(Transcripts may contain a few typographical errors due to audio quality during the podcast recording.)
My guest on this episode is Ryan DeCaire. Ryan joined a private equity firm called Ashbridge Partners in Toronto Canada and became president of one of their portfolio companies, Geroline, in February 2019. Geroline is an industrial safety products company that sells ice cleats to companies in the energy, aerospace, mining, transportation, and construction industries, among others. Geroline has a pretty incredible growth story from the time of acquisition in February 2019, when it had low double digits revenue, Ryan and his team doubled the size of Geroline and sold for 10x gross return to investors only 16 months later.
The story of how they did it with sweat and tears will have a familiar theme to anyone in a growing small company. Ryan and I discussed building systems and a growing business, hiring for culture, creating an incentive structure for their team, going to 55 trade shows per year, and all the work needed to handle those leads and the challenges of being a business with only one or a small handful of products.
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Well, Thanks for coming on the podcast. So excited to chat with you, look forward to chatting about Geroline. Can you start a little bit with your background and your brothers and what you guys have done so far and a little bit, maybe the work you’re doing together now.
Of course, thanks for having me. It’s cool to be with you. So my background and my brother and I now are partners in our investment firm 3GP Capital. The two seconds on 3GP capital is, we’re investing our own capital. And then some strategic investors that are behind us where it makes sense.
We’re investing across the capital structure. We’ve invested in search funds. We backed searchers we’ve led startup financings, but I would say our nine to five or our kind of day-to-day is looking to own and operate lower middle market businesses generally in call it the two to 10 million of EBITDA, the range that’s where we’re focused.
We’re brothers and business partners, which is a lot of fun. But we grew up in a small town, about an hour or so outside of Toronto it has 2,600 people. And from there, I went into investment banking and private equity with a firm called Onyx, both here in Toronto,
North America and then over in London, in the UK for a little while. And then, after a brief stint there pretty soon in a couple of years at Onyx, I left and joined up with a couple of Ashridge Partners, and we acquired Geroline, and that’s where the whole story ends up starting, and it was a few exciting years there.
Can you explain a little bit of what Geroline does or what it did when you acquired it initially?
Yeah, Geroline is an industrial safety products company. What we focused on we were really good at was a very unique winter traction aid, industrial winter traction aid. So the main product was called the K1 midsole ice cleat. And if you can think about a hiking crampon or you think about a cleat with rubber and then there are studs on the bottom that help dig into the ice.
We took a really unique approach to it. So instead of having to sit down and strap this thing over your boot and pull it and stretch it out, and it breaks, and it falls off, this cleat was a piece of rubber that sat in the middle of the arch of your foot. And on either side of the rubber, there was an elastic strap, and it allowed you to pull the cleat over your boot.
It’s at the middle of your foot. When you need attraction, you rotate the cleat down underneath the arch of your foot. You didn’t feel it because it was in the recessed part of the boot. And then when you went inside, when you got into a vehicle, you were walking on concrete floors or metal floors, you just quickly reached down, flip the cleat up to the top of your boot.
And it was always there when you needed it. Because you could rotate it down, but it wasn’t getting in the way when you were inside, and it allowed you to very quickly switch indoor to outdoor. And while it seems very, very simple, it was game-changing in industrial settings and workplace settings.
So what were some of the options for cleats or traction on your boots beforehand?
So the story starts with the founders of Geroline, from who I ultimately bought the business from. And when they came into the space, there were two real options. There was what we called the full sole cleat. That’s the traditional crampon-looking thing that people would think of, which is that rubber cleat that you would strap from the toe to the heel of your foot.
And it would go underneath your foot, and you had studs all along the bottom of your foot. So that was the standard and what an ice cleat was for a very long time. If you go back and look at the pictures of people climbing Everest in black and white, they were wearing a form of crampon, it looked like that. From there, there was a company in Finland, who were ultimately a distributor of their product that developed a heel-based ice cleat. So they’re through some research on how the foot strikes the ground when you walk. They developed a cleat that strapped onto the heel of your foot. It was easier on, off than the full sole cleat. But it was just the heel, so your forefoot was entirely exposed, but the heel strikes slip is very, very common. So the next kind of evolution from that full sole cleat was the heel stop. Now today, there’s a whole bunch of them, but the first real heel stop was a Finnish company called DeVos’.
And Geroline was the North American distributor for DeVos’. The founders of Geroline as they were selling the DeVos’ product in North America, started to talk to distributors and talk to safety professionals and people that use the product. And what kept coming up was the issue of how do I go indoors to outdoor without having to sit down to take the cleats off. And furthermore, If I walk on polished concrete or tile inside ice cleats actually become like skates. It’s like a skating rink. Because you’ve got metal on polished concrete, and so that’s actually a hazard in itself. So what can we do to make it easier to transition indoor to outdoor? And that’s where the founders of Geroline developed the concept of the mid-sole ice cleat. And that ultimately became the gold standard of what to use on a job site.
When did they start the business?
The founders of Geroline started the business in 2011. That’s when they started to import the heel-based ice cleats from Finland and by 2014, that’s when they came out with the midsole and in the period of time of 2014 to when I bought the business with my partners in February of ‘19. They probably had north of 60% of the Canadian market, and we’re just scratching the surface of the US market.
What’d you find attractive about the business when you first looked at it?
There’s a number of factors. I think one first off, the product worked. We knew that it was an industry-leading product. We can try it for ourselves, and we could tell that the product worked and it did what it said it was supposed to do. That was the first thing. The second thing is when we bought it, it was growing at 60% a year. And there was no pun intended traction in the marketplace.
What we were finding was those big end-user companies throw out a couple of examples. Suncor was probably the biggest one. They were mandating that the cleats had to be worn by anybody on site between September and April. That’s called the winter season up here in the Great White North in Canada. We could see that these products are being not only chosen but then mandated into safety policy. So combine that with how quickly it was growing and that it worked. The founders of the business were tremendous people, and I maintain a great relationship with them today.
So we felt like we could trust the people we’re buying the business from. And then, at the end of the day, it was a high-margin product that we felt that if we could put the right systems and infrastructure in place, that we could probably accelerate sales growth even further, and that thesis ended up playing out.
So is this the only product that they sold, or was there another kind of ancillary product on top of it and maybe some service element that made up another, minority chunk of their revenue? Or was it entirely just the K1?
If you listed them all out on a piece of paper, it was probably about 25 SKUs. We had the heel-based ice cleats, and then we had three different profiles of the cleat. So not every boot is the same. 60% of work boots have a similar type of arch. Just your standard steel-toed, 7, 8-inch ankle work boot.
So 60% of our cleats were of that original profile, but then we had a low-profile, a high-profile, and then by the end, through my fantastic team and myself, we developed a slim cleat for flat-soled shoes. So we had an array of different cleats for different types of work, different applications, different settings.
But they were all based on that midsole concept. The one other thing that we had, which was very unique, as we were certified, was intrinsically safe. And basically, what that means in layman’s terms is to think about being on an Exxon site. And if you’re walking in, you shuffle your foot with such force that you can create a spark in a volatile environment where there’s hazardous vapors, gas, dust oil. You don’t want to risk sparking. And so we were certified against that, and that was a huge differentiator in the market. So we had SKUs with that technology built-in, but for all intents and purposes, it was all designed around that midsole.
That’s fascinating. And so when you bought the business, what kinds of opportunities did you start to see within the first 3, 6, 9 months within the business? What were they taking advantage of and doing really well? And then what did you see? What are some areas of improvement you started to notice?
When we were learning about the business there were a number of different things that we could immediately point to from a sales perspective. The business had such high margins that we knew we could give out a lot of samples and that when you put the product in someone’s hands, and they could see how it actually worked, put it on their feet.
Typically, we ended up converting that opportunity. It was that powerful, the product to demonstrate. And even at the time we bought the business, the sellers were attending, call it 15, 16 trade shows a year. And we upped that to 50. We went to every safety trade shows across North America that I can think of.
We started going to industry vertical shows like forestry shows, mining shows, and our goal, every time we went to those shows was simply to show people the product, show them how it worked, and then put a sample in there. So then they could take it back, try it themselves, show it to their safety committees.
And what that typically leads to is one safety professional you spoke to at a show would then mandate it for their a hundred workers on a site. And that had a lot of leverage. And so what we would collect, we’d probably handle it. Anywhere from 250 to 400 samples at a show, we’d collect all of those leads.
Eventually, this led to going into our automated marketing system, and we would just follow up until we either got feedback or somebody said it wasn’t working for me, but we went to those shows; that was the first thing that we could see. From a margin perspective, the sellers of the business are, again, great friends.
They were not doing a great job forecasting inventory. And I think, like a lot of entrepreneurs, they saw the business not only as a business that they were scaling and growing, but they also saw it as a way of funding their day-to-day lives. And so the decision of cash wasn’t between paying down debt or acquiring a business or ordering more inventory, it was done I take cash out for my family, for my life versus order more.
So they were doing a different equation than we were as financial buyers. And so, every time they ordered inventory, it hurt them in their own personal pockets. And so, we just took a much more aggressive approach to forecast inventory. The guys that owned the business before us were air freighting, a lot of inventory air freight six times the cost of sea freight. At least it’s a little different now.
So if you could more accurately forecast your inventory requirements, you’d save a lot from an EBITDA. And so we did that right away. And then I think the last thing that I could say that right away was the guys again was fantastic, but we’re not in the business day-to-day.
And I think the team really just needed some guidance and somebody tapped them on the back, someone to say, ‘Hey, how about this? How about you do that? Great job. That’s an awesome sale. Very simple, common sense, human elements. I think we’re missing from the team and on top of that, just the infrastructure and resources for them to do their job day to day, whether it was the right computer equipment, the right software, everything to allow them to Excel in the job we asked them to do. And once we put that in place and we gave them a pat on the back, that’s when the business really took off.
Yeah, it sounds like you would have heard a lot of feedback from employees and your team on what was working, what wasn’t working. How much of those comments can you share in terms of what they were telling you?
We certainly heard a lot of feedback and in fact, people that have been down this path before actually had the luxury of meeting the team before. We went in as consultants, that was our cover story. And so I got to chat with the team before I got in there. And learn from them before what might’ve been lacking from a systems perspective.
The team was collecting 300 leads at a trade show, but there was no CRM that was functioning. Things just got dumped into this abyss of a CRM and never found again. So there were leads that were sitting there waiting to be taken advantage of. Never got accessed and never converted. And so I could see that happening, and I could see that the team really needed somebody to provide more guidance.
And I can tell you that there’s only so many times a customer can call up and you have to say, I’m sorry, we’re out of stock. It’s back-ordered till X, and then say it’s back-ordered until X plus Y. That was taxing on the group. And they’re tasked with growing this business that has an inventory. And so, when I saw that happening before we bought the business, I was able to translate that feedback into actionable items pretty quickly.
What do you tell your team when you don’t have inventory, but you’re still trying to encourage them to make sales or find new clients and customers and all that?
That’s immediately what I tried to solve to never have to do it again. We were fortunate in that our product was very unique and the brand well-respected from a quality and efficacy perspective we’d led the market. So there wasn’t really when you were out of stock, they would turn to a competitor, and you’d lose the sale.
When I came into the business, it wasn’t uncommon for some of our customers to wait two months to get their product. And so what do you tell the team? You keep going and try to maintain the relationship; let them know what the timeline is. Let’s be honest; let’s be transparent. And how the customers reacted to that varied quite a bit. I really have to hand it to the people that I had on my team to manage us through those relationships. Because obviously, we got through, and then everything’s relative when the customers then realize that us as new management, we’re going to be much more aggressive with inventory that they’d never experienced a stockout again. The relationship grew nicely from there because there was obviously that relative comparison.
Yeah, especially, I would imagine with members of your team who are compensated on making a sale. If they know that there’s always going to be inventory, that’s probably pretty impactful for them too.
And I’ll take you back one further step, actually. When I came into the business, no one on the team was incented.
On a commission basis, there was no structure that paid people. The more that they sold, it was all discretionary. And it’s not like they were not treated fairly at the end of the day, but there was no structure.
And one of the things that I’ve learned through this process, and I can tell you some more stories about our Quebec sales agent, for example, is a perfect example of this. If you don’t know which direction to run, you just stand there. And with a little bit of guidance, the proper incentive structure, I spent more time during this process thinking through the incentive structure that when I put some of that in place that allowed the team to do their job. And you do it right. That shows the passion of the group that I had was that they were fighting day to day to grow the business without any incentive. That was on paper in front of them, which speaks volumes of their character.
Yeah. If you want to hear more about the incentives before getting to that point, though, I’d love to hear more about how you managed to build up inventory more quickly. So you mentioned that there was air freighting a lot of inventory. Did you just place huge orders for sea freight, but then maintain air freight in the meantime and bump that up even more? So what did you do to get inventory back into the business?
When I came in, the owners were just ordering ad hoc. So they would come into the office a couple of days a month, and they’d come in on a Thursday and on the 20th of the month and take a look at the warehouse and go, ‘Oh no, we’re in trouble. It’s November. What are we going to do?’ And so then they would rush orders from our manufacturer who was in Asia and then be left with absolutely no choice but to air freight products. And so, all we did was leverage the data that already existed in the business to put some sensible forecast in place.
And then when I bought the business in February, the season was primarily called September, Mid-February, and then winter falls off. And so the business seasonally fell off a little bit. And so, by February 15th, when we closed, the season was starting to tail off. There’s a little bit left.
So pretty quickly, I turned around and looked at the numbers and said, okay, here’s what we did last year. Here’s what we’re forecasting for growth next year. Here’s how we expect intrinsic to grow because we’re going to spend more time marketing this beautiful non-sparked product. And then I went to the supplier and said, we’re going to go from four containers of product the previous year to eight containers.
And here’s the forecast that you’re going to receive. And I’m going to confirm the first five for you now it’s coming and confirmed. Good to go. You can issue POS, and I’ll confirm the last three as I go because I want to learn the mix a little bit. As I see my first season here and obviously that caught the manufacturer’s eye to see that much growth.
And that was the beginning of what’s a great relationship with that manufacturer I still have. But it was just simply looking at the data going. If we’re going to do this, we’re going to make sure that we’ve got proper inventory. The margins are so high that the cost of a stockout is massive.
The business is incredibly cash generative. So let’s make sure that we don’t miss a sale because we don’t have a product. And that was the mantra of the entire time we were there. And then, to your point, we doubled the inventory, but we just never put the product on a plane. I think maybe I did it once because of a surprise order for an SKU that I never expected to take off. But other than that, we cut out most of the air freight that was happening before.
How do you project which products are going to sell to what degree? Cause I imagine if you got a lot more energy or more dangerous environment-type clients, they might want more of the cleat that prevents sparking and that sort of thing. But that could all be depending on how well your marketing does your trade shows, how do you project all of that different SKUs?
We were just pretty aggressive on how we thought we could grow the business. And you take a step back and think about what the type of product it was. Because not every business can approach it like this. The product did not spoil, and the rubber didn’t dry out. There was no spoilage or damage to the product. We had a really nice warehouse set up. So I wasn’t worried about damage from dust or anything like that. The product wasn’t going to change. So to the extent that anything that was on the shelf will become obsolete. Worst case scenario, we do a little bit of a change in packaging, but this is an industrial environment.
So the packaging is slightly different, but it wasn’t going to change anything. So we knew that if we didn’t sell the product this season, we were going to sell it next season. And yes, we had a little bit of cash sitting in our warehouse if that was the case, but it was better to have that than it was to not have the product. So we were unique in that sense.
Not every day, you have a perishable product. If you’ve got a product that doesn’t have 70% gross margins, it’s tougher to do what we do. But for us, that was a way better use of our cash than having it sit on our balance sheet. And so the forecasting then I had done my time in private equity, I knew my way around Excel.
I was able to take the data and cut it up and figure out a forecasting methodology where I knew my budget amount was. I built a buffer on top of that. And then there was a percentage of my forecasted year that I always wanted to have on hand at any given time.
And then, as we would confirm containers, I’d make sure that those percentages and balances stayed in place based on the growth forecast from the previous year. It was really just blocked and tackle forecasting. And we didn’t have an inventory system that had an algorithm to manage it for us. It was just simply a kind of second, third year of undergrad business school, and how to forecast cash flow.
Do you have any more systems today that track that in a more automated fashion?
The business never got to the point where we had an inventory system that was forecasting inventory for us. By the time we were done, we were using a software called Unleashed, and it did a really good job of tracking our inventory as we added warehouses into the US and set up in Europe. It did a good job helping us manage where all of our stuff was, but it never got to the point where we were using it as a forecasting tool, or it was alerting us to low inventory levels or anything like that. I watched inventory really closely because at the end of the day, it was the lifeblood of business.
Can we go back to those incentives that you said he spent a ton of time thinking about? Because you mentioned, there were no incentives at all in the business on incremental sales. Can you explain a little bit about what you thought through what you looked at first of all, with existing incentives, if there were any, and then dive into a little bit more of how you thought about constructing incentives that worked.
Yeah. So when I got there, it was just simply everybody expecting a Christmas bonus. This is really our holiday bonus, and I had a salesperson there, and we can talk about it. But she basically was the heart and soul of that business and had built it to call a couple of million of revenue and grown her personal piece of that four or five times. And so very impressive. And she did that without any type of incentive on how to grow on what you would earn if she grew the business to X, and very early on, she said, I just want my pay to go up when the sales go up. And I was like, I can manage that for you. Like we can figure out how to do that.
And so, I basically set out a target where I wanted performance against the previous year, and this business was growing 60% a year. So it wasn’t hard for us to forecast that we could get at least to where we were. And then, I would set a sales target that I expected us to get to.
And then I would have a bonus that started paying out at about 50% of the sales target. So if you didn’t hit the sales target, you still made money because we would have advanced the business forward. Plus, our sales targets were quite aggressive in growing the business 60% a year at some point that slows down.
So generally about 50% of the target, it would start to kick in and then generally scale linearly, and then I’d have a kicker up top. That was for my salespeople that I was working with on a regular basis on the ground. I didn’t have a ton, but that was the structure. As I went through the team, it didn’t necessarily make sense to incent everyone on just sales.
I had members of my team. We were small. It was a very small team I needed to incent people, not only to just be focused on bringing in orders but to build the infrastructure of the business. I also then evolved into kind of the next series of incentive programs I set up that was not just sales-focused. They were 50%, but I called management objectives, and 50% sales focused.
And I’d say the management objectives were not impossible. These would be very good developments for the business. And it, whether it was getting stocked with Fasinol, for example. So we didn’t have to do onesie-twosie orders from Fasinol; we were in their DC. If we could get stocked with Fasinol that paid out a great bonus, and that it wasn’t getting an order that led to that. It was working with the people at Fasinol, so they understood the product. So they understood end market operations. But that took a lot of work. And so I wanted to embed people on that. And so that was the next evolution.
And then there was a period of time where I tried to hire somebody in the United States who had come from a very large company. He was highly compensated. It was going to make, call it over $200,000 a year, and we were not a massive company. So that was a reasonably expensive employee.
And that took a lot of thinking through incentives. Yeah. What do I need this person to do to meaningfully change my US business? How do I compensate somebody that’s come from a much larger corporate environment that’s used to perks and pay for performance that I could never reach and still entice them to be part of our organization? And that was quite a challenging exercise, and we got there in the end. But yeah, that’s my journey through incentives.
Yeah, that sounds like the challenge of a lot of business owners. When they think through hiring really talented people that have done successful things elsewhere, but they don’t have the same amount of money or resources to incent those people that come work for them.
I was very upfront when I said everyone here realizes we’re building something special. This is a unique environment. It’s a collegial group. Everybody chips in. Job titles didn’t really matter because, things needed to get done, and people just got them done. And that’s my view on what the mark of a good team is: people do what needs to get done, even if it’s not written in their job description.
And so I often said to people I was looking to bring into the end of the business that you’ll probably take a pay cut from your role, but I guarantee you we’re building something special here. Everybody’s bought into that. Everybody’s taking a pay cut. From there, true value, myself included.
But what we’re building is really exciting. And the long-run opportunity here of what this business could become is an opportunity to be part of that now. And the sky’s the limit, and some version of that generally was accepted by people that I spoke with. And if they didn’t accept that version, typically, they weren’t really the right person for our business.
And so that’s how I approached incentives and getting people to buy into what we were working on and the culture of the team. And everybody’s motivation to be part of what we were doing day-to-day was very, very important to me.
Must you’ve made a ton of hires during this whole process? What kinds of questions did you ask them? What characteristics did you look for in people that you brought onto the team?
So I think there was always an element of the beginning of the experience. Do you have experience in the field? My controller’s a fantastic example. He was the controller at Sysco Foods in Canada for 15 or so years, very experienced. So that checked the box pretty quickly. But then I asked why do you want to leave the role that you’re in now and ended up here, which is a small, scrappy, high, energetic group. That everybody does more than they’re supposed to do, what makes you want to be part of that? And the answers to that really mattered. Obviously, there was a little bit as well, just who do you know, because relationships went a long way on the safety business. What end-users are you exposed to? What distributors are you exposed to? What have you seen in the market? How did you even know what our product does?
And so we’ll call them table stakes questions, but for me, at the end of the day, I’ll probably sound like a broken record by the time we’re done, the culture and the energy of the team, every single day. I knew what I was looking for when I sat down and talked to people about the way they can pour it themselves, their tone, their kind of just general. I don’t know if I have a better way to put it than a vibe. And that was really important because our team vibed together so well, so I think then it goes back to the processes that we’ve put in place and the systems we put in place. So when I first came into the business, and we didn’t have a CRM, it was just an abyss. I went through a whole bunch of different CRM software and tried to understand what would integrate with our inventory management and accounting and whatnot.
And I ended up going to number circles and landing on Salesforce. And so. Salesforce is interesting, and you sign up with Salesforce, and then you get an implementation consultant who’s a third party that comes in and helps you set up your system. And so, I got a very high-quality, top-notch implementation consultant.
And so we then took our process of how we collected leads at a trade show or collected leads that came in when we were asking people what type of work do you do? What type of environment are you working in? What kind of footwear do you have? Recommend a sample, have them test a sample. And then it was a matter of staying in touch with them, and getting their feedback on the product was always where we landed.
And ultimately why they’re hearing that it didn’t fit for them or helping them find a distributor. But as you can imagine, that’s a lot of different touchpoints. And while they were all included in our Salesforce database, we were meeting 400 people at a trade show, and we’re going to 55 of them. This was a lot for one person on our end-user sales team to handle.
And so we had to find a way that was efficient to stay in touch with all these people. After about six, seven months of this Salesforce being in place, our path looked fantastic, but not able to handle all the leads. We put in Pardot, which is Salesforce automated marketing software, and there’s a whole bunch of them out there, but Pardot is a Salesforce product. So it was an easy fit.
And what we were able to do from there is the three to 400 leads that we were talking to from every show or from coming in through the website. All of a sudden, we were able to stay in touch with them on a regular basis.
And nothing fell through the cracks and just stayed in touch with these people and got their feedback and following. When we’ve handed out a sample, that sample didn’t go to waste; that really helped us move to the next level. And then we took it even further, and we tried to be proactive about it.
So in Canada, we know that it’s going to smell every single year, and there’s going to be snow across pretty much the whole country minus Quebec and BC. And everybody has issues with snow and ice. And as a result, Canadians are very proactive in how they order ice cleats. They’ll order ice cleats in August, July, September because they know it’s going to snow.
In the US, we had to do a little bit more education on what you do when there is snow, because not all the entire country has the same weather patterns, obviously. The culture around safety and on ice and snow and slips and falls wasn’t as developed as in Canada. So we said, can we be proactive instead of having to call people? And when we saw it was snowing in the area, let’s automate this with Zapier, which had an API that pulled weather from the weather channel database.
Then if you were in our system, and if you were somebody that told us that you hadn’t thought of the product yet if you are interested. And you hadn’t received a marketing email from us in two weeks, and it was going to snow more than, I’ll say it in Canadian and five centimeters in your postal code in the next five days, then you’ve got a marketing email that said, ‘Hey, it’s going to snow in your area. Have you thought about ice cleats for your team? And that proactive approach to staying in touch with people that would otherwise have been quite reactive. And the problem is when you’re reactive with the weather, especially in the United States, it snows, and then it melts, and now you don’t think you have an ice cleat problem anymore.
And so if we were to get in front of you and say, it’s going to snow, you should think about this. That was an effective strategy to get in front of people in the United States and Pardot costs a fifth of what another person would have cost us to be in that inside sales role. And so the way I always looked at it is I added an inside salesperson for 20% of what a salesperson should cost.
That’s fantastic. Did you eventually add other salespeople just naturally through increased volume, or did that handle a substantial amount in increased capacity may be more than you realized?
It handled an incredible amount of capacity. And I tell you this whole story, but I don’t think our employee count ever got above 10. So we did an incredible volume with 10 people. And so we were able to leverage the systems that we had, whether it was part of Salesforce or your cloud inventory software or whatever it was to do a lot with a few people. And it informed my view on what it means to have a success story.
And I often hear stories, and maybe I’m wrong on this, but I often hear stories about people judging success by the number of employees or the number of offices or how much capital has been raised. And what I saw at Geroline was you can be incredibly successful with a very lean structure, and a lot of the headaches that come with being larger with having more capital, having more employees can be eliminated and resolved if you just focus on the important things and people. As long as you’ve got the right team that’s willing to do more than their job description, then you can accomplish a lot. And at the end of the day, that was the story behind Geroline.
And so what were the results from the time you acquired the business until selling it fairly soon after?
We owned it for about 16 months which sounds incredibly short. And as I’ve listened to your podcasts, there are many people that’ll say you barely know where the bathroom is by then. And I think that’s true. It was an absolute whirlwind, and we were able to double EBITDA in around a year.
The remaining four months were what it took to run a process and sell the business. So in about a year, we were able to double EBITDA. We paid a very reasonable, small business model, multiple times when we bought it and called around five times, and we ended up selling it around nine times. And so that multiple expansion plus doubling EBITDA with a little bit of debt pay down in the middle led to a really successful outcome.
And was this an opportunity to sell that you just felt that you couldn’t pass up or was this a business that you wanted to hold for longer?
That’s where it becomes a really interesting discussion around selling and where I was in my life at the time as well. So I’ve told everybody that was part of the process, but if I had my choice, I would still own Geroline. And I think we had a lot of runways.
It was reasonable as we were bringing in other products, particularly at the height of the pandemic, that we had the opportunity to be a platform safety products company that wasn’t just a single SKU or single product category that we could have expanded, use to leverage our relationships, leverage our very strong reputation expanded and other product categories continued with our European expansion. And it led to a really successful outcome. And, actually funny enough, it looks a lot like a smaller version of the company that ultimately bought us: SureWerx. So I think there was a runway for that.
The other side of the coin is what I was told by my investors was don’t forget what we got in there. We got in this for a good financial outcome. This is a deal that we’ve had some fantastic earnings growth. The way the market is treating safety businesses right now is very much in our favor. Then they would turn to me and say, look, Ryan, you’re a pretty young guy. This will be a great print for your track record. You don’t know what it means to have a financial outcome like this, what it can mean for your life. And the flexibility it gives you going forward. So yes, you’re myopically focused on Geroline right now. And you think that everything is possible with this business, and I still do but don’t forget what we got into this for and what it could mean for you. And that’s ultimately what led us to the sale, and I debate back and forth how I feel about it depending on the day. But in the end, it’s a great outcome for myself and for everybody.
Gotcha. So having been on the other side of the table, buying this business, what was it like trying to sell it? While simultaneously actually running the business actively.
A lot of work is an easy way to put it. The good thing for me, and I don’t know if everybody has this experience, I’d been on the other side of the table in private equity, we were bought by a private equity firm called the Riverside Company and their portfolio company, SureWerx.
Thankfully the guys at Riverside were tremendous. But I knew what to expect. I knew what the diligence sheets were going to look like, what the request list would look like. And we had a series of calls, so I’d go from being on the phone with customers and working with the team to growing the business. In the height of the busy season, the business was sold in the middle of October.
So our busiest season starts at the beginning of September. So we’re in our busiest season. I’m working with the team on very important pre-season orders. And then at the same time, I’m on the phone with the CEO of the portfolio company, the guys from the private equity firm, and people from the private equity firm. They’re grilling me on the intrinsically safe certification and if it’s real.
So, at the same time, I had the financial background to be able to have full command over our finances as well. So I was on to our accounting diligence calls and then 90-minute business diligence calls and then trying to also run the business in our busy seasons. It was a bit of an adventure.
Absolutely. So in the work that you do with your brother now, with 3GP Capital, based on your experience with Geroline, how does that inform what you look for now? Or some characteristics that you find interesting within businesses that you see?
So we’d worked together for a period of about six months under Ashbridge Partners when I finished up at Geroline. And then, we decided that we would go out on our own and launch 3GP. And so, separating from the mold and starting on our own, we were able to reflect on what we were looking for, and I’m sure a lot of people in the space, it comes as no surprise that we’re seeing a lot of froth. We’re seeing valuations up significantly from where things were when we bought Geroline.
So unless we had an angle or an edge, we weren’t going to be the highest bidder in a process, and finding proprietary deals is everybody’s dream, but it’s not always easy. And we can dial for dollars or have visited by side brokers dial for dollars for us, but it’s a challenge.
And so what we decided might separate us and lead us to places where Institutional money that was coming into the lower middle market might not be is let’s take what we learned at Geroline on single SKU businesses that probably have more risk associated with them, of course, but valuations will be commensurately lower for the most part. And we feel like we have a bit of a playbook on how to handle single SKU businesses after what we’d gone through with Geroline.
Yeah, understand often that they don’t have the infrastructure that they need in order to really accelerate as a business from where they are. Generally, they’ve got brilliant founders who are tinkerers and inventors but haven’t put proper systems in place or really know how to build out relationships with customers to take them to the next level. And I’d seen that at Geroline.
And so, we’ve been targeting single SKU businesses with minimal infrastructure with high gross margins. So we can invest heavily in the middle of the income statement, into marketing and business processes and systems to look and feel more like a real business and to hopefully see the top-line benefit as a result.
And that’s what we’ve been focused on. And we’ve got a deal under LOI right now, it fits that exact mold. And we’re really excited about that. So, I was explaining this the other day to somebody we’ll go with where the market goes. If we can get back into the space where we’re able to buy more fulsome businesses with more infrastructure and systems, and that has more of a services component. If valuations in that space become more reasonable at some point. And generally, that’ll probably mean that there’s been some sort of downturn, and we’ve been patient enough and have the capital to be able to move into that space; again, we’ll go there. But right now where we see our advantage is in the single SKU businesses that often people don’t want to touch or don’t know how to operate or consider them to be significantly riskier than they’re willing to take on and it’s working right now.
So you saw a bunch of the advantages from being a single SKU business where the product doesn’t change very much. You could have it in inventory for a while. What are some disadvantages, though, of having just one or even a small handful of SKUs?
So I would say that a single SKU becomes incredibly risky when you’re not only single like you have SKU concentration, but also customer concentration. Geroline had both. So I’ve figured out how to manage through that. For the most part, I would say that the biggest risk is if you’re concentrated within a specific customer or two, and then you’re also a single SKU.
That’s where I see things that are very risky. What we often look for is businesses that have already a proven product-market fit that we’re not trying to necessarily convince people that it’s the right option. We just have to make people aware, and that’s what it was at Geroline because the product so clearly had features and benefits that were leaps and bounds ahead of the incumbent. We’ll call it that full sole cleat. So we’re looking for similar situations to that.
And if we’re able to find those, then a lot of the risk around you will be unseated by a competitor who has a brand or product that is infinitely better than what we’ve brought down. That risks going down a little bit. The other thing that we look for is we really aren’t trying to find businesses that we call in retail, single SKU.
We like to have some components like the mandates that the end-users were putting in their safety policies at Geroline, where there’s a credible, reputable stakeholder that suggests that this is the best product in the market or the best product for the end-user. And then we’re not fighting on Amazon to buy boxes and whatnot.
We’re recommended by somebody that has expertise in the space. And what we found is that ultimately leads to higher margins and, we think, builds a little bit more of a moat around what would otherwise be a somewhat risky business. And so how we’ve looked to mitigate it, whether it’s customer concentration being minimal or having some sort of mandate or expert recommendation and then already being a market leader in whatever the niche or product category is.
At Geroline, did you ever see competitors start to try to attack that mode of the quality of the product is flat out better than others? Did you see competitors try to emulate it or do something similar to Geroline’s products?
This is where it becomes inevitable that you will have competition. It’s a simple economic law that if they’re out-sized profits to generate it, that somebody else will find them, and we certainly had competitors from day one. There was a competing brand called Impacto, and they made a cleat that was very similar to ours, and it looks similar to ours, but it certainly did not perform to the same level.
And so I had my own chats and ceased and desist letters. We had Impacto that had come in, and then we had SureWerx, who owned a brand called DueNorth. And they ultimately made a midsole ice cleat.
And so I started to see some competition SureWerx cleat infringed on our intellectual property. If they hadn’t bought us, then we would’ve gone down a legal path together, and it’s explored that. But at the end of the day, yes, there was competition in Geroline. What I learned was having a competition with a single SKU is really scary when you have that customer concentration, and overnight, somebody that’s bigger than you can have a better relationship with Fasinol than you can come in.
Literally, they call it a lift where they’ll buy all of your inventory from the distributor, dispose of it and replace it with their own product. And that can’t happen and did happen to us in certain places. What I found is that it can be mitigated by minimizing customer concentration.
We’re seeing it coming in a Geroline. At the end of the day, our product was still the best performing. We had the best brand and brand recognition. And quite frankly, when larger companies came into our space, we were just moving faster than them. We were outflanking them, whether it was marketing, whether it’s getting into the field, going to trade shows, handing out samples, we were using cloud software, not DOS software.
We were just moving faster than people. And I still think we could have outflanked the competition but we certainly would have had a bumper to along the road.
Gotcha. What other bumps in the road have you encountered running Geroline?
it was on the human side. I had to fire an employee who had just recovered from cancer. I had an employee who passed away. People on my team had family issues and health problems. And it was just there was the human side that generated the most bumps in the road. And because we were such a small team, every bump felt like a big thud. It took a little bit of thinking to get through each of those.
What college class would you teach if it could be about any subject you wanted?
That’s just like such a hard question. If I could teach a college class the way, people end up being educated when they leave school. And they end up in the kind of finance industry that I’m in. They come out with a specific view of the world, and they come out with not really being able to necessarily relate to somebody that’s built a business from scratch and takes an adjustment period of what matters to that person relative to what you think matters from the world of large private equity that you’ve come from or whatever that might be.
And if I could teach a class, it would be how to get somebody to get away from what the institutionalized world of finance teaches. That is what a successful person takes, to be able to relate to somebody enough, to get them, to sell the business that they built, that is their baby and to shift from how much capital you’ve raised to how you’re going to protect their legacy and how you’re investing your life savings in that business, that’s gonna win an owner’s heart 20 times over compared to how much capital I’ve raised.
It’s not a class I would teach at school, but it’s the class that people keep asking me to teach. As I talked to searchers and lower middle market people, it’s the single most important thing I talk about right now.
That’s a great answer. What great belief have you changed your mind on?
I think I’ve created a little bit. Because I think the strongly held belief I’ve changed my mind on is that when I talked before. I’ve always thought as I went through the world of this undergrad business and finance and private equity that I wanted to build something that at some point would be an institution. We’d have capital, and big capital raises, and we would invest in different asset classes, and there would be people.
And I think what I’ve learned from Gerolone is the flexibility in what you’re doing and being able to adjust to the circumstances and not being hemmed in on anyone specific, we’ll call it even the fundraising treadmill for myself. And everybody’s going to approach this differently for me.
That flexibility has become more valuable than pretty much anything else, whether it’s when making investment decisions, what it means for my personal life. That flexibility is key. And so it’s that view that I had when I came out of my fourth year of undergrad senior year,
as you guys call it that view has changed.
That’s fantastic, that’s a great one. What’s the best business you’ve ever seen? And it can’t be Geroline.
I thought about this one a lot. In my final days at Onyx, we looked at a vertical SAS business. And I don’t do a lot of software now. I helped get Onyx as a software vertical off the ground, and they think they’ve done two or three deals in this space now. It was a vertical SAS business that made time and attendance software for schools and school boards. The beauty of that business was that once it was in you were literally never removed Once you got in. The sales pitch wasn’t particularly challenging because the alternative to this software was pen and paper.
And generally, these schools were moving from having minimal infrastructure technologically to having some type of whether it was vertical or horizontal human capital management built-in. The US government, which was the big one, had title funds set aside for schools to be able to put these systems in place. This business was a point solution that managed time and attendance for schools.
They also had a number of other point solutions within the whole school’s capital stack, but you, every single year, got a 5 to 10% price increase. When you won new business, you weren’t winning from a competitor. You were winning from pen and paper, and that created an absolute flywheel for that business, and it’s till this day. I don’t know if I’ve seen a more profitable or easier to sell a business or a stickier business than time and attendance in schools.
That’s incredible. How did this offer actually work? Did it track the phones of students and if they were in the building at that time that checked them off in their class? What else did it do?
It was actually more for the teachers whether the teachers showed up at school, how many vacation days the teachers had, did they show up? Instead of a teacher calling into the secretary and the secretary then having to say, ‘Oh no, we need to find a sub, the teacher could then. Say I’m not coming in through the app or whatever it was, it would automatically call out to the subs, find a sub to come into the school, which was really important.
That was a huge time suck for the schools and the school boards that this completely automated. And then again, like you consider how much, how that would have been just a pen and paper exercise. It was a fairly easy sell that the cost of that product as a percentage of the school’s total spend took five to 10% price. And it was just a beautiful business.
That’s a fantastic business. Yeah, that’s fascinating. I love that. Thank you so much for coming to the podcast. It has really been fun to chat about Geroline and all the work that you’re doing. So, thanks so much for sharing some time, especially on getting more of the Canadian perspective. That’s not the perspective we’ve heard from nearly as much, so I’m excited to hear that, too.
Thank you very much for having me. It’s been a pleasure, and I appreciate it. Good luck. as you build out your podcast as well in your media empire.