John Davids (0:00)

This guy makes 19 million bucks a day picking up trash and he got there by getting his hands dirty. His name's Ron and he runs a company called Waste Connections. I'm going to tell you exactly how he did it and how you can apply a lot of these lessons right now to your business and make a lot of money today, tomorrow, and for a long time after that. That's coming up in just a sec. Welcome to the podcast. My name's John Davids, but y' all can call me J.D. i'm the CEO of Influicity and on this podcast I like to share the stories of some of my favorite businesses and the people behind them. If that's your thing, go ahead and hit that subscribe button wherever you're listening. Share this show with a friend and leave a rating and a review. That's how I know to keep making these things. Get my best stuff to your inbox@johndavids.com and now let's talk trash. You're listening to Making it with John Davids. So rewind to 1996. That's where this story starts. Ron's working at a big garbage company. He's kind of like middle management and things are good, but something's kind of bugging him. His company is always wrestling for big sales in big cities. They want to pick up trash in New York and Chicago and Houston, Miami. And these contracts are juicy, so it makes sense. But what about the small towns? I mean, they have garbage too, right? And someone's got to pick it up. Who's doing that? So Ron gets an idea. If the big boys are obsessed with the big markets, there's probably an opportunity on the other side. All across small town America. And so Ron starts to do some digging. He's doing his research and his hunch is right. There are so many small towns that are dominated by family run trash haulers, mom and pop shops. It's fragmented. This whole market is ripe for a roll up. Someone can come in and really disrupt and make it a whole lot better. So Ron starts sketching out a business plan. And here's what he has on his mind. So number one, he's thinking of targeting small towns with less than 10,000 people, rural cities and suburbs. Two, he thinks he can buy up small family run garbage shops and organize this messy marketplace. And three, he figures he can run this whole thing, lean and standardize everything, bring big city rigor to small town trash. So he makes his move. He quits his job, he raises some cash and he sets up a New company. He calls it Waste Connections. Then he gets to work. Ron starts scooping up small waste companies. He buys up 5 across Washington, Idaho, and California. These are all mom and pops serving small towns you've never heard of. It's perfect. He keeps the staff, upgrades the trucks, and layers on fancy tech. And then he just rinses and repeats. Ron's also winning new contracts. And they're all small, but they're stacking up fast. By the end of year one, Waste Connections hit $17 million in sales with 21,000 customers. But we're just getting started. You see things are going well, but this opportunity is actually really big. Bigger than even thought. And he needs more cash to buy and build fast. More cash than he even thought he would. So in year two, he takes the company public. And then it's a cash windfall. Now he's got plenty of money for growth, so he hits the gas. Ron quickly buys 20 more trash haulers. Nebraska, Wyoming, Oklahoma, all over. He's cornering small town America. Plus, he starts buying landfills, transfer stations, and recycling plants. Super important. I'll get back to that in a second. I'll tell you why. But now Waste Connections can run the whole operation top to bottom. By the year 2000, revenues pass $100 million. A decade later, it's passed a billion dollars. And in 2023, Waste Connections hit 7.2 billion in sales. This is one hell of a business. And you guys loved it. You loved this one when I shared it across my social channels. Instagram, TikTok, LinkedIn, YouTube, and my newsletter. And. And it taps into a whole bunch of stuff. Obviously, there's the whole dirty business theme, which I love. It's kind of nice to see people making a whole bunch of money by getting their hands dirty. But the other side of this story that's so cool is just how you go from running a couple garbage trucks in rural towns to running one of the biggest waste management companies in the whole world. And when you unpack the story, it actually makes a lot of sense. The answer is Ron did this through a time tested rollup playbook. And it's a strategy that's quietly minted a whole lot of millionaires, big and small, even quite a few billionaires. So I want to break down this model step by step, tell you exactly how Waste Connections was built, how a rollup works, what makes it successful, and kind of what goes on under the hood. And also what kinds of other businesses are ripe for it, which ones you absolutely should look at, and which ones you shouldn't look at if you're thinking about of a roll up yourself, maybe with your existing business or something in the future. All right, so let's start with the big idea. This episode is brought to you by my one minute marketing roadmap, available@johndavids.com roadmap in 60 seconds, you'll get a custom report showing you how people are finding your brand, where you're losing them, and how to fix it. We used a decade of data from Influicity and layered in AI to give you a real action plan. It's fast, it's free, and it might just change your business. Go to johndavids.com roadmap and get yours right now. A roll up is when someone takes a bunch of fragmented small businesses in the same industry and starts buying them one by one and then rolling them under a single company or brand. Now that brand can be the first business that you just happen to buy, so that becomes like the umbrella brand. Or maybe you already had that business, say you built it yourself and then you start buying other businesses. And the point of the roll up is you're taking an industry that's messy, maybe even a bit chaotic, and you're creating order, you're making a market. That's what Ron does with waste connections. He sees that all these little garbage haulers, mom and pops, all over these tiny towns are doing the same work. But none of them have scale. None of them have standardization. They don't have buying power, they don't have software systems, they don't optimize their routes or create cost efficiencies in any way. They're kind of just surviving out there in the wild and taking it day by day. So Ron sees this and he realizes if he can buy them and bring some structure to this chaos, he can build something massive. Now here's how the roll up playbook usually works. Step one, you gotta find the fragmentation. You need an industry where there are tons of small players and there's no big dog dominating the Think nail salons, dental clinics, home services, local gyms, even funeral homes. That's actually a really big one. The more scattered the competition, the better because it means there's no standard and no one is offering what the customers or the employees really need at scale. So fragmentation, check. We got that. Step two, you need to standardize operations. So once you buy a business, the goal is to clean it up, put everyone on the same software system, use the same trucks, the same uniforms, the same customer experience. You don't mess with the local flavor too much, especially if people trust the brand locally. But under the hood, behind the scenes, you run it like a machine. And this is where the real money is made because you can cut all the redundant costs, you can negotiate bulk deals with suppliers, you can get better financing from banks. It's like going from a single food truck to a fast food chain. It's a big difference. Sure, yeah, they both sell tacos, but one sells the Taco with a 4% profit margin and the other sells the Taco with a 44% profit margin. Same taco, more profits, I love it. Step three, you gotta layer on leadership. Most of these small businesses are run by the original owner. And by the time they achieve any kind of success, maybe that original owner is tired, maybe they've plateaued, maybe they want to retire or just do something else. So when you acquire these small companies, you can give them the option to exit and maybe they'll stay on for a year or two. But you've got to be ready with professional managers who can take over and really do a good job. People who know how to scale. Now, there are definitely examples of roll ups and strategies where the original owners stay on. And I've seen this done, but I got to be honest, it's actually very hard to pull off because think about it, the original owner whose business you just bought, they don't want to work for you, right? That's why they started their own business in the first place. Plus, they're probably burned out after running this thing for 7, 12, 14 years. And most importantly, you've just paid them a whole bunch of money. Their bank account is juicy right now. So they got a fat bank account. They're probably going to want to just chill and do something else. And you know, if they do stay on, they're probably going to resist any change that you try to make them do. So in reality, it feels nice to say, oh yeah, we're going to buy your company and we're going to let you do your thing. But in reality, it doesn't usually work like that. All right, step four, you got to fund growth. Now, you can do this privately. If it's a high cash flow business, you can grow off the cash flow. Or if you have another business that's spitting off cash, you can use those profits to fund the roll up in the early days especially. Or you can do it with private equity. You can raise money from investors or you can go public like Ron did. Maybe it's a combination of all of them, but either Way, once the machine starts working, you need capital because these deals add up fast. And you don't want to grow too slowly because the value isn't consolidating quickly before someone else jumps in with the same idea. So that's a super simplified roll up blueprint. Now, if you do all that right, if you buy well, you clean up operations and you grow with discipline. You don't just build a bigger company, you build something where 1 plus 1 equals 3. Or maybe 1 plus 1 equals 10. Literally. Here's what I mean. A small business, when it sells, might be worth three times earnings. So if you got a business and it's making $5 million a year in profit, it might be worth $15 million when it sells. Because 5 million times 3 is 15 million. But a larger version of that same company, with faster growth, more professional management is suddenly worth 10x earnings, maybe 12x or 15x. Because investors are always willing to pay a premium for a larger business. And that's why the math works so well. Right? I'll give you an example, a really simple example using Ron. So if I'm Ron and I'm buying one local mom and pop garbage company, and let's say that garbage company is doing a million bucks in profit at the end of the year and I buy it for a 3x multiple, so $3 million. But my company, Waste Connections, is already doing, let's say, $100 million in annual profit. Well, my company doesn't get a 3x multiple. I get probably a 10x multiple on profit. So the second I buy that mom and pop garbage hauler, it's not worth $3 million on my balance sheet. It's worth $10 million just because I own it. That extra million dollars in profit adds up to $10 million for my valuation. It's an arbitrage at scale, literally. And that's where roll ups become massively profitable. Okay, now you know how to do a roll up. But before you rush out and do it for yourself, my friends, wait a second. How do you know what industry is ripe for a roll up? Okay, here's a cheat sheet. Ask yourself a few questions. Is the industry fragmented? Is there operational fat to trim? Can you add things like technology, know how, ip, brand service to really bring up the level of operations? And if the answer to those questions is a resounding yes, well, there could be an opportunity. But watch out for those red flags and look for dominant players in the industry already. Right? Or a lot of regulation also. Ugh, I hate regulation. Or maybe customers are just attached to their local brands or their local founders and they don't really want to go anywhere else. It'd be super hard to standardize those businesses and kick out the leadership. So if you got that kind of situation, back off and keep looking. Alright, so the next part of this story that really caught my attention is, is actually the money. Yeah, yeah. The cold hard cash. That probably doesn't surprise you, of course, because the money always catches my attention. But there's a lot more money in this business than you might think, or at least more than I thought. It's really kind of a gold mine. So let's walk through how Waste Connections and other giants in the space are actually making all this money with garbage. First, let's talk about the most obvious way of all. Number one, they have a recurring revenue business with basically no churn. No one cancels their garbage service. You know how people say things like which would you cancel first? Your Netflix? Your Amazon Prime? Well, try throwing in garbage pickup. Like how many people could live without garbage pickup for a month? That'd be pretty tough. So it's a subscription that you really don't cancel. Now of course, if you're a big municipality, you're doing a big bid out to the market. Yes, you can certainly cancel, but those happen few and far between and you've got different types of customers. So there's the residential customers, of course, who pay monthly or quarterly. Sometimes that's done through a city contract, but in small towns it actually happens house by house sometimes. Then you've got your commercial clients. Think about restaurants, office buildings. They pay for large dumpsters. Those big dumpsters you see outside. Yeah, those are from the garbage companies and they have much more frequent pickups because you can't just do that once a week and got to do it every day sometimes. And then you've got the municipal contracts, which are often multi year like I said, and those could be worth tens of millions of dollars. So that's predictable steady cash flow, it's high retention, it's minimal churn. And there's no flashy marketing required. It's just juicy profit. Trash to cash. Now, the second way these guys are making money is through the trash itself. Because oftentimes trash is actually not trash, it's a commodity. See, once garbage is picked up, it gets sorted and filtered and parts of it become valuable inputs for other industries. You got things like cardboard, you got aluminum, plastics, they all have resale value. There are actually entire international markets for all this stuff. Even organic waste like food Scraps. You can turn those into compost and use them for energy production. You ever heard of poop powered buses? Yeah, that's a real thing. And it's exactly what it sounds like. So when Waste Connections buys a local trash company, they're not just buying trucks and routes. They're buying access to a constant stream of raw material that they can either charge to dump or sell downstream. Either way, these guys are getting paid. Marketing executives, business owners. If you are running a company and looking for a fresh perspective on how to grow that company, take a look at Influicity. That's my marketing agency where we work with brands across influencer marketing, podcasts, social media, AI content, paid ads, and so much more. But don't take my word for it. Go to Influicity. Check out our case studies from all the amazing clients we've worked with over the last decade. That's inf l u I c I t y influicity.com and I'll see you there. And finally, can we talk about landfills? Because these might be the sexiest pieces of real estate I've ever heard of. Owning a landfill means that you control the final destination of garbage. Every truck eventually needs a place to unload. And when that truck rolls in, the owner of the landfill charges what's called a tipping fee. Usually somewhere between 50 bucks and 70 bucks per ton. Now, that fee is pure margin. But here's the kicker. Let's say you own the landfill in a particular town. And let's just say it's a small town, like the kind of towns that Waste Connections operates in. Now, maybe you have 25% of the trash collecting contracts in that town. And let's say there are three or four other players who have the other 75% of the contracts to pick up trash. Now, all the trucks are going to be dropping all that trash off in the landfill. So even when other companies win the contracts to pick up trash, whoever owns the landfill is getting paid when the trash is dumped. It's like if an airline also owned the airport, right? You make money when people fly on your airplane, but you also make money when anyone else lands any airplane at the airport. You get to wet your beak on everything. And by the way, owning a landfill is like owning beachfront property, but in reverse. Seriously, this is some of the most valuable real estate on the planet. And here's why. Landfills are incredibly hard to build. Zoning takes years. Environmental reviews take even longer. Public opposition is fierce because no one wants a landfill anywhere near their home. Or anywhere in their neighborhood. And in some areas, it's functionally impossible to to ever get one open. So every landfill that waste connection buys and owns becomes more valuable over time, just by existing. The more time you own it, the more valuable it gets. And that's a really enduring moat. It's a force field you put around your business, which is long lasting and super competitive. Kind of hard to beat. So that's how you make a lot of money in the garbage business. Now, before we end this story of Ron Mittelstadt and waste connections, I do want to give y' all a bit of a reality check. And as much as I love this business and all the stuff I've been talking about, I don't want to over romanticize it too much because for all the talk about how sexy unsexy businesses are, there's also a really unsexy side to unsexy businesses, obviously. So let's start with labor. This is not a remote work, laptop on the beach kind of business. This is boots on the ground. You need drivers, mechanics, safety managers, and every day you got people showing up at 5am to hop on a truck and haul trash through rain, snow, heat, whatever. And drivers are expensive. These folks need commercial licenses, they need to be trained. And there's constant turnover. Not to mention that it's a tough sell to recruit new people into this business. Like how many 22 year olds coming out of college are thinking, you know what I want to do, I want to collect trash. So you've got the people challenge. There's also fuel. Garbage trucks are gas guzzlers, or we're talking like three miles per gallon. Now imagine if you've got a fleet of thousands of trucks. When gas prices spike, so do your expenses. And you can't just pass those costs off to your customer that day, right? You got fixed contracts, fixed rates, municipal budgets don't budge. And then there's the capital expenditures, the infamous capex line. Internet dudes like me pretty much ignore that line because my capex expenses are just a few laptops. But Ron's capex is $300,000 for a garbage truck times thousands. And all the other stuff he's got to buy to run the landfills and the recycling plants. You're not scaling with lines of code, you're scaling with steel and diesel. So yes, the business prints cash when it's working, of course, but it's also capital heavy, labor intensive, and very hard to automate. So you have to earn your margins every single day. And frankly, that's why it works because most people don't want to get their hands dirty. Not this dirty. And that's where all the opportunity lies. The world is obsessed with digital scale, and sometimes the real money is just in the mud. And that's why Ron's doing 19 million bucks a day picking up trash. If you like this story, let me know in the comments and the reviews. Subscribe here and get my best stuff to your inbox@johndavids.com.