#126 - Plumbing Dreams, Million Dollar Goals: How to Grow Your Home Service Business

I'm John Wilson. Welcome to Owned and Operated. Twice a week we talk about home service businesses, and if you're a home service entrepreneur, then this is gonna be the show for you. We talk about our own business in residential plumbing, HVAC, and electric, and we also talk about business models that we just find interesting. Let's get into it. Thanks for checking out Owned and Operated. Wherever it is that you listen to the show, if you could take a second and give us a five-star review, it helps other people find our stuff on the internet.

Welcome back to Owned and Operated. See, I like it better when I do it with your hosts, John Wilson, John the plumber.

Wilson, you know when I was growing up, my they call you that. My mom, like she would like make up bedtime stories. She's a great mom, is a great mom. And the bedtime stories that I love the most was this character named Johnny Down the Drain. So years later, years later, the irony, the irony. I am now. One of my favorite departments is drains.

Well, look at that programming and at its finest.

That's right. I've met Johnny down the drain. Sweet lady. Yep. What's going on, dude?

So I have a question for you. So this, this kills me. I'm telling you right now. And I mean, I've talked about on Twitter. Do you think that you're thinking too small sometimes, or is that even a thing? That's my question for the day from a personal standpoint, and then I'll explain what I mean. I mean, you got pretty big goals though.

I mean, sometimes I still think I am. $100 million is a big fancy number, but Like the reality of my life is that that number is very achievable. Like that's only 4 times bigger than we are. Like if I was saying $100 million and I was doing a million, that would be a lot, but I'm saying $100 million and we're 26. So, um, do you move the— I don't know.

Like, do you think at some point you move the goalpost and then try to go—

Oh, 100%. Yeah.

Uh, $500 million? plumbing HVAC, something like that? Yeah.

I mean, I don't know. Like we just talked to Tommy Mello on the show. Yeah. And, um, I think he, I'm gonna, I'm going to attempt to avoid being cheesy.

No guru here. No.

Yeah. I'm gonna try. That said, I do think it can be easier to think 10 times instead of 2 times, or 5 times instead of 2 times. So, because I think it's like, how do I grow 8% a year is more challenging for me than how do I grow 40% or 100% or whatever it is, because I think it opens up I think it opens it up. Does that make sense to you?

Yeah, that does. So that's my curiosity. And that's kind of where I was going with this is a lot of times I feel like I'm thinking too small on the day-to-day. And I wonder, and you phrased it—

Well, you're Lake House Jack. You've already said that.

I know. But my point is, and Twitter's hard for this, I think. Twitter is actually, it has its great side, But the terrible side to Twitter is you see all the wins from people like, I'm just throwing this guy out there, awesome guy, no problems with him, mobile home park, MHP guy. And I think he's my age. He has a $100 million portfolio of mobile home parks.

Yeah.

And he's out there screwing around and having a good time. And sometimes I think, Is this path, because I'm thinking too small, harder? If I were to go out and raise money, what Good Shepherd just raised $40 million for that, and then they spent $400,000 on a website domain. Would it be easier to go out and raise $20 million? And then, I mean, don't get me wrong, I know raising's hard. Everyone listening, that wasn't Jack saying raising's the easiest thing in the world. But so, but breaking down vans is also hard and like being, throwing ductwork at 9:00 PM.

Mm-hmm.

'Cause your installer quit and you gotta get the job done is also hard, just in a different way. And so my wondering is like, is thinking too small in like, hey, I'm only gonna grow my singular business to $100 million. Um, is there, is there a better way by thinking big? Like, I have connections where, right, one of my best things that I think I'm really good at is finding deals. Like, I find a lot of deals, some of them good, some of them not so good, but I find a lot of deals. And so, like, is the better route for me, would it be to go and, like, support a roll-up and then sell my business to the roll-up and then get to $20 million in gross revenue by being a support function Doing the backend stuff, which is what I'm good at, versus being a plumber or being a day-to-day ops guy. And I don't know what the answer is. And so that's why I was curious to see, am I being an idiot in thinking that? And I think sometimes, yeah, I think the grass isn't greener, but I do want to know what you think about that long rambling diatribe. Yeah.

I mean, I, I don't have a big opinion on raising. Uh, I've never done it. I don't know what seating control would look like. I think that I would struggle. Um, so I don't feel like I'm a good, like, conversationalist for that part of it. I do think this is like a choose your— it's a choose your hard.

Um, yeah.

And like some, yeah, growing a business, raising's hard, staying small's hard, like everything's hard. Um, so it's like, do you think though, do you want—

Do you think though that thinking too small is harder though?

Yeah, 100%. Yes. Yeah. Because like, um, I was talking, I was talking about this with my wife. We had a spontaneous quit last week, which was just like super weird. And I remember, like, the reason we started growing the business for 2 reasons. And this was like, you know, 25-year-old John. We started growing the business for 2 reasons. Like, one, we had 2 owners, like my dad and I were both owners, and we had to be able to pay us both. And 2, the departments only had like one person. And we didn't know how to recruit. And that made me feel at risk. Like, I don't like— I'm paranoid, right? Like, I'm, I am in a permanent state of paranoia and I always have been. It's how I work. Like, I'm the guy that walks into an arena, finds his exits, and looks for the active shooter. Like, that is me for like my whole adult life. So small business ownership actually ended up suiting me pretty well because I am always looking for the next thing that's going to punch me in the face. And that could be a recession, that could be whatever. I have tended to find we're able to react faster and protect our downside because I'm paranoid. So 25-year-old John, we had, you know, like 2 or 3 techs or like 4 techs, and there was only one guy that could do HVAC. And that was like terrifying to me because I was like, what happens if this one guy leaves? And I have no way of recovering that side of the business because I don't know how to do it.

Mm-hmm.

And the only insulation that I could find is growing the business. Like, that was it. You just get more of them. Okay, well, to get more of them, you need more leads, then you need more installers, then you need, you know, all this stuff. Now, you know, 130 people later, here we are. But we had this weird quit last week, and my wife and I were talking about it. And it was a department that was still small. That department only has 2 people. So it was funny because we had this like moment where she was like, how do you protect yourself from that happening again? I'm like, the way that I've done it for 8 years.

Yeah.

Is we grow the business so that way that department has depth and it's more than just 1 person or 2 people and it's 10 people or 5 people or whatever it is that requires for that department to have depth. Um, so I think That, you know, everyone's heard, like, Rich has a great story and you have a great story of like, you buy this business that has like 2 people and then like the next day somebody quits and like you are in the field. Like, that sounds awful. And I think that, that—

It is.

I would, my problems today are very challenging. Um, I feel challenged every day. But I really am grateful for the challenges that I get to take on. Because I, because we grew, we thought bigger, we took on more, like, I'm bigger than I ever thought I would be. Like, I thought $10 million was gonna be the cap for us. And we passed that like 3 years ago. And now I see $100 million is the cap. And I know that $100 million isn't the cap of what we could do. $100 million is just like my next step. Um, And I think, yeah, just continuing to think bigger has helped us a lot and protected our downside. And thinking small sucks. I think you just end up— if you think small, you stay small. I don't know.

Yeah. So I mean, yeah, no, I mean, that's a very good point. And I think the problem right now is we are small. We are that $3 million to $5 million company. And so inevitably, we are small. And so that 100 million mark, even the 20 million mark is so far off that the wonder is like, are you thinking big enough to ease the pain in a different way? So I don't know if it's grass is greener or what it is. Maybe it's just fantasy land. I know I know it can be hard sometimes, but I mean, like I said, we made our first year's total gross revenue in 4 months this year. So growth is great. I'm not complaining. I just wonder sometimes if I'm going too small. And so that was the question.

Yeah. I think the way I think about this, I had this—

Have you ever considered a roll-up?

Yeah. So we've thought about we've thought about growth equity, which is like we take on investor money. I would either keep 50% or 51%. And then we would like sell a portion to get cash to continue to grow. So growth equity is like just its own version of PE. We've obviously not done that. But thought about it. Great example.

And what I said, great example, like this is exactly what I mean. Like, have you ever considered—

Yeah, we've, we've thought about that. A lot. Ultimately haven't done it for a number of reasons. One, I didn't feel like we found the right partner. Like, just bringing money to the table isn't enough. Because if you really start, like, let's flush this out for a second.

Yeah.

So like, we'll give my example, but like, it can work for you too. So I decide that I'm gonna raise $10 million. And capital is a constraint, but it's not the only constraint. And I think what we see— I'll get back to my example, but I think what we see in these big PE firms is capital's not a constraint, but operationally, many of them are a joke. But capital's not a constraint. But like, like, my point is money doesn't solve it all. And like, you still have to execute, like you still have to run a good business. And I think that in the, in the act of running a good business, capital becomes a non-constraint. Like, if you're running a home service business properly, then you should be running a negative networking capital business, which means that your cash is increasing faster than your business is growing. Like, that's how this should work. That's how the companies that run at $100 million have gotten there. Yeah. It's because they ran good businesses with healthy growth, gross margins. They watched their costs and they reinvested a lot and they had negative net working capital. They didn't have AR.

Mm-hmm.

That's how they got there. So like, what happens if I go raise this $10 million and capital becomes less of a constraint? I don't know. I really don't know what I would do with $10 million. And many of the problems that I'm facing today would not be immediately solved by raising money. Capital is definitely a constraint for us, no doubt. We don't have— it's me, we have to run a good business. But we also have talent constraints, we have supplier constraints, We have market constraints, we have competitor constraints, there's like so many different constraints. And capital is just like one of 10. So I think if I think just like be open that, like, raising is not the only option. And it only solves one problem to me, like it may solve for others. But that's like, who's your partner? Like, who are you partnering with?

Yeah.

And how do they help you solve your other constraints? Do they bring talent? Do they bring expertise?

Do they bring leadership? If we're fleshing it out, right? So smaller companies where, where, and what, where I'm, I'm actually coming from is like what you're talking about is, is the key. I mean, you've hit the nail on the head is like our biggest constraints are capital. Yeah. Which, I mean, your small company trying like 100% rapid growth, 100% year over year growth has a huge capital constraint on a business because you're, you're bloating to make it Um, to, to prepare for what's next. And so it's very hard to bloat and restrict and all this kind of stuff. Um, and we're in the same boat. Yeah, no, I know.

You know, we're 70% up year over year and cash is tight because growth consumes cash.

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Yeah.

admittedly, a strong suit for me. I mean, I'm decent on the P&L and numbers. I passed Calculus 1, 2, 3, and 4. However, that being said, that portion is just not a strength for me. Going into recruiting and having a full-time HR recruiter, which that one I'm less worried about because it's coming soon. If we grow a little bit more, I can afford it, but that's the bloat and then it goes back onto the capital side. So we could—

Yep.

Remove that constraint immediately with something like that, thinking bigger, going and raising, and then really blowing up a lot of that. Because none of our constraint, like yourself, comes from lead generation. Like, we get plenty of leads. Like, we get too many leads. I turned off LSA. I removed or lowered the, um, yeah, what I'm willing to pay on LSA today because we get too many leads. We're overbooked. We have too much work.

Yeah.

Recruiting's hard in this area, but we're not able to offer benefits because we have a capital constraint. And so it just ebbs and flows. And so I think a lot of my problems are surrounded by that singular capital constraint. And I wonder if you go in and you get to work with it.

I don't know that they do because back to my example of if I got $10 million today, what would I realistically do with it? What would it change in the way that we operate? The business is already running at 70% year-over-year growth. So like, I'm not going to force that to be more because we're, you know, that'd be a lot.

But like, let's play this out. Like, just from a, this kind of a fun thought process is like, if you had $10 million towards your business tomorrow, what would be the first thing that you would do? Like, actually, like, if you sold a portion of your business for $10 million, what would you do with it?

I don't think that most of my day-to-day behaviors would change under $20 million liquid. Because I had this conversation last week and when I was talking to people like—

With me?

Pardon?

Who'd you have that conversation with? Did you say me? I was like, I don't remember this.

Oh, okay.

It's like, damn.

No, but if it was like $5 million, obviously that's a lot of money, but it really wouldn't move the needle for us. Like, we would pay off some debt, I guess. Like, I don't know, it wouldn't be that interesting.

You don't have a cash flow problem?

Everything that we want to do is like, we're already doing it. Like everything that we have the capacity to do, we're already doing. So like, maybe we're doing it lighter. So we could like push on my projects more. But I also think I have a capacity constraint. So I can't invest more in lead flow because I have a capacity constraint.

But could you hire more recruiters?

Yeah, but I could do that now. So it's sort of like, and maybe I'm not thinking big enough in this case, but I also don't think that for us, $10 million isn't enough to make a real difference. It would have to be— I would start really blowing the roof off if it was like $20 million cash, then I'd be like, okay, Like, sure, we can do something really interesting with that that wouldn't put the business at harm. $10 million is not enough to do that.

Well, then for the thought experiment, let's do $20 million. Like, my guess, just outside in, first thing you do is you try to increase capacity, you go on a hiring spree, get, you know, first thing, increase capacity significantly.

No, we would hire the C-level talent that we need at $50 million, and we'd bring them in at our current size.

Like, first, that's a good point.

Because like, it is hardly any use to build these teams if the person that's running them isn't in the house yet, who actually knows how to build them and run them. Like, I've learned that lesson like 20 times now. Like, if you want to build something new, you go hire somebody that's really talented.

Do you have a CFO?

No.

So I mean, like, that's a, that's a great $10 million, right, right out the gate, you should go get a really good CFO who's I don't know if that's the area you're lacking though.

Yeah, but like, we don't, we don't have enough. Like a CFO is, you need enough juice there for them to actually like be worth it. Like they could help you with systems and stuff. But like, I actually don't even know that we'd be able to do really well with that. I think a strong CMO coming in would be really helpful. I think a strong sales executive would be really helpful. A strong training and development executive would be very helpful. You know, between the 3 of those, that's, I just spent $600 grand a year. And it would be fun to take those swings.

Yeah.

So it'd be mainly focused on executives first, and that would probably consume $1 million to $1.2 million for that first year of like payroll that's not really fully loaded yet. And then after that, we could start building, but I still think it takes time. It's not like a switch.

I believe that.

No, it would take me a few years to run through $20 million.

Yeah. I mean, then there's a training process even with C-level executives. You have to train them in the business, your business. I mean, don't get me wrong, the point of them coming in is with that level of knowledge, but still, they need to get up to date on what your business looks like and how they can help it. Um, yeah, my, that's interesting. I really like that though. Like, that's a good point. Like, I really do like that. That answer is like, my first thing that you would do is to put a seed suite team in that could help you grow so that when you have that cash to grow, then you can continue to increase capacity side, not just dump into capacity and have no one to manage it. Like, that makes sense.

Yeah. I mean, the, like the biggest barrier in growing a business, and it's becoming more and more apparent every freaking day, is like, who's the talent? Like, if somebody handed you $5 million today, like, the constraint that you would have is an expertise constraint. Like, you don't personally have the expertise to make— and just like I don't, like, I also have that constraint. But like, you don't have the expert— you've never taken a home service business to whatever they're trying to get.

Correct.

Just like I haven't either. Um, so I like— that still has to be solved. So I, I think for us, we don't see a raise in the near future because I believe that a capital constraint ends up being good. Like, I think it is a net good for the business that we have a capital constraint. I think it forces us to be frugal. I think it forces us to hire effectively. We have to use our resources sparingly. And I think all of those things matter now because at $100 million, if there is a capital partner, like those muscles that we learned on the way up will be even more impactful when we're there, whereas it would be a much harder boat to turn. If capital wasn't a constraint.

That makes sense. You built the systems in place so that when you do run into the actual problems again, which is why I think that people in the PE firm have actually had a lot of issues running. I mean, you hear the horror stories of them running HVAC and plumbing companies, and at the end of the day, it's because they don't have the systems in place for the growth that they're trying to—

Totally. Yeah, totally.

Trying to enact.

Yeah, I think the— yeah, this is just sort of— you could run this same thought experiment with any other constraint in your business. And I think everybody wants to run it with money because that's always the one that we feel the most. But like, what happens if there's a lead flow constraint, or there's an expertise constraint, or a leadership constraint, or a capacity constraint? Like, it is all solvable. And in the process of solving it, you're unlocking the next barrier to your next step. I think solving it forces you to build a good business. And if your business doesn't have a path to $100 million without raising, not counting VC, is that a business that you want to run? Do the unit economics make sense?

Let me be abundantly clear. If somebody wants to come and give me $10 million, Jon, I'm going to say yes. I'm just saying.

All right.

I mean, the answer is—

If someone's listening, there's a link to Jack's email. Yeah.

Hit me up, HVAC Jack on Twitter. Let's talk.

But to be— I think with a partner, they have to bring more than cash. Because like, this is just back to the constraint problem. Yeah. Like, I used to think that cash was enough because I had the expertise, and now I know that I don't have the expertise and I also don't have the cash. So like, you got to bring more to the table.

Yeah.

So you have to be able to like, how do you help me unlock and how do you resolve like these 2 or 3 constraints? How do you resolve the executive constraint?

And we're not sponsored by them, but I fully agree. And so we're not sponsored by these guys. I'm going to shout them out.

Leap.

Partners, L-E-A-P Partners. Great group of guys. They've done some roll-ups in the alarm space industry before.

Okay.

And they've sold and the whole 9 yards. And now they're doing HVAC plumbing and they're located in Nashville. So I've met with them a few times just to talk shop. Really nice guy, John. And so, yeah, though, like what they bring to the table is they bring like all your marketing, all your HR, all your accounting, And they take all that constraint and then they give you obviously the financial portion, and then you get purchasing power, trucks, purchasing power. So they do remove a lot of it. So I know there's people out there that are working to kind of fix that back in.

No, there are. Chris Hoffman would be a good example of— he reduces— I think the way his deal structure works is it looks like growth equity. And maybe, I mean, talk to him. But, um, he would— they reduce expertise constraint a ton. They reduce lead flow because they bring that. They—

I was just gonna say, there's a lot going on there.

So that would be a good partner.

Yeah, I mean, Chris Hoffman, I have seen firsthand as he moved into our market, and then moved into adjacent market and has absolutely been crushing it. Like they have that lead flow constraint portion on lock, like they are They went against, I guess not go against, but they moved in similar times.

Well, Nashville's competitive. They have Coolray.

Coolray. So they moved in at the same time as Coolray and Coolray has dumping money. They've been dumping money in this market. And in my opinion, I haven't seen the actual numbers on either book.

Yeah, they didn't do well.

They didn't do well. And Hoffman Brothers did. So it's just incredible. The amount of lead flow that Chris's team has been able to do at Hoffman is absolutely phenomenal.

100%.

But yeah, something like that. I'd be open to something like that. But my initial question was more so like, too small, not necessarily going and selling out, but just like, how do you put that flame behind And is it an idea constraint? Is it your mind constraint that I'm stuck thinking too small?

Yeah, maybe. I think, yeah, there's a lot, but capital doesn't solve it all. Because then it's like, what do you do once you get that money and you have no clue how to spend it? Because you've never— this is a brand new playbook that you're still figuring out.

Lamborghinis and Bitcoin. That's how you spend your money. Give me that $10 million, buddy. No, I'm kidding.

Good discussion.

Yeah, that's fun.

Yeah, I appreciated diving into it. If you liked what you heard, give us a five-star wherever it is that you listen to podcasts, and make sure you check out ownedandoperated.com where we're talking workshops, we're dropping newsletters, we're doing all the good stuff. Thanks for tuning in. Thanks for tuning in to Owned and Operated, the podcast for home service entrepreneurs. If you enjoyed today's episode, please hit the like button and subscribe to the. Podcast. If you have any questions or topics you'd like us to cover, feel free to reach out. You can find me on Twitter at @WilsonCompanies. I'll see you next time.