Dave: Good afternoon Charlie.
Charlie: Hey David.
Dave: So how are things in North Carolina?
Charlie: Very nice. Can’t complain.
Dave: Excellent. Well, let’s get started. So today my guest on the IC-DISC Show is Charlie Rowe from North Carolina. Charlie has a unique story and I’m really excited to have him on here, but I guess his story isn’t that unique. But his current situation is really unique in terms of our clients. And the reason it’s unique is because Charlie sold a scrap metal operation several years ago.
And because he’s no longer in the business, no longer concerned about competition from other scrap folks. His willingness to be more transparent about some of his business lessons and some of his dealings, is a lot greater than a typical client of ours who’s currently involved in the business. Is that about accurate Charlie?
Charlie: Yes, definitely. It’s very accurate.
Dave: Okay. Well, let’s start at the beginning. I actually, even though I’ve known you for nearly a decade, I don’t really know your background. Are you from North Carolina originally? Take me from when you were born up to how you got into the scrap business?
Charlie: Yeah. I’m a native of North Carolina born and raised here. I Went to school here N State on a ROTC scholarship. And so from college went directly in the Marine Corps. And I’ve told people that, when I was in college, I didn’t know what the scrap industry was. I had my plans to go to Marine Corps. So I went straight in the Marine Corps from college, spent four years in the Marine Corps, loved it, but never really planned to make it a career.
So I got out of Marine Corps and went into manufacturing, operations. It fit with my background, I’d been operations in the Marine Corps and that kind of thing. So I really enjoy my time. I spent eight years in manufacturing operations. The last two of which took a job as a conservation and recycling manager.
So I was responsible for helping the company, the manufacturing company conserve energy in various ways, and also took over responsibilities for selling the scrap. It was doing that I met my business partner Chris Dalzell. Chris was a buyer for Midsize Yard and he was looking to leave and I was actually starting to look to leave the manufacturing sector. Wasn’t sure what I wanted to do.
And so he and I got together and started a company. So that’s how Gateway Recover got started. And that was back in 2000. So I’ve been running that company with Chris for, I guess is almost 11 years before we met. I think the first time I ran to you was an Israel convention and that was probably 2011.
Dave: Yep. I believe it was 2011. So did you buy Chris out at some point or was he just a silent partner?
Charlie: No. Chris and I were 50/50. Chris is older than me and his desire to retire came sooner than mine. So yes. So Chris I bought him out in actually late 2010. So right before you and I met Chris and I had … I had bought out his half and he retired. I was running the company by myself by the time you and I met.
Dave: Okay. Well, thank you for that background. And I believe you’ve also been married a few years and have a couple of kids. Is that right?
Charlie: Indeed. Yep. So my wife wouldn’t marry me until I … She was positive I was getting out of the Marine Corps. So yes, so I got married in may of ’92, right after I got out of the Marine Corps. And yeah, we have two kids, they … Born in ’95 and ’97. So they’re now out of college and one’s in grad school, one’s out in the working world but I’m very proud of my kids.
Dave: Well, that’s excellent. Well, let’s get in to the … By the way, first off, thank you for your service to our country.
Charlie: Thank you. I appreciate that.
Dave: So, although I’ve never had the opportunity to serve, I have a number of relatives, cousins, and uncles and grand fathers that have so I always appreciate the service. And once a Marine, always a Marine. Right? So, I’m not going to call you a former Marine. Am I?
Charlie: Absolutely.
Dave: So you’re right. I think we met in 2011 at the Israel Conference. That was an interesting year. It was the only year we ever set up a booth there. So we had a booth and I remember you stopped by, because we were giving away an iPad, we had a drawing for an iPad. And which conveniently, I believe you were the winner of.
Charlie: Yeah I was. And I think you got a fishbowl or something throw your business card in, for an opportunity you and I have had. And I had no recollection of having done that, and then got a call a few weeks after the convention and I was told I won an iPad. I’m thinking, “Okay, who’s trying to … So what … I’m thinking, what scam is this?” But yes I did win that iPad still has it.
Dave: That is awesome. You’d never even heard of the IC-DISC before 2011. Do you remember what your initial response was? I mean, high skepticism, reservation, too good to be true?
Charlie: That last one would be exactly the words I’ve used people. It just sounded too good to be true. I’m like, “You know what? This doesn’t sound…” I was a little worried about why does this sounds too good to be true. But I guess, we continued the conversation probably not as much in 2011. I just got introduced to it in 2011. I think we started talking more seriously when I saw you the next year at the convention.
Dave: I think you’re right.
Charlie: Regrettably, it took me a few years. We didn’t get my first DISC until 2014. So to this day, I’m not sure exactly why I was dragging my feet, I guess it was just … wasn’t a hundred percent sure it was going to benefit me, which in hindsight was a mistake. I should have jumped in a whole lot sooner. Could have bought more than an iPad every year.
Dave: Well, you have something in common with every single client of ours and that’s two regrets they have. They regret that, that beautiful Oak tree that they planted 10 years ago, that they wished they’d planted 20 years ago. And that they wish they’d started the IC-DISC sooner. So the DISC has been around since 1971. So we have scrap clients that have been in business since 1971 that also drag their feet.
So the point is you’re in good company, but for anyone listening to this, who’s considering an IC-DISC, the takeaway is that whenever you start an IC-DISC you wish you would have started it sooner, I think. Right?
Charlie: Yeah. I would absolutely agree with that.
Dave: Do you recall how you got past this sounds too good to be true, to having some comfort with it? Did you do some research or talk to your CPA or how did that process work?
Charlie: Yeah. When I first brought my CPA great guy, he’s a very talented CPA, still use him to this day. But he had not had any exposure to it, and he covers a wide range of businesses. There’s a whole lot more CPAs in the world in our scrap yards. So I can’t imagine it was very me that specialized in scrapyards. My CPA certainly had not heard of IC-DISC and I wouldn’t think most would I guess.
Dave: Yeah. That’s accurate. It’s rare that we find a client who CPA really has any familiarity with it. For the very reasons you mentioned, they might be the only client who’s a fit for it.
Charlie: Yeah. So he didn’t really have any input there. I mean, he did some research into it. Actually, I think his research was really once I told him I was going to do it. He didn’t really even recommend me the head in that direction. It was once that I decide I was going to do it, that he really got more up to speed on it.
Early on you had a pricing option for me that basically if I didn’t make any savings off the IC-DISC it was going to cost me nothing. So, that was the direction so I decided to get it first year. I mean, I always consider myself a smaller company. 15 employees of those 15 employees, two of them worked in the office with me. So really myself and two others will be the only office staff that would be able to provide any information. We had plenty to do.
I had to try to put more on our plate, but with that option you gave me of, if you save me some money, then I thought that was a good option to go with. So that’s why. That really pushed me over the edge to get started was, I chose your option of you sharing the savings with me?
Dave: Yeah. And you know what, to your credit, I think in 2011 we didn’t have that option. So perhaps the fault was mine for having not gotten my act together sooner and had that option available. And hey by the way, I didn’t realize how few employees you had, because I can tell you based on your revenues, revenues versus the number of employees or revenues per employee, I’ve got to say, you probably have one of the, or had one of the highest revenues per employee of any scrap yard client of ours.
I mean, I’m not going to punch in your revenues. Anyways, so kudos to you because you’re obviously doing something right to have had such few employees. I’d say our scrap clients your size typically have more like 30 to 40 employees.
Charlie: Wow, yeah. Okay. Yeah so I mean, we certainly had a small staff in the office, which like I said, I wasn’t thrilled with the idea to put more work on anybody. And I actually knew most of this would fall on me as it did. But in hindsight as it turned out, it was not a difficult burden to bear. The amount of time I had to spend on it just pales in comparison to what it did for us.
Dave: Yeah. Well, no that’s great. So I would actually like to just kind of delve a little bit into the fee options that we had then when you came on board and that we have now. Because I think it’s relevant for companies who are considering becoming a client of ours. Normally, I like to let my guests do most of the talking, but if you’ll indulge me to just give a little recap on the fee structure and then it’ll make more sense.
So the traditional IC-DISC model, is a model by which you pay a onetime setup charge to set up the DISC legal fees and stuff. And that’s about 7,500 to $10,000 and that’s a onetime fee. And then you are able to get the benefit from that date forward. And then the ongoing fee would just be a fixed fee or some percentage of the savings calculation. And what we noticed was that, so here’s the challenge on January one of say, 2020, you have to commit the 7,500 to $10,000, plus commit to spending the fees for us to do the work for 2020.
But you have no idea if it’s going to be worth it, because you don’t know on January one, what your export sales are going to be. You don’t know what your profits are going to be. And my guess is that was probably part of the reason you did move forward, was it just wasn’t a compelling enough story for you. Because it wasn’t like you were doing so much exports, so it was just a no brainer. And we saw that with many companies.
And so what would happen is we talked to them in January 1st. They’d say, “I don’t know. The dollar’s strong, China is not buying, Mexico’s not buying.” And they were understandably nervous. We’d get to the end of the year. We chat with them and they’d say, “Well, hey out of curiosity, what would we have saved?” And we’d do the math, we’d say, “Yeah, you would have saved $110,000 last year.” And they’re like, “Ah, I can’t believe we passed up on that. Well, let’s do it for this upcoming year. Remind me again how it works.”
And I’m like, “$10,000 setup fee plus the ongoing costs.” And it was funny because it was always the same story on January one. “Ah well last year was a great year, but this year, boy businesses looking tough, who knows if it’s going to happen.” So I literally had clients who like five years in a row, I would talk to them about the DISC at the start of the year. They would say, “No. I don’t know.”
And so from that, I started trying to come up with ideas to make the DISC more financially compelling. And so one of the things I did is I figured out a way to basically reduce all the risk. Where in essence, I would set up the DISC for them on January 1st, I would absorb that $10,000 setup costs. And then without getting into all the gory details, it would basically … That client could lock in the option to use that disc.
So then we get to the end of the year, they’d take a look at it and we’d run the numbers and they decide if they’d want to use it or not. And that was effectively the program that we were on. And then you were just paying us a percentage of the IC-DISC commission amount. And I believe that we actually considered, or had several discussions about transitioning to just a fixed fee model where you would just pay us a fixed amount.
And in the really good years, I think that would mean you’d pay us less. But the tough part was though in the bad years where you didn’t make money, where cash was tight, now you’re having to write us a check for something that you’re not even using. So why don’t you jump in? So walk us through what your cost benefit analysis was and why you chose to stay with that … In essence that sharing the tax savings approach?
Charlie: Yeah. There we go. I have call coming on my line. Yeah. So I definitely was happy with the … Because what you presented to me was that cost sharing model. And I looked at, did I want to pay you a flat fee per hour or a flat fee or whatever to work on it? Wasn’t sure if I was going to get the benefit. To get me to jump in the first time, the no risk model of, “Hey, if you don’t save any money, it doesn’t cost you anything?”
Certainly pushed me over the edge you get involved. And then staying with it was really a factor of had enough things on my plate as a small company, small staff, that really just … It was pretty painless every year for us to extract the data that you needed, dump it into spreadsheets, send it to you. And you guys did all the crunching and all the handling from there. So that’s definitely why I stayed with that model.
Didn’t have to worry about where my export markets were going for the coming year. Wasn’t really focused on any of that. Was just focused on trying to run the business, and this was just a great benefit. So, that’s how I stayed with that model. That was my thought process.
Dave: Yeah, that makes sense. And that’s consistent with what I’ve heard from other clients of ours. By the way, we never mind if a client wants to shift to a fixed fee model. Because quite frankly, when there’s a really bad downturn in the markets and the clients aren’t using the DISC, we don’t mind that we’ve still got some revenue coming in, even though the clients aren’t using the DISC. So from our perspective, we’re neutral because there’s pros and cons to both.
Just there are pros and cons to both for you, there are pros and cons from our end as well. Well, good. Well, thank you for sharing your thought process on that. So the next thing I wanted to talk to you about was, you may recall that we had two calculation methodologies we could do for that DISC. There was the standard calculation, and then there was the more advanced calculation.
If my memory serves me correctly, that on average, that advanced calculation benefit was about three times what the standard calculation benefit was. Does that sound right to you?
Charlie: Yeah. Based on the numbers that I’m looking at from the years we use the DISC, yes. That’s just three times higher for the advanced.
Dave: Yeah. And that’s actually real typical of our … What we see with our clients. And you may not recall this, but that first year when it was time for us to do the work, I said to you, “So Charlie, there’s an easy way to do the calculation and a hard way, which way do you want to do it?” And you said, “Well, probably the easy way. Why would I want to do it the hard way?” And my reply was, “Well, on average the hard calculation triples the benefit.” And that got your attention.
And so we went through and you said, “Well, what do I have to give you to do the easy calculation?” I said, “All, you have to give us as a copy of your draft corporate tax return when it’s ready, and then tell us the total amount of exports you had for the year. And that’s it. That’s all you have to do. And from there, we do a group calculation, we’ll regroup all the calculations.”
Dave: That process would have taken you a very little time. But the advanced calculation to do that, we need a way more detailed information. So I guess talk to me about that. For that three X increase, was it worth the extra time that it took you?
Charlie: Absolutely. And for my company specifically, we were using a ROM, which is software program called Recycling Operations Manager. 21st Century Programming is the company that sells and maintains that system. So I had bought that system from 21st Century Programming before … A few years before I got involved with you. And I was paying my buyers on a commission system based on profit, not pounds or anything.
So it was always based on profits. So we were always asking 21st Century for the information that you ended up asking me for. So we had already done some of the groundwork with them to have some of that data. But even if I hadn’t had ROM based on the savings we got, it wouldn’t be quite as easy. But I certainly could have done it and would have done it without ROM because of the savings. It just obviously worth the time to get the data to you.
And really Dave it was just about providing you with the cost of … As every load went out, we had to tell you every export load, here’s the cost for this load, and here’s what we sold the load for. So there’s a gross profit number for that specific load. And we were able to do it with ROM and I would have found a way to do it if I didn’t have ROM. It’s doable, and I certainly would’ve put the time into to get it.
Dave: Yeah, I can understand that. Another thing that makes your business unique in the scrap business, is the fact that you had that costing data for each transaction. I would say most of our clients on the scrap metal business, they’ve got good sales data. They know the commodity they sold, they know their poundage and they know the price. They know who their customer was. They know if it’s exported or not.
But what they oftentimes don’t know is what the cost is, and as I understand it that’s because of conversion. Right? I mean, they buy a mixed load of something over the scale that they’re selling number two copper, and they didn’t show a purchase of number two copper. They showed a purchase of a mixed load where they maybe have a shredder and they purchased a car body, but they ended up selling some copper and steel and other things.
And that is actually the biggest challenge that folks in the scrap metal business have of doing the advanced calculation. Now, the good news is we have the sophisticated enough data and analytics and manipulation team here, that we usually can go ahead and create that costing structure for them. That if they can get us all that sales detail, we can do the … Figure out the costing based on their purchases logs and such.
But I do know that through the years, as we’ve had clients that have run into that challenge, some of them have reached out to their software provider to see if they can help them with a report. That’s music to my ears, because I always tell our clients that just because you can’t push a button and get it, it may still be worth some manual effort because of the tax savings.
Charlie: Yeah. I absolutely agree with that.
Dave: So, okay. So you’re cranking along, you bought the business 20 years ago. 10 years ago, you bought out your partner and then at some point you decided you wanted to do something different. So talk us through how that came to be that you sold the company.
Charlie: Yeah. So in 2016, just for where I was in life and what I’m wanting to pursue, and just as anybody in the industry would knows, as I was looking at the future in 2016, I wasn’t sure which direction I need to be taking my particular company in. I always had more of a emphasis on the operations and the finance side of the business.
So I was really more interested in what was going on inside my plant and running my book, than I was and really trying to look at the overall market and which directions we need to be going. So just given all those factors, I decided it was time for me to let someone else run it. So, yeah. So I started looking for a buyer in 2016 and was fortunate enough to find one who we actually got the deal closed right as 2016 was ending.
So, yeah. At the end of 2016 I sold the business, continued to work in 2017. And then by 2018, the new owner was well on his feet and this is his company now, and he’s going forward and it has been a good transition.
Dave: Now, did you engage a third party like an investment banker to help you find a buyer or did you just run that process informally yourself?
Charlie: No. Basically I worked with a guy. A lot of people in scrap industry would know him. Tim he’s been in the industry forever. He was the first person that I engaged to help me with selling the business. I high recommend him, he did a great job as far as helping me evaluate the business, helping evaluate if it’s got a good market for it. He brought in a business broker who was more to handle the actual transaction.
And so Tim worked as my consultant. He brought in the broker, the broker helped us list it. And then it just worked out great that the right guy found it. And it fit perfectly for his life plans. So it worked great. So he was able to take over the business. He’s been very happy running the business. I felt like this was a win, win.
Because he’s continuing to run it, it’s doing well. And I was happy to hand the business over to him. And as I tell people, now I’m happily unemployed for now.
Dave: That is great. And if my recollection serves me you were also … That pricing structure you had with our program served you well as you transitioned out. Because I think as you were closing down things, you had some export transactions, I believe in ’17 and then a very small amount in ’18. If my recollection serves me correctly.
Charlie: It was interesting as we worked on the sale of the company. One of the things that the new buyer didn’t want to pay me for all the inventory up front. So we basically worked out a deal where a certain amount of the inventory I got to still own, but within his warehouse and as he sold it, I was the one who would get credit for the sale. And even though I was not the business owner in 2017, I was still selling scrap under my name, a different company name.
And so I was able to continue to use IC-DISC even in 2017 when my sales were a fraction of what they had been the previous years. But still there was some sales going out there, we were going to export. And so we even even got some benefit from it in 2017. But that was just part of the … How we structured the purchase for the new buyer.
Dave: Well, and you didn’t I think even fully also realized the final benefit of DISC, of the price of the fee structure we had. But when it was all said and done and it was time to shut the DISC down at the state and at the federal level, you didn’t get the bill from the law firm that had to do all the work to shut it down. That bill went to me. So that was another reason that that model worked out well for you.
Which by the way, I’m not complaining at all. But just another example of you truly … It was a no money down deal for you from start to finish. So do you have any other new business venture ideas on the horizon or things you’re thinking about?
Charlie: No, not at this point. I’m very happy right now. I’ve actually had to learn how to start saying no. Because my first year or so after selling business, I said yes to every single nonprofit that need my time. And I discovered I can’t do that. So I’ve had to learn how to say no. But between nonprofits I get the help and just pursuing my own hobbies and stuff.
And my wife and I once we finally sold the business, we built a Lake house. We’ve had the property for many years, so we were able to go ahead and build that Lake house that we’ve been wanting to build. So that’s consumed a large amount of our time. So far I had two months the same yet. If I have a couple of months, several months in a row, that seemed to be the same then maybe I’ll start looking to see if there needs to be something different.
Charlie: But right now I’m very happy to be able to just use my time as I so choose and help nonprofits, help my family. And it’s been great.
Dave: That is awesome. Well, so I’m curious if I could ask a favor of you. If anyone listened to this podcast, is in the scrap metal business and is either considering a DISC or has a DISC that is just doing the standard calculation, would you be amenable to a phone call just to learning more about your experience?
Before you answer I promise you our … We don’t have millions of listeners, so you’re not going to get hundreds of calls. I would suspect if you get any calls, it’s probably going to be less than 10. Would that be okay?
Charlie: No. Yeah, I’d be glad to talk about it and be glad to share what I learned and how my experience went. So, yeah, I’ll be glad to say yes.
Dave: So the easiest way would just be for them to shoot you an email?
Charlie: Certainly.
Dave: Yeah. And what is your email.
Charlie: The one is the Charlierowe944@gmail. So that’s C-H-A-R-L-I-E R-O-W-E, and then numerals 944@gmail.com.
Dave: That’s great. I appreciate your willingness to talk to them. Because like I said in the intro, our clients are … Tend to be concerned about confidentiality. They’re in a competitive market space. They don’t necessarily want their competitors down the street to know what they’re up to. So it’s not every day a client in the scrap business sells their business.
And it’s not every day that we have the opportunity for someone to tell their story really from start to finish like you have. From starting the business to the sell and, or the sale and how the IC-DISC has factored into it.
Charlie: Yeah. It is a little bit of unique situation. And I agree with you that I certainly would not have been as willing to discuss these items when I was running the business. And yeah, I certainly would agree with that assessment. That is the nature of the business.
Dave: Sure. Well, Charlie, I really appreciate your time. The only sad thing is I don’t see you a few times a year, like I used to. But the next time-
Charlie: I miss a lot of people from the industry.
Dave: Yeah. But the next time you’re in the Houston area or Breckenridge Colorado, let me know. I split my time between those two places and would love to see you.
Charlie: Awesome. Well, thank you David. I do appreciate it.
Dave: Thanks again Charlie for being a guest on the IC-DISC Show. Really appreciate it and best of luck to you in the future.
Charlie: Thank you very much. Glad to do it.