Jason Paris: Scaling Up and Revamping the Painting Industry: From $2 Million to $10 Million

Welcome to the Profitable Painter Podcast. The mission of this podcast is simple: to help you navigate the financial and tax aspects of starting, running, and scaling a professional painting business. From the brushes and ladders to the spreadsheets and balance sheets, we've got you covered. But before we dive in, a quick word of caution: while we strive to provide accurate and up-to-date financial and tax information, nothing you hear on this podcast should be considered as financial advice specifically for you or your business. We're here to share general knowledge and experiences, not to replace the tailored advice you get from a professional financial advisor or tax consultant. We strongly recommend you seeking individualized advice before making any significant financial decision.

This is Daniel, the founder of Bookkeeping for Painters, and today I'm here with Jason Paris. Jason Paris is an entrepreneurial force from Minnesota, aka the Silicon Valley of painting. He started a student painting franchise in college and then grew his own successful painting business after graduating with an economics degree. His quick growth led him to found a holdings company with 4 of his best friends where they now make investments in painting companies around the nation, as well as investing in multifamily real estate. His job title reads Synergy and Memes. And he serves as an active board member at Aleph and a volunteer board member at the PCA. Beyond business, he's interested in realizing human potential through ultra endurance races, founding family legacy by making family meetings cool again, and conquering the fear of mammoth by building assets in the trades and volunteering at the PCA. Jason Paris embodies innovation, leadership, and commitment to making a positive impact. Welcome, Jason, to the show.

What's up, DH? Glad to be here.

Awesome. Could you give listeners like a brief background of your journey just so they know where you're coming from? Uh, you know, starting your student painting franchise, uh, in college to, you know, through founding Olive.

Yeah, so I worked at an organization called College Pro Painters. They were a pretty large franchise entity in the US, probably peaking in the early 2000s. They no longer operate in the US, I believe just as a window cleaning operation in Canada these days. Um, but that's kind of how I got my taste of painting and entrepreneurship as I was in a formative age of my early 20s. Graduated with the econ degree, went to Fortune 500 land Kind of had the classic conversation with my spouse saying, should I follow my dreams or be a cog in the wheel? And started Paris Services, LLC, back is what we used to call it. And we were doing staining a lot of decks and straightening out air conditioner fins that got hit by hail, kind of masquerading as an HVAC company. Changed it eventually to a DBA of Paris Painting, went full-time to that. Printed out some business cards, printed out some contracts, started knocking on doors, uh, had relatively quick growth early stage. And, uh, you know, kind of went from $1 million to $2 million and up to $5 million. And, uh, we're past the 8-figure mark now, uh, producing over $10 million a year in residential repaint.

That, that's awesome. That's a, a huge feat. I rarely see someone that large, that, that that large of a painting business. So that's, I mean, just generally, obviously that is a, in any industry, I think it's like below 0.5% of businesses ever reach that mark.

So yeah, it's pretty rare in residential repaint, particularly because there's a lot of moving puzzle pieces and the complexity of architecture required in your business is not as low as maybe other industries, right? Largely dictated by the average job size. So this isn't like, we're not selling helium rocket ships or something. I don't know. We're selling these $5,000 to $10,000 tickets. So it is more rare in residential repaint than maybe other industries or other segments of painting, like industrial and commercial, just because of the complexity that's required in your org chart.

Yeah, it seems like there's some, like there's an invisible ceiling of around $2 to $3 million. And obviously you've burst through that and I'd love to dig into maybe some of the things that you learned getting from $2 to $3 million to $10 million. Could you just generally, what do you think the difference is between a $2 to $3 million painting company, residential repaint, and a $10 million one?

Kind of the complexity of the organization that I alluded to a little bit earlier. So, you know, most people found their companies not because they're seeking the industry, but because it found them or they happened to stumble across it, right? So your origin story is my dad painted, or I painted in college, or I tried to do something and it didn't work out, right? A lot of people will paint for a painting company, and there are not many good painting companies out there from an organizational level. So with upward mobility, clear comp packages, healthy culture, uh, that's very rare to come across. So they spin off a lot of people that are disillusioned with their, uh, their future in that company, and they feel forced to start their own painting business. So a lot of technicians, kind of the classic E-myth, a lot of technicians who think that the best way to kind of maximize their mid-level management skill sets is to start their own painting company. And so they do that. And now you're kind of in that, again, E-myth kind of technician mindset. You're building a company that you are the funnel of, and it's not really an organization that's going to scale beyond yourself. Now, what that level is, is gonna be dependent on, you know, your work ethic, uh, your, how effective you are, how much you can leverage technology, maybe the ba— maybe the, the breadth of your personal network. But at some point you can no longer hire your friends and family to paint for you, to estimate jobs with you, or to do project management. That's where you— there's that death valley of between 750 to 1.5, and maybe with inflation it's more like 1 to 1.8 these days, where you have to, for the first time, enter into these overhead allocations that are required to scale. Right. So you're gonna make less money until you grow through that tranche of revenue. Yeah. That $2 or $3 billion mark is probably, you know, how much can you network and stumble across things that kind of work as opposed to building an organization that's going to scale and outlast you.

So a couple things I heard in there. So one, it sounds like the big thing is just professionalization of the business where you're putting structure in the business. You're building it not just for yourself as a lifestyle business. It's more of like, hey, this is scaling beyond just me. I don't need to be the salesperson and CEO. I want to hire a sales team and maybe become more of a passive owner or maybe just the CEO or something like that. Um, and so putting in those compensation plans in place so people actually want to stay with you and grow and help you get to that, um, that $10 million mark. So professionalization. Um, and then just probably kind of heard in there, like the mindset, maybe, um, where a lot of folks are probably coming to this from a trades background, obviously. And they were disillusioned by getting fired from another job and they're just really trying to make it, make a business work as a job for themselves. And so they're kind of lacking some of the key skills or beliefs or behaviors that they need to get past that $1, $2 million, $1, $2, $3 million mark. Is that kind of what you're—

Yeah, it's kind of like there's not a right or wrong there, right?

Yeah.

You know, a $2 million company with a nimble overhead structure can be a very nice net. You know, you might be making as much as a dentist, right? So there's nothing wrong with that. It's a beautiful thing that America is the land of opportunity and entrepreneurs generally can strive and have upward mobility in societal classes and all those different things. But fundamentally different than how you're going to operate a company that's of larger scale. And, uh, you kind of alluded to even just how do you hire people, right? Are you going to train them through osmosis, or do they have a job description with competency models? That's like a— it's hard when you look at a residential painting company and you say, I'm going to build a company. You're really building people. And there are, there are other elements, like you need a building and maybe some vehicles and equipment, but By and large, what does it mean to build a business? You are building people. And so you need clear job descriptions, but also clear competency models. How do you do whatever it is they're supposed to do, right? So if you have a sales rep, you have the competency of, of sales and you also have the competency of estimating, right? And has your salesperson been trained in each one of those things? And how do you, how do you help manage effective performance in in that role and then tying compensation to where they're incentivized too, right? You have the same thing, project management. What's the competency of a kickoff or a check-in or closeout or even coordination, right? How do you do all the different things that are required in a business? So yeah, those are some of the things that you, you hit on that I think that's, that's right on.

Okay. So it sounds like just to try to dial it in, and, and get— if we're, if we're looking at a, a painting business that's at $2 to $3 million and they're having trouble getting to $10 million, it might— the most, it might be because they don't have that, uh, people structure built in where they have those job descriptions. They don't have an org chart that they can kind of visualize, hey, this is what, what it's going to look like, and let's You know, as we increase ourselves, this is, these are the positions that we need to fill and this is how they're going to be compensated. This is, you know, how we're going to motivate them slash how we're going to compensate them. Um, and that's how we're going to kind of fill out the team as we, is that kind of like a big key, if not maybe number one key to kind of getting from $2 million to $10 million?

As you said, yeah, you, you need the vision first of all, right? So being able to visualize that org chart. You know, just having— they say action without vision is a nightmare, right? But vision without action is a daydream. So it also takes a lot of work. And if you could just hire people and say, here's a job description, here's the competency models, here's a pay structure. First of all, that's a great start. That's miles out of where most painting companies are. But if you had those things, you can just hire people and they would do the work by giving them money. A lot more people would be entrepreneurs. Right. That is about as fun as it's gonna get is when you're on the whiteboard, you've built out the org chart, you say, here's the things we're gonna hire people and they're gonna do the work and it's gonna be great. Right. The reality is it requires a lot of leadership and it requires a lot of management. And I don't know about you, but I, I am not like a, an autonomously performing individual. I'm a pretty independent guy, you know, entrepreneurial driven, but I still required either self-directed internal or self-directed external guardrails to do the things that I'm supposed to do or that I even want to do. And so this idea that you can just hire people and they'll do everything and your business will just come along, that is not reality. I have not seen that play out. But the vision is where it all starts. And then don't discount the amount of leadership to drive the culture as well as the amount of management to drive performance that will be required. As you scale.

Yeah. Have you, what, when you're, when you were talking, I was just thinking about the book Traction. Are you familiar? Gino Wickman, familiar with that one?

Yep.

That's, that kind of came to mind. You got to have all those components. You got to have the vision. You got to have the data. You got to have the people, all those components to really make the whole thing work. Did you use something like that or some sort of framework to kind of help you get to the $10 million mark?

Yeah, we're a Traction organization, so we run the L10s and the quarterly kickoffs and, and whatever all the other acronyms are, right? The IDSs and all those good things. So we don't run it to a T. I'm sure we've modified a handful of things, but Traction would be a framework that works. And there's Rockefeller Habits and all these other different frameworks that you can use. And it's kind of like software to run your company on, the best one is the one that you engage in fully. And it's an operating system that has worked well for us.

Yeah. And what attracted you to that one specifically? You know, because there are others out there.

Yeah, the vision. I mean, the VTO, right? Starting with vision, having a clear path to what we want to do as a company. And then I guess as we've grown, I've gained an appreciation for the quarterly kickoffs and the all-time meetings. I would say the VTO is what initially attracted me to it. That structure of visualizing the future of the company.

Right. And did you, and then for the listeners, you know, there's the visionary and then the integrator where the visionary is kind of the big picture person who is, hey, this is where I want to go, which is where I want to be 10 years from now. 5 years from now, 3 years from now, or whatever. And then the integrator is the person who basically takes that vision and tries to operationalize it into reality. And so there's that, those 2 roles at the top that kind of drive everything. Did you, did you have that at, you know, making that journey from $2 to $10 million, or was that something that, you know, you deviated from, or?

Yeah, when you first start out as a company, you kind of have to wear all the hats. Right. So I was the visionary, the integrator, head of marketing and sales, head of production, and head of office and finance. Right. And then the first, like, strong recruit I brought on was to try and headhunt and find a CEO. And it was one of my roommates from college who also was in the painting world as we were going through the University of Minnesota entrepreneurial programs and basically approached him and asked, you know, what would it take for you to become the visionary of Paris Painting? What at that point was a $1 to $2 million house painting company. Once I got him on board— Yeah, go ahead.

I'm sorry. I was just saying, so you wanted to make him the visionary. And so, because I wouldn't jump if I were to guess, I was like, oh, he probably was looking for an integrator, but you actually—

Yeah. For the vision. I think most entrepreneurs view themselves as visionaries. Visionaries are pretty rare. And I think I'm an okay visionary. I just had lived with in college, he was one of my roommates, He is a world-class visionary. And so I said, well, comparatively, I can be a visionary, but he is without a doubt a world-class visionary. This is like a common theme that's been within the growth of Paris Painting. I can do it okay. Here's someone that can do it phenomenally. And then within a year, maybe a year and a half, we came across another guy that we knew in college who had stayed with College Pro Painters, had become a president, was doing consulting work with large organizations. And we recruited him to become the integrator of the company. And so I was like, well, I can be an integrator, but this is a world-class integrator. So at that point we were maybe 3, I think just over 3 million, and we had a world-class visionary and a world-class integrator in place to help us scale and grow.

Nice. So the theme there being you're finding people better than you to help you run.

Which is not hard to do. Yeah, there's, it's kind of like there's nothing that I'm world-class at. Maybe there is something, but For me, it's been very easy to let go, which is probably one of the biggest challenges and why painting companies really don't scale, is there's a lot of egos in this industry, as I'm sure you found out as you've been in here for a while. But to find people where you say they can do it better than me, or I'm okay with that person doing it, has been pretty easy for me because there's not— I, I knew a world-class visionary, we found a world-class integrator, uh, the guy who runs finances I would much rather he does all what he, what he does, right? Guy who's our VP of sales, for sure, better than me at that, right? All the way to production and then even coordination, office work. So, uh, that's been something that's been relatively easy for me to step out of.

And I think if, if I were to reflect at my time working with painting contractors, I think a lot of them struggle with attracting challenges, generally speaking, but especially folks that are, you know, better than them. So what, what do you think the keys are to being able to attract folks that are better than you to help you with that, uh, with, with your company?

Hmm. I think you kind of, I mean, you, you have to be someone that people want to be around and, and are inspired by. So there's a little bit of like inspiration, there's a little bit of Who are you as a person? Do you attract good people who maybe would say, you know, I'd rather just hang out and do life with that person regardless of what the business opportunity is? That's maybe how you get the ball rolling. But then a clear, compelling vision has been our secret sauce, right? And it's been, you know, fortunate that we entered into house painting when we did because this is probably still a little secret sauce, a little sneaky secret in the economy of running a trades company, right? We all make way more money than we should as millennials in the trades, right? We should be slogging it out in some corporate company, making, you know, a fourth of what we make now. And it's kind of like, yeah, this is a pretty sneaky thing. And just kind of casting that vision of, yeah, you could work in a corporate America, you know, environment, or you could come work in the humble trades, but be really sneaky successful. That's been a compelling vision that's attracted great people.

Cool. Well, there's a good pitch for anyone listening if you're trying to recruit a team and surround yourself with folks better than you. So awesome. What— and so this podcast is obviously focused on the numbers. So we talked about vision, getting the people structure in there. What are some of the maybe use the Traction terminology, scorecard measurables, you know, what are the things that you're tracking, you know, from that $2 million mark to $10 million to make sure you're on track to hit your objectives over time?

Yeah, I mean, there's, you can make it pretty simple and then make it more complex when you get into IDS, if something is on or off, but sales, production, and margin are king. So what are our sales? What have we sold? What do we produce? And then what is the gross margin on that production? I think from there, something's off. You can get into a lot of other scorecard metrics. Well, what's our run rate or what's our SR? What's our kill rate when we're doing bids? What's our average job size? What's our slippage? What's the, the, you know, slippage from sales to appointments or, or from leads to appointments? What's the slippage from something being scheduled to getting produced that week? Uh, there's a lot you can dive into. Outside of that, the other thing you wanna make sure you're watching is your budget. It's having a plan coming into the year around overhead and saying, assuming we hit plan, here's the overhead we're going to spend along the way. If you are off plan, you get to do a recut, and that can be a recut down or recut up. You may be producing more profit or producing more revenue at the same percentage, but more profit, and say, we are going to now spend more overhead to capitalize on this market or this opportunity that we, that we may have. But having a plan for obviously sales, production, margin, and then your budget allocations, those are things you wanna be watching. Obviously set the plan for the year, have your quarterly check-ins, your monthly reconciliations, and then your weekly L10s on the scorecard.

So for gross profit margin, as a, you know, um, let's say as a percentage of revenue, was there a gross profit margin that you targeted that you've, over your experience, you feel is a, you know, a reasonable target that is feasible for your company to hit going through that period? Do you have that kind of nailed down? Do you know what that percentage is? Is it 45% of revenue or 50% of revenue?

It's kind of like the Tom Brady answer, the next one, right? Yeah. Uh, you always want to be better. You always want to squeeze and you want to say, how can we improve? Where can we pick up margin points? Now I'll just say, fortunately from where Paris Paint started, that was a pretty easy proposition because we were maybe like a 35% gross margin when we were scaling past, you know, the $1-2 million. There's plenty of points to pick up. If I look at 2023 year to date, we're at 51% gross margin, right? And that's at scale or at volume. So I think, you know, a healthy number would be maybe 45%. So 40% labor, 15% material, 45% gross. That's a good healthy number. But anything you can pick up above and beyond that just makes things a lot easier and a lot more fun. It's— business is always a lot more fun when you're making money, and that is the point of running a business, is to make money. If we're not in it to make money, then it's called a hobby, and, uh, there's plenty of maybe more enjoyable things in, in the hobby world than running a painting company. Yeah, or owning a painting company, whatever it may be.

Awesome. And just, just, uh, for the listeners but also for myself, um, for the gross profit When we say you're at 51% or 35%, some folks include different things in the cost of goods sold and other things. So are you including obviously direct materials and direct painter labor? Is there anything else that you're including in that?

We put sundries in that, right? So all labor and materials. The things that we don't include in that number is the project management. So the guys who drive, we use our mostly subcontracted model. So we have project managers who will drive around to the sites, they play client interactions, deal with issues in the field, kind of that client concierge feel. We also don't put our coordination team in that, who's in the office kind of putting all the Tetris pieces together, nor do we put the cost of the vehicles that our project managers drive in that. But those— that is something you could allocate towards that. So that's actually how we do it in our software, which is why I did a little math problem, right? So it's like, it's 42% margin. But our management fee is 8.5%, and then it subtracts out, we do a giving fee of 1% on our revenue for the year. So I was like trying to do some quick math there. And, uh, so there, there are ways you can allocate overhead into your COGS, but if you separate out the COGS, which I think is the most uniform way to compare apples to apples across businesses, look at your labor, look at your paint.

Mm-hmm.

There's the management involved in that. There's maybe vehicles are involved in that, but allocating those towards overhead items makes it a lot cleaner.

Yeah, yeah. And from what I've seen, you know, 40% seems to be kind of the average gross profit margin using the same apples-to-apples comparison. So having a 45% or 51% gross profit is far above average.

It's a good year. It's a very good year. And I would just— I think last year we made a decision of we had set a goal last year and came a little bit under that goal. and we made a strategic decision not to cut our field staff when it came to the production team. And that was a carry that the ownership group looked in the mirror and said, yeah, we're gonna carry that expense. I would really like that to pay off next year with a higher margin, right? Because now we have all seasoned veterans in the field managing these projects. I don't want to hear about these issues of, oh, this is a rookie mistake. We lost a couple. You either earn or you learn. We're done learning, now it's time to earn. And it was a good year last year too, but I think the payoff this year is some of those overhead decisions that we made last year going in with a carry mindset.

Now, yeah, that's a good, good point. Make, you know, make your money when the, uh, when you have a good season, you know, during the summer for most painting businesses. Um, have that extra thick margin so that maybe don't just shoot for, for average, don't shoot just shoot for 40%. Shoot for well above so that when the slow season hits, you know, it's not gonna kill you. So that, that makes a lot of sense.

And I'm looking at your team a little bit too. Do you have a lot of rookies who are selling? Do you have a lot of rookies who are out there project managing? This might be the cost of building infrastructure, right? Because you're probably not hiring people who have been doing house painting sales for 5 years because they're hard to find and you probably don't want them working in your organization. So you have to kind of home grow that and they may have a lower wage. So your overhead is reduced, but they also deliver a lower margin. And so there's really not an easy button there, right? But as you mature on the, we talk about what is building a company, it's developing a team. As your team gets developed, it just performs at a higher level or they get cut. Yeah. Right. And as they perform at a higher level, now you get to reap the rewards of that investment.

Mm-hmm.

And that's through a higher gross margin.

Yeah. Okay. So we said sales, I think is pretty straightforward. Revenue, you know, your top line revenue, obviously we want that to grow. You won't be able to do that to get to $10 million. You'll have to grow your revenue, obviously. Did you have a target, like a number for assessing quality or— Yeah. Yeah. Quality.

You got it. So we call it a net promoter score, which is a It's a math equation that's pretty prevalent across most industries that care about these type of things. And this kind of digs into a little bit about our org structure and how we're set up. There is the ownership group who hires a management team to deliver an annual profit, right? And this is kind of how we're set up. We have a holdings company, we have a painting company, we have equity in many other painting companies as well, but that's just fundamentally how we're set up. And so the management team is really interested in compensated quite well on delivering return to the shareholders. And they have a profit threshold and then the ability to participate in the upside along with the ownership group. Now, there's some things that we call a moral hazard incentive there, which would be to squeeze out the bonuses this year at the expense of the long-term equity, the brand equity of the organization, which does not lie on the shoulders of the management team. But on the shoulders of the shareholders. And so the way you combat that is you realign the incentives through a net promoter score bonus. Net promoter score is simply clients— how likely are you to refer us to your friends and family? If it's 9 or 10, it's plus 100 points. It's a 7 or 8, it's a neutral or a zero. 6 or lower, it's a detractor, minus 100 points. You set your targets within the organization, you align all the roles to that, that desire or that outcome. And that's how we've managed the customer experience component.

Okay. So that's basically you're making money is the gross profit, and then the NPS is making sure you're making money while keeping every, you know, your, your owners and your customers happy and excited for the experience that they received.

And most of the roles, there's like sales reps and project managers who are incentivized in the gross profit. And then there's the managers of the mid-level managers, right? So your VPs or your president who would be not only tasked with the gross profit, but really the net profit. So they are not just delivering a, a high margin on the job sites, but they're tasked with managing the overhead that's required to get that margin, right? And then everyone is allocating a bonus towards Net Promoter Score. But there are different man— there are different roles. Some of 'em are on gross margins, some of 'em are on the net margin.

Mm-hmm.

And then everybody's tied into NPS.

Okay, makes sense. And just for listeners, like you had said, Jason, the NPS is just simply one question, 1 through 10, 9 and 10 being promoters that they'll recommend you to friends and family. So how did you guys just— was that just a question that the crew lead or production manager asked at the end of the job, or was there like a form that they sent? And once they get that, like, how did that process work? Just curious on that.

Yeah, we like to have it be a little bit removed so we get honest feedback. And so we wait, uh, it's either 2 or 3 days after the invoice is sent. So I'll just say there are a couple of client satisfaction, uh, datasets that we have that we're always watching. So we send out a survey after the estimate, you know, smiley face, neutral face, frowny face. How'd you like the estimate experience? Right? And then we do the same thing for the first day after the wash, same thing for the first day after the job starts. So what's your— kind of like when you go to a restaurant, you sit down, and right as you're taking a bite, the waiter stops by and says, how's it looking so far? How's it tasting? You have to try and talk to them with food in your mouth. We do that after the first day, but then after it's been completed, we have our customer service representative send out a survey, right? And then we'll see who fills it out. They usually don't. So then we do a text message thing. They may or may not fill that out. The one of the core components of the bonus is it requires coverage, right? So if you did 100 jobs and you got 10 surveys back and they're all 10s, no one's getting a bonus. You're like, wow, that's great, they're all 10s. Yeah, you have 10% coverage. That's not a real number, right? Uh, so you need at least, I don't know what it is now, it's 60 or 70% coverage for it to be a real number. It's a lot of times there's no secret sauce to it. It's picking up the phone, sending text message, sending emails, uh, until you get to the coverage mark. Yeah, but we try and have that separate out a little bit. The, you know, the customer service representative that we have, they are not a profit generator, they are an equity protector. They're more for the ownership group than the management group. And so they oftentimes come almost with like a combative ethos against the project managers and the sales reps' incentives because they have the authority to do whatever is required to make sure we have a happy client. That may require a discount, that may require sending a crew back or doing more work or something like that. Like I said, the project managers and the sales reps are incentivized on the gross margin. The management team executives are incentivized by the net profit, which is affected by the gross margin. So they're almost working against the management team, but for the better of the ownership group. And we like to have it separated out that way. So it's a real number. And we have full transparency and control.

Yeah, that's a, that's a cool way to, to think about it. You have people assigned to all the different, basically the measurables to make sure that thing happens and they're responsible for making that thing happen. My gross profit margin, somebody's responsible. My net profit, that somebody's responsible or a couple people. And then NPS, you have somebody that's dedicated to getting that. So I'd imagine scaling to 10 million, you're obviously not going to be able to do it with your— by yourself. You got to delegate responsibility down and get your, your team to take ownership of those numbers. It sounds like. Okay, cool. So shifting gears a little bit, could you explain to the audience about Aleph, what it is, what it makes it what makes it unique in the painting industry?

Sure. So Alpha Holdings is a holdings company. Uh, what makes it unique is we are a partnership group. So we come in and purchase an equity position in an existing house painting company, and then we come shoulder to shoulder to help them scale. So it's kind of based off of the model of, um, there are like franchises that give you a lot of proprietary information and processes and systems. There's coaching organizations which will tell you how to do something. We believe that the best way to build an organization is to come shoulder to shoulder and build with you. And so we have high world-class talent in the office, right, that flies out or we fly people in. We help build the team and we're incentivized to do that as a partner. So we're not incentivized to like consult for a fee and say, I really hope this works out for you. And if it doesn't, that's too bad for you, but it's still great for me. We want to have an equity position. So we're incentivized to build a lasting asset that does not depend on the founder or the owner showing up every day. So that's a little bit about what we do. I think what makes us unique is that we are willing to put our money where our mouth is when it comes to the long-term stability of how we build assets with other people. So a little bit of democratization of equity of painting companies. Um, you got the pronunciation, pronunciation right on of Olif. It's a hard one to pronounce.

Awesome. I'm glad I nailed it. So I guess, you know, someone listening might be like hesitant and we kind of talked about this previously, like you gotta have people that are better than you to kind of get you to that next, that $10 million mark. It's hard to do it just by alone. But you know, even with that, someone might be hesitant to give away equity, thinking like, man, I've worked years, you know, I have 100% equity, I put so many years into this. They might have, you know, some concerns with giving away a part of their business, even if it is going to help them get to the next level. What would you say to that person that maybe like a painting business that's around $2 million, and revenue that is having trouble building that team infrastructure that we kind of talked about, how would you frame it for that person?

I'd say if you're like very concerned about that, don't do it and run a lifestyle business or get lucky and grow an organization. That is pretty rare to do. The reality is, I mean, very, very few companies get built off of one person's back. And whether you're bringing in an equity partner whether you're bringing in incentivized management team, it typically requires many skilled people to help grow and scale a company. But I'd say it's also, it's a personal choice and a personal preference. I'm not going to say that someone that's at a little $2 million, $3 million and thinks like, "Oh, I want to build a business that I could be passive in someday." I'm not going to say that they can't. I'm going to say you likely won't. And I personally would not bet on them doing it. But maybe they want to and they want to spend the time that requires. They're willing to take the risk and the stress and the quality of life that requires to get there. I would just say all 3 of those are a lot easier with partnerships. So I'm a big believer in partnerships. I do a lot of real estate transactions. All those I do with partners for those 3 reasons. I want to reduce the time that it takes to get where I want to go. I want to increase the likelihood that's going to work and I want to improve my quality of life along the way. But those are personal preferences and not everyone's built that way.

Mm-hmm. Yeah. So basically it sounds like you're trading off, you know, you might maybe super maybe be able to get it to $10 million on your own, but it's going to be a lot of learning, a lot more learning, a lot more time where you can kind of accelerate that process by getting folks that kind of know done it before, know what you're trying to accomplish, and are on the same page, they might be able to accelerate that a lot more for you to help you get there. The trade-off being that you're sacrificing a part of the pie, but the—

you were likely never going to have in the first place. That's like the funny part. I'm going to give up 40% of my equity. First of all, no one's giving anything away. You got to purchase it at the market rate. It's like, well, you know, if we get to $10 million, then I only have 60% equity, whatever it may be. Like, you are not gonna build a $10 million company. What your likely career path is, is you're gonna get burnt out in 10 years. You're going to try and level up to the next thing. You're gonna get your head smacked against the wall and you're gonna decide, ouch, that hurt. I don't wanna do that again. I like where I'm at. It's comfortable. And you either coast on that lifestyle business and then sell your equipment or find a sucker to come buy it, and then they're going to buy a job, but realize that they can't do what you did. It's going to crash and burn. So hopefully you got your money up front. Uh, those are like the typical ways that these things sunset, right? The alternative path is, can you build something that is going to outlast you where if you want, you could choose to be a shareholder and not the driver of this organization? And that just requires a lot of complexity that you don't see in this industry.

Mm-hmm. Yeah. So it's basically, you know, increasing the— if you can increase the, the pie to a level that you would never get it to, yeah, you have a smaller percentage of that pie, but that slice is way bigger than what you would have.

That's the fundamental concept of partnerships, right, is you would want to partner for a benefit. And there are a couple benefits. There's collapsing time, there's increasing the profitability, And then improving your quality of life. If you don't achieve those 3 things, I would not encourage you to partner with anyone, whether it's a key person in your organization, whether it's a holding company, whether it's a painting company down the street. Those are the 3 metrics you should be looking for when you start to think about these strategic partnerships.

Yeah.

I would just say it's very, very rare in painting for any partnerships to exist, right? Because painting is the Wild West. There's a lot of egos involved. And, uh, you know, it's pretty rare that we partner with a company, right? We have 14 companies we're partnering with right now. We say no to more than we say yes to, right? Even after we go through the due diligence, and by the time we end up meeting them, there's usually some kind of a, I don't really want to yoke up with that person for a couple decades. So it's just a rare thing. It's a rare thing in the painting industry to attract the type of business-minded people to where this is not a major hurdle. I say most, most people who are business-minded, this makes a lot of sense. Uh, but the ego-driven individual, this is a pretty hard pill to swallow, right? It's a pretty big hurdle mentally to get over. And that's the state of our industry. This industry is not populated by business owners, it's populated by painters, right? And hopefully— I don't think it'll stay that way forever. I think if we prove out the model of there is equity to be built and democratized in these painting companies that that will attract top-level business talent. But right now this industry does not attract top-level business talent. It attracts painters, it attracts people who got a taste of painting in college, and sometimes it works, most of the time it doesn't. And that's kind of where the metrics, you know, anecdotally that's where it is, but that's also where the metrics would show you, the numbers would show you we're at.

Yeah. And it kind of goes back to what you were saying before, attracting talent early on, like, so you're at a certain level, uh, you're doing $2 million and you're having trouble attracting that talent, um, and you had that, that kind of pitch that you were— that, that vision that you were pitching to your, your team that you brought on, and you're basically saying, hey, this is the sneaky way to, uh, to make a lot of money is get involved in the trades. The, the rest of the world doesn't quite know about this. Yet. And, um, so it's kind of that same idea here with Aleph Holdings, is kind of professionalizing it, um, in a way, doing things that we, we see in other industries. Obviously equity firms do this, um, you know, buy other companies and, and help them scale to the next level. So you're just really just applying it to the painting industry, uh, specifically.

Fundamentally is, can we turn these things into stable passive assets. Most painting companies are lifestyle businesses, which like I said before, is an amazing, great thing, right? It's a God bless America type of deal. But can we turn these into stable assets that the ownership group has the opportunity to be passive in if they want to? If the founder wants to be involved in the company and stay in the company forever, that's great. But how do we improve it so it's actually— if we're gonna have equity in something, I personally don't want ownership of a painting company that depends on Johnny showing up every day. 'Cause that's the reality of almost every company is if Johnny stops showing up, there are no profits gonna be returned, right? Johnny, the founder, has to continue to show up every single day. That is a job, right? But if you can turn into a stable asset that has the opportunity to be passive, that's the golden prize, right? That's the goose and the egg.

[Speaker:ROBERT_LEONARD] What do you think a reasonable passive income percentage would be for a business owner that is completely passive, they are not active in the businesses at all, they're just literally receiving the checks. What's, what's a reasonable name?

I think you're probably north of $8 million, uh, to start to get into that where you can have a true management team in place that requires you to be completely passive. And so let's just— if you're $8 million, let's say you're netting 15%, so $1.2 million. And then let's say you are, uh, let's just say a 50-50% owner in that, so you're making a $600K distribution at the end of the year. That's probably how the math— that's how the math would play out on something simple like that.

That's not too bad. $600,000 for sitting at home.

So if you're completely passive, you may need an operating partner, so someone to share that load. So maybe you're at 40% or even as low as 33%. But that's the value of ownership when you build an asset, right? Is you get these distributions. And that's kind of like why people should be in this industry, you would think, is Not to earn a wage painting or being a sales rep or being a project manager, or even you don't build a company to be the president of the company. I think you should build a company to own it. And that's the return of the distributions that you can get. And these painting companies are, they're phenomenal cash returns. The cash-on-cash returns you get out of them, it's hard. You're not even seeing that in real estate, multifamily real estate nonetheless. So they're great assets to hold. They just require a lot of know-how and a lot of management. Like I said, it's, it's the most fun you'll have is when you draw on the whiteboard how it's all gonna work out. That's called uninformed optimism. That's what makes the world go round. So it's a great thing, but requires a lot of leadership to infuse the culture and a lot of management to drive performance. And none of those things are passive, so it requires hard work.

Mm-hmm. Yeah, it's definitely, uh, Sounds easy when you say it, but it is, it is challenging. Shifting gears a little bit, you're also into ultra endurance races. I think you did like a 100-mile or something ridiculous. How does, how does that experience or those experiences translate into your business ethos?

Sure. So I've got a lot more time on my hands these days, so I got into The gateway drug was an Ironman. So that was like the gateway drug into the ultra endurance community. And then I did a 100-mile race, about to do 100-mile, another 100-miler coming up here, and then signed up for the, the 200 around Lake Tahoe next year in June. Um, I mean, there are a lot of things I could tell you. I'd say like our, our core values are engaged, accountable, exceptional, grateful. We kind of view the year as a race, right? So in the first quarter, you need to get. Generally in shape, and that's called getting engaged into your role, right? Then you need to get accountable in Q2. Accountable is now you're like on a plan, you're following the plan, and you are on it, right? Then you do— you want to get engaged so you can become accountable. You want to become accountable so you can get exceptional. Is this sort of my exceptional? Exceptional is your diet's dialed in, you're getting the proper sleep each night, you're doing the stretching, the foam rolling, the sauna, the Theragun, the cold tub. And that's how you become exceptional. And you sprint to the finish with an ethos of gratefulness. That's Q4 in our company. We also follow the seasonality of being the northern half of America. Yeah, the engaged, accountable, exceptional, grateful. It's kind of how a race is run. Man, there's a lot of things I could talk about with endurance sports that I would love to say that they translate to the painting company, but I'd be making a lot of it up and it would sound cool, but I don't know if it fully follows through.

Well, that was a good tie-in because those are your core values, right? Engaged, accountable, accept from the Traction VTO.

Yeah.

Yeah. Okay. And that, that's nice how you tied that into your, your preparation for ultra endurance races.

Yeah.

But yeah. Uh, and I'm, I'm sure those, those values, uh, cuz I know in Traction, core values, yeah. I know some people probably pay it lip service, but if you actually really employ it, um, it, it is super important. It seems maybe less important with, if you have a smaller business, but that might be the secret sauce in attracting great people too, right?

It's like this unsaid, un— it's kind of like if in the world of magnets, like, I don't even— I don't— I personally don't understand how magnets work, right? So somebody has a magnet, it affects these things you can't quite see, but there is an effect. It's kind of like leadership, authenticity, uh, the belief in— I guess the alignment between your belief and actions. Those are things that, like, not quite sure how they affect other things, but they do affect people and the people that are around you. Um, I would also say, as you get to be a large organization, you're no longer driving off of individual grit, right? So when you're scaling, or you're like first growing, you're founding, you're scaling, you got your onesie twosie, how hard you work, or how hard Johnny works, or how hard Susie works, has a big impact on the organization, right? As you grow and scale, how hard and gritty people are, you keep You can't hire a ton of those people. They're hard to find. You want, you want B players that are turned into A players through the operations of the organization. And I'd just say with, you know, in training for these ultra endurance events, none of, none of the individual workouts are like amazing, right? But they stack over time. And it's really what can you do consistently when you're training for something like that, that compounds on itself. Same thing with an organization. What can, the mass of people consistently execute on, that's gonna have power of a compounding effect.

Mm-hmm. Yeah. Now my understanding is, and you might have already shared some of this already, but do you have like, I believe you have a current thesis for how to improve the painting industry.

Sure. Yeah.

Can you tell me about that?

So I can say these things now. I used to be the chair of the PCA and I had to be a little PC in what I could talk about. But I think, so there's a big, I think it's both. I'm gonna say something controversial. I'll say it's both. There's this idea that we can improve the business professionalism of the current cohort that are running painting companies. And I think that is not the solution. I think that is part of a solution potentially. This idea that we can take these people who run painting companies today and improve their professionality and give 'em the tools and show 'em how to job cost and how to estimate properly and maybe competency models and and compensation models, and that will raise the tide a little bit. I think the true way that this industry professionalizes is by attracting top-level business talent into an industry that typically doesn't attract it. I think the way that you do that is prove out the harvesting of equity so you can build these companies. And the way that I'll kind of dovetail this with an example would be farming used to be sweat, grit, hard work, Millennials today would never want to farm like we did back in the day. That sounds the worst. But eventually farming professionalized and it started to grow and people found out that you can get great returns on capital and make these investments in farming. And now it's not a mom-and-pop organization anymore. It's mostly driven by the insurance industry and machinery and all these different things. Same thing with breweries. Breweries, You know who start breweries? People like to drink. Who starts painting companies? People that like to paint. Now, the people that start breweries are MBA students, people who graduate with MBA degrees. The reason is that it has been proven out that you can harvest the equity in breweries by these acquisitions by Budweiser and Coors or whatever these organizations are. I don't know the true company holdings names. Once you start to prove out that model where you can democratize and harvest the equity, in an entity that attracts the top-level talent, uh, of this nation, we call it. And right now, it's— the top-level talent does not want to run a painting company. It looks like— it looks like terrible. There's not many good role models in it. The odds are stacked against you. Uh, it's hard work. The clients are mean. The crews are mean. There's not much profitability. You're locked into a job for a long time. You know, the odds are you're going to grow up grumpy, alcoholic, and divorced. That's what most of the industry looks like 30 years into it. That's not very inspiring when you're trying to attract business talent into the industry. So my ethos is you prove out the model. It's part of what we're trying to push with Alt Holdings of scaling these businesses into something that's stable, that is passive, where the equity can be harvested. We prefer the holdings route. That's why we're called Alt Holdings, not Alt Flippings, because they're great assets. Once you start to prove that out, I think it attracts a little talent. But I'll extend an olive branch and say it's probably a little bit of both. Keep coaching who run their own painting business, uh, but also I think it's important that we work hard to attract top-level talent.

Yeah, I think that's— that makes sense. If there's— if there's profit to be had, it's going to attract more people and they're going to be more talented. Um, so it makes sense.

To me, and the, and the more prevalent the experience of a professionalized business is, the more the consumers will begin to kind of observe that gap and request and demand it, which will increase prices. And there are some challenges that we have in painting. Um, I'll just speak like, speak to, this is what we saw in plumbing, HVAC, electric, which is the reason that those are professionalized so well is because consumers are driving that request. Why are consumers driving that request? Because there's a real tangible gap between a Chuck in a Truck and an organization. Those license trades are incredibly important when it comes to the emergency, the urgency. If you have a plumbing issue, that is a high, very sensitive timeline. You don't want a Chuck in a Truck who's not answering their phone. You want an organization where Susie always answers the phone. You wanna be able to schedule this now and you're gonna pay $100, $250 an hour for that service.

Mm-hmm.

You also want it done right because the challenge of a misinstalled plumbing apparatus is very painful, right? Those are two things that are challenging in painting because the urgency of painting, typically not an emergency unless you have an event like a graduation, but usually, you know, the length of the distribution curve of the timeline of when the painting project could get done is quite fat, right? It's not a narrow-scale one like in most licensed trades. And then the cost of installation, there's a cost to it, but it's not like plumbing or electric. So those are the challenges we face as an industry and having consumers drive that professionalization. But there's still a general observable gap, and the more that becomes visible, the more people— it's kind of, it's a one way to create demand is to show the end product, and we can start to show that because more visible becomes an expectation. That hopefully starts to increase the differentiation there.

Mm-hmm. Okay. Awesome. Well, Jason, you've been super gracious with your time. I really appreciate you joining me today. I had a lot of insights that I think folks could take away and start to think about for their own businesses. As we wrap up, is there a way that folks can hear more from you or a way—

You can find me on social media. I've been doing a little silly podcast called Paintbrush and a Dream. Um, if you wanna waste some time, listen to it, feel free. Uh, it's mostly me having fun, so if you don't like it, I don't care. But Paintbrush and a Dream, or just find me on social media at Jason Paris.

Awesome. Thanks again, Jason. Uh, super awesome for you to, to join the podcast and, uh, look forward to talking to you again.

Cool. Thanks, DH. See you later.

All right. Take it easy.