Latest / Construction ESOP Collective / How a Garage Builder Went 100% Employee-Owned in Two Steps: Rick Otto of Coach House Garages

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How a Garage Builder Went 100% Employee-Owned in Two Steps: Rick Otto of Coach House Garages · Construction ESOP Collective

• speaker-0: What Mr. Yoder did for us was a huge blessing. He had numerous offers and could have easily have sold to private equity or to whoever. And we've all seen how that happens and how that works out. It disrupts the entire culture of companies. And a lot of times what really makes the company is the people that are running it. 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. 53 years, more than 27,000 garages, and today 100% employee owned. My guest is Rick Otto, president of Coach House Garages in Arthur, Illinois. Rick shares how the company went ESOP in two steps, why they held every customer's price when lumber spiked during COVID, and what happened when their first tax return is 100% ESOP. Came back with zero o. Rick Otto with Coach House Garages out of Arthur, Illinois. Welcome to the Construction Aesop Collective. I'm thrilled to have you on. speaker-0: Thanks for having me. It's I'm excited to to join you. we've chatted off and on at a few ESOP events and so it's I'm I'm excited. speaker-1: Yeah, I'm excited too, Rick. I think first time we met was the the spring conference of the Illinois Aesop Association. The the CEO roundtable, I think. which it spawned a lot of good friendship and relationships for me out of that event. And then the last time, thank God you weren't part of my four so I don't think you would have agreed to come on this pod, but was the The golf outing for the Illinois chapter. So it's it's good to continue the relationship in this forum. speaker-0: is is. I I really enjoy that golf event, in blooming blooming Dale. Every I've done it now two years I think or three. and it's it's a fun event. It's a great event. I really do enjoy those round tables, like you'd mentioned sat down and and you can pick other people's brains. always feel I can learn a lot. From from others. Don't think it's it it's great to sit down in a room and and have find out that others have similar things that they're concerned about, trying to find a way around a and it's a it's a great and and it just seems like the the ESOP world, the CEOs, presidents that get together in those are very open to talking about whatever is going on and they they want to take the time to help others. and I think that's wonderful. speaker-1: Yeah, I I think you're a perfect example of what you just talked about, Rick. The the Aesop community is so it's an open book. Everyone wants to get better. I don't care if you just formed an ESOP today or you're 25 years in, everyone's on a different learning journey. And it's it's one of the most open, sharing communities I've I've ever been a part of in my career. And And you're just a another great example of that. And so to that point, Rick, I'd like I'd like for you to just give an overview of who's Rick Otto and who is Coach House Garages, if if no one's heard of of either of you. speaker-0: well, a little about myself. I Still got feel like I'm in my thirties, but I'm in my fifties. So and I act like I'm in my twenties half the time. So the I've grew up in Arthur, Illinois here, born and raised Amish. so we if you're familiar with the Amish eighth grade education and get out of school and go to work. And for me it was working with my father and my brother building buggies in the the Amish world. And but when I turned sixteen, seventeen I believe the the the day I or the week I turned seventeen, I went to work in a truss manufacturing facility. worked there for right at five years, had an opportunity to come to Coach House and join the building crew. I was started at the highest point in the company and that was on top of the roof installing the shingles. And and had a slight scare to heist scenario and was either get over it or quit. and not much of a quitter. so I I kept with it and got used to it and got got comfortable with it. spent about five years in the building and and of garages start in the early nineties and eventually I was a slow pitch softball player, and we played evenings during the week. So I was traveling, I'd leave at three thirty in the morning and drive to just outside of Chicago or Peori or Saint Louis and help build a deliver part of the garage, but then also help and then drive back and then twice a week play softball at eight, nine o'clock at night, get home late. Yeah. So I was at a enjoyed what I did, but my lifestyle, I didn't get a lot of sleep. And so I I went and talked to Jim Yoder briefly about it and said, Hey, I said, I enjoy what I do, but if there's ever anything comes up, you know, I'd be open to switching what I'm doing. number of months went by and nothing really come about and one day he he grabbed me and took me to lunch and said, Hey, have this opportunity and I don't know if something you're interested in. I go, yeah, sure. what will I be doing? I was just, you know, I'm always optimistic. But anyway, ended up it was a scenario where one of our franchise dealers had violated the franchise agreement and was about to be removed. And I basically went in and picked up the pieces and kind of resurrected the sales territory and then ended up getting into the sales side of things. discovered that my mother blessed me with the gift of Gab and was able to work in sales. course I had the five years experience of building buildings and so that worked out pretty well. but I I Did that for about about a year and a half. it was a two and a half hour drive and I just wasn't comfortable moving. So I ended up came back and worked on the crew for another year. and then the local actually I'm sorry, not the local, but Jim was looking for a sales manager. And I said, Well, you know, got one year of sales experience. I I talked to him and he goes, Well, he says, Yeah, he and put me to work as a sales manager. but I was out there working with reps that had twenty years experience. and here's this guy in his mid-20s, you know, showing up. they were not as receptive, but nonetheless I did that for a year and then one became one of the local sales reps in the Mattoon and Effingham areas. did that for a number of years. for about ten years and then I became the sales manager back again to manage sales. So I kinda gained ten years of experience that was probably the immediate. I was probably a little in over my head originally. but I I did know the product, so which was a big help. so I became sales manager in two thousand six, managed sales from two thousand six till twenty twenty one. It would have been three years after we originally came in South when Dim asked me to become the president of the company. was quite humbling and honored to to to get that opportunity and twenty one to and now twenty six. So I'm currently in that role and have much to be thankful for. speaker-1: Yeah, it's it's quite the career trajectory. and yeah, I'm I'm very familiar with the Amish. We actually go fly fishing quite a bit up to Viroca, Wisconsin, which is a big Amish community. So yeah, that's I did not know that about you, Rick. So it's no wonder you're so hardworking. Now it now it all makes sense. And it's also funny, I I had Bobby Sigmund from Cecil's Sheet Metal Contractors who's an eSOP out in Baltimore, and he started as an apprentice and worked his way up. So I kinda coined his episode as started at the bottom. Now he's here. I guess for you, I'm gonna have to say you started at the top and now you're at the bottom. So it's speaker-0: Right. Yeah. And that's that's always been Jim's philosophy as as management. You're it's an upside down pyramid. You're the support holding everything else. you're there to help everyone else get there instead of being at the top type thing. speaker-1: I like that. Okay. I never really thought about that setting it up that way, but it makes sense. speaker-0: Right. I people will ask me, you know, so what's your title and and I've always been a little reluctant to share, you know, to to be boastful. I and I always say, Well I just work with everyone. that's my job is to work with everyone. speaker-1: Yeah. You're you're the epitome of humble, Rick. So but you do, I mean, you're you're doing great things, which is you know, some of which we'll we'll cover in the episode today. But that that gives a really good background to kind of where you came from, which I I think is super interesting and and how you got to where you are today. And then what what does Coach House Garages do, just you know, ten thousand foot view? speaker-0: garage garage build. we've been in the garage business. This is our fifty third year. started by a man by the name of Willis Miller, a local businessman here in in the the community. Willis had the thought of panelizing walls way back when it you know and when it was uncool. Now today everybody frames with panelized walls but we've evolved from I'd say from building garages that were fairly basic back at at one point in time to must majority of it is more detailed, more elaborate with you know, sometimes it's dormers and just all kinds of different types of cladding, you know, the sighting, the James Hardy's the LPs, different 'cause w when we go out we're trying to Match it up with your property. Where it looks like it's part of the property. Not to be like, my gotta gotta a different building setting there, and so so we've been around a while. our I guess our kind of our claim to fame and that has changed over the years. Most times with a two car garage, the concrete's poured ahead of time, of course, and then and it cures for a while. And then our crew shows up to build it and typically they would do that in in one day, from start to finish, kinda like a barn raising, you know. like I say, that has changed over the years with the complexity of the builds. sometimes you can't get that accomplished all in In a day we used to be able to, there's just much more to it. if you're putting on a a James Hardy or an L P sighting, and just different complexity of of the building has changed it to where it's it's not always a one day build. but that's One of the things we're just something that comes to mind that Jim Yoder always talked about was doing what we say we're gonna do when we say we're gonna do it. and actually having a schedule. we actually have a build schedule. does it change? Sure. you know, but weather conditions, things do happen. but it is something where we tr we have a schedule, try to stick to the schedule, and then Keep everybody informed when it does change. speaker-1: Sure. And is it you know, residential versus commercial? Is it, you know, what's the break break down there and then radius of operation? speaker-0: Yeah, majority of it is residential. Probably ninety five percent is residential. occasionally we'll build the the storage building, you know, for a a church or occasionally for a commercial piece of property, where they're needing storage for whatever their needs may be. geo geographically we cover most all of Illinois with the exception of Chicagoland. I guess Chicago land describe how far that we do cover the suburbs, Yorkville, Aurora, St. Charles, some of that area. do not cover the extreme northern part, Rockford up in there we don't cover, but then we cover most all of Illinois. the quad cities in Iowa, so Bettendorf, Davenport, Rock Island, all of that. cover that area and then we also cover St. Louis, Missouri. and then in Indiana we cover most all of Indiana from basically Indianapolis down to Bloomington, Indiana. Bloomington's our newest area that we cover now. we started covering Bloomington a a little over a little over a year ago and we cover the rest of the of the state of Indiana. speaker-1: And is the rumor true that you guys are opening up Miami? speaker-0: anticipating I I'll have to do a lot of research to to make sure several trips there probably necessary. Of course. speaker-1: Especially in or around the winter months, speaker-0: With my golf clubs. Yes. Yes. speaker-1: Poor any any good market due diligence is is done from the golf course in in the wintertime in Chicago. speaker-0: Right, exactly. speaker-1: Awesome. And then top top line revenue, just so people understand, you don't have to give the exact but round numbers. speaker-0: ten to fifteen million a year is about what we generally do in a year's time. there's Would one claim to fame is we've built over twenty seven thousand garages. Wow. Since our existent existence. So I can't remember somebody used to say we've seen a thing or two, we've done a we've done a garage or two. So speaker-1: Sounds like it. It sounds like it. So you know what you're doing. That's that's evident. And and to get into your, the eSop story. So you've obviously been with the company well before you guys went Aesop, because it's my understanding that in in or around 2018 is is when you guys went employee owned. speaker-0: Yeah, it's in twenty eighteen we became thirty percent employee owned. Jim Jim Yoder had been the owner since I think it was the mid nineties. Jim was approaching that or thinking about retirement, I believe, at the time. Didn't necessarily say it, but called a meeting in July, late July of of seventeen and for the immediate admin staff to just make them aware that him and his wife Carol were moving to Florida and But had a a nice letter that he and I'll just cover a few few things on it maybe if that's okay. so what does that mean for you, the employees here at Coach House? and at this point he hadn't announced an ESOP yet. He was just speaker-1: The letter just to set it up, Rick. You guys don't know anything, and all of a sudden, here comes a letter from Jim to the employees. speaker-0: Yeah, so he hands it out to us and we're standing around, at our staff meeting, which is we'd stand in the in the front room and just talk. so he says, Jim, Carol and I are moving to to Florida, selling our house with this will happen in the next six months. So what does that mean for you all all the employees here? Not much of a change really. I will still be the president, owner of the company, I'll just be working remotely for most of the time. before it became really cool to work remotely, I plan on coming to the Arthur office once a month or so as needed. We can accomplish most of what needs to happen by phone, email, conference. but he goes, as far as your responsibilities, no real change. Just call me instead of walking into my office. And of course the smart electric in the room says, can I still come and walk into your office in Florida? You know, me wanting to to take a trip to Florida. Talked about it being intentional about sharing information and what's happening. he went on to mention I want you all to know that I am and have been working on a plan for what the company will look like in five to ten years for some time now. That's part of my job. I'm wanting to accomplish this looking for the best way to maintain the culture, the people, but basically the jobs, the long term health of the company. Ways to make the company stronger in the future and and keeping with things that make Coach House what it is. But he went on to, say that that that was happening. of course it was a you know a little bit of a wow, okay. but then before the end of the year, he gathered us together and and the vice presidents, me myself, me, myself, yeah, two people myself, Larry and Jonathan as well, and expressed how he was changing or becoming a an Aesop. I'm like, Issa, what what's that? so so we eventually Got some basic ESOP one one in and around and and it became before the end of the year we had it all in in place and it was been pretty pretty exciting. speaker-1: Okay. All right. So it started with a letter at the be beginning of twenty eighteen, and by the end of twenty eighteen, you guys essentially went thirty percent employee owned. speaker-0: Yes. at the time, you know, I'd never been a trustee for anything, but Larry, Larry and I became the trustees and and worked on the negotiation part of what we were what the trust was gonna be paying for the price per shares. And of course I always like to have a little fun and I jokingly Totally. So now we gotta be careful. We upset him, he could still he could still fire us. And fortunately we didn't upset him too bad. he let us stay for a little bit longer and it's been been exciting. speaker-1: Yeah. Okay. All right. So 2018, coach house garages, you know, Jim and his wife sell to the employees 30, 30%. They transition or migrate over to Florida. They're still involved. It sounds like he had a five to seven year runway of kind of phasing himself out. So what did how did you guys because you didn't know what Nesop was, really, right? So you went from not knowing a ton about ecepts to becoming a trustee to now helping, I presume, educate the other now new employee owners. can you can you give us of what the vibe was for the first, 12 to 24 months of what it looked like? Did anyone understand it? Did it change anything with your clients? Did it help you windwork? Those types of things. speaker-0: It's it changed I don't know that it changed us a great deal. I think we were already a company that Jim always had a lot of trust with us that we would do the right thing with making decisions. with making smart decisions better effici efficiencies and you know not be wasteful. the entire Companies kinda always been ran out of way. big enough, big enough company to serve, but small enough to still have some, you know, where people could be trusted to do their job and and they wouldn't take advantage of. so I felt I I guess looking back, I feel we were a great fit to be an Aesop. I don't know that initially those early one first couple of years we're like, okay, well, I wonder how this all works, and and we, you know, slowly over time, just became educated with, you know, Jim had a few sat down sessions with us to explain. And and the thing that really caught my attention was because at the time when I first heard an employee, I expected that there was something I would have to you know, contribute. in in a sense of financially defer a portion of my pay my pay or something and he was like no no no no all all you do is continue to do what you do and you'll get shares every year put into your account. so there there's cost you nothing out of your pocket, which is still one of the greatest things about an Aesop is all you do is continue to do what you do. And and over time you get more shares each year, hopefully. And and it and it builds up to be a great thing. speaker-1: Yeah, it's I was out to lunch with a guy today and he's like, So can you help me understand how do the employees get enough money to buy the company? And I'm like, that that's the beauty of it. They they don't they don't contribute a penny. It's it's a portion of their W two income gets allocated in shares on on their behalf once they enter the vesting period. it's pe it's hard to kind of comprehend for someone that hasn't hasn't heard of it. So it's it's funny you say that. speaker-0: Yeah, 'cause most people are like, Well, so get these for free? well, in a sense you do. you you do continue to do your job and in in most cases, you're still getting paid for doing your job. It's not like they're cutting your pay to do this for you. This is in addition to your pay. So what I always said what Mr. Yober did for us was was a huge blessing. yeah, and it's he could have easily and had numerous offers and and could have easily have sold to private equity or to whoever. and we've all seen how that happens and how that works out. It it ends up it disrupts the entire culture of companies. And a lot of times, a lot of companies what really makes the company is the people that are running it and and and all and so then somebody comes in with a new philosophy and now all of a sudden you've got people that have been there a long time that are uneasy and and you know, they just don't want to perform like they did when it's like it was previously. And that's the neat thing about what Jim did for us. didn't realize when he made that move to Florida. he said, you know, in his letter he said, you know, call me anytime, email, whatever. you just can't walk in my office. Well and just reach out. And one of the things that kinda happened is, we would something would come up and that would normally be, we need to go see what Jim thinks about this. And and over a period of time it's like, well, no, I th I think we could you know, we'll make that decision and and i it kind of allowed us to learn to make those decisions and work through things without him. which little did we know he that was probably part of his plan so that the company could succeed without him being there. And it was I'm guessing it was probably a little for him may have been a little uneasy at times, you know, and but over time we you know we would call him if we had something, we'd send him a text, an email and He was quick to jump on the call with us if we needed something. but it was always we just kind of learned to to to handle things and I think that voted well for us later as we as as he got closer and closer to stepping away from his role. speaker-1: Yeah. And do you know when when you guys went thirty percent employee owned in twenty eighteen, was it predominantly seller financing through gym? Was it, you know, was there a bank involved? Kind of what was the makeup of the initial thirty percent? speaker-0: It was all seller financing at that point. Yeah. So speaker-1: Hundred percent. Okay. speaker-0: so we we negotiated a a rate, you know, an interest rate that we'd be paying and one of the things that you know we we were kind of new to an ESOP. we've always been the type of company that if if you got a little extra cash you'd you don't like having debt. And so ended up the payoff went faster than was actually set up in the original plan. which kind of I don't know that it was or wasn't part of the plan, but it accelerated that by the time it was time to do the other seventy, we were we we used quite a few of those shares. 'cause the unique thing about a an ESOP is as payments get made a and applied, it releases shares. And the more that's paid, the more shares it released. So then it it it became a it wasn't an issue. we were ahead of it, but it if we'd went a couple more years it probably would have become an issue. speaker-1: Sure. Okay. So he does a Jim does a hundred percent seller financing at a thirty percent sale to the employees. You guys pay it off quicker than than modeled. and then it's my understanding that he sold the the remaining seventy percent ownership to the employees in twenty twenty three. speaker-0: Yes. So in twenty two twenty twenty one is when I took the role as president and then in twenty two, about mid year and and Jim always was subtle with most everything. wasn't a real aggressive person, still isn't, but he he had emailed me a a link to the N CEO in Saint Louis, the the summer or fall conference. He said, This is coming up, you this might be something you'd want to look into. go with him. So okay. So I got signed up and and about mm Three weeks or so before that, maybe maybe a month, he reached out and said, Hey, I'd like to I'd like to talk to you tomorrow morning if you got a few minutes. And so I jumped on the call with him and he said, Hey, Carol and I have decided we want to sell the remaining seventy percent. And he he goes, So in order to accomplish that, I'm not comfortable doing seller financing on all of that. but he said, So one of the things that I thought that this would be a good conference for you to go to and possibly learn on how those things work for the the seventy percent and for one is bank financing. We're gonna need probably some bank financing, and just anything you can learn. to so I'm like, Okay, glad I'm going. Yeah, now I know why. and but in the meantime I I then have reached out to The the Aesop attorneys, Goodman and Associates in in Louisville and had established some contact with them, started the process there. also looked into the banks, the different banking, but ended up going with our our bank that we've been banking with for I I wanna say ten to fifteen years. they were able to to do a A portion about forty percent of it was bank financing and and the balance was then seller financing. Which then, the the original bank note was set up on for I believe forty two months. And one of the things that was in the ESOP agreement was the along with making payments to the bank that we would pay interest to the seller on the seller note just to keep that interest from getting too high. And one of the things I guess would urge anybody doing one of these transactions would be that was in our the agreement between the trust and Jim Yoder and and how everything was going to be done. But the the bank failed to catch on to that. and in the bank notes that I had signed, unbeknownst to me, about eight months into it, we figured it out that we were we're not supposed to be making any payments. interest payments to the to the seller. And so the bankers, which are great, great guys, they came in, sat down, we talked about it and they said, well at this point you can either just don't make any more. 'cause the the agreement says you're you're not to make any. So we ended up Jim actually paid us back them them funds, the the interest payment. we then applied it toward the principal at the bank note. and ended up paid the bank note off in in about thirteen months in instead of the forty two. part of that was to, you know, just because we we were able to do that and wanted to try to move things forward. And so within th we able to get that in thirteen months and then we could get concentrating on the the actual seller note with Mr. Yo. And it's there's a lot of lot of nuances and things in in those agreements that we kinda have to Jim and I have always just well this sounds good, let's just do that. Well and few times where we go back and say, Well let's go look and see what it says we're supposed to do because that's really the why that is there and we've been able to kinda use it, and 'cause there's just so much information and so many things when you do those transactions, it's it's all fast and furious kind of thing at one point, you know. so we ended up a couple of times with different things that we go back and and review what it says and It works well when it's well written documents help you make good decisions on how you're supposed to do it. and I part of the way I've understood it is when in the event of a a government agency d doing an audit, when you haven't followed those, that could be a bad bad thing. So that's always good guidelines for us to use. speaker-1: 100%. Yeah. And just so I I make sure I'm following correctly. 2023, Jim sells the remaining seventy percent to the employees at Coach House, and forty percent of which is bank financed. 60% Jim does seller financing, but part of that agreement, Jim gave up the you know, the essentially he wasn't charging any interest. while the bank portion was paid down. Once the bank portion was paid down, which you got instead of forty some odd months, you'd paid it in thirteen months. And now Jim collects his interest now that the bank has been satisfied. speaker-0: Right. So then the initially we were making those payments and then the bank made us aware that we weren't allowed to be doing that, even though that was one of the things that, you know, I mean little little aggravating, but it worked out. The but then yeah, so then we'd made those payments, he paid it back, and we actually just applied applied it to the principal. So then that interest is accruing over that time and So then after we get the banknote paid, now we've got to work on getting the interest caught back up on that seller note before we could actually start with the actual payments of the seller. speaker-1: Yep. And that's I I think and thank you for sharing that. That's probably more in the the weeds than maybe you were you were ready to do. But I think it's important not so much every structure's different, but one of the biggest misnomers to employee ownership is the customizability of structuring the transaction, not only from the percentage in in Coach House's case going 30%. Then ultimately 100%. But I see it oftentimes with, maybe a heavy civil contractor that all their work is bonded. and they want to kind of stair step it, right? To not flip the balance sheet. And so they'll go 30%, then 50%, then 70%, then 100%. So there's customizability there versus if you sell to a strategic or private equity, you're selling whatever the terms are dictated. It it's yes or no. Do you want to do it? Yes or no? Then furthermore, with the ESOP, then you could structure. Do you want to hold the entire note as the seller? Do you want to do a portion of it and get bank financing? Do you want to get mezzanine financing? So the capital stack could look different. And look at you guys are a perfect use case. It was different on the 30% portion and different on the 70% portion, highlighting. These deals are are could be structured in so many different ways for the benef benefit of the original seller and the benefit to preserve the viability of the employee-owned company on a go forward basis. speaker-0: Absolutely. And and that's the that's the beauty of an Aesop. you know, the lawyers keep it all straight and narrow where it needs to be and can or can't be. And but yeah, it's very it's very exciting, really is. to I keep saying, Why wouldn't everybody want to be an Aesop? and and a good and you probably know believe it's Jim O'Brien. he started the company and immediately became an ASOL. And that's pretty cool when, you know, somebody starts it in that way. It's also a great way for succession planning, to where you can have the pieces in place and not disrupt the entire culture of a company and then continue to move forward without having that initial shock of new owners. and it's a really a great great way to go. speaker-1: Yeah, the truly, when when you go ESAP, the company the day before going ESAP and the company the day after going ESOP is the exact same. Nothing has changed. Right. and and the the owner that sold is is still able to dictate the direction of the company. They don't give up operational control to the new employee owners. Just, we're an ESAP, Christensen Group Insurance, we're 100% S Corp ESAP. But me, Chuck Mazzanti, I don't get to go to Charlie Christensen and say, hey, I want to run the company this way. He'll say, Chuck, you got a lot of ideas. Not all of them are good. So thank thanks for the suggestion, but go back to doing your job, So it's just because I'm an employee owner doesn't mean I get to dictate on what this company does. Now I will say they're very it's very collaborative. So they want to hear all the employees' ideas and And have all of us steer the shit, but brass tacks, I don't get to tell top management how to run the company. And so it's there there's so many nuances. And obviously we're both an employee-owned company, so we're biased, but there there's just so much good to it. And so I want to model the the arc of Coach House. So 2018, you go 30%. How many employees did you guys have in 2018 about? speaker-0: It it was somewhere about the same. It was probably in the forties. upper thirties, forties. speaker-1: Okay, so let's call it forty and you have about forty today. speaker-0: Yeah, forty to forty to forty five. get get up, pushing fifty at times and then drop back down a little bit there. But speaker-1: In top line revenues stayed consistent from twenty eighteen to today as well. speaker-0: It well twenty eighteen, yeah, the i it the revenue has has grown since eighteen. probably say thirty percent overall, you know, from eighteen to now. and so there's been some been some growth. And one of the things that as a company we did was offer more services. a a lot of people want their garage wired, want electrical in it. Sometimes they want drywalled, insulated, heated and stuff. And so we we've partnered up with experts in each community that can provide those items for for our customers as well. And so some people just want to write one check. They don't want to have to go out and hire a contractor to do this and do that and do this. so that's one of the things we've one of the ways we've grown the business is adding more more of services that we don't actually provide ourselves, but we work with partners that are very good at what they do and can easily provide that service with. So one of one of the ways we've grown. speaker-1: Okay. So so you essentially haven't added expense. You've kept the headcount relatively flat, but you've increased your your top line revenue by 30% by way of almost acting as a a high-end general contractor on the things that you don't self-perform, sourcing the experts to do the things that you that you don't do in-house. speaker-0: Correct. Yeah. speaker-1: That's awesome. And how how did you guys weather COVID? What did that look like? only a couple years into a little bit of a a new ownership structure and then you went into that X one event. speaker-0: was you know w we weren't sure. you know, we had a lot of you know a lot of people, a lot of companies that were furloughing workers and sending them home. about that time a lot of people were spending a lot of tone time at home, working from home. that's when remote working really became a thing. And that's about the time our phones started ringing off the hook. our website got really, really busy. and suddenly we, you know, a lot of people were were building a garage and maybe it had a an office in it, so they could work from home. it just our our business just went crazy with with orders. And then it became even crazier trying to fill orders with supply chain issues back then with one of the things we could get was garage door without springs. Well a garage door without springs doesn't do much. so we became really our our model changed dramatically from being where we got everything done that first day and and and left and didn't didn't ever drive back. But if we actually ended up building buildings without garage doors, waiting for the doors to come, before we put it because we we had all these work to do but we didn't have all the parts and pieces for the entire project. So sometimes we Actually a couple of times we put up the garage without siding and had to wait till the s siding showed up weeks later to go back and do that. So it really it really disrupted our normal way of doing things. but as we always have our we adapted, figured out a way and find a way that would make it work. you know, we became probably some of our longest backlogs. what always call our schedule is from once the concrete is poured until the building is actually built. back then was anywhere from a lot of times it's two to four weeks. but back then it was I think we got as far as twelve to sixteen weeks. so it became much longer. so it was Managing that expectation and it's always tough because when they originally bought it, the building, that time frame was maybe three to four weeks. When by the time they got their concrete poured, now all of a sudden it's backed up and and it was which is something similar that has happened this year where we've had just tremendous amount of concrete get poured and ready and and so we're booking a pretty good backlog again. But it was it was challenging. we had to look for a different garage door supplier and we were able to to do that, maintaining the one we had, but also found other avenues that we could get doors in a more consistent stream. When you know if if they told us six weeks, it would be six weeks and still instead of telling us six and it being eight. So it when it when we're trying to keep our schedule, we're trying to have as much of that product in house before we go build it. So we really needed, the door. And so we not too often that we change suppliers with a lot of things, but we s now we have two garage door suppliers. and we order from both both companies. But a lot of lot different stuff changed back then. of course our revenue of course jumped during late twenty twenty, twenty one, twenty two and into twenty three was was probably twenty three I think was the highest one we've we ever had. So it's it helped us have s couple of really good years. speaker-1: Yeah, it's it's funny how if if you could weather the storm sometimes in in a weird way, at least for business, obviously there's a bunch of horrible things that happen, but from a business perspective, like you said, a lot of people are at home trying to figure out how to not kill each other, right? So it's like, Yeah, I think honey, I'm gonna work from the office, which happens to be in the garage. Thank you. Courtesy of Coach House. speaker-0: Which is a great place to work from if you get to. one of the things and don't want to jump off subject, but one of the things that we did the model we've always used is once we s sign an agreement with a customer, their price is locked in. will not go up for won't change for a year, but we'll honor that price for a year. Well, if you recall during COVID, OSB was eighty-five bucks at the big box store. and one of the things that we did was we stuck to it. so if you find an agreement and the you know and it was six months later and the volatile materials prices, the lumber, the OSB, all that stuff was skyrocketing. But we we stuck to it and said we would stick to it. Had a few that said, well, if with it going up so much, what if by the time we build, those materials have gone back down? And what I did is I I agreed that we would look at it and if the price hadn't decreased at that point, we would adjust their price at that point. or I know a lot of other builders were were just saying, well, Here's your contract. We agree to build this for you, but in six months when we get there, the price could be different and and we'll refigure it at that point in time. One of the things that we've we've been able to do is inventory. We're able to inventory a a large amount of the you know OSB, framing lumber, roofing, things that we use a lot of and we're able to keep it and keep it indoors and and not have it setting out in the weather. so we have a facility that's able to handle it. And that was that was a a blessing that we had all of those materials. And that's part of how we were able to maintain and guarantee that price for our customers instead of nobody likes the the estimate. you know you you you get an estimate always say that leaves the door Gets you to commit to me and allows me to charge you more at the end, ain't nothing you can do about it. And speaker-1: There's nothing better than yeah, we could we could build a garage for 15 grand, shake on it, and then be like, Well, this changed, that changed, so actually it's 75 grand. I mean, it's it's obviously an extreme example, but yeah, I mean that's that's pretty crazy that you guys are like, Hey, if we agreed to whatever the dollar amount is, as long as we do it within this year, that's that's what we're doing. And and as we kind of wrap up, there there was a question I wanted to ask, and obviously. you guys finally got the bank portion of the other 70% paid off. I'm assuming maybe there's a couple more years still of of paying Jim off, but you brought up a a good point that I wanna discuss. because in construction the the market is very dynamic, right? You could go into a COVID, you could go into a 2007 year, you could go into a tariff year. You could go into, a war. There's so many things that impact contractors from material and and you know market confidence and so on and so forth. So you just alluded to you guys stocked up on some material to be able to level those spikes, you know, kind of be like a commodity trader, buy low, and then you preserve yourself. Was there an element I know you're not. maybe getting the full benefit of the tax-free income now that you're a hundred percent because you still got to pay Jim. But was I guess my question is if this happened in 2015, would you have been able to stock up on as much material as you're able to now with the tax free income of the ASOP? Was there an advantage there? speaker-0: It would yeah, I I think so now because more a little more cash available. Well of course some of that cash is being used to make a payment that wouldn't have been used in fifteen. but the But the we would have still done the same thing, except maybe we would have used the line of credit to to buy those materials, just to have them. that's kind of been the approach that we've always had is we when Jim built this facility here in two thousand four, the thought was to be able to have enough room to store enough OSB, enough framing lumber studs, you know, truss lumber. We also have a truss plant here where we build our own trusses. We don't build trusses for anyone else, just ourselves. And but we have all that in in but yeah, you the answer would be yes. There's definitely wouldn't be, you know, maybe in 15 we would have been using the line of credit to buy those materials to stay stocked. it would have cost a little bit of interest. where today we been able to be cash funds available to where we could stay ahead on inventory, keep it and I well of course your your overall material has went up over the years. but we probably have probably a twenty percent more inventory than we did ten years ago on speaker-1: Well, yeah, I I think of cour if it it's hard to compare when you're jumping, eleven years, but if you if you normalize things, there's a cost to tap into your line of credit. Right. And then there's a cost of using, you know, non tax advantage dollars, no different than if you have a HSA account in your, you know, personal health insurance, it's better use tax, you know, advantage money versus post tax dollars. Right. And so especially once you get gym fully paid off and you guys are a hundred percent now employee owned, you're not I mean, you're not paying federal income tax and in a lot of cases some are or all you're not paying state income tax. So that that has to be a big advantage, and I'm sure you're probably licking your chops for for when that materializes in the coming couple of years. speaker-0: I I am. and I think all of us are here 'cause it it will well there's means there's more cash, there's more which will add to the share price, I think, you know, it's gonna help the share price climb. you know, the unique thing with the the valuation structure of an eSOP is, you know, if the if the company's worth a million dollars and you owe a million dollars. The share price is now zero. We're we're with another company you could owe one point five and it'd be worth one and you could still sell it for one, it's but it it's definitely something in the future and and the the tax free with the hundred percent escort was I said, Okay, once we see that first tax return, you know, you know, I know it's that was the case, but I was always like, Until I can actually see that And the first the first year was twenty three and go to the tax o zero and it's like okay, speaker-1: This is real. speaker-0: it is real, it is real. It's it's exciting. I think, for recruiting I and I've been trying to work with with the new people that we've hired. we have a lot of young people in there, you know. nineteen, twenty, twenty one years old and it's like, with with the Aesop that's here, if if you guys can be here as long as I've been, thirty-six years, you're gonna have a n a very nice ASOP balance along with the the four one K, you know. I guess I've always based on the way it has grown. I feel that at some point it could out outdo a 401k as far as the amount of funds that you could have available at a at a pretty young age. well, at a retirement age I should say. but it it could if you've got put a lot of years into it, it could really accumulate rather quickly. speaker-1: Well, here's yeah, you know, and the and then I'll wrap it up so you could get back to the books, but like I I could speak from my own personal experience being an employee owner and we have a four one K as well. I have no control over my four one K. You know, is it in growth stocks? Is it and that's like foreign to me. I'm not a I I wasn't a finance major, right? So you start getting into, you know, whatever ETF and what What's the expense ratio and how old are you? So you could get more aggressive or less aggressive. It's like, I have no idea. I just whatever you think, set it and forget it, which is fine, but I don't I can't influence that versus my employee ownership account. I the more I sell insurance, the higher the value goes. The more cognizant I am of spending and keeping the expenses low. Better the share price. The better I take care of my clients so they continue to stay customers, the better the share price. there's literally to Jim's point when he wrote the letter to you guys in 2018. Keep doing what you're doing. You don't have to change a thing. And if you if we take care of our customers and take care of each other, everything else bears out for the better. And that that's very empowering because then it's like it takes the guesswork out of it, just Do right by the customers, do right by your fellow owners, and the rest takes care of itself. and so the the parting question I want to ask you, Rick, I think it's obvious. The benefits to ESOP. What would be the one, you know, the one thing you would say why a contractor shouldn't go employee owned? speaker-0: That's a that's a very good question. I I guess from my standpoint, if you're running a good company and and doing things right, trying to do right by taking care of customers and and all that. Can't think of any reason why you would wouldn't. Really. I think it's a great great weight for construction companies and and I think I don't know the exact percent, but I think there's a a large percent of I say large, but you know, it's like thirty percent, it seems like of the ESOP world is construction people. speaker-1: That's correct. Yeah. It's between construction it's it's lumped into one thing, but construction architects and engineers make up about a third of all ESAPs. speaker-0: yeah, I I to me I just can't see any reason why somebody wouldn't become an Aesop if you're particularly if you've been in business for a while and you've got good people that are able to take care of things and you can slowly transition instead of all of a sudden just hand things off. Yeah, you know allows you to have some involvement, have a few things, when I say involvement like, you know, board and and so forth and and help with the development of whoever's taking it on instead of just a 'cause you know, so many times you see companies that sell out to somebody, well their mentality is a little different and and everything just changes and in so many years they're they're no longer in existence and it's and it's disruptive to the the employees that you have. to do something like that and and that's where an Aesop is really I can't think of a better way to do it. speaker-1: Yeah. Well and Arthur, Illinois isn't, a a town of a million people. you guys make an outsized impact in your community. And it's not that Jim had to be philanthropic. It he was in his right. It was his company to sell it to whoever he chose to sell it to. But the fact that he went employee owned, it's it sounds like he was him and his wife and his family was taken care of, and rightfully so. But it still coach house garages and all those people still have good jobs and that that tax base for Arthur, Illinois, and it it it makes a very big impact in every community, but the smaller the community, the bigger the impact is felt. And so I think that's that's you know a very good point. well Rick, I've taken up enough of your time. This was great. I love to have you on. We'll do a part two. I think we left a lot of meat on the bone. So we'll do a part two. how how can people get a hold of you though? If someone wants to get a garage done or wants to network with you, how how do people get a hold of Ricotto? speaker-0: Well, our website for if you're looking at a garage, coachhouse garages dot com. It's plural. Search us where we should easily be found. my email is r auto at coachhouse garages dot com. so r o t t o at coach house garages dot com. I'm always as I s mentioned my mother gave me the gift of gap, so I'm always probably why me and you got along so great. speaker-1: I think so. And that's why it's a feat that we we got this done in an hour and three minutes. Cause I think we could probably go for ten hours. So Rick, thank thank you for coming on. This was a blast. All speaker-0: Thank you. Appreciate it. speaker-1: right, we'll see ya. speaker-0: See ya. 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.