Should I Combine My Two Businesses or Keep Them Separate?
Mike Andes advises two landscaping business owners with $1.9M and $1.5M in revenue to merge their brands and consolidate software. Combining them could add $300K to $500K in enterprise value through operational efficiency and better pricing power.
Questions this video answers
Somax: about $1.9 million; Smart: about $1.5–$1.6 million.
A couple months prior to the conversation.
Approximately $300,000–$500,000.
Chapters
Two companies.
I don't know if it's better to they. And essentially they do the same exact thing, just different names. And they're two unique businesses technically. But I don't know if we should combine them or not.
Just to.
I don't know if it's possible to like differentiate them at all.
So outside of the name being different, what is different about the businesses?
Nothing.
Okay.
Yeah.
Why don't we combine them?
I think that's something I got to figure out. It's my father's business and then we just ended up buying this other one and so instead of merging them right now. Confusing.
Yeah, totally. 100%. I think. Regardless of how you do this, your software. Let's talk more about like the business side. So what's revenue for both of them.
For Somax, the original one, it's like 1.9 and I, I'm, I think smart is around like 1.5, 1.6.
Okay. And they serve in the same service area.
Roughly.
Roughly. We services.
Same services except they have hardscaping and commercial snow plowing.
How much of that business of the 1.5 is those two services?
Most of it.
Got it. So you could, you could make this two different. Keep them as two different businesses have the one being just these two services and then this other one being a different company. For example, I would probably take the other one and make it a division of somax. Right. So to make the brand transition easier, I also think like in general is assuming now these comb you're combining, this is a merger. I would change the brand over to one Also from a valuation perspective, did you acquire the other one theory or like is that just like he's giving it to you? Like what's that look like?
No, no, my father still owns both of them. He just bought Smart recently. A couple, couple months ago.
Got it. Okay. So Smart was outside. Your father now has bought this other business. Okay, got it. Okay. Correct. Is it a lot of commercial the Smart one?
Smart does have a substantial amount of commercial.
In. Not too many. Yeah, not too many residences.
And, and, and, and is somax mostly residential or similar mix?
Somax is a lot of recurring customers every year sign up a good amount of things in our. In their contracts. And so yeah, mainly residential.
Okay. I would really encourage trying to bring it under one software. Even if you did like somax, you know, a division or Smart like a division of somax in, in the logo for example. But like I would, I would go to the short term pain of switching all the contracts over and the branding, et cetera. So that way when someone picks up the phone, they don't have to split between two. Like, it's a pain in the butt. The reason I know like this very well is we did three different softwares before switching to Copilot for Augusta. So we have to look at a location, like, which one are we going to? And it was a pain in the butt. So I would really recommend going through the pain of bringing the brand together. I also think from a valuation perspective, a $2 million business gets a very different valuation than a $4 million business. And so immediately, by doing this merger, you will likely create about 300 to $500,000 of enterprise value just by doing the merger. Like actually bringing them together under one entity. So I would strongly recommend that from a business perspective because, like, when you start talking about multiple millions of dollars in revenue, you. Your play is bringing those together and then you have economies of scale. You don't get the economies of scale if you don't bring the brands together. Because you're going to have two different software subscriptions, different payroll services, two different entities, two different bank accounts. Everything becomes multiples. And so I would recommend trying to, like, merge the brands and then bring one into one software. I would. I don't care if you use Copilot or not. Like, I would just recommend that from an operational perspective.
Yeah, I'm at a point to where I'm in year two doing this full time. I'm getting way more.
I'm turning people away. And the biggest hurdle I'm facing right now is I just don't know what.
To do to hire the first person.
You know, like, there's two things. One, you're getting so many leads that you're turning people away. I would highly recommend massively increasing your prices so at least you can capitalize on profits of the existing state of the business. Now, going forward to unlock more growth, you're going to have to hire someone. In terms of finding out how to do that, ChatGPT is your friend, your state, or where you're at. I'm doing this service. What do I need to do to hire someone? It'll give you the exact list, you know, something like QuickBooks or Gusto. You're going to pay nine, $10 a month per employee, plus about 50 to $100 for payroll. So I would start there. They'll make it really simple for you to click through and, like, add in an employee. But this is a function of just finding the information and IT. ChatGPT is like, dialed for this.
I just wondering, like, what would be the best way to like, kind of figure out what the best marketing method would be in my like area based on like the customer acquisition costs and then like the churn rate of the like person that I get from certain marketing. Yeah.
Like, the second part is the hard part. Like figuring out and testing different marketing channels and figuring out the customer acquisition costs simply comes down to just tracking. Right. Like, what's the lead source? Where did this person come from? And I track them over time. The second part that you mentioned is harder because now I have to actually track them for some period of time and then determine their churn. Right. That part is difficult. I wouldn't focus on that if I was you, Ethan. Honestly, it is a valuable KPI, But I think what I would focus more on is getting the customer understand the customer acquisition cost and then as a whole fixing my. My onboarding. Right. So it's like, I'll just use this as an example. Like when you get a new customer, the same way I'm talking to all my quote unquote new customers to all of you, there's an onboarding roadmap I would dial in. Your onboarding roadmap.
Right.
Like, what happens after a customer accepts the estimate? What happens a week later? Do they get a survey? When do I ask them for review? When do I upsell them? Because I know when I upsell someone, it's like I'm making more money. No, I'm trying to serve them more and solve more of their problems. And by doing that, I will reduce churn. It's like, instead of asking, like, I want to measure every little aspect of who churned and what lead source did they come from. I'm just focused on getting more leads, converting more of them, and then reducing churn as a whole. Because I know if I do that, it'll make all of my numbers better. I would focus on that first. When you get down the road, like we're talking, you know, a million plus dollar business, then start thinking, okay, and now I'm gonna track where the lead came from and how long they stick with me. I just know that the benefit to the business will be greater if you just focus on overall how do I reduce churn? I sell them more things. I make my product and service more sticky. I have better customer service, I have better quality. I communicate with them faster. Boom. I would focus on those instead of tracking who did this turned client come from as a lead source.
Okay, yeah, that makes sense. And then when I'm putting money into like certain marketing things. Should I streamline and just go for like one marketing thing or should I try to diversify the money that I'm putting into certain things?
Yeah. Like, if you have a very clear way of tracking every single channel, I would do them all at the same time. The challenging part with that is most of us don't. Like, you usually don't have a different landing page for people on Facebook, A different landing page for people that scan a QR code from a door hanger, a different landing page or form. Like most of us don't. We send them to our website and then they're filling out forms or they're calling us and they're leaving message or whatever. So, like, I usually like to go one at a time. But you gotta be careful when you do one at a time because now you're actually affecting the seasonality. So if I did door hangers last month, I don't know, I'm going to crush it. And then I go switch over to Facebook ads this month and it drops like, oh, Facebook ads don't work. No. Last month the grass was growing and now it's not right. So I would be very careful, if you're going one to one to one to be very mindful that seasonality is the biggest driving factor of your customer acquisition cost. It is not the channel. Like if, if you do a really bad ad for mowing grass when the grass is growing at like 4 inches a day, you're going to sell stuff. That same ad could absolutely underperform and be 10 times more expensive in terms of customer acquisition cost a few months later. And so seasonality is the biggest driver asterisks. I need to know which one's working better. So just be careful with the way you're tracking. The best way, many times I find is if you can segment. So for example, if you have a QR code on a door hanger, I do a whole bunch of door hangers at the same time. I'm running Facebook ads that are driving to my website and on there I can track the ut, like utm, or I just simply look at like, okay, where they come from. And you can track it through your pixel. So the more you can track, the better. But I would say as a whole, people get so into this tracking thing, they end up never actually just doing the thing, which is like, go deliver the door hangers, go run the ads. So I would look at a blended average if you need to. Ethan, if you were going to do like, five different channels. Look at a blended average of your customer acquisition costs and ask every customer, where'd you come from? You're going to get a pretty good generic at least idea of like. Oh, everyone's saying they saw me on Facebook. Okay, that seems to be working. When I run a formal test next year, maybe that's what I'll test first. All right, everyone, it is 12 o' clock, my time, and I hope you all have a fantastic rest of your afternoon. A great Memorial Day, if you live in the United States of America, and we will see you next time.
