las Vegas next year, all right, Great Thanks. Dave.

Special Guests: Matthew Kripke and Scott Chaffee.

Service excellence emerges when businesses solve problems others avoid tackling.

This week I spoke with Zohra Shroff from Sealink Logistics, a freight forwarding company that started in 2005 from a one-bedroom apartment in LA. Zohra joined the family business in 2006 and has helped grow it into a comprehensive logistics provider. Our conversation walked through the complete journey of shipping a container from Houston to India.

Zohra detailed every step of the freight forwarding process, from initial customer vetting through final container return at destination. Their technology platform allows customers to book shipments, track cargo, and manage payments through their mobile app, maintaining this edge for over six years with live tracking and monthly rate updates.

Their approach evolved from simply moving freight to becoming a complete logistics partner handling sea freight, air freight, and domestic transportation under one portal. When customers face problems like container mix-ups or space constraints, Zohra's team works directly with steamship lines to resolve issues rather than leaving customers stranded.

This service model applies to any business where customer problems become your competitive advantage. When others walk away from complex situations, stepping in to solve them builds lasting relationships and premium pricing power.

The freight forwarding industry reminded me that behind every simple transaction sits a web of coordination most people never see. Zohra's passion for helping customers navigate these complexities shows why service businesses thrive when they embrace the hard parts.

SHOW HIGHLIGHTS

Contact Details

Show Notes

Be a Guest

About IC-DISC Alliance

About Sealink International Inc

(AI transcript provided as supporting material and may contain errors)

Zohra: Good morning, I'm well. How are you I?

Dave: am good Now. Are you calling in from San Francisco, or is that just a background you have?

Zohra: No, it's just a background I have.

Dave: Where are you calling in from? I am San.

Zohra: Antonio Texas. San Antonio Texas.

Dave: Yeah, soft spot for me. I went to high school in a suburb of San.

Zohra: Antonio, oh, that's really nice. It's a great city, you know, small growing, not too big yet, but I guess eventually getting there.

Dave: Yeah, Now are you a native of San Antonio.

Zohra: I've been here almost 22 years now, so I think I am.

Dave: Okay, and what about originally when?

Zohra: are you from? Originally from India, Migrated to the US in the early 2000 and came into Jersey. Stayed there for a couple of years and then moved to San Antonio, Got married and moved to San Antonio.

Dave: That's awesome.

Zohra: So been here since then. Yes, so it's home now.

Dave: That is great. So my wife is a native Texan. I'm what I choose to call a naturalized Texan. We have a saying. I got here as quick as I could.

Zohra: I think I can say that now too. You know it's been wonderful, and it's home now. So yeah, it's great.

Dave: That is great. So tell me about SeaLink. When did the company start? What prompted it to start? Who started it? Kind of a whole story.

Zohra: Sure, sure, definitely. So. Sealink was started by Shaizad. He is my cousin and the forwarding business has been in our family for three generations now. Okay, india. And then my father took it over in the early 80s and 90s and then Shaizad joined him as well after he graduated from college. So he worked in the Indian market on at that point we used to do a lot of brick bulk vessels and we used to do containerized vessels as well. So that's how it all began. And then when Shaizad moved to the US I want to say in 2001, he was working for one of the forwarders and stuff for a few years and then he decided that we should, that he should start on his own. So he started Sealink in 2005 from LA, from his one bedroom apartment, just handling freehand cargo that our sister company back in India was anyways consigning to different agents in the US. And so then we took over that business and that's how we started. And then from there we are here today, grown to a fully export plus import oriented forwarder. So I think that's awesome.

Dave: And when did you join the company?

Zohra: I joined very early on 2006. So it was yeah, not very late on, so started in 2005. I joined in. I think we were September 2005,. If I'm not mistaken, I think I joined March 2006.

Dave: Okay, so Shaizad gets credit for the first six months.

Zohra: Yes, Shaizad gets credit for it.

Dave: But you get credit for all the growth starting in 2006, right?

Zohra: I wish I could take all the credit, but he is a visionary. He is a visionary and without his vision or without his farsightedness on you know what like, we don't want to just be called a forwarder. I don't like saying Sealink is just a forwarder. Because of that, because of his vision, I think we are so ahead of the market in terms of our competitors also and in terms of our vendors also, like overall, I think, for the shipping industry. I think we have it one notch up at, I think, at any given point. You know, just because we have because of his vision. I should again say that, because of Shaizad's vision of not only moving freight but making sure that we are giving service with the service industry and also making sure that we are making sure that we are giving the standard of service with the competitive rates at all time, and I think that is one thing that puts Seelink above.

Of course, our technology is our greatest selling point. We've had our app I think so for over six years now six to seven years and you can do everything on our Seelink app you can book, you can give your documents, you can download an invoice, you can download an invoice, you can pay an invoice. You can track and trace your cargo. You can do everything on that app so you are not stuck to see that.

Okay, what is going on on my shipment? You know where is my shipment. Why do I need to like hassle bustle and call somebody and someone's not answering the phone? So we have live tracking and tracing that shows on your website that your that your shipment has been delayed or there is a vessel delay or there is a longer transshipment hold. All of that information is available on our app, ready to go. Every month we update our rates so the customers know that in February, if my rate from place A to place B was $500, then we know that March 1st that rate is either going to be $400, depending on the market, or $600. So they have visibility of all of this, which is giving them ease of business.

They can make their deals. They can look and then get a figure that, okay, you know what, my freight is going to be so much and my material is going to cost so much. This is what I need to do and this is how I can sell. So we give them all that information. Also, not only we are providing a sea, water services or sea services, we are even providing air freight, we are providing domestic, we are providing trade services.

So, for example, if I have a customer who wants to move from Atlanta, atlanta into into Moondra, so I have a rate through the vendor from Atlanta to Moondra to Mundra, so I have a rate through the vendor from Atlanta to Mundra. But if he has a facility in Duluth, atlanta, and then wants to get into on the rail, so we provide that drage service as well. So he can put in his zip code that I need to pick up from so and so zip code, take it to the rail and then it'll go out, you know. So we provide that part of draGE as well, which is really helpful for our customers if they want to go ahead and offer that to their suppliers or to their clients as well. So everything is under one portal and easy access. That's what I can say.

Dave: That sounds great. So even though I've been in this business for 20 years, working with exporters, I never really understood how the freight moved. So what I would love for you to do is let's imagine that I'm a brand new scrap broker, scrap metal broker, and I have my first load ready. It's in a container and it's at the Port of Houston. And so let's just imagine like, help me just understand all the steps. So I call you up and I say, zohra, how I've got this uh load of uh of scrap metal at the port in houston and I need to get it to uh, um, what would be a good, a good port in india.

Zohra: That that, mundra, let's say.

Dave: Let's say, so, walk me through like all the things that that like, just walk me through all the steps that have to happen okay.

Zohra: So initially, if I'm onboarding a new scrap customer, we we have an onboarding process that goes into place. You know we we run their credit scores. We, you know, ask for references, we make sure the company is in good standing. Because we do all these thorough checks? Because in the end we don't want a long standing container in some other country where then Seelink is responsible. So we have a thorough vetting process. So it's not like you know, somebody didn't just come to me and say, hey, you know what, I want to move one box of scrap and please help me. It doesn't work like that anymore Because you know there has been so many people who have not done the right thing while moving metal scrap. You know they say that it is metal scrap, but they load something else and it happens. It's just the way the industry is right. So, first and foremost, when we onboard a customer, there is a whole onboarding process. We go ahead, we make sure that the customer is vetted completely. For some reasons, if there is no scores, we ask them for their financials, three years financials and sometimes we even ask for a deposit, depending on the situation of the customer. That's how our onboarding process works.

Once the onboarding process is done, then they can go on the website or the app and they can see what port pairs they are moving this freight on. Now, for example, if they are buying from Houston and they want to move from Houston to Moondra, they will plug in on my website Houston to Moondra 120 footer metal scrap and they will see all the steamship lines that I have rates on. It could be MSC, maersk, capagloid, you know all of these top three, four lines where I can say that, ok, this is what your price will. If you want to ship with Maersk, your price is A. If you want to ship with MSC, your price is B. It will give them the transit time.

Some of the shippers are very, very, very, very concerned about the transit time. Shippers are very, very, very, very concerned about the transit time. It depends on what they're shipping. If they're shipping ferris and it is, like you know, maybe five boxes they might not be very concerned. But if they're shipping non-ferris, they might be like okay, zohra, I need a 45 day transit. So then I'm telling them okay, choose Maersk or MSC, because their transit is somewhere between 45 to 46 days, you so so let's say so.

Dave: Let's say I pick mursk mursk.

Zohra: Yes, so then you go on my app and then you hit book. Once you hit book, I get a notification saying abcd has made a booking request from houston to mundra for next week's cutoff for 120 footer. I come inside, I come into play, my team goes ahead, makes the booking on Maersk and turns it around and about. I want to say we want to try to keep it under two hours, so we go ahead and we send a booking confirmation that has all the information of this load.

So, the customer exactly knows that, okay, this load needs to get picked up, the empty container needs to get picked up at Bayport Terminal. Okay, once the trucker picks it up at Bayport Terminal, they go to their facility, they get it loaded If the customer is doing their own trucking. If the customer says, or I don't have a trucker in Houston, do my trucking, then I'll offer him, I'll say give me your zip code in Houston, I'll give you a dredge rate and then I can go pick up, schedule your trucking. So I will schedule the trucking, get the container loaded, bring it back to the port, return it loaded at the port and then from there it will sit on the port on the day of the cutoff and then from there we will go ahead and make sure that it gets loaded on the ship. There. We will go ahead and make sure that it gets loaded on the ship.

Now, that is where the whole process is working in terms of getting this container into the port. Now, once it's into the port, then it is the customer's responsibility to go ahead and send me shipping instructions. Who is he shipping to? Who is his shipper? Who is his consignee? What is the container number? What is the weight. What is the weight? What is the seal?

Dave: is there a name for that set of documents?

Zohra: yes, it's called shipping instructions the shipping instructions. So those shipping instructions are given to, given by the, the customer, to us. We go ahead and we put it.

Dave: I'm sorry, I don't mean to interrupt. I just really want to make sure understand yeah so those instructions? Is that done electronically through your website?

Zohra: We can do it electronically. There are lots of customers who send us emails also, so, however, they are comfortable.

Dave: Okay.

Zohra: If they feel comfortable, there is a way on our website to go ahead and save their shipper and consignees as well, so they can just click, click and say that, okay, this is my shipper, this is my consignee, and then they just change the container name or the container number and weight and seal number.

Dave: Okay, so I've given you the shipping instructions.

Zohra: Yes, Now you've given me the shipping instructions, I'm going to go back and send you. I'm going to put everything on the BL and I'm going to send you a draft bl. I'm going to say, hey, this is what your draft, a draft bl will look. So you will go ahead and get a draft bl from ceiling and you will check everything your shipper, your consign what is bl?

a bill of lading okay yes, the bill of lading, but this is a draft copy, okay, so we, so we can still make changes. If you say, oh, you know what, I don't want to write metal scrap, I want to write heavy metal scrap. So can you edit that for me? Or if your consignee says you know what, I want to add a notify party, so we're going to be like, ok, we'll add a notify party. So we send you a draft copy and stuff like that and we tell you that, okay, please look at it thoroughly, this is what your draft, this is what your bl is going to look like.

Okay, so once they check everybody is in order, we go ahead, we take and we file those shipping instructions with the us customs. We tell them that, hey, this person is shipping this cargo from here to here. These are the details. And then we file the entry into the US Customs. They come back with an AES number for us where it is that OK, you know what. The customs has approved your shipment. This is your AES filing number and now you're good to go.

Dave: And what does AES stand for?

Zohra: It's an automated uh-oh export system export uh automated export documentation okay, yeah yeah. So it's like uh, it's like an ams that you file from the import side, and where does the and then the uh container number? Is that going to be?

Dave: in shipping instructions yeah, so it'll still end up on the bill of lading.

Zohra: Yes, yes, everything. All this information, shipper consignee, container number, weight, seal, what commodity you have shipped. Everything will appear on the bill of lading, All of this instructions, so everybody has clarity on what has shipped, who has shipped and where is it going.

Dave: Okay.

Zohra: Also, and if Seelaling has done the trucking for this customer, then I'm not even asking him for the container number because the trucker will give me. He's my trucker, so he's going to be like hey, I pulled this container number. Once I load it, I'll give you the weight and seals. So once we send out the draft BL, it is approved, we go ahead and we send all the information to the Steam ship line, whichever vendor you chose, and we file everything.

Dave: We ask the Now where does it, I'm sorry. When does it ship? From being a draft to being a final After the customs process?

Zohra: After sailing, after sailing. So once the customs is processed, we have all our information. Once the shipment is sailed, then the steamship line will be like okay, your shipment has sailed, Everything looks good. This is your original bill of lading.

Dave: And sailed is a reference to 200 years ago, right With ship that sails Does it? Just mean it's departed the port. It has departed the port, yes.

Zohra: So once it is sailed and then after, I think most of the time, they give us a draft in two days of sailing.

The original bill will come out in two days of sailing and then from there, once we have the original bill, the customer does have a choice that if he wants a complete set of original bill of ladings, so that means that's a paper copy, or else he wants a telex, which would be an electronic copy. And then he can say that oh, you know what, I don't mind, my consignee doesn't mind a telex release. So if you can go ahead and update this to a telex release, and is the telex?

Dave: is it truly going through the old telex system or is it just being electronic?

Zohra: It's through the old telex system or does it just mean electronic? It's just meaning electronic. There's no funny how the language just stays around. Right, yeah, okay, all right, so go ahead. Yeah, so once. So then they have a choice to either have some of the guys if they have an lc, they would like the obl so that way they have control on the cargo, they have control on the money, and then they release the bills once they get paid and if they are confident, if they are a regular shipper and a regular consignee, they might go in for a telex release which is just electronic Gotcha.

Dave: So then it leaves Houston, and I'm guessing does it go through the Panama Canal.

Zohra: Depends on the routing. Some go through the Panama Canal, some do not, so it just depends on what route the steamship line is taking.

Dave: I'm just curious. So if it's going from Houston to Moondra, I mean it's got to get around South America.

Zohra: Yeah, yeah. So it would go through the canal and if not, because of all the issues that we're going through now, a lot of steamship lines have been routing it to the Cape of Good Hope.

Dave: So they've been going that direction, that direction Around Africa.

Zohra: Okay, yes, yes, so that makes it a little bit transit longer, but just the safety was more important at that point.

Dave: So a lot of routes.

Zohra: At least it's a predictable amount of time even though it's longer, and so if it goes, around Houston to Mondra by the Cape under Cape of Good Hope.

Dave: How many days does that typically I?

Zohra: think it added. I think it added 15 days to the transit.

Dave: So what would that? Be total transit so about 60 days about 60 days.

Zohra: Yeah, so I think first it was 45 days and then it became 60 days when they were doing, uh, the cape of good hope. Um, I and you know what, sometimes it even is a little bit shorter. I did see a couple of vessels that were doing 55 days also. So I think it just depends on you know how, how how delayed the vessel is, or if there is any any issues on any transshipment ports and stuff like that. So sometimes it's hard to say if it's going to be like anywhere between 40 to 60 days okay, so now it's on the water, is there just no activity at this point?

Dave: is there any?

Zohra: hopefully you don't want any activity, you just want everything to be good. But there are things that happen, like you heard about the Baltimore issue that happened early last April. I want to say it's going to be a year that everything was good to go. The vessel was ready to sail and it hit the bridge right and that was disastrous and that lasted for six months. Containers, fellers, fell in the water and you know some got damaged and then you know those things. Yeah, we don't want those things to happen, but of course it is. It is an inevitable. Like you know, hazards happen sometimes, so you would want that.

Dave: Yeah, I'm sorry. Yeah, I'm sorry. I know you know this really well and so I'm sorry I have to keep stopping you for such basic questions.

Zohra: No, no, not at all Do the containers these days.

Dave: Do they have any electronic tracking on the containers?

Zohra: Some do and some don't. Okay, so the ones that do like.

Dave: Is it RF tracking or a different type of electronic tracking?

Zohra: I don't believe they have an RF tracking. Most of our containers do not have a tracker because the lines will only give us 10 plus old, 10 plus year containers to load scrap, I see. So we don't get the nice fancy containers. So, most of us are not trackable. Okay, so my scrap load, load.

Dave: It's not being tracked but it's on the boat it's on the boat, and so it's sailing, and then now it shows up in mundra. And what happens now?

Zohra: so once it shows up in mundra, the steamship line that you have picked is going to send an arrival notice, five to seven days, to your consignee in India or your forwarder in India, whoever you have put on the BL instructions, so you will get an arrival notice.

Dave: Now will you be? Will you be the forwarder in India?

Zohra: No, no, we do have our own office in India, but most of metal scrap moves on a master bill, so there is really no requirement of a forwarder per se needed when your shipment reaches destination.

Dave: They just need a broker and they can clear their shipment and pick it up at the port. Okay, so the ship arrives, and then that starts the arrival notice. Time clock.

Zohra: Yeah.

Dave: From the time it's actually lands. No, so the arrival notice you will get from the time it's actually lands?

Zohra: no, so the arrival notice you will get five to seven days before arrival. So it gives you it gives you ample of time to say that okay, you know what my shipment is coming in. Let me get my docks ready and file it with the Indian customs. Because you can file, I want to say, four days before your shipment is arriving.

Dave: So you're not scrambling, and how do we know that the ship is five to seven days away?

Zohra: Is there tracking of the ship? Yes, yes, you can track it.

Dave: Does the captain get on the radio? Call Zohra. Yeah, hey, I'm about five days away.

Zohra: Yeah, no, so the shipment can be tracked on the steam ship lines website also, and plus on ceilings, on ceilings website as well.

so you, will see, definitely that your shipment is arriving in three days or five days. If there is a delay, it will blink red and say that hey, there is a delay. And then when you get your arrival notice from the steam ship line, also it will have a date of arrival. It will be like, okay, you know this shipment is arriving on so and so date, so you are prepared that. Okay, you know what. My shipment's coming in five days. Let me get all my documents ready.

Dave: Let me have it send it to my broker, you can start and you can start the process with the india customs four days before. I want to go four to five days before so that way, when the ship lands, the you can you already have your entry done and you already know that.

Zohra: You know there are no holds of customs and you've paid your freight and you can go along and say that, okay, you know what, I just need the ship to berth. Once they unload my containers, then you know I can just send my trucker to go pick it up. Everything will show green released. You know, unless they have not paid ceiling, then I'll hold the cargo.

Dave: Yeah, okay, and help me understand, because I'm an accountant by training. Help me understand the payment of the shipping. At what point do I pay for the shipping?

Zohra: Okay, so we have. I want to say 90% of our customers are cash customers.

So, when they need their original bill of lading after sailing. We generate an invoice after two days of sailing most of the time, because the line will give us a BL and an invoice in a couple of days. We go ahead, we generate that, we give it to the customer and when he wants to release his shipment he makes a payment to us. So whether it is an OBL or a DELEX, it doesn't matter. When he will tell me okay, zohra, he can go on my website and say release bill. He can go ahead and it will show him that you owe so-and-so amount for this shipment in order to get your release. He can go make a payment and then within 24 hours he will get a release from us.

Dave: Okay, Because without that release will the Indian customs not unload.

Zohra: No, the Indian customs doesn't really have any control on that. The Indian customs is only getting involved, saying, okay, I have a vessel that has 200 containers coming into India. I need documents to just make sure that it is what they are claiming it is. So they don't have anything to do with our BL release. They only work with customs release.

So if I said that I have moved metal scrap and if there is battery in that box, that's a flag for the US customs and I mean for the Indian customs and they will be like I'm going to hold this box. So at that point that box is on a customs hold. Customs will not worry about a BL hold. There are two types of hold. One is a BL hold where either I or the steamship line is holding it for payment, holding it for payment, and then the customs hold is because there is an exam or there is some kind of uh inspection they want to do on the container or if they find some misdeclarations and stuff like that okay yeah, okay, yeah and then, so it shows up, it goes through customs.

Dave: Uh, the freight forwarder there puts it on a truck, yeah, and then the truck goes to the warehouse or wherever they need to originally drop.

Zohra: They go ahead, they unload the goods off the container. They make sure everything is weight and the weight is matching to what they had claimed it was. Sometimes the weight has shifted or sometimes they feel like, okay, the weight is less, then internally they will file a claim. It doesn't happen a lot, but some things sometimes do happen. And then, once the shipment has been unloaded, they have to make sure it is their responsibility to return the empty container back to the depot.

So, once this empty container is returned back in India, that's when my shipment is closed here.

Dave: That okay, you know what.

Zohra: My empty container has been returned. This has been picked up. Everything is good, payment is good. We are good to close this file.

Okay so one file can be open anywhere from 45 days to 60 days, okay, and then if you have issues with that shipment, then it can go longer.

If the consignee refuses to pick up the shipment, the consignee abandons, you know, the shipment and says, oh, I don't, I don't have money to pay for it, I can't pick it up. That's when we get into different problems. You know that. Okay, then we need to figure out what we want to do and we all have to keep in mind that every country, every destination country, gives you a few days of free days. So when my shipment arrives in India with my contracts I have 14 free days. So for 14 days I'm not going to get billed for that container sitting at the port. But on that 15th day the clock will start and then, you know, all those charges for demurrage will start occurring for port charges, and then that becomes an expensive, you know, charge that will be billed back to the shipper here because he will have to take accountability of why his consignee didn't pick up the shipment or whatever happened.

Dave: You know, and this is part of why you do your financial due diligence on the customers, because you need to make sure that they're a solid business. Solid business, the customer is going to pick it up. Yeah.

Zohra: And sometimes we do the due diligence on the shipper part and you know we don't really know what the consignees are in different countries.

So now we've started even collaborating with the US customs and you know we run the consignees also through our AES system and if there is like a faulty consignee, then that gets flagged in our system.

This is something very new that we have started and we are proud to say that now we are going to run them also to make sure that you know what.

There is utmost ease in this process, you know, not to say that when I run the check he's a good consignee and then in the 30 days or the 60 days of the transit something went wrong. Right, I'm not saying that's not going to happen, but at least at the time of the shipment we know everything is a green check, you know. So that's one extra step that we have started taking now, because of so much long standing in different countries are happening due to consignee abandonments. You know, people not paying the banks, lc issues, frauds, people have said that, oh, they are going to do it and then they don't do it. So because of that we are trying to do this extra check where at least the shipper is also at ease. We are also at ease at the time of shipment, and we have this great tool that the US customer is offering us, and so we've started using that as well.

Dave: Okay, yeah. So let's instead imagine that this first container is by a friend of mine. Let's say he tells me oh Dave, these freight forwarders are just so expensive, I'm just going to do this all myself. Sure, I would say to them good luck, yes. I would say good luck, because this sounds like an impossible thing to try to do on your own Virtually impossible.

Zohra: So a lot, a lot of customers or BCOs that I can say is like the direct shippers, like, of course, the Walmarts and the targets they have, they have a shipping department that does this, of course. But if you have, like, a small trader who's sitting out of Houston or probably New York, it is not worth his headache to do this, because there are lots of small nitty gritty things that are happening along the way, like, for example, I gave you this booking, okay, from Houston to Moondra. Now you have arranged for a trucker, the trucker is trying to pull an empty and my booking is not on file.

Okay you are sitting and making a phone call to that line saying, oh, my booking is not on file. I have a trucker. Your trucker is charging you $65 because he's in line for an hour, gets to the terminal and the booking is not on file. I have a trucker. Your trucker is charging you $65 because he's in line for an hour, gets to the terminal and the booking is not on file. They're not going to let him wait there. He will have to go back in the line. So doing business with a forwarder is bringing you ease of these kind of kinks that are going to cost you financially. It is going to cost you a $65 dry run fee or a $65 detention fee for that guy to turn around and stand back in the line With us.

We go ahead and we make sure that their booking is on file. Most of the time the depots are filled with containers. And again, I'm not saying that things don't happen. Of course things happen. But if you are a guy who's moving five to seven boxes a week, you don't have the time to sit and call for every booking and say, hey, is my booking on file? Is my trucker standing there? Do we have chassis, you know? Do the container depots have containers mounted on chassis? Do I have to take my own chassis? What's going on, at least with with us? We are telling them okay, your pickup is here, your booking is on file, go ahead, send the trucker again. Sometimes, when the trucker is there, some things happen. Then we can go ahead and fix it. I just feel like, because we are, our relationships are so much more deeper with the lines, you know what we can try to solve problem faster than someone trying to do this first time on their own or even if they've been in the business.

Because these are painstaking things you know, like getting appointments to return. Like APM terminal in New York, it is a nightmare right now. It is a nightmare to get an appointment to return your box. So think about it. It. You pulled a box, you loaded it. Now you need to return it and your trucker is trying to get an appointment right and everything is showing full. Your cutoff is tomorrow. So you know those kind of hassles come in, which all come with the financial costs, and I'm not saying that you know what. Every time we will be coming to the rescue, but I feel like we have. So we have a good leverage to come to solve your problems, to make it easy to ship for you guys. You know our job is to make it easy to ship and you can have, you can have, you can be stress-free and you can concentrate on the growth of your business instead of worrying about how one container is going to move.

You know yeah now, that's where we come in well, you've sold me.

Dave: When I, if I ever get into the scrap metal business and ship to mundra, you'll be the first call thank you now I understand this now. This may be shocking, but I understand that there are other freight forwarders besides Sealink.

Oh yes, oh yes, but help me understand, though I imagine that on the surface it's funny. Every business like when you're an outsider, it looks like a commodity, right, you know, it just looks like they're all the same. So if you don't know anything about, I don't know whatever like, let's say, farming equipment. To me, all farming equipment looks the same. I'm sure there's differences between them. Some do better at some things than others. Some are more expensive, some are cheaper, and so I'm sure that it's like that in the freight forwarding world. So give me an example that it's like that in the freight forwarding world. So give me an example. I'm sure that from time to time you get a call from somebody and says Zohra, my current freight forwarder dropped the ball once again and I'm fed up with them. I want to start using you all. Let's think back to maybe an example of that. And of course you don't mention the customer name or the prior freight forwarder. But what's a typical fact pattern that makes them shift from somebody else to you all?

Zohra: so in in all these years of of me being at ceiling, the the majority people turn back to us is because of service levels. If there is a problem, I'm not going to run away. I'm going to sit with my customer, explain to them that this is an issue and we need to work together. It is going to cost. Let's come to that understanding that it is going to cost. Am I going to do my very best to make the cost minimal? Yes, yes, of course, though I know that the customer is at fault or the trucker is at fault, it doesn't matter. But we at Sealing believe that we are not going to haggle our customers when they are in problems to make a quick buck. We're not going to do that. We are never going to do that. So we make sure that if a customer is stranded like I'll give you an example right now, I have a situation I have a booking from A-Line Okay, and we got a container loaded. Okay, we got a container loaded.

When the container got returned at the port, we got an email from the A-Line saying hello, this container doesn't belong to us. So then we started digging. We started digging, we found out that my customer had used another forwarder's booking for a line that ceiling doesn't work with. Okay. So there are seven, eight vendors we work with and two, three vendors we don't work with. Okay. So now I have a situation where I have a container loaded sitting in the port which my line is saying Zohra, I can't move it, it's not my box, I can't on hire this box because they won't let me. Though it is a partner box, they won't let me. You need to go to this line and figure out what you want to do. Now, zohra or ceiling doesn't work with this line. And my customer is frustrated because his forwarder, who gave him this booking, is saying oh, I can't do anything. You pulled a box now and my booking I gave it to somebody else so that booking is full.

Now okay so now he has no space to accommodate this box here, okay, okay. So I'm not going to tell my customer. Oh, you know what? You got a booking from another forwarder on a line that ceiling doesn't work with. You figure out your stuff, because this container here is already accumulating demurrage, sitting sitting on the boat, which is $250 a day.

So now yesterday what I did is I called the line that I don't work with and I gave them the whole rundown. I gave them the container number. I told them see, this is what is going on. I understand we don't work with you guys, but can you go ahead and help us? So yesterday they said okay, you know what, we can help you all. We are going to try to see we can reach out to the other forwarder and increase his booking and make sure that this can get returned at that point.

Would that that other forwarder should have taken that step to help his customer, who is also my customer, but because of the service failure, or because maybe he doesn't, he was not able to understand how to problem solve this or troubleshoot this, or probably he just didn't have the resources to do it? I don't know. But if my customer came to me and is stranded. I am going to offer that help. I'm not going to be looking here to make a quick buck and say, hey, I don't work with this guy. Pay these 200 demurrage or go ahead and dray out the container. Pay $900 to dray out the container and then go back reloaded in my Steam Ship Lines box.

Dave: I see so what happened in that scenario?

Zohra: So now today I mean this is very live. This just happened like two days ago. So now today, hopefully you know, the line that I'm not working with has talked to that forwarder and hopefully we have increased his original booking and now we can attach this container to his booking. Go ahead and tell that line. Okay, please move this. Tell my customer. Go ahead, I have increased your booking. Please go to your forwarder, submit your shipping instructions and make sure your container gets on water on the next vessel. You will have some demerit charges which you will have to settle directly with the port, so they had to find space on the line that owned the container.

Yes.

Dave: Okay.

Zohra: Yeah, the line that owned the container. So right now, because of so much of vessel shiftings, right, every vendor in the market whether it is Maersk, hapag, lloyd, zim, msc, all these lines are relocating services, they're readjusting services. Someone is coming into a new alliance, someone has come out of an alliance. There are lots of new vessels come into the market, larger ships come into the market, so everyone is adjusting a lot of vessels. So that is why it is very space, a space constraint. Right now. There are blank sailings, you know, to make sure that these new services are well adjusted for april. So, uh, so that is why there is this space issue.

If there was no space issue, right, there wouldn't be a problem I see the other forwarder could pick up the phone and get it right right and the containers are owned by the shipping lines yes, the container.

Dave: That's why, when I see a railroad when I'm sitting at a rail stop yeah comes by.

Zohra: I see the maersk yeah, the big blue, because that's one of their containers yes, a musk or any, or a costco hat bag, they they all they all own their containers. Yes, correct, wow.

Dave: So how, uh, it sounds like you have to work 168 hours a week, I mean, if you're in the service business yeah, tell me if I'm wrong, but I think moondraw is on a different time zone.

Zohra: Yes, yes, yeah it's almost end of working day for them right now. Actually, before this, I was on my india office call. We have our own office in india as well, so we have a call with them once a week to just see what's going on, how's business, what can we do to support from here. So they were already, like you know, getting ready to go home, because it's almost eight o'clock in the night over there so is it safe to assume that you, that eight to five is not the sole hours that you work?

there is no eight to five in this industry. No, there isn't.

Dave: No, I mean my business you know, is to somewhat the same way. I mean, what I tell my clients is all you need to know about the ic disc is my mobile number. Yeah, that's it. That's all you need to know. Just call me, I'll take care of it.

Zohra: Yeah, that's how we are, that's how we are. Customers call us, whatsapp us, email us and we try to service. We try to service. We are in the service industry. We believe our service is, is on top and if, and and I'm not saying c-link is the cheapest, I'm not saying that even at but we thrive on it because we know that. You know our customers, and hats off to our customers. Their support has got us here and they are willing to pay us an extra $25 for what we offer. We offer the app, we offer the service. All my sales reps are very in touch with the customers. They just don't sell and then you never see them. It's not. That doesn't work here. You know we do trade shows. We see our customers there make it a point at least two times a year. We are seeing our customers. We have FaceTime with them. So it's not like you're going to like have a salesperson.

Dave: They sell you a rate and then they are gone. It's not going to be like that.

Zohra: Your point of contact is your salesperson. Of course we don't want our salespeople to get in operations which they don't. Their work is to sell. But customer is not going to feel like isolated saying that, oh you know what. So, and so was my salesperson at ceiling. They sold me a rate and now have all these problems and I don't know who to go to.

You know that problem will never arise. Like you say that problem will never arise like you say that, uh, your cell phone number is what they need for us. It's just just email email me or email one of my reps, and you will get a response, like I can promise that well, you all have a booth at the rima san diego show.

Dave: I'll be sure to stop by, will you be wow? Yes, I'm gonna be there I'll be sure to stop by. Oh, that'll be awesome, yeah, we do rima every year? Yeah, we've been doing it for the past several years now okay, yes, so uh, uh, wow, I can't believe how the time has flown.

Zohra: Yeah, it's um, it wasn't that bad, like I thought it would, I know.

Dave: So, so a couple, so last couple questions what? What do you enjoy the most about your job, like what's the most satisfying part of your role within C-Link.

Zohra: Helping my customers.

Dave: Okay, I had a feeling that was it?

Zohra: I really, really find it satisfying when I see an email saying you know, thanks, Zohra, you saved my life, you know, or you know like.

Dave: Chad, he's our sales director.

Zohra: You know, thanks, zohra, you saved my life, you know, or you know, like Chad, he's our sales director. You know he'll send out an email saying, okay, you're a miracle worker, not to me, but to my teams as well, right, because sometimes it's, it's very frustrating to get small things done right, and when that small thing gets done, then everything flows. So I feel like once you get them that ease, that, okay, now their cargo is going to flow. I feel, I feel satisfied, my teams feel satisfied, right. So I think, just helping out and making sure we are there, that's, you know, that's, I think, is very important, because if you're missing in this chain, your customer is just going to be stranded, you know.

Dave: Yeah, no, that makes makes sense. So last two questions. So one's kind of serious and the last one's fun. So the serious one is um, if you could go back 20 years, and what year did you say you came to the uS?

Zohra: I came in 2000.

Dave: Okay, so if you could go, if you had a time machine and you could go back and you could give advice to yourself back in the year 2000, what advice or pep talk or insight, would you tell yourself?

Zohra: you tell yourself that I should have started this earlier. I did.

Dave: I don't know why I waited till 2006, okay, so yeah that you know that's the answer that every client gives yeah, that they, they didn't start the business, or they didn't do this because they were afraid or there was risk or whatever. And the advice they always, almost always, give is don't be afraid, take the risk, do it.

Zohra: Yes, yes, I agree. So I'll give you a little background. So before I joined Shaizad, I was working at a wholesale jewelry place. We had, you know, huge wholesale and we had a lot of mexican um imported jewelry. You know, we used to sell a lot like.

It was a very different, different field altogether. We used to supply to all the big stores and stuff like that. And then when shazad started this, you know, he told me he's like I don't know if I can, like we'll be able to afford a salary, or you know how it's going to be, because I'm just starting and and and we don't know. You know how it's going to work because right now I don't have overhead expenses. So think about it, right. So, like I said, he's a visionary, right. And he just told me one thing he's like I promise you that you will not regret, right.

And at that point I feel he, he was all. He already taken the risk, he had already taken the risk, he had left his job at at another forwarder and taken the risk to start this. And when he told me that you know you won't regret, I just I just took the leap of faith and said you know what? This is it. If I think I would have like thought a little bit more and said, oh, I won't. I don't know how I'm going to replace my income or what's going to happen. I don't know if this is going to work. I feel like maybe we wouldn't be here. So I think sometimes you just take that leap and then leave it up to the big man up and I think it all works out with your hard work. But you have to put in the work, I feel.

Dave: Sure, that is great. Well, my last question, a fun one. So in Houston we have a thriving Indian community and I have a lot of great Indian restaurants to choose from. So two questions. One if you want really good Indian food in San Antonio, do you have to go to your kitchen?

Zohra: Or are there some good Indian restaurants in San Antonio? Actually, now there are a couple of good Indian restaurants in San. Antonio, I can say that you know.

Dave: Because I'm guessing the Indian population in San Antonio is a lot smaller than Indian.

Zohra: Yes, it is a lot smaller, but I can now say if you would ask me this five years ago, I would be like nothing my kitchen but, now I can say actually we just went to one day before yesterday and it was pretty nice.

Dave: So yes, yeah, I think I am heading to Houston, uh, next week.

Zohra: so I'm going to make it a point to go to one of the nice restaurants Indian restaurants to know, get some food, that's great, which I think.

Dave: I think the yellow curry is my favorite. What's your favorite curry?

Zohra: I think I'm not very fond of curries, but I think I'm not a big. I'm not a big curry person, so, but I think my favorite Indian food would be biryani.

Dave: Okay.

Zohra: Yeah, the rice with the meat. Yeah, yeah, I think that that is awesome.

Dave: Well, Zohra, thank you again for coming on the show sharing your story, the SeaLink story and uh and sharing your passion. It really comes through that you and uh and Shaizad both have a passion for serving your customers, and that's really. It's always fun to hear that somebody's just really enjoying what they do.

Zohra: Yes, yes, thank you. Thank you for having me and thank you for letting me talk about sealing, and I hope that whoever listens to this, you know, comes to us and uses us. Thank you.

Dave: That sounds great. You have a great day.

Zohra: You too, you too.

Special Guest: Zohra Shroff.

Finding what you love doing beats chasing money every time.

Today on the IC-DISC Show, we're talking with John Sacco, owner of Sierra International Machinery, a trailblazer in the recycling industry.

He's been a lifelong industry advocate. Serving as past ISRI chairman and creating the "Repurposed" docuseries on Prime Video, a series showcasing how 75% of new American steel comes from recycled materials. Activities that help companies recruit talent by highlighting the environmental benefits of an industry often misunderstood by policymakers and the public.

It's a great conversation revealing how critical recycling is for disaster recovery, processing debris, and supplying rebuilding materials.

Listen in to hear why John believes finding your passion, as he did at age 59, brings more satisfaction than any bank account.

SHOW HIGHLIGHTS

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About IC-DISC Alliance

About Sierra International Machinery

(AI transcript provided as supporting material and may contain errors)

Dave: Good morning John. How are you today?

John: Doing good. Doing good, that's awesome, not bad.

Dave: How are you today Doing good?

John: Doing good. That's awesome, not bad. How are?

Dave: you doing Dave. That's good, I'm doing great Now are you a? Native of California.

John: Yeah, I was born and raised in Bakersfield, California.

Dave: Oh, wow, Okay. So did you grow up around the scrap business?

John: Well, actually I grew up more in the agri-packaging side of Sierra. We used to have a company called Sierra Bag and we used to supply agri-packaging products. We were at one point the leader in selling bagging and ties to the cotton industry. Years ago in the 60s and 70s, there used to be over 2.2 million bales a year of cotton grown in the San Joaquin Valley and we used to sell the bagging and use bags and make potato bags and onion bags. We had the recycled materials facility but I really wasn't involved with that. I was more involved during the summers as a kid working in the bag plant.

Dave: Okay, so how did the transformation then go on your end to where you get more involved in the recycling space.

John: Well, it started when my dad had found a machine out of Europe, out of Italy, and he thought that the market in America could use these machines. Which he was right. And at 19, by late 1985, his partner, 42 years, a buddy of his, who he met during World War II, was, he was ready to retire, he had some health issues and he was just ready to call it quits. And so, in early 1986, what he did was sold the Jagger packaging, bought his partner out and had me start marketing the machines. So, not knowing a whole lot about Ferris and non-Ferris, quite frankly, I was forced to learn it kind of on the fly and getting involved with selling the equipment.

Dave: Okay, and did you get involved with the company right after you graduated from USC?

John: I did. For two years I was on the agri-packaging side, traveling around to potato sheds, onion sheds, selling the products that we had, and then in 85, started going to the cotton gins. Also, we held a at the time a patent on the cotton module which when they harvested cotton in the field they'd make these big well, for lack of a better word a big log of cotton before they sent it into the cotton gin and we had a tarp for it into the cotton gin and we had a tarp for it. So when it if it rained because the harvesting of cotton was late September, early October and so if it rained it could ruin the grade so we had this cotton module cover and we had a patent. So we sold a lot of those throughout America to the cotton industry.

Dave: Okay, and then it was shortly after that that you got more involved in the recycling machinery.

John: That's correct. Yeah, when my dad sold all the agri-packaging in 86, all of that went away. So that was when he wanted me to market the machines, because I had taken marketing at USC. So I just basically said, hey, market these machines.

Dave: That's what I've been doing ever since and there's a little more to it than that because at some point you all started developing your own machinery. Is that correct, that's?

John: correct. We you know our clientele base also was in need of two-ram balers for the processing of non-ferrous materials, you know, aluminum, copper, and also in the fiber industry for paper. And so we decided to start building two-ram balers and hired an engineer who was at the time unemployed and got involved and built a plant down in southern Georgia and expanded today. So we finished, we opened up in October of 2008 and building two ram balers and conveyors for the metal side and also the waste sector. So that's grown nicely over the years.

Dave: That is great. And then you guys have expanded your product offering. Then beyond that to other aspects, right?

John: That's correct. Yeah, so you know, for recycled materials facilities we offer a wide variety of products from 2-ram balers, conveyors, shears, shear balers, portable balers, grapples and material handlers, so it's a wide variety of equipment that can go into a lot of different aspects of the waste sector and the recycled material sector.

Dave: Okay, and then at some point, you became involved in the Trade Association. Was it ISRI then, or was that?

John: Yeah, it was ISRI back. It was in the late 1990s that I got involved and you know I got involved, I enjoyed and it was fun for me on a personal level and then in two I was elected to be secretary-treasurer of at the time it was ISRI. It's now REMA, the Recycled Materials Association. So I did that stint, you know, as secretary-treasurer and you move up to chair, and I was chairman in 2011, 2012,. But have stayed involved with the Trade Association because I believe in having a strong voice for an industry in the states and in, you know, in the nation's capital. You know policymakers don't really know what we do and there's a lot of misconceptions about our industry. So staying involved is you know there's a lot of misconceptions about our industry. So staying involved is, you know, I've done it and that's kind of why I've also done a lot in regards to the docu-series on our industry and stuff like that.

Dave: Okay, I can't believe that it's been 12 years ago. 13 years ago I guess that you were the chair. I think that's when I first met you in San Diego, I think on the aircraft carrier at a social function.

John: Yeah, when we met on the aircraft carrier, that was 2010. Excuse me, that was 2000. Yes, it was 2010. And that was the final night party of ISRI at the time on the USS Midway, and at that party I was officially at that moment, the chairman of ISRI. So yeah, as long as it was, it does seem just like yesterday, david, and it was a great party. But yeah, it just seems like yesterday. Yeah, the sound of it is a long time ago.

Dave: Wow, yeah, the time does go by. Now I'm curious, as your product line expanded, I'm curious was that more of a case of you just saw an opportunity and that's kind of what drove it, or was it more your customers coming to you saying, hey, we really need help in this area. Would you guys develop something? Or is it a mix of the two?

John: Well, it's a little bit of everything. I have a great team here and the people at the time who was on the team, you know, said well, we should get involved with this type of equipment because we have a need for it. You know our customer base asked for it and you know I won't take the credit for it and you know it's I won't take the credit for it because in the end it's a team here at Sierra and you know I have a brother involved who's my partner now, his son, my nephew's involved and so over the years it's just it's about discussing what we can do, how we grow. How do we you know you got to grow your revenue. How do we grow it? And by adding different products into the mix. And then the manufacturer out of Italy, the Tabarelli family, they have a wide, they had the material handler. So we just started just a couple years ago starting to really, you know, push into that market and you know we'll gain our traction.

It takes a little time but it's a team effort here and it's just a lot of people have. You know my general sales manager has been with us since 1988. And you know he has a lot of great ideas as well. So, as a team, we've worked together to develop the products we needed to come into the market. And what's really unique is when you deal with our company. There's, like I say, a wide variety of equipment that you can handle or you can purchase from Sierra and that we service. So we have the ability to sell a lot of different machines, yet we have the ability to service each and every one of those machines with the same intensity. So it's been good.

Dave: No, that's excellent. With the same intensity, so it's been good. No, that's excellent. Do you? Is it that aspect of that ability to you know service, all that equipment? Is that one of the main reasons your clients choose you? What's the feedback you receive from your customers, as far as you know why they end up choosing you?

John: Well, there's a lot of reasons. We have built, you know, a really good reputation and we work on it every day to improve. In our service department we carry the parts and we have the technicians, but we also have a very high quality piece of equipment. Series repurposed season one, season two really tells the story of our industry and, as the former chairman of israel, now rima, I keep advocating for the industry with what I do with our social media and you know, when you have two seasons on prime video, people notice that. So there's a lot of things involved.

We have good people, we try to do the right thing at all times and that's our motto the Sierra way is the right way. It's not fancy. So I think there's a lot of things that we do that enhance our image and you know people like to do business with us because of all the above. You know, is it just one thing? You know, one customer may like the service, one customer may like our advocacy, which I've heard. A lot of people like our equipment per se, and there's just a lot of things that go into it. So I think it's multifaceted, dave, and it's just not one item.

We try to just try to build everything we do, improve our marketing, our brand, improve our service. You know that's our motto is to try to get better every day. We don't want to be the best, we just want to be better, because being better is a journey that every day, if you come in the office and you say how can we be better, you don't rest on what you did yesterday. So it's, you know, we got a good culture, we got great people. You know our technicians also are a great face to the company, our salespeople as well. So I think it's just a multitude of things.

Dave: Well, that's an insightful answer. I appreciate that. As far as that docuseries, I've always been curious what's the story behind that? Did you just wake up one day and say you know what I want to be on TV, or was it a little different than that?

John: Oh, it's a lot different than that. Interesting how it all came about. A gentleman I've worked with Darren Doan for over a decade on creating content and stuff we've done together. We had this idea back I don't know 22, early 22, to do a thing called the Sierra Summit. We were going to bring in Mike Rowe and the top 100 metal processors in America have this big event and the Ukraine war broke out and what happened with that is a lot of processed steel out of Europe was handled through in Ukraine and our supplier of the Shears, portable balers, had a supply chain issue plus a pricing increase. That was dramatic. And so we decided well, we better keep our powder dry and not spend this money for the summit. And so about a month later things you know, the steel market for europe started settling, and I don't know. I just had this idea of doing this docuseries on steel making being made from recycled steel and start changing the narrative, because I got tired of hearing the word junk, waste, trash.

And I think that was one of the biggest obstacles to our industry. And I don't know, I've been in front of the camera with my social media posts, so being in front of a camera didn't bother me. But telling the story of a steel mill using recycled steel as the raw materials coming from out facilities like our own here at Sierra was a fun thing. So I thought, well, you know, we could put our equipment in this, we can tell the story. We're going to advocate for the industry, we can get this out there. I never had any intention of getting it out to Prime Video. My whole intention was to tell a fun story in a cinematic way that people would like and find entertaining and educational. And it turned out to be just that. And so we did season two, where we actually what we learned from season one. So then we weren't focused on the output of rebar at cmc and the construction projects needing rebar, so we showed a lot of projects that had rebar. And where did the rebar come from? So you backtrack it all into the recycled materials and so, uh, it just kind of grew from that.

I don't mind being in front of a camera, you know, wanting to be in front of a camera or not minding it, or I think are two different things, but the fact is that I enjoy creating the content. It's fun for me to get into a steel mill. It's fun to tell the story, to talk to people and you, you know, when I released the series, there's so many people who've used it to show their families what they do. You know there's so many people who don't understand what our industry is about. And then you got schools and you know companies using it, even like SAB they were season one. They used it for recruiting and safety and telling their story and CMC is the same as well as telling their story of how their steel mill is really the foundation of infrastructure, because you have to start with rebar and any hospital and school and manufacturing plant.

You've got to start with rebar in any hospital and school and manufacturing plant and you know you got to start with rebar and rebar comes from recycled metal, so it's a good story and they've been able to educate people to draw, you know, to attract and retain talent. Our industry isn't the sexiest, so it's shed a light on our industry that our industry actually is doing more to reduce CO2 emissions than any other industry in the world today and it attracts people who want to do something good for the mother earth and have a good paying job at the same time.

Dave: That's awesome. Did that surprise you when, like CMC and some other companies, use that as like a recruiting and education of themselves?

John: No, that was part of my sales pitch to them.

Dave: Okay, okay.

John: I knew, for whatever reason, why I knew that our industry has we have an image problem this I know, and it was still there. And attracting and retaining talent is a struggle, and it's not just our industry. If you talk to any facility, any company in America today, they all have the same issues. You know, I've just finished filming at the Toyota Motor Plant in Troy, missouri, where they make cylinder heads and their number one issue is attracting talent in the mechanics. They can't find them. And steel mills same thing. Every industry in America is struggling to find talent, and so I know that if you don't tell your story, if you don't make your company look cool, who wants to come to work for you?

Dave: Yeah yeah, it seems like Mike Rowe is kind of on a similar mission from a little different perspective, really trying to encourage, you know, more people to come into the trades.

John: Well, mike Rowe, yes, and you know, look, mike Rowe is an incredibly successful human being and you know, he has to show. You know, dirty jobs and I think kind of that's what we are. We're dirty jobs but we're networked. You know, I don't say we're essential. Essential is a COVID word that the government used to pick winners and losers. You know, you go to the hospital, david. Do they take your essential science or do they take your vital science? Sure, they take your vital science, right. So our industry is vital for the health of the nation. You don't build a hospital with us, right? You know, if you build a hospital, expand a hospital, you got to start where, on the ground floor, you have to start with the foundation, and that starts with rebar that starts.

That comes from our industry. You want to build a school? Same thing. You want to build a highway. You know the steel used in the highway. You know, when you think this, 75% of all new steel in America is made from recycled steel Three quarters, that is a monstrous percentage and it's only growing. And you know another thing that is vital to national security is a vibrant steel industry. Okay, you don't build Navy ships with plastic. You don't build a military without steel, right? So you better have a very vibrant and strong steel industry, at the same time saying that America's steel industry is the cleanest steel industry in all the world.

Over 75% of our steel mills are EAS electric arc furnace steel mills that use recycled steel to make new steel. Well, why is that important One? We're producing the steel a country needs for our infrastructure, for our military, healthcare, education and our farming and food industry. We also do it in the cleanest way, because recycled steel at EAF reduces CO2 emissions in the 60 percentile. And now that there's more micro mills coming online, more straight line casting of products and steel mills, with the new mills coming online, which reduce the energy consumption and reheating and continuous casting, so you're actually starting to see the numbers improve versus the BOF furnaces that you see that are heavy in China and India and Russia and Europe, south America yes, there are new EAFs going to those parts of the world, but their main steel production comes from the integrated steel mill that uses coking coal and iron ore, which is far greater pollutant, gives us far greater CO2 emissions. So not only is our steel industry vibrant in the United States, we are the cleanest in all the world. So we really are leading the way and I think people.

That's kind of why I want to tell the story because people don't. You know we did man on the streets. You know you get me started on this, but you know people don't know steel's the most recycled item in America today. People don't even know what a steel mill is. They don't even know where new steel comes from. You drive a car. You don't have any idea. The majority of the metal in that car comes from recycled steel or recycled aluminum, for that matter. So people don't know this. So it's been kind of fun telling the story with Repurpose and we're getting ready to. We just finished filming everything we need for season three of repurpose.

It's going to be on aluminum recycled aluminum and our focus will be on driving the auto industry okay, because you know this, david, that you cannot build an aluminum motor block transmission housing or casings differential casings with virgin aluminum I did not know that.

Dave: And it has to be made from recycled aluminum.

John: So see this. People don't know this and why is that?

because of the alloys, the strength of the material. To take virgin aluminum and then make all, put in all the additives to make the motor block the strength, you, um, you can't do it. So they use recycled aluminum, and you know toyota is a big user. And also recycled aluminum, you know it goes into the light weighting of um automobiles, which gives you much greater miles per gallon and you know produces co2. So again, people don't know this and so I'm enjoying telling the story and getting it out there.

Dave: I can tell you have a real passion for the education and helping change or improve the image of the whole industry.

John: Well, I think that our policymakers, like in California, we have a real problem in the state of California the automobile shredder they want to deem it hazardous waste facilities and that's just not fair. It's not accurate to recycle for recycling in its own right, but it's hugely detrimental to the raw material supply chain for our industry here in america. That makes all these products that we need. You know we talk about when you take it in the life of an automobile, what do you do with it? And the end of life of an automobile. When you shred it, you gain the, the steel, the aluminum, the copper, stainless and plastics. And what do you do with that? You recycle it and that gets repurposed into new steel, new aluminum, new copper products, new stainless, and it's so. You know. It's just detrimental because our image, because I'll guarantee you, if you walk the halls in Sacramento and you told people, do you know the car you drive that has aluminum transmission housing, that has the aluminum motor block can't be made with virgin aluminum, they wouldn't know that.

And this is part of the education process and I think once people know more about what our industry is, they'll realize how vital we are and that's really been a lot of fun for me and you know season three, as we're getting ready to do it gonna use. You know our facility here in bakersville is. You know where we process aluminum? We bail it in the bailers we make. And it's a lot of fun to be able to say the bailers we sell, that process that bail aluminum, are made from steel that comes from recycled steel from ssab. That we did in season one. So it really shows the circularity of our industry and what real sustainability really is. You know it's a buzzword and people, quite frankly, just have no clue what it really means. So I'm trying to bring out the real identity of our industry and try to really change the narrative because it needs to be changed. Once we were heroes during world war ii by supplying the mills with all the metals they needed to fight tyranny, and now we're the bad guys.

Dave: Um, that's, we got to get back to being the good guys again I agree, could I mean I, you know just general building anything in California has become more challenging and regulatorily limited. Do you think somebody could even put in like a new shredder operation today, or would it just take? Them Wouldn't even be able to do it Because it's considered hazardous waste Is this considered hazardous waste?

John: Yeah well, it's just the process. Nobody, you know, it's just a really crazy process, but you know you reminded me of something. So we have these just absolutely horrific, devastating fires in LA right, and we saw the whole Pacific Palisades and Altadena, the Pasadena area just devastated. What industry is going to rebuild those neighborhoods?

Dave: Yeah, the steel industry.

John: Well, so when you clean up these neighborhoods and we have a new piece of equipment down there processing the metals and sending it down to a company at Long Beach to process, it's our industry that's going to rebuild these neighborhoods. We're cleaning it up because what's what is left after the fires? Metal products, and all these metal products are being processed and going to be repurposed and sent to mills, steel mills, aluminum copper foundries, and all this new material that they're making from that raw material is what's going to go into rebuilding these neighborhoods. And you can't rebuild a neighborhood without us because we're the raw material suppliers for all that stuff that goes into the housing from the rebar, from the foundation, steel stuff. Now you're going to see a lot more steel being used in the manual in the building of houses in this area because of the fire.

What about appliances? You don't build appliances with plastic. Easy-bake ovens aren't how you build refrigerators and ovens and toasters and coffee pots. And all the copper that's going to go into the electrification of these neighborhoods will have 36% recycled copper content into it. All the window panes that'll have aluminum windows and brass, you know, forurposing in it, getting into the consumers to make new products so you can rebuild, wow that's. I haven't thought about that for a second.

Dave: Yeah.

John: You know. And so the policymakers need to hear this. They need to understand that this is what we do. They need to understand this the most vital. Because, let's say, we don't exist in California.

Well, what would you do with all that material? Can't ship it to China. China doesn't take containers of steel anymore. They don't buy bulk loads of steel anymore from the West Coast of the United States. They don't. That's just a misnomer. People, oh, you're sitting in China. They don't, that's just a misnomer. People, oh, you're sitting in China. No, we're not.

And people think that, again, it's the ignorance Not calling people ignorant in a negative way. They just don't understand what we do. They don't understand where our materials are going, and I like to say CO2 emissions have no borders. So if Our materials are exported to an EAF steel mill somewhere maybe Malaysia, vietnam, korea, japan, if you will Well, our materials are also going into EAF. So what is that doing? It's reducing CO2 emissions. So our raw materials, be it used here in the US or be it used anywhere in the world, is actually helping to reduce the CO2 emissions in the world. Sure, actually helping to reduce the CO2 emissions in the world? Sure, you know, aluminum reduces CO2 emissions and energy consumption in the 90 percentile, copper's in the 80 percentile. You tell me an industry that's doing that today. You can't the recycled material industry. It's our raw materials that we process. So this is why this narrative, this is why these type of conversations, hopefully are heard by people who will now understand. Wait a minute, I've got this industry all wrong.

Dave: Yeah, yeah. No, that's your your passion for trying to educate as many people as possible. It really shows through and you can see it really. It really drives you, so I appreciate it. Well, I can't wait to see season three. I can't believe how the time has flown by. Just wrapping up, I have just three remaining questions.

John: Yes, sir.

Dave: One is in your role with Sierra. What gives you the most satisfaction and enjoyment?

John: Great question. Well, I think we have some great people here and I enjoy the people in the company I've seen in our, for instance. This is an example only and this is, you know, this could be had in every department, but we just have some really high quality people who really are fighting for the same cause. You know fighting, I call it fighting for the same right. And you know I get great satisfaction seeing these young kids who are growing. You know are technicians, for instance, who are growing, who've committed themselves to this culture and you see them growing and they're growing in their abilities and they're growing in their pay scales and you see their cooperative nature and how nature and how they have the can-do spirit. That gives me great pleasure. I enjoy doing this content as well. This gives me great pleasure making the REAP series. So those are my answers to that.

Dave: That's great. That's not surprising. So the second of the three is imagine if you had a time machine and you could go back and give some advice to the 25-year-old John. What advice might you give with the benefit of hindsight?

John: look, I didn't find what I really loved doing until I was about 59 years old. I'm 63, okay, so find what you love doing, that that beats money all day long. Yeah, and the money I just think, chasing money.

You know it's great. You know I mean sure it's. You know I've done well, I'm not gonna begrudge it. But I think the one who smiles and is happiest wins the game of life, not the one with the biggest bank account. I look at Warren Buffett a guy worth just oodles and oodles. I've never seen that dude smile. He is just a grumpy old man. That's my perception of him, my point. And maybe he is a gregarious guy in person, but God, his persona is just grumpy. And my point to you is money doesn't buy happiness. Sure, it makes misery more tolerable, as my dad used to say. But I would tell a 25-year-old me stop chasing money and find happiness through what you love doing.

Dave: A great answer. So the last question is is there anything that we did not discuss today that you wish we had?

John: Well, no, I you know, I think, david, you know your, your company, with what you do, with your IT desk and helping with consulting. You know that's important. You know there's so many facets of our industry that people can improve upon, and I guess what we didn't talk on are areas in which how can an individual who sees this and is in the recycled materials industry capitalize on stuff that they don't know exists and what you do? I mean, I get what you do and so how do people really, where do they go to learn more about this industry and how they can improve their business? You know there's a lot of things that can be done.

You got to be careful how you say this, because you know taxes are burdensome, especially when you live here in California. How can you have a legitimate business concern that can reduce your taxes legally? Because you know avoiding taxes is one thing, evading is illegal. You go to jail for evading taxes, and so you know it's hard because I'm not an accountant and I don't understand the whole time. But there's so much more, I think, for people to learn about our industry and I think, david, with what you're doing, with your setting up companies that are exporters, to understand the benefit of the laws that are out there for companies that export. People need to learn more about that, and I think that's you know. I wish I could have touched more on it. I don't know it like you do, but it is something that I think that's what I would say is to help people learn. There's other avenues to make your business grow and save some of your money, and when you save legally on taxes, you're saving money, so you can invest that in your company.

Dave: No, I appreciate you mentioning that. And you know, my most satisfying part of my role is helping our entrepreneurial clients, you know, increase their after-tax income. It's really just. It's such a privilege to be, you know, kind of in the stands watching these amazing entrepreneurs do their magic. And you know, we have scrap metal clients who have, you know, the last decade have, you know, increased their business 10X. And I'm not saying that's because of the IC disc, it probably has little to do with it, but it's just a great. It's just very enjoyable to see the best and the brightest entrepreneurs, just, you know, do their magic. So that's why I love, why I'll be at the REMA conference in May. I can't spend enough time with those people. It's a blast. Well, john, thank you again for your time and I look forward to seeing you in San Diego in a couple of months.

John: I presume, yes, sir, I'll be there. I'll be coming for my son's graduation at TCU, so I'll arrive. I'll miss some of the governance you know, as a former chair you're always involved with that but I'll be there for the show and I'll have my. My son is will be a graduate and I will have no more kids going to school.

Dave: That's awesome. Well, that's also a landmark event. Well, hey, john, thank you again for your time. I really appreciate it, Thank you.

Special Guest: John Sacco.

In this episode of the IC-DISC Show, I sit down with Brian Schwam to discuss how Interest Charge Domestic International Sales Corporations (IC-DISCs) can help businesses save on taxes. With over 35 years of experience, Brian shares how IC-DISC has evolved since 1972 and why it remains a valuable tool for U.S. exporters. He explains how businesses, particularly in the aerospace industry's Maintenance, Repair, and Overhaul (MRO) sector, can take advantage of this incentive to improve their financial position.

We walk through a hypothetical example to illustrate how an exporting business could benefit from IC-DISC. Brian explains how companies involved in manufacturing, repairing, or trading parts can qualify and why many eligible businesses overlook this opportunity. We also discuss the annual MRO conference in Atlanta, where industry professionals gather to share insights and best practices. This event highlights the ongoing impact of IC-DISC within the aerospace sector and beyond.

Despite the clear benefits, many businesses hesitate to implement IC-DISC due to a lack of awareness or expertise. Brian talks about how our firm partners with CPA firms to integrate IC-DISCs into existing tax processes, making it easier for businesses to take advantage of these savings. He also highlights the underutilization of IC-DISC and why more companies should consider it as part of their tax strategy.

We wrap up by discussing the upcoming MRO America's Conference in Atlanta, where exporting aviation maintenance companies can connect and learn more about IC-DISC applications. Whether you're new to IC-DISC or looking to refine your approach, this conversation provides useful insights for businesses considering this tax-saving opportunity.

SHOW HIGHLIGHTS

Contact Details

Show Notes

Be a Guest

About IC-DISC Alliance

About WTP Advisors

(AI transcript provided as supporting material and may contain errors)

Dave: Hey, brian, welcome to the podcast.

Brian: Thanks, dave, good to be here.

Dave: So where on planet Earth are you calling in from today? It's hard to tell by looking at your background.

Brian: Outer space. I am in the sunny South Florida.

Dave: Okay.

Brian: Breezy, south Florida, okay.

Dave: Now are you a native of Florida.

Brian: I am not a native of Florida. I spent 50 years of my life in the upper Midwest in Wisconsin. Okay, I had to move to Sunbelt.

Dave: Okay, Now were you educated in the Midwest then too.

Brian: I was. I'm a proud alum of the University of Wisconsin, both for an undergraduate degree in accounting and also my JD from the law school Okay.

Dave: So you've and I take it and I've known you a while, so I think that's been several decades ago that your career was started. Is that about right?

Brian: Several would be a good good approximation. Yes, I've been at this for 38 years. I know it doesn't look like it, right, okay?

Dave: And so, and how long have you been involved in ICDISC? Then Most of that time 38 years, oh, 38 years in ICDISC. Then most of that time, 38 years, oh, 38 years in the disc, wow, yeah. So how does that do you know? Do you have any way to quantify that? Like how many you know ICDISC returns you've, you know, signed or reviewed or prepared, or Boy, it's a big number, dave.

Brian: It's probably five figures. Okay, probably, so you know, somewhere north of 10,000 for sure. Okay, over that time period.

Dave: Well, and that is why I'm glad that you are one of the founding members of the IC Disc Alliance with me that when I had a chance to partner up with you and some of your team when we created the IC Disc Alliance, I was really excited because in my book I pretty much knew all the players in the IC Disc space and once the famous Neil Block retired after 50 years to me you were without peer in the IC Disc space.

Brian: So I really enjoyed collaborating with you through the years here in the ICDISC space, so I really enjoyed collaborating with you through the years.

Dave: Thank, you for that, Dave. I hope to be able to follow Neil into that 50-year stratosphere. Yeah, that's big shoes to follow. So let's just talk a bit about the ICDISC. What the heck is it? Why does everyone use that silly acronym?

Brian: Because what it really stands for is a mouthful.

Dave: Okay.

Brian: Discharged Domestic International Sales Corporation and that is what the ICDISC stands for, short right ICDISC. And I don't know if we'll get into. I'll get into what the IC stands for and everything. But basically this is an export incentive that's been in the Internal Revenue Code since 1972. Okay, in various forms. Initially it was an export incentive that just about any company could use, that was exporting goods that were manufactured, produced, grown or extracted in the US.

It came under some fire from our trading partners and in 1984, it was transformed into the ICDISC. It started out just as the DISC in 1972 for the Boston International Sales Corporation and it, like I said, came under scrutiny. Our trading partners said hey, you're a, you can't have an exemption from income because you're not. You know you tax things differently in your country. This flies in the face of the other incentives you give your taxpayers. So they changed it into the ICDIS, which made it into, instead of a permanent tax savings, at least on its face, into a temporary savings where, to the extent a taxpayer saved tax and deferred income from tax, they were required to pay an interest charge to the IRS on that deferred tax. Hence the IC.

Dave: Okay, okay.

Brian: That rate changes every year. It's based on the one-year average TBLO rate as of September 30th annually. And at the same time they instituted something called the Foreign Sales Corporation, which was widely used by thousands of companies, and that came under attack and eventually became the extraterritorial income exclusion which was immediately attacked and eventually, a couple of years later, it just went away. In the meantime, the disk floundered for quite a number of years. In fact, in the year 2000 there were only 787 disks in existence.

Dave: Wow, it seems like a shockingly small number.

Brian: Well, the tax laws weren't real conducive to benefiting from the disk at that time. Then, in 2003, the Bush tax cuts brought in the concept of qualified dividend income and it took the disk off of life support and really put it on robust territory for pass-through entities, because they could now, to the extent that they could qualify and we'll get into that, to the extent they could qualify and to the extent that they could benefit it provided a 20% rate benefit between ordinary income and qualified dividend income, so it was a significant savings. Now that's been whittled away over time, where it's been reduced here and there. Various tax law changes and probably the largest or the next biggest reduction came in in 2017 with the Trump tax bill, the Tax Cuts and Jobs Act, which reduced the rate on qualified income on non-qualified income. So it reduced the rate on S-corp income partnership income in an individual's tax return to a 29.6% level, and so now the spread between the qualified dividend rate and the ordinary rate just isn't as great as it used to be.

It's approaching 6%. So where it used to be 20, then it went to 15, and now it's 6. But it's still a permanent savings for these past three entities and it's not something that they should ignore, because it can save significant taxes, depending upon the level of export activity.

Dave: Okay, and now to be clear, depending on a company-specific fact pattern, that spread could be greater. Right For a pass-through. It could be as high as what like?

Brian: 13% or so For a pass-through it could be as high as what like, 13% or so For a pass-through business.

Dave: It could be as high as 13.2%, okay, but in general we see that it and it could even be somewhere between that, depending on.

Brian: Anywhere in between 5.8 and 13.2.

Dave: And our experience has been that most companies tend to gravitate more toward the lower end of the savings than the higher end.

Brian: Yes.

Dave: Yes, okay. Now what about for a C-Corp?

Brian: C-Corp is a different animal. Okay, a C-Corp can't use an disc to pay deductible dividends to its owners if it's a closely held C corp. This is not something that a public company can benefit from. But if a closely held business C corp is paying dividends to its shareholders and would like to be able to deduct those payments, rather than not being able to deduct those payments, using an ICDIS can transform the dividend into a deductible dividend. Now, it doesn't save the shareholders any tax, because they're paying tax on the dividend regardless of where it comes from, but it would eliminate the corporate level tax on the C corporation, so that benefit could be as high as 21%.

Dave: Okay.

Brian: Okay, another manner in which certain C corporations use the disc is to fund bonuses for shareholders and key employees, and then that saves the shareholders 17% tax the difference between a tax on a wage and a tax on a dividend, qualified dividend. So that's a 17% savings for the shareholder. In that case the C-Corp doesn't save any tax. They're getting a deduction either way wages or commission to the disk. And now that I've mentioned the word commission, that's probably a good segue into how does a disk earn income? Yeah, and what is its income? So most discs are what we call commission discs. They earn a commission when a operating business that's related to that disc makes an export sale of qualified export property. So let's dig down into that first. What's qualified export property? Well, that's property that has been manufactured, produced, grown or extracted in the US. So if I'm manufacturing in Mexico or Canada or China and I'm simply selling what I've made in those other countries, you know the disc is not something that's going to benefit that type of a business.

Dave: Okay.

Brian: It is there to spur US manufacturing, create US jobs, right in line with the America First proposition that's headlining Washington in 2025.

Dave: Okay.

Brian: So it should be on safe ground, everything that's going on there. So if a company has property that's been manufactured, produced, grown or extracted in the US and they sell it for export outside the United States and not to a US possession, then that sale can potentially generate an ICDIS commission that would be paid to the ICDIS. And keep in mind this ICDISC is not an entity that the outside world sees or understands or knows about. It's simply an entity that does business, if you will, internally with the operating company, so customers don't know about it. It's really transparent to the world. It's just there to help US exporters save tax.

Dave: Okay, it's just there to help US exporters save tax. Okay, and the logistics of it. Like say a company has just for simple math, let's say they have $10 million of export, of qualified export revenue, and the ICDIS commission that's calculated to say 10% of that.

Brian: Okay.

Dave: So 10% of that would be a million dollars, and so walk me through kind of the that's correct and it accrues the deduction, assuming it's not a cash basis taxpayer.

Brian: It accrues that deduction at the end of the year, the DISC accrues the income at the end of the year and then by statute the DISC does not pay income tax. So now we've gotten a deduction on one side, we have non-taxable income on the other side and then when the disc pays a dividend to its owners, that becomes a qualified dividend and is taxed at a lower rate.

Dave: Okay, so then, effectively, that million dollars gets reclassified from being taxed at ordinary dividend rates to qualified dividend rates.

Brian: From ordinary income rates to qualified dividend rates.

Dave: yes, Yep, thank you for that. And where that shows up for a pass-through is going to be on the individual shareholders, k-1, right. That box up near the top that shows ordinary taxable income would basically go down. Let's say there was one shareholder, that number goes down by a million dollars. And then there's a box further down on the K-1 for qualified dividend income and that's where the number's being shifted to right.

Brian: Right. Assuming the disc is owned by the operating company, which most of the time it is in the pass-through business context, then the ordinary income gets reduced on the K-1 and the dividend income will increase on the K-1, not necessarily in the same year, but that will be the result over time.

Dave: And then that tax savings then will show up on the individual shareholders. 1040, right, because their ordinary income line is a million dollars less. The qualified dividend income line is a million dollars more, and that's where that arbitrage.

Brian: They pay less tax if they're getting a distribution from the company to cover their taxes, which is often the case, the company doesn't have to distribute as much cash, therefore increasing the working capital of the business.

Dave: Okay, well, thank you. Thank you for that. Now, what I want to drill down into a little more today is looking at the aerospace industry, specifically what's called the MRO space in aerospace. Do you know what MRO stands for?

Brian: I believe, I do, I believe maintenance, repair and overhaul.

Dave: That's my understanding as well.

Brian: That's a significant area in the aviation space.

Dave: yes, Okay, and I believe that there's a big conference in Atlanta in April with like something like 17,000 expected attendees.

Brian: Yeah, just a small gathering.

Dave: A small gathering.

Brian: For sure. Yes, that's my understanding as well. In fact, I'll be there.

Dave: Yeah, I believe we'll both be there, yeah we'll both be there A few of our colleagues.

Brian: Yeah, so it's a one a year significant gathering of companies that operate in this MRO space, supporting airlines and other aviation companies, and basically MRO is important because it keeps planes able to fly. Yeah, and we actually have a booth there.

Dave: Yeah, and we actually have a booth there. 1818 BC and it makes it sound like it's a date from a long time ago. But yeah, we'll be there and this will be our first year in attendance or exhibiting. And this has come from, in recent years, I'd say, a big ramp up in the number of MRO companies who we are helping with their IC disk. Is that right?

Brian: Yeah, absolutely. In fact, one of the sponsors of the conference was a company I was doing some work with and I asked them if he thought it would be a good idea for us to attend, and it was a resounding absolutely that he thought that we could meet a lot of companies that could benefit from this ICDISC similar to his company.

Dave: Okay. What are the elements in the MRO space or the characteristics of the companies that make them a good fit for the ICDISC, because my understanding is it's probably only one out of a hundred of like all the registered corporations in the US are really a fit for the disc.

Brian: Yeah, so it takes a specific fact pattern to really benefit. So the companies in the service side of the business so let's say they're carpet cleaners or something to that nature they're not going to be able to benefit from the disk. But let's say it's a repair center and airlines will ship in parts to the repair center because they've worn out and they need it. They need a replacement part so that they can fly this plane. So what happens is maybe the repair center takes their part and repairs it, but they previously repaired another part that's identical and then to the customer and that plane gets back in the air right away.

So in that scenario, even though it's a different part that's going back out versus what was coming in, that type of activity qualifies as long as what they're doing qualifies as manufacturing and that repair is occurring in the US.

Dave: Okay.

Brian: Then that type of a company could definitely benefit Other companies. I don't want to use this term, but it's kind of like horse trading.

Sometimes companies will buy a surplus of parts, knowing that eventually they're going to be used by somebody and they hang on to these parts, or they find them from somebody who says I don't want these parts anymore, I haven't been able to sell them.

So they take a flyer, they take a risk and they buy these parts and they hang on to them and maybe they sell them at a significant profit and maybe they don't. But there's that space as well that can benefit from the disc, and there's some misconception out there that some of the companies that are similar to what I just described can't benefit from a disc, and so, for example, if parts are obtained outside the US, they stay outside the US. They stay outside the US and they're repaired, recertified and resold. Those aren't going to qualify for the ICBITS. But sometimes parts are acquired outside the US and they're brought into the US, they're repaired, put it back into inventory in the US and then sold for export, and that activity does qualify for the ICs, and so it's very important to know where this refurbishment or remanufacturing is taking place.

Dave: Okay and yeah, and there's a US content piece to it, right, like if they buy a part from China and all they do is they just put a little lubricant on it and throw it in a box.

Brian: that may not qualify and then they export it. The test is what's the customer's value when that part comes into the US.

So if it's a burned out hot engine part, for example, yeah there's no value or very little value and it comes into the US, its customers value is close to zero. It gets repaired, it's going to easily meet the content test and it's easily going to be considered manufactured in the US. It's rare, I think, that we'll find that somebody will buy a new part from outside the US just to inventory it here for export.

Dave: Okay, yeah, because there's that it's a 50% US content test, right which? Is also, I think confusing on the surface if you don't really dive down into the rules, right, I mean, the layperson may find it.

Brian: How do you know what's 50% US content? Well, the cost of good, I mean. Think of it the other way. The foreign content can't be more than 50%.

And the foreign content is the cost, the customs value when it was imported. So if I'm selling something for $100, I imported it for as much as $49.99. That's going to qualify as long as I did something, you know, remanufactured it once it got to the US and once it got to the plus, more often than not, I think the value of those things coming in because they're used and worn and damaged parts, they're going to have a low customs valuation where there'll be no problem meeting that content.

Dave: Okay, I can see that. Well, I find and my listeners tell me they really like kind of case studies, little mini of case studies, little mini, you know, client case studies On an anonymous basis. Do you have an example or two of some of the types of companies we've worked with, just to give people a flavor of them and, again, you know, being anonymous to you know? What company it is, but just a sense of like the sense of the size of the company, what the benefit might have been.

Brian: The size is sort of across the board, right. So some of them are someone on the smaller side. They might have export sales between $5 and $10 million, and then some of them might have export sales of $100 million. It all depends on the size of their business and the benefits are kind of all over the map. Because we don't just do a simple calculation of the benefits.

And the reason we don't is because in this industry what we find is there's a lot of margin variability in the companies that are exporting, and then a transaction-by-transaction analysis of the disk commission is what makes the most sense. That allows us to benefit from the margin variability, allows them to benefit from a higher disk commission and obviously then they're going to save more tax. And in some cases the commission grows by 10x by using the T by T. Sometimes it's two or three x, sometimes it's. You know, I've seen you know where it would have been zero because there was an overall loss in the company, but we were able to get a significant discommission with a T by T approach. So it's hard to pinpoint an exact number, but generally speaking it's 15 to 20, you know the commission ends up being 15 to 20% of sales. And if you look at the statutes, one of the statutes says oh, the commission can be 4% of sales, and another implies that it could be anywhere from 4% to 10%, but we generally see in this industry at least 15% on average.

It's significantly higher.

Dave: Yeah, and I'd like to drill down into that because I tell, and based on my understanding, we may manage more IC disks than any other organization of the country. I mean we I think our number is somewhere north of 500 companies now that we're helping out, and when I'm having these conversations, you know. So I'm, as you know, I'm more focused on the sales side. You know, and you and your team are more focused kind of on the technical aspect of producing these returns, and what I tell people is that our real value isn't being able to produce an IC disk return. Our value is the incremental benefit that the transaction by transaction calculation yields. That the transaction by transaction calculation yields. Because you know just about any any cpa firm you know most of them their software includes the ic disk return. You know, if they just go do a four percent calculation, it's a, you know, reasonably straightforward calculation. But we find that you know they're capturing only a fraction of the total benefit.

Brian: That's true, and while I've seen a good number of interesting looking disc returns, I tend to agree that if you follow the directions, anybody can probably prepare a disc return. We do that as well. That's not where we add the most value. Where we add the most value, adding the value comes in unlocking the highest commission possible so that the tax savings are as great as possible.

Yeah, and a lot of businesses that are high margin I'm sorry, low margin high volume businesses. When you look at the disc, on its face it looks like oh, there's not much benefit here, we're only making 2% or 3% of sales on our bottom line. So our disc commission would be 2% or 3% of sales. But, like I said, with the transactional approach, if the commission approach is 15%, well now we've taken the company into a tax loss which could potentially save additional taxes for the owners over and above that 5.8%, because now we're offsetting that loss against other income wages, interest, et cetera and being taxed just on the qualified dividend income of the disc. And so you can't just look at the overall margin or overall profitability of the company and project what that, what it's going to look like, Because they vary all over the place.

Dave: Based on this transactional approach, yeah, and I would like to talk a bit about. Oftentimes, when I'm talking to a company that's considering a disk, oftentimes they've never even heard of it. Their CPA firm may not have even mentioned the idea. And they'll say, and they'll ask me hey, does this mean my CPA, you know, screwed up by not telling me about it. In my response, you know I try to be generous and I explain it that, look, you know, in our experience only about one out of 100 companies are a candidate. And so let's just say you have a large local CPA firm and they have 100, you know midsize corporate clients. Statistically we find that only one of them, you know, would be a fit for the disk.

And your experience may be a little different, you know, feel free to correct me. And so when you think about it from the CPA's perspective, if there's a special part of the tax code and they only have one client that benefits, it's a difficult economic dynamic for the CPA firm to invest in a whole team and expertise to serve one client, right? Isn't that like part of the challenge that the and I know you've worked at a number of large CPA firms Is my understanding correct? That's part of the problem is just their clientele. There aren't enough of them. That makes it worth doing yeah.

Brian: Yeah, I think that's a fair characterization. I might phrase it a little bit differently. I mean, there are thousands of CPA firms and they're all excellent generalists. This is not an area where you can be a generalist. Cpa firms often outsource R&D, tax credit work, cost segregation work. This, to me, falls right in that same category. You don't want to dabble in this, and if you're not sure what you're doing, you can get you and your client in trouble. Have good intentions, but if you don't execute it properly, it can be more of a headache than it's worth. And so, like most people, I think people gravitate towards what they know and understand, and things that they don't know and understand can look and sound scary.

Dave: Yeah.

Brian: So it's like, oh my God, an IC disc. I've never heard of that. I'm not sure I can bring that to my client because I don't really know what I'm doing. Well, I wish I knew somebody I could call to him.

He's not a competitor right who could help me through this and help my client through this, and so that's really one of the reasons why we exist, because, as you stated, you don't want it to be a competitor that you call, and so, because we are so hyper focused on what we do and we don't do the things that I'll call the cpa's generalists, that the generalists do, we're an excellent partner because we're not looking to take away anybody's tax return or any of the other type of work that the CPA might be doing for that client. We just want to play in our space.

Dave: Yeah, sometimes I'm sorry. Sometimes you know clients or potential clients will say, yeah, but you know our CPA firm does. You know all of our work. It's a one-stop shop thing and I'm afraid having you do the disc return and then doing the corporate return yeah, but our CPA firm does all of our work, it's a one-stop shop thing and I'm afraid having you do the disc return and then doing the corporate return it's just going to be a nightmare for you all to coordinate your efforts. It just sounds like too much trouble. What would your response be to that?

Brian: My response is I work with over 500 companies. Generally we do the disk work for those companies. The regular mainstream CPA does everything else. We coordinate our work with that CPA and it's never a problem. We say, look, we're going to need X number of days to turn this around, so please have a draft of the operating company return by a particular date, and then they work towards that date. They give us the return, we get data from the company and we turn the number around so they can finish their tax return and then we go ahead and finish the disc return and I would say 99.9% of the time it works like we're all part of the same thing.

Dave: Yeah, because really the CPA they prepare that final draft corporate return. They then pull two numbers from the disk return that goes into the corporate return and then they're done, basically right.

Brian: And they're done and they can go ahead and finish up their disk return, I mean their operating company return and their state returns and everything. And then we just have to get the disc return done. And sometimes you know they file their tax return in april and you know the disc returns aren't due till september. So one might say, oh, you could just sit on them until september. But you know, we try to get them done at the same time.

Sure sure Everybody can rest easy. But I mean we think of ourselves as a bolt-on resource to that CPA firm while we're working with that and we work with probably 50 to 75 CPA firms around the country in that role- yeah. It works well. I mean, you can talk to any one of them about what it's like to work with us, and I'm sure you'd get a glowing recommendation for how we work with them and for their clients.

Dave: Yeah, no, I'm with you. So, as we're nearing the end here, the other thing that people find interesting you'd mentioned in 2003, there were 700 IC disks under 1,000. Yeah, 787. And then, according, if my recollection is correct, the most recent IRS stats that updated that were published, I think, in 2010. And I believe in 2010, there were like 2000 disks.

Brian: Yeah, something like 1926. Okay, To be exact, and that number I'm sure has grown dramatically since then. I would guess there's somewhere between eight and 10,000 disks out there now. Okay, yeah.

Dave: Yeah, now what's interesting? This is what people find interesting. I believe there's about 50 million business organization, you know business entities in the country, and so let's just assume that's the number, 50 million.

Brian: I mean it's tens of millions.

Dave: I'm certain of that. For some reason, I think it's 50 million. Does that sound reasonable?

Brian: It does so let's think it's 50 million, does that?

Dave: sound reasonable. It does. So let's say it's 50 million and on your average, you know we find around one out of a hundred. You know, maybe one out of 200 companies are fit for the disc. So if we run through the math, you know one percent of 50 million, I believe, is 500, 000. You know approximate companies that we think would benefit from a disc. Yet most recent stats, there's only 2000, you know, and maybe it's 4,000, 6,000, you know. Even, let's say it's 10,000 that exists now. So if you divide 10,000 by 500,000, what is that? Like 2%, I think, of the projected eligible company actually have a disc yeah, and people can't.

They always are surprised by that and I usually tell them it might. And tell me if your numbers are consistent. I say about 100. One out of 100 benefit or could benefit. The ones who could benefit 90 percent of them have never heard of the disc, maybe 95%, and the 5% of the 1% who have heard of it, even once they hear about it, they usually haven't implemented it.

Brian: Right. Then there's a percent that have implemented it. They're not getting out of it what they can.

Dave: Right right.

Brian: So it's so. There's a lot of missed opportunities by taxpayers and everyone's always trying to save some taxes. It helps fun, you know. It might help hire another employee might help, you know, if the savings are moderate and it's 50, 6070, 1000 of tax savings that still could pay for an employee to come work at the company. Why do?

Dave: you think that utilization is so low? I mean because it'd be shocking if only 2% of the companies who did research and development took advantage of the RMD tax credit.

Brian: I think it's just not well known. I mean it's very esoteric, it's been in the tax code for ages and ages and it just doesn't you. You know, there were so many years where it just wasn't relevant when you think that it's not something people think about.

And then if you know, if you're a small exporter and you're exporting a half a million dollars a year a million dollars a year unfortunately it probably doesn't benefit you to have a disc and so maybe someone will look at it whether that size and they're like, oh yeah, it doesn't benefit you to have a disk and so maybe someone will look at it whether that size and they're like, oh yeah, it doesn't work. And then they grow and they forget that it might work once they've grown. So once a company hits about three million of export sales really should look at it again, because that's where it starts to have economic relevance that's where it starts to have economic relevance.

Dave: Do you think some of it could be that? I mean, in general, public companies don't use disks, right?

Brian: They just simply don't.

Dave: Okay, and so I've found that oftentimes small to mid-sized privately held companies receive a lot of their sophisticated business knowledge from their Fortune 500 suppliers or clients. You know they'll hear from them about something and you know, like the payroll protection program during COVID, you know I suspect some of those might have heard about that from you know some of their large customers. Maybe that's not a good example, but you know that could be another reason. Right, there's just a dearth of knowledge that the CPAs aren't focused on it because the economics don't make sense. The large sophisticated public suppliers and clients don't use it, so they don't hear about it from them.

Right, it's not really in the news, it's just. It just kind of flies below the radar screen, doesn't it?

Brian: It definitely does, and that's certainly a reason why it's not as utilized as it probably could be.

Dave: Yeah, and it seems like you know most of our, you know virtually all of our clients come as a referral from either an existing client or an advisor who we've worked with other clients you know, like a CPA or attorney or banker. So yeah, it's just a yeah, even though you know the podcast is called the Icy Disc Show. I don't get the sense that I'm ever going to. You know, reach Joe Rogan's audience size. It just seems to kind of fly below the radar screen.

Brian: Yeah, and the potential audience is probably a little smaller than Joe's.

Dave: Probably Well. So the last thing, the other thing people tell me they're surprised about the first year of the disk return. When they set up a disk is to get everything done. And we tell them the disk return's ready and they say, super good, and e-file it for me, like the CPA does the corporate and personal returns. And what is our response when they tell us to go e-file it for them?

Brian: The response is unfortunately, the IRS doesn't provide for e-filing of disk returns and we'll need to send you a paper return. You're going to need to sign it and file it with the IRS and the unfortunate thing there is gosh, I don't know what percent of the time, but it's a growing percentage of the time the IRS loses the return Right and then sends a notice saying, hey, we never filed or whatever. And some of these disk returns are quite large. The fact that they because when you do the transaction by transaction analysis, there's a lot of paper that gets produced and filed and it's shocking to me that the IRS would lose those what they do.

Dave: So it's interesting what they do. So it's interesting. I like to say that not only does the ICDISC fly under the radar screen of most everything, it even, in some ways, it's almost like it flies under the radar screen of the IRS itself.

Brian: Yeah, and they put some things in place with regard to the ICDISC in 1984 and have never changed it. For example, if you're in the situation where you have to pay interest on deferred tax, which often occurs. First of all, a lot of times taxpayers don't realize it and they don't do it. Secondly, if they do it.

It's so antiquated that the instructions to the form where you calculate the interest it says please staple a check to this form and mail it in. I mean, who does that in 2020, right? Nobody. People, businesses prefer to do things electronically to avoid checks being stolen, fraudulent activity, so on and so forth. But here the IRS is saying staple a check to this form and mail it to Kansas City, missouri.

Dave: Yeah, and I guess it kind of makes sense that you know if there's only a few thousand of these disks in existence. In the same way, you can't expect the CPA firms to make it a heavy focus, I suppose even the IRS. You know there's a hundred other tax incentives or a thousand other tax incentives that are more highly utilized that you know they maybe are spending their time on.

Brian: Yeah, as I like to say, the people at the IRS that understood the disc were working there in the 70s and 80s, OK, and they're long retired. Yeah, and they're long retired. There's really not a lot of bodies at the IRS that understand the DISC and certainly when you're doing a transaction by transaction study and calculating the commission on each individual transaction, there's nobody there that understands that.

Dave: Nobody Well, and it's kind of the same thing outside the IRS, right? Nobody Well, and it's kind of the same thing outside the IRS, right? I mean I have this joke that nobody makes partner at a big four firm being the IC disk expert. Oh, that's true, so it even especially nowadays.

Yeah, and so it seems like like the average age of IC disks experts is about the same as the average age of the average Fortran computer language programmer. It just seems like you know new people are not coming into the disk and there's just a dearth of knowledge all around.

Brian: Right, right. And I myself learned COBOL, which is a choice between Fortran and COBOL, when I was in business school, both equally non-usable.

Dave: Is it part of that? Because since the disk came on in 1972, it seems like since 1973, people have been talking about the IC disk going away. So is that maybe part of it? People think, well, why should I learn something if it's going away?

Brian: Maybe part of it. People think, well, why should I learn something if it's going away? There's always been a fear that it's either going to go away or that there's a technical correction coming that the disk dividend is not a qualified dividend. But the bottom line is politically, I just don't see that happening.

Dave: It stands for too many things that are positive for the US Job creation export sales for too many things that are positive for the US Job creation, export sales, us companies being more competitive in the global market.

Brian: So it doesn't really lend itself to be repealed. What can be repealed are some of the tax rates. Some of the tax rates can change and that can change the benefits of the disc. The concept of the disc itself and what it stands for really is very consistent with our country.

Dave: Yeah, wow, I can't believe how the time has flown by, brian. Is there anything else that you want to mention about the IC disc or the MRO industry?

Brian: No, I can't think of anything specifically other than I'm looking forward to being there and meeting many of the attendees and other exhibitors that are there and spending some time with you and our colleagues in Atlanta.

Dave: Yeah, it will be fun. So it's the ICDISC Alliance. If you want to look us up on the website for the conference or stop by 1818BC. We also have a LinkedIn page for the ICDISC Alliance, and so I'd love to meet with any of you who are going to be at the conference. Awesome, well, thank you very much for your time, Brian. This has been really useful.

Brian: You're welcome. You're very welcome.

Special Guest: Brian Schwam.

In this episode of the IC-DISC show, I speak with Tim Loney about his transition from airline industry professional to IT services entrepreneur. He shares his path from working at Continental Airlines through major mergers to establishing Solutions Information Systems, explaining how his experience with severance packages motivated his shift into entrepreneurship.

We discuss the importance of business continuity planning, particularly for companies in hurricane-prone areas. Tim tells me about a Houston client whose facilities experienced severe flooding, highlighting how proper data recovery systems made a crucial difference in their ability to resume operations.

Managing sensitive data is a key topic in our conversation, as Tim's company works with high-net-worth families, family office sectors, as well as companies in a variety of industries. He explains how word-of-mouth referrals have helped build trust with these clients who require careful handling of confidential information.

The conversation turns to Tim's approach to business acquisition, where he focuses on purchasing IT firms from retiring owners. He describes his method of maintaining and growing these businesses post-purchase while sharing insights about how remote management tools have transformed IT services over the past 35 years.

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LinkedIn- Tim Loney

Show Notes

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About IC-DISC Alliance

About Solutions Informations Systems

(AI transcript provided as supporting material and may contain errors)

Tim: Hi, Dave, good to see you.

Dave: So where are you calling in from today? What part of the world are you in?

Tim: I'm in Houston, Texas, just north of Houston, in the Tomball area.

Dave: Okay.

Tim: Up in our corporate headquarters for the company.

Dave: Okay, and now are you a native Houstonian.

Tim: I am not. I'm not a native Houstonian. I should be probably classified as a native Houstonian because I've been here for about 35 years or more.

Dave: Okay.

Tim: But my background is I migrated from Canada the day before my 21st birthday.

Dave: Oh, you did.

Tim: Yeah, I became a permanent resident here in the United States. And what caused you to want to do that? The economy was pretty bad in Canada at that time and I was working for a commercial airline that had gone through a severance package and they released me with my severance package and I said you know, maybe I should try another country, not just a job, but maybe another country.

Dave: Okay, so when you came to Houston then did you stay in the airline?

Tim: business I did. I worked for one of the large international airlines called Continental Airlines at the time, which has since been acquired by United Airlines.

Dave: You know, to this day I can still tell a legacy Continental flight crew from a legacy United flight crew. Very different cultures, very different cultures, or, as I say, the Continental folks are nice and the United folks are not so nice.

Tim: Correct, yeah, I was there during the heavy competition years between Continental Airlines and United. I was actually there in the process with Continental Airlines during a very large merger and acquisition of multiple carriers. We acquired Frontier, people Express and New York Air and put them all under the umbrella of Continental Airlines. So I was there during those years.

Dave: Okay, so were you there in the late 90s. So were you there in the late 90s.

Tim: I was there from 1985 to 1990.

Dave: Okay, yeah, I was only asking because I'd worked at an executive search firm in the late 90s and we worked with Continental during their like, go forward initiative or move forward initiative.

Tim: Yep the go forward plan with Gordon Blithoon. He was Yep.

Dave: Yep, that was it. So then you left the airline business. What did you decide to go do then?

Tim: So I left the airline business and I went to work for one of the largest credit card companies in the world called American Express.

Dave: Okay, I think I've heard of them.

Tim: Yep and because I had a lot of automation knowledge of how the airlines work. From an automation standpoint, American Express was interested in me and understanding the automation behind the airlines and travel agency systems and they brought me in to be a systems person for the airlines to help them in kind of standardizing a lot of procedures within American Express.

Dave: Okay, well, that sounds like a fun opportunity.

Tim: Yeah, very rewarding, very educational. I learned so much during my term at American Express.

Dave: Okay, but you decided that at some point you wanted to unfurl your wings and see what you could do on your own. Is that right?

Tim: unfurl your wings and see what you could do on your own. Is that right? Yeah, you know now that I look back at it. You know I was. I grew up in a family where you were encouraged to go work for a large organization and a big fortune 100 firm, and through your entire life, and leave with a gold Rolex watch and have a great retirement plan.

Dave: Yeah.

Tim: But as I followed that path, I found myself continuing to get severance packages over and in my experience with the Fortune 100s I received three or four severance packages and those packages kind of educated me on that. It was maybe not the right gig for me and, you know, I was smart enough to be able to exit out of the Fortune 100s and do something on my own, and that's when I decided to start my organization.

Dave: Okay, and what's your company called?

Tim: So my company is Solutions Information Systems Solutions IS to abbreviate it and we are a managed service provider of IT services across the United States, managing about 175 customers across the US oh wow.

Dave: That's interesting. I would have thought you'd have your clients would all be in the Houston area. I guess this newfangled internet thing lets you serve clients remotely. Is that, I guess, how it works?

Tim: Yeah, yeah, and we can talk a little bit about what makes us so successful, but the ability to manage and monitor and remediate issues remotely has come a long ways over the years that I've been in IT. Now it's pretty much if you can't do that, why are you in this industry, right?

So yeah, and you know it's a lot of like the entire work from home program that the whole world has kind of moved to. We have that ability to do exactly all of that stuff, not only from our corporate headquarters, but remotely as well. If one of our employees needs to work from home, they can do remotely as well. If one of our employees needs to work from home, they can do that as well. So it requires a massive tool set, and I'll refer probably to our tool set a lot, because that's what makes us successful, right Is the tool set that I've been able to put together and build a toolbox full of tools to be able to manage, secure, maintain these infrastructures that we're responsible for.

Dave: Well.

Tim: I thought IT service firms were.

Dave: I thought that was a commodity service. I thought they're all the same.

Tim: Oh no, there's quite a bit of difference in how these managed service providers operate and I'll tell you, I would consider us probably in the top 100 nationally and probably the top three in our region of service providers, and the reason I kind of give us that grade and that's a grade that I've given us is that we've been at this for 25 years.

I started this practice 25 years ago. I started this practice 25 years ago and over those 25 years I not only brought in enterprise class processes and procedures from my 10 years at American Express, but I've improved upon those processes and procedures over those 25 years.

Dave: And we continue to improve on those processes. Okay. Well, what? Yeah, I'm guessing that you're. The clients tend to stay with you for a pretty long time. Is that like until they sell or go out of business or some significant event occurs? Absolutely.

Tim: Yeah, and that and that's the type of client that we want to have in our portfolio, right? This is not a consumable product that you go and buy once and go away this is a partnership with our customers.

Dave: It really is.

Tim: You have to think about the IT infrastructure of any business out there. It's number one, a foundational piece of the business, and it is an instrumental piece in continuing to do business right. A lot of conversations I have are around data protection and security, and that's a lot of what we do right Is how do we protect the data that the customer has and how do we make sure that it remains secure and that nobody compromises that data or extracts that data or modifies that data that's on their infrastructure.

Dave: Okay, and I'm guessing you're not trying to be the low-cost provider.

Tim: We are not the low-cost provider. I wouldn't say we're the most expensive organization out there, but we are in the higher side, and the reason that we're the higher side is we bring a huge value to an organization. There is a lot of components within the IT support model that our lower competitors don't provide or don't understand, and those are the weaknesses within an organization that will cost them considerable damage to an organization if they get exposed right.

Dave: Yeah.

Tim: And then kind of go through those if you want to cover some of that stuff. Like let's just give an example of a business continuity plan right.

If a company doesn't have a business continuity plan, that should be something that they should have in place, and they should have worked with their IT service provider or internal IT team to make sure that they've got a business continuity plan. If they don't, when an event happens, it's a total dumpster fire right, because they don't know what to do and they're very disorganized and it takes them an extremely long time to be able to recover, if they recover at all. So that's one example. Another example is compliance. There's a lot of compliance that's out there and that compliance is in place for a reason. Compliance is in there because somehow something got compromised and this is a compliance requirement that you now have to be in compliance with. It may be an access control compliance thing. It might be a reporting compliance to a legal agency.

Dave: So talk to me about the first thing you refer to as the disaster recovery plan or the disaster recovery and business continuity. Okay, so my listeners love stories, so could you give me an example, like of one of your clients you know anonymously, that maybe went through a situation or maybe a company who was not a client but after they had an issue they hired. You guys give us a sense of like the elements of a really good you know continuity plan.

Tim: Sure. So I'll give you an example. I had a neighbor that was in my neighborhood that you know. We would see each other at the neighborhood community pool. Our kids would play together, you know weren't real close to them. But you know you get into the conversation of having hey, what do you do by? The way, and you know, I told him I ran a managed service provider, an IT service firm, and we manage customer networks and we keep them secure.

Dave: And he goes oh, okay, okay, Well, we got a guy.

Tim: We got a guy he's good, he's been with me for five years. At that point, and you know, and wow, that's great. Well, if we need anything we'll call you, right, the conversation went away and that was about 15 years later. So the guy had been working for him for 20 years managing his stuff, managing his infrastructure, managing his backups, making sure again going back to data protection and security making sure that everything was safe and secure and we could recover it. Well, lo and behold, 20 years later he calls me up it. Well, lo and behold, 20 years later he calls me up, not him, but his wife calls me up, and his wife, you know, worked in the business for a period of time but it exited out. She called me up. She said by the way, I still have your cell phone number. I'm wondering if you're still doing IT, was their question.

Dave: Okay.

Tim: And I returned back and I said absolutely, I'm still doing IT. What's going on? She goes well. He was afraid to call you because he's embarrassed and we were in a very bad situation. This is a second generation builder supply company, probably doing annual revenue about $10 to $15 million in annual revenue.

Dave: I said OK, what's going on?

Tim: And she goes. Well, we've been ransomed and our data has been held for ransom and we don't know what to do. And our IT guy doesn't know what to do and he is really stressed out. And so the next step was is like well, I can jump in and I can help you. Let me know if you need my assistance. But these type of scenarios we've worked with before and we know how to be able to either negotiate with the criminals and negotiate the ransom to a point where you can actually pay it. If that's your only option, that's your worst option. But if we can recover your data from some sort of backup, we can go through the recovery process.

Kind of summarize it we spent that particular client was not a client at the time and so they didn't have any of our backup or recovery procedures in place. They didn't have any kind of policy in place. They didn't have retention policies, they didn't have off-site backups. They had a lot of things. They didn't have offsite backups. They had a lot of things that were missing in that internal IT person's procedure.

So what happened was is we came in and we immediately got on site and determined that they were using tape backup, and this is like way tape backup had expired like a long time ago. They had tape backup, they had ancient equipment, it was really. They obviously had put no money investment into their IT. Okay, the recovery for that client was about a week and a half and we were able to recover about 90% of their data. So it comes down to what we call RTO or recovery time objective. The recovery time objective is how long will it take us to recover your network based on our backup and recovery procedures? That particular customer we were able to get back up. Like I said, it was an extended period of time that they were out and they weren't able to do stuff. They were writing sales orders on paper and going back to a paper process.

So they could continue their business, but we did get them back up and operational. We got them recovered and they became a customer and today we run very successful trials of the recovery system, as well as continue to make sure that their data is protected and secure.

Dave: Did they end up paying the ransom they? Did not Because you got them close enough to 100%.

Tim: We got them close enough where they had physical paper backup of the information that they were able to put back into the system.

Dave: Okay, now help me understand the other end of that spectrum with somebody who was a current client that something like that happened to, and what was the difference as far as how long it took before you had them up and running?

Tim: Well, you know, our current clients knock on wood have not experienced that.

Dave: Because they've got a tighter IT infrastructure.

Tim: Right, we've got the security and controls and again going back to the tool set to detect and have early detection of these type of events before they happen. So we have the security operations center that is constantly monitoring the security of the networks and the access to the networks and they look for anything that's kind of out of order.

Dave: When something's out of order.

Tim: then we identify it. We either isolate that system or we investigate it further and see is this a normal procedure that should be going or not? A normal procedure and a lot of this stuff is becoming part of AI now. Part of the AI capabilities is to be able to identify those things very early and stop them before they get any further into the network. So prevention is obviously a whole lot better than remediation. Right and that's what companies hire us to do is to prevent anything like that, a catastrophic event, from happening.

Dave: Okay. Well, what about something that's more like a hurricane hits and wipes out their building? I assume you've had some kind of like natural disaster kind of thing where you've had to enact a continuity plan.

Tim: Yep, yep, yep, absolutely so. Hurricanes here in the Gulf Coast of Texas, with the Gulf Coast of Texas being in a hurricane zone, we've had customers that their facilities have gone underwater. So one particular customer was on the south side of Houston and their facility went about five feet underwater. They, interestingly enough, had the server on a brick, thinking it was high enough. Well, it wasn't quite high enough, it was a foot off the ground, but it needed to be five feet off the ground. So that server went underwater and it was on when it went underwater. So it shorted out a lot of the components on the server, in which case, you know, they were like we don't know what to do In that scenario.

We actually brought the hardware to our facility and we found out what component had failed and we replaced that component on the system and we were able to recover that system oh, wow, okay yeah, that's what we always want to do, is we want to try to use local recovery as much as possible just because of bandwidth or um, no, because of the time it takes to get the data transferred over from a replication process right.

Gotcha If you're dealing with terabytes of data. You have to transfer that terabytes of data from either our data center facility or a cloud infrastructure, and that can be time consuming. That can be hours, if not days, depending upon the data. Okay, so some great stories. I mean, obviously we've had events happen. It's not uncommon for events to happen, but how we handle those events and how quickly we can recover from them is critical to a business to continue business for our customers and they can get back to business and be doing what they're doing selling things, manufacturing things, distributing things, whatever it is Okay.

Dave: And are there any particular industries that you have, like you know, kind of particular expertise in where you know you would say that people in this industry might look out to you for yeah?

Tim: There is. We're a very horizontal organization so we do have multiple industries that we play in. So we do play in the construction industry A lot of construction firms are in our portfolio, but also kind of an area where we've proven to have not only expertise in what we do but also the trust factor is in family offices.

Dave: Oh, really Okay.

Tim: Yeah, either high income families or ultra high income families. Obviously the privacy of those organizations, the privacy of the families, absolutely critical, and then the data that they're working with has high confidentiality. So, you know again, if that information was to leak out of the network or leak out of the system, then it would be a serious issue. So we've dealt with some of the highest wealth families in the world, oh interesting. Yep Obviously can't name them, but some brands that you would know, some organizations that you would know.

It's amazing when I look at our portfolio, the amount of business like when I'm driving around town and I see companies around town and I'm like been in that building, worked in that customer, handled that particular customer, things like that. So yeah, you know, it's our high income or ultra high income. Families are probably a good percentage of our business. Okay, because they have multiple entities that we can support, consistent across all of those entities. So it's very standardized the way we do our business and very proceduralized so it makes it easy for them to understand. They get a quarterly report that provides them with the details and data that they know what we did for them previously and then we also forecast with a forecasting budget in the October November timeframe to provide them with a forecast so they can budget for their future IT needs and know what they're going to need replaced in the future.

Dave: Okay, so was this just a case? You happened to stumble across, you know one of these family offices and then you know they run in the same circles and we're just got around that you guys were the go-to folks.

Tim: I will say it has helped right In the. You know, in that particular market referrals are a huge thing. Our first family office we did stumble across. We didn't know we were working with an entity, one of their businesses, and then we, you know, they introduced us to another piece of their business and then they introduced us to the family office. You know we're having troubles with, you know, my buddy, my other firm over here, and we'd like you to kind of help in that area. So that expanded out quite a bit. And you know, again, there couldn't be.

Our organization has to be the most trusted organization as a vendor that any company is going to hire, right? Sure, because you have to think about the access to the data that we have. We have access to absolutely everything. We're the administrator of your network, right? We have access to your email account. We have access to your email account. We have access to your employees' email accounts. We have access to your data, your financial data, your payroll data, your bonus data, all of the data that's out there on the network we have full access to. So you have to trust our team to the utmost in order to keep that information private, and I always approach a customer with. We're here responsible to secure and maintain that data. We're not here to look at what that data is. We don't know what that data is. Okay.

Dave: Well, that's interesting here. I thought I figured you picked up that first client when you were on your mega yacht at the Cannes Film Festival. It didn't work that way.

Tim: Huh, no it didn't work that way. No, it didn't work that way. I don't have a mega yacht and I wasn't at the festival, so okay, okay, yeah, not that I don't enjoy that stuff. I do have a house over at tpc, sawgrass and the players club and I do enjoy the country club life. You know I probably have the least expensive house in the neighborhood but I do enjoy the life.

Dave: So nice, nice, I like it. So what do your clients tell you that makes your firm unique, like folks that have moved from another firm to yours, then they've been with you a while and I imagine you'll have a conversation hey, how's it going from your end? Are we meeting your expectations? I imagine you have conversations like that. What are they? What are? Are there any common themes? When they end up comparing you to the prior provider, they had, or how does that go?

Tim: Yeah, there's a couple of scenarios there on why customers come to us and leave their current service provider right. One of the biggest things that I found with a customer that may be using a smaller service provider is they are really good at the tech stuff. They're not good at the business or the accounting side of the business, sure. So there's a delay in billing or an inaccuracy in billing and it's all of a sudden they get a stack of invoices three months later for work that was performed that they have no idea whether it got performed or what, and so there's a huge problem with the office operations of those particular service providers. So there's a pain point there and they're like I'm done, they come to me and they go, I'm done, this guy doesn't bill me. And then he bills me all at once, and then I got to try and back that information back into my financials and it totally screws up my forecast and my monthly reporting.

So that's one reason that customers come to us. The other one is they don't get a response or the response is like unpredictable. So when they call in, they may get the guy right away, they may get the person like return their call the next day or three days later, so response time is really huge. I have a service desk here that is operated 24 hours a day, so our first level response is within minutes. So if you call my office, you'll get a response within minutes. If not on the first ring, it'll probably be the second or third ring.

Dave: Oh, wow.

Tim: Yeah, very rarely does any of our calls sit on hold or back up in the queue, so that's one way that customers come to us. The other way that customers come to us is that we have acquired eight other companies in the past 25 years.

Dave: Oh, wow.

Tim: Yeah, we completed our last acquisition in 2024. And we've gone out and found other service providers that may be struggling. They may not have the right business acumen to be able to run the business, so they're either marginally making money or they're losing money because they don't have the standard operating procedures that we have in place and the true business acumen to be able to run the service as a company. They've got customers, they're doing the work, they're getting paid, but they're not profitable. So we end up with firms like that that have come in through acquisitions.

Dave: So yeah, I can see that and that's probably where your American Express background was helpful. Right Because you've had exposure to, you know, enterprise grade operations billing HR. Right operations billing HR right To where? Because American Express strikes me as just a well-run, well-oiled machine?

Tim: Absolutely yeah, and I will say yeah, I will give them credit for that. You know it was a great run over there for 10 years and I learned not only about you know my job role and continuing to build on my experience in my job role, but how a company operates from a branding perspective, in branding your organization and keeping that brand consistent, but also in standard operating procedures and standardized deployment of systems. Right. I always refer back to not only my American Express days but the Southwest Airline days of standardization. If you can standardize the particular piece of your business that you're running, then it makes it so much easier. So we have standard software applications that we put out from a security tool set. We have standard equipment that we sell out to our customers, all on the Dell platform. My team is trained on the Dell hardware. They're trained on the tools that we use. The security tools, the management tools and all of those things integrate together to make a successful business.

Dave: And again it goes back to enterprise level policies and procedures and way things that are, you know, repeating things that are successful you know, repeating things that are successful, okay Well, it sounds like like the first two parts of your success just seem mind blowing to me how you thought of this. But answer the phone when clients call and invoice timely Wow, I mean that's, that's quite a that's quite as. I mean I can't believe, to be honest, that you shared that secret sauce with me. I mean, my goodness, I mean that's. If you're not careful, there'll be other companies will start answering the phone and invoicing timely with that, you know inside knowledge.

Tim: Yeah, I hope that we can improve the rest of the service providers out there, right.

Dave: Sure.

Tim: Competition is good. I like competition. It keeps us going. It gives us something to work towards as well.

Dave: Yeah, so you talked a bit about some of the acquisitions and it sounds like you're kind of in a place where you're always open to the right acquisition. What are kind of the ideal characteristics of like the ideal acquisition? I'm guessing you're not going to try to acquire like E&Y's consulting group. I'm guessing you're looking for smaller operations than that.

Tim: Yeah for sure you know. So an organization, the organizations we have acquired, have been anywhere from a half a million dollars to two million dollars in revenue. Those organizations the owners may be getting older, they may be getting ready to retire and they're not sure what they want to do with their business. What they do know is that they don't want to continue to run it Right and that it's marginally. They're making the same amount of money or less than if they had a corporate job Right.

So it's sad to see, because they love what they do right and they want to place their customers in with a firm that has a similar culture, that takes care of their customers and really make sure that they're doing the right thing for their customers. So a firm that might be in a half million dollars to two million dollars in annual revenue, or the firm might be a five employee firm or smaller, and that they're getting to that point where they're kind of tired of running the organization and they'd like to transfer. They've taken care of their customers over the years and they've made relationships with those customers over the years and they like to put them with an organization that will take care of those customers and make it a seamless transition for the customer base sure, and I bet, I bet these sellers would probably be shocked if they were able to come in and look at the finances of their business like two years after you've acquired it.

Dave: Right, because I'm guessing?

Tim: Historically, yes, I will tell you, in probably at least half of those transactions that we've done in the either 12-month or 24-month payout period, they've made more money in that 12-month or 24-month period than they've made in the last three to four years.

Dave: Oh, because that earn out ends up being a function of how much you bill over those 12 to 20. And you dramatically increase the revenues, so they're automatically getting participation in that. Absolutely. If they'd known that they would have sold to you 20 years earlier. They just wanted to work for you had their payout and then just become an employee. Right, they want to come out way ahead. Exactly, yeah.

Tim: Yeah, now it's really good to see that. I mean, you know, that's one of the things that my competitors don't do. They try to come in and offer this ridiculous number for a business and then the earn out. They beat them up on the earn out and end up with anything. They end up with an initial payment and then maybe they'll get an earn out, maybe they they'll get an earn out, maybe they won't get an earn out, but they're going to tell them how horrible their organization was and how bad the customer base was and how it's not profitable and you know, it's just not how I do business.

Dave: Yeah, and I'm having done. Did you say eight acquisitions? Correct, yeah, I'm guessing you've done enough now. That now you have the ability Correct? Yeah, I'm guessing you've done enough now that now you have the ability, the same way that I understand you know when Berkshire Hathaway acquires a at that same point. Now You've got enough success stories that you can point to those as another differentiator, right?

Tim: Yeah, absolutely, absolutely. We're not at the Berkshire Hathaway point, but we got a couple under our belt and a couple of examples that we can refer back to and have some validation around our acquisition process.

Dave: Yeah, because I'm just like, as I'm just playing through some hypothetical numbers, like you know, if a company had, say and you don't have to confirm these, but say a company was doing half a million in revenue, the profit is say you know 50 grand and you buy them, is say you know 50 grand and you buy them, and it wouldn't surprise me if, like, two years later, you know that revenue number doubled and the profitability number like quintupled probably, and or you just you know dramatic increase. Just because you know I mean, quite frankly, you just have a better run business model but they had you're able to plug them in and so that's absolutely our goal.

Tim: Yeah, and so your win isn't so much we like to see play out right.

Dave: Yeah, and so your win isn't like other folks where you promise the moon and then you figure out all of these ways to not pay them.

It sounds like your process is just like hey, because in your mind, being a strategic buyer, that business is worth way more to you.

You know two years later, once you've done your magic to it, that business is worth way more and so you're okay paying them on an earn out, on a growing revenue number that maybe they didn't even contribute to, because at the end you know, as a I mean like on the front end you might pay, say you know, one times revenue, let's say just to pull a number out but by the time you get to the end of it, if the business is doubled and the profitability is quadrupled, you really ended up paying only one third or one half revenue. And so all of a sudden, whether you know found a way to squeeze them to where the imputed value you paid was one third annual billings or it was half of annual billings really doesn't matter, because the real value for you is like, year three after the earn out. You've got this great profitable book of business that you know you didn't pay much for in comparison to what it's worth two, three years later in your enterprise. Is that right that's?

correct, yep, absolutely but the reason you didn't pay much, though, in in all honesty, was because the business wasn't very valuable.

Tim: And it really wasn't right.

Dave: Yeah, I mean they had owner value.

Tim: Street value had a zero valuation on it right.

Dave: Yeah, they had probably owner concentration risk. They may have had customer concentration risk, poor processes systems. You know the type of company that you know. There weren't people beating their door down to buy their because, effectively, you're just buying a job. If you bought that business, all right. How much do you pay for a job? Most people don't want to pay very much for a job. Now, what do you look for in an employee, just like you know the most techie person you can find. Is that really all that matters?

Tim: No, it's not necessarily you know the most skilled technical guy out there, right? So one of the strategies that we have and maybe I shouldn't share that because my competitors may hear it, but we are a strong supporter of our veterans, so we have veterans that work in our organization. We're probably a 75 percent veteran organization.

Dave: Oh, wow, ok yeah.

Tim: Yeah, and we enjoy that. They come to us with technical skills and abilities but we build upon those we really do Right and we develop those particular individuals to be much better at what they do. But having our veterans on our team has been hugely successful from a reliability standpoint, as well as a dedication standpoint and the understanding to be able to follow orders as given, right Okay. So that's how we've been able to do that and our retention rate is extremely high. I would say that our culture is very good. We're very family oriented. We're very you know when work has to get done, work has to get done. But we also realize that the family comes first and there's family things that come in the way that need to be addressed. Right. You can't. Your kid gets sick. You have to go take care of your kid, you can't be at your job, right? Those kinds of things and being able to balance that.

That was one of my challenges at American Express. I was a new father in my ninth year at American Express and I realized that, even though it was written in the book and preached on the values of the company, when it came time to actually exercise that it wasn't as flexible as I had hoped I was like you know. This is another reason I kind of need to get out. I need to raise my daughter and I need to, you know, and I plan to have other children. So family values and longevity of employees, it makes a huge difference you have to think about. If you have an IT guy in your organization and they're only there for a year or two years, they've gained a little bit of knowledge about your business and how it operates and what computer systems are, what systems and software you're using in your business. They get intellectual knowledge right that walks out the door when that employee leaves or you release that employee.

Dave: Yeah.

Tim: With maintaining our staffing. I've got people on my team that have been with us 15 plus years and they have a history of our customers that is like you can't buy that right. Sure, you've got that knowledge of that network, of when it was built, like we've built some of these companies, so we know it from day one and what we've done to different applications and how we've modified them over the years. So just having that knowledge be maintained with your service provider is huge, so, and we can go back and look at you know, oh, here's a ticket from 15 years ago that I worked, that I resolved this issue, wow.

Dave: And how do you know? You know, cause it sounds like the company has been growing both organically and through acquisition. How do you know when it's time to hire? Do you wait till? Like people are working a hundred hours a week in complaining and quitting.

Tim: Is that?

Dave: the point you say oh geez, we probably should get somebody hired and we should probably hire in a hurry. The first person we come across Is that your growth strategy?

Tim: for your people? No, definitely not, definitely not. So we have a lot of KPIs in the business that we can measure the performance of our organization, and mainly that's around resource utilization.

Okay, so we have a lot of tools in our toolbox that give us an indication of when an employee is overloaded or when they have too much on their plate, so we can shuffle that within the business and be able to see who's got the workload and who doesn't have the workload, be able to move things around within the organization. But then we can also look at our utilization levels and, number one, make sure that we're profitable with those utilization levels but also staff appropriately to those utilization levels and know when it's time right. It's like okay, we acquired a company with five big customers and we didn't get any employees with it. Do we have the bandwidth or do we need to increase our staffing? So we really have a lot of KPIs around measuring that to make sure that we don't stress our existing resources and we balance it out that our people are profitable but they're not overworked.

Dave: Yeah, no, that makes sense. And then how do your new employees come to you? Is it referrals from other employees mostly, or no, we do have.

Tim: I sit on the board for one of the technical colleges and I use that technical college as our you know more or less recruiting platform. We find the best of the students. You know the kids that are shining. You know they kids that are shining. You know they're showing up on time for their classes, they're interested in developing their skills and they're really, you know, the top students in the tracks right Okay.

Yeah, and then we recruit them out of there. We recruit them in at our first level, our entry level, on our service desk team and we build them up in our organization over a period of time, so lots of opportunity for them to grow once they come into our organization.

Dave: Yeah, that sounds like a great way to bring new folks on. You can train them the way you want trained with your processes and systems.

Tim: And then keep them right. Keep them you can give them a growth path and keep them so that they can be. They can get better at what they do, get a higher compensation, be successful in life. There's nothing makes me happier as an owner than to see an employee grow from where they came in the day they started with us to being successful in life.

Buying a home buying a car, having a family, all of those kinds of things right, those are really important for me. They're kind of like energy for me to see a person develop over the course of their career with our organization.

Dave: Some of my guests. When I ask them, like what's the most satisfying or gratifying part of the job, it seems to fall into two categories. It's either the satisfaction they get from serving the customer or the satisfaction they get from watching their team grow. It sounds like you're probably more on that watching the team grow and that and then they. I think it was Herb Keller that had the idea of take care of your employees, and your employees will take care of your customers Absolutely. Is that right, that your satisfaction comes more from taking care of the employees, and then the happy customers are just an expected outcome?

Tim: Yeah, that is a result, right, absolutely. So you know, when I started started this organization, I started in the spare bedroom of my house. Oh okay, I had two analog phone lines. One was for my phone and the other one was a backup phone line, but it was also used for my dial-up internet to be able to help, oh wow, remote into into customers. Right, and looking back, I walk in now to our operations center and we have a pretty impressive organization and a pretty impressive facility that we own. And walking in now I'm like, holy crap, what the heck did I build?

Dave: right that's awesome. That's super satisfying right, super yeah I can imagine well I cannot believe how the time is flying by. I always tell my guests it's like the fastest hour of their life is being on the podcast.

Tim: How are we going to fill that hour, Dave?

Dave: Yeah, I know. So I've got just two questions just to wrap up. If you had a time machine and could go back and give some advice to like your 25 or 30 year old self, what advice might you give yourself?

Tim: Ooh, that's a good question. I don't know. I don't know the answer to that. What do I give myself? I probably would have started my organization sooner.

Dave: Bingo. That's the answer that 90% of the people have.

Tim: Yeah, I would have started my organization sooner. I needed that enterprise expertise, but I would have started it sooner.

Dave: Sure, yeah, it's yeah, because the funny thing when you're an employee and if you follow the career path that your family suggested is actually they think it's a low risk, safe career path.

But it's actually a high risk path because you have a customer concentration issue, meaning you have one customer, your employer and, as you learned three or four times that if they decide they don't need you anymore, you basically lose 100% of your income. They don't need you anymore, you basically lose 100% of your income. So it's actually less risky to have you know, even if you're just doing like consulting and all yours, just like a contract employee working 10 hours a week for four different companies, doing whatever.

I find that that's far less risky, because if one of the companies doesn't need you, then you know you've only lost a quarter of your revenue.

Tim: Yeah, I call it a scenario of I get hired multiple times a month. I hope I never get fired, but occasionally I get fired. But it should have an impact. I like it Well.

Dave: so here's my last question. So you're a naturalized Houstonian, like I, am Tex-Mex or barbecue.

Tim: Ooh, I like both really well. But yeah, tex-mex thing. If I don't have Mexican at least once a week, I'm going through withdrawals okay, so Tex-Mex?

Dave: yeah, now, one person answered that question. I borrowed this from somebody else. One person answered it. They told me about a Mexican restaurant that has great brisket and they make like brisket enchiladas and brisket tacos and brisket quesadillas and he said that was like the best of both worlds there. And I thought, boy, that sounds like it.

Tim: Yeah, there's nothing better than a brisket taco, for sure.

Dave: That is awesome, I make some of those myself. That is great. Well, hey, as we wrap up, is there anything? I did not ask you that you wish I had Tim.

Tim: No, I'd like to close by saying I shared with my team today and I'm always trying to come up with something that I share with my team every day and today I came up with solutions as a defense system designed to protect the most critical assets of your business the data. I like to just kind of close with solutions I as a defense system designed to protect your most critical assets your data, think about think about if your business lost access to its data, regardless of the circumstance.

If they lost access to the data, what would that do to your organization? That's what we protect from. That's what we protect from. That's what we protect from happening.

Dave: Yeah, Charlie Munger talks about the number one key to recognizing a great business opportunity is finding a company who's riding a wave that's only going to grow and increase over time, Because really all they have to do is just stay on the wave. Well, that certainly has applied to you, right? Because 25 years ago you probably had some companies that said ah our data is not that important. You know, I've got a Rolodex with all my clients' phone number and email, and you know, so the importance of data has only increased during that time, right?

Tim: Oh yeah, it's dramatically increased yeah.

Dave: Well, it's also.

Tim: Everybody trusts that data will be there when they're ready to use it.

Dave: Yeah, well, and also the other fact is digitization right 25 years ago, most of their data may not have been digital, it may have been analog or paper or whatever, but now virtually everything is digitized, which makes the data even more important.

Tim: I go back 35 years in this industry and when I go back and look at it, I replaced the inner office envelope. Oh yeah, people would type up a memo on a typewriter, put it in an inner office envelope and put whoever was going to and put it in their outbox and the mail guy would come by and pick it up. I replaced that guy. That's true?

Dave: Well, that is awesome. Well, Tim, I really appreciate your time. This has really been fun and you've really given me kind of an insight into what makes a really well-run IT services firm operate. So I really appreciate your time.

Tim: Yeah, I appreciate your time as well, Dave. Always good to chat with you and good to catch up and appreciate your time today as well. Thanks so much.

Dave: All, right, yeah, you too.

Special Guest: Tim Loney.

In this episode of the IC-DISC show, I speak with Susanne Cook, a senior partner at Denton's Cohen and Grigsby, exploring the world of international trade compliance.

Based in Pittsburgh, Susanne chairs the firm's International Business Team and provides insights into import regulations and export control classifications.

We dive deep into the complexities of U.S.-China trade relations, examining Section 301 tariffs and their impact on small-value imports. She shares practical strategies companies use to navigate these challenges, such as China's establishing factories in Mexico to counter tariff restrictions.

The conversation highlights the critical importance of accurate prior disclosures to regulatory agencies. Through a compelling case study, Susanne illustrates how businesses can effectively manage compliance, demonstrating that U.S. agencies can be forgiving when companies approach disclosure with transparency and comprehensiveness.

Beyond trade compliance, we touch on personal development. I share insights on work-life balance and the significance of building a capable team. Susanne's expertise provides a unique lens into how professional challenges can be navigated with strategic thinking and thorough preparation.

SHOW HIGHLIGHTS

Contact Details

LinkedIn- Susanne Cook

Show Notes

Be a Guest

About IC-DISC Alliance

About Dentons

(AI transcript provided as supporting material and may contain errors)

Susanne: I'm doing well in sunny Pittsburgh.

Dave: Oh, that is great. Now are you a native of Pittsburgh.

Susanne: No, Pittsburgh is my adopted city. You may detect an accent I am German.

Dave: I attended law school in the United.

Susanne: States. I attended law school in the United States and Pittsburgh is my adopted city and I am a fan.

Dave: Okay, that is great. Well, I know that you chair your firm's international business team.

Susanne: What does that tell me about what that entails? Tell me about the international business team at DIMMS. It really consists of two pieces and maybe going into it historically kind of explain the development of that team. Being German, I've always had an interest in international law and I liked Pittsburgh and decided to practice international law from Pittsburgh, heading out of law school, and in those days it was a little bit more unusual than it is today. We lived through COVID and can connect from wherever we are. 10, 20 years ago it was more unusual to practice international law in Pittsburgh, but that's what we decided to do so.

We tend the group tends to international clients coming to the United States to do business here and have developed what we call the soft landing program. And that grew the trade practice, the export-import trade practice that, frankly, within the last five years or so has quadrupled in size. We engaged additional attorneys in that field as trade.

Dave: Everybody reading the paper can see how we impose additional tariffs, how we impose additional expert control measures and so, responding to that need, that part of our practice has grown incredibly of our practice has grown incredibly Okay, and so it's mostly I guess they would call this inbound business mostly foreign companies trying to do business in the US, or is it split pretty evenly between that and US companies like on the export controls work and such?

Susanne: I'm glad you're asking. We do both, but the majority is really inbound. Yes, we do assist companies, do business overseas, but really what that entails is finding somebody in that country who is like the Susanne Cook overseas to do what we do here, and ultimately we just hand it off to a good resource. Now I think that's valuable for a client, but really where we are more engaged is on the inbound side. And then for on the trade side, it's also companies who do business internationally and need US export control advice.

Dave: Okay, that's helpful and so help us understand. I love case studies, examples. Could you give us an example? And if you need to anonymize the client's name, of course feel free to do so but maybe give us an example of like a couple engagements that might be representative and maybe kind of lay out sort of the fact pattern and again, you know, anonymize as appropriate.

Susanne: Right, of course.

Of course, a simple case study would be a client who is engaged in exporting and at one point wonders whether the software or a hard product is export controlled and reaches out to us and we look at the product and assist in classification as to whether this item is controlled or not.

If we determine it's not controlled, that's wonderful, the end of the story. The next step may be that it is controlled and at that point we look at okay, point, we look at okay. We look at past exports to see if any of those should have been pursued under a license, and that could be a license through commerce, it could be a license under ITAR, which is military, and ultimately, depending on the circumstances, that may lead to what we call a prior disclosure, where the client approaches through us, the regulatory agency in charge, and discloses the issues in the past. And I have to say that generally US agencies are pretty forgiving. Us agencies are pretty forgiving. If the prior disclosure is done well, the circumstances aren't too egregious. Generally, I have to say, our prior disclosures we've had great success in coming clean and the client then can walk away knowing that this is not in their past and could pop up any moment.

Dave: Well, I'm really just, as a us citizen, I'm really pleased to hear that, because it would seem like like that's the system that we would want, that now I'm. I'm presuming, though, the flip side of that if the client does not identify the issue and the government agency somehow identifies it then the consequences are maybe not as favorable to the client. Is that a fair assumption?

Susanne: That is, yes, that is the dynamic here and really also I always say there's one thing worse than not doing a prior disclosure and doing a bad prior disclosure At that point doing a prior disclosure means full disclosure, because if a partial disclosure is done and the agencies find out that this was really a very calculated prior disclosure, with keeping in the background some of the items that the client wasn't ready to share, that is actually viewed as an aggravating effect an aggregating, aggravating effect.

Dave: So it's all, it's almost so. In the sequence, the worst thing to do is a prior, an incomplete prior disclosure, and then the next verse would be no disclosure and the agency comes calling and, just you know, plead ignorance. So you actually get in. Typically, the client would get in less trouble for just being clueless, if you will, than for strategically disclosing only some stuff.

Susanne: Oh, absolutely, that goes to knowledge right. It is negligence, gross negligence, or this now goes to intentional misconduct. And with respect to intentional misconduct, even if the client decides not to do a prior disclosure for whatever reason and there are reasons what we consistently counsel the behavior cannot continue because once it has been determined that something should be corrected, if the client continues doing that now it becomes with knowledge intention. And so, yes, it has to change one way or the other.

Okay, yes, yeah way or the other. Okay, yes, yeah, so that is on the export side. We also in the trade, we do the importation side and it's rather similar and again, like the export side, we like to stay ahead of trouble. I always say we can do it this way or this way. And this way is prospectively working with a client, developing a program where violations are likely not to occur, or we can assist after a violation occurred, and we much prefer to be on the front end and I think really the client is served better.

Dave: Now, on the import side, where does the trouble lie?

Susanne: Is it failing to pay like an import tariff, or and there I can tell you, we used to have tariffs averaging of maybe 0.4 to 0.6 percent. There were a few, maybe two, three percent duties, and companies, and the regulatory agencies as well, did not pay a whole lot of attention to payment of duties. But now we have the Section 305, 20 percent duties that are imposed on pretty much all goods from China. We have other tariffs, similar to the Section 232, imposed on most of steel that we import. So now everybody pays attention, as you can imagine, and so the incentive of trying to find a legal way to not pay those is, you know, much greater than it was a couple of years ago. At the same time, yes, customs pays attention much more than they did five years ago, because we're talking real money now.

Dave: Yeah, yeah, it's much more material. So I'm really not familiar with the import tariffs. How do they logistically work? Does the importing company that's subject to the 25% tariff? Are they responsible for like remitting that to like volunteer? You know, I say voluntarily, but but is it their responsibility or is there somehow like a? Is that basically how it works?

Susanne: Yes, the system works through customs brokers. Okay, so it's rare that a company will perform their own entry, so they engage a customs broker and the customs broker is like the intermediary in this system. And, yes, all duties are being paid through that system. Okay, all duties are being paid through that system. A significant part of determining what duties are due is what we call the harmonized tariff schedule classification of the product. Believe it or not, it's kind of mind-boggling, but anything, any product in the world has an HTS classification.

Dave: Okay.

Susanne: So, and it can get tricky, particularly sometimes products evolve. They were not even there when the HTS was developed. But still somehow we interpret it for those products to be classified in this HTS system. Sometimes reasonable people can disagree on classification and there's a ruling system. One can go approach customs and request a ruling. But really it's like anything garbage in, garbage out. If there is an incorrect determination on the HTS classification, only bad things can follow.

Dave: Yeah, and I'm guessing the reason that you know that there may be a difference of opinion in the classification is because one product may have a higher import tariff than another, so thus the client seeks to make the case that it should fall under the lower tariff classification.

Susanne: Absolutely, absolutely. And even when we submit rulings it's a little bit like you know, even court filings, you kind of make your best case as to why we believe this product falls in the category that we would prefer it to be in. Of course we have to be accurate and correct, but, yes, we stress the factors that would make it more likely for a product to be classified in our desired classification.

Dave: Okay, and so, and again the process. So the customs broker is actually the one doing the classification of the product.

Susanne: They do. However, they work on very, very small margins.

Dave: Right.

Susanne: And so in difficult cases, yeah, they will make a suggestion, but ultimately it's always the importer's responsibility. It's kind of like a tax return you engage your CPA, but if something goes wrong, it's the taxpayer, and here it is the importer of record who would be on the hook. So in difficult cases or if there is a whole lot of money involved, we get involved as a law firm in classification as well, and it's you know. The sums of money could be staggering.

Dave: Yeah, yeah. And so the product comes in. The customs broker, either proactively or independently, will do a classification of the item, or maybe a preliminary classification, or, if it's not clear, they'll perhaps reach out to the client for guidance. Is that my right? So far, that's right. And then the product comes in. And then how soon does the company have to remit those tariffs? Is it a weekly process? A?

Susanne: monthly process, quarterly. It's a simultaneous process.

Dave: Simultaneous okay.

Susanne: Simultaneous process.

Dave: It's a simultaneous process, simultaneous. Okay, simultaneous process, obviously, but I'm guessing if they receive the product, if the product lands at 4 pm on a Tuesday, they don't have to remit the money at 4 or 1 pm on Tuesday. I assume there's some.

Susanne: There's some leeway and there is a customs bond in the background.

Dave: Okay.

Susanne: Backing up the payments so as I increase their imports or they may not even increase them. But there is now all of a sudden a dumping duty applied to the product or a 25% additional tariff because the items are shipped from China. The bond may have to be increased because it doesn't cover the standard amounts anymore.

Dave: I see, and the bond is that required by customs? Yes, and every company has to have one, or when they get to a certain size.

Susanne: Every company has to have one, or when they get to a certain size, it's through the broker. The broker always yes, it's part of the system.

Dave: Okay, yes.

Susanne: So every product that gets imported is somehow falls under the umbrella of a particular bond. Unless, it's a one-off like you and I just importing things. We're not under that bond system but in professional companies who import as a business. Yes, a bond would be involved.

Dave: So is there a threshold where those tariffs come into play? Like if I buy a hundred dollar item from China and I'm buying it with the intent of selling it in the US and I sell it for $150. I mean, is there a minimum threshold? Dollars $800.

Susanne: Okay, yes, and this is actually subject to scrutiny, political scrutiny by now, at this point. To scrutiny, political scrutiny by now, at this point, because these de minimis entries are subject to no duties and in this age where everybody is ordering stuff online, and sometimes these are big businesses who are shipping entries, hundreds of entries every day into the United States to the ultimate customer under the $800 exclusion limitation, and a lot of them are country of origin, china, which is under scrutiny.

China is a country that is under scrutiny. These de minimis shipments are currently scrutinized and I would frankly expect there to be additional regulations by the end of this year or beginning of next year, just cutting back on these exclusions, because you can see the Congress is suspicious that this is being abused by larger companies.

Dave: Yeah, and is the 800 per order, or is it a cumulative amount for a period of time?

Susanne: It's per entry per day, so if the US consumer are the recipient of I don't know what you ordered online, that would be, let's say, $600 worth.

Dave: So the strategy if I imported $20,000 of goods annually from China and I divide that by you know 250 business days, I think that's like about $100, like a day. If I'm doing my math right, 250, 2500. Yeah, so that's about $100 a day. So if I had that, my strategy then would be to ensure that the imports are staggered such that no one day $800 is imported. Right, and that's the strategy. I can imagine where that'd be a complicated thing to try to pull off, you know the coordination and the timing and it wouldn't be so much there.

Susanne: And it wouldn't be so much there. But if you're doing like $200,000 a year, or you divide that by $250, and you're approaching $800 a day, then I would imagine that it would be very difficult to try to manage the timing of all of that. And it's also an issue, frankly, on custom side, because those small orders typically are not scrutinized, and now, if we are scrutinizing them, that's also an increased bureaucracy. So there are considerations here on all sides. At the same time, there are in place, as we all know, increased regulations on imports from China. All these Section 301 tariffs are mostly from China, on goods from China, and one of the proposals is that these de minimis items still would be subject to the 25% Section 301 duties, which they currently are not.

Dave: I see. So you're saying that $800 threshold would no longer apply. So if you import, an item that costs $2, you still have to pay 50 cents.

Susanne: But then again the bureaucracy right. So there is a real it's not an easy issue, but yes, it's mostly targeted really at China.

Dave: Yeah, so one of the things I follow closely it's just a hobby of mine is the electric vehicle space, and I don't know if that's something you pay much attention to, but China produces like I think the latest stats I heard 70 or 80% of the electric vehicles produced in the world are produced in China, and they have tremendous excess capacity. I want to say they produce like 100% 15 to 20 million electric vehicles a year, but they have capacity for like 15 months. So of course they're looking to export them, and so one of the ways that they're looking to get around this is to take advantage of NAFTA or whatever the new NAFTA name is. What's the name?

Susanne: USMCA yes.

Dave: So what they're doing then is they're building factories in Mexico. Yes, so what they're doing then is they're building factories in Mexico and then importing that way, and what's interesting is that's like historically seemed to be appropriate because it's been a Mexican produced product. It just so happens to be owned by a Chinese company. But the, the talking or the, the suggested proposals, I think by both parties, certainly by the Trump administration is to disallow those products to be exempt from the import tariffs. I'm just curious have you heard anything about this? Not particularly, I have not followed the electric vehicles.

Susanne: But that doesn't surprise me at all because those issues are always raised and trying to fight circumvention, where the country of origin is being changed artificially or legitimately right, and that decision and determination is always in the eye of the beholder and there are significant incentives to try to deviate from the country of origin determination of China and at the same time, the United States is investigating these issues all the time.

And yes, there are exclusions I'm aware of, for country of origin or to no longer benefit from USMCA for certain specific items, for example. Another item is steel from Russia. We impose more restrictions on that, even if it's channeled through Mexico, and really I mentioned that our group, trade group, has increased. Well, as these issues increase, it really requires more attention and more expertise to advise clients on what is permitted and what is not permitted. And, of course, as a US importer, you always want to import items with the least amount of tariff.

Dave: Yeah, of course. Yeah, no, that makes sense, well, good. Well, that's really helpful, because the funny thing is, you know, our practice is all export driven, but the average person thinks export is a part of a compound word called import-export and they just assume that we're well-versed in all the import rules and I always have to keep telling people it's just, that's not what we're focused on. So my knowledge of import rules is now infinitely higher than it was an hour ago. So thank you for that, Susanne.

Susanne: You're welcome. You're welcome, and I can see how clients view that. To them, it's just things that cross the border.

Dave: Whichever way, yeah, it's all the same to them. So what would you say are the characteristics for you of like an ideal client? Because, like I'm guessing, somebody who imports you know $2,000 a year of stuff from outside the US and they have a business that does $50,000 a year in revenue, I'm guessing that's like you all. That's not a good fit for you. It's just like overkill, right, there's just not. So help me understand what just like. Maybe you just pick the perfect client. What would the characteristics be?

Susanne: There are really two buckets, I would say. The one is, of course, we like working with large importers and exporters who do this all the time, who have a traffic department who manages these functions and, as it gets to be, let's say, like you mentioned, the electric vehicle to a very specific case where they need outside assistance, that would be then our role and that is an ideal client. There is another bucket, and the other bucket is really the growing business. You know, if you are the company that imports $100,000 a year, okay, often, really, the company doesn't even realize they're importing and they often do not pay a whole lot of attention to that.

Dave: Sure.

Susanne: In the way our international world is going, they probably will increase the imports and their exports over the next couple of years and to me it's always best to counsel that company on how to develop a department that looks at these issues and remains compliance, not when they are now importing or exporting 100 million. You want to catch them before that. I don't know when that ideal spot is to where they don't get into trouble.

As I said, we always want to counsel companies before they get into trouble. Counsel companies before they get into trouble. The function is a little bit on how precarious the items is. If everything let's say half a million dollars all imports from China, I would take a look at that, the imports that will be scrutinized. Or if you export, and you export half a million of items that are export controlled, you need to pay attention. So there is a little bit of an overlay. How controlled is the item? But and if it's just, I always use the example of brooms where you import brooms or export brooms not regulated of course then the threshold would be higher.

You're really not under much of a scrutiny at all Not that there are none, but it's much less and really I would love to get all these companies at the sweet spot. Sure they grow appropriately and have a system in place, because it's always harder If you get somebody with 100 million of imports. They don't even have a good system. That's a difficult task.

Dave: Yeah, yeah. So just to recap, so kind of the two perfect types are one would be like a large company with a relatively sophisticated internal traffic group, that's, you know that you know is basically set up for success and you know, they kind of know what they're doing. And then they call on you for specific arcane cases or situations where they can pull you in, you know, kind of as the expert. Now do you actually do you do opinion letters? You all do opinion letters in your practice.

Susanne: We do, we do, and opinion letters is really on both sides export control and on customs. It's only the agencies who can give a binding ruling on how these items are classified. We will give opinions. What that will do? It will mitigate culpability. It doesn't mean we say we are 100% right all the time, because only the agencies can give these rules.

Dave: Of course.

Susanne: But it will go a long way to mitigating any exposure because the company obviously went out of their way.

Dave: Yeah, well, and they relied. I think the key term is the reliance. They relied on your opinion and so, like you said, that then gives them, you know, protection from you know the extreme impacts of regulatory rulings.

Susanne: Correct, correct and, yes, we will give opinions. Of course, a better way, if it's possible, is to get a binding ruling, because it's actually, in a way, often less work to get a binding ruling.

Dave: Oh, is it? Yeah, I can see why Because you only have to provide enough data to satisfy the regulatory agency, Whereas for an opinion letter you maybe have to be more comprehensive to encompass all these different factors Correct.

Correct. Yeah, that makes sense. So this is where, as we're nearing the end here, so I'm going to put you on the spot with this one. Okay, Are you ready? So I'm guessing that Denton's is not the only law firm in the world that's involved in international trade. Is that probably a fair assumption? So why, when your clients select you specifically, or the firm, if you've ever asked them, hey, you know how did you choose us. Why did you choose us? You know why do you keep using us? What's the response you get from your clients as far as why they they use the firm?

Susanne: I believe that they use us because we are extremely business oriented and a lot of the other trade outfits are much more theoretical and okay professorial and really I going back full circle to my introduction how we got into this. We got into this because we have had clients in that space that we wanted to assist.

Dave: Okay.

Susanne: So we're a little bit more of like an in-house legal department. How we look at this, we're very practical. What can the company do to implement these rules and regulations with undue burden? We don't just counsel. These are the rules. This is what you have to do. We always take it a step further and assist the client in finding the best way to be compliant.

Dave: Okay.

Susanne: And that's in our blood.

Dave: Okay.

Susanne: Any piece of advice we give, we always ask ourselves, when we look at it from the perspective of the client, the company Okay, how can they do that? How can they do that? Because one can give all kinds of theoretical advice, which is good advice, but it just doesn't work, and we always ask that question. So I think that's an advantage. The other advantage is just the location Pittsburgh.

Our cost structure tends to be more competitive than a you know, yes, our competitors often sit in new york, manhattan, in chicago, miami, the big trade centers now Trade Center. So now yes, so our cost structure is a Pittsburgh cost structure.

Dave: Yeah, and then I suppose for a client who's actually based in Pittsburgh, it's a you know kind of a bonus or that makes you uniquely attractive to have a local resource with the international capabilities that you all have.

Susanne: Correct, correct.

Dave: Okay, so I've got only two more questions. One's an easy one. One's gonna be the hardest that you're gonna have. So the easy one is is there anything I didn't ask you that you wish I had asked you? Anything we didn't cover?

Susanne: No, I would say that the one area we all believe that trade compliance will continue on this trajectory of increased attention and I think duties will continue to increase Export control requirements will increase as well. So I think this trajectory, will continue for anybody doing business internationally, and really this is one of the areas where it does not matter how our election will turn out, that's the trajectory Our world is more complicated and increased trade rules will continue to apply.

Dave: Well, I'm glad you brought that up, because for the listener who's thinking, well, yeah, this is kind of a problem now, but I'm sure it's just temporary. If the right person wins the election, then this is going to go away. So thank you for saying that, that they need to get that naive thought out of their mind, right, it's only going to increase.

Susanne: It's continuing.

Dave: Yes, yeah, and so it sounds like the real takeaway is the the company companies involved in international trade should just accept that and expect the increase in it and just basically be prepared for that.

Susanne: And for business it's always a cost-benefit analysis right.

Dave: Of course, of course.

Susanne: And the cost will not go away.

Dave: Exactly Yep, no, that makes sense. Cost will not go away. Exactly Yep, no, that makes sense. So the last question. So this is the tougher one, and it's okay if you need to take a bit to think about it. So if you could go back in time and give advice to your 25-year-old self, what advice might you give to yourself?

Susanne: When the 25-year-old myself was mostly interested always in international trade but I was interested in outbound transactions doing joint ventures in.

Brazil, in Russia, in travel and really being in private practice in Pittsburgh. That turned out to be a bad business plan Because if I did my job well, like I said, I would find the perfect match in those countries to tend to the client and I might continue having a supervisory role or occasionally advise the client. But if it was the perfect match, even that would start being less and less. So, yes, the more focusing on the inbound transaction is, the better business.

Dave: Okay, so you would have. The advice you'd give is focus more on that import transactions earlier, sooner than later.

Susanne: That's right. And on export transactions dealing with US companies. But don't expect on the outbound side to continue to do the work if they form a company, if they outside of the United States and it's logical, very logical, but the 25 year old me did not see that sure, and what about?

Dave: and what about, like on a maybe a more personal perspective advice you might give yourself of just you know kind of lessons you've learned more on the personal side? You know work, more work, less travel more. Travel, less eat, eat more desserts, eat less desserts. Any advice you you'd have for your 25-year-old self personally?

Susanne: The advice is you need a good team.

Dave: Okay.

Susanne: You just need a good team and pay attention to building that team, and it also you alluded to it balance of life kind of situations One person can't do it all. It's the team that performs.

Dave: Understood Well that is really great advice. Well, Susanne, this has really been fun for me, and I've learned so much about import items that I didn't know anything about, so I really appreciate your time and I hope you have a great afternoon.

Susanne: Well, thank you, David, you too.

Special Guest: Susanne Cook.