MATT MOLDENHAUER- ROLLING OUT TECHNOLOGY AND SYSTEMS IN THE TIMBER INDUSTRY – EP.87
My guest in this episode is Matt Moldenhauer. Matt is the president of Bellwether Forest Products, an integrated wood supply company owned by a family office called Elmore Companies, where Matt is also a partner. Matt became president after Bellwether was acquired in 2016 and has grown the business from 13 employees to over 60 today with plenty of ups and downs along the way.
In this episode, we talk about identifying and promoting talent from within, running an asset-heavy business, building trust with your team and customers, adding technology and systems, the fragmentation of the timber industry, and their broader timber acquisition strategy at Elmore. Matt was recommended to me by Rich Jordan, who I consider to be a phenomenal operator. And when he recommends someone I listen closely, I think you’ll see why in this episode.
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Thank you, Matt, for coming to the show. It’s good to talk to you. Good to see you. I’m excited to hear all about logging and building mutually beneficial relationships with suppliers, hiring from within, all these different tasks and topics. Would first love to hear how you got into the logging business and what was your career prior?
Yeah, thanks for having me on. I am always excited to share more about the business I found myself in that doesn’t get a lot of attention and it’s just fun to bring it to the surface. I think my background is completely different from the industry I found myself in now. I grew up in Wisconsin, started in the corporate world at a big printing company, printed magazines and catalogs, and doing, estimating and pricing and contract negotiation for them. Found out quickly that as the iPad was coming up, that business wasn’t going to have a long future for me and the career place that I wanted. So I ended up going back to business school, Indiana University at the Kelley School of Business, and spent a couple of years there, which was great. And I learned a lot, met a ton of great people, and coming out of there, I was very fortunate to land an awesome opportunity at Bain and Company, which is a major strategy consulting firm in their Chicago office, which kind of continued me down this corporate path, which was working with big companies and their executive teams on large projects and doing all that.
So I really was on that corporate train for a while, but as I got further along in my career I realized I was interested in operating and doing something a little bit more than just PowerPoint. And when I was at the Kelley School of Business, I had met two of my now partners, Gantt and Lauren Elmore from Elmore Companies. And they had been investing in small companies with their family, for their family of doing it for three generations. And they approached me as I was getting ready to think about leaving Bain and said, Hey, we found this logging company in South Carolina, and we really like it. Would you want to run it? This was[redacted]I had never heard of ETA or search funds at any point. It felt like a great alternative versus going to be the director of the strategy at a corporate firm, somewhere around Chicago or something like that, which were the major alternatives I was considering.
I still remember sending my email out to everyone at Bain. The tradition when you leave that firm because consultants leave frequently is to send a goodbye email thanking everybody who’s gotten you to where you were and telling everyone where you’re going, and I’m going to be the Director of Strategy here. I’m going to be the VP there, higher-level people leave for C-suite jobs. And I said I’m going to run a logging company in South Carolina that has 13 employees. And I got so many emails from people at the firm wondering what the heck was going on. And if I was all right, and that’s what I’ll always remember is making the leap to do this. And it really was a leap for me to come into the space, but that was it. I can tell a story of why I convinced myself I was qualified to do it, but the truth is I wanted to do it. And I thought the timing was right for me. And I felt as though if I didn’t say yes to the opportunity to change career paths from corporate to small business operating at that time, I would just always find reasons to say no. And so I said, yes. And it started learning.
Any memorable emails, like any ones that stand out in your mind when you think back on that time?
Yeah. It’s funny because I can remember specifically the two types of responses, which was some of the people I really love on the firm who said, I’m so excited for you because I think even without maybe the exposure now that I’ve gained at ETA search, there are certain kinds of people that just are excited about a non-traditional opportunity. And I fed on that because the other 70% of responses I got was like, what are you doing? Are you still living here? Are you leaving? Could you not find a job? Did you need more contacts? I’d love to connect you with some folks. And so it was a lot of, ‘Oh, you must not have had any other options.’ It was funny. Cause I just think it was a different time. And in that world of corporate consultants at that time, it just wasn’t a frequent thing. And nowadays it’s funny. I have a couple of friends that I’m working with actively that are trying to get to this space. And I guess they took, tell me, or talked to me around the office and say that I’m the ETA OG for the Bain Chicago office, which is hilarious to hear nowadays thinking back on the reactions in 2016.
How do you think they would react? If some of the folks were trying to make that same leap, send out that same email?
Nowadays, I think it’s more mainstream. People understand it. I was a case team leader, which is a senior consultant at the firm. Now there are people that are more visible in the firm that are managers and even principals that are looking to do this. I think you hear a lot in space, for me, it’s living at a lower income that makes it a lot easier to swallow the uncertainty of the early days of buying a business and having no idea what’s going on, and needing to be flexible. I see a lot of these guys that are leaving at later stages, they have more to take care of and more to think about and they want bigger businesses and all those things that challenged the model. But that’s what I think is interesting. The model is that it’s still, it can be molded to fit a lot of different circumstances because there’s no shortage of different business models and sizes out there. And so no matter who you’re talking to, they have different search criteria, but in almost all cases, there is an opportunity for them. So yeah, just a lot more mainstream than it was back then. But I like to be an early adopter, I guess.
What did you know about the logging business before you started running this company? Did you have a case at Bain that dealt with the logging industry in some capacity, was your previous print publishing experience helpful in some way, or was it a clean slate you came in and just ready to learn from scratch?
Yeah, I think I’ll answer that by telling you what my pitch was when I met our customers and they said, why are you qualified to be running this company? And I was well-trained in a consulting background to walk into a room with absolutely no experience and spin a story to make yourself sound qualified, to be participating in the project. For me, it was, I spent the first 4 years of my career at quad graphics, which was a printing company that printed catalogs and magazines as part of what I did, negotiated contracts for many of our large customers, and we bought a large quantity of paper on their behalf. One of the customers we bought paper from which went bankrupt later, but a company called AbitibiBowater was later purchased by a company called Resolute Forest Products. And that’s one of the customers we still have today, except for they further now have been purchased by a Bob craft company called New Indy Containerboard.
But from that paper tie-in with my print experience, I’d gone to paper school, which is a lot about turning a tree and its fibers into paper. And so I understood a little bit of a tree. I would tell that story. I furthermore would tell a story about working in heavy equipment with John Deere Caterpillar, which I’d done a little bit consulting and how that prepared me for the heavy equipment aspects of logging and everybody took it and I was off and running. And the truth is none of that prepared me for anything of any real true value. The biggest thing that benefited me was attitude and perseverance and the ability to build trust and all the intrinsic things, not the experience or specific expertise that might’ve carried in.
How did you get up to speed in that transition when you’re now the CEO and making decisions that have a big impact in the company and on your employees, when almost everyone knows more than you do in the company?
Yeah. I was lucky my partners, Gantt and Lauren, have done a lot of deals like this over the years with their families. And that was an attraction for me. I think coming from corporate, I was very scared to get into this and I really respect people that do it and really jump and do it by themselves. To me, that was even with the things I had done. I was too scared to do that. I was fortunate to have them guiding in a lot of ways. And one of those ways was saying, Hey, you know what we’re going to need here is an owner transition. We should keep the owner around for a while. He’ll be very helpful to you. We had a long transition. I had a full year of full-time with the former owner and was riding with him every day. And I think a successful strategy for me was to try to do as little as possible, but learn as much as possible for a time.
Take notes, meet people, for me being not from South Carolina and a very local business, very tight-knit, rural communities where our employees live and work. It was a lot of trust-building. And so it was just a matter of is this guy here to fire me, is this guy here to cut my wages? What is he here to do? And for me, it was a lot of trust-building. It definitely took a long time. Very complicated logging sounds simple. And on its face, it is. Three machines, some trucks in the south are actually quite a bit more complicated than that, especially the business model. And so it took me time to learn and I was lucky to have the owner to transition with me. And I rode in log trucks with guys and went in the mills and asked them questions and spend a lot of time sitting silent because they’re not all talkers just got to know and see the business. And I think that’s really how you have to do it in the early days.
I love that. Can you give us an overview of what the company does within the logging industry? Like a logging company? To me doesn’t sound like a whole lot. So I would even just from my own learning, I would love to hear, but in our previous call we talked about it almost like running an airline, but instead of passengers, it’s lumber, I’d love to hear just how the business functions, wherein the logging industry does your company exist? And then what are some dynamics that are important to watch for as you run your company?
Yeah, we compared it to an airline because logistics are such a huge part of our business. It’s at scale, this business is a number of different cut sites, where we are actually cutting, harvesting the timber, and then trying to take the timber off those sites and deliver it to a wide array of end market facilities, which are big plants and factories and wood yards in different places. And it’s all this logistics moving all the time. I say like setting up a logging job site is like coming up and building a manufacturing line every day where all the pieces are constantly changing. Distances between things, places you’re going, products coming off the line, all that’s constantly changing, and yet on paper, you’re tempted to say, I could get this tuned in like a car factory line, but it’s more complicated. Our spot is really, we are everything between the landowner who owns timber and wants to harvest it for income and the mill who is typically either a lumber facility, that’s cutting two by fours or a paper or core get facility that’s grinding the trees to a pulp and creating products from that.
A lot of the industry is very fragmented. So there’s a lot of different mom and pop family players, wild west out there, especially in logging and trucking, but there’s also this segment in the US called the timber dealership. And because of the high levels of private land ownership in the south, there’s this dealership concept where these businesses are basically foresters with laptops and pickup trucks that are out buying the timber, getting a contracted price from a mill, finding a logger to cut and harvest that and agreeing on a price and then being able to pass on the remainder, less their commission to a landowner. Traditionally, those have been three different things, a timber dealer to buy the wood from a landowner and sell it to the bill and then a subcontract logger to log it and a subcontract trucker to truck it.
The fragmented nature of the industry combined with what I like to say as an end customer, the mill who’s a procurement department, trying to lower their costs on a major input product, and the landowner who’s growing trees as an investment and trying to maximize their ROI led to some tough industry dynamics of running that fragmented model. And so what we’ve done is they call us an integrated wood supplier and our company does all three things. We have timber buyers who purchase wood from landowners so that we can harvest it. We have in-house harvesting operations and crews that log the timber. And then we have our own fleet that picks the wood up at the loading dock and delivers it to the mills. So today we employ about 65 people and we deliver about 20,000 truckloads of timber a year.
That’s impressive. Going from 13 employees to 60, that sounds like a huge jump in just growth. How did you manage through that growth period? That sounds impressive.
Survive and advance every day. It was, I think the toughest thing about small business is making it through the awkward phases. You’re either too big for what you have, or you’re not big enough for what you need. And we went through both of those and we still are going through those. For me, what I discovered quickly in this industry, it’s heavy CapEx industry, each one of our job sites, which we currently run eight to 10 job sites, depending on the day, each one of them has a million and a half dollars worth of capital on it and equipment, trucks and trailers, things like that. It is volatile. We’re subject to the weather. We have externalities to deal with all of our end markets and how their demand is. And so I had to learn a lot about the ups and the downs of what it took to provide a profitable service.
When there are a lot of externalities that aren’t completely in your control. To me as a small business owner, you come in and your thesis is all right, let’s grow baby grow, see how fast we can make this thing. I still remember after we bought it and closed and my partner Gantt and I had a beer. And I said if you had to sum up what you want me to do in one sentence, what would you think makes this successful? And he said, just grow. Fast forward five years. There’s a lot of bad growth available out there. And we went and took on some of it and I had to learn that, which was there is unlimited demand out there in this industry, TAM market size, the huge biggest industry in the state of South Carolina and much of the south is logging and timber. And we went out and pursued some of it, but without the right strategies. And so certainly had some growing pains in 2018 in the middle of this that we had to correct for at the end of that year, where we got big and then shrunk a bit to come back down to a size where we could produce a sustainable P and L. Huge learning hit in trying to figure this whole thing out. But it is key and important for us to get set up in the right way today.
What do you say you took on some bad growth. What did that look like? And what was that growth that in hindsight you think you could have avoided? Or is this something that it’s just a growing pain or a learning pain and you just, you had to experience it and now you know it, and you can move on?
If you look at a lot of our competitors that have been doing, and all of our competitors have mostly been doing this for 30, 40, 50 years. And so we’re the new kid on the block. And a lot of them have a big shop and a yard and an office in their hometown. And it’s a complex and they mostly work 50, 60 miles from as a radius of their facility. I learned that slowly, but I kind of got that early on, but as a new player, trying to find our fit and where we could serve the market, we took business where we could get it, where we could find land deals to do, to purchase timber, where we could find crews to come work for us and hire. And so we were letting a little bit of what we could get drive what we went after. And I’ve learned as we talked about the airplane example, if you are American and have a hub in Charlotte, it probably doesn’t make sense to open up a satellite office in Dubai right away.
It’s not going to work very well. There’s probably not a lot of ties and smaller scale, but within the state, we did not geographically tie all the pieces of the business together in the right way to achieve economies of scale as we grow. And so we took on growth that just had regular old unit economics, except for even worse than that, because the new operations we weren’t as good at as the old ones. And so for me, the biggest lesson was geographically, how to piece together puzzle pieces, such that they improved one another. Otherwise what we were doing was basically franchising and starting crews, where, unless you had the right guy out there that had owner economics and believed in the project, it would not be as successful being run from our model. And so it did, that was the biggest learning that we had. And that was part of when we had to downsize a bit and we did let go a few people and shut some crews down, took a step backward. And now we’re back above where we were back then, but in a different way and having more success.
Can you describe a little bit more of what changed, what other certain tactics within the business that you change your approach on, or what broadly were some of the changes that you made to get to that point?
Finding leaders and good people to be part of the team. We’ve had a ton of success with finding quality people. I just say diamonds in the rough, because I’ll use this as an example. The key to the whole operation, one of them is my operations manager who runs the day-to-day. A few years before we bought the company, he was running a cutter on another company’s job for $12 an hour, cutting the trees down. Then when we came and took over the business, he was running a cutter at our business. We promoted him to foreman. I just continually talked to him and he had an owner’s mindset. It was disengaged. He was bored. I could tell he wasn’t, he pushed back on things I did. And I often remember him leaning up against his pickup and I’d say, well, am I paying you to be here?
He’s like, I already did my job. It’s done. I’m ahead. You don’t want me to go out there and run that machine more. That would cost you more money. I’m already done so that we had this push and pull, but I realized, oh, this, he has a lot of potentials. I kind of created an operations management leadership role for him in a company where we didn’t really have overhead. When I started, I was the overhead and we brought him in and I didn’t have that high of expectations because I didn’t have a lot to work with other than I thought he had the respect of the guys, a lot of knowledge, and expertise in the field and was trustworthy. And he’s performed so far beyond any expectations I could have ever had. People say that was the best decision you ever made, putting him in that role.
And I said, if I knew how good it was, I would have done it two years sooner. He’s the one that’s made it happen, but really he and other leaders in the company that we have brought into the overhead layer have really performed to take us to where we are now. Because at the end of the day, this is a business with a lot of people that are scattered to the winds and rural sites doing work, and it takes a village to manage it all. So he’s been a key to it as have our procurement leaders and our office team, all of whom didn’t exist when we bought the business out of the former owner’s house back in 2016.
Can you share more about how you identify and promote internal leaders and talented people, especially in a company where crews are often geographically in tons of different places over the course of a day, and you physically might not be able to visit every single site to see every person in the company every day? How do you find those people in a company structure like that?
So in the early days, I was driving around a lot and seeing and meeting people. I think that was the key. And then as you pick those early people to get opportunities, you need to make sure you trust that they can identify those same opportunities themselves because they will then be the people most visible in the field and at the side, they stay today. But in terms of selecting them, I mentioned a few criteria before, but respect is a huge thing. Do they command the respect of their peers without the title? Right? Because when I’m promoting from within, these are people that don’t yet have the title and the authority but have already established it anyway, that’s a huge thing to look for. And then at the end of the day, I think they have to believe in the mission that you have, even though they haven’t yet been part of it.
And that was a conversation. We had, this is where I want to go with this. I don’t want to create this role for this business to be the same and just have a new person. I want to create this role to take the business to the next level. And when you’re taking someone from a role at a lower level of trying to elevate them, you have to get the sense that they understand that. And that they’re up for that challenge. In our industry, sometimes it’s a construction industry they’ll refer to the white hats, which are all the folks that are running it from the office, but they don’t understand and they don’t get it. And you want somebody that’s going to say, I can bridge that gap between the business, strategic, overhead thinking, and the field. And that’s where I think we get in our business, a lot of value promoting from within because you take people that had a ton of scale and respect, and you bring them into the business, into the thinking about the growth and operations.
And they start to say, oh, so you just haven’t been at the beach every day. You really work hard. This is hard. I should go tell the other guys out here about that. And then it’s amazing how that changes the culture of the company. When one of their peers comes to them and says, we should all get on board here. These guys aren’t cheating us. They’re not lying to us. They’re trying to help us. We should try to help them. And that linkage really has paid off a lot for our company. And I think it now, I like the people at our company, they literally come to me when they know I need a new role. We need someone to support our trucking fleet. We need someone in the office and people are saying, I would love that role. You should look at this person in the company before you look outside because we love to give opportunities to people that are on the team. And it’s created this sense of purpose for jobs and roles and opportunities beyond the one that you have today, which is a dynamic I love in our company.
How do you know when you need to hire a new person for a role that currently doesn’t exist? Is there almost a pain threshold that you feel where certain things go wrong enough times, or it takes up enough of your day of the year? You start thinking about creating a role to take on that piece of work. What starts to tell you that you’d hire somebody?
I’ve heard it said, I think on your podcasts before people say you need to have the pain before you hire for it, or do you hire ahead of the pain? And I think in a venture capital scenario, I could see where people have boatloads of money to hire for the pain they may have in the future. In the SMB world that I live in, we always experience the pain before we make the hire. When we anticipate it, we try to get in front of it. But it is most often we’re all doing 110% of our job and then 120 and then 130. And then we say, ‘Oh, maybe we could take three people’s 30 and create another job.’ It’s largely a matter of you needing more than you have. I think that’s a reality of a lot of small businesses is you need more than you have. People say I can’t, you need to do this, you say. Yeah, but I can’t afford to do that.
And then you have to get creative and say, can I combine roles? Can I move some things around? Can I reprioritize? And for me, unless you find that right person at the right time, I usually hesitate to hire. Because another thing I think is important in a small company is giving people the space to say, ‘Can you grow in your own role?’ As I say to people all the time, rather than hire somebody for an X amount of salary, I’d rather give you and the other two people that already work here raises to get that work done if we could. And people, when they start to see that as the mentality, they grow as much as they can. And then you eventually realize, Hey, baby, we need more than that. But at the same time to finish answering your question, I think you hit these growth plateaus in the company, as you get bigger and suddenly you need things that you didn’t need before, or you need them in a different way.
And then you have to look for different talents. I’ve tried to be very mindful of finding places for our past talent. We do not have a replacement culture and in my company, we have an addition culture, which is when we need stuff, we make an addition. And then we find ways to adapt for the folks that are here, but you’re on the team. And you’ve been part of us. I can’t speak to whether that would be the same if we had 600 employees instead of 65, but that’s been our strategy to date and it’s worked out really well.
There are a few examples, stories, or anecdotes of parts of your company that you’ve tried to spread among a few different people then eventually hired someone for, is there an example you might be able to walk through?
Yeah, in the early days we had one of the original owners, an assistant timber buyer. He was primarily a timber buyer and his job, I say on his business cards, we should just write Swiss army knife because I changed his job every three months for five years running. He is the early days bought some timber. And then I brought on a key client that is still our largest customer and that customer, I thought demanded some extra service and attention, which in the forestry sense means walking tracks, understanding inventories, watching production levels, communicating with their representatives, which are not necessarily things you need to do on every temper sale. And so I said, Hey, why don’t you be the CSR for this account? And he did an amazing job at that. Well, eventually it got stabilized and we didn’t really need that as much.
The trust was there, we had better processes. And so I said, Hey, I just realized we’re not collecting our equipment hours in a systematic way. Could you start watching over our assets? And that grew into, could you schedule our preventative maintenance? It just goes from one thing to another. And suddenly it’s funny because this year we’ve come full circle and he’s back to being a timber buyer because that’s what we need now. And so his role really has tapped into a lot of areas where at times he’s done things. And since then we now have an equipment manager. That role has been graded and filled, but at a time when we didn’t yet have that, or didn’t know if I could afford that he did that as his 25% role. I think that’s a good example of just being flexible and adapting and saying, I’m here to help where I can, as we grow and adjust.
I love that. And you mentioned equipment and I’ve previously mentioned equipment being a million and a half bucks at each site. Can you talk about some of the challenges in running a company where you have these huge, heavy, very expensive pieces of machinery moving constantly? What are some of the challenges that you need to be aware of when running a company with that type of asset base?
People talk on Twitter at least about depreciation as though it’s this magical thing. And it is this huge tax benefit, but in a lot of industries, depreciation exists because it’s real. Right? Stuff loses its value as you use it. And it’s a hard concept to get around because it’s not cashed out the door that you can just monitor, see, and really measure as effectively as you could with a normal expense, especially in this business where I think one of the hardest things of owning all this equipment is understanding the curve between how fast equipment is depreciating and how fast the operating cost of running it is increasing over the course of its life. At some point, there does come a trade-off where the machine is more expensive to run in maintenance and repairs and lost productivity than it is cheap to own. But it’s hard to figure that out.
It’s really hard. And we have three primary types of assets in the woods. We have now 40 trucks, 40 heavy log trucks that put 80 to 90,000 pounds on their back, out on the road. And then we have all of the trailers and low boys to haul equipment. And all of these things, it is really hard to determine with finality, what is the right time to trade something, sell something, replace something, and all the while trying to make sure people are optimizing how they take care of the machine and how productive they are in the sheen. And should they, when they should turn it off when they can idle it, all these kinds of things. And so it’s a really tough thing to learn how to do. And it took me a lot of experience. And honestly, one of the things that hurt our growth in the early days was me listening to old wisdom from old owners about the need to replace equipment quickly at a time when the market environment was it that good, and we should have been running that equipment longer, but without the data and the understanding of those operational and depreciation curves, I made the wrong decision and replaced equipment quickly on the advice of others.
And it’s a high-cost decision to take on leverage for these machines because equipment debt is plentiful and that’s how you do these things. And then we lived with that for a few years before we could course correct.
What led to getting that clarity on how long should we actually use our equipment before we think about replacing or selling, or what have you?
Data. The biggest thing I’d probably bring to this industry that people give me a hard time about all the time is data. I am a data junkie and most people in this industry are anecdotes people. They love to tell the stories of yesteryear and what you need to do. My cousin told me this back in ’97, and this is what you do. This is just what you do. And when you’re new and you don’t have a lot of data to work with, that’s what I did too. I went with what they said in replacement of the data, but we now have had so much experience over 5 years. And even I say more than that, because, with our growth, I get to see a lot more tons, be produced miles, be driven on the road hours, be run on the machines in a lot of different environments, all at the same time. And so just as we collected data, I started to see the patterns around and obviously the end of life at the beginning of the business, you’ve only bought stuff. You haven’t sold anything. And so you don’t know what the real end of life looks like. And as you sell some things, you start to see the full picture, that data and information have really helped us improve our decision-making.
So it was bringing in data. That sounds like I’m guessing of that was a software solution. I’d be curious to hear a little bit more about how you’ve added systems, software technology, to what is traditionally a rural business that as you described, some previous owners might not use as much technology in their business. How do you start to bring that into this type of company?
Yeah, the business we bought and a lot of the businesses we compete with today, it’s guys putting their hours on a piece of paper, turning them into their boss. And it’s load sheets. They’re being written on paper, writing down the loads as you load them and what time you loaded them. And then the drivers deliver those loads at the mill and they get a little receipt that looks like you bought a donut, but you just delivered a thousand dollars worth of wood. And they write down that receipt on their little note pad on their clip pad. And then they drive back to the woods to go get another load with an empty trailer. And they read off that scale ticket number and the weight, the payload they delivered to the loader. And he writes that down on his notepad. And then he hands the receipt to them and they collect all their receipts.
And then usually on a weekly basis, the owners go out to the woods and they get all those receipts in a Manila envelope. And they take over the office and the people at the office key in all the information of the ticket again and do a system so that they can produce settlements that look reliable and pay landowners. And that’s how it happens. Millions and millions and millions of dollars of timber are bought and sold and moved that way in the South every day. Crazy. It’s just crazy. There is a lot of reasons for it. And we have been a leader in pushing for digital load books. All of our guys have iPads. The first thing I did was because a lot of our guys in rural environments didn’t have smartphones. I taught some of the older guys, the pressure at which they needed to touch the screen with their finger to make the screen react to them, touching it.
I remember in the early days, just you’re pressing the clock-in button too hard. That’s why it’s not working press it’s softer, but those are the kinds of things. That’s where we started with some of these guys. I remember a loader operator said, I never thought computers were going to come to the woods and that’s a lot of the workforce. So we started with something simple. We started with clocking in and clocking out on an app, open this up, hit clock in, open it up again, hit clock out. The guys got that. We did that for a full year before we started rolling out any other digital, anything. And now we have guys entering every single load in all the detail and picking off of menu items that are controlled in our central system to digitally transmit loads to us that we can see in real-time.
So all of our management now, the folks that we have in our staff, can open up their phone and go to the browser and see pie charts of where the wood’s going. What’s on trailers. What’s been delivered that day. What was delivered yesterday and get a lot of data that would have previously only been available after it was completed once the paper was collected once a week. It’s made a massive difference, a huge difference. We could not have scaled the business without that type of environment. And it’s been an implementation challenge. And it’s really the teaching folks how to— that made us screen employees out that just couldn’t learn it at times. But without that, we just couldn’t have gotten to where we are.
Yeah. And you’ve also mentioned some of the fragmented nature of the industry and how you’ve started to work with some of your customers and vendors to make it a little less fragmented, a little bit more streamlined, and build some partnerships with some of your customers. Can you talk a little bit about how you have gone about doing that?
Yeah. I just think there’s a lack of trust in the timber industry. And it goes back to a lot of this paper stuff. I failed to mention one other piece of paper, which is the thing called a gate pass. And when the truck driver gets to the mill, they take out another piece of paper with a nowadays, a barcode, or a QR code on it and they scan that. That is the piece of paper that tells the mill who to pay for that. And what they’re paying for that sounds simple. If the driver was delivering one thing all the time, however, drivers deliver loads off multiple tracks that each has their own gate pass off the same truck. They delivered to multiple mills for different product types that he challenged their own. And oftentimes contract drivers, which again, we don’t employ much of, but out there they are able to deliver for multiple suppliers that have their own gate passes.
All it takes is them to pull the wrong one out of their dash and scan it and the wrong person’s paid the data’s wrong. The payment goes to the wrong bank account. And so in the old days, it became very easy for someone to say, I don’t think I’m making enough money on this job. Use that gate pass instead of that gate pass, the landowner will never know about it, and I could pocket the difference. That’s the kind of stuff that created a very bad trust environment for a long time. And those problems could be solved by technology. Right? Now when we load a load, it says, Hey, I can tell you that because the GPS dot of where the guy entered that onto the iPad exists, oh, then he drove the load. And I can tell you that he stopped at Wendy’s for a bite to eat before he delivered it because there’s a GPS breadcrumb trail of the load going to the bill.
And then he delivered that there. And we also have the capability, which we are still implementing, but to take photographs so that there’s actual photo documentation of loads from the loading dock to the delivery site. All that builds trust. But before we got to the point of having all that technology, it was me meeting people and having them learn to trust me and trust our company. And so we’ve had to do a lot on the partnership front, to both get people, to see the data and technology. So there’s a solution, but then also earn their trust. And like I said, we work with procurement departments at mills that want the lowest cost. And we work with landowners who want the highest possible return. And so our job is to say with a straight face that we’re trying to do both those things. And that takes a lot of trust in trying to build with folks to say, I’m giving you a fair deal.
This is how I do business. We’re out to make a margin we’re out to do well for our company and our people, but we also understand your goals on both sides. And here’s how we approach our day to make it happen. And that was sitting down with those folks and having them realize on the mill side, you know what? It’s not so bad to have a financially healthy supplier. Maybe we don’t need to beat these guys up for every last penny. There are benefits to having someone healthy and investing in the future. And on the landowner side, it has been all about repping the benefits that go beyond price, which is, Hey, maybe getting a couple of extra dollars per ton on my contract doesn’t matter if their equipment sets on fire in my woods because it’s so old, or if they haven’t delivered it in a long time because there are people who don’t show up every day. No, we’re now known for the landowners as, Hey, if you get under contract with them, they’re going to go out there. They’re going to make quick work of it and you’ll be done. And the money will be back in your pocket. Just building value propositions on both sides that folks have understood have been huge in developing a good partnership.
You just talked in your comment there about how some of the downsides on the landowner’s side of trying to squeeze every last dollar or results in unreliable equipment or companies on the mill side, when they try to grind down those logging companies to the lowest possible price, what tends to go wrong on that side? If you take that approach, I assume it probably works during good times, but when times aren’t good, what does that behavior tend to?
Yeah, it’s a supply-demand market. So their tendency is, they’re probably more willing to try to grind out the last dollar when they feel like they have plentiful supply versus their demand. With supply disruptions that have happened right now, that’s a tough hiring environment. That log truck drivers are not the highest-paid drivers on the road. They’re local work. So that local drivers tend to make a little less and it’s a rural industry and it has historically been the best paying truck job. Nowadays, everyone needs truck drivers, and there are plenty of ways to move up the food chain as a truck driver. That being said, log truck drivers are probably one of the number one truck driving jobs in South Carolina. And in our region, as people have moved out to other higher-value opportunities, most people have just shrugged and said, oh man, I guess we’re not delivering as much wood, or I guess we’ve got to go out of business.
Or I guess I’m going to go back to farming or whatnot. And our reaction has been to adjust our wage scales and figure out how to solve that problem, to continue to provide the service that our business is meant to provide. In that supply environment, the mills have had less ability to get all of the supply that they need. And if you just picture it, they have wood yards out front that hold anywhere from a few days to at most, a few weeks of inventory. And if it just, if a hurricane comes through the state and they miss a few days of supply, they’re probably getting nervous that their mill might have a disruption. Some of these mills run continuous processes. So it is not good to have one end of that stop. The whole thing has to stop and they get very nervous very quickly.
That’s the big thing. They’re just looking for consistency of delivery to the door, but I’ve had to try to coach them. That’s not all that matters. That’s just the end result of a bunch of things that matter. And if you watch out for these safe operations and try to only allow safe operations to do business with you, if you try to watch out for operations that are trying to hire in a different way to hire a higher caliber of employees and train them, those are all the things that manifest themselves in the end results of more consistent deliveries at your door. So they had always been focusing on the end result and I don’t think had tried to shield themselves from the messiness that is delivering the wood. And I think until somebody like me could come in and articulate to them why that was a mistake, it was harder for them to see, but even then the market forces of supply and demand, help that conversation go a lot faster.
Yeah. Speaking of supply and demand. I remember we also talked about South Carolina that has just been devoid of available logging cause it’s all been logged. And you mentioned a stat, how there’s actually more timber available now than what was it in the last a hundred years or so, or some, some crazy stat that you gave me was incredible. Can you talk a little bit about how logging in, as an industry works with the environment to make sure that there’s always plentiful logging around?
Yeah. I think the way to think of it is in the South, the reason there are so many trees in large part is that there is such a market for those trees. In areas where mills have closed down. Oftentimes that land gets converted to something else, the solar fields for solar energy, but it also can get developed, right? Sometimes a mill shuts down nearby and urban areas. And then that gets developed into a subdivision. In a lot of these areas in South Carolina, it’s not happening because it’s an incredibly healthy marketplace. We delivered to 40 different market facilities last year, which is crazy. I mean, in some other countries where they do a lot of logging. All the wood goes to one or two places. There might be just one sawmill and one pulp mill. And they just, everything goes there in South Carolina, there is massive competition.
We delivered to seven or eight different pulp facilities. We delivered 10 plus sawmills and then all sorts of specialty products. All of that means that competition creates value for the timber. And that value for timber creates a desire instead of cutting that timber. And then replant that timber again as an investment. So those cycles have just kept going and it’s led to more forest to acres rather than less, even though we are cutting, folks are planting back behind that. And in operation, I couldn’t say the exact number, but it is well beyond 99% of everything we’ve cut while I’ve owned the business has been replanted. These are tracks of timber that are treated like farmland. And instead of harvesting your corn every year, they’re harvested in a thinning nature, 15 to 20 years in, and then in a final harvest, 25 to 30 years in, but then they’re regenerated and replant to go through that cycle again.
But the market dynamics are certainly playing a part in why there are so many trees, if not that there would not be the incentive to go out and do that. And the last thing I’ll add is just people look at loggers and say, oh, this is so bad for the environment. There’s funny, t-shirts for loggers, say tree huggers. And they show the machine with the song on the bottom of it that cuts the tree down. That obviously has to give it a hug to lay it down gently and safely. And that’s a lot of these guys love those t-shirts, but the truth is not that far from that because it’s usually a bunch of people sitting in offices in concrete jungles saying that loggers are killing the environment while these guys live on a multi-acre plot of land, surrounded by trees, loving nothing more than to be out walking in the woods. That’s the majority of our guys, they’re hunters, fishers, fishermen, and just really enjoy the outdoors. And that’s part of why they do what they do. Not because they want to see it destroyed because it’s part of a healthy ecosystem in the natural world that they love to spend their time at.
I love that. This is not the only logging company that you’ve acquired. You’ve acquired a few others through the Elmore family of companies. He described a little bit about your broad strategy there at that level.
Yeah, I think when we got into this, what we saw was not just this 13-person company that was at the owner’s house that had a little bit of a unique model, but we saw the market size and we saw that it was on sophisticated lacks and professionalism, and we thought we could bring a lot of value to it, but that we could also consolidate a little bit of it, the general older workforce, like a lot of blue-collar trades nowadays. So there are a lot of owners that are running their operations that don’t have succession and retirement plans. And so we definitely viewed that as part of the strategy. Got pretty engaged right away. I find that, uh, when you do a deal, there are a lot of deals that come to the surface very quickly because it’s visible.
And then if you do another one, that cycle continues. But if you slow down that people’s interest in doing it because the visibility decreases also slows. We did the initial deal in August 2016 and very right on its heels had more interest. And I felt pretty strongly that to make the company my own, it would be cool to do another deal pretty quickly grow the size, have the ability to add overhead, do some of the technology, things that require more scale. So we did another deal after just buying the first one in August 2016, did our second deal, which over doubled the size of the company in January[redacted]That deal, we thought we could bring some maintenance capabilities into the business because that was a big point of the company we bought and added three crews to the original two we bought. And actually at Thanksgiving that year, we started another one.
So we went from buying two in August to having six in January. It went from 13 employees to 40 pretty quickly. And that was a huge learning experience for us, but also create a lot of discomforts because we really didn’t know we were doing it. And so we got big and one of my favorite models I’ve read and listened to some podcasts about the Five Guys business model, where I think the owner of that franchise says I was not going to open the second one until the first one was perfect. And then I do, I could do it a hundred a thousand times. I thought about that a lot in the early days because we did not know how to run one logging crew. And we suddenly had six and it was a lot of learning quickly. And that contributed to some short-term, really good things, but also some of the growing pains we had because we were growing, but didn’t know how to execute on that growth.
So we eventually took a step back. And honestly, from that second acquisition, we probably only have a handful of guys and a handful of equipment left from it. Everything else has they quit left, been sold. Wasn’t a good, wasn’t a good acquisition, but we organically grew out of the lessons from that and it did put us on the map. Took us a while to really get back into the mindset of growth. Like I said, that when you stopped doing deals for a while, you don’t see as many deals in the space, but continue to network around. And certainly, I’ve, I probably have 30 or more logging company owners who I’ve had various levels of discussions about buying their businesses and I’ve gotten financials or whatever. And someday when the timing’s right. So it’s you build a pipeline. And then this year in June, we were able to do another deal as our third deal and take on another two crew operation, which has gone a heck of a lot better.
We learned a lot. We finally did it. And now I think we’re ready to roll it out in more of the Five Guys manner than the way we did originally.
Yeah. I love that Five Guys analogy. They have phenomenal burgers. Moving to some closing questions. What class would you teach in college if it could be about any subject you wanted?
I said I was a data geek. I can’t come up with another answer besides Microsoft Excel for business. I love Excel. I think it’s the most powerful SMB tool ever created bang for the buck. Yeah, you outgrow it eventually, but it can do everything when you’re trying to figure out the answers to problems. And it’s so practical. I took a class in the Kelley School of Business from a professor named Wayne Winston who helps write a lot of the instruction manuals for Excel and the early days and is big and business analytics helped develop some of the early plus-minus systems with Mark Cuban, for the Dallas Mavericks and just wit from enjoying using Excel and what it could produce for insights to just loving it. And it’s probably one of my downfalls today is I default to it where I say like, what are the lessons I learned early in SMB was stories making more money than spreadsheets, but I still feel that Excel is an amazing tool that I love teaching it to people because I think it can add a lot of value and in your early career coming right out of college.
That’s fantastic. And I totally agree. What strongly held beliefs have you changed your mind on?
I think we’ve talked a lot about employees and I’ve learned a lot about managing employees in this role. And for lack of a better answer to this question, I’d say one thing I’ve changed my mind on while I’ve been running the company has been about incentives. When I came in, I think variable compensation, strong incentives were key in pretty much every role. If you want someone to, I think you hear the phrase, show me the incentive and I’ll show you the result. I still agree with that, but that strongly held belief has softened significantly. I think that probably is true at a certain income level and with a certain type of person and certainly certain roles like sales, but in my world, I see, of course, I want incentives because we live in a production-based business. And so I want high production, but I’ve seen that stability matters a lot to people.
Predictability matters. Their world runs off of the bills that they have and the goals they have for their family. And if their income is incredibly volatile while their life is pretty stable or trying to be, that creates a lot of stress that flies against what you’re trying to achieve is getting them to produce. And so I would say a big thing I’ve changed is I’ve started to try to look at our employees and understand more about really what they need to be happy and productive. And oftentimes it’s not a crazy incentive scheme. It’s the stability of income. It’s Hey, you’re going to get paid when it rains. It’s, you’re going to have a base pay that is pretty darn close to what you need. And you could just earn the rest. It’s been a huge recruiting tool for us, and it’s showed me a lot about which guys feel happy and empowered and taken care of at the company versus which guys feel as though they’re a tool for you at the company.
You could almost argue that even though the comp is more stable, perhaps, but that’s still in effect an incentive that there is an incentive from having a stable work environment that promotes their own families environment too. I think I’m not sure that there’s a rule that an incentive always has to be like an additional dollar, like or something variable it could be fixed to.
Yeah. It’s I think the way I’ve always thought about was just that unfortunately if you just give them that if it’s a salary yeah. It’s an incentive, but the incentive is given to you on day one. And now it’s really a disincentive because what you’re working toward is not to lose it. I think I read a study or in a book that 70 or 75,000 or something is the income level at which people start to be able to not see massive swings in their credit scores based upon income bond volatility. I probably think it’s even higher than that, that people would rather have a base of steady income than massive upside. And I think it just, you have to remember sometimes as a small business owner, we generally like a very motivated and hardworking class. There are a lot of people that just want to come and do it really well, hard day’s work and know what it takes. And those people have a valuable role in these businesses too. Definitely takes both types though.
Absolutely. What’s the best business you’ve ever seen?
I’ve had the great opportunity to work a lot in consulting and see a number of them in the small business world. And they’re also different than I think it’d be short-sighted to just say the best profit, best recurring revenue, whatever easiest to run. And when I really thought about it, I was like, yeah, what would I say if you just asked me this off the cuff, it would be the first business I was ever in, which is why first love, which got me going down the path of being in business instead of hanging it up and do it something else. I was in the printing business at Quad graphics. It was right at the Dawn of the iPad. So people still loved reading magazines and catalogs, and it was romantic. It was going to work at a big manufacturing company where efficiency mattered. And it was a team of people.
We all wear blue uniforms, no matter if you were on the printing press or the CEO, he wore a blue uniform, too. It romanticized business for me of a place that a group of people that all volunteered to show up together without being forced to be there, achieving things bigger than they could achieve by themselves. And while I was there and in a situation where you’re producing a real product, that was easy to understand, and it just felt like it mattered. And so what I think about the best business, I think about that printing company, which really formed my love of business and management.
That’s awesome. I love that answer. I leave that question purposefully ambiguous, just because every person has their own definition of that. Some people have this business that they’ve seen that has incredible profitability. Other folks love businesses that have good customer service. I thought Five Guys, that’s going to be your company. And there are definitely ways that Five Guys is probably the best business ever too. It’s always a fun one to ask people. Cause you just, I think you learn a lot about what people value in businesses and what they love and admire in other companies. So that’s a fun one. You had that answer.
I hope people’s takeaways are that people are actually an important part of business and you should not shy away from businesses that take a lot of people. Yeah. Recruiting is painful. Yeah. Training’s painful. Not everybody’s perfect, but the world’s made up of people and businesses that are able people are pretty fun too.
Absolutely. They certainly can’t be. Thanks for coming on the podcast, Matt. It’s great to have you love this chat. I wish it could be longer, but thanks for sharing some time today. This was fun.
Thanks. I appreciate you having me on.