#218 Why $20M Doesn’t Mean You’ve Made It

Today on the show, Jack and I, and I won the argument, talked about different sizes of company, what leadership looks like, and how to build a senior leadership team for a $20, $30, $40 million business. So enjoy the episode. It was a good discussion and I was right.

Always.

Enjoy the episode.

It was great. Always, John.

$25 million is not what I thought it was.

Yeah.

When we were— when I was, you know, growing and all this stuff, you know, $20 million to me was like, oh my God. Like, I've made this joke before.

Yeah.

I thought at $20 million we would have it all figured out. And $20 million is still a fucking small business. Like, it's a small business. Yeah, it is personality driven. If you're HVAC alone, I was just going to mention that might only be 50, 60 people.

Yeah.

Like $300,000 to $350,000 revenue per employee is really common in HVAC. Like in plumbing, that's probably 100.

I think if you were to generally look up though, average numbers of employees at, at any business at any given time, I think if you're running a 60-person business and employing 60 people, that's still a pretty decent-sized business on the average. I mean, you have Amazon at one end that employs hundreds of thousands, but I think there's also a lot of—

60 employees is really small. Like, so if I'm looking at like sophistication of the business, I agree.

Yeah.

Like 50 employees, you might not even have an HR person yet. Like your accounting department is probably one person.

Yeah.

You just started having to deal with FMLA and you're not even having to deal with the actual shit that starts to happen later on as a business. Yeah. Legal's not a thing yet. Contracts are barely in existence. Like $20 million is a small business. Like it's small.

I don't know.

I mean, like the—

if you were— it's a lot of dollars. Like if I had $20 million laying in my personal checking, I'd be like, hey, that's cool.

I won't disagree with you on parts of it. I think that inherently, right, if you were to look at all HVAC companies and pick out a mean, median, and mode, going back to 6th grade, yeah, the median company is much less than $20 million.

I'm not saying that for the industry they're that small.

Yeah.

Or they're— sorry, they're not big. I'm saying like as a The quote I've been using is just about any asshole can get a business to $20 million. Because I really think that they can. After seeing, I've seen into dozens of these things now, they're not that complicated. 50, 60 employees, we have 160. So to me, I'm looking at a 60-employee team and I'm like, oh my God, it's a walk in the fucking park.

Yeah.

You have probably 2 managers, a couple people in the call center. It's just not Is nowhere near the level of sophistication that—

I agree.

I think from a sophistication level, it's right at that turning point. So my mentality, and this is probably the same mentality that you came into it and were looking back, you go, oh, I was wrong. Or maybe that was the goal. And once you passed it, you went, oh, it really is small. But my mentality currently is that the $20 million mark is where you can actually start hiring C-suite team and it starts to get easier. So you rock around, I don't think $20 million, you could put a A CFO in place, a CMO? Nope.

Nope.

Too small.

Too small.

Yeah.

It's 60 people. Yeah. Or like 80 people at the max.

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It's not that many people.

And I think there's a differentiation, right? I will say I agree with you, but I do think that there's a differentiation between a 60-person HVAC-only company.

100%.

And like 3 plumbing or something like that.

Yeah.

2 $10 million HVAC and plumbing and then one, you know, $1 million electrical or some, some mix.

Because, because our revenue, like we've got drains, we have, Yeah. HVAC, plumbing, electrical restoration. Like our headcount to revenue looks different.

Yeah.

Than HVAC only. Like our headcount to revenue, I think we're at like $220 per employee.

Yeah.

$300-something per field person, but $220-something per employee.

Yeah. Which makes sense because like I was, I was salivating over buying a business the other day. I was like, yes, this is a good business, good name. Then I broke them up in the books and it's like, okay, this business really is mostly an HVAC company, like 60%. And then the other break was in plumbing and electrical.

Yeah.

But like a 2-man plumbing team, a 2-man electrical team.

Yeah.

Or like a 1-man plumbing team, 1-man electrical team. And when you break it down like that, this $3 million company really is a $2 million HVAC company. And they decided that they're gonna do too much with—

Yeah.

These other 2 things that are just gonna drive headaches. So yeah, you know, it's much—

Well, you know, there's— I've been talking with a lot of multi-location operators and I think I understand that, you know, this all started because I said $40 million like isn't that much. And I still roughly agree with that. I think it's mostly like headcount related. So, you know, take that for whatever you want. But I think $40 million is just not that much. If $40 million is like 200 employees, For for us, so that's so you know complicated business, but it you know yeah doubling down.

John is doubling down, doubling on forty million's not that much. Doubling down, doubling down.

I guess maybe it's double click. Maybe it's because it's within I like I can see it like forty million's next year for us. I'm like yeah, I love that much.

Um, maybe it's just me because I deal with, um, a lot of people who are in the smaller, you know, $3, $4 million, really trying to break that first $5 million mark. And you, and you remember, it's a grind. It really is a grind early on.

Yeah.

And so we look at these numbers like $10, $20 million, $40 million as like this holy grail of, oh, once I get there, it'll be better. But ironically, the thing that I've found out by working directly with you is that the problems are actually the same. Yeah. Like it's the same. You still have the same headcount issue. You still have the same cash flow issues. It's actually almost—

It doesn't go away.

Like almost worse.

Yeah.

I mean, because you missed by 20% at— if my goal is $150K and I missed by 20%, it's like, well, that's 2 units. Yeah, I got to sell 2 more units next month. Like I can make that up.

For us, it's 100 jobs.

Yeah, it's a lot. It's a lot of work. And that's almost scarier for me to a point to like I've idolized this position of $20 or $40 million. $20 million's been my idolization. I want $20 million by 2030. And so I can finally hire C-suite who can help me out. And you're here, you're just killing my dreams.

Well, you can't. Well, I think you could hire some people, but we're not even— a CFO is sometime in the next couple years, but a CFO needs enough money to do something with. That's sort of a core part of their job. And is our reporting tight? Is our accounting— there needs to be a lot of other stuff in place before a CFO can come in and actually do CFO-level shit.

Yeah.

If you just want someone to close the books, that's not a CFO, that's a controller. So just maybe know who you're hiring for. CMO, we're not even thinking about that.

Yeah.

Some people talk about it at $50 million. 210, 220 employees.

Yeah, I think it's more like essentially it's, it's really just, yeah, you don't have a CMO, but you're not handling the day-to-day marketing operations, correct?

Right.

You don't have a CFO, but you're not handling the day-to-day finance operations. And so when I say C-suite team, it's not necessarily like the title of a C-suite person. It's more so the idea of other people are handling, other people are handling departments. Where they're fully handling department and you as the owner are no longer doing the individual tasks.

You still own them. Like, to start to give perspective.

Agree, but it's a different ownership. No?

I sit functionally in the CMO, CFO, and CEO seats today. I am the functional CFO. Like, the roles, the tasks that a CFO, that if I went and hired one off market, would perform would be like 30% of my time.

Yeah.

So they would come take that and then hopefully do a lot more. But I'm sitting in that role, so we're not there yet.

Yeah.

I think I also probably thought that CFO was $20 million, but—

That sucks.

It's just not.

Yeah.

And half of the education was, what does a CFO really do?

Yeah.

Which, to be honest, I'm not 100% sure, because we see the terms fractional CFO a lot of times on—

Which I like, hot take, I think the fractional CFO is kind of dumb. Most of the time people just need— A controller.

Controller.

Yeah.

Yeah, a controller.

So— We just need a staff accountant, to be honest.

Yeah, yeah, exactly. I think, well, so I made that mistake too. Like, hey, I just needed someone to literally do my accounting.

Yeah.

Like, that's a staff accountant and maybe a senior staff accountant, definitely a controller at $10 million. And I was hiring fractionals expecting them to solve it. And it's like they couldn't do anything because I didn't have an accountant. Like, you literally need clean books For a CFO that you'd do anything.

Yeah.

So, but that's the same point. Like, you don't need a CMO, but I do need somebody to manage the people who are managing the LSA accounts, the PPC accounts, the ROI on all those. You need somebody in charge of strategy who can handle the strategy behind, hey, are we gonna do this or are we gonna spend it like this? And so I do think $20 million is that point where you can start making some really good hires and senior positions. Well, we built very real teams. Yeah.

We built very real teams. I think—

What does that mean, very real teams?

So I just did this episode with Brandon. Something that we've invested a ton of time and energy and dollars into is elevating or bringing in senior leaders, frontline leaders too, but I'm really focused on the senior leader portion of the team. And so When we're talking about real teams, I mean, I have teams now that are performing not just tactical tasks, but also strategic tasks with little to no supervision from me.

Mm-hmm.

So Jesse and I will have a conversation on something in marketing, and the impact is hopefully millions of revenue, $100,000 to $200,000 of cost investment. And we'll work through it. It was his idea. He brought it to me, we talked through it, his team executes on it. But all of our senior leaders are doing something like that. Sales to fulfillment, to inside operations, to marketing, to finance. So there's those 5 buckets of senior leaders, HR, 6. So everyone's working on similar level of strategic projects. It's no longer this tactical day-to-day stuff.

So this is a really, I think, important question. That for me. So at that point, right, you have these teams in place, you've done a good job. Jesse's talking to you.

Yeah.

Marketing's talking to you. HR's talking to you.

Yeah.

You're this kind of top position that's dealing with senior leaders. There's 6 of them, which sounds about right for headcount-wise and direct reports. Are you at a point though where you could replace yourself? Because, right, or more the better question, For my personal sake is at $20 million, were you at a point to be able to replace yourself?

No.

Effectively, no.

But I also, I also didn't see that as an option.

Yeah.

Today's break is brought to you by Owned and Operated Newsletter. Go to ownedandoperated.com and sign up for a twice weekly drop that we send to 40,000 contractors with actionable tips on marketing, hiring, and growing your business. Join the 40,000 other home service contractors already signed up and learning. Enjoy the rest of the episode. So something that's been recycling through my head a lot is when we had Michael Girdley on, it was like episode number 3 or 4.

Yeah.

And love him, he's a lot of fun. We're partners on HolcoConf. And in that episode, I remember it, he was sitting inside his software company, Dura. He had just hired a CEO, I don't remember that guy's name, and they had just crossed 200 employees. And he was sort of describing His day-to-day life, and his day-to-day life was—he was just like, "I don't really know what to do." Like there's which you—we've talked about this a lot. I'll get to.

Yeah, yeah.

But I really don't know what to do at 200 people. Every single thing that could be done inside a business tactically, hands-on something is being done by someone. Yeah. Like that is someone's job. Opening the mail is someone's job. Making coffees is someone's job. Everything is owned. There's no more floating tasks that the owner has to pick up with a bucket. And that happened for us recently.

Mm-hmm.

Where in total, 162 employees in Wilson, but in total we're at 182. There's a few other things in there. So 182 team members. We I there's nothing for me to catch anymore, and so I this is the point we talk about it a lot when owners cross three million dollars or they cost three million they're like well I'm kind of out of the day to day and what they mean by that is they're no longer turning wrenches yeah and they're like well what do I do so then they go buy a boat and a lake house or whatever I'm not going to go buy a boat hey yo but um but it's a similar like oh okay everything I have been doing is now functionally replaced. And a big part of why that happened, some of it's headcount. Obviously we hit it before Michael did for whatever reason, different industry, I don't know. But a lot of it was senior team, the senior leadership team. They are doing an incredible job, just a really incredible job, every single one of them. And they've all stepped up into real leaders. And I think that has made it so that I'm now sort of like, okay, strategically, tactically, there's nothing left for me to catch. If I don't come into work today, we're still going to do $150 grand of sales. Nothing will change on our P&L if I don't show up for the next week. I'm about to piss off for 2 weeks and nothing's going to change.

The vibe, the vibe is going to change.

The vibe will change.

The vibe will change.

There will be less high fives around the office. Which is good. That means we've built a team that's very capable of just running this ship. So yeah, I could replace myself or I could be like, what's the strategic thing I should be focusing on? So we've talked a lot about leadership and how it develops as the company grows. I'm in this new stage of leadership where I'm really focused on coaching the senior leaders.

Yeah.

Because if I don't show up for 2 weeks, it doesn't matter. Vibes would be off and that would be irresponsible. But like, if I wasn't on vacation, vacation's good rest. But if I just like pissed off for 2 weeks, like I know these small business owners are like $2 or $3 million and they just like go on like a 2-week bender. Like, yeah, yeah. So not me, but the senior leaders now, like they've taken on the brunt, the weight that I used to carry. So your question was, can you do that $20 million? And the answer is yes. I didn't.

Yeah.

And it was fully because our senior leaders just weren't there yet. I think if I had— it's one of those, I've done it once, I would do it differently now things where I'd like— I'm working on a project with some friends and it's growing fast and I'm approaching that like, oh, we're at $5 million now, we're hiring senior leaders today.

Yeah.

We're going to solve this.

Well, that was kind of the question, right?

Whereas, but that's because it doesn't matter. We have the cash flow and it's a different thing and I've done it. So now I just know the steps. Okay. Yeah. Okay, great. $5 million. We'll probably be at $10 million next year. Let's just hire a controller now. Let's eat that salary. But I could have never made that decision because I didn't know the steps 5 years ago.

You didn't know the steps, the position, what What the job actually looks like, what they're supposed to do.

Yeah.

Yeah, it's neat.

So you can do it at $20 million. If I was regrowing a new business today and I was going from 10 to 20, at 10, I would be hyper-focused on the leadership team and building them the way that we've done it now at 30.

Yeah, I was going to ask, do you think that would increase velocity or do you think that would slow velocity? Because a lot of times the worry is— well, a lot of times what actually happens is you're too small. or maybe at that $8 to $10 million.

Yeah.

They replace themself with a CEO or president or GM or whoever who has P&L responsibilities.

Yeah.

This person doesn't care that much. Yeah. Or they're not great at their job or they haven't been trained well. You know, like the myriad of things that could potentially happen. And then it slows velocity. They get fired within a year, owner's back in running it again. Do you think that there's a potential at some point, and what point is that, where you could continue with that velocity at the rate that it's at? Because my belief is that it doesn't happen without multiple good leadership team in place. You can't just change out the top and then hope it runs well. It's like, hey, you need kind of multiple people who all understand culture, understand the drive, have fit, have worked, and that is the $20 million mark. But I'm open to your take on that.

Yeah, I mean, I don't think it needs to be $20. So rolling through our leadership team, the most important investment that we've made in our team has been our leadership development program.

Mm-hmm.

And there's 2 tiers, and we just broke this down a ton with Brandon. One of the episodes aired, the other one I don't think has aired yet, but we went kind of deep on this where we cover the first 2 tiers of leadership. We do not cover the third, and that's a really big gap that we're going to try to resolve in the next year. So we have now a way to elevate frontline team members to leaders consistently. That's now a machine.

Yeah.

So it's no longer a Herculean push a boulder up. It's just like, okay, this is a process now. So I think that has made a lot of things easier because we have people who understand the business, the culture, the problems, the opportunities, being elevated into leadership positions. And it's like the best of us. Core value, these are amazing people bought into what we're doing, being elevated. It's awesome. And then, so half of our leadership team now at this point, half of our frontline leaders were promoted into that position from the field.

Which is crazy.

Yeah.

That's so incredible.

Half of our, or not even half, Every single one of our senior leaders was promoted into their position from lower in the company, some much lower. Someone—

That's like the stories of the guy who used to wash dishes and then now is the CEO at one point. It's always the inspirational—

Well, I've talked a lot about Allie on the show. Allie came in as a call taker. She's a director now. She's literally damn near top of the org chart. But so Jesse came in as marketing manager. He's director of marketing now. It started with just him, and now he has like 10 people reporting to him.

Yeah.

In his team. Paul came in in sales management, director of sales now, 60 people in his vertical. Lori came in as call center manager. She now has 30 people in her vertical. She has dispatch, call center, she has inside operations, which is like a lot. There's a lot going on there. So some people came in as managers, some people came in as individual contributors, but they've all been Promoted through there.

That's incredible.

So I think that can happen. If I was doing this again, what I would be focusing on, and I want to focus on, let's say Lori for a second, and we just did a great episode with her breaking out how to manage remote calls. I think that was a month ago. She's amazing. And if I was doing this again and I was at $10 million, I would be hiring amazing managers that I think could elevate to senior manager or director at some point.

Yeah.

Because that has been the win for us. Having a Jesse and a Lori and an Allie and a Brandon who have all gone through frontline leadership, they're directly managing the work being done, whether it's call taking or technicians or whatever, and then being able to continue to move them up through the organization and build teams to support excellent people, That has been the win. So at $10 million, I would like, if I came in and bought a $10 million company today and I had to replace the whole leadership team, I would just do it in one fell swoop. How can I place 6 people immediately? Because I feel like it would be solved by the time you hit $15 million. They would need a year to get their feet under them, but then they're good to go.

That's super interesting. That's actually a lot of really good information because we, like I said, we're trying to get there in the next year.

Yeah.

So we'll be crossing that and it's a lot of movement.

Yeah.

It's a lot of movement. And if you try to move them up from within, now is the time to start that procedure. I think it also—

Yeah. If you can get people that are bought in now, like we have some frontline leaders that are not yet, but within the next year, they're going to be ready for their vertical movement. So we have to continue creating opportunity for them. But I think being able to build teams under smart people, Has been the win.

Well, and I mean, from a cultural standpoint, from an upper mobility standpoint, is you want people who are high achievers, you want people who want to win. And those people are not going to stay somewhere where they're stagnating.

Maybe growth. Yeah.

There's no growth. And so creating the opportunity to do this—

Even outside of that, operationally, our hit rate for hiring an outside manager, our success rate is 30%. Yeah, like it's low.

Well, and because culturally they're coming into something they don't necessarily understand, no matter how—

We don't know them well, they don't know us, we don't know the team, they don't know the problems. Yeah, like it's, it's, it's probably 30% and that might even be generous. Like we've had a really tough time over the years placing outside managers in. Now we have had some success stories and they're doing great. Like in HVAC, we've got some great outside managers. Plumbing, we have one outside manager and they're doing amazing. But—

Just in general.

We've let go 7 in sort of the same timeline. Whereas our hit rate, our success rate for promotion is 100%. We have not fucked up a promotion ever for moving them up to manager. So from a Surety of success? Yeah, inside hires for sure.

Amazing. So what it sounds like to me, to recap, is $40 million is a tiny little business, super small, not a big deal. If you're below that, screw you, buddy. You don't know what you're doing.

I think it's probably better to put it in relation to headcount because I do struggle to see a business under 100 employees as that real, because you're still missing fundamental—

Systems.

Departments. I mean, you're literally missing entire departments. At 100 people, you don't have an HR department. You probably have some outsourced HR thing. You don't know how to handle HR at scale yet. You don't have a full marketing department. You maybe have a coordinator. Your accounting department is 1 or 2 people. It's just not filled in yet. It's not mature.

It's not a mature business. And with that, there is really great things that you can do early on though, $10 million, $20 million, is start to hire frontline leaders, start training them, getting them ready for division managers or director positions, sounds like, which is awesome.

Yeah. If doing it again, I would've hired senior leaders much earlier or people that I thought can be really talented senior leaders, I would've hired a controller at $8 million fucking dollars. This business that we have, it's working on, it's like $5 million this year. We're going to hire a controller this year just so it's done. I'm done. I'm done not having good financials.

Well, it's so important. And yeah, that's awesome. Sweet. So I mean, that's the basic, $4 million's not anything, But if you are $20 million or $10 million, you can start hiring those positions that make it a real business.

But I say it's not anything.

I just, I'm just condensing recap. Recap.

Yeah.

Make sure to like, subscribe, and let John know that he's, he still owes me one because like last week he was right about something and I just need you guys to absolutely tear him apart in the comments. Yeah. Please. Yeah. For me, for the little guy, take down the mayor.

Just like get to twenty.

Just like yeah, you're right. Just like you know I haven't been just trying to just do it over the last like four years. Just fucking do it, bro. We'll be there. Just get to forty.

Just like I mean I'm not there yet. So in my example, I'm not yet a real business. Damn, it's tough.

It's tough for me to hear. Self Deprecating things right there going on.

Yeah, it's tough for me to hear. Like, we still feel a little Wild West. Yeah, we have 40, we'll be grown up.

Oh, I love it. Like, sub, like and sub.