De-Seasonalizing Your Business for Stability and Profit | Podcast Ep. 260 | Toolbox for the Trades

Hello contractors and welcome to Toolbox for the Trades. My name is Jackie Aubel and today I am speaking with John Conway, the Chief Operating Officer at Redwood Services. John shared tips for businesses who are looking to de-seasonalize their operations. We spoke about adding new trades, tagging aged equipment, building out a robust membership program, and more. I hope you enjoy this conversation as much as I did. John Conway, you are the Chief Operating Officer at at Redwood Services. Today we are going to be talking about how to de-seasonalize your service business for stability, growth, and profit. Welcome to the show, John. I can't wait to talk to you.

Yeah, thank you for having me, Jackie. This is going to be a fun day.

It is going to be a fun day. So let's get into it. We're going to kick this off with an icebreaker, which I love to do. So John, I'd love to know, what's the best piece of advice you've ever received?

The best piece of advice I've ever received in the home services industry is it's not about the price. In the home services industry, you know, we grow up thinking everybody wants the lowest price and everybody wants things cheapest. And in reality, only about 15% of consumers make decisions on price and 85% of consumers will make decisions on something other than price. Obviously, if you don't give them anything other than price to make a decision on, that's the only thing they'll make the decision on.

I think that's a great piece of advice, John, and definitely a piece of advice that we've heard several times, probably dozens of times, honestly, at this point of the show, but it is so interesting how for folks that are really trying to grow and scale their business, pricing their services at a rate to be profitable is still something that some people find so hard to do.

Most of the people that are scared of the price are us, you know, the contractors and the service companies. We're the ones that are scared of the price. Most customers want great service delivered by a great technician, you know, using superior parts and services. And they're willing to pay for it.

Yeah, 100%. I think if I had to guess, I think that has to do a lot with the contractor's own mindset of what they're worth and what their work is worth. Do you agree?

I absolutely agree. You know, if you think about it, if you were to come to Memphis and I were to take you to dinner, we could go to, you know, Logan's Steakhouse and get a $15 steak in 10 minutes, you know, or we could go to J— or we could go to J. Alexander's and get a $40 steak in an hour. So it takes an hour, there's an hour-long wait at a $40 steakhouse. There's a 10-minute wait at a $15 steakhouse. So, you know, consumers are already used to paying more for quality and service.

Exactly. I think that's a great reminder and an awesome way to kick off this show. So John, you have quite the background. I would love to hear, how did you get into the trades?

You know, I got in the trades, um, through my father. So he owned a, a very small HVAC company in, uh, outside of Memphis. I went to work with him in 1994. At the time, he had one truck and two employees, and we worked out of a sunroom on the side of his house. And, uh, my father thought it would be a good idea if I ran ductwork in new homes. And by the way, I thought that was a terrible idea. So I had to grow the business so I could get out of the attic.

There you go. Did you get into that right during high school or right after high school? What was the timeline like that for you?

No, it was in, it was in my early 20s. Um, when I got in. Yeah.

Did you always anticipate that you would join the HVAC industry like your dad?

There was no way I was gonna be in the HVAC industry. There was no, no way I was gonna be in the HVAC industry cuz I seen how hard my father worked. At the end of the day, I was, I was traveling for a company, had the opportunity to leave that business where I wasn't traveling so much as my two sons were younger. And I told my father, I said, look, I'm gonna, I'm gonna come, um, work with you until I find something better. and, um, I guess 30 years later I still hadn't found anything better.

Well, you ended up selling your father's business, right? You ended up taking up full ownership and eventually selling.

Yep. I, yes, I bought the business from my father in 1998 and then, and then 2010 sold that business.

To my understanding, you also couldn't get enough of HVAC at that point, even though you had sold your business and made a nice little profit for yourself. You eventually went to go work with NexStar. Is that correct?

Yes, I spent, I was a Nexstar member prior to selling the Conway business, and then I spent 6 years at Nexstar as a business coach. And, you know, really loved every moment of that. Coached over 100 companies nationwide. And that's a very gratifying opportunity. You're able to, you know, really give back to the industry. And so Nexstar had meant a lot to me and my business coach there, Jim Hamilton, had been very special. He's the guy that gave me the best advice, which is it's not about the price. And so from that, that point forward, I wanted to give back. So it was a great opportunity for sure.

It's so interesting to hear how much value folks get out of association groups like Nexstar, groups like that, because contractors get to chat with folks that are like-minded, that are facing the similar challenges. And what I found in the work I'm doing at Toolbox for the Trades is that a lot of folks are getting that within their private equity partnerships. As well. In 2020, you joined Richard Lewis at Redwood Services, which is a Memphis-based private equity firm. And from my understanding, and from when I first spoke to Richard a couple of, maybe about 2 years ago now, I got the sense that Redwood kind of goes against the grain of typical PE acquisitions. So I want to hear how Redwood is different than other PE partners in your words.

I started with Richard, and I met Richard in August of 2020 while I was still at Nexstar and was just thinking I would always retire from from Nexstar. I spent a lunch with Richard, and Richard had this vision for, you know, what if we just did the opposite of what the big companies do? Like, what if we invested in home services very differently? Like, what if we didn't do their marketing for them? What if we didn't answer the phone for them? What if we didn't add, you know, change out their management team? What if we didn't rebrand the companies? You know, like, what if we just came alongside the best operators in the industry partnered with them and had all the management teams and the owners stay in the business and keep doing the great things that they're already doing. And so the thing that I tell people I'm most proud of is 4 and a half years later, we're still doing what we said we were gonna do at, in the parking lot of that restaurant in 2020. And that's really just coming alongside the best operators in the industry. You know, when I was a NextStar coach, you got a 1-hour call with me, and then if you missed that 1-hour call, it was gonna be 60 days before you got another 1-hour call. Because that's how far out I would be booked. So in the Redwood world, you know, we're basically able to coach and train service companies, technicians, call center leadership, management on a weekly, biweekly, or monthly basis. And then we're just continuing to grow that. You know, we're building out a training arm right now where we're training technicians and we're training call center. And so we're about building out a whole training arm. Here at Redwood, and that's been, you know, very beneficial for our partners.

That's awesome. So in some ways, you joining Redwood Services has been a continuation of the awesome work you were doing at Nexstar.

That's correct. It's really the only way I know how to operate, which is just, you know, treat people the right way, invest in people, invest in their business, and find good people, get good people in the Redwood family, and good things happen. And that's, um, that's typically what we've seen.

That's awesome. So in your, in your words, let me just summarize what I heard. It sounds like Redwood is really interested in being a strategic partner with the brands that, that partner with them, opposed to dictating exactly what they should do in terms of all of their standard operating procedures.

Yes, we, we don't really like that word dictation, you know, and I, I would also say it, you know, we don't like to dictate to people, or, you know, another way to put it is nobody needs a boss. These are all entrepreneurs who started their business for a reason, and they don't need a boss. They need a partner. And that's why we call them, that's why we call them partners. And they don't all have to do everything, you know, exactly right. And quite frankly, they learn as much from others as they do from us, you know? And so when I say others, the other partners, you know, we have 19 partners across the nation. Number 20 is in the hopper right now. We have something here at Redwood we call Connection is Everything, and it's where we connect the partners together and they learn, like I say, as much or more from each other than they do from us.

That's so cool. That's so cool. I love this format and I wanted to, obviously for today's episode, I wanted to kind of use all of the incredible experience you have from your years at Nexstar, your years now at Redwood. You've seen a bunch of different businesses. Operate, how they do things. This episode will be airing in the winter, but spring is right around the horizon. And so I think it would be appropriate for us to talk about de-seasonalizing a service business. So to kick us off, what are the biggest risks of having a business that is too seasonal?

You know, if your business happens to be HVAC only, so then it's gonna be pretty seasonal and you're gonna have to do some things to mitigate that seasonality. One of the things that you can do is add trades, by the way. Um, you can add plumbing, you can add electric. And those particular trades, I noticed when I added plumbing to my own business, you know, in 2009, I noticed how it wasn't nearly as seasonal as the HVAC business was. Toilets and water heaters don't really care what the temperature is outside. When they stop working, they stop working. Faucets leak all the time. You know, it was just a good business. So, you know, one of the things that you can do is desesonalize the business. Another thing that I think about as it relates to, you know, de-seasonalizing your business where you're not as dependent on hot or cold weather is first of all, you need to know it's coming. You know, like there's this thing called February and it's gonna happen every year. Sometimes we go into February and we go, oh, it's really slow. Like we didn't know February happened. Like every February it's the same problem. I would encourage people to, to set their marketing up. To be ready to spend in those shoulder months, whether they're February, March, or April. Now, if you're in the South, by the time you get into April, then you're probably outta shoulder season and you're off and running. But if you're in the Northeast or if you're in the upper Midwest, then it's, you know, you're still not driving a lot of demand business in, in March and April unless it's on the heating side. But one of the things you can do is, is set your marketing up to be ready to spend more marketing and have very good, marketing messages and plans ready for the time of the year when you're expecting the least amount of demand is when you need to be spending more. So if you're a business that says, hey, I'm gonna spend 8% a year on marketing, you might spend 8% a year and in your peak season you could spend 3 or 4% a month or 5% a month. You get into your non-peak season, you might be wanting to spend 10%, you know, so you may, you may need to seasonalize your marketing spend along with your business.

I just want to summarize real quick what you said. So you talked about seasonalizing our marketing, which I think is brilliant. I know especially in ServiceTitan, folks get a lot of value out of some of our tools that support that. But we also have this adding new trades. I just want to circle back to my original question. What happens to service businesses that don't do this, that aren't proactively adjusting their marketing spend and aren't thinking strategically about how to make up for their seasonality.

I'm privy to seeing lots of financial statements around the nation. Some are companies that we partner with, some are companies that we decide not to partner with, and they are really going to the profitability of their business. They're gonna make all their money in about a 4-month window, and they're not gonna make money 8 months a year, or they're gonna break even, or they're gonna lose money. And Jackie, I think we have to think about, do you wanna run the business or do you want the business to run you? One of the things that I noticed even during COVID is there's one thing in America that didn't stop during COVID Like everything stopped, like Major League Baseball, the March Madness, the Final Four, World Series, like all this stuff, all this stuff stopped. But you know the one thing that didn't stop?

The trades.

The trades didn't stop and the mailman didn't stop. Every day he came by and said, hey Jackie, I got something for you. Stuck it in your mailbox and left your mailbox and went to your local service company and dropped bills in their mailbox. And so the same thing happens in your business. The bills never stop. And 8 months a year you have employees and families who are counting on you and you have your own family that's counting on you. And so I would just say, you know, 4 months a year you can make money. I mean, you know, we call that monkey season, like monkeys could make money in the air conditioning business in June, July, and August, you know. You know, what happens the other 8 months a year? I was coaching a Nexstar member one day up in the Northeast and he said to me, hey John, when we get demand calls, we do really good. Yeah, don't we all? Well, what, what about those other 8 months a year? What are we gonna do then? And so you have to be, you know, to survive and to scale and to grow your business and then invest in your people and offer the greatest benefits. You have to know how in this industry to run the business 12 months a year, not 4 months a year.

You know, it's so interesting, uh, as you're talking, I was thinking about how this parallels with what happened in COVID because we started this podcast, we're actually right at the beginning of COVID And what we saw is once we all got over the initial shock of this new reality, service businesses did great. They had incredible numbers, residential companies especially, because so many folks were home. And then over 2021 going into 2022, all of that busyness kind of dried up. And these companies that experienced these really big booms suddenly were left like, oh crap, I'm not making the amount of money I was expecting. It's because they didn't take into consideration the unique circumstances of COVID And I feel like planning for seasonality is really similar to this, don't you think?

Yeah, I would, I would agree. It's always gonna be a seasonal business even when you add the other trades. If your original trade was HVAC, then that 65% of your revenue is probably gonna come from the install department. And so it's always gonna be seasonal, but the larger you can get your electrical and plumbing business, and adding sewer verticals, adding water filtration, adding generators. You have a lot of things that you can do to mix away from just being HVAC dependent.

Yeah, so we talked about seasonalizing your marketing, we talked about adding new trades. Two other things you also spoke to me about when we first connected was this idea of tagging aged equipment. So can you talk to me a little bit about that and how you suggest folks leverage that when it comes to building up demand during a slow season?

In the shoulder months or in the slower season, a lot of times we just have our call centers just outbound calling. I know in my own business, if I wasn't careful or intentional, you know, my call center could fill the board up with 99 calls that were 5-year-old systems and under. And all that meant was tomorrow my install crews were gonna sit at home. You know, using ServiceTitan and tagging your equipment, is aged equipment throughout the year, you know, all the time, tag service type, you know, make sure that you're tagging aged equipment. It's a great idea to be able to call back, you know, those customers. So if, if I do have to outbound call during the shoulder months and even my maintenance customers, I want to at least put 33% of the calls on the board to be aged equipment calls. So I've got enough calls for my install crews for the next day. You know, you wanna make sure that you're not just putting any call on the board because if you do, you're just gonna run your labor up and your install crews are not gonna have the work. In this business, if your install crews don't have the work, your revenue's not gonna be there. You're not gonna cover your overhead. So your business wins or loses based on what happens in the HVAC install department.

Yeah, that makes sense. So when you're talking about aged equipment, you're talking about making sure that whenever a technician arrives to a home, they are investigating not just the equipment they're there to service, but other equipment your company's services in the home. So if they're coming there to fix a toilet, they're coming there to, you know, fix a leaky faucet, it's like, hey, so tell me a little bit about your air conditioning and when's the last time you got that fixed? That kind of thing.

Yeah, Jackie, and you could even take it one step back and you could get that information on the incoming call. You could literally ask the customer, you know, Ms. Jackie, would you happen to know the age of the system we'll be working on today? And, you know, I wanna get you the right technician. Some customers will know, some won't know, and there's a series, there's a couple of follow-up questions you could ask if they didn't know. You could start by trying to get the information on the incoming call just to make sure you do send the right technician.

And that comes with scripting and training your CSRs and your, your office staff.

Correct. Your technicians can certainly do it, but it's kind of after the fact for them. Like, let's just say a technician gets there and it is aged, but he's not a very good technician on aged equipment calls, then you got the wrong tech there. So, you want to try and do everything you can to get that information prior to sending the technician.

Got it. That makes sense. The other big lever you talked about when we talked about helping a business kind of get out of this seasonality and plan for success, right, is building a strong membership or agreement base, building a strong customer base. So can you talk to me a little bit about what that looks like and specifically what's a healthy benchmark for the size of a membership base relative to the number of service techs you've got?

Yeah, so I, I like to use a KPI of 350 agreements per technician. You have an HVAC service department that has 10 technicians, then you should at least have a minimum of 3,500 agreements. For the most part, most homes have between 35 and 40% aged equipment in them. Maybe the aged equipment's not all HVAC equipment. It could be aged water heaters, it could be aged panels, but you should have at least 3,500 agreements. You know, you always want to have an exercise of selling agreements in your business. You know, you want to make that, you want CSRs to be able to sell them. You want technicians to be able to sell them. You know, anybody in your business that can sell agreements to homeowners, they should be doing that. And I got my technicians together one day and the plumbers and I had them in a meeting with their flat rate book. And I just said, you know, they could just bring up ServiceTitan and look at their pricing and We listed all the items that we do as part of an agreement. So every time we go out there, we go out there twice for HVAC and one time for plumbing. So how much do we charge to go out? $89. So there's 3 times $89. And then we listed every task on the dry erase board and we had the technicians write down every task that we did as part of the agreement. We flush a water heater, right? We flush a water heater. We do a, you know, if you rinse a condenser, what's the flat rate price to rinse a condenser? $119. And Well, we made this list and we were doing $2,300 worth of work for an agreement customer for $199 a year. A lot of times, you know, technicians can sometimes, they like to be what they call the ethics police. And I just said, hey, you know what? If we're offering a customer $2,300 worth of services for $199 a year and you don't even tell 'em about it, that's pretty unethical.

Interesting. I've never heard it broken down like that. I don't think anyone's ever done that on the show before. They've never broken down the price of the services they offer through the membership. That's pretty compelling.

Yeah, because technicians only sell what they believe in. And so it was an exercise that we use to get them to believe that this is good for the customer. Like they should have an agreement and look at how much you're doing for them, um, with multiple trades. And what that adds up to be. Even if you're woefully behind on your agreements, if you're using my example, if you had 10 technicians and let's just say you said, hey John, I only got 1,000 agreements. And so I need to be at 3,500, like I'm never gonna get there. If you have, let's just say 10 HVAC techs and maybe you got 5 CSRs, that's like 15 frontline people. If they just sold one a day and they did that over the next 130 days, which would be 6 months, they would sell 1,950 agreements. In a 6-month timeframe just selling 1 agreement a day.

Mm-hmm.

And you add that to their existing 1,000, they'd be at $2,950. It wouldn't take much for them to get there.

And then you're probably adding incentives to make sure that they are incentivized to sell those membership agreements, right?

Absolutely. Yeah. There you definitely wanna have some incentive, what's in it for them and make sure it's good for the technician.

I love you're breaking down this math in a way that we haven't done on the show before, and I'm really enjoying it. You mentioned that the technicians can sometimes be the ethics police. The way you said it, it made it sound like it comes from personal experience. So I'd love it if you could expand a bit more on that.

A lot of times you'll have technicians who think a customer has a 12-year-old system and, you know, maybe it needs $400 worth of repairs and they think, hey, this is the best thing to do for this customer is this $400 worth of repairs. But in reality, we're out there again next year and, but now it needs $1,000 worth of repairs. Then we're out there a year later and it needs another $1,000 worth of repairs because the system's now 13 years old. And at the same time, they've got an older system and they're paying more on the utility bill. And so in reality, technicians sometimes will think, hey, this is not the best thing to do for the customer to talk to them about a new system. But in reality, when you start doing the math, you find out that the amount of money they'd spend today, the amount of money they'd overpay the utility company, the amount of money they'd spend in future repairs. And then, by the way, we've helped them keep this system 5 more years. And so now what's the inflation? So how much now does it cost? How much more does it cost now than it cost 5 years ago? And so all we've done is just help the customer spend another $5,000 or $6,000 to keep a system 5 years, and then they still have to buy a new system. That's really what I'm referring to.

So if you spend thousands and thousands of dollars over the course of 5 years on more expensive utility bills, on fixing a very old system, wouldn't it be nice if those thousand, couple thousands of dollars had went to just a new system?

Exactly. Yeah. And, and with the inflation and tax credits and everything else that's available in some of the markets, sometimes fixing a unit for the customers is the worst thing you can do for them.

Circling back on de-seasonality. So where do you find common— when you're challenging a contractor to really start planning for seasonality, challenging them to take on these new initiatives, where do you see they, uh, most often slip up? Or where do you see, where are some common pitfalls that you tend to see?

Well, one is they sometimes they just don't plan well. They get into February and then they go, oh, I gotta do this marketing. Well, you can't be thinking about February's marketing in February. You have to think about February's marketing in November, December at the latest to make sure that you're prepared. I'll just say the not having the proper planning is, is certainly one part of it.

So you said when we first chatted that you don't know how to not grow a business. I believe that a lot, actually, after our conversation today. So I wanna hear, in your opinion, what's the next level growth challenge for companies that have successfully de-seasonalized and are now operating with greater stability?

When you have conquered this seasonality business and you have a lot of stability, some of the challenges that start to arise are more people-related challenges. Because to grow the business, you need people. I would encourage any of your successful listeners that are running a very good business, I would encourage you to make sure that you're showing a high level of appreciation to your team. Number one reason people quit companies, don't feel appreciated. Create an environment where people want to be. Really treat people the right way. Have your team be your best recruiters. And so that's how you can grow your business because at the end of the day, you're gonna be limited on how much growth you can grow your business. If my 10 technician business can never get more than 10 technicians, maybe they hire 3, but then they lose 3 in a year. They still have 10 and that business is not gonna grow. And if you try to grow that business and you spend more on advertising and you're trying to grow that business, but you never get more than 10 techs. You're gonna get more calls. You're gonna send the same 10 texts on more calls, which is then gonna drop their average sale. It's gonna drop their conversion rate. It's gonna increase the number of warranty calls they have, and it's gonna burn some of them out. And a year later, you're gonna have 8 technicians. I think really leaning hard into your people side of the business, you know, that's the level of appreciation, how you treat people is, you know, really the key to success. Anything that you're seeing on a spreadsheet is only a result of good people. For the, uh, listeners today that are, are winning in business, you're just winning because of the people you have on your team. And by the way, if you feel like you're losing, you might be losing because of the people you have on your team as well.

1000%. Yeah. It's really interesting talking to folks who are now in your position as more of a consultant, really. Not that that's exactly what Redwood Services does, but it really feels like for me, who's been talking to service entrepreneurs for 5 years now, it's this balance of figuring out how much of my resource do I dedicate to fixing our operations and getting that all sorted out? And also, how much am I putting towards giving back to my people and building out the culture? It really feels like it's something that you're constantly having to edit and manage how much of your resource and bandwidth you put towards fixing those things.

Jackie, you show me a business with a bad culture, I'll show you a business with bad financials. 'Cause they're gonna come, they're gonna be hand in hand. If, you know, your culture is really the most important part of your business, just making sure that, you know, you've created an environment that people wanna be in. But I'm just, you know, and being in 111 companies around the nation for Nexstar, you can just walk in the building and feel the culture. You know, when you walk in some of the best well-run businesses in the industry, you can feel it. And when you walk into, Some of the businesses that are not well run, and you can see it on their financials, and you walk in the, you know, you walk in the building, you can feel that as well.

It's really incredible where you see some of these businesses, how they're giving back to their, their people in really unique ways that are unique to their culture, unique to their people's wants and needs. And I think that's where folks really succeed. It's not like a blanket, OK, I'm going to do this appreciation program because someone else did it. You really have to do the groundwork to figure out, no, what's going to motivate my team? Because my team is different than anyone else's team.

Yeah, on this topic, um, Jackie, this, and maybe it's a, maybe it's for another episode, but, you know, recently back in the summer, we brought many of our partners together and their HR leaders and into something that we called a people planning workshop. We spent 3 and a half days just building out a people planning workshop on how to treat people and what people appreciate and things you could be doing for your team. And, you know, then we put that into a manual that we call the Retention Playbook. And so we just spend a lot of time, you know, thinking about how to show appreciation to people.

That's awesome. John, we spoke about a lot of things when it comes to de-seasonalizing your business. We talked about making sure your marketing matches what your seasonality looks like. We talked about opening up to new trades. We talked about tagging aged equipment. We're talking about nurturing maintenance lists and then also giving back to your people. Is there anything we should have spoken about that we did not get a chance to?

You know, sometimes when you're growing your people, the slow time or the shoulder months when business is not as good is a great time to be training people. There's a reason that a technician is a maintenance tech and not a demand tech. And so, you know, if you took that technician, that maintenance tech's outta the field for 30 days in March, could he or she be a demand tech running service calls for you in April? So take advantage of the slower time. You have good people, you wanna invest in them. you know, take advantage of the slower time and invest in your people from a technical training standpoint. You know, maybe you can partner with some of the technical training companies out there as well. So those are great times to grow your people. Or otherwise, you know, April comes here and you still have a maintenance tech, but they've been a maintenance tech for 2 or 3 years, and at some point they're gonna move on from you because they want to grow their career as well. And so use that slower time also to invest in your people, because most likely you're gonna be paying them anyways.

John, I feel like I could talk to you endlessly, so I just wanna thank you for your time today and for sharing your knowledge. Uh, this was super informative. I had a blast. And do you want to share anything else about yourself or Redwood Services before we sign off?

No, I think, uh, thank you for having me today. And, um, we're having a great time at what we're doing at Redwood. We're investing in people and we're growing people and we, You know, love our partners, and if we can ever help you, just reach out to us.

Sounds great. Thanks so much, John. I appreciate you joining Toolbox for the Trades.

Absolutely.