6 Secrets to Build a $1M Business w/ 20% Profit

You are 1 or 2 people walking off the job from literally being 911 status.

If you lose 20% of your clients, the first thing you have to do next year is grow the business by what feels like 20% just to get to break even. Revenue risk means they leave because you can't do this thing. Not allowing biweekly mowing created revenue risk. We gave up at least $1 million in revenue just doing that. At least.

If, if someone was looking for a ratio, I know there's no golden bullet, but like, let's say You have 5 to 8 technicians, you're already vulnerable if 1 or 2 leave, like just a huge amount of the labor force gone. Taking your P&L as whether or not your business is profitable instead of individual departments, individual crews, individual employees, like being able to break it down, looking at it as this bucket of all the revenue and all the expenses in my business versus there are individual departments, there are individual services, there are individual crews and employees, and each of those can be profitable or unprofitable at varying degrees.

This is one of the top-level problems for people. It's like, Which is your biggest constraint at the moment? Meaning what's the thing you whine and cry about the most? Okay, there's your hint. That's what should get all your time, like as much as you can.

Welcome back everyone. Today we're doing something a little bit different. We're gonna be talking about 6 different tips to grow a million-dollar business. And the reason this actually came up was because recently I did a poll on the channel and asked what size of business you were trying to build. And 70% of respondents said that a million-dollar business, That was mostly recurring and 20% profit margins that you could leave occasionally on a vacation and not things fall apart, that was actually your ideal size business. So I know a lot of times we talk about AI or private equity for the bigger companies that are trying to grow beyond that. And don't worry, next week we'll be back with another large company episode. But today we want to focus on some of the things that we would recommend for that operator that's trying to grow that size of business. So That's $1 million in revenue, 20% profit margins with a system sufficient to where you can go on a vacation and things not fall apart. So what we're going to do is Jonathan Potocnik and myself, we're going to go back and forth with 3 different tips each of what we would recommend. And we have not discussed these or shared these with each other prior. And so we'll kind of riff on some of these different ideas. So hopefully you can take exactly what's being said and implement it, executing your business and grow the size of business. So Jonathan, why don't you go ahead and kick it off with your first tip? To get to $1 million or even at that size, how to make it profitable at 20%.

Okay. I think the profit kind of comes with the growth in the way I'm going to approach this. Now I have no idea what you're going to say. So I went specific with some very specific things that I think can, because we talk about marketing, not that we won't talk about it here. We talk about having a few services. We talk about density. Those would be great things to talk about, but I went a little bit different direction. Like what are a few things that can make a big difference. So, I have no idea what you're going to talk about. So, I'm going to start with one that I see, and that is on Five for 50, I talk about this idea of these 2 machines. You have a revenue machine that's going to be responsible for, or a growth machine. That's like the marketing side of getting enough work. And then you have the people machine, the recruiting machine to bring in enough people to do the work. And if they get out of balance, then your business doesn't grow. Or if they get out of balance, you live in fear of getting more clients or you live in fear Because you don't— if I get more clients, I don't have any people to do it. And, or you live in fear of, if I get more team members, I got to pay them. I don't have enough work for them. Okay. Well, a level down from that, another way that the whole system can get out of balance is this idea that you're not constantly putting enough people into the pipeline before you need them. So a simple tactic that I'm a huge fan of— simple might be overselling this, but a tactic I'm a huge fan of is this idea that you always have another foreman in the pipeline. From my experience, and I don't know, Mike, how you feel about this, but that seems to be like, we have one problem of finding enough people to do the work. And then we have enough— another problem is like finding the right people. So it's a different scenario. We'll just use a lawn mowing or a window cleaning example. You generally have to have a person that drives the truck, that runs the crew, is ultimately responsible. I'm calling that the foreman. And if You can find laborers or helpers or workers, but you can't find the driver, it doesn't matter. And so, my belief is that as you're building the business, you're always overspending a little bit. And my example would be if you have a foreman and you could have a worker, I don't know, just like a helper, let's put it that way, and they cost a little less, but the ideal is to overspend, pay a little bit more money and have that second or third person Be the next foreman in training, because that means you're always ready to put somebody on the, on the next truck. And so, you might get everything right where you're good at finding people to work in the business, but you're struggling to find the foreman, and that's what breaks the growth. So, when Mike talks about how are we going to get you to a million bucks, how are we going to get there without this— I don't think he said it this way, but the way I think about it, how are we going to get you there without this feeling like misery? an incredible pain. This is one of the things that I think if you do this from the beginning, it just simplifies. It doesn't make it easy. It just, but it makes it easier. I see company after company get stuck in this way.

And, and if someone has a crew right now and they're like, hey, it, they're doing pretty good. I don't necessarily wanna hire another person. Could an alternative way of looking at this be almost having a, I'll use your words, foreman that you've hired or you have interviewed and said, hey, I will, you're next on, like if I need someone, I'll be giving you a call. And knowing that they have another job and you'll have to give, they'll have to give their 2 weeks, but that you do have that bench to fall back on.

Yeah, no, I love that strategy. It's, I feel a little safer if I have a couple people on that bench that are foremen, 'cause you just never know what's gonna happen. And so that is one way to play it. And in a perfect world, you're kind of doing both.

And, and for someone that is thinking about doing this, What would be the strategy of trying to talk to somebody to create that bench and/or explain to a foreman that, hey, you're gonna be working with another foreman, you're not gonna have your own crew? Like, what are those conversations looking like?

You know, generally I don't have a, a magic answer for that. It's more of just being very straightforward and honest and saying, hey, here's what's going on inside our business. We're growing, things are going really well. I don't have a truck for you yet, but I think we're getting really close. I want to go ahead and get you into the company now. You know, if you were in a— if you were doing a pay-for-performance scenario, I think about, hey, I want to go ahead and get you in the company now. I want to get you fully trained up. I want to get you up to speed. That way, when you jump on the truck, you're going to be producing at the highest level. You know, you just kind of talk through it. I generally think most answers are honest answers and just saying, like, just laying it out there. And so that's how I would sell to somebody is I really want you on my team. I really want to work with you. I don't have a truck for you. I know you deserve a truck. I know you— you cannot— you're not— I'm not going to get you stuck here helping somebody on a truck. You deserve a truck. I just need a little bit of time. I want to get you up to speed and then I'm gonna get you in that truck. It would be that. I mean, I just— that's how I talked to him about it.

I think it's almost like an insurance policy because so oftentimes at that smaller size business, we're talking to under a million, you are 1 or 2 people walking off the job from literally being 911 status.

Yeah.

And it's one of the biggest reasons I know you, you propose like growing a bigger business is to reduce this liability or this risk being so dependent on 1 or 2 foremen walking off the job and you are toast. And so this is in a way you spend a little extra, maybe you lose an extra 2 or 3% on margin, but I'm having that more expensive person trained up, ready to go to reduce the liability or the risk of 1 person leaving.

100%. It like, that's such a great point. I didn't even really think about it coming into this. But that's exactly what you're trying to do. And it's something else. It's that, but it's also think about what happens with so many owners. They finally get off the truck or they get off the truck 70% of the time. And the next thing you— and then now they're actually starting to think about marketing stuff. They're actually starting to answer the phone faster. They're actually starting to turn estimates faster. They're actually now doing all these things. That are going to make the business grow faster. And then Bob doesn't show up. They're back on the truck and now they're back on the truck for a week or 2 weeks. And that's such a common problem that just gets people stuck back in the field. And then it starts to get towards August or September of the year. And they're like, you know, at this point, I'm not even going to hire another guy because I'm going to have to carry him through the winter. And then there you go. It's like, now you're going to solve that problem next spring and something's going to happen and then you lose a year. It happens to so many companies, like these little things like this. Somehow you lose a year and that's why these businesses are so painful and miserable. It's they don't move through some of these painful stages fast enough. This is a way that you move, uh, a little more quickly. So that's 100% agree with that.

If, if someone was looking for a ratio, I know there's no golden bullet, but like let's say you have 5 to 8 technicians, you're already vulnerable if 1 or 2 leave, like just a huge amount of the labor force gone. But would you say like out of 3, maybe having that one extra backup. So you even have a couple of these people in the company that are a little bit, a little bit overpaid for what they're doing, but they are kind of your backstop for something bad happening in the company.

Yeah, I don't, I don't have a ratio, but it sounds good to me. Yeah.

Okay.

I would tell you the minimum is one. That's the floor. But just again, think about what it costs you. We just covered it. It costs you not— if you just don't sell a couple of days' worth of work that you could have sold, or you don't perform a couple of days' worth of work. I mean, there's so many ways to pay for this. There's so many ways. I always used to call it invisible numbers. We have all these invisible numbers in our business we don't see where we're just leaking money and we don't realize we're losing that money, but that's the exact money that would pay for a little extra hourly rate to have this kind of person on the team. This month, this kind of stuff almost never actually costs money. We don't see it. It's the invisible number concept. But what happens by having this person? Yes, they cost a little bit more. I'm not— I wouldn't even be convinced it costs you in terms of profitability that much because you're going to sell more work. You're going to have better retention. You're going to have better customer service. Like everything's just going to work better and you're going to be happier. Life's going to be better. You don't get stuck back in the field. You're not going home at 9 o'clock at night as frequently having a conversation with a frustrated spouse. Like just, it just fixes so many things that I don't think it actually costs.

I think in the same vein, we kind of talked about the foreman, but I almost wonder like at a million dollars, one of the roles that I find really helpful is not necessarily labeling them as an operations manager or even operations assistant, but just a team member or foreman that you can lean on. And that you've trained up and maybe spent a little extra time so that if you were on vacation, they know a few other operational things in the business that they can kind of help manage or guard for you to spend time away from the business, whether that be wrapping up at the end of the day, getting the crew started, doing a little bit of routing or dispatch, adjusting the cruise routes. The same thing. It's like, yes, it takes a little extra time. You might pay that person a little extra more, a little extra, but that is your buffer to be able to go take the vacation, spend some time away from the, from the business, and have that level of protection.

100% agree.

Totally agree. All right, I'll move—

what do you got?

I'll move on my first one. All right, so my first one is fixing your off-season, uh, doing whatever is required to not have negative cash flow months. And so when I look at the off-season, I've always seen it as the number one thing that's bad with home services, uh, as, as a just generalization of the industry. And one way to ask yourself, like, do I have an off-season, is, well, do leads drop off? or does my profit go negative?

Yeah.

And if those things are happening, it's so hard to run the business in a way that prevents cash hoarding. So I remember this being myself, it's like I save up all my profit, I need $70,000 to $100,000 to get through the winter, 'cause I knew I'd be burning it on unproductive labor, admin people I didn't really need. And so doing whatever is possible, whether that be upselling customers, whether it be annualizing contracts, But ultimately, I actually don't think it's the cash that's the problem. It's the fact that having a cash crunch causes people to make bad decisions. And so they go into spring rush now being depleted of all of their cash and having to make hiring decisions with not a lot of cash. So they don't do what you just said. 'Cause like, well, I don't have the money.

Mm-hmm. Yeah.

And they, they make bad marketing decisions because they don't have enough cash. And they, they do all these, it's the decisions that kill them, but it's happened because of a lack of cash. And it's happening, the lack of cash is happening 'cause they have an off-season. And so I would do whatever it took. I don't care. Like, this is the one place in the world where I say you can add a service. It's like, if you can do that work during your off-season, that might be a good reason to add that additional service. But whether you gotta lay off your admin person, have hard conversations around, hey, we don't need you full-time during these 4 months of the year, having a come back to work bonus, figuring out some sort of seasonal labor. Like, I was talking to Dr. Kashti one time about this and he was like, yeah, it's really, it sounds pretty straightforward. You have a seasonal business, you should have seasonal labor.

Yeah.

I was like, mm-hmm. Well, yeah, that makes sense. And, and, and, and so if we have seasonality around the, when our, our leads happen, we should expect the fact that we do have to adjust our labor to ensure that we're not massively overpaying throughout the off-season.

Yeah. I, boy, I've seen this over and over in P&Ls. Everything looks great. Yeah. And then you give back 30% of the profit in the wintertime. Yeah. Or the other one, this is where a lot of the debt gets accumulated.

Mm-hmm.

So it's like, how do companies get in trouble? It's not because they were dumb. It's not because they were being careless. It's because of exactly what you just said. So over the time, that debt builds up slowly year after year, and you dig a hole. What are some of the best ways you've found to solve for the winter crunch? And I know it varies by industry and where you're at in the market. And I know about snow in the north, but what do you tend to see some of the best solutions to this be?

Usually the first thing I'm looking at is trying to fix and like reduce fixed expenses. And so to your point about debt, it's like a self-fulfilling prophecy because now next year when they go in the offseason, they have more fixed expenses.

Yeah.

And so I'm trying to negotiate too. Like sometimes lenders will, well, if you have equipment debt, for example, they might allow for like 9 or 10 months of financing and you get 2 or 3 months off. So I'd be doing some negotiation if possible. But anything that's fixed, so like rent, anything that is subscription-based, I'm trying to ask myself, can I reduce that or make it variable? So for example, can I go get an agency that can run my ads for 9 months of the year and they don't require 12 months? Now all of a sudden I unlocked $1,000 a month of management fees. I'm looking at my admin, like, do I need to hire 2 full-time admin year-round or can I hire 1 and then just hire someone to back me up and pay by the minute for 3 to 4 months of the spring rush when I really need that second person. I'm always trying to look for like the fixed expenses first of all, like that's more of a defensive measure. And then the offensive measure is, can I add another service? Can I upsell existing customers? Can I move even services that have a little bit of buffer of when I can get them done? Can I move them more towards my off-season? And so whether it be like, for example, mowing, it's like, well, can I do more fertilization, weed control in the months where I'm not so busy with mowing, including my offseason. So those are a couple of the defensive measure and offensive measure to try to fill that hole.

And we've never laid— we don't lay people off. We've never done it in our business. And we've tried to patch these holes. It's been really tough. I would not describe it as having solved the problem completely. But H-2B visa was critical to us. That's one of the biggest ways we made this work. One of the reasons I was— there's a lot of reasons I'm apprehensive because the longevity of team members is just so valuable to the culture of the business, the quality of the work, the retention of the client. So that's a cost that gets incurred when you lay people off and you bring people back. Even under H-2B visa, we're bringing back the exact same people every year. So that training and that Learning that happens, like how I work within, in our case, the City Turf business and culture. You know that builds over time. Anyway, my point here is I've always been a little afraid of this idea. I've met so many companies, especially in the north, that lay off their team members and they just go on unemployment and they hire them back. So a couple questions there. From an unemployment standpoint, how does that work for most people? How big of a hit or penalty is that to most companies? When you're laying 'em off, you're getting hit with unemployment. You know, they may then raise your unemployment tax and maybe who cares, it's worth paying that fee. But how do you think about that? How do other companies think about it? It's not something I've personally dealt with.

I, I think first off, if someone's worried about unemployment, almost always I can make a case for that being cheaper than still having them on.

Yeah.

And being at like 10 or 15% efficiency. Um, the, the next part is I have rarely seen great team members do that where they're just like, I will not work for 3 months and just take unemployment. I have almost never seen that.

I've never seen that.

Like, great team members, they're like, I need a job, I need something to do. And so I was really afraid when I first did it. I did it out of necessity 'cause my location was losing money. And I just knew that like that winter was either, it was right after I got the accident. I knew what I needed to do. I'm like, I gotta tear the bandaid off. And I said, hey guys, if you want the work, I will keep you on, but you're gonna get 10 to 20 hours a week. Otherwise, I'll see you March 1st. You have a guaranteed job and I'll pay all your benefits throughout the off-season.

Oh, okay.

And I was shocked by the fact that not one single person left the company. Like, some of them just stayed on and got the lower hours, and then others came back March 1st. And I was shocked. And from that time, I've just been amazed by the fact that great talent will go find another job. You give them a guaranteed start date. Usually the offseason in home services kind of corresponds well with the retail. Like, people need November, December, January in retail. They can get a job really easy, take a few weeks off, come back end of February, and we're good to go. The other part that is really important was expectations when hiring. If you can go into it knowing what your demand curve looks like and when you need to lay people off, you just tell them in the hiring process, like, you have full-time hours during these months, during these months you can leave, or you're going to have between 10 and 20 or 30 hours a week, for example.

I see.

And so the hardest part is actually admin. Because we've seen more friction around admin wanting more regular hours compared to the technicians where a lot of times they don't really want to work out in the winter and during our off-season. And so we really lean into this upcoming season is expectations of every single quarter, this is how many hours we expect you to work. And now there's no awkward conversations. Hey, so-and-so got it, so-and-so did not. And as they have more tenor, They're able to get more hours during the off-season if they would like. So we've created a little bit more around the admin side, but for technicians, we've never had it like be a huge problem. And for those that have, they've added in a come-to-work bonus like back in the spring where they can come back. So if you might spend $2,000 or $3,000 on that, that's still a lot cheaper than paying someone $15,000 to keep them on all off-season.

I've heard of companies doing that. Do you let— during the, we'll call it in this example, 9 months of the year that they're full-time, do you let people work overtime or do you backfill and hire additional people to keep your team out of overtime?

With P4P, because they're getting hourly plus, it doesn't make a huge difference, but we try not to let them go too far into overtime because they know, they know like this is not— they're not really getting time and a half if they're a high performer. And so it's something that we try to be as honest with them as possible, and they don't want to go too far, but they also don't want us to hire too much. And they are willing to go into it because they know that if we hire, then they're going to have less hours when it gets a little slower. So it's just a matter of like communication of like explaining like, look guys, we are working longer hours, but if we don't and we hire more people, then we're all going to have a little less hours come slower season.

That makes sense.

It's just the aligned incentives help. With P4P.

Yeah. Yeah.

All right. What's your second one?

Second one somewhat aligns with this because it's related to money. It's the speed of getting paid. It's like, you know, I know you talk about it as well. It's, it was the breakthrough going way back. It's really been the breakthrough in every business I've ever had. Like, how do you finance these things? So way back in the cleaning industry days where they would pay on 30 and 60-day terms. We would renegotiate to get paid weekly. So instead of taking a price increase, annual price increase, like, okay, this year we'll skip the price increase or whatever the example might be. So you're saving 3% on your money, but we want to get a weekly check. And so you'd speed up, uh, that was all, uh, obviously commercial work. You'd find creative ways to get paid faster. And that's how you finance the business. That's how you stay out of a line of credit, all these types of things. Well, in the city turf business, It was exactly the same thing, but for me, the solution was how do you charge a credit card every week? And how do you charge a credit card as soon as you do the work? This is not a new idea at this point, but it's a critical concept to understand that there's a cost of money. Basically, if you are getting paid on 30-day terms, meaning you do the work and they pay you 30 days later, you're lending your clients money. And you will— you're a bank. You will get some of the money from them and some of the money will go bad. You'll never get it, but you're a bank and that costs you money. Not only does it cost you money because you're essentially a bank and you're loaning money, it costs you money because you don't have that money in your bank account. So when you log into whatever your bank account is, instead of your balance showing, you know, $24,000, it typically shows $6,000. And just think about what that does to you from a psychological standpoint. You look at that bank account balance, you're like, I don't have any money to hire another foreman. I don't have any money to spend on marketing in spring. And so just the simple act of having more, a bigger average daily balance in your bank account because you're getting paid faster changes psychology. It's like, oh, I could float $5,000 a month to pay for somebody else to be on the team and answer the phone so we could turn estimates faster. And like, or whatever the scenario is, the problem is that you need to solve. So. The speed of getting paid is truly one of the single most important things, and it applies to every single business that exists anywhere in the world. There is no exception. Sophisticated owners know that if they're getting paid slow, that has to be reflected in the price. In other words, if I'm a smart business owner and my customer is the government, And the government's going to pay me on 60 or 90-day terms, then I'm— what I do is like, okay, well, it's going to cost me 7% on my money to use a line of credit to get my money faster. So if the government owes me $200,000 in 90 days, I can get $200,000 today from the bank on a line of credit and just pay that back. Like, that's like, it's not how most of us think, but that's how these big companies would think about it. It's like, okay, they won't pay me for 90 days. I can solve the problem with a line of credit at the bank. But that is going to cost me X amount of money. So I just build it into my price to the government. Like, that's how it works. Like, that's how you maintain margins. And so I just give that illustration to say there is no free lunch, but most of us that are younger in business, like we, we're not as sophisticated at this. We're learning as we go. We never worked in a big corporation in the finance department, saw how it really works and how people really think about this. We just let that money. We just, we don't make up for that money. We don't charge it back to the client that's floating money with us. And it kills our margins. So there's so many scenarios like you're killing your margins by doing this. You're not hiring as fast as you could. You're not reinvesting in your equipment as fast as you could. You're not doing the marketing you could, all because you have so much money on loan out to everybody, all of your clients. And so if there's one thing that you want to get right from the beginning, so you can minimize the pain of growing a company, which means you go faster. You grow through the problems faster. As I— that's a theme that I talk— I like to talk about. This is how you do it. This is how you do it without getting loans and without getting an investor. You just get paid immediately. And I know many companies who get paid in advance. They might bill once a month, but they bill at the first of the month for the whole— all the work coming up for the month. That's even better than getting paid the day after you do the work. So Be creative about this. So many people do it now. Like, to do this in home services 15 years ago was insanely unusual. Now, I know not everybody does it, but it is so much more common now. Things have changed that if you're not doing this, like, you're just leaving money on the table and you're creating unnecessary pain for yourself.

I was looking the other day, because now we're pulling bank balances from QuickBooks for all the locations. And we're pulling into our dashboard that also pulls from Homeworks. And so now we have a really good snapshot. But what's interesting is seeing the people that bill weekly versus monthly and the gyrations of the bank balance. And based upon when I pull data of how much is in the bank balance and what that's doing to their psychology. And I think like the whole concept of like higher lows and lower highs kind of helps when your bank balance is a little more steady.

100%.

And like, I would rather like, You could have the same profit margin, like let's call it 20% profit margin, but if one day you're negative 5, the next day you are plus 40, like you're up and down, it's very hard to make good decisions. And even back to what we, we just mentioned before, like I don't hire the foreman for the extra few dollars an hour like you had mentioned because I have my off season. Now I have a cash crunch and I go get a loan. These are all decisions that are made poorly because of this limitation of capital. And so To your point, like having a bank balance that's low might put you in the place where like, I can't afford that extra investment in marketing or the foreman or the extra truck upgrade. And one thing I found that's funny is when you talk about the gyrations of a bank balance is people buy things that they don't really need based upon the top and make sense of it. 'Cause like, well, I have like $100 grand. I was like, well, that was last week. Now you have $20.

Right.

But then when it comes to like long-term investments and what needs to happen in the company, like getting an operations manager or investing in some new technology. Like, oh no, I only have $20 grand. I can barely make payroll next week. And so that up and down—

That's so true.

Makes it very hard. Like the psychology, like business is hard enough, let alone with like the resources that you are trying to work with, go up by 5x and then down by, you know, 30, 40, 50%. It's very difficult to just stay even keel and make good decisions.

Yep. Yeah. Psychology matters so much. Like it matters in the examples we just gave, but it matters in how you show up to your team the next day. It matters in how much you're keeping your foot on the gas pedal, like to go, go, go, or get that work done. Like if you're just beat down and this is one of the things that beats you down, then you're just gonna perform at a lower level and everything's gonna be harder. There's just no other way to say it. What do you got next?

All right. This one, you've kind of already alluded to this and it's very basic, but I couldn't do it without. And that is, as you're getting closer to that million-dollar marker, avoiding the temptation of adding more services to get past that—

Yeah.

7-figure dollar amount. It's the fastest way to grow revenue, add more services, sell more to your existing customers. It makes a lot of sense 'cause you don't have to spend money on customer acquisition costs, but it is almost always one of those decisions that 3, 4, 5 years later you have to undo, whether you're trying to like sell the business to someone else and they're like, what's all these random services that add 5%, 10%, 15%? And a lot of times I find it's the person that's at $600,000 or $700,000, they're like, If I just added this one or two things, I could get to a million, and it's just this number. But to get there, they had to compromise the simplicity of their model, and they underestimate the complexity it adds to admin training new technicians. And it's back to what we've talked about before, like the whole concierge model of like doing all services. Why has that not worked out? In a way, it's because it's like every service requires a slightly different go-to-market motion. It requires a slightly different way of marketing or advertising or selling on the phone or how you train the admin person. And so each of those things add that level of complexity. And it's so hard as an operator when you're like, well, I just, I'll do it myself. But at $1 million plus, that's when it starts, you start to feel that pain. And if your goal is $1 million, 20%, and being able to walk away from the business for a week or two and take a vacation, one of those is going to come into jeopardy if you start adding in 5, 10, 15 services. And I see that as like a— the trademark of home services that are gunning for 7 figures is just, I'll get there by adding more services. And a lot of times I find it's because the service that they're currently providing got hard. So they kind of started to stall out. They had 250 customers, they needed 350 to get to the million-dollar marker. But man, I've been butting my head up against that. I can't figure out route density. I can't figure out my advertising. I don't really want to really laser in on a different channel. I'll go add another service. And it's the easy button for just adding more revenue. Yeah.

And my argument there is, in your example, $350,000 was the first service. When you add the second service, that one's probably going to come in at about $150,000. The third service is going to be about $70,000 in revenue. It just gets worse because you never solve the underlying problems that got you stuck at $350,000. Yeah. But I mean, I just, I, I couldn't agree more. If anybody ever says, hey, what are the 3 to 5 things that are going to get me to $1 million the fastest, this is like almost at the very top of the list. And I've talked about before, I've learned it the hard way. I mean, City Turf is a bigger business. And we still have— we've cut things and we've added some stuff back. We still have too many things. We still do too many things.

I think a market— I think the creation of a marketing calendar is a really good way to kind of figure out whether you have too many things too, because it forces you to ask yourself, am I trying to like squeeze in 5 different services into a month, a 2 or 3 month window? Or are these services where they are, have inverse demand curves? I can move them off in different parts of the year. And one, that's one of the first things I'll do if I think someone has too many services. I'm like, okay, let's look at 12 months. When do you pitch these? And they're like, well, yeah, they all happen right here in spring. I'm like, well then what's the point? Like if you just deployed that same energy, whether it be shots on goal when it comes to marketing, And put that towards the other core services, you'd probably make up more revenue just doing that.

Yeah, I believe it. And I'll tell you, because I'm back involved in the city turf business, one of the other things I've come to conclude around this— I always— I'll give it— I'll give a very specific example. I always put fertilization and weed control— that's a service. Uh, that's like 9— that's like 9 services. And here's my example. So if you're a fertilization weed control company Like, yeah, you fertilize. Yeah, you kill weeds, but you also are dealing with all the issues that come with it. Why do I have a brown spot? Why is this spot in my yard yellow? Why is there no grass growing here? Like, it's like, why can I pull up my carpet? Why is this spot soggy? It's all part of the fertilization weed control thing because you either get blamed or it's part of grass and that's what you do. So now you're in the grub business, you're in the insect business, you're in the disease business, you're in the shade business, you're in the irrigation business. All because you just got into fertilization weed control. And so when I think about the marketing calendar, I look at the City Turf business like, wow, we make hundreds and hundreds of thousands of dollars just doing grub treatments. We make hundreds and hundreds of thousands just doing fire ant treatments. We make hundreds of thousands of dollars, you know, doing aeration. Those are all actually kind of—

we keep—

we kind of separate them. I know the revenue for them, but they all showed up in our business because we did fertilization weed control. We never were in the grub business mowing lawns. We only ended up in the grub business because we did fertilization, weed control. And this is where it gets crazy. And so as we talk about services, like, I don't know, most people probably don't think about this way because I hadn't really. City Turf is, you know, mowing, fertilization, weed control, tree and shrub health, pest control, and irrigation. That's the business. No, no, no, no. We're like, just, I mean, pest control's got rodents, pest control's got termites. Like, it's like Pest control's got all this other stuff. So who knows how many service lines we're in and most of them make no money, but you still have to train the team. You still have to educate people. You still have to be able to talk about it. The office still has to be able to support it. Like just, I, I went into this whole thing, like think about that complexity.

I was even thinking the other day about like space on your website. Like it's pixels. You only have so many pixels that people are going to see. How many of them are going to split up into 20 different areas? Because I've got to say, I have to say it. I have to have a menu tab.

I need to show a picture. SEO value.

Oh man.

Oh my, uh, when we redid the City Turf website, my previous website, when you click on services, the menu was like, I mean, it took up the whole screen. It was about half the page. It was all the junk we do because again, you're in, if you have arborists, like think about how many, it's unlimited, the diseases, uh, the insect stuff you have to deal with, the feeding. Like, so you are in so many lines of business. And so, um, I do, I dream, like we, you know, I joke, like if City Turf were to ever, I think Phillip and I have talked about this, but if we were to ever expand, there is, I am absolutely certain. I'm sure Phillip will go along with this. We would only do fertilization. We control pest control in the new market. That's all we do because it's just too much.

If you were talking to someone that might be thinking the same thing for their business, they've heard us for the past few months ramble every single week about adding more services. And they have, they feel like they're bloated. What would be some of the, the ways that you would identify which services to cut if they were thinking about potentially removing some?

It's easy. Well, no, it's not easy. This simple. If it was easy, City Turf would probably cut some things like, you know, but I would start by looking at my profit and loss statements. Just really critical that you're, whether it be your profit and loss or you log into HomeWorks or you log into whatever software system you're using. Service Autopilot. Just, it's important that you have a breakdown of this is the amount of revenue that we've generated by service. Wherever you get that doesn't matter to me. It's just important that you can get that data. And if your system won't do it, hopefully you can dump all the line items from your invoice in some kind of a report and you just do some manual, you pay somebody on Upwork. No, you don't even do that. You just dump it into Claude. That was, that was, that was so one year ago.

Yeah.

Yeah. Yeah. You put it into Claude and you just have it tell you what to do. So, um, but that's where you start. So it's like, okay, well, why are we making— I'll make up some numbers. Why are we making $700,000 mowing? We're making $500,000 doing fertilization, weed control, and we made $41,000 doing aeration. And we made $8,000 doing flowers and we made $2,000 doing grubs. Like, Or whatever the thing is. Now see, this is where it gets complicated. Like, I don't feel like I can't be in the grub business if I'm in fertilization weed control. It's like, I feel like I have to do it. Now what I could do is not sell it as a proactive service maybe, and just treat them when they show up. I don't love that, but you could do that. So this is where it gets complicated, but that's how I think about it. So in my little list there, you could knock flowers out. And so the next level question in my mind is, okay, if I were to— if we were to kill flowers, How much revenue risk does that create? And what I mean by that is there are services that if you kill them, it could create revenue risk and revenue risk means they leave because you can't do this thing. And so, like for example, just going from weekly mowing to biweekly, not allowing biweekly mowing created revenue risk. We gave up at least $1 million in revenue just doing that. At least just getting out. I don't know. It sounds about right. I think we gave up about $1 million in revenue getting out of biweekly. That was revenue risk, but we decided that was the best thing for our business. And so it's that kind of, you got to kind of work through these. So you look at each of the line items. How much does this thing create in revenue? Could I get rid of it without harming it, the revenue? Or if I got rid of it, would I just lose like a couple clients? Does it really matter? Could I get rid of it and just find a great flower person to rec— in my example, somebody I could refer that's noncompetitive in my other lines of business? The other questions I'm asking myself as I'm looking at those lines, how much training are we doing? Do I have a special person like Bob, my flower guy? So I'm already at risk because if Bob ever leaves or Bob knows he's got power over us here and we're paying for it, you could just kind of go through how much of each one of these services does it personally take me? This is the beauty of mowing. It's like you can scale mowing as an owner without it consuming you. It's hard to scale $80,000 installations without it being part of taking your time. So I ask myself that. So that's kind of the brainstorm exercise that I think you go through to figure out what you can cut and what you keep.

I think another reason why it's hard to, to cut services is it's like, well, that might be a third of the core service, but it's way more profitable.

And so there's that.

That's hard.

Yeah.

Yeah. It's like, well, it's like, yeah, like 50% margin on this. Like, 15% margin on this. But so, yeah, and so it is trade-offs. And so, well, then why don't we just maybe make— you make this the core service and we cut the main thing. But that's a, that's a large surgery, uh, like changing the whole business model.

And real quick before we pivot, you know, the other thing to kind of tie this back to the beginning, what you were talking about in the winter, um, that's another example of, uh, it's like, hey, this service might drive a lower amount of revenue, we should get rid of it. But Maybe not in that scenario because it keeps you from losing money in the wintertime. It makes sense. Like, like City Turf has been testing Christmas lights. I don't want to be in Christmas lights. Nobody wants to be in Christmas lights at City Turf. But hey, how do you retain people? And so now we've added another service, but that's how we justified it. And I, you know, I think it's right because that's how you try to protect margin. Now, I will tell you, if we can't build it into a big enough service, we'd kill it. Like, that's where we are as a company. We would not keep it just to keep it. But I wanted to, you know, make sure that we didn't create any confusion here to what you said. I think solving the winter is so smart, so smart. And so this would be an example of an exception where it's like, hey, we might carry a service that produces a lower amount of revenue and creates a little complexity in the business, but it's totally justified because it's solving the bigger problem inside the organization.

About services, the other day I was talking to a gentleman. He had like, I think, 6 technicians, but they're all very skilled. It was a handyman business. And he was trying to convince me. I'm like, bro, you got to specialize. You got to cut down how many services you offer. He's like, wait, wait. He's like, I do very— like, we just have one service. I'm like, what's that? He's like, handyman.

I'm like, bro.

I'm like, what don't you touch in the house? That's one. Yeah. He's like, oh no, we do everything. I'm like, The worst ever.

That's a perfect example. That's a better example than my fertilization weed control. All right.

What's your third one?

My third one is retention. I just, I mean, and it's just, it's not that we, none of us think about it. It's not that we don't focus on it, but I will tell you, when I started CityTurf and when I started Service Autopilot, Not that we got it right or got it perfect, but the focus from the beginning where I was willing to sacrifice margin was quality and customer service as best we could. Again, you know, it's, we didn't get it right all the time. None of us do, but that was really an area where we spent money and it plays directly into retention. And I think it also builds brand in the long term, which is not where we're going here. It just pays massive dividends for a long time. But it costs, it truly does cost you money to be really good and have really good people and be really good at customer service, as I said, but the way it pays is so unbelievably important as the business starts to get bigger. So you just kind of imagine the scenario where if in your market, pretty typical, uh, churn Number of people leaving because they're selling their homes or whatever's happening in that market. Plus people get divorces, plus people lose their jobs, plus people will get mad at you no matter how good you are most of the time. Like just let's for easy math say there's just not much you can do to get around losing 20% of your clients. As the business gets bigger and bigger, I just think about what that means. That means, you know, if you kind of think about the business you have now, how hard is it just to grow 20%? Like that's hard. And that gets harder and harder before, or as the company gets bigger. But if you have bad retention, you have to first like do the equal. Like if you lose 20% of your clients, the math is wrong here, but it'll just make a very simple point. If you lose 20% of your clients, the first thing you have to do next year is grow the business by what feels like 20% just to get to break even. And then you got to grow it by another 20%. just to get the 20% growth. That math doesn't work, but you get the idea. That is hard when you've got 100 clients and you lose like 10, 15, 20. It's like, that really is a bummer, but it doesn't feel as bad as having to replace hundreds or someday if you get really big, thousands of clients a year, just to get to break even, to then need thousands more to grow the business. And so, This is a thing that will— the things that get you retention, quality customer service, will pay dividends massively. It'll drive down your marketing spend in the long term. It will make selling easier. It will make growing the business easier. It'll make the quality of your brand better, which makes selling easier, which makes your marketing work better. There's just so many— the things that it takes, as I said, to get higher retention. Just pay in so many ways. And so it's worth thinking about this as early as you can in the business.

Yeah, it was amazing. We just recently have got all this churn data, so like I've been geeking out about it. Mm-hmm. I would probably— the best metric that I was most proud of is the fact that a year ago, our 90-day churn— I'm not proud of it. It's really bad.

Wait, which company are we talking about?

Oh, Augusta. So we—

okay.

Okay. All the system-wide metrics we pull in. So system-wide, again, not proud of this number. a year ago was, uh, in the first 90 days, we lost 20% of customers, 20.8% of customers. Not good in the first 90 days of, of setting up a recurring service. But with all the work put towards it this year, it's 10.2%. So basically—

That's a massive change.

Half, right? And so what's challenging is describing how amazing that is. It's like, that is gargantuan, but it's so much, it's so much more fun and exciting to go after customer acquisition costs, new customers, get more customers. But until you get to this million-dollar market like we're talking about today, that's when you start feeling the effects of churn. Because if you have 300 customers and you churn, let's just call 30% a year, you have to go out and get 100 new customers every year just to stay flat. And now let's assume for a minute that you don't have enough referrals or word of mouth or SEO coming in. You're gonna have to go pay for that. Like, it does show up on the P&L. It just regurgitates itself up on the advertising and marketing spend to be able to replace your churn.

Yeah.

And so seeing that number has been like so eye-opening for, I think, a lot of our owners, but like really being able to understand the impact of churn. And more importantly, even some of the things we talked about, like making decisions to add more services because I can't get to a million, is that the problem? Or is it the fact that you have 20% churn? And if we just solve that, you'd immediately double the business. Like, Yeah. Again, it's always a math equation. You can just take how much recurring revenue is coming in, new customers, divide that by your churn rate every month, and you have where you're gonna stop growing. And so, yep. Yes, you could double how many new customers you get. I think for most people, focusing on reducing their churn by half would allow the exact same outcome with probably less expense.

Tons less. Yeah. You'll have more margin.

Okay.

Yeah.

All right. I'll move on to my third and final one here. And, and I think we've talked about this a little bit too. I made a video recently about it, and that is like when capital constrained from that $0 to $1 million marker is like just stair-step growth. And how I like to think about it is like the first year, first half of the year, first 6 months is I'm growing typically during your busy season. And then the second half I'm going to optimize instead of just constantly, you know, pedal to the metal. I'm buying trucks, I'm hiring people, I'm getting my supply way ahead of my demand. And I think it's okay if you have this ambition of building a million-dollar business that's 20% profitable, is grow and then optimize, grow and optimize, optimize your profitability, etc. And then the first half of the year, it's like I'm hiring, I'm advertising, I'm getting new customers. But I think the reason I talk about this, a lot of times people will spend a lot of their marketing dollars in the time of the year where their customer acquisition cost is the highest. And it's in this pursuit of growth versus, okay, I will grow when I can grow at a lower customer acquisition cost, and then I will optimize my business when it doesn't really make any sense for me to go buy more customers and keep advertising and plowing money into marketing. But anytime I see when someone is hungry for growth, to your point, it costs a little extra to get that form in. It costs a little extra to get the extra truck. When you're way ahead of your skis and you have 3 extra trucks, 2 guys you don't really need on the payroll. Everyone's kind of kicking around because of it. They know there's not a lot of work going on. They want to get their 40 hours in. That's when I start seeing a lot of bloat and a lot of waste. And then people never make a profitable business. They grow, but they never grow profitable. They grow a large, unprofitable business at the end of the day. And I think the kind of happy medium I've seen it, assuming you're capital constrained, meaning you don't have loans or money that you can just keep pumping into the business, Is grow for half the year and then optimize, raise your prices, move that the bottom 10%, increase their prices. Like that stair-step approach to where now when you have a million-dollar business, it's 20%, not you've grown and grown and grown and you get to a million dollars and you realize I'm actually losing money.

Yeah, it makes a lot of sense. So you gave the example of raising prices on the bottom 10% or some percentage of the business. What are examples of safe places to Dial back your spend, your expenses to clean up the business, to optimize.

Advertising is, is low-hanging fruit, especially if you're trying to grow. Like just dial back when you know customer acquisition cost starts to literally double or triple.

Is that a, like cut it in half? Is that eliminate it? What, what, what does that mean?

I think the thing that I've seen be useful is understanding what your actual capacity is so that when you hit it, You know, you can dial back marketing, you know, you can dial back advertising. You only need to get a certain number of customers and being able to know, okay, with this number of employees and this number of trucks, I can complete this much revenue or this many budget hours. And when I hit it, I know I'm going to raise prices and I'm not going to go out and just willingly buy a truck or extend my capacity late in the season when I know that vehicle is not going to get used very much for after next few weeks?

Yep.

And understanding what your demand curve is and then matching it with what I'm spending on marketing, that's a low-hanging fruit. I think the other part is just even when it comes to admin, like, can I somehow make that a variable expense that when I get less busy, I'm able to bring, dial that expense back? Anytime anything fixed, I like immediately, that's the first thing I'm looking at is can I bring my fixed expenses down To make sure that when I'm optimizing the business, it's actually profitable.

Are there any forms of expenses you've seen people try to cut to get more profitable and you'd say, no, no, this is, this never goes well? Does anything come to mind?

Oh man. Um, if you got really sharp, like things like benefits and stuff like that, like I, I'm not gonna touch the culture of the business. Yeah. I think, uh, being able to do a good cost analysis on like, okay, What's the cost of this expense? If I, if I do cut it, what's the downside? For example, I'll rip out all the admin. I don't need them. Well, is— are you going to replace them? How long does it take to train them up of your time?

Right.

And so I think it's rare that someone has people expenses that I think they need to rip out. I think you can take this way too far and rip stuff out. But I certainly think it's a matter of trimming and optimization, not necessarily like I need to change the business model. during this time of the year or like the second half of the year, I'm just like cutting everything. It's like, can we take 5%, 10%, 15%, look for these areas of opportunity, reduce our spend on marketing and the offensive measures that we had when customer acquisition cost was low? But nothing comes to my mind that I see people go like way overboard because usually it's pretty obvious. Like if I, if I, you know, axe Sally at the end of the season because she's overhead, I'm going to have to replace Sally next spring.

You'll pay for it.

Yeah. So I don't usually see that one being cutting too deep.

I know there was so many other things we could have talked about here. I think this list of 6 is great because it's not the same thing we talk about all the time. If you think about what you've seen over the years within Augusta or just all the different people you've interacted with, of those people that are trying to get to $1 million, what would be the top 2 problems, places to focus that It's like, it's the thing you see the most.

The thing that came to mind, just because it's top of mind for me, was taking your P&L as whether or not your business is profitable instead of individual departments, individual crews, individual employees, like being able to break it down. And the reason it's top of mind, I just got off a call with someone, they're doing probably $3 million in revenue, but they weren't able to tell me which of their crews were most efficient or which ones were profitable and not. They just know overall we're about 15% 15% profitable. And I know, especially because they have no pay for performance, I know that some of those crews are 30% profitable and some of them are 5%.

Yeah.

And so I think looking at this bucket of all the revenue and all the expenses in my business versus their individual departments, their individual services, their individual crews and employees, and each of those can be profitable or unprofitable at varying degrees. And not zeroing in on that is leaving a lot of money on the table simply because I'm looking at this aggregate 30,000-foot view of my P&L instead of a more zeroed-in approach on the service, the employee, or the department.

Yeah, that's, that makes a ton of sense.

And, and what about yourself? Do you have anything that comes to mind?

Well, the reason that I talk about the 5 for 50 concept of the 2 engines is that is something I, I mean, there's so many things, but it's a top-level thing that I, The 2 most important things inside the business: get work, get people to do the work. And so, if I like to always think about the macro things, the biggest levers you can pull on, and so the not getting enough people or not getting enough revenue, it varies by company. Some people you talk to, like, I got plenty of people. Some people you talk to, it was like, I got plenty of work. It varies, but it's usually one of those 2 big problems. And if you look at, I love the concept is like, hey, you can tell me what is most important to you in life, but all I have to do is look at where you spend to know what's really most important to you in life. And finding people or finding customers is the perfect example. We all run around and say we're doing marketing, we're doing this, we're doing that. But if you look at what we're really doing, especially when it comes to recruiting, it's like spending 30 minutes a week on this thing. Like, if this is really the biggest thing that's causing you problems, why are we spending 30 minutes on it? And it's like, well, I hate doing this because I have to go through so many people and I have to talk to so many people and most of the people are just going to quit anyway. So it's like, it's like, oh, okay. So we're just going to like give up and we're just going to talk about the problem. But this is, so I tend to think this is one of the top-level problems for people. It's like, which is your biggest constraint at the moment? Meaning, which is the thing that you whine and moan and cry about all the time? I'm not, you know, we all do this. Me too. And like, what's the thing you whine and cry about the most? Okay, there's your hint. That's what should get all your time. Like as much as you can fix it. Now, what's the new thing you're whining and crying and moaning about all the time? That's the thing that should get all your time. If you just sort of do that, your stuff will go so much faster, but that's not what we do. It's not what I do a lot of times. Like I can whine and cry and moan about the pest control business at CityTurf isn't growing as fast as it should. And then you look at what Jonathan does. He's like, hey, I want to work on my welcome package. I want to work on this. I want to work on this cool idea. Mike says I should be doing Facebook. My goodness, we should be doing Facebook this year. Like, we all do it. You know, we all do it. And so the problem most of us have is like just focusing on the single biggest constraint, the single biggest problem for a while, and then moving to the next one. If we just do that, it sounds so easy, but so hard.

Yeah.

It's so much better.

Excellent way to wrap it up there. For everyone that's listening down below, I'd like you to comment. What's the one thing that you're going to take action on?

Good idea.

So we have these 6 tips. We've also spit-fired multiple ways and improvements. There's even for larger operations, gonna be a lot here. So down below, this is the action step. You got to comment. What are you doing this week? And by the time next week comes, we will talk about million-dollar operators and how to go to $10 million. But for now, What are you—

no private equity in AI though next week. I'm not bringing it in. We're, we're done with that for a little while.

Not happening.

We're just good. Here's how you do it. Exactly.

But comment below what you're doing this week to take action. But I appreciate all of you listening and we'll see you next week. Take care.

Same. See you guys next week.