Episode 11: “How To Hit The G.A.S. on Growing Your Business”

A Transcript For The Readers:

Marshall Atkinson:

Many businesses talk about growing their sales and setting goals.  For apparel decorator and marketing king Tom Rauen with Envision Tees in Dubuque Iowa, expanding the business and obtaining new customers has been a focus.

He has developed an interesting way of doing that with his “Growth Acquisition System” or G.A.S. for short.

On this episode of Success Stories, we will dig into exactly what this unique approach is, and why it is working so well for Tom at Envision Tees.

So Tom, how are you doing today? Welcome to Success Stories.!

Tom Rauen:

Hey everybody. I’m doing great. And glad to be here.

Marshall Atkinson:

Let’s just start off with the fact that if you don’t know Tom’s and my relationship we’re business partners, right? So we own Shirt Lab together.

And, we met a long time ago at a trade show. You took a class from me, and since then we’ve become friends and we’re doing a lot, a lot of fun stuff with Shirt Lab, and S&S who sponsors this podcast is also a big sponsor of Shirt Lab.

So big shout out.

Tom Rauen:

So I like to say in order to move forward, to, get momentum in your business and grow it. You’ve got to step on the gas, and that’s our growth acquisition system.

And we’ve been implementing that for I think right now…we’re at six acquisitions in the last seven years, and that’s enabled us to reach the Inc 5,000 list of fastest-growing companies in America the last three years. And it’s just been an amazing ride so far.

Marshall Atkinson:

Let’s start with your origin story, Tom. So how did you get into this business? And then what markets are you focusing on sales? And I think that kind of dovetails into the, what you’re doing with the gas system.

Tom Rauen:

Yeah. So I started in 2005 in my parents’ basement.

We started off with ball stars on a heat press, which is making Christmas ornaments and custom sports photo balls.

Then we got a Stahls’ clamshell press and started ordering and transfers. That’s present t-shirts with transfers. That only lasted. So that only lasted about three months and I knew I had to get out of the basement into a storefront with high traffic locations.

So we moved there, and upgraded to 2000 square foot space, got a single head embroidery machine and the six color manual press. And we were open for business. Like it was, uh, ready to rock and roll.

So the first two or three years was really just cutting our teeth and learning the hard way, making a lot of mistakes, pulling all-nighters, working six-seven days a week, whatever it took to, you know, keep moving forward.

And our goal always has been to build a solid foundation for our business, reinvest in equipment, reinvest in technology. And then as we began to grow, reinvest in our team and people.

Over that course of time, we’ve grown. Uh, we moved out of a 2000 square foot facility to the 7,000 square foot building in 2012.

And then most recently we just expanded into a 35,000 square foot facility for operating four automatic presses, two manuals, about 50 heads of embroidery, a laser bridge, a couple of laser engraving machines, and a couple of large format printers. So gone quite a bit.

But with that, what’s helped fuel that growth has been the acquisitions and the model we’ve had behind it.

And I’ll say through six acquisitions, we’ve learned a lot…of, learned our sweet spot and learned what works and what doesn’t work. And I can go over a few of those with you right now.

So number one, the biggest mistake I’ve learned is you want to make sure the equipment aligns with what your current equipment is.

So if you have all M&R equipment in the business you’re looking to acquire has all, some other brand it’s really tough to sync everything up because you have different squeegees and flood bars at different platforms, different parts, and different services.

So if you have to have a service guy, come in, and, you know, work on tuning up all your machines. It’s going to be different.

The same goes for embroidery. If you’ve got Tajima, or Barudan or another brand and the company that you’re buying has all different ones. Maybe they take different file types as a DST file is that, you know, what is the file type?

So that is a huge one. You want to make sure everything aligns with your business equipment, being a big one.

Um, the other things that you want to make sure aligning from the start are, you know, your core values and some things like that, just to make sure that the customer base usually is following. And, um, along with the former owner, you know, it’s going to be attracting the same type of people.

So, um, you want that customer base to be able to get to know and like, and trust you. The same as they did with the previous owner. There are a few other things along the way that you’d want to check, you know, make sure that they have a good customer list with all the information.

So do they, does their customer lists in some sort of database?

Do they have contact information? Mailing addresses? Email addresses phone numbers, what is missing errands? It’s just one big mess.

The same goes for art files. So there’s a huge value in, all the art files. You think how much time their graphic designers put into building these art files and everything else, especially when it comes to embroidery for digitizing.

Do they have 500 digitized files or do they have 5,000 digitized files?

That can be pretty expensive if you have to re-digitize it? And how are they saved?

The one we acquired, after the fact, was an absolute mess with reorders because a logo was saved as “Logo 1”, “Logo 2”, “Final Logo 3”,  “Revision 2, 3, 4 or 5”

And there was no sort of way to look those up. So it was a complete mess.

So you want to make sure that you see what kind of systems or processes they have in place, what kind of organization they have in place with their files, whether it’s your customer database or their art files, and things like that.

Cause that makes a huge difference post-acquisition.

Marshall Atkinson:

Okay. And so when you buy these businesses, how do you do the valuation?

Do you bring in an independent person? Do you just wing it and throw a number? I mean, is there a formula that you’re using?

What do you do?

Tom Rauen:

So we’ve got kind of our own little formula put together for that, and it really depends on the size.

Any business below, I would say below $500,000 in revenue is the single, one, two, three employee business. And there’s not a whole lot of value there because you’re not really buying the systems and processes and everything else involved.

So a lot of times you’re getting some equipment that you’ve already probably have.

So there’s not a ton of value there. So you gotta look and value, what is the used rate as equipment? Cause most likely you’re gonna have to sell most of it. You might be able to fill in a few things.

Inventory and supplies. That’s kind of just icing on the cake. Um, but you can, you know, weigh that into it and really want to look at their top 20%.

It’s the 80/20 ratio. Um, usually the top 20% of the customers are bringing 80% of the revenue.

So you want to look at the top 20%. Top 10, 20, 30 clients. And see what kind of volume that is, that and base a number off of that, because if you’re buying a business in a different state, even in another town, you’re going to lose some of those hometown businesses.

Joe’s Lawn Care from such and such city is not going to migrate over to your business, possibly.

So some of those smaller accounts, you’re not going to get, but if there are larger national accounts or even any of the larger ones, those are the ones you want to focus on because those are the ones that are going to continue to bring substantial money, post-acquisition.

So for those, you want to get an introduction. You want to do a Zoom call with you for a face to face meeting, and you want the former owner to do a handoff, essentially.

Tell that customer that they build that loyalty with and that trust with, “Hey, here’s the new owner. I want you to trust them. I want you to continue to do business with them” and give that kind of passing of the torch from the customer to the new owner.  So it’s a seamless transition.

Marshall Atkinson:

So you’ve bought small businesses and medium, large, and your most recent acquisition was pretty famous.

Tom Rauen:

Yes. So this one was actually five years in the making 1-800Tshirts and 1800Tshirts.com. I’ve looked at this five years ago as I was brainstorming different marketing things.

I thought, what is the best real estate you could have when it comes to being in the t-shirt business? And. One 800 t-shirts and wear her t-shirts dot com. It’s super memorable. It’s easy to remember without writing it down. If they hear it, you know, whether it’s on social media or just by word of mouth or whatever the case may be is a very distinctive name for a brand.

And so reached out to, um, Frank knew the owner of it. He’s owned it for 40 years and, uh, operate in screen-printing and Franklin, New Jersey. And. I said Frank, I was, I’m interested in buying the business, the phone number, the whole nine yards, and this was in 2015 and he emailed me back and said, I’ll look forward to, um, continuing the conversation.

And I plan on retiring in 2020. So let’s talk then. So in 2015, 2020 seemed like just so far away from me or what I continued to do was I knew it was something that was going to be valuable and something that long-term would be really good for our business. So I continue to stay in touch with Frank.

And you know, every six months ago we’d stayed in touch. I flew out there and met him and a lot of their values aligned with ours. The other nice thing about this business was they had no equipment, so they’re contracting everything out. So we’re able to bring all those orders back in-house, fill some capacity here in our production facility.

And continue to work with those counts. They also have a really nice customer base of some national accounts. Uh, their average order size was very nice and, you know, a nice long-term stable business that’s been around for 40 plus years. So we were super excited about that. And, you know, over the last five years, that was just continuing nurturing.

You know, making it happen in the next year, of course, 2020 with everything that’s going on with the pandemic, it was… “is this the right time or is this the wrong time?” And, you know, I said, this was the time from the get-go in 2015. So matter what’s happening in the economy right now. We’re pushing forward and we’re going to make this happen and we’re going to make it work.

It’s been, it’s been amazing so far.

Marshall Atkinson:

Well, this is why you’re putting the pedal on the gas, right?

“The pandemic’s going to end. I’m making a decision about the future.”

Tom Rauen:

Yes. And we made this decision in 2015. So even though the circumstances have changed right now, what’s going on right now, this decision today is going to impact us of what the business is going to look like in 2025 and beyond that.

Marshall Atkinson:

So when you’re talking with another business owner about buying their business, what’s the, what’s the downside of that?

I mean, do people kind of overinflate it because they’re so personally attached?

What do you do with their employees? Like there’s, there’s gotta be some things attached to that where it’s just super difficult and really rocky to navigate?

Tom Rauen:

Yeah. So the first part is the smaller, the business, more personal attachment that they have to it, you know, it’s their baby that we’ve all, you know, birth and grew from the ground up.

So there’s a lot more, you know, I’ve got sweat equity in this and I built this. I put all this time at work all these nights and weekends and everything. It’s worth X amount. Cause they’ve got all this personal attachment to it, but as the business gets larger, they realize that it’s not so much them or their personal attachment to the business.

It’s concrete. The actual numbers are what it’s worth. It’s you know, what is the customer list? What is the annual revenue? What is the profit that’s really, you know what it’s based on. Then you had in some equipment inventory, you can factor that in, but you know, the true valuations, you know, after business gets to a certain size.

And I think then the owners are able to separate their emotion from it a little bit more. And realize that all dollars and cents and the numbers tell the story, sorry.

Marshall Atkinson:

Yeah. So are you buying the real estate as well?

Tom Rauen:

In cases, we have purchased the real estate and in others, we have not. So it kind of just depends on the size of the business what’s going on and if it’s easier to roll up.

So like for a local business, like we acquire a competitor in our town, seize it, roll that up in one location. We can immediately look at the P&L statement and see all the overhead expenses that they have and start cutting those out or redundant services.

So like, you know, a subscription to Sage or all these different services that add up to be a lot of money and expenses.

But when you combine those two businesses together, you can cut all those out and that really increases the profit,

Marshall Atkinson:

Your growth and success have really opened a lot of doors for you. So what’s the most surprising thing, looking back at everything you’ve done and your kind of journey that you didn’t think would really happen?

Tom Rauen:

You know, when you’re operating out of your garage so many years ago, one of the fun things is…If we’re to write down and say, “Hey, what is our dream customer list? And, you know, it would be cool to work with so-and-so someday or, you know, whatever the case is…”

Like we’ve attained all those and beyond.

So, printing t-shirts for the World Series and for the Washington Nationals and for Bryce Harper and different things like that, like that was stuff I would never have even imagined starting out.

And then, I was on a reality TV show, Fireball Adventure Rally on Amazon.

And so like that was a door that got opened up through this. And I had no clue that would happen, uh, in the 1-800 TShirts brand is going to continue to open up more doors on a national scale. So, you know, we’re excited for the relaunch of that e-commerce site on Shopify and just pumping out that brand, um, all over the place.

It’s going to be a lot of fun.

Marshall Atkinson:

Another thing that I don’t think a lot of people in this industry know is that you have businesses that are not in this industry, right? I mean, you own a brewery.

You’re a partial owner in the Field of Dreams. Can you just go through some of those real quick and talk about how they kind of help shape what you do for your business in this industry and how you acquire businesses for the future?

Tom Rauen:

So the brewery is a great example. You know that we started two years ago, two and a half years ago with buildup and formulation and everything.

But the fun thing about that is the retail that we’re selling at the brewery is kind of like a test pilot or case study for the products and designs and everything else that we’re introducing to other breweries throughout the country.

So, yeah. We’re able to get some new products in, we’re able to test them out, get them out there and find out if it’s a hit or miss the hits, we can easily go to other breweries and say, “Hey, we’ve got this hoodie, or this koozie or pint glass or whatever the case is, we did this design.  Here’s what works. And it’s been selling like gangbusters, you know the patch hats. We do certain styles and stuff like that.”

And by having that proof, and not only like, as a client would as kind of being on the back end as well. We’re able to take that model it and expand that to other customers and clients as well and help build the business.

Marshall Atkinson:

Okay.  Cool. All right. So if somebody wants to get a hold of you, Tom, what’s the best way they can do that, if they want to learn more about what you do or maybe how you can help them?

Tom Rauen:

They can, you know, look me up on Facebook, LinkedIn, or Instagram. The handle is at Tom Rauen247.

Or they can go to tomrauen.com

Marshall Atkinson:

And we can’t end this without talking about Shirt Lab Tribe.

So let’s give a plug for our business. So, what’s that about man?

Tom Rauen:

So, so, happy about Shirt Lab Tribe.

You know, we’ve been gathering experts, not only in the decorated apparel industry but all over the place that are just sales and marketing experts and people experts in crazy little niches, you know, finding someone that’s really just rocking it in Pinterest or rocking it on LinkedIn or Amazon and bringing them in as guest expert speakers on a weekly basis, sharing their expertise and their knowledge with everyone in the Tribe to be able to help everybody grow.

So, when we started this, people asked me, why are you helping or why are you teaching your secrets or some of your success to others in the industry?

And, you know, essentially competitors, right? And I’ve never looked at them as competitors. I always,…I always, the term is coopertition.

So I want to cooperate and collaborate with others and the industry. And I think the more we can do that, we all raise up together.

We all add value to what we’re able to give to our customers. And we’re able to charge more because it would be more profitable and just keep growing because of it.

So the main goal for me is like, how do we give back?

How do we add value?

How do we raise up the industry together?

And, you know, just, and just gain the other cool, like by-product of this is when I say, coopertition is when we cooperate and collaborate with others in the industry, I’m learning from them. They’re learning from me and we all get better.

And then we’re building amazing relationships and friendships. I know last year at the live events, you know, social media and being aligned is one thing. But when you’re able to meet and get those interactions in person, we’ve made some amazing friends in the last couple of years in the industry.

And you know, those are going to be lifelong relationships and friendships that I value at times.

Marshall Atkinson:

And as Mark Coudray says all the time, “If I win, that doesn’t mean that you have to lose.”Yeah.

Tom Rauen:

Yeah.

Marshall Atkinson:

Win together.

Tom Rauen:

Yeah. Yes. Abundance mindset. And even with our local competition is that there is more than enough business to go around for everyone. There’s plenty of t-shirts to be printed for everyone.

So I got the button, it’s “Mind Set Up”, you know, let’s all do it. Yeah.

Marshall Atkinson:

All right, dude. Well, Hey, thank you so much for your time today. I really appreciate you.

Tom Rauen:

Awesome. Thanks all. I appreciate you too.

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