Fix Your P&L or Fail: Surgical Finances for Home Services with Norris Ayvazian from Service Crucible

The big takeaway here is understand that P and L get it correct, get it surgical so your coach can help.

You systematically prove that you have LTV where they're keep coming back and spending with you and staying with you. First of all, there's the customer experience factor that's not, well perfectly documented across the vast majority of our companies. Then there's the recurrence factors are weather, equipment failure, homeowner behavior, sales rehash efforts, future cash flows tied to a customer are much less reliable. Then margins vary wildly.

Welcome to the Home Service Hacks Podcast. The show for contractors who refuse to settle for average. Hosted by Bill Brown, licensed H Vac contractor, AI and automation expert and founder of Service titan Hacks Community, each episode features real conversations with contractors, tech founders and innovators who are reshaping the trades from AI and automation to pricing, marketing and management. If it's working in the field, you'll hear about it here. Let's get into it.

Welcome back to the podcast. I'm here today with someone I've been meaning to talk to on the mic for a while. Norris is a founder of Service Crucible. We've had some great off the record conversations and, and today we're bringing that same energy to the show. We're going to talk about what's broken in the coaching world, how to actually fix your operations, and why so many contractors are being misled by bad advice and bad tech. Norris, glad to have you here.

Bill, it's an absolute pleasure. Thank you so much for having me on. I've been looking forward to this and I love what you do and how you're arming people with the information they need to make a difference.

Fantastic man. Thanks.

Appreciate it.

So, Service Crucible, why build it? Why do a coaching platform? What problem were you solving when you created Service Crucible?

To just get things done. I started noticing a pattern, especially the higher up I got in my career. Bigger positions that I held. More people are spending time which, which is a good thing. But too much of something is not really good for you. People spending more time trying to emulate best practices instead of going on a path of self discovery. See what works for them, specifically the unique dynamic of their team, their culture, what they represent, if they're even fully bought in, if what they bring to the table and what they're trying to do fosters an environment of natural buy in. And I, I felt that there was a severe gap and you, you, you kind of take the 30,000foot view. There's some incredible People in incredible organizations and twice as many on the opposite end of the spectrum. But for the most part it's just turned into cookie cutter rinse and repeat, bells and whistles and you know, laser shows and I mean I'm, I'm embellishing but you know, really, really fancy turn two three day events with headliners. What are you going to do with the takeaways? Okay, you're going to get hyped up. It's incredibly motivating. But what are you going to do with knowledge that's jammed into your head in the space of two, three days that had you stepped back and taken a little time to look at what you've been doing for the last 5, 10, 20 years could have done for you differently. So there was the beginning of service crucible. Get down to the bottom. The crux of the problem. Tweak efficiencies. Attack the money on the table. Systems, processes, tech training and weaponizing Service titan in such a way where what would a $200 million company COO do and how would he utilize and look and click through all the different screens in the reports and service titan, how can you see into the future by, by witnessing something like that and then taking a systemized process, making it your own. So there's, there's so many other things to say about it, but that's, that's the, that's the core of it right there. And we can, we can dive down into any rabbit hole you want.

You mentioned natural buy in and you know, drawing on my own experience as a contractor and I'm sure other contractors have experienced this as well, you go to these events, these two to three day Tony Robbins style seminars and you do get inspired to make changes in your business. For me personally, I never really needed that inspiration because I had started it. It wasn't like second generation. I hadn't had it that long. I was always going after it. I would take some of the things that I've learned. First of all, just like you said, I was overwhelmed by the amount of items and you know, you want to implement everything and so you implement 30% of everything you've learned, which equals 0% in a lot of aspects, right? Implement 30% of getting your P and L correct. Doesn't matter. Might as well not have even started it, right? So what my staff would do if I went and I overwhelmed them with this amount of changes to be made, they would do in the meeting, they would do this buy in because they didn't want the conflict, right. But then the meeting, after the meeting, that's where that natural buy in that you're talking about is. So they go, they talk amongst themselves after management leadership leaves and they go, look at this guy, came back from here, spending three days away in the, in Florida, living the dream, wanting to make all these changes. We'll see if he actually follows through on what he wants to do because last time he went, he didn't. So I get what you're saying with that natural buy in as far as that being very important because you can get that surface level buy in pretty easily.

Yeah, very easily.

Yeah, yeah, yeah.

That really hurts you more than it helps you.

It does. It makes you look wishy washy.

Right.

So when you go to these events, what I've learned over the years after going to so many of them is just figure out one thing that you need to work on. You can take all the notes you want and get inspired, but figure out one thing that you want to implement and see it all the way through and your team will begin to trust you more that you know they won't be overwhelmed by the fact that you said we need to change the entire business. And they also, it will be easier on you to implement. So you were doing, you started as a fractional coo.

Yes.

Chief Operations officer. And with that you've worked through a, some smaller companies all the way up to giant companies. So what did you see in the market that's really frustrated you with, with the industry?

Not everything applies to everybody's issue, obstacle, challenge that they're facing. There's and there's, there's two sides to that. There are resources or platforms or coaches out there that are really good at one thing. Well, it's their ethical obligation at the very front after discovery to say, I may not be the right fit for you. I look for reasons not to take somebody on instead of giving them reasons they should hire me on and join Crucible. And ultimately that's a win, win situation because it continues to put them on the path of them hopefully crossing paths with somebody that's going to make a difference for them. If somebody doesn't want you, don't change, don't chase after them. Then the other extreme is an overabundance of resources and best practices that are available to somebody that's not been down the path that they want to go to to get to the destination that they need to. And so thereby creates the element of running the very likely risk of adopting or trying to implement something that's really going to knock them off their path. And you only have so many, let's say top level coaches that have a national scope of geographic experience because every market has unique qualities.

And then.

Even coaches that have multiple playbook experience. There's a lot of playbooks out there. And you know, you've, you've got your, you've got your clockworks. That came out right then the, the whole kind of west coast mantra of how they, how they run things with service champions and how that just kind of took over the entire West. You got Hiller and Horizon in the, in the, you know, in the mountains and in the Northeast. Michael and Son in the mid Atlantic. There's, there's a lot of influences. Then there's different models. Flipping text, selling text, inside sales. No, we call it rehash happy calls. No, we call it NPS scores. And the natural human behavior is, well, this isn't working. I'm going to try something else. And what you've, what you've done is you've, you've added all of these ingredients into this soup that you were cooking and now you have crap soup. Use the S word has a better ring to it. Yeah, that's, that's, that's what I noticed. And that's what I was really putting a lot of thought into, Bill. I was like, how do I differentiate myself? And then I was like, let me look back at my career. And that's when I got the answer.

That's awesome. That's awesome.

Yeah.

So we were talking about, you have all these different models of how to operate a home service company that is, that are regional, that were developed in their own silos, that these organizations made their own.

Right.

Their own recipe to, to produce a delicious heating and air conditioning company.

Right.

So when you, let's say that you're a $1 million revenue contractor, there's some things that you had to have got right to get to a million. Not everything, but some things. Right. You can't, you don't just get to a million doing everything wrong. And so when you talk about switching to a different coaching organization, I think that it's a, I think you don't need to eliminate your entire processes.

Right.

So there are things, and because I've done this, there's things that I've been, that we've been doing well, that we stopped doing, that we had, that we went back to do later again because it was working. So sometimes when you start the recipe over, you are getting rid of the parts that are good. And it's overwhelming too, to like we talked about earlier, to start everything from, from scratch and you know, try to copy Hiller's process. I went to, I was a member of Praxis.

Yeah.

And they gave us books on how they operate. And the books were, the total sum of the Pages were probably 12 to 15 inches tall.

Right.

And that all the information to operate a $200 million business is there. But which one of those things do I do first?

Yes. Amazing.

Which one do I do first? And I went to. And maybe you can help with this. I went to guys like to have these shop tours, right? Yes. And which is cool. And I, there was a, when I was like $3 million in revenue, I went to visit a shop. It was at 15 million. And as I was there I was like, this isn't super helpful for me because they've done so many things between 3 and 15 million. I'm seeing the results of a $15 million contractor. I need to go find a $5 million contractor and see what things did they do that pushed them from three to five and five to seven and so forth.

Right.

So I think that, I think that you being able to help guys know where they're at in their business and move them to the next step is really, is going to be really helpful for them. And that's not something, something that coaching organizations typically do. They kind of have their cookie cutter process. Right. And maybe that's scalable, but it's not a, it's not helpful for everybody. You know.

Resoundingly agree. And you know, not to sound biased or like a homer for myself, but a question that I ask is, would you let a stranger write your legacy? If the answer, okay, then why let other people train your techs, your managers, your people and install their systems in your company? You just made your entire team a perfect, seamless, low friction fit into just about any other organization in the country. The true differentiators in our industry, the hundred million dollar plus, they're like, okay, all right, I see what nextstar's doing. Oh, blue collar. Okay. That's a, that's a nice resource. Bdr. Nice respect. Okay, one hour. I like the levels. Yeah.

All right.

And they're like, okay, let's take this and make it our own. And they did.

Right.

And it ties back into the whole buy in thing. Just because you go somewhere for two days, you're hyped up and you're like, I know this is going to help me. What you want isn't necessarily what your team wants, Right? How do you know what Your team wants, how are you going to get.

Them to buy in? Yeah, you show them the vision and ask them, I guess, you know, not to cut you off man, but create a culture of where it's okay for them to tell you that they're not encourage healthy, that they're not 100% comfortable with this and that they're not bought in. Up to the point where everybody's sitting at the head of the table, but everybody should have a seat at the table so you can get that information. Because you're going to find out that they're not bought in later anyway by them not following processes that you've done.

Right.

And if they're bought in, they'll help you revise those processes. They'll go, can we do this a little bit different? The customer said this, what about this? So you'll get some feedback from them in order to revise it, which further solidifies that buy in.

Right.

So lots of things I learned the hard way, man.

Bill, isn't it insane that the answer is right there? It's staring at us in the face with just two words, buy in. Let's think about this like, let's unpack this. For me to buy something, it has to resonate in some kind of, you know, want, need, emotional response for me to spend my currency of either my energy or, or my actual money to transact and say, you know what, I got skin in the game now. So if there is nothing in what you want or what you're trying to do or you're failing to communicate that with your team for them to make that emotional purchase so you unlock the next level of performance with them and be able to tackle anything. Enough said. You got. Yeah. You gotta care about people and they have to believe you. They can't sniff BS from a hundred miles away.

I mean, if you're gonna grow a real business, then you do have to care about people. You have to be okay with that. Lying to your face and stealing from you. Not okay with that specific. But when somebody does that, you can't turn to the rest of the 30 people in your organization and start to take it out on them. You have to have really thick skin as a, as an owner of a business. Lots. I have to. Had to have a lot thicker skin than I thought I would need to.

Yes, right, yeah. Yourself in the mirror first.

Yeah.

Right.

So we go back to this, this buy in and everything. And you know, I talked about it the other day with before you try to sell something because that's what it is. You're selling these people on, on something, on a change. Before you buy something, you have to imagine, you have to be able to buy it yourself.

Right?

And so we go to these, we go to these meetings or we go to these events and we're told this is how we do it. This is what made our business $50 million annual revenue. You're at, you know, 5 million. You'll get there. So the, the incentive to be bought in on that is very easy. 5 to 50 million tons of money for me, a business I can sell. But how does that translate to your people? Like, does it matter to them that the business is 50 million? Is it? What's in it for me?

Right.

What's in it for them? And so I, at the beginning of my business, I always thought that everybody was just money motivated. If I want them to do this process, I'll give them more money. If I want to get reviews, I'll give them $25 a review to the point where I had to, was thinking I had to give them money just to do every aspect of their job on top of their hourly. But I found that by talking to people and asking what they wanted, that I could really, really narrow it in one. There was this one guy that worked for me that just really wanted time off. He's like, I don't need any money. I'd rather have this time off. And without asking him and creating a culture that he would tell me that I wouldn't be able to give it to him. So I kind of try to be straight up with people and say, tell me what it is that you want and I'll see if I can get it for you. And I'll tell you that's never going to happen. Like, you want tons of time off in the summer. Well, we're an air conditioning company. Sorry about that. Or I can try to tell you when this happens. When you're, when you do this, when you reach this milestone or where the business reaches this milestone, I like to be able to put it in their hands. But then you can have that so they know exactly what it is that they're working towards. And so every, every change in everything you do has to be sold to yourself. Then your employees. Yeah. Has to be a legit sale, you know, without buyer's remorse.

No, without buyers remorse.

They're.

Yeah.

The willingness of wanting to take the extra step to go to extra mile is not something that you can tell people. It's something that they're going to want to do. And the point in time where they decide that that's what they want to do is up to you, your leadership and how you treat your people with respect and, you know, maybe not cost too much whiplash. With all the change that you're trying to institute. You can probably. I haven't done the research on this, so don't, don't hold me to it, Bill. But I'm pretty sure you can count on the fingers of one or two hands the amount of times a professional sports team has won a national championship when they wiped out their coaching staff the very next year.

Yeah, very rare. Because they have to learn a completely new playbook.

Right.

Everything has to, everything has to change. That's a great analogy. I like that.

I like that.

I mean, but how do we navigate this confusion? That was a million dollar question that I had to answer for myself though. What do you do first? What do you, what do you prioritize on? How do you manage your time? I mean, there's manuals out there that are like a hundred, 200 pages. And you know, Nexstar has thousands of resources over the last 40 years. What do you do? So I've held every single position in this industry, from maintenance tech all the way of, to VP of operations for my portion of the portfolio at a PE company. And PE is just a way of life now. And people were saying, oh, it's the devil. It's the devil. No, it's not. If you didn't have a good enough lawyer or you didn't dot the eyes and cross the T's when you went to sign, you know, it's, do your research. They're very, very good at what they do in drawing up their, their contracts, their agreements and the way that they do their, let's say their, their LBO analysis or their quality of earnings.

Right.

So I was like, you know what? I really gotta back up my firsthand knowledge and experience with institutional. So I was like, what's the best school that's teaching PE right now was Wharton. So I went and got certified. One of the hardest things that I did, there was times where I had no idea what I was doing.

Now, Norris, that's where Donald Trump went, right?

I think so.

Trump went to Wharton, didn't he? Did he?

No idea. Actually, I, I didn't know that.

So you and Donald Trump, there you go.

That's it.

Top presidency.

We're going to make home services great again. I'm telling you, it's going to be the greatest stabber, unlike anything you've ever Seen before. Everybody's going to.

That's right. Fantastic. This is beautiful. This company's amazing. This industry's amazing. Everybody's getting rich. I've been rich. But you're getting rich now.

Yeah, yeah, that's exactly it.

That's good stuff. So you went to, you went to Wharton, which is Ivy League school, right? That's Harvard level there. So those are the people that work at these PE firms. That's where they went to school, places like that.

Yeah. Right.

So tell me what.

Yeah.

What was that experience like? Were you able to learn from that?

Just so I don't want to cause any stiff upper lips to get stiffer. It was Wharton online, okay? So I don't want to disrespect anybody or, you know, offend them, but it's, it was the same faculty, same staff from the same programs that were teaching the, the eight week course. What did I learn? I learned that the, these people, these funds, your LPs, your GPs, your limited partners, your general partners. General partners are the ones that you deal with. It's the CEOs that you see, your apexes, your wrench groups, all that stuff. There are different species in a different dimension. And by happenstance, we both manage. Happen to speak English. Everything else is different. Completely different. It's like you're dragged out of a plane.

Two different businessmen, that's their thing, is how to build and operate a business.

Yes. It's not their problem for field level or management level personnel to figure out culture in the fifth and the transition. They just want to make sure is there a rock solid, let's say, defensible succession plan in place that's very, very important. And you kind of understand and I mean if with an open mind, not really blame them for seeing things purely black and white on a spreadsheet and numbers. Well, they're responsible, right?

No, they're not even there at the place. All they can look at is financial data.

Yeah, and I'm not defending them, but what kind of resolve and decision making power do you have to have when you represent a private fund, sovereign fund, a pension collective that is in the billions?

Bill.

What, you're going to stop and feel sorry because a tech is upset? They were promised lower health insurance when the transition happened and now they're paying twice as much. That's a problem that needs to be figured out and fleshed out at the field level. So it was just, it was a fascinating experience. And I learned what they value as far as value drivers, what increases your multiples, how they look and analyze the numbers and put their projections together and you know, roic, ARR. Which is a very, very weak, unpredictable factor. In home services, we say membership base, but most of our.

So ARR. Annual recurring revenue and which is like something typically software companies have, right. Where they have subscriptions and things like that. But what was the first one that you mentioned?

Roic. Return on invested capital.

Okay.

Yeah.

So for those that don't know that. Yeah, that, that's what they're doing. They're putting their, they're putting other people's money to work in the market. Like, like they're buying a stock if I get this right. And if they don't see returns, those people will put their money somewhere else and they're, and they will be out of business. The PE firm will be out of business.

Right?

Yeah, that's, that's, that's the full on definition of, of their side. And then on our side, when they look at us, when they look at the most intimate details of our business. Bill. Hey Bill, you, you bought a truck, you bought two trucks for 80 grand and you didn't make your ROIC on that for. Wow, that's a long time. That, that, that took you over a, over a year and then you were, you were sitting on an empty truck when you bought two trucks. No, this is not a, this is not a business that we're very interested in. If it were, we would probably tuck it in and it would not get a very high valuation or multiple.

Now.

Oh, Bill, you bought a truck in January, by April 1st. No, no, look at that. By mid March you made ROIC on that. You know, okay, you made your, all your returns on that and so far you're, you're 5x on that investment. Hey Bill, you've been able to show me that in that time span, you know, in, in that amount of time from buying a truck to getting to your 5x, you've actually done that 23 times now. They're salivating for your business. So you go to one of these shows and they're like, yeah, you know, this is who you go to lease your trucks with. And you know, you just gotta hire, hire, hire. What about talent optimization? What about what true recruiting pipeline? What about assessments? What about, you know, career mapping and planning? Yeah, some people speak to some elements of it, but we have to see it from their point of view. And I'm not advocating for pe. I want to make that clear.

Right.

We just have to understand the game as close to, as good as they do. So we have a fighting chance to having some semblance of a say so in our industry. It is ours as long as we.

Yeah.

And they're not grow like they're going.

To sell operating it for from scratch, sending, sending one of their guys in and running the business. They're, you know, if, if what you're telling me. So what you're telling me and the listeners is you, you need to understand what it is they're looking, looking at because those kind of things are what it takes to grow a great business. Whether or not you decide to sell to them or not. Whether you decide to give it to your family or sell to BE or someone down the street or sell it to your employees.

Yes.

And it seems to me like they could see all those things through financial statements, through P and L, through a balance sheet and through a cash flow statement because you know that ROIC is going to be in your balance sheet and your, and your PNL to some extent. And then retention, you can tell, you can look at metrics to see how that is based upon your labor costs and overhead costs, these things. And I don't want to get too far off topic, but when we're talking about financials and how they look at it, I would imagine that the balance sheet is where contractors struggle the most to understand what is this, what does this mean? And ratios, things like that, what, what are they supposed to be? So learning these things are important but you know, if you're preparing a contractor to sell the pe, what kind of things do you usually see that's broken in their company?

First, the very first things that I have to see is your financials. And I will give you a specific set of instructions that you either follow yourself or you forward to your cpa. It is appalling to me how many times over the years that I've asked for financials and I get let's say a year to date view or just a single month view in PDF format with no column as percentage of income. What are you looking at? Do you even know what you're looking at? Okay, you see the dollar amounts, but where's your means of quantifying what you where you did good, where you went wrong? That's the very first thing that I do. I, I say, I want, I said, remember this? I want your TTM with a percentage of revenue column next to each month trailing 12 months. That's the format that you should only accept to look at your financials. That's the format that you get your leadership used to Looking at. And then I see. And then I say I want to see your balance sheet. And, and as soon as I look at the financials, bill, I'm not kidding you, 90 plus percent of the time. And I'm being generous. Chart of accounts is basically non existent. You are. It's all over the place. Like cogs, right? The above the line cogs. Before your gross profit, there's maybe one, sometimes two gls, two entries. Materials, labor, if labor is even up there, right. Under income, then everything is an expense, right?

Analyze gross profit. You could analyze it within your own company, but you can't analyze it with any sort of industry standards.

Right?

It would be nice if QuickBooks had that P and L set up the chart of accounts set up that had some industry standards.

Right.

That you can kind of do whatever you want with it. I took my chart of accounts from egia. So we split up equipment, materials, labor, taxes for one reason. They had credit card fees. Like the actual percentage, the points that I paid on credit cards as an expense. I always thought that should go in cogs, but you know, I wanted to be able to compare. I want to be able to have a coach or a CFO analyze it as compared to other companies, right? So you've got these, got these companies who want to sell and work with you and the first thing you ask for is financials and they are inaccurate or not split up correctly into the right accounts or, or both. All of the above.

It. I mean, yeah, we can argue both sides about, you know, the credit card fees and some other gls, like you know, subcontractor equipment rental and everything else. If there's a reduction to sales, if it's actual, if it's, if it's actual cogs. But you know, the core build of your gross profit is dictated by your operating efficiency, which is your operating expenses. And it's your, it's your, it's your labor, it's your materials, it's your equipment. And then by using divisors, you layer on your dealer fee, you layer on your warranty reserve, you then you layer on your commission. So no matter what happens after the job is said and done and you do your payouts and you export to expenses, you got to keep what you priced for. That's how you. That's so. Yeah, but no, it's all over. Like people will not even separate materials from equipment. It's. That's insane to me because that's one of the biggest bleeds is the material abuse and the inefficiencies. That lead to it. So those are the first things that I look at that, that I ask.

For and then I ask granular. With these numbers, you, you have to be.

And that's one of the key differentiators I believe for me where we are prescriptive, we're not regimented, we're not, we're not cookie cutter and we, we have to plug the biggest bleeds first while we mercilessly attack the money on the table. Because sometimes you just gotta push, push, push for a Runway and then multitude of sales hides a multitude of sins. You buy yourself the luxury to continue to work on fixing these issues in the background. But you have to, you can't stop fixing the issues because then you're just compounding all of your inefficiencies and you're just working twice as hard.

And I think that's, you know, the revenues that some of these contractors are getting are very impressive. But then on the other end their profit could be in the low single digits and their cash flow could be negative, zero or negative. They could be going into debt. And that's going to be from not understanding the financials and being able to take action based upon what you see. So having them organized and timely and understand the KPIs. And then also like we talked about sorting which one is most important? Because if there's 150 accounts on your chart of accounts, which one do you look at first? Which one can you actually make changes on? And from what I've heard from coaches around the industry, a lot is your labor cost as a percentage of sales should be really studied and understood. And, and, and that's something that you can control by your efficiency and, and having good, well working processes.

Right?

Yeah.

So with that you have a, can you give me three other accounts in a P and L that you've seen come up again and again where a contractor is surprised how bad of a job that they're doing in this just, it really sticks out to you. So I'm just making the assumption labor cost is up there. What other ones do you see? Just give me three, three more commissions for sure. It okay. It.

Because if you are not 100% in control of your pricing and knowing what to authorize and what not to, where to, where to line in stone is a, a commission not being parallel with the peaks and valleys of performance tells me that there's, there's something broken, there's something broken in the chain and they're just pushing for revenue, probably trying to appease people. But At a deeper level, what it tells me is that there's. There, what do you call it? There's, there's no high authority close there. There's all kinds of that. And they're surprised. It's like, wow, why? I asked him, why are your commissions averaging at 10 or 11%, whereas in other months they were between 7 and 8.5. Yet the month that it was at 10%, it was one of your lowest revenue months. What happened there? Usually they don't know how to answer. The ones that do will immediately say it was a really, really bad month and I had to make some deals and I took out full commission to give the guys happy. See, at that point, that's, that's, that's just the symptom of the other disease.

Right.

Trailing 12 goes a long way. You have to that in.

In operations. And when I was a quality engineer at an AC manufacturer, we always looked at trailing trends to smooth out the data and not make rash decisions.

Right.

Because month to month, I mean, you could, it could just be a couple big jobs that land. It could be weather based, you know.

Yeah. Commissions, advertising, obviously, advertising's huge. There's so much between your CRM, so your metrics and your financials that you can map together and understand the behavior, leadership and habits of an entire company.

Yeah.

When I map advertising numbers, first of all in the chart of accounts, Advertising is usually one or two lines. I have a minimum of eight to 12. I want to separate everything because I want to know what's my all the channel on ad spend, everything, every single channel. I want to. And I want to make sure that my service item is built out in such a way and populated with the necessary information to correct tracking numbers, to know how my individual campaign performance is. And I don't need Marketing Pro for that. It's called the campaign summary Report. You can customize the columns to show you exactly what you need to see how many net new customers you're getting, you know, how many outbounds you're booking on it. What, you know, what are these campaigns? What's working for you? Where, where are your strongest performing zips? Now if I just see an outrageous and inconsistent amount of ad spend or you know, a heavy spend in one gl and the others are a smattering. Okay. There's no, there's no variety.

Right.

There's no multipronged, layered timed salvo of marketing output. Nine times out of ten immediately tells me that if I was to look at their job types, there's probably a Handful. And so they can't even quantify what's working and what's not working. And then because their cogs is all out of whack. What's that also tell me they don't do job costing to kind of have a pulse check every once in a while on what's working, what they should push more because all that's disconnected. They were going to be clueless into what marketing channel to pump more money into to drive phone calls into the campaigns that have been working the best for them. And it's just this incredible spiral of chaos. And they're like, I don't know what to do first. I'll slow down. I slow down the spiral.

Seems like you have to almost be a professional marketer. Somebody in your company has to have this. It doesn't seem. Or at least a professional analyzer of marketing. You really should understand it because the way that I'm taking this. Marketing channels are like buying stocks. You buy, you buy a stock for like Angie's List. You buy the Angie's List and you pay 50 a share, slash lead. And then you get some sort of return on it. Well, what is the return that you got for buying that stock?

So you can look at your perennial contender. You gotta know how to buy dip, too. Yeah, yeah, yeah, you do.

So, I mean, think about it. You know, you spend your a million dollar. Contractors say you spend a hundred thousand dollars in marketing to get a million dollars. Let's just say it's all new business. Well, Your spend was 10% of the total revenue. So you have this mix of stocks that made you. You spent a hundred grand on that made a hundred, or I'm sorry, that made a million. Well, which stock out of those five was the one that delivered 60% of those returns? Well, I don't know. I mean, you just, you have to be very surgical when it comes to understanding where every lead came from, how much you spend on it. What's the customer acquisition cost? What's the lifetime value of a customer? I always talk about that. And that's something that most businesses look at ltv. But I feel like that our industry doesn't look at that enough. Doesn't know that a customer, a customer in my H Vac company was worth $1,200 on average. Blended through all channels within 30 days of them booking an appointment. Within six months, they were worth three, they're worth 3,000. And within two years they were worth 5,500. So when I looked at what can I spend to get a Customer. Well, if on average every two in two years I can get 5,500, then I can spend more to get that customer. I just know that it's going to take a little longer for that stock to bear fruit.

Right.

And those are just things that I learned really from analyzing financials. But if you don't have the data that goes into that, you, there's no insights you can get out of it. And that's where we tie this all the way back to PE. Knowing that being professional analyzers of P Ls for every type of business that they buy and they know that, you know, this marketing channel works in this area and things like that. So for the, for the listeners, the, the big takeaway here is understand that P and L get it, get it correct, get it surgical. So your coach can help you.

Right?

Yeah. It's interesting that you bring up ltv.

Yeah.

An industrial and heavily fragmented blue collar spaces. So there's different markets. We're actually lower middle market. We're, we're a small fish and medium pond in the vast multi trillion dollar economy of the United States. And in, in SaaS or like service titan, Netflix, all that good stuff customers pay monthly. It is, it is almost certainly a dependent event. H vac, plumbing, electrical, roofing, the recurrence to systematically prove that you have LTV where they're keep coming back and spending with you and staying with you. Well first of all there's the customer experience factor that's not well perfectly documented across the vast majority of our companies. Then there's the recurrence factors are weather, equipment failure, homeowner behavior, sales rehash efforts. Future cash flows tied to a customer are much less reliable. There's that then. Yeah, margins vary wildly. Gross margins can swing 30, 40, 50 depending on the industry. You know, seasonality, peak summer installs, winter maintenance, your shoulder season. What is your plan? Tech efficiency. The training system that builds and you know, that's a dependability point for that customer acquisition cost. You know in SaaS you spend CAC once and collect predictable payments.

Yeah.

In home services you might have a high first job cac but no guarantee. The customer comes back without heavy remarketing. And they say memberships are dead.

Yeah, I disagree. My whole business was built on memberships and thrived on them returning customers. You know I always saw, I always saw a customer as I looked at them in their purchase cycle. So in, in H vac every 15 years there's a, you know, let's say your customer lifetime value is $15,000 well, 12 of that happens in a one week period.

Right.

One day period. Out of that, out of that, that life cycle. And so I would always really want to understand exactly where that particular customer was in the purchase cycle. So if I had somebody in year eight, I knew that this would most, that this would most likely give me that large. The overwhelming percentage of the lifetime value was going to come in the next four to five years. Trying to predict as much as I possibly could about future revenues from existing clients.

Right.

Yeah, yeah. This go, this goes directly into some of the talking points that are unfortunately not heard every so often because there's just a handful of subjects that are used as buzzwords to drive the clicks and the likes and the engagement on LinkedIn and Facebook.

Right.

So planned repairs. Where am I coming from with this? Just before when I was able to have some gaps in free time. For the last few years I've been a high level consultant on call for these major research firms that are based out of New York and they hire first year grads from these Ivy League schools that, that are landing jobs or doing internships so they can get into your funds on the LP side and be in the whole private equity VC kind of world. So these are the people that take a list of questions from multi billion dollar funds that are putting up master plans to decide whether or not they want to get into a space or they're already in a space and they need to course correct or make an adjustment. That keeps my finger on the pulse with where the money's mind is. When I say money, the billions and billions and billions of dollars that's in our industry that's going to continue to pour into our industry by the way.

Right.

And a recurring question from the firm representatives were what is customer sentiment? What with some of the last few major economical events, you know, from the recession, pre Covid. Post Covid, you know, inflation, equipment shortages, all that kind of good stuff. And they kept asking about planned repairs and another recurring question was blend of revenue between service and replacement.

Yeah.

Whereas it used to be, you know, 90, 10, 85, 15, the like there was a, there was a comment from SF&P lately the deals that got prioritized more were the ones that had more blend of revenue towards the service rather than the replacement side. So if you know these things it tells you who to listen to.

Yeah, right. I like that. You know we, we were about 70, 30 install service and that 30 was our future installs. So if you go out to your existing customers and they know like and Trust you, you can turn that into 9010 for a very short period of time. But you better get a lot more customers because the last. Now the majority of your customers have their systems already replaced. You've extracted the majority of the LTV and now you're going to customers who are not expecting to purchase anything from you, who have systems that are not going to. Going to break their new right. And so I kind of looked at customers like a, like a farm. Like you have a bunch of trees that are ready to. Or a bunch of fruit that's ready to pick and then you have, you need some seedlings right down there, you need some in the middle. You can't just harvest all of your crop. And I think that a lot of contractors and you can back me up on this. I think a lot of contractors harvested a lot of their crop during COVID a lot of it and made it difficult. And it wasn't just maybe not as conscious that they were doing it, but obviously there was a demand for our services because people were spending a lot more time at home, way more time than they ever had. They were working in that, in that front office in their home they never sit in. That's now uncomfortable.

Yeah.

For plumbers, obviously they were used, the customers using their toilet 10 times more and want a good, want a good toilet.

Right.

But we went out and I remember for us that it was. It became difficult to get certain equipment at a certain time. We were fortunate to be a decent sized dealer in the area, so we were able to get equipment. But when we told there was all kinds of supply chain issues during COVID we, when we relayed that to customers they replaced when they normally would have repaired or waited on it. And that was great. It drove our top line, it drove profitability. But we cut that tree down. We completely, you know, ate the fruit out of that plant. We needed to get another one and we didn't. I didn't really think about that as much because we had always had a nice balance of service and installation. So we always had a nice queue of customers who needed replacements each year. So it was a very steady growth until we had that Covid boom. I wonder if any other contractors experienced something similar to that.

You know, how would they have known? Bill, there's not a lot.

There's unprecedented, right?

Unprecedented. But people that were not in our industry that generationally or habitually or by. By strategy have always been in the numbers and money game saw this. Not everybody on that side, but a lot of them saw this a Mile away. And had we known that, what would it, what, what you know, how could we have depended based off of where their priorities are, the most influential voices in our industry to spread the message of hey, nurture your customers more, slow your growth rate, pad your margins, strengthen your efficiencies and plan for repairs, keep your customers longer. Assuming that you're hitting your top line revenue goal based off of your budget bill, you hit that. If you hit that sweet spot in blend of revenue, every doll, almost every single extra dollar above is it's, it's incredible how it happens, how service will contribute pure profit dollars at a certain point. It's a fantastic thing. I mean it, what a topic, what a conversation. So I mean look at all this information that we just covered.

It's a really, really weird thing to look at service and look at maintenance versus install and go, wow, that service and maintenance is so important when the average service call and the average maintenance call are 20x less than the average install, right? And but the thing is I, I was telling my guys a dollar in service is not the same as a dollar in install. It's more than a dollar, right? It's, it's different. It's the dollar in maintenance is more than a dollar in install. And also because the dollar in maintenance happens during a time of low demand, right? Where there's not as much, not as much fruit to eat out there, right? So I always try to tell my guys and put into the culture of the company that, that the long, the more we can get more lifetime value out of a customer if we do great service and great maintenance and never ever push them to a replacement system at all. So you can get a $1200 repair when you first meet them. You can get, you know, a few hundred dollars each year in maintenance and then you can get a $15,000 system the next year or you can get a $12,000 system the first year and get nothing after that, right? So just really thinking long term. And the only reason I say this is that these are mistakes that I've made in the past not thinking long term. And when you get that revenue from a replacement system, as a contractor, psychologically you look at service and maintenance as kind of being annoying, right? You're just kind of like, oh man, I just, I got 15 grand and you put that at the top of the income statement. It looks good, it feels good. And then you put in a 500 repair, 800 repair and you're like, this doesn't even really compare. But what you just to Reiterate. What you forget is that that 5 or 800 repair is a future replacement system down the line, just a matter of time. But yeah, that's, that's good stuff. You're talking about P.E. and I like, I like this subject. Understanding the fundamentals of business and how it works and being able to analyze it. And as contractors, I mean, we're not in the same space as those guys. We don't have the experience they have, the education that they have. But the takeaway I'm getting from you is we should still try to learn from them of how that they look at a company and start making moves to position your business to be attractive to them. And you can still have a business that people love to work at and one that PE wants to buy. Those aren't like mutually exclusive, right? No, they can be the, they can be the same.

Yeah, right.

In fact, I wonder if there's a business that PE loves to buy that people hate to work at.

Hmm. I don't know.

That's a really, really good question. I'm gonna have to dig into some of my case studies and get back to you on that.

We're getting interested. We're getting deep in it, right? You know?

Yeah.

So, yeah, so we talked about, talked about pe, talked about some great financial stuff.

I didn't give you the third gl.

The third gl, that's right. Oh, man, it's my adhd. I apologize. You know, it's, it's the entrepreneurial. I don't know.

Yeah, just ping ponging all over the place. I'm the same.

We'll just, we'll go to it. What's number three? Thanks for remembering that. What, what do you got for.

No, of course, man. Number three for me. A huge indicator for the company how it's being run. Health and everything else is below the line. Wages as a percentage of revenue, especially the split between admin management, sports staff, and then field to office ratio. It's like, what are you doing paying all this money in wages? It tells me how lean the company is and how efficient they truly are. And when you just, you have some of those other critical Gls into the entire equation, it's a very, very telling picture.

That's where your real efficiencies are a mess, you know, where, where companies that have broken processes just want to hire more people and throw people at something. That process. Yeah, yeah, fix this. Come on in. I'll pay you. Oh, and your, your, your back's against the wall. These processes are so bad. You're losing jobs, you'll overpay. For somebody to fix a process that doesn't exist, it isn't a process. So now you want them to design it themselves. And there, that might not even be their skill set. So I've seen that a lot where people just throw more staff and more labor at something that can be, that's a systemic issue. That root cause of the inefficiency is not people, not enough people. It's a broken process.

Right?

Yeah.

So the thing with that is today these automations, man, and, and everything can change that number like nobody's business, right? This AI and automations, it's insanity. Just not to toot my own horn but to prove that the automations were very effective. Cause I started using Zapier back in like 2015. This was pre AI as well. When we were at 3 million in revenue, I only had one office person. That's it, just one. Because everything that I, that could be automated, that could be possibly automated, I did. And doing those automations also helped me fix processes. Because if you automated something that was bad, it didn't help.

Right.

You just, you just threw something down the line faster that was broken. So creating those automations is what made me think about how to make my business really efficient in building the automations in the first place.

Right.

So 100% service titan has kind of like a blank slate for how to operate a business. But there aren't automations built in that force you down the path of best practices for your industry.

Right.

So that's kind of where the, that's where coaches come in and they teach you that stuff.

Right.

Like so you know, you come in and, and you sell a replacement system.

Right.

Well you're going to do that a lot if you're good. There's a list of, list of five tasks that this person needs to do. When you sell the system, then it goes to this person who needs to do these five things and that person and everybody has to know what, what they're putting into the recipe.

Right.

And Service Titan does not help you with that. That's where you need somebody like what you do, they're good at selling, give you those missing people. What's that?

Yeah, they're good at selling it to you. Look at, they're good at selling it to you. They all look at all this, well, you know, selling you service, I say oh my. And this feature does this and this. But how do I do it? Well you know, we're going to connect you to a specialist and everything else. You know, it's annoying, but actually really cool that it happens that way because it's part of the philosophy of Service Crucible. In order for you to truly grow and take the next steps and continue to scale, you gotta go down that path yourself. It's the process of transformation. There's no other way. You can hire incredible people that do a great job that know Service side and inside and out, but they probably don't have one day's worth of service manager experience running a home service company, so they'll be feature rich in all their knowledge. But on the execution side, when you know you're gonna put your oil in the engine and turn the ignition, what's gonna happen? So yeah, yeah, they're can't just throw.

Money at everything and expect to fix it. You know, you have to have. There's some core foundational things that operators need to know. Maybe not how to work it 100%, but they have to have a good idea so they don't get fooled.

Right.

Or, or send a scope of work to somebody internal and external and it. These. This person doesn't even know what they want, right? I don't even know what they want. So for a com. For a contractor that is doesn't really have SOPs or processes listed out, I find that, you know, it's best to just put this thing on a whiteboard and write them out until you get them. Get them. Right. That way everybody can see them and then you can convert that into something that fits within Service Titan and works with the technology. Right, but you were talking, you were talking about earlier. Yeah, we talked about this last time. You were talking about how you guys. How Service Crucible is building an AI LLM. And for those listeners, I shared that.

With you, didn't I?

Is a large language model which is what chat GPT is.

Right.

So would you. And we don't have tons of time left, but would you be able to give me a little kind of overview of what your Service Crucible AI LLM.

Looks like for Service Crucible or what I'm doing for one of my clients?

Well, either way, for what you're doing for one of your clients because like anything, if it works, you'll probably want to apply it to everybody.

Right?

Yeah.

And how it processes.

I'm doing something similar for Service Crucible too. But yeah, sure. I've. I've come to learn that most of the AI technology that's easily available to us is all very surface level and it is as downstream as it Gets. It's like, yeah, he's, it's like buying gas station sushi using readily available AI is like buying gas station sushi. Building your own LLM and your own retrieval model, your, your, your, your own database, your own SQL schema is like going to the fish market in Japan. Well, no, it's one step. It's like going to a bespoke sushi restaurant in Japan that gets their stuff from the best fishermen that go to the fish market in Japan. To, to be at the fish market, you got to be, you know, one of the actual tech centers. So that's, that, that's a, that's a great analogy. I was, I was talking to a friend and just came up. So we have to learn this. Bill, I didn't know that half of this stuff just months ago. But we have to incessantly throw ourselves at the knowledge because this is just a way of the future. So the LLM is, I'm building it in such a way, I'm storing and vectoring, like chunking and then vectoring every single piece of information that is available. And I. In multiple columns that are getting stringed together now think hundreds and thousands of columns and some columns are weighted and then you have to continuously give it feedback and train it. Now when you start interacting with it, instead of AI, kind of like, let's say ChatGPT, you connect your Google Drive to it, it's going to give you information that you have in your Google Drive, but it doesn't give you your knowledge. It's just going to do its best. So one of my clients, they have, they're, they're so, so good at what they do. They have some of the most talented people in their industry in what they do. But the knowledge lives in silos and it is not benefiting the plans and growth for the, for the, for what they want for their goals. So.

Right.

It's causing a lot of inefficiencies where there's a lot of firefighting instead of spending time on the business. In the business, all the classic stuff that you hear, there's these two individuals that are really, really good at what they do. And all they do is they're on the phone five, six hours a day teaching people, walking people through, calling vendors, doing course corrections on their projects. I had the CEO order two of those little recording devices that you hang over your neck, which is like in the AI, the recording device, and it transcripts everything and dumps it into an app. Well, you. Then what I'm doing is I'M taking those raw transcripts and I'm chunking and vectoring them on that table that I just explained. And I don't know, I anticipate over three months of collected phone calls so, you know, several hundred hours of conversations in pure knowledge because you'll throw away the useless stuff. You just created an agent that is hyper specialized in exactly what you do. And now when you ask it to write an SOP or a process for you, it's going to hit at 100% efficiency instead of you having to chat with chat, GPT or anthropic for another 30 minutes so you can continue tweaking what it gave you. That's good stuff. I'm very excited about it.

I love that. That's, that's, that's the future.

Right.

And there's not many people that know that LLMs can do that. And, but I mean that, that information to build that process is in the heads, in the mind of people within that operation already. It's just not easily accessible and clear for everybody to see the recipe.

Right?

Yes.

And if you listen to every conversation of the people that know that process because they're going to say it, what it is as they train, I love that. Then the LLM will take that data and organize it and tell you, this is the SOP. This is exactly how you guys do a H Vac installation from start to finish. I've heard this 25 times. It's like somebody sitting there observing the process work and then writing it down, taking all that information but being able to do it very fast. So I would imagine after a few months you'll be able to do an SOP for the way the entire business currently runs. Yes, every process within the business will, you'll be able to understand that. Wow, that's something else, man. And, and you do that for a small company. What's that do for them? My goodness.

Talk about leading companies, what to do for that.

Yeah, that's amazing. That's incredible. I'd love to see when that, when that comes out and, and I'll give.

You first dibs on first look progress on it.

Yeah, that's, that's awesome, man. So you're just taking, you're going to be able to. Because you have to understand what's going on in the business to be able to help them.

You have to orchestrate the data dissemination, where it goes, how to structure it, weight it. And you know, there's, there's some, there's some engineering behind it from a knowledge and change management standpoint, but yeah, yeah, yeah, yeah. It's fun.

That's awesome. So let me get you some. Let me give you some rapid fire.

Sure, man.

Ready for this?

What's one lesson you wish every contractor learned five years earlier?

Spend more time in the field with your techs.

Okay. What's the first system you'd fix in a $5 million shop that wants to.

Get to 10 million separate service from, install and improve sales handoff process.

That's great.

Awesome. So, all right, man. This was awesome conversation, and we had tons of real talk, tons of value. I'm going to have you on again because I know that we could talk about this for hours and hours and hours. And, you know, I really appreciate you coming on. We'll do it again, and I think that our listeners are going to get tons of value out of this.

Bill, this was a blast, man. Thank you so much for having me on.

Thanks for listening to the Home Service Hacks podcast. Be sure to subscribe on your favorite podcasting platform so you never miss a future episode. For more information or to connect with Bill, you can check us out on Facebook @ServiceTitan hacks or visit our website at servicetitanhacks.com we'll see you next time.