Is Your Shop in No Man’s Land? with Dave Capkovitz

Serial entrepreneur Dave Capkovitz, of EBITDA Growth Systems, shares how his experiences have shaped how his company helps out manufacturers who fall into the “no man’s land” ($1-$30 million in revenue). He outlines the process his company has developed that guarantees they will double a shop’s valuation in three years. Dave attributes their tremendous success rate to getting clients the data they need to understand their revenue and costs better. 

Dave also provides a sneak peek into an exciting project aimed at rescuing struggling shops, and it sounds like a Netflix series in the making!

Listen in and get some tips on how to improve your shop’s profitability.

Highlights:

• Dave describes why he likes to focus on helping shops in “No Man’s Land”. (4:08)
• Why EBITA Growth Systems’ process for working with new clients starts with chemistry. (5:38)
• Being a matchmaker for machine shop owners who want to sell. (9:25)
• Why it’s lonely at the top—especially without this (10:23)
• How working in his dad’s machine shop morphed into owning landscaping, trucking & welding businesses (12:18)
• Life isn’t meant to be something we do alone. It’s something we should do together. (17:36)
• It’s all about data and understanding your costs. (19:29)
• “Automagically,” getting data is priceless for a production manager looking at 15 things happening simultaneously.  (30:21)
• Calculating the ROI of investments—a lot of people get it wrong. (31:06)
• Why paying taxes is a good thing. (34:17)
• Money-back guarantee to double the valuation of your shop in three years. (37:14)
• Preview of Shop Rescue—Trying to turn a shop around in 6 months. (39:36)

Links Referenced:

• EBITDA Growth Systems: https://ebitdagrowthsystems.com/

Creators & Guests

Host

Greg McHale

Greg founded Datanomix, a company delivering game-changing production insights and intelligence to manufacturers of discrete components. Datanomix was founded on the premise that the 4th industrial revolution would require turnkey products that integrate seamlessly with how manufacturers work today—not clunky workflows that depend on human input or complex data extraction. He brings enterprise data skills to a market ripe for innovation. Greg has held engineering leadership positions at several venture-backed companies and is a graduate of Worcester Polytechnic Institute.

Guest

Dave Capkovitz

Principal / Owner, EBITDA Growth Systems

What is Manufacturing Mavericks?

Manufacturing Mavericks aren’t afraid to shake things up and stand out from the crowd. They are embracing the best tools and technology to showcase world-class American manufacturing and grow their business.

Join Greg McHale, founder of Datanomix, as he sits down with these exceptional people to hear their stories and explore the important lessons they learned along the way. Listeners can gain valuable insights they can use in their own facilities to improve their bottom line.

Greg: Welcome to Manufacturing Mavericks, a podcast where we showcase and celebrate exceptional people from across precision manufacturing who are boldly embracing new ways to improve their processes, grow their bottom lines, and ensure American manufacturing will thrive for generations to come.

Greg: Welcome to this episode of Manufacturing Mavericks. I’m your host, Greg McHale. As the founder of Datanomix, I’ve had the privilege of visiting hundreds of shops all across the country and in those visits, I have met some of the most incredible and innovative people in this industry. Our goal with the Manufacturing Mavericks podcast is to highlight those leaders, those mavericks of manufacturing who are innovating not just with technology but with culture, people, and process too, so we can all learn not just what they do but why they do it. We’ll dig into what got them into manufacturing, what fires them up to go to work every single day and pour their blood, sweat, and tears into keeping the manufacturing dream alive in our country. With that, I am honored to introduce today’s manufacturing maverick, Dave Capkovitz. Welcome to the show, Dave. How are you doing today?

Dave: I’m doing great. Thanks for having me, Greg.

Greg: A real pleasure to have you on the show, Dave. Dave is a very unique guest for us, because he has a broad spectrum of experience in manufacturing. Dave came into the industry. He owned his own shop. He’s been an operations leader. He’s now one of the leaders of EBITDA Growth Systems helping other shops figure out how to get more efficient, how to improve, how to grow that topline and that bottom line. So Dave, with your unique background and experience, maybe tell us a little bit about EBITDA specifically and your background of getting into manufacturing and having your own shop.

Dave: Man, you just asked me to condense, like, an hour of speak down to one minute and I don’t know how to do this. You can ask me about my background a bit more down the road. Machinist-turned-shop-owner, sold a shop, went into corporate America, climbed the ladder. Then I had this gentleman where I—where I was working had a pretty—a toxic team. I remember my first day I started that—at that outfit. My engineering manager told my production manager he was—he was going to shoot him, and then he left the room. [unintelligible 00:02:15] my quality manager says, “I think he has a gun in a car.” And that was my first day running this plant. I was a—

Greg: No way.

Dave: —general manager and I’m like, “Uh… uh…” so Mike Watkins and I both have a mutual friend, a dear friend named Michael Hersh, and Mike Hersh is such a good guy, but he was a—with the NTMA and Mike said, “You need to join the NTMA. By the way, I know this is going on with your team. I know this is a big project for you. You should talk to Mike Watkins.” So, I meet Mike Watkins. I grab coffee, and man, it was like peas and carrots from minute one.

Mike Watkins says, “I can help you.” But he interviewed [unintelligible 00:02:53] people before he works with them at all because he doesn’t want to work with somebody he doesn’t want to work with. And so, he came in, started—and he worked with me to go through The Five Dysfunctions of a Team with my team, and it was wildly successful. Our profits went way up. The team came together really well. It was really firing on all cylinders. And then Mike comes back to me and says, “Hey, you know, I’ll give you half of my firm if you come work with me, if you leave corporate America, leave your management incentive plan and join me.” And I said, “You know what? You know what? Let’s do it. Let’s do it.” So, that’s kind of the—that’s as short and sweet as I can get it, but it tells the story about how Mike and I met.

Greg: So, Mike is your partner at EBITDA Growth Systems and you met Mike from actually first being a client and trying to help improve the efficiency of the shop that you were at where you were already an operations leader?

Dave: I was their general manager, so I had full [PNO 00:03:46] responsibility of that division. It was a $1.3 billion corporation and I owned all the advanced surgical robotic-assisted surgery parts that we manufactured.

Greg: So, a $1.3 billion company. So, you know, in terms of what EBITDA does and the kind of shops that it helps, job shops all the way up to multi-billion dollar entities.

Dave: We can. We definitely have that pedigree with our team. Our team is the CEO of Flextronics Medical—not CEO. The COO of Flextronics Medical, the COO of Tecomet, the EVP of operations—we got [Remley 00:04:23] Medical director of operations, we got really high-level, C-level type people, but we all have such a deep passion for—there’s a book written called No Man’s Land about businesses between $1 and $30 million, you know, private equity consultants, people that don’t typically target these small business, because there’s quote-unquote, “Not enough money there,” and that’s just—it isn’t about the money. If you’re doing—running a million dollar shop, you’re doing everything, and that’s the person that needs the most help. So, we really take all that C-level experience, and we dive into the people that we feel need it the most.

Greg: So, I’m a $1 to $30 million shop. I’m trying to grow. I’m trying to scale. I’m chief cook and bottle washer. I’m running machines. I’m doing the P&L, quoting. I’m trying to bring new business in, prove out new projects. How do I engage with you guys, and what does that process look like?

Dave: Well, you can always [email me 00:05:23], or you can find me on our website at EBITDAgrowthsystems.com—E-B-I-T-D-A—EBITDAgrowthsystems.com and you can do a ‘Contact Us’ and that goes to me or my sales staff.

But what the engagement looks like is, first off, we need to talk with you. We need to make sure there’s chemistry. We need to make sure that you feel comfortable with us, we feel comfortable with you. Because when you’re asking somebody about their finances, how they measure metrics in their shop, you want to ask them what are their—what are their dreams, both as a business owner and as a person and as a family person. And that’s pretty personal, so you got to be able to connect with somebody first.

Once you get through a connection, people engage with us, they sign a contract, and our contracts are—and they have an easy-out clause, right? We aren’t looking to hold clients hostage for any kind of long-term or anything like that; it’s a couple month cancellation, so we take all the barriers away. And then we come to your shop for a full day. Usually, one of the founders, me or Mike come, and then one of our coaches come. And we spend a full day asking you a series of questions around marketing, sales, finance, operations, and management.

And we go through and help you build all your goals around that, and we pivot on that, kind of like, a plan. Then, every month, we have two two-hour calls with—they’re between an hour and a half and two hour calls with our clients. In the first call, we talk about marketing. What market are you going after? What are you doing to penetrate the market? Then we talk about the sales funnel. What is the marketing—what is your marketing plan doing to fill your sales funnel, and how is that turning over the leads?

As those sales come in, let’s talk about your financials. Are you hitting your goals, are you putting enough work in your business, and are you doing what you need to do to hit your goals? Then the second call is all about operational efficiency. What’s safety? Is your safety in line and turnaround? Talk about your internal and external scrap. What are your quality metrics?

And we talk about your operational metrics. Talk to me about how many hours your people log in to jobs compared to how many hours you pay them. If you quote 10 hours, does it take 10 hours to do a job? What are your real costs around that, right? Then we talk about HR, and what are you doing to shore up—if you’re the chief cook and bottle washer, who’s next in command? Who’s next in charge, and what are you doing to enhance them so you can step away and enjoy life for a couple days and not worry about the shop? And so, those calls, they ebb and flow, but we talk every other week for the most part.

And with that cadence, if something else comes up, we talk about the plan for about half, three-quarters of the call, and then there’s about half of the call that’s, “Hey, I have these issues I want to deal with.” And then they can leverage between all of our leaders and coaching. We have over 200 years’ experience in running and owning shops, machine shops and manufacturers. With that, you can—you can leverage that experience, right? It’s, “Hey. We go through the plan. This is what we’re doing. This is what’s going on. Cool.”

“Hey. I have a couple things I want to run by you. I have this contract with this new—with Gulfstream, and I want to review this and make sure that I’m not left here. How do I negotiate this to get some money down? Because, if I take this job, all the materials are going to take all my cash and how are we going to deal with that?” “Hey, I have Joe or Bob in the back or Sally in the back giving me some issues here. How do I deal with that and make sure I stay good with the HR regulations and make sure I don’t cross lines? How do I deal with these situations?” “I’m in a financial pickle. How do I deal with this?” And so, that’s how the engagement goes and that’s how our relationship goes with our clients.

Greg: I could totally see, you’re an owner, you’re a leader, you’re trying to take the business to the next level. And if you’re in that—if you’re in that 1 to 30?. I love—the love the “No man’s land” analogy, by the way, because it’s so—it’s so perfect for you’re trying to do everything, but you have to stop doing everything to get to the next level. And what it sounds like is you guys are really coming in and helping to systematize how do I get folks out of the fire, get the fires contained and manageable, and starting to do the right strategic things that are going to set the business up for the next level that they just don’t have the time to think about or even implement.

Dave: That’s right. What we do is we put all the business services around that. We do fractional bookkeeping, fractional accounting, fractional CFO. We have what you call, “Matchmaking.” There are some heavy investors in our industry that have over 100 billion in spend combined, and they watch what clients we take on.

And they’re like, “Hey. If any of your shops are ever ready to sell, let me know.” And we pair them up with somebody, and we put somebody that’s a good cultural fit instead of going to a broker and having a hundred different people bid on your business, so you’re not really sure who’s going to be [unintelligible 00:09:54] employees, we help people buy, but we also help people sell when it’s time to do that.

So, everything we do, our mission is to impact lives through improving business performance. It pivots back to Mike and I. We can remember the early days when we were grinding. And you as a business owner, I know you know this, right? We just grind, man. How many hours a day do you work? Well, all of them, right? It [laugh] doesn’t matter.

Greg: [laugh]. Give me more.

Dave: [Unintelligible 00:10:17]. What happens is like, “Man. What’s missing? I wish I had somebody that would say, ‘Ah, ah, ah, ah. Don’t do that. Wait two months to do that. Do this now, and do this later.’” and remember the pain and how lonely it is at the top running your business and how hard it is and how much your family sacrifices. And Mike and I go back to those days, and we can feel the empathy. We have so much empathy for these ladies and gentlemen that put so much work into it and then—and they’re alone. They’re literally alone at the top.

They have friends, but they don’t really want to tell their friends if things aren’t going good. They don’t want to tell their business friends that, “Oh, man”—of course, every business owner wants to go to another business owner and puff up their chests and say, “Man, look at all of the things we’re doing.” They don’t want to say, “We’re having a really hard time. I’m not sure if I’m going to make it next year,” or, “I don’t know if I want to do this anymore.” So, they don’t have anybody to lean into. It’s really lonely. We try to give these leaders somebody to talk to and also have a good—a well of information that they can draw from whenever they need it.

Greg: I love the empathy angle on it, too, Dave. Obviously, you come at this from the perspective of a shop owner. You had your own shop for the better part of a decade. Is that right?

Dave: Yeah. About 16 years, I owned my own shop. In 30 years, I’ve been part-owner or owner of about 9 companies. It’s been a recurring—I have an issue with being an entrepreneur. I love starting things [unintelligible 00:11:43] them and selling them. But—

Greg: It’s a disease.

Dave: It’s—yeah, it’s a wonderful—well, it’s a great game of business. We love it. But right now, we’re—Mike and I? are all-in on this EBITDA Growth Systems because our mission is to help other people. As we sail into the end of our days, how do we dive into people and help them and help their families and help their employees and help their communities? If we can do that, it’s a mission bigger than ourself.

Greg: Why don’t we rewind for a minute, Dave, and let’s talk about how’d you get into manufacturing in the first place, and how did you ultimately get to the point of running your own shop?

Dave: Well, my father’s a civil engineer, and he went from civil engineering—[but he 00:12:23] specialized in foundries. You know what happened to foundries in the ‘80s and ‘90s, right? They started phasing out. So, my dad had this shop called Eastside Machine Shop. It’s no longer there in Ashland, Ohio. And he says, “Hey. I have this guy. I got a job. Do you want a summer job?” I’m like, “Sure.” Because I had been roofing up to that point. I’ve always worked. And roofing, you know, is not [laugh] not very glamorous. So—

Greg: It is if you own the roofing company.

Dave: Yeah, if you own the roofing company. But if you’re just one English-speaking guy surrounded by a whole bunch of Croatans and Czechoslovakians and you don’t know how to speak any of that, you just say, “Uh-huh.” It’s different. All of a sudden, working in this little machine shop was pretty interesting. So, I went in, and they made train car wheels for this foundry.

So, this trolley went back and forth. I had to stick weld, and then I had to bring—put that wheel on a lathe and turn it off, and if I had any porosity or issues, I had to reweld it, right? Then, from there, I learned how to plasma spray weld. And then I got good on the lathe. I kind of stuck with that and then as that progressed, I got out of high school, I got married very young, went to college, and then shortly after our first semester, my wife let me know she was pregnant. I was like, “Ah. How’d this happen? I don’t understand.”

Greg: [laugh]. It’s a mystery, isn’t it?

Dave: Yeah, yeah. Anyway, the one thing I knew how to do was work, so I went, I found this shop. And there was a shop in—Dexter Axle in Albion, Indiana, that they gave me a job in their toolroom and turned me into a tool cutter-grinder. And I started a four-year? apprenti—[audio break 00:13:58] a German gentleman, and that gentleman walked me through a formal German apprenticeship to get a—become a tool and diemaker on a whole bunch of manual machines. Then I went to my boss after I got my card, and I said, “Hey. I need a raise.” And by this time, I had our second child. He’s like, “Ah, we can’t afford it.” And then Christmas came around, and the boss was like, “Man. This is the best year I’ve ever had, the most money I’ve ever made.”

And then I got kind of—I got bitter. I was like, “Okay, well.” I went to my buddy whose sister was really good with graphic arts, and I said, “Make me some business cards. Let me name it ‘C and K.’” Christopher is my oldest child and Katherine was my second child. And I printed up a couple hundred business cards for ‘C and K Landscaping.’

I mowed grass and stuff as a kid, but I had never—didn’t know anything about landscaping. And in three years, we were mowing 1300 acres a week. But it cost me $200 to get into the game. It’s a lower [crosstalk 00:14:51]. The next thing you know is you have a couple hundred-thousand dollar landscaping company that’s doing pretty well.

And then I saved up, and I bought a welder and I started doing some welding for some area businesses, and that turned into buying a Fadal 4020 and then buying a Hyundai HIT-18S CNC lathe. Now, my apprenticeship was all manual machines, right, I was up late at night talking to Korea, Siemens and trying to learn how to program G-Code. And then I bought some [haws 00:15:18] and next thing you know is I had 30-something machines and a 3-shift operation. Then we had—well, we had a set of semi-trucks that were picking up and delivering parts. We had our own trucking company, and then we had a welding company with about 30 people that traveled the country. We had some cranes that did some steel erection and certified welding, and then we had this tool and die shop. So, we had all these things in 2001. And, you know, 2001, 2002, everybody had such a great time with the economy. There was a bit of a dip.

Greg: [laugh]. Yep.

Dave: And I figured work harder and that’s how you make money. I was making decent money, but I wasn’t paying attention to where I was losing and then gaining and losing and gaining. So, 2001 happened, and I got this wild hair. I was like, “You know what? I really want to get into making orthopedic components, surgical instruments, and implants.”

So, I sold my trucking company, I sold the welding company, I sold the landscaping company, and I went all-in on my machining company. I got in with a company called Zimmer, which is now Zimmer Biomet. Then I got into Biomet, and then I got into Smith+Nephew, Wright Medical, this, that, and the other, and started doing a lot of work across the orthopedic industry. Grew that business and I sold it to a gentleman, and he took in 2016. So, the shortest I can put it, but give you a good background on how that happened is, I was running a lot when I was 26, 27.

Greg: I now totally get, you’re fully certified in the entrepreneurial disease. We don’t have to do any more qualification on that one. We know you got it.

Dave: Yeah, if you talk to Mike or my wife, they’ll tell you I’m fully certified all right. [Laughs]

Greg: [Laughs] that’s what I tell my wife. We met in high school, and I said, “It was on the disclosure statement that I had this [laugh] problem when you met me a long time ago.” So it, like you say, entrepreneurship: fantastic opportunities; fantastic potential; obviously, can be taxing on the individual; can be taxing on the family. And that’s where I really appreciated what you were saying about seeing not—it’s past the P&L but to the people behind it, right? And what is it that those people need in order to be successful and create the outcomes that they’re looking for, you know, and you guys helping reduce the burden on that? I think it’s a fantastic story rooted in you carrying the bag yourself for a very long time.

Dave: It’s hard to look back because I had some really good successes and I had some really big failures. And when I had my failures is when I didn’t have anybody to talk to, and I was trying to do it on my own. And that’s something that I’ll never forget and that’s something that propels me today. So, I think when we swallow our pride for a second and talk to someone who’s been there, you can really go so much further in life. Because life isn’t meant to be something we do alone. It’s something we’re meant to do together.

Greg: As you go into the different companies and shops that you help today, what do you see as some of the most effective cultural styles, management styles, that help those companies get to that level of it’s not as crazy, it’s not as hectic, people are feeling good about it, and it’s showing up in the numbers, and it’s making quality of life better for everybody? Usually, I ask shop owners, “Hey, what’s your culture?” But I think you have a fantastic perspective in that you’ve been in—what—thousands of shops, probably, and you’ve seen a lot.

Dave: Yeah, yeah. I’ve been in, definitely, hundreds of shops. Yeah, probably over a thousand. When I meet new people and see new shops and see new processes, I’m always—I’m always taken aback at how much talent there is in the manufacturing industry. When you give a machinist a toothpick and a napkin, they’re going to figure out how to make a titanium bone plate and I don’t even know how that happens.

Greg: [Laughs] it’s true.

Dave: It’s so [unintelligible 00:19:02] seeing the ingenuity and everything that goes with the people in this industry. Because they’ll say, “Hey, if trucks stop, the world stops. If farmers stop, you don’t get any food.” It’s like you don’t even have a truck without a machinist. You don’t have a tractor without a machinist. You don’t have a car. You got nothing. So, let’s just start with machining first, right? The machinist makes the machine; the machine makes parts. It’s one of those things that’s so critical.

But as I go through all these shops, it’s all about data. It’s something that I didn’t embrace until later on in life, until after I actually sold my company, and I was in corporate America climbing the chain. It’s all about data. Because these shop owners, they have huge technical skill, right, but the business acumen around the technical skill is more than just managing your bank account. It’s about understanding the inflows of work and the data it takes to get things into the sales funnel, the data it takes to turn a sale into the sales funnel and get it closed, the data it takes to get into your accounting system, the data it takes to get a job on the machine, understand what the machine’s doing, how the machine’s behaving. Do you have flow? Do you not have flow?

Understanding the data that comes out of the machine and the part and then all the data around the part, the data around your tools and then—and then the data in inspection, and then the data going out to the customer properly and then coming back into your P&L as cash. So, it’s all about really understanding all these facets of data and understanding how to mine that data and read the data, so it can tell you what’s happening. So, the P&L and all of the financial metrics, that’s nothing but the scoreboard at a football game. It’s football season, so let’s talk football, right? The financials are your scoreboard. That’s your, “Hey. This is what’s going on.”

It has already happened and this is the data. The real-time data—you know, Datanomix is fantastic software; of course I wave you guys’ flag, right—the real-time data is, “Okay. How long does this setup really take?” I can’t put my thumb in here and say it’s going to be two hours. It’s really 3 hours and 45 minutes and 12 seconds. What did I bid, and how long did that take? How much downtime am I having with my equipment? What is my utilization?

People think of utilization and it’s like, “Ah. That’s a corporate term. We don’t really worry about that,” but if you’re a 5-person shop and your utilization is 20 percent, and you make a hundred bucks an hour, but only 20 percent of the time, you’re never going to make any money and good chance is you’ll go out of business.

Greg: You’re actually a one-person shop at that point, right? [Laughs]

Dave: Yeah. You’re going to stay in your garage, and until your utilization is such that one man, one machine all the time? right? until the utilization gets to a certain part, but if you don’t know what that is, you can be bleeding money and never know it, because the P&L says, “Oh. You bid this, you did this, and you have some labor costs.” And it’s like, “Man. I’m charging X amount of dollars an hour, but I’m not making—I don’t have any cash in the bank.”

You have to understand utilization. So, it’s all about understanding how to read that data. And the one big gap we see in shops—and sorry it’s taken me so long to answer this question. It’s just so multifaceted—but the one big gap is, people don’t fully understand their cost. It’s probably the biggest issue we see, even with very substantial businesses.

We helped a $140 million company out. They got Mike and us—I to help them for about 10 months. We created about $35 million of enterprise value in that 10 months for that company, but it was about understanding their costs and rightsizing their pricing to make sure they’re at least getting the targeted profit margins, right? And then jobs that they’re losing a decent amount of money, they’re cutting those jobs. It’s something that you have to know what your cost is to even understand your profit, to even have a plan to what you’re going to do with your profit. So, it’s probably the biggest gap. And then the other is just understanding the data that’s happening in the shop and understanding how to read that and run a day-to-day operation.

Greg: I obviously love the perpetual use of the word, “Data, data, data, data,” throughout the course of going through that. I think one of the biggest things you see is that data gap. You described the entire quote-to-cash cycle, basically, of data here, data there, data everywhere. And I think one of the things for the manufacturing industry in particular is, what are some of the easiest and best ways to make use of data at different parts of that journey? When you come into shops, what do you see as baseline, state-of-the-art for where people are at, and what do you see as some of the quickest wins to either start getting the data or do a little more with data to get them to that next level?

Dave: Well, we always start with financials because we got to look at the scoreboard. We pull up two or three years of financials, and we look at it in a month-by-month basis to understand the cycles of the business, the sales cycles of the business, the profitability of the business, and then we dive into what market are? you in? Are you doing automotive work, agriculture work, are you doing space DOD work, aerospace work, medical work? What kind of work are you doing? Because we work with enough shops around the US that we understand what markets yield what kind of profit margins.

So, we see the market they’re in, we see the financials, and then we walk the shop, and we see—we look for efficiencies. We look for, are you automating anything? Are you paperless? Are you using an ERP system and are you leveraging the ERP system? How are you measuring what’s happening on your machines? What is your yield? What’s your quality look like?

Is your scrap 0.1 percent or is it 12.8 percent? right? or 25 percent? What is your earned hours? What’s your earned hour metric? Are you paying your team 100 hours per [se 00:24:57] and you’re only billing out 30 hours a week? What’s happening to those 70 hours of indirect time? And we really balance those, and then we boil that down into a costing metric—and you’ll see this coming to our event, right—and we’ll say, “Okay. With this data that you know, what does life cost you on an hour-by-hour basis?” Okay, great. Now, we know our cost.

Now, we can start. And, “Okay, what profit are you quoting?” “Well, I’m quoting 30 percent.” “No. You’re actually quoting two and a half percent because you were quoting all your [unintelligible 00:25:26] costs.” I mean, and just an easy one: we had this, “What’s in it for me,” conference a few months ago, and we said, “Do you ever think about billing for your supervisor? Because your supervisor’s not running the machine all the time, if at all. The supervisor’s keeping all your direct labor moving. Do you have them in your quote? Is that part of your cost structure?”

And then, most people are like, “Oh, wow. You mean the supervisor’s not free?” [laugh]. It’s like, “No, no.” Once you understand your cost, your fully burdened cost, you can take that and say, “What’s the margin we need to make for our goals?” And if the margin’s 25, 30 percent net profit—I’m talking profit margin—then you have to figure out what market bears that.

Because automotive doesn’t bear 25, 30 percent net profit unless you have extreme automation and extreme volume. That’s when you can make money in automotive. Now automotive, short shops, stuff like that’s very difficult to make that kind of profit margin, so you need to be in a very specialized, regulated industry, right? And then we play that game, and we say, “Okay. This is what you need to do to get to this kind of profit margin.”

And we let them know what’s good, what’s not good, according to the industry data that we have. I mean, we’re challenging a lot of the financial data in the—in the manufacturing industry from a lot of older sources and saying, “Is your data good?” “Well, we think so. We have people fill out surveys.” It’s like, how do you know your people are filling out surveys accurately? Because we see people award—we see people that were clients—or are clients—that win awards, and I’m like, “Mmm. Mmm. I don’t know about that.” [unintelligible 00:27:02].

So obviously, we’re super confidential with everything, but you can beat a survey just because you can answer questions the way you want. But we have over a hundred data points every month in what’s happening with markets and what’s happening with machine shops, and we can tell you what good is. And I think—I don’t want to be cocky, but we’re probably one of the better ones at telling you what good is in the entire industry.

Greg: It’s fascinating. You talk about really taking that bottoms-up approach to what are the actual costs. What are all the things that you [pay 00:27:37] for, and how is that going to show up and ultimately—you know what you sell the part for? You talked about target margins and things like that. I mean, I was blown away when we started Datanomix, and I’m spending time with shop owners, and I’m like, “Well, how do you measure profitability of the business?” In many cases, you get answers—and this is definitely true in that No Man’s Land 1 to 30 segment—it was like, “Well, the cash coming in exceeds the cash going out.” I’m like, “But how do you know? What is driving whether that number’s going to be bigger or whether that number is going to take a hit?”

And you learn that, fundamentally, job costing is an incredibly difficult activity because of where the data is, how it is, how you then get it matched up, the indirect labor, the logged hours, what really ultimately happened on the machine. And then you figure out that cracking the code at predictable and repeatable margins on jobs is the magic bullet that folks have been missing on how to guarantee the outcomes that they’re trying to create that they haven’t had visibility into previously.

Dave: You’re so right, man. I was privileged enough to work for a company called JPMC, Jade Precision Medical Components. They’re currently owned by ARCH Medical. And my boss’s name was [Winner Delp 00:28:58], and Winner was one that really invested in his team. He was a gentleman that never would answer a question directly. He would always make you think.

He was one step removed from a Deming disciple, so he was very, very, very data driven. What he did in our shop is he hired a—somebody had his PhD in statistics and he said, “You’re in charge of continuous improvement.” And so, before we had something like Datanomix, we were using Minitab, right? And so, he taught me how to use Minitab and dive into every statistic in the business to understand why are machines happening? Why are these things happening on these machines? Why are these things happening with people? Why are these things happening with quality? And so, I got really good for about six years at answering the why. And man, do I wish I would’ve done that 20 years earlier.

But when you really understand the why, and you have the data to prove it, and you really understand this is exactly why this is happening, you get really good at root cause analysis. And when you get really good at root cause analysis in manufacturing, you can put up walls against Murphy and keep Murphy out, as far as Murphy’s Law, right? And so, that’s why you and I get along so well, because I love the data, because the data tells a story. But what’s better than Minitab is having a software give you the data automatically. Or there’s a lot of people I know that call, “Automagically,” right, they give you the data, and you’re looking at it in a coffee cup report, and this is what’s going on. And I know exactly what I need to go and, hey, there are 15 things happening, but only 1 needs my attention. I’m going to go deal with the one. And for a production manager, that’s priceless.

Greg: Love it. Love the plug for the—for the coffee cup report. And I think you hit the nail on the head with our partnership. Obviously, Datanomix and EBITDA have been working together. Some very cool projects that are going on.

Before I jump into? one of those that I wanted to come back to, Dave, was talking about that visibility into you guys know what best in class is. Knowing the margins and the target industries, I mean, what a strategic advantage for any company to be able to benchmark themselves against. In addition to that information, do you guys have insights into ROI of investments that these companies are making, whether it’s automation, machine types, digital technology, software, et cetera? Have you started to compile some insights on that domain?

Dave: Yes, we have. My business partner built an ROI report to dive in and understand when you should buy, what you should buy, and what that yield will be, and we have benchmarks of how long that ROI should be. We pivot off of a lot of financial metrics, but I mean, debt-to-equity, and we really—their debt-to-assets, and we understand how much burden is the business carrying, and is it ready for more burden, and what’s the trajectory, and what’s in the sales funnel, and what’s happening financially, and what is that—how has that trended? And then we use that backbone of data to generate what would the ROI of this investment be, be it buying another shop and adding on a specific technology, buying a specific technology and software, buying a specific technology in automation or a machine tool. And how do you analyze that?

So, it’s really neat being someone that’s been there 150 million times—I’m exaggerating—but talking to somebody who’s never done an ROI analysis and saying, “Okay. Why are you buying this? How long is it going to take to pay for it?” “Well, it’ll pay for itself somewhat—” No, no, no, no, no. Don’t look at it like I made a million dollars, I’m buying a million dollar machine. Well, that’s revenue. You can’t go to the grocery store with revenue; you got to go to the grocery store with profit.

So, how much profit is that a million dollars? Okay, the profit’s 200,000. Okay. So, if you buy 200,000 machinists, 12-month ROI on that. It’s not a million dollar machine. That’s a five-year ROI on that. You got to understand that you’re buying things with profit. You’re not buying things with revenue. I mean, some people, “Man. I want $10 million in revenue.” It’s like, “Yeah. You make $1 million on $10 million. I’d much rather make $1 million on $5 million in revenue.” You know? Life’s a lot better that way.

Greg: What a superpower to have that data set, that insight from so many P&Ls and, of course, what the companies that are trying to grow are doing and what works and what doesn’t work. Man, if I owned a shop, just spending time on that piece of the model with you would clarify so much for the business about what really do we need to be doing to increase the profits. And then, with those profits, how should we be deploying them to then get to that next—that next level of growth and profit that we’re looking for? Also love the ‘you can’t take revenue to the grocery store, but you can take profit to a grocery store.’ That is a borne of experience insight right there.

Dave: So true, man. When I first started, it’s like, “Look. I made my first $1 million.” It’s like, “What’s on the bottom, buddy?” There’s 50 grand.

Greg: [Laughs]. Eight bucks. [Laughs]

Dave: [crosstalk 00:34:06].

Greg: [Laughs]

Dave: [Laughs] a million dollars and I made eight bucks. Or, “Man, I’m so glad I got to turn in a loss to the IRS this year.” I’m like, “Dude, [unintelligible 00:34:15] business just to turn in a loss? I want to pay taxes.” Everyone’s like, “Why would you ever say that?” It’s like, “Because, if I’m paying taxes, it means I’m making money.” If I’m not paying taxes, it means they’re just—it means the governments giving me so much pity that they don’t make me pay taxes [laugh]. That isn’t what I want.

You have to kind of… actually—it’s really hard to ask for help. A lot of us have a lot of pride in what we do. We have pride in our workmanship, and it takes a lot for someone to say, “I don’t know how to do that.” I know I can make anything you throw at me. Give me a piece of metal and a machine, and I can make anything.

But it’s really hard for business owners, especially some of the baby boomers who are still in business, very difficult to ask for help. That’s probably the biggest hurdle we see with shop owners. It’s the biggest difference between—we have some clients—Greg, it’ll blow you away. We have some clients in the 40 percentiles as far as how much EBITDA they drop to the bottom line. Forty percent. Forty, forty-two percent. We see 36, 38 percent.

And the people that are less than that are typically the people that’re like, “Eh. I don’t know if I want to do that. Ah, I don’t know. I don’t want to get out and sell, and I don’t want to go out—I know the market, and I have my hat hanging on this, but, man, it’s real comfortable behind this desk. I don’t know if I want to go talk to somebody.” Because it takes a special cat to go up and talk to somebody they’ve never met before. So, hire someone to do that, you know? Get a manufacturer’s rep. Get somebody to get that sales in there, so you can pick and choose what’s best for your business.

But it’s amazing some of the profits that we see from shops that listen and take the advice. We had one shop in particular, I won’t mention their name, but I could not be more proud of them. They had a valuation—we started with them about two years ago—of about $18 to $20 million. I think they will wind up selling for around 45 to 47 in 2 years. And they had all the tools. We just helped them put these tools in this drawer and those tools in that drawer and do what they needed to do as far as leadership and investing their people.

And those guys, man, every event that we have, they’re there. They ask a lot of questions. If you say, “Go try this,” they do it. And you know what? They keep bringing home more and more money. They are such a joy to work with. We love our customers. They’re all like family because we spend so much time with them, right, but to see somebody succeed, we’re not making that money, but I bet you we have almost as much joy as they do with the money, because we’re seeing someone succeed. And then for us, we celebrate that in a huge way.

Greg: That kind of growth in that period of time, too, growth in the enterprise value where the amount of capital they have to deploy to get there is probably not that significant. Like you say, it’s rearranging the tools, lining things up. “Do less here, do more there. Do this a little bit more efficiently,” I mean, 2X, 3X in that period of time is absolutely insane. I don’t know who wouldn’t want that, Dave [laugh], but I’ve got the disease.

Dave: Well, we guarantee to double the valuation of a firm in three years or give them their money back. That’s what they say. There’s all kinds of legal stuff around that statement, because if you tell—

Greg: —yes. If they don’t do anything they’re supposed to, I mean, come on.

Dave: Yeah. But that’s our guarantee, and we usually always meet that. Our average is, like, 16 and a half months. And our ROI for covering our fee is right around 90 days. It doesn’t take very long. It’s just, “Hey. Do you want to listen? Do you want to try?” And the people that don’t listen and don’t want to try, those—hey. We give them a big hug, and we say, “Have a wonderful Christmas. Enjoy your family. We’re going to go over here, and you’re going to go over there. We’re going to part ways in a—in a—with a great attitude.” We don’t get sour with anybody.

But do you want to listen? There is a group—I’m so fortunate to have the people that I work with working with me: Mike, Bernadette, and Sam and Dan and Marty, the list goes on and on. And those people want to help other people. And when you have a group of people that want to help people, shoot, for us, it’s just fun. All you got to do is ask.

So, all people have to do is ask, and we’re here. In fact, there are people that call me up and ask me business advice, and they aren’t clients. But I build that relationship and I lean into them, because if someone needs help, I want to help them. That’s who I am.

Greg: Great to hear, again, where the passion comes from, where the drive to help people comes from. Obviously, serious empathy in everything you guys do. I think the total story is fantastic, Dave, and I know for a fact, I’ve seen a lot of the data behind shops as well, particularly on the machine side and the performance side, and the amount of opportunity for the shops that want it, the growth that’s there, the untapped potential that’s there is literally sitting at their fingertips with the right tools, the right processes, the right methodologies, the right business development, the right sales and marketing. I have no doubt they can double that value in that—in that time period that you’re talking about. And speaking of which, I keep seeing these teasers on LinkedIn about EBITDA and Tony Gunn and a potential Netflix series. What’s going on there, Dave?

Dave: We got this passion, right, and I have this uncontrollable mind that always comes up with new ideas. And so, I grabbed Tony in Cleveland earlier this year, and I said, “Tony, I got this idea.” I said, “Have you ever seen that show, Bar Rescue?” He’s like, “Yeah.” “I want to build a series called Shop Rescue, and I want to find the shop that needs somebody really bad, and I want to dive in for six months, and I want to see if we can turn a shop around in six months with partners and getting into it.” Right?

And so, we found a shop that’s local to us—thank goodness—these guys are working 90-plus hours a week, and they’re working seven days a week. I’m like, “Where are you sleeping?” He said, “Sometimes at the shop.” I’m like, “Buddy, I feel so bad for you.” He’s engaged. I’m like, “How’d you get engaged? How did this even happen?” It’s like you’re running a marathon.

Greg: [laugh]. She works at the shop too. [Laughs]

Dave: So, it’s like, “Okay. We got to do something here.” We engaged these fellas, and we called—we called you guys up, and we called other people up and said, “Hey. We want to help other people. We want to help the shop.” And so, it was really cool. Companies like Datanomix was like, “Heck yeah. How do we do it? How do we help?”

And so, Tony and me and guys like Datanomix all got together, and we poured into this little shop. We poured in, and you’ve been—you’ve been—you’re paying attention to the industry. You know the DOD, there’s almost a little hitch right now. So, there’s money being set aside, but with the government arguments and geopolitical issues, people are slow to release some of these defense jobs. Sp Boeing has millions upon millions of dollars in POs that aren’t yet cut for different missile systems, and all kinds of things are slow-rolling. So, we’ve seen about eight or nine months of stall. Have you noticed that in the space in DOD area?

So, these guys are in that field, and they had this stall right when we started to help them. It’s like, okay, well, as it sees fit, the powers that be said, “Hey, Dave. We’re going to give you the biggest challenge of your life.” And I love it. So, we show up, and it’s like, “Okay. What are your cost?” “Well, I don’t know. We just work. We just work, man.”

And the cost they were charging clients was one-third of where they needed to be, because they were—they were listening to the buyers on what to charge. These guys are working 90 hours a week because they had to make up for the lack of—they had to work 90 hours to get 30 hours pay, and it was crazy, because it was in their costing. So, we worked on their costs, really drove down. We partnered with you guys, partnered with ProShop, partnered with Paperless, and we really got into the nitty-gritty, into the data and said, “These are your real costs and these are your real utilization numbers. Based on utilization, to clear your costs, you have to charge this much an hour. Don’t ever go below this.” And they used this number, I’ll take one of Brandon—I have a friend, Brandon [Dahms 00:42:15]. He says, “Happy days, right? These are your happy days numbers.” “And this is what we want you to shoot for, but don’t go below this number.”

And they rightsized those numbers. Now, instead of getting 20 quotes a month, they got—started getting 10 quotes a month. Instead of landing 10 jobs a month, they were landing 5 jobs a month—I’m using fictitious numbers—the 5 jobs a month, they were making more money than they were in the 15 jobs a month. So, because their profit rightsized, they’ve made it—they’ve had profitable months every month since they started our business. They went from losing money to making money, doing less work, and actually, they’ve weathered this storm because they rightsized their pricing, because they went after specific kinds of work, because they had support like Datanomix, ProShop, Paperless, because [Blauser’s 00:43:04] came alongside of them. I mean, all these people come alongside this shop.

And Tony and I, well, Tony likes climbing higher than I do on these mountains, but we got these—we got these bullhorns, right? Got these bullhorns, and we’re like, “We want to tell everybody about this.” So, we had the first, second filming. The third filming’s the end of November after Thanksgiving. Man, these guy—I took them golfin—actually, you know what? They took me golfing the other day. I just spent some time with them, and they’re like, “You know what? We’re doing less but doing better than we ever have.”

Greg: Time to play golf, man. What’s the better metric than time to play golf?

Dave: Well, they still have the disease, man. It’s like, “Where’d you come from? It’s Saturday. It’s 3 o’clock. Where’d you come from?” “Came from the shop.” You know, so [laugh].

Greg: Yeah. Yeah, yeah.

Dave: But these two brothers, I mean, they’re such a blessing to us, and they’re such good guys, and it’s starting to catch on, man. They’re starting to do really well. And their biggest customer, they’re like, “You know what? I don’t think I want to work for the biggest customer anymore, because we’re charging our low-end rates and they’re saying we’re double.” If the only way for us to get this work is to charge $40 or $50 an hour, and you can’t support a $200 or $300,000 machine on $40, $50 an hour, especially when you’re paying guys $25, $30 an hour today. I mean, you can’t. It’s a zero chance of making any money.

The problem is, is there are other shops that’re doing that. And these are, like, laser-guided missile systems. And it’s—so I’m like ho—it’s this stuff to the cheapest bidder, you know, doesn’t—quality only carries so far with some of this stuff. So, they found some other customers that really value them. They’ve got AS9100. They just cleared that. I don’t know if you noticed that.

Greg: Oh, awesome. Yeah.

Dave: Yeah. They just got the AS9100, and they’re—and they’re taking on some new work and things are going really well. Now, it happens to be, when I was—I used to volunteer for a youth organization when I was younger. I did that for about 20 years, helped out. I’ve always been on the edge of where I’ve—I wanted to help other people. One of those people I helped out in youth is in Hollywood. In fact, they did their big debut there at this—they were on Broadway this last week.

That person’s good friends with somebody at Netflix, and that guy says, “Hey, you know, when they get this published, we might want to look at that.” So, that’s all that is. It isn’t like we had this big signing deal in Hollywood or anything like that. But you know what? I think there are a lot of people that want to hear about what goes on in a shop. And the fact that we can turn something around in six months, I—if anybody finds it half as interesting as I do, it’s something that I’d want to watch.

Greg: No doubt. I mean, I think the stories of the folks that are there, what they’ve—what they’ve been going through personally to stay afloat and how much better they’re doing, you know, their increase in performance, their increase in profitability, and their increase in personal satisfaction, right? I mean, who doesn’t want to see the entrepreneur who’s grinding and grinding and grinding, like you said earlier, find that lever that relieves them of a lot of the challenges and complexity but gets the business to the next level in doing that. I mean, I logged in to look at their ROI Hub Report inside of our product, and I don’t—these numbers are so good, I don’t know if you want me to say them out loud, or we should hold our fire for the—for the release of the series, but these are—these are unbelievable increases.

Dave: That’s awesome. You’re actually seeing it on the data side?

Greg: Yeah. Do you want me to say what some of them are? Can I go there?

Dave: Let’s go there. Tell me. Tell me what they were and what they are.

Greg: You started the process of working with these guys—what was it—June, July, Dave?

Dave: Mm-hm. Yep.

Greg: I show us hooked up to those machines starting in July and their capacity utilization—which is fundamentally spindle-on time, green-light time—up 105 percent since we first connected to their equipment. Their performance-to-target cycle times, up 77 percent since we first connected. Those two things alone, increase in utilization, you know that’s the revenue, but you can’t take that to the grocery store. It helps, but you got to do—you got to do the other part of it, that performance-to-the-target cycle times, that’s all profit margin. That’s speccing the jobs right, quoting them right, running them right, getting over to the next thing, getting through set up, getting through changeover, optimizing that indirect labor. All that stuff shows up in that cycle-time performance. That’s going to hit your favorite word. That hits the EBITDA line, right?

Dave: That’s right. Yeah, you can see it in their face, Greg. When I saw them Saturday, you can see it. It’s good stuff. It’s extremely rewarding. It’s extremely rewarding to have a couple young gentlemen that learned how to machine on YouTube—they learned how to machine on YouTube—and they’re running a business, and they ask, “Hey, what should we do here? What should we do there?” And we give them good advice, and they do it.

We don’t give people advice because we want to hear ourselves talk. We do it for them. These guys are taking it, and the data says—data, data, data—the data says they’re doing it and doing it well. I happen to know that they’re pricing? with a profit in mind. So, not only is their utilization up, the money that they’re making? the chips that they’re making are profitable chips. And that in turn is going to give this gentleman and his new wife time and money to go do something together. And I couldn’t be more happy for them and more proud of them.

Greg: Lovely story. Really looking forward to seeing the series when it comes out. So, you said last filming’s going to be around the end of November, and then when should we anticipate that hitting the various channels?

Dave: Q1, probably end of January, but we’re going to have this—we’re trying to figure out how we’re going to do this really cool thing with all of the sponsors, almost like a red carpet day to where we send you guys popcorn, and we send you the inaugural viewing, and only the sponsors get to see it, and we all watch it together. And then—before it gets released, then, you know, [MTDCNC 00:48:42] will—and Tony—will do their thing, and we have our YouTube channel and that’s where she’ll go. And it’ll take off. I think it’s going to do pretty well. I really do.

Greg: I have no doubt. I mean, when I see—knowing the folks involved, the family involved, your process and methodology, the results that they’re seeing, the happiness that they’ve achieved, there isn’t—there isn’t a better story. It’s better than a Hollywood story, right [laugh]?

Dave: Yep, yeah. Well, some people put money into fliers and all kinds of LinkedIn ads and stuff like that. I decided to do this for marketing because I want the shop owner that’s $2 or $3—or $1, $2, $3 million that’s really struggling, I want them to look up and say, “I don’t have to do it like this. I can go make money. There’s help right around the corner. And I can call these guys; they can help us.”

This, for us, is we want to—we’re hoping to reach other people that need it through this. So, this is all about other people. It’s not about us, but how do we reach the shops that don’t think that they can do any better, that have to—that think that they have to work 80, 90 hours a week? Their marriages might be in shambles, they might have not seen a kid play a sport in years. And that time it—that’s probably my biggest regret in life is working so hard and missing time with my kids as they were growing up.

Thank goodness I turned it around and spent time with them on the—on the—after they were about halfway through, right? But it took me a minute to realize that. So, we’re hoping to impact people that’re going through tough times and help them realize that there’s hope around the corner, and it’s well worth it.

Greg: I know our team couldn’t be prouder and more satisfied when they walk into that shop, and they go to help the team there. What’s the next level, what we can do with the data? “Hey, all right. We tuned these set-up times. Now, we want to get—we want to get these cycle times better. Help us use this to run these jobs a little bit better.” And we’re doing this like you: support the cause, support the industry, support a company in need.

When our team leaves that site, they are as jazzed as any other place they’ve ever been, in terms of customers that we help. So, you know, when you’re doing it, and you know it matters, and you know what makes that real impact, there’s no better reason to be involved than that right there.

Dave: A hundred percent. And I am very thankful for you guys at Datanomix. And Lisa’s such a joy to work with. But thank you so much for being a part of it. I mean, without partners like you guys, this couldn’t have happened as well as it did. So, we couldn’t be more thankful.

Greg: Your vision. We’re just living it, Dave [laugh].

Dave: [laugh].

Greg: We’re just helping bring it to life, so we appreciate it. I don’t think we can end on a higher note than that. So, Dave, I’ll say, it’s been fantastic having you. Your wealth of experience, the disease of entrepreneurship, how you’ve been a grinder, multiple businesses, owning a shop, and then now using those insights, using that knowledge, to help others in that 1 to 30 million, “No man’s land.” Again, love that term.

Everything you’ve learned and everything you’ve seen from how to have that impact and help shops be successful. Couldn’t have asked for a better conversation, Dave. I learned a ton. Really appreciate your time and your insights and looking forward to the launch of the Shop Rescue series and seeing that on the big screen with my 3D glasses and my giant bucket of popcorn.

Dave: [laugh]. Well, Greg, I look forward to it. A quick reference. The book, No Man’s Land, is written by Doug Tatum, for those that want to look it up and read it. It’s where growing business—where growing companies fail. And I can’t wait to see you at our business planning session in November in Golden. I’m excited about the, you know, data-driven conversation you’re going to have about how important it is to measure stuff and how that plays into business planning. I’m really excited to see you here next month.

Greg: I’m looking forward to that, too. I’ve actually never been to Golden, so I’m going to enjoy it.

Dave: It’s going to be good. It’s going to be good. Thank you so much for having me, Greg.

Greg: Awesome. Thanks, Dave. Really appreciate it.

Dave: Absolutely. Any time.

Greg: All right. Take care, Dave.

Dave: Take care.

Greg: Thank you for listening to Manufacturing Mavericks. If you’d like to learn more, listen to past episodes, or nominate a future Maverick to be on our show, visit mfgmavericks.com, and don’t forget to subscribe to and rate this podcast on iTunes, Spotify, Google Play, or your favorite podcast app.