Latest / Construction ESOP Collective / From $25M to $80M as an Employee-Owned ESOP Contractor: Ralph Dumke of Waterline Industries

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From $25M to $80M as an Employee-Owned ESOP Contractor: Ralph Dumke of Waterline Industries · Construction ESOP Collective

• speaker-0: And I got up and I just said, you know what? I said, everybody's been wondering what I'm gonna do. And so, you know, Maria and I have finally figured it out. I said, we had some choices. I said we could have sold the competitors, we could have had an auction. I said, or our other option was, I said, I want you to look to the person to your left, look to your person to the right, shake their hands. I says, because you just met your new owner of the company. And ⁓ so and then the and then You know, of course ⁓ and I said, Anybody got any questions? And a c there was most of people were just dumbfounded. They didn't know you know, they didn't know what to say. speaker-1: Welcome to the Construction ESOP Collective. I'm Chuck Mazzanti, Senior Vice President at Christiansen Group Insurance, and this is the show where we explore the wins, challenges, and real-world lessons of employee ownership in construction. Each episode brings insights from CFOs, former owners, and employee owners who are building something bigger together. Let's get into it. Joining me today is Ralph Dunkey, founder and CEO of Waterline Industries in Seabrook, New Hampshire. Ralph started Waterline 39 years ago, 30 days after the 1987 stock market crash, with a pickup truck, a shovel, and his house on the line for bonding. Today they build water and wastewater treatment plants for cities and towns and they self-perform almost all of it. Waterline went 100% Aesop eight years ago at about $25 million in top line revenue. This year they did close to 80 million. Here's my conversation. Ralph, thrilled to have you on the construction Aesop Collective. I've been looking forward to this all week, man. speaker-0: Me too. speaker-1: Can't wait. Yeah, yeah. So it's there there's a little bit of backstory I wanna give, but to start start things off the right way, we got Ralph Dumkey with Waterline Industries out of Seabrook, New Hampshire. And Ralph, ⁓ I'd love for you to just kind of give us the ten thousand foot overview of of who you are and and your company. speaker-0: Sure. So ⁓ first of all I wanna thank you, Chuck, for ⁓ having me on. And ⁓ your your podcast that you did with Bob Whalen got me really pumped up on the whole ESOF thing. ⁓ with the ac w in regards to acquisitions. ⁓ we'll get into that later on the acquisition part, but your your podcast really got me pumped up and I've been I've I've been going to school on on everything and learning everything. ⁓ and I appreciate all the introductions you did for me too. So but anyhow, ⁓ my I'm I'm Ralph Dumkey. I started waterline industries 39 years ago. ⁓ we are a contractor and we only ⁓ perform we only work in the water and wastewater industry pretty much for municipalities. We do do some private ⁓ some private work, but mostly for cities and towns ⁓ and or state ⁓ government. So ⁓ my background is I ⁓ went to college in Boston. I went to Wentworth Institute, got an associate's degree in in civil engineering, started working for a ⁓ site work contractor that at the time was doing ⁓ HUD Low Income Housing. ⁓ I was ⁓ I was a layout, I was doing a layout for them. ⁓ and when it was time for me, I did a co-op with them for a semester. And when I was supposed to go back, ⁓ the owner of that company said, I'll pay your tuition to go nights if you'll go nights and work full time. So ⁓ I did it. Took me five five extra years instead of two years to get my ⁓ bachelor's degree, but I finally got it done. ⁓ worked for two contractors. That that one contractor, large union site work contractor. Like I said, we were doing ⁓ HUD low income housing at the time because at that time there was a lot of federal money for that. That was back in the in the seventies, I hate to admit it. and then what happened was ⁓ all of a sudden the Clean Water Act came in and ⁓ The next thing I knew we were building ⁓ doing all the site work on some of the largest ⁓ sewage and water treatment plants in the Northeast. And so I worked for them for an another five years. ⁓ large contractor. At the time I was like twenty-seven, twenty-eight years old, ⁓ running these projects, ⁓ dealing with ⁓ a lot of ⁓ issues that a twenty-eight year old shouldn't be with the unions and labor and and a lot of that. So I went to work for a smaller general contractor and ⁓ in southern New Hampshire that did small wastewater and ⁓ pump stations and that went to work for them for five years and ⁓ ended up ⁓ Started waterline industries ⁓ thirty days after the stock market crash in nineteen eighty seven. So a lot of people on this podcast don't know ⁓ about that, but that was like almost like the the thirties when people were jumping out of windows. ⁓ I I was young and dumb and didn't know any better and had no idea what a line of credit was. ⁓ I did know you needed bonding. ⁓ so I started I started the company really virtually with a pickup truck and a shovel. ⁓ put my I had two young kids at the time, ⁓ three and and five, and put the house on the on the line and got some bonding. Wow. ⁓ so that's how we started. Did the the first pump station was a hundred and fifty thousand dollar ⁓ water pumping station in Bartlett, New Hampshire. And ⁓ so ⁓ You know, we're now in our thirty-ninth year. ⁓ our eighth year is the Aesop. The company last year, ⁓ well, the first year that we were in Aesop, just ⁓ the company grew pretty much all along. ⁓ w ⁓ usually about five to ten percent a year. ⁓ just a kept adding a few more people. ⁓ we also self-perform ⁓ most of the work. The only thing that we really sub out is ⁓ masonry and the painting. So we do everything from site work to the electrical and we even now do even the instrumentation and controls for the water and wastewater treatment plants. But ⁓ so ⁓ when we became an Aesop eight years ago, we were doing around twenty-five million dollars a year. So that and that grad that growth was like, you know, so we went from a hundred and fifty thousand to twenty-five million in about thirty years. And then ⁓ in the since we became an Aesop this year we just did less a little less than eighty million dollars. So the growth has been unbelievable. I'd like to equate it all to the ESOP and ⁓ most of it is ⁓ but and we'll I'll explain that later about the tax advantage. But ⁓ we also were very fortunate because of the all the infrastructure money for water and wastewater. And also the ⁓ the PFAS issue that's ⁓ in the drinking water has been a big a big ⁓ growth ⁓ potential for us over the last three years, three to five years. So ⁓ yeah, so that's how we how we got to there. ⁓ some of the things that I really wanted to talk about was just like starting the company, I guess maybe sometimes it is Good to be young and dumb or whatever. But ⁓ I I always like the idea of Aesops and andor ⁓ you know, because we are a small company, pretty much we'd bring on two, three, four, five people a year. and so a lot of people in the company have been there a long time. And so, ⁓ almost 20 years ago, I got the idea of doing an eesop. And ⁓ Looked into it, really liked it, reached out to a company that actually set up ESOPS and ⁓ went down the road. We did the valuation, we did everything else, and and so then I went to ⁓ well I had two hurdles I needed to get over. And I went to ⁓ the first one I went to was the ⁓ the bonding company and they said absolutely not because and of course So I'm a civil engineer. I never took any business classes. I mean, I knew what the how the balance sheet was supposed to look. I didn't realize what doing an ESOP does to a balance sheet is basically ⁓ we the debt equaled the e you know, the equaled the value of the company. So ⁓ so the bonding company shot my feet out from underneath me. ⁓ I thought it was a great idea, it was a great way to excite the the people that had been there. You know, at that point there were a lot of people have been there. twenty years or so and and that's really what I was trying to do is take care of them and and ⁓ and and move that along. So ⁓ I guess I'm gonna lay out all the mistakes from the beginning. So I felt speaker-1: And in Ralph, not I'm sorry to interrupt, but I just want to make sure everyone's on the same page. What you're talking about right now was twenty years ago. speaker-0: Right, twenty years ago. So so ⁓ so I guess the thing that so if somebody's gonna do an ESOP before you do anything, especially if you're in construction, especially if it's bonded construction, the first thing you do is have the conversation with the bonding company. The next place I would go is to the bank. 'Cause you and I'm gonna tell you the problem with the bank later on, but that was with the new when I finally did get to do the eSOP, we had a little surprise from the bank. So don't let me forget that, Chuck. All right. Okay. So So anyhow, so so now ⁓ I was frustrated, I was upset, I w I really wanted to reward the people that had helped me grow the company. So what I did was and once again I just did this on my own. I I think I had an attorney help me. It's been a while, so I don't remember exactly how I did it, but I basically gave probably about ten people some stock in the company. And speaker-1: Reason the reason you did this is because you went to the surety and they said, Forget it. We're not gonna keep your bonding line if you flip the balance sheet and go Aesop. So you're like, All right, shoot, I can't go Aesop. So now this was your response to not being able to go to ESOP. Am I following that correctly? speaker-0: Right, exactly. I just wanted to I w I really wanted well so let me I'll back up even more. The reason I left that second company was because I worked for it like I owned it. All right. The the own the guy that I thought owned it ⁓ was was getting older, he was ill. ⁓ I I was running the company and at that point I was like thirty years old and you know, I was doing the bidding, I was you know, basically doing everything. And then come to find out he didn't own it. Some large contractor in Boston actually owned the company. So I I found out I was never gonna own it. So that's when I said, okay, I just gotta go to I don't care if I just do tiny little pump stations. I'm gonna go I'm gonna go do this on my own. So I it's not that anybody ever threatened to leave, but I just wanted to to ring them in pretty much the way Aesop brings the people in so that they're the owners, right? So So that's what I tried to do by giving them stock, right? Okay, well, not a good idea. Don't ever try doing that. Cause now the following year we get we get we're, you know, we're closing out the year, we're doing our audit, and the auditors find this, Ralph, what's this stock thing that you that you did, right? Well, we we had to pay hundreds of thousands of dollars in taxes. because we had given away stock. And you c you can't just give it away because there's a value to it. And I couldn't make them pay the taxes on it. So I paid I paid the taxes on the stock that I gave ⁓ So ⁓ so speaker-1: No good deed goes unpunished, especially if the IRS has something to say about it. speaker-0: And I was just I was dumbfounded. I'm like, you you gotta be kidding me. I couldn't I couldn't believe it. And then but you know, luckily my accountant talked me off a ledge and and we just paid the taxes and and moved on. so yeah, so ⁓ I get the first thing is is ⁓ g get good advice. Don't do stuff on your own. Yeah. 'Cause then basically what happened with the stock thing is I just went to an attorney and I said, Set this up so I'm giving everybody stock, right? Well he didn't you know, he didn't advise me to go talk to my ⁓ you know, accountants or or whatever. He's just doing what I told him to. So ⁓ you know, I could I couldn't even blame it on him. So so ⁓ then it was it was actually probably about ten years ago 'cause it took me two years to finally ⁓ ⁓ jump over the fence, I guess, to do the ESOP. I started going to I started going to, you know, I I looked at it this way. Okay. I I need to do something because now at that point I was almost 60 years old. ⁓ and and I wasn't getting any younger, even though I didn't want to admit it. But, you know, so I started looking at it and I said, okay, I can either sell to a competitor, right? Or I can just close up shop. And you know, by then we had like tons of equipment, cranes, excavators, you know, all this stuff. Like you just have an auction and sell the real estate. We we had the we had the building. We had built a building a new building in two thousand and eight. So the building was fairly new. ⁓ yeah, that was another bad move, right right during right in time for the recession. We we build a brand new building, but it it worked out. and so it had some debt on it, but ⁓ there was a lot of value there. So I I could have done that. ⁓ I didn't the the selling to a competitor, I I just couldn't do that to my to the employees, you know, all the people and and so the other option was an ESOP. So I really started looking into it. I started going to conferences, talking to a bunch of different people and then ⁓ and it was kind of weird because You know, at that point it was probably only ten years after my first flop at a t at a Eesop attempt, the bonding company actually sat me down and said, Hey Ralph, you're not getting any younger. What are you gonna do? speaker-1: This so no so I want to land the plane here for a brief minute and then we'll let you continue. So 20 years prior, you go to do the eSop, the surety says no can do, Buckaroo. So you say fine, you give the stock thinking you know you're gonna be Santa Claus, and then the IRS says, Where's our couple hundred grand? So after that, you just kind of not limp along, but you're just kind of like, All right, it is what it is. So on your back. speaker-0: Yeah. speaker-1: Head down doing the work, and then 10 years after the mishaps, you kind of reload the surety. Is it the same surety from the previous one that said you couldn't go Issa? speaker-0: No, it was a different one. Okay. So different one. And but we've and at that point we had been with them probably like five years or something. And we were growing pretty good. So they're look they're starting to write bigger bonds. ⁓ and then that you know, they're looking at more gray or less hair, more gray hair. And and so they just started asking questions and they actually brought a Aesop attorney to our office. And speaker-1: Wow. speaker-0: and had the conversation with us. And ⁓ at the you know at the end of the meeting, ⁓ the e top ASOP attorney said to me, ⁓ you know, she said, so what are you thinking? And you know, and I said, well, you know, I I'm not ready to retire, but I gotta start thinking about this. And and I and she said, well that's good. She says, because if you told me you wanted to be out in six months, she said, I'd just, I'd just leave. She says, you know, you the ESOP needs to have the founder sticker at least agree to stick around for a while. And you you set those expectations up early so everybody understands it. And and I said, okay. And then and the and the bonding company was like, Yeah, if this is an organized, you know, and we plan this out, this was a good idea. Let's continue with the process. So ⁓ actually there I I I don't ⁓ I think they looked at it to be honest with you, I think they looked at it if we sold a competitor, they probably wouldn't be writing bonds for us anymore. They'd be you know, that that competitor would use their bonding company for the for the bonds. So ⁓ so ⁓ it was in their best interest too to s to s to stick with us. So speaker-1: Got got it. So so now this is ten years from the first flop. Now you are actually setting up the ESOP for real. Right. Okay. speaker-0: And this is where and and Chuck, I'll tell you right now. So I probably talked to that same Esop attorney probably has me talk to twenty to thirty people a year who are thinking about doing an ESOP. Because they they just like me, I just there were some things I just couldn't get my head around, you know. So j just to give you an idea. So we had I actually had three companies. I had the construction company, then I had an equipment company. That company owned all the cranes, excavators, all that stuff, right? And then we had the real estate company that owned that owned the the office building and the and the shop. And so in my mind, I wanted to do ESOP the construction company, keep the equipment company so I could keep continue to rent ⁓ equipment and get the tax write-offs from it, and keep the real estate because I could just charge, you know, it'd be good retirement income or whatever. And the Aesop attorney was just like adamant. She's like, no, you gotta you're you're gonna retire, Ralph. You need to do this. You need to do the whole thing. And and ⁓ so at that point, I think I walked away for about six months. I'm just like, no, I'm not doing it. I'm not, you know, I can't give up everything. ⁓ I give up the construction company, but I'm not doing the whole thing. And she was adamant, she said the taxes will kill you. If you don't do this with the equipment company, you know, because we'd been taking all this bonus depreciation and everything else, she says, you gotta do everything all at once. So ⁓ it took me a long time to get my head around that. And then there were just a bunch of other things too that I I just wasn't sure about with the ESOP, you know, how is it gonna go? How's the control of the ESOP gonna be? ⁓ am I gonna lose all control? ⁓ you know, can I get fired? You know, I mean, those are all things that you just and and the the problem is too, and this was the other thing, this is the first time in your life you'll ever sell something that you don't know what the asking price is. So because you do it as an ESOP, they the trustee goes and hires a valuation company. The valuation company comes up with a value. And the trustee agrees to it, and then you find out what the value is. It's just it's like and that's where a lot of people, you know, that's when they end up calling me and saying, you know, and so now that that's another point where I once I got that, I'm just like, you know, this just it doesn't make any sense, right? And then and then finally, actually, and I probably shouldn't say this, but the trustee, ⁓ because What happens if you don't make the decision, you get the valuation, you got only so much time before the valuation's gonna change. So you have to pull the trigger while that valuation's still good. So I was hemming and hawing and everything else. And finally the trustee called me and he says, Ralph, because he was he the reason he was a trustee was because he used to be the CEO of a company that went Aesop. And and so he said, Ralph, he says, I can't tell you anything other than Just do it, it'll work. So ⁓ and he was r and he was really good. So I said, Okay, I said I'm gonna do it. And so so we did it. And ⁓ I'll tell you something is a is ⁓ the best advice I ever got, I think. So ⁓ speaker-1: Okay. In in what was the duration? So so 20 years ago you try to do it, it doesn't work, you do the stock, that backfires, you slug along. Then 10 years ago you revisit it, but you've been at Esop for eight years, right? So did it take from the second start to finish, did it take two years to transact? speaker-0: So okay, probably half of that time was me, Charlie, just because I would and the thing too was I was busy. And so it was easy to stick your nose in other things and deal with this thing. The some of the things with the valuation company that you know were very difficult because it w they weren't just valuing the construction company. That was pretty easy because we had audited financial statements, everything else, right? We also had the the equipment company. Which wasn't as easy ⁓ because you had the the value of each piece of equipment, you had the market value, the per what you paid for purchase price. And at one point the valuation company sits me down and they said, We have to we have to knock down the value of the construction company. And I'm like, What? And they're like, Yeah, because you haven't been charging enough for your equipment. ⁓ you you you know, the if we look at the market rate for the excavators and cranes, you're charging less than market rate. So that makes that overvaluates the construction company. So at that point I said, Okay, I'll start charging more. So I started charging more to to get it so that the ⁓ it I mean, so that was just some of the challenges with the ⁓ with the valuation company and and and me. I think it was more me. ⁓ speaker-1: Okay, I think it's a there there's a good lesson there because you weren't renting equipment to anyone else, it was just for waterline, right? So I think that's not atypical in the construction business to have a holding company for the real estate, which then you lease the real estate to the the main construction company and then you bifurcated the equipment. Because to your point, you it helps limit liability, A and B, there's some arbitrage there from a business standpoint. to capture the thing. So I I I think it is very pertinent for you to walk us through that because there's other contractors that are doing the same thing. And that's great for when you're privately held just the single owner, but there's ramifications as you're pointing out as it pertains to going through an ESOP transaction and needing it to be fair market value and so forth. speaker-0: Right. See there it was weird because at one point the bonding companies ⁓ really liked the equipment ⁓ because it was a asset that they could ⁓ that they could sell. But then it at some point their their mentality changed on that and they didn't like the equipment and they didn't like the debt. So what what what I could do was I and ⁓ you know we used to mostly use caterpillar equipment. So Caterpillar would give would give me, ⁓ and I would have to sign for it personally because it was a different company, but they would they would give me anything I want, and a lot of times it was a zero interest loan. But you'd get or one, you know, one percent or two percent or whatever, and you get the bonus depreciation. So that's why we were just buying the I was buying the equipment because then I could then I could write that off, you know? So but ⁓ And that's why it was set up as a separate company. ⁓ same with same with the real with the real estate. ⁓ I know a lot of contractors do have their ⁓ their shop or their business, ⁓ the real estate, ⁓ they keep that separate too. So speaker-1: Correct. No, but that's I mean, like I said, I think that's important and most people wouldn't wouldn't even bat an eye. You know, you're not even gonna think about it. But once once you go ESOP, there's there's different things to ⁓ to contemplate, right? And there's impacts. So you made mention you know, a couple minutes ago that something may have went awry with with the bank, maybe the first time. Do you wanna touch on that now or do you wanna touch on that later? speaker-0: No, that wasn't so it wasn't the first time, Char Chuck. The ⁓ what what happened was ⁓ when we when we were doing the when once I said, okay, we're doing this ESOP thing, right? And they had the value, ⁓ you know, we had to share that with the bank. And so the bank thought that I was the the company was gonna take a loan to give me to pay me the money, right? ⁓ that the of the valuation. And that they were gonna get to to do the loan and they were gonna be able to charge ⁓ you know, interest for that. And what ⁓ I was worried about because I wasn't even sure this ESOP thing was gonna work, to be honest with you. And and I was kinda to be honest with you, I was kinda skeptical. And so what I said was, listen, ⁓ we're not gonna do a loan. ⁓ I I'll I'll take the loan, I'll take a note and I've I think I charge one percent interest or one and a half percent interest or something like that. that they they could pay me at the end of the year and ⁓ and then pay the principal when you could, you know, when the company was making money. And so the bank, when they found out that's what I was doing, they they and and if you look at the balance sheet still, because the debt was owed to me, the balance sheet was basically zero, the bank said, We're done with you. ⁓ we're you know, see you later. And so we this was like the day after we became an Aesok. speaker-1: So you did a hundred percent seller financing. Yeah. Yeah, not for the faint of heart. I wanna make sure I'm understanding though. So you did a hundred percent seller financing. Yeah. Okay. Yeah. speaker-0: Yeah. I would ⁓ Chuck, I didn't I really did I don't want to say it. I was skeptical that this was gonna work and I and I didn't wanna overload the company with debt and have people stressed out about that. ⁓ so that's why I did it that way. And then I mean they ⁓ I we set it up, I think I gave it on the note they had eight years to pay it. And basically in in in less than five years they paid most of it and and ⁓ and they paid off the debt on the building. ⁓ so and and that's really you know ⁓ well everybody got a lot cheaper when they owned it and I'll tell you that story. But the the thing is is not paying federal income tax and not we we would buy equipment ⁓ and and things to just to get the depreciation. And now what you do is it's a completely different mentality is when you need something, you rent it, and as soon as you're done with it, you send it back. So and then the other reason that ⁓ the company I think has become so profitable is that it everybody became really cheap when they're the owner. ⁓ I I think I shared with you once, so we have a, you know, we have the the the full we need to be able to print the full size plans and ⁓ and drawings. And we had a a plotter printer in the office and it was twelve years old and it only did black and white. And you know, so I said, No, it's time well, let's get a new one, it'll be faster, and it does color. And because now all these all these a lot of these have, you know, pictures on them and everything else. And they wouldn't buy it because it it's it this one's fine. It's it's it works, you know. And so, ⁓ and the other thing that and it's still it You know, this still happens a lot. Anytime somebody needs like a a two foot piece of pipe, ⁓ instead of ordering a twenty-one foot piece of pipe, they'll shoot out email, they have a superintendent email list and say, Hey, I need a I need a two foot piece of six inch ductile iron pipe. Anyone got any? And ⁓ and then, you know, like in five minutes, yeah, I got it. Or I had one time where the guy says, I'm looking out my window and I see that the town has a piece, I'll go ask. I can have it. You know, I mean that's the it's a different mentality when it's an Aesot for sure. So speaker-1: How did you I mean that in talk, I don't care if it's contractors or otherwise. I mean, I I pretty much go to every esop conference I could I could make, right? And in doing this podcast and talking with other esop contractors and and contractors that are esop curious, I'll call them. It you don't it takes time to get the employee owners to really feel like They own the joint, right? That that doesn't happen overnight. So you're still, I mean, eight years, it's not you're not a new Aesop, but it's not like you're a 30 year supermature Aesop. So do you have any advice on how you've got the culture and and got the employee owners to buy in so quickly? speaker-0: So Chuck, that was the that was the thing. Going to these conferences, the the one thing that I that we learned was that it's all about the communication and that you gotta you gotta make sure that everybody understands that you're turning this over to them. A lot of people won't believe that. So one of the first things that we did was we put together ⁓ a communications committee and We only allowed somebody in management to be in that committee for the first six months just to get it up and and going so that they they understood that what what it was all about. And so they do they do lunch and learns, they go out to the job sites, ⁓ they'll they'll get, you know, either subs or pizzas or whatever, and then they'll they'll actually, you know, explain to them, let them ask questions about the ESOP. And I go to some of ⁓ Other people in the management go to some of ⁓ so people can ask can ask questions, you know, what's how does this work? What is that, you know? And and so that really I think is is good. And and so the communic communications committee also does our annual we do the stock announce day. ⁓ where the new the new value ⁓ the new value goes in, which I I gotta I'm gonna brag on this one too, just real quick. We just had it like last week. So the the first year obviously the stock is worth next to nothing. It was it was ⁓ seventeen dollars a share. And ⁓ this this year ⁓ it was over forty two hundred dollars a share. So this is crazy. So it went up speaker-1: Congratulations, Ralph. ⁓ speaker-0: It went at thirty eight percent this year. So ⁓ but the ⁓ yeah, so it but and and that's because of the employee owners. It's ⁓ it's not like ⁓ you know, it's you know, that's what it's all about. But so they communicate this, they set up this thing, the company's so big. We used to do it just in the shop. ⁓ and now this year we had to rent a venue ⁓ where they have concerts and speaker-1: Do it. I meant to look it up. Where what what was the place called? speaker-0: So it's Salisbury Beach. That's it. And ⁓ and it's a ⁓ they have concerts and stuff there. So ⁓ yeah, it was pretty neat. It was a nice venue, beautiful day too, 'cause it it was nice, you know, it's in the summer. It was the ocean was like, you know, turquoise blue. It was great. So That's awesome. speaker-1: Congratulations on that. That's an that's 38%, man. That's and you get to make an impact. Like, that's my favorite thing about the Aesop. You could be in equities, right? And you're hearing all this crazy stuff with Elon and and you know SpaceX going public and Anthropic is gonna do their IPO supposedly north of two trillion dollars and it's like Maybe maybe it works. Maybe it goes to zero. Maybe there's a correction. Who knows? But like the employee owners at Waterline Industries, guess what? Everything they do makes a difference to yield that thirty eight percent. You make a direct impact as well as protect it so it doesn't go to zero. And that's that's one of the coolest things. Yeah. speaker-0: Yeah. And it's so you know, getting back to your your question, it's all about communication and what what we did and cause I I went and actually visited some companies and I'd a ⁓ before we did our eSOP and I'd ask them, Well, you know, you know, how's it going? And they well, not real good. And and ⁓ so you know, and they and they'd say, Well, we we didn't really tell everybody. I'm like, What do you mean what do you mean you didn't tell everybody? And so what we did was we Granted, at the time there was probably only sixty people, we invited everybody to come to it. It wasn't a dinner, but it was like a ⁓ or past hors d'oeuvre thing. And we had everybody come there. And of course, everybody we t we told them, you know, you gotta be there. ⁓ so please come. And so of course everybody thought that it was that my wife's name's Maria. They're like, okay, it's gotta be Ralph and Maria are retiring and they're selling the business or something like that. So we didn't tell them what it was about. But the guy, the trustee that I was telling you about earlier, he he kind of sat over in the corner and everybody, you know, everybody was chit-chatting, talking, and then we started the thing. And I got up and I just said, you know what? I said, everybody's been wondering what I'm gonna do. And so, you know, Maria and I have finally figured it out. I said, We had some choices. I said we could have sold the competitors, we could have had an auction. I said, or our other option was, I said, I want you to look to the person to your left. Look to your person to the right, shake their hands. I says, because you just met your new owner of the company. And ⁓ so and then the and then, you know, of course, ⁓ and I said, anybody got any questions? And there was most of people were just dumbfounded. They didn't know, you know, they didn't know what to say. There were a few, there were a few questions. And ⁓ so the trustee got up and he did this was the and I I use this all the time. He got up and he said, Listen, you are a good company. You guys can make money. You know how to make money. He said, you just bought a house, he said, with five percent down. He said, and and is if you pay off the mortgage, the more the you pay off the mortgage, the more you're gonna build equity in your house. And he said, don't change anything. Just keep doing what you're doing and you'll be fine. And that that echoes in my ear all the time. Just keep doing. You guys know what you're doing. Just keep doing what you're doing. Don't change anything. And that's what I think anybody that's thinking of doing an ESOP, you gotta communicate it to the people, right? That you're now the owner. I still and I'm still involved because I do I get to do the things that I like to do. I love estimating. the contractors are there to the estimators are the glorified gamblers in the company. So to me it's exciting, it's fun. ⁓ ⁓ I'll probably do it till the day maybe not for this company, but I'll do it till the day I die just because I I enjoy it. ⁓ so ⁓ but they you know they now they have now people they don't need me if if ⁓ if if if I left tomorrow they'd be fine. So but they're up to I think 140 employees now. So well the growth the growth in income we they we had a great graph at the at the ESOP ⁓ meeting last week where we showed the grass the growth of the income and the growth of the new employees and it was amazing how close it was to to being equal. So ⁓ speaker-1: It's it's wild. speaker-0: And the one so the employees, so this is w one of the sayings that we have is like ⁓ because we attract employees because of the eSOP. A lot we'll ask people, we have not just exit interviews, but we don't have many exits, but we have people and we'll ask them why did you come? Because they said, I want to be part of a company where I feel like I'm part of the company, not just a number. And I want to be an owner. And so ⁓ one of our sayings is is why work for a company when you can own it? So it's like, ⁓ that's you know so speaker-1: Why not? Yeah. I mean you're doing the work anyways, like the trustee said, keep doing what you're doing. But if you have the option to own it or just, you know, work today and collect a check. I mean, I think anyone is is probably gonna say, Hey, if I if I don't have to do anything different, but I have the option to own it as a added benefit. Yeah. What the hell? Why not? ⁓ the one question I had, are you guys union or non union? speaker-0: We're we're non union. So ⁓ and it's so we and that's been some battles ⁓ because you know, we're we're just north of Boston. We work all around ⁓ all around a lot of our work is in Massachusetts, ⁓ and we self perform. So we have electricians, plumbers, you know, ⁓ H VAC. ⁓ so there's ⁓ and that that's the other thing too, is that ⁓ Especially during the ⁓ when a bunch of that infrastructure money came out that you had to have apprenticeship programs. ⁓ we we already had apprenticeship programs. I started apprenticeship program probably almost thirty years ago. ⁓ just because ⁓ it was hard to find people that knew how to build water and wastewater treatment plants. So ⁓ so now we you know we even have We had one guy that came on as a apprentice carpenter and he came, went to the HR and said, I'm gonna I I need to resign, I'm gonna quit and they asked why. He says, Well, I really wanna be an electrician and I and I'm gonna go find a company that I can be an electrician or apprentice. And we just said, Forget it, we'll just move you into the apprentice electrical apprentice. So now he's an electrician. So he actually he actually just passed his ⁓ his test for his masters. So speaker-1: Wow, congrats to him. Yeah. so you've been at you've been at Eastot, you went a hundred percent, you did a hundred percent seller financing, you gave I mean it's a sweetheart deal, Ralph. One percent interest. ⁓ that that was very ⁓ you know, you you cared about it working. So it's in and I've known you now for a little bit. It's speaker-0: Chuck, I didn't care. I didn't think it was gonna work. Even though even hi the trustee's name was Harry. I said, even though Harry said it was gonna work, I only knew him for so long. I wasn't sure it was gonna work. So speaker-1: It that's true. So you're eight years in now, and and granted, yeah, there's a PFOS and some market conditions that have benefited Waterline, which which I understand, but I I feel like for what twenty-two years you were building the foundation, getting all the systems and processes in place to then be able to take on the extra work, right? Because I mean Contractors, one of the biggest reason contractors fail is because they grow too fast. Then they have an issue, the bond gets called, and then if you can't get bonded, you're you're dead in the water, right? And so you built a great company slow and steady for twenty two years. You go Aesop, you're you know, twenty twenty five million bucks, you said in revenue top line at the time. Right. And now let's just for the benefit of the doubt, round up. Now you're eighty million. W what what are you guys doing right? How have you gotten outside of the the good market conditions, how have you guys grown that well? And what you said you'd attribute a lot of it to the eSOP. So can can you go into that and kind of break some of that down that you haven't discussed so far? speaker-0: There's just a lot of good people, Chuck. You know what it if I think the we even before we became an ESOP, ⁓ we actually had issues where if in fact the first federal project we we ⁓ we we got ⁓ we got audited by them about our our hiring practices. And it was mostly because all the a lot of the people that came to work at the company was just word of mouth. We never advertised. and so it was, you know, a friend of somebody or you know, and and so ⁓ or you know, a relative or whatever. So we actually had to sign an agreement with the federal government that we would advertise at least at the ⁓ unemployment office ⁓ when we had an opening. So ⁓ I I think the the the thing is is that and and I I can't take credit for it, but one of the things that the ⁓ my wife, ⁓ Maria, is a great person that puts policies and procedures in place. And she she really drove that home, whether it was in the accounting or in the in the jobs, you know, with the ⁓ the reporting coming in from the jobs and everything else. ⁓ cost control is huge. We spend a ton of money on cost control. We we make sure that If we have a project that's that's got a problem, ⁓ that that we ⁓ deal with it, we don't try and ignore it. I s I know a lot of contractors get in trouble. They have a bad job and they try and pretend like it's not there. ⁓ we when we have something that's a a difficult position, we we focus on it and and and get get through it and get past it so you can get to the next one. So and ⁓ it's ⁓ it really is it's the people. ⁓ I can't say it enough. So and that's why I really wanted to take care of the the people that have been there a long time. So ⁓ and the reason that's why I I did the f you know financing of myself and everything else was because if if it didn't work out, ⁓ they wouldn't have to give the, you know, the they wouldn't get far I wouldn't foreclose on I guess is the way is the way to say it. So ⁓ but ⁓ you know I'd just probably work harder and help ⁓ more or whatever. So Yeah, you know speaker-1: And that's I mean, that underpins one of the benefits to going Aesop, right? Is control. If you sold to a strategic, guess what? It's their company. They dictate to you, if they even retain you, how they're gonna operate. If you sell to private equity, same thing. It's no longer your company. ⁓ so all those people that helped you build it, like you don't have control if they start cutting heads. Or you go into a downturn. I mean, look at your 30-year career, Ralph. The late 80s, then you went through the financial crisis of ⁓ eight. You've been through COVID. I mean, you've been through a lot of market conditions and and you get to choose where you go lean to keep keep the people on payroll. And some other companies aren't that way, or even strategics. I mean, there's gonna be a lot of not a lot, but some redundancy, right? If If your competitor down the street, and I I think Maria, your wife was your CFO or still is your CFO, but like they already have a CFO. They're not gonna have two CFOs, you know? So those types of things, they start cutting out the the redundancies. And so I think some of the things that you've shared highlight when people ask, what's the benefit to eesops that's maybe less known? It's you're selling the company, yet you still have a lot of control over it. speaker-0: Yeah. I think the other thing too, Chuck, and it and th this doesn't have anything to do with Esau, but it just has to do with the mentality. And I actually had to let ⁓ some people go because they didn't follow my mentality. One of the reasons that I want also wanted to start my own business was that some people make money by beating up subcontractors and suppliers. And the relationships that we have with all of our the subcontractors. And a lot now it's a lot of the suppliers that we buy the process equipment from and or the pipe and fittings and basically everything is those relationships that we have with those people are are, you know, second to none. And I and I always told everybody in the company, if at the end of the job you can't look the subs and suppliers and the owner in the eye and shake their hand, then you shouldn't be in the business. And so that I think that's ⁓ gotten us a a lot a long way. ⁓ a lot of the reasons we do well is that the engineers that do this design for the cities and towns, they want us to ⁓ be the be the low bidder, you know, even though it is low bid work. ⁓ you know, and they will let us know, hey, don't, you know, don't fill up your bonding. We got this project coming. We need you to do it, you know. And so ⁓ you know, we we have a real good relationship too with the engineers. So ⁓ and once again, if you can't the end of the job, yeah, you're gonna have d ⁓ disagreements, there's gonna be some bumps or whatever, but you gotta you gotta it's all about the relationships too. speaker-1: A hundred and yeah, and ⁓ ESOP, a well-run Esop, I I think it just underpins it, right? And it it shows the character and and so forth. It's so you do so much public work, we'll call it, right? Whether it's state or federal. What was the the feedback when you went ESOP? Did it was anyone curious? Did it help? Did it hurt? Was it just what did that look like? speaker-0: ⁓ most of people it was like, what's the big deal? You know what I mean? And then I think they they ⁓ and now it's amazing because a whole bunch of ⁓ the engineering companies now have gone eSop. Yeah. ⁓ so not luckily, knock on wood, not many of our competitors. So because ⁓ you know most of them take the that I've seen, ⁓ you know, ⁓ that's the other reason Chuck has our our competition. When I started in this business, it was in eighty seven. So the Clean Water Act had been in for almost 10 years at that point. And so a lot of the guys got into that business, the w you know, the water and wastewater business, ⁓ ten years before me. So, you know, I'm I'm I just turned 69 this year. So they're they're 79. So they are retiring and they're not doing Aesop. So they're either selling to competitors or they're closing up shop. You know, every once like a couple times in the last year or two, I'll say, How come this guy's not bidding anymore? And they're like, ⁓ he retired, he closed up shop, sold everything. Huh? So, ⁓ you know, and that's why when when you started, that's how I met you. When you were talking to Bob about ⁓ the acquisitions and stuff like that, we had looked at right off the bat, ⁓ three months after we became an Aesop, we had an instrumentation company come to us and say, Hey, will you buy us? 'Cause I wanna r the guy wanted to retire. Well, we you know, I'm like, Hey, I'd love to, but it's like this how mu this you know, we I don't have any money. So but we've also we've still been approached, and ⁓ by other people, some electricians, some other some other companies. And we c I couldn't get our my head around the idea of how do I meld these people into our company. Because their company's so different. You know, they have their founder and everything else. And when Bob started talking about the acquisitions of where you keep an autonomous and let them run as a separate company, that's pretty exciting. And ⁓ now you can actually, you know, grow the grow the so that's I've been doing my homework so and ⁓ and doing a lot of reading and talking to people and everything else and a lot of people you turned me on to and ⁓ to for I I think it's pretty exciting for the Aesop world because I think ⁓ there's a whole bunch of little Aesops, but I think it'd be great to see, you know, a bunch of, you know, larger Aesops. So where they where they and it you can make it so all the struggles that I went through. The amount of money that I shelled out to the valuation company, the attorneys, everything else, if I could go to it like a guy that is thinking of closing up his business and just say, Hey, look, hang around for four or five years. Let me turn your company into an eSop. I'll pay for the valuation company. I'll pay for this. ⁓ it how how could you not do it if you were the founder, you know? So I think you'll see a lot more eSops once people start to get their head around that too. speaker-1: Well, it's it's why I'm so passionate. ⁓ it just lends its hand at Aesop people. There's so many people that are like you, Ralph. And so when you go to these conferences, or now I have the pleasure of meeting people like you because of this podcast, ⁓ it's just great down to earth people that have worked their butt off to build a company and now they want to give back, right? You you probably got enough money. And it's like, what else? What's my purpose? And it's taking care of my employees that helped me get to where I was. Because without employees, especially in construction, you don't have anything. Your biggest asset in the construction business is the men and women that helped you build that company and are in the field. Period. So I I I I'm selfishly, it's like it's just a blast doing this stuff because I get to be around people like you and and go to these eesop conferences, whether it's The Aesop Association or NCEO or we're members of ESCA. And it's and that's how I met Bob Whalen, who you're you're referencing, who I hit on the podcast at HB Global. I met him from ESCA and St. Pete at the leadership summit last February. And and everyone, they're like an open book. You know, you got someone like Bob that's running essentially a a holding company with 30 acquisitions underneath it. And he grew it from a hundred and some odd employees to 2,500. And people like you that are like, I want to do this, I don't know how to do it. Now you're eight years in and just had 38% stock growth and took the company when you went Aesop 25 million to 80 million in eight years. So it's like a masterclass of how to run a construction company at a high level and all different types. I mean, there's Aesop contract, there's your water. You know, Garney's water, you got Bob that's more mechanical, but he's got stuff that's outside of that. You got there's just so many general contractors, you know. Yeah. And it's it's just a really good down to earth ⁓ community that everyone's willing to band together, learn together. And and I don't care if you're a new esop or you're forty years in, you have challenges. It's just at a different level or a different spectrum in the ESOP ⁓ life cycle. speaker-0: Yeah, and I think that's one of the things too that we do is when we see like a supplier or a subcontractor that's an Aesop, I tell everybody, Hey, they're an Aesop, help ⁓ out, you know what I mean? So it it's it is like a brotherhood for sure. So speaker-1: It is. It is. And the funny thing, so I'll I'll give a little bit of colored commentary on how it you and I met. I did a a post in the the Aesop Association forum just letting people know, hey, I started this podcast and I got these episodes recorded. And at the time it was cricket. So I was like, ⁓ that that went over real well. And so I'm sitting at home on a Sunday and I I get an email. And here's Ralph Dunkey of Waterline Industries saying he listened to the podcast and liked it and it opened his eyes. And I'm like, this has gotta be a fake email. Like I I just launched this thing Thursday. I did the post Friday and now I have a Aesop contractor who I'd love to have on email me like this is fake. And so I I respond back to you and we get on a call and and sure enough, you're you know, real as far as I could tell. And now I'm having you on the podcast. And so it's it's pretty serendipitous to have you on. I mean, it's like I said, selfishly. I have these c these types of calls all the time, just on the phone, because I love learning about how people like you have grown businesses because there's so much to learn and it's it's just interesting. So it's it's come full circle and I'm I'm grateful that you agreed to come on, Ralph. speaker-0: Well and think the thing is too is that ⁓ and and it was amazing because you know it well I reached out to Bob Whalen and and and spent probably an hour on the phone with him. So ⁓ you know, I I think people ⁓ that are in the eSops or whatever just love I love talking about it. I think I told you so we have friends that own ⁓ all kinds of businesses. I think Last time I was counting, I think we have nine friends that now VSOP their businesses. So since we since we did it. And and I I think I told you in and they're they're not well, one of them is a tower company. So he does ⁓ you know, he does the ⁓ cell towers and stuff like that. But that's about as close to construction as you could get. The other the the other one, believe it or not, and just did it in April was my bonding agent. So he He eSopped his his company. ⁓ Good for him. So ⁓ yeah, so it's like it doesn't have to be construction either, you know. It's like I taught one of the people that the attorney had me talk to was a a guy that owns a chain of jewelry stores in Hawaii. So, you know, it's like ⁓ you know, so yeah, eSops can work for anybody, I think. So speaker-1: Yeah, as long as you're you're big enough and you're not impatient, you know, and you're willing to work with it. You know, if you're looking to cash your check and and go to Hawaii to join that jewelry shop guy, then yeah, maybe it's not the right fit. But if you have a little bit of okay, I could stick around or at least have the next generational leadership in place as you kind of step away over a couple years, that's that's the key. And I think you gotta have, you know, probably two, two and a half million of a bit ⁓ To have enough meat to pay the different advisors to get the transaction done, especially in construction, because it's so cyclical. That you don't want to do an ESOP and then go into a downturn. And now the you know, especially if there's not heavy seller financing and now the bank is a little bit underwater, you know. So there's some technical things. But yeah, I mean, outside of those, if you got a business, it's it can goes up. ⁓ and that's it's it's a beautiful thing. But Ralph, I I won't keep you any longer. This was a blast. I think we're gonna have to have Marie on next. ⁓ get it from her perspective, both as is your wife and the CFO perspective. I think that would be cool. speaker-0: Call it track, but you gotta remember you can't believe everything she says. She exaggerates a lot. So unlike me. And she may tell you stories that ⁓ that ⁓ I'd be redder than I am now. So speaker-1: Yeah. Well it's it's all right. My w my wife says the same thing about me, but any any parting shots before we sign off, Ralph? speaker-0: No, I just think ⁓ if if somebody's thinking about going ESOP, they should definitely go to some con ⁓ some conferences. And then ⁓ I always tell everybody that I ever talk to, you know, if you if you're if you're doing this and you're going through the process and you and you you don't believe it or you don't understand it, then talk to somebody, you know, like me or or you know, anybody that's done it and and they they'll they'll They'll talk you through it. That that's the problem with this ESOP thing. There's nobody that actually is like a consultant to to ⁓ nurse the ⁓ people through the ESOP process. You really you really need some ⁓ psychologists or something that to help people. So speaker-1: Well my my wife's a psychotherapist, so maybe you just help me come up with a new business plan for speaker-0: I think it would be good, yeah. speaker-1: Awesome. Well, Ralph, thanks again. It was a blast having you on. speaker-0: Thanks, Chuck. We'll talk soon. speaker-1: Thanks for listening to the Construction Aesop Collective. If this was useful, follow the show and share it with a colleague. Join the conversation with me, Chuck Mazzanti, on LinkedIn and find all episodes at constructionesopcollective.com. Until next time, keep building ownership one conversation at a time.