Mike Minutes Mastermind 08/23/2024

Hey everyone, happy Friday. Get this party on the road. Looks like we have a few questions that came in.

Yeah, four. Let's go. Boom, boom, boom, boom. All right, let's jump right in.

Okay.

First one is from Aaron from Abbotsford.

With all economic forecasts pointing some lean years ahead or at least a slow down potential recession, I'm wondering if acquiring that company we spoke about at training starts to have more value.

My focus over the next year is going to be around growth. I believe this could be a challenge with a brand new company new to my market, plus lack of consumer confidence going forward. How much does that drive cac? I've done a lot of marketing so far with zero return. Not unexpected at all. Fully aware it's going to take some guerrilla marketing to bring brand awareness to our market. In the beginning. Acquiring that company with 60% of their books in stratas will also help solve some of the lean winter months as all those contracts would be on level billing. His company is forecasted to end the year at 750,000, close to 170k in profit. After owning salaries of approximately 90,000, my company will land 2024 around 425,000.

I would never let economic stuff like, or like, you know, economic forecasts change my opinion on an acquisition because the numbers either make sense or they don't. Whether or not they make sense today will not change because of the economy. Because if the economy, if you like, for example, consumer confidence goes down, the likelihood of more people leaving during the transition is greater, the chances of people leaving during price increases is greater. So it'll affect the entire market. It doesn't just affect your new customers, it's gonna affect existing customers. Your churn will go up, customers will be more price sensitive, etc. Like I, I do believe that, you know, the past three, four years we have had this weird time where we can all raise prices basically blindly and no one leaves during a recession, that will change. And so.

You know, whether it be existing customers or new customers, they're going to become more price sensitive if we go into a quote unquote recession or you know, rougher economic time. So I wouldn't let change the way I'd handle the acquisition. I would say he's actually going to have a harder time finding someone to buy this company going into it, this sort of economic time. And so the exact same principles that we talked about at training when it comes to the acquisition, I would recommend putting it on the table, keeping lines of communication open, making sure he's not offended and Then that way if he comes around to it and then he like counters back a little higher, you might take it.

So.

Yeah, and if you're going to put, you know, let's just say you're like, okay, well, I'm going to be spending 15 to 25,000 in marketing my first year. I should just put that towards the acquisition. I would agree, but I'm not going to pay top dollar going into a recession or not going into recession. I'm going to be trying to get my best deal. And that is what we talked about at training, like using the negotiation tactic of like, hey, probably best if you sold all your equipment and then here's what I can offer for everything else. But I am, you know, I don't want to offend you. I want you to go find someone that will buy the whole business, etc. Etc. Etc. That would be my, my 2 cents.

Mr. Have you considered having other industries be part of Augusta, like H vac, plumbing, electricians, etc. I know the grass isn't always green on the other side, but industries that are less seasonal and can charge $400 per hour are appealing for several reasons. I'm interested in your thought process. Yeah, so right now H Vac is really, really hot. Wheat and feed is really hot in terms of.

Chemical applications are really hot in the world of private equity because of these, the higher margins.

So I don't really have any intention of adding more services to Augusta until we hit like a thousand locations in terms of other services. And what I would probably do in that case is really be making them for our Augusta locations to be able to like our lawn care divisions, to be able to diversify, I do not see the need to do that because right now, until we have basically sold all the territories for lawn care in the United States. And so once we get to that 700 to 1,000 locations, maybe this becomes a conversation and it's something that people can kind of graduate into. Let me just be very clear. These industries have a very similar failure rate to lawn care landscaping once you pass two to three employees. So the reason that these companies typically do better is because usually people scale them.

There's usually more money that goes into these industries because the barrier to entry is higher than lawn care and landscaping. And so everyone talks about the great margins, but they're talking about the top 10% of the market. If you take the top 10% of the market when it comes to lawn care and landscaping, also very good. It's just that the barrier to entry is Higher to get in these industries and actually compete. The professionalism is higher. And especially H Vac because private equity has come into that market so much and chemical stuff. And so they're already using AI, they're already using over the phone estimate stuff like.

You know, there's a lot of, they haven't quite got automated scheduling yet, but like it'll happen in these industries first because there's so much money being pumped in them from private equity. And that's ultimately like first thing private equity will do is like, how can we enable AI? How can we make this tech enabled? It's the first thing they do and they raise prices. And so in part the reason the price, like per hour for example, has gone up so much is because private equity comes in and realizes, oh, sick home services are more sticky than we thought. We could raise prices and people don't leave. So happens that like lawn care, landscaping, you do the same thing. And so, you know, we've raised prices by more than double over the past, you know, five to six years. I think we can do the exact same thing again over the next five years. And I do believe that in five years we'll be looking at 150 to $200 per hour. It only happens though, through adding more technology, adding more AI, and then you're efficiency per hour so great that your price to the customer doesn't have to double. You have to increase your efficiency per hour so much more. And so that's what those industries have done is they've gotten way more efficient because money got pumped into technology. And so that's ultimately what I want to do for lawn care and landscaping. That's why, like I say it so confidently, I just watched it happen to H Vac. I watched it happen. These other industries, in terms of adding it in, I would say like we're probably a solid 10 years away from, from doing it. I do believe adding services like Christmas lights for our Q4 collapse is like number one priority to me. In my opinion, we need to be able to get locations from 0 to over $500,000 in annual revenue distributions of $200,000 to the owner, including their, their salary. That's the goal within their, their first five years. And so when I look at all The P and Ls, this is stuff that went over with Alex. When I look at all the PNLs from Augusta Nation, if we can take out one quarter and fix it, the vast majority of us would have a 20% plus profit margin. And the vast majority of us would be able to take after, in the fifth year, $200,000 out of the business in the form of salary and distributions. But because of Q4 collapse, where we have a quarter where we, our revenue completely gets impaled, leads drop off a cliff, and then we spend the first two quarters of the year digging ourselves out of a hole. Because of that, it shrinks all of that down dramatically. So in my opinion, we can fix that. That's my only thing I'm focused on. And that's why, like, I'm thrilled that more than half, about half the locations will be doing Christmas lights this year. And then we'll be like every single year, like next three to four years, just dialing in Q4, whether it be Christmas lights, snow, winter services. There's several things I want to test next season. This year is really focused on Christmas lights. But like next season I have some strategies I want to do with marketing and offers surrounding winter services and going like really hard on some campaigns. So anyways, I know if we solve that, we can actually make it very profitable. And then these other industries, they look more sexy, more appealing. It's also more difficult. You're going to be paying a technician on H Vac, at least in my market, for example, like starting at $30 an hour, starting. If you want to keep them, you're going to be paying a lot more with health, healthcare benefits. They're going to have a company vehicle. Like there's a lot more that goes on. And so the grass is not always green on the other side. I've talked to plenty of H Vac companies, electrician plumbers that go out of business and struggle with low margins, struggle with workers, comp stuff. Like it's a lot of the same things. The industry has just been professionalized. So much money got pumped into it and it's been tech enabled. And so.

You know, in 10 years, talk to me about whether we want to add another service into Augusta. And I would, I would probably do it in a way where it's like, hey, look, you're going to need three to four hundred grand to get started with this other industry.

And you're going to have to be in Augusta lawn care for a certain amount of time in order to jump into it. And it would be like kind of like the graduation to go to another level and just diversify. So it's really like stage seven of wealth is diversification. And if we could keep that somewhat inside of Augusta, that would be cool. But I have some other ideas like that down the road might Be useful for stage seven as well.

Audi 2 questions. The first one is about why. Bravo. How are those working out for y' all in Bellingham? Because I can't seem to find a deal that has one on the showroom.

I think they're going decently. It's still a matter of training the guys on the basic mechanics of fixing stuff like the cables, the handles up top. If you can train your crew on like all of those things, you'll have to take it in for repair way less often because that's still the part that breaks a lot. Like the little handles up top, the cables, etc. I don't use them every day, so someone like Core would be better at giving a feedback on that. But I think they have like 15 or 20 of them. They have a lot of them there. The second one is mainly regards to manufactured batteries out of silver, silver to go to 200. Manufacturer batteries out of silver, silver to go to 200 an ounce. Over the last two years, has had a breakthrough with. They can take electric car now 600 miles. The charging time, supposedly it is down to 9 minutes and 80%.

On your thoughts, your thoughts. Thank you. I'm guessing, like, using silver in the battery making process, like, batteries get more and more.

Efficient. There's so many companies that have a motivation to increase battery capacity and output and performance, whether it be Tesla, whether it be solar companies that are trying to store the energy, whether it be companies like Tesla that want to increase their increase the speed of transfer of energy from a fueling station to the battery itself is like increasing capacity of speed of transfer.

As well as the transfer of energy along power lines. Like, there's so much money that's been pumped into this and so many companies that have an interest, like, that's why it just gets better and better and better. And it will continue to do that. It'll charge faster, better use of materials. Lithium, like, there's. There's many different options. Like, you got lithium, you have cobalt, you have silver. Like, there's so many different ways to make a battery because ultimately you're just taking metal, you're charging it up with electrons, and then you're taking them out. So there's multiple types of metal in the periodic table that actually work. It's just like a balance of cost and effectiveness when you look at those different types of metals. And so as the cost per ounce of, say, something like silver or the cost of lithium goes up or down, the effectiveness per dollar of each type of battery material changes. And so you know alkaline, but you have alkaline batteries. Like, there's so many different types because there's various numbers of metals that would work for batteries. Ricardo from Alexander. Looking ahead at multiple locations, I know you said wait for 800k to start second, but you can also grow to 500k and build multiple. What would be the signing factor between either how much money you have? Because what I like to do is get the location of 500,000 and then optimize it for profit. 800,000. Because if you hit 500,000 in revenue, grow, grow, grow, grow. My goal is that over the next three to four years, you optimize that location all the way, 100,000, without having to get a whole lot more trucks or equipment that, that goes from a $500,000 location that kind of breaks even to a location that can spit out $200,000 in profit simply because over the course of three to four years, instead of increasing capacity, you simply keep ratcheting up prices. And that's the person that goes from 60 bucks an hour to 90 bucks an hour. That's a 50% increase in price. That literally takes you from 500,000 to $750,000 in revenue. And that extra 250 is just price increase. And so until you're in profit mode for like, I mean, like where there's multiple years where you're just like, we're just gonna keep raising prices. We're not gonna buy any more trucks. Once you've done that for a couple years, that's how you get that kind of operating margin.

And so I really like the idea. If you have plenty of capital and you wanted to grow fast, if you want to do multiple locations, I'd be going to 500,000. I'd be getting a good GM in place. I'd be switching that location into profit mode so I can immediately afford the GM and I go start a second location. That would be the more aggressive way to do it if you have plenty of capital. If you don't have plenty of capital, you would grow to 500,000. You would ratchet to profit, and you spend two to three years collecting cash and putting aside to go start the second location. And then you'd probably get it to 657, 750, then give it off to a GM so you can go to second location. So it really comes down to how much capital do you have and also your appetite for risk when it comes to debt, because you could also just finance all of what I just said as well. And you could buy people out and then start the location, you'd buy another person. You get SBA loan after SBA loan. If you like more risk, you know, less risk adverse or more risk, you are less risk averse. There you go.

How much capital would you say it's needed? 60k. 60k is very, very slim to start a secondary location.

Because a secondary location you want to, you're trying to speed it quickly, right? Like 60 great. 60 grand is usually good for if you're an owner operator. But if you're doing a second location, I would recommend getting more between 80 and 100,000. That's going to give you the juice required to jump the location into the first three months. If you're doing 60,000, it's going to require a lot of owner participation in marketing, knocking on doors, pounding the pavement, doing door hangers, etc.

If you have more around 100,000, you can scale within the first three months much faster because you have 20 to 30 grand to spend on marketing and growth. And so like even Anytime Fitness, they now actually when they do new locations, they have us lock up. I think it's minimum of 32,000. They you must have set aside in cash for your opening marketing in your first three months. Like they don't even like, like they want a separate account with that money in there before you even open location. This grand opening fund and they want more like 45,000 is what they push for because they know if they can spend that much money in the first three months, you'll almost immediately get above break even. And then the likelihood of you having financial trouble is just less. Instead of spending that 30 or 40 grand over the course of two or three years of pain because you just, you're losing money every single month because you're not above break even. So how fast you get above break even is going to depend on if you're spending a bunch of money in marketing. Like you gotta do it quickly and your, your overhead is gonna increase once you get a general manager in our second location. That's why typically I recommend having like 80 to 100,000. If you want to do debt, that's fine and leverage it, that's okay. You're gonna grow much faster. I'm putting together a video about all about like the pros and cons of debt. And like obviously there's, it's pretty basic at its higher level which is like risk versus the opportunity of growing faster. But.

You know, this is why private equity makes so much money. They use tons of Debt like they will usually lever 10, 10 to 1. So on a 10 million dollar acquisition, they're only put a million dollars in, which means they, they can get 10 deals. So if they take those 10 deals and they raise all their prices by 20%, now all of a sudden they have literally doubled the valuation of those businesses. They flip them, they, they sell them and they just put down $10 million in on 10 different businesses that were worth 100 million and then they turn that $100 million into $200 million because they price increased their prices by 20% and then they flip the deal. So you would never be able to get $100 million of added value if you did everything with cash. So like yes, leveraged buyouts or LBOs, those are very, very popular. But when the market hits the fan and bad things happen, people are really leveraged, are the first ones to go down. So it's just a matter of risk. Right? Same with like, why do like the largest, you know, home service companies use leasing programs and get new trucks.

Most time? Because they are actually hedging from a tax incentive perspective. They have five year depreciation schedules on their trucks, for example, that might be ending out. So like, oh, we gotta get new trucks, otherwise our tax bill is gonna be abhorrent. Also, like they know their financials, they've nailed them down because they've been in business for 10 or 15 years and they know exactly what to expect in terms of their tax bill, what brackets they're hitting, trying to hit for, et cetera. So it's not that I'm against that, it's not that I'm against new trucks. It's a, I'm usually against it when you're first getting started and you do not have the track record and you do not have the experience that a private equity company have when, when it comes to using leverage and being able to get 10 to 1. Like 10 to 1 is actually doable using a SBA loan, you at 10% down an SBA loan. So like the SBA though program is phenomenal for small business owners because like, that is literally the ratio used by like private equity a lot of times and their cost of capital is higher than what you'd get from the sba. So it's like pulling teeth trying to get the money from the sba. But you know, private equity and venture capital has to get money from other people too. And they've convinced them to invest in their funds. So, you know, I'm not against debt, I'm just, I just know the people who use debt really, really well. They have tons of experience. They've been in business for years. And that's why, typically, as you've even seen me do, this year, I'm getting new trucks. Like, next. Next year, the Bellingham shop, you'll see all new trucks, all new wraps, all equipment will be brand new. I've been in business for 10 years, and I know what the cyclical nature of the financial part of things are. And I know that, okay, if I do this, over the next 10 years, here's gonna be my return on this truck. Here's what's gonna be your return on this equipment. And I'm willing to spend a few hundred thousand dollars knowing that over the next 10 years, I can make a 3 to 4x on that money passively. So that only comes with time. It only comes with experience. And that's why usually, with someone's getting started, I don't recommend that as much, because you simply don't have that skill. And so.

I don't know. I went in that tirade. There must have been a question. Oh, yeah. Ricardo asked it. Okay, cool. All right, everyone. I hope you have a fantastic Friday, and we will see you guys on Monday. Take care.