– Welcome, everybody, to today’s “Building My Legacy” podcast. I have with me today Dustin Muscato, who is CEO of Green Street Advisors.

– Advisory. Yeah, Green Street Advisory.

– Green Street Advisory. He has an incredible amount of experience in private equity, in deal sourcing, and execution portfolio management, strategy structure, due diligence, all of that. So he has a tremendous amount of experience working, in New York, in Connecticut, with the issues of business needs. So with that, Dustin, I’ll just turn it over to you to share with us what you see the trends being and what you see the impacts are for business today.

– Great, thank you, Lois, so much for that very kind and humbling introduction and for having me here today. So as I was sharing with you when we first connected, I mean, there’s a lot of, I think, opportunities right now that all businesses have available to them to take advantage of, and, of course, there’s challenges, whether it’s sort of general market challenges. I mean, right now you have inflation, so you have cost of goods and cost of labor that is going up. You have supply chain shortages. Believe it or not, despite sort of record unemployment through the pandemic, you have what I will just call record challenges in hiring and in the labor markets. And so I think it’s twofold. You have tremendous opportunity right now and yet you have very interesting challenges which came on really quickly. There’s two of ’em that I think are highly relevant regardless of sort of product or service that the company is offering, or, rather, what market or industry they’re serving in, and regardless of the size of the company. I think there’s two core issues that are highly relevant to any business today. My experience is really here in the U.S., so these comments are highly relevant. It very well may be quite different over in Europe or Latin America, so my comments are really specific here to the U.S. and really more so the small to medium-sized business or what I’ll call the middle market or the lower middle market, okay? So I think the two issues that are really interesting are filling the labor demand that companies have to service their growth that they’re seeing, whether it’s organic growth because the markets are on fire or they’re just executing really well and so they have to hire and grow their business, and associated with that growth is the need for efficient tailored capital to fund that growth, right? And so these are two things that regardless of what industry you’re in, you have to overcome, and you have to solve these issues intelligently. If we can talk about this, I think that we’ll be able to deliver a lot of value to your audience. And so let’s talk about hiring for a minute and just talent sourcing and really just the the workforce environment we find ourselves in today, right? So going into the pandemic, you have record employment levels, right? I think unemployment was at historical lows. Everybody considered, I mean, this was the basis of the election, right? It was, well, the economy is raging, and so that’s gonna really weigh in the election. Of course, ultimately that things turned the tide and it went another direction, and that went where it went. But you went from having sort of the lowest unemployment to record historical, I’m sorry, employment to record historical pandemic-driven unemployment. And I know that I was expecting that to rebound, and, of course, you would think that everybody would be racing back into the workforce, and, interestingly enough, that’s not what happened right now. I’m not an economist, so I’m not gonna talk about macro trends. I can talk about it from the lens through which I am actively working with companies right now. So you’ve seen companies that have, let’s say, high volume workforce: call centers, sales organizations, construction organizations, which tend to always be hiring on a regular cycle. That’s just sort of part and parcel of their business, right? And these are reasonably good jobs that are reasonably good paying jobs. They’re not minimum wage jobs, right? They may not be very high paying jobs, but they’re respectable jobs or a person can earn a respectable living. They can learn a skill, they can learn a trade, and if they learn that skill or trade, they’re gonna be able to monetize it. So you would think that these would be jobs that are in high demand, but what’s interesting is that the demand from the hiring side has been so dramatic to fill the demand, this pent up demand through the pandemic, that companies have gotten into literally like labor price wars trying to hire and train and retain talent. And actually what you’ve seen is a bit of fear because they’re worried now that, well, hey, if I was typically paying this job at $25 an hour and I go out and I hire a middle level person, I’m gonna actually pay them $30 an hour. I’m gonna train them. I’m gonna embed them in my organization. Is my competitor gonna come in and steal them for $32 an an hour? Even though we were all paying 24, 25 a year ago, I can’t believe someone would leave my company for an extra $2 an hour, and yet we’ve now seen that happen over and over and over. So the question is, is, well, how does a company… And that’s, of course, just one example, right? There’s a lot of ways that we could hit it, but I think this is really relevant to small businesses that don’t have an unlimited budget, right? They don’t have unlimited low cost Wall Street financing to sort of grow their workforce. And so you’re a small business owner, and you’re facing these challenges, and how do I invest appropriately? Well, I think the answer is, is you have to step back and you have to figure out, well, what is the real opportunity you’re creating for that person that would then make them move past? Because anybody can sort of come in and offer an employee a couple dollars an hour or if it’s salary, a few thousand more a year. I mean, that risk is always there for a business owner, right? So how do you overcome that? And I think the first answer is small businesses have to begin thinking about, well, how do I create an opportunity or a career for this person even if they’re not gonna spend the rest of their life at my small or medium-size business? How do they know that if they stick with my business and they deliver value, I’m gonna deliver value back to them beyond just the wages and compensation they’re gonna be? So I think, number one, it goes without saying that we’re simply in a time period where companies have to figure out how to be competitive to retain the best talent, okay? Or really to attract, rather, before retain. To attract the best talent, you have to figure out within your organization or within your organization’s economic capabilities, how are you going to attract the right talent with the right compensation and benefits and even framework, right? One of the things that you see more and more is people want access to freedom of mobility and freedom of time off, and if an organization can work with that person on a trust and value-driven basis, that they can get the comfort that, hey, if I hire this sort of mid to senior-level person and they have more vacation time than I’m accustomed to, it’s not gonna matter because they’re gonna deliver so much value. It’s not about hours put in but about results, right? And so I think if the businesses think that way, and they seek to attract people that also think that way, you’re gonna get much more of a partnership-driven hiring situation, and then that flows right over into the retention, where if I’m at a company, and I know there’s a great opportunity, and I’m providing value, they have every incentive to continue to retain me. And at the same time, if I’m going to them every 45 days saying, “Well, hey, your competitor across the street offered me another $2,” and I’m the business owner, and I fear that’s gonna keep happening, then I don’t feel good about that relationship either. So I think you have to first set up your organization so you can attract the right talent and then you have to work with that talent about, what’s the real opportunity? Why are they taking this job with this company as opposed to the competitor across the street? And it’s because of the longer-term opportunity and the value they’re gonna get back from that company and that partnership-driven. These things may not be relevant to, let’s say, the lower levels in an organization, right? Sort of like non-VP, non-direct, or non-executive, right? Where you just have an employee, they want their hourly wage, maybe it’s less relevant, but if they think they have job security, their paycheck is gonna be on time every week, and that there is a future opportunity, you’re still in a better position than had you not thought about those things.

– You hear that discussion a lot, right? And so now the onus is on the company to really explain what it is, what their value system is, what their attitude is towards employees, because that people are shopping for that right now.

– They are. Yeah, they are. And I think you bring up another point, which I didn’t really hit on but is really highly relevant, especially not just corporately, but socially now, which is that people are evaluating the values, right? So the philosophical approach to doing business to people. And these are tough. I don’t subscribe to the binary sort of approach or thought on some of these issues, right? Like people wanna say, “Well, hey, it’s a black and white issue. It’s either this way or that way.” I don’t think that that’s real, and I think that in the real world when you’re dealing with diverse workforces of everything, culturally, age, experience, backgrounds, it’s very difficult for a business to try to sort of create almost a matrix of, how do I please, everybody, right? It’s more about defining core values that speak to you, the onus of the business, the employees of the business, the customers you’re trying to serve, and that, of course, are reflective of, I mean, this is gonna sound silly, but of the modern times, right? I mean, things are different now. You do have to be more thoughtful in the workplace about social engagement issues which just weren’t relevant before. And whether businesses like it or not, these are important issues, and they’re only gonna get more important. I think sometimes business owners get concerned with, well, how do I please, everybody? Well, you’re never gonna please everybody, and that’s on a personal basis, right? We’ve all learned this lesson. If you go through life trying to please everybody, the only person who’s gonna be unhappy is you. So for a business, you’re never gonna create sort of a hierarchy of, how do I please everybody? What you can do is you can define true core values that you can adhere to that are reflective of the current environment, that drive your business forward, that sort of add value to your clients, and that the employees and partners that you’re working with sort of can see that, and it’s reflective of, I think, where we’re at in today’s society.

– As you’ve worked with companies, Dustin, especially in the energy sector, how have you found companies are handling this? Have you found best practices? Have you found people who have been able to embrace this and find good solutions? Or what do you see happening?

– So I don’t wanna say that I’m an expert, let’s say, on employee engagement matters, and typically I’m not working with companies directly on that, right? I’m not an HR manager or a labor consultant or something like that. So I’ll talk at the higher level and how it’s come up and how we’ve addressed it where it has come up. I certainly know people who are absolute experts in sort of employee engagement and culture building, and I’m happy to refer some of those people to you ’cause I’m sure this would be a really hot and exciting topic for your audience, but I’ll talk about it at the executive level and the board level, which is where I engage and where I interact. So business owners are concerned that they don’t know how to react to these issues, and they’re concerned that if they have senior people that are embedded in their organizations that are very high value, but they’re, I don’t wanna say they’re older and stuck in their ways ’cause it’s really not like that. They’re accustomed. They’ve been doing something like this for 15 years, 20 years. They’re accustomed to certain interactions in the workplace. And so I think the first and most successful thing that I have seen where we’ve talked about these issues is it has to come from the top, and you have to be forthright, and you gotta sort of break that mold right away. You gotta get the key leadership in a room, and you have to just open up the topic and say, “This is real. We have to talk about it. We have to adjust where necessary if we need to adjust.” And even if it’s as simple as, “Hey, we’re bringing in new talent that is different than the talent that we were bringing in before,” and, “We wanna see this. We wanna see a merging in a collaborative sort of approach because we actually fundamentally believe as an organization that the audiences we’re gonna be serving are gonna care more and more and more about some of these social issues that we never even had to think about.” And I think that what you’re gonna find is that when you have an open and thoughtful dialogue and people understand that it’s about the evolution of the business as it serves more and more of its audience, that these are gonna be open and respectful discussions as to how you, I mean, you may need changes to legal documents for employment agreements. I mean, you sort of get into to this granularity, right, where you’re hiring new employment lawyers to advise you on these things. And so I think the primary piece of value that I can deliver there is that it’s gotta start from the top. You shouldn’t be fighting, even, again, to get back to, let’s say, the talent attraction, right? Well, if all of your competitors are able to pay more, then maybe it says something about the efficiency of your organization and how you’re managing your business. If you are so stuck that all of your competition has figured out a way to pay an employee another $2 an hour, but you haven’t, you can fight it. You can say, “The employees are crazy. Last year we paid 25. Why is it 32?” Or you can figure out how to thoughtfully review your organization, where the inefficiencies are, so you can be competitive in the marketplace. And so I encourage people to look at all of these problems in this way, right? It’s just you raise your hand, you say, my responsibility, solution oriented, let’s engage everybody, hear all the voices. And so there’s a term, and it’s escaping me right now, but it’s basically that the best and most productive ideas win, right? So you bring everybody together, you have an open dialogue, and then you get the best solutions.

– Yeah, I think we’re gonna see a need for collaborative leadership down the road, and it’s different than how we’ve been traditionally taught to lead. I think there were models back in the ’70s, perhaps, where we began to play with it, and then we made a shift in how we began to look at organizational development. But you’re right. People are asking for something very different, and it’s, in a sense, very collaborative.

– Dustin-

– Agreed.

– You talked also about money, and I’m concerned that companies have access to capital that they’re gonna need in that mid-size range company. What’s your sense sitting on boards of directors, and what’s their experiences with that?

– So this is an interesting question. And so I think that there’s, in many ways, there can actually be a misconception about access to capital. And so, I mean, with interest rates at historical lows, even as we’re probably gonna see, I mean, I think we know we’re gonna see interest rates rise this year, right? To curb inflation, and hopefully that all works out. Again, I’m not an economist or a macro person, so I’m not really gonna opine further on that, but I think there’s an expectation that, generally speaking, there is going to be a general rise in rates over the coming years, which affects everything, right? Because it just changes the whole dynamic, from borrowing to investment expectations. And yet the reality is, is even with those rises in interest rates, on a long-term basis, we’re still gonna be at a historically low cost of capital. It’s not gonna be free money like it has… At the largest sort of ranks of Corporate America, right, Fortune 100, Fortune 500, I mean, interest rates have been so low as to almost be zero, right? And so you’ve seen, and there’s a lot of data out there on this, which is that corporate borrowings of every type have been at absolute record numbers, which is sort of it’s good for Wall Street and it’s good for the companies because they can perpetually refinance. They can borrow, they can grow, they can leverage up their businesses in ways that it makes sense when you’re borrowing at 1% or 1.2%, right? It’s almost free. That’s gonna change. And so I think you’re gonna see that change at the larger ends of the business. But when you get down to the middle market and the lower middle market, there’s record amounts of capital available for that segment, but not all business owners actually know how to take advantage of it. Whether it’s financing through the SBA, which, believe it or not, has always been there, but people really weren’t, you know, sort of they didn’t really understand how to take advantage of it. And with the PPP loans and things like that, I think that that really opened up a concept of, hey, there’s a real financing vehicle here which might be really workable for my business, through sort of SBA loans and things like that. But on the private markets, you have both private equity funds as well as credit funds, venture debt and things like this. I mean, every other day there’s an announcement of a new fund that has been capitalized that seeks to focus and serve this market. But where I think think the efficiency has not yet come is from the other way, right? So you have a lot of money chasing what they believe is a small number of opportunities, or not small, but a fixed number of opportunities, which then drives lower cost in those markets. But I think that on the borrower side or the corporate side, if it’s sort of a private equity investment, they don’t yet really know how to access this capital that they’ve heard is available, but they don’t yet know how to access it. And so I think there’s a phenomenal opportunity for people to intelligently figure out how to engage a broader set of sort of lower middle and middle market companies that are seeking growth capital. I think despite the challenges with COVID, I think that people are very excited about the growth capabilities that we’re gonna see because now people actually figured out, well, you know what? I actually can conduct my business on Zoom calls. Maybe it’s not ideal, maybe it’s not perfect, but I actually know that I can operate and grow my business even in this challenging environment. And so I think there’s a resiliency that has come from that regardless. And I’m largely focused on energy, so a lot of my lens is through that, and I can speak about the solar business. And, I mean, the solar market in the United States has grown more in the last 18 months than ever in history, and it’s not slowing down. There’s record amounts of capital available, and people are really trying to figure out, well, how do I access this capital? How can I use it to grow my business? But that’s the piece that on the company side, they have not yet figured out. Well, I hear it. There’s all this money available. How do I get it? How do I connect with it? So I think you’re gonna see a lot of innovation there in the coming years. I mean, people throw around the word fintech, right? So more and more fintechs to sort of address this capital deployment inefficiency. I think you’re gonna see more of that. That’s just my opinion, but I think the trends are pointing in that direction. But, yeah, I think there’s a fabulous opportunity. And I think one of the best ways that companies can take advantage of the capital that’s out there is gaining a clear understanding of what type of capital is right for their business.

– Yes, yes, very much so, yeah.

– And I think that that’s a challenge, right? So when you speak about sort of this generalized concept of capital markets or investment or whatever it is, it can get very blurry, especially with a company that has not historically had some sort of a third-party financial partner, whatever form that’s been in, right? And so I think that one of the best things that a small business can do is really to educate themselves on, well, what do I even need? What do I have to have and show in my business that’s gonna be attractive for the right type of investor or lender, whatever the case may be? I mean, you can have anything from receivables financing to sort of small business term loans to minority equity investments to preferred equity investment. I mean, there’s so many ways in which investors are willing to engage and interact with a company to give it the resources it needs, but if you need an equity investor, you shouldn’t be talking to a lender. And that’s a pretty obvious example, but there’s so many sort of layers in to target the right investor or investment group that’s gonna actually give your company the capital it needs to grow. I think educating themselves about this industry is probably the number one most effective way that any group could approach it.

– I think you’re absolutely right about education because as we were coming out of COVID, I was talking with a number of businesses and asked them how were they doing and how were they thriving, planning to move forward. And the comment that I heard over and over again was, “Well, we’ve gone through angel investing. VC is becoming a little bit more difficult.” And so there’s this sense amongst business of, how do we navigate this? It’s just what you were talking about, that when you’re in business, you don’t have the time or the energy-

– That’s right.

– To begin that discussion. So what would you suggest to people? How do they look at that? How do they begin that process?

– That’s a great question, and I actually think that you’re sort of identifying, ’cause whenever we look at any situation, right, you can think about what’s the top-down approach or the bottom-up approach, right? And so the bottom-up approach is where you have a proactive business owner and, let’s say, the earlier stage, right? So maybe they do have a couple of hundred thousand dollars of angel investing, and that’s taken them to the point where they’re now growing, they’re servicing more and more clients, and they need working capital, or they need to hire some design engineers, and they need additional liquidity that their business can’t fund today. And the traditional route would be to go do some sort of a VC or still maybe a pre-VC or some level of institutional capital that is beyond angel or friends and family, right? So that’s more of a bottom-up approach of, well, I need it. Where do I go? And if you’re in Silicon Valley or if you’re in New York City, then there’s reasonable access to it. You can find it, right? You can find it through Google searches, and there’s a platform. Just this is purely… I am not an advocate, I’m not a sponsor for this, but it’s just an example of there’s something called Axial, A-X-I-A-L, and they’re one group that has sought to solve this both on the investment side for access to opportunities as well as on the business side, so you can sort of become a member of their platform and they help connect you. There’s more and more… They’ve been around for a number of years. They’re a great outfit. And there’s more and more of those sort of connective tissue type situations that are cropping up. But I think that, again, I think it comes down to, I mean, the good news with the environment we’re in today is that you can learn anything on the internet for free. And Elon Musk said that over and over and over, right? I mean, the question is, and this is asked more and more, does a person even need to go get a formal four-year education now and get a bachelor’s degree? A lot of discussion we could have on that, but on the topic of ability to access knowledge, which gives me the ability to pursue something effectively and execute on it to grow my business, you quite literally have unlimited access to all the information you’re gonna need on the internet. And so, as crude as it might sound, I think business owners that think they need financing, the first thing that they should do is go to Google and spend a few weeks educating themselves. I mean, they’re gonna be miles ahead purely from doing that. And probably a lot of groups do do that. Even if it’s through that, you then find the names of a few outfits that you you believe could be potential. Maybe there are intermediaries, investment bankers, or placement agents, or what have you, that could help your business. Even if it’s just getting the names from a few of those and reaching out, once, like anything, once you begin having those interactions, it’s gonna lead to other things. I’m a big believer of just pick up the phone, call, reach out, you meet people. What you’re gonna find, as companies begin to interact with, let’s say, the institutional investment world, you’re gonna find that you’re dealing with very professional, educated, thoughtful people, which is why they’re successful, which is why they’re sort of managing the situations they’re managing. And if they can’t help you, and you’re thoughtful in that interaction, in many cases, they’re gonna be willing to refer you to someone that can help you if they have that contact. And so I think you just have to get started, do some research, reach out to whoever makes the most sense, and then just sort of it will evolve from there. That’s what I think is true.

– Do you see, Dustin, a point where companies coming together? Like, you’re in the energy sector. Are there things that some of the companies that you work with could work together with and perhaps cut their costs, increase their strength in the marketplace, they could dominate it better? Do you see any of those kinds of opportunities emerging?

– Are you referring to like, let’s say, vendor partnerships or you referring to companies that would otherwise be competitors?

– It could be. So it could be any of the above. So the reason I’m asking that question is, as we look at knowledge, for example, some companies have more knowledge in certain areas, and they can share it. That’s a valuable commodity. Other people are very good at, they figured out this talent business and employees, and they figured out how to manage it through their organizations. And whatever the issues are, if you had a group of these that actually came together and thoughtfully shared and helped each other in that industry, do you see that that could possibly take shape?

– Yeah, I mean, if I may, I mean, I would sort of just define what I believe you’re referring to, which is really the synergies within two different organizations, right? So sort of the old, you know, you have peanut butter, I have jelly. We put ’em together and we’ll both bring a piece of bread. One plus one equals three, right? So, I mean, to me, that’s really your traditional sort of M&A thesis. And you have some organizations… I’m a believer that regardless of what industry you’re in, sales is almost always king, right? If you can’t sell efficiently and effectively in a scaled manner, you’re always gonna struggle, right? So organizations that may be imperfect on execution or financing or capital structure, but they’re just absolute monsters on sales, those companies tend to do well. They tend to be around for a long time because as long as you can grow the top line, and you have money coming through the organization, you can solve a lot of other problems. But you could be the best hiring and labor company in the world, but if your sales are stagnant, you’re really gonna struggle.

– It doesn’t matter, does it? No.

– It doesn’t matter. And so I think that the answer there, it comes down to each individual company, right? So maybe you’re the company that is just fantastic at sales, and you recognize that, and you know that your competitors are sort of struggling to sell at a cost of X, and you’re already selling at a cost of .5X, right? So you’re so far ahead, but maybe you’re really having a hard time on execution. And you’ve tried, and you’ve hired, and you just sort of can’t get it right. That’s a great situation. You can say, “Well, who are our competitors that seem to be really good at the customer fulfillment side?” Or the manufacturing side or the supply chain side, right? And so the question then becomes buy versus build. Is it more efficient and effective, and can we overcome maybe the cultural differences of a company that’s largely driven on sales and that sort of just internal corporate culture versus an organization that’s not really sales focused? Can you combine those effectively? And that’s sort of an age old question in M&A, right? I mean, I think it’s a great thesis, and with a low cost of capital out there generally, like we were talking earlier, it’s certainly a great environment to leverage that, right? If you can borrow money and go make an acquisition or do some sort of a merger with two companies that allows for greater scale, then that’s always a good idea, but there’s always risk in that too, right? Nothing is risk free.

– Absolutely, there’s nothing that’s ever risk free. Dustin, our time is almost up. And so what have we left out that’s really important for people to know in today’s market, the market that’s coming in the next five years?

– That’s a great question, and thank you for the time. I really enjoy this, and we’ll have to do it again. I think it’s just the starting point that you have to look at the market that’s emerging as the best opportunity that you’ve seen in a hundred years because it’s that sort of creative, forthright mindset that is going to allow you to approach these new challenges, because the reality is it’s all new for all of us. Here we are on a Zoom call, and this is how a lot of us spend a great majority of our days, is doing thing digitally. So just to use that as a single example, right, everyone had to figure out, how you do that? How do you do it? But if you embrace it and you can say, “Well, this is the new current reality. It’s not changing. I can push back on it. I can protest it. I can quit. I can move somewhere else where my lifestyle is different.” Well, but the reality is the world’s gonna continue, and so you have to embrace the new norms in a constructive way, and I think recognize that change always begets opportunity. And so just evaluate it, not as challenges or problems, but purely as change. And so step back and figure out how to evolve. Engage your people because more often than not, the solutions are gonna come within an organization from the people that are dealing with the minutia of the challenges. And I give a really simple example on this, but as one company that I’m working with has grown four times in the last 12, last 15 months.

– Wow.

– Something as simple as, how do we organize the office that does the permitting and the scheduling? And we realized that it has to be done on a local level. We really thought we could centralize it. We were driving the people nuts on the local level. We didn’t even realize it until we went and asked them. And they said, “We’ll do it. We’re much better at it. We need to handle it locally.” And we said, “All we had to do was ask the right questions to the people who are affected by those decisions, and we got all the answers we needed.” So that’s what I would leave you with: engage your people, let them help you solve the problems of growth of the business, and just know that the greatest opportunities are ahead of us, and it’s gonna be an exciting few years.

– You know what? I love your optimism, Dustin. That is so great. ‘Cause a lot of people are nervous and worried, and your optimism and just looking at it as, wow, this is new opportunity, is I think that’s exciting for people. So, Dustin, thank you so much for being with us today on “Building my Legacy” podcast. And those of you who are with us, thank you too. And Dustin, we’ll have you come back. This is a wonderful discussion to keep on having. Thank you.

– Thank you, Lois, have a great day. I appreciate you having me on, and I look forward to speaking with you again.

– Thank you.

– Bye.