#120: Brendan Anderson & Donnie Bedney (ScaleCo)

Donnie Bedney [00:00:00]:

Doing it locally, man, I think is the belief that we have, and one of the terms that I've been using a little bit more is that one of the reasons why you would think about moving your family back is not just for a ripple effect. The ripple pieces are fine, but I truly believe that there's a tidal wave of impact that's coming to the Greater Cleveland area and also what we're looking to do.

Jeffrey Stern [00:00:23]:

Let's discover what people are building in the Greater Cleveland community. We are telling the stories of Northeast Ohio's entrepreneurs, builders and those supporting them. Welcome to the Lay of the Land podcast, where we are exploring what people are building in Cleveland and throughout Northeast Ohio. I am your host Jeffrey Stern, and today I had the real pleasure of sitting down both with Brendan Anderson and Donnie Bedney to discuss their work at Scaleco. Scaleco is a Cleveland based entrepreneurship through acquisition organization which has invested more than $165,000,000 into over 20 regional companies. A longtime student of emerging businesses, Brendan Anderson began his entrepreneurial career in 1995 when he formed the Mass Group to provide management services across various industries. Later in 96, he formed the Heartland Companies to purchase a distressed industrial park and in 98 purchased Stem, a manufacturing company, which he led until 2005 as CFO, VP of Sales and Director, transitioning from the operating world. In 2006, he founded Evolution Capital Partners to provide capital to growing companies, where he invested over $100 million into 16 platform companies across three committed capital funds. Most relevant to our conversation today. In 2018, Brendan formed Scaleco to support the Evolution Capital portfolio companies, now serving as Chairman of Scaleco. Brendan is also an active member of the Entrepreneurs Organization of Cleveland and entrepreneurs across Borders. In addition to serving on the board of Soar, an organization that helps young adults with add land ADHD. Joining Brendan to represent Scaleco, Donnie Bedney has spent his career across prestigious consulting and healthcare organizations, including Gallup and Presghaney. As a workforce, Human Capital and Sales executive, donnie joined Scaleco in 2020 as an operating partner, taking on business development responsibilities in Scaleco's investment thesis around the Human Capital Management business. In 2021, Scaleco purchased PSP Metrics, a provider of employee assessment tools where Donnie was named President. In our conversation today, we explore what entrepreneurship through acquisition even is, the advantages of buying a business over starting one from scratch, scaleco's unique approach to unlocking value in partner companies, and why Donnie and Brendan have doubled down in Scaleco's commitment to investing locally in the Northeast Ohio region. So please enjoy my conversation with Brendan.

Jeffrey Stern [00:03:08]:

Anderson and Donnie Bedney after a brief message from our sponsor. Lay of the Land is brought to you by Impact Architects and by 90.

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Notes.

Jeffrey Stern [00:04:13]:

I've been really excited about this conversation because I think one of the perennial things I hear people opine on locally is that access to capital is of the biggest challenges that founders face. But it's always with a little air quote asterisks that we're quite formidable on the private equity side of the capital spectrum in the northeast of Ohio. And I think scaleco is one of these local institutions understanding that it's not traditional private equity and we'll spend some time to understand the whole spectrum of capital land the nuance here. But that scaleco is something people can point to of real capital being put to work in the region, with over 165,000,000 deployed in many companies. And so all this to say, I'm very excited to have both of you on today to talk about the work you're doing at Skelco because I think it'll be a really cool conversation.

Brendan Anderson [00:05:08]:

We're excited too. Thanks for having us.

Jeffrey Stern [00:05:11]:

Absolutely. So to start, I'd love if each of you can share, respectively, a little bit about who you are as people, how your past began to intertwine and your own professional journeys. Brendan, we could start with you if you'd like. As a fellow student of emerging businesses, I'd love to understand where that interest for yourself came from, how it manifested over the arc of your career over time.

Brendan Anderson [00:05:37]:

Yeah, no, I appreciate again, thanks for having us on the podcast and excited to have kind of tell the story and kind of how the different phases that Donnie and I are in this ETA world. Different, but the same. I grew up in Alliance, Ohio, a small community outside of Canton, and was lucky enough to kind of get up my first job in banking in Chicago long time ago, right around 1988, I kind of learned a little bit about business. Really liked being involved in the small company, kind of involved with the small companies and was always a little bit jealous that I wasn't on the other side of the table. And I mentioned that to my boss a couple of times. Land he eventually said, we'll go buy a business, and I didn't know that was possible. Again, this was probably in the early 90s, but he and a group of the bank customers helped me find and buy and finance a company. And I just assumed that's the way the world worked. I just assumed that if you worked hard, land, asked for things, people would do that. And I quickly kind of subsequently realized that's not how it works. So I kind of moved back to Cleveland, bought a company through an ad I put in the newspaper. Back then they had newspapers? Yes, Donnie, it was that long ago. There are these things that you would read, but that really kind of got me going on the entrepreneurial journey. Kind of kept me kind of local here. And really the vision for things that Donnie and I and the team here are doing are really kind of built off of that experience.

Donnie Bedney [00:07:01]:

Yeah, relatively similar story, although Brendan always jokes that it was a few years after him in that way. But born in California, raised in Michigan, so a lot of those Midwest values. The town I grew up in is a little bit smaller than alliance two stoplights. When we got the second stoplight, that was a really big deal. When we got McDonald's, I think it was a bigger deal. But my mom's side of the family is actually from Cleveland and so spent a little bit of time working at Shaker Heights Country Club. Funny enough, growing up, that's how I paid to go to private school for high school. And then later on, over the years, we've been trying to figure out dates, but I read a book called Why Should White Guys Have All the Fun? Which was an autobiography of this gentleman by the name of Reginald Lewis. That was the first intro I had to buying and selling companies. And from that day forward, I just kind of aspired to get into the space in some kind of way. A lot of career progressions, but back in 2005 or so, I actually reached out to Brendan. We connected through a mutual man that we both admire, happens to be my grandfather, and we connected at that point. He was one of the first people I've met who actually invested in companies and was also an operator. And so we stayed in touch over the years as my career was continuing to kind of grow. Had the opportunity to participate in a pretty large private equity transaction back in 2019. And then later on, literally about a year or so later, he and I decided that we'd get together, land kind of join the scaleco family, and the rest has been history. Now we're on the lay of the Land podcast.

Jeffrey Stern [00:08:47]:

Yeah, here we are. And I'm very grateful to have both of you. Thank you for the introductions. I think a great place to begin our discussion here. Brendan, you had mentioned ETA, an acronym I think we should define as I think it will set the stage for, I think a lot of what we'll wind up talking about here today, if you want to just kind of outline what that is.

Brendan Anderson [00:09:09]:

Yeah, I joke because when I was doing it, I don't think there was such a thing. But ETA stands for Entrepreneurship through acquisition. I think it's a mindset as much as it is the concept of the fact that you can buy a business. Anybody can buy a business. And you know, what's really neat about kind of an existing business is it has cash flow and it can pay you a salary and you can use that cash flow to grow. And so it really is it's something that the coasts have been doing for a long time. I mean, you can get on the Stanford, there's a market study every other year where they talk about the returns and the impact that their ETA program does. But it's really been void, in my opinion, in the Midwest, especially people that want to invest in this sort of thing. And so that's my definition of ETA, entrepreneurship through acquisition. Donna, you have any more color on that one?

Donnie Bedney [00:10:05]:

Yeah, I mean, I think more color really around the opportunity. But Jeffrey, as you know, both from the East Coast aspect, but also moving back to the Midwest, I just think that the Midwest is truly kind of the heart of the country. And so when you think about there's been a lot of articles coming out recently, just about baby boomers retiring, et cetera, and coming out of this Black Swan event that we have all been blessed to make it through, there are estimated three and a half to four and a half million different businesses that need to switch hands just this decade alone. Land a lot of these folks are moving on towards retirement and so literally no other way of moving on, maintaining their legacy or any of the folks that they employ within the communities that they've started in and kind of lasted for 2030, 40, 50 years outside of some sort of transaction. And I think one of the attractive things that Brendan Candidly has been doing as our founder for decades now, but also something that was really attractive for me in joining as an operating partner and otherwise, was the fact that I think we're an answer for a lot of those founders. Land also people who are really interested in entrepreneurship, but not necessarily bootstrapping, right. Can we build on the legacy and foundation of an existing business and then still provide innovation for it to kind of begin growing again and scaling to a larger level?

Jeffrey Stern [00:11:33]:

Yeah, I like the framing of it as the answer to the question, how do I deal with succession? Where is my business going to end up after I step away from it? I think it could be helpful also just as we're still setting the stage to understand what the other potential answers are to that question. As we talked about traditional private equity and often here on the podcast, we're talking a lot about venture capital. But really from the perspective of someone building a company, how is it that someone exits a company? A lot of what we talk about here is how do you start a company, how do you build, how do you scale? It's rare that you get to think about what are the exit options that.

Jeffrey Stern [00:12:18]:

Are even available to you.

Brendan Anderson [00:12:19]:

Yeah, I love some of Donnie's input on this one too. But I think there's so many people that build a wonderful business and they pay for their family. It's a wonderful lifestyle business. They really can make lots and lots of money, build lots of wealth, but get to the end of the road and it isn't worth that much to somebody else. They haven't built the infrastructure, they haven't built a deep management team. They haven't built the systems and processes that would convince a buyer that income, the profit will continue. Like most private equity, they're chasing companies traditionally that have got those processes in place and the, you know, they really feel that the, that the foundation is there. And I think the opportunity for many ETA or, you know, kind of local entrepreneurs that want to enter this ETA space is that when the enter these businesses, a lot of them will not have that sales infrastructure and the processes and they're really kind of off of the backs and talents of one or two people. But when they put those processes and systems in, it does transform the value of the business. And so it takes it from something that few people want to buy or to own to something that a lot of people want to buy or own. And obviously scale helps a lot. If you can get the earnings up above a five or $10 billion in EBITDA, it sure helps a lot.

Jeffrey Stern [00:13:46]:

So let's layer on scale code to the conversation at this point. How do you describe yourself as an organization? What were the motivations for getting it started? And we'll work our way through the evolution from there.

Brendan Anderson [00:14:03]:

The motivation is if I think back through my beginning of my career, we would buy businesses and we'd run the and eventually sell them or kind of keep growing them. We've owned businesses for 1920 years before. But my real goal was building an infrastructure or in a company that you could build on, that bring in more people, expose people like Donnie who has the energy and the skill set and the talents to grow a business and get in there and put that infrastructure in. But really kind of the platform for people like Donnie Land, that's what's driving us is that and we think that it's one of these wonderful things where when it works and you build kind of a generational wealth for the people that are running the company and you still create top quartile returns for the investors. I mean, I look back the last 25 years, and I think our investors are pretty darn thrilled with the returns. And our goals with Donnie and the team here is to make sure we can repeat those things for the next 25 years with more scale.

Jeffrey Stern [00:15:07]:

So what does the company look like today, Jeffrey?

Brendan Anderson [00:15:11]:

I think if you don't wake up every six months and feel like that the things you were saying 612 months ago were naive, you're not learning and striving and so forth. And I think that Donnie and I may do that every three months now, but I think we had kind of an AHA moment. We had our first close in this fund. We've got some wonderful long term minded investors that are willing to stay with deals longer, put more capital in as time comes on land. It's almost like an AHA moment where we're saying instead of saying you have a fund that has 12, 13, 14 businesses, if you really created some verticals, we're staying very close to home for the platforms. How do you get Donny Benny to stay super excited about sticking around or moving to Cleveland? Remember, he's moving from the Boston area to here, moving his family, his wife and daughter. And just like you, Jeffrey, Cleveland got a pickup when you moved from New York City. We're picking up Donnie and his wife, who's a physician. But how do you get them to do that? Well, it's got to be bigger. We bought a relatively small company in Pittsburgh that Donnie took over. We just acquired, partnered with a founder to get a much more scale. But really kind of painting this picture of a much larger vertical was almost kind of an AHA moment in the last couple of years here. And I think that's what's exciting because Donnie, with this larger vertical land, create a lot of opportunities for other people that want to own their own business, own piece, own pieces, parts of our businesses. And Donnie, I'm on a roll, so you have to jump in and stop me.

Donnie Bedney [00:16:47]:

No, man, that's good. When you're rolling, I just like to let you go because I think that's important. But playing off of also what you said and considering Jeffrey's question, I think, as you think about the team and all that, brendan didn't necessarily mention this earlier, but part of his vision early on, and I think we're beginning to live that is really creating this ecosystem. Scaleco originally stood for scale community, and as you mentioned, kind of being nontraditional private equity, we started getting some feedback early on, like, are you starting a nonprofit? And it's like, no, that's not what we're looking to do. But believing that there's a real opportunity to create an ecosystem, an environment where we're pushing entrepreneurship and not necessarily in, once again, kind of that traditional either bootstrapping only or raising venture capital. But how can we provide additional education and exposure to the fact that you can buy existing cash flowing businesses? That there can be services kind of within that that there can be experts who have also built businesses within? Those similar industries that can serve as advisors or additional investors to what we're building that some of those companies can actually partner together and provide services that actually can help those other platforms scale themselves. Right. And so how can we build that? And I think that at this point, that's something that we're building. Brendan has been phenomenal at kind of attracting talent. We like to refer to them as happy people, right. Humble, hungry, entrepreneurial, spirit people, smart. That's the happy kind of those are key values. Jeffrey to I think what I have experienced living shout out to Andrew Newsom, who's a significant part of our team and connected us originally. Right. I think he's really a microcosm of the type of talent that we've been able to attract and also another kind of transplant back to Cleveland. So we have that team. I think one other thing I'll say is that at least for me, joining up and having the opportunity to run our human capital vertical at this point has been exciting. But joining it with a partner and a team of folks who are practitioners who are willing to roll up their sleeves and dive in with us directly at companies in order to scale, especially near the beginning, while we're continuing to build momentum and kind of working through the inevitable transitions. Right. I think is one of the things that makes us just a really valuable partner in these transactions, but also makes us a really exciting community and ecosystem to join and become a part of.

Jeffrey Stern [00:19:35]:

So I think it would be really cool to understand here, really, from soup to nuts, the lifecycle of a company interacting with scaleco as a way to understand more of your approach. Land what actually transpires here, because we have everything from sourcing to vetting. Land once you've onboarded a company, assuming they've met the baseline criteria, you've vetted them as a prospect, you found their strong alignment, then in my mind, the real work is ahead and there's a lot of work that already went into it. So maybe just kind of take us through the whole process of what it feels and looks like for a company working with scaleco. And if we start with sourcing, I think there's a few interesting things that we could talk about here. But why focus on companies with a regional proximity? Right? I think maybe conventional wisdom would say you want to look across the country, expand your horizons, particularly as we think about talent recently in the aftermath of this remote world that we're in at the moment. So maybe if we just start with sourcing and we'll make our way through.

Brendan Anderson [00:20:43]:

What's interesting is a lot of this stuff was trial and error. And so this is almost the regional nature, is a look back we've gone back and we've looked and said where were the most successful companies? What's the probability of success if we stay closer to home? As for a platform and it's remarkable how much more successful we've been staying close to home. And we've done 23 transactions and there was a period of time where we were doing deals around the country and those deals didn't turn out quite as well. Land I think it goes to what Donnie was saying earlier. When you have a small company and you're building the community and you have additional resources and you can potentially move some of those resources around, it makes things much more efficient. So I wish I could have said we came up with this a long time ago. Actually, it's funny. Ten years ago I was having one of my kind of I just respect the heck out of him, a guy named Jack Stack, who wrote the book The Great Game of Business. Or actually Borlingham Did, but it was about Jack, and he looked at me and goes, brendan, you guys are running around the country says, We've never really been successful. With the probability of us being successful the closer to home, we're like 90% closer to home and making those numbers up in way less. And I don't know, when I was traveling around Pre COVID, I'm like what am I doing? And so that was the AHA moment. But I think we will get from a staying local perspective, we get a lot of looks at the companies that we want to look at. Remember, we're not chasing what the big private equity funds are chasing. We're chasing other kind of search minded kind of operators, other ETA minded operators, people that are using kind of conventional financing. And what we're really blessed with is we have a thing called we call it our baking list, which is an entrepreneur that has a company maybe they don't fully recognize yet what it's worth, maybe we're wrong. But usually we find that they kind of have an inflated value of what the company is worth with what they've got put into it. And sometimes they work their ways out of it, we work their way out of it. But we're very frequently able to work with or get to know an entrepreneur over years where we're open mindset, this is what we think it's worth, this is what we think you need to do to improve it and this is how we think we can add the value. And so often we'll close a deal where we have actually talked to the guy, talked to the owner for years. And so that's really where it starts. And because of that nature, we're able to really work with companies for kind of get involved in the we use a process called EOS. You mentioned Chris Snyder earlier, that's something he does. We've been using it for years and we're very upfront about that. Land we give them the book and we say, you want to read it, you want to talk to the other local companies and actually think about it. It's also a big benefit too, if all the companies are local, because you can go talk to the entrepreneurs, you can talk to people. I think we're very blessed with the fact that because we're staying local, we can get that long view and hopefully that makes them more comfortable. We can hit the ground running faster. And that's kind of the beginning of our process. And I think, quite frankly, when we made the decision to only do local deals two years ago or so, three, two and a half years ago, I got to tell you, deal flow is not the problem. And it's funny because something donnie, what do you always say? If you want to buy a business, you want to jump on that one. The problem is finding that one. Right, yeah.

Donnie Bedney [00:24:09]:

To echo Brendan, one of the things I say quite a bit, Jeffrey, is there's no shortage of capital, there's no shortage of opportunity. The biggest gap is people. Right. And when you think about our philosophy, especially of investing locally as we're doing that, I think that we continue to focus on the people aspect. Right. So Brendan referenced our baking list. We have a number of deals that we do get to look at. And once again, I think that's one of the amazing things that your listeners land audience, which we're looking forward to interacting with more, who are focused on the lay of the land. Right. As we think about driving distance from Cleveland, I believe one of the stats that one of our partners had shared a couple of months back was that just from a sheer population perspective, right within driving distance of 6 hours. Land I want to say this might be from Columbus on, but it's literally one of the most densely populated, from a people perspective, areas in the entire country. Right. So most people don't think about kind of Northeast Ohio as that kind of place. Right. But as you think about all of the talent that we are within driving distance from, I think that the opportunity, and at least for us in our belief, is that as we continue to find more and more businesses that we believe can scale as they're following the entrepreneurial operating system, but also as we're installing some of the other methods that we know can accelerate some of these businesses and putting those processes in place. And once again, being willing to roll up our sleeves with those folks. It just makes sense to be able to wake up in the morning, as Brendan often references, and get there before breakfast and then be able to kind of drive back home by the end of the day. But we found that to be significantly more impactful. And I think we talked about this earlier, but it's the type of opportunity that literally my wife and I have decided is large enough as we're thinking about continuing to grow our family. Land also a place to settle, that it's an even larger opportunity than what we're seeing. And we've lived in the greater Boston area for eight years now. Right. And we're willing to relocate back to the Midwest to pursue this type of opportunity.

Jeffrey Stern [00:26:36]:

Yeah, that's fantastic. One of the other questions I have about Sourcing, I think touch on it a little bit tangentially here is from the founders perspective, is it typically a matter of showing this as a potential path for them to follow or are often they coming to you looking to sell their company or exit in some capacity? How much of the push and pull is typically the case? From an entrepreneur's perspective, I would say.

Brendan Anderson [00:27:09]:

Almost always they're looking for some sort of liquidity, and I would say almost always they're largely looking to move on to some regard. To some degree, we almost always require they own a small piece of the future or a large piece of the future. We recently did a deal called the TPI Efficiency six months ago or so. And that entrepreneur again, Roger Zona, is still a younger guy in his mid forty s, and he rolled a big piece. Land he was really after growth, but I would think that that's more of the exception than most of ours are. Somebody's looking to take some chips off the table, wanting to kind of work with somebody like Donnie or a member of his team and help them grow, help the company grow. They'll have a stake in the game also, but that's probably 90% of the population of our deals. And quite frankly, because of that, if they haven't built out a lot of the infrastructure, as I mentioned earlier, it does kind of our Bailey Wick and kind of our expertise.

Donnie Bedney [00:28:17]:

Thinking about that, Jeffrey, I'd argue that, well, it's really more of a discussion, but there's only one inevitable thing, like when you start a business, right? And you know this as an entrepreneur yourself, the only inevitable thing is that there's going to be a transaction, whether it is you deciding to close your business or technically selling it. Right. And I think one of the challenges for some entrepreneurs that we run into in the lower middle market where we've been investing is that a lot of them haven't necessarily been exposed to the idea that they could sell their business. And so when they finally do come around to that, at times they've been left at the altar before or whatever else, right. No matter how many search funders there are, there literally are millions of these businesses, right. Land so I think that, once again kind of a local focus in our area as people have just kind of known us over the past few decades with the work that Brendan and team have done. The words. Kind of out that this is an area that scaleco may be an option. And I think that being following Patrick Lindsay only in his book Naked, we tend to be very candid and concise and also vulnerable in the way that we are willing to present to them kind of what their value could be or where we see their value and once again, how they can make some improvements. And for those who listen, they kind of stay on that baking list.

Jeffrey Stern [00:29:50]:

Moving forward, thinking about the baking list, if deal flow isn't necessarily the problem, then it becomes a matter of intentional reduction. Land finding the right opportunities and involved in that is some kind of vetting process. So what are those factors that you are looking for in prospective companies? The traits of entrepreneurs? What makes for the best scale co business?

Donnie Bedney [00:30:18]:

Well, number one, I'll start off with something that will sound like Brendan, but I promise this is Donnie. Very often, Jeffrey, what we are looking for is we're looking and this is part of our community, right? There are businesses that we run across at times and we're looking for a Jeffrey who has the background and candidly, the desire and we believe skill set, willingness and values to actually run and grow that business for us. I think that a lot of times that's kind of one of the first baileywicks, if you will, or toll gates that you have to pass through is who's going to actually run this business? Right? Because all the processes and everything else that we have, even if we know it's two, two and a half million in free cash flow and could grow and is in one of the industries that we really focus on a little bit more. Having that entrepreneur who actually wants to run that business, I'd say is arguably the first toll gate for anything that we decide because there are some really attractive businesses that we come across. But once again, kind of starting with that people component, I think is the first toll gate. And then I'll pass to Brendan for industry focus and stuff.

Brendan Anderson [00:31:39]:

Yeah, it comes down to people and it comes down to some vision for growth. I mean, obviously, if you look at our portfolio, we love business services, we love training, we like kind of higher margin value out of distribution. Why? Because obviously you can scale the you can grow them faster, they're less capital intensive and things like that. When you get the right people, the ways to add on to those businesses, again, I kind of refer to the verticals. We find that we can really add a lot of value by kind of stacking on into those companies. And so in a weird way, that's where we spend a lot of our time. I also were kind of blessed. One of the goals when we put this together a couple of years ago was we had a really core group of long term minded investors, people that would start off with a relatively small three, four, five, $7 million equity investment and turn it into a much, much larger investment. I kind of did some self reflecting when we decided to kind of rebrand under scaleco. And I don't love selling. If you get something that's growing and you got the right people on the team, it's fun to hold on to them, or at least fun to hold on to pieces of them. And so we've owned a business for 19 years. We just put a much larger amount of capital, $40 million, into a company that we've owned for just over ten years. It was one of these things where the investors loved it. We love the management team. We've had a really great ride. It's been kind of a very profitable business. Land we're like, why would we sell that business? And so that's also part of the pitch we're giving to people like Donnie and kind of the people running these businesses, is if they really do execute the plan, there's more capital there. Also not sure if that was the question you asked, but that's the answer I gave anyway.

Jeffrey Stern [00:33:32]:

No, I think it helps explain the kinds of companies that you're looking for perspective. What would make for a good scaleco partner over the long term. I'll ask, though, a follow up to it. I know actually, in just kind of researching the company, the scaleco specifically, not some of your partner companies, but I think it applies to those as well, is your approach to diversity both internally and externally. And I'd love to understand the philosophy around that and how it plays into the vetting of deal flow as well.

Brendan Anderson [00:34:10]:

It's something that's been very intentional and deliberate. Land to put it, was one of these things where I reached. We have a wonderful advisor named Vanetta Young out of Washington, DC. And like I said, I've known Donnie for 15 years ish, or 1517 years ish. And I think my eyes have been kind of opened with the help of Donnie Land, Vanetta and some other people. It wasn't as easy as I thought, it wasn't as straightforward as I thought. But what I can say is I think we've learned a lot. And I think all I can say is that I think it's opened up, it's made our canvas so much bigger in the future, so much kind of brighter. And quite frankly, the network mentioned the network that other people can bring, not to mention just going younger, too, but younger and kind of spreading that.

Donnie Bedney [00:35:03]:

Jeffrey I think it's a great question when people have there's been a lot of initiatives around diversity. I think that I'll take it a step further for what I believe we do. I don't think it's just about diversity for us. I think it's about inclusion, right. Land we've been very intentional, which is one of the reasons we start with people. And when we talk about humble, hungry people, smart and entrepreneurial spirit, you could be all of those things regardless of your background, what neighborhood you grew up in, what your ancestors look like, or whether you come from a trust fund or not.

Jeffrey Stern [00:35:42]:

Right?

Donnie Bedney [00:35:42]:

And so I think, you know, that really has given us really a broader view to just really look to attract our tribe, as you could say. And it just so turns out that I think our team, as you look at our website and continue to look at additional team members and stuff that we've been intentional about adding to our platforms, just tend to look a whole lot more like the world in that way. And so something I think it makes me proud to kind of be part of our organization today and I think we're going to continue getting better at that. As you think about the greater Cleveland area, I think that we're seeing a lot of similar moves both around diversity, equity and inclusion, not only in healthcare, but other industries as well. Land so I think that we are candidly. While a lot of people have not heard of us yet, they will. And I think based on your research and otherwise, I think that we truly are kind of an anomaly in our space. Not just talking about it, but once again being intentional and actually taking action. Land that once again, when you see the talent that we have on our team, you can see that we live those values.

Jeffrey Stern [00:36:51]:

Speaking of anomaly in the space, I'll call it a fact that I will say that PE maybe doesn't have the best reputation for what happens to the company after the transaction. So as we make our way through the lifecycle here, we talked about sourcing, we've talked about vetting. When you've decided there is a good match, take us through scaleco's approach to how that transition is handled. And Brendan. You had mentioned EOS. We can make our way to that as well. I love that it's been somewhat of a recurring theme throughout these conversations. It's just far more prevalent than I realize, this whole notion of a business operating system. But what does this look like in practice?

Brendan Anderson [00:37:32]:

I think you nailed it perfectly. I mean, we described the companies we look for earlier. They tend to be kind of built in the image of one or two people. And so for us to be successful by definition, we have to add people. We have to look at almost all of our companies and we intend to have them double or triple in size depending upon at least over some period of time. And so what's great about EOS is either it's a great language, a great process, a great way to try to figure out who wants to play by the values and vision that we create. And I think what's wonderful is usually when we do it correctly, the people that want to be on the bus step forward, and they feel thrilled and they're excited. They feel reinvigorated. And the people that don't want to be on this specific bus almost always come to us. Land say, hey, look, I'm looking for this probably isn't a match for me. And it gives us a chance to kind of, in an outward mindset, find them a better place for them. And I think it truly is a better place for them. But I can tell you that overall, we're looking to grow. We're looking to add people. For our companies to be successful, they have to grow in people. One of the deals that we did way back in 2009, who was based in Independence, is a company called the Accurate Group. And I think when we made the investment, they had zero Ohio employees. And the entrepreneur that runs that is just an unbelievable manager. Land now they have 600, 700 employees and hundreds of them in Ohio. And now that's been nine to 23. So that's been a little bit of a run, but that's a heck of a growth. And so that's a little bit of the exception. But that's our goal, to continue to add people.

Donnie Bedney [00:39:26]:

I think that because of the businesses that we're buying and kind of that people first thing. I think what we found in a lot of those platforms and Brendan can correct me if this is not true, because I don't know all of them prior to me joining the team, but for a lot of those what you find is not only the person with the vision of how it's grown, but also finding people within the existing business that we're able to provide additional opportunity for that because of that culture change. And it's almost an injection land invigorating kind of peas to empower some of those people within companies as well, to continue growing. Right. Because if you Google private equity, god forbid, some of the horror stories, right? Cost cutting and everything else. And so it doesn't mean that we don't look to add some of those financial systems and stuff like that. Especially when you think about the TAC Method. Land that's kind of that transformation portion where we're trying to bring transparency and dependable numbers and some of those financial systems. We just have a clear understanding of how we're growing the business accordingly. But it's interesting to see once again, kind of the opportunities that are created as we're coming in because that's really the goal. Like, how quickly can we get to know the talent within the organization and then put some of those metrics in place so we can move towards accelerating?

Jeffrey Stern [00:40:52]:

What is the TAC method?

Donnie Bedney [00:40:54]:

Yeah, so we've talked a lot about EOS, which I think is an unbelievable resource that we use, but our own kind of proprietary, if you will, process is TAC, which stands for Transform, accelerate and Consolidate. Right. And so if I kept it simple without going through kind of all the steps. The transform aspect really has a lot to do with financials and giving the stability there in transparency around numbers. As we get into accelerate. I think that a lot of that has to do with more of the not only, I'll say organic revenue growth, but continuing to reinvest in the business from is there technology enablement that we can add, which once again is going to continue to accelerate that process and then the consolidate piece. Brendan hinted that earlier, right after we've kind of laid that foundation, provided some ways to continue growing organically. What are the potential add ons? Land other things that we're able to add to continue once again to accelerate, get into new verticals, add additional talent services, et cetera. Land so these are all things that we found over the years that have really led to higher value, you know, within, you know, within companies that we've owned. And so TAC is what we refer to it as, but it's literally there's so many steps kind of within it. And I'm trying to remember what version we're on now, but kind of similar to Apple we continue to update as we find additional things to add into the TAC method.

Brendan Anderson [00:42:33]:

Jeffrey I look at TAC as kind of relatively simple. It's really straightforward. If you can have killer numbers backwards and forwards, you're looking back, you really believe in the numbers, and you have some good predictive metrics. You've added a lot of value. If you got the right people in the right seats, kind of row in the same direction. Let's call that EOS. You're adding some value. If you get the organic sales growth going again, you've added value. If you have a technology enablement plan, basically kind of what is it that can make us more efficient, more effective, you added more value. And lastly, if you've got kind of operational excellence, then you can do add on acquisitions and you can do it. You've added a lot of value. Land so those are things that scaleco can do where a lot of the small companies really can't do those things. And it's not as simple as I made it sound as Don, as we all know, but that's what we try to do.

Jeffrey Stern [00:43:26]:

Well, captured in those categories is the whole essence of running a business. So I would not say it as simple, but I am curious within those, and I don't know if I'll be able to recite them back to you in that order, but is there a low hanging fruit that you're surprised to find that many businesses that you're onboarding and working with haven't you necessarily thought about or are working towards across, you know, financial reporting and accounting or organic revenue growth or technology platforms or corporate development?

Brendan Anderson [00:43:57]:

I would say the lowest hanging fruit is almost always, and Donnie mentioned it early is that there's the talent inside the organization that's untapped I mean, it's almost always you go in and you're like, oh my gosh, there's an absolute gem here. And the prior owner was maybe a little more command and control, maybe kind of really focused on kind of the business being a lifestyle business. And you come in Land, you say something like, god, if you had unlimited capital and unlimited time, nobody has those. But if you did, what would it turn into? Land, all of a sudden you're writing down all these crazy ideas and I think that's where probably Donnie and I have them in our team have the most fun because you're unleashing these people that have just you're like, god, where have you been? So don there's probably other low hanging fruit I'm missing, but that's the one.

Donnie Bedney [00:44:45]:

That yeah, well, I think but well said. I think, Jeffrey, the one thing I'll throw out there is actually market share, right? And so I think that a lot of small companies similar to and you kind of hinted at this earlier when we were talking about investment strategy, right. And so quote unquote, common knowledge. Or most people would say, oh, well, are you across the entire United States of America? Right. And it's interesting how some of these companies have really strong brands that they've been supporting for multiple decades, right. And Land, a lot of times those tend to be regional, right. And so, you know, not only, you know, do you have those great brands, but can you provide additional services within those companies that you're already a part of to kind of build out? But then also can you have just a clearer understanding of kind of your current market share and then continue to grow that even regionally? Right. A lot of the industries that we tend to invest in happen to be relatively fragmented, right. And so there's some opportunities to just build some pretty incredible businesses just by focusing regionally and once again kind of harnessing that talent with a regional focus to expand as opposed to necessarily dominate and take over the world. Right. Which I think is slightly different than a venture perspective where obviously your total addressable market is going to be in the billions of dollars. If it wasn't, then why would anybody invest in you? I think for us it is once again, we want to and I think have seen significant growth within a lot of these organizations. But I think that once again kind of continued focus and kind of that regional growth it's not necessarily how do we capture all of the market as much as can we double, triple, quadruple our market or share of market, even from a regional perspective and believing that we can add significant value to those entities as a result?

Jeffrey Stern [00:46:51]:

You have both mentioned a few companies that are within the scaleco family. I'd love to just hear about a few more, if you will, about some of the examples or your favorites. I don't know if you can choose favorites, but just to paint a fuller picture of some of the organizations that you're working with and the kind of outcomes that you've been able to realize with them.

Brendan Anderson [00:47:15]:

Yeah, that's a tough one. Donnie maybe you start kind of with the companies in your vertical and then maybe I'll kind of add a couple more.

Donnie Bedney [00:47:24]:

Yeah, I think that the vision of some of the ones within the human capital vertical now are obviously exciting. And that's why we're in the But PSP Metrics, which is out of Pittsburgh. It's a talent assessment company. We like to say that we've been helping companies remain competitive by doing pre hire selection. And that company has been around since 1946, right. So officially 77 years old and done a lot of work there. So we're excited about that business and then the one that we recently partnered with and why I'm moving to Cleveland. Safety controls technology, phenomenal business, and we believe that kind of turned into this conglomerate right at this point, where we have multiple leaders in our health services division, where we provide occupational health services to a number of companies, not only regionally, but also in the greater Chicago area and beyond. And then also we provide safety services, not only OSHA compliance type work, but we've developed a significant expertise in safety. Land what we'll refer to as kind of staff augmentation, where we place certified safety professionals. As you think about the glass industry, actually specifically within really, really dangerous environments, we are helping increase the quality of safety and decrease the amount of safety events for our clients in some pretty remote areas. Land so been really excited about continuing that work.

Brendan Anderson [00:48:57]:

Another business that we're a little over a couple of years into, actually a little less than a couple of years, two years this month, is a company called Inoplast was a business that, again, I'd mentioned had been on our baking list for a long time. Craig and Lisa McConnell had been with the founders of the business and the we had been introduced by common friends and we had been talking for a while. And eventually he was faced with needed to kind of he had three different facilities needed to move to one. So we came up with a pretty good plan to kind of build a much larger distribution facility in Garfield Heights. We also at the time, during that kind of waiting period, we were able to kind of find a couple of the little tuck ins. But that's a business that through tuck ins and marketing and the addition of a couple of other big customers has gone from 5 million when we made the five 6 million we made the acquisition, to 18 and a half million dollars in a year and a half period of time. And actually it's one of those also where it's a business where actually when you take your investors there, it actually looks like something because there's actually inventory and people land, equipment and so forth. It's in Garfield, but that's a business that was almost kind of one of these donnie kind of when you talk about this vertical, it's kind of an AHA moment where we start finding all of these other little distribution businesses that we probably wouldn't acquire or invest with if it was just by itself. But now we've got this kind of this infrastructure where we can kind of add in seven to $15 million product lines, and it's kind of opened up our vision of what the company could become and what sorts of products we can distribute. That's one that's Gary Bowling was a searcher or an ETA person kind of spent nine months in our office. We knew we had kind of this baking list thing that we needed to couple it with some other things, and he really did all the hard work, and we were able to couple it together, and it's been a lot of fun. And the I'll give you one more just because I can't stop myself.

Jeffrey Stern [00:50:57]:

Yeah.

Brendan Anderson [00:50:58]:

Ten years ago, end of 2012 so a little over ten years ago, we invested in a company that was in Detroit. They would do payment processing for OEMs around typical warranties document monitoring or document processing, payment processing. And it was a business that always made pretty good money, but we really had trouble growing it for a long time. And we put a lot of infrastructure we invested in the technology, the API between the OEMs, and it didn't grow like we had originally planned, but we really believed in the team. And so it was actually originally in an actual fund land. We kind of gave investors a chance to get out or stay in, and then once we had that kind of platform outside of the fund, we put a lot more money into it. We put a total of about 15 million eventually into it, and finally we're able to add other OEMs, other kind of customers as well. And it's one of these companies that has a lot of operating leverage. You kind of fill in the top, and a lot comes out the bottom. And so one of my favorite things to get to know the industry and hit some of the events with the management team, if they want me there, we got to know the big industry kind of dominant company. The company is called Paylink. It's owned by Fortress and Milestone. And we actually combined the companies last year in a situation where we reinvested about $40 million. And it's been a lot of fun to kind of see our team get the opportunity to be part of such a much bigger company. It's been a lot of fun for our investors to kind of get to know they were probably ten x our size. It was something that we've kind of always dreamed about participating in. And again, our investors were kind of given the choice to stay or go, and most of them stayed. Those are the like I mentioned earlier, I hate selling stuff unless it's a dumb price. But that's good.

Jeffrey Stern [00:52:58]:

Awesome. Thank you for sharing those. I think it just helps paint a picture of what this looks like in practice rather than at the abstract level of TAC and these concepts we've been discussing. So I don't want to necessarily jump the gun on your new slogan, but I do love that it's around the spirit of investing local. And so maybe we can jump the gun a little bit and I'll just ask what is the ultimate vision going forward and what is the impact that you're hoping to have through this local lens?

Brendan Anderson [00:53:32]:

The slogan is investing locally. And then if we want to say investing locally in people and companies, it was actually a company we're looking to sponsor. We haven't officially done it yet. They actually came up with it and we were like, wow, this is a lot of fun. But really our goal, Jeffrey, is to be able to prove that we could raise a 200 and 5300 million dollar fund, put that money to work very drivable from here. And again, I won't put a thing on. We currently tell people if we can get there for breakfast, we'll invest in it. But I think we can invest a lot tighter than that and also create super long term opportunities for our investors and the managers. The fund is set up to actually give people an exit in a fair amount of time, but it's also set up to take advantage of twelve two, which is kind of a wonderful tax stuff. And it's also set up so that if in select circumstances people want to stay for much longer, they can do that. I think we can prove that we can put a lot of money to work drivable from here. And then that's kind of where we're focused. And then if people like Donnie or Andrew or some of the other talented people in organization want to kind of geographically spread to Columbus and Cincinnati or even farther, that's when I think things can really take off. But for right now, we're focused.

Donnie Bedney [00:54:53]:

Drivable from here. Yes. Just doing it locally, man, I think is the belief that we have, and one of the terms that I've been using a little bit more is that one of the reasons why you would think about moving your family back is not just for a ripple effect. The ripple pieces are fine, but I truly believe that there's a tidal wave of impact that's coming to the greater Cleveland area. Land also what we're looking to do. And so for anybody that that resonates with as they're listening to us today, come and check us out. Right? Meet us at the office. Let's find ways to work together. Kind of in that I just believe that there is an incredible time now you've been, you know, in the way of the Land has been, I think, an amazing conduit for, you know, some of those people who are doing amazing things in the region. We've had the opportunity to meet with some of those folks even recently because Brendan will tell you, I think our biggest challenge, he's been working kind of in silence, right? And one of the hurdles that I think we're addressing now is just getting the word out that we are here because one of the challenges is that most people haven't really known who we are, but we've been doing phenomenal work for this time. And so I appreciate you for allowing lay of the Land to be a conduit to get the word out and just really excited about bringing this level tsunami, tidal wave of impact back to the Midwest.

Brendan Anderson [00:56:21]:

We'll give you one other thing that's yet to come out, but it's going to be this week or next week. One of the reasons I think I mentioned to you before we got on the recording that we're kind of currently sharing space with Jumpstart and Ray Leach was I've been talking to him about the scale community for a long time and having a physical location for other Searchers and ETA people to come. Land kind of use some of our resources, use some of our databases, whatever. Land it was really in that kind of conversation that we're going to build out a scale community space for ETA and search. It's going to be on the other side of the building that jump starts in in Cleveland Heart Labs, but that should be done this fall or kind of early winter. Fred Geiss and Jim Doyle are building it out for us and we're really excited about it. We're really excited to have a physical location where we can kind of get together with the Cleveland community and find some more of these businesses, whether we're involved or not.

Jeffrey Stern [00:57:20]:

That is very exciting and I'll reiterate that I am very glad to have you guys on. I don't know, the trite aphorism I always come back to is that the map isn't the territory and I feel it's kind of the whole impetus for the podcast is to make the map more robust of who's actually here. And so I'm happy to help spread the word about the work that you're doing at scaleco. I think it's important. I do want to leave just a little green space question for any reflections, learnings things that you think are important that we haven't talked about as you reflect on your journey so far. I think both of you have really interesting perspective. Getting to see all sides of the coin here from the entrepreneurship, land founders perspective, actually going in and operating on the capital side on leadership, on management, on Cleveland. You guys can just riff for a second if you want.

Donnie Bedney [00:58:17]:

As Brendan mentioned once. He gets rolling, he might not stop. So I'll hop in for a second. But we are kindred spirits. Like, that one of the things that Brendan has heard me say. And once again, just as this is getting out to your listeners and folks are sharing, I'll encourage this. A lot of us were raised believing that if you get good grades, like in high school and you can get into a great school college, and if you coming out of college because of good grades, you get a great job. Land make six figures, you kind of made it right? And for those of us who've been blessed to kind of climb that corporate ladder and make it to the top, the crazy thing is a lot of us have gotten to the top only to realize that that ladder was up against the wrong wall the whole time. And taking that leap to entrepreneurship always feels really scary because once again, most people aren't exposed to the fact that you can buy an existing cash flowing business. But I'm here to say that entrepreneurship through acquisition is a way to literally take that ladder and put it up against the right wall, which is entrepreneurship, and be able to do that once again with existing cash flow. I say that those existing businesses need the same amount of innovation as starting something brand new. You could find it within an industry that you already have some expertise in or even just an industry that you have a desire to learn more about. And as I've said to a lot of people, I think that there's this big difference between access, which a lot of people talk about the term access and exposure, right? If I never read that book about Reginald Lewis and knew that McCall Pattern Company and the Beatrice Food like that, you could buy an existing business. If I wasn't exposed to that idea, and then fast forward to 2000. Land Five. When I first reached out to Brendan and it started meeting more people who were actually doing it, I just wouldn't have been exposed to the fact that it's existed. And the amount of people even working within existing corporations now, who literally this will be a mind blown emoji episode for them to just realize that there are existing businesses that you can acquire and there are ways to do it. There is no shortage of capital, there are no shortage of opportunities. The biggest gap is people. And that's the environment and ecosystem that we're creating. And I think if that has been an AHA moment for me quite some time, and as much as I can kind of evangelize that, that's one of the biggest things that gets me up in the morning for what we're building.

Brendan Anderson [01:00:52]:

My story is very similar. You've heard this before. I keep talking about being a banker in Chicago, and I would kind of complain about being a banker not suggested for most people, but it worked for me. I had a very entrepreneurial boss, and he said, Brennan, go do something. He goes, you have to get in the game. He said then he kind of said, even God can't steer a parked car. And I was kind of like, oh, okay. Then I kind of went back, thought about it, and then I still had no idea what he was talking about. So I went and said, hey, help me get in the game. Kind of like Donnie did. I think when he called, he was Brennan. He goes, I really want to do this, but I think I'll have deal flow problems. And I think that's exactly what I said to my boss. I don't even know how to get in the game. And I think there are people like Donnie and I and lots of other people in Cleveland that want to help people get in the game, and they got to be happy people, humble, hungry people, smart, with a passion for entrepreneurship. I'm going to lead with my hidden gem because what I would say is that the entrepreneur community may be hard to find in Cleveland, harder to find than in other places, but it's here. Land I would say that generally the people, if you reach out to them, are going to be pretty receptive. A couple of times in the past you have talked to about the Entrepreneurs organization. It's something that I joined and I didn't really buy off on until I kind of saw that a lot of people that were embracing what they were doing were successful. And so what I would say is that the hidden gem is that there are entrepreneurs and if you're willing to reach out, I would be stunned if people weren't willing to reply and kind of help you get in the game.

Jeffrey Stern [01:02:27]:

That resonates a lot. I think the whole reason the show exists is because people were gracious enough when I reached out originally to offer their time and experience and be willing to share.

Donnie Bedney [01:02:38]:

So I don't officially live in Cleveland yet, so hidden gym is a little bit more difficult for me.

Jeffrey Stern [01:02:44]:

But this is the hardest question, man.

Donnie Bedney [01:02:47]:

It is. This is the real stumper, man. But one of the things that I will reflect on which the wife and I have talked about quite a bit. Land for any folks who, like us, are living in the northeast or even on the west coast or Atlanta or any of those other places that I've lived, my wife said it best. She said, Where is the traffic? And I said, Babe, I don't think there's any right 20 to 25 minutes to get just about anywhere you want to go.

Brendan Anderson [01:03:16]:

I have no idea where you're going, but I forget it. That's good.

Donnie Bedney [01:03:20]:

That is a hidden gym, man, for the greater Cleveland area. Like, no traffic. That's a real unbelievable, man. Yeah, I know. We can't have too many people moving, that might change, but for now, that is unbelievable.

Brendan Anderson [01:03:33]:

Land I think it's the affordability again, when you say that, donny it's like the affordability. I mean, look at the house you can buy in Shaker versus the one you're leaving, the cost or value of those things when you're leaving in the Boston area. And all of those things I piling on here because that's my specialty. Part of the reason when I was living in Chicago is I didn't know where I was going to move. If you knew I didn't want to move north, couldn't afford it, didn't know anybody moved west. And you come to Cleveland and you don't have to necessarily live that entrepreneur's, that startup entrepreneur's life because you can afford to do a lot of things. And that's a benefit, especially in today's age. Day and age.

Donnie Bedney [01:04:07]:

Yeah, absolutely. We love all of Cleveland, but if you want to swing over to the East Side, then we might love you a little more. I'm learning that one, too. But one other thing, as we're piling on, I would also say that the food scene in Cleveland has been so much better than we ever were anticipating. And once again, we're moving from Boston, so I can't say that about seafood yet, but I'm a little biased from living up here. But outside of that, food has been just unbelievable, even if it's just swinging over to the Van Akin district or anything like that. I'm not going to mention the super fancy spots like a marble room or any of those kind of places, but it's amazing. The hidden gems from a food perspective, amazing.

Jeffrey Stern [01:04:56]:

Well, Donnie, Brendan, I really appreciate both you coming on today and sharing your stories. I think, again, it's really incredible work that you guys are doing and excited. It sounds like perhaps scaleco will be more public in its endeavors going forward. Land so I'm excited to follow along as well.

Brendan Anderson [01:05:14]:

We're excited to have you come visit the new facility soon and we're excited to meet many of your listeners. So thanks for having us.

Jeffrey Stern [01:05:22]:

Fantastic. Well, if any of them would like to follow up in any way, what would be the best way for them to do so?

Brendan Anderson [01:05:29]:

Brendan@scaleco.com, is the email be the best?

Donnie Bedney [01:05:32]:

Yeah. You can find us on LinkedIn as well. Definitely on there. My email is dbeedney@scaleco.com. That's D as in dog, b as in Bedney, e as in elephant, d as in dog, n as in Nancy, e as in elephant y@scaleco.com.

Jeffrey Stern [01:05:49]:

Well, thank you both again. This is great.

Brendan Anderson [01:05:52]:

Thank you, Jeremy.

Jeffrey Stern [01:05:54]:

That's all for this week.

Jeffrey Stern [01:05:55]:

Thank you for listening. We'd love to hear your thoughts on today's show, so if you have any feedback, please send over an email to Jeffrey at layoftheland FM or find us on Twitter at pod layoftheland or at stern. J-E-F-E. If you or someone you know would make a good guest for our show, please reach out as well and let us know. And if you enjoy the podcast, please subscribe and leave a review on itunes or on your preferred podcast player. Your support goes a long way to help us spread the word and continue to bring the Cleveland founders and builders we love having on the show. We'll be back here next week at the same time to map more of the land. The Lay of the Land Podcast was developed in collaboration with the upCompany LLC at the time of this recording. Unless otherwise indicated, we do not own equity or other financial interests in the company which appear on this show. All opinions expressed by podcast participants are solely their own and do not reflect the opinions of any entity which employs us. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Thank you for listening Land. We'll talk to you next week.