Dan: Alan, tell us a little bit about your background. Where did you grow up?

Alan: I grew up in Brooklyn, New York. In the days when people try to get out of Brooklyn as opposed to those today where everyone's trying to get into Brooklyn.

Dan: It's the hotspot today.

Alan: It is. It is the hotspot.

Dan: So from Brooklyn, you then went to...what high school did you go to?

Alan: I went to Midwood High School.

Dan: In Brooklyn?

Alan: In Brooklyn. Yeah.

Dan: And it was a whole different community at that point in time.

Alan: Well, Brooklyn was still a very interesting area back then where, you know, my kids get a kick out of the fact that I told them that my high school career, you never went to the bathroom in high school because it was just too dangerous.

Dan: Really?

Alan: Yeah. Great high school, but there are certain things you knew you couldn't do.

Dan: Things not they do. Well, I guess it didn't hold you back because you then went on to University of Pennsylvania, to Penn.

Alan: I did. I did, yeah. Went to Wharton back in the days of the Vietnam War when people did not want to be a capitalist pig. So, believe it or not, it was actually much easier to get into Wharton in those days than it was to get into Penn.

Dan: Really? I never even thought of that perspective. So because of the business focus, that was not popular at that point.

Alan: That was not a popular place to be back in the counterculture days of the '70s.

Dan: So what year were you in college and what year did you enter college?

Alan: '71.

Dan: Okay. So was the...Woodstock just celebrated the 50th anniversary.

Alan: Woodstock was the summer of 1969.

Dan: That's right. August of '69. So, but you stayed on at Wharton and you got your MBA there?

Alan: That's correct. Did my undergraduate and graduate work. Got my BS in Economics and my MBA from Wharton.

Dan: And the MBA, was it two years at that point in times as well, or was it a combined program?

Alan: I was in the second year of an experimental combined program where you could enter Wharton grad at the end of your junior year.

Dan: And so you graduated in five years as opposed to four plus two, so to say?

Alan: Yes, that's it.

Dan: Do they still have that program, by the way?

Alan: They do, but the standards have risen substantially, so I would never make it in there today.

Dan: I'm not so sure about that, but I appreciate the humility. So you graduate with your MBA from Wharton and what do you do?

Alan: First job coming out of school was working for Pepsi up at their world headquarters in Purchase, New York. There I started first as a financial analyst and then moved over to become one of the heads of the plastic bottle program that Pepsi had developed because those were the days in the '70s when Pepsi was introducing the first plastic bottle for soda. And for those of us who can remember back then prior to the 1970s, all soda bottles were glass.

Dan: Well, what about cans back at that point then? Were they using cans? Cans have been around for decades, right?

Alan: Cans were around, but soda bottles where were still being used. And in many markets, they were returnable bottles.

Dan: Yeah. So the five-cent return or just no...return and we would reuse them?

Alan: That was it, you got a deposit with every bottle and return.

Dan: Got you. And what were you doing with Pepsi? You were managing this process of the plastic bottles?

Alan: Pepsi at that point decided that...Pepsi and DuPont developed the first PET bottle as part of a joint venture of the two companies. And Pepsi made a decision that it should really self-manufacture those plastic bottles. So the initial foray of Pepsi into the plastic bottle business was to try to build a series of self-manufacturing facilities around the country. And I was one of the key people in that program. Pepsi eventually decided, I think rightfully so, that it is a much better marketer of soda than it is a manufacturer of packaging. So it eventually decided to move away from self-manufacturer and allow others who were better at it and more devoted to it and who had the resources to devote to it on a nationwide basis to move into that marketplace.

Dan: So did that mean that your job went bye-bye because now you're in that group that no longer is needed?

Alan: That's correct, but about the same time I made the decision I was going to transition out of Pepsi and do something a little bit more entrepreneurial.

Dan: And what was that?

Alan: At that point, I did something that many of my friends thought was insane, but something I truly enjoyed, which was I left the safety of working for a company like Pepsi and I moved to a private company, a private manufacturing company based in Hoboken, New Jersey that was a manufacturer of packaging materials. And I became the top non-family member of this family-owned business.

Dan: Over what period of time did it take you to become the top non-family member?

Alan: The day I joined it.

Dan: Okay. So everyone was family but you?

Alan: All senior management was family.

Dan: Okay.

Alan: Yes.

Dan: And what type of packaging?

Alan: This was folding cartons, toothpaste boxes, cereal boxes, things of that type.

Dan: On a regional basis, on a national basis, what was it?

Alan: This was a super-regional firm. So that it manufactured for many of the leading health and beauty aid companies, companies like Johnson & Johnson, Mennen, and others back in those days.

Dan: Were there any type of codes requirements for the quality of that box, the cleanliness of the box because it was used for healthcare or not really?

Alan: Yeah. There were clearly manufacturing standards that had to be met for those boxes. But also many of them, for example, those used in the HBA world, health and beauty aids, were sterilized post-packaging also.

Dan: Oh, interesting. Just the way my mind thinks, but I'm like, okay, they had to be a little bit different. It just can't be a dirty box or something else that...

Alan: No, no, no. You know, these were not the corrugated boxes that you would think about. These were the smaller boxes that you find your cereal in or your toothpaste or any of those other types of products.

Dan: And so now you're the highest-ranking non-family member creating boxes. How long did that last and what was your experience like?

Alan: That was a great experience. I worked for a tremendous family who I still am very close to. And they truly treated me like family. It was run by two brothers who were significantly older than me. I was in my 20s in those days. They were in their 60s or 70s. And they gave me tremendous responsibility, tremendous autonomy, and I had a tremendous experience working with them and for them.

Dan: Getting mentored by them, learning from them.

Alan: That's correct. You know, they were not only great professionals in terms what they did in terms of their business acumen but they were also tremendous individuals devoted to their community. You know, very charitable, really great individuals who I remained friendly with long after I left the company.

Dan: That that's a nice story.

Alan: Yeah.

Dan: So, but you did leave the company?

Alan: After seven years, I decided that it was time for me to move on. We had grown the company tremendously, had done a lot of wonderful things, but it was a company that I was never going to own and I'm really an entrepreneur at heart. So after about seven years, I decided that it was probably time for me to go out and do something a little bit more entrepreneurial where I could own my own business and make my own fate. And so I decided to take that next step.

Dan: And what was that step?

Alan: First I went to the two brothers who I had become very friendly with and told them of the journey I wanted to embark upon. And they were supportive of this, disappointed but supportive. But what I did was I said to them, "What I'd like to do is to..." I knew they had become dependent upon me, so I would like to give them a year's notice. During that year, I was committed to go out to find, train, and replace my successor in my position. But I'd also like their cooperation in that I'd like to look for the business that I could buy. And they agreed. And we had a plan and it worked perfectly. I was able to identify, recruit, and train a successor. During that period of time, I did go out and try to identify a business that I could buy.

And the process was extraordinarily disappointing. What I found was that in the middle market, businesses were being largely represented by business brokers who in many cases did not have the level of professionalism or expertise that I would have preferred that they have. And I was kind of surprised by that. I couldn't quite understand why there was no one actually out there doing M&A in the middle-market arena in the professional way that I'm used to. And my friends who were doing M&A explained to me it was very simple. No one's smart who's going to do middle-market M&A because it takes as much time and effort to do a smaller deal as a much bigger one.

Dan: So let's just define for a second middle market, because middle market, you're very familiar with it. Me being in the financial industry, I'm familiar. But how would you define that for the average person?

Alan: I would say that it's a business that's larger than a business broker could handle, but smaller than a Wall Street investment banking firm would want to handle. In today's market I would say those are businesses whose value range from $5 million to several hundred million dollars, right?

Dan: Yeah. At that point in time, all they had were these "business brokers."

Alan: Yeah. And there were really great people out there doing mergers and acquisitions. But again, their view of the world was that it takes as much time and effort to do a smaller deal as a bigger one. In many ways, the smaller deals, the middle-market deals are more complex. You have businesses that aren't quite as prepared for a sale process. They may not have the level of professional advice that some of their larger peers do. And you have the emotion and excitement of the entrepreneur, which is the thing that has driven the business to where it is, but sometimes can be a challenge in the process of selling a business.

Dan: So what the M&A experts that you knew were saying was true. Right? So the meaning that the larger the business, you're still doing the same amount of work and perhaps even less because you have the skills of more experts for larger companies. So, but you decided otherwise.

Alan: Yeah. My frustration continued to grow as I tried to look for a business and try to find the right one. And couldn't find anybody professional acting as an intermediary doing deals the way I thought they should be done. And as I discussed my frustration with my friends, my colleagues, my family, several of them said to me, "Alan, look, you've done M&A on the large scale for Pepsi, you've run a family-owned business. If there's no one out there doing this professionally, maybe there's a market out there. And so in 1984, I decided that let me check this out and see whether if someone does provide really high-quality service to the middle market, whether there truly is a market there and whether there's money to be made in that marketplace. So in 1984, I launched DAK.

Dan: And you left the box company and you officially cut ties and you launched that.

Alan: I cut ties. I started in 1984 with 3 assets to my name, a Rolodex, an IBM Selectric typewriter, and a telephone. And launched from the basement of my house in New Jersey and tried to figure out whether there really was a market there.

Dan: All right. Let's take a sidebar for a second. So, I know your wife, Karen. What is she saying? When you go home and you say, "Karen, this is what I'm going to do," what is her reaction to this whole thing? "I'm leaving the box company. I'm leaving Pepsi. I'm leaving the formal business corporate world to do my own thing in the basement."

Alan: She sort of knew what she signed up for. But no matter what you say, it is a little bit of a shock to the system. But I have to say that there's no one who can be an entrepreneur if they don't have the support of their family. It really is critically important. And so Karen was supportive with that point. We had our first child, DAK actually stands for David, who was our first child at that point in time, myself, Alan, my wife, Karen. That's how we got the name DAK.

Dan: D-A-K.

Alan: Yeah. And so David was several months old, Karen was going to school, going for her MBA at NYU. I had no income coming in and we were really going cold turkey, full out to try to see whether this thing could work.

Dan: So what happens? I mean, I know where you are today, right? You've now been involved with over 650 different deals. You're highly successful. You've got raving fan clients, but that's not the way it started. So what happened? You're in your basement dialing for dollars, for companies, for deals?

Alan: Yeah. Over the first 10 days, I think I called everybody in my Rolodex and probably everybody I knew to tell them what I was doing. And then on the 11th day, I woke up and said, "Oh my God, what do I do now?"

Dan: Now what?

Alan: That's exactly right. It was me, a crying baby upstairs, a telephone and a Rolodex and a typewriter and nothing, no business. So then we move into what I would typically say almost every entrepreneur has, which is you go into survival mode and you say, "Okay, now I have no choice. I have to figure out a way of making this thing work." And by the way, this isn't just me. This is what I've heard from almost every entrepreneur who's out there. At some point in their business career, they reach this point where all of a sudden if they were really smart, they realized they would not have done what they did, but now they have to make it work. So my survival mode turned into taking out the white pages and going down the white pages looking for business names that appear to be substantial and in calling the business owner, trying to get them on the phone, and basically asking them one question. That question was, and I remember this because I must have said this 10,000 times, "If I could get you a price that would make you happy, would you be willing to sell your business?"

Dan: Great question.

Alan: That was the question. And about 1 out of 50 said, "Yes."

Dan: Really? I'm surprised that seems higher than I would've thought.

Alan: Right. And that led to conversations. So, sooner or later, one of those turned into a yes and that yes turned into a deal and it started to build upon itself.

Dan: So, do you remember your first client?

Alan: I do. I do. I have it hanging on my wall. It was a perfume company that did compounding of perfumes based in Mount Vernon, New York.

Dan: And what is compounding perfumes? What is that?

Alan: Basically, they mixed fragrances to make a perfume.

Dan: Yeah. Are they still in business or they were bought out and then...?

Alan: They were bought out but that was back in 1985. So it's been a little while.

Dan: Yeah. So you now have...you're dialing for dollars. You have one client, then two clients. What are the first years like?

Alan: One client and two clients and then I realized that unless I could somehow leverage this business, it was going to be a long time before it was going to be successful. So we, at that point, decided to attempt to recruit other people to join us who were entrepreneurial and who would operate under the same, I'll call it shingle and try to bring in business. And we've managed to attract a group of...first class was a half dozen people who were either very young people who welcomed the challenge, lived at home, had no expenses, and would enjoy the challenge of trying to work in the M&A field. And some of them were more experienced, sometimes retired people who saw this as being a real opportunity. And lo and behold, they also started to dial for dollars and see who would pick up the phone and potentially be interested. And the next thing you knew we had several clients on board. But I will tell you, that this was not a...none of this happened overnight. This was five years of consistent losses.

Dan: Negative cashflow.

Alan: Negative cashflow for five years before we suddenly realized that we had turned the corner and had gotten to the point that both critical mass activity and reputation that people were willing to talk with us and trust us, what is in most cases the largest single financial transaction of a person's business life.

Dan: Right. Selling their company that they have grown from nothing potentially.

Alan: Yeah. Most business owners have no idea how to sell a business. They really are good at running their businesses. They're really good at building them. But when it comes to selling them, most business owners don't understand what the business is worth. They don't understand who the right buyers are. They don't understand the process of trying to sell the business to get real value for it. They don't understand the tax implications of selling a business. They don't understand how to do it confidentially so it doesn't hurt the business, the employees and customers and others don't find out about it. So, and it's a very daunting thought for many business owners because it is the largest single largest financial transaction of their lives and it's something they have no experience doing.

Dan: And that's where you come in?

Alan: That's correct. But it's also tough for the business owner because they're only doing this once and they want to make sure they entrust it to the right firm, the right people who are concerned about them, who are going to do the job right, who are going to do it ethically, who are going to give them the right advice, and most really don't know where to turn for that advice.

Dan: But fortunately, you now have a nice reputation, you have experience, you have a number of clients who can speak on about you on your behalf and help sell that. But take us back. You're in the first five years, your negative cash flow. What keeps you going? You know, there must've been mornings, nights, mid-days where you're like, "Why am I doing this?" What keeps you...what's driving you?

Alan: You just have to have this incredible belief that you are going to succeed. I can't tell you it's logical. And again, that's not me. That's true of all entrepreneurs. What I tell every entrepreneur...and we represent lots of them and to me, it's fascinating. Every one of them has a story. Everyone has a unique experience as to how they got there. But every one of them, every entrepreneur is someone who at some point is standing at the end of the diving board blindfolded and has to make a decision whether they're going to jump off that diving board and pray that there's water in that pool. And entrepreneurs are willing to take that risk and take that dive and in most cases find out that they're okay, there really is water. And that was the position I was in. I was probably too illogical, too focused to admit that I could possibly fail at this. And so, I just continued on and I was very, very fortunate that it turned out to be a much better story than it was after the first four-and-a-half years.

Dan: Things got good. But as I'm thinking and you're talking, is there anything that you regret, anything that you did that you regret in those early years or subsequently that you would do differently that could have accelerated your success or other ways that helped you?

Alan: Yeah, there are probably hundreds of things that I could've done differently. You know, one of the things you learn when you build a business is you make every mistake that can possibly be made, and you hope you learn from every one of them. And so, yes, if I were to do this all over today, I'd be much smarter at it. I'd be much better at it, but I don't think I could've done it any differently than I did. You have to sometimes go through this learning curve. You have to go through these experiences. And this is especially true when you're building a business that is unique. There was not a business model to follow for us, the how to build an investment bank for middle-market businesses that does things the right way. This is something that is different than a lot of people do. Our business today is very different than many of our peers and competitors out there. And we built a unique model that we think really works for us and we feel really comfortable about. But it's something I could never have done without having stubbed my toes multiple times along the road.

Dan: So, I suppose that one of the lessons is everyone's going to make mistakes, so just do it. Just, you know, try and make the smartest decision you can, but realize everything's not going to work and don't let that hold you back. Is that what you would you say?

Alan: Absolutely. And that's also one of the things we try to instill in our employees and associates in our firm, that mistakes are really okay, that the only people who don't make mistakes are people who don't take chances. And so as long as mistakes are...as long as the risks you take are reasonable and calculated, you have to be willing to make those mistakes along the way. And as management, you have to be willing to encourage people to make those mistakes also.

Dan: It's a great lesson to learn. And that's the way you grow. They individually grow and you as an organization grow and find new opportunities.

Alan: Absolutely.

Dan: All right. So what don't we know about your business that we should know or that you want to share? You've mentioned a number of things about uniqueness of what you're providing, the level of expertise, the sophistication, the trust, the education. Anything that we don't know or that we should know about what you do?

Alan: Well, I think the thing that we tell every one of our...teach every one of our people in which we encourage our clients to understand about us is that we are totally dedicated to giving them the right advice. And right advice is sometimes it's right to sell your business. Sometimes it's not the right time to sell your business. Sometimes it's you have to do other things in order to make this business saleable and make it last for longer periods of time. Sometimes an exit to an external acquire is not the right thing for your business. Sometimes you're better off selling to employees, doing other things of that.

The biggest challenge I see for M&A firms attempting to address the middle market is that they tend to be very shortsighted in terms of how they look at businesses. They are transactionally oriented. You want to sell your business? Let us help you sell your business, and we can do that really soon and really fast. We take a look at businesses far more strategically. We take a look at them and decide what they have to do, how they have to build themselves out, what they should be really thinking about in order to get the right leverage, in order to sell at the right time in the right way. And what I think really makes us unique is that we've attracted a really extraordinary group of professionals, all of whom have the same ethics around doing the right thing for the client. And that I think, you know, separates us from a lot of the others who are out there in the marketplace because we're not purely a transactional firm, we're a very strategic firm.

Dan: And that's laudable. It's terrific. But I also, the flip side of that is sometimes I suppose potential clients are not satisfied, they want to be sold right away. Do you run into that? You know, where you're sitting there and you're saying, "Well, here's what you should do and you're better off waiting a longer period of time and doing A, B, C, and D and coming back in the future timeframe." Is that ever a conflict or is that just something I'm making up?

Alan: No, no, that is something that...I don't think it's a conflict. I think, you know, our goal is to give the client the right advice. The client eventually makes a decision as to what they want to do. So, if it's the in the client's best interest to sell now and just do it, that's okay. We can execute on that and get it done. But it's important that the client who very often doesn't have experience in this process understand what their options are. And in today's world, business owners have more options than they ever had before. It used to be your choice was I can own my business, I can sell my business.

Now, business owners have more options than that. With the growth of private equity and family offices and other investors of that type, you can sell part of your business. You can take some money off the table. You can reduce your risk and get a partner who's willing to fund your growth and put additional money into the business, and possibly give you a second bite of the apple. So, some of the trends that are going on today are just very different than they were 5 or 10 years ago. Business owners are selling it at much younger ages. Business owners are very often not selling all of their businesses, they're selling part of them. And as a result of these different options that are available to business owners, you see these decisions becoming far more complex, but very often far more rewarding for the business owner.

Dan: And that's where your integrity, your objectivity comes in where you will present all those various options, right? And what the pros and cons are.

Alan: Pros and cons, and sometimes, you know, a business owner doesn't always have to make these decisions upfront. It's not as though you start the process and we have to know that we're selling to a strategic buyer or assign to a financial buyer or we going to sell part of our business. Sometimes you want to go through this process, see who's on the other side, and then make that decision. We recently helped a client who told us in no uncertain terms that they wanted to sell, but they wanted to sell only to a strategic buyer who paid them all cash, pay them a high price, lots of cash, get the deal done quickly, and did not even want us to talk to private equity or other types of buyers who are going to do a deal that might involve some sort of partial buyout of his business.

We asked this client to do us a favor. Let us just run the process the best way we know how. Let's bring the right players to the table. Let's create the options for you. Eventually, we'll make the right decision together as to what the right thing to do for the business is. Interestingly enough, we got him exactly what he wanted, a very high price from an all-cash buyer that he turned down to become partners with a private equity firm that bought 60% of his business and provided him with growth capital to grow his business because he thought he would have fun doing it and he thought that this would be a great partner for him, and he really liked them. And by the way, his decision was 100% correct because over the three years that have transpired since we did this deal, the business has more than tripled in size.

Dan: Wow.

Alan: And he's having a great time running it because this firm has allowed him to step back from the day-to-day things that he did not enjoy in his business and focus on the growth and the strategic portions of his business that he truly enjoyed.

Dan: So worked out on every front?

Alan: It worked out. And again, this is an example of a business owner not necessarily being able to see the full scope of the options that were available to him. And that's not necessarily a bad thing because sometimes you don't know it until you see it. It is like Justice Potter Stewart's definition of pornography, "I'll know when I see it." Sometimes it's the same thing with the right buyer for a business. You may not know who they are, but you will know who they are when you see them.

Dan: And that's the value that you bring as a firm to say, "Look, let's let us look at the whole spectrum of what there is out there for you to gain value from your company."

Alan: Absolutely.

Dan: Awesome. So let's talk, how many employees do you have now?

Alan: Twenty-two.

Dan: Twenty-two. So it grew from 1 in the basement to 22 currently. And how many different deals has the firm been involved in?

Alan: Over the last 35 years, we've done over 650 transactions.

Dan: Wow. And is there any one industry or all over the map?

Alan: Pretty much all over the map. I'd like to say...I'd like to sound more sophisticated than that. Maybe we can say very eclectic group of deals. But one of the fascinating things about the business that we're in is that every day you're looking at different businesses. And it is truly amazing to see in the American economy, people making money, doing things that you cannot possibly imagine. And there are just so many fascinating businesses that we have represented where business owners have made their fortune providing services or products that none of us could ever imagine you could do.

Dan: For example?

Alan: A couple of years ago we sold a company that manufactured bolt tensioning devices for nuclear power plants. Great business. Bought by a publicly-traded company, but it was an entrepreneurial business owned by a fantastic individual who decided that he really wanted to sell that business and become a playwright and producer, which he did become.

Dan: Wow. That's a zig left or something, from a business to the playwright. That's quite a change.

Alan: But it's not unusual. We've had business owners whose businesses we've sold who have become eighth-grade math and science teachers in inner-city school systems after they've sold their businesses. We've sold business with people who have become ministers in their church. It's truly amazing how entrepreneurs never retire. I can tell you that very few people whose businesses we sell, I can tell you that are sitting in Florida playing golf every day. Entrepreneurs are typically driven individuals. So if they're not starting another business, they are very often involved in charitable work, involved in other types of activities. They will never be bored.

Dan: Right. And whether it's in their field or not, it's they have to be busy, be challenged doing something.

Alan: Absolutely.

Dan: So as you look out now into the future, what are you excited about for DAK and for you?

Alan: Well, I will tell you that I enjoy every day I go to work. And people ask me sometimes, "Are you bored doing the same thing for such a long period of time?" And the answer is no, because every day I'm looking at a new business. Every day I'm seeing someone who is doing something unique and something different. And getting the real opportunity to walk through that business, understand it, understand what drives it, understand what makes this entrepreneur successful, and doing the same thing that we're doing here today, talking about how they started this business and what they built it and where they want it to go. So to me, this is all exciting stuff. And what really makes every day exciting is that I've been really, really fortunate in being able to attract to work with me at DAK just an extraordinary group of people who are great people, who are fun to be with, and who really make every day enjoyable.

Dan: Yeah. So, you're working with good people and you're meeting clients who are interesting in every way.

Alan: Absolutely.

Dan: Yeah. So, how do people reach out and contact you?

Alan: Any way they want, but they can either call me directly on my direct dial line, 201-478-5275 or email me at ascharfstein@dakgroup.com.

Dan: Great. And Alan, I've thoroughly enjoyed this. I love hearing the stories and I can see on your face the emotion about what you went through and how, you know, you've taken something from really an idea and a concept to building some tremendous firm with a high reputation that's servicing clients in such an impactful and beneficial, high-integrity way. Congratulations on your success and continued success.

Alan: Thank you, Dan, and thanks for inviting me to be here with you.

Dan: My pleasure.

This episode was recorded by Daniel Kramer, managing director of the Constantine Wealth Management Group of Raymond James, 401 Hackensack Avenue, Suite 803, Hackensack, New Jersey, 07601, Raymond James & Associates incorporated member, New York Stock Exchange/SIPC. Companies mentioned are not affiliated with Raymond James. Opinions expressed are those of the speaker and not necessarily those of Raymond James. Any information provided is for informational purposes only.