UP045: GTI Fabrication // scaling modular construction through pre-fabrication

Rich Stapleton 0:00
As big as the cannabis industry gets, they’ll never spend more money than the US government. We have lower margins with that work. There’s, in my opinion, a higher potential for much, much more revenue.

Jay Clouse 0:13
The startup investment landscape is changing, and world class companies are being built outside of Silicon Valley. We find them, talk with them and discuss the upside of investing in them.

Welcome to upside.

Eric Hornung 0:41
Hello, hello. Hello, and welcome to the upside podcast. The first podcast finding upside outside of Silicon Valley. I’m Eric Hornung, and I’m accompanied by my co host Mr. Hanging modifier himself Jay Clouse, Jay How’s it going, man?

Jay Clouse 0:55
You just came up with that nickname we’re talking 60 seconds ago.

Eric Hornung 0:59
Look, sometimes, you don’t need to think a long time about something to get it just right.

Jay Clouse 1:03
Eric and I were just having an argument. Mostly I was trying to pick a fight with chance the rappers verse on the remix of the Francis and the light song may I have this dance or chant says I love you more than your mother more than you love yourself. And I was arguing that the phrase I love you more than your mother is a grammatically flawed sentence because it uses something called a hanging modifier. If you say I love you more than your mother, you’re either saying I love you more than I love your mother, or I love you more than your mother loves you. And I’m saying that’s a problem for me.

Eric Hornung 1:40
And I said Jay Shut up. This is dumb conversation. But what I really felt it, what I really said is that what I really said is that it seems like chance is relying on repetition and elliptical sentences, which is the cut off of an end or beginning of a sentence to say I love you more than your mother loves you. That’s that’s the whole idea here.

Jay Clouse 2:04
The whole reason I’m arguing This is because my mother loves me. And my mother is an English teacher. And she has brought this idea up to me many times that past my oldest sister’s an English teacher. I’m around a lot of English teachers. So that should give me more street cred in this conversation.

Eric Hornung 2:17
Yeah, but that’s the that’s the problem is this is poetry. And there’s no grammar in poetry Jay

Jay Clouse 2:22
that’s your better point. Yes, I will concede on that point. But I don’t like it.

Eric Hornung 2:27
So in case anyone’s keeping track over the course of the upside podcast, Jay and I have had approximately 234 arguments of which there is no purpose, and I think I’m 233 and one.

Jay Clouse 2:38
I don’t think that’s true. What was it was the one that I want that beige foods

Eric Hornung 2:42
know you’re about to win this. You’re about to win this one. I’m giving you this one already.

Jay Clouse 2:45
Nice. Well, I also won the argument about beige foods. There are no bad beige foods.

Eric Hornung 2:50
We no we found one. There’s tapioca shout out to Susie,

Jay Clouse 2:53
it took you days to find that. I don’t count that as a win for you

Eric Hornung 2:59
Jay I started this intro saying that sometimes things come to you very quickly. You don’t need to think about them for a while. Sometimes you’ve got to think about them for a while. And in either case, I’m right.

Jay Clouse 3:09
This is more like the scientific method though. Like there is no ultimately proving of anything, you can only disprove something, which I guess you kind of did

Eric Hornung 3:17
before we head down that rabbit hole.

Jay Clouse 3:19
I don’t know what I’m arguing here. Uh,

Eric Hornung 3:22
well dig us out of this one Jay dig us out of this one.

Jay Clouse 3:25
Speaking of fabricated arguments, today we’re speaking with rich Stapleton the CO owner of Gti fabrication. Gti fabrication creates modular containerized solutions products include modular showers, kitchens, gyms, farms, offices, mobile beverages, modular construction and currency mining units.

Eric Hornung 3:47
This is just so up our alley, huh?

Jay Clouse 3:51
Is it? the company was founded in 2015, based in Buffalo, New York, Eric, you found grow tech industries or what was previously known as grow tech industry is now referred to as GTI fabrication. What piqued your interest here,

Eric Hornung 4:07
I was getting dinner with a friend in New York. And he was talking about how one of his friends started a company doing fabrication. That’s the founder of grow tech. He was talking about the different uses, they could have just kind of scale up this business. One of them at the time was prefabing cryptocurrency mining rigs. I think we had this conversation in late 2017. And kind of selling them off as Okay, these modular units can be stored for cryptocurrency. And I think what they moved into is this idea of vertical farming for the cannabis industry.

Jay Clouse 4:40
What a pivot. So this this company on its face, and I say this because I reached out to Eric researching this and said this seems outside of our wheelhouse here on his face does not seem like your typical venture company to this point, they are bootstrapped to my understanding their team has grown from 10 to 25 employees over the last few months. And yeah, I’m interested to hear especially after our conversation with Wayne, of periodic edibles, what’s going on with this cannabox container product that they’re working with.

Eric Hornung 5:11
Right. And I think that we also just kind of see something here that we’d like to explore on the upside podcast, which is the fringes of entrepreneurship. So the tech entrepreneurs get so much of the limelight, but there are some really great entrepreneurs doing things in areas outside of tech that we like to highlight here as well and learn from

Jay Clouse 5:30
and as we go through this interview with rich if you have thoughts, please tweet at us @upsideFM or email us Hello@upside.fm. We’ll get that interview with rich right after this.

But before we do that, let’s bring in Devin Spencer an employment attorney at Taft Stettinius and Hollister to teach us a little bit about handling employee matters. Taft Stettinius and Hollister is a full service law firm known for assisting entrepreneurs across the Heartland. As a reminder, the following remarks by tax attorneys are for informational purposes only and are not legal advice. This information is not intended to create and receipt of it does not constitute an attorney client relationship. No person or organization should act upon this information without first seeking professional counsel. Devon, thanks for coming on. How are things going in Columbus for you?

Devin Spencer 6:14
Thanks for having me on today. Very excited to be here. Things in Columbus are thriving. The energy here is great businesses are growing. I am lucky to be practicing here in Columbus and employment law, which is also an exciting area to be in as we’re going to talk about.

Eric Hornung 6:30
It is crazy how many great businesses are growing in Columbus. But sometimes those businesses stop growing, and they need to fire someone. And of course, no one looks forward to firing an employee. But what do founders need to consider before during and after firing an employee?

Devin Spencer 6:48
So issues related to terminating employees make up about 40% of what I do, we deal with a variety of issues under this termination umbrella. So I’m going to touch briefly on before, during and after termination. terminations have to be planned carefully at every move. As a general note, always document issues along the way. Document performance issues in writing the whole way you have to have a basis for your termination. So the first before the termination, consider the reason and circumstances to make sure that it is not unlawful. What I mean by this is, for example, ask yourself, is the employee absent on some protected leave under a federal or state law? Are they engaging in some protected activity under Title seven? Or are they in a protected class and engaging in protected activity? Or are there issues involved under the Americans with Disabilities Act? By taking a minute to step back and looking at the situation you save yourself a lot of heartache in the long run. That being said during the termination itself, you may want another person present depending on the circumstances. Before that conversation with the employee occurs, though, make sure the employee is cut off from access to your company systems. You don’t want an employee who has just been terminated to have access to your company’s valuable information. So after the termination, there’s a variety of issues you’re going to want to consider. But that’s beyond the scope of the time we have here today. I will say terminations are an area where having a small legal bill up front for preventative issues supervisor training, severance agreement reviews, handbook reviews can save your company and you a big legal bill in the long run with wrongful termination discrimination suits that kind of thing.

Jay Clouse 8:27
super helpful, Devin, if people want to learn more about Taft or the work that you do, where should they go?

Devin Spencer 8:32
Our website is www.Tafflaw. com. You can search by attorney name or practice group. If you search my name, Devon Spencer, my bio will come up or you can search our labor employment practice group which is full of valuable resources, we have experts in every area and we can help with all these unique issues that come up, my contact information is on my attorney page, feel free to shoot me an email or give me a call.

Jay Clouse 9:06
Rich, thanks for coming on the show.

Rich Stapleton 9:08
I appreciate you guys having me. I was excited when I got the email from you guys. So I obviously did a little research on your podcast. It’s really impressive what you guys got going on. So

Eric Hornung 9:18
thanks, man. We like to start on upside with a background of the founder. So can you tell us about the history of rich?

Rich Stapleton 9:25
Yeah, sure. So I grew up in Rome, New York, which is near Syracuse area, Central New York, you know, I went to went to high school there played sports throughout high school, and went to Canisius college to play the cross. And that’s that’s kind of how it landed me out in Buffalo where I am now where we started the business. You know, growing up, I was always, always around kind of a blue collar mentality. My father has a company, you know, I’ve been working for him since I was, you know, since I could walk really always helping with little things here and there. And then when I was about 14, I went to work legitimately working for him, you know, so I’ve kind of been, I guess, a blue collar individual pretty much my entire life, you know, from the start of things. So, you know, I guess that’s where I’m from. That’s, that’s, that’s a little bit about me.

Jay Clouse 10:13
And what was sorry, maybe I missed this, what was your dad’s company? What type of work was that?

Rich Stapleton 10:17
They provide what’s called temporary life support. So they do base camps for the military disaster relief, they do all the associated services and things like that. So you know, if there’s a natural disaster, and first responders need a camp to stay in to live in, they’ll come in and do all the temporary housing, temporary water, showers, toilets, kitchens, things like that food service. So you know, I did a lot of fabrication of certain things for them. And then I was also I worked in their operations department, we’d go from being a location to location, setting up these camps. Like I said, I’ve been doing that for quite some time, before I branched off on my own.

Jay Clouse 10:55
What types of things did you learn from your dad, as an entrepreneur growing up,

Rich Stapleton 10:59
he’s been a resource, definitely, you know, I went I went to school for I got a degree in entrepreneurship. And you know, that was very helpful learned a lot through that. But you know, the most, the most important and I think the most realistic things I’ve learned, not only from experience are but from my father who, you know, he’s got 20 years experience, owning his own business. So him and my mother always instilled hard work, you know, you’ve got to earn everything you’ve got, you’re not given anything, that was probably the most important lessons you can you can get anything you want in this world by just working your butt off, you know, and that that was always a good lesson. And then, you know, he’s always a great resource. Anytime I have questions. I mean, I still use them to this day, you know, he’s just got a plethora of knowledge from, you know, the experiences he’s had and what he’s been through. So, you know, I’d say, you know, day to day just questions, anything from, you know, legal advice for the business to how you’re moving your money around, it’s always great to bounce things off him, because he’s always got some kind of answer some kind of idea of where to look or who to ask, you know,

Eric Hornung 11:56
who else do you have as a mentor in that capacity.

Rich Stapleton 12:00
Uhm him. And then I’ve got my professor from Canisius college, Dr. Kim, she was the head of the entrepreneurship department, she’s a great resource too I mean, her family’s got businesses all over South Korea, and in the States. So she’s always always a good resource. You know, I’ll bounce things off her every once in a while, meet up, meet up with her. And, you know, she’s always always got good advice for questions I’ve got too

Eric Hornung 12:24
can you talk about your entrepreneurship class experience? Was it mostly geared toward like tech and startups? Or was it more geared towards a different type of entrepreneurship?

Rich Stapleton 12:34
I would say, yes, it was, it was definitely based on more of tech savvy businesses, you know, groundbreaking businesses, things like that, that that are really, you know, changing certain industries and prominent industries, like the tech industry, and I guess, we fit that mold. But obviously, there’s still a lot of good things that we could we have that I pulled out of that class, you know, and a lot of that had to do with, you know, management, finances, stuff that that goes hand in hand with whatever business you’re running. And, you know, it can be used in either way. But you know, a lot of it was more of your, I guess, typical startup type businesses was the focus. And that was a lot of a lot of the other business pitches and ideas that a lot of people had, were more focused on that.

Jay Clouse 13:17
What was the program, like, I didn’t take part in an entrepreneurship program, when I was in college, I’ve always kind of wondered how that major is structured, because to me, entrepreneurship is a very practical application type thing. So can you talk about what types of classes were in that?

Rich Stapleton 13:33
Yeah, you obviously take your basic management, finance classes, things like that. But what really set it up was you actually applied, applied what you’re learning into, like real world situations. So you would actually mock run small businesses. So you know, there would always be that would always be your big project, and certain entrepreneurship classes was, you know, for example, my freshman year, we had to come up with, it was like an expedited small business. So we had to come up with a product or a service that you could do, that you could take start to finish in a very short period of time, and that the goal was to see how much revenue you could generate with with, you know, four people in a group and, you know, an idea. And our idea was, you know, because we kind of were lazy about it, but our idea was, was taking beads and selling them at a bills game, you know, which, but even with that, it was a learning experience that, you know, things even something super simple like that, that you think, Oh, yeah, it’s a no brainer, it’ll work, you know, there’s still a lot of planning and execution involved that if you’re not prepared, and if you’re not willing to do that, then it would just won’t work out. So I guess, even even those types of things, they had good learning experiences, you know, even how, how simple they might have been. And then as the years progressed, like our my senior year, you had to, you know, the, when you were a freshman, and obviously things evolved, you had a business idea. And all of it was kind of geared after your sophomore year was geared toward actually developing that business, in the hopes that once you graduate, you implement it, you know, and up to my senior year, that’s what it was. We were you know, we were writing business plans, were having them reviewed by not only our professor, but our other mentors, things like that. So, you know, I think what sets it up like I said it, what sets it apart from just a business course, is the actual implementation of what you’re learning.

Eric Hornung 15:24
When did the idea for gti first arrise, was that sophomore year, how many like business plans Did you write for that kind of walk us through? Was this part of the curriculum or did this happen outside of it,

Rich Stapleton 15:35
it came about my senior year. So since my freshman year, my thing or even my, in high school, what I always wanted to do was own a brewery. Not because I liked brewing beer, I really enjoyed drinking beer. I like like the fact that you know, it brings people together and things like that. So that was always something a field that I wanted to get into. I learned my freshman year of college when I was actually starting to work on a business plan for it. And I actually started brewing beer. And I realized I didn’t like brewing beer at all, I didn’t have the patience for it, all the beer I made tasted like. So it just wasn’t, wasn’t for me, you know, and I still have, you know, I would love to be in that industry someday, but not in the capacity as as I am now, with what I’m doing now. So, you know, as my ideas evolved, you know, me and my brother started another small business, I think my sophomore year, as opposed to brewing beer, we wanted to because we were always around special events, working for my father’s company doing water systems and things like that. So we would do some music festivals. And we noticed the beer distribution was very inefficient. So we started a small business doing beverage distribution. for special events. We did a couple small jobs here and there. So it was I mean, I was in school, he was in school. So we did a couple a couple small jobs. You know, that’s really where I wanted to go with things. I liked it. I liked the event aspect of things I liked how so much work goes into, you know, months of planning months of work, go into a three day event, you know, and then it all gets torn down and, and leave. So I always thought that was pretty cool. And, and I really liked being around that atmosphere. So we were really pushing that. And then, like I said, things just didn’t take off super well. We did a couple small things here and there. You know, and then my mother actually brought up the and now let me back up, I guess. So gti GTI’s got two branches of them. We do business, we build modular structures for defense customers, oil and gas, construction, agriculture, things like that. And then the other side of things is, which is a branch of GTI. It’s called Cannabox. And we build growing facilities for cannabis cultivators, legal cannabis cultivators all over the country, and Canada. So that’s really how we got started was my mother made a comment. I think she said it jokingly is like you should get into this cannabis industry. And you know, we’ve had experience building modular structures in the past for working for my father’s company. So we started doing some research and found there was a huge need for growing facilities. As the as the industry started evolving. And then we started seeing a big boom in urban farming. So growing vegetables in areas that you traditionally can’t grow vegetables, you know, in city centers, things like that. So we built a couple farms. And we actually operated a small vegetable farm in Buffalo out of a couple shipping containers, we sold through a couple local markets, restaurants, grocery stores, it was a nice little business. But, you know, that was another thing, another learning curve. I learned I didn’t really like farming. I didn’t like the actual operations aspect of it. It’s a lot of work for very minimal return. So I have huge respect for people who do farming for a living, you know, because it is a lot of hard work. So we started to see that maybe that wasn’t the space for us, we focus back on the cannabis side of things.

Jay Clouse 19:02
Before I dive too far down the rabbit hole of cannabox, something I wanted to ask you about your father’s an entrepreneur ask you a couple questions that already? Did he ever tried to get you to come join the family business and work for him versus doing all these these other businesses that you tried?

Rich Stapleton 19:19
Yeah, definitely. We never really had conversation. I was maybe a junior senior in college, I think it might have just been kind of assumed that it would be something that I wanted to do. And it’s a great company. It’s not that I didn’t didn’t like working for it, or wouldn’t want to be a part of it. That That wasn’t it at all. I really liked what I did there. I love what that company does. It’s an amazing company. But you know, we had a conversation one night, and he asked me if I if I’d be interested in or if my plan was to work and take over that business. I told him no. And we talked about it, he didn’t really make too much of a fuss about it. Then we talked about it after he told me he was kind of it was kind of like a what the moment for him. He was like, he’s pretty taken back. Like, you know, why the hell wouldn’t you want to do this? You know, we had we had to talk about it another night. You know, I told him I said, you know, you you built that business from the ground up, you know, you made your thing and I’d like to make my own. I’d like to do it the same way, the same way you did it. Like I said, At first he was a bit taken back. But then, you know, he said he respected that completely understood. And, you know, now he’s, you know, and he’s our biggest, biggest supporter, he would do anything to help us and one of our biggest supporters, you know, my mother being the other one, obviously. You know, so definitely a conversation we had, I think it was a shock to not only him, but a lot of different people that I would rather, you know, grind it out and do something on my own, as opposed to taking over something that’s already so very well established.

Jay Clouse 20:47
Okay, so you have these two lines of business now, how long were you doing the modular structures before you dove into the second branch on the cannabis side

Rich Stapleton 20:56
Yeah the cannabis side of things actually came first, we had experienced buildings, the modular structures, with my father’s company, because they use them on their, their operating basis and things like that. So we started with the cannabis stuff. And then we realized we were pretty efficient builders. And there was a whole other market out there, you know, commercially, defense wise, of different structures that needed to be built. So we saw a big, big, and a lot of the building we do is based out of shipping containers, you know, we also do a lot of ground up modular stuff. Because a lot of people, certain customers that we deal with don’t want the shipping container, look what they want, they want the benefits, they want the benefits of modular building, do a bit of both of that, mainly, like I said, mainly, what we do is chronic space, but the cannabis stuff actually came first,

Eric Hornung 21:48
what are the benefits of modular building.

Rich Stapleton 21:51
So it’s a more efficient process, because you have, like us, for example, we have an assembly line. So we have guys who are specialized in that exact trade of what they’re doing. So factory building, you have a lot less waste, you have a much quicker timeline, because like I said, specialized labor you know, if you if you’re building a structure, in, you know, a certain area that doesn’t necessarily have a good labor pool, you get a lot lower, slower building process, you get sometimes lower quality. But if you have consistency in your labor pool, which you do when you work out of a factory, you’re gonna have higher turnover, you’re gonna have a much higher quality product. And generally speaking, it’s about a 15 to 25% cost savings to traditional construction.

Jay Clouse 22:37
Can you describe for me what the actual product looks like? And what the experience is like for one of the growers, for example?

Rich Stapleton 22:46
Yeah, so the product itself from the inside, looks no different than any indoor growing facility. And from the outside, it just looks like a bank of corrugated steel boxes. And a lot of people certainly not a lot of people, but some people look at cannabox and think that it’s it’s some magical box that’s better than traditional indoor growing, it’s truly no different. It’s just a more efficient, cost effective way of building so you get to market quicker. You do it less expensively, and you can expand a hell of a lot easier. As far as differences in appearance, the inside looks identical, as opposed to and then the outside. Like I said, it’s just it looks. It’s corrugated steel as opposed to siding you see on any other traditional metal building

Eric Hornung 23:34
Who’s ordering Cannaboxes? And are you creating them before you get orders? Like are you running an inventory of Cannabox?

Rich Stapleton 23:41
No, no. So every everything we do is custom built. Because in an industry where people there’s so many different ways to do what they do. Everybody has a preferred method of lighting preferred method of watering preferred method of drying cannabis. I mean, it’s there’s just so many so many different variables, it’s tough to try to pitch one way to do it. So we find that that’s what we originally wanted to do was have a standard model. But we found out that everybody wanted to change the model. So we really don’t we don’t have anything sitting on the shelf. You know, we’ve had a couple we’ve tried doing like rental type units before. But same with that it’s people look at them, they’re always like let’s change this let’s change that let’s change this before we take it so we we did away with with stocking anything like that. And as far as who’s buying them, we’ve got growers all over the US. Every time a state becomes legalized, we get a huge boom of customers from allocate Oklahoma for example, legalized recently, we’ve got a number of customers there. The big legalization in Canada was huge for us. We’ve got dozens of customers across Canada. So really, it’s it’s legal cannabis growers all over all over North America is really our customer basis. Right now, we get some interest internationally, you know, we get stuff from Australia and Europe, sometimes.

Eric Hornung 25:00
Let’s stay on the cannabox side for a second, the pricing if it’s all custom built, how does pricing work?

Rich Stapleton 25:07
So pricing? it’s similar to you know, if you were pricing out a construction job, we have estimators, we take exactly what the customer is looking for, you know, give them an estimate what the project will look like. And we go through the engineering process, the design process, and then we can give them an exact cost of what they’re going to be paying for that installation.

Jay Clouse 25:28
And from a cash flow perspective, because you guys, you guys are bootstrapped, right.

Rich Stapleton 25:32
Yes.

Jay Clouse 25:34
So how this seems like a pretty capital intensive business, do you guys collect payment for what you know you’re going to be constructing so you can buy the materials to do it? Or do you have to work up to a point where you had enough cash on hand to do like a net 30 type situation?

Rich Stapleton 25:47
Yeah, so that’s the benefit of well with our private customers at least. So in the in the cannabox side of things, we take down payments for every. So we are never in a situation where we’re we’re in the red where we need funding or anything like that, because banks will not loan even though we don’t touch the plant, we have a very hard time even with our government work, we have a hard time getting money due to the fact that we deal with the cannabis industry, you know, there’s nothing federally illegal about what we’re doing. We’re just as just the same as a, you know, a company selling cannabis grower hoses or tables or something like that, you know, it’s no different, but they see the name, they see what we do, you know, we’re pretty well known in the cannabis space. So it’s scary to banks. So but ya know, we get to get down payment for everything. And so it actually works out pretty well that way,

Eric Hornung 26:35
how many of these, but I’m going to stick all my questions on cannabox for a second before we expand over to oil and gas construction, military and agriculture. Like how many of these Can you guys do in a month? A day? A week? I don’t know what the time frame the appropriate time frame is?

Rich Stapleton 26:50
Sure. So that depends a little bit on, I guess the intricacy of them. But we could build anywhere between I guess our current capacity right now is between, 15 and 20 containers a month. And that’s that’s what our with our current staff, we could we could run another shift, or two more shifts and virtually double or triple that if we needed to.

Jay Clouse 27:12
Is a buyer buying one container? Or could would I be buying like three containers, five containers?

Rich Stapleton 27:19
So it’s usually I mean, we have some people buy one offs. For the most part, it’s 10, 15, 20 containers, sometimes more, I guess, you know, like, so we get them here and there. But rarely is it really ones and twos.

Jay Clouse 27:33
So it’s usually you could be working on one order for a month.

Rich Stapleton 27:38
Yeah.

Eric Hornung 27:39
If you got an order today for 500, Canna boxes, how would you handle that

Rich Stapleton 27:43
You know we get we get asked that sometimes, you know is certain people will come to us for numbers like that, you know, we’ve got right now we work out over 40,000 square foot warehouse. Like I said, we run one shift 10 hours a day. So we’ve got another 40,000 square feet that we could expand into. And you know, we could run two more shifts a day to really max out, we definitely have a very good expansion capability. We’ve got a pretty good labor pool, withwhere we’re working and what we’re doing, it’s a little more desirable than traditional construction, because you’re out of the elements. So we’ve got a good, good spot to be to get labor. So you know, we obviously need three, four weeks, maybe need a little more than a month to ramp up to that capacity. But it wouldn’t be an issue. You know, I wouldn’t I wouldn’t be nervous about that at all.

Eric Hornung 28:30
Why is buffalo a good labor pool for this type of work?

Rich Stapleton 28:34
That’s a blue collar city, either. There’s a lot of good tradesmen in Buffalo. And it’s kind of dying out, but it was dying out a little bit, you know, but it’s coming back, they’re coming out with a lot of different trades training programs in Buffalo, I forget the name of the one. But it’s this massive training center that they just built, that’s going to be pumping out hundreds of students a year that are going to be proficient with HPAC, plumbing, welding, framing, things like that. So it’s a very good spot where, you know, there’s a lot of construction going on a lot of things like that. So I think the labor pool is just going to get better and better. You know, we’ve had issues in the past. But we’re lucky to the point where where construction, manufacturing construction, but we’re out of the elements. So it’s a bit more enticing than certain general construction jobs.

Eric Hornung 29:20
What are your major costs as a business? You have a 40,000 square foot warehouse, you have how many employees

Rich Stapleton 29:27
30

Eric Hornung 29:28
30 employees? materials are expensive, but like where where’s the breakdown? Like, what’s the biggest cost? What’s the smallest costs?

Rich Stapleton 29:37
I mean, our biggest costs our material for the jobs we’re doing and labor by far, you know, that’s majority of our costs, you know, our administrative costs are very low. We’ve got a pretty small front office, we try to keep that as lean as possible. You know, even with how much business we do, we don’t have a massive business development team like so we keep that pretty lean, just like we keep everything else. So you know, I would say like some material costs. And then obviously, our overhead is, it’s not cheap, but it’s definitely not not comparable to the other two.

Eric Hornung 30:12
What’s it like to ship like ship one of these things.

Rich Stapleton 30:15
So we ship them two different ways. majority of the time we ship them on the back of a flatbed truck, you can ship them by rail, but sometimes that becomes a bit cumbersome and it’s sometimes harder. It’s cheaper, but sometimes it’s just a logistical nightmare. So usually we just put them on the back of trucks and send down the road.

Eric Hornung 30:34
Given that they are shipping containers, could you not just put them on ships? Are they so changed on the outside that you can’t just like pop up on? That might be a very dumb question, by the way.

Rich Stapleton 30:43
No, it’s not at all. It depends what you do to them. So they’re called ISO containers. So if the modifications extend beyond they call them the ISO caster, those are the 410s beyond that, it’s not ISO compliant anymore, so you can’t put it on a ship. If it does, if it fits within that envelope. You know if it’s got a door on it, but the door is got a low profile doorknob so it doesn’t stick out beyond that corner. You can put them on a ship Yeah. So and that’s that’s what you know, some of the International things we’re looking at, or even you know, we we’ve got jobs going on, or we’re designing now down in like the Virgin Islands and things like that. All that has to be within the ISO ISO casters so they can be put on a barge and ship down there.

Jay Clouse 31:26
We spent all this time talking about Cannabox, I assumed that that’s probably the majority of the volume of business that you guys do. But if that’s not correct I’m , I’m interested to hear you know, how much of proportion is Cannabox versus the other types of structures that you do.

Rich Stapleton 31:42
Right now. It’s about a 5050 split. Obviously, on the on the cannabis side of things. It’s all coming from growers in the cannabis industry. On the other side of things, a majority majority of that work is coming from either the Department of Defense directly. So we’ve got we hold certain government contracts. And then the other majority of that comes from we’re a subcontractor to different large business deal D contractors.

Eric Hornung 32:09
I kind of want to talk about the military contracts. Sorry, the DOD contracts a little bit more like how did you get them there? They’re really hard to get right.

Rich Stapleton 32:17
Yeah, I mean, that they’re not I have a lot of experience with it. I guess it’s they’re not easy to get. But my father’s company, they had experience procuring government work. So that was always a very good resource. For me, that’s where I learned where we should be looking what we should, we should be talking to all everything I know about that. Right, except from experience came from my father. So that was a huge resource getting into that. And I think that definitely cut the learning curve down significantly, because we’re bidding on contracts. Now that as a three, four year old company, we really don’t, I’m not gonna say we don’t have business doing it. But we’re definitely young for bidding on some of these deals.

Jay Clouse 32:58
Rich, so as you were talking is growing, and it’s grown a lot over the past year, it sounds like and it sounds like you could ramp up production pretty quickly. If you took on a whole lot of orders, does this scale in any way? Or do your cost just kind of keep up with the amount of orders that you’d be taking in?

Rich Stapleton 33:16
No, there would be a point where we definitely see we need some growth in our front office, we’d have to bring in certain we just need more managers, you know, when you get that, and that’s something we’re learning. Now, you have that many people in such a big footprint of space, it’s tough to manage that with a foreman, you know what I mean? So we’ve been working, putting different management place different people in different places. But you know, that’s what that’s doing is taking people that were directly costed into a job, and now that’s adding it to our overhead. So there’s as we scale, there’s definitely definitely costs associated with that. But it’s, it’s compared to the amount of work that’s we’re getting out of it. It’s really not that bad.

Eric Hornung 33:57
Which side has higher margins, the cannabox or the DOD contracts,

Rich Stapleton 34:01
Cannabox, definitely cannabox.

Jay Clouse 34:04
As a business owner, does that make you more interested? You said you’re about 5050? Do you see a world where you’re just doing like 100% Cannabox? or Why not?

Rich Stapleton 34:12
I don’t, I don’t know. Because as big as the cannabis industry gets, they’ll never spend more money than the US government, we have lower margins with that work. There’s, in my opinion, a higher potential for much, much more revenue with what we do. You know, in the cannabis industry, there’s going to come a point where people are done building facilities. You know what I mean? Once you know, as the state’s legalize, I think we’ve got a healthy pipeline and a healthy timeline of work to be done. But eventually, it won’t dry up completely. But once there’s so many facilities and places once bigger companies come in, and they have their 2 million square foot greenhouses, a lot of what we do will start to diminish. You know, I don’t see that coming soon or anything. But it’s something that we know is going to happen eventually. So it’s we don’t want to throw all our eggs in one basket. And you know, that’d be that.

Eric Hornung 35:03
We talked a little bit about what the cannabox product looks like, what does the product look like for the DOD and as a subcontractor, like, Is it still all modular? kind of walk me through what you’re doing there as much as you are allowed to?

Rich Stapleton 35:18
Yeah, definitely. And for what most of what we do, I can share pretty much everything. You know, we’re nearly not working on anything. Well, mission critical right now. So yeah, I mean, we have a whole wide range of things that we build for, for this side of things. So you know, for a large bit this this DOD contractor we work with, we build containerized kitchens, we build containerized, showers, toilets, sleeping units, we build offices, you know, we’ve we’ve been on jobs, doing modular dog kennels, modular medical clinics, things like that. Right now, actually, the job site I’m on right now, we’re building a 60, container, MOUT village, which MOUT villages, military operations and urban terrain. So basically, you mock up a city, and they do their training in there. And that’s, that’s an area that we’re really looking to break more and more into, because there’s a lot of work with it. And a lot of them like to go modular, because they can rearrange them at a later date. Generally, it’s quite a bit cheaper.

Jay Clouse 36:19
That sounds really cool. I want to hear more about this modular city. What does that look like?

Rich Stapleton 36:26
It literally looks like a little city built out of shipping containers. This this particular one, it’s on Maxwell Air Force Base down here in Alabama. And it’s like I said, it’s constructed a 60 container double stack out different ways. This particular one they’re going to use for escape, I forget what it’s called. But basically, it’s conduct after they’ve been captured. If they’ve been captured and put in a certain situation, they have to not only work on rescuing that person, but getting out of that situation. And that’s what this particular facility is going to be used.

Jay Clouse 36:54
That sounds like the most intense paint ball like, type facility that I’ve ever heard of.

Rich Stapleton 37:00
Yeah, yeah. And some of them they actually that’s what they trained with. So but yeah, it’s, that’s exactly what you’re picturing is exactly what it is, you know, there’s there’s a lot of different structures, or kind of things that fall within that realm, that are very similar, like, right now, we’re working on a burn house. So it’s a mock building that they’re going to use for Fire Fire Rescue training, you know, so it’s similar to what we’re doing here, but different purposes, you know,

Jay Clouse 37:26
how has your role changed as an owner of this company, as your team has grown?

Rich Stapleton 37:31
So in the beginning, I did a little bit everything, you know, I do the administrative stuff, I would do, you know, obviously, sales, I would do, I was, I’d even have to go out there and weld, put some of these units together, you know, I’ve moved away from that. But even now, I still do a bit of the administrative stuff. And I still handle business development on the cannabis side of things, I really don’t handle any more I did a lot when when we started out, we’ve got kind of a team for that, but I still pretty much exclusively handle all the business development for the government side of things, which is where I like to be. That’s where I’d rather be. And as we are adding more people, we’re putting more administrative people in places, so I don’t really have to handle much of that. I mean, I still handle a bit of it now. But ideally, I’d be completely out of that. And I can handle what I’d rather handle is the big decisions in the business development.

Eric Hornung 38:23
Who else are you competing against here, on the Cannabox side, and on the government side.

Rich Stapleton 38:28
So on the government side, obviously, we compete against traditional companies. And then as far as very similar products, there’s a couple other companies that do pretty much exactly what we do, we’ve seen that, we usually beat them on price, a lot of them don’t build their own stuff, you know, they kind of they there, they market it, and then they outsource it to a company like us. So generally, we beat them on price, because we build everything in house at our factory. So I’m not saying anything bad. I don’t know too much about the companies. I don’t know them personally. But from what I’ve seen, it seems like we do, we got quite a bit more market share with them. And then on the other side of things with the government, and the things, you know, that there’s a there’s a good amount of companies that do similar stuff to us, I think we have a much better grasp of the government system, we do have, we have we have a healthy business development plan with that, I think we’re good at finding opportunities, you know, and then as, as we get more and more of these jobs, we’ve got very good past performance. So I think a lot of that helps us when the keep winning network,

Eric Hornung 39:36
how much of the government side is who you know, versus what, you know,

Rich Stapleton 39:39
at this point, for us? It’s a lot of what you know, you know, we’re not deeply embedded, you know, we don’t have a long laundry list of contacts with people we’ve been working with, for how many years? So a lot of it for us right now is what you know, I know that industry can become a bit of a who you know. For us, it’s pretty much only what we know, you know, because we, you know, there’s solicitations that we find, you know, that that there’s been people tracking it for years, you know, and we come in and are very competitive, just based off of, we take a look at what we’re what we need to do, and we put it implement into, you know, a very good strategic plan. We’ve just got good experience building those types of products.

Jay Clouse 40:18
What does the sales cycle look like for a government contract? Is it I assume it’s long?

Rich Stapleton 40:22
It is. Yeah, usually. So basically, what happens is, generally, a solicitation will come out, there’s a website called federal business opportunities, and 95% of from my understanding, at least, a vast majority of what the government procures will come through that website. So certain keywords and things we track. So we’ll find the business through the or we’ll find the the opportunity through that, and then you know, we take a look at it, it’s something that we want to spend our time going after, make that decision. And then generally, it goes through a market research process, it goes through solicitation, and then the solicitation will go live, you know, you have so many days or weeks to put a bid in on it dependent on the intricacy of the project and what they’re looking for. And then I mean, they can come back and award that within days or it could be months, you know, we’ve we’ve got a five year deal with the naval see Warfare Command to build all the AR 500 steel targets for the navy seals that one took three or four months to award, know, and then this job we’re doing now, I think that took a couple days, it all depends on what the job is and what the government’s needs are.

Jay Clouse 41:33
That’s shorter than I would have assumed, actually. So that’s really interesting to hear. On the cannabos side, you keep saying that you have a really good name in that space. Are you guys getting most your business just from word of mouth? And inbound leads at this point? Or do you guys go out and prospect growers,

Rich Stapleton 41:48
majority of it’s all inbound, right? We when we started out, we did a lot of cold calling we did a lot of you know, we spend money on trade shows and things like that. But we’re starting to see now, we never really saw much returned from that I think it was helpful, at least the tradeshow side of things because it would kind of show us or show legitimacy, I guess, you know, the fact that we could spend the money to be there, I get type of thing, we really didn’t get much direct business from that. And now we’re seeing just doing some jobs, good marketing material. And I guess having a presence at some of those things, we get most of our leads inbound now. You know, we get we get inbound leads from you know, some of the biggest cultivators in the world.

Eric Hornung 42:29
What’s next? You talked earlier about this idea of looking into vertical farming, you tried to run that you didn’t really like it. But it seems like you’re kind of prying for what the next thing is. You mentioned oil and gas. You mentioned construction, you mentioned agriculture, is it just going to be military and Cannabox for the future? Or like, are you actively looking for what the next product is? Or what the next industry is?

Rich Stapleton 42:55
Yeah, I mean, we’re always we’re always looking, you know, looking at our business development plan. And I guess our overall overall idea of what we’re doing and what what else we will look at, it’s a government opportunities, for example, we’ll look at something and it might not be exactly what we do now. But it’s got it, you know, it crosses some of the core competencies of what we’re capable of. So, you know, we’ll we’ll start to do research on things like that, see, if maybe that’s something we break into the future, like one of those just off the top, my head examples is body armor. Because right now we build AR 500, targets, ballistic targets. So there’s, there’s similarities between the two, they’re not at all same, you know, one, you’re shooting at one saving somebody’s life, it’s obviously very different. I’d be naive to say that they’re the same, you know, so at this point, it’s not like we can go start manufacturing armor, but it’s something that, like I said, it’s it’s, it’s got some of the same core competencies. So it’s something that we’d like to, you know, do our research on and keep on our radar, something we’d like to get into,

Eric Hornung 43:55
what are your core competencies?

Rich Stapleton 43:57
So I would say our core competencies are manufacturing, really manufacturing construction. So you know, really anything, anything that falls within that, let me rephrase that, I guess, metal manufacturing, and construction, there’s a lot of different manufacturing that we could not do. So really, we look for any, any and all opportunities that we might be able to break into those things. You know, a couple other big things that that we pride ourselves on are are efficiencies and logistics and quality control. So we we implemented an ISO 9001 program a few months ago, which is basically just a quality standard through the international standards organization, you know, so it’s, it’s, we use that that’s a big selling point, for a lot of our, you know, the candidates, people really don’t get worried about it. But it is a good selling point for government agencies and different businesses that run on in those circles.

Jay Clouse 44:49
I imagine with all this growth you guys have experienced over the last year. So you’ve been heads down, just trying to keep up with that. But piggybacking on Eric’s question, do you have a vision of where the thing is going to go and what this company will be?

Rich Stapleton 45:03
Yeah, yeah. You know, ideally, what we’d like to be as a premier modular builder, we’d like to break into spaces that aren’t just shipping container based, for example, Marriott builds all their hotels, modularly now, there’s a lot of different developers and a lot of different businesses like that, looking to go modular for all their buildings, because of the cost savings and the time expert expedition so far. So you know, in it right now, it represents a very small percentage of the construction industry as a whole. So we think there’s massive, massive growth in that. So I’m not saying we do away with the shipping container stuff, I think there’s a huge need for that, especially in the defense industry, you know, there always be a need for that. But, you know, we’d really like to break into more traditional modular construction.

Jay Clouse 45:53
Have you thought about taking on investment towards this vision? You haven’t to this point, but have you thought about it? And why have you ultimately decided not to,

Rich Stapleton 46:01
obviously, we thought about it, the reason we haven’t, we really don’t want to give up control of what we’re doing. The reason I wanted to get into business to begin with, is so we could do what we wanted to do, and we didn’t have to listen to anybody else. I guess that’s a little uneasy for me to think, you know, yeah, we can take capital also to try to serve it. But then we give up control. And I think that’s something that I’d like to keep, at least for the time being,

Eric Hornung 46:25
How big can this thing get? If you guys go into traditional modular? Or if you don’t? What’s your vision of how big this can get

Rich Stapleton 46:34
revenue wise, type type deal?

Eric Hornung 46:36
Sure. Revenue wise?

Rich Stapleton 46:38
Yeah, I mean, with some of the things we have in the pipeline, with some of the opportunities we’re tracking over the next few years, you know, we’d like to position ourselves to become 100 million dollar a year company, I think is, is a realistic, I’m not saying that’s going to happen today or tomorrow by any means. But I think, you know, setting that goal, I think that’s definitely realistic for something to happen. For us in the future.

Jay Clouse 47:00
At this point, who do you look to as a role model or inspiration? Like, where do you continue to push yourself to learn as you grow as an owner of this company?

Rich Stapleton 47:12
Yeah, I mean, I’d be my dad, that’s, you know, he’s kind of been my role model for this entire thing really, always been impressed with what he did with his business. And I’ve always tried to aspire to do the same. So I think that a lot of my inspiration comes comes from,

Eric Hornung 47:27
what would it take to make this a billion dollar business

Rich Stapleton 47:30
A lot of work. Um, but, uh, you know, I wouldn’t, I wouldn’t rule it out, you know, that’s something when we, when we first got started, you know, that was always kind of like the joking goals, let’s, let’s, let’s make this a billion dollar business. You know, I’m not saying we’re on a fast track there or anything right now. But it’s something that’s possible, you know, and I think it would take, you know, to run a business, like right now, we’re still we’re still in the learning process of running a business with 30 employees, you know, to get to the point of doing billions, I mean, you need hundreds if not thousands of employees. So it would take a lot, a lot of work and a lot of learning, it’s stuff that I think it’s going to be a very slow process to get, you know, to that, that size of business.

Jay Clouse 48:13
What’s the hardest part for you at this point?

Rich Stapleton 48:15
hardest part is time management. For me personally, owning your own business puts a strain on a lot of other things, you know, puts a strain on your your health, it puts a strain on your relationships, it puts a strain on a lot of things. So sometimes relationships suffer because of that. Sometimes your health suffers because not suffers, but you’re probably not being the healthiest person you could be because you go all day without eating or drinking water, because you’re pounding coffee, working your ass off and you got, you know, one vision in your mind to get this goal done for the day. And it you know, it can be taxing, but you know that that’s probably my hardest part. And something I need to work on is finding that balance between life and work.

Eric Hornung 48:54
spend some more time on Chippewa street?

Rich Stapleton 48:56
Yeah, right. Excellent

Jay Clouse 48:59
Now, this has been great, rich, if people want to learn more about you, or gt AI, fabrication, where should they go?

Rich Stapleton 49:06
So we’ve got our website www.gtifabrication. com.

Jay Clouse 49:14
All right, Eric, we just spoke with rich Stapleton, the CO owner of GTI fabrication, different type of episode here talking to a bootstrapped founder in the manufacturing space. Where do you want to start,

Eric Hornung 49:24
I think I want to start with just an overarching concept that we have here on upside, which is we started this podcast looking at how to learn and think like a venture investor, I think one thing that we found kind of over time, is that there’s different funding models out there that are equally interesting. And that exists on the fringes of entrepreneurship, maybe they’re even the bulk of entrepreneurship, and they just exist on the fringes of entrepreneurship media. So I’m excited when we have someone different on like, rich, like GTI, who can give us a different person effective than the typical tech company that we have on.

Jay Clouse 50:03
I’m a big proponent of raising money from your customers, which is essentially, you know, the model of what GTI is doing here, you know, they get a down payment, they use that to buy the materials, do the work, deliver the product, maybe collect the rest of the payment there at the end, if they didn’t get the whole thing I love when businesses do that, because as rich said is a priority for him. You don’t give up and you control you don’t give anything up in terms of ownership of the company. And so even though it’s not in the wheelhouse of what we normally talk to here on the show, it’s something that resonates a lot with me and a lot of the people that I work with

Eric Hornung 50:37
you throughout a little net 30 term there. Look at you Jay

Jay Clouse 50:40
Oh, wow. net 30. Yeah, what was really crazy to me actually surprising was the sales cycles that he talked about with the military. You know, we just got off sharing the episode with ABB works, where I literally said in the outro, we don’t talk too many companies that have military as part of their strategy. And that’s exactly what Rich’s team is doing here. And when I asked about the sale cycle, I was expecting him to tell me I was going to take something like 18 to 27 months to work with the military. And he said, yeah, it’s long. Sometimes it’s a few months after we do the the procurement process a few months, and sometimes it’s a couple of days, which is much faster than I would expect, which you know, gives me more optimism with working with the government as part of a business strategy.

Eric Hornung 51:28
Absolutely. I wonder if it’s this type of business specifically, where it’s not anything that’s directly in the hands of a Warfighter, or it’s not a weaponized vehicle, or it’s not a technology that has to get implemented. But it’s, hey, we need these barracks essentially, or, hey, we need this fake city, essentially, right? Like it’s something that just needs to be created and built. So it’s easier to do through an RFP process, then a lot more due diligence and vetting and stuff like that.

Jay Clouse 51:54
And also, yeah, the RFP process, I think what is key is the solicitation where the government has already said, this is a priority for us, we’ve already set aside budget to do it if you meet the requirements of what we’re looking for. And I imagine by the time you have something like that created, and you’re looking for someone to fill the need, you’re willing to make moves pretty quickly, when you see that they’re checking the boxes, checking the cannaboxes,

Eric Hornung 52:19
Boo

Jay Clouse 52:20
Hahaha

Eric Hornung 52:21
So I want to get into a little bit about how this business is structured with the two sides. We talked a little bit about military already. And then you just made a really bad pun about the cannabox side. What do you think about that kind of split focus?

Jay Clouse 52:34
Well, generally, you know, I asked where where are the margins bigger? Maybe you asked where are the margins bigger? And he said, on the cannabox side for sure. And so then I asked, why not just go whole hog at the cannabox side,

Eric Hornung 52:47
whole hog

Jay Clouse 52:48
whole hog. And he said, we we see longer term potential on the government side, they have more money, they’re always going to be spending money, the cannabis side could get saturated. If you just build out the infrastructure there, which makes lot of sense. Typically, you know, the knowledge is go where you’re making the most money and just focus and drill down on that. But for the situation where he’s seeing a window of opportunity, versus a long term cash cow, I think it makes sense. And it doesn’t seem like the core competencies that they’re using, are any different so if if the labor is doing the same type of work, it makes sense to me that they they do both of these things, so long as the individuals working on them can go between the two, and they don’t have to worry about matching utilization of one type of labor to one type of contract that could get a little difficult. Administratively

Eric Hornung 53:39
it seems to me like the designers at the company are probably the most important people. And we didn’t ask a single question about them.

Jay Clouse 53:46
We also chickened out and didn’t ask how big a typical order is,

Eric Hornung 53:50
Do you just want to keep on criticizing us

Jay Clouse 53:52
could have done better this is this is on me for being a little foggy headed on a Saturday. But

Eric Hornung 53:57
that’s Jay that’s an excuse. I have no excuse. I just did a terrible job.

Jay Clouse 54:03
interesting to me that, you know, he said we could build 15 to 20 containers a month in terms of capacity right now. And often an order could be 15 to 30 containers. So they’re at a point where it seems like they have more demand than supply in terms of being able to fill these, these orders. And I wonder why not? You know, we kind of asked it, why not just ramp up more, because it seems like they have the space in the building to grow into. And if on the cannabox side of things, they have a good pipeline, why not ramp up. And I wonder if it’s a concern of long term, being able to well medium term, being able to fill the pipeline of an expanded workforce, if they just expanded right now to try to nail the cannabox side

Eric Hornung 54:49
I think his answer at the end kind of gives away why they’re not doing that. It’s he’s looking at this as a slower growth vehicle towards something that will be very big. But it’s more of a measured growth, it’s more of a conservative growth, it’s more of a, we’re not going to jump on a rocket ship to get there. We’re going to take I mean, he said it’s going to take years to get to 100 million. And then to get to a billion is a lot of work. So it’s like more and more time. I think it’s just a slow and steady growth kind of projection then and mindset, not just projection, but mindset. Versus All right. Let me take on, let me go find some investors who are willing to like, saddle up and watch this thing grow very fast. And I don’t think that there’s anything wrong with it. I think that the majority of American business people probably think more like that than they do accelerated growth.

Jay Clouse 55:41
It’s kind of a fun compare and contrast with the conversation we had with Kevin McArdle and Tyler tringus when they were discussing bootstrapped SAS founders, same mindset, different product. And actually, this seems to be the type of business where obviously he’s ramping up to profitability faster than the SAS side of things. But like Kevin said, in that interview, a lot of founders want some level of just autonomy, and financial independence and the ability to do things their own way. They like growth, but it’s not growth at all costs. It’s not hyper growth. I mean, I trend more that way as well. If we turn things around, and we’re interviewing me as a founder, I would almost certainly be in that camp, whatever business I’m doing at the time. So yeah, I certainly empathize and respect that.

Eric Hornung 56:26
What do you think about rich as a founder,

Jay Clouse 56:28
I love hearing stories of children of entrepreneurs. It’s something that I envy, because I didn’t even have the idea of entrepreneurship. Until I was early on in college, something I just didn’t, I was never around as a kid, it seems to me that I missed years of practicing and trying and failing, and mostly just like sharpening my axe of how to think like an entrepreneur. I just haven’t been doing it for as long as somebody like rich has. So to me, it’s awesome that he got to see it firsthand, working with his dad, and he tried so many things in college, he went to college, in an entrepreneurship program. But it seems to me, you know, he understands this business Well, he understands the industry Well, I’m impressed with how quickly he, you know, he mentioned that he was bad at prioritizing his time. But I’m surprised or impressed with how quickly it seems he managed to move himself out of some of the labor type work because I imagine the early days, it was something where he knew it really well in and out and he was doing it. And now he hired people and delegated that out. It also seemed on the talent front, that he had no concerns with being able to find labor for what in Ohio here often I hear is a limited labor market. So I was impressed with him as a founder is the short answer to my long explanation.

Eric Hornung 57:53
It is funny because every founder, we talked to talks about like this talent gap, regardless of what industry they’re in. And this is the first time we’ve heard Oh, yeah, there’s so much talent, it’s not even funny, and there’s more coming.

Jay Clouse 58:03
And we’re positioned as a company in a way that people would want to work for our company versus doing, you know, the the outdoor in the elements type construction work.

Eric Hornung 58:11
Yeah, I thought that was a huge benefit for them a potential benefit. It’s going to be hard to close our deal memo here Jay because it doesn’t seem like rich wants to take on anyone who has an equity ownership position in his company. So let’s talk about two different types of ways that you can invest in a company and maybe just kind of walk through, does it make sense here? The first one is that that’s the other side of equity. Right? Does that make sense here, where you’re essentially investing at a fixed rate in this company, and does that even, I’ve never heard of like, early stage investor, just raising a bunch of debt. Like that doesn’t make sense to me,

Jay Clouse 58:52
pretty outside of my sphere of knowledge here, if you’re talking from like a bank’s perspective, he mentioned that he has trouble getting that type of loan from Bank because he’s connected to the cannabis industry. And that seems like pretty outdated thinking to me, you know, I’ve I’ve heard of businesses to getting bank loans on what seems to be less of a tried and true model than what Rich would be coming to them with. I mean, he could be coming with full contracts in hand, and p&l to show their growth. So it’s surprising to me that he has that type of risk profile to a bank. But tell me more about what you’re saying.

Eric Hornung 59:28
So there are different types of funds in the world, most of the ones that we talk about invest in convertible notes, and that those convertible notes convert to equity. So technically, they’re investing debt. But there are other types of funds that are usually higher up in the financial food chain, or later in a businesses life cycle that invest into the debt of a business. So maybe they’ll buy public debt, like a hedge fund, or maybe they will buy out all the companies debt and try to restructure the company through like what’s called distressed fund? Or, I mean, these don’t seem to be as prevalent, which was the question I was asking, like an early stage debt fund, where you’re investing in maybe asset heavy businesses that are just early on? And I’m not very familiar with that as a model at all.

Jay Clouse 1:00:13
Nope, neither am I go on to the next, go to the next model.

Eric Hornung 1:00:17
So the next model is going back to what we talked with Kevin and Tyler about, which is this idea of non ownership based financing, where it’s equity like and kind of debt like, but it’s guys, it’s in the middle, so you don’t own any of the company. But you’re essentially getting an earn out from the company for investing. This can be a revenue based revenue sharing based model, a profit sharing based model, or what Tyler called the shared earnings agreement. That seems like it could be a fit here, if you find the right investor. So the reason I wanted to bring up these kind of two competing things is we still need to answer this question, hey, if we’re an investor, what are we looking for in the next six to 18 months? I think it’s a little different when you’re investing from those lenses, then when you’re investing from a pure equity play?

Jay Clouse 1:01:07
Yeah, I mean, we’re going to get my favorite answer, which is revenue, you know, I’d be looking to see is rich growing the team and taking on more contracts at once increasing their capacity moving into that expanded space, maybe, but generally just increasing their capacity? And are they able to continue to feed their their deal flow pipeline to make that make sense.

Eric Hornung 1:01:30
And I think for me, if I was going to be investing into this business in a non equity way, I would be looking for exactly what Jay looking for. But if I was looking at it from a equity perspective, I’d want to hear more about that vision. But I want to get your take. Do you think having equity, semi equity or debt really changes what you’re looking at or looking for?

Jay Clouse 1:01:54
Yeah, I think the only thing would change is what the ultimate upside no pun intended. It looks like if you’re expecting your returns to be a equity type multiple, or if the arrangement is different, because that just changes your time horizon and how believable that plan is.

Eric Hornung 1:02:14
All right. Well, if you want to talk about the upside of gt I, or as rich as a founder or Jay and is freezing cold takes, you can reach out to us at hello@upside.fm with anything long, or interact with us on Twitter, @upside FM. Until then, we’ll talk to you next week.