Capturing the 80%: How SmartAC’s Gen-2 Targets Non-Membership Homeowners | Podcast Ep. 296

Hello contractors and welcome to Toolbox for the Trades. My name is Jackie Aubel, and today I am speaking with Josh Teakle, who is the founder and CEO of SmartAC. Josh has been a guest of Toolbox for the Trades and Mastering ServiceTitan before, and today he is joining us to share some brand new and exciting changes to the product offering at SmartAC. As a heads up, at the end of the episode, Josh references data from a brand new survey his team put out. We're going to link that survey in the show notes of today's episode, so check that out if you wanna learn more. But I hope you enjoyed this conversation with Josh as much as I did. Enjoy. Josh Teagle, you are the founder and CEO of SmartAC. Today, you and I are gonna be talking about why your company built a second-generation product to go after the 80% of homeowners who say no to memberships. Welcome back to Toolbox for the Trades, Josh. I'm so excited to have you.

Thanks, Jackie. Thanks for having me back.

Yeah, of course. And not just me. I mean, you've been on Mastering ServiceTitan with Josh Liu as well. So you are a regular here at the ServiceTitan Podcast Network. So really appreciate it. I cannot wait to get into all the cool things you guys are doing at SmartAC. And I think actually before, this is gonna be airing before ServiceTitan's user conference Pantheon, which is really exciting 'cause I think you guys are gonna be there, right?

We are. Yep. Early October.

Awesome. So for those of you guys who are gonna join us in Orlando in a few weeks, if this is something that gets you excited, you'll be able to harass Josh in person, which I'm sure he is very excited about. So Josh, let's kick this off with an icebreaker. You're in Houston, so I have to ask, as someone who thinks about AC health monitoring all day, every day, are you the most paranoid person in your own house about your system or the most relaxed?

Pretty relaxed. You got a relatively new train system and, and it's so far so good. So it hasn't been too bad. Although it is also very hot here. It's in the hundreds. So it's running all day.

Goodness gracious. Goodness gracious. Yeah. A little behind the scenes peek here, guys. We're recording this at the end of August and both Los Angeles and Houston are very, very hot today. Josh, you've been doing a ton of work at SmartAC, right? You're a founder CEO. The, how long has the company been around officially now?

2020.

2020. Okay. Very easy year to start a business. Very cool. You talked about SmartAC's origin story with me back in 2023, and you talked about the future of memberships on Mastering ServiceTitan last year. So what has changed at SmartAC? I already teased it, the second generation product. What has changed since we last talked that made you want to come back on now?

Yeah, the timing couldn't be better for us because we just launched our Gen 2 offering. We've been working on it for almost 18 months. To make this a reality, had to really re-architect our entire platform from the ground up, every line of code net new in parallel as we've been serving our clients with Gen 1 along the way. So that's been a big undertaking. I've been really excited about this day for a long time.

That is awesome. And so for folks who did not catch your first episode or who haven't heard what SmartAC does prior to this, monitoring system for HVAC units, so basically predictive, maintenance in some ways of your first-generation product was 3 sensors that would get placed in the HVAC duct, and that would be an add-on kind of to contractors' membership programs. And this would give the contractors and the homeowner data on when their AC needed service.

Yeah, with Gen 1, we were focused on making memberships better. We, you know, we were able to get people on average 20% more revenue per year from a home where the data was flowing to the contractor. And then retention was a huge focus as well. You know, mid-90s percent annual retention versus usually our clients are in the mid-70s or so when they start with us. So that was great. But the goal has always been more homes, not necessarily more efficient homes that you already own. And so that's the main difference with Gen 2 and the approach.

Cool. So talk to me about the decision to build something new alongside Gen 1. What was the moment when you and your team were like, we have to fix this? Or we have to improve upon it rather.

Yeah. Well, I would say it's been in the roadmap for many years, even before we launched Gen 1. It's just when you're going to lean into machine learning, doing AI, doing a lot more of the work, you need the data from those first 100,000 homes or so to be able to create that. Knowing when we talked to our customers that the thing they cared about most was more leads, more customers, right? More homes to service, not necessarily getting more efficient. On the ones they were servicing, they you know the larger the company, the more data they have about their business. They focus on that too. But what we wanted to do was help them grow. Yes, we want to help them serve their customers better, but we want to dramatically increase the number of homes that will use them next time. And so that was really the main feedback that we got was hey, the product is great, the experience is good. You're in a box of memberships. And you can't break out of that box to help us grow in any other way. And so that's really why we re-architected our offering with Gen 2 to, uh, address, you know, their biggest pain point, which is needing more business.

Got it. So what kind of feedback did you solicit from your customers on the first-gen product that also spurred the, hey, this is the next thing we have to focus on?

Yeah, so, uh, it was feedback on price. It was feedback on how they would, you know, how they would like to use the product. It was feedback on how the onboarding was for their technicians. You know, at a 15-minute setup, it's still the best in the industry by far, but still these techs are really busy trying to get the next call. You know, so we got feedback saying, hey, you know, 15 minutes is still longer than what my techs want to do. And so these are things we've known for the last 3 years with Gen 1, and we really took all of that feedback and started from ground zero and said if we were going to recreate a second generation of the platform, what are the pain points people are still experiencing at some level and how can you streamline those further?

I'm curious, as a founder CEO, what's it like to hear that type of feedback over something that you built?

Well, I think if you're the founder of the business, you know it before you're told it. So it was affirming the things that we needed to be focused on. Making better.

No ego in it for you, all humility, complete positive experience for you as a person, no crunchiness there.

No, no. Yeah, there's always you don't like to hear it from them. You don't like to hear it from them, especially when you already know it. You're like, yeah, yeah, I know we're working on it. You know, but no, no, I think it's good. Like we always want that feedback. If you're a software company or hardware company or any company, you know. It's really important to listen to your customers at all times.

Got it. So, you kind of already knew that this Gen 2 product was in the works even when you first started the company. You knew that was kind of like the evolved version of your fir— of your product, right?

The roadmap.

Yes. You launched the first product, uh, things were going really well, got some great feedback, but you also got feedback on how to make it better and how to adjust it to help your customers with their main goal, which is give me more leads, help me grow my business. So, what did it look like on your end? You kind of alluded to it before, to like basically adjust the trajectory of Smart AC. So, what did that actually look like functionally to like, okay, now we're going to build this second-generation product and we're going to take a bunch of people and have them focus on that while still running our product. Like, what kind of juggling did that entail?

Yeah, that's really difficult. Because we had to kind of split the team up into the people on the technology side that were focused on building the Gen 2 product and the people on the go-to-market side, which for the last year have known this was coming, but had to keep selling Gen 1, right? And Gen 1's working great for our clients. It's a great product, but it was not as good as Gen 2 is. And so that was a difficult thing even for me, like, you know, splitting my focus between both efforts. So that, that is, uh, not a fun thing to go through when you have half the org focused on something that is not yet generating revenue and the other half focused on generating actual revenue. But we made it through and now, you know, the alignment of everyone focused on Gen 2 has really been great.

As you look back on making that adjustment and reorging the business to work on Gen 1 while also start building Gen 2, is there anything you would do differently now in hindsight?

I don't think so. I think we purposefully siloed, you know, the go-to-market team a bit from all everything that was coming just because we didn't want to split their focus and we wanted to keep them really excited about Gen 1, even though we knew that there was some exciting things coming with Gen 2. So yeah, it was tricky, but we tried to be methodical in how we handled that over that, you know, 12 to 18 month period.

Got it. Were there anybody— I mean, it sounds like no, but just, just because I'm curious, was there anybody on your team who weren't necessarily on board or had a lot of difficulty with the Uh, company's adjustment?

I think there were people that didn't understand the vision. Yeah. So, uh, and those are the people we just kept out of the rooms until we could show them what we were building. It's hard to really wrap your head around what the machine learning and the AI can do as opposed to with Gen 1. It was a little bit more rudimentary as far as how we were crunching the data. Part of the reason we re— re-architected the platform was, I believe, ServiceTitan and many other companies are, are that started before AI native, right, are having to scramble to make sure their data is in the right order to be able to leverage AI fully. So now that we have been able to show our team what's possible when you architect it that way, everyone is on board and excited. But if you haven't gone through that, and none of us had until AI hit us in the last few years, right, it's hard to really, you know, envision it ahead of time.

This roadmap was devised prior to the, you know, AI coming onto the scene, right?

Yeah, we were optimistic that we could do almost everything that we wanted to do for our clients with just one sensor. And we didn't have the proof of that yet, but we, you know, knew the signal of how well the system is operating was coming from one location, which is where the hot or cold air actually comes out of the vent. But to create the machine learning to do that with one sensor, we had to actually go gather more data. with multiple sensors so that we could build that, that machine learning. So yeah, it was the sequenced approach that was necessary to get to where we were at. We would not have had the data required if we had led with the one sensor offering right out of the gate.

Totally. So you already basically said the main difference, right? Gen 1 is 3 sensors, takes about 15 minutes for a tech to set up. Gen 2 is just one sensor and takes about 30 seconds to set up. You just plug it, plug, you just Pop it right in that vent. So that was a very basic version, but what— how does the one sensor work differently than the 3-sensor program?

Yeah, yeah. So to clarify, we had 3 sensors that did 3 different things with Gen 1. Now we have one sensor that does all 3 things. So you can still put 2, 3, 4, 5 in a house. You can have the exact same setup as Gen 1 if you want. It's just we know that you don't need as many sensors to know when there's a problem and when you should You know, be at the house. So that was a big change. And then also our connectivity protocol, there's no Wi-Fi setup anymore. We're using a nationwide network of radio that has 97% coverage. There's a hub for the 3% where there's not coverage, but now the technician, instead of having to install a hub and 3 sensors, talk to the homeowner about Wi-Fi, do all of that. Now it's literally take it outta the box, scan the QR code on the sensor and the app in place, and you're done. So that was a huge unlock. And then also, you know, a lot of our clients have tens of thousands of customers they saw in the past that didn't sign up for a membership. And so now with the product being so simple, it's DIY capable. So a lot of our clients are excited about being able to market a DIY product back to those homeowners and, you know, at a break-even proposition of selling it to them for $5 a month. And then just have that telemetry come online. So it's, it's really a land grab strategy with Gen 2. Yes, there's still operational benefits and stickiness benefits and things like that, but the goal is just to grab as many homes under your brand logo as possible.

So the DIY component of it is, in theory, if I'm a contractor who uses SmartAC, I get this Gen 2 product, I can potentially send out a marketing email to all of the people I've ever serviced in the last 2 years who said no to memberships. And I can say, we've got this brand new sensor. It's so easy to install for just cost. We can ship it to you and we'll send you an email with a video on how to install it, but it'll take about 30 seconds.

Yeah. When we did a 1,000 homeowner study and of those, I think 79% were not on memberships, which is kind of the 80/20 that we see in the industry. So that tracked. And the 2 main reasons people don't sign up for memberships is the price is too high, or the second one was they just prefer to only pay when something is needed. And so our product at $5 a month cost, right, with no hardware— if you're new to Smart AC, we don't charge for hardware upfront. So that is unique. So zero down, $5 a month, and it addresses those things like, I'm willing to pay $5, I'm not willing to pay $25 or $30. That's a huge thing. And then people having the data of knowing when something is needed is something that homeowners want as well. Our customers have databases of many people that fell into that bucket, and they certainly should be selling it in the homes that they're in that new. But there's a huge opportunity to go back and, and grab a stickier relationship with past visits as well.

And I'm also thinking too, as a homeowner, like not having a sensor that's now hooked up to your Wi-Fi, 'Cause, you know, we have so many different smart devices in our homes nowadays and internet bandwidths with, you know, whenever I tell people to come on the podcast, I'm like, please, please, if you're gonna take the call from home, make sure that your kids aren't like streaming something at the same time. 'Cause it really makes a difference, right? I can imagine that is much better that it doesn't use Wi-Fi because say, say I have a tech come out to my home in January, they install this, I want this, we link it up to my Wi-Fi network. And then, I don't know, back in November, almost a full year later, I'm having Wi-Fi issues. And I look to see what's connected and I'm like, what the hell is this? I totally forget about it. So I love that adjustment and I can definitely see why that makes it a more attractive selling, selling piece to the homeowner.

Yeah. Or a hub gets unplugged or they change their Wi-Fi password. I mean, all those things, you know, weren't a large percentage, but it's nice to have no problems with that at all. This protocol has many nodes in the area, so even if, even if one went down, there's a lot of redundancy. So, mm-hmm.

So what, talk to me about a bit about what success looks like for, so for contractors considering this new product, what does it actually change in the day-to-day for the tech, for the CSR, and for the homeowner?

Yeah, so our main objective is to help the contractor have way more homes. I like to say, check the box in Mr. or Mrs. Jones' mind that I have a company for HVAC, plumbing, or whatever, and that's my company. I'm gonna use them next time. That is the main objective. That is really why memberships were even invented in the '70s and '80s. The problem is from a price standpoint, if it's labor going to the house, you can only offer it at so low of a price point. You can't be hemorrhaging money. Most contractors subsidize it to some point. So the way it looks different really is the CSRs will have another arrow in their quiver of something to offer the homeowner. If they don't want you to come out annually, we have a very low cost offer to still gain that relationship ongoing and provide value to the consumer where they book directly through the app with you next time. If you're a tech in the field, you're armed with the data when you go into the home showing the homeowner. The homeowner will have it too, right? But showing the homeowner, hey, this is the problem. Here's where it started. We're going to fix it. And, you know, 3 hours after I'm gone, you'll be able to see it was fixed correctly. On the sales selling tech side, they just want more swings in more homes, right? And really, it's easier to sell a new system when the homeowner sees a problem, tracks it over a few weeks or months, gets worried enough to actually book with you, and then you're out there. It's just a much better situation to make a sale. So our goal is to, you know, increase the homes, which increases the amount of customers that will need that big ticket item, and then put them in the right position at the right time. So hopefully it's just everyone makes more money.

Awesome. And correct me if I'm wrong, right now you are solely focused on residential HVAC, correct?

Yeah, that's correct.

Is that gonna change anytime soon?

We get asked that all the time, but There are dozens of commercial systems that cost a whole lot of money that take hours and hours to put in. It's a very crowded space. We are the, you know, slam dunk market leader on resi for retrofit specifically, whereas the bigger value is grabbing a home that's aging or a system that's aging to replace it. I don't believe that will change. We're focused on the 90 million homes that have central air.

Yeah, but I mean, at the end of the day, like even if folks listening to this aren't resi HVAC, I mean, this is, I think that talks like these are so important because it is indicative of how technology, new technology entering the space unlocks so many more opportunities for growth in these trades businesses.

Oh yeah.

And it's really like you have to keep your finger on the pulse of the new innovations that are coming out to make sure that you're staying competitive.

Well, uh, cross-selling is a huge value, right? And in the app they can book, even if the intelligence is only HVAC, they can book HVAC, plumbing, electrical, anything you offer can be set up, right? So you're grabbing the home with HVAC intelligence, but you're really grabbing every trade in the home with their ability to book right through the app with you, right? So there's, there's more benefit than just HVAC in that way.

Amazing. Josh, um, this has been a very concise and descriptive episode, which I think is the mark of you as an effective CEO who can really convey your vision and your product in such a tight and succinct and clear manner. For the last few moments of the show, I wanna kind of talk a little bit about some of the successes that you found with the customers that you've worked with. I mean, you've— SmartAC started in 2020. Talk to me a little bit about some of the impactful memories or moments that you've had with customers.

I work with a lot of our larger clients, but, uh, some of our larger clients now were smaller shops when we started working with them. Usually when they came to us, especially for Gen 1, it was like, hey, we know memberships are important. We're struggling, right? We want to make them more attractive. We want to be more efficient. We want to make sure we're putting our techs in the right place at the right time. And so seeing those companies grow, they might've been $10 million then and they're $40 million now. And it's not just us that helped them do that, but they're great operators and run great businesses. But it's been fun to be a part of that journey. This is my second company. My first one was as a contractor, you know, building that to $50 million. So I really understand what it's like at a $10 million stage and, you know, up at least to $50, I understand what it's like. So yeah, being a part of that, there were people that helped me along my journey in my first company and it's been rewarding to be able to do that. We're hoping that our new offering will really turbocharge that growth even more.

Awesome. Josh, is there anything we should have talked about that we didn't get a chance to?

You know, I mentioned that survey that we did. The whole goal of Gen 2 is to help them grab more homes. 20% sign up for memberships, 80% don't on average. And so what we did the study on was we looked at the 80% of 1,000 homeowners that weren't on memberships, right? And we asked them, would you buy this at $5 a month? And that was 45% would buy it for $5 a month. And when they incorporate the Comfort Credits, which is our platform as a loyalty rewards system where they can give them dollar for dollar, the $5 a month back in credits towards the You know, replacement system one day. It went to 56%, right? So our whole goal with Gen 2 was to prove that 20% conversion to a sticky thing doesn't need to be the case anymore, and that data proves that. So no, we don't yet have you know tens of thousands, a hundred thousand deployed to show the ROI of that. But if you're selling a five dollar thing and you're paying five dollars to us for it, then it's just all ROI, right? So yeah, that study we actually completed last week, and we're really excited to have. a very big N, you know, of 1,000, kind of affirming the entire reason we created a lower-cost, simpler approach. So.

Very, very exciting, Josh. I mean, honestly, I have to say, it's really cool for me, having first met you in 2023, to see how the company has grown and evolved in 3 years, and definitely a, um, a model example for some of the folks listening about innovation and having an idea of how you can make things even better. And I just really appreciate you coming back on. I know your schedule's super busy, so I really appreciate you coming on Toolbox for the Trades. And I can't wait to see you at Pantheon.

Of course. Yeah. And we're very proud of ServiceTitan as well. We're all creating tech startups, trying to have a similar success or even half of it or a quarter of it. So we appreciate the partnership we've had with ServiceTitan over the years. And thank you again for having me on again.