Mike Minutes Mastermind 09/22/2022

Hey everyone. Hope you're doing super well. Let's go ahead and get started. Quick announcement. You can now book a coaching call with Chuck if you would like. Book it after October 1st, if you would, please. That's when his official role begins as a coach. So feel free if you would like to use that. You can. Absolutely. I know Lee's schedule is filling up pretty quickly as we head into the fall season, so feel free to use Chuck's as a resource. Let's go ahead. I had a quick education thing. So yesterday I actually talked to someone that I feel is one of the leaders in the robot industry. And actually he used to work at Tesla on their self driving department. And then he went out and struck on his own, him and another developer and they're building some really cool stuff down close to San Francisco. So really good talk with him. Just really interested in what that's going to become like in 15, 20 years. And talking to him about from his business perspective as he looks to raise a bunch of money and try to build the infrastructure for that business. Very interesting. He wants to take it more a model of actually building a service and going to the customers and trying to sell it. And as he's finding out, people are not willing to spend a single dollar more. And so the only advantage that a robot is going to have is saving on labor expense. So your margin, you know, be able to charge a lower price basically is the only advantage you're going to get. And so what that's creating is, you know, people are not doing what he's trying to do, which is actually scale the service side and build a lawn care business. Most people are going for the technology side, but as there's 15 or 20 people doing that, what will happen is once the technology is there, it'll get commoditized within 24 months and the margins on that business will get absolutely obliterated. So really, really interesting talk to him about that. Talked to him about how the idea of pitching a lawn care business to private venture or venture capital and private equity is gonna be a pain in the butt in terms of multiples and valuation compared to just sticking to a technology company. But very interesting. They're using lidar and they're using. What they're doing is they're trying to put their technology on top of the mower, a 30 inch mower. And it can be gas, it can be electric. He's like, it doesn't matter. And he showed me some really cool stuff, so. But just kind of reinforces everything we've been talking about like robots. People are not willing to spend more for them. The cost needs to come down substantially. No one's going to be spending 10, $15,000 on a 30 inch pushmar and you're going to need two of them to get done the same amount as someone that is actually operating it as a human. So lots of still barriers in technological issues. Their thought process is having a crew that goes out and just drops off the mowers and picks them up because it takes so much longer with one. And then having an actual lawn care person doing the trimming, edging, blowing. But again, there's inefficiencies in that. The only way that actually become efficient is if you had massive scale and route density. So yeah, really good conversation with him and I'm just sharing this just, just so you all know what I'm up to in terms of again I told him and he agrees like it's 15 years away. So I'm constantly just trying to stay in touch with it because I know that that's going to be a massive switch in the industry. And yeah, ultimately I told him, like, I have to think about our franchisees making more money in the next 12 to 24 months. And so that's why you haven't seen me actually start testing it a whole bunch is because there's no reason for me like, hey, we're doing like this robot thing now and making everyone buy these expensive robots and all the rest of it when it's not actually making more money. Next 12 to 24 months he's going to go burn, you know, 10, $20 million of some venture capital's money and that's fine, but we're not about to try to do that ourselves. So I told him like, my goal is for Augusta Lawn Care to have the, the largest residential lawn care impact in the country. There's bigger companies right now, but there's no one that's going to be able to do as large of an impact for residential as usual. There's all the big players are commercial. And so when residential mowing gets solved with robots, I truly believe the winner will be the person that has the scale, the infrastructure to make that immediately profitable.

And yeah, it was good conversation with him. Learned a lot. Been talking with Jonathan Patosnik more after our interview. And he's on vacation now. He's going to be for the next eight months. But I have a feeling that Jonathan Patosnik and Augusta Lawn Care's ways will cross eventually in some way, shape or form so that's all I got. Let's go and jump into questions. Share screen.

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All right. Forest watcher. Oh, it did. Is this showing good? Boom. Yeah. Let me pop this one out. Give me a second. This looks better. If I can do.

Ah, whatever. Okay, Watch your public video today about recession. Currently have two guys mowing maintenance five days a week. Two guys doing projects and properties five days a week. I have $50,000 in the bank. I'm at capacity when it comes to employees. I am not at capacity when it comes to trucks. In order to be at capacity, I was planning on hiring two more guys.

Next year for project property clamp work five days a week. So.

Okay, we'll jump in this additional equipment would be needed. Additional. You need a dump trailer for 8k and trimmer blowers, etc, in order to be at capacity. I was planning on hiring two more guys next year for project cleanup work five days a week. Okay. You're assuming though also too force that you're not going to get any more mowing customers. I feel like that's the thing you're forgetting is that next spring rush, even though you're thinking about this next spring rush, will probably get another 100 mowing customers. Right. So. And add two more guys for mowing and maintenance work five days a week. Okay, my bad. No question. Additional equipment needed. Got it. Am I on the right track? How should I spend my money? Should I not hire two additional project guys? Should I spend money on dump trailer and equipment? Okay. So first and foremost, I would definitely hire the two guys because you're really not at full capacity until you're using all of your assets. And if you have two or three trucks, which I know you do, sitting every single day, that's a waste of capacity. So higher up to that level and avoid buying equipment until that level. Right. If you need absolutely need this equipment in order to hire the two more guys, then definitely go do it. Especially if you have demand, like plenty of work coming in. I would be doing that first. Paid $11,000. So you can bring in an extra 20 or 30 grand a month in revenue, you know, 20, 25, I should say, in revenue per month. And you're not going to buy a truck, which is the big cost, the $20,000 thing. You have two or three of those sitting every single day. Right. So.

I would give you the green light on buying this equipment, assuming you need it for the jobs. I am inclined to think that you could probably get away with just this one and use your dump trailer that you Currently have if you have one more strategically between the two. Because you. If you only have two project crews, you don't need a dump trailer for every single crew. If you strategically plan it. I know it's not perfectly convenient. And yes, the Bellingham shop has a lot of dump trailers now because they've been around for a long time. But if you're trying to grow more efficiently and profitably, you're going to hold off on getting another dump trailer for a second, second set of employees. And then what you're going to do is every single day, it's like, okay, the crew that's doing weeding and bush trimming, they get the pickup truck. The crew that is doing a massive property cleanup or paver install, they get the dump trailer, right? So this one I would try to hold off on. Definitely hire the employees, assuming you have the work to do that. And then I would definitely give a green light on the 3K trimmers, blowers, et cetera, if you need that in order to get the two. Two more guys up and rolling. Because you have, ultimately, you're paying probably 300 or 400amonth just in the insurance for the trucks that are sitting doing nothing every single month.

And so definitely you want to keep those. Like, you want to grow to that level as soon as possible. Because the profitability between where you're at now and where you are at doing an extra 20,000amonth in revenue, there's a lot of profit sitting there. You're probably 40% profitable on the money that you would grow from now to that point. You have the infrastructure, you have the trucks, you have the manager in place, you have most of the equipment. So that extra revenue becomes the most profitable revenue. The current revenue might be, say, 15% profit. That extra piece of revenue might be 40% profit.

Option B, instead of hiring two employees for projects, I hire one employee for rolling and maintenance. Additional equipment needed would be the following.

I would assume that you could probably wait until spring rush, but again, you're in California, so you're going to be getting lawns trickling in. I think the number one thing I'd be saying is hire an employee, at least one, because that's going to increase your capacity without buying any more trucks or equipment. You throw that employee into a truck with yourself or someone else, you can immediately get some added value there without buying anything. The trimmers, the racks, trimmers, and blowers, for example, I'd buy those as well, because again, it could help on the mowing side. It could help on. On the project side.

That being said, regardless if you go projects or you go mowing, which is going to be determined ultimately by the jobs that are coming in regardless, you need to hire someone because the employee part is variable. You can move that person in and out as the business needs. This stuff is all fixed expenses, right? So.

In terms of which you should do mowing or should do projects, it's simply going to come down to how long is your backlog if you're not booked out? 3, 4 plus weeks. I definitely wouldn't be going the project route this time of year. If you are getting so many lawns and you're having a really hard time getting the diamonds link, I'd be going the maintenance side. Right? So it's just going to really depend on what the demand is coming in and that's something. On coaching call you can definitely dig into looking at your budget hours of recurring jobs each week versus the budget hours of projects each week, how far you booked out. Those are the things that would be determining which way I go in that direction.

Why do you not suggest using debt to open up new locations? I know it would be a double edged sword that could potentially hurt you, but if you have figured out the systems and note due to get a location up and running, why not use it? That is very often used in real estate to go fast. Just curious on your thoughts.

Good question.

I wouldn't say I don't recommend it. By the way, I'm cautious about using debt against a business, especially a new business because your terms get so diluted. But I'm not against that. I know Augusta, Georgia he is starting two more locations and he's using $70,000 debt. It's public videos so I don't mind sharing that.

I have used debt to open locations. I used a home equity line of credit to open up Mount Vernon.

So I'm not against debt. I think my bigger concern is is it secured debt? What's that rate look like? Is it short term like on a credit card versus something like a home equity line of credit or a 10 year more? A 10 year loan? The longer that term is the better, right? Because I know, I know in three to five years my I'll literally I could pay it off if I wanted to. I just don't want to have a 12 or 24 month term. That right as the business is actually really starting to hit scale I need to be paying off tons of massive amount of the loan. So longer term debt I'm fine with. Especially when you have the confidence to scale up, right? Like I'm, I'm very confident now like from a corporate level position that four out of five of my locations are going to crush it, right? And the extra one, I'm going to lose $80,000. Now I haven't lost one yet, but I'm just running these numbers in my head. Like let's assume when I run my calculations that 1 out of 5 a GM goes south, someone the GM quits, the location just does not take off for whatever reason, I got to assume that lost, right? And over the course the other four locations in my mind needs to cover all that. So the numbers work out great. I'm very confident I would take out debt.

And I don't, I'm not against someone taking out debt. Typically you're starting a second third location. You have, you have figured out the systems. You know it works, you know it doesn't. You know, you figure out how to optimize your first location to raise prices. Because you would literally, if you could take a location that has say 500,000 to a million dollars in revenue and you could raise the prices, say $5 per cut immediately, you'd be making a three to four thousand dollars a month in extra revenue. That would literally just cover your, your mortgage on the loan, right? So again, that's why having a service based business I love is because if I know I have price flexibility, I can literally raise my prices slightly and cover the loan debt of say 1500 bucks a month on my loan if I'm paying that. So I'm not opposed to using that. I am not against that.

Assuming that you have figured out one location very well, it's profitable and you know that you could literally just dial prices a tiny bit and literally cover your mortgage, making it very risk.

I'm much more risk tolerant in that case.

All right. Evansville. Raising prices versus growth mode. Raising prices never sounds like a bad idea. However, as you mentioned before, it come at the cost of growth. With that being said, is it wise to raise prices when you still want to grow by approximately 200,000 the next calendar year on top of what you are doing now? Or is it better to raise price, project prices as you want to simplify services that way, even though you don't want to really do the larger projects, you have the top line revenue to get you to the next stage of growth. But at the same time these jobs would be super profitable. Wanting to get rid of the rdingo or no longer use it on jobs going into 2024, but trying to plan strategically for next year now. Good question.

So this again really comes down to how far you booked out. If you're booked out two weeks and you're thinking about raising prices because these are services you're not going to want to get into. Probably a bad idea, because I'd rather you use the dingo four days a week until you get rid of it. So use the thing. And if you got to jack up prices because you're three months booked out, and then, yeah, great. Be really profitable, Stack that money aside, et cetera. This is the question, though. Is it wise to raise prices when you still want to grow by $200,000 the next calendar year? Here's the thing with projects, you can move that number down, right? So right now, this is again, the determining factor of whether you raise prices or go growth mode is based upon capacity. So if you're at capacity now, you would probably raise prices. And then next spring, if you get more capacity by buying another truck or getting more employees, then you would go back into growth mode and bring potentially your prices down. Potentially. I'm not a huge fan of bringing your prices down, but just assume that you need to do that in order to go from, say, a 40% close ratio back to a 70% close ratio.

So the big, the big determining factor is here. Are you at capacity? If you're at capacity, you can't. In order to get more revenue, you have to go buy more trucks and more equipment at that stage, raise prices. If you're not there yet, I would not be raising prices or reducing your. Your.

Close ratio. Again, the determining factor of whether or not you raise prices or go into growth mode only happens when you hit capacity. So you have to check that box before you start thinking, is this a decision? The question is, do you already have the trucks, equipment, and employees to get the extra 200,000 in revenue? If you do, I'd keep your prices where they're at. Right. It sounds like the dingo is there. You already have it. I'd make sure that things being used right. And so even if the prices aren't super profitable, I want to fill capacity and use that piece of equipment, that fixed asset, as much as possible. Something we do not talk about in small business at all, hardly, because we're not, you know, accountable to the stock exchange is return on equity, right? Return on assets. These are things like actually matter in the world of accounting. In terms of valuations, what is the return you get from the equity that you put in the business? What is the return on the investment that you put in your assets, return on assets. Very important. How productive are the assets? These are things that are talked about a lot in like manufacturing and when companies have a bunch of offices, like, okay, well, great, you're going to build a $10 million office. What's the return on that, on that asset over the course of the years? That manufacturing plant? What's the return on that over the course of time? Because again, everything can be boiled down to customer acquisition cost in and return on investment out. And so, you know, if you're going to spend money on trucks, equipment, etc. What does that look like when it comes to the cost? Customer acquisition cost, and then return on the assets after buying them over the course of a year, two years, five years, what does that look like? Right.

All right.

I think we got some questions came in on here.

This is from Forest Forest, the mowing company. The mowing customers is a very. What? The mowing customers don't come in very fast. Even it is spring rush because we mow year round here. The projects really took off big time this February. I'm unsure if that will happen again because of recession. We're currently four weeks booked out for project work that have been steady worked out. Yeah. So in this case, I'd probably go ahead and do your project side of things. I would start with getting the. You already have the truck. I'd get the hand tools and the employees. You'd go book yourself out until the point where you're like, I need a trailer. Because like every single job for this week, I need two trailers. That's when you go buy a trailer. And I would make sure before doing what I just said that you could go get a, pick up a trailer. Right. So find a dealer. Be like, hey, how's your inventory? Most their inventories are getting better right now. So if they have plenty of inventory, you know that literally if you need a trailer, you can go get it tomorrow. This is why I'm just shocked. Like, you can't hire an employee tomorrow and then be profitable and efficient. You can go get a trailer and it is immediately effective. So don't buy the trailer way in advance. You get employees in advance because they take time to ramp up. But don't get a trailer or a piece of equipment or a truck until you need it. The truck is the slight asterisk next to that. As you got to paint the thing, put decals on it. Takes a few weeks. Okay. But especially equipment and trailers. Now that some, some dealers have good inventory.

Again, you need to make sure you check that. But if that check box, if that box is checked and you know they have good, good inventory, do everything can in your power until the moment you're like, I must have two dump trailers, then go buy the dump trailers on the day that you literally need them. Right. Project work will cry trailer because we have nowhere to dump clippings.

I don't know why that would matter with clippings and projects. But yeah, if you're gonna need the trailer right away, then go ahead and get the trailer. Knowing that you're six weeks booked out, four to six weeks booked out, knowing that February is still like. Keep in mind when we talk about projects at Augusta Lawn Care, we're talking about like maintenance. Okay. We're talking about big bush trimming, you know, removing debris, talking about those things. When I talk about on, on like the public channel about project based work, I'm mostly referring to like patios, decks, fire, outdoor living areas and kitchenettes outside pools. Those are the things that are gonna be affected during a recession. I don't think that our type of projects are gonna be affected a whole lot because the bush needs trimmed. Bottom line, they might push it off and they might do a bigger one time job instead of having you come three times a year. But the bushels got to be trimmed. We can complete multiple products and only have one. And only have to dump once a week. Projects and property cleanup. Yeah. So like again, I would, I would hire the employees, I would get the tools and equipment that are required. I would then as soon as you need that dump trailer, go buy it. But I think there's probably at least a few weeks where you could hire somebody, get them up and running because they're getting trained before you go buy the trailer. So. And you have 50,000 like, so theoretically you could just be like, I'm just gonna go buy the trailer. You could, you absolutely 100% could do that. I'm just thinking like most efficiency manner. But if you just want to have lower, lower headache and don't want to play that, you know, month game of trying to juggle the employee, go get, go get the trailer. Ultimately you have these trucks that are literally burning money every single month. You got to use those. That's growing to capacity right now for shooting 50, 60,000amonth in revenue. You going from 60,000 to 80,000. Like all of your profit is sitting next to 20 grand because you have all the infrastructure and overhead. And it's not going to change when you get above that number. Besides simply their the percentage that you're g paying in wages, Right? So.

Great mastermind everyone. Hope you have a fantastic day Thursday. We'll see you tomorrow. Take care.