Why Distributors Need More Than CRM to Grow, with David Gordon

[00:00:04] [SPEAKER_00] Welcome to Around the Horn in Wholesale Distribution with Kevin Brown and Tom Burton. Sponsored each week by LeadSmart Technologies, Tom, Kevin and their guests review the news of the week and dive deep into the topics impacting manufacturers, wholesale distribution, independent sales agents, and the global wholesale supply chain.

[00:00:24] [SPEAKER_00] Whether it's M&A, SaaS and cloud computing, B2B e-commerce, or supply chain issues, we peel back the onion with our guests into the topics that impact your business the most.

[00:00:36] [SPEAKER_02] I'm sorry. Here you go. Very good.

[00:00:42] [SPEAKER_05] I don't know. Now we can start. I can do that. Don't ask me twice. Nice. So let's see. Tom, you're in the Tampa area today?

[00:00:55] [SPEAKER_01] I am.

[00:00:56] [SPEAKER_05] David, you're in North Carolina, correct? Yep. Back in Raleigh. Raleigh is what I was thinking, and I'm here in Southern California. I don't know about you guys. We're getting into nearly triple-digit heat today, although it's freezing in my office, and through next Thursday. True.

[00:01:18] [SPEAKER_04] True. You know, high 90s.

[00:01:18] [SPEAKER_03] I don't think we want to let summer go, because even here in Raleigh, today's supposed to be 92. Yeah, okay.

[00:01:28] [SPEAKER_05] Well, Tom will be back here in California late next week, right?

[00:01:34] [SPEAKER_01] I'll stop Dallas, and then I'll be home.

[00:01:36] [SPEAKER_05] Yeah, good. You're speaking at an event there with our friend Ed Coe and the commercial vehicle group. So that'll be good to have you there. I'll be down in San Diego. But, you know, what we've got coming is pretty crazy El Nino stuff. We've already lost most of our beaches around here. There's another storm coming up from Mexico along the Pacific Coast right now. So it's going to be an interesting winter.

[00:02:05] [SPEAKER_05] We might get weather and have damage with things like the rest of the country gets all the time, and we rarely do. So it's very good.

[00:02:17] [SPEAKER_03] There is a benefit to that weather stuff, though, Kevin.

[00:02:20] [SPEAKER_05] Tell me about it.

[00:02:21] [SPEAKER_03] It creates construction opportunities.

[00:02:24] [SPEAKER_05] Yeah, there you go. Well, you know what's interesting about that is in my early days in distribution, specifically when I was a manufacturer's rep, one of the companies we represented made rainwear. So we were always looking for wet winners because we had the construction business, that side of it, boom.

[00:02:44] [SPEAKER_05] But, you know, we had a really consistent business with agriculture year-round because you've got people working in a wet environment and irrigation systems and so forth. So that was a really consistent part. But any time you had any El Nino discussion, right, you watched things boom in that setting. So those were fun days. So, but now I get to come in on Friday mornings and sit around and talk with guys like you. So let's kind of dive into things today.

[00:03:14] [SPEAKER_05] I'm Kevin Brown here with my lifelong friend and business partner at LeadSmart Technologies, Tom Burton. And we've got the esteemed, how's that? Esteemed David Gordon from the Channel Marketing Group. So, David, you're just third time with us at least, right?

[00:03:32] [SPEAKER_03] Yeah, at least. I think so. Yeah.

[00:03:36] [SPEAKER_05] So we're appreciative of every time you're with us, we end up with some interesting conversation and thought-provoking things. See, I'm still thinking about that conversation we had about lockout earlier today about lockout, tagout devices through metaglasses. It's like scratching my head. And I'm going to share that with a couple of buddies of mine that are electricians and thinking about that. But always good discussion. Good to have you with us. So, again, we get together every week, 9 o'clock Pacific time.

[00:04:05] [SPEAKER_05] And we chat about the news of the week and the economy, supply chain, mergers and acquisitions, manufacturing, distribution, sales, marketing, AI, robotics, technology, cybersecurity, people and HR. And we look at all the news that has gone on throughout the week and we chat about that and how that impacts wholesale distribution and manufacturing. We are at episode number 206.

[00:04:30] [SPEAKER_05] Not sure how we got here, but it's exciting to be here after four plus years and some big announcements coming in the next couple of weeks about some additions and expansions of this show and how we do things here. But we enjoy having everybody with us.

[00:04:48] [SPEAKER_05] A couple of things to share, though, before we dive in further is if you're listening to us, which the vast majority of our audience is now on the recorded podcast on Apple, Spotify, Odyssey, wherever that might be, if you won't be seeing the newsletter that we have here. And the newsletter that we post and discuss each week is called Around the Horn and Wholesale Distribution and Manufacturing. It goes out to 12,000 or 13,000 people, I think, now. And we would love to get that out to you.

[00:05:18] [SPEAKER_05] Three simple ways to do that. You can get with us at hello at leadsmarttech.com. We get lots of requests for that every week. So send us a note. You can go to the website for the podcast, which is www.aroundthehornpod.com, and request it there. Past episodes and so forth are there.

[00:05:36] [SPEAKER_04] Or you can catch that newsletter on LinkedIn, and you can just search for Around the Horn and Wholesale Distribution and see that every week. It goes early Friday morning. So if you'd like to get it to your inbox, send us a note, an email, or your website. Or if you'd like to get on LinkedIn, there's that opportunity. The request that we always make, in fact, we don't do enough of this, is that we've been doing this a long time. We have a very large and growing audience, specifically, like I said, on the recorded podcast side.

[00:06:06] [SPEAKER_04] The best way that we can get what we do out to other people is if you click that share and like button, depending on the platform you're on. We're live this morning on YouTube Live, Facebook Live, and LinkedIn Live. If you hit the subscribe button, that'll make sure you get a alert. And anytime we're here, if you're listening to the recorded podcast, if you would be so gracious for us to just get that subscribe and review is a big help to us as well. Lastly, we couldn't do this show without the support.

[00:06:36] [SPEAKER_04] It costs money to put the show on of the company that Tom and I work for, LeadSmart. And at LeadSmart, we've developed the industry's first enterprise growth platform. And that enterprise growth platform is actually called Meridian 360. And Meridian 360 helps wholesale distributors and manufacturers eliminate blind spots in their business by allowing them to get deep, deep insights into their customers, their team, and their overall business. We have five growth engines that we've built into the system.

[00:07:06] [SPEAKER_04] We have sales enablement tools. We have our smart CRM solution, a marketing tool, coding tools, and e-commerce tools. So if you're a wholesale distributor or manufacturer and you're looking to accelerate growth in your business, we would love nothing more. That is the plugs and the housekeeping for the...

[00:07:24] [SPEAKER_02] And your sound has progressively been getting worse. So I don't know if your microphone switched on you or...

[00:07:31] [SPEAKER_05] Let's go check. Why don't you get us started, Tom?

[00:07:36] [SPEAKER_02] You ready to roll into the newsletter? Good morning to Bob. You know, I agree. I am very willing to let summer go, period. I'm ready for some... I went to Tahoe at Labor Day time. It was like in the 50s. It was awesome. But then everything's been back to this, you know, high 90s, 90s type of thing. I'm ready.

[00:07:59] [SPEAKER_03] It'll be here soon.

[00:08:01] [SPEAKER_02] Yeah, it'll be here soon.

[00:08:02] [SPEAKER_03] We need two seasons, spring and fall.

[00:08:06] [SPEAKER_02] That's right. There we go. So, hey, David, before we start, do you want to kind of do a quick intro, a little bit about yourself, your company, all that kind of stuff? And then we'll jump here into the news right away.

[00:08:19] [SPEAKER_03] Sure. Thanks for the opportunity. Well, I'm the president of Channel Marketing Group. We consult with manufacturers, distributors, reps, and tech companies focused in the electrical, HVAC, and industrial supply business. Started it 25 years ago. A lot of the business happens to be in electrical just because that's where you start with friends and family. And we also have four digital publications.

[00:08:45] [SPEAKER_03] We have industrial supply trends, which we started a couple of years ago. We have electrical trends, which I started 20 years ago. And we've got over 5,000 current people on that. And we've got HVACR trends. And we put out commentary on the industries in these versus news.

[00:09:06] [SPEAKER_03] And then we also have a digital publication in the lighting space called U.S. Lighting Trends that reaches 30,000 people in the U.S. lighting ecosystem. Wow. As far as the manufacturers. So, a few things to keep us busy, especially on the consulting side. And, you know, all the things you talked about that you covered, Kevin, everything from M&A to people to AI to growth.

[00:09:36] [SPEAKER_03] All the clients now, you know, it's gotten very diverse on the challenges and the needs versus focusing on a particular area.

[00:09:46] [SPEAKER_05] Well, I think that's why the work that you do is so important and what we're trying to do each week is important as well. So, I was at the first of three weeks of affiliated distributors events this week in San Diego. And I had, I don't know, probably 10 plus people come by the booth and say that they enjoy the podcast each week. And I asked them if they wanted to put something in the tip jar, but it didn't really get me too far.

[00:10:14] [SPEAKER_03] Isn't it amazing how when you go to these conferences, you learn all these people who follow you that you have no idea who they are? I was at Ideas eBus this week where there was a couple hundred people. That's product data, AI, e-commerce, those type of things. I had a lot of those people who was like, I have no idea who you are. Well, with the man. That's great. That's great.

[00:10:40] [SPEAKER_03] Because now they followed you and then you start the conversation about those things. So, feel free to subscribe to any of those.

[00:10:49] [SPEAKER_05] I get them all?

[00:10:51] [SPEAKER_03] Yep. And we can do some survey reports that we just share the results there or participants automatically get it. This week we're finishing off our pulse of industrial supply survey that we do on a quarterly basis. And we just finished our pulse of lighting in the electrical space.

[00:11:13] [SPEAKER_05] David, with that, what's the best way for people to get in touch with you?

[00:11:20] [SPEAKER_03] To get in touch with me, the email is... Or the pubs. Oh, well, electricaltrends.com, industrialsupplytrends.com, hvacrtrends.com. They're all free subscriptions. Or just reach out to me if you get questions about anything we talked about today.

[00:11:42] [SPEAKER_05] Very good. Tom, why don't we dive into the economy this week, the first part of the newsletter. Little adjustments there. I kind of laugh as we look at a few of these articles here. It seems like every time the government comes out with any report, we get an adjustment to it a couple months later, right?

[00:12:04] [SPEAKER_02] Yeah. Well, we got, as we know, which isn't in the news here, we got the job report today, right? The job report had for September 20... Was it September or August that they report on? Do you know offhand for the jobs?

[00:12:18] [SPEAKER_03] It was September. Yeah, September.

[00:12:21] [SPEAKER_02] So September added 29,000 jobs, well below the 84,000 that was expected. They revised August and July downward in both cases, which always happens. I think there was actually a loss of jobs in August, if I'm not mistaken. With this, the inflation report that came out earlier this week, core inflation at 3% and 3.4% overall. Again, below estimates.

[00:12:51] [SPEAKER_02] I believe estimates were 3.7%. David, I said on this show two weeks ago, I have maintained that the government raising or the, not the government, the Fed, raising rates, which they did what earlier this, earlier last month, was not a good idea. It had very little benefit, in my opinion.

[00:13:15] [SPEAKER_02] And it just was not, it wasn't, it was like sticking your hand out of the window of a moving car, expecting the car to move down. And a lot of our inflation, and we've talked a little bit about this, I know we'll talk a little bit more, has been predominantly around fuel and the price shock of the fuel and things that are going forward. So, I look at these numbers, and I've even now seen a few things this morning already, that the chances of a rate high in October have dropped significantly.

[00:13:44] [SPEAKER_05] Well, under 20% now.

[00:13:47] [SPEAKER_02] Yeah, under 20%. And now there's even now, oh, now we could even have some rate cuts before the end of the year. It's like, okay. Okay. So, look, I don't, I still believe, obviously, and we talked a little bit about the show, David, about, before the show, hey, you know, these rising prices from fuel,

[00:14:08] [SPEAKER_02] are they inherently going to cause all boats to rise in prices and go forward to then create more of a, more broader set of inflation that we have to think? But, anyway, I would love your take on it. That's my soapbox for the morning on the economy.

[00:14:27] [SPEAKER_03] Well, I think when you look at where inflation is or kind of the components of it, there's more things that are variable now than ever before. Because you get the impact of the tariffs and, you know, think of when the tariffs were first announced and, oh, they're not going to reach the consumers. Do they just believe that that wasn't pushed through the channel and the channel's not pushing that through?

[00:14:54] [SPEAKER_05] It was probably starting to push through the channel before they even hit.

[00:14:58] [SPEAKER_03] Right. And maybe in the very beginning, manufacturers tried mitigating some of that. But then when they realized that that was long term, there's only so much they're going to absorb and they're going to push down. So you've got that that became an additive to inflation. The last seven months, we've got everything on the fuel side that's additive to inflation. So if we kind of look at the core, maybe that hasn't changed that much.

[00:15:28] [SPEAKER_03] But the reality is, is we don't pay the core. We pay the loaded price. It's just like when you're hiring an employee. You know, it's not just their salary. It's their loaded cost that is a business you pick up. All the hidden things, the taxes, the insurance, you know, et cetera, et cetera. So everything has gone up. All you have to do is just go to the grocery store and it goes up. You go to eat.

[00:15:58] [SPEAKER_03] Look at the price of beef. And that's a supply and demand issue. But that actually drives into the inflation part. So until they start getting some of these, I'll call them ancillary cost drivers under control. Is inflation really going to get under control? No. Probably not.

[00:16:21] [SPEAKER_03] And if they keep pushing the interest rates up, is that going to kill demand?

[00:16:30] [SPEAKER_02] Well, that's what they're... That's their intent. That's their intent.

[00:16:34] [SPEAKER_03] Yeah. But the cost of the imports is not going to change. We go and put the tariffs up in Canada. We still need lumber for building out of Canada. Most lumber for construction comes out of Canada. Canada. It is what it is on some of these things. And, you know, there's going to be the employee challenges. That continues to be a cost driver.

[00:17:02] [SPEAKER_02] So what's your... Just, you know, bottom line, David, if you were a Fed member, would you be voting to raise rates, cut rates, or leave them the same?

[00:17:10] [SPEAKER_03] I'd leave them the same. Leave them the same. So whatever they... With the increase that they just did, that doesn't have time to do anything.

[00:17:20] Yeah.

[00:17:21] [SPEAKER_03] No. And it's only a couple of weeks of doing it. And the other part of the challenge is you don't know what's going to happen next week, next month, that becomes, whether we call it political, geopolitical, whatever, that's going to be the next driver.

[00:17:40] [SPEAKER_05] Yep.

[00:17:41] [SPEAKER_03] And I think from a business viewpoint, you need a little bit of stability to be able to make decisions. Right. Because we can't make decisions.

[00:17:55] [SPEAKER_05] Well, that's the stability factor is what we just haven't seen in a number of years, right? Is there's... It's just been so frustrating. Tom made an interesting comment. Well, it's the 2nd of October, so it's reasonable for me. I can compliment him again. David, I try not to compliment Tom more than twice a month. Mm-hmm. Mm-hmm. So I was, though, at... It was actually this affiliated distributors event I was at earlier this week.

[00:18:24] [SPEAKER_05] And my friend Ron Lindsten from Terrellit was commenting about the show. And he really resonated with something that Tom was saying a couple of weeks ago about the Fed chasing the 10-year, right? And it's trying to balance those two things out. And he said that really resonated with him. So, Tom, there's your compliment. But my struggle with all of this is... And, David, I think you really nailed it from that standpoint.

[00:18:53] [SPEAKER_04] It's like if we're staying flat, right? And then Tom mentioned I hadn't read that this morning yet, but there's even a chance later in the year of a cut. It's like, okay. So we went up a bit.

[00:19:07] [SPEAKER_05] We skip anything. Then we come down a bit. But it's like what was the point of any of this? Other than you're chasing your own metrics to try and stay relevant. And that's one of my challenges that's been going with this for the last few years is my soapbox has been, I think, the Fed is trying to stay relevant through all of this, right? When the stock market is really what's driving things anyways.

[00:19:32] [SPEAKER_02] Right.

[00:19:33] [SPEAKER_03] And it's not so much... And that's part of it.

[00:19:36] [SPEAKER_02] I was going to say, it's not the stock market that's driving it. It's the bond market, right? The bond market has been driving the interest rates on the 10-year and so forth. Well, that... Yeah.

[00:19:46] [SPEAKER_05] So you're correct in that. My reference was more of what the day-to-day economy and what is impacting investors and businesses and the people that we talk to with wholesale distribution, right? It is, they're looking at what's going on in the marketplace. Now, interest rates are a critical component of that. I mean, I've never subscribed one side or the other to the political components of what's going on.

[00:20:10] [SPEAKER_05] But I think it's hard to argue what this administration is saying is that we want to reduce taxes, lower interest rates, bring manufacturing on shore, boost production and manufacturing, right? In something other than data centers. Because we see all this economic movement tied to data centers.

[00:20:35] [SPEAKER_05] But even Texas is talking about, you know, limiting data centers and so forth now of all places.

[00:20:41] [SPEAKER_03] Well, and it's not only data centers, but a couple of things on the interest rate part. I think one of the mistakes that the Fed did a long time ago was making changes at a quarter percent plus or minus.

[00:20:55] [SPEAKER_05] Ah.

[00:20:56] [SPEAKER_03] A quarter percent. Years ago, it would always be at a half point. Right. When you get to a quarter percent, does that change anyone's decision on buying anything?

[00:21:10] [SPEAKER_05] No. And Tom brought that up.

[00:21:13] [SPEAKER_03] From that perspective.

[00:21:14] [SPEAKER_05] Right. Tom brought that up a few weeks ago when we saw the rate increase. It was like, if you're so sure about this, Tom, I don't want to put words in your mouth, so correct me if I'm off here. But if you're so sure about all this, then go half point.

[00:21:28] Right.

[00:21:29] [SPEAKER_05] Right. Do something meaningful. Right. Do something meaningful.

[00:21:32] [SPEAKER_02] So if you're really trying to throw the brakes, we're going to talk about consumer spending here in just a minute, which is not going down. Right. But if you're really trying to throw the brakes and put enough out there to cause the, that's what I said, it's like sticking your hand out the window and expecting the car to slow down. It's not going to work. Right. Now I think it becomes. Right.

[00:21:54] [SPEAKER_03] And do the half point. And don't worry about doing something the next month. Right. Right. Let it ride for a couple of months and see if it did something. Right. That's right. Because the other part that I think that they lose sight of is the whole issue of human behavior. I think just because they change something a little bit, it's going to affect people's change.

[00:22:18] Right.

[00:22:19] [SPEAKER_03] If I was planning on making a major investment, whether it's personal or business, that's been in process. Am I all of a sudden going to stop because something went up just a year?

[00:22:32] [SPEAKER_02] Quarter point. Yeah. Yep. Yeah. So I like, first of all, Jonathan commented that, you know, the M2 money supply has increased. Right. So we're not, we are not reducing the money supply. We still have money coming in. And I do like Bob's comment. Quarter percent is like trying to turn an aircraft carrier with a war. Absolutely. Right.

[00:22:55] [SPEAKER_03] Now we need Bob to kind of send some notes to people in Washington with that one. Well, it's not understanding that.

[00:23:04] [SPEAKER_05] I think the simplest thing is, is that they, you know, Kevin Warsh needs to start listening to this show every week. And then what they need to do is start every fed meeting with the snippets from this show that John, our editor puts together and let, let John put the snippets together and let the fed. Right. Listen to what. And I say that, of course, it's jokingly. But you know what, Tom, when we bring people like, like David, right.

[00:23:33] [SPEAKER_05] On the show, you're going to a big time industry event next week. I'm constantly at industry events. We're all between the three of us. We are every day on the phone with the real businesses that are driving this economy. Right. The real businesses that are driving at least the B2B side of this economy.

[00:23:53] [SPEAKER_05] And I just, I just get this, you know, feel like we've just got these guys that are chasing, chasing metrics that maybe aren't as realistic as they should be. Because we live in, and this is a whole nother component of it is, right. As we talk about this week, I've said this over and over again and said, you know, we live in a real time world. Right. I can, any one of us, right.

[00:24:17] [SPEAKER_05] I have a screen over here that will tell me that literally right now with one mouse click that the NASDAQ is up 331, almost 332 this morning. Right. Real time data. Right. I can go and search with just about any tool that I want right now. I can go search and see what's really happening real time.

[00:24:41] [SPEAKER_05] And we've got this somewhat antiquated group that is looking at all these lagging data. It's like, let's look at real time data every day.

[00:24:50] [SPEAKER_03] But it also, Kevin, comes down to what real time data you look at. Sure. Because you've got to peel back the layers of the onion. Because when you're looking at, like, the Dow, the NASDAQ, in any given day, what percent of that increase or decrease is being driven by, quote, unquote, the data center ecosystem versus the everyday business that's happening too? Right.

[00:25:19] [SPEAKER_03] Because the data center market is not just the data center market now. Right. When you look at someone like a caterpillar, who you'd say, what is their tie to data centers? But a significant percent of their sales is to construction for data centers.

[00:25:36] [SPEAKER_05] Right.

[00:25:36] [SPEAKER_03] When we've looked at the electrical space, we've calculated what percent of electrical material sales are tied to data centers. But you even got to take it back to, like, the OEMs who are making things. And I'm not talking the Schneiders of the world. Mm-hmm. People who service them. Right. Sure.

[00:26:00] [SPEAKER_03] So, being a small little market, and if the data center business goes away, what's going to happen? Because we could show you some data on, like, the commercial construction market. And it's gone off a cliff in a lot of geographic markets. Look at what's happening in residential.

[00:26:23] [SPEAKER_03] And, you know, I get some bigger concerns relative to data centers that look at what Elon did this week or last week with Starship going up. Mm-hmm. They're testing chips now, right? Well, Google had an experiment that tied to data centers going up on that. Mm-hmm. So, what happens 10, 15 years from now? All the data centers are up in space.

[00:26:51] [SPEAKER_03] What are we going to do with these massive warehouses?

[00:26:54] [SPEAKER_02] Mm-hmm. I think the demand will be there. Yeah, I think the demand will be there for the space and the terrestrial and the, you know, space-related data centers regardless. I think the demand will be there. But you're bringing up an interest, as we move ahead, right, to the next article here about second quarter GDP.

[00:27:28] [SPEAKER_02] Mm-hmm. You know, I haven't, obviously, I hear a lot about data centers. Maybe you have a much better pulse on it, David. What, in the distribution world, what impact, you know, maybe percentage growth or whatever, is data centers having on the industry? And even with all the pushback that we have in different areas, there certainly seems to be a lot of construction continuing to occur.

[00:27:58] [SPEAKER_02] I don't think it's going to not going to occur. What, what do you, where do you, you know, again, this isn't going to go away anytime soon. So, what is the short to medium-term impact from your perspective?

[00:28:11] [SPEAKER_03] The short term in talking to distributors is that it will continue through at least 2030 to 2032. Because it's ground that's already been dug. It's permits that have already been approved.

[00:28:28] [SPEAKER_06] Mm-hmm.

[00:28:28] [SPEAKER_03] And this is according to distributors' customers. You get beyond that, and it's a little iffy. It doesn't mean it won't happen, but all these moratoriums and things are delaying stuff. Yeah. So, they don't have the firm commitments to drive it.

[00:28:49] [SPEAKER_03] But what will also happen is maybe the construction part of Tiense will slow, but remember how they were using, more last year, they were using the term data factory to describe some of these data centers? If you think about what goes on inside the four walls of these data centers, that's equivalent to a factory.

[00:29:13] [SPEAKER_03] All those servers and racks and all the other electronic elements that are inside, equate that to an industrial machine. So, it's a factory because those pieces get changed out every two to three years. Right. That's the quote-unquote MRO opportunity. Mm-hmm. That's the replacement operator. But that doesn't help necessarily the construction industries. That helps the electronic industries.

[00:29:44] [SPEAKER_03] So, you'll see some cyclical change from that perspective.

[00:29:49] [SPEAKER_05] So, are you talking, David, about the server rats and the wiring and the Cat5 and all that goes with that along the way, right?

[00:29:57] [SPEAKER_03] Everything that goes with the server.

[00:29:59] [SPEAKER_05] Yep.

[00:29:59] [SPEAKER_03] The GPUs. All the electronic stuff. Mm-hmm. That's where the long-term future will be there. It's also real. I know we'll talk about M&A and stuff like that. You look at Rexel's acquisition of GCG. Right. It's a space because people are using the patch cords and the harnesses, you know, things like that in that environment.

[00:30:27] [SPEAKER_03] But they're not going to go and buy from an electrical distributor reels and reels and reels and reels of wire every time they have to just change out a rack.

[00:30:36] [SPEAKER_05] So, are the low-term? So, the low-voltage guys are the hot target? Are the low-voltage guys, David, and the target in the M&A space in the electrical market right now then?

[00:30:49] [SPEAKER_03] Yeah. We've seen more there.

[00:30:51] [SPEAKER_05] Yeah. I would think so.

[00:30:53] [SPEAKER_03] Yep. We're seeing some of these what used to be called master distributors on the wiring cable. Some of them are supposed to go, too. Yeah. You know, that brings up a whole other part, though, Kevin. At what point in time is our industry owned by Wall Street and PE firms?

[00:31:11] [SPEAKER_05] Well, you look at that across. It's not just the electrical space, right? If you want to have that. That's a three-hour show right there, right?

[00:31:19] [SPEAKER_03] It's called the future economy.

[00:31:22] [SPEAKER_05] Yeah. No, I – so, Tom, before we jump ahead, which I want to, because there's actually some pretty interesting conversations here with the three articles about tariffs that go with this. But there's an interesting component of this, and I'll just – I'm just going to throw this out. This is probably something we can talk about over the long haul as well, is the – what would I say with this?

[00:31:53] [SPEAKER_05] So, we talk about space. So, I'm going to say – let me ask it this way. Do you think Bernie Sanders is thinking about how would they build a data center in space and what that means if those become super efficient and we don't need as many of the data centers? You know, Tom's argument with this is we're going to need everything that they can build for data centers. And that's a reasonable argument.

[00:32:25] [SPEAKER_05] But do you think any of that – I'll call them NIMBYs that don't want the data centers and they're trying to block the data centers – are even remotely thinking about that there is the risk that they could become not necessary to have as many of them if we get data centers to space? Or do you think it's just a game that they're playing in general?

[00:32:46] [SPEAKER_03] I think if – let me say it this way. They take the topic du jour to frame to what they want to frame it as. So, they would take it from we don't want the construction in our backyard to we don't want you to have the access to the data to only certain people will be investing in thinking and using AI.

[00:33:14] [SPEAKER_03] AI, it's whatever some of those people think will drive the votes that they're going to get to the audience that they're pandering to. Sure. And that audience will change based upon what they think they can go after.

[00:33:28] [SPEAKER_05] So, like, did the progressives or the socialists thinking that this is a bad idea and I've got my soapbox of the month?

[00:33:35] [SPEAKER_03] To a degree. I mean, they'll go and say, all right, you don't have to build data centers here on terrestrial, but you have to worry about them falling. And you've got to worry about them decaying. Sure. And who's going to interrupt the satellite transmissions coming down? So, they're going to come up with a reason to say no.

[00:34:03] [SPEAKER_03] A lot of that audience doesn't get to a thought process of thinking how to say yes to make something better. They think about how to say no.

[00:34:13] [SPEAKER_05] Or they think about how to say no to the other side of the aisle. Exactly. Yeah. All right, Tom, let's slide ahead to these tariff discussions. So, President Xi from China here this week talking a little bit about some tariff cuts there. Then we've got another article here about this was the second one was from CNBC or sort of CFO dive about turning tariff refunds into lower prices. It's popular and perilous.

[00:34:42] [SPEAKER_05] There's a few different things that we've got the whole Canadian thing. So, why don't we then the last one was from our friends at Modern Distribution Management. I saw Mike Hockett this week, our buddy who's been on the show so many times from MDM. I saw him from a distance in San Diego. We waved at each other, but we never got to talk. So, it's always a bummer. We've got to get Mike back on the show soon. He's always insightful just like David is here. So, then this other last piece is from MDM that there's a Fed study that says 75% of firms are keeping cash from tariff refunds.

[00:35:11] [SPEAKER_05] So, why don't we kind of talk a little bit about the China thing and kind of look through the rest of these. Maybe talk China, Canada, and then look at a bigger picture of what's happening with tariff refunds. Tom, you want to dive in on either of those?

[00:35:24] [SPEAKER_02] Well, the China one, from what I can tell, right, I don't think is really meaningful. It's like, okay, we're going to keep talking. We'll kick the can down the road on, you know, I think they've removed some deadlines from January. So, we have time to further negotiations. Right, I think it's all very, you know, very good PR from both sides.

[00:35:52] [SPEAKER_02] But I'm not sure anything meaningful is occurring. I'm very, I'd be very intrigued to understand their dialogue on AI. I would like to be a fly on the wall for that conversation. And AI safety and things like that. Although, I mean, that's a reasonable thing that any country who's working on AI has got to be concerned about or thinking about. But I didn't really see anything. It was like, okay, yeah, we had a nice, you know, it's like, you know, I had a nice dinner. We had a good conversation.

[00:36:21] [SPEAKER_02] We're going to keep talking. And, you know, we're not going to do anything drastic. That's kind of what I got out of that.

[00:36:27] [SPEAKER_05] Well, what came out of this was there's 77 product categories that they've adjusted on for things coming, Chinese goods coming to the U.S. But they almost eradicated basically what's U.S. tariff, U.S. goods entering China. There's 1,619 categories.

[00:36:51] [SPEAKER_05] And the specific part of that that the U.S. was looking for was the ag commodities that they had shifted out on. But there's still, I just did a little quick little search. It still seems that there's roughly between 20 and 22 percent tariffs that are being paid by China on everything else that's coming into the U.S. outside of this. So it's interesting. I would like to know.

[00:37:15] [SPEAKER_05] Maybe you guys have some thoughts or people that we've got great comments coming in today from a broad group of people, which is nice. You know, really some thoughts on is there a desire to actually settle on a tariff rate with China or is it just balancing the can kicking down the street to what you said, Tom?

[00:37:35] [SPEAKER_03] Well, I agree with everything you said, Tom. But probably the one good thing is that they agreed to keep talking. This is never going to end up getting into bitter back and forth and deadlines.

[00:37:52] [SPEAKER_05] The Canadian scenario, right? Throwing rocks at each other.

[00:37:55] [SPEAKER_03] Yeah. If I'm the Chinese, I only have another two years of dealing with Trump. They play the long game and stuff. They can talk until everyone's blue in the face. And they're just going to wait to see what the next administration is.

[00:38:17] Yeah.

[00:38:18] [SPEAKER_03] So. By time, yeah. Getting into whatever the interest, the tariff will be long term. What's the definition of long term? All these tariffs could easily go away two years from now, depending upon what happens in that election.

[00:38:33] Yeah.

[00:38:34] [SPEAKER_03] Yeah. This is not a political comment. But when people would call and complain after the first, after Trump was reelected, I said, remember, you live in a country where every four years there's the opportunity for change. So you just have to survive the four years. It's not a forever issue. And that's a reality. You know, our forefathers did it that way. In worst case, they did it for eight years.

[00:39:05] [SPEAKER_06] Yeah.

[00:39:06] [SPEAKER_03] You know, the life will still go on from that perspective. So I think that plays to a lot of the issues on tariffs. And the Chinese, you know, they have a different mindset on so many of these things.

[00:39:22] [SPEAKER_02] Well, to your point, they're not doing four-year plans, right? No. No.

[00:39:28] [SPEAKER_03] And at least he wants his continued conversation. Yeah. There's a potential to maybe not resolve anything, but at least work on some of the issues on the margin.

[00:39:40] [SPEAKER_05] Well, and I think I would agree with everything that's just been said. But if you think about it from the current administration's view of this is I'm still getting between 20 and 22 percent tariffs on all of this, which translates into billions and billions of dollars.

[00:39:55] [SPEAKER_05] And by the way, there hasn't been any discussion that I've heard in the last couple of months about trying to squash the Section 132 or 301 or wherever we're at with what's being used now. It seems like that's now being accepted, right, as those are reasonable tariffs to be used.

[00:40:19] [SPEAKER_05] And I think, you know, I would say we may end up down the road looking at a very unique, to David, your point about the Chinese playing the long game. But you've got this president who's playing his own game. He's no dummy to think that he doesn't understand. Let's just assume everything that's been said today is correct, right? If they're playing the long game, you know he understands they're playing the long game.

[00:40:47] [SPEAKER_05] So what can he extract along the way? I sometimes look at even with, you know, have they found some value to the U.S. on the Iranian scenario with the Strait of Hormuz being choked because of the challenges it's put on China? Because while China has its own oil reserves and does drill, the vast majority of Chinese oil is also coming out of the Strait of Hormuz. So there's a big picture game here.

[00:41:15] [SPEAKER_05] We're three guys that, you know, work with B2B distributors and manufacturers every day. But there's a bigger picture here.

[00:41:22] [SPEAKER_03] I was reading somewhere that the Chinese, their strategic petroleum reserve or the equivalent of it, they had like three or four years worth of reserves there. So one of the things that helped the prices of oil stay lower at the beginning of the war is they reduced whatever they were buying or stopped because they could pull from their reserve because it was so vast. But it's interesting.

[00:41:51] [SPEAKER_03] You go back and what we were talking about earlier, the G7 announced today that they're going to pull collectively 100 million barrels out of their own reserves over four months. But you don't see China saying that they're contributing anything out of their reserve. The Chinese decisions drive China. They don't really contribute anything else to the rest of the world. Yes.

[00:42:19] [SPEAKER_02] I thought there were a couple of good points here from Will and Jonathan. Both of them jumped in about on Trump version one, right? Tariffs that were created against China. Biden kept them going into the new administration or kept certain tariffs that are there. I, again, not to be political, but I think if you know that they were there, he may not have. That's a good point.

[00:42:47] [SPEAKER_02] I think that the tariffs, though, are so associated with Trump. And we know, you know, the mindset of a lot of the other side related their thought process on Trump. I just think that if we do get a Democrat in the Democratic administration in two years or whatever, just because they're Trump tariffs, they're going to be cut. Or there's a large percentage of it just because they were something Trump did.

[00:43:13] [SPEAKER_02] And my guess is, to your point, David, the Chinese know. Look, nothing's for sure, but they know that the poker hand they're holding. And let's just see if we can buy some time, not create any more animosity and move things along.

[00:43:33] [SPEAKER_03] Yep. And I don't think any of us really knew a lot about tariffs beforehand. But the volatility of decision making and volatility of the negotiating process has disrupted a lot of it. Maybe there's a certain level of tariffs or tariffs on certain items that should always be there that they all agree with, meaning they mean various countries and diplomats or whatnot.

[00:44:01] [SPEAKER_03] What side are you waking up on the bed and changes what your tariffs do or leaving business hanging? That's where it has created angst.

[00:44:14] [SPEAKER_05] Well, and I think what is missed so much here, because this so often turns into like a political discussion, I think the biggest question that has to be asked here is, are you in support of balanced trade or not? And then make your decisions on your view of tariffs and look back at the history.

[00:44:39] [SPEAKER_05] I mean, we could do, you know, a multi-hour or multi-part show about the history of trade and the imbalance of trade, U.S. versus other countries, right? And if you look at that, and that's what this administration is saying is, you know, and whether you agree with his comments about the inequality of who's funding NATO,

[00:45:09] [SPEAKER_05] the inequality of who's funding the U.N., the inequality of the trading balances that go with that. And that's all this administration is saying is really is now, unfortunately, the deliverer of the message is a little bit radioactive. And so, but that at the end of the day, that is the idea is interest rates down, taxes rates down, onshore manufacturing drive productivity.

[00:45:39] [SPEAKER_05] Ideally, that helps pay down some debt, right? And we have to do that by balancing trade. And Bob's great comment here. Bob says balance and fair are two different things.

[00:45:52] [SPEAKER_03] Yeah. No disagreement, Kevin, if you keep the conversation to trade. But when he's not trying to take tariffs as a leverage tool for anything and everything, you know, like when they, he threatened it, who knows where it goes, is Europe because they're talking to Canada. Yes. I mean, so you have. Whether we agree or disagree whether Canada should do it, that can be our own beliefs. Right.

[00:46:21] [SPEAKER_03] But threatening them, threatening Europe, because they want to have a different economic relationship with Canada, vice versa. Mm-hmm. We're a third party there.

[00:46:32] [SPEAKER_05] Free trade, right? It's not working here. We're going to go over there. It's no different than a distributor saying.

[00:46:39] [SPEAKER_03] It should be good for the gander, right?

[00:46:40] [SPEAKER_05] Agreed. It's no different than a distributor saying, my relationship with XYZ Manufacture is not going the way it has historically. There is a new CEO at ABC Manufacturing. He doesn't see things the way we do. And I'm now moving my business over to XYZ Manufacture. I agree. I completely agree with what you're saying.

[00:47:04] [SPEAKER_05] I think what you're describing, the first thing that came to my mind, right, about the constant use of tariffs, right? If your only tool is a hammer, everything looks like a nail, right? Right.

[00:47:15] [SPEAKER_03] And then if you're a business, how do you deal with tariffs? Because you don't know what's going to hit and when it's going to hit. And is it going to stay or is it not going to stay? Like, business goes back to what we said earlier. Businesses need some stability, some guardrails so that businesses can make their decisions to drive their own business.

[00:47:37] [SPEAKER_05] Well, I think we live in a world of, right, the role of the executive suite at both a manufacturer and a distributor is the ability to manage and drive ongoing growth through the instability of the markets that surround you, right? The people that nail that, you know, we all here have a mutual friend, John Gunderson, who was on this show just as tariffs were, you know, just coming in. And John made the comment.

[00:48:06] [SPEAKER_05] He said, you know, everybody is doom and gloom. But the distributor in particular that has a very strong balance sheet has opportunities right now. The ones who have looked at it and have managed inventory really well historically understand inventory turns better than most people. They've got a strong banking relationship, a strong cash position, a strong balance sheet to leverage. There's opportunities for those people. I'll never forget that discussion on that show.

[00:48:35] [SPEAKER_05] So it's an interesting time. So let's shift gears a little bit now. We've got organizations. We talked a little bit about the Canadian scenario. But now we've got tariffs coming back to a lot of these companies. Dave, I realize it's something I need to do in the next two out of the next three weeks. You know, hundreds of distributors and have the opportunity to ask some questions.

[00:49:00] [SPEAKER_05] David, you're on the phone every day with distributors in both manufacturers as well. This or a couple of these articles is there's a struggle is now, OK, now we have these rebates. What do we do with it? Are you talking to any distributors who are getting anything back in concessions from from the manufacturers they partnered with?

[00:49:19] [SPEAKER_03] No one. Now, I'll say it that none of them again. Now, we won't we can't say that manufacturers aren't using a little bit of discretion. And I even question this as I'm saying it for targeted opportunities as rationale to drop their price for a particular project.

[00:49:43] [SPEAKER_05] OK, or a particular customer.

[00:49:47] [SPEAKER_03] Right. Yeah. But do you really think that senior management, meaning the CFO, is even involved in that decision to say it's really coming out of that bucket? No. No. They're looking at their overall margins. And as long as it fits in that, it is. You know, I just saw in yesterday's earnings call from Acuity. They got $45 million back.

[00:50:17] [SPEAKER_03] But they've also announced a price increase for April, for December on a segment of their business, which is on the current control side. No one's seeing price decreases just being offered. Up like a rocket drop like a feather. You're not going to get it out of the largesse of a manufacturer.

[00:50:44] [SPEAKER_02] Are distributors trying to play the tariff card in their negotiations with manufacturers, or is it just a moot point?

[00:50:54] [SPEAKER_03] It's a moot point. And it's only the public... Frankly, Tom, no manufacturer could ever track back what was the tariff that tariff revenue generated at a specific distributor. Sure. But they should.

[00:51:17] [SPEAKER_05] They should be able to.

[00:51:19] [SPEAKER_03] But, you know, I see invoices all day long. But also, now a distributor is going to be so small, Kevin. Uh-huh. You know, if you're a Wesco, let's not use Wesco. Let's use Rexel. And 40% of their business is here in the U.S., so they're doing about $8-9 billion. So, Acuity's going to figure out how much of my $45 million is going to tie to Rexel.

[00:51:48] [SPEAKER_05] It should be the other... Well, this is something...

[00:51:51] [SPEAKER_03] It's going to be a check of a quarter of a million dollars.

[00:51:55] [SPEAKER_05] Okay.

[00:51:57] [SPEAKER_03] Think about what that $45 million is as a percent of their cost of goods sold. It's very small. Because in Acuity's case, on their lighting business, and this is all public data, they're about $3.8 billion. They're running about a 45% gross margin. So, that gets you, what, down to about $2 billion or so in cost of goods sold?

[00:52:26] [SPEAKER_03] And you only got $45 million back. So, would you like me to cut my pricing by 1%?

[00:52:35] [SPEAKER_02] Would anyone notice it? Yeah, I guess that, you know, we've talked a lot about this in the consumer world. And there's another article here about the consumer side. But it doesn't sound, David, like the distributor cares that much, right? The distributor is not all up in arms, but they're not getting a pricing or decrease or a refund or a rebate or whatever. It's just, let's move on with our lives.

[00:53:02] [SPEAKER_02] And, you know, hopefully the manufacturer uses that to improve their operational efficiencies and get a little bit better. And, you know, good luck to them.

[00:53:15] [SPEAKER_03] They're going to use it how they're going to use it.

[00:53:17] [SPEAKER_02] They're going to use it how they're going to use it.

[00:53:18] [SPEAKER_03] Are these companies being publicly owned, reporting to Wall Street? What's the best usage of that money for reporting to drive the stock price? Well, bottom line.

[00:53:30] [SPEAKER_05] Yeah, right. And it's only the publicly traded ones with those statistics that you shared with us, David, that anybody has any insight into, right?

[00:53:40] [SPEAKER_03] Right. And it changes by how much you were actually importing from those countries. Because in Acuity's case, we're not going to beat up on it, but 65% of their production comes out of U.S. and Mexico.

[00:53:56] [SPEAKER_06] Yeah.

[00:53:57] [SPEAKER_03] Only 30, 35% came out of, let's say, countries that have tariffs. Because it wasn't, it's not high in China. But that changes by company. Yeah. Yep.

[00:54:12] Good.

[00:54:14] [SPEAKER_03] It's a great topic and a great revenue driver for CPAs.

[00:54:20] [SPEAKER_05] Let the finance nerds take it.

[00:54:23] [SPEAKER_03] Oh, they would find a way to get that all back in just fees.

[00:54:27] [SPEAKER_05] Mm-hmm.

[00:54:28] [SPEAKER_02] Right. Good. All right, Kevin, where do you want to go now?

[00:54:32] [SPEAKER_03] Factories keep it or giving it to the accounting industry?

[00:54:36] [SPEAKER_05] Yeah. Well, maybe in this case, the normal thought is that it's only the lawyers who win. Maybe in this case, it's the accountants that win, right? Mm-hmm. So that's good. It is certainly a topic that is worth the ongoing discussion. And it's not going to change, right?

[00:54:56] [SPEAKER_06] Mm-hmm.

[00:54:57] [SPEAKER_05] Anytime soon. So let's, Tom, let's roll by. I don't know if there's anything we need to spend a lot of time on the supply chain news and views. Unless either of you caught something in that section you'd like to discuss.

[00:55:09] [SPEAKER_02] I'm okay moving on.

[00:55:11] [SPEAKER_03] The only thing about the whole supply chain, and part of this comes out of the conference I was at, there's so much money being put into AI that relates to supply chain stuff. Mm-hmm. The question is, when will anyone see some of those initiatives actually affect their bottom line? Okay. Lots of analysis, lots of data that can be done.

[00:55:35] [SPEAKER_03] There's productivity improvements, but how much does it drive in aggregate net profitability? No one knows the answer to the question yet. Right.

[00:55:48] [SPEAKER_05] And may struggle, too, in general.

[00:55:50] [SPEAKER_06] Mm-hmm.

[00:55:51] [SPEAKER_05] Right. Very good. Good, good, good. Let's roll into our manufacturing distribution and M&A segment. I think the hit on that to start with, and David, you publish your industrial newsletter as well as your HVAC and electrical and lighting and so forth. So a good topic here is that every year, Industrial Distribution Magazine does their big 50. It's pretty similar, right?

[00:56:18] [SPEAKER_05] It's always going to be, I'd say, the top five maybe move a little bit, and everybody else kind of stays in between on that. Any of you take a look at that? It's funny. A handful of these companies I was with that are listed here, number 31, RSUs, and Singer at 27.

[00:56:40] [SPEAKER_05] And we've got Martin Supply and CBT, Tipco, Mallory on here are all people. I saw that earlier this week.

[00:56:51] [SPEAKER_03] Mm-hmm. Well, I think, you know, and I didn't look through the list in any sort of detail, but some just trends I'm seeing in some of this stuff is not only the M&A, P.E. getting more involved in it. And I've seen, I saw one company, one P.E. firm that's looking to try creating a fastener roll-up to make acquisitions there. So they're seeing the growth opportunities.

[00:57:21] [SPEAKER_03] You saw the Granger announcement about their acquisition of that AI company.

[00:57:27] [SPEAKER_05] Yep. Fastenal as well.

[00:57:29] [SPEAKER_03] Yep. So you see companies trying to diversify and do that to differentiate themselves. Mm-hmm. Because a lot of this comes down to differentiation. Scale, you either need to be on the high end and have scale or on the low end and have specialty and specialization and figuring out where your investments are.

[00:57:54] [SPEAKER_03] I was talking to a tech company yesterday who had an outreach from a $5 million residentially oriented distributor who invested over six figures on technology because he looked and said, I got eight or nine of my people who are retiring. Yeah. How do I be more, not so much more productive, but I can't find people with that type of skill set anymore.

[00:58:23] [SPEAKER_03] So how can I automate some of the basics? You're seeing more of that in these types of lists where companies are starting to think a little bit either. I'm going to say this, thinking more strategically in the sense of, do I need an exit strategy? Mm-hmm. Do I need a growth strategy or do I need a profitability strategy?

[00:58:46] [SPEAKER_03] And I call it specifically an exit strategy versus succession because succession ties to people. Exit says, you know, I'm out. I don't believe if I even did an ESOP, I would get my money out. I have a fiduciary responsibility to my shareholders slash family.

[00:59:11] [SPEAKER_05] David, let me ask you a question that's a little off track of what we're doing here today, but you probably have some insight into it because you've been doing this a long time. If I'm, let's just say, if I'm a family-owned, third generation, pick your industry, electrical, HVAC, it doesn't matter. I'm a third generation company.

[00:59:38] [SPEAKER_05] I've got 55 branches and I'm doing $550 million a year in revenue. And I'm looking at, I don't have a succession plan for my family. The kids don't want to be involved in the business. And I'm looking at private equity. Offers are coming in, you know, heaven forbid I actually go out to the market and say I'm open for discussion, right? They would be flooding in like a tsunami.

[01:00:09] [SPEAKER_05] But they're going to be coming anyways. And so I go engage in that. And then I say, well, I've got these, you know, longtime loyal employees. I'm thinking about maybe doing an ESOP. I've never done this math. I've never investigated. This is an assumption. I could be way off base.

[01:00:29] [SPEAKER_05] So my assumption is I'm going to take a fairly significant haircut by doing an ESOP, not just the potentially stretched out payment from the banking institution that funds the ESOP because I'm going to get those dollars over a longer period of time than probably a PE exit. But I'm guessing I'm going to take, is it five? Is it 15? What's the haircut that I potentially could take in that setting in your experience?

[01:00:56] [SPEAKER_03] You don't have to take a haircut. You don't. It could be equal. But here's where the issue of strategy comes in. If you're making that decision, let's say within a year of you wanting to be out, now you're going to handicap your business with extensive debt on it. Strategic play. If you stop at three to five years out, you're able to start paying down the debt better.

[01:01:25] [SPEAKER_03] Are you able to start managing your people differently and groom your people? Because this is a bad term to say. But the error in what you said is about loyal people. Okay. If you're going to do an ESOP, the issue is really not about loyalty. And I know I'll have lots of people disagree with it. Because you don't want that next generation of management only being the people who've been there 30, 40 years. Correct.

[01:01:55] [SPEAKER_03] You need to have qualified people. Yeah. Good people versus loyal people. Right. Who can lead the business. Right. I've seen companies. Remember the days of management buyouts?

[01:02:08] [SPEAKER_06] Yeah. Yeah.

[01:02:09] [SPEAKER_03] Which essentially was an ESOP, but to a small group. But I know distributors who tried doing those, but realized they never groomed and trained their people well enough to run the business and make decisions and lead others. So they got to the point of, do I trust I'm going to get paid out? Yes.

[01:02:31] [SPEAKER_03] So if you're going to do an ESOP, it's part of your strategic planning to affect that change and sell out. And you can also do an ESOP that's not 100% ESOP.

[01:02:44] [SPEAKER_05] Yeah. We have some customers that have done that.

[01:02:46] [SPEAKER_03] Yeah. We wrote an article over the summer on a smaller company called Access Electric Supply up in the Pacific Northwest. And they only had at that time about 20 employees. And they did the ESOP. And I think they did a 40% ESOP. Plans to get to 100%, but they didn't want to load the business up with lots of debt.

[01:03:12] [SPEAKER_03] So in your scenario, maybe the family's fine with doing an ESOP because the existing shareholders, meaning the family, are going to get their residual payouts over the next five years. So it's an income stream for them versus all up front, which now you've got to also think about your tax company. Tax issues. Sure. Sure. So there's all these different strategics.

[01:03:38] [SPEAKER_03] If you're looking to basically run and cut the umbilical cord that you've had to the business and you want to go off and do other things and not have to think about the business at all, then yes, selling to a strategic is probably your best bet. Sure.

[01:04:00] [SPEAKER_03] If you're selling to PE is second best, they might have the best offer, but most of the PEs, if they're any good, want some existing management to stay. And you may want to stay because the whole phrase of two bites of an apple. Of course. You know, help them grow it, flip it again in three to five years. Mm-hmm. And most of them want you to roll over a portion of your equity in it.

[01:04:29] [SPEAKER_03] And ESOP gives you a different scenario. But this all comes down to the business strategy and your own personal motivation.

[01:04:37] [SPEAKER_05] And to your point, when you do it, right? Because if I caught you correctly, what you were saying at the beginning of that discussion was that if you're thinking about doing the ESOP component of it, it'd be better to do it early because you're going to get the debt load from the banking institution that funded the ESOP. Right? That's a huge debt load on that business. So start knocking that down while you're still there, which guarantees your further payouts.

[01:05:08] [SPEAKER_05] That is just a guarantee.

[01:05:09] [SPEAKER_03] And if you look at some of the firms that have done ESOPs, and when they start paying off that debt, look at how they start reinvesting back in the business. Mm-hmm. Look at someone like a board of states making the acquisitions that they've done, building the RDCs, because they're spinning off so much. You know, obviously they're doing well because of a lot of the product because of the data center and whatever their strategy.

[01:05:39] [SPEAKER_03] They're spinning off so much cash. They can give X percent back to the employees as owners for the dividends. They can use it to fund future growth for the business. Yeah. I was with someone yesterday who said that they were trying to hire some people from a very large electrical distributor who happens to be an ESOP.

[01:06:04] [SPEAKER_03] But because of the dividend payouts that happened last year and that are projected for this year, they couldn't afford it. People were getting payouts greater than their salaries.

[01:06:16] [SPEAKER_01] Of course. Yep.

[01:06:18] [SPEAKER_03] Yep. So it comes out of different dynamics.

[01:06:22] [SPEAKER_02] Go ahead, Tom. No, I have a question as we kind of wrap up. You started, David, by saying your strategy is either am I planning for an exit, planning for increased profit, or planning for increased revenue, right, or sales. Which of those three, and I'm hoping the answer is all of the above, warrant including in that strategy adoption and innovation and technology?

[01:06:52] [SPEAKER_02] Because I really, I don't, I mean, that's the world I live in, right, is working with companies on their technology. I just see in all three of those scenarios, including the M&A one or the exit one, technology potentially and innovation potentially giving a big advantage in all three of those scenarios.

[01:07:11] [SPEAKER_03] It depends upon your timeline.

[01:07:14] [SPEAKER_02] Okay.

[01:07:15] [SPEAKER_03] Fair answer. Because if I'm looking to sell in 12 to 24 months, how much do I invest in incremental technology and change management? Right. Right. Because that's a significant expense.

[01:07:31] Right.

[01:07:31] [SPEAKER_03] True. Now, do I want to go and change my ERP system?

[01:07:35] [SPEAKER_02] No.

[01:07:38] [SPEAKER_03] You know exactly why I say that. Mm-hmm. Do I need to make a major investment in e-commerce? Maybe not on my nickel. Maybe I go to something that's sufficient versus, you know, really unique. It doesn't mean I want to starve the business, but I want to keep it on subsistence investment. Okay. If I have some on the horizon, then I make different strategies. Right.

[01:08:08] [SPEAKER_03] Different things. Right. The challenge on the profitability part, here again, if you're thinking about improving your profitability, the year that you're going to sell. Yeah. Forget it. Because the finance people are going to pull the past three years. Mm-hmm. All of a sudden, it's going to show up right away.

[01:08:31] Okay.

[01:08:32] [SPEAKER_03] Were you that bad before? Yes. So this all comes down to how to be intentional in driving your business.

[01:08:41] [SPEAKER_02] Right. All right. Where do you want to go? Give me a different answer, Tom. Yeah. No, it's fair. Good answer. Fair answer. For sure. Yeah.

[01:08:50] [SPEAKER_05] Let's dive into AI and technology segments, Tom. Looks like those guys.

[01:08:55] [SPEAKER_02] Things that people should be spending money on. Yeah.

[01:08:57] [SPEAKER_05] Yeah. Looks like those guys at LeadSmart did something. You want to tell us about that one, Tom? Yeah.

[01:09:02] [SPEAKER_02] Yeah. There's a nice article here from Distribution Strategy Group about our new platform. You know, if we have a couple minutes, I would like to take a minute. But, you know, I'm sure, Kevin, you got a lot of questions this week at the show. I'm getting a lot of questions from our customer. And I thought I'd add a little context about our new release, the Meridian 360 and the Enterprise Growth Platform. And then, David, tell us if we're on track or we're off track.

[01:09:32] [SPEAKER_02] But, you know, traditionally, we're a CRM company. Right? Traditional CRM. And yet, over the years that I've worked with our customers, and I'm sure, Kevin, you've heard this as well. Right? Very few of our customers have been like, yeah, I want CRM so we can track what our salespeople are doing and log activity and give them administrative work. Right? Nobody says that.

[01:09:57] [SPEAKER_02] What they all talk to us about is, how do I use this technology to drive growth? And to your point, David, usually around two areas, either increasing sales or increasing gross profit, or how do I get more customers? Or how do I actually increase the proficiency of my team so that we're more consultative when we're going to visit with customers and so forth? Right?

[01:10:21] [SPEAKER_02] So nobody has basically told us, hey, we want more administrivia in our life and a bunch of extra work that we need to do. Yet, that stigma exists, right, with CRM in a lot of cases. So over the years, we had built all of these different tools. We've built tools for White Space, and we call it Revenue Expander, and Wallet Share, and we built tools for forecasting.

[01:10:48] [SPEAKER_02] We built tools for just all kinds of different things that we've built. How to create, you know, how to set goals in your organization. What goals should you be tracking? How do you manage those goals? All of those things that really have nothing to do with traditional CRM, yet they were still being lumped into our CRM world. And so we decided, you know, a few months ago, man, we're, you know, first of all, CRM a lot of times is a four-letter word because of what I said earlier.

[01:11:17] [SPEAKER_02] But we're not really doing that with our customers. What are we really doing? We're helping them grow. And so we've been doing things that we've already been doing for many, many years into the Meridian 360. Yeah. Yeah. And it's been interesting because at least now it has opened up a much broader set of conversations with our customers.

[01:11:43] [SPEAKER_02] And it really allows us to work with them the way we want to work with them, which is how do we help you grow? How do we help you increase your proficiency? How do we enable your sales teams versus, hey, being something that people think of as administrative, you know, CRM Saturday where I have to go in and enter all my notes that are there. So I've been getting a lot of questions about why did we do this? Is this all new stuff and all that stuff?

[01:12:10] [SPEAKER_02] I'm hoping that this kind of sets the record, Kevin, that really it was just a matter of getting credit for what we're already doing and making people aware of some of the things that we've done that are providing big benefits to a lot of companies.

[01:12:27] [SPEAKER_05] Well, I think in that setting, Tom, right, is people don't think about traditional CRM as having AI tools that can go find white space opportunities and risks. They don't think about CRM that can be used for, you know, automating some forecasting and using AI tools to bring white space and quotes and all of the different opportunities together and put it in someone's lap that says, here's what your forecast looks like.

[01:12:55] [SPEAKER_05] And it's a real forecast versus throwing a second column into a spreadsheet of what did somebody do last year. They don't think about those types of products out there that send push notifications to a phone to help somebody rather than waiting for somebody to log in and go slice and dice something in a BI tool, which just salespeople don't do, right? So I think now with having five pillars within the organization, right, we've got our sales compass, which is our sales enablement tools. We've got our smart CRM solution.

[01:13:25] [SPEAKER_05] We've got marketing tools. We've got quoting tools. And we've got e-commerce tools. Now, what I describe it to people as, and I had the opportunity to share this with a lot of people this week. And, David, I'd love your thought on this, right, is the philosophy that we've taken at LeadSmart is that a customer has no less than four journeys with their end user.

[01:13:47] [SPEAKER_05] They have an ERP journey, which has historically been the system of record and the source of truth in a business. But if you stop and really evaluate that, an ERP, and we have wonderful relationships with some of the top ERP companies out there, but the ERP data is a rearview mirror of a transaction or a series of transactions that happened in the past, right? It's not, you know, maybe there's some better AI tools coming in to help, you know, look at based upon that data what could be happening.

[01:14:17] [SPEAKER_05] But what distributors in particular that manufacturers as well, distributors just have so much more data. But when you think about that, your customer has a marketing journey. What events are they coming to? What promotions do they take advantage of? What videos are they watching? There's a marketing journey. And that actually does relate to that ERP data. There is an e-commerce journey that they take.

[01:14:40] [SPEAKER_05] Did my salespeople even go introduce our new website that has e-commerce capabilities or purchasing capabilities to the customer? Is the customer registered on our website to take advantage of those? Hey, our sales are off with XYZ company and they're looking at our website at another brand, but we've never talked to them about that.

[01:15:03] [SPEAKER_05] Should I get a push notification on my phone that says you should go contact the manufacturer's rep or the factory rep of XYZ company because you've got this large customer that's evaluating that? And then we have the human side of that journey, which says what's in the CRM? That is Joe that is working on the big project that put his notes in after an on-site meeting at a project.

[01:15:26] [SPEAKER_05] The inside salesperson that had to solve a problem of the four water heaters that were in the last shipment that were damaged. How did we handle that? Now when we put all those four journeys together and we apply AI to those journeys, now we have an insight into what's really happening at the customer. And now that AI brings and boils up real world opportunity.

[01:15:53] [SPEAKER_03] Yes, and if you took everything you just said, you're facilitating sales management at the salesperson. You just had, everything you just said was a coaching session about a specific account opportunity.

[01:16:13] [SPEAKER_03] That's what you pulled together because it's been a contention I've had for a long time that one of the weakest functional roles within distribution is sales management.

[01:16:28] [SPEAKER_05] But we give somebody the title because they were a good sales guy.

[01:16:32] [SPEAKER_03] Well, you have that. You never had enough people. The sales manager is responsible for stuff strategic. He's supposed to do coaching. He also sometimes has his own book of business. He gets pulled into every fire drill that a customer has a problem. How much time is he actually spending? Remember the old days that you would actually be in the car?

[01:16:56] [SPEAKER_06] Yeah.

[01:16:57] [SPEAKER_03] And you did coaching, pre-call and post-call when you had a debrief? That never happens anymore.

[01:17:03] [SPEAKER_05] Why are we going to this place? What are we doing there? And when we leave, what could we have done better?

[01:17:08] [SPEAKER_03] Those days? You know, that little five-letter word that most of these people don't like? It's called think. Think ahead of time. Think afterwards and do the debrief. COVID further exasperated all these things. Because now you get more salespeople per sales manager. You get sales managers who don't even live anywhere near the territories of their people. So you're aggregating the information.

[01:17:38] [SPEAKER_03] The issue you had, Tom, on the CRM side? Which salesperson ever said, I want my administrative tasks and my activity really tracked by my management team to hold me accountable?

[01:17:53] [SPEAKER_05] Say no whatever.

[01:17:54] [SPEAKER_03] Please, boss, go find a software system that does this for me. Yeah. Right? Remember that old phrase called sandbagging? Sales prefers that, right? It's what Tom does to me on the golf course. Well, golf courses count to sales calls, especially if they're part of the sales relationship. And they eventually generate orders.

[01:18:20] [SPEAKER_03] But a lot of these tools, and I haven't dug into Meridian, but tools, these types of tools are really to fill in that spot of sales management. The challenge that I've seen that companies have, and I'm talking to the distributors when they look at these, senior management says great. Sales management acquiesces because their boss has said yes.

[01:18:48] [SPEAKER_03] And it could be a VP of sales who says this is great. His regional guys are like, oh, shit, what's this going to mean? Because now it's holding me accountable for my people. But the change management part to get the adoption and to affect the behavioral change is the critical element. And I really haven't seen companies be successful, and I'm talking technology companies,

[01:19:16] [SPEAKER_03] being successful in sharing roadmaps of how to make the systems successful. Call us. We'll show you. Well, but you see, you can easily talk about how to implement it. How to roll it out and keep it alive is what these companies really need.

[01:19:40] [SPEAKER_05] Well, I think you're spot on. I think the challenge with this is the technology companies. I said this idea. I gave a talk in Puerto Rico for a buying group last month in August with Dirk Beveridge. And I were together. And I made the comment. It's a comment that Tom made to me many, many years ago because of his 30-plus years in technology. It's easy to buy software. It's hard to get results.

[01:20:04] [SPEAKER_05] And so what we're seeing now, especially we have this influx of Silicon Valley companies that are flooding distribution. They built a product, funded a company, and said, where can we go sell it? Versus looking at a market and saying, what is this market's needs? Which is where I do a little bit of this patting myself on the shoulder here and there. I am the only technology company CEO that I'm aware of, and I've looked and looked and looked, that serves distribution and manufacturing,

[01:20:33] [SPEAKER_05] who has ever loaded up a car full of samples and literature and headed out for a week to call on customers. And I did that for 35 years, both on the manufacturing side and the distribution side. And when you pull those things together, it's funny, my email's up on the screen next to me, our client success manager, we don't start implementations at LeadSmart without two to four success criteria with a customer.

[01:20:57] [SPEAKER_05] And we meet at a bare minimum of quarterly going on and on with those customers to make sure they're seeing results. ASA, the American Supply Association of the Plumbing Market, just published a capstone paper three months ago with one of our customers. 13% growth within the business from the people that use our technology and 70% of the people that have access to the software login every day and another 12-plus login multiple times a week.

[01:21:28] [SPEAKER_06] Right?

[01:21:28] [SPEAKER_05] When you have that, and then you, I'll just finish here real quickly, Tom. When you have that, and then you're sending push notifications to somebody that says, here's how you can make more money. And then a manager gets the email roll-up that says, here's what all of your people got notifications of this week. And then you're now able to go do, David, what you were discussing that historically nobody does, because so often we see the sales manager that he was a good sales guy, so he got promoted to manager. Now he has a coaching opportunity.

[01:21:57] [SPEAKER_02] But yes, the adoption, change management part of it is...

[01:22:06] [SPEAKER_03] If we're not going to use the technology to change buyer behavior and seller behavior, then it's nothing but an expense. Okay. Right.

[01:22:18] [SPEAKER_05] Well, Jonathan here talked about it in a comment, right, is getting rid of noise, right? No distributor, in particular, manufacturers in general, are short on data. The question is, can you get that data and turn that data from noise into signals that can be acted upon? And that's what the right technologies do. So, listen, we weren't going to turn the AI segment into a lead smart commercial, but good discussion about the challenges that people have there.

[01:22:48] [SPEAKER_05] We have some other... We're going to kind of wind down here as the day goes. Tom's got another call starting shortly. Some good articles in our sales and marketing segment. By the way, a side note, before we even say that, we have a technology, cybersecurity, and robotics segment of the newsletter. Tom, we've been talking so much, or I have been talking so much about humanoid robots and so forth. There's a great video in their Boston Dynamics, their Atlas model. They've just completely redone the hands on it, and they show it changing a drill bit.

[01:23:16] [SPEAKER_05] Because we've been talking about, I heard a thing close to a year ago now from Elon Musk, talking about literally the hardest part of robotics is from the elbow to the fingertips. Everything else is pretty straightforward. We're starting to see that. So, we started our discussion, David. We were talking about sensors in glasses, right? And then now we look at this from that standpoint of sensors in robots and so forth.

[01:23:43] [SPEAKER_05] And I think we're all going to have a humanoid robot before we know it. So, good article there. Take a look at the video. It was good in our sales marketing and e-commerce segment. Good article there from Mike Kunkel. That's a LinkedIn article. He did two foolproof ways to improve sales performance. There's also an article there about how B2B buyers are using AI to vet vendors, which is a whole show. It could be in itself.

[01:24:09] [SPEAKER_05] So, as we wind down, David, thank you for being with us. We appreciate that. Let's, before I give our final plug, remind us again of your publications. And how to get those.

[01:24:22] [SPEAKER_03] Yeah. We've got three to play in our industries. ElectricalTrends.com. HVACRTrends.com. And IndustrialSupplyTrends.com. And if you play in the lighting space, subscribe to USLightingTrends.com. And if we can help you in any of these business issues that we've talked about, either go to ChannelMKT.com or email me at dgordon at ChannelMKT.com.

[01:24:51] [SPEAKER_05] Awesome. Awesome. Good. Very good. Well, and I'm Kevin Brown, Tom Burton. As you know from the last 10 minutes of discussion, we're with Leadsmart Technologies, but we do this every week. Rarely do we talk about our software as much as we did today, but I guess...

[01:25:04] [SPEAKER_02] Did you notice that I have our new website here on our...

[01:25:06] [SPEAKER_05] I saw that and I saw that in another podcast that you were on earlier in the week that you did that, and I need to make that adjustment. So new website for us, LeadsmartTech.ai. Some great videos. Tom and his team are deep into the video production segment, hint, hint on that right now. And a lot going on there. So we appreciate everybody being with us. As I said at the start of the show, if you'd like to get our newsletter in, you don't, we'd be happy to get that out to you.

[01:25:34] [SPEAKER_05] So just send an email to hello at leadsmarttech.com, or you can easily find us on LinkedIn as well. For that, if you're listening on the podcast recorded version on Apple, Spotify, et cetera, please subscribe, but even more valuable and helpful to us. And we're grateful for is if you leave a comment, because what that does is that boosts and adjusts the algorithms and the more comments that we have, whether it's on YouTube or any of the podcast

[01:26:03] [SPEAKER_05] platforms, the more we get out in front of other people and can bring this. Tom, today is one of the better days in the last few months of comments from people listening in. So we appreciate that. David, thank you so much. I've got only a Saturday of a weekend. I've got to be back in San Diego for another, the PHCP, the plumbing HVAC, and pipe valve and fitting side of affiliated distributors. We're really looking forward to it. He puts on great events. So we're looking forward to that.

[01:26:32] [SPEAKER_05] We've got lots and lots of customers that are going to be there. And then we're bringing some of our team with us as well, because we're just down in San Diego, about 75 miles down the road from here. So very good. Last thing I get to do is, though, before I leave town on Sunday, on Saturday, I get to see my little 15-month-old granddaughter again. So it's two weeks in a row, two weekends in a row. Last weekend I was in Colorado where she lives this weekend, she's here. So kind of excited about that. So, David, do you have any grandkids yet?

[01:27:03] [SPEAKER_03] That makes it all worthwhile.

[01:27:05] [SPEAKER_05] Yeah.

[01:27:06] [SPEAKER_03] No, we don't even – my daughters don't even have prospects.

[01:27:11] [SPEAKER_05] Okay. Well, grandkids are great. When you can hand them back, kids are fantastic. So very good. All right, Tom, I will look forward to you being back in California soon. David, I wish you a fantastic weekend. Again, everybody, thank you for being with us. We appreciate your spending some time with us. The comments today were fantastic. So we'll wish everybody a great weekend. Be kind, be safe, and do good things.

[01:27:40] [SPEAKER_00] We hope you enjoyed today's episode and our guests. Each week, we try our best to dig into the topics that are impacting your business. So please, reach out to us and let us know how you think we can make the show better, or topics you'd like for us to tackle or talk about more often, and even guests you'd like to see join us. We're looking forward to bringing you next week's session, and hope that until then, you stay safe, stay focused, and do great things. If you haven't already, please subscribe to the podcast

[01:28:09] [SPEAKER_00] and leave a review to help others in wholesale distribution get access to the conversation. And finally, please check out our sponsor, Lead Smart Technologies, and their manufacturing and wholesale distribution industry CRM, customer intelligence, and channel collaboration platform. That's Lead Smart Technologies at leadsmarttech.com.