Why $1M is a Bad Target

Why a million dollars in revenue is a bad goal.

This will be the longest keynote of the present of this entire weekend. So, you know, buckle in. You don't want to leave. If you leave just for even a few slides, you will probably lose me because it's going to be a little more technical. All right? So keep in mind this is. Some people are still flowing in. I say some things that are a bit.

Not controversial, it's not the goal, but are maybe a little bit edgy sometimes to get a point across. So when I say that why a million dollars is not the revenue and why it's a bad goal, please don't. If tomorrow someone's talking about building a million dollar business, think that they're wrong. All right? This is a function of. I know that this will serve 95% of people well. And there are edge cases, there are different industries. There are reasons why this might not pertain to you, but I can guarantee you 95% of people it does. So before you dismiss it completely, please objectively look at the evidence that I'm bringing forward tonight and see whether or not this applies to you. Okay? But just know that I am aware that there are different industries and there's different pricing models and there's different things that you could potentially say that this is not relevant to you. Okay, Cool. How this presentation is going to make you money, first and foremost, you will know which business sizes are most profitable. I believe that there are several very distinct sizes of business that you'll be most profitable at.

We'll also have a playbook by the end of the presentation this evening for having a location that's run by a general manager without you having to be there at the end. If time permits, because I have two hours. If time permits, I will do Q and A. So if you have Q and A as I'm talking or if you have questions while I'm talking, please write them down. And then we'll do some Q and A at the end of this session. Now, keep in mind, the Q and A, if we get to it this evening, will only be for the topic of what we're going to cover this evening. So if you're going to talk about something else, I will say, sorry, but that is for a different day Saturday. Okay? So we need to stay focused on this topic. If you have questions about these slides and this presentation, we. We can hopefully get to some of those at the end of the evening. Make sense to everyone. Fantastic. All right. I do enjoy participation, too. I'm not like you Know, good looking and tall like Dan. So I'm not going to like do that thing, but I do like the involvement, the participation. I'll take the yahoos and let's goes occasionally. All right, I was wrong.

Building a $1 million home service business is not the perfect target. It was just a big, round, easy number. Seven figures. Just sounds kind of sexy. Get those two commas in there. Let's go. I analyzed about 250 different home service businesses. The sample set that I used was across four different industries including lawn care, janitorial, softwash and tree services. I looked at their profit margins and more importantly, I looked at the level of owner involvement. So the person that actually owned equity in the entity, what percentage of their time was spent in the business actually making decisions, even working on the business, but involved.

I focused on the location specifically that had general managers that were being running the day to day operations and the owner was hardly if at all involved, ideally absentee and not even in the local area. My conclusion, I'm going to get right to the punchline and I'm going to build up a huge evidence case for you. My conclusion is an $800,000 business is the perfect size business for the absentee owner in home services.

Now disclaimers. Because that's what the legal team wants you to say. All right, here we go. He told me to go to 800,000 and then I did. Was a profit. All right, disclaimers. This is only true if all of the following are also true for you. You want to make more profit and you don't care about revenue flexes right now. There's nothing wrong with wanting to make more revenue. There's nothing wrong with having revenue flexes. But if your goal is to make more profit, first and foremost this will apply to you. Secondly, if you want to get out of daily operations within five years, look at all these parameters, make sure, make sure you're checking these boxes and hire a general manager that is not related to you. This also applies to you. The third thing that needs to be true in order for the rest of this keynote to be relevant to you is that you want to build a sellable asset that can be passed along to your kids or sold to a buyer. So you want to exit the business at some point. Now, to reiterate, this matters only if you want to be an absentee owner. I define absentee owner as never showing up to the business, not for an hour or two a week, never showing up. Many will achieve profitable growth beyond a million dollars. I'm going to be very clear. There are people in this room that are building profitable businesses above a million dollars. But most of the time, when I see a million dollar business and above, especially 2, 3, etc. Especially if it's been under 10, 20 years in business, most of the time the owner stays in, in daily operations in some regard of a head of a role of either head of sales, operations or admin. Right. Again, if you want to sweep this under the carpet and say I'm part of the 5%, that's fine. Just hear me out.

Many people will say they want to step away from daily operations in the future. Some people say I want to work on my business, in my business. And then it's like I can actually leave. And it works. Those are different.

So if that is the goal, I believe that the business model requires a very specific blueprint.

And the blueprint that we're going to talk about tonight is this presentation. This is the blueprint to build the business as an absentee owner. Using this very specific blueprint and business model.

I see four revenue ranges where home service businesses are most profitable. This is not just the 250 businesses that I analyze. This is also just by turnarounds and like, people submit stuff to me every day in terms of P&LS. I see a lot of different industries and across the board this is very generic. But these ranges and approximately what these ranges are of revenue, I see them being most profitable. Now, I know that more than 95% of people in this audience are under 5 million. So I'm gonna stick with this audience. All right. There's other ranges as you begin to go up past 5 million and that we could talk about. We're not going to. All right. Again, when I talk about these revenue ranges, I am assuming that you're not trying to grow extremely fast. The reason I say that is because someone will say, well, I'm at 200,000 in revenue and I'm not super profitable. Right. But last year you were at 50,000 and next year you at 500,000. You're growing very, very quickly, so you're not going to be profitable, even though you might be at the revenue that I indicate as a profitable range, because. Make sense. Cool. All right. Very first range of revenue that I see, approximately. I'm going to. Again, I give numbers because when I was coming up, I wanted specifics. I didn't like the range stuff. I'm going to give you a specific. Just know that it's a broad assumption here. $200,000 in annual revenue, this is where I can see you being very profitable, especially around your profit margin. In home services, typically, what this looks like is one to two trucks. You have one employee, you're working in the field full time with that one employee, and you're keeping overhead very low. And you do all the admin tasks yourself. So you're checking your email, you're answering the phone calls, you're doing everything the business, therefore, you have high margins because you don't have that overhead cost. You have one truck and trailer. Typically, it's all that's needed because you can just throw that employee inside of your truck and immediately boost your revenue by 60, 70, 80% simply because you have more labor that can be produced. At this point in time, we're focusing on route density and a small service area. Because if you're at 200,000, you're like, I am not profitable. I've been here for years. There's a very high likelihood that when this happens, I see people with a very wide service area, we're talking 10, 15, 20 miles as a radius that they were willing to serve. Especially if you have any sort of recurring route, any sort of job that is on a recurring basis, weekly, biweekly, monthly, quarterly, or annually, having any sort of route density is extremely important for this actually to be true. Now, these numbers here at the bottom, I'm going to give a target. This is again what I see as what I took as the top 25% in each of these categories. And this is what I think is the target at plateau. What that means is when you stop growing revenue and you're not trying to grow, grow, grow, grow and advertise and market, et cetera. When you do that, I would consider you plateaued. So staying at 200,000, you're not trying to get another truck. You're not trying to get more employees. So at target employee at target plateau, here we have $50,000 for the owner's salary, and then we have 20% owner's distributions. This is how much you actually take out of the business. This is not profit. This is distributions, net free cash flow that I take out of the business and put in my bank account. You can just add these two numbers up and you could approximately say that I make $50,000 as a salary from the owner and I take $40,000 in distributions. I. I make about $90,000. That's a 40. What is it, 45% profit margin? Approximately. If you actually take all of the distributions and your salary about 45% of revenue you're taking home personally. Now the second model is, I see right around $500,000. Now the first model at 200,000 we call a solo operator. At 500,000, I call it a working GM or working general manager. This does not mean you hire a general manager. This is what I call this model. You will be serving potentially, if you're the founder of the business, you may potentially be serving as the working gm. So this is the name of the model. Typically at this stage you're having three to four employees with about three to four trucks. Again these are ranges. As the owner you're focused really on sales for one to two days a week and you're trying to really focus on drive by estimates. Because if you have to start doing in person estimates and meeting with customers for 30, 40, 50 minutes, drive in between jobs in, you might only be able to get to 6 to 10 estimates per day versus if it's dry by estimates, getting 15 to 25 estimates per day, making you much more efficient and being able to stay as much time as possible in the field. Number three, focus on simple services. And your admin is usually outsourced. This avoids the need for an office for overhead expenses for admin, wages, utilities and a whole lot of other things that come along with additional admin costs. Not just the cost of the person that you're hiring, it's the cost of everything else that comes along with having an office staff.

Alright, at this stage we're going to focus on a high rate of recurring work. To do that we're going to focus on instant pricing and over the phone estimates or OTP estimates. We're going to dig very deep on this tomorrow. So I'm not going to spend much time on it. Salary GM or owner. Again you could be the working GM here and in that case I'm going to salary myself or the general manager and the general manager is a revenue producing team member. This is the part that most people, if they're at this stage and like I am not profitable is because they are spending 100% of their time working on the business, doing sales, admin, et cetera, et cetera, when still at 500,000, the working GM should be working. They should be producing revenue. If they have too many tasks at 5450000 in annual revenue. If they have too many tasks that keep them from producing revenue, you have a flawed business model. You have not systematized or automated enough to be able to get them back in the field or your prices are far too Low I'm going to be again, I'm very, very specific here. I know their generalities. I know I could fudge here. I want, this is what I wanted when I was 18. All right, I'm going to give you the numbers as I see them.

Typically I'm trying to get my working GM to be in the field three to four days per week. If I can do that, I will be able to cover their wages if I'm hiring them. If you are taking a salary, you'll be able to cover your entire salary if you can just work those few days at least in the field producing revenue.

Now at the plateau here again, we're not trying to grow, we're staying at 500,000 if we stop at this size of business. I see this usually being $60,000 to be able to pay the working GM or owner salary and about a 15% distributions. I'm being conservative here. Yes, there are businesses that do more than this. I am looking at the top 25% of my analysis and this is what I'm coming up with. If you approximate these two together, $130,000 or so, actually taking out the business again, this is an app plateau. This is not. Last year you did 300 and this year did 500. And now you're like Mike, I'm not profitable. You just grew by 66% year over year.

This is at plateau. You are not trying to grow revenue and you've been that way for the past few years.

The third stage is 800,000 is what I call a full time general manager. This is going to be about five to seven trucks with six to 10 employees. Larger ranges here the general manager is full time out of the field. So no longer will that working GM typically have the time to to be out in the field working with the crew. They're managing the crews, they're doing sales, et cetera. Typically during this time for four to six months of the year, you'll need seasonal admin help and you will need to hire them in house at this size of business, mostly due to the fact that outsourcing it at this size can become so cost prohibitive. You're okay with having a little bit of a loss during the off season just to keep that employee, that admin person and have the extra cost of rent, utilities and and all that comes with that overhead. And we'll talk a lot about that tomorrow. Under 10 employees to avoid the need for a full time estimator or a second non revenue producing person. We're going to talk more about this stuff. So I'm going over it quickly. We're going to focus on operational efficiencies and profit maximization. 800,000. That is under 50% close ratio and consistently raising prices. If you have a over a 50% close ratio and you are trying to grow the business, fantastic. If you're trying to make more money and you're having a 70, 80, 90% close ratio, you need to raise your prices. It is not rocket science. You need to raise your prices. If you're gonna say I am not trying to grow and yet 80, 90% of my customers are accepting the job, you need to raise your prices. If everyone here just raised their prices, I guarantee you'd make an admission for this conference in like one week. Just do it. I can say that across the board because I have yet to see anyone raise prices in the past three years and regret it.

Alright. Focusing on cutting out custom and complex services at this size of business. Why? Because my general manager has a lot on his plate. He's a full time manager and I need him focused on managing the crew, not managing all the jobs that are going wrong.

The target at plateau here is 80 to $120,000 in GM or owner salary. Again, I'm saying full time GM, this could be you as the owner plus a 10%, I mean conservative here distributions which is about $80,000. Again, this is putting around 160, $180,000 in take home pay. I know that people do more than this sometimes. I understand. I also know that if you're at 800,000 and you're not making anywhere close to that and take home, you're like what's going on? If, if you're growing the business, this is not relevant. This is at plateau. You've been doing this for the past few years. All right, fourth stage is 1.5 million plus. So after 1.5 there's more good stuff happening over there. At this size, we're doing eight to 12 trucks. We have 10 to 15 employees. We typically have two to three very skilled overhead full time positions to manage the sales, operations and admin side of things. That typically looks like an estimator ahead of ops and then a office manager estimator role does sales only for business for the busy season and then in the off season. I do put them in the field because there's not enough estimates. As much as they want to convince you of this, there's not enough enough estimates. If your estimates drop by 75% during the off season, so put them back in the field. And if they're not willing to do that, they're not my estimator.

Focus on efficient use of overhead positions. Were you trying to get a point across to someone else? It's like, yes.

Estimated rule to sales only. We talked about that. Focus on efficient use of overhead positions due to the fixed expense. Back to the idea of getting him back in the field as the estimator or even the office. If it does not demand a full time position, they're either getting laid off or they're getting back in the field and producing revenue. This alone will be the contributing factor as to whether or not you can make money at this size. We're going to build out your office and admin staff and systems and I do not recommend the fourth stage. If absentee ownership is the goal, you can be profitable. 1.5 to 2.5 etc. You can 100%. Please don't misinterpret me. You can be profitable. But when I look at absentee ownership, I do not see that being a place where people are in terms of revenue. All right.

So I see these as two different profit wildernesses. And if you follow my content, the first one you've heard me talk about before, at $200,000 in annual revenue, like I said, you're usually a solo operator. You might have one full time employee. You're making 150 to $250,000 in annual revenue. And the vast majority of that is profit because you don't have a lot of overhead, you don't have a lot of wages, you don't have a lot of staff, you don't have any sort of shop space. Your insurance is usually like 50 bucks a month depending on your services, very cheap. As you go past $200,000 now, the owner is pulled out of the field and you switch from being a labor producing team member to someone who's actually an overhead expense to the business. And in doing this, you will drive your profit margin significantly lower, typically from 40 to 60%. And that will get slashed as you go to 200,000 to 500,000 to down to 10% or below. That's horrible. That's $50,000 of profit on a $500,000 business. And there's a lot of people making less than that. And the reason for this is cause the owner switches from someone who produces, let's just call it $100 an hour. Let's say that you produce 2,000 hours. Cause you kick butt and you work overtime. 2,000 actual budget hours per year, that's $200,000 in revenue. And an optimized solo operator. I can consistently see being able to hit $200,000 in annual revenue. When you go from that to being a salaried overhead employee in the business, your profit margins gets whacked. No longer do you participate in the revenue generation, but you're actually at cost to the business. And for this reason, someone making usually 250, 300, 350 will make no more profit than when they're at 500,000. And that's why so many people will retreat back to being a solo operator.

If you followed social media for five or 10 years, you could probably list three, four, five different people on social media that have done this. And I could guess a couple right now that are going to do this, unfortunately. And the reason for that is because they start to wonder why is it even worth all the extra headache and overhead and admin and dealing with all these employees if I made just as much profit back when I was doing it myself?

And they're right because they're in the profit wilderness. In the profit wilderness, you grow the business, you incur more liability, you incur more debt. You usually are stressed out, more out of your mind. You have financial stress now because the profit margin of the business get compressed. The second wilderness that I haven't talked as much about on my content side of things is 800,000 to 1.5 million in revenue. And the reason that this is a profit wilderness is for the same exact reason. But now instead of the owner or the general manager needing to step out and do estimates and sharpen the blades and do everything else, there's a second full time person typically required once you pass 800,000 annual revenue. Again, these are broad brushes. I'm trying to give you specifics. Okay? This person is typically going to fill the role of either sales admin or operations inside of the company. This is going to again, look like an estimator that's full time. It's going to look like an admin, a full time office manager, or it's going to be an operations person that takes care of the team on the field, managing their routes, etc. All right, so what should I do.

If I am, you're like, well, I'm in one of those profit wildernesses. My recommendation, if you are in the profit wilderness, you're wanting to continue growing, this is a key. And, and you have low profit margins. If you check all three of those boxes, don't raise your hand. Just know this is what I would do, I would grow quickly as possible, as fast as possible to the capacity of your overhead staff.

What do I mean by that? At 200,000 to $500,000, you, if you're an owner, operator, become the overhead. And the goal at this stage in time, in this wilderness, is to maximize the amount of time that I'm in the field.

I need to be able to sell like Matt. I gotta do door hangers. I've gotta go out and sell. I've gotta focus on growing top line revenue and getting past 500,000 check. But I've also gotta be in the field as much as possible to make ends meet. That's why everyone stresses out and goes back. Cause you've gotta go both directions for a minute. You've gotta focus on sales, you've gotta be hustling, doing door hangers on the weekend, follow up calls while you're driving. A whole lot of other stuff we're gonna talk about tomorrow. And then you've also at the same time got to produce enough revenue to at least cover your wages. Otherwise you have this collapse of margin and you will go out of business. This is usually when debt gets incurred is in these wildernesses.

At $800,000 to $1.5 million in that profit wilderness, you have another full time overhead position that's required. At this stage I would recommend trying to minimize the ratio of field workers to managers. This ratio is completely out of whack for most businesses once they cross 800,000. I go to businesses and I'll see two people in the office, an estimator, an operations manager and owner and I have maybe, maybe eight to 10 employees out in the field. The business will never make money.

I try to shoot for at least a minimum of five to one. I know that's difficult if you're growing very quickly. Again, we are not assuming that we are growing quickly. We have plateaued around this size. Okay, if you're growing very quickly, one to five ratio is difficult, I understand that. But as a broad stroke, I want to paint that for a second. Now the safest route to grow your business and not go out of business and incur tons of amount of debt and huge amounts of stress is to stop at one of these stages, enter profit mode, stack cash and then race to the next stage with urgency. So I'm trying to get through the wildernesses as fast as possible because I know that at $500,000, I'm fully utilizing the capacity that I as a manager have. And when I get a second one, I'm going to have to get to that $1.5 million marker to even make it worth having a second overhead position. How do you know that? Let's assume that you have an estimator or a salesperson. You're trying to build an organization. Let's assume that you pay them. Let's go with $65,000 with taxes, let's call it 80,000 taxes, maybe some benefits, etc. $80,000. Let's assume that you as the owner, you're not going to pay yourself this, but you should be paying yourself. Based on how many hours you're working, you should be paying yourself 100,000. We now have $180,000 in wages. This is a direct cost to the business. If you have a 20% profit margin. 20%, you need to be running like an 800,000 to $900,000 business just to cover your expenses. And the labor is incurred from these two overhead positions.

$One million in revenue is large enough to push most managers, if they're by themselves, past their breaking point. That's why we typically have to hire another one, another manager of some sort.

Most managers can manage six to eight people effectively. Now there's a whole bunch of studies around this. I'm going to go with fixed eight because there's a ton of stuff from the military, specifically about how many people can you effectively actually manage. Let's go with fixed 8. $1 million in revenue is large enough to push most managers past their breaking point. It also requires me to usually have to hire more than eight people during peak season.

So many times, if you're doing 1.2, 1.3 many times during peak season, you will have 12, 13, 14 people. That is too many people for one person to manage. And so what do we do? We have to go hire a second person. That's overhead. What I like to think of as max capacity for a general manager is eight people that they can effectively manage. Once you exceed eight people, you have to hire another manager because they do not have the capacity to. Now your capacity is at 16. That's the number of people that now between two general managers or two managers overhead positions, we could effectively manage. I need to get to that 16 person to fill the capacity of my management team. And that's usually where about $1.5 million is being surpassed. Does that make sense? I've talked about capacity based growth a lot. I'm going to talk about again tomorrow, but this is a different form of that, which is like the capacity of the number of employees that my crew, my management team can handle is X. And I need to grow to that point in that level in order to fully utilize them as overhead in the business.

Now, an owner, because if right now you're saying six to eight people, my goodness, an owner can usually manage 12 to 15 people and they do so by working crazy hours. But again, I'm not speaking to that individual because yes, you will manage 12 to 15 people and you will never be able to hand that business off.

You'll never be able to find a general manager that's affordable without paying 150, $200,000 to find a general manager that can run a 15, 20, 30 person crew.

And furthermore, you'll never be able to sell it because no one wants to work your 80 hour work week to manage those 15 people that you're hiring out in the field.

After analyzing all these financial statements, I looked at a couple things. Number one, which ones made 20% or more profit margins? I define profit margins again, not as take home distributions. Right now this is simply profit on the P and L. Which ones do not have negative cash flow during the off season? This is a very big important key part because if you have negative cash flow during the off season, the likelihood of you being an absentee owner shrinks dramatically. Most importantly, which ones ran without an owner's daily involvement? So 84% of the companies. Sorry, did I skip a slide? I didn't. No, we're good. 84% of the companies that passed that test. Of those two questions, 84% had a revenue between 500,000 and $800,000 in annual revenue. So I call this a sweet spot. 500 to $800,000. Again, if you're in that stage and you're not optimizing for profit inside of that revenue, you're not going to experience what I'm talking about. This is someone who is staying in that size. They are not trying to grow in their in profit mode, which we will define even more so tomorrow. So there are three camps of business that everyone now falls into. A, you are below $500,000 in annual revenue. B, you are in the sweet spot of 500,000 to $800,000 in annual revenue. Or three. Did I say A, did I say one B and then I'm saying C. All right, 1, 2, 3, ABC. You get it? Above 800,000 is the third group that is categorizing. All right, three different camps of businesses. If you're making less than $500,000, I'm going to be prescriptive Here, which I usually don't like to tell people what to do. I'm trying to. This keynote is dedicated to my 18 year old self that just wanted the roadmap. Just tell me what to do. If you're making less than $500,000, you need to sell like mad. You need to work every single hour of every working day. If you do not want to be poor, you need to get out of this stage as fast as possible. This is the bottom line. If you do not want to be poor, you work like mad. You outsource your part time admin, you're not gonna have a full time. You do not need full time admin at this stage. The fact that you think you need an office person and you're doing 300,000 is ludicrous. You have a flawed business model. Focus on close ratio, not profits. Because I do not care about profits. I need to get past 500,000 as fast as possible. The fact that you're maniacally focused on 30 versus 35% close ratio at this size is dumb. Alright, I'm gonna be a little more different than I usually am. I'm trying to be very prescriptive here.

Focus on your close ratio. I want as many jobs as possible. I'm gonna follow up. I'm gonna do everything possible to close jobs. I don't care about profits. I need to get past $500,000 in revenue as fast as possible. I'm gonna focus all of my marketing on recurring jobs. We're gonna talk about why this is important. Tomorrow projects are gonna come in. If you offer a service that's recurring, you're gonna also have one time jobs that trickle in. Great. I will use that to book my schedule out, hire more people and then take that money and throw it into the marketing engine so that I can continue to get more recurring work.

This is required. You gotta build an organic lead engine via your website and your brand. The reason I put this in here last minute is cause I realized that if you don't have this and you do what I'm about to tell you to do, you could actually never get to the end of 800,000 and just stall out at 500,000 a bunch. I'll explain in just a second. But just know that at this size of this, if you're under 500,000, you must build organic traffic via your website. Your truck's being painted and decal. You've got to be getting leads organically. You cannot be paying for every single lead. Okay. Because when your close ratio drops you will not be able to continue in through profit mode. All right, if you're. That's camp number one. Under 500,000. There's your prescription. Take it. That's all you need to do the rest of this year. 500,000. 800,000. Here you go. This is a sweet spot. Do not buy more trucks and equipment. Do not. Again, I am being prescriptive because I have defined that you are trying to be absentee. You're trying. You don't care about revenue and you want to make more profit and you want to hand this thing off one day.

Do not hire more employees.

Fill to capacity. In other words, all your trucks and employees are being used every single day. And then raise prices. Do that three times. Repeat, repeat, repeat. If you just simply take the math of raising your prices by 15% which I suggest a minimum 15% price increase, never less than that, you're going to do the band aid situation. Get 15%. Don't go over 4 or 5%. That's dumb. I'm going to rate my price 15%. I'm going to do it three times. If you do the math on a $500,000 business, raise their prices 15%. Three times. You're at 800,000.

Systematize at this stage. I'm trying to remove my low profit or complex services.

Alright? Now if you produce 800,000 to $1.5 million in annual revenue and you have low profit and cash if you don't, this has nothing to do with you. You are awesome. All right. There are people that will be in the states and it'll be just fine. But if you're in this stage of 800,000 to 1.5 million and you have low cash or low profit. This is my prescription. Stop marketing. Raise your prices and reduce close ratio until you have eight or fewer field employees.

Oh, sorry. Streamline the business. So you only need one overhead role and that's usually going to be that general manager. And you're going to automate sales. Because I can't have my general manager running around doing 10, 15 estimates. I need to automate this stuff.

I'm going to talk a lot about that tomorrow. Sell unused trucks and lay off part time employees. If you're not using a truck, it is costing you money. It's paid off. I don't have any debt on it. It's costing you money. It costs money to store, it costs money to insure it costs money to maintain it and it costs money for it to sit there and look bad in front of the Rest of your employees every day when they show up like what's that truck here for?

Sell unused trucks and lay off part time employees. Get it down to your core group of people that are all working full time at eight employees. They're all working 40 hours a week, maybe a little bit of overtime. But you've narrowed it down to a sizable enough business for one person to manage effectively.

And replace one time jobs with recurring work. Because I cannot diminish my revenue if I built I want complex this too much. Usually by this size of business your fixed expenses are high enough to where I cannot risk any loss of profit during the off season. And in order to make sure that never happens, I need recurring revenue tomorrow. We're going to dive deeper on that one once we have some more time. All right. Entrepreneurs get stuck in growth mode. I talked about earlier today. I got stuck in growth mode but entrepreneurs consistently do this now because we get stuck in growth mode. Growth sucks cash. This causes many to give up on the industry. And they say that there's no money in this industry. There's no money in lawn care, there's no money in fencing, there's no money in roofing, there's no money in painting. I have heard every single one. And what's really funny is when they say that they mention the other service that I just heard someone else say there's no money in that industry. The bottom line is the reason we judge it is because we're constantly stuck in growth mode. And when you're in growth mode, growth sucks cash. And because of that you never see profit.

We've convinced ourselves that we are investing in the business. I see this over and hear it over and over and over again and there's a kernel of truth to it. And that's why we all give this a pass. But investing in the business is not.

Really what it really is is it's an unprofitable business model. Can we just accept the fact that if you're not growing and there's no profit in the business, you have an unprofitable business model. This is not to be demeaning. I was there, alright? It almost killed me. I was underneath the dump truck, got caught in the thing because I didn't have systems in the business. Almost killed me. Had no profit. I've been working crazy amounts of hours, no money. So I know where you're at. You have a non profitable business model. Accepting that for a fact is very important to realize that you need to make some sort of change in the business. So if you're at any of those three stages and there's not money being made, follow those. Those prescriptions I recommend. I did this for four years. My first four years of business. I ran an unprofitable business. I convinced myself that I was investing in the business, but I was running an unprofitable business. And it was simply propped up by me working extremely stupid hours. If you're working 80, 90 hours, you'll never pass the business on. You will never sell it. No one wants this job. You will never be able to hand off to a general manager. No one's going to do that. Fix the business. We need a finish line. I genuinely believe that this would solve the vast majority of failures, quote, really quitting in home services. And as we have not established what finish line is for our businesses and when we stop growing and we actually make profit.

So this is when we stop growing and we start making profit. All right. At Augusta, and please don't think this is a pitch. I am trying to describe what we've done this year, because this has been the number one reason I see people quit. We've created the Augusta business model. It's simply this, what we've talked about so far. Grow quickly to $500,000 in annual revenue. Enter profit mode. Stop buying trucks. No more employees. Raise your prices. Do this for three years, assuming you don't have the capital to go through this very fast. Focus on upselling. No ad spend. And in those three years, you'll get to 7 to $800,000 in revenue. Our goal at that point is $200,000 in profit. Now. No, you will not take $200,000 home. If you're absentee, you'll probably give half of that to a general manager, a regional manager, and your team. But if I'm making $100,000 distributions passively and I'm actually absentee, that's a good business.

Now, the goal of the size is four to seven trucks with four to eight employees, one general manager. No secondary overhead, physicians. And most admin tasks are covered by our command center. Think outsourced admin. All right. Simple services with automated sales. I'm not going out and doing estimates. I'm not driving around. All of it's automated. Now, this is what this looks like on a graph. I'm gonna grow as fast as possible to $500,000 in annual revenue. Now, on the left hand side, on the Y axis, I put number of customers. Let's just assume it's customers for a moment. I can have the capacity for 200. Now, in terms of revenue, this is what it looks like. At 500,000 annual revenue, or 200 customers in this case, I'm raising prices. And then every single time I get to that threshold of my capacity, I'm raising prices again. Why? Because at this point, if I was to continue getting more customers, I would need more trucks and more employees. And guess what the number one rule is.

No trucks, no employees. I'm going to hit capacity. And when all my trucks are being used and all my employees are working full time, and if I work them any harder, they'd be working overtime. Now, then I raise prices.

Boom. Three years, 800,000 in annual revenue. So I tested this hypothesis with my two locations that I currently own inside of Augusta. One was at 500,000 annual revenue in 2023. One was over $1 million in annual revenue in 2023. Now, keep in mind, I did not visit these locations in person. Okay. One of the locations, I've never even been to the shop space.

One location grew from 500,000 up to the $650,000 marker. And. And they made more profit. We took the location that was doing 1 million over a million, like 1.1, 1.2, and we scaled it back. What did it do? Made more profit.

So the question is, what happened to the location that was doing 1.2 million in annual revenue in 2023? What happened in 2024? I'm gonna show you a diagram. This is what actually happened. Okay. We had 13 trucks. We had 12 to 18 employees out in the field, depending on the time of year. Sometimes I guess during the off season, even less. But like as a range, let's just call it 12 to 18. Now, this is what was happening is the vast majority of our capacity was all of this space up here. This is a recurring revenue. In other words, every single week, I have a certain amount of budget hours that my crew could complete my capacity. If all my trucks are being used, if all my employees are out in the field working, that's my capacity. Now, only about 34, 30 to 40% of that revenue or that capacity was being done with recurring work that is for us mowing. What that meant is that I had to advertise to fill the rest of the schedule with one time jobs.

And so that advertising, Facebook, Google, whatever else was happening, had to fill this gap with budgeted hours. So what do we do? We reduce capacity. We sold off trucks. Boom. We sold off trucks and we laid off anyone that was working 25, 30 hours a week and Just cut right back down to eight. In doing that, we had six trucks, we had six to eight employees and we brought the capacity down. Notice what happened. Now I don't need to advertise very much to fill up the excess capacity above my recurring revenue. Because the vast majority of my revenue, the vast majority of my budget hours are consisted of recurring revenue, recurring jobs. This is what happened to our work backlog. I'm just done making a diagram. It was actually more substantial here, but I'm just showing a point.

When we started this process, we had a one week backlog of work just one week out. Meaning that you didn't even know if you keep your crew busy for the next week. You're always on the phone trying to get follow up, trying to do a deal, cut a deal, et cetera. Within a matter of like it was like a week or maybe two. This is what happened. But when we reduced the capacity, we sold off the trucks, we laid off employees, we reduced our capacity, and all of a sudden we were six weeks booked out. Literally within a matter of a week or two, you say, did you sell more jobs? No, we stopped marketing. But there was enough leads coming in that we could fill this excess capacity for one time projects very quickly. It only took a few one time projects a week and we'd fill the schedule. And what they do, they just filled the next one. Whereas in the past they'd need a few projects every day to keep the crew busy. Are we tracking?

All right, if this doesn't make sense, grab someone from Augusta, talk to them this evening. All right, so what happened before, these are real numbers and you can talk to general managers if you want to validate this stuff. Project hourly rate was $80 per hour. Our capacity. This one's a little, this one's gray. So Corey, if you're listening, I kind of made this one up because I was guessing based on the trucks $660 budget hours per week. That's what we could have done if all the trucks were being used and all the employees were working full time. Now we only had 350 budget hours per week on the schedule.

That is, we are way below capacity. We were producing around $112,000 per month in labor revenue and producing around a 9 to 12% profit margin.

Now after we did what I just talked about was this lower capacity. We sold off trucks and we only hired the full time, eight employees, no more. We let everyone go. So the general manager just had eight people. Now we raised our prices by 25% on projects to $100 per hour. We dropped our capacity by more than half. We sold off literally half the trucks, and our budget hours per week still stayed the same because, like, that was the work that was coming in. Whoops, sorry back. There you go. 250 budget hours on the schedule. Notice we were right up against our capacity. This was down from 350, and our labor revenue per month was $100,000 and we had 18 to 22% profit margin. This changed within one month.

Now, the results of reducing capacity meant that we did not have to sell as many projects to fill the schedule. By making sure that we only had to sell a few projects a week to just fill a schedule, I didn't have to spend any money on ads, and they were spending thousands of dollars every single month on Facebook, Google, et cetera. That just went down to zero. Knowing now that we're booked out six weeks, I'm not going to be marketing.

Increased the backlog of work, allowed for higher prices.

Overdue invoices dropped by 50%.

And our close ratio went from 40 to 60%. Say, how did that happen? You raised prices. The reason these two are blue are these are the things that you cannot measure, and that is this. The general manager had half as many people reporting to him now. He had half as many trucks to fix, repair, and manage. Half the amount of trucks to make sure the tire pressure was good, the brakes were fixed, oil was changed, et cetera. And so by simply the manager having a manageable workload of six to eight employees, it gave him the capacity to follow up on estimates. It gave him the capacity to follow up on overdue invoices and actually collect on funds that were overdue.

The result? You make more profit, easier to manage. The managers will stay longer. Why? Because they actually can do this job and they feel like there's actually profit in it. You can actually give them profit sharing, then don't have to work 80 to 90 hours a week. And there's fewer emergencies because they can actually manage six to eight people.

Meaning the business won't need you as much because there are not as many emergencies. Emergencies happen because of poor management. And so if you're putting your manager in a position where they're managing 10, 12, 15 employees, there will be more emergencies that you get dragged into.

All right, again, this is true if all the following are true.

If you want to make more profit and don't care about revenue flexes, you want to get out of daily operations within five years and hire a general manager that is not inside of your family. And three, you want to build a sellable asset that can be passed along to kids or sold to a potential buyer. This does not apply to you. If any of these are true, and I'm not putting you down if these are true, just recognize what I'm about to continue talking about is not relevant to you. If growing a large top line revenue business is motivating for you, awesome. I understand that. Just know that some of the things I've talked about aren't gonna relate to you. Cause you're not in profit mode. You're in growth mode. And growth sucks cash. And you're hiring people before you really need them. You're. You're buying trucks before you really need them. And that will incur debt. Debt on you personally and debt in the business financially. Number two, you enjoy working in daily operations and you want to do that indefinitely. So if you enjoy working in the business, that's awesome. All power to you. I'm thrilled that you're content. Keep going for it. Just know that this is not going to be as relevant to you. Three, if you do not want to sell the business or pass the business along again, you don't need to follow this advice. You can make a very profitable 1 million 1.2, $1.4 million business just fine. Now, fewer than 5% of all businesses in the US will exceed $1 million. This is across all industries, not just home services. This is across all businesses. But yet somehow in the entrepreneurial community, we somehow have believed and come to the place that the starting point for success is in a million dollars. Okay, got to build a million dollar business.

I think that striving for a million dollars will lead many to burnout, financially and mentally. And they will stay in this perpetual state of growth and never actually achieve profitability. And you got into business to make more money. And so it seems kind of counterintuitive to when you've been five, six, seven, eight years in the business and you still aren't seeing any money. I would quit too. And, and that's why so many do. And so I genuinely believe that if we just say there's a different finish line here and it's not seven figures, it's building a profitable business. And there's four stages in which I can decide to do that at. And my role will change at those different sizes. And I don't need to get more trucks and hire more people to look good in front of my competitors. Because that's why the vast majority of us buy trucks and Hire more people.

The alternative to this is to grow to $500,000. Enter profit mode. Employ fewer than eight team members. Hire a general manager, become an absentee owner. And this is optional. You can duplicate it. So if you're like, I want to grow revenue, I want to grow. Great, do this, copy it, paste, copy it, paste this. You can do this over and over and still grow top line revenue without building this behemoth of a business that will take you 10 to 15 years to operationalize. To be able to actually hand off to somebody. The businesses that you look up to, like they're doing 2, 3 million, they sold. They've been in business, the vast majority of them, for 10 to 20 years at least. If you want to do this in less than 5, this is what I would recommend. All right. The playbook. So here's the recipe to make an absentee owner model work with multiple locations. Is everyone like, good?

We okay? I know it's like Eastern standard for a lot of people. So it's like 10 o'. Clock. We, we good? All right. We're gonna get pretty deep here. Alright. So just stay with me. Everything I've said so far is groundwork for what I'm about to share.

So this is a disclaimer. This is extremely hard. Please don't think that me having this on a slide deck in an hour and a half is gonna somehow make it easy. It's very difficult. If you try to do this, you will likely make mistakes on your first few tries. Regardless of how much I tell you about this, you will probably do so. But I'm going to tell you the lessons I've learned from the mistakes I've made. All right? And getting to the point where now I do have locations that run without me. I want to tell you all the mistakes I made, so hopefully you don't have to make the same ones. Here's the playbook. We've already talked about sales, operations and admin.

I like to think of this very simply as getting the work, doing the work and then greasing the gears. The sales I need to get the jobs. All right. It's marketing. Okay? Get the work. That's what I'm going to consider as sales. I'm not going to break this down. This is not rocket science. I'm going to get the work. I'm going to do the stinking work. Doing the work means I've got to route the jobs, I got to put air in the tires, I've got to get the crew out in the field. I got to give them a shirt. I've got to get them in a truck. That's operations and Admin is making sure payroll is done, answering the phone, doing email, all that is required, but it's not necessarily doing the work or getting the work. Sales, operations, Admin. Here's the playbook. I need to automate sales as much as possible using technology. What I talked about in terms of the model will not work if you are going to every single estimate in person just won't. You are the most expensive person on your crew and you're out doing work that produces no revenue. Like, oh, I need to do it. I agree. But technology can also do it.

All right, Admin, I recommend outsourcing this.

The third part is simplifying operations and hiring a general manager. All right, we're going to recap this. Let me go back. So we have sales, operations and Admin. I want to automate sales as much as possible using technology. I don't care if you need to have AI. I don't care if you need to have instant price forms. I don't care if you have to do over the phone estimates and pay someone by the minute to answer that phone. I don't. I don't care what it is. I need to automate technology. We're using technology as much as possible, using satellite images, using ranges of pricing, which we'll talk a lot about this stuff tomorrow. I need to automate it. All right. It costs me too much to send an estimator out. Your estimator is your most expensive person. Typically, they have the most skills and they're hardest people to find. It's a whole lot easier to find a general manager if they don't need to know how to sell. I'm going to automate it to reduce that as a complexity in the business. As I pass it along, I'm going to make sure that my admin is outsourced. I don't need an expensive office. It's commercially rated, that has zoning for a commercial building and either I am tied to rent that is increasing or I have to spend $100,000 plus on a down payment on a piece of land.

And I'm going to take my operations, I'm going to simplify my services, I'm going to simplify everything in the business and then hire a general manager and I'm going to hand them. A business that has less than eight people has gone through all the steps we've talked about so far. The hardest part on all of this is getting A rockstar general manager. This is the hardest part. Everything I've talked about so far. You can do it. Trust me. This is hard. All right.

The GM or the general manager makes or breaks a location. Are you like, man, Mike, I'm not even thinking about general manager. You are the general manager. Remember, Solo operator, working gm, GM Plus. These are models. And you are the general manager. That's fine. I'm not demeaning you as the owner. You are serving the role of a general manager. And you make or break the business at those sizes. And if you start to have many locations and you become an absent owner, this is true. The general manager makes or breaks a location.

Did I have this later? Give me one second. Yes, I do. There are two different types of general managers.

There are general managers that you need in profit mode. And if you're going to hire a general manager and you're in profit mode, you're going to want a general manager that's operationally gifted, operationally driven, operationally talented. They just need to be good at operations.

Now, what does that look like? I'm in profit mode. I'm not trying to grow. I'm just optimizing for price. I'm in that stage of 500 to 800,000. I'm just raising prices every single time I hit capacity. I am not trying to grow the business. So this is when this operationally focused general manager is needed. First off, you are not starting the business from scratch. The business is already established. You're growing less than 50% year over year. So if you're at 500,000 today and like, I'm going to do 800,000 next year, that's a 60% increase. You do not need an operationally driven GM. Wrong person. Right. If you're going from 500,000 to 600,000, that's a 20% increase. Good. We might be able to have an operationally sound general manager. Making sense so far. Cool.

I also recommend, if you're going to hire an operationally driven GM, that you're spending less than 2% of your annual revenue on ads.

And I'm going to give you specifics.

Profitability and efficiency is the focus. When you walk into the building, the first thing you're talking about is profit. You're not talking about number of leads, you're not talking about ad spend. You're not talking about close ratio.

The majority of that general manager's day is going to be spent on training, hiring, and managing the team. Why? Because they're focused on operations.

So you need A operationally sound familiar focus general manager if your business meets all of these criteria.

Lastly, there are sales processes that are automated and or handled by an admin person. This is when you need an operational gm. I just have seen this over and over and over. Like this stuff I have bled and lost money over. I've seen other people that have tried to do multiple locations, have general manager, etc. And this is so consistent. Okay, Sales processes gotta be automated or handled by an admin because again they are operationally driven. They don't like sales, they don't like admin.

All right. If you are in growth mode and you're trying to grow a business, you need a general manager that is gifted at something else. That's sales. So we have sales, we have operations and we have admin. If I'm in profit mode and I'm not trying to grow top line revenue, but I'm simply trying to make it more profitably and more operationally efficient, I need an operationally gifted general manager. If I am trying to grow the business and I am in growth mode, I need a sales driven sales oriented general manager. Now in growth mode, when we have a sales focused general manager, this is when they are needed. You are starting at zero. Like I'm starting this new location at zero. You need this person.

If you're growing faster than 50% year over year, you also need a sales focused general manager.

If your focus is on close ratio and increasing recurring customers, you also need a sales focus general manager. You also need them. If you're. You're spending more than 2% of your annual revenue is on ads. Don't tell me you're spending 10% of revenue on ads. And also in profit mode. You're not. You have not generated enough organic traffic to be able to keep filling the pipeline so that you can turn off ads and and still be able to keep that capacity. We'll talk a lot about that tomorrow. If I lost you there, just leave it.

Majority of their day as a sales focused general manager is me focused on follow up calls, upselling in person estimates and door hangers. If this is the focus of the person you're hiring as a general manager, they should be a sales focused gm.

Got it. Making sense. We're tracking. All right. I know this is like very in the weeds, but like, I promise you this works. This works all right. Things I've learned the hard way. First off, a General Manager at $0 looks very different than $800,000. If you think your general managers are going to look Two identical people, one starting from scratch and the other taking $800,000 business and trying to optimize over profit. You are in for a world of hurt.

Successful sales driven GM could leave your business when growth slows and routine kicks in.

So if you have a sales driven GM that loves to sell, loves the grind, loves the hustle, loves the chase, loves getting new customers, loves sales, loves follow up calls, loves growing top line revenue, and they're like, hey, we're going into profit mode. You might lose that general manager because they're sales driven, they don't like operations, they don't enjoy tweaking things by 1% and raising prices slightly. They don't enjoy that, they like the hunt. Okay.

If you ever want to see a sales driven general manager turned owner, you talk to Connor Hutchinson. All right, right here, third row back, just raise your hand. Yeah, this guy. All right, he was, started several locations for me and the reason we kept moving him from location to location is because he did not like operational stuff. All right? So we just kept moving him. So he grow it to 15 to 20,000amonth revenue he handed off to someone else that can optimize it, make it better, make it more efficient, make it more profitable. Because I knew he'd leave, he would have left me in like a year probably anyways, because he was, you know, go getter, let's go. Now he has five or six locations. Okay? So a successful operations general manager could also leave you if you push them to grow revenue and do sales. Because guess what, you, they hate knocking on people's doors. They hate doing follow up phone calls. They would rather die than have to call someone and ask them why they declined an estimate. They're not sales driven, they're operationally driven. And distinguishing between these is important because you might be looking for a unicorn right now when it comes to your general manager and wondering why you can't find anyone when in reality you're expecting someone to be sales driven and operationally driven. And you know what that is called A, an entrepreneur.

And so they'll go start their own business.

And that's why a lot of us get tempted to hire people that have left their businesses and they're like, oh, I'm come work for you. It's because they're entrepreneurial and they usually are the unicorn. But guess what? They're a unicorn that failed.

So a successful operations gm, they love tweaking, making things more efficient. If you're like, all right, I did this, we went to the summit and now we're going to do some ads and we're going to start ramping this bad boy up. We're going into growth mode. You might lose that general manager because they would rather die than put door hangers out. They'd rather work 10, 12, 14 hours out in the blazing heat and then come in and do managing the crew and dispatching the jobs. They'd rather do that than spend two hours doing door hangers.

Interviewing and training team members is a different skill than interviewing and training managers.

You can be great at hiring people and as you get to your second, third location, start doing what we've talked about, copying and pasting. You will fail miserably. I've seen this fail miserably at hiring general managers because it's a different skill. It's a completely different skill than hiring field workers. Completely different way of interviewing them. The questions that you ask, the way that you treat them, the way you interact with them is completely different. Is a skill I can't even teach. You will have to learn this many times. This is why I see usually a couple failures on the first couple general managers is because we are expecting too much of them. We do not have clear roles of sales, operations and admin and for that reason they fail.

We also I recommend I learned this the hard way. Do not skimp on incentives. The difference between a good general manager and a great general manager is usually the difference between doubling and tripling the profits of the location.

So recently inside the multi unit operators.

Chat there's a discussion around salary and we're going back and forth what's kind of everyone's paying in terms of the base salary plus incentives. And I sent my P and L from one of my locations. I said does it make sense for me to get to get nickel and dime over 5, 10 or $15,000 over this P and L? If this is a great general manager just produced $50,000 in profit this month, is it worth me nickel and diming them between 60 and $70,000 per year in annual revenue? The answer to that, our annual salary. And the answer to that is no. A great general manager, you will want to incentivize them heavily and pay them well.

The next logical question in the playbook is how do I find a general manager? All right, here we go. If you're needing to find an operationally driven general manager because again, we are in profit mode, here's how you find them. The best ones will usually come from your field crew.

Just there it is. And I recommend they have worked for you for at least 12 months already. Now, again, I can do this because I only need them to manage six to eight people. I'm not asking them to lead 15 or 20 people. I'm just trying to take the best person in the field. They've worked with me for 12 months, and they want to lead.

The team naturally looks to them as the leader. That's usually gonna be the person. They're on your team, they've been there for a long time, and when they step on the job, everyone is immediately just like, yes, okay, yeah, what should I do here? It's just default. Even though they have no positional authority, everyone looks at them as the leader. There's your general manager.

They show willingness to learn and educate themselves with books, podcasts, and YouTube. The reason this is important is because if you're taking them from your fuel crew, they. There will be skills that they are deficit in and they will need to learn. If they do not have the skill of learning, they will not learn the skills and they will not perform well. Right. So don't take the first three. Like, yeah, this guy's a natural leader. He's working for 12 months. He's out in the field. But does he actually watch YouTube videos? Does he watch. Does he listen to podcasts? Cause if he doesn't, if he's not a learner, he will not learn the skills. And if he's just in the field now, he does not have the skills to be a leader. Very different things. Worker and leader, very different. They'll need to gain those skills.

All right, so if I'm in growth mode, you're like, I'm trying to grow my business. I need a general manager starting my second location, and we're starting from zero. Here's how you find them. It can be very, very difficult if they're coming from your field crew. The reason for this is that when someone joins your crew out in the field working, they aren't salespeople. They are looking to do work and get their hands dirty. It is very rare that someone applies to do a physical manual labor job. Somehow switches to wanting to be doing sales door hangers and calling people on the phone.

So if you expect them to go from the field and then go out and do that, it rarely works.

Past sales experience is preferred, and ideally, it's outbound sales. The difference is this. Inbound people call them saying, I'm interested in your service. Let's set up a call. Outbound is they have to call the customer and get the lead. If they have done Outbound sales, they are not gonna be afraid to call people on the phone, follow up, push for the sale, convince, get over obstacles, all of that jazz. That's a much more difficult skill to be able to train. So I'm looking for past sales experience. But ideally, outbound sales, inbound sales, their use of leads coming to them. And there are sometimes the general managers that expect you to keep pumping money into ads and you're like, no, you will go do door hangers and you will follow up on the estimates to increase the close ratio.

They are harder to find. A sales GM is very difficult to find. They are harder to find than a general manager that has operational strength most of the time. Because we have been, we are able to shrink the operational requirements when you only have six to eight employees. So it's easier for someone to step into that role than stepping into a role. You have zero employees and you need to go make customers. Many times those people, I think is my next part, are entrepreneurial. All right? They're likely to go start their own business eventually. So they are many times a short term hire. To be very honest, a general manager that has sales chops and actually grow a business from zero and up isn't gonna stay with you very long. And if they do and, and you switch that thing into profit mode, you might lose them.

For that reason.

If you're having a secondary location, I usually recommend that the owner serve as the general manager during the growth phase. So until you're growing less than 50% year over year, I recommend that the owner be that quote unquote, sales focused general manager.

Now, you can overcome this if you have a bunch of money because you will overpay people on sales and you'll also hire an admin person and you'll be able to make this work. But if you're trying to go like one location at a time and you're not starting eight or 10 at the same time, which the vast majority of us won't be. So let's just assume you're doing one and then you're doing two, and a couple years later you three. If you're doing that, I recommend the general manager that is sales driven be you. And you build it up past the $500,000 marker and then you hand it off to an operationally sound general manager that has worked with you for 12 months, that been in the field and shows chops to be able to learn.

If that makes sense, just say, let's go. All right, we're tracking.

All right. Well, in the Playbook, the next chapter, how do I pay them?

Is this like algebra or like you guys? This is good. We're good, we're tracking. All right. I know it's a little bit different. And this might be like what you might be experiencing a few years from now. All right. I'm also thinking about even if you have one location, I know I'm talking about secondary locations. But remember, general manager, same thing as solo operator. If you're trying to make a business that runs without you, you can go on vacation for follow this.

Next logical question. How do I pay a general manager? There are two ways to pay or incentivize a general manager. Okay, so by the way, how this keynote came about, I'll tell the story. So John Taffer unfortunately pulled out on us on I think Monday or Tuesday, whenever it was. So I said, okay, why? What makes me different than anyone else? Like, let's strip this all back. I didn't have stuff. All right, what makes me different than anyone else is going to stand on the stage and it's the fact that I have seen dozens and dozens of dozens of general managers in multiple locations. And what works and what doesn't. I'm just going to tell you everything I know about it. Sound good? Including how to pay them. There are two ways to do it. The first is paying based upon the P and L inside of this form of compensation for general managers. There's two forms inside of this. The first is what we usually consider as profit sharing. I take the bottom line, whatever that is, 54,000 profit at the bottom and I'm like, ah, p and l, $50,000. I'm going to give a percentage of that to my general manager. The second way, using the P and L model is going to be based upon revenue incentives or top line revenue. So let's first talk about these two ways inside of using a pay based model for a P and L. First off, we're going to use bottom line profits. This is quarterly profit sharing. This is what's most commonly used is, hey, at the end of the quarter, I look at that bottom number and I give you a percentage of it. Here's one. To use it when there is debt on the business, I would use this. The reason for that is because interest expense on a loan shows up on a P and L principal pay down does not. It's on the balance sheet. So if that does not make sense to you, don't worry about it. Just take me for face value and say if you have a bunch of debt on the business, it's not going to make a lot of sense to do profit sharing. Sorry. If you have a lot of debt on the business, using this is the best way to do it. Because otherwise you are penalizing your general manager for taking on debt. Okay. Which we'll talk about that model down the road. But again, debt on the business. I would use this one. If assets like trucks are on the balance sheet and they're getting depreciated, I would also use this growth under 25% year over year. So you're not growing super fast here. This is when I would be using this form of compensation. And 5 to 25% share with the general manager is what I use and it's based upon when they join the business. So if they joined the business when we were smaller and they were able to grow and there wasn't a lot of profit in the first couple years, I'm going to give them a higher chunk. If they just got started and we've been in profit mode for five years and this thing is printing cash, I am not going to give them 25%.

I'm looking for a history of consistent profits is mostly ideal if your location is trying to use this compensation model. As for compensating your general managers, I know this is dense. I'm trying to make this easier. Sorry. Revenue incentives. This is top line revenue. When should I be incentivizing my general manager based on top line revenue? If you're growing more than 50% year over year. Why? Because you're in growth mode and growth sucks cash, there's not going to be any profit on the bottom line. You'll demoralize your general manager. If you say I'm going to give you profit sharing and in three years we'll be profitable. They're going to leave.

If you're way below your asset capacity and you need them to sell at all costs to get to capacity, I would also incentivize revenue. Some people do this based upon chunks of revenue like bonuses each month. Some people do this as a commission and a percentage of the top line revenue. I don't care. But you're just, you're incentivizing them based upon top line revenue. If you want to grow your revenue. Oh, that's. There it is. Commission or bonus bans. So sometimes we'll do like hey, zero to $220,000 a month, no bonus, $20,000 to $40,000, $500 bonus per month, et cetera. And you can move it all the way up if you Wanted to. That'd be bonus bans, commission. Like, hey, I give you a top line, 2, 3, 4, 5% of top line revenue on top of your base pay. All that's doing is giving them incentive based on revenue. I do not want to do that if I'm not growing and I'm in profit mode. Why? Because they're not incentivized, which I want is profit. I just want to know the bottom number. And that's why I'm going to give them, in this example, a piece of the quarterly profit sharing.

The revenue incentives. I traditionally have only seen this model work if the owner is present.

If you're being absentee for a location that's growing quickly, I have not seen this work well.

All right, the second way to pay your general managers is based upon the balance sheet said in the profit and loss statement. And what we're going to do is give them a cut of owner's distributions. I need everyone to lock in for like five minutes. We're going to do some math. All right?

Owner's distributions, when to use. This is when there's little to no debt on the business. Otherwise you will be cheating out your general manager. All right? Because there will not be any cash distributions because all of it's going to principal pay down. Consistently cash flowing business year round, you got to be consistently cash flowing. Otherwise you're going to have negative quarters. You don't want that. When it comes to owners distributions, if you're established and growing less than 25% a year, if your general manager has full financial control and performs all hiring, marketing and daily operations, you want them to have a piece of owner's distributions. The option to replace equity for a key hire.

Okay, So I think that this is actually a really good replacement. Like I want a partner in the business. I, I would recommend using this. All right? The vast majority of us should not be going to partnerships and giving up 10 or 20 or 30% of the business to your key employees. Most of us shouldn't. And I can say that with fair confidence. But what you can do is say, hey, when I take a dollar from the business, you're going to get a percentage of it. Really basic. When I take $1 out of that bank account from the business, you get a percentage of it. That is, when I take owner's distributions, you're going to get a percentage of it that's based upon the owner's distributions. The general manager gets a cut. Then the next question is, how do we calculate the distributions? All right, we're going down the rabbit trail. Everyone ready for some math? Let's go. All right. We need to set a threshold of when to take the money out. This cannot be arbitrary. Like when I want to take the money out, you will get a percentage of it. Very arbitrary. If you're doing that, you will not keep good. General managers will not stick around. We need to set a threshold of when to take money out. Anything above that dollar amount is considered distributable cash.

Okay? I have used this in many, many scenarios. Not just lawn care, landscaping, other businesses. I've used this consistently. It works very well, even for partnerships.

The general manager is going to get a percentage of that distributable cash. That is the money above that threshold. And. And we must ensure. This is the problem. We gotta make sure that there's adequate working capital remains in the business to pay payroll, pay bills, buy cost of goods sold, and all of your materials, et cetera. So we gotta make sure there's enough money in the business. But we've gotta set a threshold by which we can determine anything above that is going to be distributable cash. Let's assume that we want to use one month of revenue as the threshold for working capital. Okay? Now let me be clear. You can adjust this amount if you are more risk tolerant or risk adverse. All right? Or if you need more working capital because you know there's going to be expenses down the road, you can just agree with your general manager, hey, we're going to have two months worth of revenue in the bank account, and that will be the threshold by which we will determine distributable cash. Is everyone tracking so far? I need some engagement. I need heads nodding throughout this part, or else I'm going to get lost. Okay? All right, so what's considered distributed cash? What we do is we look at the end of the quarter. We say, how much revenue within the past three months. Let's assume that this is January, February, March, just to make numbers up. 40,000 in January, $60,000 revenue in February, and $50,000 per month in revenue in March. These are the last three months. This is our quarter. Right. What's the average amount of revenue being generated over the past three. Three months? $50,000. We have 40,000. We have 50,000. And we have 60,000. The average of the past three months is 50,000. You also add this up by taking 40 plus 60 plus 50 is 150,000 divided by three. $50,000. Average monthly revenue for this past quarter was $50,000. We're now talking with our general manager, trying to figure out what the distributable cash is going to be.

Anything above $50,000 of cash on hand in the business bank account is going to be considered distributable cash. I know that at the end of the quarter, I look at the bank account, it says $68,000 is in the bank account. I'm going to remove the working capital threshold of $50,000 because we've established that the average of the last three months revenue is going to be what we keep in the bank account for working capital. I take $68,000, subtract out that working capital threshold, and I'm left with $18,000 of, of distributable cash.

That's the amount of money that's going to distributed to the owners, and I'm going to give a percentage of that to my general manager. Let's assume that they get 30% or a third of all the profits, or that is the owner's distributions they're going to get cut of. What that means is they're going to get $6,000, 1/3 of 18,000. I'm going to get 12,000.

Make sense?

Very cool. I highly recommend this for partnerships as well.

All right, so how to become an absentee owner. To recap briefly, we're going to create a finish line for growth mode at one of the four revenue stages or ranges. We're going to avoid those profit wildernesses. Meaning if I need to stop for a year or two and be in profit mode and accelerate to the next one, I'm going to do so as quickly as possible. I'm going to raise my prices. I'm going to go into profit mode. I'm going to find the right general manager based upon what we've talked about and incentivize them for profits.

All right? But the next question is, how do I measure their performance? How do I know if this general manager is any good? How do I actually know if they're a good general manager? Are they doing good? Are they doing bad? And the reason this is really important is because a good location can turn bad in less than 60 days. You put a bad leader or a bad general manager in one of your most stellar locations, and within 60 days, that location can become unprofitable. I have seen this before. That same location I just showed $50,000 in October two years prior, lost probably 30 or $40,000 in that same exact month.

All right? The reason was bad general manager. It happens fast. So in order for it to not go downhill. I need to be tracking their performance. So I'm going to do three different things. I'm going to give a weekly scorecard, I'm going to have monthly coaching and I'm going to have a quarterly assessment. Go over what these three scheduled meetings are. First and foremost, I'm gonna have a weekly scorecard. This scorecard is going to be with the regional manager if you have a lot of locations, or the owner, if that's you.

These are gonna be operationally driven KPIs key performance indicators. I'm mostly focused on the operations cause on a weekly basis I need to keep the pulse on operations. Finances come and go. You have revenue coming in and out. But I need to make sure that general manager is sharp on operations every single week. Okay. So it's a much more frequent cadence than the financial KPIs that we're going to track. Usually this is only 10 to 20 minutes long. We expect the general manager to fill this bad boy out and then come to the meeting prepared to ask questions and have this already filled out for the manager that is regional manager or owner.

That's the first one. Those are weekly on a monthly basis. I usually like this to be third party. So inside of Augusta Nation we have coaches. The general managers will go to the coaches. I like third party on this one. So this is gonna be a coach or a regional manager, but ideally not the owner. I have seen it work really, really well. If you can find some sort of peer group where someone else is telling your general manager what to do instead of you. Because there are awkward conversations you might want to tell them and the numbers are very clear to you. And if you say it, it might be taken the wrong way. Because remember, if you have an operational gm, they've been used to working on the field. They aren't gonna be polished, they're not gonna have everything put together. You're expecting them to be in the field. Sometimes they're not gonna have 10 years of management experience. And so they're not going to potentially take some things the right way or in a constructive feedback and how to do a one on one. They're not going to understand this stuff. So I am going to make sure that I can ideally have some sort of third party accountability. You could literally meet up with other people inside this room and use each other, have someone else looking over these numbers. And ideally I'm looking over sales and financial focus.

Close ratio, cash on hand, a lot of other aspects of the financial aspect. I'm Going to look at this monthly, usually 20 to 30 minutes long. So 10 to 20 minutes a week. 20 to 30 minutes every single month on a quarterly assessment is when obviously you're looking at the last quarter for distributions. Everyone likes this meeting if you're profitable because that's when they're getting a big check and they will show up to this meeting. I have a quarterly assessment. I'm looking at the distributions or if I'm doing revenue or profit sharing. That's when I'm going to break this down. It's going to be with the regional manager or the owner. I'm going to be looking over the profit and loss statement. I'm going to be analyzing with them. I like to do it on the quarterly basis. Cause it takes out the ebbs and flows that can otherwise be just trashed as, oh, it's seasonal, like, oh, we didn't collect on the big job yet. Okay, great, let's do it for the whole quarter and then there's no excuses. One on one feedback and performance review for the general manager. I don't have specific guidelines on this one in terms of what questions to ask, et cetera. Look it up on ChatGPT. One on one review with a general manager. What questions should I ask? It'll give you some really good guidance. All right, I'm gonna be asking about their okay. How they're dealing with the stress in the job, what areas of improvement they see in the business, how can I help you? And make it very much about them. I'm gonna be leading this one. In terms of the owner or the regional manager, I'm leading this meeting. I'm not waiting on them as much. Those are for the monthly, the quarterly. I'm in control here. I've looked at the P and L. I've analyzed this bad boy and I'm gonna have. I have stuff to go over.

All right. P.S. i don't know why the S is there. A great general manager will enforce the meeting schedule. If you want to know the difference between a great general manager and a good general manager, strip out everything else. If they enforce the schedule, you have a great general manager.

Hey, boss, I know you're busy. The weekly scorecard. Can we go over that real quick from last week? Oh, yeah, let's do it. Okay, great. Hey, boss, real quick. I know it's end of the month. It was last week. I got everything wrapped up. I'd like to go over the P and L and I'd like to go over that for the past quarter as Well, a great general manager will hold you to this cadence. If you set it in place, they will remind you and they will tell you when those meetings need to happen.

Because I can promise you one thing. If they're looking forward to it and they have the numbers ready, they're a good general manager. Because what gets measured gets managed. Let's take a closer look at the weekly scorecard inspired by Brian Conner. Brian Conner, where are you? You need some credit right there. This guy used to be bald. Now a great head of hair. Let's go.

Let's take a closer look at this. Brian came up with this at our Memphis meetup this past summer and then we kind of refined it and made it for Augusta Nation. I'm going to share it with all of you. This is what the weekly GM scorecard looks like. These are the metrics that we're tracking. Again, we are focused on operations as much as possible on these scorecards. Things like labor capacity, that is how much revenue can I produce with the amount of labor I have, my asset capacity. We'll go over this stuff a lot tomorrow. Production budget hours from last week as well as how many are on the schedule this week. Kind of important to know if all of a sudden you went from 240 budgets on the schedule to 340. There might be a question around that. Are we hiring someone? Was someone off last week? Like what's going on here? I shouldn't as the owner or regional manager need to look at their dispatch for I should not need to look inside their software. These numbers alone should tell me enough to know. And if you're by the way, if you don't understand or your regional manager does not understand the looking at these numbers and be able to ask good questions, you have the wrong regional manager or you don't know enough about your business.

Estimates. How many estimates were sent last week? How many of them were drive by estimates? How many of them were in person estimates and what was your overall close ratio?

General manager budget hour breakdown. We're gonna talk about this in a few slides, but we expect a general manager, if they're a working GM to be in the field for 30 budget hours a week. In the field doing work, completing 30 budget hours. My expectation and that budget hours diminishes as they complete in person estimates and they complete in person interviews of employees. For example, last week I had 10 in person estimates. I'm going to take my 30 budget hours that I expect that general manager to do and and I'm going to now reduce that down to 20 because they did 10 in person estimates. One hour per estimate.

Well, I also interviewed three people for the crew. Okay, I'm going to take it down 3 more budget hours. 17 budget hours is now I expect of them in terms of production. So I have production hours, I have interview hours, I have estimate hours. Like, well, what about sharpening the blades? They should be delegating that to the crew. That's not the role of a general manager.

They need to produce, they need to get the team and they need to get sales estimates. Now, this is why we talked about automating sales. Because I don't want them going out and doing 15 estimates a week. I want them to be doing 30 budget hours of work.

All right? This is the bottom half of that. Now, the GM weekly scorecard. This usually takes. Brian, correct me wrong. 10, 15 minutes. Make it 10, 15 minutes. Yeah. Mows added. How many mows did we add last week? That is recurring jobs. How many mows did we lose? Good point. To know total mowing customers. Also a good trend to know these things. Door hangers. This is outbound. What are we doing? Are you putting on some door hangers? When you're doing those lawns, you're doing those estimates. If we're going to be at someone's house, might as well do five door hangers while we're walking along the road. Upcoming projects. This is important, especially if you're a regional manager and you're making sure that they have the supplies, the materials, the equipment required and you're juggling it between locations. Very important to know. What are the upcoming projects that may potentially be on the horizon that you need to order materials for Hiring situation. Are we looking for people? Are we interviewing? Do we have indeed ads up? What's happening with hiring? I just need to know this. If you give me this every week as a general manager, I don't need to be in the business at all. I can tell everything that's going on. And you give me a couple of these over the course of a few weeks and I will see the trends and I'll have questions. Why are the number of mo's going down? Oh, okay, I get it. It's the end of the season. That makes sense. Okay, great. Why are you only in the field for 20 hours? There was no estimates this week. Everything's automated. No, the expectation is 30 budget hours a week.

What went well? So a little bit of introspective here. What went well? What did not go well? And. And then just focusing on their revenue so this is like the one part of revenue is the bottom. Cause I'm focused on operations during this weekly GM scorecard. Good stuff.

All right, the next question in the playbook. What does a general manager's day look like?

So this really depends on the number of crew members that they're managing. So the number of crew members that you have on your team as a general manager or again could also be an owner, operator, it depends on the number of people that they're managing. If you have three to five team members and you're in that working GM model, 500,000 or so in revenue. Again, I'm going to expect 30 budget hours of weekly work expected minus in person estimates and hiring interviews. If you are managing six to nine team members, this is now that full time GM model. Again, this could be you working full time outside of the business, outside of the daily work itself, focusing on managing, training and selling your budget hours completed during the off season or when behind. So the crew gets behind. I expect that general manager to go help them. They only have six to eight people. If they failed to route them correctly, if they failed to allocate jobs correctly, or if they failed to do estimates and budget hours correctly, that's the GM's fault. I expect them to be out in the field also if they run behind or if it's off season, if it's in the off season, that general manager. I'm expecting them to be on the field even at 800,000. If you're doing 800,000, the vast majority of us are doing 800,000 in our total revenue during the off season, Many of us are making 20 to 30 thousand dollars a month in revenue during your off season. Senior PNLs, that's where some of you dip down to. And at that size, you need that general manager in the field. They basically swapped to being a working GM. And even though they're at 800,000 in revenue, if you have 10 to 25 employees, this is the GM plus model. You're doing 1.5 million and above. About 1.5. Hiring and managing office staff and a salesperson. Now you have a full time admin person. You usually have a full time salesperson or one or the other. And you're not working in the field at all even in the off season. This general manager doesn't even need you to go out in the field. There's too much revenue, too many things happening. 25 plus team members. I know this is not for most of us, but this is kind of the next level head of Operations or coo. Chief Operating Officer. This is usually what that role title looks like around that $3 million marker. And their main objective is hiring mid level managers for sales and admin. Because now you're going to have multiple people in these roles and they're making all the key financing, hiring and purchasing decisions. That's what a general manager looks like at those different sizes of business. Two more slides and then we got Q and A. Can you bring up the house lights just a little bit? This is what I would consider is the daily task of a general manager. Okay. This is actually ours from Bellingham, so thank you. Corey. Check your dispatch board to ensure it's accurate first thing in the morning. Notice that this works from the beginning of the day to the end of the day. Ensure all equipment is in working order before the crews arrive. Vehicle blade sharpened, handheld tools, sprayers. I gotta hold someone accountable. It's not the crew. They might do the work, but the general manager is the ultimate where the buck stops when it comes to location. Ensure that trucks are equipped and loaded with all tools and materials needed for the crews, routes and jobs. The general managers that have the most efficient crews are the ones that take full ownership of how their crews perform in terms of pay for performance and efficiency. Because if they aren't set up for success, if you haven't routed them correctly, if you haven't got their jobs on the schedule and the tools on the truck and the truck is in operational condition and maintained, it will fall down to cracks to eventually the crew being inefficient. So when I look at inefficient crews, the very first thing I look at is what's that general manager doing? I have seen locations that have a 40 to 60% between their crews. It was like I think it has average 52, 53% efficiency score go to over 75% in one week just by changing the general manager didn't change the equipment, didn't change the crew, didn't change anything. Besides simply changing the general manager. Why? That general manager did one thing different. He showed up 30 minutes early and would walk the trucks, make sure everyone had everything they needed. He would go through his checklist of his different trucks who was on the crew and ensure they had everything on their truck. That one thing alone can dramatically impact the efficiency of your crew.

Steve Rowland Check email three to four times a day. Address any tickets Command center sends call notes, yellowstips. Again, you can outsource this admin stuff. Send any P4P notes to Command center in the P4P chat and enter Manual Adjustments on p4psoftware.com Send email to Command center for any transactions made that are not easily identifiable, like Walmart, Amazon, ATM withdrawals, et cetera. They need to know what this is about because they do all the transactions for them on QuickBooks. I'm just giving you an example of ours. Include dollar amounts and brief description of items bought so Command center can categorize these transactions easier. Last slide. This is the second part of that same document. At the end of the day, check the employee time cards to ensure accurate clock in and clock out times. Check the dispatch board at the end of the day to ensure everything is completed and addressed with any notes being added to the job. So those are the dispatcher notes inside copilot. Assign route and dispatch jobs the following day. Again, this is sequentially their checklist for the entire day. Estimates and admin on Tuesday and Fridays. If it is slow, help the crews in the field follow up calls on all estimates within 24 hours of the estimate being sent to the customer. Field Work is on Monday, Wednesday and Thursday. Again, I want them out in the field Sundays. Set up routes for Monday and that is what a general manager does. Cool. Was that okay? Decent.

All right.