Brutally Honest Advice to Build a $5M Home Service Business

I want to give you some brutally honest advice if you are a home service business owner. My name is Mike Andes and the founder of Augusta Lawn Care. We have over 180 locations around the world in the United States, Canada and Australia. And I've been doing home services going on 18, 19 years now. I wanted to share some of the things that I have learned and the four different leadership hats and the roles that you as the owner will have to play as a business scales from 0 all the way to 3 to 5 million in annual revenue. The first role of an owner is going to be a solo operator. And so when I give a revenue range, just keep in mind it's going to be a wide range and it's going to be likely insignificant in a matter of few years with inflation, cost of living going up, et cetera. But I'm going to give it because everyone knows that number. So the solo operator I usually see doing between 0 and $200,000 in annual revenue. Again, this number can also be inflated if you have a whole bunch of material costs. So if you're a contractor, if you do installation, if you have equipment, lots of materials on a job site, that's going to inflate that revenue dramatically. So yes, there are people that do 3, 4, $500,000 as a SOL doing construction based jobs. There's a lot of materials involved, they're renting equipment, they might even bring subcontractors in. As a solo operator as implies is by themselves they don't have any employees. Maybe they a family member or a friend to help them on a big project on the weekend, but the vast majority are doing all of the work themselves. And this size of business, honestly, people hate on it, but it can actually be very profitable at this stage. The challenging part is that hey, if you're not out in the field doing the work, you're not making any money. And so really what you're trying to do is optimize as much of your time for operations. Any business, there's a trifecta of needs to happen and the hats that an owner wears at sales, getting the work, operations, doing the work and admin, which is like greasing all the gears so that the work can get done. This includes payroll, email, phone calls, et cetera. When we're a solo operator, we're really trying to optimize as much as possible for operations. Because when you're doing operations, the business is making money. If you're doing sales, if you're doing admin, the revenue generation for the business goes to zero. And so really what you're trying to do is automate and reduce as much as possible on sales and admin so you can do work as much as possible and generate more revenue. Now, as you begin to grow the business, let's assume that, hey, I don't want to be a solo operator. A lot of times the reason that people say they don't want to be a solo operator is because, well, if I get hurt, then immediately the business stops. And you're right, because operations, the doing of the work, if that stops, there is no more revenue in the business. And that's the major risk that a solo operator has. However, a lot of times if you optimize as a solo operator, you can increase your margins, you increase prices, because you just got to hit capacity and you can increase prices now. It's also very difficult though, from a scheduling perspective, because sometimes if a job goes over all of a sudden, it can really cascade very quickly because you're the only person that can do the work. So it's hard to catch up on once you get behind. This leads to a lot of really late nights, weekends being played out, especially when there's weather delays, you do not have enough manpower to catch up if you ever fall behind. And so a lot of people like, well, great, I'm going to grow the business, I'm going to hire employees. And that's when you move from solo operator to working gm. I call it a working GM because this model starts to work even if the owner's not there. But if you are the owner operator, you are serving as a working general manager, meaning I manage still all aspects of the business, but I am still out in the field. I'm quote unquote in the business doing the work. So at least half of my day, the more the better, more profitable I'll be. I'm also still handling elements of the admin, but I know I need to start delegating that because most of the time, the first thing we want to delegate as business owners is admin, because it's the lowest leverage task. And then as we grow the business, we start handing off operations is out in the field doing the actual work. And then way down the road we'll get into talking about delegating sales. So as a working gm, the whole goal of the business at this size is grow from that 200,000 marker, usually all the way up to 500, 600, $700,000 in annual revenue is a good range that a working GM can handle. This is usually going to be between one and three or four employees that are very profitable if you stay at that size. Each of these leadership hats and these stages where you as a leader take on this role become profitable when you stay there for two or three years. If you're going from one to the next and you're growing very quickly and you go from 100,000 this year to 500,000 this year to 900,000 the next year, if you're doing that, that's going to create a lot of chaos in the business. And I'm not opposed to growth, I love growth. But just know that there's going to be more stress financially, also more stress on, because you're going to constantly be evolving your role instead of trying to optimize it and increase prices. When you hit capacity, you're going to be buying more trucks, hiring more people and constantly creating extra stress on the businesses systems because you're growing the business and growth creates chaos. And so in this working GM model, our goal is to still produce revenue at the operations level. And the hard part about this size is you don't really have enough money, especially for three, $400,000 in annual revenue or one or two employees. You feel very torn between doing the work and generating revenue. But also knowing you got a lot of email piling up and the phone calls ringing off the hook and you got text messages coming in, lots of customer communication and you know you need to do follow up phone calls and you need to schedule the estimates and you do designs. And so there's a lot of stress at this stage. I call this usually the wilderness of profitability. Between that $200,000 to $500,000 marker when you're getting those first couple employees. The reason I call it that is because you don't make any more profit, usually at 200,000 compared to you're like, I'm going to grow the business, I doubled last year. And you're like, but I took the same amount of money out of the company. And a lot of times that's because when you get your first one to employees, all of your costs go up. Now instead of having a 20, 30% profit margin because you have employee wages, you have payroll taxes and you now have bought trucks, equipment, your insurance goes up, you've got to get a bigger shop space, you can't do it from your garage anymore, so there's extra cost and there's just a lot more involved. And when you hire those employees, you realize that they don't work as efficiently as you. They don't get as many jobs done as you do, their level of quality is not high as you. And so there's also stress just from a customer service perspective due to the fact that you get your net first unhappy customer. And these are customers that know, like and trust you as the solo operator. And so there's a lot of stress here because you feel torn between the field, between doing the admin work, getting more jobs, as well as the fact that your customer service is slacking and the quality of your service feels like it's going down because you have employees out in the field instead of you doing all of the work. So this working GM model, the size of business that you're leading at, really the profitability of this size of business comes down to one thing and one thing alone. And that is what percentage of the working GM's day is spent out producing revenue. Because if you have 1, 2, 3 employees and you're working on the business, doing full time sales, doing full time admin and not in operations, your business will not make money. I have seen businesses that are doing 5, 6, $700,000 in annual revenue at this working GM model size and they have 2, 3, 4, 5 employees max. And at this size, I have seen the exact same revenue business with this exact same number of employees, one being where the owner is able to take six figures home as a distribution and the other where they're barely breaking even. And the difference is simply whether or not the working GM is producing revenue and doing operations out in the field. Again, when I say working gm, don't immediately think that you're hiring someone. If you're the operator, you could be out in the field doing some jobs, maybe five, six hours a day doing jobs, and then another five or six hours a day doing sales. And your admin, keep in mind that the difference between those two businesses is simply one person's work. And you say, well, how is that possible? $100,000, one person, other person, nothing here. Just run the math. If you're able to produce 30 or 40 budgeted hours worth of work as a working GM that's actually generated revenue for the business over the course of a year, if you're charging 80 or $100 per hour, you're going to produce about $100,000 in revenue of labor revenue. And that's the difference between working in the field, still at the working gym model, versus someone trying to work on the business way too soon. And this is the size of business where I feel a lot of people feel this pressure that they I know I got to work on the business. I go, yes, you do. In the long term, to grow and to get past this size, you do need to work on the business. But to make it profitable and reduce stress at this size of business, 3, 4, 5, 600,000. I actually need to be in the field as much as possible. And to do that, I'm going to delegate admin as fast as I can because that's the lowest leverage task. And when I say lowest leverage, I do not mean it's least important. It's extremely important to communicate with customers and answer their phone calls and answer their emails. But it's also a task that you can delegate to someone else for the lowest cost with the least amount of skill. And so I recommend at the working GM model size to delegate your admin. Right? So we have sales, getting the work, operations, doing the work of admin, greasing the gears. There's no reason why at this size, if you're trying to grow through it, that you are, you are answering your email, you are answering text messages, you're answering the phones, you are sending out invoices. These things need either be automated or delegated. Automated could be something like Copilot CRM where the invoices are automatically created, sent and charged to customers. There are automations for text and email follow up with customers around, overdue invoices around estimates have been sent but not accepted. These are all things that should be automated and if not automated, at least delegated. Whether you're going to hire a service to answer your phones, whether you hire a service for, on a per minute or per hour basis to do your admin tasks, you should not be doing admin tasks. The reason is because the alternative to you doing admin tasks that you could pay someone 20, $30 an hour for is you going out in the field and producing 80 or $100 per hour worth of operational revenue. And furthermore, I would ideally not like to have this person, this admin role that I'm delegating to be someone that's full time on salary that I have to keep during the off season. This is why I'm a big fan at this size of business to delegate this to an agency or someone that's going to handles on a per minute or per hour basis. I don't have to train them up. Because the last thing you want to be doing as a working GM is training someone for 2, 3, 4 weeks office only for them to leave a couple months later. And then the process keeps repeating over and over and over. I need admin to grease the gears of the business because they keep leaving. And trust me, it takes a lot longer to train up an efficient admin person than it is someone out in the field. And so I would delegate this as quickly as possible even if I'm paying a higher permanent or per hour rate to someone that is, that is virtual. If not my spouse. If you have a spouse that's willing to work for you, great as an admin person, answering emails, doing phone calls. But I want them to take all the reactionary tasks of the day off of my plate so I can focus on operations and my sales. I do not want to be focused at admin at this size of business. And that is the working gm. Now the third stage, the third leadership hat that we're going to wear as an owner is the full time gm. This is what everyone qualifies as working on the business. This is when you are no longer out in the field or on the truck. And this is a great time as a business owner. If you feel a lot of accomplishment like man, I've made it and you have some validation that hey, I don't have to go out and produce the revenue anymore. Keep in mind you are now fully overhead to the company. There's a lot of times when businesses will slip down to that 10 to 12% profit margin is because now the owner or the general manager is fully out of the field, is a full time general manager. This person is not going to be managing the admin, managing the operations and managing the sales. They are above all three divisions of the business. There is no middle management. They are not actually the one that is doing the work. They're mostly focused on the highest leverage task of the business at this size and that is sales. The reason it's the highest leverage task is usually it requires the most skill. It's the hardest person to replace in the organization is the salesperson. The void driving in new leads and getting more work is going to be this general manager, full time general manager that's doing sales. Again, I call them general manager. But if you're the owner operator, you might be serving as the full time manager. And many times this is when a business starts doing between 753/4 of a million dollars, all the way up to 1.5 million. I have seen a full time GM be able to operate. The dangerous thing is that if you start having to add a whole bunch of middle management at 750, we have a problem because we can't afford a full time sales person and a full time office manager with an assistant as well as an operations manager. And we're doing 700, 800, $900,000 in annual revenue. This is why so often the times we were gunning for a million and to do that they get all these other managers in place and they never become profitable or they lose money. And this is because there's so much overhead in the business. And so at the full time GM model, what I'm trying to do is I'm trying to keep my employee base between six and eight employees. And if you get there and you want to optimize, you start raising your prices, you can easily start doing 7, 8, 900,000 in annual revenue and be profitable as long as there's one general manager that's overhead. Mostly team members out in the field doing work. And then you might have an office person, whether it be virtual or in person. But I'm trying to avoid, I'm trying to avoid having to get big fancy shop space that has an office building and a whole bunch of land. And I'm paying thousands of dollars, 5, 10,000. I've seen people spend tens of thousands of dollars in their shop space and it's straight overhead. The customer is not paying for that. And in home services, the customer never even sees your shop space. The only reason I need that shop space is to get closer to the customer and save myself drive time. That's really the main objective and a place to gather. Keep my crew, keep my, have meetings, my trucks at night. Like there's certain advantages of having a shop space, but it doesn't actually improve the customer experience. And so I want to be profitable where I have a full time GM managing 6 to 8 employees. Now why do I say 6 to 8 employees? Because above 8 employees maybe you can push it to 9 or 10. If you have a really good GM, a really good operator, if you're the owner, that's fine that you're a manager. Like your job here is management. You are not doing the work you need to manage, you need to lead. You're really good at training, you're really good at delegating, you're good at having team meetings. You're good at what? One on one meetings. Encouraging your team and getting them to be more efficient, you're working through your team is why it's a high leverage task. Management is a high level leverage task because if you can figure something out and then have five, six, seven, eight other people do it correctly, very good. So a full time manager at this size is mostly going to be focused on sales, they are not doing any operational work and admin is completely delegated. I don't want to go usually over eight employees. The reason for that is because once you get above eight employees employees, it's difficult for one person to manage. And once we get above one full time gm, we slip into the fourth category which we'll talk about soon when I need to start hiring a whole bunch of other middle management and I'll need to scale the business to at least 1.5 million and beyond. But if you're trying to do between 7, 8, 900,000, maybe a million, 1.2 million in revenue, this is a good stage to be at this full time gm. Now I have seen people that optimize in this stage as a full time GM able to reach 1.3, 1.4, 1.5 million by delegating all of their admin, not being in the field, having really simple services and really delegating everything out in the field to their crew and their crew leaders and they just focus on selling. It is possible if you optimize. So when I give these big ranges of revenue like 750,000 to 1.5, keep in mind if you're growing quickly, you're going to feel the pressure to get middle management probably around like 8 or 900,000, not 1.3 or 1.4. And so the faster you go through these stages, you're going to feel more pressure because you're going to need management sooner to continue this growth. And so as a full time gm, my primary task is selling and leading my team. Everything else needs to be delegated. There's no way in the world you're going to be able to operate a million dollar business with you answering every email, answering every text, answering every phone call and feel like you do a good job of it, feel like you're not like a chicken without a head cut off and constantly being reactive to every everything in the business, you're not going to be able to show up for your team as a leader. And if you do, you're amazing, you're a unicorn. But trying to replace you as the business grows and put someone else in that role is going to be very, very difficult. Many times at this size, the difference between someone that can be a full time GM and manage 700,000 in annual revenue with 6, 8 employees and feel like they're losing their mind, and then the exact same person with the same number of crew being much more efficient, doing 1.1 1.2 million in revenue doing the exact same organization. The difference is usually the simplification of their services and whether they've standardized what type of jobs they're going to do. If they've simplified, they can manage a lot more because people are able to operate inside of the systems without all sorts of extraneous weird stuff happening throughout the day. If you're doing types of projects that are one off, that are super custom, they're very complex that you have to get dragged into all of the time, and now you have eight employees, it's going to be hell. It's going to be you walking from one job site to the next, running from here to there, picking up materials. This one's over and it's going to be chaos. And so a lot of times when people hit this full time GM stage, I see them having to spend a couple years actually contract their services. What are we going to specialize in, what are we going to standardize? How are we going to simplify this process? Because I can't go get three people in the office at the size I can't afford or even find employees that have the amount of skill required to do all these 20 different services that I offer. And so the difference at this stage of business as a full time gm, when you're focusing mostly on sales, the reason you'll be able to continue growing is if you can focus mostly on sales. If you have a bunch of admin things that are all one off and you have to juggle a bunch of people in the office and all the rest of it and you have an operations, things are going wrong every day. Massive projects going off the rails, people are suing you because jobs are going bad. You have massive liability because equipment and trucks are going on the job site. Your crew is doing jobs that you're really not insured for. If you're having this, you will, it'll prevent you from growing or you'll run extremely stressed. And if you're growing the business past a million dollars and you have 10, 12, 14, 15 employees, you're going to feel overwhelmed. Because managing 15 people, especially at only $1 million in revenue, which is low for that size of team, you're going to feel completely overwhelmed. Like every single day is chaos. Because at 15 people you need another manager. Most managers can only effectively manage, train, stay in touch with, do one on ones, coach, mentor six to eight people. And so this is why a full time GM at the perfect size, I'm looking at six to eight employees and I'm going to stay at that size and optimize for profits. And I can easily pass a million doing that if I stay at that size. But if I continue to grow, I'm going to need more managers. And that's why I move into the GM plus model. That's when I have a general manager. But I'm also going to have divisional leaders of sales, operations and admin. And this size of business can easily scale past $3 million. So I quantify as a 1.5 all the way to $5 million is really the revenue range that I see. Again, I know it's a wide range, but very dependent on services, area, your rate, et cetera. The reason I say this is because at 1.5 and beyond now I'm getting a point above six to eight employees. Now I need other people to help me manage and I can start growing. Then I'm also going to get an operations manager, someone that's experienced, can lead other people and potentially I might need a couple of those crew leaders or operations manager. And then I'm also going to find an estimator or a sales manager. So now I'm actually delegating as I grow past 1.5 and beyond. I'm delegating sales to a manager, I'm delegating operations to a manager and I'm delegating the admin or the office to a manager. Now though, keep in mind I'm having at least four overhead people. A sales manager driving around all day long. I'm doing operations manager, just managing people and trucks and equipment and materials being moved around and customers expectations on projects. And I'm also an office manager and then also me as the owner or in this place we're calling this a GM plus. This general manager at the top of the org has four people that are highly paid, usually the highest compensated, highly skilled, and their expenses. And so if I'm between these four people generating 250, 300, $350,000 in overhead between their wages, their taxes, their benefits and their compensation and bonuses and all the rest of it, that business needs to be doing at least $1.5 million in revenue. And this is why when I go into businesses that are doing 7, 800,000 in annual revenue and they have an office manager, an estimator, two ops managers out in the field, well, don't do anything in the field is manage the crews and the owner. I know immediately having five overhead people is not going to allow this business to be profitable. So the GM plus model is 1.5 million and beyond, usually 10 plus employees. And it's going to be looking like where I have a GM with operational sales and admin leaders that are going to allow me to scale the business. And as I begin to scale, I'm going to focus on how do I make sure that I have a good balance of overhead employees, that's people in the office doing sales, leading the team to the amount of people out in the field. Because what I see people start doing 1.52 million, 3 million, is all of a sudden they have five people in the office, two account managers and estimators, three operations managers and crew leads that don't actually produce revenue. And all of a sudden the business gets very top heavy and we have 10 people. A $3 million business with 10 people that were overhead to I think it was about 13 or 14 people out in the field, almost a one to one ratio. That is very difficult to be profitable when you have that much overhead. And so the distinguishing factor at the GM plus size business is whether or not the GM plus or the general manager above their divisional leaders are good leaders because great leaders lead with vision, they attract great talent and they're able to make sure that they know the metrics of the business to ensure that each sales, operations and admin function of the business stay efficient, efficient and stay profitable. They're making sure it's efficient and people are trained and they're creating systems and procedures, they're creating scripts for their sales manager, they're creating follow up sequences for them to be able to follow as a sales manager. They're making sure the office has scripts on the phone, that they're measuring their customer satisfaction, that we're actually doing follow up phone calls, that there's not accounts receivable stacking up. And the general manager, the GM plus above his leadership team is now making sure that things are dialed in. As a leader, this is what most of the time we kind of aspire to be is the GM at the top. The guy who doesn't really do any. He doesn't go out and do sales, doesn't answer the phone, doesn't actually go do the work. They're above all of that. But keep in mind this is many times far, far in advance. People are trying to get to this stage because it is rubbing our ego the right way. It makes us feel good. And I understand all of those things. And I sprinted to 1.2, $1.5 million in revenue to try to get to that size. And I make more money from that location. Never Showing up to it now, but having the correct structure in place, simplifying services and making sure that I have a GM at the top that is well equipped, well trained to manage a well standardized and simplified process. And that's the big focus at this size. How do I create systems, simplify things and standardize things? And if that's not your main preoccupation at this size of business, you will many times stall out with a low profit margin business. And I've seen over and over again 3, 4, 5% profit margin on a 3, 4, $5 million business. And that's not what you want because you'll never be able to give that off and hand that off to someone else. And so at each of these stages you can make them profitable. I would tell you if right now you're running a business that is 3, 4, 5% profitable and you're at one of these stages, just spend a year or two optimizing for profit instead of buying more trucks and equipment to get to the next stage. Just when you hit capacity and you can't get any more customers without going overtime with your crew or without having to need more trucks and equipment, just raise prices, raise prices of new customers, raise prices to old customers and ones that are on a recurring basis. By doing that, I'm going to immediately have a massive impact on my profitability and allow me to stack cash so I can accelerate to the next stage of business. Because getting from solo operator into a working gym and full, full time GM into a GM plus model, at each of those stages, it takes an investment, a capital expenditure to buy more trucks, hire more people, and those things cost money. And when I hire more people and get more trucks, I also need more shop space and more software, I need more infrastructure, I need more liability insurance. Like there's costs along the entire way as you scale. And there's nothing wrong with taking a one or two years, raising your prices, stacking cash so that you can accelerate to the next size without as much stress. So if you have questions below, let me know which leadership hat you're wearing. Are you a solo operator? Are you a working gm? Are you a full time gm or are you a GM plus scaling that business into a multimillion dollar business, I look forward to hearing from you.