The Physical Security Business - Bruno Lavado CFO of Elevation Security - e12

Hey, Michael here. You will now hear some episodes of the Michael Girdley Show that we had branded differently, called Unusual Profits or some such like that. Same show, same person, just me interviewing people and producing content that could be helpful on your journey and mine as well. So with no further ado, here's the episode. Hey, Michael here. Sponsor for today's show is actually a product that I'm a part of called DM Bridge. And what DMBridge is, uh, is a service that we built, uh, to solve the problem that Twitter's direct messaging functionality is a total mess. So we built DMBridge to help you fix that. Um, a lot of the other solutions, uh, do things like requiring you to install a whole nother inbox. We didn't want another inbox, so we created DMBridge. And what it does is it takes all of your Twitter DMs and has them appear inside of your email inbox. So you can reply to them just like it's a regular email. You see them just like it's a regular email. You can search them later like it's one of your regular emails, all just by using DMBridge. So, uh, we're currently live with the product. Uh, would love for you to sign up and become a customer, uh, and check it out. So you can find that at dmbridge.app, uh, and go on there, put in your name, uh, and be either part of the beta or join us as part of the live use of the product. And again, check it out, dmbridge.app.

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Welcome to the How My Business Works podcast. I am Michael Girdley, your faithful host. This week I am super excited to have a special guest, Bruno Lovato. Did I pronounce that right, Bruno?

Yeah, that's good. I mean, there's 4 names usually, but that's good.

Well, you're from, you're from South America, so I know you can't just get by with two names like us simple Americans.

That is so true.

Um, but yeah, so, um, excited to have you today, Bruno. It'd be great if you maybe take a minute and, and introduce yourself in terms of your journey, how you got to where you are today.

Yeah, absolutely. So, uh, originally from South America, been in the States about 11 years going on 12. Um, started Just like any immigrant, 3 jobs, half a day off, then move into wireless and at the same time doing my bachelor's degree. So full-time work, full-time student. Once I graduated, I wanted to move into business sales, but the company that I was at that time didn't hire anybody from retail. So I made my own luck, went to Centaurs Corporation, which is very well known for their B2B program. And then came back into the wireless side with some of the big telecommunication companies and was in that industry for about 10 years. Made a lot of friends, made a lot of contacts. And then a real estate vendor headhunter reached out to me and recruited me to a long-term loan release company for the real estate multifamily market. And at that time, got on with them and look into buying a business. And that was my first motivation into going into business. And to talking to my network, my friend had an opportunity to buy out a partner on this security business, Elevation Security, that's the name of our business. So I bought a 40% stake on Elevation Security. And I still have a full-time job. My partner also has a full-time job, and we, uh, run this Elevation Security business. We're in 3 different states: Colorado, Wyoming, Arizona. We have about 60 employees. We have an operations manager, we have regional managers, and, uh, we're breaking into that $2 million sales a year, uh, range right now.

That's great. So you're— you still have a day job? You're— you're doing sales for Telecom or—

Yeah, yeah, yeah. There's a— I'm a director of sales for this, uh, vendor for the real estate community laundry company. So I basically do 5, 10-year leases, uh, with multi-family apartment complexes to run the laundry, community laundry operation of it, in addition to also, you know, running or co-running the Elevation Security Company. So my journey is a little bit different, I think, than most entrepreneurs want to do, because I still have a W-2 employee And in addition to that, I have also an owner's draw from the other side. We're also starting another real estate company. So I guess what I'm trying to say, I mean, there's time for everything. I mean, you are a clear example that there's time for everything, right? You just gotta allocate your time and be committed to it. First commit and then figure it out.

Yeah. Well, it's so cool. I mean, your story is precisely what has made, I think, America so great. Folks like yourself who come here and have ambition and just go for it, right? And just aren't scared. Like, I think that's so cool. So your employer knows, obviously, that you have side hustles and they're okay with that? That's just part of the—

Everybody, I mean, these days, if you are in a large corporation and on a large scale, everybody has some kind of side hustle on it. And again, as long as it doesn't discount from what you do day in, day out, I was actually number one salesperson last year on what I do. And, and so it just makes sense, right? These days, most smart companies pay you by performance, not by how many hours you put in.

Right. Well, and you're— it sounds like your director of strategic accounts job is probably very heavily commission-based, so it makes it easier for them to, to be okay with side hustles, for sure. Cool. So tell me about the business. So the business Elevation is in is in Denver. You guys have 13 people. Who is the customer for the business? What does it do for them?

Robert Levy Yeah. Yeah. Yeah. So we have about 13 full-time employees, but total we got about 60 employees. So the core market is Colorado. Close second is Arizona and a little bit of Wyoming, just because of the proximity that's Colorado. But basically our main customer, we got about, I will say, 80% of our business is multifamily apartment complexes. Student housing, senior living. I mean, you name it, we're in it. Then, we also have malls, which is retail vertical. And then, we also have hotels, hospitality vertical. In addition to that, we do events from time to time, but we try to minimize those. And then, you know, the next step is full-on corporate security, you know, big buildings and all these other things that we're trying to get into and government. But again, we're doing good. We're doing very well. There's a lot of things that we have to do as soon as I came in just to make sure that the revenues are where they're supposed to be. But it's one of those things that you got to understand what is your business, right? Our business is not security guards. Our business is peace of mind and not be a nuisance to property management. The less that we hear about them, the better off we're doing.

Yeah. So a building owner or an apartment complex, they come to you and say, I need to have a person for a night, whatever. And you find that person and you make sure there's somebody there every day. And the benefit for them is peace of mind and security and happy tenants and all that stuff.

Yes. In addition to that, it's roving patrols or patrols. So security night patrols or just regular patrols, because, uh, having the physical security 24/7, it's very expensive for a property. A lot of properties, what they do is they do roving patrols with basically 3 to 5 times a night somebody will come through with a car, walk the halls, and, and move on, right, to the next property, um, and different things. But yeah, um, most Most physical security happens at night. So most of our work is done between 8:00 PM to 5:00 AM or 4:00 AM. And of course, we do have other properties with 24/7 and usually 2 people at night and 1 person during the day.

And so these are the folks that I see that are the— they're not armed typically. They're there. Correct. And they're acting as security. So how much does, say, that individual take home? What is their typical salary, or does it vary in terms of what they get paid to be that security guard?

It varies, it varies in market, but you know, it's $15 an hour plus, $15 to $17. It's unarmed. Uh, we don't do any armed services, mostly because of the liability, uh, piece of it, and you're pretty much uninsurable. I mean, just to get insurance on what we do, it's really hard. You really have to convince, uh, insurance companies to, to insure you. Basically, the hardest part of it is getting people through the door, and especially in this labor market, that they're reliable. We had a lot of recent issues with people getting hired and they just don't show up for the first day. That's just how the labor market is these days.

Robert Leonard Then, so you're paying these folks $14 to $16 an hour, sometimes more, sometimes less, and they're independent contractors or are they employees of your company?

No, no, they're W-2 employees.

So they're W-2 employees. And then you turn around and there is an annual contract or a monthly contract to provide those security services that you then charge the, charge the building owner. And that gross margin is how you guys have a business.

Absolutely. Absolutely. And then, you know, you bake in all your admin costs, communication costs. You usually have to have a communication device per location just for the property to call in. You got to have an answering service so it's 24/7, uh, so the residents can reach out to them and in turn they can dispatch whoever needs to be dispatched to these things. Yeah, I mean, there's software vendor, make sure that people are walking the buildings. But yeah, I mean, there's a lot of it that goes behind.

Yeah, so you're having to turn around then and You know, even though it may look like you're, you're marking those folks' labor up a lot, there's a lot of stuff happening behind the scenes in terms of infrastructure and that sort of thing to make it, to make it practical and make it safe and deliver the benefit the customer wants. So I would guess you're maybe marking it up 2 times or more. I mean, these, these buildings have to be paying you $30, $40 an hour typically to have security on site. Is that how it breaks down?

It's a little bit less than that, but the margins in the security business is not as high depending on what kind of security you're providing and depending what kind of building you're taking in. But we want to stay in the 20% to 25% when everything is said and done range of profit. Because again, we got to provide uniforms for our people. We got to provide vehicles on the roaming patrols. In addition to that, the insurance piece is possibly our second biggest expense after labor, like workers' comp, general liability, umbrella insurance, all those pieces add up quite a bit.

Yeah. That's smart. Okay. Well, and it seems like the hard part about this business is just the labor management, right? How do you find people, the good people, and how do you retain them? Obviously, one strategy there would be just to pay more than the next guy, but that's Hertz with profits. What, what is y'all's strategy to try to win, win business and, or win, win the employees like you want them?

Yeah, so I mean, we, we do have a great, uh, communication piece and also work-life balance for our employees. So our regional managers, uh, actually the backbone of the company, basically, you know, they, they're great to work for. We, we make sure that they get things done. We give them the leeway also for them to accommodate employees as much as they possibly need. And especially in a security business, a lot of these companies, they don't have that flexibility. So people do stay with us, but it's still hard to just even get people through the door and be able to maintain them, you know, a long time. But our regional managers are the ones that definitely, you know, we keep for a long time and we want them for a long time. In here, turnover, of course, it's definitely an issue, but you, you hit it right, uh, when you said the hardest part of the business is getting people through the door. Uh, the sales piece of it, just because my partner and I have a sales background, is not as hard. And in fact, we actually have to pace ourselves when it comes to sales because, uh, it's a very cash-intensive business. It's a B2B service, right? So You literally provide the service, you bill 30 days, and you don't get paid usually until 60 days. So you got to cover 4 payrolls before you get your first money from, from your customer. So cash flow management is a, is a pretty important part of the business.

Wow. So lots of questions about that. So, but first, how, how are you recruiting the security guards? Like, what, what works in terms of finding people? Is it, you know, online, Indeed, Facebook ads? Is it word of mouth? What, what, what's proven to work for you in terms of recruiting people?

It's all of the above. A lot of it is referrals, like people that currently work for us that have somebody in mind. That's what works the best. But we got to do everything at this point, like literally just like cold calling people, trying to recruit them from other companies.

Wow.

Or that's another thing like we do with regional managers. They actually go on sites, site visits, just to make sure a customer's good. And then they will knock on the door of the building right next door that is with somebody else. And they will try to recruit their people if they cannot get the first order of business, try to get that business if you can. If you cannot, second, you go try to recruit those people from that company.

Robert Leonard Yeah. It sounds like it's super competitive for the labor market. That just sounds really tough. And all the stimulus, the stimulus stuff and the extended unemployment during COVID that, that couldn't have helped at all.

Yeah, yeah, absolutely. I mean, on both sides, on both sides, you know, you got the good and the bad because we got the PPP loan, which definitely helped. And we actually raised salaries with that money. And but then you got the other side of the coin, right, that people are getting paid to stay home. And in a competitive labor market, that just makes it hard for everybody just trying to get people through the door.

Yeah. Well, it's interesting. There's people that are pretty vocal that they don't think that the super high unemployment benefits discouraged people from coming to work. It sounds like you didn't see that. You saw the opposite of that.

Oh, yeah, yeah, yeah. I mean, I've seen it even on large companies and large scale. I still have a lot of contacts at Cintas and all these companies that I worked for before. And they literally calling me, hey, do you have somebody that I can hire for, you know, $100,000 position? Because I can't get, you know, qualified people through the door. Wow.

Yeah. Well, that's, that's what I saw too. So, so it sounds like your business is structured that there's the central headquarters group, which you're part of, right? You're the CFO and your business partner's there. And you're doing, you're both doing sales because it comes naturally to you. And then there are these regional managers who are responsible for customer fulfillment, right? Making sure that customers are happy. How have you structured those regional managers in terms of compensation and what their job looks like to align their interests with yours as the business owner? How are they getting paid? How's that set up?

Yeah, perfect. So we have a regional manager in Arizona handling that market. We have a regional manager in Southern Colorado handling Colorado Springs and Denver. And then we have an operations manager that is the regional manager for Northern Colorado, but it's over those two regional managers and basically handles everything when it comes to operations piece. And how we structure the compensation is they're on salary and they also, they have a bonus for every referral or renewal that they signed for us, basically. So basically they just got to provide us the lead and if we close them, we give them a bonus. For it. And at this point, they've been with us for quite some time. Uh, they've grown with us and we recently gave them like a 20 to 25% salary increase actually with the PPP money. So definitely we're growing and every year has— the growth has been exponential. Just to give you an idea, uh, previous year we did about $1 million in sales. This year we're going to get close to $2 million in sales. So it's a pretty big jump and we're trying to manage it and all that comes with the growth, right? Because now we have to have other services that we didn't need before, like the answering service. In the past, you can just have somebody answer the phone at any time, but now we got so many properties and so many residents inside those properties that at one point or another, our regional manager's got to sleep. So we got to get somebody, some answering service to pick up those calls.

Yeah. Well, and with that, you talked about your cash flow cycle, right? You have this net 30 terms. So growth is also going to be expensive to you because you have to have working capital to support that. How are you guys thinking about that challenge? Or are you just going to go keep looking in the couch cushions for money? Excuse me.

So funny you asked. So as soon as I got in, I did two things at the company. One was raise prices on the customers that haven't raised price for the last 2 years. Literally just send a letter and raise prices on 13 properties. That brought in quite a bit of additional money for everybody.

How much did you raise them?

10 to 20%, depending on what it is. We just got them to an X amount of money per hour. And a lot of them were quite far from it because they never really got a price increase ever since they got there. And then in addition to that, we also instituted fees: admin fee, communication fee, fuel fee. These are things that were fairly common in the industry and they weren't implemented before I came in. So again, that brought another 10% of revenue for us. And all new contracts are getting that, all renewals are getting that, and it's definitely helping offset, you know, all this things that we incurred on the last year when it comes to paying more for people and also getting additional services because we're growing.

Yeah, that's great. So stepping back a little bit to this net 30 challenge, right? Like the best businesses have negative cash conversion cycles, which means they get paid ahead of time. And the customer does that. Given this market, what have you experimented with just telling people like, look, it's net 5 or it's Pay upon invoice or it's paid?

So actually all new contracts we're doing net 15, but the old ones are still net 30. What we've done really well, because another thing that I did when I come in is we got to hire a professional bookkeeper. And so we got a bookkeeper and she also does our collections for us. And now we literally get on everybody as soon as the bill is due and we're enforcing the late fees. That was another thing, enforcing the late fees. When people were paying. So now we're basically getting all this additional revenue that we should have gotten for years, but now it makes a big difference, right? Because a late payment is 10% on whatever you are past due behind. In addition to that, it helps with cash flow. Then you don't have to worry about it. Because there were customers when I came in that they were 90 days, 120 days past due, And so with a couple of customers, what we literally have to do is like, unless you pay us by the end of the week, we're not going to show up for service that night. And, uh, hey, magically they found money and they pay us.

Right. Uh, is that, is that some, uh, you're from Lima, Peru. Is that some, is that some Peru business tactics that you're bringing to America or that, how did you come up with that idea?

Well, I mean, Especially when you are in the security business, they have security for a reason, right? I mean, their building have some issues or the tenants themselves, because it's student housing and they get super rowdy and will destroy the property without security. So there is a very, very high incentive for them not to lose security, not even for a day, because as soon as they figure out there's nobody there for security, They will just run rampant.

Yeah, super cool. Um, so switching gears a little bit, so just in terms of the delivery of the service, like how do, how do you handle, say, when somebody calls in sick or can't, can't come to work or no-shows for a shift? What, what happens then?

Uh, falls on the regional manager, right? They got a list that they can call. If they cannot find anybody, they gotta show up themselves and cover that shift.

Wow. So those guys are on call then. That seems like a pretty high-pressure job.

I mean, in theory, if they are staff and they have reliable people, it should be the easiest job in the world because you're literally just coaching. You're just coaching. You make the schedule, you make sure that people are doing what they're supposed to do, and life is great. But when you're understaffed or when you have issues with people not being reliable, then it can be a high-pressure job like you mentioned.

Yeah, I hear you. And then what, um, you talked about insurance and liability and that's why you don't arm the people, which sounds really smart. What is the overall liability? I assume you have contracts with the people that if something happens, the customers, while something happens on, on site, you're not liable for that. Like, how are you mitigating? How do you see the liability for the business and how do you mitigate that?

Yeah, yeah. So basically we make sure that we train our people really well when it comes to de-escalating situations and, uh, you know, use force as the last resource kind of thing. Like, we're there to observe and report, you know. If somebody's being harmed or anything, of course we gotta intervene, but don't put yourself in a situation where you're gonna have to fight a mob. Don't put yourself in a situation where somebody has a weapon, you know, you're gonna put yourself in the middle of it. I mean, people are people, right? So you try to put all those things out there, things still happen from time to time. That's why workers' comp costs what it costs. That's why your general liability costs what it costs. And, uh, again, you know, here in August we have our new, uh, a new time to look for insurance. And, you know, we're gonna, we're gonna vet it out as much as we can, but we know that It's a heavy, heavy bill every single time.

Yeah, super cool. And then, so the regional managers that you have, you know, obviously the worry with them is them, you know, they have the relationship with the scarce resource, which is the employees. You know, what have you done to keep them from going out and starting their own security company and competing with you? How do you think about that risk?

Yeah, we do have, we do have non-competes. We got non-disparagement. We got all these things in place, uh, for it. It is a very real thing, uh, that it's possible that they could do something like that. Again, you know, you, you can put legal documents, and that's what we've done, uh, for it. But I mean, the risk is still there. Like, you can't really— there's not much more you can do about it besides treating them well and giving them the tools that they need to do their job.

Yeah. Well, and it sounds like you're also really trying to create an environment where they feel like valued team members and supported. And you took—

Oh, yeah.

Unlike most people, you took the PPP money and gave them raises. There's a lot of companies that didn't do that with PPP money.

Yeah, yeah, yeah. And it was a pretty big raise, 20% to 25%. And they deserved it. As soon as I got in, I understood that they were underpaid and they were worth more. And I don't want them to think, you know, that they can get more somewhere else and just leave, because that turnover on a regional manager will be very painful.

Well, and it sounds like on the customer side, you went back and made sure the customers were paying a fair rate for a premium service, and then you started to pay your staff like they were delivering a premium service. And I think you can, you can see how that creates a very beneficial flywheel. You start to get better customers, which helps you pay for better, better people, and the better people tell other people who come work for you, so you can get more good customers. Like They're super duper smart. That's neat.

Yeah. Yeah. I mean, thank you. And it has worked well. One of the things also that we discovered this year, even though we still have that want to get into the corporate security and government contracts, what we come to realize is that the margins, they're not that good. We're getting better margins in multifamily.

It sounds like what you were saying was In the multifamily and some of these smaller properties, it's a much better business to be in, in some regards, because these big government contracts or big facilities, there's a lot more competition there, lower margin, less interesting in terms of being in that business.

Oh, yeah, yeah, because we look into taking over a corporate deal here in Fort Collins, and it was 4 buildings, and they wanted— To get that contract, we will have to buy another vehicle. Buy all kinds of outfits for uniforms, hire about 7 people to run those, and the margins were in the tens to 15% compared to our average 20 to 25%. So by volume, yes, you make money, but it's more work for less pay when you see the bigger picture.

Robert Leonard Yeah. Really cool. That leads, I think, in the next question, what is your long-term plan with the business? Do you just more of the same? Where do you plan on taking it and what do you want to do with it?

Yeah, so basically right now, one thing that I discussed with my business partner on how we grow is we don't want to grow for the sake of growth. We want to grow smart and only take on very profitable business. If it's not within the parameters that we want to be, we don't want to do it. Because again, why would you want more work for lower margin, right? It's a headache already trying to get people through the door. So if it's not priced correctly, you're probably not going to get a good employee through the door either. So at this point, keeping what we have, making sure that the rates are where they need to be, and then we're actually looking also into ancillary services, which would be more into the software side. That's our background too, for, uh, cameras security software for the property, I guess, will be something complementary to what we currently do besides physical security.

Yeah. So that's cool. So finding other things to sell to the same customers sounds super smart, especially if it can leverage the same relationship you already have. So really neat. Cool. What things would, when you talk to people about the business, are there things that we haven't covered that would surprise people about the dynamics of how the business works?

I think people don't realize that a lot of this security piece, it's a lot about customer service too. We have won so much business out of all their competitors just because our guards actually talk to the residents and introduce themselves or make conversation and we're friendly. And the other guard from another company was just there, never really talked to anybody. So that communication piece or that friendliness goes a really long way on a business where nobody expects it.

Interesting. Yeah. And so it comes back to what you talked about at the beginning, which is this is about providing peace of mind for the landowner and the residents. And part of doing that is training your people to engage with the residents and with the landowner to be part of the team and help build that kind of trust and level of reassurance. That's really cool.

A clear example of that is in Arizona, in Tucson, we literally call it the Elevation Security Block. There's a block that we started with 2, 3 properties, and now we have almost every single property on that block just because our guards are walking the street, even outside, and our regional manager is always also walking down the street, commenting on our properties. So makes a big difference for sure.

Robert Leonard Yeah. That's really cool. Well, man, this has been super cool. I am so impressed by the clarity of thought that you have around business. It's really impressive. I think you're younger than me. I wish I could have thought as clearly about business as you are. So really optimistic about where you're going to go in your career. This is super cool.

Yeah, I really, really appreciate it, Mike. One thing also I think that I should mention is a lot of the things that I implemented is things that I learned in other companies. And I think what a lot of people don't realize is on their corporate job, they have learned so many skills, processes, and procedures that are applicable to any business if they just took a leap of faith and chance to go do their own business. One additional clear example of it, as soon as I got in, another thing that I did is I changed our contract. So we had a standard contract, but being on the community laundry lease industry, man, those contracts are tight. And they know what they're doing. So some of the things that I implemented also is you put a fee language on your contract. You put a CPI index on your contract so you can also raise your prices without having to notify it all the time, uh, just according to the CPI index. You try to get out renewals approved if possible. It's just all these things that, again, that are part of other businesses that I've learned that it's applicable to any service business.

Yeah, super cool, super cool. Well, great. Well, in closing, how can listeners, you know, follow your journey or help you? I assume you're, you're always looking for folks that want to work there, uh, or potential customers. What, what would be the most helpful way listeners could help?

Yeah, absolutely. So elevationsecurity.com, that's another thing that we did with PPP money. We revamped the website, so it's looking pretty nice right now. And then, uh, I'm also on Twitter. I mean, that's how I found you, or how Franco found me. So my handle is @brunolujan 1725. Again, that's @brunolujan1725. 1725.

Oh, cool. All right, I'm clicking the follow button. I'm number 70. Number 70. Hopefully, we'll get you a lot more— just your clarity of thought around this is just so cool. I know more people want to follow you on Twitter and engage with you as well. This is great, man. Thank you so much for doing this. Look forward to getting this episode up. I think People are going to be really inspired by your story and also the wisdom you shared about how you're approaching the business. It's just so cool.

Yeah, appreciate it. Happy, happy to do it. And enjoy your time in Colorado.

Cool, man. All right, I'm going to click the stop button. But for all the listeners, thanks for being here. Really appreciate it. See you next week.