Mike Minutes Mastermind 07.20.22 - The 3 Business Models of Augusta

Hello, Augusta Nation. Hope you're all doing super well. This is actually a different episode because I'm recording this late at night. It is a late, I guess early morning Monday or Wednesday. Early Wednesday morning. And so you're probably watching this Wednesday morning a little bit later. Obviously you should do this live, but I was wanting to do this one recorded and I'll post it tomorrow morning so you'll be able to see it. So let's go ahead and jump into some announcements real quick and then we'll do a couple questions. But I really want to focus today on what we'll consider education, which is the three models of Augusta, where I feel like you can stop in the stages of growth and be profitable and run a very successful business. So the reason I did this because yesterday we had a really good question in terms of what is the what does it look like to have a location that's around 500,000 in revenue, had a general manager that is out in the field working, and is this a scalable and profitable model? Because what's assumed in the stages of growth? Because we have the five stages, from 0 to 100, 100 to 200, 200 to 500, 500 to a million, and a million beyond, we assume that you need to go through all five stages of growth. In my opinion, you don't need to. You can plateau at certain stages and be profitable and just match what your goals and aspirations for life are in the business with, you know, where you want the company to stop growing. Okay, so we're going to talk about that today. Announcements. First things first, and that is share my screen.

The on the franchise dashboard, you will see. Can you all see that? Good. If you go here, you will be able to see.

Let's go to Academy. Go to franchise updates. And you're going to see here at the very bottom, the Southeast Conference 2022. So this is last weekend with three different speakers as well as their presentations and their resources. So super, super valuable. Chuck talked about all sorts of hiring strategies. So some really good stuff I took down to note specifically things that I remember writing down was exit interviews. The second thing I wrote down was $100 gift cards for gas or $100 gas cards for anyone that had perfect attendance in a month. That was a good idea because gas prices are so high. And the next one that I didn't write down, but that was a really good point is like the speed at which you get back to someone who just applied to like the moment that you get that lead from, indeed the Applicant, you're jumping right on it, you're texting them, you're giving them a call, et cetera. So really good from there. Brian Connor talked all about pay for performance, talked about ways of explaining it to your team, using it in terms of hiring, and just a really good discussion. I felt too like internally inside of everyone that was there. And then Ryan Payne did a master class, I would say, on Christmas lights. How to install them, how to price them, how do where your margins are at, what to do, not do, what exactly to buy. Just a great, great overall course. So feel free to watch through all of these. Even if you're not going to do lights, make sure to watch these first two. But the lights one is a very in depth, very detailed what you should and should not do from Ryan. He's been doing it for, to my remembrance, six years. So check that out.

Cool. All right, we're going to jump into a couple questions.

Boom, boom. Share screen.

There it is. Cool. All right, Nick from Israel. What is the hyper on Christmas lights? It's the first one. There we go. What is the hyper on Christmas lights? How come we didn't do it in Bellingham? Yeah. So Christmas lights is a great service for the especially October, November, December time frame to stay busy. The reason, there's two reasons why Nick in Bellingham, we specifically have not done this and don't plan to do Christmas lights. And that has mostly do with two things. One, liability. Because in the north there is a lot of ice and on, on the, the roofs, if you're in a place like where there's not as much snow, not as much ice, there's definitely less liability running around on ladders and rooftops because you're really, you can really depend on good grip shoes. Like.

Ryan had talked about the wedges that you use to go kind of go up the roof slope, et cetera. That is great until you have some snow and ice. And from a liability perspective, I decided that we wouldn't do it locally, especially like on second story when second story houses. If there's a sheet of ice and we're trying to put up snow, putting up lights, it was just something that I decided we wouldn't do. Furthermore, we stayed pretty busy through December. Like I, I'm pretty confident this year we'll be, we won't be laying anybody off until Christmas. So the fact of it is, I think it's a great service, especially if you stop mowing in like September, October, because then you can pick up in November, December into lights. We mow to the end of November and we typically do winter cleanups the first couple weeks of December and most people one off that Christmas week. So we've always been pretty good about keeping relatively busy through the end of the year. It's usually for us January and February. So that's our weakest points. And in the past we've done snow plowing because that's usually when we get snow in our market we're not going to be doing snow plowing anymore. But also Christmas lights aren't going to help us any, any at all during January, February either. So that's why we've just completely doubled down on getting more mowing customers so we can increase the conversion of number of people going into winter services and keep people busy throughout the winter. But I would say the major reason is number one liability because we have, we have ice on the roofs and secondarily would be that we don't really need the work. November and December we're relatively busy. We mow all the way to till Thanksgiving and so theoretically we could you know, pick up from Thanksgiving and go into right after Thanksgiving is a hot time to actually like the. The best time to really go right into to lights. But we rel. We stay relatively busy during that time and but honestly I do think we would crush it in our market. Our market would just. We do great at, at light hanging and stuff like that. So it's not off the table. But currently we don't see the need for it and we are most people by by November, December, our crews are always already so burnt out and wanting time off. And I feel like this year we're going to be, we're going to be booked out till the end of the year without any problem in terms of just getting all the winter cleanups done, fall cleanups, etc. Like if we send a one click estimate email in November for cleanups, we'll have December filled up with just cleanups. So I'm not opposed to it. It's just a different service and it's another layer, another more. It's more training, more insurance, etc. So it's not say I'm against it. I think it's great. Obviously it's something Ryan's done, been really successful and a lot of owners have done very well. Especially when you have a smaller crew and you need the money. It's a great, great source of revenue as well as profit high profit margins especially in your second year and beyond once you lock in those the people on the first time and Secure the materials. But in our market, it's those two things, liability and the fact that I just don't want people with ice and snow doing lights or even wet and pouring down rain in November.

And that we don't really need the work in November, December, we're already busy, so. So if that wasn't the case, if you're ending, ending, mowing in September or end of October, I would definitely be thinking about trying to get Christmas lights for sure. Definitely not a bad day, Especially if you don't do snow. Another good option for everyone. So I think there's one more question.

Can you stop saying boom after everything you do?

I do say boom a lot. I'm sorry? Especially when I'm clicking around on the computer, I say boom a lot. I don't know if you're being funny or if you're actually critiquing my speaking abilities. So, yeah, it says my. When I am clicking around and things, I have filler words. And right now, currently it is boom. So I apologize for that if that actually does annoy you. Cool. Let's jump into education. And this is going to be something that I will be training in the future in terms of new franchise owners. But I wanted to make sure everyone's on the same page. So.

In the past when we've talked about training, training for new owners, when you were here, we talked a lot about the five stages of growth, right? 00 to 100,000, 100,000 to 200,000, 200,000 to 500,000, 500,000 to a million and a million plus. Okay, that was a five stages of growth. Now, inside of those five stages of growth, there are three periods. Three periods does not make sense. Three. There's three times. There are three different spots where you can stop growth, you can plateau growth and make the business model work. Okay, so these are the three business models that work, in my opinion, against the nation. The first one is called the solo operator model. Okay, this is what we built the solo operator model for. And that is it is not just the first stage of growth. It can be profitable at 200,000 in annual revenue. So the three numbers you want to remember for today is 2000-005000-00800,000 plus. Okay, so $200,000, great place to stop growth. And you can build a business model around that. You could literally have multiple locations. Just finding one operator in every single city doing a solo operator model, having them as a general manager and making a couple, you know, made probably making 10 to $15,000 in profit after you paid them.

So that would be the first model, right? Solo model, 200,000 revenue. You have a working, you are working the owner or potentially if you wanted to hire a general manager. I don't see someone actually doing that, but you could. But that person, you, the owner, the solo person, working on the field all day long full time with one employee. Okay. The goal here is keeping overhead very, very low and you doing all the full service tasks yourself. You're not going to have command center doing your email and doing payroll for the one person and answering emails like four emails a day. It doesn't, it's not worth it. You need to take all that on yourself to make, in order to make it efficient and profitable at 200,000. Now again, if you are growing and you are scaling and you're going past this stage of growth, you're not going to make this type of profit because you're going to be taking everything and putting it back into the business. But these are three spots where you should either pause or you can stop and make the business profitable. So at this first stage, the solo operator model, one truck is all that's needed. You only need one truck. Okay. You might get a dump trailer, might be need for nested for project based work and you might get a second truck like one for mowing, one for projects. Especially if you're all the way up at 200,000 revenue. But if you're like 150, 160, you probably only, you can get away with one truck. You, you can just have one helper with you and be super efficient throughout the day. It's gonna be the most efficient way to be at this size of business. But you could probably get a second truck if you're pushing 200, 220, 230, et cetera. Okay.

Your focus during this stage is 100% based upon your close ratio. You gotta have above 50% close ratio, ideally 70% or more. Now once you start get you, once you get to that stage and you start plateauing, I. I, E. You're not trying to keep growing, that's when you of course would raise your prices, cut out services, cut out people that are extraneous and far away. And so all of these stages of growth that I'm talking about, the 200, the 500, 800,000 plus at each of these stages, you start to quelm growth by increasing prices and maximizing margin, cutting out extraneous services, cutting out extraneous customers that are far away. Simplification, massive simplification. Right. So the target the target financially, if you were to plateau and stop growing at this stage of $200,000 revenue, would be you have a $50,000 salary going to the owner, plus you have a 20% profit margin. And that 20% profit margin is after you take your salary out. Okay? So you'd have $50,000 that you take home with salary, and you have $40,000. That's profit. It's very doable, assuming you aren't trying to still grow. If last year you did 50,000, this year you did 200,000, and next year you want to do 500,000, you're not going to make that kind of profit in that second year when you did 200,000. I am assuming you are doing less than 10% increase in revenue year over year. When I say plateaued and I give these profit numbers, okay? So the target at 200, once you've plateaued, is going to be $50,000 in salary to the owner. Taking that out. And if you're just a single member llc, you just do that as simple distribution. You don't have to actually give yourself a salary. I'm just using that in terms of, like, you know, automatic payments coming to you. That'd be 50,000, and then I'd be looking for a 20% margin, $40,000 in profit. And I do believe, I do believe this would work also for a general manager. If you really wanted to find a single solo operator in a location and keep them as a solo operator, and they're out in the field working all the time, and they get $50,000 salary, it's just very difficult because if that person ever left, you have no business, you're back to zero. So it's very, very fragile. I don't like that. That's why you would never see a solo operating model typically being ran by a general manager. Now, the second stage of growth is what I call the working GM model, okay? And that's a $500,000 business. Now, when I say the working GM, you as the owner can be in this stage and be the gm. But I call it the working GM model because the goal here is eventually to get a general manager to take this location over and be this at this stage. And again, it's gonna be like 4:50 to 600,000, but let's just call it 500, okay? So the goal here, and this is exactly what we're doing in two of my locations, Mount Vernon and Mooresville, where our goal is to have a general manager revenues annually, around 500,000 in revenue. We're going to focus on simple services which is going to be mowing property cleanups, maybe some mulch like really simple services. And two days per week that general manager will do drive bys only for estimates. No scheduled estimates, drive bys only. That will force simplification of projects only bush trimming, simple property clamps, weeding, leaf cleanups, mulch installs, the basics. Okay, so drive by only that drive by is only that way they can do 15 to 20 estimates in a day, not just seven to 10 scheduled. And much more efficient that way. Just by going from scheduled estimates to drive by estimates, you almost double your capacity in terms of number of estimates that can be done. So my goal is two days per week that they're doing drive by estimates. The other three days out of the week they're in the field working. Doing so will cover their entire salary. Okay. That's what allows this 500,000 model to work. That's efficient and lean. And the general manager, although they are a non revenue producing employee, typically now they're out in the field working three days a week, they're actually able to pay for themselves and they're not a cost burden to the business. So the focus here at this stage is getting a high rate of recurring work and really pushing over the phone estimates for moe. Okay, you can really scale that up. Even the Mount Vernon location for the first.

Five, six weeks, when we turned it around, zero estimates. There were no scheduled or drive by assets over the phone. Only had a 56% close ratio and got a bunch of mowing customers on the schedule. Great, because I can get my general manager in the field working. So I don't care about my $3,000 extra that I spent at command center because I had my general manager probably produce 8,000 to $9,000 worth of revenue per probably more than that because he was working all five days a week, probably 10,000 plus in monthly revenue by being out in the field instead of doing a whole bunch of drive by it and scheduled estimates and all the rest of it. So two days a week doing those drive by estimates, maybe getting caught up on shop work. But you can do 15 drive by estimates a day. So that's 30 a week, that's 120amonth. That can absolutely sustain a 500,000 annual revenue. Business focus here is high rate of recurring work like I said. And over the phone estimates, the salary. GM is now a revenue producing team member that should work in the field three to four days a week. As you get the business to the point where you're doing 5, 600,000 revenue and you're like, I got to put the brakes on here. What you're going to do is actually keep cutting out project based work and actually get the GM in the field more. Because if you're not doing estimates for projects at all and you filled up capacity, you theoretically could turn off all estimates and I have any estimates going out and still keep all of your recurring work done. I don't really ever want to get to that point because I don't want to be ever turning away really basic projects that are high, high margin, especially if it's for customers that are existing. So all that to say three to four days out of the week, they're working out in the field. Okay. And I actually believe that this model gets more efficient and profitable as time goes on and even as their margin just incrementally goes up because a greater and greater percentage of their, their work every year will become recurring until finally one day, like some of our locations, not, not any of mine, but some of the locations that we do have in the system have 98, 99% of the revenue coming from recurring work. That is everything is done over the phone in terms of estimating. And your general manager could literally be on the field working five days a week. That is very possible.

Now at this stage, you're gonna have two to five employees with two to four trucks. Okay. And you can't really have more than five employees. It gets too much for the general manager to manage while they're out in the field working. As soon as you cross five employees, you're talking about like, you know, above four trucks out in the field. You're talking about a lot of projects going on at the same time. Typically unless you, you're matured and you've got a lot of recurring work. Only again, as that dynamic switches, you'll be able to handle more people and handle more revenue if it's the more percentage of your revenues come from recurring work versus projects of any sort. Okay, but the goal here is two to five employees, two to four trucks. Your target at plateau, again with plateaued growth here. So we're starting to weed out bad customers, we're starting to raise prices, cut out extraneous and more complicated services like planting pavers, walls, whatever it might be. Target at this plateau is 50 to 60 thousand dollars for a salary for the GM or owner. Okay? So this is again, you could be at this stage of growth just fine, taking out that salary plus a 15% profit. I'm being very Conservative here because I'd like that to be 15% profit is very good at this stage, that'd be $75,000. So if you were the owner operating this stage, you're making 50 to $60,000 as an owner, owner salary and then you'd be making $75,000 in profit distributions. So you'd be making like what, 125, $130,000. Not bad for running the business yourself, being out in the field and really again keeping your hands dirty three to four days a week. And being that working gm, the goal is always to hand this eventually over to a general manager to where they are doing that work. You can continue to scale. Okay, so this is the model that a lot of people have been getting a lot of attention and asking questions about. Because it's absolutely a place that I enjoy. Because it's easier to find someone to be a working GM than it is to find someone that can go onto the third business model and run a location that has 10, 15 employees and lots a whole fleet of trucks and there's lots of mechanic issues and it's a full time day job just to manage all the routes, all of the crew, where stuff is moving and going and things that are breaking down. That's it. Because it's a full time job that the G, the working GM model will not work at that size. It's easier to find someone who's just really good at working and you trust to manage the team and hire people and allow command center do all the back end office admin, etc. It's easier to find that GM than it is to find someone who has to go into stage three or the third business model where you're 800,000 plus, many trucks, many crews. Now you're needing to find someone with a caliber of leadership that is pretty high or you're going to be involved substantially more to be that leader and that point of contact for them and you're going to still be helping them. So it's also easier to replace someone that's a working GM because you can typically take one of your highest performers out in the field and make them a working GM relatively quickly because you can just lean on command center more for them to do services for you. So like when we took over Mount Vernon, we took someone that was in the fuel on Friday I and on Monday. They're the GM of the location. Why it's the working GM model, right? They need to be a hard worker, someone that you can trust and someone that you can plug into the systems and allow command center to handle all the backend. And really you're focusing again on over the phone estimates, drive bys. It's really basic stuff. Okay. The working GM model in my mind is something that's very scalable and you can duplicate. Now is that to say it's better than stage three? Not really. Because from a valuation perspective, an enterprise value building an asset, you're not really going to build asset value and enterprise value in your organization until you're 800,000 plus because you have a lot more scale. You have the margins just become more interesting. And furthermore you now have redundancy at the leadership middle management position. And we'll talk about that now. So the third stage, third model I should say is 800,000 in revenue plus. So this could be 800,000, it could be 3 million. Whatever your size you want is fine. It's all under this one category and that is now where the GM is not in the field and their full time job is managing the crews, doing estimates. It is a full time just job, just hiring and firing to maintain the churn at in, in the field because there's 10, 15 employees.

So ideally I like to keep it under a million because if I do that I can keep just one overhead person, one person that is doing all the estimates, all the office work, managing the crews throughout the day. You can do that. If you get above a million you will need a full time secondary person that does estimates full time and then someone that's doing like routing the crews, managing the crew throughout the day. Even if they have command center help, you'll still need them because it's really just a full time job just juggling all the trucks and where people are at and getting materials delivered. And if you're doing a lot of projects at this stage, you know nurseries and materials and all deliveries and like it gets a lot. So.

Again 800,000 to a million. I really like that stage because I can have one GM or you as the owner being the person that runs all non revenue producing tasks and you can manage it. Command centers help. You can do that once you get above a million. I'm I just like we've tried this in, in the Bellingham shop to have where Marcus does basically just he's the only non revenue producing employee. He, he somehow pulled it off but he's incredible and there's no way that you're going to be able to get that consistently. And and there were times we'd get behind on estimates. There were times where we'd have just backlogs of estimates because he couldn't get them. Like he was just busy managing the crews. But that's to be expected when it's you're doing 1.5, 1.6 million in revenue and so anything above a million, you're probably going to need a second person.

Unless you're doing 90% of your revenues coming from recurring, you might be able to get away with 1.2, 1.3, 1.4. But in, in, in general, 800,000 plus, you're going to have a full time general manager and they are going to be full time non revenue producing. If you start getting above that million marker, that's when you're probably getting a second one of these non revenue producing people. But I like that 800,000, 900,000 level because I can get one general manager. They do all the management of the crews, the team, etc. And.

Really the focus at this stage is operational efficiencies and profit maximization. So now you want your close ratio at this stage to be under 50% because you do not want to keep scaling and growing, having a second overhead person. If you're trying to stay in the 800,000 range. Okay. Again, if you want to keep scaling, it's fine. Just realize you're going to need more overhead positions and it's going to be harder to replace this position if you're doing multiple locations. Okay.

And so yeah, raising prices, maximizing profit. You know your close ratio should be coming down at this stage. You do not want to be going into hyper growth at this stage because it'll be, you'll be burning a lot of cash. And I've seen, I see a couple of our locations doing this now where they've gone from 40,000amonth last year to 100 plus thousand this year and they're burning a lot of cash. You can either a, keep growing and putting cash back into the business and you'll be bigger next year or two. You can plateau here by raising prices, cutting out services that are to cause the most headache and really starting to simplify. So again you're also at the stage going to be focusing on cutting out this complicated and complex services that the target here in terms of financially is 70 to $90,000 to go to the salary of the GM or the owner. So again you could be the owner here, but again the full time GM, that's the model is they're going to make 70 to 90,000. Most that's going to be profit distributions, profit sharing. I should say with the GM, but $79,000 salary for the GM or you as the owner, plus, let's just be conservative, 10% profit, that's $80,000. So again, if you as the owner are working there, you're going to make that 70 to 90,000 in salary, plus you're going to take, let's just say 10%, $80,000 as well. 160, $170,000 profit. Not bad. Okay, so the goal here though is replication, right? So again, model number one, that's 200,000, that's a solo operator model. Stage number two, that's 500,000 in revenue. That's going to be the infield GM or the working GM model. Okay. And the last one is the full time GM model. And again, when I say gm, you as the owner could fill that role. But ultimately that is not the goal of the business. It is to have a GM, not to be the GM. And that might be five or 10 years away from now for you, but that is the model. So those are some different models that I feel you can be profitable at. If you're growing through them, you're not going to be as profitable as I talked about. If you're growing towards them and up to them, you're not going to be as profitable as I talked about today. This is after a couple years of stabilization at that level. And when I say stabilization, that is done through raising prices, increasing the focus on the higher margin services, increasing recurring, the percentage of recurring work. All of these numbers can get better. The higher percentage of your work is coming from recurring. Because I can do 800,000, 700, $800,000. Probably worth a working GM if all I do is mowing, if all I do is recurring work. So these numbers can be moved better or worse depending on a lot of factors. But those are the three kind of common stages I would be pushing someone towards. And what I think it works really well when it comes to growth. Instead of going like growth, what I kind of like to do is like, let's grow up to 200,000, get some good cash, get some money in my pocket. Okay, let's, in the next spring rush, let's scale up to 500,000. Maybe you spend a year or two here, right? We like this stage, you know, got some money in our pocket now. Again, we kind of spent a lot just getting to the stage. Got a couple more employees, 500,000 revenue. We're kind of the working GM model now. Okay, Stay there for a couple of years if you have to. You don't have to grow, you know, one year, 500,000, next year a million. Like you don't have to do that. But at these three stages, 2000-005000-00800,000. I see very natural checkpoints and rest areas when it comes to profitability. So those are the three models that I will be talking about from now on at new owner training. And I think that all three of those, those sizes of growth can be profitable. And I think that if you're, if your goal is creating general managers and allowing your team to grow up underneath you and filling their spots, filling new locations with GMs that come up inside of the organization, if that's your goal, the 500 model, the working GM, the infield GM, the working GM model is going to work really well because it is reducing your overhead and it's making sure that there's no revenue producing, there's no non revenue producing employees in the business. Okay. When you start getting too far above 500, you, especially if you have projects, you're going to need someone just managing the crew all day long. Okay? If I can get them out in the field working three days a week and the other two, they're doing estimates and any other sort of office side of things.

I can still pay for their entire salary just with the work that they get done. And if the E fees can cover command center cost and then their three days out in the field working can cover their cost, all my overhead is covered and now I can be very profitable, even though it's a few employees that I might have out in the field. Okay, So I really like that middle one. If you're trying to scale locations, if you like building an empire and taking over your market, you're going to want to get to stage three. Okay? And that's where you see 10 to 15 trucks. Now you're having market penetration. You Send out a one click estimate email and get 50, 60, 100 estimate requests. Your customer acquisition costs become zero because you're not spending any marketing. That becomes a very big business. And if you want that, that's where you're going to need to go to that third model. So.