Episode 7

full
Published on:

20th Dec 2021

Today's Most Disruptive Trends in Manufacturing with Joel Block

Connect with Joel Block:

Website: JoelBlock.com

Lisa Ryan: Hey, it's Lisa Ryan. Welcome to the Manufacturers' Network Podcast. I'm here today with Joel Block. Joel is a futurist, long-time venture capitalist, and hedge fund manager, which is gobbledygook for a professional investor who lives in a shark tank like on TV. Initially, an expert blackjack player, counting cards, and beating casinos in Las Vegas, Joel later built and sold his publishing company to a Fortune 500 company. Joel, welcome to the show.

Joel Block: Lisa, thanks for having me. How are you?

Lisa Ryan: Good, good, thanks. I know that this is a manufacturing podcast, and we're going to be getting there. There are all kinds of disruptive business trends going on in manufacturing. Before we get started, you are a professional investor, which means you look forward in time. How do you decide exactly what to do regarding these trends that you're talking about?

Joel Block: I started in the gambling business, and I take risks for a living. I look at things. Investors give me their capital. I'm not a broker. Investors literally give me their money, and then we buy something together, and then we share the profits. That's how Wall Street works. It's how my business functions, and that's been in that business for 30 years. I've bought and sold companies. I've built and sold my own company from scratch to a big company, and I've done with many other companies entrepreneurial-type people have tried to do.

I look at companies from many different perspectives, and I think about the impact of other things happening in the world. Then I think about who will win, who will lose, and that's how I do it.

One of the things that we'll talk about, I hope, is disruptive business trends because these are things that could knock you out of your lane or cause you some problems. I like to think about that. I want to think about what could go right, what could go wrong, and the impact of different kinds of external and internal things. There's a lot here, and you will unpack a lot of stuff.

Lisa Ryan: So, how did you get started in all this? What was your journey as far as where you started and how you ended up here?

Joel Block: I learned how to play blackjack as a young. I was 20-21 years old. I was in casinos. I was playing, and actually, I knew I was good at it. But I also knew if I kept playing, I wouldn't have gone to college, and it would have been bad for me in the long run. So I ended up getting an accounting degree and became a CPA. I worked at Price Waterhouse, but I was a little rebellious. I wasn't an excellent account. If I didn't quit, I'd been fired for sure.

What made me not be a good accountant made me great in business. I asked a lot of questions. I always wondered, and they didn't want me to wonder things. They wanted me to be a good soldier and do the work. I wasn't a good soldier, but I was a great general. That wasn't what they needed from me, so I get that, and it wasn't the right environment. So I started a real estate syndication company where I learned how to raise capital.

I learned how this stuff works and then started a venture capital transaction I built and sold. I've just stayed in that business ever since. I love doing deals and buying and selling things. I spent a lot of time helping executives of different kinds of companies to see the world. It may be another way because I bring a different perspective to them. I helped them to learn from all the things that I've learned. You go inside of 1000 companies in your career – buying, selling, looking at their books and records and be involved with those companies, and you learn a few things. I've been around the block and share a lot of Intel with my clients or companies we work with.

Lisa Ryan: A lot of the discussions you get into have to do with private equity, so what exactly does that mean, and why are you having these kinds of conversations with manufacturers recently?

Joel Block: Many smaller companies are being approached by private equity firms to buy them. This is a very, very robust time for sales transactions. I recently was talking to a guy who called me to say, "I'm not ready to sell my company yet, but I'm starting to get some calls." What do you think I said? Well, the iron is hot. Companies are paying a lot for companies, so these private equity outfits are spending a lot. So if you're thinking about selling, you may not be perfectly ready, but the time may be just right.

Companies are paying a lot because there's a lot of money on the sidelines. Private equity companies only make money. When they deploy their capital and buy assets and then put those assets to work, that's the only way they make any money. They've got a big pool of capital in a bank that's not making them any money, and they got to put it to work. That's part of the reason they're so aggressively looking for companies to buy now that presupposes everybody understands what private equity is if I could just give you a minute on this.

Lisa Ryan: Yeah, please.

Joel Block: It's a complicated business. I've spent my whole life in it. It's a kind of business that most people don't understand. Here's how this works. If you have equity ownership, like when you have your house, you have a mortgage, which is the bank borrowing - that's debt. Then there's equity, which is the part that you own. So we're not talking about the debt part. We're talking about the equity part, just the amount you own.

Equity comes in two primary forms. There could be public equity, which is the stock market where people put their savings or their retirement or their pension fund goes into. They're called equity securities. That's where you're buying the equity of a company. That's public equity because it's been processed through the government regulatory system. There's a whole other category called private equity, which has any business funded privately now that could be a small business where a family puts the money in to run their little company. It could be a large business that is just as owned privately by families are people, but it's not public, so there can be many owners. A private equity firm is a firm that specializes in taking in capital from typically other firms and other funds, and they aggregate all this capital together. Then they go and look to buy things. They tend to have something in common. Whatever it is they believe, they'll have a strategy.

For example, they want to put a network of manufacturing companies in a specific category. We want to buy and put the other roofing companies; we want to buy and put together manufacturing companies; we want to buy and put together mobile home parks. There are different ways that you can group assets. These companies are looking for venture capital and finance for innovative or early-stage companies. Another example is hedge funds which are well known but not well understood. There are lots of different kinds. Most of the types that affect manufacturing are these firms looking to buy companies, and they're building portfolios of what are called portfolio companies.

They're trying to get ten different companies with some synergy to work together and help each other. They're not financial buyers, which are only looking for returns. They're called strategic buyers because they're trying to build synergies among their assets. So that's who's making the phone calls. The good news is that they're not price-sensitive. They're more concerned about the value of their portfolio and your ability to contribute to their portfolio. It's not about how great you are. It's about how great of a fit you are into their portfolio.

Lisa Ryan: When I think about venture capital, I think of days of old where these companies were coming in and buying companies to tear them apart and sell them and pieces. But it sounds like what you're saying is they're looking to build something where a group of companies will make money. So instead of tearing things apart, they're building things together. Is that what I'm hearing?

Joel Block: Well, these things are not. They're not mutually exclusive. You know some companies by and tear things down, some companies by an aggregate assets something so there are all different strategies that these companies will do. But what probably affects the manufacturing industry more right now are probably the ones where the people are aggregating - strategically aggregating assets to build a portfolio. That is not to say that somebody wouldn't buy a company and then have a garage sale. There might be great real estate. They may have some other idea for what the business could be. There's a familiar saying right in my neighborhood where there was a great restaurant fantastic restaurant. They came in probably paid 50 times more than the restaurant was worth because they wanted the real estate to build a large-scale apartment shopping Center. So it's not out of the question that that doesn't exist. It does. Most of what's happening in manufacturing right now are probably strategic buys for building portfolios.

Lisa Ryan: And what do you see, are some of the other significant trends on the horizon for manufacturers?

Joel Block: The fact that private equities calling is a trend. It's not a disruptive trend, but it's happening. Some other things are big and important. The most significant thing that manufacturing companies could do immediately that would most impact their pricing would most positively impact their bottom line is to get off the transactional treadmill where you sell something. The next day you have to sell something else, next to sell something else and move toward more of a subscription or a recurring revenue model. Many people will say, oh, this doesn't apply to us. That's more of a technology thing. But Wall Street and the private equity companies love these kinds of revenue numbers. They love recurring revenue because it's dependable.

In manufacturing, what does that mean that could be an auto-ship, where somebody signs up for an automatic shipment every month. You give them some reason why they would do that; Maybe they get priority shipping, priority inventory, maybe they get a slight price discount for being automatic. You can have a whole service department, where your service department is based on we're going to send somebody out whenever you need them. So we have a service contract service. Contracts are recurring revenue, so there are different ways that manufacturing firms can install recurring revenue programs into their model. It's essential because recurring revenue is higher quality than transactional revenue, so it's different. The real difference here, the trend, is that this is not about all dollars being the same color green because they're not. Recurring revenue dollars are worth more, and that's just an important distinction that I hope your listeners can understand. Suppose they move in the direction of starting to create higher quality revenue. In that case, they move toward making their company more valuable, whether it's to an acquirer or just for the current ownership and management to have more money come to the bottom line. Those are better dollars.

Lisa Ryan: It just seems that this is a different way of thinking when it comes to manufacturing and when the last two years now, with COVID and everything else that's been going on of looking at every aspect of your business differently. Certainly, recurring revenue, some auto-ship can be a game-changer for some people listening today.

Joel Block: it's a real game-changer. The first big company that did this was Microsoft. Microsoft was always in the software sales business, but they're no longer in the software sales business. They're in the software rental business. You don't buy Office anymore. You rent it yearly - Office 365, their new program (and it took a long time for it to catch on). Still, once it finally caught on, they were rewarded with not only enormously more revenue, enormously more net profit, but enormously more market CAP.

Those prices or stock went enormously higher, so part of it was related to more revenue that came to the bottom line, and part of it was a Wall Street rewarded them with a higher number. All those things together, it's fantastic. These are concerns that are easy for companies to address. I wouldn't say easy, but this isn't the most complicated thing in the world. If people sit in a boardroom and start thinking, How can we create some recurrence? How can we create some repetitiveness so that our salespeople don't have to be knocking on doors all the time? That's the beginning of a solution.

Lisa Ryan: It also ties those customers to you. It makes it harder for them to leave you and go to a competitor because they know you're always there. Their products are expected.

Joel Block: And that's why your company becomes more valuable. You're not a transient kind of company where things are coming and going, and maybe somebody buys, perhaps they don't buy. When you start getting the kind of regularity, regularity means loyalty and loyalty are bankable. When you've got that then, you're in the money.

Lisa Ryan: When I think about it from a convenience factor, because, even with the Microsoft 365, which of course I went into that fighting kicking screaming, I wanted to buy that and pay one time for it. But then they just made it so darn attractive for you, with the different things you could do on PowerPoint, and it just made sense to stay with that program. So it's the same thing if you as a manufacturer can figure out how to make it more convenient for your customers, how to give them, like you said, discounts or better service or priority shipping, or that they know that they are first in line.

When it comes to some of the shortages that we're doing because they're recurring customers versus some Joe off the street, that will be a one-shot deal. If you're making an offer, they can't refuse.

Joel Block: That's exactly right. If you look more carefully at Microsoft, think about this because this is what used to happen. Maybe your experience is the same. About every five years, I buy a new copy of Office. I go to Staples, and I pay about $200. Of that. Microsoft probably got half, so they got about $100. Then I would take that disk and give copies of it to my kids. But, of course, I wasn't supposed to do that, so we all did the same thing.

So, every five years, Microsoft got 100 bucks out of me. So they come out with this new idea, they say, look you're going to get all our updates, you're going to get everything too, you're going to have it all the time, and you get the whole suite there's no fool around. You can have as many people, and all five of your people in your family can be on the thing. So what do they do now? So Staples is out of the loop, so they got 100 bucks direct. They get it every year, so in 10 years under my old pattern, they would have probably got $200, but now under the new pattern, they get $1,000, so that's five times more.

Wall Street gave them a two-times bump on their multiple because I'm a more loyal customer now. I mean, now they've got predictable revenue. Suppose you look at the stock price. Their stock price is up almost ten times from about 2014. The numbers have gone up by ten times when you look at the numbers. It's not inflation. It's because Wall Street has rewarded them for specific patterns of activity. These patterns of movement help manufacturing companies do precisely the same thing.

They need to be doing some of this. This is a very disruptive trend; it's a powerful trend, and there are strategies that companies need to employ to hook into these things and to take advantage of them.

Lisa Ryan: When you also mentioned inflation so, and that's something that's come up in a lot of conversations in the last several weeks, several months, how does inflationary market affect manufacturing.

Joel Block: Well, you know what's obvious is the prices go higher. A couple of things happen. Number one on the supply side, everything you have to buy goes higher. On the sell side, everything to sell as to go higher, so the whole ocean just lifted a little bit, you know, everything went up a little bit. But there's a lot more to it than that. If you borrow money, there's a perfect chance that interest rates will be higher.

 Not long from now, I mean the Fed is working on this right now. They haven't exactly released it; we'll know more by the time this episode comes out. But the likelihood is that the Fed will be raising interest rates at least somewhat, so that means that if you carry inventory, you're carrying costs are going to be going higher. That puts pressure on manufacturers. There's a lot there, so that's a very problematic thing in the manufacturing sector. Manufacturers need to plan for that. They need to be as lean as they can on inventory. But then, they're conflicted because there's a supply chain problem. They want to have as much inventory as they can because otherwise, they may not give me more. So there's an actual conflict, which companies have to work through and think through. That's the impact of inflation. Inflation impacts us in many different ways, and the other thing is that consumers are getting pinched. As prices start going higher, food, gas, travel, housing - those numbers go higher for people. They have less discretionary income, so depending on the kind of product you produce, whether you're an end-user product or something that goes into another product, there may be fewer dollars available. So as the economy starts to contract and get a little smaller because people don't have the money to keep going.

Over the last ten years, more air has been put into the balloon. The balloon is the economy, and the economy gets bigger and bigger and bigger. And now, a little bit of air will start coming out of that balloon. It's not going to be like the recession during COVID. It's not going to be the recession of 2008, but we can expect that the balloons will get a little smaller. That means that everybody will have to tighten their belt a little bit because things are going to change. That's a more extensive discussion than now, but certainly, it's an important question that you bring up.

Lisa Ryan: What are you, seeing as far as the manufacturers are doing well right now to prepare for the future? What are the mistakes that you're seeing that they're making?

Joel Block: You know COVID was kind of a mixed bag for people. For some people, it just knocked them off their podium, and they lost their balance. They had to reorganize themselves. For others demonstrated remarkable resilience, and they confirmed the ability to think clearly that this market is not working anymore. They looked at the landscape. They asked what other landscapes can we address. They found other places to start selling in different ways to put their products into the marketplace. They started thinking about what other problems that we could solve are. That's the question that you have. That's the fundamental question. What problem do we solve? When you understand what problem you solve well, who has this problem. Where are those people? How do we find those people? You can start to spread your product across different environments by asking those kinds of questions.

As a professional investor, I talk about being an advantage player because an advantage player is what Las Vegas calls experts in games of skill. I was always an advantage player. It's both a skill and an attitude. What is an advantage player? An advantage player asks hard questions. They ask fundamental questions. A tricky question isn't like advanced calculus. It's a simple question that's hard to answer. But, it's a fundamental question. Where are these customers what problem, do they have and how much is covert change the nature of the issues they have, and how can we address these problems and solve them?

So when you start getting into some fundamentals, and this is what some great companies have done: they've gotten back to the basics, addressed some fundamental issues, and thought carefully through a lot of these kinds of iterations. That's been successful for them.

Lisa Ryan: And it's looking at business again wholly different and thinking about things we have never thought of before. The biggest mistake is thinking that business is the same, and we're still manufacturing like it was in 1999 or even in 2019. It's not the same, and just being willing to take a step back and look at every single aspect of your business differently than you had before. By finding out what problems do we solve? Who are the customers? How can we have some kind of recurring revenue stream to move us forward into the future?

Joel Block: You know, many systems, many things that we take for granted in our society, need to be revisited. Some of it was exposed by COVID. Some of it we need to take a step back. Take, for example, the bail and the prison system. These are hundreds of years old. The way it works, and we've been doing it the same way for hundreds of years. Maybe it's not a fair system anymore; it's not a sound system anymore. I'm not saying good or bad, but I think we need to take a hard look at it.

People who understand these things need to think through them. Also, the way we educate children. I'm not an educator, but it's not very different from what it was hundreds of years ago. They lined kids up in lines, and they put him in a schoolroom, and they would teach them whatever, and children need different skills than they needed 50 or 100 or 200 years ago. We need children who think differently prepared for the modern world, not necessarily for industrial. Still, now we're this digital, probably the most significant thing that's on the horizon.

This is something I hope people will pay attention to. That is that our financial and monetary system is ripe for a complete and total reorganization, and that reorganization is cryptocurrency. Because I'm very bullish on this, it's the future of money. I'm bullish on it from an investment perspective. A lot of people on Wall Street are very bullish about it. They're waiting for some guidance from the SEC and some other agencies to release money into these currencies. Still, an essential part of cryptocurrency is that most people are not sensitive to. The machinery makes it run. There's no doubt in my mind that in 10 or 12 or 15 years from now, the United States is going to a digital currency. It's almost 100% In my estimation, but it's not going to be bitcoin, so bitcoin is the cryptocurrency but the machinery that makes it run where we transfer money between each other.

It's almost a certainty that credit card companies, Wall Street banks, mortgage brokers are all going to be wiped out. Everybody's getting wiped out. Just like travel agents got wiped out in the early in the late 90s when the Internet came on stage. So who do you think is by all the machinery investing all the money? It's the credit card companies, the Wall Street banks, and all these others. They're putting a lot of energy into this, and although the SEC has been asked for guidance, the chairman of the SEC is a former Goldman guy who is dragging his feet. He might be dragging his feet.

Maybe it's so he can give us friends on Wall Street a little bit of extra time to organize themselves because he's concerned that they're going to be wiped out. We need regulation. This market is desperate for some regulation. I bring this up, and I spend some extra time on it, because manufacturers, which are considered less vogue or less fancy, let's say that the technology company. Manufacturers are on the leading edge of many exciting things, and one of the things that they should think hard about is maybe they should think about accepting cryptocurrency for compensation or payment. Back in the forefront of some of the more modern approaches, and it's just something for them to think about.

Lisa Ryan: Well, and I'm sure cryptocurrency can be a whole other podcast episode.

Joel Block: Well, it could be, it could be a whole, it could be a whole podcast to itself.

Lisa Ryan: So Joel, as we're getting to the end of our time together, is there anything else that we didn't talk about that you feel would be important for our audience members to know.

Joel Block: You know there's well a lot of things, but let me, let me, let me make one last important suggestion I spent most of my career in the venture capital world, which is venture capital is the financing of innovation. What happens is somebody in a garage is an idea. They get some family members to put up a little money to do a little work on it.

They end up getting a venture capital firm to give them 5 million bucks or 10 million bucks to get it rolling, and then a private equity company will come in and give them 100 million. A lot of manufacturers are not paying attention to the venture capital ecosystem and what happens is that they get surprised by some incredible disruption in their industry. Where did this come from? Well, this didn't just happen 10 minutes ago. I mean, it's been happening for some years. Because there was a kidney garage that got venture capital, who then got private equity and then rolled it out, they kick your butt is kind of what happens because now they've got 100 million dollars so that they can take over an industry.

I would tell manufacturers that they need to pay attention to venture capital and the ecosystem. Frequently, I'll speak to an audience of manufacturing executives, some of whom are engineers, and oh, Joel is not possible. You don't understand physics; you don't understand manufacturing. Well, I'm from the money business, I may not precisely understand physics, and I may not precisely understand assembly lines, but what I do understand is that there's a kid in a garage right this minute working to solve whatever problem you think cannot be solved.

That's my power strategy that's. One of my strategies is that you can never say it can't be done because there are some kids somewhere, how many things in our world. Whatever couldn't be done 500 years ago or 50 years ago or ten years ago that we're doing every day, right now, I mean almost everything. It can't be done is a limiting belief that puts you in a place where you are ripe to be disrupted. I would tell manufacturers that they need to pay attention to the venture ecosystem.

They need to potentially invest in a bit of company to control some of the inventions that come out of those little companies because they're just unbelievable. Everything that you know is disruptive to us now started somewhere in the venture capital ecosystem, so I would say it's a different idea. It's something that most people don't understand, and if they want to kick it around, they can sure call.

Lisa Ryan: Joel, if people want to continue the conversation with you, what's the best way to get Ahold of you.

Joel Block: Probably go to JoelBlock.com, and all my contact information is there.

Lisa Ryan: Wonderful, and I will also put that in the show notes. Joel, it has been an absolute pleasure to have this conversation with you today.

Joel Block: Well, Lisa, thanks for having me, I appreciate it, and you know, just keep being an advantage player, thanks.

Lisa Ryan: Emily, so Ryan, this is the Manufacturers' Network Podcast. We'll see you next time.

Listen for free

Show artwork for The Manufacturers' Network

About the Podcast

The Manufacturers' Network
Connecting Manufacturers with Manufacturers
The Manufacturers' Podcast is THE place for manufacturers to connect with and learn from other manufacturers. Not only will listeners get to learn from their manufacturing colleagues, but they will also discover HOW they can help each other as a resource or as a source of help and inspiration.

As a manufacturer, it's easy to get pigeon-holed into only focusing on your own industry, whether it be through your industry trade association or your industry colleagues. While trade associations are an excellent source of information for their members, sometimes it's gaining a perspective from someone else in a completely different industry that gives you the solution to your dilemma.

Stay tuned for new episodes every week on "Manufacturing Monday's." This drive-time length podcast will give you the information, tips and strategies you need to get your week off to a fantastic start.

About your host

Profile picture for Lisa Ryan

Lisa Ryan

As a Certified Speaking Professional (CSP), an award-winning speaker and author of ten books, Lisa Ryan, CSP, works with her clients to develop employee and client engagement initiatives and strategies that keep their top talent and best clients from becoming someone else’s.
Lisa’s expertise includes: strengthening workplace culture, improving employee engagement, increasing customer retention, and initiating gratitude strategies (“Grategies”) for personal and professional benefit. Lisa’s participants enjoy her high energy, enthusiastic delivery and quick wit and they leave the session with ideas they are committed to acting on immediately to make positive workplace culture changes.
Lisa costars in two films with other experts including Jack Canfield of “Chicken Soup for the Soul.” She is the Past-President of the National Speakers Association, Ohio Chapter and holds an MBA from Cleveland State University.

Relevant Experience

• Keynote, breakout or workshop speaker at more than 100 national and international conferences
• Thirteen years of industrial marketing and sales experience, including seven years in the welding industry – and yes, she does weld
• Host of “Elevate Your Engagement Levels: What You Need to Know” on the Elite Expert Network and the C-Suite Network
• Creator of “The Seven Mistakes Managers Make to Crush Company Culture” video series
• Best-selling author of ten books, including “Manufacturing Engagement: 98 Proven Strategies to Attract and Retain Your Industry’s Top Talent”
• Award-winning speaker