Mike Minutes Mastermind 11/13/2024

Ladies and gentlemen, boys and girls, welcome to another Mic Minutes Mastermind. Let's go ahead and get started.

We didn't have one yesterday. There was no questions that came in. Let's go ahead and get this thing kicked off. If you haven't already, make sure you check your email. Listen, an update from Command Center. I should be doing that kind of like a, you know, every one or two months update for what's going on at Command Center. Nothing super new yesterday, but kind of a recap to get her started on kind of giving those updates. Stuff about payroll, stuff they're doing at Command center.

Changes in software, things that they've been improving on, things like that. So hope that is helpful. Feel free to give feedback. She had the form there at the bottom to be able to give feedback. Or even if there's things in that newsletter that you think would be helpful, feel free to give her that feedback. If you. We will hop right into questions today. Let's see here.

By the way, if you're doing Christmas lights and you're not on the Christmas lights hub, WhatsApp group highly recommend. I'm in that group. There's a lot of really good stuff going on in there. I think almost everyone is, but there are more locations that have it on their site than that are in that group. So if you're listening to this and you're doing Christmas lights Highly recommend. Go to the resources tab on the dashboard. Go to the WhatsApp groups chats.

Let's scan that QR code. Get in there. Highly recommend. I know it's starting to pick up crazy for a lot of them. Let's jump into questions. First question is from Hutch.

Not currently applicable advice, more of a muse. Would you explain for a bit on how PE works? Oh yes. In private equity. Got it. I was talking with Lindsay yesterday. So for those who don't know Lindsay is the owner of.

Blanking on the name company down in North Carolina that Connor just bought out a segment of their all their lawn mowing. He explained a bit about feet companies. About feet companies over a million dollars EBITDA are currently selling for 9 to 11x. I'm guessing fert fertilizer companies. He said something about if he sold he would want to roll 80% or more into the deal and that's where the real money is made. He said something about after they hit their 3 to 5 year run rate they would exit to the next group for another 10x. Okay, so okay.

When you have a multiple on revenue or multiple on profit, keep in Mind, this has a lot to do with scale. So people will look a lot of times at whether it be software, retail, service industries and like, oh, they sold for $1.2 billion. That is a 15x multiple on profit. Therefore I'm worth 15x multiple profit. Not true. Private equity has funds that they have to spend and if they're going to go after 10 small deals, it takes them 10 times longer, 10 times more headache than going after one big deal. What that means is as a large as a business gets more sizable, just the size of the business, the size of the deal increases the multiple and the valuation of the business. So if you're making, let's just call it $100,000 in profit, let's say you're going to take, get a 4x multiple on that, everything's running hunky dory. You basically passive income, $100,000 in your pocket every year. You're going to get four times multiple plus assets, maybe 600 grand for that business's evaluation. Okay, that's like completely passive. That same business with the same profit margins or even less profit, let's cut the profit margins in half. But now the business is doing $2.5 million in distributions. On a much larger business, the multiple will probably go to a 8, 10 or 11, depending on.

The stickiness of the revenue. So the size matters a lot when it comes to private equity and venture capital. Because they have a fund and they have to spend a certain amount of dollars, they'd rather go after one or two big deals instead of 20 small deals, which means the larger the deal, the more value is to the private equity firm because they have to do less headache, less due diligence. So for example, Conor, I know you follow, follow, follow. Alex, you've seen how they've recently just keep upping the limits of how much their revenue they want acquisition companies to have. And now it's really around 10. If you talk to him personally, he's like 20 million. The reason, because he doesn't want to do five deals for four companies or five deals for companies that are doing 4 million. He just wants to do one deal for 20 million. It's way less headache, less people to handle less deals, legal, et cetera. So just keep that in mind. You cannot extrapolate a larger size company's valuation down. I see this all the time in home services, especially around H Vac and fertilization. And then we actually go down. Okay. When they actually sell, what they actually sell for, if they're doing say a million or $2 million in revenue. It's not a 10x, it's not 11x typically. So how are companies not way overinflated in 5 to 10 years after two 10x sales? Why again is PE not deeply in lawn care but is in other home services? If big money gets involved in our industry in the future, what multiple would you expect to see? How is it a multiple calculated simply. Simply consistent to the business and profit margin. Any other thoughts? I'm going to talk about this quite a bit, Connor at conference, but here's the quick breakdown. You have book value and you have enterprise value. You want to increase the delta between those two. There's a bunch of ways to do that. Book value is the cost of my assets. If I sold everything, that's my book value. This is why you'll see people in stocks like oh, the company is worth less than its book value. Basically if everything was sold all their assets, then technically they have more cash than what the value of the business is. That's book value. If you sold all your trucks, all your equipment, you sold your franchise license, you sold all your uniforms, every single thing that you own, that's your book value. Enterprise value is what are people willing to pay for the business. You can increase the difference between book value and enterprise value by having stickier revenue, having more recurring services. The biggest thing in lawn care and landscaping is most landscaping or lawn care businesses still have 60 to 80% of the revenue coming from one time jobs. In other words, when you go to a private equity firm, they discount all of that revenue one time jobs. It just doesn't exist in terms of if you're going to get a multiple on it, you might get a one multiple on it. Like okay, yep, you get lead flow, we'll give you a one multiple. The reason that that fertilization, if you're doing fert only, for example is if 100% of your revenue is super sticky and you keep people for three to four years on average. That's very dependable revenue. And so it has nothing to do with the industry. It has everything with the dependability of the revenue. And this is why I encourage so much around getting recurring revenue. Because I also know that when you sell the business, the likelihood someone wants to buy you much greater if you have recurring revenue. Revenue and it's very common in your first two, three, four years in business. A big chunky revenue is coming from one time project. I'm not against one time projects. You need that to fill in the gaps of your, of your year in terms of seasonality in order to be able to maintain your crew on schedule. But when it comes to private equity you just do not see people buying out one time project companies. They're buying out recurring revenue. They're also looking for seasonality.

Indifference. So the reason that H Vac in the past five years has been really the first home service to get a lot of money moving into it and I think that fertilization is starting and will continue to is because the reason H VAC so specifically is when it's hot we do ac, when it's cold we do heating. They have very level amounts of seasonality. And so if you can take your Q4 collapse and turn it into Q4 cash in I. E all of your revenue for four quarters is within about 15 to 20% of a benchmark like your average, that will dramatically increase your, your, your multiple. So I will be going over this substantially at conference because it's something that it's like the behind the scenes of why I always talk about recurring revenue. And I'd much rather have a business that does six $700,000 in recurring revenue.

That I can move prices up on over the course of time instead of a business that has $1.52 million but it's full of one time projects. I would just rather have the $700,000 business that does recurring revenue. It's more sellable. I'm able to get a lower level skilled GM in there. I'm able to run it easier without project management and my involvement, et cetera. So.

Mike from Athens, Tennessee, when we get some additional templates made for the estimate, follow up temp emails.

Could we. Oh they are in there. Yeah, they're in there. Okay Mike. Basically looking for follow up emails for Christmas lights. There is a separate package in their mic for the automations around Christmas lights. So there's also a training video on the academy from I think it was Brian made it of how that breaks down. If you need help, feel free to email help gustavalongasurfaces.com they'll point in the right direction. There's a separate automation and email template folder inside of Copilot Marketplace. And then there's also a training of what you'll want to set, how you want to set up your automation to make sure that that is corresponds correctly. Nick from the peen. Hey Mike. We're on pace to hit $800,000 this year. I'm starting to feel a little stuck around this revenue mark. We were at 750k two years ago. 850k last year. So you went. So you went. 750, 850, 900. Okay. I've also been feeling very stained in terms of my own personal growth. The same old monotony of doing estimates, scheduling and just doing the basic stuff is starting to get to me. The truth is this is affecting my performance as a whole. I have this overwhelming feeling. If I had a gm, I could fully, fully hold accountable. It could be much better for the business. I've been thinking about this quite a bit and I believe I can do this in a way where the GM almost pays for himself. Here's how. I recently hired a full time admin to answer our phones and deal with snow removal. CC is unable to do this because we use a different software for Snow 2. I am going to keep her on next full time next year. And there are a lot of tasks I'm currently doing that could be delegated to her, which I predict would free up on average 20 hours per week for the new GM to work in the field. Yes, you're going the $1.5 million marker, just FYI. Okay, so 20 hours per week for seven months at $100 per hour. 60k revenue generated by working GM. I don't think you're gonna have a working GM at 900,000. We'll get there though with the admin answering our phones. Her cost is almost the same as CC and I can delegate much more to her. Here's some numbers. Yeah, so once again like once you crash that 500,000 marker starts to become more. Especially during rush. Your cost of commands are equal if not a little bit higher and you get the 800,000 level. That's when it starts to make sense. Like Nick is saying, potentially get someone in the office. If you're going to go to that 1.5 million marker, which I'll come back to in a second. Here's some numbers. How much I cash I currently draw from the business is 40,000 direct revenue earned. This direct revenue earned equals $0 per year future GM salary 80k per year future GM direct revenue earned 60k per year future GM net cost 20k.

No, because this is an overhead expense. This is revenue. So you'd have to, you'd have to multiply it by net revenue. Like, like, like you're. You got to take out your cost of goods sold here. So you'd really technically want is around number 50% more to, to actually make this math work. Because this is, this is an overhead expense. It's coming off the Bottom line, revenue is top line. So you want to multiply your cogs or your indirect. So anyways, my gut feeling is telling me this is the right call. Especially when considering the probable increase in sales, general operational efficiency and system adherence. They'll come from me directly holding someone accountable to these. I'm not oblivious to the fact that the more simple option is for me to be the GM and work in the field. However, to be completely honest, the last thing I want to do is go back in the field working. Let me know what you think. Thanks. So this is a model that is going to get you to 1.5 million. Assuming that's what you want, then I'd go for it personally. This is just me personally. I would actually scale this location down to under 800,000 and get a GM in place. That's just me personally because I believe the same bottleneck you're hitting now, you will simply move that down the road to in two years when you now have two overhead people completely. So the $80,000 person, let's call another $60,000 for someone in the office. This is $140,000 in overhead expense. If you take that 140,000, let's say you have a 20% profit margin, you'd be making about 5 to $600,000 extra in revenue. You put 5 to $600,000 in revenue compared to now put you at 1.5 million. So basically there's going to be a wilderness of profitability from where you're at now to get to 1.5, to get to $1.5 million in revenue. And I think based upon what I have seen, people will get to that $1.5 million. And now they have a massive bottleneck at their GM and their office person that hold all the keys of the business in terms of project management and in terms of how they do things in the office. My personal, personal recommendation, Nick, is you are a starter you crush at sales. It's your strong suit. I also would say if you take out how much, how much marketing you're going to have to do to generate all these new sales and you just put that into your pocket, you'll be more profitable for if this coming year you stop marketing. So if you take all your marketing extension this past year, which I forget, if your location is spending in marketing, if you're in profit mode or growth mode, I don't remember, I apologize. But let's assume that you're spending any money in marketing. Stop all of that. I would increase prices and get 900,000 to be under 800,000. The increase in prices. Let's just say you raise prices by 20%, 15%, that will pay for the GM that 80,000. So that gets paid for with a price increase. That price increase is what is required to bring the location back under 800,000 revenue. That usually going to put you around five to six employees, which is easier for a GM to manage versus you finding a GM that's going to be able to manage a crew of 1.5 million, which is 12, 15 employees plus much more different person, very difficult to find. Also, if they go out, guess who's doing it? You. And it's much more complex. This is just my personal recommendation. If you want to build a $1.5 million business, fine. I just think in two years you're going to hit the same bottom like you're currently hitting. And there's going to be. It's way harder to unpeel a $1.5 million business back to profitability and simplicity. And because you spent all this money growing and scaling it, I personally would take this location and make it a cash cow. I genuinely believe we get to this level, we turn these things into cash cows and we move on. And I personally believe, Nick, you are a phenomenal starter. And, and the reason I say this, of course, the past few years being inside of Augusta, I see this burnout happen often because you want the next. You're hungry, you want to get the next sale, you want to, you want to keep moving on to something new. And that's fine. Just make sure that when you move on to something new, the current thing is profitable and kicking off cash. And so I believe that in two years you'll hit the same roadblock and realize that either A, I have to scale this thing back to being profitable so I can hand it off, or B, I got to keep scaling this one location, doing the same thing I've always been doing because I have so much overhead here. So my personal recommendation on this, Nick, again, this is not what everyone would say you should do. I believe in making a location super profitable, especially if you're hungry to start. And I think you're a great starter. That's why you went from zero to like that 6,700,000 fat so fast in the first couple years. And in the past few years, it's kind of stayed around there because what is required is what you're talking about to get to 1.5. I just believe that between where you're at now and 1.5, you don't see a lot more profit. And so because you have to go get these people, the gm, the office person, now you got to get an office for the office person, etc. Etc. Now your seasonality is much, much different in terms of your overhead structure because you have a fixed expense of keeping these people on.

At 1.5, it's going to cost you more than $80,000 for the GM. It ripples down. So after seeing this over and over, I've seen. I'm seeing. I'm currently seeing two or three locations inside of Augusta Nation that are going from the 1.5 and they're stripping back. They're taking out projects, they're trying to get it down to simplicity. They're trying to increase the recurring revenue side of the business. And it is showing up in their lifestyle, like dramatically. And so it's not. It is not going to. It doesn't feel good to peel back. Then I'm doing this at my location, Bellingham, after trying so hard, like we got above 1.52 million. Like, oh, I'm making the same amount. If I was. If I was 750, 800,000 with higher prices, never having to market, et cetera. So I'm not just saying this. I'm doing this at my location. And I've seen multiple owners that are currently doing this exact same thing after being at the $1.5 and $2 million marker and realizing I'd rather be more profitable. Let this thing cook and then I'm going to go start another one. Because I think that's what you're really good at, Nick. You're really good at going from 0 to 600, 700,000. Do that again and take what you would otherwise spend in scaling's first location, put it into a the engine of marketing to get the next one up, and you'll enjoy that process because I know you love the ads. You crush at making the ads. You're really good at the sales. You love that grow phase. So do that and then just operationalize finding GMs that can replace you and you can pay for them very handsomely with a price increase on a $900,000 business increase by 15%. You just create $100,000 plus in profit. You can afford to pay them really, really well. So that would be my personal recommendation given me. Just knowing your background, Nick, and this being something you kind of bump up against occasionally, that monotony, a starter position can be an owner as well.

Mr. Anonymous, how much should a well optimized location has been in profit mode for a couple years, return to the owner with the GM in place. That is doing 550 to 600k per year. Is 20% about right in that instance, how much would you expect to go to the GM? 16% of total revenue. A pretty realistic range. Okay, cool. So keep in mind. So we're now doing this at training and I apologize for everyone that's been at training years ago. We are going to have a new recording in probably February, March. The last one's about eight months old. The last training that's recorded on the academy. But we are going to record the ones in next spring. The reason is because we now actually give expected guidelines for once you've been in profit mode for two years, this is what we consistently are seeing in terms of profitability. Now profitability is in distributions. I expect a location to be at least 20 to 25% profitable after two years. But then if I'm trying to be a absentee owner, I'm giving profit sharing, which I'm taking a piece of that 20, 25%. I'm giving it away. I'm. I'm very much okay with a 10 to 15% distribution from the location. As the owner. Assuming I am giving a big chunk or like half of my profits to my team, half of my profits being to my general manager, potentially a regional manager and your frontline team, I'm willing to give half. So if I go from like 20% profit to 10% actually going to me as distributions, I'm okay with that. If assuming I have no responsibility whatsoever with the company. Now as you have more responsibility company, you're doing estimates, etc. I expect the percentage of distributions to be higher because you're giving away less of those 20 to 25% profits. And so 20% is right? Yes. The model we are shooting for is after three years of being in profit mode, you're doing 800,000 in revenue, $200,000 in profit. That's a 25% margin. However, we're also expecting then that you hire a general manager and you're giving a piece of those profits to them, you're giving a profit sharing to your team. And if you're, if you're walking away with a hundred grand in your pocket and you're not involved in daily operations, I consider that a win. I would rather have that gig than having where I'm in the operation all the time and making twice as much. Cause it's less scalable and my lifestyle is not going to be something that I want to do kind of like what we just talked about with Nick. I don't want to be doing that probably for the next 10, 15 years.

So the scalability, the dependability of that revenue coming to you.

Is valuable, very valuable, whether you're selling, whether you're just wanting to retire, whatever it might be. So personally, you if I can attain 10% of distributions, if I can take out of the business 10% as distributions or more, I'm happy. That's kind of my goal. And usually, usually I can get 12 to 15%, but if I can get 10%, I'm happy as long as I'm not there at all. But the profitability of the location is usually double that. I'm just giving up to 50% of my profits away to make sure that I have a regional, a GM, and then my frontline team, all incentivized.

Number five from Mr. Anonymous what are your thoughts about hiring? Sorry, what are your thoughts about an employee Venting Getting frustrated Often I have a guy that does amazing work I know cares about the company. However, he is often frustrated in jobs that he cannot absolutely crush budget hours on. In his mind, if he is not able to complete a job in half the time it's budgeted, he is not happy with it.

I don't necessarily think his frustration is towards me, but in general I've explained to him that we may not be able to crush budget hours this time of year as we are bidding things a little skinny just to keep work on the schedule. And he understands and agrees. However, when it comes to actually do the job, he is frustrated when he cannot get the job done in half the time and making amazing PvP. It's getting to the point where I want to either shut up and do. I want him to either shut up and do the work or go find another position because this constant back and forth is killing me. I don't want to lose him, but I'm tired of the constant frustration attitude from him. I just want to know if this is unreal unreasonable and if this is a healthy expectation to have with someone. So here's the thing. The frustration is probably coming from the fact that he needs the money and beating P4P by a bunch.

Motivates him a lot to be able to afford a lifestyle or certain costs or expenses. I would probably have the conversation of like, okay, why do you get frustrated? Well, I can't get above budget hours. Why? Why does that frustrate you? Well, because I'm not making as much money. Okay, so how much do you need to make like, do you want more hours? Because if they're making good P4P, I'll give them more hours. It's not going to cost me any more overtime. So I would, I would have the conversation first and see like, okay, is there a number you're trying to hit? Because there's a number maybe do you want to work an extra couple jobs in the evening? Do you want to work on a Saturday, do extra little project?

I would try to work with them on this because honestly I would probably be pretty frustrated if I was on PvP and I like, I'm very money motivated and if they are like, I, I don't want to like squash that. But if they're actually getting frustrated at customers, they're getting mad at you, they're mad no one wants to work with them. You might have to pull them out of the organization. So I would first. So like as a salvage move, I would try to have a conversation just like, can we align incentives and goals here? Like, obviously we want them to make money too in terms of P4P. So you are aligned there. The alignment is potentially failing though in that when he's not crushing budgeted hours, it sounds like he needs to make a certain amount of money. So it's like, well, can you work on Saturday? Can you do non revenue producing tasks to make extra money at base pay? Like I would have that conversation. But if someone's getting really mad at you and I imagine other team members don't want to work with this person, potentially that's when you might just have to take the short term l for the long term cultural benefit, which is never fun because it sounds like he's a good worker, but sometimes you just have to do it.

All right everyone, I think that's all we had for today. Have a fantastic Wednesday. I'll see you all tomorrow. Take care.