Mike Minutes Mastermind 08/12/2024

And we're live. Welcome Augusta Nation. Happy Monday. Let's get things kicked off. Present.

Alright, I got five questions today, Mr. Anonymous. How would you go about dealing with cliques that form within the company? Obviously, you can't tell people they aren't allowed to talk with other teams, other members of the team. It seems as though when leadership makes a decision and the field team is not happy with it, they all talk amongst themselves. I always tell people they can come and talk to me if something is bothering them. I also talk with individuals one on one, but nothing is brought to my attention. Usually someone popular gets fired due to performance and everyone is unhappy about that and tries to buck the system or management. Another example, management makes a decision that's unpopular or the field team thinks is unwarranted, however is necessary to make the business successful. How do you handle something that is delicate like that, delicately, without causing a mutiny? Good question.

So, first off, you can't fight ghosts. So.

If you're like me, you're pretty sensitive to people talking behind your back.

Especially people who care about, like your employees. But you can't fight ghosts, which means if you, if you don't know the problem, you can't deal with it, and being concerned and worried about something that you absolutely cannot change because you don't even know what the problem is and no one's addressing it with you, you literally will lose this battle every single day of the week.

And further, and more importantly, you will divert most of your attention towards something that is a ghost. There is no finish line on this. There is no way to win this game. And so it is many, many times a poor use of attention to even think about it unless it's brought up with you. Now, if you're doing everything you possibly can to make sure that people can bring things up to you, that they do feel open to be able to speak with you. And as well as more importantly, they have all the information. So if I address these more individually.

Example, someone popular gets fired due to performance and everyone's unhappy about that and tries to buck the system. I would sit down, I would actually show their numbers and why they had a lack of performance and how it was impacting everyone's paycheck. On P4P, I would show that they've lost customers because of the yellow slips. I would show very, very specifically why they were underperforming so that people can avoid that behavior and furthermore show how it impacts the team, not the business, the team. Because on P4P, an underperformer costs the team money and on profit sharing, if they're sharing profits and someone's doing a bunch of damage cases or losing customers for the business, it affects everybody. And so I would focus more on that instead of they do a bad job, they don't mow fast enough, whatever it might be, or just saying they got fired due to performance like show why.

The other example, management makes decisions unpopular or the field team is unwarranted, however it seems necessary to make the business successful. So again I would clearly lay out why it's why this makes the business more money and how that's going to trickle down to their profit sharing. Or this is unpopular but by doing this we're going to raise prices. By raising prices everyone here is going to make more money on P4P. So always think about what's in it for them and try to align the incentives that way. And usually the misunderstanding here is just a lack of communication. Like I've learned this the hard way. Like usually have really good intention, you know it's right, you know this is the right decision but it is being taken out of context mostly because you don't communicate well enough. And so like I don't think there'll ever be a day where all like we communicate great as leaders but like we can always improve. So yeah, there's been like plenty of really tough hard decisions I've had to make around the team and I've just tried to over communicate during that period whether it be like hey look, I made a mistake and so we're have to lay people off, whether that be we're going to have to fire certain people because they're not good cultural fits and here's why this person was underperforming. Here's what happened. I'm trying to always make sure I leave. I don't say anything negative about the person but I am making it clear as to why they bring the team down. And then I make it more of a moral obligation that I have as the leader of the team to fire people or make hard decisions. Like look, I don't want to do this, I don't want to fire people. I take no pride in that. I don't enjoy this. I will lose sleep over this. However, it's the right thing for the team and my position is to guard the team. And here's how it would impact the team negatively if I allowed this to continue as a cancer inside the organization. But always pull it back to the them. Like why is it better for them, right? So I remember one of our first winters for.

Command center. Like the challenging part with command center is we have massive spikes in demand because we don't have recurring work, right? So like if you guys get a mowing customer in the spring, that like command center stays busy getting that person set up, doing an otp, whatever, but then we don't have recurring work from that customer. Usually there's the first couple billing cycles, there's more work for them and then it dies off completely. Like there is no more communication with command center. And so we have many massive spikes during spring. Like, like what, what you see in your, your like seasonality of say mowing is doubled or tripled at command center because we most, most admin work is on the upfront of setting up customers, not there's no long tail. And so the first few winters, like we didn't set up people for the expectation, like, hey, you will be laid off and we have to. And so the very first time when I had to like lay off like a ton of people at the same time, there was no expectation of that. There was a lot of kickback over it, and rightfully so, because I just didn't know. But it would have cost us like several hundred. Like when I did the math, I was gonna cost 150 to $200,000 to basically just keep them all on during the winter and twiddle their thumbs. And so I'm like, look, we have to make this cut. I know. I didn't. I was not planning on this. We had anticipated we'd be able to stay busy throughout the winter and I was just wrong. And so, you know, you get up in front of them. I drew all the math. I drew all the numbers. I showed why this was impossible for us to do. I said, it's gonna be it stink. All my fault. I didn't anticipate this drop off. And I showed all the math of like, why the business can afford it and like what we were going to do to the people that when they come back. And then I basically said, like, look, if we can get over this, you know, margin of loss or you know, profit and loss, like basically break even. If we get above this, this is what we're going to do for the team. And then we have another benchmark where it's like, once we get over a certain amount of profitability, again goes back to the team. So when I make cuts or make hard decisions that I know is right for the business, I'm actually making it for the, the health of the profitability of the company and that is linked directly to their compensation. And so the more you can speak in terms of their wins and them doing better, that's what I would recommend. P4P and profit sharing open book management will allow you to do that. So if you don't have those three key elements, then it's very difficult to prevent that sort of thing. Kevin from Bloomingdale.

What would you say is a good debt to income ratio for long care? Mine is roughly 14%.

Or would debt to asset be a better measurement? Mine is roughly 100% not including growth model fee. It will depend on your risk tolerance. So what would be low, moderate and high ratios for debt to income and debt to asset ratios?

There's so many different ratios. Like debt to equity is one, you know, debt to income is another, like you have here. Another one is return on equity. Another one is return on investment. So how much money is put in versus how much total capital is invested.

You know how much cash. So if you leverage up, you can have a way better ROI because there's no cash you just levered up. So a lot of these numbers can be skewed by having debt in terms of like. So for example, most massive companies are super profitable, will still take debt because if you can take the debt and pay 3,4% on a bond, but then invest that money and get even a 10 or 15% return on it, you should keep doing that trade. That's why like companies like Microsoft and Apple have hundreds of billions of dollars of cash and still take out hundreds of billions of dollars worth of bonds, which is debt.

Because it makes all these numbers look so much better. This is why when private equity comes in, what they'll typically do is they'll use debt to leverage the business up massively, invest a small portion of cash and then raise prices, cut expenses and immediately the business is worth way more because of these numbers. So I'm very hesitant to give these numbers because these numbers can be manipulated very easily. And so this mostly, these numbers mostly are important when it comes to private equity acquisitions going public, like at a very higher level. And I think sometimes that we, we get into this mode because we listen to those like people that are at that level. But I would just focus on what is your cash flow at the end of the year, like in the month, like what is your cash flow? Like how much free cash flow is to generate business generating that is money you can take out of it. That's all that I care about. So if you have debt, yes, there is going to be more debt payments, you're going to have a higher debt to income ratio and you're going to have more fixed expenses. But that will chip away at free cash flow. So like, free cash flow is money I am comfortable taking out of the business. And your comfort level will change, whether it be your family, whether you have more risk, whether you're in growth mode versus in profit mode.

Like, in profit mode, I'm typically actually willing to have less cash in the bank and take out more capital because I know that I'm profitable year round. And so I don't have to worry about growth mode where I'm going to have to go, oh, I'm going to have to buy four or five more trucks next year, so I got to keep more cash in the bank. And so.

These numbers are so subjective. They're also very dependent on size. So like, for example, if you have $50,000 worth of debt and you have a $200,000 revenue business, your. You have a 25% debt to income ratio, debt to revenue ratio. That's, that would be very okay. But the business next year is gonna be 350, and the next year after that says 550. Like, you're growing so fast. Great, I'm okay with it. But if the business is doing 2 million and you have $500,000 in, in debt, you could be paying $15,000 a month in payments, and that's all of your profit. So now you have no cash flow. Like, so, you know, and if you're not growing from 2 million to 3 million to 5 million, like, if you're not at that same growth rate. So growth rate plays a huge function of what numbers I'm comfor when it comes to debt to income, debt to revenue, debt, debt to equity, like, all of that.

And so it just, there's risk tolerance, there's growth rate is a huge, huge factor. That's why companies are valued, say in the stock market highly, even if they're not super profitable. But if they're growing fast, they get like a massive free, you know, get out of jail free card. Because growth.

You know, the assumption is always in the stock market for a company, it's losing money that eventually they'll switch from growth mode to profit mode. That is always the assumption. And so you look at, say, Uber, they've lost money for literally years and years and years. But the reason they're worth 40, 60 billion dollars is because recently they've turned on the profit. They've switched from growth mode to profit mode. It's like, oh, we're going to cut people, we're going to really scale down operations, we're going to make this thing profitable, we're going to increase prices. They simply switch from growth mode to profit mode. But the reason the valuation was held up for so many years even though they were losing money was because the expectation of switching to profit mode while they were in growth mode and growing very quickly. So what you want to be afraid of is if you're in growth mod but not growing and you're not profitable, that's a bad business. And that's usually when it's like, okay, you need to jack rates up, you need to immediately go into profit mode because you need to create some value to the business. Because if you're not growing and you're not profitable, the business isn't worth anything. The only reason to keep growing at a loss or no profit is because you are growing revenue. And so growth sucks cash. So if I don't have cash and I have no growth, you have no business that's worth anything. Your enterprise value is essentially zero. It's essentially the value of the assets. So. But you can fix that relatively quickly in home services. This is why I really like home services. Because even a business that's not growing, not profitable, I can raise prices by 25, 30% and tomorrow be very profitable simply by my price increase. And so usually this is a fixable problem. But.

Yeah, Kevin, I'm not going to give numbers specifically. I would say if you're your debt to income ratio is 14%, you're probably good at your size of business. That's probably really good. So I'm guessing you probably have like 30 to $50,000 of debt. Also keep in mind if this is equipment debt with 0% interest, I'm also a bigger fan versus say if this is a revolving line of credit and you're paying 12% interest on it. So the quality of the debt is also a huge factor. As to what those ratios I would be comfortable with.

Mr. Anonymous. I have a GM I had to demote due to performance reasons. Want to stick around and work with us until he has another shot at being gm. He's made it clear he wants to be a GM again down the road when the time is right. I think this person has some professional and personal things to work on before they're ready to commit to being a GM again. It would be another year or two before I feel they would be ready. However they are, they have been willing to stick with the company through thick and thin when others most others would run question Even though performance was an issue prior, would it be a bad idea to give him a shot down the road given their willingness to stick around and grind? When times are tough, people learn and grow. So that's why I'm not ready to throw in the towel quite yet on him. He's eager to learn. I think he just has some personal things he needs to work on to get himself right. So I would define this last sentence with him. It's obviously like if he's willing to take a demotion, he understands his lack. So I would with him, I try to get him to give you as much of these things as possible. You just need to prompt him with questions. What needs to improve? What areas of weakness did we have and what are we looking to improve? So I would be looking for like here are the things that need to improve and then an action plan of how to improve those things. Whether it be books, podcasts, shadowing yourself, or another general manager coming to training, whatever things need to happen in order to solve those problems. So here's a roadmap to actually get to the place he wants to. If he's willing to take the demotion, it means he realizes his lack, which is like the first part of fixing this sort of performance. So I would certainly, you know, allow them to work with you in the field or like as a team member and then I would if their goal is eventually to come back as a GM and you said a lot of very positive things about them here, I would just make it realize you have a leg up. In fact that they realize their lack of define what those lacks are. I would do that. Not yourself, not like writing them up. I would do this more as a conversation and then you jotting down the notes and then printing it out. Okay, here's the things we agreed on did not work well and need improvement. Here's the things that you can do to actually make that those things improve those skills. So.

Anonymous, is there a potential downside of getting reviews from other locations? To me, it seems to run the risk of getting flagged by Google if they decide to crack down their review policy in the future. Whereas getting reviews organically for customers will result in higher quality reviews without running the same risk. While it seems good to get as many reviews as possible, doing it this way seems like it has the potential to backfire. Do you think this is accurate or do you think it's not? It's a. Do you not think it's a big deal? I've seen some locations. It works well because you get your 30 like right off the rip.

I, I have also seen where Google does flag these things or most the time the reviews just come off. So over the course of two to three months the reviews will just come down. Because if Google is seeing you as a local business in your service area, in certain state, in a certain state or in a certain city and all of a sudden all your reviews are coming from around the country or outside of the country, that can get fishy. And so also I was thinking of potential customers perspective. Most people aren't going to click in and actually see them all. Why? And that's why getting above 30, no matter what is important. I would probably say I would probably exhaust your friends and family in your local area, people at church, past employers, everyone. Like I would exhaust that first before going to Augusta Nation because I do think that if someone went into your reviews, they clicked on someone and then they, they saw that that person left five or six, ten reviews of other Augusta locations. Now you've lost some credibility.

And I wouldn't. Yeah. So I'm against it. I'm against it. But I think artificially doing it could potentially cause some problems. But I think it's actually outweighed by the fact that Google just by having volume of reviews, they put so much weight on it. Will that backfire in the future? Maybe.

But I'm kind of indifferent because I do think they'll crack down on this. I do see sometimes they will flag accounts. Usually the reviews get taken down as time goes on and individual account starts leaving like 10 reviews on different Augusta locations across the country and outside of their area. So I'm 5050 on this.

Yeah. Like in theory we could always like let's all just, you know, give each other reviews and we all get like a hundred plus from day one. I think if we did that ten of them would stick because I've just seen so many times over the course of a few months they start coming down. But sometimes they stick. So I don't know. I don't think I haven't seen any downside massively and I haven't seen like a mass amount of people getting flagged. I do track every single Google account get taken down and us once it gets taken down, it can take a month or two to get back up. So whether or not you want to risk that, especially like in the spring happened to a few of our locations this year and it's just killer. Like it's just so difficult. So.

Coach Connor Looking to change your mind on something when a customer calls to cancel. I feel like command centers could close the loop to bill the customer for any remaining services left in the invoices. So the challenging part with this is most, most augustination locations do. We don't do invoicing for command center could at minimum command leave a note saying customer canceled. Please rectify double check count so we can bill out count and close on items more complex than mowing. Some of those would need a double checking. Could be initial mows, work order changes, landscaping products, etc. Yeah, so like most locations inside of a guestination do their own invoicing. So I think there's only 20 or 30 locations that we actually do invoicing and do charging of cards have access to their stripe, et cetera. So that's why we couldn't do this across the board. But all right, two examples. I had CC remove a credit card from file because the client cancelled and wanted her card removed. No problem. However we went to close the account same day to close the loop of the customer. We no card to charge. This was submitted as yellow. So but just as an example, two customer did a charge back because she was upset. We charged her on August 1st thinking that she had cancelled services and we are still charging her. We get a handful per month wondering why we charge them even though they had canceled services and receive a bill after cost canceling causing confusion. Local office tries to bill out all customers that cancel immediately to help with this and we send a final bill receipt and let them know that the account has been closed. I think there's the same rationale behind billing, initial mowing, pricing the day of, after day of or after or the day after because they have just seen how good we made it and would be less of an admin suck. And I think whether or not you are invoicing program or not, this would be beneficial. Yeah, so I get where you're coming from. But if we don't have access to someone with stripe and we don't do that, we don't know how they do invoicing. We would mess them up a lot of times. So I know Liz will see this and she will, you know, take, take a look at it. But if we don't have access to someone's the way that they do billing that they are invoicing, we could mess them up. And that that's like a higher, higher error, like a higher issue than the, you know, the customer that two weeks after service is going to complain because you bill them because it's the end of the month. But if you're sending the invoice, it would show like the date was three or four weeks ago. And so I see where you're coming from though. But again, like, we don't have access to most people's stripes. We don't have access to most people's the way that they do invoicing. And so therefore it would be. There'd be more mistakes here. And some people would be like, hey, I don't want to charge them right away. I want to charge them my next Monday. Can do weekly billing, for example. But again, Liz will look at this, she can, she can assess this. But that's why, like the call notes, if someone cancels, you would get that. And then if you're doing your own invoicing, you could make that call. And then if you're in the invoicing department, command center would do it for you. But like if you're not, you'd be getting the call note saying this person canceled. And then you would be able to charge them. So.

I'm just explaining the current.

Order of operations. Landon Smith Tallahassee, Florida. Mike, I recently got an opportunity to put in a bid for the local Cube Smarts near me. Storage facilities, which I'm 95% I'm going to be getting. I've never done contracts before. However, the maintenance of this properties and mowing alone will be 110 to 120k per year in revenue, making me feel like I should require one for security's sake. At my size of business.

Do you have any recommendations of things? I should include my contract that typically is not included with my normal residential customer. Thanks. If you want to protect yourself, the biggest thing, like if you wanted to add one line item, like one verbiage to a contract is have some sort of, like, if they want out, they got to give you like 90 days notice. So that way if you have, if they want to get out or they want to cancel and it's a huge chunk of your revenue, you have 90 days to try to diversify. So.

Yes, you could, yes, you could say and finish out the contract. And that's what usually the contracts are for.

But if you're like, I just don't want to do a big long contract, I just want to give them an estimate. It says like annual thing. You could put Verbridge in there. It says basically like this can be canceled, it'll automatically.

Renew at this monthly rate unless otherwise told. And you need 90 days to basically terminate the contract. That would give you some sort of protection versus them trying to get out after three or four months and they're still nine months on it. And then they would get into like a more of a legal issue. If you give someone a way out, typically they'll take that instead of being confrontational, just like, hey, it's not working out. We're going to use the 90 day clause. That would be like a much less confrontational, less contract. You don't have to like iron out all the details of like how that would work with the contract and.

How the lawsuit would work and all the other stuff that is typically inside of a contract. That is a sizable contract at your size of business. That does look like probably, I would imagine, 25 to 30% of your revenue. So something to be careful of. But I think as long as you had 90 days, even if they did terminate the contract, you could then diversify. Like, okay, I'm going to take some of that money over the next three months. I'm going to, you know, market enough to be able to fill, fill the truck that I bought. They fill the equipment, the assets, the capacity that I have for those assets.

You know, with other work.

Can you go into some of the detail, the pros and cons of the lockdown winter option? The pros are that you don't have to be working during the winter. So some people like to have time off in the winter. They don't like to get into other services. They don't like the complexity of adding snow or adding winter services or adding Christmas lights. Or they're like, hey, I only want to do winter services. I know revenue is going to drop by 60, 70% and then I'll just lock everything else down. There will be no overhead, no one in the office, no estimates, like no new work being done, just doing winter services. And everyone's going to be hands on deck to generate revenue. So the pro would be the fact that you have. Everyone is producing revenue. There is no overhead. The downside is that if you have a lot of fixed expenses, you can't go into lockdown without losing a ton of money. Because if you have debt payments, if you have rent, if you have an office space that's three, four grand a month, those things can really sink you during the off season, you literally can't go into lockdown mode. So cool. All right, everyone, hope you have a fantastic Monday, a great week ahead, and we'll see you tomorrow. Take care.