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Structural Steel Is Now the Critical Path (ReForge 031) · The ReForge Podcast

• 0:05
  Welcome to the Reforge podcast.
• 0:07
  I'm Matthew Chang, and we're here to explore all things AI, automation, and the American worker, proving that the American re-industrialization is possible, pivotal, and pressing.
• 0:19
  Thanks for joining us today.
• 0:21
  Let's get into the episode Welcome to episode 31 of the Reforge podcast.
• 0:30
  We have crossed, I think, into, uh, you know, another threshold.
• 0:35
  Just the number keeps getting bigger, which makes sense'cause that how, that's how it works.
• 0:39
  But...
• 0:40
  And we are just cooking with these now.
• 0:42
  Yeah, man.
• 0:43
  We got a lot to talk about.
• 0:45
  We do.
• 0:46
  We've had some great guests lately too.
• 0:47
  I mean, we've, we, and we got some great, uh, ones upcoming a- as well.
• 0:51
  But I think we've had some, uh, solid guests with definitely some interesting, uh, I don't know, data points or just kind of perspectives on what- what's happening out there.
• 1:02
  I mean, a lot, that, as well as informational, uh, getting into kind of the, the actuator, uh, side of it w- was pretty cool too.
• 1:10
  So, uh, we, we're cooking at this point.
• 1:13
  Dude, the actuator, uh, lesson and, and the stator, which is apparently the- Yeah crit- limiting, uh, material in the actuator, that blew my mind.
• 1:23
  Never even heard of a stator before.
• 1:25
  But I suppose I've acquired and installed a bunch of them, just they were inside of a motor, so.
• 1:30
  There you go.
• 1:31
  I, the, my, my experience with them, I mean, I've got a ton of them sitting on a shelf just from messing around type stuff, but I've got a bunch of old motors from, you know, the'50s and'60s from my old woodworking tools and torn those apart and it just, y- you look at the windings on them and it's wild.
• 1:47
  But hearing kind of that new approach to it, that's one of those things that's just, it's so cool to hear, you know, yes, there's clear opportunities for the, you know, automation.
• 1:57
  What he was talking about with kind of that manual process used abroad, where you literally have people carrying stuff on a stick.
• 2:04
  You know, it goes to, uh, your article the other day, you know, automate the jobs that, that, you know, people are leaving, you know?
• 2:11
  That's perfect example of an opportunity to really automate and, you know, rebuild that domestic dominance of another industry.
• 2:19
  Yeah, man.
• 2:21
  Yeah, it's wild.
• 2:22
  So speaking of, um, posts or articles, um, we got an update on our Reforge official metric for reindustrialization.
• 2:32
  Yes, we do.
• 2:34
  Confirmed by the one and only Will Alverson that yes, the dock lock metric is going through the roof and will continue to do so for the foreseeable future it sounds like.
• 2:48
  Yeah, so we, we'll, we'll have to unpack this one.
• 2:51
  We did it with Will, but we'll just do it again, uh, for the audience.
• 2:55
  So you've got, for any industrial building, you've got docks.
• 2:59
  In a logistics facility you have a ton of docks.
• 3:02
  In e-commerce building- And data centers too- you have a ton of docks as, as Grok likes to remind you.
• 3:05
  Oh, yeah.
• 3:06
  Well, Grok admitted its error to me that it doesn't actually m- affect the numbers,'cause we're talking about a handful.
• 3:13
  But for any, any building involved in production or shipping, you've got truck docks.
• 3:18
  That's where the f- the tractor trailer pulls up to the building, backs in.
• 3:22
  Um, the safety protocol is that the trailer has to be locked to the building.
• 3:28
  So there's a gigantic steel clamp that comes up and it locks the, the back of the trailer to the building.
• 3:34
  And it's- And they're literally hooks for anyone wondering.
• 3:36
  They, they're just like a, you know, they're, they're not that crazy.
• 3:39
  They're literally just a hooking contraption, piece of steel that literally clamps onto the back of the trailer.
• 3:45
  Yep.
• 3:46
  Uh, Milwaukee, Wisconsin, where Will is from, is, is the hometown to the, the top companies that do this.
• 3:54
  So yeah, the, the trailer backs up.
• 3:57
  There's a little, little plate, uh, flange on the bottom of the trailer, and the, the building hooks to the, to it.
• 4:04
  And then that's a safety feature for a couple reasons.
• 4:06
  Number one, you don't who- know whose trailer it is and if it might roll away, de- depending on the quality of the trailer.
• 4:12
  Number two, you're gonna, you're gonna send humans from the building into the trailer for loading and unloading, and you're also gonna send forklifts, a human on a forklift.
• 4:20
  So for a safety feature, nobody should be transitioning from the building into the trailer unless you can verify the trailer's locked to the building.
• 4:27
  So that's why this has become a universal safety standard.
• 4:30
  Um, and then inside of the building you have this big control box, and it gives you a green light if you're locked and a, a red light if you're not, or maybe I got it backwards.
• 4:38
  But you get a, a visual indicator.
• 4:41
  So what Mr.
• 4:42
  Alverson proposed as the defining metric of reindustrialization, as, and he's the guy that makes the hooks, that's his piece in the supply chain, is how many hooks are they making?
• 4:55
  And the premise is pretty simple.
• 4:57
  I- if you need a lot more hooks, you're doing one of two things.
• 5:00
  You're either refitting, you know, legacy facilities, you're upgrading them, uh, in theory, or the idea I guess would be that they're experiencing increased volume and need, need to be able to fully utilize what they have, or just need to take a facility and bring it up to existing safety standards because of increased traffic.
• 5:18
  Or you're building new facilities to handle increased, you know, movement of goods and, you know, whether finished or just, you know, intermittent product.
• 5:28
  You know, in, in the supply chain.
• 5:29
  Now, if you think about it, one of those kind of obscure indicators that people aren't thinking about, but there's clearly a relationship between, you know, increased demand for dock locks.
• 5:42
  There's, you know, I, I...
• 5:44
  We need to see if we can find the actual data that we, we can back this up with.
• 5:47
  But the, the logic and reasoning, you know, I, I think is pretty sound too.
• 5:53
  You need more of them because you got more volume, whether that's replacing existing ones from more wear and tear because you've got more trucks and trailers coming in or just new facilities.
• 6:03
  So, that's a good one.
• 6:04
  Yeah.
• 6:04
  I'm gonna, I'm gonna give you a second indicator.
• 6:06
  So credit to Will for developing the first Reforge pod, uh, official reindustrialized industry metric.
• 6:14
  That'll be thrown in.
• 6:15
  Our economists will throw that in the basket of things they calculate to judge reindustrialization.
• 6:20
  Uh, I have another one and, and this was poking its head out.
• 6:24
  I had a tweet out about it, um, maybe in June we saw this coming, and we were able to mitigate it.
• 6:31
  Now we're into, we're officially in September now, and it cannot be mitigated.
• 6:38
  So that means it's gone from potential schedule disruption and building a factory.
• 6:43
  So I'm gonna give you the schedule indicator.
• 6:45
  Structural steel- Ooh is now the critical path.
• 6:49
  And so steel is one of those commodities that's not that different than say lumber, right?
• 6:55
  Everybody remembers the, the lumber scarcity, um, following COVID.
• 7:00
  Now you- your lumber package is 3X or 6X to build a house, uh, and lumber was hard to come by.
• 7:07
  Well, we're there with building steel.
• 7:10
  And steel's, of course, not used in houses, it's used in factories.
• 7:14
  Uh, and so we're talking about the structural steel, comes from the big mills like at Cleveland-Cliffs or, um, you know, US Steel type company.
• 7:22
  And then the supply chain, for those that don't know it, the mill runs come out.
• 7:26
  That's all your I beams, your tube steel that are your building columns.
• 7:30
  Um, the, the angles that get fabricated into joists for the roof.
• 7:35
  Uh, s- it's that category of steel.
• 7:38
  And then it has a stop before it can get to the construction site.
• 7:42
  It has to go to the steel fabricator.
• 7:44
  So just about every city in America has a steel fabricator shop.
• 7:48
  They're the ones that do all the welding and cutting.
• 7:51
  They'll weld on a base plate for a column.
• 7:53
  They'll we- weld on a flange for a brace.
• 7:55
  They'll, uh...
• 7:56
  They, they are the one...
• 7:57
  They cut the, the tube steel down to the exact right height for the building spec.
• 8:01
  Um, so right now the critical path is you have to go to the steel fabricator, you put in your total package order.
• 8:10
  They'll source all the, the steel components they need from the mills.
• 8:14
  And right now the steel fabricators cannot get steel from the mills.
• 8:19
  So it's not about the fa- your local fabrication capacity.
• 8:22
  That's probably next on the, the, the way this, uh, works on the dominoes.
• 8:27
  But what, what's happening right now- Or on the upstream you, you can't get your mill order.
• 8:31
  So if you need a 22-inch wide flange shape, which would be an I-beam, good luck, right?
• 8:37
  And then if you need a custom thickness, maybe you're in an earthquake zone, good luck.
• 8:42
  So- What's the, uh, lead time you're seeing on those?
• 8:45
  Uh, you're, you can't get a mill order within six months.
• 8:50
  So you gotta go, you gotta do full structural engineering.
• 8:54
  You gotta decide if...
• 8:55
  First we have to decide, once I tell you the schedule's busted, let me take you through the engineer's thought process.
• 9:02
  Okay, so I tell you steel's busted on schedule.
• 9:04
  Can't get steel.
• 9:06
  Okay.
• 9:08
  Now you have a question, am I gonna buy the steel package before I submit the building permit?
• 9:15
  So on that point, we've got a, uh, big project locally, like a big m- market house, public market, restaurants, all of that, that they're building, uh, on the water here, and it...
• 9:27
  They ended up ordering, placing the order for their full package before permits and zoning- Yeah were approved because of that.
• 9:35
  And then...
• 9:35
  And I know that'cause we were going through it at a recent planning commission meeting.
• 9:39
  Somebody asked a question, you know,"We're halfway through the summer, how does this affect your construction start date?" And they said,"We took the risk and placed the order, and they are actually being delivered, you know, yesterday and today, you know, so be great if you can approve this." Yeah.
• 9:57
  Yeah.
• 9:57
  You know, it's, it, it's a risk you have to take, but I mean, when you're talking- Yeah about months, that's huge in terms- There- of labor constraints, everything.
• 10:04
  There is, when you're doing building construction, especially, uh, kind of bespoke construction like a factory,'cause they're never the same shape and size, and they always have weird things like a high hazard fire rating or, you know, something bizarre, um, it's, it's exactly right.
• 10:21
  It's going at risk.
• 10:22
  Are you the owner of the factory?
• 10:25
  Are you going to order the steel before the building department has approved your design?
• 10:30
  That's the big question, and I'll tell you right now, if you don't wanna be sitting around for a few months waiting on steel, you're gonna have to go at risk.
• 10:37
  That's officially where we're at now.
• 10:39
  And here's it, what's even more interesting to me.
• 10:41
  You have to get the steel ordered prior to even starting the earthwork on the site.
• 10:48
  That's how busted we are right now.
• 10:49
  So as you start a design, you need column layouts locked, you need roof loads calculated, you need all your bracing for wind or earthquake or, uh, you know, specialty pipe rack, whatever's going in the building.
• 11:03
  You need that sorted out on day one.
• 11:06
  You gotta partner with a fabricator immediately, and you gotta get the mill order placed or else you are not gonna make schedule.
• 11:14
  You know, a- and you look at a lot of projects, not so much on the factory side of it, it's more in, I, I guess, more traditional commercial, um, type builds where you have changes in the design as they go through it, you know, tweaks and adjustments as they want.
• 11:28
  The reality is that's not an option when you've gotta get that package in early.
• 11:33
  So it, it requires...
• 11:35
  Your homework has to be done, and you're not making changes, or if you are, they're expensive because it's not just the timeline.
• 11:42
  Oh, they're gonna be...
• 11:43
  You're gonna be doing field fabrication.
• 11:44
  There's no way around it because, you know, when these schedules are so complicated with all the mul- multiple things that have to be procured, any, uh...
• 11:52
  You know, we had one of, uh, one of my readers, uh, Paul, came in and said that he sees IT as the, the critical path'cause you can't get some of your server components and network components- I mean, basically what it's turned into is Whac-A-Mole.
• 12:05
  You're gonna have on any project, you're gonna have four or five critical paths.
• 12:10
  Right.
• 12:10
  Our factories are all software driven, so y- your software takes forever to write for these things'cause they're all bespoke systems coming together So you've got the s- the software, now you've got the network infrastructure, and before that you have the steel, and we've already been talking about electrical.
• 12:26
  So that's, that's four right there you gotta solve.
• 12:29
  Well, and- You're pretty much going at risk on the whole package and on electrical, I saw, I wanna say it was earlier this week, a major transformer, uh, manufacturing facility went up in flames in, I wanna say maybe New Jersey, or maybe it was, maybe it was Wisconsin.
• 12:45
  Somewhere.
• 12:45
  I, I'm s- mixing things up, but I, I mean, that's...
• 12:49
  We already had, you know, lead time issues on transformers.
• 12:52
  Oh, yeah.
• 12:53
  It's already a huge...
• 12:54
  To lose a, to, to have a whole facility taken offline like that, it's only exacerbating things, so.
• 13:00
  Oh, yeah.
• 13:00
  This is, it, it is, uh, all I'm gonna say is if if you don't have an incredibly agile team put together and you can't pull some strings in procurement, just go ahead and prepare to wait.
• 13:11
  That's where we're at today.
• 13:13
  And, and this re-industrialized ramp, I mean, somebody said it's the first sentence of the book of re-industrialization.
• 13:20
  We're still in the first sentence.
• 13:22
  Uh, we might be a little fur- I think we're, I think we're r- coming out of the first chapter of a 12 chapter book, personally.
• 13:27
  But it, the ramp is, is there, you know?
• 13:30
  And I'll tell you this, Colin, I'm gonna make a controversial statement.
• 13:34
  A lot of people on X- Uh-oh.
• 13:36
  Uh-oh yeah, a lot of people on X w- you see both sides of the coin on the data center argument.
• 13:42
  American prosperity, we need more data centers.
• 13:45
  I'm in Florida, we have a moratorium, and I'm like, let Wisconsin and Pennsylvania have all the data centers.
• 13:51
  I'm cool.
• 13:51
  Oh, no, Pennsylvania just passed a moratorium.
• 13:53
  Well, so I'll tell you what.
• 13:56
  If there is public sentiment pushback on the hyper scaling and the data centers, the one silver lining for those that want more data centers is it actually creates a little bit of supply chain capacity for manufacturing, right?
• 14:10
  Because y- those are competitive.
• 14:11
  They're consuming the same steel, consuming the same electricians.
• 14:15
  The, the national resource we have, I think it's exposing how tight the supply chain is.
• 14:22
  Oh, yeah.
• 14:22
  No.
• 14:23
  It's gonna be, it's gonna be really hard to do both.
• 14:25
  Yeah.
• 14:26
  I mean, you, you hear a lot of, I, I don't know a- if anecdotal is necessarily the right way to frame it.
• 14:32
  I'm, I guess I'm saying it since I don't have the hard data in front of me, but you, you hear a lot of conversation about demand for construction, for electricians, for steel, for all these different pieces in very, I guess, specific framing or context.
• 14:48
  That you hear it in y- depending on your audience, p- you hear it in the,"Oh, data centers.
• 14:53
  Well, it's not just the memory shortage, it's this." It, you know, it, it doesn't just apply to these one or two industries that, you know, we're, that we're seeing major, major booms.
• 15:04
  This also all affects kind of your steady state baseline existing capacity too.
• 15:10
  That is one of those areas that there isn't much discussion about that if something goes wrong, if you have a, you know, horrible tornado somewhere in, you know, the, I guess, the plains or where- you know, Tornado Alley, you get major damage, that's capacity that can't easily be fixed if you've got structural steel requirements, if you've had substations- Yeah.
• 15:31
  Yeah.
• 15:31
  That's- where there's- The transformer factor that just went up in flames, I'm sure they had some amount of insurance.
• 15:36
  I'm sure they're eager to, to get started again and get to rebuilding.
• 15:41
  Uh, but yeah, they're, they're not gonna get preference for that steel package with all the folks that are already in right now with active orders that are still waiting.
• 15:51
  I mean, it's, it's, um, it's really- It's the immovable object and unstoppable force.
• 15:56
  And then what's also interesting is, uh, lead times are different.
• 16:00
  And so if you, if you've never done professional scheduling, this is gonna be, um, a little hard to grasp But if I tell you there's a six-month delay on steel, you're like,"Okay, big deal.
• 16:11
  The factories take six months longer to build." Okay?
• 16:15
  Well, it...
• 16:16
  Everything else is downstream of that, right?
• 16:18
  Yeah.
• 16:18
  So it's like, I can't- There's a few other things you gotta think about I can't put the air compressors in a building that doesn't exist, right?
• 16:26
  So it, it, it ends up being this chain reaction of interconnectedness just to get the new build going, or to your point, retrofits are incredibly popular right now.
• 16:37
  Um, upgrading- And if you're in an area w- that's high construction, good luck getting your actual inspections scheduled now,'cause you're- Yeah competing with everyone else.
• 16:45
  It, it- So it doesn't matter once you get a build, you can't occupy it till you get your certificates and it's all inspected.
• 16:51
  Inspections, trades, all of it.
• 16:53
  And so the...
• 16:55
  Me telling you that, uh, switch gear is out past 80 weeks now, so from order to deli- to shipping, not even delivery.
• 17:03
  Order to shipping on switch gear is 80 weeks.
• 17:06
  All right?
• 17:06
  So, and for the audience, you can't have a factory without switch gear.
• 17:10
  So, uh- Well, you can't have one that actually produces anything and does much beyond being, you know, a big empty building.
• 17:15
  Yeah.
• 17:16
  There's nothing to turn the machines on with if you don't have switch gear.
• 17:19
  But what's crazy is the switch gear 80 week is about the same as the steel six month, right?
• 17:26
  Because in the sequence of construction, we're gonna do our earth work, we're gonna do our first concrete work with foundations, and then the steel goes straight up, right?
• 17:34
  So that happens early on.
• 17:35
  So six months delay is six months to the whole thing.
• 17:39
  When you, when you push the switch gear out past a year and a half, which is where it's at right now, that excessive lead time delays the back end of the project,'cause Colin can't turn on his CNC machine if that switch gear's not already set.
• 17:52
  So- Well, it, it gets into it as well, you know, i- we talked about kind of that, uh, assumption of risk earlier, that part of the decision that these folks have to make is, am I gonna put that order in now, lock in that pricing and pay whatever, so that I can guarantee that price, or am I going to hem and haw a little bit and see where things go?
• 18:13
  And oh, by the way, I've now got a 20% increase in, you know, materials, equipment, w- services, what have you, because I waited two months.
• 18:22
  I'm gonna- So- I'm gonna suggest for motivated factory owners, especially when they're putting, you know, um, hundreds of millions into equipment that could be coming from global orders of equipment OEMs, um, here's the reason you have to get started now and you have to go at risk.
• 18:42
  What we're describing with materials and tech components that go into, to buildings- The next place it goes into is the people that put those together.
• 18:52
  If you don't have your team built, uh, and I mean probably by this year, if you don't have your team built for who's going to engineer, construct, assemble that factory, commission it, program it, all the resources, and that's not already under contract, it's gonna be a tough landscape in 2027.
• 19:12
  Right?
• 19:13
  So for the, the fence sitters that aren't already motivated to s- to assemble their team, for the fence sitters that haven't, you know, don't wanna, quote,"go at risk" ahead of the building permits to get the construction started, I don't wanna tell you what it's gonna look like next year.
• 19:28
  It's gonna be rough.
• 19:30
  I- it's, uh, there's no great answer, but I think one of the things that's interesting here is w- we talk about that going at risk issue.
• 19:40
  Part of, I, I think an area that people don't discuss too much, is what role kind of the, the local communities play in that.
• 19:47
  Is across the country you have, and we've, we've talked about the need for permitting reform in so many places to facilitate and make it possible for companies to build the, the physical structures, the factories that they need.
• 20:01
  You look at the permitting process in most places, you're anywhere from, you know, three months is unfortunately good in most places.
• 20:10
  Yeah, it is.
• 20:11
  A- and it's just mind-boggling.
• 20:13
  But i- there's a lot of places where you're talking, you know, eight to 12 months to get through all the different reviews, approvals, permit issuance, exemptions, sp- variances, whatever you need.
• 20:26
  A- that y- you can't wait.
• 20:29
  I mean, i- and so the communities that are going to benefit from it, you know, and we've seen Texas, you know, South Carolina tremendously successful- Oh, my gosh for doing a lot for their permitting.
• 20:39
  Yeah.
• 20:39
  That's one of those other factors that y- you've got, y- you're not just juggling, you're, like, juggling while riding a unicycle on a, you know, o- on a balance beam while in the middle of the ocean on a, on a ship going up and down.
• 20:53
  Like, you've got so many factors that you have to be actively managing.
• 20:58
  It's not just a waterfall approach of,"Well, we do this, then that and then that." It's, it, it is a true network process.
• 21:06
  And, and it can't go to, to your point on zoning or to variances, it can't go to some commission that puts it on the docket for a future meeting, and maybe they get to it and maybe they don't, and it gets rescheduled.
• 21:16
  That's not gonna fly.
• 21:18
  So we talked about how owners can win.
• 21:20
  You gotta build your team.
• 21:20
  You gotta go at risk.
• 21:21
  That's, that's it.
• 21:22
  There's no other way.
• 21:24
  Talk about how states can win.
• 21:26
  Talk about South Carolina and Ohio.
• 21:28
  I mean, these guys, uh...
• 21:30
  And, and Texas is, is getting more than their fair share right now.
• 21:34
  I can't speak to the permitting environment in Texas.
• 21:36
  Um, but what I can tell you is what I see in South Carolina and Ohio.
• 21:42
  Governor's level concierge service beginning to end of the permit process.
• 21:48
  The, the- So Ohio- incentive process, the- Yeah the permit process is concierge, white glove.
• 21:54
  They, they...
• 21:55
  With your package comes your sales tax exemption for all your manufacturing equipment, and it's just all kind of done for you as much as it can be.
• 22:06
  The s- the states where you have the local jurisdiction, like you sit on, you know, in, in Erie, the local jurisdiction, then possibly a regional jurisdiction, and then the state, and you have three layers to cut through, they're not gonna win the new plants because- Yeah people can't wait on the permits and the government side.
• 22:26
  They have to be able to go now.
• 22:29
  A- and, you know, one of the things Ohio has done, um, I, I mean, they, they were kind of...
• 22:36
  People mocked the approach that they took as 12, 15 years ago that they really pushed, started pushing with jobs Ohio.
• 22:42
  They put quite a bit of money into building out that organization, to making it, like you said, that concierge, more concierge type service.
• 22:50
  That is, has proven they went from, you know, being in the upper half for economic development to they are consistently number one.
• 22:58
  There's a reason why every news announcement sa- almost everyone says,"Oh, it's Ohio," or it's, you know, South Carolina basically.
• 23:05
  But, you know, they put in the money.
• 23:08
  They invested and recognized that we've got to put the money in to make it a welcoming place to do business.
• 23:14
  I look at Pennsylvania and, you know, to the governor's credit, he's made some improvements in, you know, driving down the corporate tax rate and try- and expediting business licensing, stuff like that, which is fine, but the state also faces the issue of, you know, the building codes.
• 23:31
  The, there, there's certain things- Yeah.
• 23:32
  that are stated at, at the state level.
• 23:35
  Local jurisdiction means absolutely nothing because if I wanted to prove something that differs from, you know, the, the code, the, the latest code that they're using, I have no power to do that because it's dictated by the state, and that requires the state legislature to move on.
• 23:52
  Now that you're bringing politics into it, you know, game over.
• 23:56
  Like, you're not, you're not competing when that's the case.
• 23:59
  Ohio has done a phenomenal job of bringing in an organization that drives business and has made it clearly a very attractive place, you know, to, to build.
• 24:08
  Yeah.
• 24:09
  Yeah.
• 24:09
  I mean, that's what I see.
• 24:11
  Uh, we get...
• 24:11
  We're- we help every client we have go through site selection.
• 24:15
  What I consistently see is for, for speed to market and simplicity, it's South Carolina.
• 24:23
  If, if it's, uh...
• 24:24
  Especially if it's a larger facility and incentives matter, it's Ohio.
• 24:29
  Ohio, Ohio has- they've taken it out of the legislature.
• 24:33
  They've made it formulaic.
• 24:35
  They, they can tell you very quickly what their incentive package is, whether it's, uh, upfront grant money to help with the construction, maybe free utility connections or, uh, a state tax basement- abatement.
• 24:46
  Um, they can tell you right away in both of those states.
• 24:49
  Within 30 days of you submitting, uh, an application, you'll know exactly where you stand.
• 24:54
  Um, I, I regret to say it, but my own city of Jacksonville, Florida doesn't have that.
• 25:01
  You know, Jacksonville, we've got the land, we've got the power, uh, it- we've got the workforce.
• 25:06
  It's a wonderful place to have a factory, but you gotta talk- Or Space Academy.
• 25:11
  Yeah, Space Academy.
• 25:13
  Well, that's why we got the US Space Academy is what I'm about to explain.
• 25:17
  We just gotta speak it into existence.
• 25:19
  But the...
• 25:21
  When you come here, you have to go in front of city council to get your, uh, incentive, and our city council is compro- comprised of self-serving politicians, Republicans, Democrats It's political, and so they're gonna put you in the newspaper.
• 25:40
  You're gonna talk down to Ohio- It's gonna be subject to...
• 25:42
  Y- y- you're subject to politics.
• 25:44
  It's, you know,"This may be a great 10-year plan, but hey, I get reelected in two years, so- That's right that's what I care about." And it...
• 25:51
  And wherever the factory's going, if you're on the council here, it's not in your district, right?
• 25:56
  So it's like,"It's not in my district.
• 25:58
  What do I care?" Yeah, that, that, uh, that is an area, you know, Florida leads in a lot of ways.
• 26:04
  But one of the wa- places it doesn't is it doesn't have that local to state streamlined recruitment for business development.
• 26:13
  Um, so we could all take a delegation to South Carolina and Ohio, study what they do.
• 26:18
  If we can convince our state legislati- legislators, we should just copy it, I mean, because it's so efficient in those locations, and that's why they win.
• 26:26
  Yeah.
• 26:26
  And, and they both have, uh, the workforce too that wants to do this type of work.
• 26:31
  Yeah, I mean, it, it's...
• 26:33
  There are a lot of communities and not large level states that should be looking at it.
• 26:38
  I, I mean, I get historically, you know, that that has been kind of the legislative thing maybe for less than above board reasons.
• 26:46
  Um, but at the end of the day, whe- when we are trying to grow communities, the economic based communities, trying to create new opportunities for people, y- you can't, you, you can't put that into the hands of somebody whose vested interest is in getting reelected and not on the long-term planning for the future.
• 27:10
  That's right.
• 27:10
  Because unfortunately, those, tho- th- those are not the same thing, regardless of the fact maybe they should be.
• 27:16
  But it's, it, it's interesting to, uh, to see.
• 27:19
  I mean, I think South Carolina's also had some big announcements.
• 27:22
  Uh, they seem to be doing really well in the, uh, medical chem- you know, the, the precursors as well as medical research and production facilities lately as well.
• 27:31
  Yeah.
• 27:33
  So those are our two Reforge official indicators.
• 27:38
  It's what is, what is the critical path on a project right now?
• 27:42
  The breaking news, it is officially steel.
• 27:45
  You're buying the steel before you get the building permit if you wanna keep any sort of schedule.
• 27:50
  And then, uh, and of course it's great to hear that dock lock steel cutting is going to the moon,'cause that just means we're, we're making more, we're moving more trucks, and more work- more of the workforce is getting to work in that industrial capacity.
• 28:05
  Um, we got time for another topic, or did we wear it out on our indicators here?
• 28:10
  I mean, I, I thought indicators was great, but I think, you know, there's probably some room for a little bit more conversation.
• 28:19
  I would love to kinda hear your take on some of the customer funding personal guarantee stuff that you, that you, uh, had mentioned a little bit earlier.
• 28:28
  I mean, I think the customer funding is an interesting one.
• 28:32
  I, I've heard...
• 28:33
  I hear a lot about it from,"Oh, the best way to fund is, you know, selling something to a customer." Yeah, obviously, you know, making money is a great way to make money.
• 28:42
  Um, but- Have a business.
• 28:43
  Yeah, yeah.
• 28:45
  Crazy concept there.
• 28:46
  Um, but- Yeah I'd love to, you know, hear a bit more.
• 28:48
  Well, this, this one's been kinda swirling around in my mind, uh, since we had Chamber- uh, Caleb Chamberlain on with Oshkosh.
• 28:57
  And I was just delighted to find out that he bootstrapped Oshkat, which is a fabulous company with lots of technology, uh, fantastic growth rates, uh, all those sort of metrics that you'd look at any business with.
• 29:12
  But he bootstrapped it after personally seeding the business.
• 29:17
  Um, my company, Chang Robotics, uh, that's how we were set up.
• 29:20
  You know, it was, uh, it was personally seeded.
• 29:22
  Uh, I think, I think Caleb had to do a little bit more than me'cause he bought equipment right up front.
• 29:27
  Um, but then after that, it's, uh, growing with your clients, right?
• 29:34
  And, um, so that's something that I don't think gets a ton of, uh, attention, especially in places like X.
• 29:42
  So on X we see all the venture-funded startups, and it creates the illusion that that's accessible, and it's, it's really not, right?
• 29:52
  If y- if you're, if you have a startup idea, um, the capital raising side of, of trying to raise from angels and then venture, and that is pretty much the job.
• 30:03
  That's a full-time job is going out there and being a capital raiser.
• 30:06
  And when you're trying to build, it means as a founder, you're taking, you know, realistically probably two years off the build because you're constantly capital raising, right?
• 30:16
  Um- And, and we're talking about a space where a- as much as people wanna get on board and, and hype and support it, they don't understand what it really is.
• 30:26
  They, they, they hear the words, they understand the concept, the, the idea is great, but they don't necessarily appreciate the magnitude of what is required simply'cause it's, you know, a, h- wasn't a hot topic for a while.
• 30:40
  Yeah.
• 30:40
  And, and it's also, uh, it's also kind of a country club, right?
• 30:44
  So you gotta be in the gundo, you know, and rubbing elbows there.
• 30:49
  You can find some hardware tech money in the gundo.
• 30:52
  Uh, you want some real venture money, you gotta be in Silicon Valley, right, or San Francisco.
• 30:58
  Um, so it's one of those things, uh, the fly over states discussion, and I've been, I've been joking about that myself- Uh-oh for the past two weeks.
• 31:07
  If you're in a fly over state, if you love your community, you wanna build your company and your community, let's just be honest, you're probably not getting venture capital, right?
• 31:15
  No.
• 31:15
  And not in a serious way, because venture capital's not interested in coming to you, and they're not interested in supporting your community.
• 31:22
  Overall, right?
• 31:23
  Yes, we'll find exceptions, but, um, what, what I think is a lot more accessible is building a manufacturing base, a hardware tech base, you know, what- whatever type of company it is, with customer funding.
• 31:37
  But it requires a different profile.
• 31:39
  The people that do that, Colin, look like, just like you, you and me.
• 31:43
  We have kids, we own homes, we're established in our communities.
• 31:48
  You know, I, I serve all over Jacksonville, you serve all over Erie.
• 31:52
  We are truly embedded in our communities, and that means we're probably not gonna get venture.
• 31:59
  I mean, it's almost like if you have kids, you won't get venture money.
• 32:02
  They're looking for the, the young slave that they can control, and they can just whip them to hyperscale, dump money on them.
• 32:08
  Get you on a plane tomorrow to be in the gundo, to be wherever.
• 32:12
  That's right.
• 32:12
  That's right.
• 32:13
  So for people that have a little more stability and, and actually have roots in their community, the, you know, the odds are just not with you is all I'm saying.
• 32:20
  Statistically, it's not gonna happen.
• 32:22
  And the other difference is the people that you see start the, the unicorn or hyperscale venture companies, they actually don't really have a lot of domain expertise, right?
• 32:33
  They're, they're, uh, possibly a former operator.
• 32:36
  You'll see an ex-Amazon, ex-SpaceX type of profile.
• 32:40
  But generally speaking, they don't have deep domain expertise to where a company would pay them for their service Now, who does this the best?
• 32:52
  I mean, professional services, right?
• 32:53
  Accountants- Yes lawyers.
• 32:56
  It's pretty easy to hang your own shingle once you become an expert in your field and start a business.
• 33:02
  If you're a doctor, you can start an independent practice.
• 33:05
  So for the people that wanna build in, in the re-industrialized category, I think one of the things I'd push people to, if you have domain expertise, somebody is gonna pay you for it, right?
• 33:18
  Now, what does that mean?
• 33:19
  Are you gonna start the product first?
• 33:21
  Possibly not.
• 33:22
  You might be starting the services first, right?
• 33:25
  But you're gonna be able to get to a point where you have positive cash flow on relatively decent payment terms.
• 33:32
  You can use that to build a team, and you can get your clients over a period of years to trust you with more and more.
• 33:41
  And the customer funding model to me, which is what Caleb's done, it's what I've done, to me is, is much more accessible, especially for mature people.
• 33:51
  So if you're actually an expert, if you actually have roots in your community, you're gonna be able to find early adopter clients that'll take you on when you're just a one, two or three person firm.
• 34:01
  You know, we're, we're going through a crazy growth rate at my company right now, but that's'cause we're in the right place at the right time, right?
• 34:09
  We spent years and years building in a customer-funded model.
• 34:12
  It, it didn't happen overnight.
• 34:14
  And we had to be in position.
• 34:16
  What I always joke about, it's like catching the wave.
• 34:18
  You wanna catch the wave.
• 34:19
  We're...
• 34:20
  We know we're in the re-industrialized wave right now.
• 34:23
  You wanna catch the wave.
• 34:24
  Well, the first thing you gotta do is be in position, and to be in position, that meant you took your board to the beach and you paddled through that white water to get out there to where the waves are, right?
• 34:34
  And so you have...
• 34:35
  If when the waves comes, you don't get to catch it if you're sitting on the beach watching it, right?
• 34:40
  Yeah.
• 34:40
  You gotta be out there in the water.
• 34:42
  Um, and so what I, what I think, uh, we just probably need more education on is, is that Caleb Chamberlain style of building.
• 34:51
  Okay, if you believe in it that much, put your own capital at risk, right?
• 34:57
  If you don't have your own capital, you need to be working a job and- Yeah accumulating capital and expertise.
• 35:04
  You gotta have a little something to get started with, because you can rest assured you're gonna miss a few pay cycles, right?
• 35:11
  Um- Yeah but once you're in that position where you're ready to take the jump and make that personal risk into it, yeah, you can get some, uh...
• 35:19
  That's the true meaning of friends and family, right?
• 35:21
  You can get some friends and family support- Yep into the business.
• 35:26
  But it really is one of those things where, um, when your clients start paying you, that's how you know it's turning on, and you have the opportunity to kind of professionalize over time To start working, all you need is a LLC and a bank account.
• 35:40
  That's really it.
• 35:42
  You can get the logos and the website, you can get all that later, uh, as long as you can get a first customer and just do a great job.
• 35:50
  Um- And I, I think one of the things is that a lot of people, despite everybody saying SaaS is dead, yada, yada, yada, the, the reality is a lot of people are just ingrained in that mindset of,"Well, I can build a piece of software with a laptop and, you know, me," type of thing.
• 36:10
  That is a dramatically different level of effort to get into market and to build a product than it is to produce a physical good and to produce things.
• 36:22
  Like, it, it is a very different ball game, and a lot of people just, they'll s- they'll say,"Yeah, it's," you know, recognize that there's a difference, but it...
• 36:32
  We're talking different galaxies here.
• 36:34
  It's not even, you know, different ballparks.
• 36:36
  We're, we're in completely different galaxies, and there's still a very big gap in terms of people recognizing what that difference truly is.
• 36:44
  Yeah, and there's this psychology too around ownership.
• 36:47
  So what I believe is a very, um, a big mistake if anybody's trying to bootstrap a company, you know, be it a customer-funded company, is to try to hold on to 100% of it,'cause then it's just owner and employees.
• 37:01
  The psychology within your business is you have the owner, and then you have the employees, and that's very traditional, right?
• 37:05
  Most businesses have been built that way over time.
• 37:09
  Uh, the, the opposite is true in a venture-funded company or a, a dilutive company.
• 37:17
  You're basically in the business of constantly selling your equity.
• 37:21
  So it's like,"Hey, I've started this, but I need more capital'cause we're not making a profit yet, so I'm gonna sell more equity." So the owner starts, the founder starts at 100%, and then typically by the, the time of exit, the founder owns less than 10%.
• 37:38
  And in a, in a very large scale company that went through a lot of rounds of financing, the owner can be down to just a couple percent, you know, just a few digits.
• 37:47
  Um- Well, they scaled, and so that's the, that's the larger pie argument, right?
• 37:54
  Is do you wanna have 4% of an enormous pizza pie?
• 37:58
  Maybe you do.
• 38:00
  But one of the things that's for certain, when you get down to a minority of the stock, you are not in control of the company, right?
• 38:07
  You could be- That, that IPO becomes priority number one for those big shareholders, not- Yep profitability- That's right quality, any of those things.
• 38:14
  And, and that's a misconception that is not explained to entrepreneurs when they start out, is it is not the founder of the company that wants the IPO, right?
• 38:26
  Now, sure, they, they've been living the poverty gospel with, with probably a less than ideal salary for seven or eight years to get to an IPO.
• 38:36
  But they're not the ones that want the IPO, it's their investors want the IPO.
• 38:41
  So they're being pushed in a direction by investors that wanna get exit liquidity, and they wanna get exit liquidi- liquidity'cause they most often raised the capital from, um, investors.
• 38:53
  Uh, to that- They've, they gotta be able to prove that that vintage delivered and, you know, something to show for it.
• 38:58
  That's right.
• 38:58
  And they're looking for the one company that's gonna return the fund, right?
• 39:02
  So for the VC, if they, if they put 30 companies into a fund, it's that ma- the, you know, it's that, um, power law of math, just one company's gonna actually be the one to return the fund.
• 39:15
  So they're pushing everybody to get there first, regardless of the correct pace of the business, because they need one company to exit the fund, to exit and return the capital to the fund.
• 39:25
  You're hoping for the SpaceX, you're hoping for the Uber, you're hoping for the, the Facebook, right?
• 39:30
  And the odds just aren't with you.
• 39:32
  So if you were lucky enough to get into a venture cohort of, say, 30 founders, that's the first cut.
• 39:38
  But then the important thing to realize is only one or one to three of those founders are gonna do something meaningful for venture math.
• 39:44
  So you get to the very few, and we look at the success cases like Elon Musk did this, or, you know, what the big AI companies are about to do with, with pending IPOs, and you kind of think,"Well, that's me." I mean, I'm a pretty good engineer, Colin, but I'm not Elon Musk, right?
• 40:00
  And none of us are.
• 40:01
  E- every- everyone wants to think that that's them.
• 40:03
  You know, that they, when they wake up, they're just the undiscovered next version of Elon Musk.
• 40:08
  So, so another one, um, that I got a chance to meet was Jim Balowcik at Syn Cut Syn.
• 40:13
  I met him at Reindustrialize in Detroit.
• 40:15
  It was a, a, you know, quick in passing, um, so not like a detailed meeting, but obviously impressive guy.
• 40:21
  Same kind of trajectory as Ca- Caleb Chamberlain.
• 40:25
  You know, he scraped together and bootstrapped and customer funded to build Thing Cuts In.
• 40:30
  And then what made sense for him was at a certain scale, then he took the venture money, which acted a lot more like growth equity.
• 40:37
  I, I didn't get the exact percentage, but it seemed like he sold about 15% of the business or something to Sequoia.
• 40:43
  Yeah, I think it was somewhere between 10 and 15 it sounds like from the math.
• 40:46
  Yeah.
• 40:47
  So, you know, he sold what would be considered a modest share because he went the hard way for the first seven or eight years, right, with a customer funded model.
• 40:56
  So I think that's something that people should look at.
• 40:59
  There is always a time to use other people's money.
• 41:01
  There's always a time to hit the button on hyperscale.
• 41:04
  But building the team and the foundation first using customer funding to me is something that we just need to talk about more and, and that doesn't get nearly the attention that it deserves, even though it's the way that guarantees the founder that you're gonna be profitable.
• 41:20
  You're gonna know how to run a profitable company.
• 41:23
  And the second thing it does is it guarantees the founder that they're, they're still be in majority control of their company if and when they do accept investment.
• 41:33
  Yep I love it So we'll skip all the gory details like the personal guarantees, but I will tell you this.
• 41:42
  Ca- Caleb had this joke of he, the way he funded his company was with a HELOC, right?
• 41:46
  He took out a home equity line on his own house to dump into, um, Oshkat.
• 41:51
  Uh, Chang Robotics has done that, you know.
• 41:56
  Imagine the look on my wife's face when I told her we're betting the house on the company.
• 42:00
  Yeah.
• 42:01
  That is a level of conviction that there is no room for wavering when you do that.
• 42:06
  Failure is not an option at that point, right?
• 42:09
  Yeah.
• 42:09
  You wanna, you wanna see locked in, sign up the house that your kids live in on your, on the bet on your business.
• 42:16
  Oh, you'll find a way.
• 42:17
  And the banks know that.
• 42:18
  That's why they take the guarantee on the house is'cause they know that's a very motivating factor.
• 42:23
  So that's what I, I think, um, over time we just need to, to really expand for the audience is you can do a customer-funded model, but it requires domain expertise and you gotta take the risk yourself.
• 42:34
  If you can do that, you can build a scalable company that you stay in control of.
• 42:39
  And, um, and then if you really believe in it, you'll put your own assets and your own capital on the line.
• 42:47
  And that's something that, you know, as Y Combinators had some bad press lately with some of their statements, and then people started publishing the list of companies they funded.
• 42:57
  And you look at some of these companies and you're like,"I, what?" And it's not one or two, it's like dozens of companies- Yeah that are highly suspect that they've pumped money into.
• 43:05
  Um, when you look at that- And you, and you look at the failure rate, so many of those founders,'cause they were, they were really just doing it for the money, right?
• 43:15
  No one can actually believe in those things.
• 43:17
  They were starting companies for- They wanted to get their bag and they were good.
• 43:20
  Yeah.
• 43:20
  It was just a purely mo- They were motivated by money.
• 43:23
  They weren't motivated by the passion of their trade or serving customers or, or, or building a great team.
• 43:29
  The...
• 43:29
  It's so easy just to wipe your hands and walk away, and the only people to get harmed are the investors that put money into the venture capital company, right?
• 43:39
  And so- Yeah it's kind of, there's no skin in the game, right?
• 43:43
  And so I, I kinda have this thing.
• 43:44
  I really only wanna work with founders that actually put skin in the game because they believe so much in what they're doing, and they're gonna see it all the way through.
• 43:53
  I, I think there is something special about, uh, going after a, an idea or trying to solve for something that you just have this, you know, obsession, this just deeply, you know, ingrained love and appreciation for what it is that you are doing.
• 44:12
  And that takes so many different forms, but- Yep there's a very different between being obsessively passionate about what you're doing and chasing a bag.
• 44:23
  That's right.
• 44:24
  And, and the final point I guess I'll make is in venture what you'll see is people will put money into an idea or, or behind a founder, especially at that kind of pre-seed level or even the seed level, and they'll say,"Well, w- we're waiting for this company to find product market fit." Sometimes they find it, sometimes they don't, right?
• 44:43
  Um, what, one of the interesting things is if you bootstrap a company, if your customers are paying you and you use that to build the company, there never was a mismatch on product market fit.
• 44:54
  Yeah.
• 44:55
  You've, you've already found the market fit.
• 44:56
  Yeah, from, from the first customers, you have the product market fit, and it's one of those things, if you're intentional about it, you can keep refining it and finding new ways to add value.
• 45:04
  Eventually, that becomes the product, right?
• 45:08
  And you transition from the expert or the services to the, the total compounding effect of what you've built across multiple customers.
• 45:17
  That is the product.
• 45:18
  And you know the product market fit because you've been getting paid for it for years, right?
• 45:22
  So, um, hopefully this is a little bit of encouragement to the founders starting out and they're trying to choose,"Should I go raise the capital or should I just try to recruit customers?" I would suggest, um, with very few exceptions, go look for customers and follow the customer-funded model.
• 45:42
  I love it.
• 45:43
  I love it.
• 45:43
  I love it.
• 45:44
  Matt, thank you for another great episode, as always.
• 45:48
  We've got some, uh, more awesome guests coming up in the next few weeks.
• 45:51
  I think, uh, we'll have an opportunity to dig more into the financial stuff.
• 45:55
  Um, maybe some personal guarantees and some other goodies, but, uh, should be a good time.
• 46:01
  And, uh, to all of you listening, thank you for tuning in to another episode of the Reforge podcast.
• 46:06
  As always, whether we're talking the latest reindustrialization news, robots on the factory floor, policy that moves the needle, or catching up with the people rebuilding American industry, our goal is to show you that reindustrializing America is possible.
• 46:19
  It's happening right now, and it's pivotal.
• 46:22
  Make sure you subscribe and follow the Reforge podcast on all of our socials, and be sure to check out thereforgepodcast.com for more, including our seven-step guide to reindustrialization.
• 46:33
  Until next time, keep building.
• 46:39
  Thanks for tuning in to the Reforged podcast.
• 46:42
  Make sure to like, subscribe and follow us on all of our social media@thereforgedpod.
• 46:48
  We will see you next time