Economic Slowdown, 1099 Model, Software VS Home Service Biz

Well, let's go ahead and jump right in. First thing on the docket, I know that right now it's very much, in my opinion, kind of a bifurcation of who is seeing really good results in home services right now and getting tons of leads versus a lot of people that are looking at, you know, their business and they're not getting a lot of leads coming in. And I know you had a couple graphs that you wanted to share and just talk about where are we economically from a national perspective versus what people are feeling in, in their home service, in their local community. And, uh, take it away.

Yeah, so I've been having a bunch of conversations with contractors and conversations with people that are consultants to the contractors, and who knows if the data is going to change, but so far people are talking in terms of their businesses being flat this year or being down this year. And people are trying to figure out what's going on. And so I have these two slides that I shared with you, Mike, that actually tell a totally different story. So if we're telling ourselves that the consumer doesn't have any money or they're in trouble or whatever the scenario is, the data doesn't actually paint that picture. So I think if your business is flat or not growing, It could still be related to the consumer. I don't question that story, but I think it could also be other factors. And so I thought it would be interesting to take a look at a couple slides here.

Yeah.

Show people what's going on and then let's talk through this and let's brainstorm why this might be happening to different individuals.

Maybe explain this one, Jonathan, just for— there's a lot of data and a graph that makes people horrible for our attention, you know?

Well, I, you can look at this and we could boil it down to this really simple idea. If you feel like your home is worth more money, if you feel like your business is growing and you're making more money, if you feel like you're— if you have any stocks, if you feel like they're up in value, you feel a level of confidence and you're more likely to take the vacation, you're more likely to update the truck, you're more likely to spend money. That's exactly how our buyer feels. So if our buyer feels like life is getting better for them, then they're more likely to invest in their home, their property, etc. This graph says household net worth is as high as it's ever been, and most household net worth, frankly and kind of unfortunately, is in people's homes. Home values are up. And so this is telling us 401(k)s are up, the market's doing great. I mean, you can, you can watch the news, but the market is killing it. The market is doing great. And so If people have any investment in the market, their 401(k)s, et cetera, they should be feeling good right now because by all measures, they have more net worth than they've ever had. So the question is, is that real? I think it is. I think there's multiple data sources that say this is the case. So then the next question is, why are they not spending or why are they not spending with you? So that's, that's graph number one. Maybe let's go ahead and take a look at the next one. And then, uh, then we'll talk through reasons. So this one here is— they call this the change in U.S. non-farm payrolls. So basically, this is real simple. It's, it's saying we're still adding jobs to the economy. Again, what's the news say? AI is going to knock everybody out of a job. You hear about some tech companies that are slashing jobs. You hear, you hear about some of that. Some of that may be true. Maybe it's AI, maybe it's just them taking cover to reduce their workforce and they're blaming it on AI. It doesn't really matter what the reason is. At the end of the day, the jobs data still says the economy's growing, unemployment is about as low as it's ever been, and we're still adding jobs. So again, not a negative story. So these are— I thought, Mike, when we were chatting, I thought this— these were important to share for a couple reasons. It starts a conversation about why might your business not be growing, but it also I have this general belief that if we as owners aren't confident, if we're living in fear, if we buy into the news media too much, then we let up on the gas pedal. Yeah, we get nervous.

Totally. One thing I'll bring up, Jonathan, to steelman kind of this chart, because whenever I see a chart, the first thing I'm looking at is like, where's the data? How is that? Where is this coming from, etc.? So when we look at the nonfarm payrolls, one thing that I thought was interesting And correct me here if I'm wrong how I'm saying this. When payrolls are calculated, technically speaking, couldn't this be people getting secondary jobs? Because this is a number of payrolls started or initiated. And my question is, like, I think a large buffer— this was like the whole healthcare strike thing and stuff like around that. But then also, if someone needs a second job, now technically there, that counts as two payrolls. Yeah, that doesn't necessarily mean 178,000 Americans got a new job that was added in net. It's just number of payrolls. Where do you stand on that?

I wouldn't argue with that. I wouldn't even say that I could debate you at a deep level on how this thing's calculated, if it's even calculated correctly. What I would simply say is I would look at it directly and say it's not telling a horrible story. Right. You know, so if somebody is in their business and they're saying my business isn't growing or we're thinking about shrinking this year, it's not that. And I also argue there's totally different economies. I think you would probably agree with that. Like, we— a lot— many of us live in a very different economy than much of the United States. Like, people are feeling very different things. And so there's multiple stories depending on who you are, what part of the country you live in, what, what you do for a living. But I would also say that for most of us, the type of people that are buying our services are living in an economy where they might be getting a second job, they might be driving Uber, they might be doing other things, but the data doesn't say we're falling off a cliff. And to some people in their businesses right now, they think everything's going sideways and they don't know why. That would be probably the extent of my argument here.

So for the person that's watching, they're like, easy for you to say. Um, and for both of us, we're in the bubble of people that have the wealth effect, you we own stocks and real estate. And so for the person that's maybe just getting started, from their perspective, it's like, no, I'm struggling, let alone all my customers. I— my close rate's down 20, 30%. I'm not getting any enough leads. Instead of, instead of us just saying like, hey, it's, it's the data, the data is that things are good. What would you actually tell them to do besides turn off the stinking news and just focus on your business?

And again, I want to be super clear that You have to think about— we don't know, we're talking to a lot of different people here in a lot of different markets. And this is the age-old problem. There are some really, really smart, amazing people that have started businesses in the wrong markets. I mean, I can't argue against that. If you're, if you're in the wrong market and you're in a market that's suffering right now financially, this is a US perspective. This isn't a city, a neighborhood, a state perspective. If you're in the wrong market, it might be very legit for you. But it's not for everybody. And so that's where we get into a little bit more nuanced conversation. We kind of have to walk through markets and have the conversation.

Do you feel like in the past, like, let's call it 3 years, the real estate market as a whole has basically been flat? Like, we saw a big rise up in like 2020, 2021, 2022, with real estate prices going through the roof and equity in people's houses going very high. Yeah, in the past few years, it's been a little more stable. Again, to your point, difference of Austin, Texas versus New York versus all these. But as an average aggregate, real estate prices and the values of homes have stayed relatively the same. Do you see that impacting more than, say, something like a 401(k) or stocks that are not tied directly to the asset that we are protecting in home services and the maintenance or the repairs or the improvements of what is seen as now as an asset. Like I remember in 2021 people were like, oh, my house has gone up $100,000 in value. Therefore me getting a $10,000 deck or a $20,000 fence is an investment. It's almost looked as a different— do you see it affecting the consumer in home services specifically differently when their wealth effect is in real estate versus say their 401(k) or their stocks?

I do. I do. And actually you raise a great point here. So, so far it sounds like I'm making an argument that the data is all golden. And everything should feel good to you. I actually have a whole lot of counterpoints to that. So I, I can argue a little bit of both sides depending on who your buyer is. Again, back to what market you're in. So to your specific point there, yeah, I think that several things have happened. I think that home prices have flattened. I think that people in— and so I think you— that's a very interesting idea that I've actually never thought of, that that might make people feel about how differently about how they spend money from here forward. Also, how much spending didn't— might we have pulled forward on our homes? I really believe this one. Yeah. And so there's two ways that your business could be down. Well, there's lots, but we'll use two. One is you're comparing to '22 data or late '21 data when that was an abnormality. And so you're comparing back to then and your lead flow's down. And that probably some of the data wasn't real. That was a spike. That demand has died down. And so you may still be doing good as a business but have a hard time getting back to those leads. That's possible. But then I would also ask how many homeowners who are now trapped in their homes because they have low interest rate mortgages and they can't buy the next home already pulled forward a lot of the investment in their property, and that's what people are now feeling. So I 100% think think that's also going on.

I think another thing to even build on that more is the, the lock-in effect is real when it comes to interest rates. I think that there are people that have built up wealth though over 4 or 5 years, and they're not going to go get another mortgage because they're going from a 2.5% to a 6% mortgage. But what they will potentially do is do an add-on, do an improvement. And so I almost feel like we could potentially see, even if the lock-in effect stays true with homeowners, that the person that has gained wealth in the past 4 or 5 years— I specifically think of one of our executives here that bought a house at the very bottom of like 2.4%, but his wealth has gone up dramatically. And so when he has kids, it's like, oh, maybe I just do an addition onto my existing house versus going and buying a new one.

I know multiple people have done that. I believe that story as well. I, I think this is a very— I don't think we can actually give an exact answer what's going on. I think it's very complicated. I think it's some stuff got pulled forward. People don't have money to invest more in their house. And then there's the story you just gave. People are still doing okay and they will invest in their homes. But I, what I do think is different is it felt like everybody a few years ago was investing in their homes and that has died off. And now it's a different economy for different people, even in the same markets.

I think the thing that's really shown too is like back to something we, we had talked about last time together is revenue quality. And I think it's so funny because in home services specifically, we don't really talk about valuation ever. And what was really eye-opening to me when we did software, it's like everyone just talks about valuation immediately. Like it's, it's a, you know, what's your multiple? And versus home services, we never think about it because rarely are we thinking about selling it. Rarely do we think about raising money, getting investors or raising capital, etc. But in part, it also keeps us from building a better business because we simply are going after the boom and bust of the market. Like what happened in 2020, and people build $10 million of revenue and it looks good. And then all of a sudden they realize 3 years later, maybe that's a $3 million business that's sustainable. It's not $10 million anymore. And so I made a video recently, it'll come out a couple months, but like quality of revenue, how have you seen that play out versus the people that have chased the revenue in the past, whether it be one-time jobs or recurring, and how are you shifting to go more recurring revenue?

Yeah, well, I only believe in recurring revenue, so that's not really— in our business, it was so long ago I can't even remember. We stopped doing one-time and we only do recurring. We got out of landscape enhancement type work so long ago I don't even know what year it was. I firmly believe in the recurring. And then in our case, we also work to identify the higher margin services in our business and really take the business more and more in that direction, which to your point is what I would also call the quality of You know, I actually just recorded a video today and some people that know both of us, they might hear me say quality of revenue and think, oh, well, he means get out of mowing and don't— and just do fert and pest. And then they know you and like, hey, Mike does tons of mowing in their business. And so I would— I want to— because I know who might be listening, I want to add to this, even in something like mowing, there's different levels of quality of revenue. So mowing is a lower margin service for many people because they're underpricing, they're in the wrong market, or they don't— or it's something different. It's inefficiencies. They don't have density, they don't run a very tight operational business, they're not very careful with their— the asset utilization of their business. There's all these factors that go into creating a profitable business. And so when we talk about higher quality revenue, it's not purely about the gross margin of a specific service. It's about how you execute on even certain services in the business.

I think it kind of just goes back to, at the end of the day, it's operations and how well that is executed on, not only the type of service or the market. For, for someone that is getting started, I think when we look at these graphs, you could very quickly say, hey, if you're about to start choose wisely when it comes to your market. For someone that is in a market where they're like, hey, this is a flat market, it's down, we don't have a population moving here, but I have my family established here, what can I do to tap into the demographic that has the money to spend, has wealth effects, and is going to be less price sensitive if we do enter a recession?

It's not the popular answer, but You have to go where the opportunity is. If, if there's legitimately no opportunity in your market. So if, for example, people just flat out don't have the, the money to buy the thing you're selling, it's as simple as you have to sell something different that they will buy and can buy, or you have to move down the road, which could be very painful, to a market where people can buy your thing. I, I don't think there's any magical answer. If people don't have the money, and that is a true story for many parts of the United States, it's back to what I think I said earlier. You could be incredibly sharp, incredibly gifted, have all the abilities that any of the rest of us have. But if you're in the wrong market selling to the wrong person, you're not going to win. And you're— and I've said it in other videos, you're going to think it's you. You're going to think something's wrong with you. It's not you. You're just simply serving the wrong clientele in the wrong area. And so generally, I tend to think you've got to move the business.

When do you distinguish, though, between someone that is using that as an excuse versus someone who literally just needs to push through, do more reps, you know, wrap the truck, get the website, and do everything else we talk about from an operations sales perspective.

Well, I think the reality is that's actually generally the situation more than— I think the market's a real thing. The challenge for us having conversations like this is that we don't know the specific person we're talking to in their specific scenario. And so this is when it's really important to like, okay, I need to know what market you're in, what neighborhoods you're serving, the home values, the average income level of the market. I need to know that. But we're talking to a broad group of people. Over the years, I've definitely seen the market being an issue, but what I more often see is it's the way the business is being run. It's, it's the execution of the business. And so many times, so much of this, as I've seen— I bet you've seen the same thing— it's, it's, it's I want to call it an excuse, but that's a little unfair. It's a little bit of just lacking the knowledge. Like all of us, we all lacked all this knowledge. We didn't know what to do. So oftentimes it's just lacking in knowledge. And so we think it's one thing when in reality it's something else. You're just not doing the right things yet.

Speaking of execution, next on the docket, we're going to talk about something I know you've brought up before, and that is this whole notion of employees versus 1099s or contractors. Maybe just tee it up. And for this business model of not using employees?

Yeah, so I'll tee this one up in that I'll say I have a whole bunch of friends who are running contractor model businesses. I used to actually be a partner in a full-on contractor model business. We were in the commercial cleaning industry, cleaning movie theaters. They were all contractors. And so I have a tremendous amount of experience in this area, and I'm not a fan. I'll just put that out there already. But I have a whole bunch of friends who are doing quite well building contractor-only model businesses, and they wouldn't do it any other way. Now, I will tell you, they tend to be more in this scenario in the lawn mowing side. You'll see them in the landscape or design-build, but you tend to see more contractors on the mowing side than you might say see on pest control or fertilization, weed control, or some of the other service offerings. I'd be curious what you're seeing.

Yeah, yeah. Like, what's interesting is I thought you were the other side. I thought, like, you thought that was where it was going, because I also see that, you know, the grass is always greener on the other side. It sounds great. I don't have any employees, I don't have to worry about it, Mike, you know, equipment, they're taking care of all of that. But like, I see a lot of people trying it and failing, especially on a smaller scale, especially when someone has, you know, 300, 400 recurring customers, maybe $500,000 in an operation, like, "Oh, I'm just gonna sub everything out." And what it quickly becomes is like, instead of operations becoming your business, quality control becomes your business. And instead of managing employees, you're managing subcontractors. And if they're independent, first off, legally that has to be, there's like bounds around that. And I feel like that's just gonna get squeezed more and more. Like if they're showing up with a uniform, if they're showing up at a certain time, if I'm requiring them to do certain types of meetings or training, it gets really fuzzy in terms of even legally, can I do this? And I've talked to so many where it becomes this constant chasing down of your 1099s and your brand is at risk. And so it feels almost like you're out, out of control to be able to actually make changes to the quality because you don't, you to a certain extent, you don't have control of what they're doing. Um, but I do think it's one of those perspectives of like, it looks so good, But it's just a different problem when you switch business models.

Yeah, no, I, I agree with you, uh, completely. I'm, I'm not a fan. However, I know so many bigger companies, so many individuals, that my bias, or the conversations I have, are more with the bigger guys than the smaller guys. And I know many big guys running this model successfully. And in my case, the business I was a partner in, we were really big and very successful. And so it can work, but you make great points. You're just trading one problem for another. And I think you're trading lots of problems and you kind of touched on them. One is, are these really enduring businesses? Like, are they really— like, are they, are they more— are they wealth creation machines where you might build something and have great equity value in them, sell them? Like, some, yes, but how desirable— like, sophisticated buyers that have money Are they really wanting to buy these types of businesses? They will, but I think they carry a lower valuation. I know of, I know of some big deals that have been looked at, big, big, big deals have been looked at, and, uh, rumors of the multiples for those deals, and they were all significantly less than what they would have been had they been employee businesses.

I think I almost look at it now, especially after doing like Software in the Franchise, it's just like If it, if it appears easy, the enterprise value will just be so low. I don't wanna do it. Hmm.

That's an interesting point.

Yeah. And, and so like, if, if, if it is so easy to get a subcontractor, which a lot of times I look at the unit economics, it's like, okay, if I give 50% to a subcontractor, well, what if I can do it for less than 30% direct labor? Now all of a sudden, like from a unit economic perspective, I could just be just as profitable taking that in-house. And I have more control and not have to walk this tight rope of legalities and have a better enterprise value and potentially be able to sell the thing one day to someone, even a, say, a $2 or $3 million business versus having to build it to such a size to where anyone's interested in a subcontractor model.

Yeah, I agree. I, I think most of the characteristics of these businesses are not the type of business I wanna own for the long term. Like I, I go back to, I think I said this like, Do I really want to put my name on it? Because what I've experienced and what I see is quality tends to not be as good. And to your point, if you're really managing the company to the level you need to manage it to get the level of quality that you want, are you stepping over the line of what the IRS says you can do?

And when you go to sell, that's the first thing they're going to look at. It's like, will this cost— like, if you go into private equity, like, the first thing they're going to look at is like, will this cause a huge headache for us legally?

Right. Yeah. And so, and I will tell you, you know, City Turf's had a couple of bad experiences over the years because we use a lot of H-2B visa labor where we haven't got our H-2B visa labor. Uh, one year was beyond— is you— there's no other way to describe it other than a full-on disaster where we were getting them all until the day we didn't get them all and the season was starting. And we had to— I think it was 100 people we had to recruit like instantly. And that was probably the hardest year the company ever had. And Philip said, you know, Philip runs the company and Philip would say, hey, we made it through, we survived it, but we really did a number on our team. We really wore our team down because of everything we had to go through. And so something you said earlier, Mike, that I mean, I just, I totally agree with. I feel like you're just trading one problem for another. Or a lot of times we'll look at these different business models and we'll hear about somebody's success. We'll say, oh, well, that'll be easier, it'll solve all my problems. And, you know, you'll be the expert on this, not me, but like pay for performance. I believe in pay for performance, but I do think that a lot of people can see pay performance as this magic thing that's just going to solve all the problems. If I just compensate them on performance, they'll suddenly change all their ways. But there's still, in my, from my experience, you, you're the expert at this more than I am. You still have to manage, you still have to coach, you still have to run your company, you still have to have hard conversations, you still have to fire people, you still have to do all the same management stuff. You're trying to get the extra out of them. And so I think a lot of people are trying to run from doing the basics, the hard conversations, the management, the organization, the business. And so they look at pay for performance models, cannot be a negative. They look at contractors. And they say, well, this will fix all my problems, it'll make it easy. And there is no easy.

When it comes to P4P, for example, it's like all the same problems just exist, but now there's pressure around the money because if there's— if there is a mistake and I send someone back on hourly wages, they're still getting paid. On P4P, technically they're not making any more money. I'm going to have a whole lot more problems from a management perspective convincing my team they got to go back when they think the customer's being unreasonable or it's not their fault, it's so-and-so's fault in the crew. And so it almost opens up another level of like almost going to a partnership with the team, which sometimes there's more friction around that than just being like, hey, you're paid by the hour, go do what I say.

Yeah. Something you said earlier, are you seeing from a contractor standpoint, are you seeing a growth in this area? Do you think anything's changed? What's your perspective?

I think the part that I'm really interested in is like looking what happened in Europe. Um, it got so hard to hire W-2s and there was so much legal tape. They got really pushed in this direction. And so it's very common over there. Um, they also don't build big businesses in general. Like it's just a very different environment, honestly. But the sole trader mentality, that's what they call them in Australia of like most people are sole traders and they usually don't get a bunch of employees and they just operate by themselves. One guy in a truck and like Chuck in a truck over there is 99% of the businesses. It's not. 50, 60% like it would be here. And getting a bunch of employees is very difficult because they have apprenticeships. You're looking at $30+ an hour minimum, usually up to $40 an hour if they stay with you for a year or two. It's very difficult to hire W-2, what we would call in the US, W-2 employees. And so I think there might be a world in which legislation and red tape makes it where having W-2s is so restrictive. For example, in Europe you can't just fire someone.

Yeah.

Like, so if we start seeing at-will and other legislation that makes it harder to employ, fire, uh, benefits around when people get laid off, et cetera, start to affect the business owner, that's where I start to get where, okay, this, there might be a world where people go this direction simply because it's so difficult to hire and fire entry-level team members. And in our industry, there's a lot of people that don't last 2, 3 months or 4 months. Yeah. Or 5 months. And then if they're going on unemployment and it's sapping the business, it starts to be where it does look like the easy button. And I've seen enough businesses do it, especially at the smaller scale, that haven't figured out management, that now they've just switched out managing employees for managing subs. And they've lost control because they don't even know what good quality control looks like at a larger size business. They don't even know how to do it with their subs. And now instead of having a, let's call it $30 an hour labor, you're gonna have to go pay someone salary to be quality control and be like project manager to be the relationship between the customer and your sub. 'Cause now when there's a problem, I can't just tell them to go back tomorrow. There's a lot more legal tape around that. And so I do think it's a bit of a shiny object for a lot of people right now, but I also see a world in which it, we all kind of just become subcontractors. And even in the world of software, a lot of people, it's like, hey, if I got laid off, I'll just go now subcontract or I'll work as a consultant to, another firm.

Yeah, it does seem that there's a general move in the economy to be a contractor. You could take the food delivery or the Uber driver or whatever the case might be, but we still have a lot of really unfriendly states to contractors. And so I can see both sides of this argument. I can see as an economy we're moving more that this direction, and we may really move this direction if in fact AI is disruptive to jobs at some point, because people are going to be desperate But I also think the states are going to probably keep pushing back on this. I don't suspect that they're going to relax. It's specific states. And so I think it's going to come down to what, what state are you doing business in and what's that environment. I'll give you a story here. This goes back a long time ago, so I hope I can recite it correctly. So one of our biggest clients was Cinemark movie theaters. We clean movie theaters in 22 states. Cinemark movie theaters bought a major, uh, movie theater chain in California. That movie theater chain was being cleaned by a big company specialized in movie theater cleaning. That company was using contractors. Those contractors, uh, very important to know, Cinemark was public. Those contractors sued the company that was acquired by Cinemark for saying that they were being discriminated against, if I remember correctly. This is a long time ago, and they didn't get paid all their money. That created a problem for a public company. We were working with that public company. They were our biggest client and they wanted us to switch away from all contractors because it was a problem for them. You can kind of talk about this scenario of where like, oh, hey, it kind of looks like the world's moving this way, but you get enough scenarios like that, that then my theory is the little guys can get away with it, but not the big guys building real businesses because they live in fear. Back when I was part of that cleaning company, there were a couple other cleaning companies that were massive that got knocked off. And some of these guys went to jail. They were using contractors, but they were then doing little things like saying, hey, um, just bring me another Social Security card. Yeah, this one doesn't work, give me another one. And like, that stuff got caught. Those guys went to jail. So we— what I've— because I've been doing this a while, I've also seen like back during George Bush, I felt like that was one of the most challenging times. I don't know if it's true or not, but it felt to me like one of the most challenging times to be using contractors. And we've— and then it's relaxed and then it gets hard again. And so we go through these waves. So whenever there is unpredictability in business and there are these waves, how do you build a business? It's like for many people that might use H2B visa, you can relate to this. How do you build a ginormous company when you live in fear constantly of getting your people the next year? And so This is a really complicated topic. And so for me, I suspect that while we might move more and more towards contractors and there'll be more people doing it, I suspect as companies start to get big, they'll try to move away from that because the risks to the big thing that they've built become bigger and bigger and it keeps them up more and more at night. This is really complicated. I don't know the answer, but I am seeing— I do feel like I am like you seeing a little bit of a trend here where people are like, How could I figure out a contractor model and move away from this employee thing?

And if they do, the IRS is not gonna like it cuz they don't file correctly.

Like, of course.

And it's difficult too. Like we, we recently for the media team, we have 1, 2, 3, like 4, 3 or 4 people that are, are remote. And for a long time we're like, hey, you can be 1099, you can write off anything you have. You don't have to show up at a certain time. And they all recently said, hey, we wanna be W-2 cuz we can't get, uh, a renter. We, we can't go get rent or, uh, oh, we can't get any sort of loans. We're having trouble. And so we just switched them all back to W-2. It's a little more expensive for us, but they're like, hey, we need to be W-2 just to be able to kind of like get the next mortgage or get a car payment. Because a lot of these financing companies aren't looking at 1099s the same way.

That's a great point.

And so it's also the quality of the person working for you starts to potentially diminish when you are thinking in terms of 1099. Because they aren't the type of person that's going to have a family, establish themselves, get a mortgage, get another renter, things like that.

I agree. I mean, I remember it was a long time ago in the CityTurf business, the debates around, geez, do we have to get insurance? Is it time? Do we have to actually like pony up and get insurance? Like this stuff I call professionalizing the business. I remember those moments and those decisions way back in the day. They were all made for exactly the reason you just said. It's like, How do we get the next level of people inside this business? And so much of owning a business over— like, selling a business is great, but selling can also be a little bit overrated. There's something to be said for just owning an incredible business that makes really great money. You get to work with a lot of really awesome people and it just keeps growing and it's this dependable thing. That's a great thing, like, to get that gift in life. And so If you fast forward, which business do you want to own? The business with a great culture, high-quality people, you know, the people that are going to take wonderful care of your clients, or a bunch of, you know, contractors running around? It's like, I just— like, if I, if I want to be in this game for a long time, I want to own the other side. And, you know, back to the decision CityTurf had to make a long time ago, it wasn't really a debate about contractors back then. It was like, hey, we've got to step up our game so we can get all the best people, because that's how you win. but more than that, that's how you get to own a company that you wanna own for the long term.

Uh, as a side derail on this, it's funny, I just made a video the other day and it was just basically a rant and I was talking about how I kind of think the one metric that no one talks about that I see in the people that I admire the most is the longevity of their leadership team and for them to stick around for a long time. And it's, it's funny cuz as I was thinking about this, um, I was like, well, Elon Musk, technically not a good example because like xAI, basically every executive has been has left, um, over the past year or two. And I also was like, well, most of us aren't Elon, and when you have the self-awareness to know we don't have that level of skill. But one thing that I have seen, to your point, and that is not like when we talk about the quality of the team, is keeping them around and having stability at the leadership level, not only for the team members below, but also maybe you do sell the business but you take your core team with you And I've seen where that happens and they just go build the same thing and they just— the acceleration because the speed and the trust that's been built. And it's like, if you have trust, you can move faster. And if you can move faster, that's what you can— with that kind of culture. What has your experience been having that kind of core group, especially leadership, as the business scales past, say, $10 million? What has that experience been like for you?

I mean, everything you just said, I 100% agree with it.

It's—

you, you— all the Everything's out of the way and learning how to work with the person, learning how a person thinks, like, are they going to be— are they going to interpret this correctly? Are they going to be offended? Like, what do they know? What do they not know? What do they believe, not believe? Like, there's so many— all that stuff's out of the way when you have longevity working together and this trust is built. This— there's this element where when you're working with the right people, you have a respect for each other. So you just don't want to let each other down. Like we're all in this thing together, that just makes everything go faster. And so a lot of the people I've worked with for a long time, it's like they know what I'm thinking, I know what they're thinking. Like, it eliminated 90% of what we had to talk about. Yeah, we could just go. Or you learn— we'll go back to the word trust. Like, if you and I are working together, like, you've done big things, I've done big things. If, if we— and if we've worked together for a long time, it's like when you say, hey, I think we should do this, or we should execute on this strategy because of our your history and our relationship, it'd be like, do it. We don't need to agonize over it. We don't need to debate it. We don't need to whatever. We just go. And, and so I think there's, that's a good word. You just go, you can go faster and it's more fun.

And that, that's, that's tie it back to the contractor model. That's where I, I'm concerned by people thinking it's the easy button is, yeah, it's actually difficult when you have a whole bunch of subs and you're like, oh, we're gonna change something in the business, the way delivery, how we do upsells. How we're going to package services together to the customer. Now it's a whole different concept of like, I can't tell them what to do. They don't have any skin in the game of this business doing long-term well. They just want this job to go decently enough for them to get paid. And that's where I see culture inside the business start to deteriorate. And I think people are jeopardizing their long-term valuation and the health of the business as well as is the business foundationally set with leadership that does stick around for a long time and does have a team that's really solid in exchange for what seems like an easier button of, I don't wanna manage people's flat tires. Yeah. I don't wanna manage, so why don't they show up to work? And it's like, hey, realize that you're still gonna have to make sure that that sub shows up to work and does the job. It's just now you can't hold overfiring over their head as easily as you did before.

Yeah. Yeah, I'd agree. You know, as you were talking, you also made me think of something else. So I think it is a little bit of, for sure, it's a little bit of this, it'll solve all my problems, the easy button. To be fair too, the reason why, like, for in mowing, I think people are attracted to it— so a little shift here— is they can kick them off the payroll for the 9 months, or they can hire the illegal person because they can't find any documented people, or whatever the scenario. So I understand that you are solving for more problems other than the easy button, but it doesn't mitigate the risks to the business. It doesn't, you know, it doesn't fix all the problems.

Let's look at a blue sky for a second though. In the, the, the malls that have worked, what are you seeing where it does work at a larger scale? Is it that it's a sales engine and they figured out customer acquisition and then they've figured out enough operations for it to have a high enough quality? What is working when people are like switching to a subcontractor model?

It's a simplistic model. We are executing on one thing. So in In our case, way back in the day, we were cleaning movie theaters. That's all we did. That's all those contractors did. Um, and if you're— or you're just mowing lawns, or you're just doing house cleaning. House cleaning especially makes me a little nervous. I think about background checks and a million other things. But moving companies, like, you can— like, all these, they're all using— I mean, our moving company stole like $80,000 from our house when we moved in. Yeah.

Are you serious?

Yeah, yeah. We know 100% it was the moving company, but we couldn't do anything about it. They're all contractors.

Oh man.

And you know, anyway, like, but you kind of, you could think about, there are so— I got a little off topic there, but there are so many, um, there are so many businesses that use these models. But what I do notice is they tend to be very focused on a very specific service, delivering that service over and over and over again.

But to that point, like, you're gonna, you're gonna leave a 5 or 1-star review potentially on the brand that you hired.

100%.

And so that's where I see the The, the lack of brand equity is now I am putting my brand in the hands of a subcontractor who has really no downside if something like that happens. Like, I'll take the $80 grand from a $500 job that you gave me and not have any consequences.

You're right. I would never use that guy again. I would tell everybody never to use him again. Mm-hmm. And, and that is exactly one of the risks where you don't control the outcomes in quite the same way.

And I think the businesses that stick around for the longest time, specifically in home services, they're able to switch away from having to buy every customer and every lead and rely on their brand equity, whether it be online, their reviews, the word of mouth reputation to be able to drive leads. And that's when they really get profitable. And so if we don't have that because people are leaving 1-star reviews about that sort of theft, that sort of thing, for example, when I hear that as a franchisor, for example, that's the type of thing that can sink an entire brand. Like that's a huge liability for us. Like, that's why we have to do compliance around insurance, for example, because if something like that happens and that goes on social media and gets blown up, that's not just one— that's a— that can become a national problem for us.

Well, I was going to say, you are— you're asking about the companies where I'm seeing them do this, so you kind of made me think of one more thing. So they're keeping it simple, and I think they're tending to run— not, not all, but they tend to run a more high-volume business. And I would describe them as a little bit more lifestyle businesses. They may not have thought through the equation that, hey, this isn't that valuable of a business to sell. They may have just never thought about that, but they're just maximizing their annual income. I've been at this long enough. I've noticed that many of these businesses will ultimately change names. There are some great guys running great business. I don't want to— we're sounding all negative. I'm friends with some of these guys.

You guys are great. We love you. We love you. Yeah.

I'm friends with them. I go to dinner with them. We talk about their businesses. They're making a ton of money and it's going pretty good. But I, sitting at dinner, I would voice all the exact same concerns. And so, but my point here is I have seen over time many of these businesses will change names or they just slowly fade away and then they'll spin up new brands. I've seen that a lot. And so that's fairly telling that, that, you know, to me tells me that, they have a hard time controlling that brand in the long term. And so it's easier to walk away from it.

Yeah, it made for a great YouTube title. We did a turnaround with a young guy. He was like 19 years old, really good at like web design, AI flows, selling online. And then he just subbed all the workout. So it was like $4 million at 8, at 19 years old with no employees.

Mm-hmm.

Had like 100, like 400,000 views. Uh, but sure enough, it, it's very difficult to manage. Um, yeah. And they had to really scale back to about 800,000 and it's difficult. I want to pivot to the next item on our docket. And we kind of touched a little bit on leadership already, but I want to talk to the operator that's built a $5 million, $10 million business and talk about what is the most important hire then? As a business scales, it's no longer you as the operator out in the field and you're trying to build out a team, really scale the organization. For yourself, you've built multiple businesses past $10 million. So give me your perspective on who is the right hire, because I think sometimes I get like, who should I hire? It's like, well, very different based on what your business needs. And so what has your experience been when finding the right person?

Yeah, it very much depends on where you're at. It's this— it's always hard to be prescriptive when you're doing a— talking to a broad audience. But if you talk in terms of generalities and what I most see, and by all means chime in and tell me what you've seen, but It's always operations in these businesses. Like, there's absolutely other roles, and I can speak to those, but it could be that you're past $5 million and you're— and I would say to you, do you have a really strong operations manager? You're like, I do, I have a good operations manager. But my next question back to you would be like, no, but are they like killer? Are they really, really good? Like, do you never have to think about this? Are they every day showing up and making it a little bit better, a little bit better? Are they looking for ways to optimize? Are they willing to get their hands really dirty and deal with all the hard stuff? Are they letting people go? Are they carrying people like all of us as entrepreneurs maybe are still doing or had to learn, where we just, you know, we carry people that we know we should get off the team? Are they doing the same thing? A really killer operations person is to me the single most important person in the company. And there's different kinds of operations persons— people, you know, in the early days you might have a assistant operational person where you're still involved in operations. And then one day you might have a head of operations that's over the field and dealing with customer complaints and getting the crews out in the morning and coaching the crews and doing all that. And that will— and then operations to me progresses all the way up to what you would call a COO of the business, a chief operating officer who is running everything operations inside the business. And if it's really sizable, then you may have the equivalent of an operations person under, over each division if you're a multi-division business. And so that is the role that makes all the difference, that moves gross margin, that moves COGS, that leads to all the great things that can happen in a business, including you feeling like you have a real business that isn't a nightmare to run and own. So that, that's, that's the one that applies to everybody. And I would end with saying you really want to analyze the person you have in this role. Like, do you really have an incredible operational person? Because they will change your world. Much like maybe the experience— I bet you've had it, I've had it— where in the early days of our businesses, we'll use another mowing example. You think the mowing guys are okay, and then one day you get this different team member. You're like, oh, this is what good work looks like. This is what fast looks like. And then it changes the way you think forever. And the same thing happens with an operational person.

Now, what does that operational person look like though at say a million? Like everything you said around like the crews, for example, an operational person at say 5 or 10 million might not actually be interacting with those frontline team members. What does operations look like as you scale?

Yeah, so, so depending on what you can— so this is my experience, I would love to hear yours as well. I definitely want you to chime in. So for many people, even up to a million and past a million, I tend to think, um, based on what I've seen and based on the money available to the company, that the owner is wearing a million hats, as they say, and he or she's living in the CEO role, the operations role. They're living in all these roles. And so oftentimes those companies haven't really got— even at a million dollars, don't have a real operations leader, operations manager. I call that person more of an operations assistant. I think that's a wonderful first step. I do. I— this idea that you hire just the right person that's going to take you where you want to go is a pipe dream for a million different reasons. And so it's, it's a bummer, but it's perfectly acceptable to get the right person for the moment in time that can get you a little further. And then eventually you might have to get a different person. It's a bummer, but that's the reality. And so The reality for most people is you don't have the money or the knowledge to even know who to hire yet. And so an operational assistant that just, if you were to just task list all the stuff, dropping a line trimmer off with a crew, like buying weed eater line, you know, getting a, taking care of a broken mower, going and putting a new sprinkler head in 'cause somebody ran over it with the mower. Like we'll use a lot of mowing examples. Like all those things are things that an operational assistant can do. Client complained about something, it'd be a dream if this person could go talk to them, but maybe they can't talk to them. Maybe they just go out and they could take pictures of the problem, uh, or take video of the problem, or whatever. This— they can get the guys out in the morning, they can receive them back, like they can make sure that, you know, all the inspection stickers are up to date. There's a million little piddly things that are consuming you as the leader of the business that if you got them off your plate, you could go sell more work. And so that to me is an example of step 1. That's an operational assistant. They, they only have to be so good and they only have to be so expensive. And then step 2 is the dream would be that person could grow into an operations manager. And the way I start to think about an operations manager is you're starting to share with them some of the metrics of the business. And not that you can't do this with an operational assistant, but operations manager is like, okay, do they understand how we impact COGS and gross margin? Do they understand labor ratios? Do they understand what these things mean to the business and how moving them means they're going to make more, they're going to do more, and the whole business gets better? And are they getting to see this data? Are they helping us track this data? Are they having the— holding the guys accountable for delivering this, like recording this data? And they would do it because they understand how critical it is to the business. And then are they starting to learn, or did they bring to the business this knowledge already? How do I— what are the actions that we can take to improve gross margin? What are the actions we can take to improve, drive down non-billable time, things like that? And so this person is now starting to think about that stuff. And they're starting to implement those things inside the business where you might be, you might be giving them a vision, you might be talking to them about these things, but they can run with the ball. They can do them. The other thing I think this person can do is they can start to have— again, it'd be nice if operations assistant can do this, but if operations manager has to be able to have conversations with the team that are not fun. I always like to call these the conversations nobody wants to have. Like, they're the, they're the ones where you're firing, you're coaching, you're correcting. Like, nobody wants to have those conversations, but this person needs to be able to have them, in my opinion, with the field team. And then they also need to be able to have conversations with the client and diffuse situations, bring the client back around, like, have those hard things where the client's like, your fertilization weed control program's killing my lawn. And you're like, no, it's the sprinkler system that The 2 minutes a day you water is not quite enough. Like, you got to be able to articulate that and say that in a kind enough way where it doesn't feel like attack or it doesn't feel like you're just making excuses. Like, that's a skill. Operations and manager, in my opinion, needs to— ideally would be able to do some of that because it starts to get a lot of that stuff off your plate. So that's an example of where they're growing into doing more and more of the business.

And so if I had to put like a number next to this, so Ops Assistant, Where, where do you see in terms of revenue? Like, is that $0 to $1 million? I'm looking for an operations assistant typically.

Man, if I could get you to hire that person by $300,000, that would be a dream.

So basically somewhere between $0 and $1 million, though, you got to get them basically.

In my mind, I can't even fathom not. You have to. And I want to be— it depends on your situation. Like, it's easy to say, hey, go get this person. But if reality is you're paying for an apartment, you're already married, you got a kid, and you got a car payment. Like, there's just no— I can't lie to you and say it's going to be easy. You're just going to have to— it's going to be a little harder for you than the single guy who's living with his mom and dad. He's got a little more disposable income. I've had friends that have started companies that have done it part-time. I don't tend to think part-time always works out, but I've had friends. It's worked out wonderfully for them. They had more disposable income, they could hire it sooner. So it's for sure by a million. But the sooner you can make this hire in the business, the better. I would say live as cheap as you can live, live and hire this person as fast as you can because it'll get you to the next level faster. It'll get you through the pain of growth faster. And in the long run, it'll be better off.

So in terms of revenue, just to kind of give more round numbers, operations manager, when is that starting to be needed? Is that like after a million to say, get to someone to say $3 million? Do you think that's approximately right? Or $5 million?

I think I, it, it depends on assuming they're a, assume they're a killer. It's probably gonna, for most people, frankly, be a million or after because of the cost of that person. Mm-hmm. You know, and again, I, I get, I need to quit hedging here, but you know, it depends. There are variables, but. Um, and I've seen many companies where their operational assistant, like, they grew into the role. So sometimes, you know, it works out sooner. But to me, by $1 million, you really need to— again, this is why you have to live cheap. And it's not a fun story. Even at $1 million, I say live as cheap as you can because getting a really good person there is the fastest way to get to $3 million or $5 million.

So once you do get to that size, $5, $10, are we still focused on that operational role, what does that role start to look like as it starts to get even much larger? Is it still really just operations manager, or do you start to have actually multiple tiers within operations? As I say regional manager, or am I talking an operational, like, executive, a COO type? When does that start to make sense? Again, I'm asking for broad numbers here. Is that 5? Is that 10? Where are we looking?

It depends on the business, of course. And you gave the example of regional. Like, when we were doing the cleaning thing, we had to have district managers and regional managers 'cause we were running our model like a, um, restaurant chain would run the model where you'd have a region, you'd have a district manager over a bunch of like Chili's as an example. And then you'd have a district or regional manager over, I don't know what I said, district manager over a bunch of general managers and then a regional manager over a bunch of district managers. Kind of depends on what your business model is. In my case, and in most of the companies I've had experience with, they tend to be more centralized to 1 or 2 or 3 branches. Most are 1. And so. The— where I start to see— I see two scenarios, and this was true for City Turf. So we had an operations manager, and then as the business got bigger and bigger, it was too much to manage F&W and mowing and a couple other service lines. And so then we put an operations manager over mowing and bed and bush work.

So more like a department operations manager.

Operations manager. Got it. And so now you kind of had the operations manager who was kind of over— they were over the person running mowing and all that, but they were then still personally running F&W and irrigation and such. And then when the mowing and the bed and bush work and the mulch and all that flowers and all that kind of stuff got so significant, we would start adding assistants to the operations manager. So that person, if I remember correctly, had 3 assistants at at some point. They would be like— they would be doing a million different things. They could even be out like recruiting, putting door hangers on apartment complexes. Like, they could be doing all kinds of stuff. And then as the business got bigger and bigger, you start to put operations managers over F&W or over pest control or over fertilization, weed control. Now, when you start to get to these numbers, and by all means, Mike, if I'm going off in the wrong direction, let me know here. When you start to get into these numbers of like, we could say, well, when do you do this? $5 million, $10 million, $15 million. There's, there's this point where it's very justifiable to do it, meaning you have pain in the business. We've got to put an ops person over to own this department, to manage the numbers, to deal with all this stuff. There's this other concept where when the business starts to get to these sizes, you actually hire an ops manager before that you could even possibly justify putting that person over a division. So an example would be, this is the only way I would spin up new parts of the business now. And this is as you start to get bigger. If I'm spinning up, for example, pest control, and this is exactly what we did, we didn't spin it up until we could go recruit a guy that was running it somewhere else. So now you're basically taking profits and you're bleeding profit for a little bit. By hiring the person that can just run it right from the beginning. Because there's a lot of reasons. One, it'll grow faster. But two, you kind of touched on this with the contractor thing. If we're learning it, figuring it all out on our— it— one, it'll be slow. But two, we're more likely to make more mistakes. Reviews matter. Brand reputation, conversation to market about the company matters so much that I, as I get bigger, I'm going to hire that ops person early to let them with the person. It's a done-it person. They've got experience to build that part of the business for us for a whole ton of reasons. And we just look at it as an investment in the business. It'll— we're losing money for a little while, but it's going to get us to where we want to go faster.

Would that usually be an acquisition? Like you're buying someone that does a new vertical of service or even a new market? Is that usually an acquisition or are you starting from scratch? There's a W-2 employee, you're paying them very well. You know, you're going to lose money for a year or two, but you're okay with that.

In my example that we've never bought. So it's always been an example of you hire that person and build it.

What was your experience? This is me being curious because, yeah, like when we start new locations, we have two different ways to do it. One is you do it more slowly, which is I extend my service area, I slowly move in, and then I find a general manager over the course of time and put them in that and break it off kind of in that new division once it's profitable. That's one way. It's a slower model, but it's more, more, I guess you'd say, conservative financially. The other model is you find the person, you go put them there from day one, and then you gas it a lot faster. The risk in that is if that person doesn't work out, now I've got a whole division that's, you know, up a creek without a paddle. What has your experience been when you do find that person to like, has it always worked out? What do you do to make sure it does work out? Because now there's a lot more investment in that area.

Yeah, it hasn't always worked out. And there— I don't know that there's a formula to this. I think it's more of a— I think we want business to be copy and paste, and we imagine that to a degree it will be copy and paste, and it can. But my reality in building businesses behind the scenes, if you're a fly on the wall, you're sitting at conference tables, you're sitting at lunch, and you're all having conversations, and you're making You're making decisions based on the scenarios of the business at that moment, what you think the opportunity is and what the money available is and what you think the risk is. And so to your question here, I think it's one of those non-satisfying answers of it sort of depends. If you find the rock star and you have the capacity to back— like you find the rock star to put them in that market and you're like, we're going to take a gamble on this. We think the odds are in our favor. We're going to do it, and the 'and' is really important, we have the capacity both from a capital money standpoint and from a time standpoint to backfill that market with all the marketing it's going to take to go fast, then you might make that bet. There could be times you're like, hey, I found the rockstar, but where are we going to fit into the roadmap, all the marketing that we need to do? Like, we're already just trying to keep all these other promises and do that. So that would kill the deal. And so then you would do the more conservative approach. And so I give those examples to say, I really feel like a lot of this is a case-by-case basis. Did you find the person and can you do the sales and marketing? So many people in city— 100% us, like when we started pest control, we found the person. Jonathan was off doing Service Autopilot. There was no— there was no pest control marketing. And like everybody else, you found out, it's like, oh, just because you have a million customers doesn't mean they're all going to naturally buy the thing I have to sell. It's not— it's just easy as, hey guys, now we're doing pest control, and everybody rushes in. So that's one example of how I learned that lesson over the years. I've also learned it from, you know, work talking to other clients, is like that, that sales and marketing function. Are we ready to really go all in and do that? And that, that's a huge part of the answer to your question in my mind.

I think too, I found is even if the model is copy and paste, No person is copy and paste. And one of the struggles we've had for our owners is being able to identify the rockstar and treating them differently than the technicians you've hired in the past. And it takes a few sometimes for them to just go through a couple GMs just to identify what is a rockstar look like? What are the actions that a rockstar takes so that I can confidently put them out there, back them up with a bunch of marketing and know they're gonna succeed. Versus being, okay, I'm gonna treat them like a technician, which is I tell them what to do, here's your list of things to do, I'm the bottleneck for decisions, and then it becomes a just a big problem that then I have this churn at the GM level, which is always bad for the technicians. And that's really been our biggest hurdle when it comes to, okay, when I go and expand and I find the rockstar, how do I treat them? How do I as a leader have to adjust my leadership style to ensure that they're actually set up for success and gonna do well? And don't just copy and paste what I've treated my technicians. Maybe potentially worked well for the technicians, but very different for that leader's role.

Yeah, that makes a lot of sense. In your business, how hard is it for you guys to spin up and support a new market from a sales and marketing function? Again, I'm just local to this one little area, so I don't, I don't have that experience.

Yeah, well, it's, it's a variable that is our biggest problem. And so we've really worked this year on how do we actually just make it where is we guarantee a certain number of customers. So for us, almost every location can break even if they get over 100 recurring customers. That puts them usually around $30,000 to $40,000 a month in revenue. And that's assuming they have a GM, they can pay their salary and pay for overhead. And so we've just— we're just starting to work on this program where it's basically we will guarantee you'll get to 100 recurring customers assuming that you spend X amount flat.

Okay.

On the Augusta Leads. Like, we run the ads for them, um, mostly to take that variable out of the equation. And I take the risk on of getting them past zero, because that's where we see the biggest problem when it comes to churn or like getting a location, is like if they just get past that, the GM now has profit, profit sharing, and that's— it's much stickier when they're like in growth mode and they're getting their first 20, 30, 50, 60, 70 customers and their, their route density is not good, they're getting their first couple employees are not working out. That's where we see the churn happening. But if we can get them very quickly past profitability and then they're getting profit sharing, then the GM role becomes more sticky. And so that's like our biggest thing this year is how do we make it where it's just guaranteed and we'll cover the marketing expense until they pass that. And so just setting up tracking has been the thing that we were really trying to figure out the kinks on that right now. It's like, did this create a recurring customer or a customer? Because like, I want 100 recurring customers. So if a, if a project comes from an ad, Okay, cool, you got some cash, but like getting them to a certain amount of monthly recurring revenue is really the goal. And it's difficult 'cause sometimes we'll get leads for $10. Well, what's the quality of lead? Are they recurring? Do they accept upsells? What's the pricing on that as well? Like, is it a $40 cut or is it a $60 cut? And what's our hourly rate on that lead that we've now sold? And so yeah, it's certainly a variable, it's very difficult, and we're trying to take that risk away from the owners 'cause it's a trickle down to the risk of now getting a GM that's stuck in growth mode doing door hangers and other marketing that they're not really cut out for many times.

Yeah, interesting. Along those lines, again, an area I don't have experience, how different is marketing across the different markets?

So different.

Is it? Yeah.

Yeah, like one of the things that in the past year and a half we've worked on a lot with Augusta Leads is aggregating the data and then trying to figure out, okay, like, based on zones, like growing zones, for example, what works when. But like, for example, 3 weeks ago we were running a certain type of ad. It was at $70 cost per lead. The exact same ad across the all markets dropped by 65% in terms of cost per lead just because it's seasonal. Like it's the last 3 weeks.

Timing. You're selling at the right time.

Exactly. And then like, here's crazy. One of those, like if you had a US flag, our cost per lead dropped by 15%. And then in Canada, we just swapped the flag out using AI to Can— same thing happened. Little stuff like that, and as we're seeing especially with Meta, with the creative side being so many variables, it's been really helpful and really interesting to see all the little things you tweak. So for example, we do instant quotes. Well, if we just put the price on the ad, now our conversion rate goes way up because they click on the ad already knowing the pricing.

Yep.

They're not getting surprised when they see the, the price, but our click-through rate would be way lower cuz we have the price on the ad.

Sure.

So what's the, the opportunity cost here of getting their information on the form and them seeing the price and bouncing versus them coming in and 50% of them converting to a paying customer?

Yep.

So it's a lot of fun. Um, yeah. Aggregating the data has been like very, very cool.

Yeah. That's when these businesses get amazing is when you can get to that level of sophistication. And be optimizing. That's when you can really make some progress. But unfortunately it takes a while to get there.

Yeah. Like when it, going back to kind of our leadership and hiring that role, one thing I think about is like the 3-step process of solving a constraint in the business is like, first you have to find the problem, then you have to find the solution, and then you have to execute. And in the perfect world, I'm able to afford someone that can do all 3, which is essentially running the business without, like they find problems, they go solve them. And, or sorry, they find the solution and then they go to go do it. And yeah, I found until I could pay someone very, very handsomely that had a lot of experience, I had to be somewhere in that equation either. And a lot of times I think for a lot of people say under $2 or $3 million, you're gonna find someone that can find problems, but they still come to you to get the solution.

Yeah.

And then they might be able to execute, but that middle section of finding the solution is a lot of times what you're paying for, um, that I've found in any role, whether it be engineering or whether it be product or whether it be sales and marketing. It's like, can you find the solution? Because if I'm the solution, I just become the bottleneck for the business. And I think as I've gone, uh, like the revenues of business has grown, that's the thing I've had to figure out is like, I will have to pay— what I'm paying for is I don't become the bottleneck for all decisions of the business and therefore can focus on strategy instead of the operations of finding problems, finding solutions and then just go get it done.

So the way you just articulated that is perfect. If we rewind back to something I said in the conversation, I was talking about— I don't remember the context of it, but it was about operations manager, but it was earlier. And I was like, are they really good? Like, are they really the right person? I— because we— you may say, well, I already have that role filled, but okay, but are they the right person? The way you just articulated that is a definition of the right person. And that is the unlock that as a business gets bigger, we eventually experience it and we figure it out. And you realize like, oh wow, the whole time I've been building this business and trying to be a little more cost efficient, which you have to do, and careful with the money, I created a lot of pain for me and the team because I was still in the loop on all these things. The way you said it, the unlock is when you get to the place you can hire the done-it person. And I'll bet a lot of people have heard that said before. And but hearing it and experiencing it and then truly knowing it are very different things. Like, I can easily repeat this information because I've lived it. But then when I sit down to make the hire, I start thinking about the salary and the money and like, well, like, do we really? You know, it's like we all, you know, I can still get caught up in that. But that's how you go fast. And so as you're making these decisions of growing through $5 million and $10 million, $15 million, I think in the, the big conversation you're also having with yourself and your team is, are we hiring a person that's close that could do it on their own? Like, they won't— or are we hiring somebody, it's gonna take like 3 years to get them there? Or are we hiring a person where tomorrow they own this function, it's off my plate, and they just run it? And that is also one of the big decisions. And that's one of the big things that becomes possible as you start crossing these numbers. I tend to think, you know, this is a small sample size, but I'm guessing most people start getting more comfortable making those kinds of decisions past $10 million. I think that's a hard— you know, I've owned a bunch of businesses and I just have— I don't believe I ever made that kind of a decision at $5 million, much less in the early days. I didn't even know. I've, you know, so that may be one of the single biggest takeaways from what we just talked about is starting to figure, starting to think about it that way. Is this person going to still involve me on most things? And if so, there's another level yet to be had.

For finding that person, kind of to move on to the next part of the docket today, um, hiring. I know you use Loom a lot. I use Loom a lot. Yeah, but specifically I'm interested how you use Loom for hiring. I know you said you like 2,000 videos you do on Loom.

So I have so many videos.

Walk us through how you done 9 today, 10, 11 today.

I have no idea.

So walk, walk me through Loom and how you use it, but then also for specifically for hiring and maybe not just for this executive level or operations level person, but just in general, how are you using it right now?

For those that don't know what Loom is, I should probably define it. Whether you're on your, your laptop or you're on your, your phone, you basically can record your screen. You can record a video of you. You can record the screen on your device, and it records the audio. You can record any or all of those things. And then as soon as you hit stop, it automatically copies a link to your clipboard in memory, and then you can paste that into a text, an email, Trello, Notion, whatever you use. I feel like everybody that I've introduced Loom to is converted at this point. And I've made this joke like, man, if I could have founded a software company, Loom is my kind of idea. Wish I had thought of this idea. So my selling point on Loom is I think it eliminates a crazy amount of phone calls and meetings. It just fully eliminates them. And And therefore there's a cost savings both in money because of the cost of all the people that would have to attend, but also time. And I love the asynchronous part of it. Most things do not have to be talked about right this second.

Live.

Yep. Yep. The other thing is, for me, I'm a person that can— like, if you and I are going to hop on the phone and you— we both have time and we have one thing to talk about, odds are I'm gonna introduce a new topic. Yeah. Or we're gonna get excited about something and we're gonna go this way and that way. And you know, a lot of times when I'm chatting with my friends, the conversations just get longer and longer because, and so Loom is an example of keeping someone like myself focused to a degree. And so it's like, okay, what's the conversation? What's the point here? Here's a problem, solution, whatever the scenario is, I create a Loom on that and I can send it to you. So most of my communication is done with people via Loom by like, hey, I need to get this done, and then I can give them all the context that they need. So here would be an example of why I like it better than a typical phone conversation or a Google Meet. They can rewind it, they can go back through it. It's like, hey, what'd he say there? Um, they can— yeah, so it's not, it's not lost like in that one conversation. I can take, uh, if you pay an extra $5 a month or whatever it is, you'll get a transcript of every Loom. Take every transcript and dump it into whatever your favorite AI tool is, and it will summarize it. It'll give you an action list, it'll give you to-dos, it could do whatever you want it to do. And that's a really efficient way to process some longer Looms. It's like Philip who runs City Turf, he and I trade bazillions of Looms and our Looms are long because we're always talking about strategic things or initiatives. They get long. So if Philip sends me a 20-minute Loom, which are very valuable to me, like 20 minutes does sound like a long time, but they're really valuable because it gives tremendous context on the business. And so I can take— if I see the Loom's long, the first thing I do is I take the transcript, I dump it into Claude or ChatGPT, I get a summary of it real quick so I know what it's going to be about. And then I still watch the Loom, but it kind of gives me upfront what I need to know, a summary of it. And then at the end, it can give me talking points. or no, I'm sorry, not talking points, action steps. So what do I need to follow up on? So I use it for every single thing I do. I mean, if I'll give you an example, I have City Turf doing some stuff at my property. I mean, I just take pictures of what I need done by City Turf at my property. I drop them on my computer. I just record a Loom and talk about all the pictures. I send them to Loom. If I bought— I had a commission, a painting commissioned one time. I, well, I've done that many times, but a painting commission, I literally, to the artist, like, hey, I don't like this, I don't like this, can you change? I do it with Loom. Like, anything you can imagine, it can be done with Loom and it's more efficient. That's my selling point on it. It's a great coaching tool. And then the other thing is, as we move into this world of, and these, they persist forever, like Loom. So you can dump your Loom into Notion or whatever tool, it'll still be there in 3 years. Um, if you, you can record things in Loom. I'll end here pretty soon, but, and I'll get to, I'll get to the recruiting part. You can take the transcript, you can dump that and you retain that information. But also think about the fact that video, audio is becoming more and more important than ever because eventually you'll just allow your AI models to run over top of this stuff and surface information. And so by having all of these Looms and never deleting them and doing so much of what I do on Loom, I'll eventually be able to resurface unbelievable amounts of knowledge and ideas and coaching opportunities and you name it. Um, before I go onto the recruiting, Mike, I'd be curious though, how, what other, there's other ways I use it, but what other things do you do or how do you think about, is there anything different?

Yeah, we use it a bunch for sales. Um, because first off, you can see how far they watch into the video. So the percentage that someone sees, did they get to the end? Another thing that some people don't use all the time is the link. So you can make a button pop up and have a link to it. So what we will do is we will actually just open up HomeWorks in the client portal and walk them through their quote. We'll be in the, in the bottom corner just walking through your quote. Any questions? Let me explain this again. Hey, we went over this, whatever. But then what you can do in the Loom is have the link to the, the estimate where they can just click accept just pop up. And then they can click on it even if they're on their mobile device and it'll go directly to the client portal and they can click accept. And so—

That's good. I didn't know that.

The link is really useful. Um, but yeah, like the ability to take the transcript is the real kicker.

Mm-hmm.

Because I, I used Loom like a few years ago, uh, right when the trans— that's when I switched over is when the transcript thing came out. 'Cause it, it's, it's immediate. A lot of other video software takes some time. Like even Gemini, you could wait. 10, 15 minutes after a call to get the transcript.

Yeah.

And so the ability to have the transcript immediately allows me to just, right when I'm done, drop it into a, an AI tool and it summarizes it, but most importantly keeps the information. And so I've done it where I just have folders for whatever role I'm going to hire. I just will make Looms for about a month leading up to it of the problems, the issues. And then when it comes to the time when I wanna make the job description, I'll dump all those transcripts. And say, make me a job description to solve all these problems. And it also then will create a 30, 60, and 90 based upon the problems that I've been facing. And it's like super accurate. So I like the transcription. That was the reason I got into it. But the ability to be able to send the link, it's the fastest up, uh, from what I've seen, it's the fastest upload of any platform. Like if you upload a video to YouTube on your phone and you're on a 3G service, for example, it could take 5 minutes. On most Loom networks, as long as the network's decent, within 10, 15 seconds, I have a copied, copyable link to send to someone. And so it's not a matter of like record video, come back to it and send. I can just record and send.

And so, yeah, I would agree with that. I hadn't thought about that so much, but it is amazingly fast. And then for people that have never heard of this product, if you were using it in a sales scenario, you can go in and edit the text. And it will edit the actual video so you don't have to re-record the whole thing. There's just so much you can do with it.

And you can put like, for example, if you're making a sales video that to a customer and their name is different, yes, I think that's what you're saying is changing their name out, it'll change your words. One other thing, oh, when I'm making videos for the team and sometimes I need to think, I can just stop, pause, and then just remove the, with one click, remove all the gaps of space. So it was like yesterday I was making, I was analyzing someone's presentation and I didn't want to walk— no, usually you'd go through the presentation, kind of gather your thoughts, and then you would make your video response. Whereas in this case, I was able to go to the next slide, be quiet, digest it, respond to it right away, and then just click one button and it removed all the gaps where I was quiet, and it was a perfect presentation afterwards.

Yeah, I actually do the exact same thing. I— it's incredibly valuable. So to the hiring process, so what I've been doing with Loom is I kind of run a similar process in that I create a— we'll call it a— I document what I— what the outcomes are, what I need that role to do, that type of thing. So I figure out what the role is going to look like. I then take that role— so not all of this is with Loom, but I take that role and I probably worked— these days I work in AI model all the time. So I probably worked on the role in an AI model. Most likely what I did is I recorded audio into there over time in a thread, and we've built out a, um, a high— basically an outline of what I— who I need to hire and what that— what I need from them. I then have an AI model create a scorecard for me, and then I have whomever my potential candidates are for that job, they have to record me a Loom. So the initial response to the hiring ad requires a Loom. If they don't do it, I don't even look at them. So they have to record a Loom. I give them X number of questions to answer. I take all those Looms and I just dump the transcripts into AI and I kind of filter. I watch them, but I also then filter them. Then I go back and I do my very first interview, which could be an hour plus. And I do it, I record it. So I actually have it recorded, Loom recording the interview while I do it in Google Meet or whatever. You, you could just, however you could get the transcript. At the end of the day, it's all that matters. I then take that transcript, I dump it back into the AI models, and I have it keep a running scorecard of every one of my applicants based on all my questions, their experience, all the things covered in their first video. Their second video. And because that transcript and that scoring has been so valuable to me, whenever I have additional questions for them, oftentimes I'll just pop over a question, say, hey, will you shoot me a Loom on this thing? And then eventually I will meet with them in person, of course. But the— I think most of it goes back to the element of the transcript. You don't have to have Loom to do this, but Loom is the tool that I've used to get those transcripts really fast so that I can run them against my scorecards and what I'm looking for in the AI models. And I wouldn't say that, you know, I follow exactly what it says, but the— this process really surfaces very interesting things that maybe I didn't think about or different ways to think about a candidate. And I found it extremely valuable for making those decisions. Now, I haven't done this for hiring anybody in the field or anything like that. This has been more for Hiring contractors, hiring actual W-2 people. This is the process I've been following and I've been super happy with it.

All right. Real quick. You're going to notice the rest of the video in the podcast that Jonathan's camera is a little bit blurry. And then also he's kind of fidgeting around a little bit. His computer was dying. It was almost dead. And so he was trying to find a power cord and it was also overheating. So the camera quality is not great. And eventually the camera actually turns off. But it's still great content. Uh, by the way, while I'm here, definitely comment below what you enjoy about the podcast and what you would like us to talk about in the future. We are dedicated to the next 3 weeks releasing one episode every week of the podcast together, and if it's going well and it's helpful for all of you, we will continue. But we need to know if it's useful, and so definitely let us know in the comments and share the podcast. Get as many views as possible so Jonathan's like, let's go, let's keep doing the podcast. Uh, but we look forward to sharing more information, but we'd love to know what topics you want us to cover next. So back to the episode, but I want to give you a little bit of context. If you see Jonathan fidgeting around or the camera getting fuzzy and eventually turning off, that's why. Yeah, it's like, I think when I hear that process, I, I wonder about if you tried to use that for entry-level technicians, for example, someone don't know what Loom is or don't have the app. That's where I'd kind of be concerned.

Yeah.

So we have very similar process. We just use a different platform because we found so many times, like just uploading a video is sometimes hard for people, especially if it's 5 minutes and it's, it's shot in 4K. All of a sudden you have a 3GB file they're trying to upload. So we use something similar called Spark Hire.

Okay.

And basically you can just make it when Indeed, it just, if they apply, automatically sends them a link to it. and just opens up the video right away. And then as they're looking at the video, the questions pop up. Then they just go next, next, next. And what's cool is the AI is kind of built into it and it'll rank them based upon your parameters. And so it, it just basically avoids that dropping step. Like, hey, drop the transcript into AI. It does all that directly integrated. Um, we found it like super helpful.

I didn't even know about that. I was rigging it all with Loom. I will say that for a lot of what I do, If they can't do a few of these things, then that's kind of a watch out.

Totally.

So it kind of depends on the role. So there's just a little part of me as I heard you talk, I was like, oh wait, maybe I should check that out. And then there's this other part of me, it's like, well, yeah, there are, there's some value and some hurdles here. So I don't know what the best approach is, but I rigged it together and I've been happy with it.

Yeah. I think, I think it kind of comes down to the volume, right? Like it's, if you wanna make it easier and you need, you know, 50 technicians, potentially make it easier to submit a video might be a good idea. But if you're looking for one operations manager and they can't figure out how to download Loom and get a Loom view, we might have No problem.

Yeah, yeah. And again, we'll go to like, if we're talking about somebody in the field, this is not stuff they normally need to do, or probably not need to do. And so, okay, if they can't do it, that's a little more acceptable.

Yeah, absolutely. Let's move to the last topic of the day. Um, yeah, I'm in software, you've been in software, still in software. We both have run home service businesses. I want to talk a little bit about comparing the two business models, software and home services, the pros and the cons of both. Uh, and from your experience building both of them to 8 figures plus, um, how do you see it? And I think that for many people, uh, the other industry is always better. Uh, now seeing both sides of the story, I'd love to hear your perspective.

Yeah, I don't know. I think it was you that I was talking to. I've probably had this conversation with a few people, but it might've been you because, uh, we know people in both worlds and I was joking that all my friends that were in software are now I'm buying home services companies and all, everybody in home services is now vibe coding. They're, they're going to be in software. It's like everybody sees the other side is better. And then as I've thought about like, what am I going to do again work-wise? Like, I've like, I don't know which world is better. I like them both. There's pros and cons to both worlds. Um, I, I guess if I had to pick, I gravitate a little more to the software world. Um, but I like them both. I wouldn't want to not— I'm thankful I got to be in both things. You know, the, the thing I would say to answer this question is the thing that is exactly the same between the two businesses. It's all about people. It's the story of business. It's back to the theme of a lot of what we've even talked to, building a great business that goes fast, that you want to continue to own, that has a good brand reputation, that gets good reviews. There's only one thing. It's the people you hire and the people you get off the team. That's all that really— that's all that business actually kind of is, is getting the right people to do all the things that have to get done inside the business. And so for me, the most important decisions, whether it be software or service delivery, it's the people. That's the thing that's the same. I think that the thing that— there's lots of things that are very different. One thing that's very different is the level of sophistication on who you're competing with is very, very different because a lot of these companies are funded and— or they're now owned by private equity. And so there, that could be a positive and a negative if you're competing with them. But it's a different playbook. It's a more sophisticated playbook. They're willing to do some of the things we talked about, like spend the money on hiring. The right people, um, especially the, if especially the companies that are venture-backed that are trying to go fast or the private equity companies that are not just trying to extract profits, but are actually still in a growth mode. In those cases, those are formidable competitors with a tremendous amount of money. And so they're looking at, they're doing all the things that we should be doing in our home service businesses as we grow and become more mature. They're looking at all the data, they're using data to make decisions. They're looking at, churn. They're looking at most profitable markets, most profitable services. They're focusing their marketing dollars in very specific areas. They're thinking about the handoff from sales to the customer service team. Like, they're doing all these things that many companies don't do because they have hired people that have a lot of experience and they're spending the money on those people. And then they have the money to spend to go faster, to spend a lot more money on marketing. And so that's where sell— the software side can get pretty tricky where you don't face quite that level of competition generally in the home services space. And so it's, it's easier to build a bigger business for less money. Um, the other thing that comes to mind is selling a product versus selling a service. I'd be curious— it's like, it's not even the same thing. Yeah, it's like, it's a totally different world to Mike Andes, I know, I know from our— that you've went through this pain and I sure went through this pain. It's like, it really is not awesome to start a software company and just pour money and time into the thing. Like back when I started, uh, is it, you know, 2010, it was a very different world than it is today. Our two membership levels, we were coming into a competitive market where $29 and $47, like that was it. Like we moved obviously upmarket, but when we started, everybody was desktop software. And then Jobber started, what, a year later? ServiceTitan had started a couple years earlier. Um, it was such a different time. Like, we had almost no functionality compared to all these old desktop systems. And so you're coming in at this low price point. My first employee's $100,000. You know, it's like, it's very expensive. That was back then. Yeah. And so that is really different to be trying to fund the business, whereas in the services business, you can fund it based on the delivery of the service, whereas in the software business, it's massive long-term investment. Now, some of this is going to change quite a bit with AI. Then the last thing I'll say, then we kind of— be curious to hear what you say, Mike. Um, distribution model is totally different. Like, the way that you go— like, you've done a masterful job with your business of the distribution model of how do you attract people to you. To notice you and HomeWorks in the business. And a lot of the things that work in software, because you're going after a national market, they don't scale or don't work in a local market in 9 zip codes or whatever the case might be. And so it's a very, very different game and it's very expensive to acquire clients. I'll give you, without giving away some names, there are companies in the software space who spend $12,000 per client acquisition. It costs them $12,000 to acquire a client and you hope they're going to stay. And that was not Service Autopilot economics. And I know that's not your economics, Mike, but there are big names that you know that have those kind of economics and some will push $20 grand to acquire a client. That is, that's what it costs for, you know, most of us to get a client worth $1,000 or $800 a month. You wouldn't be in the business.

I ran, I ran Google Ads for like 2 weeks for Homeworks and I gave up so fast. I'm like, forget this. Like the cost per click is a gajillion dollars. Everyone wants to bid this thing up to the moon. So I think I tried it. I was like, hey, I gotta try it out, you know, paid acquisition instead of organic. And I'm like, forget that. I'll make another video. Get it. Goodness.

So what, what would be your, I mean, I could add more, but what would be your general list and your thinking?

Barrier to entry being low, for home services is a double-edged sword. Everyone complains about there being so much competition.

Yeah.

Uh, but also you have basically 100% guarantee of demand. And I think that's the part that we don't have with software. If you still go start, start software tomorrow, the problem is not whether or not you solve a problem, it's whether or not anyone wants that solution. And, uh, everyone needs their lawn mowed, everyone needs their gutters cleaned out, everyone needs pressure washing. Demand is like, it's there. Assuming you're in a decent market, assuming, you know, what we talked about in terms of having the customers that can afford these services, like the demand is there. And as long as the grass keeps growing, I have a job. The fact, especially with AI, I think even with valuations of software and what it's looking like now, it's the reliability that income has become less and less. And that's why I think it's so interesting when I look at home services, the reliability that I will continue to mow grass and make money from it is actually higher than whether or not in 5 or 10 years AI is going to be doing all this for me in terms of software. And this is why valuations are down 50, 60, 70% across SaaS. Um, and I find that very interesting to even the fact that your friends that were in software are moving to home services. And many times when you see that trend, it's people are chasing the highest quality revenue. And for so long people are chasing software because it's, oh, it's sticky, it lasts forever. You get a 50, 50 times on your annual recurring revenue in terms of valuation. And that's just not happening anymore.

So right, man, talk about unknowns right now in the software space. Which would you say is more stressful for you?

Oh man, it's funny because I see as humans and as teams, we will always make mistakes. If I make a mistake on a customer's property for, say, mowing, for example, or let's, let's make it worse. Let's say like you put Roundup in the wrong spray tank, for example, which we've, we've experienced that. Oh yeah, I remember.

Let's go.

I did it too. And you kill every plant. We're maybe looking at a $5,000 or $10,000 mistake. And when it comes to software, when there's thousands of businesses and then they have employees and you have— now you have an error, like what happened a few weeks ago, for example, we were fixing a query and optimizing it, and all of a sudden it just out of nowhere, just everything crashed. Well, that put us out for 10, 15 minutes, but you extrapolate that across thousands of people that are affected and we have a massive problem.

Massive.

It's not $5,000 or $10,000. Like in that moment I would pay whatever to just not make that. Yeah. Like, and so I think the, the barrier to entry being so low for home services is a double-edged sword of yes, there's lots of competition, but also demand is there 100% of the time. With software, you can build an incredible product and still not have anyone lining up to buy the thing. And I think with AI and reducing the barrier to build entry-level software, it will, uh, certainly reset what valuations look like and whether or not it's a blue ocean that people actually want to get involved with. And then from my perspective, I think it's especially with, you know, uh, Mythos coming out, for example, and these other softwares, like AI is gonna be just as powerful from a, uh, hacking perspective and nefarious actors and everything like we saw with BugHell. Was a lot of it was to do with people getting inside the software that shouldn't have been there, uh, through our free trial. And I think that's really, yeah, a lot of that pro— those problems I think will only compound when it comes to AI because the tools they have will be just as good as the tools we have in terms of AI that are building the software. And so I think it'll even become more important around security. And I, you've talked about this before in, in databases and like the scalability of the software will become more important.

I agree. Yeah, the security thing is, it's back to my— it's what you're saying. It's like concern. I have two things I think about from the vibe coding world, um, security, and then if we're vibe coding lots of different independent systems, like how do you make them all talk? Everybody wants these things to talk. And so it's this incredibly exciting time, but also, wow, I mean, so hard to know where it's going.

Yeah, it'd be really interesting. Like I think every time an industry has a bunch of fear, I immediately think just slow down in a way.

Mm-hmm.

Because like we've all thought robotics was gonna take over lawn care like 20 years ago, for crying out loud.

Yeah.

And then, and so in a way, I, I, I've just seen it, you know, regardless of industry, it kind of just keeps playing out the same way. Like even if you look back, I guess 4, 4 years ago when ChatGPT came out, 3 years ago, like we all thought next year we weren't gonna have a job. And now it's like, okay, we use it for emails, we use it for hiring and transcripts and emails. But are we not working? And do I have less work to do? No, there's plenty of jobs out there still. And so in general, I tend to slow down when I see the fear thing happening. However, it definitely pushes you to be like, we've gotta create the thing that they can't build and then empower them to build the tools that AI allows them to have.

Yeah.

So like we, we have like in the past 3 months just immediately pivoted, like open up the MCP API. We have to give access for people to read and write, whether it be sending out quotes, like be able to talk to Claude and be like, how many jobs do I have tomorrow? Okay, skip so-and-so. Like, and just be able from one interface interact with the software. That's been like our highest priority.

Yeah. Yeah. It's, uh, man, I just keep saying it's a fascinating time. I think about it every day. I also think in these software, businesses. To your point about the MCP and the APIs, we have— I, I theorize what's really going to happen is software is just going to look very different in 3 years. And I kind of like to think about it as— I keep— because I'm older and I've been around a while, there used to be, you know, IT guys, and nobody liked their IT guy, and, and their IT guy was expensive. And so when cloud software came around, it was like, this is the greatest thing ever. We can get rid of the IT guys. We don't need them anymore. We can use Gmail. We can use whatever the software is. And everybody was happy. And now everybody's like, ah, I pay whatever, hundreds of dollars a month for my software. This is, they're ripping me off. I could just vibe code this. But what it's going to lead to because of security and data. And like, at some point the owner doesn't really want to be doing Managing software all day long, or he shouldn't be, should be out selling and getting team members. Then he's going to end up, he's going to end up trading it for the equivalent of an IT guy again. So if we move to all these internal systems, we're going to have to have somebody to manage this stuff for us because the risk of it going down is so high.

Like the bigger your business, the bigger the risk is of it going down. And then it makes less sense to save the few hundred dollars, right? And what stinks, like for me to say this. It's so horrible because it looks like I'm trying to—

it sounds like you're promoting, but it's the— I'm not in software. I don't have anything to sell you. So I'll say it for you. Like, I just can't get my head around this thing. Riley and I talk about this all the time. It's like, I'm trying to figure out where this whole thing's going, but I can't get my head around. It's like, are we really all wanting to shift back to the IT budget? Yeah, I don't think we are. And then my other analogy is we like, okay, great, you can vibe code the thing. And maybe if you're just like a little guy in a truck and all you need to do is the most elementary thing, that may be plenty fine for you. That may be true. But if you move past that to any degree, you're going to quickly discover, oh, I need this, I need this, gee, if I could do this. And the other— and if it's just you, your system's going to be like this big and you're always going to be adding on it. But imagine there's a company where that has a bunch of employees and a bunch of agents, and all they do every day is think about this, and they have thousands of clients and they're seeing all the best things and they're building that into the software, you'll never compete. You'll always be running behind the software company that's building more and more functionality. And so I've had multiple people ask me at City Turf about City Turf, like, hey, are you guys just going to build your own technology? It's like, no, it makes no sense. Like, as soon as I build it, it's going to be outdated by the guys that are spending every minute of their life doing this. And then we're going to bring the whole IT thing back in. So, but, but I do think, you know, in your case, in Riley's case, if I was ever back in software, which doubt it, I think the model looks very different. I think what we're building is more of a future where the software does it for you. Like the old version was data in, data out, data out as a report. And then what do you go do? I think the future, which is going to take, like you said, longer than most people think, The future is the technology is the equivalent of an agent that's running and doing things on your behalf all the time and then getting a person involved when they need to be involved. I don't actually think that's going to be a cakewalk to build. Like right now, well, I could go in 90 directions. I— right now we think we're just building data-in, data-out systems, but the new future is going to be way more advanced than that. And it's not that Claude Code or whatever won't write it. It's that it's just going to take— it's going to be harder to manage, harder to think through, harder to design, harder to build. And so most people, when they're vibe coding something, will still be building the old way and they won't be building this new version of whatever software is that's literally doing it, running things for you, delivering outcomes to you. I don't know if that makes sense.

100%. Like, and even sometimes when people talk about it, it's like, have you ever built and like your budget for AI tokens right now, just that alone, you can burn through AI tokens pretty quickly.

Oh yeah. Yeah. Oh, this isn't even talked about. Riley showed me a system. I think it's this week. I've seen 3 new systems popping up in the green industry, software systems, AI coded. I don't know what they look like, but one of them is pure AI where you, it's basically all tokens. It's gonna, or it's gonna, as I'm interpreting it, it's gonna take tokens to make all the decisions and run it. Like, okay, well, that's a whole nother thing. Now when you're buying software in the future, you're gonna have to say, wait a second, does most of the processing happen at the Claude level or a model level where it's constantly consuming tokens? Or is some of the processing happening at the code level, which I'm not gonna have to pay any extra for? People think about how do you educate the buyer on that? It's like, oh yeah, great. This solution's $100. But in about 5 months, you're going to find out that it's costing you $900 a month to run it in tokens.

Yeah.

Like, how are you going to educate the market to be making a wise buying decision? Because I think as you're building software in the future, it's like, okay, what can we do at code level internally without running an LLM over top of it that consumes tokens? And then what do we need to— what part of the decision-making or the actions need to be deferred to the LLM that are going to consume tokens? That's gonna be an important equation to people that determines how much their software costs to run.

Yeah.

And it will be an ever-growing bill as the dataset gets bigger.

'Cause zooming out kind of very broad and a little further outside of what we've been talking about, but like when it comes to AI, do you think that, for example, a $20 subscription with ChatGPT is being subsidized right now by all the money that's being poured into this? And do you think this cost of AI tokens, for example, is gonna go down like it has been? Or are we, as we have all this investment coming in and there's billions of dollars being burnt essentially, where do you see this going? 'Cause like, I feel like that's almost the part that I feel a little bit uneasy about is like the whole infrastructure, the amount of infrastructure required to build these things out. Is it all being propped up by just investor dollars? AI just raised $120 billion. Like where's this going in terms of just the token consumption and the energy requirements around AI?

Of course, I don't know, but I have my— but my theory is that this is probably a typical curve where it was historically, it's been the big software model. You're subsidizing, you're selling the software for cheaper than it can really be afford— than you can afford to sell it to because of the cost of client acquisition, onboarding, things like that. That's a, a pretty typical model, and you're subsidizing it for years until you get to a point of scale. And the— and it— and I think there's something probably similar happening with AI where right now, just say it a different way, it's costing this insane amount of money to build these models, and they're going to get cheaper and cheaper to build. And so the subsidizing, you have to do it now and it makes sense, but eventually the economics will start to level out So I, if I was betting, I'm actually betting on a lower token cost in the future. And then from a software standpoint, the way I'm thinking about it is you're probably building into— I think time solves a lot of these problems. So one example would be time solves the problem of tokens get cheaper for a software company or somebody running their own models internally. The other thing that I think time solves is the models right now are Pretty dang amazing. But imagine what they're going to be in 2 years. Well, the models of today will still be usable and they'll be dirt cheap because you could— so you could still run some processes. You can still solve some problems. So, excuse me, from a software standpoint, what I think is going to happen is within your software, you have the equivalent of what I'll call a router. This is another thing that's not going to get talked about. And when somebody is buying software, How are they going to know how to make this decision? So imagine, like, if I was building software right now, again, I don't know where I have blind spots because I'm not building it. But if I was building it, I would be thinking about, okay, I have a router, and in that router I'm going to plug in multiple models. Some are going to be open source models, some might be the most recent Claude model, some might be an older Claude model. And at a— inside the software, I am going to route and use the right model for the right problem. And that is— that's challenging from a software development standpoint, but it's how you bring your cost down massively to whether you're passing that token cost on to the client or you're pricing it into your monthly fee. I think you're going to have to be really efficient. So I think two things are going to happen. One, token cost is going to come down. Maybe three— many things are going to happen. Three, open source models are going to keep getting better. So we can use a combination of open source models and of the frontier models like the current, the most recent ChatGPT or Claude model. And then the third thing is we're going to internally in our technology be routing to use the right model for the right use case. That's how I think it's going to probably work. But who knows?

You almost kind of see that with ChatGPT now. Like, you just put your comment, like, your chat in there, and it's choosing which model on the backend it's going to use.

Yeah. Yeah. And so there's probably an element of that, but I, that would work within the software. Again, I'm not writing this, so I'm not in the know enough, but I also think it's not just the model you use with ChatGPT. I suspect you're going to use different models. Like, I'll give you an example just to mess around. And the problem with talking about anything AI right now is whatever I say now, next week, like tomorrow, could be wrong. And they're going to be like, that guy's a total idiot.

Yeah, you say ChatGPT 5.5, it's like, oh my goodness, he's been in the Stone Age in 2 months.

Yeah, I've said some things on video recently about the cost of really building significant things using tokens and how, like, how expensive it is. Somebody's going to watch that video in a year and say, this guy never knew what he was talking about. It's like, well, I promise at one time it was really insane. Well, uh, the other thing that I, uh, I, I'll give you an example. The other day or a while back, I just created a, you know, because I always talk to ChatGPT or Claude. I created something where I could just go in and ask my, have a conversation. But when I'm having the conversation, it sends my prompt or my whatever you want to call it, question to Gemini, ChatGPT, and Claude. Oh, cool. And so, and so you have to integrate their, it's like, I just vibe code. It's no big deal. But so you have to link up with their 3 APIs. And you have to go in the backend and, you know, apply money to the account. And then what I have when it brings back the answers, but then I have them all fight until they surface the answer they all kind of agree on. And then I can interject and they all debate it. And then I get my answer. And it's interesting looking at the API cost. Claude is the most expensive. And I think Gemini seems to be the cheapest. I may be wrong on that. You know, and again, this could be, outdated already. Yeah, but I think that is probably not going to change. I'm going to guess we have to really manage that token cost. And then on top of that, how do you put in— you've got to really put in, um, preventions to keep things from running away from you. I, I know you've had bugs, I've had bugs, we've had crazy things happen over time. And like one little crazy thing could just spin these things off into Crazy. And so then in the technology, you've got to have preventions to throttle this stuff and alert people inside the company if it gets out of control. And so, uh, yeah, I kind of went a little off topic there, but like, there's a lot to this and a lot to think through. And this is why I think it's going to get more and more complicated to build this stuff and build something really amazing.

What I find interesting too is you can kind of almost tell by just the best in this industry are getting paid more than ever. And it just shows like the complexity of the problems that need to be solved are so much more complex than they even used to be when it comes to AI. And, um, so yeah, it's, it's certainly for me, like it's, it's one of those things like we've just passed profitability and it's, and it's a function of like, okay, like am I in the wrong industry? Should I just be focused on the lawn care only thing? And then have to ask myself like, where is the future software going? But then just going back to the tried and true, it's like, it is the basics. It's like, Do I get a customer? Do I serve them well? And when it comes to AI, can I give them the tools to be useful? Because everyone wants their own software. Like in the perfect world, we'd all build our own thing. It would be perfect for us. We'd never have a problem. There'd never even be a bug. You just talk to the thing, it's exactly what you want. How can I give some optionality around that? And that's where like the MCP and the API access has like been really been our focus is 'cause if you wanna build your bespoke tool to do your specific type of job costing the way that you want this specific automation to run exactly the way you think, like, Great. You build that and then connect in. Um, yeah. And that's kind of the, my current mentality is to, is to really focus on that and like just be good at that. Because otherwise, if you look at the AI stuff, you just feel like every day you wanna quit.

Uh, it's like, I, I already have this problem and I don't even have a business. I just think about Riley, you know, building his thing. And I'm like, I think about it every day. It's like, where is this going? I'm trying to figure it out and I don't think we can. I think your philosophy is, is, as I'm interpreting, is you just keep showing up and doing the right things every day. And being an entrepreneur was never a promise of easy. It was never a promise of you could just— you'd start a business doing one thing and 20 years from now it'd be exactly the same. That's never been what we've been promised. The reality is the best entrepreneurs are constantly iterating and trying new things and testing things and pivoting and I just think unfortunately we're going to have to do that more and more than we've ever had to do it. But that's what brings me a little bit of comfort on the software thing, is to say, hey, I don't believe the software model's dead. And what I believe is that we're just going to have to be more aggressive to find new and unique ways to execute on the business model to stay relevant. And, and that's my theory. The other thing is I still just— I did this for too long, like I'm not saying I would never in a million years say Service Autopilot was easy and got everything right. But I will tell you that just things like giving a person a report, like, and saying, giving them a few tools to edit a report, like 90% of people giving automations, like automations is a better example. It's like, as soon as I'm not saying we nailed it and everything was perfect, but I am saying that if you ask the typical person to document every single step in a process, And then think about the exceptions.

Edge cases.

And when there are exceptions, what they're going to do, they're like, ah, shit. They don't say, oh, this is too hard. They say the software sucks. Yeah. Because, but documenting processes and all the exceptions and edge cases is really actually fries your brain. It's tiring. And that's what people are going to have to do to build these tools to a degree to get them to, to become what they want. The other funny thing I think about too is like one of the big mistakes Service Autopilot made, and you'll be at risk of this, everybody's at risk of it as a software business, is a little behind the scenes. So over the years of owning Service Autopilot, like in 2010, we had this software that would track all of the service requests. And then the things would get out of control, or not service requests, I'm sorry, all the requests for functionality.

Oh, yeah, yeah, yeah.

They get out of control.

Thousands.

So periodically, John would come in. Like, at one point, this was like, we did 3 of these systems, if I remember.

Really?

At one point, we had 14,000 feature requests logged. And John's like, um, we're moving to a new software. There's too much in that. I don't like it. Basically, it was like, we're just gonna shut that down and we're just starting over. Because, and that's, and then it built back up to thousands and thousands and thousands of software requests. My point in telling you that story is like, it's so overwhelming, the amount of stuff people want and need and all their ideas. So I'm just imagining in the problem that ServiceNow has and every software product has is this overbuilding of features and functionality to satisfy the market. And then the software gets complex and overcrowded and then it gets intimidating and your brain shuts down when you see everything. And how do you serve the big guy and the little guy? It gets really complicated. In a world of vibe coding, could you imagine what software's gonna look like where every single time you ever have an idea, you just build it right into the software? So that's where I was like, so it's just fascinating to like, where are we going with all this? I haven't the faintest idea.

Yeah, I know. It's, uh, it's probably the most excited I've ever been, but also like you feel like what used to be so sure is no longer, like there's no certainty. No, and I think you see it, the public markets, like around software specifically. It's just, yeah, no one knows where it's going.

Yeah, my bet, like on the software, I'm already so heavily invested on the markets, I don't really know if I want to sell and re— like, reallocate. Yeah, but I do kind of think there's a trade around the software thing. I feel like it's really oversold.

Yeah, I agree.

Like, you just can't convince me that some of these— everybody knows the same story that all the big guys get left behind by the little guys. Nobody's dumb. They all know this. They're like, all trying to figure it out. Like, yeah, it's harder to turn the ship, but I think these guys that have money, these tech companies, a lot of them are actually going to figure this one out. They're going to be in pretty good positions.

Yeah, right now, like, the, the average of some of these indexes in software is like 3 or 4 times revenue, when a few years ago it was 50, 60 times.

Yeah.

And like, I just think it's, it's, I think it's going to take some, some, some big company getting like their whole database wiped out, showing up to work and there's no data on their Vibe-coded little plugin.

And then maybe people would like, hey, hey, this is a, this is a real problem. I recorded a Five for 50 video today. I was answering a question and, um, I, it, it kind of dawned on me in the last day or two, you know what's gonna happen now is because, have you ever, have you listened to any of these podcasts or like maybe seen where everybody's starting to talk about the best business to get in right now is to become an AI expert?

Oh, and go in and help all these companies.

Oh my word. I know.

It's kinda like, uh, what What was it, uh, small business, SMB, like marketing, like 10 years ago?

You just, you said exactly what I just said on my video today. I said, I said it's like everybody wanted to be in the localized marketing business, agency business. Then the hot thing is like everybody should buy a business, don't start a business.

Right.

And now the hot thing is we're all gonna start agencies.

AI assistants.

No, I'm sorry. Agencies to do AI stuff.

Yeah.

It's not that I think it's a dumb idea. I think there's a lot of opportunity there and people will need help. But now I think what's going to happen, this is where the whole, the whole point is. So everybody's going to be promoting their thing. And so everybody's going to be telling all these stories about how you should build vibe code stuff and you should do this and you should do that because they got a thing to sell.

Yeah.

Because you'll then hire them. And so more and more people are going to all believe they should be doing this thing.

Yeah. Yeah. Like it's like we, we started doing AI voice in 2023. And to date, not a single owner of Augusta wants AI to answer that phone versus a human agent.

Another awesome— I gotta chime in— another awesome one right there.

We can take a whole episode just on that one topic. The amount of money I burnt personally building that thing, and then basically like, yeah, we just gotta put it on like an open source model to bring the cost down, and no one wants it, by the way, so let's put it behind human agents only.

It's just, uh, my question to everybody that's posting on Facebook, that's creating YouTube videos, that's selling this whole thing of video, of audio answering, you know, doing your phone conversation. Have you ever listened to a call recording?

Ever?

One? Because I've listened to 'em and I'm sorry, but I'm not convinced.

Yeah.

Like it is painful.

Yeah. We, we found like, for example, your best customers, a lot of times we could get the AI pretty far cuz we could train it really specifically. but as soon as they found out it was our AI and we hadn't told them, they get mad. Like they felt tricked. And so then we'd have to tell them at the upfront, like, hey, we're an AI assistant. And we had to say something.

And then they're like, they don't know what to do with it.

Yeah. And then, then they don't, they say dumb stuff or they, um, they don't accept upsells because now they know they're talking to an agent versus a human where we can get like the vast majority of people to accept the secondary service if I'm talking to a human. But if I tell them an AI agent, that call is just completely different. Um, and then like what we found too is like the hangup rate was still around 25, 28%. And that alone is enough for me like, all right, we're hiring humans 24/7. Um, but yeah, anyways, what about names?

Did you ever, were you able to perfect names?

We've, you, we got names pretty good. We got names pretty good.

We still had some problems where it seemed like it was having a hard, we've done a lot of different stuff. Probably not to your degree. Yeah, I'm certain not to your degree, but, um, we still struggled with some foreigner names.

Yeah.

They were ha— they was having, and they talk real quiet sometimes. Right. And we, we, we struggled with that. So like, okay, quit asking the name.

Yeah.

Just ask the address.

We built it eventually where it was basically if we're confused, we'll ask one more time. But if we still are confused, we say, hey, I'm sending you a text message, type it in. Oh, and so that's been really helpful cuz then that text is what is pulled in for the agent to see on the backend.

Okay.

And like the amount of time I spent building this for it to basically not be scrapped, like we still use it, but it's behind agents. So maybe 1 to 2% of calls now hit AI. It was just like mind-boggling. And like, you know, maybe the next, next time I'll sit back for a year or two, let everyone else spend millions of dollars figuring this out, and then I'll adopt it.

So anyways, I, I plan to use all this stuff, but, and I plan to kind of like slowly test it and keep seeing where we're at. And I'm definitely using things now, but not— but I think it's going to be a— I hope all of our competitors implement all this stuff early. Like, yeah, I think there's going to be advantage to staying human for quite a while. 100% competitive advantage. Capitalize on it.

We've now changed, like, so for example, when, when someone's on hold, if it, if as long as there's enough lines open, we'll get it within a matter of few seconds. But if it goes for say 10 seconds, uh, I, I dropped this in the video the other day. I'm like, the easiest way to promote your services is your hold time should just be a recording of you talking. Mm. And so one of the things we did is we just explained the process. So it's like, hey, call's being recorded, let's go. But then immediately it's just like, hey, we answer your call 24/7 with a human. If we don't get to it within 30 seconds, then you're gonna be transferred to our AI agent. They'll take your information, we'll call you back as soon as possible. That led our drop-off rate to go from like, uh, 20, 26% down to almost zero.

That's really smart.

And just explaining the process to them and like showing, hey, we do care, we're trying to answer the phone with a human, but if all the lines are busy, you're gonna go to the— it's, it's worked really well. It, it reduced all our drop-off.

I like that. That's smart.

So anyways, let's go ahead and wrap the podcast. Um, for everyone that's listening, um, If you want to comment below what you'd like to hear from Jonathan and I in the future, we're thinking about making this more of a regular thing for at least the next few weeks. We will have episodes coming out weekly, but before our next episode, we will be seeing comments from this video. So please in the comments, let us know what you'd like to hear. We don't know if we want to continue this for the long term, but we're dedicated at least the next 3 episodes. Uh, so if you do enjoy it, definitely share it with others because views definitely help our egos and, um, definitely go check out Five for $50 from Jonathan's channel. It's a wealth of knowledge for home services, software, and everything he's built. So thank you so much, and we'll see you on the next episode.

See you later.