Podcast: Can Robots Help Increase the Value of Your Business?
Learn more about business automation and how it can increase the value of a business from the CEO of Robotaton, Dan Abbate.
Robotic automation refers to the automation of industrial and clerical processes using robots. Any industrial or software robots that replace the functions performed by humans in a business can be considered robotic automation.
In this podcast, Dan Abbate, CEO of Robotaton, talks about:
- Building systems that can streamline operational efficiency and increase profits;
- Implementing business automation processes to facilitate industry consolidation;
- The two most common factors why business owners resist automating their business; and
- How robotic automation can increase value and make a business more attractive for sale.
About the GuestDan Abbate has started, bought, sold and/or merged many businesses since the mid-90's when he began his entrepreneurial career.
Dan is currently the CEO of Robotaton which evaluates companies and/or departments of companies to see if they can improve the business through the implementation of new technology.
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Read the Full Transcript Here:Noah Rosenfarb: Hi. This is Noah Rosenfarb with another of our Divestopedia Exit Strategy Podcast. We have an interesting and unique guest today, Dan Abbate of Robotaton.
Dan Abbate: Robotaton.
Noah Rosenfarb: Robotaton, there we go. Robotaton is such an interesting company. Dan has a real unique 21st century skill set that he’s applied to businesses that both he’s acquired and now he’s offering it to business owners that want to implement automation in their business. He creates invisible robots that increase profitability and streamline business process, so the idea for today - for the owners and advisors to owners - is that get some ideas of how you might use automation in your business and how it could increase your profit. Dan, thanks so much for joining us.
Dan Abbate: Sure, no problem. Thanks for having me, Noah.
Noah Rosenfarb: Take me back to when you started your career because you’ve had a long history in a short life of acquiring businesses, making them more profitable, selling them for more money and doing it again and again. You had mentioned to me you had a metal stamping company that was in your family. Talk to me about that experience. How did you get involved and what were you guys doing?
Dan Abbate: Sure. Basically, I’m kind of the stereotypical computer kid who started messing around with the Commodore 64 when he was 9 years old sort of situation. By the time I was 15, 16 years old, I was already fairly versed in what’s happening with the internet at that time, which was in the mid 90s was just getting going. Networking was becoming part of, you know, normal businesses were starting to have to integrate these technologies into their operations, and so my father’s business, which was a metal stamping manufacturing company was right at that point. I was of course happy to volunteer to start looking at their processes and figure out where we can start to integrate just basic networking. Just having computer terminals at various points in the process was the first step, the goal of the process.
But I wanted to take it one step further than that because, again, I had this vision of how the Internet was working and I saw the opportunity to have some custom software that I was developing to just streamline the whole process. I tried to take all of the paper that they were walking around from department to department and put that all on the network. At that time, it was a super revolutionary sort of thing. We got a bunch of good write-ups and stuff about just how cool it was, especially in the manufacturing, which is kind of old school business and people were slow to adapt. So, yes, I implemented all of our processes in that business and that’s what gave me the idea that you can really take manual processes and convert them to a digital format.
Noah Rosenfarb: Tell me about that back in the mid 90s. What was it that you were doing? Were you taking purchase orders and bill of materials?
Dan Abbate: That’s exactly right. What we ultimately had - of course it didn’t start out all this way but it was kind of a process over, you know, the first major implementation only took six months but then the process of revising was done over a couple of years. By the time it was all said and done, we worked to the point that the majority of our major customers were interfacing with us directly online. Once we set up their order in the system, in terms of re-ordering, they would basically just go on and click on what they needed to re-order. At that point, that re-order would be immediately on our system, our system would evaluate our current inventory, the inventory then would be if they needed to place another order to one of our vendors it would send an email to our purchasing person who would say, "Hey, you need to order because this other order just came in," and they would just go through the whole process like that.
As it stopped at each stage, the tool guy would have like a little screen similar to the way McDonald’s, you know, if you see the guy from the back working at McDonald’s they have their little orders, as orders come up they see what they’re supposed they’ll be making. Same exact idea, just kind of on a bigger scale. That process continued all the way through until the final quality inspection was done. The quality guys clicked, "Okay, this job has been checked, everything looks good," and then it would move in to the next stage, you know, shipped out. Then the customer who could also check on the status of their order at any time and see where it was in the process.
Now, again, this is the mid 90s so this sort of thing was a big - that’s such a big deal now, that’s kind of what we’re working on now to try to work more businesses into processes like this. But 15 years ago, going on 20 years now I guess, that was unheard of, so the fact that customers would be able to check out their stuff, and then as soon as it was shipped out the door the system would post it for invoicing and the accounts receivable people would just get a big list of, "Okay, these things are all out the door, print out these invoices and mail them out." The people became - I don’t want to say secondary - partners with the system as opposed to the people having to control the system, which is a lot of times what people end up doing in their normal routine as part of their business, is they use Excel, they use manual paper systems and it’s basically people using tools as opposed to it being one coherent system from start to finish.
Noah Rosenfarb: Yeah, and I think even over the 20 years as you described, I mean, that system that you had 20 years ago is probably still in the upper quartile of how small manufacturing businesses would run today.
Dan Abbate: Right, exactly.
Noah Rosenfarb: So then after you’ve implemented this system or coincident with the system, you did some acquisitions? Why don’t you tell me about that?
Dan Abbate: Yeah. Again, this is the mid to late 90s that we’re talking about. Obviously, outsourcing was a big word. A lot of people, a lot of manufacturing was going overseas, first to Mexico then to China, so there was a lot of consolidation going on in the industry. This is where I learned - I was on the tech side. I understood how this tech process thing was going to work, but my experience with consolidation came from my father, who at the time, was consolidating smaller companies into our own so we had a really efficient system in place, you know, technology and just in terms of the business that we were running and had been running for many years.
So what we were doing was we would purchase smaller, mostly distressed companies, because they’d lose major customers to overseas competition. They wouldn’t have enough existing customers to cover their current overhead. Remember, you’re talking about manufacturing here. It’s really hard to scale down quickly when you have a hundred people and 20 machines out on the floor, whatever. You can’t just turn that off so when you lose a major customer you’re in a tough spot.
So what we were doing was we’d find these guys, mostly just through word of mouth. It’s a big industry but it’s a small world kind of thing. We would work with these guys. We would work to roll them into our facility, pretty much eliminating all of their overhead in the process because we would just let them - and I’ll give you some specific details - it was all based on earn-out for any of these manufacturing deals, because the companies themselves had a set of fixed assets which the seller was more than able to just sell off, so he would just liquidate everything that he has that’s a hard asset. He would keep all of that.
Same thing with any receivables he still had. He would keep all of that that was offered him, and we’d pay him a small amount, you know, $50,000, $100,000, which we kind of thought of as like a goodwill signing bonus to come over with us. Then we would just move all of his stuff, all of his work, to us, and because we had a very flexible plant we could do a lot of things. We were able to move that stuff over for relatively no cost, and so a business that was unprofitable standing by itself and was rolled into mix became extremely profitable, and then we would just pay the owner 5% for five years so that would give him some motivation to continue to maintain connections with his customers so that they stay with us and we continued all benefit from having them around.
Noah Rosenfarb: That’s great. After you integrated - I guess it was four different acquisitions - what prompted you guys to market your business for sale?
Dan Abbate: Well, we are in the same boat as everybody else. We saw what was happening in the industry. We saw that a lot of manufacturing was going away and wasn’t going to be coming back anytime soon. We had grown to be a midsized company through acquisitions and just through our general sales effort, and late 90s to early 2000 it just seemed to make sense. There were some bigger guys doing exactly what we were doing in terms of consolidations, putting everybody under one roof, and that was pretty much it. It was kind of a looking forward out into the world saying, "Do we want to continue in this industry and fight and get bigger and bigger and bigger, or do we want to sell now and go try something else?"
Again, my passion was more the Internet and processes side so I didn’t have any particular attachment to the manufacturing world. My dad already was in his mid 50s so it wouldn’t hurt his feelings to take it easy and do something a little different. So that was the decision. It just made sense and in terms of selling the business it was actually the same thing. It was actually relatively easy. We just put an ad, an anonymous ad in the tool and die bulletin in the Chicago area and then just said, "Hey," you know, gave a little rough outline of what we were and everything like that, not to give away too much to the public of course, and we got a call from somebody, actually a guy based on Florida. His family had run a bunch of Ace Hardware stores. They owned a whole bunch of Ace Hardware stores and they decided to go into different industries - consolidating these businesses - and they had a pretty big shop not too far from us in Chicago.
It was really kind of cool because it was sort of a handshake deal. We shook hands as they walked through, shook hands, everything looked like it matched up, and that was it.
Noah Rosenfarb: Did you feel like you got a premium for the systems you had built? Were they going to be able take over that computerized system or did they have their own thing going on and they just wanted your customers?
Dan Abbate: Actually, that’s a very interesting question and how that worked out. No, they did not take the systems that we had in place because they were doing the same thing we were. They were just hacking everything out and taking the customers over to their facility. This is an example and this is still something that we deal with today, like even 20 years later, or going on 20 years later - 15 years later I guess - is that the owner, a very nice guy, very experienced individual who had done lots and lots of different things in his life, was very resistant to the idea of implementing these changes across their system in their facility, because that’s what I offered to do of course. I was like, "Hey, this has worked really well for us. You can see it in action here. We should do this for you too."
They were still running kind of the old paper system. A job would come in via fax maybe and then that fax would be manually transcribed into some sort of other format, which then would be carried around on these little plastic sleeves across the shop floor until the product came out the other side. It was all completely separate and manual. Then, of course, I wanted to change that. Again, very nice guy, but it wasn’t in his frame of reference and again, because a lot of what we were doing even at that point was still relatively new and wasn’t talked about in the mainstream world. He just wasn’t that excited about it and so we actually never did implement anything with him beyond that.
Noah Rosenfarb: That’s interesting because I would think there’s a lot of resistance among owners of automation because they have something that works and the devil you know is better than the devil you don’t know.
Dan Abbate: Sure.
Noah Rosenfarb: How have you been able to fight that resistance perhaps with some of the other businesses or with other owners that you talk to?
Dan Abbate: What we’ve done in the past is - I mean, obviously, I hate to say it but a lot of times age has a lot to do with it. Even if people don’t understand it, if they happen to skew a little bit younger, they at least understand the potential of it and how it can work.
Another thing that is kind of a resisting factor, as it were, that causes people to resist, is their connection to their labor base, because when we do this stuff, processes change. Sometimes people and departments become obsolete and are no longer necessary and that’s the whole point. The whole point is increase sufficiency, increase profitability, all that sort of stuff.
But in that process, people that maybe work with this company for many years may not have anything to do with the company anymore, and if you’re an owner and you’re really tight on the day to day processes that can be tricky. Sometimes emotions play more into it than just the logic and the kind of importance of running a really efficient business. I think that was a little bit of what was going on in the case of the guys who bought us. It was the same sort of thing. These guys had guys that worked for them, for this company for a long time and they didn’t really want to rock the boat on that. It is a challenge sometimes to get people to see it and to overcome some of these other things that are really completely not operations based and are more just kind of an emotional connection to the business.
Noah Rosenfarb: So while you’re running this stamping business, on the side you have an Internet company going, is that right?
Dan Abbate: Correct, yes. While I was doing all the stamping stuff, I was involved in the whole late 90s Internet thing. I started a small, basically just a joke site, if you believe it or not. I was just posting jokes, asking other people to post jokes. That was the beginning of it and again, thinking back to the 90s, you have to remember that’s how it was. There were specific sites that did different things and this one was a joke site.
So we started to generate traffic and at that time the big NASDAQ type Internet companies, the ones who were getting the hundreds and millions of dollars in investment, had to show their stockholders something. They had to show that they were doing something, so they would create whatever their product was and then they’d had to get traffic across it because, you know, everyone knows that you can make the prettiest website in the world and the best website in the world but if no one’s on it, no one uses it, it’s obviously not worth anything. These guys - the big NASDAQ guys had a real motivation to make sure they got traffic, so what I realized was that there was a definite market for anybody who could supply them with traffic. They didn’t really care where this traffic was coming from. They just needed to show people coming across their sites, you know, performance kind of advertising for them. They want to make sure that they pay and then they get somebody on the site.
That’s what I based my next Internet business around which was acquiring other small businesses, some that had just a few employees or maybe even a one-man show, that were already getting a lot of traffic, and then integrate them into one system on the backend so it was all run off with one server. We didn’t have to increase any of our payroll or labor associated with running these businesses and we just create a big massive amount of traffic. Kind of at the top, our best, we were doing about 100,000 to 150,000 unique people per day across our network of websites, which by Internet terms isn’t huge but it was sufficient enough to create a nice business and some good cash flow from these guys that were buying that traffic. It was a really interesting time to be involved.
Noah Rosenfarb: You did some site acquisitions to get more Internet traffic. Why don’t you tell our listeners about those deals? How did you find them? How did you acquire them?
Dan Abbate: Sure. Again, and they actually still like this. There were people that were just building websites, creating a small amount of traffic and selling them on. When I say small that might be 10,000 a day, 20,000 unique per day, something like that. Most of the webs that I was involved in or that I acquired were all somehow a weird direct connection, like I don’t think I ever went to any listing sites or anything and bought anything. All the guys that I connected to were acquaintance of acquaintance of acquaintance kind of relationships, and they were all cash deals.
Unlike the earn-outs in the manufacturing business on the Internet side there are no hard assets. All you’re really buying is the name, like that’s pretty much it. You’re buying a domain name, which already has all the links and stuff to it. So we ended up paying cash for all of the businesses and, again, prices were inflated at that time. You’re paying, geez, I don’t know, somewhere between 10 and 20 times cash flow on some of these, because that’s what the whole market was at that time. We’d buy them, integrate them into our processes, which would increases our size and then increase our valuation.
Noah Rosenfarb: So what prompted you to sell that business?
Dan Abbate: Good timing, and it was only an accident that it was good timing. Late 90s, we had gotten to a point where we were big enough that we were starting to attract attention from some bigger guys. I had known somebody again through an industry connection who had just gotten a bunch of money from some venture capital guys to continue to grow his business. He was just moving into some bigger acquisitions. He had some money to spend and so he offered me something and I was like, "Okay, I’ll give it a shot. Sure." "At some point you have to cash out, I guess," that was kind of my thought. I was actually planning on taking that money and then doing it again and continuing to build in a new direction.
Luckily, for me, he bought me out and then six months later was the big dot.com bust so I was all cashed out at that point which really was obviously pure luck but it was the right position to be in. Yes, honestly, it was just taking the opportunity that somebody offered just randomly.
Noah Rosenfarb: It’s better to be lucky than good sometimes, right?
Dan Abbate: Yeah, I think so. I have another story about that too, as we move on here through my timeline.
Noah Rosenfarb: You sold that business in 1999 and then you sold the stamping business in 2001, is that right?
Dan Abbate: That is correct, yes.
Noah Rosenfarb: After those two things were out and about, what were you working on?
Dan Abbate: At that point, I was doing startup stuff with the folks in real estate. Look how I follow one bubble to the next. Let’s see. Early 2000, 2002, whatever it was, I was looking for something to do. Obviously, I had a little bit of money put together from these various things that we had already done, and purchased some buildings - or a building, let’s start with that one - purchased a building down at downtown Albuquerque, New Mexico, of all places - long story on why it was down there. They’re doing this downtown revitalization thing and it was going to be part of this whole thing that they were doing, developed that into a live entertainment comedy venues, and then started a business, and then in the process of running that as a startup, the idea being that if we can make this work, because the real estate at that time, mid 2000s, was increasing, if we can make this work we can create a network of these venues. That’s actually what we did.
Going back to the software side of things again, a lot of times the difficulty that these types of venues have is just management organization. There’s not a lot of economies at scale that come with entertainment venues because in each entertainment venue, you have to have a duplicate staff. We looked at it more like, "Okay, if we’re going to do this," again, with the focus on trying to create value on the real estate and the business is really kind of ancillary to just paying to the real estate so that hopefully the real estate will go up, created a custom software from scratch. Same sort of thing, now completely 100% internet based, so we were able to keep track of what’s happening at that particular venue from anywhere in the world, which again was starting to be a new concept, and the start of the software that would manage everything from ticket sales to show scheduling to the producers were able to log in on their own and schedule their own rehearsals or anytime that they needed in the space.
It was just kind of automating the entire process of running this business, and in the process of doing that basically took a venue business, which generally maybe had five or six people in each venue, and boiled it down to a one-man show at each venue. Now we had a corporate side, which oversaw everything, but because of the software one person can conceivably run one building.
Once we realized that, we’re like, "Okay, now we’re good to go. We’ve got a profitable business, we’ve got a real estate that’s increasing in value. Let’s do it again." So we went to Chicago 2006, which I knew was a much bigger comedy town, and then did it again. The thing that was really interesting about it was the Albuquerque project, obviously we’re just starting from scratch so it took a little while to develop the software and get everything worked out, the Chicago building we had purchased had done the construction, and getting the software to work in that location took literally ten minutes, because we had everything all set up already to run multiple locations. At that point, we could just jump from property to property and continue to increase our assets basically by holding all of these real estates. That was 2006, so we did see downturn shortly thereafter in the real estate market, which then it was like, why do it, you know. The businesses make money on their own but without the component of the real estate it doesn’t look like the business that I want to do 20 other buildings at this point. You know what I mean.
Noah Rosenfarb: So did you guys license that software to other comedy venues or is it still proprietary?
Dan Abbate: Actually, as part of our business model going forward after we’re kind of changing with the environment - the real estate environment - we’re actually licensing it out to independent owner operators who want to run - it’s not really a franchise because my attorney says that’s a different technical legal thing - but it’s an independent owner operator. Basically, they take our entire business model, the use of the software, which of course is key to the whole business, and then they actually take ownership of the property and we just get a royalty off of their use of the software, so yes. To answer your question, yes, that’s something that that business is pursuing.
Noah Rosenfarb: That’s great. I think nowadays they call that pivoting in your business.
Dan Abbate: Right.
Noah Rosenfarb: When you acquiring venues, were you acquiring existing comedy locations or you were just acquiring a space and converting it into a comedy venue?
Dan Abbate: That’s exactly right. We were purchasing buildings that had been empty so that we can buy them as cheap as possible and then we would put the money into them, do all the construction.
The other thing to mention, too, is when you’re doing venues, there’s a lot of issues - safety, life safety stuff you have to deal with - so it’s not cheap to make these conversions but that’s a good position to be in because if you are doing something that isn’t cheap, then it also keeps others from just jumping in and doing the same thing really easily, so it’s a barrier to entry for competition. We would actually do the whole process of construction and get them up and running.
Noah Rosenfarb: Interesting. What happened to you in that business and your role in the licensing of the software? Do you have to do updates? Do you have to manage that robot?
Dan Abbate: You know, I don’t actually. We do upgrades. We do updates when things come up. The users will send us requests like, "Hey, it would be great if it this or it does that," then we’ll make those changes periodically. About every six months or so we’ll go through it and we’ll do some additions and change things and that sort of stuff, but for the most part we’re running a few million dollars through that system and don’t really - on a day to day basis - don’t really do anything with it. It all manages itself and then the individual users come in and provide it with whatever input it needs from people. It’s pretty cool.
Noah Rosenfarb: For your licensees, have you been able to get some data from them to figure out how much more money do they make now that they have your online automated …
Dan Abbate: Yeah. It’s pretty straightforward because the more money that they make is really just based on that they don’t need any staff, like the owner - in our case, the venues that we’re running right now or that we’re working with, they’re small venues. They’re people that probably only had four or five people on staff to begin with and now it’s literally a one-man show, that’s just basically the owner or maybe one, if the owner’s absentee, maybe one manager person who handles the whole daily operations of the business. Just multiply it out. Instead of four or five people you only have one, each of those four people that you eliminate probably were getting $30,000 to $50,000 a year so software’s basically save them $200,000 a year, something like that, if you want to look at it that way.
Noah Rosenfarb: That’s great. Take me into now and the work you’re doing now with helping other business owners automate their companies. How did you come up with that idea and where are you at?
Dan Abbate: Well, the thing that we found with all of this is that the major value that I personally bring to companies and that I enjoy like which is my passion, is all of this software stuff and this process stuff, looking at companies and figuring out how to improve them and how to simplify. Things are so complicated in life in general. It’s so much better if you can have an automated business versus a business that you have to actively manage all the time. In that process, we’re like, "Okay, how can I do this more?" Up to this point, I’ve been doing my own acquisitions, I’ve been doing my own startups, I’ve been doing all this stuff on my own so my time was limited, so how do I do the most of what I really like to do, which also creates the most value for companies?
That was the question that I asked and the way to do that was Robotaton, as we talked about earlier. Robotaton is a company that rather than me purchasing companies or starting up companies, it allows me to invest directly into other people’s companies so that I can bring these same processes to their companies and create these huge savings that I would have if I was to purchase the company or if I was to start the company.
Noah Rosenfarb: Maybe we could segment the market, because when I think about the type of implementation that you do, I could see a lean manufacturing, different $50 million manufacturers whether they’re based here or overseas or, you know, large companies that fully automate their systems because they understand that they can invest a million dollars in software and buy a fully integrated off the shelf package and then customize it to their unique business. What is it that you’re doing in a small and medium-sized business market? How was it different or how are you able to apply something that, from my perspective, hasn’t been able to be applied to a $3 million or $5 million company?
Dan Abbate: Yeah, that’s a good point. You’re right. The big guys actually have whole departments and they have huge dollars to spend on consultants and stuff to make all that sort of stuff happen. We basically bring economies of scale to the smaller businesses, to the few million dollars or just ten million dollar type sized businesses. We have all the expertise. We have financing. We have our own money to invest into these businesses so that they don’t have to come up with the cash honestly. We talk to a lot of businesses and that’s usually the second biggest hurdle to put automation in place, which is, "Geez, I don’t have $300,000 or $400,000 to spend. It would be great. I know that I’m going to be able to save that much the first year, but I still have to come up with it now in order to that." We take that out of the equation because we’re putting our money directly into the business and then money comes back out after savings are realized.
The first major hurdle, of course, is just ideological, that people have to be ready and willing to make that change in their business, that it’s going to severely - in a positive way - severely change the structure of the way that their company operates and that that’s going to result in cutting of overheads.
Noah Rosenfarb: What’s interesting to me is that we’re not just talking about manufacturing - I know that’s how you got started - but you’re applying it essentially to ticket sales and Internet companies. Who can this apply to and how would somebody know if automation might be right for them?
Dan Abbate: That’s a great question. Yes, that’s the thing to recognize. When we talk about automation and robots and all that sort of stuff, people do think of car manufacturers or various types of manufacturers, but that’s not only what we’re talking about anymore. That’s the way the technology is going and our ability to utilize it today, we don’t have to wait ten years from now. This is happening now and this is happening for the past ten or fifteen years as well.
Any type of business, all businesses have a backend component. They all are invoicing, they all have accounting, they all have scheduling, they all have various components in their processes that are very universal. In that universality - if that’s a word - that’s where we fit in, because we can look at a company and we can say, "Okay, you’ve got six departments from," you know, the placing of an order, the order goes through six departments before an invoice is generated at the other end. How can we take as many hands off of that as possible so that at the other end, there’s doesn’t have to be that human component in there anymore, moving that communication. Increasing the ability for processes to communicate between each other is what we do and I’ll explain what that is.
The way that most companies operate is they use Excel spreadsheets - a lot of Excel spreadsheets - or other off the shelf systems that are supposed to do something specific for them. For example, QuickBooks. QuickBooks is an accounting package that works very well in terms of accounting, you know, invoicing POs, that sort of stuff, but it doesn’t talk to any other part of your business. At some point, you have to have a person or two people or three people or a whole bunch of people that are reconciling whatever is happening in the real world down into your accounting package and then back out again. What we do is we just utilize one single system so that you don’t have to make that leap between processes. You don’t have to change it from paper on the retail floor - maybe it’s a paper system, the guys just write something on the notepad taking orders, whatever - you don’t have to transfer that into an Excel spreadsheet, which then does all of your inventory and what you need to buy to keep the shop filled, and transfer that into your accounting system which generates all the other invoices and stuff. That all takes people in between. They’re doing all those things.
What we do is just take all of those processes and mush it down into one system, and then a smart system too, and not just a system that’s keeping records but a system that can try to predict and adapt to whatever is actually happening. When it has all of the information available to it, you can do that. When you have a system that is able to watch the process of a sale from end to end, it can start to make very smart decisions because it has all of the different steps completely available to it all the time. Now, when you have standalone systems, obviously you can’t do that because it doesn’t know what’s happening at the end of the line. It only knows what’s happening right in front of it.
Noah Rosenfarb: If I just name some systems, maybe you could tell me if they get all mushed in to the one integrated to them. Are you talking about my CRM system, my email system, my accounts receivable, my accounts payable like on the accounting side, my purchase order, my bill of lading, my bill of materials, whatever it is within my business, all these different systems that I’m running, you’re customizing a software program, which you refer to as a robot, as one integrated system?
Dan Abbate: That is correct. That’s the goal. The goal whenever we look at a company is to try to squish everything into one system that’s managed by one system, so instead of people utilizing tools to implement all those processes the system itself is actually administering all that and the people only have to come in when the system gets confused by something or something doesn’t make sense in terms of the standard day to day process.
Noah Rosenfarb: So when you do this - and let’s use an example of a company that has sales force on the CRM side that use QuickBooks on the backend or they have some Microsoft programs that they’re running and maybe they have an AS 400 that does a bunch of their order entry and whatever else - do you integrate them with an overlay or do you eliminate them with something new?
Dan Abbate: It depends on the specific instance. Most of the time, it’s going to be something new because all those packages that are proprietary that you’re describing specifically don’t have an open component to them, meaning that they don’t have a way of getting information in and out of them very easily so you can’t hook them up to a robot as much as you can with something that’s more open-based, open source, basically.
There’s kind of a funny story about that, asking about that proprietary and integrating new products or new parts. The Department of Defense just - I don’t know, two or three months ago, something like that - issued a new initiative that they figured is going to save them $15 or $20 billion a year in new product because they’re basically pushing all their vendors, the people that are selling them all this equipment, to start to go into an open architecture system, which basically means that they can’t create systems that are closed and overly proprietary. All the little parts in the middle can be proprietary but on both ends they have to have openings so that those parts can be easily upgraded. The whole system becomes modulated at that point and I think that’s what you’re talking about, is that when you have these closed proprietary processes within the business there’s no way to make them communicate with each other.
There are things you can do, like something is really working well and you wanted some how, it can be done. But the ideal situation is that all those processes get replaced with a new custom system that will then allow the business processes to run seamlessly from start to finish.
Noah Rosenfarb: So who doesn’t this work for? Have you been able to define, you know, doctors, lawyers and accountants, architects and engineers, sorry guys, you’re out?
Dan Abbate: Yeah. It depends on what parts of their business you’re talking about. You’re right. There are certain parts, like let’s take a restaurant for example. That’s a very layman type of example, a restaurant. At this moment in time, from a technology perspective you’re not going to replace the waitresses at a restaurant - the people or the waitresses at the restaurant. You’re not going to replace them because we don’t have giant mechanical robots that can walk around and carry the food. That’s not going to happen, not now. Twenty years from now, who knows, but not now.
That said, if it’s a restaurant that has a purchase order person or a purchasing person or department that’s making a lot of back office type operations, if they have a big accounts payable maybe they’re doing a lot of corporate stuff so maybe they have a big accounts receivable, depending on the business. It’s not really by industry. It’s more based on what their backend office operations look like. If you’re a small mom and pop restaurant where the owner’s buying and selling all the inventory and kind of just running everything, yeah, there’s a lot we can do for them. If you’re a five, six local chain type restaurant that has some efficient backend operations, they’re a real potential because at that point you have a lot of data potentially coming in from multiple locations that can be all consolidated into one process in the backend and then all of the ordering and all of the stuff that goes along with that can be done through our system. It’s really not by industry. It’s more about the specific circumstance of that company.
Noah Rosenfarb: So if an owner has payroll, I guess it’s essentially the payroll of back office administrators is what the software helps to eliminate.
Dan Abbate: Yes, that’s probably the best way to sum it up. If you have back office administrative labor, that’s kind of a sweet spot for us. Then, of course, we’re thinking about all the side costs of that. We’re not just talking about the administrative labor by itself but we’re talking about payroll taxes, insurance, overhead in terms of offices and computer equipment and phone lines. Once you start to shake out that administrative labor costs you also get these ancillary benefits as well which also add up pretty quickly.
Noah Rosenfarb: Yeah. Have you defined what that headcount or payroll size needs to look like in order for automation to make sense?
Dan Abbate: Yeah, it depends on how complicated the system you’re installing is. If it’s a fairly simple system, maybe you really only need to eliminate one or two people maybe make sense financially. If it’s a big system then obviously you need to see more benefit.
For the most part, if you’re a smaller company with two or three people on the backend administering stuff, that probably would work, because usually the backend - especially backends that are running manual processes - it usually commiserates well with the size of the company because that ratio is kind of the same. As the volume goes up, that cost of running a manual system goes up as well. It usually works out that we can usually figure out something to do with these companies.
Noah Rosenfarb: Our audience is basically split, not quite down the middle, between advisors to owners and owners that are listening. Maybe you could talk to each group somewhat separately. If you’re an advisor to owners and you’re looking to create more value in your business and clearly software automation, if it’s reducing payroll, it’s going to increase profit so it’s going to increase value. How would they identify an opportunity for you and get in touch with you? Then maybe we could talk to owners. I don’t know if the message is any different.
Dan Abbate: Sure. It’s probably fairly similar for both. I guess from the advisor’s perspective, their goal would be increasing valuation. I would assume that would be their goal. The important thing to realize is that this doesn’t cost anybody anything for us to evaluate and even invest in these companies. If they think that there’s a potential to eliminate this back office stuff, from what we’ve talked about, contact us. Talk to us. We’re still making purchases and acquisitions on our own utilizing the same concept so we’re looking at companies every single day. Let us look at it. Let us see what it’s all about. The third big component to people not implementing these types of automation solutions is that they just don’t even know what’s available.
I don’t want to leave it up to people to decide, like, "Oh, this business isn’t going to work for that, forget it," because it very well might. When we get to take a look at it, we know everything that’s out there. Current technology wise, we know what we’re capable of. We have lots and lots of contacts across the world but also have particular skill sets to create these solutions. The best thing to do is let us look at it. There’s no cost for us to look at stuff. We like looking at stuff. We like talking to people. That would be my suggestion. If you have that sweet spot of back office labor, there might be a real potential of savings.
From the owner’s perspective, sort of the same thing, let us help, let us take a look at it, but the thing for the owner that they have to realize is that if they want to run a business, because I’m an owner -I’ve owned businesses and done a lot of different things - and frankly running a business can be a real pain on the butt and it’s really nice when you are able to implement a robotic software or hardware or a combination of both, solution, to make your business more simple to run, so that you’re not having to contend with the unknown elements that sometimes humans play into your daily processes. Once you have your system in place and it’s running and working for you, you know exactly what it’s going to do. That’s the real advantage of the owners. It’s extremely 100% predictable at that point. Short of lightning strikes and other crazy happenstance situations. You know exactly what your business is going to do on a daily basis.
Noah Rosenfarb: If an owner is two or three years out from when they intend to sell their business, can automation still be right for them? Is there enough time?
Dan Abbate: Yeah, absolutely. In fact, that would probably be the best time because from my experience buying and selling businesses, people are going to want to see two to three years cash flow and tax returns and all that sort of stuff so that’s probably the best time to implement these things, so that you can show in a documented sense how much money you’re actually making from these solutions. It’s also a good selling point for your business. If somebody’s looking to buy a business for themselves to operate, or even as an absentee for that matter, you’re going to want these buyers, they want to see a business that’s simple to run. Nobody wants a headache business so if we can help make your business easier to run, it just increases the marketability. Aside from the valuation of it, it just makes it a more attractive prospect.
Noah Rosenfarb: Yeah, great. For our listeners that have an interest in talking with you either about their own business or client’s business, what’s the best way to get in touch?
Noah Rosenfarb: Great, and all that information’s available on the Divestopedia website. For those of you that listen to us on iTunes, please take the time to give us your feedback. If you visit us on the web at Divestopedia there’s a link to leave us your comments and certainly you could email me, [email protected]. I’d love to hear from you. Thanks again for joining us and we look forward to having you on another episode.