Is Your Business Profitable... or Just Keeping You Busy?

Before we even got here, I spent $300 grand. When I did that challenge in the past, we got about 20 to 30 customers in the first month. If I don't get 100+ in the first month here, we are failing big time. The speed at which you grow— growth sucks cash.

I see individuals confused about what growth is because they're telling themselves, we're growing, and so this is acceptable, I don't have a problem, and they're ignoring a problem.

Why we had seen so many turnarounds around that $1 million to $1.3 Because they're kind of past the point where they need an operations manager, but they're going to realize more than half of their profit walks out the door the minute they hire that person at a 6-figure salary.

A lot of people think, oh, I'm really profitable, I'm making 22%. No, you're not. You're not paying yourself a salary.

And we had to be scrappy. And I think many times that mentality gets us to grow the business or start the business. But it's also the thing that holds us back from ever building a business that we love.

And the idea that any of us are going to start a business and get it all right from the beginning and not have to clean stuff up is absolute utter nonsense. We all did this. The question is how soon will you do it, and how long do you want to live with unnecessary stress? Hey everyone, welcome back. Mike, great to see you.

You as well. I'm now close to you, nearby.

I can tell by the location. Well, I can tell because you're not, you're not in the studio.

Yes, this very nice background.

Is that a plant behind you?

It is, it is. I had to switch this all around just to make sure the lighting was half decent. And also, I'll be honest, you're like, why are you in a sweater in Dallas? I'll be honest, everything's gone bad. All of our Clothes have not showed up. They're gonna be delayed like 4 more days. So here, nothing. I have one shirt. I have one shirt that I flew on the plane here with. And so, uh, currently that's in the laundry.

So, well, there are plentiful Walmarts around you if you need a shirt.

But not one with Homeworks or Augusta on it. I'm like, look, we're not gonna— we're not gonna cop out here and just wear a random t-shirt in the vlogs. Come on now. That's true.

All right. Well, uh, speaking of being poor, because you're poor right now with nothing, we're going to talk about profit this week.

That's right. That's right.

So the idea here is that we want to talk about how do you make your business more profitable? And if your business is unprofitable, how do you fix it? So how do you fix an unprofitable business? And then what I think is a big one is How do you actually even know if you're legitimately unprofitable, or if the reason you don't have money or don't feel like you're making profit, or your P&L doesn't show you're making profit, is because it's all growth? And I think oftentimes there's a confusion between, is the lack of profit a growth— is it growth, or is it a problem? And a lot of people, I think, call it growth when it's actually a problem. And so that's what we want to talk about. So I think the summary here would be, we just wanna make your business more profitable, and we're gonna talk through ways to do that and ways we've done it inside our businesses. So again, we're going for an actionable episode here. So I wanna kick this off by sort of framing what is profit and what do you look at and things of that sort. So Mike, will you, uh, you kind of define for everybody how you think about profit, and then I'm gonna dig just a little deeper.

Yeah. So like the technical aspect, this is where it's very difficult. Whenever someone says I'm X amount percent profitable, like, well, what kind of profit are you talking about? Because theoretically there's 3 different types of profit when you think about accounting. And so one that some people throw around is gross profit. And we talked about that on the podcast here before. That's essentially your total revenue minus your cost of goods sold. Cost of goods sold being your direct labor, your materials, your subcontractors, those direct costs. And that really just measures the production efficiency. So it excludes all your overhead, interest, taxes, all of that stuff. And so for some people, they would consider that profit. I think the more commonly termed, you know, use of this word is operating profit. And so that's the second type of profit. And that's going to be your gross profit. So we've already taken out your cost of goods sold minus your operating expenses. Some people shorthand this as OpEx. This could be anything from your admin, your rent, your insurance, all these other operating costs that go into the business, but usually it excludes financing costs and tax obligations. So those are usually removed from this when it comes to profit. And I'll give kind of some targets. So like, when it comes to gross profit, as a general rule of thumb for home services, it is very dependent on industry and whether or not you use materials and subs, etc. As a broad rule of thumb, though, you want to be over 50% gross profit in the business. I think that's a relatively Decent rule of thumb, depending on your industry. Again, for the operating profit, I generally like to see over 25% profit. This is the operating profit. Now, the net profit, which some people use when really they're talking about operating profit, but net profit is the operating profit minus any interest and any taxes. And this is ultimately what most of us would consider like the financial gain from the the business or from the location, and represents the real like bottom line of the company. And I think for most home services, again, to your point, they think they have 0% here because they are in growth. And they're just constantly investing in, but realistically, you want this to be, in my opinion, over 15%. You know, the best businesses are over 15%. Over 10% is okay. If you're getting single-digit net profit margins, you probably should just put your money into an index fund. Uh, especially if you are not growing very quickly. And so I think this is a great topic to discuss. If I have low profit, is that because I'm growing or is that because I have an unprofitable business? And then what can I do to fix that? And so that's how I kind of determine what profit is, those 3 ways. And I'm sure there's, there's other ways to measure it, but those are the 3 ways I always think about it.

Yeah. And those are the typical ways I would as well. And for the purpose of this, conversation, we're really going to be focusing on net profit, although in the sense that that's the money you have left over to grow the business with. That's the money you have left over to live a life. That, that's, that's what we're all— we all started a business for, is that net profit number. Now, all these other numbers are imperative, and what we're going to talk about impacts the other 2 types of profit that Mike talked about. But at the end of the day, they all drive down to this net profit. number, which could be your take-home number. And so that's the number I tend to think when most people say I'm highly profitable or I'm not profitable, that they tend to be talking about is that net profit number that is usually shown at the bottom of— well, not usually, it's shown at the bottom of your profit and loss statement. That's where you go to find that number. There's a lot of things that can impact that number, but that's what— that's the gist of what we're talking about. So I wanted to add a little more detail to this before we get into ways to fix the profit and kind of talk through maybe a question you have, or a lot of people have, which is, you know, why is it that I'm not making money? Or why, why does it look like I'm not making much profit or enough profit? And so the way that I kind of talk you through this to help you answer that, the question I think you wanna, you're probably asking is, am I not making money because I'm investing in growth? Kind of back to what we said at the beginning, or am I not making money or enough money because something's wrong with the business? Like, that's the question that I wanna dig a little further into before we get into the actionable items. And one of the biggest challenges I— frustrations I see is I feel that most owners predominantly look at their bank balance. They look at their bank balance to understand how things are going. I've got $7,000 in the bank on average. I can afford to hire somebody. I've got $21,000 in the bank. I can afford to buy another piece of equipment. The problem with the bank balance, and there's lots of people that teach to even run your business looking at your bank balance, but they're oversimplifying for people that they can't get to do anything else. The real way you run a business is by looking at your profit and loss statement, your other financial statements. And so we have to, to be able to answer this question, have you Keep your profit, your your statements, your profit loss statement, your balance sheet, your other financial statements accurate. And to answer his question, we have to have you look at and understand your profit loss statement. There's just no way to get around that because the profit loss statement is it tells you where your money's going. It's just like unlike anything else that tells you where your money's going. So you have to run your business that way. And it's I would argue that sure, it's okay for a short bit when you're first getting started to follow some of these methods where you're Basically looking at your bank balance and you're putting money into different bank accounts. But if you're going to be a sophisticated business owner and you really want to know what's going on, you have to understand your financials. There is no way to get around that. And so there's a lot of people— and Mike, by all means, because I'm gonna spend a little time on this, jump in if you want to add any color or commentary to this.

I would just say for anyone that we've already lost when it comes to talking about profit, or even when Jonathan says that you need to know your P&L, it's like Okay, I don't. Yeah, like I'm just lost. This is where I think, again, the use of AI is so important. This is essentially a consultant that is going to be able to walk you through cleaning up your P&L. What is valid? What is not? What is considered cost of goods sold? These are things that can absolutely— AI can help you clean up. You put your bank statement in there, you put your— what you do have of your P&L from QuickBooks into AI, and it'll help you clean it up and it'll produce more accurate numbers that actually reflect percentages and Something you can actually work with.

Yeah, I'm glad you said that. I would also tell you, if you're listening and you don't really pay attention to your profit loss statement— that's what the P&L is, profit and loss. It just tells you, are you making money, are you losing money, and gives you all the details. But if you've looked at it and your brain sort of shuts down and you're like, I hate this stuff, you shouldn't beat yourself up. You shouldn't feel like something's wrong with you. I think a lot of people hate this stuff a lot. I mean, there the number of kids that go through college and have to go through Accounting 101 that where you learn this and hate it or fail it or it doesn't stick. This is it's not unusual. And I would also tell you that if you learn like you kind of go through the PNL, you learn it, you read a little bit about it. It's like oh okay this is making sense. And then you go about running your business for the next sixty days and you come back and look at it again and then you feel like an idiot because you can't remember what you learned. 60 days ago, totally normal. I'm telling you, this is normal. So don't beat yourself up about this. Some people love this stuff and they just get it immediately, but the majority do not. And I don't think that's— I don't think you're— you're in the norm if you don't immediately get all this stuff. And the only way you learn it is to continually listen to things like this. And then it's the repetition of asking your accountant questions. But even better, like Mike said, just ask AI now. I mean, and just tell it to teach you like you're a 5th grader and ask me questions and quiz me and help me understand this. You're gonna have to do it a bunch of times, at least most people do, and then you'll eventually get it. I just wanna make sure you know, this is like totally normal. I've been doing this long enough to know when I started in business, I liked this stuff and I didn't immediately remember all the details or get all the stuff. I had to go back through it several times, like connecting what a number on your P&L is to what's happening in the real world. Just doesn't immediately stick for everybody. So just don't feel bad about it is all I'm saying. So if you feel like you're kind of losing us here, dig in a little bit more, like kind of like Mike said. So returning to what I was saying, one, one of the common things I hear is somebody will say, hey, I'm not making any money because we're growing really fast. It's really hard to define what fast growth is to— for me to say, you're right, you're growing really fast, that's your problem, or No, you're wrong. That's not the problem. You just have a crummy business. Like, it's very hard to define what fast growth means. So at a very elementary level, I'd say, hey, if you're doing $200,000 in revenue and you grow the business by $100,000 or $200,000, that's— we'll call it— that's 100% growth. $200,000, that's not fast growth for City Turf. That's not fast growth for Mike. That would be a very, very bad year for us. But it is fast growth It was fast growth for somebody like me or Mike when we were really small because we were learning, figuring things out. And also, when you only have $200,000 in revenue, that means— and you're having to take a salary, that doesn't leave a whole lot of money to pay for the truck, the equipment, the marketing, the next person. So that's fast growth because it's painful growth because it's expensive.

Yeah. And just, I'll jump in here just a little bit because this is like a big topic right now. In like on my channel, my people following me is because I'm starting this new challenge in Texas. And my budget's big, like comparatively to where 3 years ago, I started a location. And under $50,000 was the budget. And I'm out doing door hangers, knocking on doors, holding a sign next to the road, very different than, you know, what I'm doing this month, where before we even got here, I spent $300 grand. When I did that challenge in the, in the past, we got about 20 to 30 customers in the first month. If I don't get 100+ in the first month here, we are failing big time. And so the speed at which you grow, growth sucks cash. And I think to your point, whether it be growing from 0 to 100 fast or going from 100 to 1,000, it's going to be different for every business what growth really looks like. I also like to look at number of technicians as a better metric when we're talking between our owners of how many, how many technicians did you add this year is a better indicator for most of us instead of saying a percentage, because a percentage on a $20 million business like CityTurf, if they grow by 30% next year, that's $7-8 million worth of revenue with trucks, equipment, facilities, like huge investments as required. A 30% growth on a business that's $200 grand, you might not even need a new technician, you might just make your current operations more efficient. And so I think growth rate is one of those things that is a bit of a vanity metric. And I think if you're talking between owners, sometimes technician count is helpful to say, are you actually growing? Because more technicians mean more management, more overhead, more trucks, more equipment, and it's usually a better indicator of really, are you growing the business?

Yeah, I think that's good. And it's, it points to this challenge of defining what does fast growth mean, where it's justifiable to say, you know what, it is the growth of my business that's killing my profits. And so I shouldn't, so I'm, the business is okay. You know, a couple, a number of things I just kind of wanna point out here. I, I see individuals confused about what growth is because they're telling themselves, we're growing, and so this is acceptable, I don't have a problem, and they're ignoring a problem. And that's the biggest— that's maybe what I'm trying to get to here. I want you to not ignore, ignore a problem if the real problem— if there's a real problem, it's not a growth story. So oftentimes there will be a lot of money spent on marketing, and you have a big marketing expense But it's not really growing the business. All it's doing is replacing existing clients. That's not growth. Like, that's just— that's a cost just to keep the business alive. You can't count that as growth. That's an expense that it— that just to maintain the business. Or another one is people eventually have to replace— we all have to eventually replace worn-out equipment, trucks. Not growth. That is a cost just to keep the business alive. So I see those There's many other examples, but those are 2 examples right there where we, we think, oh, added a truck, that's growth. Maybe, maybe did you add the techs that necessitated the truck? If not, that's just operating the business expense.

Okay.

So again, my, my point here is most of the time the problem isn't fast growth. And one way you might think about this, and again, this is— now I'm going to go back to your profit and loss statement if it's something you look at. And what I'm about to say, you could also do what Mike said. You could upload this to Claude or ChatGPT, and you could kind of run this except this exercise. So the exercise would be if you didn't grow next year. So you've got your business as it is today, and you don't grow at all next year. So you don't add; you add no new people. You add no equipment. You add no trucks. You do near zero marketing, only enough marketing just to replace the people that are leaving your business, so you can stay at a steady state. How much money would you make in that year? Because that tells you the whole story right there on how you're really doing. And so let's say that I was looking at my profit and loss statement. This is where, again, an AI model can help you figure out by asking you questions what in that— those numbers might be growth expenses versus running the business expenses. Okay, so if, for example, I legitimately added A off I had some addition. I had marketing of five thousand dollars, and I could I could equate that five thousand dollars to growing the business. I would add that number back into my profit. Okay, I wouldn't have spent that if we hadn't grown. You so there's there's my I'm going off top of my head. What would be some other things like adding in a new person that increased revenue? Adding a truck. But I that's where I got stuck. Adding a truck is a whole Confusing conversation, um, because insurance—

insurance—

thank you. Yeah, yeah. So there's a variety of expenses like that that get a little challenging to figure out.

Per-seat pricing for software, things like that.

Exactly. Yes. Oh, good. Thank you. I needed some examples there. And those are— that's the way you want to run through this. You're not going to be perfectly accurate, but if you can just get in the ballpark, you can start to figure out like what the business would look like had you not incurred those expenses. Okay.

And then that's a slippery slope. That's the slippery slope right there. Right? Because some people are just going to throw in every expense and like, oh, this is a growth expense. Like, I wouldn't need all of these things. It's like, be careful. Because, and to your point, like, this is what everything you described there is what we call profit mode at Augusta. It's like when you switch from growth mode into profit mode, we believe it's one or the other. Trying to skid between two makes things very murky. And it's hard to determine whether or not you're profitable if you're like, well, we're kind of growing, adding trucks and equipment, but we're also raising prices. And we're still spending a lot of money on marketing. That's what we kind of, we try to push owners like, you are in growth mode, which is we are spending money on marketing, we're buying trucks, we're hiring people, we're expanding, versus profit mode is if you turn off all of your ads and all— like, you can consider that a growth expense all you want, but if your revenue dropped by 50% because it's depending on a whole bunch of lead flow to replace your churn, is that really growth expense? Or is it actually required for you to keep the business operating at its current level? And I think it's a great stress test And you talk a lot about like growing the business in steps. And I think that's what's healthy is like, okay, if we dialed our marketing back, is the business actually profitable? Can this business maintain at least the churn on a recurring-based business? Or do we have enough referrals? Do we have enough word of mouth? Do we have enough reviews that are driving in enough leads? Or are we on this like constant drip of more lead, more ads, more budget for that? And then we're just convincing ourselves, oh, we're growing. But if you were to turn that off, that growth expense, the business would fall apart.

Yeah. And that illustrates everything I've said. What Mike just said kind of illustrates this idea that if you're not seeing strong numbers after you go through that exercise, that's the red flag that tells you this is not a growth story that's causing the challenge. Uh, to add a few more things to look at, this is a common one in small businesses, but boy, I've seen this go into the millions. Are you actually paying yourself? So there's a lot of— so you would cost the business some amount of money, $20 an hour, $30 an hour, some amount of money to produce the work you produce in the business. If you're not paying yourself that wage, your business is less profitable than you think. You're subsidizing the business with your free labor. That's got to be accounted for as well, because a lot of people think, oh, I'm really profitable, I'm making 22%. No, you're not. You're not paying yourself a salary. And then The leftover is the profit. And so that's really critical to clean that one up. I see that another one— sometimes this is where it gets a little bit confusing, but if you're looking at your profit and loss statement and you're looking at the bottom line, if you're— so most of the time when you buy equipment or trucks, they're going to get logged on your P&L and they're going to get depreciated over time. Sometimes I'll see people log their purchases and fully expense it on their profit and loss statement. So you bought a $20,000 truck, it came out of profits immediately that year, and so it looks like you're doing worse than you are, and they're beating themselves up. So this can go both directions. Sometimes, you know, you're doing better than you realize. In my example, just remember that your equipment— this is out there in the weeds for people— but your equipment Your trucks, those go on a different document called the balance sheet. Okay, they're reflected on your profit and loss statement. That would be another thing that's really valuable to learn. But I'll but I'll move on. I just want to say I've seen that too, where somebody's actually doing way better than they think, and they're writing big checks paying for trucks and equipment. But they think something's wrong with them. Like actually not really. It's how you're you're putting you're recording this in your books. Then the last thing I would say before we get into like how you do it is. We talked about the profit and loss statement as this document you can look at that will give you a picture of where you're at. The— but the profit and loss statement and the balance in your bank account will pretty much never match. Okay. And so you may look at your P&L and say, well, it looks like I'm making money, but my bank account isn't telling the same story. And why could that happen? So I tend to think of a variety of things. One of the big ones is I see a lot of times early in a business, companies will get themselves into debt. They'll get themselves into, you know, they bought a business, they bought a lot of trucks, they made a few mistakes, or whatever the case might be. Or they didn't make mistakes, they, they used debt and they were killing it, they were growing the business. But when that debt gets paid back, it brings down your cash balance. But it does not reflect in your profit and loss statement. So you will have less cash, but you'll look like you have a bunch of profit. You'll be like, where's my profit? Well, you, you just, you paid down a lot of debt. You did a great thing, but that's why it might not match. Other reasons why it might not match would be that you paid cash for trucks and equipment. We kind of talked about that earlier. So a lot of money left the bank account, but it's not recorded as— You bought a $40,000 truck, $40,000 left your bank account, $40,000 Doesn't show up on your profit and loss statement as an expense in that moment. Another would be you have—

I'll just add one thing to that first example, cuz I, when I do turnarounds, almost always when someone says, it seems like every single, like we're working and like my P&L looks good, but I just don't see the money in the bank account. Almost always they have debt. And it is because your bank account has, it's, I kind of think of it like this is a simplified version that you have your P&L and everyone's like, oh, bottom line, I, I, it looks like I have money. But before it goes to your bank account, that's where you got to pay for loans.

Yeah.

And principal paydown, or let's say out of a $700 truck payment, $550 of that is principal paydown. It's not showing up on the P&L. Only the interest shows up on the P&L as an interest expense. And so that $550 evaporates before you're seeing it inside of your bank account. And so almost always when someone says, What I see in my P&L, my accountant sends it to me, QuickBooks says I have all this money, but I don't see my bank account. Almost always it's a function of debt.

Yep. 2 others, uh, would be accounts receivable. So like you have a bunch of money outstanding from clients, not in your bank account, but it shows as money earned in your profit and loss statement. And then another one would be distributions. So in other words, you don't take a salary. Instead, you just take money out of the bank account as in the form of a distribution. The distributions hit your balance sheet, not your profit and loss statement.

And so the thing, another thing I'll add to your second one, I want to go through each of these 3 if possible. So on the second one, when I just always think about the turnarounds, because almost always our best turnarounds and the most pain is when someone's not profitable, they don't have any money because all of us know that pain. Like it's one of the easiest ways for us in a turnaround to connect the audience to the pain of the entrepreneur is like they're, they have no money in their bank account. We all know what that feels like. And to your point around accounts receivable, I would be very cautious to anyone that says, oh, we're not— we don't have a lot of money in the bank, but we have accounts receivable.

Hmm.

It is a slippery slope because many times that cash flow problem just gets bigger as the business grows. And so, a lot of people say, well, I only have $10,000 in the bank, but I have $70,000 in accounts receivable. So, I basically have $80,000. Like, no, no, that money is not realized. You don't have that money in your bank account and when you go bankrupt, At a small business, they're not going to be like, yes, pay us with your accounts receivable. At a very large business, there's ways to do that and you can get pennies on the dollar for your accounts receivable from a collections agency, etc. But like at a small business, that doesn't pay the bills. And so, this becomes more of an operational problem that I'm not being able to cash in on the revenue that I've earned until it's actually collected. And so, be very careful because if you're having a cash crunch with a whole bunch of accounts receivable, as the business grows, that problem only gets worse. It doesn't get better. Because as you make 5 times, if I just got more revenue, well, now your accounts receivable goes from $70 grand to $150 grand and the problem just escalates. It's slippery slope.

So, uh, my 4 examples were you paid cash for trucks and equipment. So my other one was paying back debt, the AR balance we just talked about, accounts receivable. And then my last one was distributions. Uh, is there any others you would add to that list based on your experience?

I think the distribution ones is great because I think that's why a lot of times businesses around that million-dollar marker, They get tripped up because they start realizing, okay, I was 20% profitable, so $200,000 on a million-dollar business. But for me to continue, I'm either going to work 90 hours a week or I got to hire an operations manager. And if I hire an operations manager that really knows what they're doing, that's going to take $100,000 to $120,000, which is more than half of my profit. And this is why it tends us to, to be micromanagers, because when you give half of your profit away, Yeah. To an overhead position, you're like, what are you doing? And like, why is the business not growing? Why is this not done? Because you are giving half of your profit away. But you— it is what is required to get past $2, $3, $4 million is that critical role. And so, the distributions, the ability to force yourself to realize you cost $100,000 to the business. So, you're not really 20% profitable. The business is 10% profitable, making $100,000 after you pay yourself. a reasonable salary, and that should be accounted for inside of the operational expense of the business, your overhead. And so, it's a good way to, as a forcing function, to realize how profitable is the business separate from how many hours am I working in the business. For that, that's why it's so difficult and why we see so many turnarounds around that $1 million to $1.3 million because they're kind of past the point where they need an operations manager, but they're going to realize more than half of their profit walks out the door the minute they hire that person at a 6-figure salary.

That's smart. So that whole first part was just thinking through, is there a problem in my business? That's just in kind of painting a picture of how you would think through this. So now let's dig into how do— maybe you have a problem, let's fix it. Maybe you don't have a problem, you just want to be more profitable. That's awesome. So that's what we're going to talk about now. We're going to walk through this.

Set screen. Yes, set screen.

Agreed. So Mike, why don't you kick us off with, uh, one of the big, one of the areas you look at when you're trying to optimize the business?

Yeah. So I actually have a bit of a framework for this that I use for the turnarounds. I don't really talk about it too much. Um, so there's sales, operations, and admin in every business. Sales, I define that as getting the work, operations, doing the work, admin, getting paid for the work. How I like to think about profit is there are offensive measures. And there are defensive measures. So when it comes to offensive, I'm thinking like, how do I grow this department? Whether it be sales, operations, or admin, how do I grow it? Or another way to think about it is like increase throughput. How do I increase like the volume of this business? Because the amount of calls that City Turf takes is probably 100x or the volume of a business that's just getting started. It might have a couple calls a day. And so offensive is how do I grow? How do I improve The ability to grow this department of sales, operations, admin. Defense is how do I make it more efficient or how do I get better? How do I improve sales, operations, or admin? I think most of us as entrepreneurs, we generally like the offensive side of each of these departments. Like we just like, man, how do I get more ads, more leads, put more creatives in Facebook, more channels of distribution? Like we are always thinking about offense. This is why a lot of times, Jonathan, you always talk about like operations manager making sure they're a savage. They're a lot of times thinking more on the defensive measures of each of these departments.

Yeah.

I think some of the most, the best businesses I've seen, the entrepreneur generally is an offensive person. They like to find problems and like, how do we deconstrain this? This is why we always talk about constraints and bottlenecks in the business. What we're trying to do is we're trying to increase the throughput or how much we can grow the business. And I think a great operator will be kind of that counterbalance of, well, how do we make it better? How do we make it efficient? Like, let's, let's not double the amount of ad spend before we just think about how do we improve our close rate here? How do we do a follow-up process? How do we do an automation? Usually the more boring things, like in any sport, defense doesn't usually get on the front cover of a magazine. It's the offense. And so that's how I kind of break it down. And I can go in, in more granular examples of each one. I wrote a couple of those down, but how, how I like to break it down is I have sales. Operations and admin. And in each of those departments, I can either grow the business, offense or defense. And usually the defense one is the one where you see more profit. That's the one that is not as fun or sexy. That's why people grow into oblivion is because like, it's so fun to get more trucks, get more people, hire more people. These are all offensive measures, but each of those departments, having someone that can be really looking at the bottom line, making it more efficient, like, okay, how do we go from 70% efficiency for the crew to 85%? There's all our profit right there. If we don't think about that and we just think about buying the next truck, hiring the next person, and we constantly are on the offensive all the time, that's where we can go off the rails.

So I really like the offense-defense frame. Uh, hadn't really thought about it that way, frankly. And offense, like you said, tends to be a CEO. Defense tends to be the COO in a bigger business. Like, it is really well framed. I like that. Uh, interestingly, all of mine are defense. That I picked.

Let's go. Talk about that. That's great. 'Cause that's really where the profit is. That's really where the profit is. That's why so many of us grow so big. It's like we're usually the founders, like much more growth-oriented and often like just pedal to the metal.

Well, that's what I like. I think I've been doing this long enough though that I didn't even think through it. That's just my point. I didn't even think through this as offense and defense. It's an interesting frame. I truly don't know if I ever thought of it that way. And my brain is all offense. I love offense, but when it comes to making money, I didn't think about this way. My brain naturally went to defense, probably because I've been doing this long enough. I've seen exactly what you said. So yeah, it really resonates.

I'm gonna go out on a limb and say the things that you're about to talk about are not the things you enjoy doing all the time because you think much more growth-minded and most growth strategy.

Oh, you would be 100% correct. And if I had to do them all the time, the business wouldn't be as profitable as it is. Yeah. Yeah. So do you want me to jump into one or do you have one? Go for it. And stay there.

All right. I'll bounce off of yours.

Okay, perfect. So I'm sort of starting at the top. Like, I've— I'm sure we've talked about this in the last however many weeks we've been doing the show now, but this is to me the top level. And the top— and so this is the time it takes to produce the work on the job site. Okay, so all defensive stuff here. I often— and other people say the same thing— I think about it as ignition to ignition time. I pull up in front of the property, commercial, residential, don't care. It's from the moment we turn off the ignition, do all the work, get back in the truck, and fill out the paperwork. Now, in Texas, you get back in the truck, you turn on the ignition, you fill out all your paperwork, you do your mobile app thing, then you go. But you get the idea. It's from, you're like, you're completely done with the logging and the paperwork, putting the door hanger on the door, anything that has to be done. You turn on the ignition to drive away. That's the moment you arrive to the moment you leave. That's the ignition to ignition. The reason why I like, I've always liked this based on what I've experienced and learned over the years is the number one expense in our businesses is labor. And this is where you control, this is the top place to control labor. Labor is the people doing the work, billing the time. Okay.

It's also the only thing that customers pay for. And this is what, this is a, this is a really good frame. I think it was Elon's operations person from way back when I, I, I saw an interview and he is like, the only thing people actually pay for is operations. But yet we focus on sales, we focus on admin, all like operations is what people pay for. And if we started optimizing what people pay for, which is the customer, then we usually get to where profit's hiding the fastest.

Oh, I like that. I hadn't heard that one either. Yeah. So, so we want to start here. And when I think about this one, let's kind of talk about it in terms of like, well, how do you understand it? And please, Mike, just chime in. We're going to volley back and forth here, but how do you How do you understand it? How do you improve it? What does it impact by understanding this? So I'll start with the understanding. The this is in my example, kind of thinking back through my history of business, and we'll use City Turf as an example here. This is the one thing I got right. I I've told the story. I was working on all these businesses at the exact same time, and I had never really done. I did lawn care in high school and I made money. It went great, but I had never done a city turf business like this before. I didn't really know my stuff. I was, I didn't even wanna be in the business. I ended up in it. And so I wasn't, I was so business busy. I wasn't, I was more thinking about growth. I was more, I wasn't thinking about all the right stuff. I wasn't learning all the things I needed to learn about the business, but intuitively, intuitively from some previous experiences, I got this right from literally minute number one in the business. I was tracking how long it took to do a job and how many people were on that job and dividing it by what it, what we made on the job, which we, I didn't invent this. This is what's called per man-hour rate. It's how much money you're making per man-hour when you're producing the work, when you're doing the job. To me, it is the most elementary and must-do, must-get number in the business because here's what it tells you. Like it, it, it allows you to compare. Jobs. So, I can compare Ms. Smith's job to Mr. Jones' job. And I can understand at Ms. Smith's job, I make $68 an hour. And at Ms. Smith's job, I make $42 an hour. Don't need to be a genius to just figure out like, something's not right here. We've mispriced that job. There's something, or we priced it right, but there's something about Mr. Jones' job at $42 an hour that we didn't expect that is slowing down our team. So, that'd be an example.

That backyard gate. That backyard gate.

Yeah, that backyard gate. Yeah.

Something. There's something.

The guys are blowing grass in the pool every week and then they're having to clean it out. There's something, there's dogs that they gotta wait for the dogs to be put up. You get the idea. Okay. We can also then compare services. So I make $98 an hour doing fertilization, weed control, and I make $62 an hour doing mowing. Doesn't mean mowing's bad. And I made those numbers up, by the way. It doesn't mean it's bad. It just means that one job makes us a lot more money per man hour than another. It could give you clues as to where you want to grow the business. Not necessarily, but it's informative. It, it, it, there's, there's information that comes from that that can lead to decisions you make in the business. It also lets you compare technicians. So I can, if, if this, these technicians running their route make on average $60 an hour and these technicians make on average $70 an hour, could be a clue. Maybe not. Maybe one route's less efficient. Well, no, we're just talking job time here. So that doesn't count. I almost said inefficiencies in the route. That's not true. Just, but it could, it could be something else. It could be the size of the properties are mismatched. We'll use a mowing example. One crew is mowing properties that tend to be 10,000 to 12,000 square feet of grass, and another group is mowing properties that tend to be 5,000 to 7,000. May not be the crew's fault that one's making more than the other. It could be a pricing scenario, but it gives you clues. And that's the beauty of this. This number gives me clues about how I might improve the business, fix things in the business, how I might set pricing. It allows me to measure people. It gives me a lot of information that allows me to run the business. It also allows me to measure efficiency and predict productivity from one week to the next within, within the same crew, or as I trade out people on the crew. If there's a drop, it just tells me so much. So then when it tells me something, this is when the, the way that you, in my opinion, the way you make change in a business is you have to kind of get your hands dirty. And this is where, when you see these, so these are like the warning signs going off in the business, like, wait, we got a problem over here. So that then tells you maybe we need to go onsite and observe the work being done. Maybe it's a new team. We need to do more onsite training. Maybe we need to do more inspections and spot checking work, and then taking pictures and having discussions with the team and training them. The this data tells you when action needs to be taken. And again, I will tell you this is the number. This is the main number I got right in City Turf from day number one, and it saved my butt because I got a bunch of other stuff wrong. I really did. I just was running so fast. There was a lot of information that I talk about today that I was. fully clueless on back when we started the business. And had I not got this number right, we wouldn't have— we would've been way less profitable and we would've made not great decisions. I'll put it that way. So I generally say start here.

And I think the only ingredient really anyone needs that agrees with you but feels like they don't have that number, the thing you gotta have is clean clock-in and clock-out numbers. That's really it. And so like, It's very top of mind because recently we made it where if someone drives within, I think it's a 100 or 50-yard radius around an address, it reminds them, hey, do you want to clock in? And if they leave that address without clocking out, it's like, hey, did you want— did you mean to clock out? Because if that data gets skewed, that's when now all of a sudden we can't come up with an accurate— because again, you could have all the numbers in the world, but it's not accurate. Now I have less confidence to actually make the decision, whether it be raise prices, adjust services, adjust technicians. Like, if you're gonna fire someone based upon them being inefficient, based upon what we just talked about, we better make sure that the data's clean.

Yeah, that's a good one. And I would add to that, based on my Service Autopilot experience, the volume of people that told us we can't get our people to clock in and out.

Yeah.

Dude, we wrote, handwrote all of our start and stop times forever at City Turf, and we got them to do it. Like, you could do it. And then eventually we built Service Autopilot, we put it into Service Autopilot. You, you can do this. This is like a non-negotiable. You have to do it. This is how you run the business. So you, I promise you can get people to do it. You just have to manage them and you have to fire people that won't do it.

And that's tough. That's true.

I don't know how else to say it. All right. So what would you add to this list of improving profitability?

I 100% agree with you when it comes to the labor. It's just the most unsexy thing to improve because you're most, it's, It is things that take a long time and is not fun to improve. Things like onboarding, training, quality control, uh, making a crew more efficient. And I think the biggest thing, as I was thinking about— because these are the defensive measures mostly on operations, you know, improving the quality and the employee training, standardizing the equipment— all of these things are defensive measures when it comes to operations. And one thing that I was— it just kept hitting me in my head was like, Well, it is very difficult to improve efficiency or have a defensive measure for operations and improve efficiency by, let's say, 5 or 10%. Like, there's a lot of changes and a lot of work, and that's why most people won't do it. I think even before that, if you want low-hanging fruit, the vast majority of home service business owners were just undercharging. And when you look at being able to raise prices by 15 or 20% and very few people leaving, That is actually the lowest hanging fruit. And if someone's watching, watching this and you're like, I don't have a profitable business, I just ran all your math and it's not looking good. The best way to make your efficiency score go up or the hourly rate that you're charging a client is literally to raise their prices. It's the fastest, easiest way to do it. Now, if you're doing a bad quality service and half of them are going to leave once you do raise the prices, then we got a problem. And I think the reason I say that is because as I was doing the math, I'm like, well, still a price increase of 15 or 20 or 25% still beats out The net profit that I get at the end of the day, if I do all of these other things. I think though, when it comes to if I spend a day onboarding with my technicians, the— there's a huge delay in when that actually hits the bottom line. Whereas if I start running ads tomorrow, I get leads tomorrow, I get the phone is ringing, I get new customers, I get new revenue. This is why we all focus on offense, because usually the feedback cycles on offense is shorter than the feedback cycles on defense. And it's just less sexy. Doing an onboarding, I'm documenting ours next week where we spend a whole day and we watch videos, we answer questions, we go out and walk through the vehicle, we do one-on-ones. That's not fun or sexy and it could take months before you get return on that versus the more offensive measures of— this is why I kind of don't like Facebook ads. It's one of those platforms where you can keep having fun with tweaking your creative and getting a very fast feedback loop like, oh, this one's better. Okay, split test this. Oh, what about this picture? What about this video? And you're on this treadmill of an offensive offensive measure around sales versus where most of our profit sits, which is, can I get the same technician that I pay the same amount to do 30 or 40% more in the day? And does that mean I need to create a new compensation model around pay for performance? Does that mean I need to do incentives around good quality work and getting reviews? What do I— those are things that take longer to see the results of, and it's less dopamine immediately. But having a great trained technician that is thinking about quality, that can upsell customers, that does such a high quality that you can raise prices and customers don't wanna leave, that's where really where all the wins and the profit is at.

Yeah, that's good. I had pricing on my list as a bonus in case we had too many conflicts here and I needed something else. So I, I totally, I agree. And I will connect my first item to pricing to say that for many of us, We don't have confidence to raise the pricing, and we in confidence could be should I raise the pricing? It would I be charging too much? But confidence also might be are they going to leave me when I raise my pricing? So if you go back to my ignition to ignition, we're tracking your revenue per man hour. You can if when you do that, you can see where you have problems. So I'll go back to my example. If Miss Smith is $60-something an hour and Mr. Jones is $40 an hour, that should give you the confidence that, hey, there's a legitimate problem. It's completely reasonable to be raising Mr. Jones's price because most of our clients are in this $60 range. He's down here in $40. We've got to fix this. It's pretty obvious that we're hurting ourselves. That's an— this— so that data can give you the confidence to know, oh, I'm getting this wrong. A great insight that CityTurf had way back in the day was we had our whole pricing model set up, and then we discovered that the— our number— what is our number one market today from in terms of dominating the market? I think we have like 12 or 14% of all the homes in the market. Okay. So in that market, we discovered way back in the day before we were dominantly dominating like we were, that was our single worst pricing of all because those homes tended to be like 10 10,000 to 13,000. I'm getting my, it's a little bit wrong, but we'll call it 10,000 to 13,000 square feet. They were the, on the bigger side of what we did. Our single most profitable accounts were 7,000 to 7,999 gross lot square feet. Most profitable back in the day based on that pricing model. When we saw that data, well, I guess it was me when I saw that data back then, I was like, my gosh, we're underpricing this bigger stuff. Problem solved. Confidence right there. It's like, we can't run the business like this. This is dumb. The data's hitting me in the face. We're gonna fix it. And we fixed it. And so, um, yeah, so I just wanna like tell you, this is another reason why, whether you're using HomeWorks or Service Autopilot or ServiceTitan or whatever software or system you're using, if you're— you've gotta track this data because it does so much more than just accountability. It gives you the confidence to raise pricing, which is probably the top level thing.

And to your point, like, I think a lot of times people miscalculate the impact of a price increase. For example, especially in cost of goods sold heavy industries like we have, where we have lots of labor. For example, if you have a $40 lawn and it costs you $35 of direct labor and cost of goods sold and everything else that goes into that job, and you're charging $40, you're like, well, we're making money. It's $5. $5. Let's just call it profit for the sake of this example. Well, if I raise the prices, to your point, $60, You're like, well, we went up 50%, so we're making 50% more profit. No, you're not. You went— you're still going to have the $35 cost of goods sold. But when your price goes from $40 to $60, you just, what, 4x'd your profit on that job from $5— actually, 5x'd it. You went from $5 to $25 of profit on that job. And so theoretically, you could lose 70%, 80% of your customers in that price increase and still make more money on the other side. And when you start running the math of profit that I get from the job, because raising your price is 100% profitable, uh, everything you raise—

Meaning it all goes to the bottom line on that profit and loss statement. It's like the $5 price increase. If that job was profit or profitable, if it wasn't already losing money, it goes straight to the bottom as pure profit. That's why they're so valuable. Yeah.

And if you lose a customer that you're actually losing profit on, guess what? Losing them is also net positive. You made more money. So like when you run the math, that's when, that's when usually people can get confident. I think I say, And honestly, for anyone, to your point, that is lacking the confidence, do it on— you don't have to raise it on everyone. Raise it on 5% or 10% of customers that you know you need to. And usually doing that is the thing that gives you the confidence. Okay, one person left. I think this is probably something I should roll out.

Yeah. Uh, you kind of said it, but I'll add one more thing. Way back, I, I don't even remember the name of this book. I, I read a couple books on pricing strategy. This was at the beginning of Service Autopilot. And there, and I There was a book that basically— and you alluded to it, Mike— but it gave this example of if you raise your prices by this amount, you— it gave all these tables. You can literally lose this percentage. You're right. Yeah, this is going to be wrong, but you could raise your price by 25%, you could lose 32% of all your clients, and you break even.

Let's go.

But you— yeah, but now the business is easier to run. It's that kind of thing. So today I would tell you, I haven't the faintest idea what book that was, Just go to ChatGPT and ask that questions like, hey, help me model this out. Ask me the questions one at a time that I need to answer that will give you the data you need so I can figure out what each tier of price increases will, if they were to cost me X number of clients, like what, what would be break even? Like, because where I'm going, maybe that wasn't clear. My point is, if you could raise your prices 25% and you, and the model said you could lose 36% of your clients, would you? believe for a moment you'd really lose 36% of your clients. Like, the risk is really low when you see that data, and that's another confidence builder to go out and do it. And then we've said this before, you never just have to go out and do it. If you need to raise the price on 200 people, raise it on 20 and see how it goes. And when it goes great, because it will, raise it on the other 180. So, okay, that's our price discussion. Anything else on that one?

Sounds great.

All right, good. I'll take us back to boring. So we're back to the unsexy stuff, the defensive stuff. So I'm going next with focusing on what I've long called your non-billable expenses. All right, so we're opt— so operational stuff. And yes, this stuff takes some time. It's not fun. I agree with Mike, but it works. This is where the money's at because— okay, so first we are focused on making the job as profitable as Possible. So let's just say to produce the work of the day. So if a team member works for 8 hours but they only bill 5.5 hours, or they only bill 7 hours, or whatever that is, whatever those hours are that aren't getting billed, I call those the not— I didn't invent this, it's called the non-billable time. Okay, so if I— some— if team member's out for 8 hours a day, they only work for 6, we have 2 non-billable hours that day. If you can claim back that non-billable time and rebill it, it's magic. So as an example, if I could— because I'm— if I could go from billing 6 hours a day to 7 hours a day across every person in my company, and my average billing rate's $60 an hour, it costs me no additional money. None. Overhead was covered. I was already paying the labor. Yeah, maybe I have like an incremental fuel cost to drive the guy to a next house or something like some little minuscule, doesn't even matter, don't even need to track it expense. It's almost again, the example of all pure profit, like the pricing. So every reclaimed minute of non-billable time that's flipped to billable is magic. This is where the money happens. Okay.

This is one of the big reasons why we're testing this out in Texas with the, the vehicles going home with the, the driver.

Yeah.

Because like when you take, if they can get an extra hour per day at an hourly rate of $100 to $120 an hour over the course of, let's call it 20 days a month, that makes a lot of sense to like, that's $2,000. That could be potentially the extra incremental cost of paying for the van payment and equipment. Yeah. And so this is like the obsession of like route density. I'm sure you're probably gonna go this, I'm sorry.

Route density.

No, no.

Yeah, no, don't go.

Yeah. And getting the guys out the door as fast as possible and I'm willing to take the hit on having extra van, more equipment to have the individual vehicles go home. But I'm making the bet that when they go from 6.5 budget hours per day to 7.8 on average, that that delta pays for the extra van. And it's when you, when you start playing with this math of if I can get them on the road, off the road and doing the work more often, you start looking at usually drive time between jobs. Very valuable. But what about the time at the shop space, the meetings, the maintenance on the equipment? My big one that I'm attacking right now is driving to and from work. Like, no one thinks about that because we think about them clocking in at the office and then clocking out. But what about the fact they drove 45 minutes because of traffic? When they left, they hit traffic and were in traffic for an hour and 15 minutes on the way home, especially if you're in a metropolitan area. And so this is very top of mind, uh, for me specifically when it comes to not only the time between jobs, which is We all talk about route density, and that's important, but what about all the time around it?

Yep. And I'll give some examples that definitely overlap with yours, but this is such a massive consideration. I'll use a CityTurf example back in the day, and this is at least probably a decade ago, well before we built the office we're in now, which, golly, so probably more than a decade ago. This is a lot, maybe like 14 years ago. Made up that number, but it's a long time ago. We were looking at a location That was closer to center of our market.

Mm-hmm.

And I don't remember the number now. Philip may tell me I'm insane, but I'm remembering something like $5 million to buy this location and then comply with the city on the, the amount of concrete we had to put down versus asphalt. Like, it turned this into a very expensive project. And I was not excited about doing this project at all cuz it felt like such a big number of A big outlay, especially because we tend to pay cash for everything. It was a big outlay for a business that just didn't seem that big yet. And so, uh, but the math actually made sense because moving all of our people to the center of our market saved, allowed us to bill more time. But it also, when you think about reclaiming expenses, it brought down overtime. So we were not only bringing down overtime, we were billing back additional time. And so we could justify this crazy expensive property. And ultimately it just didn't— the problem, we couldn't get the deal done and that's why we didn't end up buying it. But we were able to make the math work for this exact concept, this non-billable concept.

I think it's the one time when I think about shop space or CapEx in general being a good use of debt. And that is when I can look at the monthly payment and say, I get twice as much efficiency just by cutting down on labor and getting guys on job sites instead of in trucks driving. But you got to know your numbers to be able to have the confidence to be like, okay, I will take on a— in that case, probably a $25,000-$30,000 mortgage if you were financing it per month, but I'm going to save $50,000 a month in labor. Yep.

I feel compelled to give a little disclaimer here. I'm pretty negative on building buildings for people, and I could talk about why, but I just don't want to give you permission to go build a building too soon in your business. Too soon being—

Even rent. When I say shop space, I meant more rent. I think when I was talking about debt, I was talking about equipment, vans, trucks, and investing more in those.

I didn't hear anything you said wrong. I just— I've had so many friends that I've dealt with over the years, and it's like, you want to own real estate? It's like, hey, real estate's where you make money. I agree, real estate can be a great investment, but it tends to limit the growth of the business in the long term. And as a good friend of mine in the business says, it usually costs you a year of growth in your business while you're building your building. And so, um, that's my little disclaimer. I'll give one other real-life example, and then I'll, uh, it's like way before City Turf, I was involved in this commercial cleaning company and we cleaned movie theaters. And we were doing carpet cleaning in Florida, Texas, Louisiana, Alabama.

Mm-hmm.

Those are the big states. And then we were doing screen cleaning, we were doing wall carpet cleaning. And so we had these big Isuzu vans that were, in addition to our nightly cleaning all over the country, we were running these vans on these routes from Texas to Miami and about, and we had trucks stationed. And this is the 20-something-year-old version of Jonathan and the partners in that company. And we were getting the cleaning cost right while we were there. But boy, were we not getting it wrong to get that truck sometimes from Texas all the way to Tampa.

Wow.

Because, you know, sometimes you had to get a truck to Tampa because the truck in Tampa broke down or, or in Florida broke down. And so that business was just never overly profitable because that part, that part of the business, that business was good. That part of the business just took a while to figure it out because we were really getting the pricing right. And we were at the right price and competing with people in the local market, but we were running a business that was doing a lot of trucks over the road and we were missing the total expense, the overhead expense on that business. And that's another area where we can, a lot of us can make mistakes. Um, when you get into these non-billable expenses. Okay. Now, what are non-billable expenses? Mike talked on them. about some, but what are some like real examples? The idea that you've got— you're running a, a 3-truck team or a 3-crew, 3 team members on a truck, and in the morning all 3 team members show up at the same time and clock in. Well, basically one loads the truck, like, or, you know, you've got one guy, the crew leader, who's talking to the— his team lead or dispatcher or whomever. The other 2 are just like standing around, but they're clocked in. Like, so there's a million ideas here. Like, you could stagger 'em. You could have the main guy show up, main guy loads the truck, the other guys show up later, clock in. You're sta— you're just like, it's little time, but it adds up. So what's the clock in and clock out routine? What's the morning routine? The efficiency through your property, the efficiency if you're using storage lockers, if you're using public storage, like what's the efficiency of how people are bumping into each other, how people are needing to deal with broken equipment or get a replacement piece of equipment? What's that whole morning routine? Getting the ice, getting the water, that whole deal. What does that look like? How do you make that ridiculously efficient? Or you could just like eliminate all of it and send your truck, keep, let your guys take their trucks home. Like there's like, that's an idea. You know, what's fueling? Like, are you fueling in the morning where every other service company in the United States is fueling their trucks? Are you fueling at the end of the day when everybody just wants to be home and nobody's fueling their trucks? So, uh, how do you handle breakdowns? Like, are you, are you not upgrading trucks and equipment frequently enough? You're being short-sighted there. That's leading to a breakdown. Your most expensive cost in the business is labor. You've got 1 to 3 individuals sitting in a truck waiting for parts to be delivered. Like, so sometimes spending more money on the equipment— in our case at CityTurf, we just sell off all the equipment every year and buy new. Not every piece, but a lot of stuff and buy new. You, you knock out almost all of that in the business and you keep your labor going. Um, and then the other one, like I could keep going, but another CityTurf example, have, we have somebody else sharpen all the blades. We have somebody else do all the fuel. Like the guy, if, if I say it's really hard to find arborists, then my arborist should only diagnose and bill. If I say I can't find people to mow, I should just have my guys mow and they shouldn't do anything else. That's the philosophy we've taken. Now, that model won't work if you're sending the truck home. You're making a trade there, and that trade could be totally justifiable. I would not argue against it. But for your business, however you've chosen to run it, however you need to run it, these are examples of how you go through everything that's happening in the business and you say, how can we optimize this? How can we get rid of it? Mike got rid of some expenses by sending the truck home. Or how can we improve it? We stagger how our— we are a big business. We stagger how the crews come in. We think strategically about where the ice and water is placed on the yard. You're a big company, we think about where fuel's placed on the yard. All of that stuff has to be thought through, but every one of those little decisions, and there's lots of them, add up to a lot of money at the end of the day. And all that time can get rebuilt. And I'll go back to what I said earlier. What do all of us complain about? We can't find enough people. That's, that's our generally our biggest problem. The more efficient you make the company. The more efficient you make the route, the more efficient you make the day, the more time you can bill of the people you've already got before you have to find the next person. So that's non-billable. That's my second one.

I love it. I think it's a, also a function of even when it comes to admin and sales, we can kind of look at like, it's very easy for non-billable time for technicians. I also like to think of it as like, to your point, like if the bottleneck is arborist, they should only be doing these tasks. I think it's really, even when it comes to sales and admin, I see this happen a lot. especially in a business where they kind of start juggling multiple things. And that is like, how much of their time is actually spent doing the thing? Yeah. Like, well, they do— they're an estimator full-time. Okay, how many estimates did they do? They did 5 today. Okay, how many hours were they in front of a customer, which is like their objective in like a design-build, for example? Oh, well, maybe about an hour and a half or 2 hours. Okay, what were we doing between that? Like, and that's where sometimes hard conversations, if you see Profit leaking out of the business. It is a hard conversation to have with an admin person or salesperson because they're straight overhead and every single one of their minutes have to also be accounted for. And the reason I see this actually being a huge leak for profit is they don't clock in and out of jobs typically. They're not clocking in and out of the phone or clocking in and out of doing email or clocking in and out of running payroll or clocking in and out of making the proposal, doing a drawing. These are things they usually just kind of do throughout their day. And that accountability, the ability to track that and keep people accountable, is where it takes the unsexy work of like, okay, how do we actually compensate people based upon being efficient in these roles that are overhead? And we don't have a clean-cut start-stop throughout our day like the technicians do.

Yeah. Um, I want to add to that one a little bit because I'm that salesperson. Something I've observed over the years, and I, I really get this one Um, so you've got a salesperson that's killer. They're killer in front of the client, but they are horrendous at actually writing up the estimate or following up on the estimate or something. There's something generally it's around the paperwork. It's something like that. Like they just want to be in front of the client and they just want to sell.

Yep.

And so what do a lot of companies do? And I totally understand this. They're so frustrated with that individual that they can't do their job appropriately. That they don't really have a place in the company, and so this is another example of a creative thinking. Like I used the example earlier of mowing. Like how can I just have my guys mow and have somebody else sharpen the blades, fill the gas, fill the trucks, mix the fuel, whatever you got to do?

Don't.

I don't want them. I just want those guys to mow. Okay. Well, can you just have your sales guys sell? Because some of the efficiency, maybe in the example you gave, Michael, maybe they're only doing five a day. Might be they're really good and efficient at doing their five in persons. They're good at talking to the client on the phone, but their brain just shuts down. As soon as they got to write that thing up.

And so they're— Computer.

Yeah, they're talking to somebody in the office, they're texting with their buddy because their brain doesn't want to do that. But if you— if they could just sell and they had an assistant— like, I got a buddy who has an assistant. I think he still does this. She just rides with him everywhere in the truck and she does everything else. He just sells and he sells millions and she just documents and she writes, she follows up. Like, could you solve— just like layering onto what Mike said, but like, could you take some of your people that are killer in one little area but weak in another area and make them great by just letting them do their area of expertise? So earlier when I said some— was talking about non-billable stuff, and I said something like, I think I said, you know, can you have them focus on their expertise? That's, that's another example of what I was talking about.

Yeah, one thing I always think about, if A lot of us think about this when it comes to technicians, but every time you have a start and a stop, there is going to be waste. So for example, if you have 20 stops in a day and you have 3 people on a truck, let's talk about technicians for a second. You usually have a lower efficiency rating because, or efficiency score or percentage of their time is being spent on the job simply because there's more starts and stops getting in and out of the truck. And there's never a point, there's rarely a time when all 3 of them stop Or finish the job at the same time. So we all kind of intrinsically know efficiency drops a little bit as you add more people to the, to the crew. What I actually think is a better way of looking at it is like the more stops on the job, every time they start and stop, there's a cost. There's in and out. There is the fact that, you know, for technicians getting done at the same time, there's the fact that they switch context from working to driving, driving to checking TikTok. These are all switching costs. And so to your point, that salesperson, if I can just keep them in sales mode instead of switching them to an admin role of, okay, you gotta type up these things or talk to add to AI, or you gotta do drawings. The objective is to stop context switching as much as possible.

Yeah.

And this really became, came light to me when several years ago we did time motion studies with, when it comes to Command Center, cuz every second there we are billing for, it's like it costs the owners. We have to make sure it's efficient. What I realized is that a technician, we might get 90, 85 to 90% efficiency out in the field, which means most of their time is spent out on the job getting the jobs done. They might have, let's call it 10 to 20 jobs in a day. But for the admin person, they're switching context. If they're on the phone, doing text, doing email, doing different departments, they might switch hundreds, literally hundreds of times in a day. And every single one of those switches, there's wasted time. And so this is where we started to do, okay, we are just having a phone department. We are just having a text department. We are just having an email department because they can get in the flow and there's less switches. And so when it comes, whether it's sales, operations, or admin, reducing the number of stops or the number of start and stops is another way to reduce this loss of efficiency that happens regardless of where you're in the cycle of sales, operations, admin.

I agree. That's good. You got another one?

No, go for it.

So I've got a couple just random thoughts. I'd say I, I, in general efficiency, maybe let's talk back and forth here on this one for a moment. I think we've kind of talked about it, but one thing that maybe didn't get mentioned would be how this is just a reminder how imperative it is to have the right person. At the end of the day, it all starts with the right person. And I feel that most of us don't like our businesses because we let too many of the wrong people stay in the company too long. And we don't have that— we've all been guilty of it. I've been guilty of it. You don't have that difficult conversation. And it could be incredibly well-intentioned. It could be your mother-in-law that works for you. But, but the mother-in-law is the reason you hate your business. Like, it could be anything, you know. And so, but it truly does start with the right people because even Because the wrong people in a great training program with checklists, with SOPs, they're still going to be the wrong people. And, uh, I would, I would say clearly software is a huge part of this. I think people just do not understand. I have no software to sell anybody. So all you—

I do. I do. Today. Yeah.

Today early. Yeah. But I don't. And so I'll make the point, like, I just, I, I just I do not think 98% of companies can measure and understand how impactful the right software is to their business. They just, especially after you implement it, it just becomes this invisible thing. And the additional implementation of good software and training your people on that software, it's like a game changer. It's just a game changer. Um, training is another one.

I'll just add, I'll add one thing there. I, I think one really useful key for that I've been trying to figure out, even as I start this location, is whenever there's a bottleneck, I was really quickly asking myself, could software or AI fix this? And I think it's a slippery slope because you can spend hours trying to automate a process that is not really the constraint in the business. But the ability to be— I'll use a direct example. Yesterday, uh, we have a ton of Indeed ads trying to bring in applicants. Uh, obviously we're new to the market, so we can't rely on referrals. And so it has to be mostly people from Indeed. Well, we drive a huge amount of, of applicants, and then we give the— give them an opportunity to submit a one-way video using a software. The challenging part is getting them from Indeed to the video platform and inviting them to the one-way, the one-way interview. If there's a lot of time there, I know there's leakage in that process, just like with a customer. If you, if you have a, you know, take 5 hours or 5 days to get an estimate, it's not— you're losing customers. The same thing is true right now. Our constraint is getting good technicians. I can't wait. 2 or 3 hours even for my GM to go into Indeed, look at the applicants, put them in, invite them. But you can absolutely use Claude or ChatGPT and be like, hey, I want you to go every hour. I want you to look at the applicants. I want you to look for these 3 things and then send these people the interview link to submit their videos. Little things like this. And the reason I say this is because that is a $20 subscription on Claude or ChatGPT that probably took me 10 minutes to create that automation and will probably save him again the switching time That's what I'm trying to save. And I think as founders or as a CEO, like you're always trying to deconstrain not only your own schedule, but also the people that directly report to you so they can focus on the highest leverage thing for them to focus on. Because for him, it's doing the interviews, it is training the technicians. It is not moving things from Indeed and emailing people and texting them. It's like, can I get this automated? And can I spend 10 minutes to make sure that 10 minutes of their time is not spent every single day doing the same thing? Yeah.

Yep, I agree. Anything else you would add on top of what we— there's so many things, but anything else you'd add to efficiency? We talked about quite a bit already.

No, I think that's good.

Okay, 2 other thoughts. Um, I'm gonna say what I said before. I've just seen it too many times. I'm sure Mike has seen it too. If you're a smaller business, I would ask you if you're essentially working for free. And I, I just— and so many individuals are not making money, and it's even worse than they think it is because they're not even paying themselves. So not only is the business barely making money, they're not making any money. They're not getting paid for what it would really cost to hire a person to do the job they're doing, and they see it as growth, and that's not growth. That's probably right there. It could be inefficiency. It's probably pricing, most likely. And so that whole going back to the beginning of our conversation, I know we spent probably at least 20 minutes talking about understanding how to know if you're making money or not making money. I would encourage you to listen to that again. I've just seen too many businesses that fall into that place and too many businesses where the owner They're working their butt off and they're doing, I mean, almost everything right, and they're so close, but they're just not making— they're, they're just not pricing right, and that's why they're not getting paid. And so if you're not getting paid, that is a— that, like, right there is a very, very clear signal generally to me something's not right. Like, not always, but really high percentage of the time. I would also tell you again Going back to the beginning, if you're taking distributions and I don't— and you're not taking a salary, I would clean that up sooner than later because it's part of getting clear. I know it'll cost you a little bit of tax, but it's part of getting— it's part of running a real business. Number one, you have to clean it up eventually.

Mhm.

Number two, it's part of really getting clear on your numbers. It's easy to misunderstand your numbers when you don't get on the payroll With the rest of your team. I'll layer on top of that. If you are running a business that you intend to keep long-term and you're not paying your people on payroll, clean that up sooner than later. You'll never regret it. Likewise, if you're not paying sales tax, clean it up. Like, these are the things that take people down in the long-term, and these are the things that one day the business just keeps getting bigger and bigger, and it, the problem only gets harder to solve.

Yeah.

Like when the numbers, when you're just like, my gosh, if I switch over to payroll and I have to pay another X percent, whatever we'll call it, 10% of labor a year. Where's that? Where am I gonna get that money? That's a much easier problem to solve when you're at $100,000 in revenue versus you're at $2 million in revenue. I have seen a lot of multimillion-dollar companies haven't cleaned this stuff up. Clean it up sooner or later. You'll never regret it. I'm sure you've seen a bunch of stuff around that. Anything you'd add there?

No, 100% agree. It's just so challenging cuz especially when you don't have the intention to sell the business, which is usually when people start thinking about cleaning up their books, it's like, well, why would I pay an extra $5,000 or $10,000 a year in taxes by being a W-2 employee and paying myself a salary? And I think the more I have got legit when it comes to books, the more and more I have realized the value it gives to keeping the data clean and be able to make really good decisions because it's actually the real numbers of the business. And yes, you could fudge the numbers and you could look like you have a $200,000 profit business and have 20% margin. In reality, you're 8% once you take out your $120,000 that you would have to pay someone to do your 80 hours a week of work. And a lot of times, working more hours inside the business would actually take 2 people to replace you. And so, you might be at profit, like $200,000 in profit. For a lot of us, that would be like, that is the dream. But if that's your distributions and you're not taking a salary and you're working 70, 80 hours a week, it is very likely you would not just need one person. You'd probably need a sales manager and an operations manager just to cover what you're doing. And I hate talking about this because there are people that they want to be the operator for a long time and they're probably not going to sell anytime soon. And that $200,000 in profit and being involved with the team every single day might be part of their goals. But I also know there's a lot of other people that hate their business making $200,000 a year because they're tired of working 70, 80 hours a week. They're tired of missing every one of their kids' after-school activities, not having a date night with their wife, and they're just wondering like, why am I doing this? And they never have the opportunity to hand it off because if they did, they wouldn't be profitable.

I would add to this, if you own a business and you've been fortunate enough in life for it to work out that you actually started a business, you own it, and it's working, like a lot of people dream of that. You are right there In rare company. Like, this is what people dream of. I know so many people that make a ton of money in corporate America. I can't name many that like corporate America or their job, but they make so much money. There's— and it's— they're like 40 years old now and they feel like it's too late to start a business. So I'm just telling you, you're in a winning seat if you're— you have a business. So great. Now, the second side of this is like, how do you build amazing life? And I think part of it is if you want to be a business owner, it's getting to be a business owner that helps lead to a great life. The way I tend to think about things is trying to always optimize for a little bit more profit, like trying to like squeeze out a little bit more doesn't always lead to the better life category. Okay, and, and here's my example. If you have this low-level underlying concern about one day I'm gonna get busted for not paying this taxes, one day I'm gonna get caught for not paying sales tax, I'm gonna have to clean it up, one day the payroll taxes that I never paid are gonna catch up with me, one day I will—

Yeah.

The contractors— like, you can go down the list from really big things like not paying payroll taxes to the smaller stuff like Like, it's not really small, but paying people as contractors, that stuff will burn you. It can't— it will legitimately catch you in some way someday. And, and some of it will never get you. But if you go through life, like winning part of the game, you've got to be a business owner, but losing on the other side where you just have this nagging worry, like, would you— that's not a good— that's not the best way to life. So to live life. So I would just say, Just clean it all up and play the game legit. That's how you have a peaceful life. That's how you build a great business. And someday maybe you sell it. Most won't. And I think I would argue it's a who cares if you don't sell it as long as you got a great business, but just optimize for peace and simplicity. And like, that's a good life. At least that's how I'm wired. I have to think that's how most people would prefer to walk through life. And so I just see so many business owners again, I mean, so many that have these little problems in their business. That's a stressor that just never goes away. And I would encourage you to get it out of your life and just deal with it.

And I think too, like a lot of us from, from home services, maybe we didn't choose this industry. It was like the only option cuz we didn't have a lot of money. We just wanted to work hard and we had to be scrappy. And I think many times that mentality gets us to grow the business or start the business, but it's also the thing that holds us back from ever building a business that we love. It's that scrappy nature that I've got to cut corners. I got to do things until I get caught. I don't pay the sales tax or I don't get my cert or I don't pay the tonnage on the trucks. These are all the little corners. And that was something that we were rewarded for in the past, which is finding every dime, every nickel, every penny. And I'm very much like, this is how I was wired back in the day. And it comes back to bite in the form of being able to make solid, sound decisions in a state of knowing that the business can run without you. And having peace. To your point, I think that was a great line. Peace and simplicity is what you optimize for. Even coming out of this trip, I told our accountant, I'm like, look, how much of this can I expense? He's like, well, we could do all these things. I'm like, look, let's just keep this really clean. I'll pay for everything personally and then here's the things that we will cover from the business. We got to keep this really, really clean because I don't want to be thinking about what happens if this year I get audited because a new LLC got added to the C corporation and they're like, hey, you didn't You don't need to show me how eating out this one night you spoke about business. Like, I don't want to deal with it. And so, I think optimizing for your— that was a great point. Simplicity and peace is a great way to move the business as it evolves and grows. And it is a hardwiring that needs to be changed in a lot of our brains because we weren't raised with money. Our parents and us were scrappy. We were pinching pennies to get the business off the ground.

You have to be.

You have to be. And it's the thing, the exact thing that keeps you from building a business that you love.

Yep. And so that this point, uh, I'm just gonna say one more thing on it because I, I love that. We, there's a lot of examples of what I'm about to say. What got, what got you here won't get you there would be a way to say it. But to know we have to reinvent ourselves, we have to grow ourselves into the next level of owner. We have to change our mindsets. Like what the mindset that got us to survival, it's like, oh, thank goodness the business is gonna make it, is not the mindset that gets you to $5 million. It's for sure not the mindset to get you to 10. And then you really have to reinvent how you think, rewire your brain. Like, okay, what kind of person, leader mindset, way of thinking do I need to have for this, for where we are now and where we're going? Another argument for being around people that are ahead of you. Like you see how they're thinking. Like, so this constant reinvention is very normal. And the idea that any of us are gonna start a business and get it all right from the beginning and not have to clean stuff up is absolute utter nonsense. Yeah. We all did this. The question is, how soon will you do it? And how long do you want to live with unnecessary stress? But we're all going to have to do it eventually. And so I'm just encouraging everyone to do it sooner. It's normal. And then constantly, like Mike said, just you're reinventing ourselves. We're learning what does it take to be the leader of the business where I'm at now and where I want to go? That's who I'm going to learn to be. And then I'm going to have to do that again when I get to the next level and again when I get to the next level. That's what I got. Any last words?

No, that's excellent. I look forward to, uh, I think in, in the, in the comments, I'd love to hear for everyone. I would like to know a couple things. Number one, what was something tangible that you're like, oh, I need to change that in my business because that's where the profit's hiding? And then secondly, what mindset do you think you got to change to be able to get to that next level or break through that current ceiling that you're hitting? We'd love to know that in the comments because that really allows us to be able to know what to talk about more. And I think one of the biggest changes kind of to that whole point you talked about there, Jonathan, for me has been as a leader, that scrimping and saving in the past served me well by like watching every single minute and like, yes, I got to be efficient, but do I need to micromanage my manager? Do I need to micromanage my salesperson or do I give them the freedom and within the constraints and just measuring from KPIs? That was one of the things. that really I had to change that mindset of like, I have found pride in knowing every number and every single person's wage. And it gets to the point where now I need to lead very differently. And but that would be my takeaway from this kind of an episode. But for anyone else, mindset and as well as a technical thing that you're going to change in the business down below, we'd love to hear it.

Yeah, we appreciate your comments. So great seeing everyone. Good seeing you, Mike.

Thanks, brother.

See you later.