Stop Reinvesting in Your Business (Here’s When It’s Actually Hurting You)

When should a small business owner invest outside their business?

Most of us, we're really gonna create all of our wealth by concentrating, like concentrating on the business we have or concentrating on building a business. And so that's how you get wealthy. You're gonna get way wealthier doing that if this is what you're going for. Are we really investing in the business or are we telling ourselves a story that makes us feel good about the fact we're not really taking much money outta the business or making that much money? And that is usually what I see. Most people say I'm investing in the business and I'm like, that's not what I'm seeing.

I literally this morning looked at someone's financials. They had 66% gross margin, but yet they're still barely breaking even. This is going to be the best way to democratize getting data to smaller operators that in the past you would have a data analyst at a $20 or $30 million company running this sort of stuff. And now it's going to be in your fingertips. Welcome back, everyone, to the weekly show. It continues to persist. We're going to do a cold open. I'm going to ask Jonathan some questions today. I'm going to pitch him some startups. Okay. So I'm going to pitch you 3 startups, Jonathan.

Okay.

And you got to give me which one would you invest in?

Hmm.

All right. So you got to hear all 3. I'll give you— I'll give you like the 3— the 2-sentence pitch for each one. All right. The first one is called FaaS. All right. FaaS. Yeah.

FaaS.

Kind of like SaaS. But instead of software as a service, it's firing as a service. All right. Oh, so here's my pitch. All right. Small business owners will pay recruiters thousands of dollars to hire someone, then tolerate a terrible employee for 6 months because they're afraid of one 15-minute hard conversation. F.A.S.S. monetizes managerial cowardice. Passwords, payroll, credit card, shop keys, the team explainer video to your existing team. All of it. Handled. Okay, that's, that's option number 1.

Okay, okay.

Number 2. Now this one's the name. I'm not really sold on the name, but let's just go with the concept. Okay, it's called Rent-A-Grandpa. Okay, so probably need to workshop the name a little bit, but the concept is true. Okay, here we go. The pitch: home service companies spend years trying to turn inexperienced technicians into seasoned troubleshooters. Rent-A-Grandpa lets them borrow 40 years of trade judgment for 25% of the cost of another full-time tech. He rides along, diagnoses the weird equipment issues, calms the customer, and teaches the young technician what no training manual can. That's number 2, Rent-A-Grandpa.

Okay.

The name needs some workshop again, but go with this notion of retired technicians. Okay.

Yeah, yeah.

Number 3, this one has some legs, I think, okay? Okay. The name of this one is Omni. All right.

Omni?

Yeah, Omni, yeah. Here's the pitch. Homeowners do not want 6 contractor relationships, 12 invoices, and a Saturday spent finding someone to clean the gutters. Omni becomes a single subscription for maintaining the entire home. The customer calls one number. Omni dispatches vetted contractors, manages the scheduling, the quality, takes a margin out of every service, and is the property management for people who own the houses they live in. So, okay, which of the 3— FaaS, Rent-a-Grandpa or Omni, which one would you invest in?

So all of them actually have a place.

The first, the first, the first one over here. You're great for Shark Tank. You're like, yes, I will invest.

Um, all right, so I'm gonna strike the, uh, fire as a service.

Oh really? Okay.

Yeah, yeah, I like it, but there's actually a movie. I think George Clooney's in a movie about that.

Really?

Yeah, he's like That's what he does. He fires people. He flies into companies and fires them. It's like, I think I'm correct.

It was a way long time ago. That's hilarious. It's like the opposite of the turnaround show. We just show up and we just cause mayhem.

Yeah, you just fire everybody. I'm almost positive I'm correct about that. I think there was a movie about that. The problem is you still got to get the company owner to like do the thing. Well, like you've still got to get them to agree to it, not do it, but agree to it. Like they got to still get Sally. Oh yeah. See, in this other law off the team.

Totally. See, in this case, they've agreed that they want this person fired. They don't want to have have the hard conversation. Yeah. Yeah. Or go through all the compliance. Okay.

All right. You know how embarrassing that would be for me as the owner? Like I have to bring somebody else in to do my doing. It's like, how's anybody going to respect you?

Okay.

Anyway, so I'm going to strike that one. Okay. I like, so I'm going to go with the Omni concierge service. The concierge.

Yeah.

The concierge service is, it's been a concept for quite some time. I mean, there's, there's an angle there. And there are people doing it. I've actually met with some people that do this. They're trying to figure out how to do it right in the last year.

I've seen a lot of people fail at it.

They all fail at it. They all fail at it. I don't know if they really all fail at it.

It's such a great concept, but like every single time you fast forward 3 years later, it's like, oh, it's like, yeah, didn't work out.

It's the equivalent of robotic mowers for me.

Yeah.

It's a dream. Like that is like people, that would be really cool if you could pull it off. I just haven't seen anybody pull it off really well. Yeah, but the one I most like though is the grandpa. That's the one I like.

Okay, I'm shocked. Let's go. Yeah, I thought for sure fast was gonna be the move.

I, I just, uh, I, I just think the other ones have a bigger revenue potential.

Okay, I just feel—

do you have— I feel like—

do you have a better name than Rent-A-Grandpa?

Uh, I don't know, Rent-A-Fortune— a former Fortune 500 CEO? I don't know.

Okay, so you're going after the executive side. That makes a lot of sense. Okay, yeah, I'm just—

but No, I liked what you said, like I, at all levels. So it's the fractional concept, fractional CFO, fractional C, or not CEO, but CFO, like the fractional operations manager. I love the concept of we'll come in and help you for a period of time, but we'll coach all, we have people that'll coach all the way down through the org. Like, I love that. I think that's like, that's the one that would get me personally excited. Like I, maybe I should have said that one because that's the one I'd actually want to do.

Yeah. Well, there's the name Fraction. And it was take out the C and the T and put it with the S and an H. Very vibey. Fraction.

Oh, just Fraction.

Yeah, just Fraction. And it's a fractional of every single level of your team.

I think a guy I know has an accounting company named that.

Are you serious?

Yeah, yeah.

Strike it from the option.

I might be wrong. I think that might be his name. So anyway, so the one I would want to do is the middle one. The one I would bet the most money on is the concierge one because it takes just the right people to scale the middle one.

Okay, so you're high risk. You want to go along with the graveyard of people that have tried the concierge service?

Yes.

Okay.

Like I said, I'm going to do that one alongside my robotic mower dream so they all— I can just set my money on fire.

Okay. There you go. All right, let's move on. We're not done yet. The cold open continues.

Okay.

Now there's just one hole in your resume, Mr. Mr. Japan.

My resume?

Yeah, just one. Just one. Okay. You have not wrote a book yet, so I wanted to help you. I wanted to help you.

Okay. You gonna give me titles?

Of course, of course, of course. This was, you know exactly. This was inspired by the All In podcast. So a little asterisk to our friends over at the All In podcast.

Okay. Coming to you now, Ferrari on My Wrist: How to Win at Life and Afford a $250,000 Watch from David Sacks. Oh my God.

Gonna need to get that done.

Here it is, The Fight to Save America: Destroying Socialism, Shrinking the Debt, and Winning AI by David Sacks.

I like that book. Okay, so the first one I'm gonna show you, I'm gonna show you 3 different books and you gotta tell me which of these you would be most likely to publish. All right? So the first one is From Grass to SaaS: One Man's Journey to Recurring Revenue.

Oh, okay.

Okay.

All right. I'm on a little screen, so.

Oh, you're on the— okay. Do you need to change?

It's all right though.

Can you see it? Can you see it?

I, yeah, I'm looking at it. It's just like not, not super big, but yeah.

Okay.

From Grass to SaaS.

Grass to SaaS. Okay. That's the first one.

I like it.

All about recurring revenue. Next option is The Lost American Landscaper. Responsibility, recurring revenue, and the crisis of modern masculinity.

Very patriotic.

Yes, very good. Very good. You know, we can go full out Jordan Peterson on it. So that's The Lost American Landscaper.

That's option number 2. Jordan Peterson, I need to really elevate my vocabulary.

He can be the foreword. Then you can just go after that. Okay.

I'll just say a lot of big words nobody understands.

Fantastic. There you go. Okay. Last option is the third option. The Patoshnik Principle. How to build, sell, and critique every business in America.

Every business in America.

Wow.

You're giving me a lot of credit there.

Oh yeah. Let's go. So which of the three? We got Grass to SaaS, we got The Lost Landscaper, and we got The Patoshnik Principle. I like the alliteration of Patoshnik Principle.

I'm a little bit— that one feels a little too pretentious, but that's the one I'm drawn to.

Well, hey, look, Let's just be clear, we were stuck with one image of your face. So this is also an announcement for everyone that hopefully by next week, because tomorrow we have a photo shoot scheduled.

Tomorrow, 1 PM.

Yes, thank you. We will actually be able to have a different image of Jonathan's face in the thumbnails because we won't have one image. Because the only other one is like 20 years ago.

And— Oh, is it the one in the blue shirt?

Yes.

I wish that image was nowhere on the web. I hate that image. It's like it got out there on one thing and now everybody grabbed it. Okay.

Okay. We're going with the Potocznik principle.

I'm going to go that direction.

Yeah.

Yeah.

All right. If we could figure out, like, there could be a 3P in there, make a real alliteration happen. But we'll stick with the Potocznik principle. All right.

All right.

Last question to finish off the cold open. And I mentioned last week that we would talk about it. So, you know, we can't leave loose ends here. Someone texted me the other day that said, we really got to know how Jonathan spent $450,000 on longevity. I'm like, oh, it's a topic for another day.

Hmm. Don't remember.

$450,000 spent on longevity. Jonathan, I need to know what my spending— what I— where do I— where should I spend the money and what was the bad use of money? So when you look at the money you spent on longevity, what's good, what's bad?

So I actually have a video on this coming.

Oh, okay.

It lays the whole thing out.

All right.

Yeah.

Can you launch it next Wednesday?

I got a different video already scheduled for next— yeah, yeah. I might be able to do it by— I could switch it around. Do you really need it for next Wednesday or do you just say that?

I'll be able to say like, click this link Go watch the video here.

Oh, let's not commit to that just in case. Cause I gotta see what I guess I don't want to detour Stephen.

Okay.

Um, but yeah, no, in that video I do go through what I learned and like the 80/20 of what I would do for a fraction of the cost. Yeah. So the way you spend that money, like there's a lot of ways that people, you know, if they pay attention to longevity, they'll spend it doing all kinds of crazy procedures and things. I more spend it on like super high-end concierge. Not, it's higher level than concierge medicine. So you're paying, have you ever heard of like a Peter Attia or any of those kinds of people? Like you could spend a lot of money working with them for one year. That's how I spent the money. So it's, then it would, then, so it, you do different things with them, but you don't necessarily do, like there's, if you watch Brian Johnson, like he'll do the blood transfusions, all that. I didn't do any of that stuff.

Okay.

Like I didn't, yeah, I didn't do any of that kind of stuff. So, but I'll, I'll break it down in, it's broken down in that video actually. Okay. I gave a, I gave a presentation at Tiger 21 on it. And so I'm, I redid a version of that with taking out some of my metrics and stuff that I don't see any point putting out on the internet.

You wanna put your testosterone and, uh, your sperm count on, on the internet?

Exactly. Yeah. Yeah. Yeah.

Yeah. So yeah.

So, um, but I gave a version at Tiger 21. It went over really well. And so that was the inspiration, like, you know what, this is good stuff cuz Most people I talk to don't know what to do at all.

Yeah.

And so that's why I decided to make it a video.

Okay. So, so give us a, give us a small, if, if someone had, let's say $20 grand.

Yeah.

Where's the first place they should spend that money if they're thinking about longevity and this kind of more, I don't know if you call it alternative medicine, but like this classification of longevity.

I mean, the spoiler before that is everybody wants a magic—

Exercise and sleep well.

Any, I mean, like, that, I mean, if you really want to, it boils down to that at the end of the day. So if you're not doing that, then let's just say next step after you do that, my argument would be it's about catching things really early. And so there's specific tests you can do where you're every year. So it'd be, I would say twice a year blood work, and then there are two different kinds of tests you can do twice a year. There's infinite number of tests you can do. That I would recommend that will cost you $3,000 or less a year. And so that would be the next thing I do. If I'm already on top of my stuff, I just wanna catch something before it's an issue so I can deal with the thing. That's how I would think about it.

Got it. Okay. I need to do blood work. I haven't done testing my blood. I don't think I've ever tested my blood.

So I think, yeah, I mean, as, as much as you already think about health, why wouldn't you? It costs, and now there's so many on-demand services for it. That like you just, yeah, go, go down the street. I don't know where you in your area, haven't seen where you live exactly, but in, in many places in America, you're like, I don't know how far you'd have to drive. Um, but there's probably a place right near you. I'm gonna guess.

Have you ever taken your own blood? Have you ever taken your own blood?

No.

You know what's funny? So I, I went like, I was doing medical school stuff, right? And I went to Africa, pulled all sorts of blood. When I had to take my own blood, I fainted.

Really?

Yeah. I don't know if it's like a mechanism, like with the human body, like you just— like preservation. But like when I took my own blood, I had never done it before. And man, I literally fainted.

Just interesting. Yeah. So you wouldn't be good at taking drugs.

Yeah. Peptides are not in my future, I guess.

I've done— well, peptides are a little different though, because you're just kind of going into the fat or whatever.

True.

That kind of thing.

Pulling the blood out is a little different.

I don't even know how I would But you have a level of expertise I don't have, but I don't know how I would take my own blood. That's just like a weird thing. Like to get that in a vein, that would be hard. So I've had my blood taken a million times, but yeah, you, I mean, it's like costs almost nothing. And I like the idea of taking blood, especially around if you're going to take supplements. I want to know if I should even be taking the supplement.

Right.

And so I want to know what my levels say to know. So yeah, anyway, you're not going to do the Jonathan, uh, what's it called?

Uh, What's his name? The Johnson guy. He spent like $2 million.

Brian Johnson.

Brian Johnson, like $2 million a year on all this stuff. And then he got that diagnosis and I think it was actually a previous condition.

It sounds like it. Yeah.

I think the 90% of it is eat right, exercise, sleep good, and no one wants that. So it's like, let's do all this other stuff.

Yeah, so that's what everybody wants, the pill. Yeah. And so, but the pill's like so far downstream. And I actually, in the video, talk about the whole taking different stuff. I'm pretty dang conservative. So I'm not the guy, I'm not a Bryan Johnson. I would never experiment on myself. I'm not a Tim Ferriss back in the day. I don't really want to try all the things on my body and hope it goes okay 20 years later. So I'm kind of conservative when it comes to this stuff. And that's also a big point I make in the video. When you think about what the future is, You say, oh, well, we're probably gonna live to 100 years old. It's like, maybe, but you're gonna have to do a bunch of stuff now.

Yeah.

That's not FDA approved. That's only been tested in mice and rats, barely been tested in humans. Like, but we theorize these are good things to do, but there will be no proof for another decade or 15 years. Like, that's the challenge. So that's like, on one hand, it's easy to hold this belief in our mind that everything's gonna be great. We were born at just the right time. You were born at a better time than me. You got 20 years on me. So you got 20 more years of science progress than I do. But my point there is like, you can say, hey, I'm going to live this amount of time, but there are things you might have to do to make that possible that do you really want to do them? And so that's the question for a lot of people.

Do you want to live one year? The risk of living only one year or the risk of living past 100? There's a gamble somewhere between there.

Exactly.

So, oh man, good stuff. What have you been working on this past week?

I would say almost exclusively pest control stuff, which will probably be the story for a bit. Uh, there are a lot of projects I was working through with City Turf, and the project list is still massive, but now I'm to this place where I'm taking one service at a time. So pest control, next will be the arborist-related services, then it'll be fertilization, weed control, then it'll be irrigation, and I'm building all material around it. So rebuilding digital ads, landing pages, offers, USPs, copy, everything. Um, direct mail, like I'm just taking one service and only thinking about one service and then going super deep with it and building out everything, updating some other assets that touch that service. And so it's going to take me a while. I'll probably be saying roughly the same thing for a few weeks here. But I'm a fair ways down, uh, into this project and that's almost, I'm trying not to do anything but that.

Very good. I still think you need to hire a marketing manager.

I do. I do. I think about it all the time, but, but I have this other problems. Like I don't really want the marketing manager to do this. This is, I wanna get this my way. Yeah. Like I've kind of on this, but I, we've probably talked about here, I'm really conflicted on this. Like, what am I doing? I should be working on all these other things, but But then I also kind of remind myself, this is the most important stuff. Like, this is what is going to make the company go, and I have to work through it. And I just kind of want to do it and be done, but you've got to stay on it and iterate and figure it out and test and try stuff. And I can get a marketing manager can help with it, but there's nobody that understands this stuff better. Maybe I'm just telling myself a false story here, but This is kind of my thing. And, uh, so I just feel like I need to stay on it for at least into early next year is kind of my theory. And then I will have the bulk of the stuff done where now I can have somebody else start to step in, which would reduce my workload.

And then that person probably would be more of like almost a media buyer potentially, because they can just execute on what you've already built. Like you have the guardrails built. Yeah.

I built my entire marketing calendar. I built that entire task thing we've talked about. Again, nobody's seen it and has a vision of exactly what I'm talking about when I say, but it literally defines exactly what we do in what order and what has to run and what has to happen every month. Down to these are the metrics that need to be updated. This metric, these metrics data, or these data points need to be updated monthly. Like it just defines everything. So somebody just executes the plan. That's what I'm trying to get to. Just like follow the plan and execute the plan. And that's where I also get a little confused. Like, How much of a marketing manager do I need? I don't, I don't need strategy. I don't even figure out what I've, I've laid out the whole entire thing. I just need it followed within the right people to do their parts. And so I think that's what makes it more complicated. If I didn't have so much expertise and interest in this, it would be so much easier to just get this off my plate. But, you know, I could be pretty happy. I thought about this. I could be pretty happy if for the rest of my career, all I did was do marketing. And, and advise people. I'd be, and, and do some product creation. Like I've missed old days of software product creation. Those are probably my 3 favorite things to do. So if I could just be the marketing guy that for a bunch of companies, I don't want to get paid. I mean, there's no point doing that. I'd have to own 'em. But like, if I could just do that, I would be thrilled. I like, this is the stuff I like. And I most enjoy. So let's go. Anyway, what about you?

The MCP and API thing, probably next week is going to be going general audience. So looking forward to that. Kind of like doing the fine tuning on a lot of those elements. We've been working a lot on the write access. So not just the read access, but having the ability to actually create an estimate, create an invoice, make a payment through the MCP and the API. So yeah, I'm looking forward to that. And then the other thing is video. Video is a beast, uh, when you allow it to be on mobile and you allow it to be uploaded when you're offline. And so the edge cases around like devices, whether it's a tablet, a phone, if it's 4G, 3G, 5G, how long it's a cheap Android plastic, cheap phone.

Oh man.

There's so many little edge cases. And what, what, what the demand, because we're doing compression too, right? So if it, someone shoots in 4K and I have a 2GB file, I've got to smash that down to 500 megs. Uh, so there's compression aspects and then device parameters and then connectivity, uh, Wi-Fi versus 3G, all that stuff. So yeah, all the edge cases, we're finally getting to the point where I feel like it's, it's, um, pretty solid. But every week I'm just surprised, like it's a device we've never seen, or it's like some weird Motorola thing, or like if it goes on 4G, but it's like this So anyways, lots of those little edge cases, but it's, it's going pretty good. So that's what we'll be good at figuring out.

Do you have, uh, some structure in place where if people store over a certain amount of video in your system, there's an upcharge?

So, cause that's the, yeah, you mentioned that to me like way early on. So immediately I was like, all right, let's figure this out. So I went and checked on our, we call 'em stew, it's the OpenClaw and, and, and was, uh, playing around with it. And so far the cost, no one's abusing it. But we do know we need to put parameters just to make sure we protect ourselves. Same thing with the, you know, with the OAuth and like the API and the MCP. Like we gotta have certain levels that we have to cap people. Uh, but so far it's not been bad. And Amazon's pricing for the storage is not so bad. And we're doing compression, so we are compressing the files down to about 360, 540, 480. Yeah. Something.

Yeah.

Like in terms of how the file sizes. So it hasn't been so bad. But it's going to get there because it just accumulates and you have to eventually have a time where those sunsets— so it'd be a year or 2 years or how old do we go back? But if someone says on like a recurring visit, it could potentially be on there and needed for some time. So we'll have to cross that bridge. But right now we haven't put any sort of metering in place.

It took a while and then it sort of— it just felt like it went like that.

Same thing happened.

Yeah.

Okay. When we started SMS, I did the dumbest thing ever and it was like, hey, like we haven't really figured out how to meter this correctly and track all the edge cases of SMS and like tracking your characters. So we're just gonna allow like unlimited free texting. And so recently we've had to put metering in place 'cause you just get one bad actor in there. And there's people running up like $1,000 bills per month of SMS texts and it's not fair to other members and it's bad for the deliverability through Twilio. And so it's hurting the whole platform. And so we recently had to like meter that. So I, I anticipate down the road with video, as that happens, we're gonna have to put parameters in place. But like with SMS, for example, the top 12 people in the system used more text messages than the bottom 50%. So you have this, this, this, you know, massive spike of people that, that use it. But, hmm, we will have to eventually do that probably.

Yeah. Yep. Interesting. I remember all that stuff.

Oh yeah. All right, so today for everyone listening, I am taking some questions that came in from a poll on the channel. And I wanted to kind of take a step back from private equity, AI, and some of those higher-level concepts and topics we've been discussing the past few episodes. And I looked at our most highest-performing videos, and it are— it is more in the weeds for the vast majority of our audience that is still between that, you know, getting started to a million-dollar business. So I wanted to kind of take a step towards those topics today. But I did want to discuss something that I've been talking about recently in my channel and with Augusta, and that is about diversification. And the question I want to kind of pose to you, Jonathan, to get things kicked off is when should a small business owner invest outside their business and whether it be real estate or the stock market, index funds, even a 401, if they put that for their team and then they start investing into it. And what is sort of the balance between diversification versus the ideology like, hey, I put all the eggs in one basket and then I protect the basket. And where do you stand on— is there a tipping point in terms of profitability or tax What is sort of your way to identify when is the right time to diversify and invest outside the business?

Yeah, it's definitely a personal thing, and I don't think there's a tipping point based on tax. Um, I wouldn't want to try to keep my income under any certain level or anything like that. The way I— it's going to come down to, in my opinion, what does the owner want? They got to get clear on what do they want. And the principle that I really believe in is that most of us, we're really going to create all of our wealth by concentrating, like concentrating on the business we have or concentrating on building a business. And so that's how you get wealthy. You're going to get way wealthier doing that if this is what you're going for than investing in other things. And you do the investing more to diversify, which is for protection. I like, that's the high level of how I think it, think about how I think about my life. Create the vast majority of my wealth is created through business. And then I take money off the table and then I grow that money slower than I would grow it in the business, but I have it spread across lots of different places. So hopefully it's pretty safe and it lasts forever. That kind of a concept. And so for the owner, I think they have to understand what is the goal they're going for. Am I building a big business? Am I building a small business? Because that really dictates when you start taking money out of the business. And then I think you have to be pretty clear on what phase of the business you are in. And so there's a lot of things we can talk through here. And one I would start with that I really observed over the Service Autopilot Academy days is that a lot of people will say, I'm investing in my business. And they haven't really been taking money outta their business for 10 years, 15 years, 20 years, whatever that number is. And they're just like, yeah, I'm growing my business. I'm investing my business, but they're running a million-dollar business, or it's not whatever the number is. It's just not that big of a business. And so the one thing that I wanna be really clear on is when you say, if you say to yourself, I'm investing in my business, that's why I'm not taking any money outta the business, then my question is, Okay, how much money did we spend on marketing last year to grow the business? That's investing in the business. How many people did we hire a little before we needed them because we knew we were gonna be growing pretty quick because of all the marketing we've been doing? So I gotta get the people in place to handle the phone calls, to do the work, except to manage the people. So you're all, you're wasting some amount of money in preparation for when all the work comes in. That's investing in the business. You're buying new trucks and equipment before they're at full capacity. That's investing in the business. So, and there's other ways to invest in the business, but if you just think about like how much money of your profit last year is being dumped back in to go faster this year, how many people are being hired? And if those numbers are small, then I'd say, are we really investing in the business or are we telling ourselves a story that makes us feel good about the fact we're not really taking much money outta the business or making that much money?. And that is usually what I see. Most people say I'm investing in the business and I'm like, that's not what I'm seeing. I, that is so common. So I wanted to really put that out there. And for anybody that says, I mean, I'm in the investing phase, I'm not in the extracting phase. I want you to challenge yourself and say, but are you really growing quickly? And are you doing the things I just said? That's investing. Okay. So let's just say you are investing in the business. And you, um, you're kind of to this place where you're starting to build up money. So before— let's, we'll kind of go down that road. Before I ever invest anywhere else, and I know you've talked about this, I've talked about this as long as I can remember, it's this idea of building an emergency fund in the bank business. So before I'm taking money and I'm putting it anywhere else, an office building, real estate, Or same thing, uh, stock market, anything. Have I set aside money to protect the business? Because to your point, protect the basket, build the thing, protect it. Well, part of protecting it in my mind is having a pile of cash sitting aside to protect the business. Another version of that is taking some amount of money out of the business and having an emergency fund in your own life because so many people. Have a good business, but then they do things in their personal life or bad things happen to them in their personal life. And that drives business decisions. It can harm the business. So I want a business emergency fund. I want a personal emergency fund. So that's like next, in my opinion. And then even before I start taking money outta the business, my, my question of myself is if I could deploy this money via marketing back into the business. If I could, if I could invest $10,000 and get, uh, grow the business by $50,000, which produces hypothetically another $10,000 in profit. So it's 100% return on money. I invest $10,000, I make an extra $10,000 take home a year. That's 100% return on money. It's gonna take you 7 years to get that in the market if averages hold up or whatever the number is. It doesn't make any sense to put the money in the stock market. It doesn't make any sense to put the money in real estate. It makes sense to just keep putting in the money or putting the money into the business. So that's the, that's the big litmus test is to myself, can I invest more money in this business in the ways I talked about spending money, hiring people, buying trucks and equipment, and get that kind of a return? And as that return diminishes, as I start to realize, like, no, I can't really move the needle by putting more money in the business cuz I'm not doing the marketing. I'm not ready to do the marketing or whatever the story is. If you're to that place that you're not gonna get a return, then we start to say, okay, what outside the business makes sense? And then I think when you get to that level, the no-brainer is you should be investing in a Roth IRA. It's just a no-brainer. It's one of the first places you take money, set it aside. And then after that, I tend to prefer liquid investments. So liquid investments are gonna be money market's barely an investment. It's essentially cash, but money markets, bonds, stock market, things of that sort. Thing liquid just simply means I could get the money back almost immediately. Like you could even invest in gold if you invest with the gold ETF, like GLDM or something like that. And you could sell that in an hour. You could sell it in 30 minutes and get your money. So that's even though gold, physical gold is not liquid, but gold as an ETF is liquid. So there's, that's what I'm referring to when I say liquid, just you have the ability to sell it and get it fast because if something really bad happens in your personal or business life, there's this element of protection. So I tend to like liquid investments. And then once you have all the other stuff taken care of, I can't find places to invest it for my business to go away faster. I've got plenty of money in the bank personally. And in business to protect the most important thing, my business asset. I'm funding my Roth IRA. That's when you might think about locking up money. So locking up money would be as an ex— the most common example everybody thinks about is real estate. And the reason that you lock up money is there's only one reason you do it, because you can get a better return on the money locking it up versus not. Like a, a lot of investments where you have to lock up money don't actually outperform the stock market over a long period of time. That's a bad trade.. But if it's a legitimate investment where it can outperform liquid investments, hopefully I'm making sense. Then that's when you start to think, when you have everything else taken care of, that's when you think about those things and you do those things to get a better return. So for some people that might be buying an office for the company. And on the office front, I tend to be negative on an office. If you're going really big with your business, I tend to be fine with an office, just, just my personal opinion. If you're not going very big with the business, the reason I tend to say wait as long as you can on an office is because if you're really gung, you're, it's money that's will never get the same return as investing in your business. And a lot of people buy what they can afford for an office. And as soon as that business gets bigger, that becomes the constraint. And then what do they do? And so once you get big and you can really understand how fast the business is growing and you understand all the details of your business, And you have a bunch of money, you can buy a business that, or an office that's maybe 3 times bigger than what you need in the long term. It's that kind of thinking. So that tends to be the hierarchy that I think about it. So that's the, the quick summary would be, you have to understand, am I built, what kind of business am I building? And am I trying to go big? And if I'm trying to go bigger, then can I continue to invest in this business and get a good return on the money I'm putting into the business?

Yeah, I think that's a lot. I think a lot of times the struggle is the stock market has decades and decades of stable returns or predictability. And I, my challenging advice for owners is they don't have anything to compare that return to. They don't know if I put $10 in, what do I get on the other side? And because they don't know that number, it does feel like gambling. And it is, it is like, okay, I'll just put in the stock market because I know it's going to grow over the course of time. 8 to 10% versus like, I don't really know that if I spend this extra money on an extra truck or buy it, get a couple extra employees before I really need them, or spend $20,000 in marketing, what is the return going to be? Because I don't know my CAC.

You don't—

I don't know my LTV. And those— not knowing the numbers is that time where I feel some people will start diversifying away from their business, mostly just because they don't know their numbers.

Yeah, that's a great point. And my argument for why you continue to put some money into the business is so you can learn those numbers.

Yeah.

But if you're just putting the money in and you're not learning the numbers, you're accomplishing nothing. It's just part of growing up and maturing as a business owner. We all have to do it and go through it. Like that's what really running a business means. And so if you're tracking those numbers, the clarity will eventually come. And you've just gotta do it and you do it in small little chunks and you watch things like this. You're like, okay, what'd I try? Okay. You try it with small amounts of money. They're not gonna hurt you badly. Like if you hear me say direct mail, I highly encourage you not to do direct mail. That's the fastest way to burn money. Like really probably close to the fastest way to burn money. You have to really know what you're doing. And so if you ever, it's my example of if you ever do it, you do it like a teeny little bitty bit of it. And then you do a little bit more. You really step into that thing slowly. And so, but you've gotta spend some money to start to learn these things. And also you can listen to us talk all day long. You can listen to Alex Hormozi. You could read all the books you want, but until you do it, it never quite sticks. It never is quite real. And it's another reason why for years you just kind of gotta get in the game and spend a little money and try things and experiment. And eventually, like to your point, Mike's like, well, right now in your life, it might feel like I haven't the faintest idea. This feels like a complete waste. That's how it's felt for all of us. And, and even with what I'm doing right now in City Turf, building all this stuff, we are gonna blow some money. There's just no way around it. I'm just gonna blow some money to figure out the numbers there. I, there's just, it's the reality. And so, and I'm a bigger business and if I, and that's just part of the game. And so you just gotta go on that journey. But the key here is when you're spending that money, are you collecting data so that the next time you spend the money, you'll spend it a little bit smarter?

Yeah, last night I was working— we have an internal tool that we're using the API for, and it's going to help the owners when they log in their dashboard. It shows their 90-day churn and then their annual churn. And I was scrolling through locations, and I have never seen such a great correlation between profitability and 90-day churn. It's, it's crazy. And so even like my location, it was like, I think 12 to 15% annual churn, but also another 10 to 12% 90-day churn. And so, yeah, aggregated, that's not great. It's like maybe 25% year, year-over-year churn, but it's all in the first 90 days. And so being able to track that is just like, this is the type of thing that gets me super excited about the whole AI thing, this is where I believe it's going to help home service business owners the most because like we've always talked about knowing your numbers, but no one pulls the data and runs the spreadsheets. Most people don't do it manually. They don't know their, you know, where the leads are coming from, like lead attribution. They don't know their churn is— they can't really figure out their lifetime value. And so they don't really know what investing in their business looks like other than I bought another truck and I spent some money on marketing. And whether or not I even know that A lot of times, for example, if you keep a customer 7 years, it's sometimes hard unless you're tracking the data and can extrapolate out what your lifetime value is based upon churn. Am I going to wait 7 years to determine what my churn rate is? No. Like, I need to know, okay, this year I lost 10 out of 100. That's 10%. And then we extrapolate into the future to know whether I should spend more money in the business.

Yep, totally agree.

And so like Yeah, I, I think the conversations we've been having about AI, I know some people have been lost on the smaller end of it, but like this to me is a part that I've been like, when we saw what was happening earlier in 2026, I said like, a lot of resources we have put towards this 'cause I believe this is the future for AI and for all like the data center stuff and the political stuff. We have to turn that off for a minute and realize this is going to be the best way to democratize getting data to smaller operators that in the past you would have a data analyst at a $20 or $30 million company running this sort of stuff. And now it's gonna be in your fingertips. Hey, where—

That's incredible.

Where am I losing customers? Oh, you're losing them between September and October 'cause they're not renewing. Or you're losing them the first 30 days 'cause they're not, there's cancellations happening due to low quality. Like you could just zero in on what should I fix in the business? And I would just encourage anyone that has felt lost in the past few conversations that we've been talking about AI stuff to realize that this is gonna be very important that we lean in at this time for this industry. I don't care if you're $300,000 $3 million in annual revenue. This is like our golden time, I believe.

So did I hear you right? Did you say you look at churn on 90 days?

90 days and then annual too.

Yeah, okay, that's what we do. I was just— I thought I heard that. I call it returns in the first 90 days and then churn after, but okay, that's interesting. I had debated, should I look at it in 30 days? Should I look at it in 60, 90? I had debated that, so it's interesting we landed on 90. So it's interesting to hear you landed on the same thing.

Yeah, when I did 30, it was challenging because a lot of times someone, they'll play the system of like, let's sign up for service and they bail after 1 or 2 services. So I saw that skew the numbers. It was too like up and down, whereas 90 was a little more consistent.

Makes sense.

Yeah, but it was so interesting. Like, there was one of, one of the locations I was looking at and they've struggled, and 40% in the first 90 days. After that, it was like 12%. But if you're losing 90, 40% of your customers in the first 90 days, like, is that on a monthly basis or annual basis? What do you mean?

Sorry. Are they losing 40% of their clients each month or 40% in the first 90 days? In the quarter? In the first 90 days? Yeah.

90 days. 90 days. Yeah. So annualized is horrible because that's like 200% annual churn.

Yeah. That, that's what I was asking. That's where, yeah.

Yeah. Okay. What I kind of did is I took the first 90 days out. So I could actually identify, is it in the first 90 days or is it after? And it's also very interesting. If you keep them 90 days, they kind of stick around for a long time. So the thing, just even like the customer success of like, how many times do I touch point with them, call them? Do I go visit their property after their first visit or two? Like, what do I need to do in the first 90 days to keep them? Because after that, they kind of stay around forever.

Yeah, you actually got me thinking about something else. So my churn number actually still includes the first 90 days. I do a return, which is like a zoom in on churn. Yeah. But do you, does it sounds like you only look at churn after 90 days?

We, we had both data points so that way they can see like really the impact. 'Cause if you, we found if we included the first 90 days in the annual number, yeah, it just kind of smashed the numbers together.

Yeah.

But when I separated 'em, then I could really tell what was going on.

I wonder if I should separate that. That's interesting. I gotta think about that. Cool. I debated that and then I was like, ah, you know what, I'll leave it in there. Okay. So thank you.

I think annual churn though is so much easier in general. Like if you do smash it together, it's an easier number to talk about. 'Cause it just conceptually you can understand it a little bit better. It is.

This year. Yeah.

Okay. We're gonna move on then. The next question, I think both you and I talk a lot about recurring revenue, the quality of revenue, and I know that for a lot of people listening, they don't have a recurring revenue that's usually inside their business. It's, uh, one-time fixes, one-time installation, repairs, et cetera.

Yeah.

And so we actually had someone write in, they said they have a garage door business and he was asking, how can I make this business more recession-proof? Or add recurring revenue. So I don't know if you wanna smash those two together, but he was specifically asking about recession-proof because seeing when we go into recession, less likely people are gonna replace their garage door. And so he was interested about us talking how to increase the quality of the revenue, moving away from one-time jobs into recurring. But he kind of is also conflating recession-proof, which I kind of feel like it's two different topics. So I'll let you attack it however you like there.

Yeah, so I definitely have some thoughts on this, and I suppose the top-level thought is— and I don't know the answer is because I'm not in the garage door business— but how reset— how much of a recession risk is there really in the garage door business?

If your garage door doesn't open, you have a big problem.

I got it. I got a credit card. I mean, it kind of to me feels like every time I've had to do something with my garage door over the homes I've owned over the years, we were doing it.

I just don't know, you know, I've done some extra stuff, but I would imagine it's the replacements because the replacement is probably a higher ticket in comparison to repair.

Yeah, I would imagine so. And some kind of an upgrade.

Yeah, maybe I could see that the percentage of repairs is higher during a recession, but my ticket is 70% lower on the job.

Yeah. And I guess I, what I would say, the way I thought about this one is I would tell you that this is the business you're in and I don't think I would change it. So I do think of quality of revenue as being of a variety of things. I think for me, I like a quality revenue is possibly recurring revenue, but it doesn't mean that like, that would then, if you just think about it just that way, that means the HVAC business. Your garage door business, the plumbing businesses, these are bad businesses. I don't buy that for a moment. Those are great businesses. Great businesses. They're break, you know, they're what you call break-fix businesses. They break, you fix it. And they, as the business gets bigger, you'll find stability in the data. Like you could almost predict year over year, there's gonna be this many people that call you. Like stuff is just breaking. Across your service area all the time. And so there's this stability that happens in these businesses as they get bigger. And so yeah, there's a, there's an element of the business that is probably at risk for a recession, but that, but so is a recurring business. Like, so you could also argue that in the fertilization weed control business, if there's a recession, Maybe I cut back on that service, or I have pest control and mosquito, I cut out mosquito. You can go through a whole list of recurring services where I could also make the exact same argument. People are gonna spend less. We're gonna go from weekly mowing to biweekly mowing. We're gonna go from 4 times a year trimming bushes to 2 times a year trimming bushes. So being a recurring service does not protect you at all. Like, so whether or not their service is at risk of recession is completely dependent on the service itself. So that, that's the first thing I'd say. So when I hear garage door, I just don't get overly concerned and I'm not concerned that's not recurring. And I also wouldn't tell you to add a service. I would say stay in that lane and just do garage door. And what you want to be thinking about, in my opinion, so let's, I think about this from the perspective of I own the garage door business. I'm thinking about, am I pricing this right? Am I serving the right market? Am I at, within my big giant service area, am I spending my, most of my marketing money on the best part of the market versus spreading it around the whole market? And so the problem isn't that it's a one-time business. The other problem is that they've, in a one-time business, people forget about you. So in a recurring business, they don't forget about you in the same way. So when something happens, they're like, you're top of mind. You're always there. I'll call them. But in the garage door business where your garage door some only needs service every whatever, 4 years, I don't know what the number is, then I probably will forget who I used last time. And so, so that's what I think you want to— so what I think you want to solve for here is don't add services, solve for the problem of they might forget about me. So how do you do that? Maybe putting stickers on their garage door units, putting sticker on the inside of the garage door. Maybe when, as soon as they sign up, you text them a, a vCard, like, so that goes in the phone. And then in the description it says garage door company. So if they're searching garage in their phone, they find your ticket or your contact card. Um, maybe you sell them into an annual checkup or some kind of a membership. I was trying to picture this service for me. The only, I have an, I have an annual membership with my HVAC company for $300 a year., and I have an annual membership with my electrician because they're here all the time.

Um, gotta get that robot, get power.

Yeah, it's always, always something. There's too many things that going on in this house, there's always something. So I think that's like $180 a year. I've never considered it for my garage door, uh, because it doesn't have— it doesn't have the same level— it has the same level of urgency if it doesn't open,, but it has problems way less. I'm just talking this through, trying to picture it from my— so how I would think about it has problems way less than say HVAC or in my case electrical. And that's just because of the kind of property I have. And so on the HVAC, the $300 makes sense to me. It feels about right because, um, I'm changing, they're changing my vents, they're doing some basic service, they're doing things like that. My question to you would be, what does it need to be priced at? And what are those preemptive maintenance kinds of things you can do? When I think about my garage doors, I'm not clear on what the preventive maintenance is other than changing the battery in my unit that will periodically go out. And so what I would encourage you to do is think about what all the wear items are, understand on what schedule they tend to break, how often batteries tend to go out, and then Can you get them into some kind of an annual checkup? I mean, even if the annual checkup was like $75, even if it wasn't monthly, even if it's just some number that's small so they can't forget about you, you're just out there every year. That's the way that I would add. It's not really gonna drive a lot of revenue in the business. It, but what the, the actual dollars of the membership of the annual checkup, but what it will drive is it goes back to the— it's hard for them to forget about you now. That's like the single biggest thing I think you're solving for. And the next one is it will drive work because if you get to do the annual checkup, you'll be able to do a 14-point inspection and say, hey, springs look okay, but it's been 4 years. And by the way, we have a— if you're our longtime client, we have a running history of everything we've ever done for you. When the springs were changed, when the unit was changed, when the batteries changed, we know everything. We can, we can even predict when you're probably going to need next thing. Like you can add some value there, uh, by track— by making this promise. And so I would put them into some kind of a membership, and the membership's not about the— if it's $30 or $75 or $99 a year, it's not about that money. It's about getting to— they don't forget about you and being there to do the inspection. And then the other way I think about this is, again, not scared of this business at all. You, if you worry about recession, The way I think about a recession is, sure, I'm gonna get hit by a recession in some way, but my marketing engine is gonna outrun everybody else's marketing engine. And so yeah, we'll take a hit here or there, but on the whole, we'll still outperform. So are you doing a really good job capturing all the emergency Google searches? Are you getting your LSA stuff? Like, are you doing all the stuff right online so that you can win the business in the first place? And if you are, you'll hold up much better through the next downturn. And then the only other thing that comes to mind is, are you working partnerships? So maybe in a recession, people are— Mike, you gave the— I hadn't even thought about this, but maybe people are not replacing their— upgrading their garage doors to nicer garage doors frequently. But can you— so can you partner with builders. I— you— this is something you'd have to do being in the business, but who— handyman— who might be the person that says you need a garage door, you need this looked at, you need this fixed? Pest control companies, because you've got the exclusion work that has to be done. It's a— the garage door's got a big gap in it, it can't wait. There's a— there's probably a variety of partners you could partner with that will refer you business. So if you've done all that, So that's more what I'd worry about than, frankly, anything else. I wouldn't fret about this recession thing too terribly much. I just do all that other stuff.

Yeah, my, my, my mind also went to more like, okay, if leads get harder to— if they're harder to come by, it just takes the froth out of the market. But all your competition is going to feel it. And so it's just who actually knows their numbers during that time to be able to actually go capture market. Like a lot of what I've seen over and over, especially in 2008, 2009, 2010, like that's the last time we really had a recession that was long extended. But you look at a lot of entrepreneurs now, that's when they started. And yeah, it is because everyone had gotten fat and lazy and then when the tide went out, they all went outta business. And now there's a whole bunch of customers to pick up. And so at the same time, there's a recession. If you're, if it's gonna hurt everyone in your market that doesn't know their numbers, has been overleveraged, doesn't know their customer acquisition cost, doesn't know how to do any sort of marketing, they're gonna go to business and then all those customers are now in the market.. And so it goes to the person that is able to actually accelerate during that time and be able to be on, on, on the offense when everyone else is in the defense. And that's when I can see like the going, that's when you expand, that's when you grow. That's when you like just throttle it when everyone else is struggling cuz they haven't put things in place cuz it's just been easy. Like the phone's ringing off the hook. I'm super full. I'm 6 months booked out. There's no reason to be doing any sort of advertising or optimizing my website or thinking about AEO and because they haven't. When it gets hard and that froth gets removed, it's the person that's been diligently trying to make these optimizations that can actually accelerate during that time.

Yeah. And the data says a lot of people cut their ad spend during those times. So pile on to what you just said, it's another reason why you have a chance to hold up way better than everybody else, because fewer people are running ads, fewer people are in the mailbox, whatever the scenario.

Yeah. And like not necessarily in garage doors, but I always think about like, how can I put myself out of business too? Like if there's a cost, not necessarily with garage doors, you're not going to replace your garage door with something else. But specifically when it comes to like landscaping and lawn care, like, can I put myself out of business by taking out a lawn? Can I do things that are going to save this customer in the long term because they have a bunch of maintenance costs or watering bills or watering restrictions? Can I actually remove this cost from them? And now I am getting a $4,000 or $5,000 project because it's gonna save them a few hundred dollars a month. And now in a recession, that's actually a really good move for them. And if the cost of electricity's going up, water restrictions are going up, the cost of water starts to increase. All, you know, with data centers, everything's gonna get super expensive. Like if that's going to happen, can I actually save the customer money and do things that are actually gonna bring down their costs?

Yep. Yeah, I agree with all that.

All right.

I would just, whoever asked the question, I encourage you not to worry too much about this one. Just go, just a feature, not a bug. Just, yeah, just build.

Yeah. All right. Third question. I think this is a good one and I can write if you need me to on this one, Jonathan, on the whiteboard.

But this one's probably a good idea. This one's a more complicated question to answer.

Yeah.

By just talking it through.

So.

Yeah.

So. All right. So the question is, could you do a deep dive on exactly how to calculate the gross margin and the net margin for specific services? So I'll let you take a crack at this one. I know you've been talking about knowing this for individual services inside the business and not just my COGS and my net income., but a level deeper in terms of service specific.

So I'll take, I'll take a stab at it and fill in any gaps that you see. Um, so the way I, you know, the backstory on this, and I think it's probably the backstory for many people is I just think back in my career and I was really, this goes back before CityTurf. I was doing some stuff in the cleaning industry and we were cleaning seats and we were cleaning movie theater screens and wall carpet. And carpet cleaning. We were doing all these things and I just knew the pricing wasn't right. I just knew it. And I really had started reading about this kind of stuff, but I, it seems so ridiculous now, but it's like, it didn't immediately click. It's like I could kind of regurgitate it, but we weren't really living it or getting it. I don't know what the problem was. I just think back to, and this goes back, you know, a long time now. And so I think that happens to a lot of people. I think these, these conversations right here are kind of like in one ear and out the other, or you kind of get it in the moment and then you don't think about it for a week. You're like, wait, what? Like, it just, it, there's something about this that's just hard. But one day when you get it, it's like, gosh, how could I not get that before? It's really actually not hard. It's in a way, it's not hard. So I want to kind of define these terms first. And so somewhere I had heard it described this way. So gross. So we're talking margin, gross margin, net margin. Okay. Not net profit. I'll mention that again in a moment. Net gross margin, net margin. Okay. So gross is what the job makes. So gross margin, that's how much the job actually makes. I'll define that better. And then net margin, that's what's left over. After the company takes all its money, which will make more sense. Okay, so gross is how much you're actually making when you do this job, and net is what's left over after the company takes what it takes to run the company. Okay. All right. So gross margin is like two things. It's two— no, it's two big buckets of numbers. The first one is it's the revenue. So we're going to talk at a job level. Okay. And we, you, but you also think about these numbers at a company level, but let's just, let's just do the job level. And at the end, I can say a few things about the company level if I remember. All right. So kind of imagine gross margin is I have a job that's $100. So that's the revenue. We, we go out and we see, it doesn't matter what, doesn't matter if you're doing design-build, mowing a lawn, doing HVAC, it's all the same. Like where, where probably most of us are all in home services, we're just selling time. We're, we're renting a human to another person or to a business and they're paying us money. Okay. So, and they're pay— it's at the end of the day, it's all figured out based on an hourly basis.

This is, this episode is sponsored by Rented Grandpa. Just wanna plug.

Yeah, exactly. Yeah. There you go. All right. All right. So $100, that's what we bill Ms. Smith or whomever. Now we don't really make $100. You know this, I'm trying to be very simplistic to work through this, cuz I know that it's easy. It's like, I just, I've been through this. I know it's, and you forget this stuff. So $100 to do the job. That's not what you really make because you have to actually do the work. And the doing of the work is what they call the direct cost. Like it's the cost to produce the work. So again, we'll use, let's just use, I'll just use mowing. It costs, I bill $100. Actually, I'm gonna use a fertilization weed control example later. So let me not get into this. I bill $100 and it costs me, $50 to do the work. So what's the $50 to do the work? That is the people, the labor. It's the materials. So like, did I have a chemical? Did I have mulch that was included in that $100? Did I have a part that was included in the $100? And then maybe the fuel.

Okay.

I say maybe I'll define, I'll say why later. So that cost, what we call the direct cost. Is what it only incurred if you actually do the work. Okay, this is— that's really important. That kind of simplifies this idea. That's really important to understand. If I bill $100, what cost do I incur if I do the work? But if I don't do the work, I don't incur the cost. So if I'm paying Bob $40 an hour, but Bob doesn't do the job, I don't pay him the $40 an hour. I only pay him the $40 an hour when he does the job. If I use $9 worth of fertilizer, I don't incur the fertilizer cost if I don't do the job. If I don't drive to the job, I don't incur the fuel to drive to the job. So those are variable costs or direct costs. That's the concept. So again, I, Mike Andes, I'm probably gonna spend a ti— a bit of time on this one, so I hope, so by all means redirect me if you want to. But the, the gross margin is the revenue mi— minus what it costs to do the job, and we would not incur those costs if we didn't do the job. You'll hear all these terms, and a term you'll hear a lot is COGS. This direct cost, what it costs to do the job, it's COGS, cost of goods sold, cost to do the work. Does that feel— before I move on, does that feel clear?

Fantastic.

Okay. All right. I'm spending a lot of time on this one, but my goodness, this is so valuable.

I added subs for those.

Yeah, subs. Perfect. Subs. Exactly right. You wouldn't incur the sub cost if you didn't. Do the job. It's perfect. All right. So now net margin. So we've got our gross margin. We build $100. We took out the cost to do the work. Now, whatever's left over, let's just make up a number and say it's $50 is left over. I've still got other costs in the business, and those costs are generally just called overhead costs. You have an office, you have rent, you have admin people in the office, you have marketing expense, you have managers, you have trucks, you have equipment. You have trash bags, you have janitorial soap in the bathroom, in the— like, you just go down the list of all the stuff. That's the stuff that takes, you know, that, that's what you have to do all that stuff to run the business. So then you subtract all that stuff out and that gives you the net margin. So if we go back to my first statement, gross is what the job makes. The job didn't make $100. The job made whatever was left over after you did the work. So the gross is what the job makes. That's the money left over to actually run the business. And then the net, remember, I think I, how did I say that? The, the net is what's left over after the company takes its part. The company's part is the running of the company, the office, the rent, the admin, the marketing, the management. Okay. So that leaves you with your net margin. Tracking this feel okay so far, Mike?

Amazing.

All right.

Okay. All right.

So now. Like, you're like, okay, well, I get the gross part. That's not too terribly hard to comprehend, but how in the world do I get my net part? Because that's the overhead. This is where it gets a little more tricky. And this is where I'll kind of tell you how you might do it yourself. Uh, I'll tell you, like, maybe you sometimes get a consultant to do this. Maybe if you have an accountant that's better than just doing taxes, maybe they can help you with this. But really the way I think about it, and there's, probably arguments on this, and I'm going to leave all kinds of gaps out my explanation here because otherwise I'm going to, I'm going to lose you. But the way I think about it is the simplest. Since we're selling time, the simplest way is to figure out how many billable hours. And by all means, I'm going to— don't let me forget, Mike, if you have an alternative for this, let's talk about it. But the way I've always thought about it is like, how many hours did I bill for the year?

Okay.

And because I was in the software business and I had a software system, you could pull those hours out of the system. We can figure out how many hours we build because they have to run across an invoice. They get scheduled. It may not be perfect, but you can get, you can generally get there. You can do, and even guesstimating is way better than what 99% of people do. It's like, I kind of think based on looking at my data, we do about 15,000 hours a year billable, but it could be plus or minus 15%. I kind of don't care. It's kind of close enough for what we're trying to do here. So. So let's just imagine you're a million— let's do some numbers. Let's imagine you're a million-dollar business. So you do your taxes, you use QuickBooks, um, and you're, you're basically, when you take out your COGS or your cost to do the work, and then you look at all the other expenses, let's just say it's $300,000 on a million-dollar business. I would literally just take the $300,000 and divide it by the billable hours for the year. And that gives me my hourly rate, which is my overhead to run the business. It's $20 in that example. Okay, so now let me just make sure we don't confuse anything. I've been talking about net margin. Net profit is not what we're talking about. None of this gets you to net profit. Net profit is that thing that's at the bottom of your profit loss statement in your accounting system, and we're not talking about that at all in this conversation. I just want to be really clear. Okay, all right, so let me Before I get into an actual, another numbers example, the other thing that I think it's really to try to simplify this in your mind, like there's two ways your business is broken financially, or two ways that you could run outta money, go broke. Either the job doesn't make enough money or the company costs too much to run. Now there's a lot of stuff that could go into those two things, but it's kind of that simple. Either this, these, this work we're doing, these jobs we're doing, they're just not making enough money. Now, why might they not make enough money? One could be we're underpricing. That could be it. Another could be we're ridiculously inefficient. Inefficiency can come from having bad humans that don't know what they're doing, doing the work. It could come from terrible training. It could come from horrible route density. It could come from lots of places. So efficiency, pricing, these are factors that lead to We don't make enough money on the job itself. Okay. So that's one of your two things that's probably broken if you're not happy with your business. The other one is the company just costs too much money. You've been buying really cool equipment. Equipment's fun. You've been buying some pretty cool trucks. You bought an office, you got a cooler office than you needed. You got a cool office and you put a lot of cool stuff in your cool office. Like there's a million— you made some bad decisions.

Overhead wages, like salespeople, admin people.

Exactly. We got— yeah, just keep going. Like, and that's actually gonna be the biggest offender. For almost everybody. If, if you're even, I, I tend to argue in most of the businesses I've seen, the problem tends to be for most people, not the how much it costs to run the business. It can be, it tends to be the job is not making enough money for some reason.

Yep.

Most people are just not doing blatantly stupid things. Like, yeah, some bad things might've happened. You got into some debt, you made a few bad decisions. That was part of the learning process. You'll clean it up. Things will be great in the future. Some people do legitimately make really bad decisions running their company. And the company part is the problem. So again, two ways you go broke: the job doesn't pay enough, or the company costs too much to run. And I am just adamant about— it's one of the reasons why I'm not big on buying offices too soon. I'm adamant about keeping the cost to run the company as low as you can keep it without being cheap. And cheap means we're being, as they say, what is that saying? Uh, pennywise, pound foolish, or something like that. Like, it's this idea that we're being so cheap We're not reinvesting in the company to make us more money. It's that kind of thing. But you do, I just think you wanna be careful on, on the amount of, on how you spend your money inside the business. So the inverse, I, again, trying to be super simple here is like, if you want to get really wealthy and rich, then there are two ways to do that. Make sure the jobs make a lot of money or make sure, or spend less money running the company. Like, so you'll see sometimes, and this may be slightly off in the weeds, but you'll see. If you ever hear somebody talk about like, my COGS is 32, my COGS is 41, my COGS is whatever, 53. And you're like, well, how could the guy that has 53 COGS be making any money compared to the guy that has 30-something? Because that guy's cost structure, the cost to run the company is a fraction of what the guy who has 30 COGS. And that's a little bit of a city turf story. On some of our stuff, our COGS are really low. Some of our services a little bit higher, but our cost structure to run our company is really good, really good. And so we can run a little bit higher COGS and make a lot of money. Like, so again, I just add that little detail to help add some clarification. Okay, so I'm gonna walk through some numbers for fertilization weed control. Um, anything that you feel you should interject, Mike, before I do that?

No, I think you were going where I was about to say, so go for it.

Okay, cool. All right, so let's just use a fertilization weed control example. So imagine that your fertilization, weed control app is $75. If you're doing a $50,000 a year job in construction, it all scales what I'm about to say. Okay. So on my little fertilization, weed control job for $75, that's what we're billing. That's— that job is going to take us half an hour, half a man hour. Okay. So what— so if I'm calculating my gross margin, how do I do that? Like, Okay, the job was $75. Now what does it cost me to do this job? So I've got my labor. I got a guy working for half an hour, so I've got whatever he makes or she makes. That's the labor portion. Then I've got product. So I'm putting down granular fertilizer, maybe, maybe we're spraying some material out of the tank. We're spraying 20 gallons. I don't know, whatever. You get the idea. You got some cost there. And then maybe you do fuel. And I'll just say my word about fuel. I, a lot of people like to put fuel in COGS or put it in this number. I personally do not because it's just too dang complicated to track the fuel back to the job. So I just personally, for me, like if a lot of the textbook definitions you'll read, this is why I added this. I just, this is how I always had learned it going way back. They always talk about, well, fuel's a variable cost. If you don't incur the cost, if you don't do the work, like I agree, totally agree, but there's, there's perfect. And there's realistic. And for me, real— it's not realistic for me to track fuel back to a job. So I personally don't track that. I just think about labor and materials and subs. And labor is employees and subs. Okay.

I'm glad you went that direction. You're like, man, I don't know how he's going to explain this easily.

Okay, good. Okay.

Yeah.

Okay, good, good. All right. So, all right. So $75. I'm being really long-winded. Labor. I'm going into great detail here. Hope you're with me because this is so important. Like Mike, I hear you say it, I say it, we're always talking about numbers. Like this is the core numbers right here. This is what makes or breaks the business. Knowing this stuff right here, this will take years off the building of a business because it just gives you clarity on what to do, what not to do, what's not working. When you say I'm investing in the business, all I have to do is know these numbers. And if they're bad, you're not investing in the business. If they're killer, And you're dumping money in the business. You might actually be investing in the business. Like, that's— this is what matters. So back to the $75 to do the fertilization weed control in my little example here, or, or to— that's the price we charge. The cost to produce the work, I'm gonna call it $25. Okay? So my gross margin is $50. Okay. All right. So now the $50 hasn't actually paid for anything to run the company. The $50 is just what's left over. That's actually what we're making. So now we can run the company with that $50. And again, the running of the company with that $50 is the office, the marketing, the salespeople, the trucks, the equipment. It's all that other stuff. The fuel. It's all those things.

Okay.

All right. So now I've gotta add back in my overhead. Remember earlier we determined that our overhead is estimated to cost us about $20 an hour. Okay. Well, we only did it half an hour of work. So I'm going to, I'm going to take $10 off the $50. So I make $50, my gross margin. I'm going to take $10 off it. Now I have $40 left over. So that's, that's $40 from which my profit in the business will come. It just gets a little complicated right here to calculate net profit. It's like pretty much in my opinion, near impossible because there's still some other things you haven't accounted for. That in this, like the $40 is the way I, this is where it can get confusing. And so I'm not going to say too much. The $40 is based on this idea that the job from ignition to ignition went perfect, really well. We didn't waste material. Um, we didn't use, we didn't go overboard. We like stayed within budgeted hours. Like there's just, there's a variety of things there, but then it goes another level deeper. It doesn't include all the non-billable time. Remember, our overhead is built on budgeted hours. There's all this other labor in the business that is loading the trucks, unloading the trucks, callbacks, drive time, morning routine. Then there's also, remember, there's materials in the, this, this number of gross margin. Materials get wasted, materials get stolen. We have interest on the business. We have taxes. We have all these other things. That will come out of the $40. So that's why it's like, I just wanna be clear, the $40 isn't actually your net profit, but it's in the ballpark. It's somewhere in the ballpark of net profit. Let me just say a couple other things at the risk of confusing you, but I think this is really important. So one of the problems that happens with businesses, because I've worked with so many different businesses and also I've built all my businesses from zero. So I've experienced this. Let's just say you're trying to figure out your overhead. Your overhead number when you're $300 grand is a, is a different number than when you're a million. And it's a different number than when you're $5 million. It's a different number than when you're $10 million. And so this can, if you, this is really important to understand because it can lead to inaccurate thinking around pricing and it can lead to other mistakes. So when you're really small and you're calculating your overhead, it could be artificially low to support the business you're building too.

Okay.

So I've got a $300,000 business and I have no operations manager. I have no office team. I have no office. I have a storage unit or out of my garage at my house. I have almost no marketing expense and I'm not even on the payroll of the company. Like those are all examples of things that are now not in your overhead number. And so when you calculate your overhead number, it's just way low. And so what happens to some companies, and we're not going to go down this road, is they, they price their services way too low early in their business because they don't— they— then it works for the numbers they have today, but it doesn't work for the numbers as soon as they want an operations manager, they want to actually spend some money on marketing, and they need to get a real office. Because those numbers are not baked into how they came up with their pricing. So a little deviation here. I tend to say, you know, you probably should just pay attention in the very, very early days to what your best competitors are pricing at. And Mike, you may have a different way to direct people on this, and I'd love to hear it. But, but this does start to touch a little bit on pricing is like, if you try to back into these numbers, which a lot of books will tell you, or some consultants will tell you if you just read their articles, You're gonna really find yourself underpricing. I can tell you when, uh, when City Turf started, there were a few commercial contracts that we signed multi-year deals on. We signed multi-year deals because those people knew something I didn't know. I was way underbidding because my cost structure was really, my pricing was based on a cost structure that wasn't gonna hold up when the business size doubled. You know, so just be really aware that if you like, oh man, I get this number thing. I'm going all in on this number thing. It's gonna help me figure everything out. It's like, There's this little caveat here. Your overhead is going to go way up. You're going to get on payroll one day. And if you don't build that in now, then you haven't priced your work to let you grow. And this happens to so many people. The last thing I'll say is you want to try to look at these numbers at a job level. I'm really big on this because especially in the early days, because it teaches you your business. But ultimately, you want to be looking at your— at the every— the numbers I just said. At a company level and at a division level. So, or service level. So mowing versus fertilization, weed control versus pool cleaning versus pest control. I need to know this number, gross margin, net margin by those different divisions because I need to understand how does fertilization, weed control compared to mowing in terms of its contribution to our business. So I wanted to give you the basics, which is at the service level. And if you learn it at that level, you'll totally get this. And then you scale it up to the company level.

How would—

so that was a lot.

You're fine. How would someone go about doing this, uh, if they had a technician or the direct labor was being done across different services? That's where I feel like a lot of people at the company level— if at the company I have a technician that does mowing, they do fertilization, and they also do some pest control, how do I figure out that number now?

It's hard. I— you've— so let, uh, this is where You're going to have to go to a payroll report and you're going to— and on your payroll report, you're going to have the name of all these employees. And by— and so you dump it into Excel and you literally just put F&W mowing, um, you know, past, uh, 50% mowing, 50% past. Like, you break it down and then you just do the math in a spreadsheet and you bring it over.

Got it. So like running a report on their payroll for a 2-week pay period, be like, okay, how approximately is that? 30% one service, 40% of that service. Okay, got it.

It's in the ballpark. It's not perfect, but it's in the ballpark.

So just to kind of like zero out for a second, I think for some people, just— we lost some people at the fact, like, what's overhead versus not, not necessarily defining it, but finding what that is for you. And so I would just say this. Oh yeah, if you have a QuickBooks, assuming that you have done a decent job of bookkeeping and actually put things in the correct categories QuickBooks, if you dump your report from last year in, for example, it can help you walk through what's overhead and what's not. So you can actually come up with some of these numbers and then ask when you dump it into your ChatGPT or Claude, say, hey, ask me 5 questions to clarify what services I offer and how I run my business to be able to identify what's a direct cost versus overhead. That will help you get you a starting point with some of the things that we just talked about.

Yeah, good. And, uh, one addition to that, some companies I've seen who work with CPAs and accountants, sometimes they'll— even the accountants will just put— which blows— or maybe they're using more bookkeepers, and they'll just put all the expenses in as expenses and they don't associate them to the COGS. Like, you literally associate things to COGS. That's really important so in the future you can separate COGS from all your other expenses, and so you can separate COGS by division or service line.

So for people using QuickBooks, when you're creating a chart of accounts, you can create an expense, you can create income, but above that you can create what type it is, whether it be a cost of goods sold, a direct cost, etc. And then you have this built into your P&L where you're going to have COGS coming out the top and it'll actually show you this gross margin. And it's not just income with a bunch of expenses, right?

And also make sure— so much information, just rewind this and watch it again. But Also make sure when you're categorizing your revenue in QuickBooks or you're bringing it in from another software system that it just doesn't bring it all in as revenue. It needs to break it into the different service buckets because you need to be able to take the pest control service bucket against the, the COGS as we described, the labor. We talked about that from payroll. We need to be able to match those two things together.

Yep. And I've rarely seen people do the sync with QuickBooks and actually do that.

So like you mentioned, really important.

Export your— by service, your revenue from your CRM with that QuickBooks, and then quick— like, the AI will be able to figure out, okay, how much of this revenue came for specific services. And then if you dump also your payroll reports in with some of that granular data of what percentage they're working on certain services, this is where AI can really help synthesize some of this.

Yeah, yeah, boy, I agree with you. This The AI thing is so exciting for the smaller companies especially. It's exciting for everybody. It's really exciting in this example.

Yeah. And so like, yeah, I just encourage anyone that's like, this is over my head, QuickBooks report, service by revenue or revenue by service report from your CRM and your payroll reports. Put that into QuickBooks or sorry, put that into AI and, and just tell it what you're trying to do. I'm trying to figure out my gross margin. I'm trying to figure out my net margin. I'm struggling to understand what's considered overhead, what's not. It's going to ask you questions like, Okay, all of your wages, was that all technicians or is that some of your salary? Is it some of your admin salary? And breaking apart some of these things is going to be what it'll help you do to come up with these numbers.

Yep.

Well, did you want to add— did you want to add to any of this? Like, once we have found this, this information out, how is this useful when you look at your business? You say, okay, this service has this margin, this— What's the next step? Like, what are you using that information to make decisions with?

Right. So, well, I can compare— I can compare services. So one service is producing this margin versus this service is producing a different margin. Maybe it tells me where we want to focus more time. Which one do we want to spend our most marketing dollars building? There's other factors that come into that. It's not just margin. Like, again, we all, we use a lot of lawn care examples, but you might find for some people that their lawn mowing is a lower gross margin and then fertilization weed control, but mowing might still be the single best service to market because it's the gateway service that brings in all the clients. It's the easiest, least expensive way to acquire new clients, and then you sell them into fertilization weed control. So it's not just as simple as margin, but that is an example. That I can see how different services compare from a margin standpoint that tells me how, where I might want to spend my time and money in terms of growing the business. Also, it tells me what to work on. It can inform pricing. So if my margin was like, let's say my COGS or my gross margin, they're the inverse of each other, but let's just, I, my brain thinks in terms of COGS, but, um, if I have a gross margin of 55% and my gross margin drops to 50%, then something's happened. There's inefficiencies in the business. Labor cost has gone up on me. Material cost has gone up on me. Something's happened. So if I want to maintain the overall margins of the company and my gross margin has just become worse, I have two options. I need to reduce what it costs me to run this company. I have three options, probably more. I need to reduce what it costs me to run this company. I need to become more efficient at producing the work, or I need to raise the price. And so it's a leading indicator of things that you're probably missing, where vendors are increasing their prices, your labor cost is becoming more expensive. This one number tells you something's up. And so that's another really important way to think about it. It informs pricing and it calls out issues.

Yeah, I think the biggest thing I've seen when someone does this, this math is giving them clarity in terms of where is the weak point, because it is only a couple of things. It is, is my— am I not charging enough for the work, i.e., the job, or is the company sucking all the money because I have a huge office space or inefficient admin or 3 salespeople on a million-dollar business? And so, like, I literally this morning looked at someone's financials and they had 66% gross margin, but yet they're still barely breaking even. And so when you look at that, it's like, oh, the money's going to company. And sure enough, there is extra admin, there is a building that's far too large for what they're renting. And I said, look, we need to just get through this lease because once we do that, you just do the math and all of a sudden you're 20% profitable. But the reason we're skating along here is because 12%, 13% of your revenues go into this lease.

Whew. Okay. Yeah. Yeah. That's a perfect analogy. One other is it just allows you to benchmark over time how you're doing as a business, or if you have operational people leading divisions, it's the number, it's the KPI that they manage to, it's the number they're responsible for. If that number's creeping up, doing a bad job. If that number's coming down, doing a good job. It's that kind of stuff.

And I think to what you're, I thought was really important that you said is it's not so much there's a right or wrong percentage. It is tracking over the course of time to be informed to where your attention should be at in the business. Because over the course of time, if you see your COGS going up or you see your overhead go up, then you can put attention on it. For anyone that comments like, oh, I got 30% this or I got 50%, it's so hard to compare.

It means nothing.

It means absolutely nothing. And I appreciate you saying that because like, I just get really frustrated when people are comparing COGS and like, you're in different markets, you're in different stages of the business. You're in different services. There's, there's, there's no way to compare this outside of over the course of time. Is this trending in a positive direction and is what I'm doing in the business having a positive impact on these two numbers?

Yeah, I agree with all that. Incredibly important. I would really, again, encourage you if this is something that's like, I think I kind of got that, rewind it, listen to it again. Listen to it again in a week. I think repetition is all that's really required here. 'Cause when you boil it down, it's really, I don't think I'm incorrect in saying it's really not that hard. It's like eventually you just see it and it's like, oh, okay, this is, it's just a few numbers really. It's kind of, especially if you're looking at your income statements, like it's a group of numbers here and it's a group of numbers there. It's like, it's like, it's kind of, it becomes more clear. But, but if you think about it now and then you think about it again at the end of the year and you think about it again in 9 months after that, it just never clicks. So, I'd encourage you to go through this a number of times.

I have one more thing I just want to clarify with you before we move on, because as I was like scanning what we've talked about for the past 20 minutes, one question back to what I have written on, on my board here. We talked about having AI help find maybe potentially what your overhead is. Billable hours, just really quickly, is this going to be— I put my payroll reports in, it's how many clock— how many hours did I pay my employees for the year? So for example, a full-time person, 2,000? Or is this another number I need to be looking at? Is it, to find this number here?

See, this is— yeah, there's a lot of different ways that people will calculate this, and I have always been on the side of doing billable hours. How many hours did we sell this year that turned into invoice hours? You could do it as, um, clocked hours. You could do it as clocked hours, but there's—

you're baking in that net margin.

Yeah, yeah, it's like It's better than nothing, I'll put it that way. Um, I've— I, I'd have to put some thought into how to argue for or against that idea, but it's not as accurate as billable hours when you're talking about at the job level. Yeah, but when you're talking about the company level, the other one sort of works itself out.

Yeah, so I would say I, I agree that's usually the most precise, find the job. I think if you're— sometimes the reason I, I vote for doing both or trying just clocked. It's number one, it's easier. Everyone's tracked clock hours and they have that information. Some people don't have the budget hours for everything combined or be able to run a report on that. The second thing is I have seen some people run this math and it looks really good. And then I look and like, whoa, whoa, 25% of your guy's day is spent at windshield time and that's not being calculated in this number. And all of a sudden I've inflated margins that don't really exist because I'm not taking into account the drive time, load time, unload time, and all the inefficiency is sitting right there. So there's no right or wrong. I think it's just a matter of like being aware that if you're just using the billable hours, there could— it could hide something there.

I'm glad you asked that question. Yeah, just using the billable. Yeah, I like— I'll say one other reason why I like the billable hours again, specifically at the job level, is the way I learned over the years You think about all the individuals who do project-based work or construction, you kind of build up the estimate. And so when you're building up the estimate, you've got these materials that are going to go into the job. You've got this amount of time, you got the, you've got the dumpster rental, you've got all this stuff, but you've got these labor components like prepping the property, the doing the work, the haulaways. You got all this stuff and they might all carry different billable rates, but, but basically have labor. I want to be able to attach my overhead to that labor directly. I don't, it just feels so much more accurate to build up a bid that's gonna, if you get that wrong and you build, you bill $80,000 when you should have been billing $70,000, you might not win the job. And so the billable approach always, as I learned it, always felt more accurate when you're trying in a competitive environment, you're trying to win big deals. Yep.

It's trackable.

Yeah. Yeah.

Okay. I want to close it out on the last one. We're not going to get all everything on the docket today. This one is a little bit more dark, but it came from someone I felt like might need help. So question from the audience again, and that is— I kind of try to summarize this question because it's kind of long. Under what conditions would you actually encourage someone to close their business and go out and get a job? And this specific individual is over $100,000 in credit card debt and they've been running their business. I don't know what size it is. But 5 years unprofitably. And so when would that be? Would you ever, have you ever said, hey, like, is entrepreneurship not for you? You should just go get a job. And what for, what sort of reasoning would you ever give that kind of advice?

Yeah, I think there's an argument to, I'll be specific here, but I think there's this argument that you should probably just close the business if you can't recover. Not— I don't mean financially, I mean mentally. And what I mean by that is it takes optimism and energy to build something. And if you've gotten to a place where you're so beat down, you might, you might frankly need a break. And you might be an entrepreneur, just this wasn't the win. Like, if you think about the data, most people don't most people build— I've, there's some stat around, it's the third business or the second business that is the winner. And historically, I think the age had been something like at 42, like it's, there's data around this. So, so if somebody starts a business and it doesn't make it, like you're actually in pretty, I mean, you're a lot of people have been through the exact same thing. And so it might be that you are an entrepreneur,, but what you need is an energy reset, an opportunity to reflect and then to come in with a whole new approach and do it completely different. That could be the case. And so it's not whether or not, just cuz you failed does not mean you're an entrepreneur, but also for some people, maybe they aren't an entrepreneur. They hated every single thing about it. Probably don't do it again. But here's how I, to be more specific, how I think about it. I think you, in this exact scenario, I think you quit. If you are digging an ever bigger financial hole and nothing has changed, you haven't changed anything. Like you're just, you're generally doing roughly about the same thing you've always done. The hole's getting bigger and you don't have any energy for what I would call a drastic, we'll call it a Hail Mary. Like, I'll explain what I mean by that, but you don't have the energy to do a complete tear down and rebuild of your business. And so if the hole's just getting deeper, nothing has really substantially changed, and you don't have the energy, I'd say call it. And I'll talk about that a little bit more in a moment. Now, if you do have a, like, a last little bit of gas in the tank and energy, then I would say to you, you might as well just see what you can pull off. And don't be stuck. Don't be trapped by any of the way, the traditional ways of doing business. Don't be trapped by any of the customers. Don't be trapped by anything. Don't like, I don't, I wanna use the sunk cost fallacy. You don't want just, I don't even wanna go, just don't get stuck trying to do what you've done before. And like, look at this and say, what if I were to go down the list and get rid of every customer I don't like? What if I went down the list and got rid of every customer I don't make much money on? What if I got quit doing every service I don't like, I don't make money on? What if I got rid of all the employees that I can't stand, that drive me crazy, that don't pull the weight, and I just like shrunk this sucker down to a much different, smaller business? What if I said I am out of this service and I'm doing that service and only keeping 50% of my previous business? Like, I don't know what the fix is without seeing the business, but I'm saying radical change. It's a Hail Mary. If I were to make all these changes, would it actually give me a business that made money? I would try that test. If you have the energy before you throw in the towel, if you don't have the energy, I'd throw in the towel. Cuz it's gonna take some energy to do that. It's gonna take, take some courage to fire some people. It's gonna take some courage to raise prices like drastically. It's gonna just take that courage and the comfort that I think you want to have in this situation is like, What's it matter? It's over regardless. So why not try it? Because this could work because that's worked for a lot of people. And so that would be what I'd do before I'd close it. If you have the energy now, if you're just like, I'm done, uh, then I would say get a job. And is there any really, maybe this is a good idea, maybe it's not, but is there any really profitable work you already have? Like where you could just keep some for the weekends? Because now we need to like dig ourself out of a debt. That's just gonna be a mental load on you as well. It's always gonna hang over you. It's always gonna remind you of the thing that didn't work. And you probably wanna get rid of that debt in case you wanna go for it again later. So is there an idea around, I just, I'm done except for my favorite parts of the business. And if you keep any employees, it's just your favorite team members, your favorite clients, the most profitable stuff. We do it on the side. We get a job. We just, we're done. We, work down the debt, and then someday, if it makes sense, we come back to this. That's kind of how I would think about it. Again, without knowing all the details of the situation.

Yeah, I think it's hard for a lot of people to take that step back and be like, I'm going to take 3 or 5 years, shrink the size of the business, but make it profitable. The challenging part becomes too, like, if this is a smaller business, $100,000 of credit card debt could be hard. My goodness, that could be a high enough payment per month on, you know, if it's 20% interest. Where, like, when, in which world would you consider bankruptcy as an option for this person?

Um, hmm, how do you define that?

I'm, I'm trying to think because, like, say for example, this person is able to quit their business but get a job that's maybe making $60,000 a year. That's not even going to hardly pay the interest. And so now that becomes not an option. And they keep doing this digging, digging, digging their business, trying to fix it, when reality it's because they can't go get the job and keep paying down the debt.

Yeah, I don't— without looking at it, I don't know how to give a rule there. Um, I would say that I would try everything I can not to do bankruptcy because it's just a different problem. But if you have to, you have to. Um, I would first try my approach to the drastic change. That has fixed a lot of people get trapped doing the same thing, and they— when they depend on the business for any amount of income, they just can't change it. And so I would go there first, and after, if that fails, then I think it is based on how much money are you able to find a job, uh, and get paid. And that's going to determine if you can even make the bills, and that's going to inform if you can even shoulder this debt or if you need to file bankruptcy. But I don't know how to give a number for that. Do you have a way to think about that?

Not really. I just want to see kind of how you thought about— I think too, for someone that might be going through this, it's like you will have to reduce— if you've had pride around the sacred cows of the business, of what services you offer, which client you offer, how you do your branding, who you're serving, like you're going to have to get that pushed aside and likely get some other eyes on the business. Because if you're so drained and depleted, you don't have the energy, you probably need someone else's eyes that is not going to look at all the sacred cows that you're not— you're afraid of slaughtering. Like, oh no, we have to do fertilization. We can— we have to do this other service. It's like, whoa, whoa, do we? Having this secondary set of eyes that have not— they've not been inside the business is usually a useful way to come up with what are the drastic changes that need to happen. And one thing I've been thinking a lot about is like blue sky thinking. Like, okay, if we cut the business in half, which half would we take? If we stop servicing that area 45 minutes away, What would actually happen if we cut out half the team members? If we stopped having this lease? If we moved everyone to where they took their trucks home instead of coming to shop? Like, what are the drastic blue sky measures that we've never even thought about? 'Cause we've just kind of been stuck in this, this is how we do it. And like, I just need to keep doing more and better. And sometimes people, because they're so focused on optimization of 1%, it's like, well, can we step back and just completely X this off of the business? Completely change the way we do it? And there's— in most businesses, I find, depending on the size, there's, there's enough of a kernel of profitability if shrunk down to we can grow off of that. But it does require someone with enough intestinal fortitude to go do it. And to your point, when someone's beat down mentally and they don't have the ability to do that, that's tough.

Yeah, it is. It is. But I would sure want to try that first. So could you find that person? I think that's good advice.

All right, let's move to non-financial advice. Close it off for the day.

Do you have any non-financial advice For the people, I, you know, I, I keep, I actually kept reiterating it while we were doing the, um, I guess it's kind of financial advice, but it's this idea of, we just talked about all these numbers. Go back through this several times. Like listen to it several times, go to YouTube and click on the transcript at the bottom. Take that transcript, copy it, paste it in AI, and then have, and then just tell it, hey, I want to learn these numbers. Ask me questions, walk me through this. Explain it to me like I'm 5 years old, like whatever you gotta do, but literally use AI as a, like a little teacher to help me quiz you or quiz you and you answer the question and, and like get, finally get this information. It's just a game changer.

Yeah. And just to build on that for anyone that is watching this on YouTube, if you go, we, we will put a chapter for that segment on COGS and figuring out these numbers so you can then when you pull up the transcript on the right-hand side on the desktop, You can see the time codes and just take that segment of the episode and drop that in and just give— talk to AI, be humble enough to figure out and—

yep.

You know, answer the questions and it'll be very useful. So, all right. My non-financial advice is not as fun. Okay. So, okay. I, I think I've, I've shared this before potentially, but if anyone struggles with sleep, I just recommend 3 things: an eye mask, white noise maker, and earplugs. And I, I've done it the past couple years out of necessity because I had— I got married and I was like, I now have a wife. So like I had to add extra. I used to have like blacked out because I lived in a closet for a couple years and I got used to pitch, pitch, pitch black. And because there's no windows. And so, uh, I would highly recommend if you struggle with sleep, get an eye mask, get a good, really good quality one, get a white noise maker, put it right next to your head, and then get some really good quality earbuds. Earplugs.

Have you ever tried Eight Sleep?

Oh man, I so badly want one.

Oh, it's the— I know, I think there are few things I own—

oh, don't tell me—

that I value so much. Now I have to buy one. It is worth every cent.

Really?

Uh, it is. I— if it broke, I would order another one tomorrow.

That'd be your garage door.

It is. There is almost nothing I would order that fast. Tiffany feels the same. Almost everybody we've ever recommended it to. I used a Chili Pad years and years ago. Not nearly as good. Spend the money, buy the Eight Sleep. It's absolutely fantastic. I mean, to the point, so, to the point, this is how I've—

You can't travel without it now? Is that what you're gonna tell me?

Well, it makes a difference. But that is where I'm going. So we've got a few more major trips and we'll have hit all the major countries that we want and done all the big stuff we want to do. There's still more to do. Next, we're moving to a phase of renting homes all over, like even outside the United States for extended periods of time. And I have already found a company that will crate up all my stuff and ship it. And the Eight Sleep is one of my biggest motivations. It'll be shipped to wherever we're living.

Oh, that's hilarious.

It's that good. It's good. So the eye mask thing, I love that because I need the dark. But did it— do you have any problem getting used to sleeping with it? Like, I hate stuff on me. Does it bother?

I get the full cloth ones that wrap around and it's like It's thick. Like, it's almost like a little face mask.

Does it go over your nose?

Uh, no, it goes like a little notch.

Okay. And it doesn't bother you or anything?

No, I tried the like really expensive ones. I forget the name. I think Fanta or something. And they had like the cups and everything, but no, I just like, it's a cloth mask, uh, or not mask, but like a, you know, eye mask, I guess. But it goes all the way around with Velcro at the back. It took like one night to get used to. It's the best. I have a bunch of them. I have one for travel. I have like Yeah, I have them all over.

That's smart because, man, when we travel, you just never know what you're gonna get. Yeah, no, like, I like black.

But man, now you made me— because see, the one part of my sleep that is unoptimized is if I get hot, I can't sleep.

Buy a Naysleep.

And a lot of times when I'm working in bed, I like— my legs will get sweaty or something, and I can't sleep after that, so I just keep working.

But buy a Naysleep, it'll make you more money.

Ah, there you go! There's a promo we need. That's what we need, a coupon code, because there is Absolutely hundreds of dollars being thrown around for these Eight Sleep mattresses, but oh man. All right, everyone.

Cool.

Thank you so much for watching.

Great seeing everybody. See you later.