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David S: Hello, this is David Spray, and welcome to another episode of the podcast. My guest today is Dave Kane. Dave co-founded 21st Century Programming back in 1999, and currently serves as the president. 21st Century Programming is a leading provider of custom software solutions for the recycling and waste industries, and I'm happy to have Dave on the show today. Dave, welcome to the podcast.
Dave K: Thank you, David. It's a pleasure to be here.
David S: Great. Well, I really appreciate you being on the show. I've wanted to have you on for really a while, since I first met you at an ISRI convention. Jeez, I bet it's been about 10 years ago. We share a significant number of clients, and I really appreciate all that you've done for those shared clients to make the IC-DISC really as easy and nonintrusive for them, including the fact that you've been willing to even tweak some of your software to be able to help our mutual clients, so thank you.
Dave K: Well, David, thank you for having me on the podcast. We have developed a really good relationship with your team, and, through the conversations that we've had, I really appreciate all of the guidance and information that you've given me, that's really allowed us and our programming team to ensure that our clients, our mutual clients, are able to use the IC-DISC system to be able to get the most out of it. I've got to tell you, when you first really explained to me what's going on with this IC-DISC and how it can save our customers money, I was nothing but excited, and I really am going to let all of our customers know about it, and really try and push it, because it's such a great cost savings for them, and it provides such great benefits.
David S: Yeah. I agree completely. Why don't we kind of get into some background. Where did you grow up? Where are you from?
Dave K: I'm from southern California. Born there, native there, went to high school there, college there, and lived there for the first 50 years of my life.
David S: Wow, a native Californian. That's a rarity, isn't it? From what I understand.
Dave K: You know, I guess so, but now it's coming the opposite and everybody's leaving California and heading in the other direction.
David S: Sure, sure. In accounting inventory there's a term called FIFO, first in, first out. That would make sense, the folks that have been there the longest are the first ones to leave, such as folks like yourself. So you grew up in southern California. Did you end up going to college in California, then?
Dave K: Yeah, I was a southern California person every which way. I even went to UCLA and really enjoyed that experience. I was an English major, and people look at that and say, "That's kind of a strange major," but I'll tell you, it was one of the best things I ever did. I was always really good with math, always really good with computers. I get science, I get physics, I get calculus. I understand all that, and my ability to explain what goes on or what my thoughts are, I wasn't so good at. So, by being an English major, it really gave me the ability to express myself and to be able to listen to people and understand what it is that they're trying to say and read between the lines. I've got to tell you, it's one of the best things I ever did.
David S: Wow, that is one of the most Ben Franklin-ish stories I've ever heard. Most people that have your natural aptitude in math and science and logical thinking and programming, you would typically expect them to go get a computer science degree, to kind of focus on their strengths, but your willingness to focus on kind of your weaknesses is just really, really interesting. While you were going through the program, did you ever have any second thoughts like you wished you were hanging out with the other computer folks?
Dave K: No, because at the time, I was doing internships in the film business, and learned a lot about how the film business goes. At the time, I was thinking that maybe I wanted to be a writer, and my dad wanted me to be a doctor, like all dads want. I tried to find that balance, and while I was in college, trying to learn to write, I found that the film business just wasn't for me. It was a who you know, backstabbing, political business, and I'm just not that kind of person. It just wasn't for me.
David S: Okay. I can appreciate that. So you graduate, I think, in 1993, if my facts are correct?
Dave K: Yep.
David S: So you graduated, and I guess, maybe the day you got your diploma, you just maybe had this epiphany from above that you need to get into the recycling business. Is that what happened?
Dave K: Nope, not at all. In fact, it's the opposite.
David S: Okay, what happened?
Dave K: My dad had bought his recycling company when I was about six years old. It was in downtown Los Angeles. Basically, he would take me down there on the weekends, and I'd go there every summer, work in the business, and my first job is I was the can sorter. He would take me and through me into a 4x6 full of aluminum cans with a magnet, and he'd give me a nickel for every steel can that I pulled out of the aluminum cans.
David S: Oh wow.
Dave K: Yeah, so that was my first job in the scrap business, and I-
David S: I bet you smelled, I'm sorry. I don't mean to interrupt. I bet your mother must have really appreciated how you smelled having been in a box with beer cans all day.
Dave K: Well, I don't know the answer to that one, but I can tell you, as a little kid, there's nothing more fun than that. Jumping into those cans and swimming around in them, and doing all that nasty, yucky stuff was great.
David S: That is awesome. So you started as a can sorter, and you said you were six when your dad bought the business?
Dave K: Yeah. He had it for about-
David S: I'm just curious, how did he get into it? Had he been an employee for somebody else in the scrap business?
Dave K: No. When he moved to Los Angeles, he went through different odds and ends jobs, and ended up working at a surplus type of store. One of the guys that would come and buy the scrap metal from the surplus store, he became friends with. He goes to my dad one day and says, "There's this company that's in downtown, they're having some issues." I don't want to go into what the issues were, because it's a long story, but the guy needed to sell his business. So he and my dad got together. They pooled their money, partnered up, and they bought the business from the guy.
David S: Wow. Wow, that is a great story. It's always interesting, because everybody's got a little different story of how they got into the scrap business. That's a great one. Go ahead.
Dave K: It's a fantastic business and I really enjoy it. One of the things that I really like about my job is how diverse the business is, how every place we go to is slightly different. The little kid in me still loves watching shredders chew up cars, copper choppers, everything. I enjoy the physical nature of the business.
David S: I can appreciate that. So you started right away as a can sorter, I guess. Right after he bought it.
Dave K: Yep.
David S: And then did you just continue to work part-time there, like all through high school?
Dave K: Yep, all the way through high school, all the way through college. Yes, I did other jobs and odds and ends, but the scrap yard was always there. I'd always spend my summers down there. I'm probably one of the few computer programmers that you're ever going to meet that can sort copper by sight, sort aluminum by sight, sort your stainless by sight, drive your forklift, load your containers, dump your roll offs, and haggle over prices at the scale with your retail customers.
David S: I bet you're right. I bet you are right on that. When you graduated from college, did you consider joining the business full-time, or what did you do then when you graduated?
Dave K: That's exactly what I did. I had actually joined the business more full-time when I was still in school. What happened was I did what a lot of kids do, I took a year off between sophomore and junior year, spent eight months in the film business seeing if I liked it. Hated it, and said to my parents, "Hey, I want to not do this. I want to go back to school, finish my degree." They didn't believe me, and they thought, for sure, when I was going to take the year off, that I was never going back, but I did, and I had the scrap business to work at while I was paying my way through college.
David S: Okay, so then when you actually graduated, did you join full-time, or did you do something else before?
Dave K: Yeah, at that point I joined full-time and worked in the business for a couple of years, until about 1995, '96. Somewhere around there. At that point, my dad sold the business. It was on an upswing. Yeah, it was on an upswing, and he thought it was time for him to get out and retire and move on to greener pastures. Unfortunately, that kind of left me and my brother in a little bit of a lurch, but things happen, and you grow up, and you deal with it.
David S: Sure.
Dave K: Exactly. So my brother went to work for a very large processor in the recycling business in LA called Alpert & Alpert, and he was a buyer for them and I went to work for a, gosh, a high-temperature alloy specialty company, and learned all about the nickel, cobalt, titanium business and the industrial accounts business from these guys, to continue my education, I guess, in the recycling business, but it was also, needed something to do after my dad sold the company. So I went to work for somebody who my dad had been friends with for many years and they brought me on and I worked for them for a few years.
David S: Okay. So this is where the story gets interesting, because, if I'm doing my math here, this was '95, '96, but you started 21st Century Programming with your brother in 1999, so what happened that gave you this epiphany that you needed to create a software business specifically for recycling?
Dave K: So I'm working for this company, and my brother's working for Alpert & Alpert, and I'm not happy. I was thinking I was going to end up working for my dad's business and eventually owning that, and that was going to be my life path. That didn't work out that way, so I wasn't the most thrilled working for somebody else.
David S: Understood.
Dave K: My brother says to me, "You know, Dave," and this is '96, '98ish, time period, and this is right when the dot-com stuff is going crazy. Everyone's saying, "Oh, you've got to dot this, dot-com that." All the world's gone crazy before the first bubble burst. So my brother says to me, "You know, Dave, I see you're not happy doing what you're doing, and you've always been really good with computers." My parents got me my first computer when I was 12. I took to that thing like a fish to water and I don't know what it is, but I speak computer. I can make the dumb little box do just about anything I want it to.
David S: Okay.
Dave K: My brother says, "Why are you wasting your time in the scrap business? The programming business, or the dot-com business, is where it's at." I agreed, quit my job that I was not having fun with. I actually quit my job in the recycling business, and I go back to school, I take a few programming classes, get an understanding of it, and get a job working for a programming company, a fairly large one doing medical billing systems. It was a complex thing and I was part of a very large team, you know, working on things. So me and my brother, we'd get together and we'd have a few beers, and we'd be talking, the world and stuff like that, and he'd be saying to me, "Dave my job is to go around to these scrap yards and try and buy their material, and I'll tell you that they have these horrible computer systems out there." And I'd be like, "George, you've got to see the stuff that I'm working on. I've got all this technology, all these cool things that I can do and blah blah blah."
We eventually said maybe we should put our heads together and do it. So we bought a giant whiteboard, a big, 10 foot by 6 foot whiteboard, and set that up in our apartment that we were sharing at the time. Starting whiteboarding out what the program was going to be, and started putting together a prototype, and I would work on that at night, when I had time. Eventually put together the basis for the program that we're using today. I went and I took that basis, oh, go ahead.
David S: I was just going to ask you, what's the name of that program?
Dave K: We call it the Recycling Operations Manager.
David S: Also known as ROM.
Dave K: Correct.
David S: Okay, so you have this kind of prototype built, and you were doing a side hustle before side hustles were even the thing in vogue, it sounds like.
Dave K: Call it what you want, I call it you gotta work hard to get what you want. I was not happy working for other people. It didn't suit me well. The program and system that I was working on, I had an epiphany one day, this company, huge company, thousands of employees. And they go and they pile everybody onto buses and take them down to this place in San Diego where they rent out this huge convention hall, and the CEO of the company gets up there and he says, "Our number one mission is to unlock shareholder value."
David S: Boy, that gets you excited, doesn't it, as an employee?
Dave K: I know. I'm like, "What the heck does that mean?" The guy gives this whole speech about the future, blah blah blah blah blah, and nowhere in there does he mention make a good product. Do customer support. Be good to people. It's all about how can we manipulate the stock value of this company so that me as the CEO can make a killing?
David S: Gotcha.
Dave K: I went, "Okay, this is not the job for me."
David S: Yeah, I'm guessing that didn't resonate with your somewhat idealistic mid-20s self.
Dave K: Brain.
David S: Yeah, who had some resistance to being employed to begin with. Yeah, I can see where that, okay, so you have this epiphany at the convention center in San Diego, and then what happens?
Dave K: So I'm putting together this program, and I get it to a point where it's usable and gets all the concepts that we have at the time, which, at the time, was really revolutionary. At the time, nobody was using touchscreens. This was 1998. Nobody was using barcodes to do anything. There was a lot of technology out there that people just weren't taking advantage of in the recycling business, so I put together a touchscreen-based system, using barcodes for tagging stuff, using barcodes for scanning at the ATMs and at the cashiers and things like that, and I go to a guy that was a friend of my dad's that I'd known since I was six years old, and I lug in my giant computer with my big, 19 inch CRT, and I plop it down on the guy's desk, and I do a little demo for him. Half an hour later, he says to me, "Dave, I've been looking for software for years. This is the best thing I've ever seen. How much do you want?"
David S: Oh wow.
Dave K: Yeah. So I'm like, "I don't know." I say, "$10,000?" The guy says, "Okay, no problem." He reaches into his desk, he pulls out one of those old fashioned checkbooks, writes out a $10,000 check. Hits it with, remember those machines that go "cha-chunk" and it stamps the amount in there, and hands me the check, and says, "When can you install it?" I said, "I'm going to need a little time to finish it up, but no problem." And the next day, I went into my job and I quit.
David S: Awesome.
Dave K: And I've been doing this ever since.
David S: When did your brother, then, did he end up quitting to join you full-time?
Dave K: Yeah, so what happened was after I got the first sale, got the thing in, my brother went to his boss and said, "Hey, my younger brother is doing this thing here where he's selling it. Is it okay if, when I go to buy somebody's scrap metal, if I mention it to him? It doesn't compete with what we're doing, it's in no way, shape, or form, a conflict of interest." And they said, "Sure, George. You've been a great employee, we love you. Go for it."
David S: Oops. That was mistake one. That was mistake one his employer made, didn't he?
Dave K: Yep. And so George went and got, within a couple of months, we had four more customers. It got to a point where it was more than I could handle by myself, so he went to his boss and said, "You know, it's growing," and he left. They basically said, "Hey George, good luck, and if you ever want to come back, you're always welcome. We wish you the best of luck, but know that you have this as a fallback."
David S: Translation: if this cockamamie idea, this software tool is not going to work, we'll see you in six months, perhaps.
Dave K: Yeah, maybe, but they were very gracious and very nice people. Very good people there.
David S: Yeah, I've had a chance to meet some of the folks there, really great organization.
Dave K: Yes. So we started working on this thing, and soon after that we got more customers and more customers and more customers and now today, I haven't counted lately, but I'd say we're somewhere in the 300 to 400 range in terms of number of facilities that use our system.
David S: That is awesome. How did you and your brother kind of divide up the work? Did you do the programming and he did he sales?
Dave K: Yeah, that's exactly how we broke it up. I type 100 words a minute, I get the computer. I can sit there and make the thing do what I want it to do, so he took the training and sales side of it while I dealt with all the technical issues.
David S: That is awesome. And then, so let me just kind of finish up that story. I'd kind of like to come, just the company history, and then I'll come back. How long did you and your brother, were you teamed up together in the company? Is he still there?
Dave K: No, I bought him out in 2015, after 15 years of doing the business, and he just had gotten tired. He wanted variety and needed a change for his own sanity, I don't know. It was always my baby and always the thing that I really enjoy, and I'm the one that put the most heart into it, not to say that he didn't put heart and effort into it, please don't get me wrong. But after doing something for 15 years, human beings can use a little bit of a break, and a change of pace, and a little bit of difference. That was what it was. I could see he was burned out, and I love him dearly and I want the best for him, so I gave him a very gracious buyout, took really good care of him.
David S: That is, that's a great story. Sometimes doing business with family doesn't have such a happy ending, but that's one of the great things about the recycling business. I look at all of our clients. They're family businesses, and they manage to make the family dynamics work, so I guess you had a good kind of industry role model for making family relationships work in business.
Dave K: Family is important.
David S: Yep. Okay, so that kind of brings us up to the current. You went from that first client writing you a check on the spot to now having three to four hundred clients. Let's kind of talk, exactly what does this ROM tool do?
Dave K: Our software can be viewed as an all-encompassing tool that runs the recycling business. It handles everything-
David S: So is that kind of like an ERP? I'm sorry, I don't mean to talk over you.
Dave K: No no, it's exactly like an ERP system. The only difference is that we're not a true accounting program, and the reason why we went down that path was because we said we couldn't write a better accounting program than QuickBooks, and QuickBooks couldn't write a better recycling program than we could, so why bother trying?
David S: That makes sense.
Dave K: Yeah, but there's a lot of nuances to how accounting and the recycling business works. So what we do is we go into a business, we understand what it is that they're doing, and then we go and we tailor our system to meet them, not necessarily 100% match, because it's not a 100% custom program for them, but to take our template and our base and tweak it, modify it, adjust it, so that it is able to handle the business requirements that our customers have.
David S: Okay.
Dave K: Yeah, and so over the course of 20 years, we've seen every type of business out there, just about. We have customers that are huge enterprises with multiple locations handling hundreds of thousands of tons of ferrous a month, and we have customers that are unique specialty metal places that only handle one type of metal, and process that in a very close to the vest, customized way to maximize the profit that they get out of the singular item. So we've developed a, we've been able to customize and tweak and adapt and create this incredibly flexible product that we can go into just about any recycling business today, have a few tweaks here and there and a few, turn this on, turn that off, flip this switch, process it like that type of configuration and be able to handle just about anything that people throw at us.
David S: That really is interesting. By the way, for the listeners, ERP, I believe that stands for Enterprise Resource Planning software.
Dave K: Or program.
David S: This is like SAP and Oracle. Program, okay. That kind of takes me to my next question: why wouldn't these large scrap companies just go buy something like Oracle or SAP or your smaller clients buy just some smaller ERP tool that's more generic? Why is the created specifically for scrap so important? Because I'm sure these other companies would say, "Hey, we work in any industry. We can make it work." I'm sure they probably tell their clients, "Oh yeah, you can run SAP or Oracle to run your scrap yard, no problem." But what's the problem with that approach, and why do you think there's a need for a specific scrap software tool?
Dave K: I would say that, so there's multiple things you brought up there. First, just to kind of address the SAP question. Gosh, I want to say 10 years ago, Waste Management attempted to install SAP and get it working for their business, and they ended up turning around and suing SAP for over $100 million, because they couldn't get it to do what Waste Management does. That's because recycling is different. It is not like your standard business. The first most common way that I could phrase it is that it's like a reverse retail operation. Every other business-
David S: Reverse retail.
Dave K: Yeah, reverse retail.
David S: What does that mean?
Dave K: Every other business on the face of this planet, you walk into that business with money and you leave with goods. In the recycling business, everybody walks in with goods, and they leave with money.
David S: Ahh, okay. Reverse retail. Gotcha. Okay. That makes sense.
Dave K: Yeah. And then, beyond that, you start to talk about how inventory is managed in a recycling business. It is one crazy difficult concept that companies like SAP are just never going to get. How is it that you buy copper number one and you end up selling copper number one? Or you will have discrepancies, if you're a wire chopper, you bought all this insulated wire, and you're selling copper chops. It's not a consistent manufacturing process. Yes, you buy insulated wire. Yes, you put it into the copper chopper. Yes, chops come out. But the results are different every time. The percentages are different, the time it takes to process it is different, the outcome of the material you get is different, how you pay your supplier for that material is different every time. Whether you're paying them straight for the material, paying them based off of recovery, paying them a formula against the ComEx based off of recovery, there's just a tremendous level of nuances that they do.
And then they take all this metal that they buy, and they run it through many different types of equipment, whether it's the guy sorting brasses and taking plumbing scrap and turning it into yellow and red, or whether it is buying contaminated aluminum and having the guy sitting there with the shear, chopping off the little steel screws that are in the end of your window frames, or pulling the screens out of the middle of the frames. So there's a lot of-
David S: When you say contaminated, you don't mean environmental contamination. You're meaning, it's got a different type embedded in there that you need to separate.
Dave K: Yeah, sorry. I'm using industry terms. Contaminated aluminum is a term used for aluminum that has metal or steel or other types of things on it besides aluminum.
David S: Gotcha. Just so you know, about half of our audience are in the scrap metal business and the other half are any number of other things, so I'm guessing that this episode will be mostly people in the scrap business, but I'm going to encourage folks not in the scrap business to listen to it because it's really such a fascinating industry, so I'm going to periodically kind of try to balance translating some stuff for the non-scrap people, so thank you for letting me digress on the contamination. Isn't there a term that describes that process when you buy insulated copper wire for 20 cents and you end up selling number two copper for $3? Is that what they call "upgrading"?
Dave K: It's called making money.
David S: Okay. All right, gotcha. Okay, so back to what makes the recycling business so unique.
Dave K: Yeah. Along with the complexity that inventory comes with, there is also a lot of nuances for the accounting side of it. What happens is the market will go up and the market will go down, and when the market is down, like we've seen, for example, in the last year, or in what we've seen happen with China and their restriction of importing paper into China and different metals into China, the value of the commodities that recyclers handle drop dramatically. There comes a point where the value that you can get for the recycling material that you handle is less than the cost for you to truck it and haul it and pick it up from somebody and process it.
So, at that point, people start to charge for it, and so then what happens is you get into this really complex accounting where you are receiving material into your inventory, adding it to your inventory, but you're charging the customer. So you have to be able to balance that incoming with the fact that it's no longer a payable and now it's a receivable, and how do you balance that transaction in a way that's easy for the users to do and doesn't require 50 different steps?
David S: Wow, I never thought about that. I've been to probably 100 scrap yards over the last decade, but I never thought about that aspect of it, where, yeah, sometimes they're paying the customer for it, and sometimes the customer are paying them. I knew that happened, but I didn't think that it's for the same commodity, that that can shift from time to time. That's really interesting. I can see where that is difficult, from an accounting perspective.
Dave K: So our system, we built that in, and have it where it handles that in a very slick, easy fashion for people. Another one that happens with accounting and accounting packages that people don't quite get is the payment discrepancies. One of the things that happens in the recycling business is what you sell and invoice your customer for is not necessarily what you get paid, and there's a lot of different changes to that. You may get paid less money, you may get paid more money, and that's based off of the fact that no two scales weigh the same. If you take a truck and that truck weighs 75,000 on your scale, you can drive it down the street and it's going to weight 74,960 down the street. They're going to pay you based off of the 960 versus the 1000, because that's what their scale said it was.
It goes both ways. It goes up and it goes down. Well, when it goes up, an accounting program, you have to make a whole 'nother invoice to handle that change in the fact that it was more than what you originally invoiced it for, and then you have to apply cash to both of them, and it's just a whole bunch of paperwork that needs to be handled in order to do it correctly. Our system, you just say, "Great, I got overpaid," and take care of it, and that takes care of your gross margin reporting and everything, because when you get down to the gross margin and you have to have two invoices, one for $10,000 and one for $8.40, your gross margin calculations start to get a little awkward.
David S: Yeah, I can imagine. I know you'd mentioned the original strategy was to not try and reinvent the wheel with accounting module. Is that still the philosophy of you're just trying to integrate with other accounting systems, and, if so, which ones of the popular ones do you integrate with?
Dave K: Yes, it's still true. Our system is not going to be something that you would use for paying your electric bill or doing fixed assets. That's just not our wheelhouse. But the nuances that go into calculating your profit is exactly what we do. So then, by taking those nuances, we bundle them up into nice, digestible journal entries into the accounting package, and then you get the true information and you get the ability to have the flexibility that our system provides. When you say what packages do we work with, I want to say just about all of them. Across our customer base, we see QuickBooks is the most common, then Peachtree, then Great Plains or Dynamics, I think it was bought by Microsoft. We do have many customers using MAS and BusinessWorks. The whole gambit. That's because we try and be flexible.
We don't want to go in to a new customer or a new location and say, "Hey, you've got to change," we tell them you've got to change a lot of things, and we bring a lot of change with us, but accountants, they like to have their things that they're used to looking at and a way that they're used to looking at the world, and accountants look at things very different than operations guys. So we make all the operations guys happy, handle their difficulties and things that they work with on a daily basis, and then we summarize it and roll it all up and make it accountant friendly.
David S: That really makes a lot of sense. Yeah, that makes a lot of sense. Since this podcast is called the IC-DISC show, I guess I should probably talk about IC-DISC. You've made kind of a great point that I want to just make a quick aside to, that one of the reasons, there's two reasons that scrap metal or recycling is our number one client sector. One is that it's a very fragmented industry that works with us and the other is that, well I meant, of course, a lot of scrap is exported, so that's the second. But the third, and the most important, is when you do the IC-DISC calculation, there's what we call the easy way and the hard way. The easy way, you just group all your transactions together, you look at your total revenues and then you do an apportionment of the company profits, you come up with the export profit, the export revenues, and there's a simple formula you apply, bam, you're done. It's called the standard calculation. IC-DISC tax return is 10 pages long.
But there's another way to do the calculation that's a more advanced calculation, also known as transaction by transaction. In that calculation, you end up doing a gross profit calculation for each individual line item of each individual invoice. At that line item level, we get to cherry pick one of 18 different methodologies to calculate the IC-DISC, what's called the commission amount for that transaction, and then you get to add it up. Well, across all industries, the benefit of doing the advanced calculation is about two to two and a half times greater, but in the scrap metal business, it's like three, sometimes 10 times greater. We just did a calculation, just literally yesterday, for ScrapCom on the East Coast, $50 million in export revenue. The standard calc was about $200,000. The transaction by transaction was $2.3 million. It had an 11X increase.
Dave K: Wow.
David S: Yeah, it's amazing. Part of the reason it works so well in the scrap business is the number one thing that drives the benefit of the transaction by transaction is gross margin percentage variability. In a typical manufacturing operation, their gross margin percentage range is usually pretty narrow. On this type of product, because of competitive stuff and everything else, their gross margin is 50 to 55%. In the scrap business, because you've got fluctuating prices that they're paying when they buy the product, and fluctuating prices when they sell it, they go all the way from huge gross profit percentages to losing money on the same transaction, depending on what time of year it happened.
For example, if copper is $2 and they, or say they bought some copper for $2, and they sell it when copper is selling for $3, big profit, but if copper really does a nosedive and they don't want to hold onto it and they sell it for $1.80, they actually lost money on that. It's that very ability that makes the scrap industry so valuable for the transaction by transaction, but there's a catch, and you know what the catch is, and that catch is that we need to know the gross profit for each transaction and you know as well as I do that many scrap yards, because of the upgrading and the fact that you buy one thing and you sell something else, most scrap companies can't tell you with the push of a button what their gross profit was on any individual transaction. Is that right? You actually would know this better than me. Is that an accurate statement that the average scrap company would make?
Dave K: I would say that for any scrap company not using our software that's probably an accurate statement.
David S: Okay, fair enough.
Dave K: A scrap company using our software, that is available. That's where working with you guys has been very advantageous, I think, for our mutual customers. That is that, once you explain to me the varied ways in which you can calculate the profit and the different data points that go into those calculations, I was able to get that stuff out of our system in a very powerful manner. Once I understood the nature of the data you were looking for, it was a simple, not simple, it was a medium task to go through, create a process for extracting that data, and then formatting it and giving it to you in a way that makes your ability to maximize their profit easiest possible way.
David S: Yeah. That has really been a fun project that we've really started on sometime ago. I think it's really kind of come to fruition, just, I think, in the last few months, hasn't it? From what I understand, you're just really starting to kind of roll it out now. Is that accurate?
Dave K: Yeah, that's true. We've been working on it for a little while, and we just wanted to circle back, now that it's tax time, and see what we could do to give our customers this advantage and make it so that their future taxes are far more pleasant.
David S: Sure, sure. Why don't we just drill into a specific client example? I'm kind of bouncing around. I'm going to come back to a couple other questions I had, but I believe one of the first clients that you tested this on was a client we share in Texas. Is that right? Was this one of the first kind of clients that you tested this new tool on?
Dave K: Yeah.
David S: What was the, how did that help them? What was their response to it? Were they open to the idea? Just kind of talk about that.
Dave K: Okay. This customer in Texas is a fairly good-sized operation with multiple locations. They do a very sizable revenue. I don't think it's appropriate for me to throw numbers around, but they do a very good amount of revenue, and they do a lot of transactions, as any large facility or multiple facility organization will do. They were spending days putting together the information. They'd go through, they'd pull some of our reports, and then try and put it together in a way that made sense for you, David, to be able to input into your systems. It was a very laborious process and once you and I got done, or once you got done helping my understanding of it all, I was able to put together a small application that they use now, and the time that used to take them days to put together now takes them just a couple of hours.
They've been able to go through and take the 1000+ transactions that they did in the year and quickly categorize them as export or domestic, and then have the system take each individual one of those and calculate, I don't want to say we do all 18 of the different ways in which you calculate the process, but calculate at least, not 15, but I think it's like 12 different cost factors for you to be able to use in your system. It's just a matter of put together this crazy data extract, once we have the information of what's export and domestic.
David S: Yeah, that is awesome. I've got to tell you, I was excited when you were doing this, just from the client side. I was excited about that. But then when I discovered that you actually then configured it uniquely so that it plugged straight into our system, the fact that you did that extra effort, I really appreciate, because you not only helped the client, but you helped us, which ultimately helps the client, because we can turn the work around quicker. Once they get us everything, they're usually at the end of the process. The corporate return is done, they're just waiting for that final IC-DISC number. So you doing that is going to help us turn that work around in maybe half the time that it would normally take, so I appreciate you going to that extra step.
Dave K: Well, I'm glad to save you some time, but ultimately I want to save my customers the time.
David S: Sure.
Dave K: Putting together all this data can be a timely, time-consuming process. If you want to do just the standard method and not maximize your return on this, well, then it doesn't take you much time. But if you want to have an elevenfold increase in the benefit, then it's a no-brainer to do this. Then, for our existing clients, we're looking at this as really just an add-on to our system, and we're not charging them anything extra for it. Our desire is to make this data extraction easy for them and help make them money.
David S: That's great. Because the tool was specifically written for our software, it doesn't really work very well, my understanding is, if they're not using our software. So for clients that we share already, which are a sizable amount, that's great. It just kind of plugs right in. I don't know if I've mentioned this to you, because this has been evolving, but for your clients who have an IC-DISC that are not customers of ours, we are willing, because they're already a customer of yours, to do an assessment to where they can produce that data or you could help them produce it. We can run it through our system and we can give them an assessment and kind of what our findings are. The idea there is that a lot of these clients you have, that have an IC-DISC, are really only capturing a fraction of the value, and people are inherently skeptical. So this gives us a chance to actually calculate to the penny what they're looking at. So that's something we're doing specifically for your customers.
Obviously we're trying to ultimately, hoping that we can take over the management of their IC-DISC, which is why we're doing this for free. But just as an aside, in case clients ask you about this, what you will find is most of your clients, the IC-DISC work is being done by their general CPA firm, and oftentimes they're the only IC-DISC client that the CPA firm has. It's something the CPA is not thrilled about doing the work, because it's so specialized and they don't really have that specialization, but they don't want to refer it to one of their competitors, so oftentimes the CPA firm is stuck. We find that, frequently, if the client is using the CPA firm to do the DISC work and they have us take over that, we find it's a win-win for everybody. The client typically triples or more their tax savings. The CPA gets out of doing the work they didn't really want to do. We pick up a new client. I give you kind of some of that backstory as you're talking to clients. That's why we're really excited about even working with folks who are not currently a client and why it's really not causing any problems for their setup, because their CPA probably didn't want to do it anyway. But go ahead, I'm rambling on.
Dave K: No, what I was going to say, David, is that what you provide is really a best of breed service. You're not there to replace their CPA< if I understand correctly. You're there to make their CPA's job easier.
David S: Exactly right, yeah.
Dave K: Through this specialty, you can go in and you can provide them a benefit that they may not be aware of, and maximize that benefit in a way that somebody who's a general practitioner isn't able to do. You go to the doctor, sure they can tell you there's a problem with something. "Oh, you've got a problem with your heart." Okay, great. Then you go to the specialist, and the specialist is the one that gives you the detailed understanding and diagnosis, and that's kind of like you. You're the specialized doctor for this IC-DISC.
David S: You know, that's a great way to summarize it. We have about the same number of clients as you do, about three to four hundred. Whereas all of yours are in the scrap industry, only some of ours are in the scrap industry, and even though scrap is the biggest industry count, it's still, a significant number of clients are not in the scrap business. So one of the things that makes us interesting or different is that, to the best of my knowledge, we probably manage more IC-DISCs than any other firm in the country, and we're also the only firm that does only IC-DISC, and that's just like you do only scrap business, we do only IC-DISC. We think that narrow specialization sets us up to better serve our clients and make the necessary investments, because we've got our own technology and intellectual property that we've developed over decades, just like you do.
Okay, yeah. That's really interesting, some of the collaboration possibilities that may yield. I want to jump back to a couple other things in regards to what makes the recycling business unique. It also seems like the scrap business, it's got its own language too, and being able to speak the same language as them is important. Can you talk a bit more about that?
Dave K: Yes. There's actually multiple layers to that, and what we do with businesses. So yes, understanding the scrap business is critical for what we do. The ability to know that when somebody's talking about moving cans around, that that is not actually aluminum cans, but they're talking about rolloff bins, or other type of transactions. We go and we understand that, but when we go into a business, what we do is we provide a common language for everybody in the business.
For example, a lot of people us the word "invoice." What is an invoice? Is an invoice something you pay, or is an invoice something you get paid from? When your supplier, or even the word "customer." What is a customer? In the scrap business, a customer is usually the person that they buy from, and the customer is also somebody they sell to. How do you know who you're really talking about when you just use the word "customer" and "invoice"?
We come in and we say, "No, no, no, no, no. You have suppliers and you have customers. And then you have purchases and settlements, and then you have invoices." By getting everybody to use the exact terms for what it is that they're trying to say to each other, we find that they're then able to communicate so much better and so much more efficiently and someone's saying, "Hey, did you get that invoice?" What does that mean? Now they know, "Did you get that invoice" means that you were supposed to send an invoice to somebody so that you could get paid. Not did you get that invoice from your supplier so that you can pay them?
So we do a lot of specifying how they use our system and how the terms that they use play into the system, so that once they get that, they can then do things so much faster and more efficiently.
David S: Okay. Yeah, I think the bottom line takeaway is your tool is a product developed by a scrap guy for scrap guys, really is the bottom line.
Dave K: Exactly. When you talk about our competition, we came at it from a completely different angle than our competition did. We're scrap guys. We grew up in the business, so when we started to tackle the issues and problems that people have in the recycling business, we looked at it from the operations side. You're running your business, you do these things daily. You have to have this information to run your business. That's why we call it the operations manager program.
David S: Right, right.
Dave K: Our competition comes in and they say, "But we're accountants. We made an accounting program that also does recycling." And it never works. It's a completely different way of looking at the world. Accountants look at the world in a very specialized way, and recyclers look at the world in a very specialized way, and if you try and put an accounting program into a recycling business, it's a square peg in a round hole. It just never works out right, and we end up always replacing people that said, "Oh, we thought we could just do it with QuickBooks." Nah, QuickBooks is a great program, but without our layer on top of it, it's not going to make sense and it's not going to handle what you do.
David S: Yeah, that makes perfect sense. In fact, speaking of that, I'd like us to maybe talk about a client success story that comes to mind. It doesn't even have to be IC-DISC-related. But, before you do, I want to just mention that I had a guest on the podcast, oh, about a year ago. I was looking at some of our records, and I think they're clients of yours. Do you know Charlie Roe with Gateway Recycling?
Dave K: Oh yes, I know Charlie very well. Gateway Recycling in North Carolina is a fantastic business.
David S: Yeah, he sold it a few years ago, and he was kind enough to be on the podcast, because not every scrap client is really comfortable talking about some of their tax strategies, and IC-DISC is a tax strategy. But, because he had sold the company, he was much more willing to be really open about that. For anybody listening to this, if you just go to some of the other episodes, I think it was about episode 11 or 12. It's not that hard to find, but if you want to hear more from a client's perspective, reach out to them.
How about, I know you've probably got a bunch of different customer success stories. Why don't you pick one, and one where you're at liberty to use the name of the client. Maybe somebody who you've used in advertising materials for stuff, and either talking about maybe problems they had with another vendor, how long it takes to close. Just trying to keep up with a bunch of paperwork. Does one example come to mind that you could talk about?
Dave K: You know, I have a million examples, but I guess I'll just randomly pick one. We recently set up, last year, a company called American Recycling in Modesto, California. They were kind of an interesting project. What happened was they had bought one of our competitor software, and our competitor comes in there and they have this slick looking, I don't even know how to phrase it other than this slick looking thing. It's all dressed up with the fancy this, fancy that looking stuff. And it does nothing. It has math problems, inventory problems, all these things, but the guy who sells it is one of the slickest salesmen you've ever met. One of those guys who can sell ice cream to Eskimos in the middle of winter, and they promised them the world. One of the things that we hear all the time is people always say, "Our system does everything that 21st Century Programs does."
David S: Okay.
Dave K: It's true, and that's because we've been out there for such a long time. We're well-known within the industry, and we have an incredibly flexible, powerful program. But our program has been around for 20 years, so it looks a little bit dated. Big deal. It may look dated, but you know what? It is the workhorse, and it will do everything that you need it to do and it's guaranteed to do it all, because it's been doing it all for so long.
Well, these guys thought that the new slick looking thing with the slick salesman would do them better, so they went and they bought that package. They had a nightmare experience where, for a year, they tried to get the program in, and they could never get the data to come out correctly. They ended up having to hire more people into their business instead of getting rid of people, which is what a software system should do. I get this call from the owner, and it just was really a sad call for me, because he just was in need of help in a bad way, and that these guys just did him wrong in so many ways, just treated him poorly and kept promising and never kept a single promise.
David S: Wow.
Dave K: Yeah. He's like, "Dave, you've got to help me out." Within a month, we basically stopped the presses on a bunch of other things that we were doing and got in there and got this guy straightened out, and now, a year later, he moved out of Modesto and is running his business from his new home in a completely different state, thankful that he was able to let go of people and monitor and manage his whole business remotely now, and have confidence that the numbers he's getting are correct, and that he's got a partner. Earlier in the podcast we talked a little bit about family, and for me, family is an important thing. I look at all my customers as part of our family, and when I hear somebody's having a bad experience or something like that, it really gets to me and I want to try and make sure that they're taken care of. Even though this guy was wronged by somebody else, we still really tried to do everything we could to make his experience professional, quick, easy, and painless.
One of the things that he said to me was the previous vendor would say statements like, "I have bigger customers" or "So and so does it like this. Why don't you do it like that?" My response to that was it doesn't matter. You're my most important customer. If I'm on the phone with you, you're the most important one, because getting customers is really hard, and keeping customers is really important, and making sure that they're happy and their needs are met, it's something that we really try and go above and beyond.
You may have a software system now, sorry, little sales pitch.
David S: Sure.
Dave K: A software system now, but it's never too late to change the road you're on.
David S: Okay. I also want to just make sure I'm clear on something and our listeners are. The scrap industry has an annual convention every year, usually in April, frequently in Las Vegas. The acronym is ISRI. I forget what it stands for.
Dave K: Institute of Scrap Recycling Industries. As an FYI, I've been a member of ISRI actually longer than it's been called that. When my dad was in the business, it was called ISIS.
David S: Oh yeah.
Dave K: And before that it was the VFW. So I was a member of ISIS, which is a horrible thing to say in today's terrorist world, but back when it was the Institute of Steel and Iron something or another.
David S: That's awesome. I want to really kind of point out, the convention in 2020 was canceled because of COVID, but I remember, when I was there in '19, I was just walking around the convention hall, and it seems like every year there's a new scrap software company that pops up. I was just talking to this company because for me, my fiduciary duty is to my client, so I'm always trying to be knowledgeable of what's going on.
I talked to the software company and they were brand new, new to the scrap business, but their approach was, "Hey, we've kind of leapfrogged the old technology." Everything was cloud-based, and you can access everything on your phone or a tablet. On the surface, that sounds pretty cool. But then there was a client that happened to walk by, and I was showing it to him. He's like, "Okay, okay." And then we left, and I'm like, "Hey, that software is kind of cool. What do you think?" He goes, "You know, it reminds me of," and I forget the brand. He goes, "I've got this brand of equipment," and I forget if it was Caterpillar or SENNEBOGEN, that he said, "We just have used forever. It's reliable, it works. Every year somebody's got some newfangled, high tech system, and it just doesn't work. Give me the old reliable orange or yellow iron that I know works, that's got interoperability, and I don't care that it's not the fanciest looking thing." That comment made me think that kind of, maybe, it sort of describes your software in a way, doesn't it?
Dave K: Yeah. We are reliable, we've got a strong foundation. We're like the pyramid. We've been around a long time, and we're going to be around for a long time. There's no pushing the pyramid over. It's there, it's solid, and it does what you want it to do.
David S: Gotcha. I appreciate it. Well wow, we have really covered a lot, and I cannot believe that we're already an hour into this. I guess it's time for us to bring this fun episode to a close. Just a few wrap up questions. One is: are there any questions I didn't ask you that you wish I had asked you? That you just feel like needs to be commented on?
Dave K: No. You know, it's kind of funny. You're talking to me as if this is information about me, and I look at it as really it's information about what we can do for people. At some level, yeah, it's nice to talk about me and that, but that's not who I am. What I'm about is helping our customers and helping the people that we serve, and that if anybody listening to this can get one thing out of it, it is that through this IC-DISC you can save a ton of money. I don't like paying taxes to the government, I think it's too big, and all those other issues, so if I can help people save money and get this tax credit going, then that's what I want the most out of this podcast.
David S: Awesome. Well, I really appreciate that. If somebody is listening to this and they're interested in learning more about your company and how you can be of help to them, or your product, what should they do next?
Dave K: Either give us a call or check out our website, but we're going to be redoing the website soon.
David S: That's okay.
Dave K: But they can give me a call, they can send me an email.
David S: What's the phone number? Yeah, what's the phone number they should call you?
Dave K: Yeah. It's 21st Century Programming, and it's 562-981-1030. We've always got people there to take calls. We're on both the East Coast and the West Coast. We've been doing this a long time and happy to help anybody we can.
David S: And then your website is?
Dave K: It's www.e21cp.com. So it's e21cp.com.
David S: Got you. And then your email address you were about to mention, if they want to just reach out for the man in charge.
Dave K: Yeah. Just firstname.lastname@example.org.
David S: That is very easy. What does the "E" stand for? I know what the 21st Century Programming-
Dave K: It stands for 20 years ago everything was e-this, i-that.
David S: Oh, I see. eCommerce, it was all about eCommerce.
Dave K: Someone had the 21cp domain before me, so there was nothing I could do about it. That was the only thing, because we also have the domain 21stcenturyprogramming.com. That's just a lot to type.
David S: Sure, sure. No, it is. I like how short it is. Well, Dave, thank you again for making time to be on the show. I really thought I knew a lot about your company, but I must say I learned so many things, and it's just been a treat to kind of hear your philosophy and where you came from, and how you approached it as a business as one scrap guy helping other scrap guys, so thank you so much for being on the show.
Dave K: And thank you for having me, David.
David S: All right, you have a great day.