Private equity firms approach business operations with a focus on maximizing enterprise value through profit growth, using debt leverage and aggressive pricing strategies, while traditional operators should adopt investor-like thinking by analyzing data, understanding customer acquisition costs, and making systematic decisions rather than relying on gut feelings, though a balance between data-driven analysis and human judgment remains essential for sustainable business success.
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Would Private Equity Even Want Your Business?
Added:There's no magic number. There's no magic multiple. It's whatever somebody's willing to pay.
>> And then it's like they're profitable, but why are they going out of business?
But they got bought bought up by private equity that stacks so much debt on them.
And then those debt payments are due from the business.
>> I've been talking to private equity for way over a decade. And thesis is the work.
>> The first thing they did when they came into your business was raise prices across the board prior to the sale.
>> It was for sure $10 million. It was no less. You go from solving problems to like creating systems and really trying to solve the root of the problem.
Instead of fighting the fire, I'm building hydrants. Like, how do I prevent this fire from happening again?
But there's got to be a happy medium that as an operator or someone that does care about the people and the longevity and more of the 20-year term, not the 5year term. I can borrow elements of this that are healthy for the business.
Ladies and gentlemen, welcome back to the podcast. This is now our 12th episode. We are We have been consistent.
>> Yeah.
>> Now, that being said, on last week's episode, >> there was a little bit of beef that one of our viewers had.
>> Oh, really?
>> Jonathan made the comment. Yeah.
>> Okay.
>> You said that soccer is way better than American football.
>> Well, I mean, I enjoyed it. I like it better than watching football. Like American football. I enjoyed it.
>> Which is basic basically blasphemy for 90% of our audience.
>> Yeah, I understand that. The context is you were raised like your kids or I guess Riley was in soccer a lot.
>> Riley and Gage. And then Gage uh switched He's our youngest. He switched from soccer to football. He played American football. And uh Yeah. No, I I I like soccer better. I don't know why, but I do. I like them both.
>> I think if I think if I had kids, I'd probably put him in soccer, too, cuz like the running is just so good without all the impact and head injuries and all the other aspects. So, >> yeah, that's that's probably what it So today today, you know, I'm a man of the numbers and the numbers say that everyone really enjoyed your cold open because our retention was incredible for the first 3 to four minutes of last week's episode.
>> Oh, really? Okay.
>> For last week. Yes. And so I think people really enjoy, you know, so I'm I am now naming this part of the cold open. Well, we know we switch it up every few weeks, but this this is now called pick your poison. This is pick your poison.
>> Pick your poison. Instead of instead of hot takes, instead of A or B, this is just pick your poison cuz now the cat's out of the bag. Now everyone thinks we're arch arch uh enemies and going against each other. I hate to break it, everyone, but I'm not competing in Jonathan's market.
>> I I took some liberties to be able to do that little bit at the beginning last time.
>> It's okay. We're leaning into it. So, let's assume for a moment that, you know, a few years down the road, I am in your market.
>> Okay.
>> You've got to pick your poison. Okay, you you did a great job. I have to give you all the credit in the world for coming up with the idea last time. That took me off guard. So, now that you have you know, you thought about it since you've been having all these meetings at City Turf about Augusta coming in and it's been a constant thing we're working on right now. The only thing we're working on.
>> Yeah, you should have Exactly. You should have definite answers here. Okay.
So, first off, would you rather I recruit away your top five salespeople or hire your former customers to make testimonial ads explaining why they switched to Augusta?
>> Oh jeez, that's a tough one. Um, I'm going to go with how many of my clients are you going to take and get testimonials from? I think I will.
>> All of them.
>> All of them.
>> All of them.
>> Oh, gee. I'm I'm going to I'm going to replace >> every bad every bad review.
We'll just search that person's name up.
>> That will live forever. I'll probably replace my sales team.
>> Okay. Okay. All right. How many sales people do you have, by the way? Like dedicated salespeople.
>> I don't know. I'm not working on that part of the business that much. Yeah.
I've been listening to call recordings.
So, I'd say we predominantly have three that are okay.
>> You hear the most on the phone.
>> Okay. So, I take those three and the following two after you place them.
Okay. So number two, would you would you rather I mail every City Turf customer a custom quote that is 10% cheaper?
>> Okay, >> this is actually a strategic question. I think it's actually add some value or offer them their first month free if they switch.
>> Uh rephrase the first one. Yeah. Yeah.
So rephrase you're going to give them a 10%. You're going to mail them all at 10% cheaper.
>> Exactly. Um, I think it may not make any difference if they don't want to switch, but I think the 10% cheaper probably won't matter that much. It's hard to say. I I think I'm going to go that one. I would take your I would take your worst customers. That would actually probably either one of these.
>> Okay, third one. This one's fun. Would you rather I buy the domain city turfreviews.com or >> I better buy that >> on city turf?
Yeah. Before this gets out >> or or bid on city turf as a Google ads keyword.
>> Everybody's I've already got people bidding on city turf as a uh keyword. I would rather >> we haven't seen that work super well. We haven't seen that work super well.
>> Well, yeah. As a side note, I would not do that. that supports my decision that I want you to bid on that. That's that's what I was going to say. So, since you aren't seeing it work, well, let's go that direction for sure.
>> And then we will definitely be hitting up cityviews.com. I didn't check if it was available. I was making a note.
>> Okay.
>> You know what's funny? I already bought a URL. It's called uh Oh, man. I think it's like lawn care prices in Texas.com or something like that.
prices in Dallas or something like that.
Anyways, number four. Would you rather I pay for a billboard near your shop telling text so they can make more money with me or I pay $100 to every past client to leave a bad online review?
>> Ah, billboard. Billboard.
>> The billboard. Oh man, >> the bad reviews.
>> Both of those are nuclear.
>> They are horrible.
>> That's nuclear.
>> Bad reviews. Oh my gosh. Like that's terrible. The reviews matter so much.
>> Lots of confidence in your technicians.
Let's go. City Turf technicians. We're we're in we're in it for the long run.
All right. So, now that we picked, you know, you chose your poison. I wanted you to relish. Just have a quick victory lap. And that is a couple weeks ago you had to have some humble pie and say that you sold SpaceX at 150. Well, I want you to realize that just a couple weeks later, >> it is now at 135. Oh, >> and so we have a victory lap. Yeah, >> that was my buy price.
>> It was a great sell target. Let's go.
Was it really?
>> Yeah. Well, that was what So, it if you were able to buy before it hit the market, you were buying at 135. It hit the market at 150.
>> So, I bought at 135 and sold at 150 or 155. Yeah. When it opened.
>> Okay. Quick 10%. Little quick 10%.
>> It was quick. I wish I wish I'd waited till the end of the day or the next day, but whatever.
>> It was free money.
>> Oh, man. Let's go. Okay. What have you been working on this week? I know you've been back in town hustling. Yeah. Yeah.
What's been what you been working on?
>> Um, yeah. So, I I've talked about that to-do list, that task list thing in my marketing calendar. I'm done with that. Okay. But I'm I just to keep a theme because there's other things I'm working on.
Obviously, I'm not listing everything I'm doing, but what why So, what I'm working on and kind of finished it up today and handed it off. And the reason why those things were so critical is I've been back in the city turf business for, let's call it a year, but the end of last year I was gone quite a bit. I had three big international trips, but I've been back in the business for a year at least. Uh maybe more actually, but off and on. And it took me a while to get my head back into working. It took me a while to get my head back into like the city turf business and kind of I don't understand everything about it yet, but just have a good idea of where we're at, what we need to do, what the focus is. And that's what originated this whole calendar task list. The other big reason why that was important is I a while back hired somebody to run all projects and really push to get more throughput in the organization from on my side and so to manage all the projects to make things happen faster to find and work with contractors to to keep everything moving as fast as they can and then to utilize me more as a resource. I'm the single biggest bottleneck on almost everything right now, but I want this person to just push on me all the time. I need this. I need this. You're holding this up. That kind of a thing. But they own it. And so this week was taking all that stuff and the official handoff to this person. And it'll take a little while for it all to spin up and that person to do a great job and be confident. But that was the all that I've been talking about was to build up to this moment to try to start over the next couple months reducing my workload where now I'm just a resource like a designer or a web developer or anyone else. I'm unfortunately still the most important resource. But that's what this has all been about. And so that was my biggest goal for the week to get done and it's done.
>> What is that person's job title? Chief Chief Annoyance Officer.
So, >> hey, Jonathan. Hey, just in case you didn't know, there's five more things you need to do today.
>> And and I mean, I've So, this individual worked with me. Uh he joined the service pipe team back in 2015. And so, I've worked with him for a long time. He's a super optimistic, positive, just like super healthy, works out like he's got all the attributes of just, you know, the right personality and the right attitude. and I've always really liked him a ton and we've always got along great. And so my instruction I think he's probably heard it like four times from now. Hey, you know you we've worked together a long time. You know me well.
I'm dead serious when I say annoy me.
Like push push push harass me to get this stuff done because that's your job.
So I've said that because that's a weird position for somebody to be in. And so I've told him this is what I want. you have to do this because I got 90 other things coming at me and the number one priority for me is the city turf business. So >> a super optimistic annoying person.
>> He's like, "All right, Jonathan, you got this." Emotional like a motivational quote sent your way. You got three more hours. You got this.
>> He might do that.
>> Oh man.
>> Good stuff. So that's been handing that off to him. He He's taking it off your plate. Are do you already know what you're working on next then?
>> Oh, I'm working on I've already started it. I started it on the airplane back from Wyoming and it's everything related to pest control right now. So, I'm kind of trying to work in themes. So, you have your you have to create the offers and the hook and maybe a guarantee the angle uh and that.
So, boy, I don't want to get too longwinded here, but there's lots of ways we touch a client. Like, we cut touch a client by you become a client, you get a welcome package from us. Okay?
So, there's an angle there where if you didn't buy pest control, we promote pest control. So, I got to get that done.
Then I have pest control could be a lead for new client acquisitions in the form of direct mail to the very best types of clients that we want more of. uh direct mail or or then it could be upsell emails to our existing client to the those that are not currently buying pest control. It it includes Google ads for pest control like really reworking them.
So this theme of pest control touches about four or five different aspects of marketing for the business. Acquisition and expansion being the concept, but it's still about five different ways I have to implement it. So the idea is I'm working on all of that at the same time.
So it's very while the offers might be different depending if it's Google ad versus the welcome package versus uh an email to an existing client the general structure of the the ad itself the thinking the understanding the buyer getting in their head all of that similar and then you but you have to tweak the copy and design and such depending on who you're going after and what media you're using.
So that's my big overarching project that's going to that I'm working on this week and will take me a a good bit it'll I'll work well into next week on that project if not longer because there once I get my part done it goes to designers then we have to build landing pages there's just like so much has to happen then there will be a back and forth for a while where we finish all the assets and then once it gets implemented it has to you know keep happening so it's going to continue on for quite some time I kicked it off last week I would assume you almost have to stack rank which of the services you are prioritizing correct me if I'm wrong because >> for example if you if you do pest control then you do weed you know fertilization weed control then you do other services if you're not careful you're sending five emails to the same person because they didn't choose five of you know they only they only have two out of seven services they get five emails from these other sequences that were built in a silo and so I'm assuming there's some sort of stack rank >> yeah and that's 100% there's a stack rank and would I for a couple weeks like what are you working on my task list and my marketing calendar. That marketing calendar was so complicated because the marketing calendar is themed by time of year. It's themed by month and on top of that it has to handle the segmentation and it has to and it has to handle exactly what you've just described. So this marketing calendar is really hard to create to handle. We have five really we have five core services for really important services and so and then within the b I'll give you an example.
Fertilization weed control is our number one most important service. It's the biggest revenue driver in our business.
Almost almost all of our clients buy it.
Like 95% I think buy that service. Maybe 93. And well that so it's not really it doesn't get a lot of touches to for expansion. Like there's not a lot of marketing touches that are going to happen to the client base because almost everybody's buying it. So it's predominantly an acquisition service. So that one will hit a small number of our base. But then once you get to say things that involve our arborist, all the tree health and the deep root feeding and all that, that can touch a ton of clients. But that one really requires taring clients. So across almost 12,000 clients, there's a ton of clients that we serve that are not really buyers of that service. And so I can immediately knock a percentage them off the target list and just maybe just to make it simple just hit the top 50% not hit the bottom 50% whatsoever so that I'm reducing the number of touches they're getting from a marketing standpoint. Whereas pest control, that's a service I touch everybody with. And so I have so there's a lot of way there's a lot of that kind of thinking that goes into it. And then you have to time everything for the time of year when people might most likely have pain because I could talk about every service I offer in March, but that's not possible. So what is the most important thing to talk about March versus the most important thing to talk about in July? That's some of the logic that went into the calendar itself. So you're exactly right.
>> Yeah. And do do you usually stack rank it based upon uh like lifetime value or profitability of service? So if someone has like two services, you could sell them five other things at the exact same time. How are you prioritizing those?
>> So we think about everything in a couple ways. Um number one, retention.
And what I mean by retention, there's a couple things I can't go too deep into because they are a competitive advantage. I usually say everything.
There's just a few thing but there's some things that we have identified that are really critical to keeping a client and preventing churn like getting way in front of the risk of the churn. And so those are really important messages and some services better support that than other services. And so that's a massive consideration for me as I'm working through things. It's not just about selling stuff. It's about preventing churn. It's about happier clients. It's about clients that talk in the marketplace. It's about clients that give us good reviews. So, there's that element that's considered. And then after that, there are goals. A goal, the biggest goal is grow pest control.
That's my number one initiative is to grow pest control. And then in uh for with with our services that involve arborists, they only if you look at the data, they're best sold to a more affluent client or clients in certain areas with more trees. And there seems to be a correlation between stickiness and that service. Um and so it depends who I'm talking to. with certain types of properties and certain types of clients, it's really valuable for me to sell that service because it appears to be a very sticky service.
There there's there's you can kind of see it in the data. And so there's that's why it's it's a hard question to answer because there's a lot of moving parts here, but the simple answer would be for acquisition, fertilization weed control is my number one most important service to sell. For expansion, pest control is my number one most important service to sell. If you boil it down to something that simple.
>> That's funny. Yeah. It's funny. A couple weeks ago, we had a conversation about attribution and just how important, how hard it was.
>> Yeah.
>> And so I looked at in at the the the beta testers, there about 80 people using the homeworks and the the level of amount of people hitting attribution related stuff inside the API the next week like 4x. So people are obviously listening to this and being like, I will go hit that and get that data. But to your point, like it's the all of those data points that you just mentioned, that's the hard part. the clarity around that data to then be able to stack rank the marketing calendar very difficult >> and you could see stuff in the data and you're like I think this is what it means but >> I don't know and AI could say this is what I think it means but I'm like I still don't know so it's never it's never easy it's easier than it used to be but it's still >> it's still fuzzy sometimes to figure out the very best thing to be doing. Yeah.
So what about you? What are you working on >> this week? Uh events refactor pretty much the same thing. Phase one is out.
That's all events. The next ones what I'm excited for is calendar and then the dispatch board.
>> And so those will be meaningfully like different and they're also the most some of the most used pages. Uh but yeah, when we did the refactors like do we just do parody or do we actually take all the feedback that we've always wanted to implement and just do it right? And so we're doing the latter. So it's it's actually going to change a lot >> and I'm looking forward to it. Like the calendar dispatch are going to look completely different. They're super good. Uh I'm really looking forward to it. So they're going to be completely redesigned and re react and >> looking forward to it.
>> Yeah, I'll be c I've never actually seen it. So I'd be curious to see it someday.
>> Yeah. And then the other thing the other thing is the school community. So it's a first week >> and it's been really fun just to see because the very first module and then we we do 30-day challenges is just exercise and diet >> and so uh people have to track what they do and they have to report back to the group and we have like an accountability tracker. So that's been a lot of fun.
just people for the first time ever tracking their steps or what they eat uh and using the macroactor app. So, it's been fun.
>> I was actually thinking about that because you had announced the school thing.
You've got August in my mind. The way I think about it, you've got homeworks, you've got Augusta, you have all your media stuff now. You have school. How do you like what in the world does it look like behind the scenes? How do you Oh, then you're going to come to Dallas for a while and you're going to build the million-dollar business. Like, how do you do all the stuff? Like, who's behind the scenes running different parts?
Like, what's your world look like?
>> Yeah. So, each of the departments have a leadership team. Yeah.
>> And so, most of the time it's divided into like technical op and operations for each department. So whether it be Augusta homeworks or the media side and my time is like what are the things that I must be involved in specifically on the media because like with Augusta it's pretty straightforward uh now it's been in business for so long there's not as many like the frequency decisions is less it's more like I need to define what are we doing for the next six 12 months >> homework is the one I'm still very much involved in terms like product decisions there's a lot of moving more moving parts the team is only one to three years old and so a little bit more hands-on there. Um, but yeah, with the school committee, it's actually really easy because it's really just the leadership training I went for the owners of Augusta. So, most of the people in the group are just owners of Augusta that are 1 2 3 million in revenue and I needed I needed to train them anyways, but I wanted to get some of that outside industry feedback and some other people in the group to bounce ideas off for them.
>> And so, it was just like a like I was going to do it no matter what. It was more a function of I wanted the dimension of like we got like gate people in there, we got pool companies in there, like just a lot of different industries to get them around those people.
>> And uh so far they're loving it and I'm seeing like really good engagement which was my biggest focus is like how do we get engagement and that's where the 30-day challenges came in. It's like and it's like public accountability and uh instead of trying to bite off like huge chunks of content, I don't have to do that. It's more a matter of here's what we're talking about this month. Here's the topic of focus and then here's a challenge that we all are going to do.
So this month it's like health and then next month is marriage and then then we go into communication and more stuff around like general managers and things like that. But it's just one concept per month. And so in reality I need to carve out a few hours a month >> to sit down and create the training and it's not a huge suck on my time.
>> Okay.
>> So >> all right that makes sense.
>> I'm not surprised to hear that Augusta doesn't take that much time. Yeah, it's more like what are the like the changes made even like the meeting I had before this. It's like, okay, this is gonna take six months. And so it's having the man like the leadership team and then their managers underneath them like here's what you're doing. Everyone has marching orders. I'll check in with you once a month. Yeah. And so, but yeah, homework is still the one I'm very much like this button needs to be changed.
That word needs to be different. It's just still very hands-on.
>> That's what I would imagine.
>> Okay. Yeah.
>> Makes a lot of sense.
>> Okay.
>> Let's jump into the docket. Let's start off now that we have again been nice and long-winded 20 minutes deep into this thing. Uh let's go a little more operational and talk about our businesses in uh in lawn care landscaping specifically, but home services and talk about upselling and cross-selling specific strategies you might be using right now in City Turf. I know you've been doing this marketing calendar that might play into it a lot, but what are you what are specific tactics you're using now that might be novel or new to City Turf in the past say 12 12 to 24 months uh that you're using now? I would. So, I've got answers to that, but there's quite a lot that we're not doing as we, you know, people have probably heard me say this is why I'm back involved in the business. This is the stuff I'm working on. But a couple things that we're doing and and let's let's actually make sure we've defined. So, when you say upsell, what I think is I'm going to take a bi-weekly mo just as an example, I'm going to convert a bi-weekly mowing lead to weekly. That to me is an upsell. whereas a cross cell is I'm going to take a mowing client and add fertilization weed control as well. They're going to do both. That's how I think about it when I hear this. So, um from the we'll call it more cross cell uh scenario.
We two things that I've done in the last call it year.
One and the both of these go back to if you'll remember my theme or what I said earlier whenever I'm thinking about marketing. I'm not just thinking about driving revenue. I'm thinking about preempting problems. I'm thinking about preempting churn. I'm thinking about making people happier. I'm thinking about better serving them. All these types of things. It's not just about driving revenue. So this one, the fir one of the first things I did when I got back involved is we whenever we do an any type of service other than mowing, we leave something on your door. And and I I like the leaving on the door. Even if you email the client as well, I still like the leaving something on the door for a variety of reasons. And so previously what we were doing is we were leaving something on the door that had probably been created by me or maybe Philillip I don't remember a long time ago maybe when we started ser no it had been improved but maybe around the time I started service on pilot like that's how far it went back and so it was more of just a notification of we did this thing and we redesigned it and then we turned it into a themed cross that every time because every time we're leaving something on your door, we might as well be reminding you of all the different services we offer. We if it's the right time of year, we should be talking about mosquitoes. If it's a different time of year, we should be talking about irrigation. So, that was one of the things that's an example of a cross cell that we do. Another project that was implemented, and this was a lot of work, and I don't actually have data on it to know how successful it is. We have these things called recommendation door hangers. So, as an example, people have all kinds of problems. They're not watering enough. Um, they've got a an issue in their property. They've got brown spots or bare spots. They probably don't understand why though they have those. It could be a shade issue. It could be rabbits. It could be uh fungus.
It could be a whole ton of different things. And so for the majority of the things that can go wrong, we have what we call internally a recommendation door hanger that our team can leave on their door that will notify them about the thing, educate them very briefly on the thing, drive them to a place to get more information, and then there's an internal process for our team to follow up with the client. And so that's an example of a cross-ell, but it's meant for way more than just a cross-ell. So that was a big project that took some time to build out. And then we do internal mark email marketing, but it's pretty not it's not very sophisticated.
It's more we're going to grab grab a segment. So these people aren't buying this thing or there's a big grub issue.
Like this is grub season time. 25% of our clients already buy Grub. So 75% are getting an email about the Grub service.
That is another example of a cross-ell that we do. And so those that's the big stuff. There's other things we do, but it's it's more oneoff type email blasts.
There's other email stuff we do that could be considered marketing, but we don't think of it that way. And then the the two things I described before. But where I'm moving to is more multi-step segmented upsell marketing or cross-ell marketing. And so what it will what what it will look like is um smarter sequences where we we talk to the client about an issue, we follow up. This could be email, could be texting as well. I'm I'm I use texting. Uh but we're careful with texting. To me, it's this sacred thing. Um and I've talked to Riley quite a bit about texting because he's got a lot of people using it for every chat.
And you know, I just we we talked about how different people are using it. And I see a lot of people just doing blasting.
I don't do much blasting. We do very little blasting. I'm I think it's a feature you got to be somewhat careful with. Just personal philosophy. And so my multi-sequence could be email, maybe text, but be very careful. Maybe voice blast. I'm not doing that in the future.
Maybe. I got to test it. Um I've actually never done it. And then um print for a segment. So, like let's say you segment the list and you take there's 80% of the client base that doesn't buy this thing and so we want to upsell it. I might hit them with an email and then whoever doesn't buy I hit the rest of that list again. Whoever doesn't buy within that list I might have tier I might hit my tier one and tier 2 clients with a postcard. It's that kind of a concept. So that's a more sophisticated direction that we're building towards right now. Um that's when you start bringing in some direct mail for upselling and then uh later I would like to get this in 2027. I don't know. Um it's where you start doing more packaging. We got to packaging up fertilization we control with pest or pest fertilization we control plus mosquito or those it's the packaging and the combining good better kind of stuff.
Um, and then and then one of the things that we're really weak on is we really don't do a lot of upselling and cross-selling on the phone. I just some of our um original team members on the sales side who had been with us for a really long time. We had really great success with some older individuals that were call it retired that uh just were phenomen fantastic and they had a lot more experience in the business and they could naturally do the upsells and cross sales. we've lost some of that. So that'll be another thing that we that we'll bring in. So that's how I think about it and that's the direction as how to where what I'm working on to to bring in more of this into the business. Yeah. So I I kind of thought of two things. One kind of actually related to that. So basically using AI getting the transcripts from all the calls, we're able to create a numerical representation of who's doing the upsells and what their what their percentages are. And so then be able to take like calls from our best agents on the phone that are doing upsells at say 40 or 50% which is very high um versus someone that's doing five or 10%. Yep.
>> And so >> we we've kind of like narrowed it down to three things are all getting measured on every call and one of them is did you do an upsell?
>> And besides a complaint almost every call can be turned into an upsell of some sort or I should say cross-ell. Um, but what we had to do to make sure the AI was wouldn't get confused is make the connection between what service the customer accepts or has to the potential service that they should be getting as a crossell. So the AI would know, okay, this person has accepted mowing. The agent should now be offering them one of these three other services. And so it can look out for those words. Um, and that's been really helpful. And so we basically had to train the agents on like if they accept X service, offer Y as the upsell or Z if this one's not available or they already have this other one. And so again, sequencing for even the agent training of what which cross cell to use.
>> That's good. Do you use a tool like Gong to do that or are you dumping the transcripts and running your own model across them?
>> Ring Central has its own thing that is using the transcripts.
I've I've seen other platforms that have like the plugin with AI, but all they're doing is pulling the transcripts. I've just seen consistent Yeah. And I've just consistently seen like >> even one thing that's really useful for training even inside Ring Central is the live transcription of calls for when you're doing a training of an agent, someone can sit next to you and just be reading what the customer is saying to you live. um and their integrations are getting better and better like internally versus bringing something thirdparty because I've looked at lace or other other products and it's just >> from a cost perspective as well as from like what they're iterating on at ring central or dial pad etc. they're building pretty good AI stuff inside the platform now.
>> So we just use ring sense which is inside of ring central.
>> Okay. Um, the second kind of cross-ell thing that we've been doing a lot recently and I've just been really trying to focus on like how can we customize and personalize it as much as possible cuz if we put them into a sequence of an email or text messages, it's there's got to be some I can customize their name like but like I feel the more personalized I can make it especially when it comes to text I won't get blocked and I can make it really really like this is this was made for me. And so one of the things that we're doing a lot of is video. So the technicians when they see the problem, take the video, it's in the app, we can rightclick on that, copy the link, and then send it via text message and just tell the customer, "Hey, the crew is at their job or at your property. Here's what they saw and here's what I recommend." And that has been really helpful because I'm not as afraid to text them and get blocked when they can see it's their property and like they were there today. And so that has been really useful. It takes a little more extra work on the admin side to say, okay, there's media attached. Okay, I need to send this to the customer, but it has uh allowed us to keep using text message without getting blocked or any sort of spam related stuff. Yeah, that that is actually one of the most successful I don't know what success you're seeing with that, but that has historically this goes back to academy days and service allpay that has been one of the single most successful strategies for driving revenue and it is a initiative on my uh list to make that much bigger like really implement that that in a much bigger way than we're doing >> because we used to have like we used to have like from field force I can put it in the customer portal but then the customer has to like go to the portal And so now it's a matter of like we just right click on it, take the link and put that in the text. So that way it's like, hey, here's a video that the crew made and it just it's just going to see the the the video file directly >> and that's been way better.
>> Yeah.
>> All right, let's move on. This one is going to be in your ballpark because you've seen this firsthand. And this was a question I think from several weeks ago that someone put inside the comments, but really how private equity runs a business, thinks about a business, uh how they operate a business versus the average owner. And obviously there's downsides to how they think about how they run a business, but in terms of let's just take it from pure numbers, pure data perspective, how do you see that differ how private equity looks at a business and operates it versus the the traditional home service business or operator?
>> Yeah, I think there's quite a few differences here. Uh it's a so kind of two top level things that are definitely different about private equity would be they're maniacal about this idea of growing enterprise value.
So another and generally in home services the way our businesses are valued is going to be on ibida aversion of profit. So it's profit times some multiple. There's no magic number.
There's no magic multiple. It's whatever somebody's willing to pay. You'll hear people say companies are worth four times or five times or eight times or 12 or whatever the number is. There's no magic number that everybody's like, "Oh, we'll pay at 12." Everybody makes their own decision on what they're going to pay. But at the end of the day, they're trying to maximize the value of the company. And the way you maximize the value of the company is by growing the profits of the company because it's going to the valuation is going to be based on that. But valuation's also based on how fast the company's growing.
Uh valuations based on what market you're in. valuations based on how that business, whomever the buyer is, how that business is, where they're geographically located, and how it fits into the bigger business, what services you're offering. There's all these factors that go into valuation. But if you want to just talk at the most elementary basic level, it's some percentage uh multiple of profit. Okay? So if that's how it works, then they are maniacal about growing profit because that's how they're going to grow their enterprise value. So that's that's a difference.
And the reason I mention it is because that's not necessarily how most owners think. And one of the biggest reasons why most owners may not like private equity is because when private equity owns your business, they're going to do all the stuff that makes your company more profitable. whether you like it or not, whether it's good for the business longterm or not, but that's how they grow their enterprise value. So, a lot of the things that means a lot more profit really fast are things that feel like massive change to most of our businesses. Doesn't mean they're all good, but that's just how it works.
Otherwise, they wouldn't give you a bunch of money. It would make no sense for them to buy your company if they couldn't make it more a lot more profitable. So, that's the gist of it.
The other one that's really different is they use debt. And and so the reason they use debt is because they're trying to get a return on money. And so if you look if you are an investor and you're investing in private equity companies, what's going to happen is you're going to lock up like let's say I'm investing $5 million into a PE fund. Okay? So my money is going to be locked up for probably five to 10 12 years. And what's happening is some people invest in private equity now. It's been 10 years.
the private equity fund isn't even returning their money. They're rolling their money into a new fund. So, your money could be locked up where you can't get it back for a really long time. So, if you're an investor and you're thinking about putting your money into a private equity fund, you are really worried about what's the return going to be. So, if for example, I can get a on average 9% of return in the stock market, why would I ever invest in a private equity company that's returning 9% and my money stuck for a decade?
Like, if my money stuck for a decade, is 13% even enough? So investors are hyperfocused on private equity returns and on in any individual private equities historical funds like to decide if they're going to invest in that company. So a private equity company to get better returns what they do is let's say they buy a $und00 million company just to give an example maybe and not an exact example but let's just imagine they put down 30 million of their investors money. So, say there's a private equity company and they came to Mike and I and they like, "Hey, will you guys invest in my fund?" Mike and I each give them 15 million bucks. They take that $30 million, they buy a hundred million company and they use 70 million in debt. So later when they're calculating the returns, like in other words, how if they sold that company for 300 million later they bought it for 100 and they sold it for 300, the the return is not based on the 100 million versus 300 million. the returns based on the 30 million because the 30 million is what's invested. So, it's advantageous for them to use debt because they get more leverage which makes the returns better.
Another similar just kind of going in the weeds in case this is interesting for people and then I'll move on.
Another thing that'll happen is like let's say you're a private equity investor and so again they come to me or I go to them and say, "Hey, I want to invest in your fund." They'll be like, "Okay, cool. Uh I need you to commit 5 million bucks." Okay, I commit $5 million. They don't take my $5 million, right? Then what they'll do is they'll ask for my money in tanches. So they'll come to me and they'll say, "Okay, we need a million of the five million. We need we're going to make a capital call.
We want another million of the 5 million. We're going to make a capital call. We want the last three million."
The way they do this is they're timing when they get the money because the returns that are calculated are based on when they had the money. So in other words, if I commit $5 million, if they take my money at the beginning of the year, but they don't use it till the end of the year, they got no return for a year on that money, it brings down their overall returns on their fund. So they make calls and get the money when they need it, so it doesn't go against them.
Does that make the way I've described that make sense to you, Mike?
>> Yeah, totally. and they're they're going to get their600 or $700,000 per year and they're they're 2% from us >> every single year regardless of what happens to the fund.
>> Absolutely. So that's a little bit of how private equity works and the reason I went into the weeds for those that are interested. It also explains why they need to use so much debt and so that's a massive difference in how private equity works versus us. Okay. So now getting into stuff those are so the first two like you really should think about profit but if you're in like absolutely that's the point of business is to generate money otherwise what are you doing? But we as owners might say well I will generate more profit on a longer time horizon so that I don't accidentally do things that will harm my reputation or turn my clients off to me uh or get a bad name in the marketplace.
like I'm willing to slow go a little slower to maximize that profit profit where private equity needs to go a little faster because otherwise if they don't then nobody's going to invest in private equity and there will be no private equity world. So, >> and and and I think another note too is like when they take the debt, a lot of times they'll put the debt on the business.
>> And so, yes, like from from a liability perspective, but also if you ever have seen someone just more from educational perspective, if you've seen someone get bought out by private equity and then it's like they're profitable, but why are they going out of business? So, for example, like Medallia, this just recently happened where they do a lot of customer surveys. We actually use them at the gym and they're great product, very profitable, but they got bought bought up by private equity that stacks so much debt on them and then those debt payments are due from the business and that's where the cash flow that is really healthy can get jeopardized if they've really levered the business very heavily because that debt usually falls on the business, not the firm.
>> Yeah. I mean, there's been a ton of these Toys R Us, I think they no longer exist for I think Steak and L, I don't know if that was around the country, it was definitely big in our area. I you could go down the list of these, especially in the restaurant world, these deals where they layered in a lot of debt and then they go under for that reason. The underlying >> Wendy's Wendy's another example.
>> I didn't know that. Wendy's too.
>> They're they're public but like they're thinking about going private because of the same thing. They like $2.3 billion of debt. They have like the valuation of the company is similar and so they're it's very much >> Okay.
>> Same thing.
>> Yeah. So this is just a big it can work wonderfully. debt can work wonderfully, but it's just a thing that most of us aren't doing and shouldn't be doing.
It's a different way to play the game.
So, that's got to be two of the most dramatic things. Like number one, just to restate them, like they move faster on generating profit than most of us are comfortable doing or even know how to do, frankly. And then two, the debt.
Okay, so now there's several more things that make private equity different. If you talk to enough private equity guys, you'll hear a word. They all use it.
It's called thesis. We have a we have a thesis on the market. We have a thesis on the industry. We have a thesis.
Basically, I mean, >> just just replace it for story.
>> Like, we're going to go mine asteroids.
That's your story.
>> This is our story. This is our theory.
This is our bet. However you want to say it. I've been talking to private equity for way over a decade. And thesis is the word. And so they the idea here is and it's smart. Like it's not dumb. It's so private equity guys are smart, most of them. and they're like, "Okay, there's a big giant world. There's a big giant country. There's a million different ways to make money. Millions of ways to make money." And so, we have decided that we really like the green industry right now. We really like the green industry because we think in 5 to 10 years there's going to be tons of people to buy these businesses and they're all going to be scared of AI even then or AI is going to screw everything up and we don't know. Nobody knows. And so, these businesses are still going to be good.
That's part of the thesis. So then they're like, "Okay, what are the best services in the green industry? Oh, we like recurring revenue. Okay, which ones have the best gross margin? Oh, we like, you know, whatever pest control and fertilization." They they they just go down the list and say, "What would the very best business look like?" And they're like, "Okay, where are we going to do this? Oh, we love the southeast of the United States. This is our market."
You know, and they and it that's a thesis and it just gets built over time.
Like, what's going to be a defensible business that will last a long time?
What's going to be a business where there's going to be a lot of buyers in the future that want it? What's going to generate a lot of profit? What's going to have low churns? It's going to be very sticky. Like, can we get to the clients? They're asking themselves all these questions. That's the thesis.
That's the story. That's the bet. Then they arrive at it. They raise capital.
Then they go out and they start buying companies. That's what happens. Okay.
So, is that a difference? Have most of us put that much thought into it or did we like I was born in Fville, Arkansas.
So >> guess we're starting lawn care cuz I started mowing grass when I was four.
>> No. And I you know I did the same thing.
I like I started a business where I'm at and thank goodness it turned into be a good it turned out to be a good market.
You know it's that but that so that's a big difference in all of us how all of us operate.
>> A few more. So let's now say the private equities bought your company company.
I'll say quickly, they are aggressive on finding deals, too.
>> Oh, sure.
>> So, like, so usually about once a month, I will put something out because I try to build kind of in public with the businesses. So, like for example, last week it was um we crossed $5 million in daily transactions through homeworks.
So, I made a post about it saying congratulations to the homeworks members. There's one next week about like 22 million was our revenue for Augusta last quarter. Every time I post that, there's going to be three to four emails or they'll get my I don't know how they get my phone number and text me because like I don't answer my phone, but like they can text like they are vicious because there there are people just trying to get the deals. And there was one guy he's like, "Hey, I'm I'm going to fly to Bellingham. I don't know exactly where you live, but I would like to have I would like to have breakfast with you tomorrow." I was like, "No, no, you can't." Like, what? But they're aggressive.
>> They are aggressive. Yeah.
>> It's intense.
>> And they talk behind the scenes. So, like when we were doing the deal on service autopilot, everybody wanted to talk to us and everybody wants to get in your good graces and so I could just like >> share your thesis.
I'd be like, "Hey, hey, uh, what do you know about Jobber? Hey, what do you know about LMN?" Like, and it's amazing how much like so they'll talk or they'll talk about who else is working on deals and what's going on. So, these guys are also talking to each other. Is that how you kind of knew because I knew when we talked a few years ago you were kind of like oh like mentioning those businesses like what they were kind of planning to do. Is that kind of how you got to know inside baseball is through the PE guys?
>> Definitely some of it but I also knew some of those guys a little bit or I also um I would have been pretty careful about what I would say but when we did the SA deal the plan was we were going to do some acquisitions. So I worked on a bunch of deals to acquire some big names.
And um so I I but I wouldn't have been able to say too much. So that would have probably come from private equity or come from my conversations with some people is my guess. Yeah.
>> Um so anyway, back to the private equity. But >> now they've bought your business.
>> Yeah. So they bought you. So like just kind of think about how they think about this stuff. Um and they thought about this going in. They thought about this when they first started talking to you.
They thought about this in due diligence, but they're really concerned with is this business targeting the best kind of clients that could buy a lot of services that will stick around because it's all growing. It's all about growing the business, all about growing the profits of the company. They are, and I alluded to this earlier, they tend to like recurring revenue, but one-time revenue and project based businesses, those valuations in many of the trades have been getting better and better, whereas they used to be terrible. Like there used to be a time where whether it's exactly accurate or not, you know, I'd kind of think about um project based work as getting a fraction of the valuation as recurring based companies.
I don't know if that's quite the same anymore, but because it has changed, but recurring has long been a more desirable part. They think about the revenue mix or they'll call it the quality of the revenue. That kind of goes back to the clients. It goes back to geography, goes back to the type of service. So they're they're really analyzing all this stuff.
So in a business when they were buying it, they might know coming in. It's like, hey, 80% of this revenue is pretty good. This other 20% of the revenue is actually not very valuable. It won't be very valuable to us when we sell this business. It's just a distraction. It's just and it's hard to find people. So what if we got rid of this 20%. And we reallocated those people to do other things inside the business and we grew the other parts of the business. So they are thoughtful about pricing like they're probably going to raise your prices as soon as they buy your company.
They're thoughtful about pricing.
They're thought thoughtful about revenue mix. They're thinking about all this stuff. So they have a plan after they buy the company of how they might want to make changes. So that's something they'll do things that you probably would never do. And they'll look at data and look at your business in a way you probably have never looked at it because again the goal is to grow the business quickly. The goal is to generate profit.
The goal is they understand that there's only so much capacity for people to do things. How can we have people doing the highest value things that grow the business? So they're very they're going to be ruthless in those ways. They're going to look very closely at the people of the business who they want to lock down, keep, who they want to move on.
They're going to be very thoughtful about the management team. They're not, no private equity company is looking to run your business. They are not. The private equity founders have no desire to run your business. They just want to advise. They have they probably have a team of people within their company that are experts in different areas. Like maybe the private equity com company has some experts in marketing. They have some experts in recruiting. They have some experts in data and finance. They they may or may not have these people or they may consult with other contractors, consultants that have this expertise.
They're going to bring those ideas to your company. They're going to analyze your business and they're they're g try to figure out how do we make this thing go faster, bigger, make more money. And so they're going to very much look at who do we have on the team and who do we need on the team because they don't want to run the business. They're going to fill in the big management positions. We have a real gap, for example, in finance. We need to we need a finance person in this business. We have a gap like we could grow this business all day long, but we don't have any people to staff the business. We need somebody to own the staffing of this business.
They're going to look for those gaps and they're going to bring in management people to run it. And they're not going to generally bring in somebody that they're going to train for three years.
They're going to be bring in somebody that's already done it and put them in place so that person can build that function in your business. That's how you go fast.
And then one last thing I would say is they're probably going to make acquisitions. So this sort of depends on the type of private equity company that you're we're talking about. Some private equity companies, their idea is that I'm just going to buy lots of businesses, put them all together, flip the thing, and sell it. That's generally the kind of private equity companies that most of us get a bad taste in our mouth about.
There are other private equity companies that are going to come in and say, "Hey, we're going to really invest in this business over the long term. It's a growth investment. We're going to make a lot of improvements. We're going to support a lot of what you've already done, and we're just going to grow this thing, and we want more organic growth.
We're going to spend way more money on marketing and we're going to bring in a lot of new clients. But to go even faster, we're going to make a few careful acquisitions. They'll call them tuck-in acquisitions. So maybe you're a $15 million lawn care company and they're like, "Hey, we could buy this $3 million fertilization weed control company. That's really valuable revenue for when we go to sell the business in the future." And that'll we'll buy them and we'll bring them in and that'll be a tuckin. And so they'll make some number of these tuckin acquisitions. Then eventually once that business is really solid, they may do another acquisition to expand into another market. So they'll go buy another business in another market. They may or may not rename it. And then they'll start to expand geographically. And so that's where acquisitions come in. And some are aggressive with acquisitions. Some are not aggressive with acquisitions.
They're very methodical and careful about them. That's all those are some of the big things that you would notice are very different in the thinking and how we run businesses.
>> Yeah, it's interesting. I had watched a a podcast uh the other day. Uh Kale Owen, he's the he used to be the CEO of Gym Lunch and he was he was kind of the he came with Alex and Ila and then took it over once PE came in.
>> Okay. And so hearing his perspective even like trying to deal with private equity as a CEO I was like it takes a special person to be a CEO of a company with private equity over you.
>> We did not see eye to eye did not see eye to eye the private equity firm.
>> Yeah. And I realized that I was not going to be the best person to move forward because I still wanted to do this thing. I had been through so many ups and downs in gym watch going through the model change in 2019 then going through COVID then going through the build then going through due diligence then going through the rebuild then going through all this stuff and I just was like at this point I was like I I don't want to do this anymore. M >> I would never want to be in that position, but I like there's a special breed of person that can really operate at this level of removing emotion from a lot of aspects and strictly looking at the data and executing on that playbook, whether it be acquisitions or tuckins or rollups or financial engineering and and trying to go public or whatever it might be. It certainly takes a special type of executive and I feel not all the time, but many times it's not necessarily an entrepreneurial person that's needed. It is someone that is going to be much more focused on the numbers, on the execution, and able to separate the business from the emotion of aspects of our own pricing. Customers that have been with us for a long time, vendors that we've been with, team members that have been with us for a long time. And I think that the balance between those two is likely that us as operators or or founders can borrow parts and pieces of this sort of, you know, regimented look at our business. And even what we had talked about a couple weeks ago around like coming back from a extended vacation or sabbatical and having this sort of clarity that I would imagine is somewhat like a private equity person like let's look at this objectively instead of subjectively with emotion with all the past kind of rolled up into it whether it be team members that shouldn't be there anymore initiatives that are wasting our time customers that need to be their prices need to be increased and one of the things that always resounds in my mind is I remember a talk that you did back at SAS Academy where it was like the first thing they did when they came into your business was raise prices across the board and you I if I remember correctly you'd said something like $10 million or more you left on the table just but not you doing that prior to the sale.
>> It was for sure $10 million. It was no less. Yeah. If we just made that change.
>> Yeah. Which >> and you still had to do you had to still deal with all the fallout too because you were still at the company. And the crazy thing, John and I had already talked about the thing, but it just got lost over time in the whole thinking about selling the business. Yeah, that was uh >> Yeah, that one hurt.
>> But and they do it everywhere. You you're you're dead on. I don't think most entrepreneurs can live in a private equity world. It's a smaller number. I I think I could have because I wanted to learn everything I could and I'm already kind of interested in private equity. I just think it's an interesting world they live in. But there's a lot I do not like about it. I don't know if I I don't think I would rather be an entrepreneur every day of the week. That's what I would rather do.
But what you'll notice and what I've noticed is that there are executives that just go from private equity company to private equity company. Like there's it's a it's if you want to be a leader and run private private equitybacked companies, you can make a lot of money.
a lot of money like more you can make if you're good you will make more money than I'm making this up 98% of all founders of companies will make because these private equity companies make money and so a guy is brought in to run a private equity company and he will he will do far better than he probably would have done if he'd started a company frankly and so there's a ton of these people that are out there that just go they run a private equity company when it gets sold they go to another private equity company and when that gets sold they go to other one and they make incredible living. So you do tend to see more of a professional uh business operator leader uh running these things than entrepreneurs sticking around. Yeah. Like I've read even like Brad I think it's Brad Jacobs how to make a few billion dollars or whatever.
He talks a lot about rollups and acquisitions and it's all about the private equity world. his book, several others that have been I read them a lot mostly to balance out the fact that I'm probably on the extreme opposite like probably too emotional about my business. I think too much about aspects outside the numbers and the data that's screaming at me. And so I kind of almost use as like, hey, I I never want to be this. I would rather not even be in business. But there's got to be a happy medium that as an operator or someone that does care about the people and the longevity and more of the 20-year term, not the 5-year term, I can borrow elements of this that are healthy for the business because obviously it works.
Like there's it would not exist if it was not beating the market, if financially it was not a good thing.
Whether or not people misuse these tools is a different topic, but I think it is certainly elements of those things that could be used for us as founders. Yeah, there would not be trillions and trillions of dollars locked up in private equity. Like as I talked about earlier, you're locking your money up.
You can't get it back. They would nobody would do this if these companies weren't getting great returns. And now that's a separate issue from are they good companies? I mean they might be good companies in that they uh generate a lot of returns but they could be bad companies some could argue for the future of America or they could be bad companies in other ways for the future of the consumer but it also cloudies the reality that there we've said this before there's so many different flavors of private equity like there are great private equity companies that will that buy companies and may even hold them for maybe forever that not everybody sells them There are other private equity companies that buy them and they'll hold them for a very long time and they're just going to grow really great companies over the long term and they've raised different money from people that understand what they're doing. Like the prom the promise wasn't you'll be out of this deal in six years.
The promise was this is the kind of business we're building for the long term. We'll distribute profits. You may not get your money back for a really long time. Yeah. So, you know, private equity can get a really bad name, but there's legitimately fantastic private equity companies out there.
>> And I know like right now, even from a legislation perspective, there's some sort of a a a push to allow nonacredited investors into private equity or allow them into getting deals before they go on the public market. And as much as I I see the one side of it being more democratized access to these great deals, I also see this as a problem that there's so much now money in that system that we start the the private equity firms have to start buying lower and lower quality businesses just to deploy the capital and because they're making money on the upfront like they're making the 2% that's where they're making their money. And I I feel like regardless of whether or not there might be a a good reason as to why we should allow everyone to participate in an entry-level fund or an entry-level business uh that's not publicly traded.
I feel like that could be really risky.
>> Yeah. So, I'm actually on the same page on that. I can argue both sides of this.
And I hear a lot of people saying this is good for the average retail investor.
And I get it. I get the argument. But the >> they're all the people that have funds.
All the people saying that are the ones that have funds >> or people that don't I or I sometimes think people that don't really understand how this can go badly like individ because just on the surface it sounds so good but I think about a couple things that one you gave the example like now we could have more private equity companies doing worse and worse deals. Another one is if you're there's a lot to this investing stuff.
like there's a there's a lot of people it's shocking how much how often deals go really bad and investments go bad and so somebody that's a lot of bad decisions are made on Robin now I wouldn't argue Robin should wait Robin uh >> Robin Hood >> yeah Robin Hood thank you okay all of a sudden it sounded wrong Robin Hood a lot of lot of really bad decisions are made there but I wouldn't argue it shouldn't exist I think there's also positives but if you kind of think about there's so many young investors, young as in young in age or young, they haven't been investing for a long time. There's a lot of lessons that need to be learned. And if they just hear, oh, private equity, it returns 15 to 20% a year or whatever that number is, they rush in, they're going to be the very ones sold the really bad private equity deals and they're going to get burned. And that's and so I understand as much as I'm I like the free market economy a little bit more libertarian than I am, you know, in that sense. Um I understand how we've ended up with these rules in the in society because I guarantee we're going to have a ton of examples a decade from now if this happens. And again, I don't know if it should or shouldn't happen, but we're going to have a ton of examples of why people the little guy got screwed yet again. because there's going to be crummy people that prey on them and people are going to make bad decisions.
>> Yeah. And I think anytime you have tons of money slloshing around and then it enters a market, valuations go up too.
Yeah. One example of this is like even the Seahawks just got purchased by and it's like fractional shares. They've allowed that in the past 20 20 12 months where NFL teams can be purchased by private equity. Well, they just got purchased for like $9.6 billion or something crazy. And I think even four or five years ago it would have been less than half of that. But there's just so much money and demand for a good business nonetheless. But the valuations go through the roof. But to your point, you get an influencer and back to the NFT days when it was like the similar because we democratized everything like under the guise of dem you know democratization of currency a ton of scams happened. Sure. And so I that's my concern by allowing someone who does is not a sophisticated investor cannot actually look at a P&L and know whether or not this business is solvent to allow them to invest in an early stage company is uh risky. But to your point I kind like you know what I just want people to do whatever they want. But will that just make the rich richer because whoever can just scam the most people and suck money out of the system they win.
>> Yeah. It's like it's Yeah. That's kind of how I think about it. You know, I imagine all these private equity companies who have a whole portfolio of companies that they can't sell. They can't get out of the deals because the returns are going to be bad.
>> So, they so they're going to keep them going. So, they roll it on them into a new fund and then they sell they have all the retail investors invest in this new fund which is basically a package of crummy companies. Like I imagine a lot of that stuff happening.
>> Who knows though? So, >> yeah. When when JP Holdings comes out with the new new private equity firm, we'll be in line to buy.
>> Are you or are you lumping me within all the crummy deals to prey on the retail investor?
>> Oh, no. No.
There you go. There you go. So, in that same vein, like I wanted to kind of go down this this path a little bit. Like I know private equity would kind of lead us in the direction of like, okay, how do we structure our businesses? And someone might be say, okay, private equity, I'm never selling to private equity. You're like, that's so far down the road for I'm never even going to get build a size I don't even want to build a size of business where private equity comes and knocks on my door.
How can I get some of these benefits and think about my business more of as as an investor instead of an operator? And is there some sort of a middle ground that I can use these principles to get out of an operator's mindset and to be much more of an investor, not like private equity, but what are the sort of the mental shifts or even the skill set shifts that someone can adopt to take on more of an investor mindset in their own business? Well, it really goes back to much of what I said. So, the first question you asked was in hindsight the perfect buildup for this because if you I think it's really valuable. We spent a lot of time talking about how a private equity company would look at a business.
If that's how they look at the business, then what can you extrapolate from that that maybe you should be doing? So, I'll kind of think about that list again as I rattled it off.
You want to be very thoughtful about the market you're serving. Okay? So if I used to give this analogy in academy and I'll come right back to this. So if you did sell your business and suddenly you had $100 million, would you really just say, "Oh, I happen to I'll use my Fateville, Arkansas example. Would you really say, "Oh, I happen to live in Fateville, Arkansas. I want to start buying re real estate with my money that I got from selling my company. So I'm just going to buy up as many home residential homes in Fateville, Arkansas as I can. Maybe an okay market. It's a it's a college town.
Who knows? It might be you might be okay there. But somebody that's sophisticated enough to have built a big enough company, sold it for enough money to pay all the taxes and have $100 million left over probably is going to think about and say, "I got $100 million. Where is the very best place in the world or in the United States to deploy this country money? And how would I do it?" Much like how I described a private equity person would think about it. So, if you were thinking the same thing about your business, you would say, "Okay, I got to where I'm at today because I started here and I served this client. I offered these services." But if I'm creating a STR boy, this this video I just recorded a video for 5 for 50. It comes out Friday. It's actually kind of like this.
So, um kind of there's going to be a little bit of similarity here. Um, and that is if I want my business to be different than what it is today and be better five years from now or a decade from now, using that example I just gave. You have $100 million. How would you deploy it?
You want to look and say, "Okay, this is where I'm at, but where are the best clients? Where is the best market?" The best markets are markets where people are moving to that market, not dying, and the market shrinking. Like, yeah, you could argue in Florida there are great markets because people move there and retire and those people die and more people move there and retire. That could be okay. But you're really thinking about is this a growing market or a dying market. You're thinking about is this a client that has enough disposable household income to buy my stuff. You're you get really thoughtful about that stuff. You say, "Okay, in the market I'm in, what part of the market is the best?" I've been talking to everybody in all the cities I live I serve, but these three cities are the best. these neighborhoods, these carrier routes in these cities are the best. So, I'm going to focus my attention and my money and my marketing to that. I'm going to that's that's strategy. And so, that's a good word to use when you think about how would an investor think about their business differently than we think about it. We think about it strategically as a private is similar to how a private equity business would be. So, again, top level, who am I serving? What area am I serving? What services am I offering?
What's the gross margin on those services? What's the cogs on those services? Like directly related. I'm thinking about all that stuff to decide what I keep, what I prune. Kind of going back to our our show last week when we were talking about when you add services, when you get rid of services, that's very much in line in what I'm talking about. Now, an investor would do that. If I if you came to me and said, "Hey, will you invest in my company, help me grow it?" It's another frame for me to think about this. That is where we would start. like are we even serving the right people, the right market with the right services at the right frequency? Next, I'm gonna look at everybody in your company. Like, do we even have the right people? There's no emotion for me. I don't care that she's your mother-in-law. She's a drag on the business.
And so, this is not good. If we can't fix this, I don't want to invest in your business. I don't care that the guy has been there for 19 years, but now he's a pain in the butt. Nobody wants to talk to him. He can't keep being here. He's got to go because it's a drag on the business and unfair to all the other people. Oh, you've got a massive gap in the business. We can't grow. To my those that follow for 50, my two engine philosophy, there's a revenue engine and there's a recruiting engine. We We're in the greatest market. We actually do good marketing. People love us. We've got reviews, but we won't grow this business because we don't do recruiting. That's this I'm an investor. That's what I'm looking at. Like, where's the hole?
Where's the bottleneck? What's slowing this whole thing down? What's the few things that are breaking at all? And I'm looking for those things and I'm fixing them. And that's what you do. That's what private equity you do. That's what an investor would do. So, if I'm investing in you, I'm looking at that.
We're looking at pricing. We're looking at what the competitors price, how they price. We're looking at packaging. Like, how do we package up these things? Like, how do we add more value? How do I like if everybody's selling lawnmowing and it's such a commoditized service that you like I generally know as the buyer that's going to be 40 bucks, 42 bucks, $33. Like I kind of figure out the pricing really easy. I just had somebody clean my carpet day. A lot harder to figure out what it's going to cost to clean stone in your house or car. Like so if you kind of think about like how do we even present price? How do we package up price? How do I position things where it's not apples versus apples where they look at it and I'm 40 bucks and my competitor's 33? Well, they discount me be and go with the 33, but they don't understand all the value I'm adding, customer service, the staffing of the the team. Like go think about my recommendation door hangers I was talking about earlier. the amount of work that goes into I'm not talking about just producing them but actually delivering like thinking about how do we proactively fix things for our clients like that's not how most companies work and that costs money and a lot of time but you can never you can never give the buyer all those differences in sales points. You just can't convey all that buying criteria to them so they're going to hear a few bullet points on why you're different than everybody else.
They can see why your reviews are different. They they but they're still going to kind of look at pricing. So, how do you package things? So, the pricing is really hard to even look at.
Not so you could scam people. Not so you rip them off. I'm not into any of that stuff. I'm just saying so that you have a better chance of selling the service and getting paid a fair amount for all the money that you're spending to be able to deliver a higher level of service. So, I'm thinking about that stuff. That's what an investor is going to be thinking about. and they're going to be methodical about going through this and getting making sure we have data on everything because data answers all questions. Like most of us, me included, we just feel our way through this. Like I think we should do this. I think I the client doesn't like this, but really we heard four clients complain about something and we've got 2,000. Like was it real? Like we have all these feelings. A team member doesn't want to be troubled by their job being complicated. So they say everybody hates this thing, but it's like they it's again like nobody cares. It's just they care or they they are tired of dealing with a few clients once a month that complain about something. It's not really even a problem in the business. I hope I'm making sense. Like I'm just trying to make the point there's all this noise and the data tells you if it's noise or if it's signal as they say. Signal is like should we take action or not take action. The data answers the question.
So a sophisticated buyer, a sophisticated investor, it doesn't matter. They will install these data systems to understand what you should and shouldn't be doing. So it's a lot of stuff I talk about in 5 for 50. It's all the same stuff we talk about here. We're going to stack, we're going to think about things. We're going to stack rate things, stack rate things, and think about what moves the needle the most. We need to drive more leads. We need to convert more leads. We need to sell more profitable work. We need to get paid faster to fund the whole thing. We need more people to do more work. I you kind of just go through the list of the biggest levers in the business that will move the needle the most. And there's going to be literally 700 things to work on and you can only do five and you can only do three in the next two months.
And they just they will go through all that stuff, much of what I've talked about. They'll stack rank it and they'll just start working down the list and it will take years to execute on this. But that's how an investor thinks.
>> Yeah. I think one of the things too is if whether you got private equity or an investor coming into your business doesn't have the ties emotionally. A lot of times they'll even private equity will lean on consultants whether it's internally or like they hire industry.
Like I've people have offered like hey we're buying this company out. We like to hire you just to come look at this thing. Right. And so >> I think there's elements of that you can get though before you need to go sell your business or even you ever want to sell your business. Whether it be getting other eyes on the business, someone else to look at the P&L, it's probably the biggest thing I've ever taken away from private equities like when they're looking and I've just was like, what do you see? Like obviously I want to know what's a problem here cuz I don't see it. And so that's been very beneficial. And I think if we can even create communities or if you have a competitor or someone that you can meet at a conference be like, "Hey, look at my numbers. Like here's stuff. What do you see without all this emotion and 20 years of knowing everyone inside the company and Miss Sally down the street and all my customers? What do you see as the constraint and identifying that? Cuz most of the time we just kind of keep I feel like especially if you're not trying to sell, if you're not trying to grow massively, it's you're not really trying to identify a constraint. You're just solving the next problem that's in front of your face instead of like what's the constraint as to why this problem keeps existing. And we never question what's the root cause of things. And I think the biggest when I was looking at this question, it was like you go from solving problems to like creating systems and really trying to solve the root of the problem.
Instead of fighting the fire, I'm building hydrants. Like how do I prevent this fire from happening again versus just on this cycle of like fix fire, fix fire, fix fire, we just kind of like fall into this treadmill of doing that versus stepping back, assessing why this is happening, and then creating systems to ensure it doesn't happen again when it comes to like problems inside the business.
>> Yep. I 100% agree.
>> So all right, we will move on to the fourth part of the dock of the day. Uh I want to talk about data and knowing your numbers. I know this was a topic that I have heard you talk a lot about when it comes to building out the marketing calendar. And for those that have heard you talk about it over the past few months, I think the thing that I always think about as you're talking about is like this all has been informed by data.
And without that information, without that data collection, without that reporting, without that dashboard, there is a level of you are shooting in the dark. And I think when whether it be attribution or elements of what strategy you're using, there is certain levels of gut instinct and data can't tell you everything to do in your business, but it certainly gives you direct are you directionally correct if you're offering this service at this time of month to this customer. But without the data, you really can't make an informed decision.
And so I kind of on the docket today, I wanted to break it down into three different categories, three different sizes of business. So a business that has $500,000 in annual revenue, a business that is $2 million in annual revenue, and then a business that is $10 million in annual revenue. And I wanted to talk about when someone says build systems or know your data, know your numbers for those sizes of businesses, what specifically tangibly should they be trying to build or trying to get from software or what dashboard should they be building at those different sizes of business to make sure that they can actually optimize their business and use more of this investor mindset to be able to make good decisions.
>> Yeah. So, let's talk through it.
at a high level first and then we can get a little more granular in terms of the sizing. Um, you touched on something and I think it's an important point. It most people don't really have that much data in their business. So, they're not really making decisions based on data.
And so, I have just come to believe that the data is imperative because it guides decisions. It's I I've always liked that statement that accounting is the math of business.
accounting. We all believe we need accounting so we can do our taxes and generally understand how much money we're making. And then there's that's data. And then there's other levels of data. And when I talk about how important data is and how it tells you what to do, what you touched on, Mike, was there is this other side. It's it's actually not all about data. The problem is that when we're only making decisions on data or when we're not making decisions on data, we are absolutely going to lose to a company that is period. But there's a finesse in business. There's a creative element in business. There's there's that element where there is a gut instinct and a gut feeling and there are bets that are made and there are tests that are run. And so if you're just 100% data driven, I think it's a different side of the problem where you never take any risks. You don't try anything and the data usually tells you not to do anything >> or you destroyed the culture because you just look at the numbers.
>> Yeah. Which can happen in private equity because the whole company's being ran on numbers to hit an outcome. And so it's like how can we get 1% more profit?
That's what kills people. It's not it's not improving the company by 5% or 7% profit-wise. It's the getting the last percent out of the business that just destroys the culture inside businesses in my opinion. That's one way I look at it. I'm not optimizing for the last couple points of profit. That's how I think about it. I'm optimizing my business to have strong profits, but I'm not going to burn the business down for two more points of profit. That's that's another way to say how I see private equity and the way I choose to live differently. So, um, my point here is simply that it's a combination of data and a combination of gut feeling and being highly connected to your client and really understanding what they're asking for and understanding their pain and getting in their the mind of the buyer and sometimes making decisions that like, you know, the data doesn't show us that this is the right thing to do, but I really based on doing this for a bunch of years and knowing these clients, I think this is what the market wants. And then data might give us a like feedback on if it's working. So, as an example, we launch a new service offering. Gut feeling it's going to work and the data shows us are people buying or not buying. It doesn't mean you kill it. If they're not buying, it means, oh, it's not working. I need to tweak it, test different ways. You know, if I after some period of time, the data continues to say this is not working, then you kill it. It's that kind of a use of data. Uh, that's one way to think about it. All right. So to be really simple about data, I think it's easy to rattle off all the things you should track and I I just don't think that's the right way to think about it. I So to be really simple, um I think about tracking data in three buckets. Okay, so one bucket is what makes a business go. We need to generate work. That's the revenue. We need to sell. So we got to generate the work. That's bucket one. And then the second bucket is we need to actually do the work.
That's like bucket two. And then bucket three is we actually need to make money doing the work. And I know there are other buckets, but if you think about this at a really high level, this is what makes a business work. If we generate work and we do work, but we make no money and we're losing money and we're running up our debts, bye-bye. If we generate work and we don't have any people to do the work, the business is going to plateau or eventually go away.
If you have lots of people to do the work, but you can't sell the work, it's the same thing. Like these are the three big way things I think about it. So for the majority of owners and leaders if you just think about your business in this way like let's just get the basic data for these three buckets. And if you're doing accounting which my gosh if you're not highly concerned for you then you're going to kind of satisfy the the the profit bucket to a large degree.
This is where a CPA can help you even if they don't have a lot of experience in the in your industry and they can't really talk to you about what your COG should be or what your gross margin should be. You could at least kind of they can help you with this profit side.
So that generally is handled with accounting. So let's talk about um and some of the profit is handled under do work. So let's kind of talk about generating work and doing the work.
Okay. All right. So when you get into those areas from the generating the work which is the revenue that's selling the the bare necessities in my mind and Mike it'd be great if you'd chime in on some of this because you think about this stuff too like just like I I don't want to go too far here because it's overwhelming. How many leads are we generating? How many leads are we generating by service? How did people when we got the lead? How did they find us? Did they see our truck? Did they click on a Google ad? Did they click on a Facebook ad? Did they get a postcard?
Like how how did they find it? Was it LSA? Okay, so we just want to it's like very elementary right there. And to go just a little deeper on that one. Like the most elementary version of that one is you just ask you ask them how they found you. It'll be right most of the time. Um you know, most of the time they'll say I found you on Google or you know, it'll be kind it'll be kind of right. It's not perfect, but it's something. Okay. Oh, it's a referral. Oh, they saw the truck.
You know, it's like it's directionally accurate. It gives you a feel. Um, okay.
So, that's that's the leads. The how do you find us? And then then the next one I think about is conversion. Okay. We've got x amount of leads coming in. What percentage of those leads are we tracking? I'm sorry, are we converting?
Meaning, they're becoming a client. Real real basic stuff here. And then of our clients, what what what are what number of clients are leaving and when are they leaving? So, this is where I'm just gonna go a little further here. I don't want to get too far in the weeds, but most of what I'm giving you right now, I'm sure Homeworks does all this. I and a lot of software packages will do this.
And that's the beauty of the basics. If a if a software package can't do this stuff I'm talking about here, it's not the right software product because these things all need to come from your software product. So, uh, lead comes in, it needs to be date and timestamped. We need to know where how they found us.
Uh, an estimate is sent, we need to know if it converted. Um, a the lead converts to a the estimate is accepted. The lead becomes a client. We need to know when that happened. And you can kind of it's like the life cycle. Then eventually that client cancelled. We need to know when they canceled and we need to know why they canled. All that can be tracked in the majority of systems. And when you have that data and you also know what service they bought, most of these systems can then tell you you're getting this many leads for this service. You you've got uh this the you get a conversion percentage of leads 52% for mowing and 48% for fertilization weed control. Like you get all that data. So this is the basics. And then where it gets a little more sophisticated on this revenue side and there's so many more metrics here, but I just want to do the basics first. The one that as early as you can in the business is you want to think about that concept that you hear Mike and I say all the time, which is CAC, client acquisition cost. Like how much did I spend to get them? And I tend to think, and again, Mike, chime in whenever you feel appropriate, but I tend to think if we can just kind of understand what we're acquiring a lead at initially, like, oh, it's costing me 10 bucks to get a lead versus a hundred bucks to get a lead versus 200. That's for a really small company, that's something. Um, eventually you want to get a little bit more sophisticated where you want to understand the total cost of acquiring a lead and converting the lead into a client. And that gets into depending on how you calculate CAC.
This is where it gets more complicated.
Most software packages can't actually do this because they don't have your accounting data. It needs to know the the sales software involved, the sales people cost involved, the marketing expense involved. Like that's where CAC gets more complicated. So I could say your 300,000 in revenue. You should know your CAC, but it's like you're probably not going to know your CAC. So as you start passing the as you get closer to that million-dollar number, I really would want you to be dialing in your CAC. like earlier is better, but could you at least know what it's costing to acquire leads from different channels?
Because then you can kind of back and say, "Hey, I'm getting leads for $10 on Facebook." I think Mike, you've said you do that. And I know that I convert 40% of them. We'll do easy math for me. 50% of them. So that means it's cost me 20 bucks to get a client. Like it's not perfect, but it gives me a general idea.
I can at least compare that to whenever I get a lead through a postcard. it's costing me $100 to get a lead and I'm converting them at a, you know, whatever percentage. And so it's it's generally costing me $300 to convert them to a client. I can now do the math like, oh wow, Facebook way cheaper than um postcards. I don't have much money.
We'll do more Facebook for now. Like it's that kind at least you have that.
So I'm going to pause on the revenue side. What would you add because there's a lot of I can go another level here but what would you add to this?
>> Yeah, I think one thing you you kind of mentioned too there is the CAC side because that's when I think about what number do I need to know for generating work from a simplicity perspective I need to know how much do I need to spend to get one new customer because if I don't know that >> you know >> where they came from is important but if I don't have any customers I have nothing to track. So, I've always just try to been like, okay, just my CAC. But one thing that you brought up really briefly that I wanted to highlight is the type of service being requested and the way that you do your sales motion dramatically impacts the actual cost to the business to get that customer onboarded. Meaning, if I can sell that job over the phone, it might take an extra, let's just call it five to$10 for someone to answer the phone, give the pricing, follow up with an email, get them on the schedule, get their card information. If I have to send an estimator in person, and it takes 30 minutes to talk to the clients, a bunch of drive time, and then I close maybe 30% of them, I've now spent three or four hours of a very valuable person's time, the expense of a vehicle getting rolled out there. like that's usually not baked into CAC and I have seen that not be taken into consideration and it's very hard to track to your point. It's very very difficult to start figuring out that real number. But I have seen people take a lowerc cost lead or type of service that allows them to get a bunch of leads, but they don't take into account that they have a full-time estimator rolling around all day long going after 5 to 10 leads a day for this service that they have not figured out the fact that your cost on ads might be $50, but you're spending an extra 70, 80, $100 to get that lead actually to the customer. And so I I've like made up this this term and it's like not just customer acquisition cost but like cost to get the lead to the customer because now the type of service being requested plays a lot into what sales motion I use and that sales motion has a very different cost based upon whether they go to my site and click a button and sign up and literally there's no admin or am I sell am I paying a very expensive salesperson to go have an in-person meeting and I'm rolling trucks all day long. So, if I hear you right, there's different CAC numbers by service is another >> hard totally very hard to determine. I think a lot of times when people think CAC, they think ad spend.
>> Yeah. Yeah.
>> And it's the easiest to track. You can track a lead, you can track the conversion, you hit a pixel, you hit a code, and we're good. But they don't take into account the the sales part of that equation, and that just gets lumped in with overhead wages. But it's like those overhead wages exist because you offer certain services. back to what we talked about last week is like, well, I add more services, but be careful because now all of a sudden your CAC is no longer just the CAC. It's the fact that you're rolling an estimator to every single lead and only closing one out of three of them and you're spending four hours per accepted estimate, >> right, >> on the salesperson. Yeah. When I'm trying to be super precise, sometimes I'll say loaded CAC, but I don't know if that means anything to people because over the years I've definitely concluded, which is what you just touched on, people calculate CAC differently. Some will just think about it. It's it's just the glorified expense to it's just what it costs to acquire a lead divided by the acquisition or whatever the percentage of uh the conversion percentage like that's all.
So it's just the media spend as you said and so that's one way but I think about and I actually track at city turf both media CAC or I don't even call it CAC just media spend or what it equates to to acquire a client and then fully loaded. Fully loaded is the one that means the most and the nuance you gave was a really perfect example of why you want to look at fully loaded. It could be very deceiving otherwise. It's also the reason when you talk about things like gateway services. The thing that so many people that knock mowing and say mowing is a terrible business miss. It's the greatest gateway service that exists. It is the easiest business to grow. It's well I mean who knows if it's easy. It's one of the easiest businesses to grow because so many people will buy that service. It's one of the cheapest services to sell in a lot of markets.
You don't have to roll the truck. So like you get the client with that service. It's the gateway. It's the cheapest way to acquire a client and then you expand the value of the client by selling them other services.
To get a pure fertilization weed control client is way more expensive to get than getting a mowing client. So you could just if you can handle unlimited mowing then you go get as many mowing clients as you can and then you sell them fertilization weed control. That's how you get your CAC down. It's so that's just another real world example. So that's a really really valuable um uh depth that you gave there. I talked to someone the other day and I we were talking about cutting out a service and they were talking about how their CAC numbers were so much better for the service and I said, "Well, let's be clear. you have a full-time salesperson for this one service doing estimates. I said you're paying them $80,000 a year after commissions and they did about a,000 estimates last year and half of them got accepted. So when you do the math on that, it's $160 extra cost per accepted estimate for that person to exist >> and now all of a sudden a $250 CAC used to be 90 doesn't make any sense on paper. And so it's one of those things where it's hard to calculate for some people because if you don't have a big enough business for someone to purely just be doing the sales process or purely doing admin, for example, if you're juggling sales, you're kind of out in the field, you're doing operations, you're answering the phone, that's difficult to track and actually have data around what is actually the fully loaded CAC.
>> Y >> as an operator that does 500,000 inner revenue and kind of juggles the, you know, juggles everything.
>> Yeah. And you're not going to get this out of your software system. I can't give it to you because it doesn't have all the data. So, this is an example of where to be realistic, you're not really going to probably have this when you're a little bitty company, but as you get bigger, and bigger doesn't really always define like you can't say, oh, you should do this at a million dollars or you should do it at 2 million. It's more when the owner is ready and it's more when like you should be ready as soon as you can, but how fast are you growing?
The faster you're growing the business, the faster you need the data. If you the more complicated your business is, the faster you need the data. If you're not really spending any money on marketing and you're scrolling through referrals, ah, probably don't need this data because you're not doing anything with the data. It's that kind of a thing. So, the when you need the data and when you should prioritize it really varies by business. Uh, but it's generally a number that a little company isn't going to have because they can't get out of their software. they can get parts of the number out of their soft their maybe their operational software system and then they get parts of the number out of their accounting system and >> like this is where like AI I am the most excited about for smaller office those two things and like just be able to have where it's like hey >> you know my agent is talking to my my operational software but also pulling in from QuickBooks to know my cogs >> know my efficiency know what my labor expense is like it >> what man I'm I'm super excited cuz like everyone when we've been doing this MCB stuff, a lot of it's been the larger operators that feel more comfortable.
And my objective is like this is such an unlock for what used to never be available to smaller operators, which is the ability to connect to to let's just say QuickBooks and pull that data in and get real like what you for most businesses until they're over a few million dollars do not think about fully loaded CAC overhead, the your expense ratios of labor and so and even like items like the services and which ones are are bringing the most. So, I'm super excited like just seeing it. I've seen it just a few times and I get so excited about >> it is a game changer. Like people that are new in business just it's like an old person talking here. You just don't realize how it used to be when we I'll give you an example back in 2010 service autopilot just getting started like for years in that business this whole idea of talking about your data like people were not tracking their data. We're the way we talk about this now was not being talked about. Like the average guy running a million-dollar business or $2 million business was barely looking at numbers. And why?
Well, because they didn't have software to track the numbers. They when Service Autopilot got started, there was a bunch of stuff we did like average uh manhour rate, target rate. Oh, there's all these things we put in there. Almost hardly anybody had that stuff. A few did, but hardly anybody had that data. So, nobody could get the data. And so, no, these companies weren't looking at the data.
Only the most sophisticated and biggest companies were tracking all this data manually. So, to go from that period of time only 16 years ago to where we were, call it three years ago, where more and more general software systems could give you some of this data to now with AI is just unbelievable. And it is a wonderful time to be building a business. So now the key to this is that for another thing I've observed with so many companies is they're really slow about keeping their accounting system updates.
So let's say you're using QuickBooks online like so slow. They're just so slow about doing their books and they they they pay their accountant once a year to check things. Like man I don't care what size you are, pay your accountant fast more to do this faster because you need that data to go into AI. you if you could just download these reports even if you don't have some sophisticated thing that's connecting them all you got to do is export some reports once a month feed them into your AI system >> it's easy if like if your software system like service autopilot I still use service autopilot service autopilot doesn't have a way for me to get a lot of like it doesn't connect to a AI model so I just export I just dump the dispatch board just dump it and put that in a AI model and you learn all kinds of crazy things so My point here is that um now now you have all everything you need but you got to keep your data updated fast. So if you do that then this is >> I'm rambling now. It's like so exciting.
So exciting.
>> Yeah. Absolutely. All right. Um we we talked a lot about generation of work in terms of selling and some of those numbers. Are there any key ones around doing the work or making the money in like my my kind of world? I talk about sales, ops, and admin. Do the work or sorry, sell the work, do the work, get paid for the work. So, it kind of fell into those three buckets. Yeah. But like what are some of these other numbers? We talked about generating the work a lot on the sales side. Any specific ones when it comes to doing the work or making the money?
>> Yeah. On the doing the work, um, let me come back to that one on on the profit side because I can say this in a few sentences. Get paid as fast as you can.
I'm pretty sure if you're living in the Augusta world, like in Mike's world, like you're thinking about this already.
This was the big transformational thing that we did at City Turf, which became one of the big things I talked about like crazy back in the day on Longare Millionaires. Like, get paid immediately. That's how you finance the business. That's how you grow the business. That's how you drive, that's how you get rid of bad clients really fast. And so, it's the key to profit.
Like it's one of the biggest lever or ways to have a more profitable business is get paid insanely fast. And that's why I'm an advocate of credit cards.
Even though, yeah, you're giving them x percentage of your revenue. It's a bummer, but it there's so many other benefits, it's worth it. Just price up the service 3%. Cover the credit card fee. It that's part of the profit equation. Um driving down accounts receivable, part of the profit conversation. uh getting rid of like finding out that a client's not going to pay you and only doing one or two services and then firing them. How you drive drive up the profit equation. Like it's like this is all part of profit. Um so then moving back to the work side when I think about work it's the the the goal is you have to know your COGS and your gross margin. You have to and I did not in the early days. I did not for quite a while in city turf. So let me come back to COGS and gross and margin here in a moment uh and spend a bit more time on it.
There's some basic data that you can know more easily that will really help you. So as an example for me, I always found uh dollars per manh hour to be incredibly valuable. I need to know by service, by team, by crew, by person, how much money are we making per manh hour because with this one and so I I have always said per manh hour is ignition to ignition. Truck pulls up in front of the property. I don't care what service you're doing. I turn off the truck, I get out, do the work. When I get back in the truck, I log my notes, update my app, turn on the engine to drive away. That's clock in, clock out time. That's that time divi divided by or the amount of money that that job was built at divided by that amount of time assuming you don't have products materials in the job. That's your per manh hour rate. And that one number right there if I know nothing else and that is the number we were we looked at like from the beginning of service autopilot uh city turf. It was like built into service allpipe from minute number one was so critical even when I got so many other things wrong because I could look and see, oh, we're making $52 an hour with Miss Smith and we're making $38 an hour with Mr. Jones. Don't have to be a rocket scientist to understand something's not right. If generally I'm making 50 an hour, but on these clients I'm making 30 something or 40 an hour, I got a problem. What's the problem? it it's a signal that says go investigate this thing and then if you just do simple stuff like fix the underperforming accounts that are making 30 or 40 an hour you immediately make the business better and so the per manh hour had always been one of the really really important numbers to me which is why way back in service pipe we had this thing called target manhour and so the idea was and you know whatever software your system you use it doesn't matter it's just like this is the concept you I've always believed, and this applies to all this metric conversation, there's 9,000 metrics you could track, but there's a few that matter. Well, there's a lot that matter, but there's a few that really matter because they're the numbers you can watch and then they give you a signal that something's good or bad and you can take action. So, I've always felt dollars per manh hour is one of the single most important business uh numbers for a labor business. And target per manh hour allows me to have a signal. So, as an example, if I have a target manh hour of $65 an hour for mowing and I have and my teams are logging and this applies to every service. I'm just using mowing as an example because it's simple. My teams are clocking in and out. That allows me to know per manh hour rate. And if my manhour rate on a job is below 65, the signal is in my example service thing, it's red. If it's above, it's green. So, all I got to do is find my offenders and then I got to fix my offenders. Sometimes it's an offender for a week. Sometimes it's offender all the time. It's a week I'm not worried about. I can look back at the day. It's like, okay, this client isn't perpetually underperforming.
We're fine. It was something else. They were, you know, building a fence and it slowed down the guys. But if they're a constant underperformer, you know exactly where to raise the price. You know exactly what to do. And so if there's one number, I'm a massive fan of that number for the majority of companies. It also allows you to compare teams. So is if one team's generating 65 a manh hour and another team is generating 58 a manh hour, it's probably not that that one team got all bad clients. It's probably that the team's kind of slow. So I'm generally trying to look for a number that will let us like focus on a a number and and then talk about that number. So, I love average. I spent a lot of time on it. I love love love that number. It's just so simple.
It's not hard to get the data. And at this point, almost every software system can give you that data. And then if you can just dump that data into a spreadsheet, you can do all kinds of wonderful things. as an example, and I did this in 2011 in service autopilot with my city turf data. You dump that average per manh hour data, and let's say you have your square footage of a a house or your square footage of turf or your square gross lot square footage.
You can then start to see how much money you make per manh hour by different square footage. It tells you where to raise prices. It's like, oh, we are massively underpricing on properties from 10,000 to 12,000 gross lot square feet. and then you fix it. Like back to like data tells you what to do and with AI like that's this stuff was like some of the stuff we figured out in city turf way back in the day was a lot of me and a spreadsheet. Now it's like all you got to do is dump the data out of your system, import it into AI and tell me what to do and it can calculate what you should raise your prices to. It can do all of it for you. It's magical. And so I just love per manh hour. Um that was a lot of time spent on that one but that's that's how much I love it. Um, anything you'd add on that, Mike, before I >> Yeah. Yeah. I think like I love efficiency score, but it's really a function of your hourly rate because all budgeted hours are is my target hourly rate out of how much revenue I'm making.
And so we always are looking like to be able to too if on a route they have multiple different services that might have different rates, I can just look at how many budgeted hours are for that route and then divide that by clocked hours and have a pretty good idea of their efficiency.
>> So budgeted versus actual.
>> Exactly.
>> Oh yeah. Yeah. I that was that's on my list as well. And I I just I it goes right hand inand in my mind with the per man hour. So I totally agree with that.
And the re the reason I like that one too is because the the technicians it's easy for them to understand for us to use that one in our vocabulary. You say, "Hey, you're 90% efficient. That means nine out of every 10 minutes of the day you're out working. You're hustling >> and you're you're 64%." Meaning six out of every 10 out 10 minutes you're working. Um and then for us to be able when we do PP, we can pretty much know if they're over 70% efficient, they're going to make a bonus. And to be able to use that language with them has been really useful.
>> It's budgeted versus actual for the whole day or just while they're on the job.
>> It is the budget hours is for the time on the job. Meaning that windshield time is a huge component of whether or not their efficiency score is high.
>> So efficiency is actually more than actual versus budgeted.
>> I I Okay. Because you're thinking about load time, g fuel time, drive time, all the stuff.
>> Correct.
>> Oh yeah. Okay. That's that's a wonderful number. Yeah, budget hours on a job specifically is much better for in terms of determining if it should be increased in price. Like am I hitting my manh hour rate?
>> I like to look at efficiency more as like is baking in all the drive time, all the load time. Because they might hit budget hours in every single job, but if they're slacking off in between, stopping a gas station, take forever at the shop, they could still have a 60 or 58% efficiency score because of all the time not on the job being done inefficiently.
>> I like it. I always looked at so service probably didn't have an efficiency score. So I always looked at budgeted versus actual separate from non-billable. I always I looked at non-billable hours separately. And so then you would work on non-billable.
You'd figure out your biggest offenders and non-billable and kind of same concept. You'd deal with the number one first and work through non-billable. But you just kind of brought it all together.
>> Yeah. Just for simplicity, honestly.
>> Yeah. Yeah. No, I like that. That's smart. Anything else on that list?
>> Not really. Um, I think everything you said is good and I think one of the the funny thing now when we look back on it seems so basic, but you were really the first one that talks so deeply about getting cards on file >> and that was like revolutionary 10 years ago and now it just it's a little bit more common place, but I think it's just uh the the importance of getting the money fast and if you're not doing that, especially when it comes to one-time projects, I feel like this is the the biggest offender is people that allow their last 50% to be somehow going on forever. They might collect a deposit.
They might even do progress payments, but then they have 50% of that job that because the job is done, you have no leverage. And the customer can wait four, six, eight weeks. And that ruins so many businesses. It's one of the biggest reasons a lot of people will get out of projects in Augusta. It's like they just can't stand the fact that their mowing gets charged this week and a project that got finished, they're on the hook for for a couple months. Yeah.
And all of a sudden, of course, there's there's mistakes and errors that you did 6 weeks later that are popping up.
>> Yep. Yep. Yep. Yeah. Two of the most important things we ever did at City Turf. Going back, getting paid super fast, forcing credit cards to everybody, like game changer. And the other one was stop rolling the trucks to sell. That was just, you kind of alluded to that earlier. It was killing us. It's like you just, you can't turn the estimates as fast. uh you don't win as many deals because you went to do the quote, Miss Smith wasn't there, then the next competitor went to do the quote, she was there, he won the deal. Like it's like you can't get them back on the phone. Like just sell them on the phone.
>> And back to your lo and back to your loaded CAC. If you can >> half that that actual number, you can spend a little more on marketing even if it's inefficient because they want that quality touch. I will lose those customers, but I can I can market more with that same marketing spend.
>> Exactly. Right. Yeah. Yeah. So, big things.
>> All right. Let's move on to the last item of the document, unless there's Go ahead. Do you want to add more?
>> No, I think I thought you'd ask me something about systems, but we could move on.
>> Okay. So, so the last one is more for like probably a larger operator or someone that is trying to grow their business and might be feel frustrated because they just kind of feel like they're hitting their head up against the wall. They can't keep any good employees. There's churn constantly at the technician level. They're keeping people for a month, two months. if they try to bring a manager or an assistant manager on, they just don't stick or they get disgruntled or they sabotage them or whatever. I wanted to try it to do our best to identify one characteristic or trait specifically that the owner, the operator has that separates that person, maybe they're doing 500,000 annual revenue, cannot get employees a stick. They're just constantly turning over. and then compare them to an owner operator that might be doing like 5 million in revenue, has a great management team, team members have been with them for years. Yes, they have churn, but they're able to replace those people. They're strong cultural fits for the business.
If you had to narrow it down to one characteristic or personality trait that would differentiate those two operators, what would that be?
>> I thought this was a really hard one. I I have my one, but is it the one? I don't know u but it's always been my belief and operating philosophy and the simplest way to say it is people are not robots people do not want to just be said do this do this do this and so I feel that the competitive advantage and the operator that wins is the person that legitimately cares about their people and everything they do demonstrates that they do not see their people as robots or people that are just there to facilitate them making money. They're like legitimately valuable to the owner as a human and they're legitimately valuable to the company and you're you're just hyper concerned about their best interest as well. Doesn't mean you can pay them unlimited money because then you won't have a business, but it I just like I think that comes through.
I've always believed it. Like I used to always say at Service Autopilot, you're not going to be with me forever. I have no illusions. You're going to take this job. you're not going to stay. But what I do hope is that someday in your future when we've not talked for a decade, you look back and say that was one of the best places I've ever been in my life and it helped me get to where I'm at today. And that's how I if you believe that as a human, then I think you naturally exhibit the leadership characteristic that attracts people to want to be there. And when people treat people like robots and they're just there to do a thing for me, I don't think you are leading in the right way.
It's like it's always been my reason why pe I've always believed people are not robots and they need a why. And people need to understand why am I asking you to do this? Why are we saying don't do this, do that. And so some people will feel that I will give my leadership team the why, but my minions out in the field doing the work, just do the work and do it faster. Then they people feel like they're being treated like robots and cogs in a wheel. And that's what nobody wants to feel that way. Everybody wants to be part of a thing. And maybe you're a leader in the company and maybe you're new in the company and you're out in the field doing one of the lowest rung jobs, but you want to feel like you're part of the thing and you want to feel like there's an opportunity for your life to get better and you do more in the business or if you want that and a leader gives people that feeling and it's real. That's the best I can come up with.
>> What would you say to the person that says, "Hey, I do actually care about my team. I really am genuinely invested in their future. I want them to win. I try to care as much as I possibly can, give them money if possible, etc. But I still can't keep people. And the reason I say this is because I have seen goodhearted home service business owners that genuinely care for their team. And I don't know if it's a matter of them being taken advantage of or if there's not opportunity inside the business, but like they just cannot keep good people and they don't make any money and they genuinely care. Like a lot of times that comes from a place of giving, contri contribution, wanting to help these people, but the business is failing and they still just keep burning through team members and they can't hand things off to a manager and I don't even know what to tell them sometimes.
>> Yeah. See, this is where this was a really hard question to answer because when I I saw the question in the docket, my brain spun to all these things like, okay, it's another argument. I just rattle off a few things. It's another argument for why I like bigger companies. Bigger companies create opportunity. People want to work at a company and be part of a company. It feels like a good company that's growing. They they you want to when your buddy says, "Where do you work?" You want to say, "I work at City Turf, not at Harry's lawn care company that you know, and Harry's known to drink too much." Like, you know, it's like you want to be at the nice company. You want to be at the growing company. You want to be at the company the trucks look good. You like that matters like to to the best employees. I think it does. And so there are other factors. You could be the most good-hearted person in the world, but the the people leave because they don't see any opportunity.
Nothing's getting better. They leave because it's a disorganized mess. They leave because yesterday for the 19th time, Jim took my weed eater. He took my my weed eater because his was broken.
Like, you know, there's a million little things like that. They they leave because you're awesome, the owner. But you make me work with this dude. This guy doesn't do anything. He doesn't carry his weight. I'm doing everything and I get beat up because we're slow.
Like I could you could list 90 of those reasons. And so again, yeah, being nice and being good and caring doesn't solve all problems. It's the top level thing I because if you're not that human and you don't give a flip about these people and you treat them as robots, there's no chance it's going to work out. And if you hire managers, like you're great, but you hire a manager that that way not going to work out. That's the top level.
That's why I answered the question that way. But then we can get to 80 reasons why the lower level things will push people away. You're not growing the business. You're not pricing right. Um, you aren't selling fast enough, so the routes aren't dense. They can't make enough money. You know, the equipment thing. You have crummy equipment because you have too much debt. The truck's always breaking. Alternator broke again.
Like I could like you could just imagine I don't you have to write them off. You can imagine all the reasons why somebody eventually just gets tired like man I love this dude but what this is just tiring and so you get 50 cents more and you take it and then uh could be recruiting. Who are you attracting? Like >> it's the old argument there are no good people. Really? There's no good people.
Then why why does the dude down the street have a $15 million company with a 100 people or 150 people? Like there are good people but you're not getting the good people because they are really really hard to get. You have to bring tons of them in. You got to bring in a hundred to get the eight and you know it's like it's so it could be that it could be that you're just not getting the best people. Um so no no silver bullet here. So lots of things.
>> It was excellent answer. I was hoping you go that direction. Um I I kind of went after like a little bit more from my thought process of like the mid-level manager. A lot of times when I see a churn at that level, it's a lot of times one of the key distinctions I've seen between the operators that keep them is emotional regulation. And the distrust that's caused when the owner is extremely like top of the world, we're all going to we're going to build a $10 million business. And then the next day is mad throwing things at people. Agree.
>> Freaking out over little stuff like a flat tire. And so, especially when it comes to mid-level managers because they are like the conduit for the leader to convey that vision to the team. And if the chaos of the leader is too much, they're just like, I'm out. Like, I care about my team, but I can't handle this guy. And I see that a lot of times from like especially past a million, two million is like the the emotions run too high or too low, too consistently for good people to stay. And um but I liked your answer better. I would have to I would have to opt for yours as a much more general rule of thumb.
>> Yeah, that's why it's again third time.
It was hard, but your point is like so incredibly true. You just see so much emotion and sometimes the emotion plays in another way. It's like it leads to this lack of reliability. Like the owner didn't have he was emotional. He's frustrated. He didn't he didn't have the schedule done. So now I'm waiting for 30 minutes because he was mad about something this morning. So we're 30 minutes late getting started. he's messed up my day or, you know, he kind of makes his problems my problems which mess up my day. It's like the emotions play out so many ways. You see that a lot?
>> Yeah.
>> All right. Well, let's wrap it up. We're at the twohour marker. Uh any nonfinancial advice for the people today?
>> Yes. So, this was inspired for uh by a comment. So, last week >> you asked me if I did my cold open with AI.
>> Oh, yeah.
>> Yeah. And so that inspired it. And I thought I thought I would say something about this because I think this is personal philosophy, not preaching. I don't know, just personal philosophy. I think it's really important not to use AI for all your stuff. Now, I use AI for all my stuff, but I use it in a different sequence. So, the idea for the cold open last week came from me writing the Pelaton. While I was riding the Pelaton, I had this idea and so I recorded it. and be a little behind the scenes what we do and I'll get to my point like we every other week Mike and I take a turn and we put together a docket. Hey, this is what we want to talk. We don't tell each other about the cold open. We keep all that a surprise but we'll have four to six points like hey we want to talk about these things and then we each we come prepared. We put some work into this stuff and so we each think through them. I never dump my docket into AI. I always answer it first be and I'll tell you why in a moment and then I always dump it into AI because I always you know and I'll give it a long prompt like hey do is there any you know it knows so much about me it's like is there anything you know about me that I should have said that I didn't say is there anything I said here that um could be misunderstood or you know like I don't write out I just have a few bullet points for what I want to talk about and um so I always use AI to like doublech checkck me. So, where does this come from? I am convinced, and you've probably heard people talk about this, that we're just going to get dumber and dumber and dumber if we let AI do everything. Because what I'm noticing in myself is every time anything's hard or I want to I have a question, I always want to just go to AI. Always.
>> And and and I'm also noticing every time AI get we might have talked about this before. It's like every time I'll work I'll do I I write my I work on my thumbnails, like my headlines myself, too. Then I give them to AI and then I'll have it like I'll just have it challenge them and do all this stuff and he'll give me like I'll say give me 20 ideas and then it's like just tell me which of the 20 I you know I just want it to I just sense this in myself. I just want you to give me the answer. I think it's so dangerous. I think um that it's going to kill my creativity. I think it's going to just be bad in the longer term. And so I'm not trying to preach. I just was this is a little observation I'm noticing in myself. And so I'm trying to first put down my ideas and then challenge my ideas with AI. The other thing I think happens is when you say when you give it a prompt and you and you say, "Hey, I'm thinking about this." It tends to kind of stay in that lane and give you ideas around that thing. Whereas if I first do my own brain dump with lots of differing ideas, it doesn't get stuck in a lane. So, I just wanted to suggest maybe as we all get trapped by our AI tools, we try to continue to be the creative element. So, >> we we we got to stitch together last week's EP uh non-financial advice and this week's financial advice. I think last week it was like everything you do should be ran through AI. This week is like don't use AI for everything. I would tell you every single idea you have, everything you're trying to solve, anything you're trying to think through, always take it. Always go to AI.
>> Well, well, yeah, >> we're pulling pulling a little chimoth on us over here.
>> That's how my brain works.
>> So, but but but I I I I think I did say I'm proposing change the sequence. So, I all I use AI constantly all the time.
I'm just trying to get the thoughts out of my head first and then have AI challenge them. So, sequence change, but I still used AI. Very good. All right.
My nonpled financial advice is very simple. Uh we just finished the the site for BlueCllor Summit. Jonathan might be there. We'll see. He might be on the road, but Jonathan might be there. It's in January. It's in Seattle. Feel free if you'd like to sign up. Also, if you want to speak, we are doing quite a bit of the operators that are coming. will be speaking. So feel free if you sign up, you can also register and apply to be a speaker. Um so I'm looking forward to it and hopefully we can see Jonathan there too.
>> Yeah, my plan is like I'm coming from Antarctica so I just my my plan is that um >> if you come up with Frostbite onto the stage.
>> Yeah. So uh my plan is to do it. I just we need to just kind of figure out how to make it all happen. So yeah, I'm going to try my very best to everybody that's watching.
>> Awesome. Cool. Thank you all for watching. We'll see you next week.
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