A Few Good Plumbers

hello everyone welcome to the 21 hats podcast I'm your host Lauren Feldman this week special guest Rich Jordan tells Shan busy and Jay goz what it was like buying a small Plumbing business in 2020 despite having very little experience with either Plumbing or business but having spent 10 years in the Marine Corps when I reflected on my time in service and what I did well and what I enjoyed Rich tells us it was when I was on a small team with high stakes far forward far from from the flag Paul responsible for making decisions and sustaining ourselves and figuring things out so when I thought about that small team high stakes self- sustained small business kind of fit that bill not surprisingly it took Rich some time to figure out what he was doing with the plumbing business but in Just 4 years through organic growth and a few Acquisitions while taking no outside Capital he's gone from three plumbers and $1 million in annual revenue to about 90 employees and $20 million in Revenue which is why Rich tells and Shan he keeps moving the goal posts reassessing just how big he wants the business to be even in Good Times owning and running a business can be a lonely Pursuit our hope is that these weekly conversations will let owners know they are not alone in facing challenges in fact that's the whole idea behind the 21 hats Community engaging with other owners to get the kinds of insights only another owner can offer if you're interested in learning learning more step one is to sign up for a free trial of the Morning Report which highlights the most important news of the day for business owners so you don't have to go looking for it step two is to get on our slack Channel where you can ask questions get vendor recommendations and tap the wisdom of a very impressive crowd just search the 21 hats Morning Report to subscribe joining me this week on the podcast our regulars Sean busy CEO of Kinesis which is based in Portland Oregon and works with small businesses on marketing culture and strategy Jay goz CEO of the gos group whose companies in Chicago include a picture frame business artist frame service and a home furnishing store Jason home and special guest Rich Jordan who is CEO of strongpoint services which has plumbing and HVAC businesses in New Jersey and New Hampshire the episode is titled A Few Good plumbers welcome Sean Jay and especially Rich our special guest today it's great to have you here Rich maybe you could start by telling us a little about what you did before you bought a plumbing business about four years ago did you have any Plumbing experience or business experience I did not have any business experience really I um like 14 years ago I had worked as a plumber's Apprentice for a short amount of time before I entered the Marine Corps and I I spent all my 20s in the Marine Corps as an infantry officer part of getting into business and was that good preparation do you think I think so what did you take from it you know I particularly like getting into the trades like I did um you know Marine Corps was definitely like a good testing ground and the Learning Center for like blue collar leadership right one of the reasons I got into the trades is that I kind of hypothesized that um that Tradesman would take well to the leadership um style that I had developed in the Marine Corps Tradesmen are a lot like Marines just a different trade same kind of guy so yeah I mean lots of uh lots of lessons there and then and then of course decentralized command and solving complex problems urgently and um operating with limited information and and having a bias for Action those are all things I took out of the Marine Corp as well Rich thanks for joining us this is really interesting can you catch us all up to speed for those of us who aren't in the military or haven't been in the military in a long time kind of what's the kind of going philosophy or at least what was the philosophy you developed there because I think a lot of people think of the military and they think command and control and I don't know that that's necessarily accurate but I would love to hear from you kind of what the modern military is like in terms of leadership philosophy yeah love the question in some areas of the military sure you know there is a kind of a more of a command and control philosophy I'd say particularly in the Marine Corps and especially in like the combat arms areas of Marine Corps such as the Infantry or um you know artillery combat engineers uh things of that nature is very very much is more of a decentralized command model and really you know you know why is that it's uh it's utilitarian in nature really is uh a unit can move faster and adapt faster when decision making is pushed down to the point of influence or the point of friction right so so the guy closest to the problem right the unit closest to the problem that needs to be solved they need to be able to make decisions and not have to you know like look over their shoulder and ask permission or ask for guidance from somebody who may be miles away who may be you know uh a planet away and you know very far from from what they're dealing with there so the Marine Corps I'd say more so than any other service of course I've got some bias but but really we um we really do indoctrinate our leaders in this is like very much invested in this in this concept of decentralized decision making and decentralized command and truly that that enables uh us to us to empower leaders at all levels you know the um the lance corporal or Corporal who's in charge of three Marines you know is able to make the right decision as close to the point of friction as possible and that's generally the idea you know there's this idea um if you all are familiar with the uh boy's udal loop I am not udal Loop is o o da and it's a observe Orient decide act and uh Boyd who was a um kind of like a legendary thought leader in the Air Force um around decision-making and specifically competitive decision making came up with this this Loop so observe Orient decide act and that basically is the Loop of decision- making and the tighter you can get that Loop the faster you can go through that Loop the more likely you are to win in in competition and uh you know when when you've got to go back to like a centralized authority to to have a decision made and to take the next action of course that Loop's going to be wider and longer and slower so we can kind of tighten that Loop get actions happening at a faster Pace if we if we decentralize command so that's that was something that I um you know the brine Corp uh really leans into that I in particular like really lashed on to that um and I ultimately I spent my final two years in the maror as as an instructor at uh essentially like the office officer like leadership academy uh it's called the basic School in uh quanico and that was something that that I was responsible for teaching had you been deployed overseas Rich uh yes I had I um I deployed the Eastern Europe in when uh Russia first invaded uh Crimea and then uh I deployed to the Middle East um to Afghanistan and Bahrain in 2018 I was there for a year got it so how did you develop a plan to buy a blueco collar business where did that come from I think like a lot of guys leaving the service I was like really unsure of what I was going to do afterwards but when I reflected on my time in service and like what I did well and what I enjoyed it was when I was on a small team with high stakes far forward like far from the flag pole um responsible for like making decisions and sustaining ourselves and figuring things out when I thought about that you know small team high stakes self- sustained small business kind of a the that bill from what I could tell and I had very limited visibility into what small business really really was but you know it's kind of funny I um I read a book that was very formative in my decision-making I read it I left the service in the summer of 2020 and I read this book in the fall of 2019 and it was small Giants by Bo Burlingham my understanding is that Jay who's on this call was one of the guys featured in that in that book and I gave him the name he came up with the fin small Giants that's right yeah yeah so I I uh that that book was really uh like really made an impression on me and kind of seeing the uh the journey that Jay and and the other folks featured in that book went through and the things that matter to them and the values they able to drive through their businesses and things like that was was something that really that really uh called to me and um so yeah so I basically so that was the fall of 2019 that I read that and I spent the next you know like nine months sort of self-educating on like how like how could I get involved in that um right or wrong I I felt at the time like I didn't think I could make a compelling case to an existing business owner to like bring me on and say like a operations manager or something now like sitting where I sit now like I think I think that was probably misguided like I probably could have made a compelling case for that so basically I came to this conclusion that if I wanted to get involved in small business I had to do it on my own and then you know starting a business seemed like you know like it's obviously can difficult to do so I got I got kind of onto this idea of buying a business and then you know like read everything I could on like how that process works and like you know the search and read uh hbr's guide to buying a small business read Bren be Shores the messy market place and uh yeah just kind of self-educated and and then um went after it I ultimately got a uh got a small very small plumbing contractor under under contractors a few weeks before I left active duty and um was standing in front of th those plumbers like six weeks after my final day in the Marine wow how did you finance it uh rich I financed that with some cash savings that I had from uh deployments and uh an SBA loan oh cool that's interesting so the SBA lo I didn't even know an SBA Loans money to someone who's never been in business to go buy a business that's news to me I didn't realize I did that yeah yeah whether it's a good idea idea or not I won't it work for you I won't make judgment yeah it worked out all for me I I would say you know like there are risky propositions the spectrum of SBA Loans small loan it was a small company I think you said it was less than a million dollars in annual revenue with three plumbers is that right that's right it was right right about a million dollars in Revenue three plumbers no office infrastructure no one it was it was uh you know the owner and his wife um kind of running the the operation so when they departed there was not really much infrastructure there I didn't uh recognize this uh prior to showing up on day one but very very quickly became clear there was a lot of risk in that deal did they have any special program because you're a veteran did that have anything to do with it I think they would have given me the money uh regardless if I was a veteran or not but they did uh they they do have some programs like there's a um fairly significant SBA like origination fee involved in those loans um I think on that deal it might have been something like $225,000 uh that was waved for me because I was a veteran what was that first day like yeah the first the first two days I think were interesting I um we took over on a Thursday morning um I've since kind of learned you know if you're going to take over business you should probably take it over early in the week as opposed to later in the week give yourself some time to get your hands around it before your staff goes into the weekend and doesn't come back right yeah exactly so we we took it over on a Thursday morning it was the Thursday right before Labor Day weekend um in 2020 and uh you know it was just meeting the plumbers in the parking lot it's like really informal just kind of like stand up around a tailgate and then you know guys had jobs to get to so they immediately kind of like launched into their jobs um didn't get like a terribly warm response from the team Rich how old were you and how old were they I was 29 I was about to I was going to turn 30 30 soon I was 29 um and and I have a partner as well he he was there as well he's also 29 at the time can you give us a little background of so the owner and the wife owned this Plumbing business had they been trying to sell it for a while I mean did the employees know it was for a sale were the employees relieved when they finally you know did they found out didn't because I got to believe most Plumbing businesses like most frame shops just go away one day and don't sell that's my guess is that correct y especially at that size yeah right the reality is at that size there's just not really any like Enterprise Value um to transfer now I didn't realize that at the time so I you know I had the uh I had the privilege of paying for that um but uh yeah you're right um a lot of them don't trade and they just they just close their doors because basically they're trying to sell a job I mean I talk to frame shops they say oh I made $40,000 last year and I go well then why would someone pay you they could go make that in a job and not put any money into it so they're trying to sell a job in this case the plumber was probably making more money as my guess so because a million is not terrible it's better than a lot of frame shops are doing $200,000 a year so there's something there million dollars yeah I mean yeah especially when you've invested like no money in overhead and your only kind of like fixed cost is you know like liability insurance um so yeah I mean he was pulling in you know uh nearly $400,000 a year I mean really like lived a great life put his kids through school had several U vacation homes rental properties nice cars stuff like that so he' done well for himself but hadn't really built much business value so how old were those other the plumbers the employees and what happened uh on that Thursday and Friday sure so yeah um one guy they had just hired like in the weeks leading up to it to sort of like replace the capacity of the The Parting owner he was 27 pretty Junior there's another guy that was 23 pretty talented plumber um and had worked for him since he was 17 and then there was another guy who was 40 and had worked had worked in this business for 17 years at the time and there was unbeknown to me there was a sort of Unwritten understanding that that senior plumber was going to take the business over at some point so there was a little bit of a cultural issue there initially well I presume that he didn't have the cash or the wherewithal or the idea to go to the SBA for a loan is that or he didn't want to take the risk of did you know which one it was did he not know about the SBA or did he not want to take the risk yeah I think a lot of it is that neither he nor really the seller kind of understood the tools that were available the financial tools that were available to them to get a deal done do you think he was properly marketing this Plumbing business because from my experience of looking at people they're trying to sell their business but they don't want to tell anybody keep it under wraps and then they try selling it for six months or a year and then throw in the towel I have to believe as a plugin doing a million dollars a year that another plumbing company would have it would have been a great thing to just buy it and you know hook it right on of their existing business do you did he talk to other plumbing businesses before he sold it to you do you know no I think he was pretty kg about stuff like that and a lot of guys in his position are to your point yeah well it's tough it's tough too because you know there there's kind of like a gossip Circle in the trades right so if you start talking to another plumbing shop about being bought you're you're worried that the word gets out right I I mean I'm guessing rich I don't know and it often does get out frankly I know but they shoot themselves on the foot so the word doesn't get out but then they don't sell the business so like how did that work but the pro the problem though is you're talking a licensed trade this this is a rich maybe you can talk a little bit about that right like in terms of what it means to be a journeyman and an apprentice and kind of the constraints I didn't consider that yeah that's a good point and that 40-year-old plumber who had you know had ideas that business might be his he had never he had never actually achieved his master's license oh wow so that was that's a problem and in New Jersey this isn't true in every state we have another we have another business now in New Hampshire that's where I'm coming to you from right now it's it's different in New Hampshire but in New Jersey at least 10% of the company has to be owned by a licensed master plumber in the state um and that's like hard and fast so we actually have a third partner in New Jersey that's our Master Plumber um we brought him in to the uh like through the process we met him vetted him brought him in so we have a master plumber on the team he holds the license he he has 10% equity and he he's also like our install Foreman at this point so he's a full-time full-time staff did you did you know going into this you would have to bring in some somebody else in order to actually own the business uh there was some discovery that happened in the due diligence process put that put it like that um and we uh initially well actually we we actually if I remember correctly we we were aware of the requirement and we thought we had a guy that would hold it for us and then basically he kind of like pulled the rug out from under like halfway through diligence um and wasn't interested in P in uh progressing so we then had to go find a master plumber and like the the interviews I had in those days were uh just uh brutal just absolute wild characters that we talk to how did that differ from your experience in the in the military in terms of interviewing because like is this your first time interviewing people like to hire for a job yeah yeah um it was so um what' you learn you know I think I think this is something that a lot of new managers fall into too is like you just don't know the right questions to ask and how to dig in you know so you're mostly doing this kind of like Vibe check right and that's largely what that was at the time um so we made a bunch of you know in the early days of that business we made a bunch of bad hires um had to really figure it out over time so so the guy that was the master plumber correct me if I'm wrong he must be making a really good living being a plumber I would have thought he would have said okay I'll do it with you give me a third you keep you both keep a third he certainly didn't get that much Equity but I presume he's got a good job out of it is that would that be accurate to you think sure yep he's he's got a good well paying job out of it he's got you know ownership in a business now that he didn't have before um you know he's got upside um and for him that was that was enough so it was a bonus basically yeah and he was making a decent hourly wage at his last job but he was a he was a union plumber and you know like the the issue that he had is like he would make you know $75 an hour or something as a union plumber but then he'd go unemployed for six months right because that's kind of how the unions operate so he'd be on a big project for six months and they'd be unemployed for six months I want to make sure we get through some of the basics of Rich's Journey could you just tell us the nature of the relationship with your partner what what were your respective roles so I you know I had just left the Marine Corps and was essentially unemployed so I was I jumped in as the like day-to-day um general manager um like wearing a lot of hats at the time he worked in like heavy Maritime construction as like a project manager supervisor he's an engineer by trade so he stayed at his job doing that um for essentially the first year and he's local to that business and you kind of helped me after hours and things I on the weekend and stuff um augment me but he stayed there because the business wasn't large enough to support us both um and then by the time A year had gone by we essentially doubled the business um and we felt that we could like confidently support us both at that time so he left his job and then joined joined us full-time and he's still involved in the in the business that's right yep so now and now um current state of affairs we have two Brands and two markets New Jersey and New Hampshire um he runs New Jersey um and then I kind of sit um at the executive over both companies and then I also run the day-to-day operations in New Hampshire okay so sticking with the the the first business you bought for a minute it sounded like you had something to share about what happened with the employees that first weekend could you tell us that and then tell us how did you double uh the business over the first year yeah I mean that first that first day I um well what happened is you know the first day was the first day was fine just kind of like a whirlwind um you know the seller took me around to all the different vendors and Distributors that he used introduced us you know we filled out credit applications and things like that so sort of like kind of administration um his wife was still kind of handling a lot of the phones and stuff at that point um so we had a little bit of standoff we realized that we had not had the foresight to get gas cards for all the plumbers ahead of time so my partner and I spent uh you know decent part of the evening that night um round robing the trucks to the gas station um to fill them up for the next day and then when I was on my way in to the office the next morning I got a call from the seller that uh that that senior plumber was one you know upset and two had already see received several like white night job offers from our competitors and so I was like oh man we're going into Labor Day weekend like this guy's got job offers in hand he's upset about the transaction and he doesn't know me from Adam and he was trying to at the time he was trying to get on the road early with his family for a for a vacation for the weekend and you know jobs were pouring in and and and there was a chance that he was going to be late to that as well so I actually what I did is I I jumped in the truck and I and I went and met him out at a job around noon and helped him put a water heater in basically spent like you know two hours with them as a helper um putting this water eater into This Woman's basement and the whole time just talking to him about his experience ideas that he had for improvement um for the business like kind of just like getting his Insight on friction points that he dealt with on a daily basis and what we could maybe do to roll roll out improvements and and basically just like really allowed him to feel heard and like kind of gave him some confidence that you like a lot of things that he was bringing up I was like yeah you know I actually had an idea for that that and maybe we could I was planning on not rolling that out for a while but maybe we could roll it out faster so he went into the weekend I think with with a lot more confidence I certainly went into the weekend with a lot more confidence wait did you tell him that you talked to the owner and you heard that he was bitching about you know getting cut out and he's think did you did you have an honest conversation about that nope no um no I kept that to myself so for for me you know it's just uh just he and I you know me just getting out there and helping him and uh and having a candy conversation well not that candid not I mean yeah I bet it's I bet there's some friction between him and the owner is that fair uh yeah especially with the with the sale absolutely yeah like he probably felt betrayed right and so if you had gone to him and said hey I talked to Bob the former owner you now you're aligning with Bob when in reality you need to build a relationship with him so that's a great move man that's really impressive yeah so I think that I mean ultimately I think that that act looked back you know that was four years ago um I look back and I think that really was meaningful I mean there was really not a whole lot of meat on that business had we lost him we would have been in a really tough spot and I think that that ultimately kept him around and he's still with us wow he's still with us to this day wow that's awesome you know you were talking about the fact that you hadn't had experience hiring the big difference between I I suspect being a leader in the military and being a leader of a business is in the military you work with the people you're given and you you can't easily fire them um do you think you approached this more with the attitude of working with the people you had than maybe someone else might have yeah and I think in ways that was beneficial right like in in this in this moment um I think that was beneficial in other ways I think it wasn't further down the path that Year to your point like my experience led me to put up and tolerate um like behaviors that like today I wouldn't tolerate right like today like that that person would be terminated we'd find somebody else and at the time I think I was yeah I was so used to working with what I had making it work um trying to hold guys accountable and get them to where I need them to be and some guys you know some people just aren't aren't built the way you need so I think ultimately you know the punch line there is like I think we held on to some people longer than we should have and part part of that was uh was fueled by my experience well to be fair you and just about every other entrepreneur on Earth in the beginning keeps people longer than they should I don't know that I've ever met anybody who says oh no I was right on that one from the beginning so I don't think this had anything do with the military it's just getting rid of your naivity that you can't fix everybody and some people just don't belong at the business and they belong somewhere else so that's kind of a 101 learning curve lesson of owning a business sure yeah yeah so how did you double say oh man um you know wrenched on a lot of levers early um you know a lot of it was productivity increases so like I think a lot of guys who are coming into this business without experience they assume that they're just going to like fire the marketing engine you know just like turn on the boosters of marketing it's gonna it's going to do that for us like that wasn't necessarily the case we it really was all like productivity efficiency um some pricing um so for us like we went from like pen and paper to an Erp um that was like a little bit easier to use um easier to communicate easier to dispatch for one like we we invested in our customer service team so like so that we were actually answering the phones and picking up the phones so you think there was there was some pent up demand out there that you couldn't get to because you couldn't get the jobs done fast enough so people were calling and you somebody was saying yeah we can't see you till next week and they just went somewhere else right isn't that what you're basically saying you raised your capacity if you even answered the phone at all yeah I think there was a lot of a lot of pent up there was a lot of demand available so basically yeah that first year was really just capturing the demand yeah you know in a small business that's doing a million dollars in sales it's not you know you only need another million dollars to double right and I I always kind of talking about you know it's like this kind of sinusoidal wave right of like your your capturing demand and then you're trying to increase demand to fill capacity and then you're cap now you're capturing demand again again and so we kind of went through all those Cycles but in that first year was largely just just cash demand and trying to do it in an efficient manner did you have to double employees to do that yeah I mean I think we finished that year with 12 employees so so you could say you know quadrupled employees to double sales so we definitely saw you know people talk about the J curve right you know like eidon earnings kind of kind of taking a dip on those early Journeys we certainly saw that too you know we we did not clear as much money in that first year as the seller was clearing on his own despite doubling sales despite doubling sales well let's be fair though the guy was working I mean he was earning the money partially because he was probably a very skilled plumber and he was out there you know you're paying himself so it's a separation of paying yourself versus the profit of the company so well and he wasn't investing in infrastructure at all right it sounds like he was just creating all kinds of you know infrastructure debt and you were basically Building A system that could scale his system could have never scaled if you had just kept running it as it was no but I'll tell you something you've actually you have explained why so many Plumbing businesses are like that cuz at the end of the day the guy was making a lot of money you know three $400,000 a year it wasn't broke as far as he was concerned he didn't have to turn into a incredible business person and scale it and everything the guy was making plenty of money and he had his boat and he had his summer home and he had so this is describes a lot of people in the trades they make a lot of money and they don't ever have to really fix the business part because they don't have the aspiration of running a five or10 million company um and I think that's typical yeah it's like these guys aren't stupid you know what I mean um they're making a great living for themselves and the reality is like in order to scale like there's really no way for them to scale without truly like dipping into their own Pockets right yeah they'd have sacrifice so yeah I think it's very difficult to like kind of take that next step um and we and we also see we see guys that have built you know $3 million businesses that we've you know that we've acquired um and and you know they they make less money than the guy running the million dollar business right um because they require there's more volume they require require more infrastructure um and they haven't like kind of like gotten over the hump where they can really start making money so like there's it's kind of like that like dead zone between like say a million and a half of Revenue and at least in my business like a million and a half in revenue and say five million in Revenue and that can be like really like a A Wasteland of of people just kind of like stuck not making as much money as they were making on their own rich I think you said that in that first year you made some pricing changes that were impactful what happened there yeah I'd say we screwed it up at first um you know with with plumbing and heating businesses um you kind of have companies split on either on either side of a line and so companies basically either charge time and materials right so they give you an hourly rate and then they have a markup on materials and that's what they give you and that's very transparent and those are usually like shops like the one I bought like very very small and then that could be frustrating for the homeowner because a lot of times like the the bill at the end of the day is a surprise right um depending on how long the job took or whatever you know I'm not getting agreement on the price until I finish the job and tell you how much it is and sometimes that can be rough on the homeowner then other companies are flat rate like up front pricing companies typically you'll see like any kind of like scaled company is going to be a flat rate up front price company and that's basically like every sort of task that could be performed is has a set price like like menu style pricing for it like going to a car dealer they've got that Chilton book they say here's the price per hour but they don't necessarily put that amount of hours into it right exactly so there's an ability for the contractor to make more margin if he's more efficient right so now I'm incentivized to have highly skilled technicians as opposed to poorly skilled technicians um with upfront pricing I'm also like getting agreement right like hey at the end at the end of this job you're gonna have a fully functioning water heater and you're gonna have hot water in your home it's going to cost this amount of money does that work for you customer says yes and then that's the bill they end up paying at the end of the day right so there's agreement up front and then no surprises so that's how that's how we operate when we when we made that change because because that initial company start as a time of Material Company um at a fairly like premium rate and we took that hourly rate that he was using and we just like slap that onto our upfront pricing like kind of math and the reality is that time of materials companies are generally going to charge you for all the time that they're at your home some will even charge you from the moment they leave their shop to when they get back to their shop but they're definitely going to charge you for the all the time that they're in your home The Upfront pricing like kind of books are generally built for because this really the only way to build them is they're built for the amount of wrench time that the task takes right so so you're not getting that hourly rate for the entire time you're in the home you're only getting that hourly rate for you know the 15 minutes that it takes to install a frost free hose bib on the outside of the home right you might be at the house for an hour but the task is generically built for 15 minutes so we took the hourly rate he was using and we just translated directly over to the flat rate upfront price book and we saw our margins just crater and we weren't really smart enough to figure it out at first and the reality is that like our billing efficiency tanked um is what happened so really like you know now being in an industry a little bit longer um like a Plumbing Service Company um that's on an upfront pricing model is generally only going to bill for 40% of its time right so a guy if a guy works a 10 hour day he's only a bill for four hours because he did four hours of wrench time and he had all this drive time and he had all this diagnostic time and presentation time and explanation time and all that stuff so basically you know 40% billing efficiency it means whatever hourly rate you needed to charge well you're you're kind of like back of the house hourly rate and that upfront pricing math needs to be two and a half times whatever your desired hourly rate is does that make sense yeah I knew this was coming I was waiting for the punchline because I mean I live you know we hang pictures and no matter what I charge per hour it doesn't cover the because there's no way I'm billing for anything close to eight hours a day to your point loading the van unloading the van coming in the more it's the nature of the beast that's why stuff costs more because it takes longer than you think when you build everything else in you certainly can't just charge for quote unquote wrench time yeah absolutely so um so we basically we went through like a very difficult two months financially when we made that choice and didn't understand the math behind it you know ultimately we adjusted rates um to accommodate that that change in Billing efficiency and and then then it worked but uh that's something that you know because I I talk to guys all the time now they're getting into the trade for the first time they're taking over time in materials company and they want to switch to Flat Rate I think I've saved quite a few folks from the same headache that I had is there like a universal book all these plumbers are subscribing to that it's like well a water heater takes this long and a hose bib takes this long is it or is that your own internal uh you know experience and you use use that to determine how long something will take it's a it's a mix of both um there are there are third party services that will provide you that kind of like generic uh time and materials for the book and then you plug in your hourly rate you plug in your material markup and and then boom you've got a price book we we use something like that now and that's and a lot of a lot of companies do and then and then it's like that gets you like 75% of the way there and then it's a lot of tweaking and adjusting at the end of the day you know we're we're trying to make anywhere between you know 12 and 20% customers and and other you know kind of smaller contractors like to do their napkin math on what they think you're bringing in and what I find is that they're almost always only taking into account like the cost of goods sold right um so they think you're upcharging by you know you're you're ripping people off by 2x what the price should be and it's like well hey man I'm I'm targeting a 50% gross margin so yes you are correct um it is twice what the cost of goods was and the guy that was your key plumber that you saved from leaving here we are years later he happy nice relationship he's at peace you know oh yeah yeah yeah he he he is a um certainly a success story uh for us um his family's in a good spot he's making a lot more money now than he was uh previously he was he was actually uh like grossly underpaid when we took over I'm yeah I'm guessing you're paying your people way way better than they were paid in the past yeah yeah and and um yeah we take we take really good care of him so um like he might have been making like 60 Grand a year before like now he makes like 120 well partially because the owner was a master plumber and keep an eye on his guys and you need to rely on the guys you're paying more because you need professional guys you're going to need less management because you're not a plumber so that makes sense yep y absolutely rich how did you make the leap to buying other bluecollar businesses the very first like um add-on deal we ever did really was like a guy who happened to get my cell phone number from a vendor a shared vendor and he called me he was like hey I uh you know I have this little small kind of commercial backflow testing plumbing companies just me in a truck and uh I want to move to Vermont can you take over my accounts and we paid him like you know a few thousand bucks to take over his accounts um and that was that was like four months after we took over the first business and that that was success it was small you know kind of inconsequential but it was a success and then you know 18 months after our that first acquisition we um we had joined this industry best Practice Group my partner and I were at this sort of like annual business planning workshop as a part of that and we sat at a table for three days with this older gentleman who owned an HVAC company in New Hampshire him and his general manager and we were all you know the the point of the whole thing was we're planning you know taking all of our inputs from the previous year and making assumptions for the next year and on a seasonal basis and and mapping out like our what we our budgeted performance for the next year we uh we were kind of picking his brain because we wanted to add HVAC as a trade in New Jersey and ultimately we kind of set up with him that we were going to come visit him in New Hampshire to see how an HVAC company runs as opposed to a plumbing company and we had we had grown sales in New Jersey to like two and a half million at that point and and my partner was full-time running that in New Jersey so I had a little more band with and so basically the the the guy that we went and visited in New Hampshire ultimately kind of proposed to us him and his wife uh took us out to dinner while we were out there visiting like hey like you guys crazy enough to buy a business in New Hampshire and uh we were so a lot of lessons learned there turns out running two businesses and two markets is about five times harder than running one business in one market but that's been that's been a major success story for us we we took over his business it was like three million in Revenue like 15 employees um that business today is 15 million in revenue and 65 employees um two years later two and a half years later aside from you being more experienced at that point why do you think that business scaled so fast yeah what was what was the difference there I think um HVAC in general is a little bit easier to scale than Plumbing we a big part of our growth here with the hbac company has been really leaning into building our base of recurring annual maintenances like annual maintenance contracts which is just more customers go for that um when they're protecting their like expensive HVAC equipment more so than they want to like protect their water heater or their Plumbing Systems it seems like it's an easier product to sell um on the hbac side so we've built um the previous owner had about a thousand maintenance plans we have almost 5,000 now okay but correct me if I'm wrong part of the reason that business scaled easier than the first Plumbing guy he had an infrastructure he had a real business sure so you just had to improve it the other guy you were basically building an infrastructure from scratch because yeah the guy was a plumber with a couple of other plumbers so yeah that's a great point and and that's absolutely true um yeah he had he had he had spent the time and the treasure to build a little bit of infrastructure he had taken a little bit of hit on his bottom line in order to do that um and we we were able to step in and and kind of tweak it as opposed to having to build it essentially for Scratch well you know what I just thought about this HVAC is a growing industry Plumbing is is not radically changing but the hvvc industry with you know Mini Splits and technology is changing radically and so that creates more Market opportunity I would guess yeah yeah and and your your efforts on in the hbac space are somewhat leveraged in that like like you know there's always that ability to get that big ticket with hbac right um it's a little bit harder to achieve in Plumbing in plumbing it's like sewers uh like sewer Replacements and stuff um it's a little bit harder to manufacture those opportunities in hbac like your outbound sales efforts the amount of like customer connections that you're making just like your you can increase activity and ultimately that kind of filters down probabilistically to more large tickets at the end of the day and we've been able to kind of play that game and then in your state is the licensure thing also a little more advantageous you know in terms of HVAC versus Plumbing like it's a little easier in terms of the requirements or is it is it also a high requirement industry as an owner in New Hampshire it is easier from a licensers perspective because you just need an employee to hold the license from a talent recruitment standpoint in some ways it's harder in some ways it's harder um because all of your technicians need to be licensed in New Jersey actually none of your technicians need to be licensed but the owner needs to hold the license Rich when you bought the plumbing business did you have in mind that you were going to create kind of a holding company and buy a bunch of other businesses did you were you thinking that way right from the start no no I wasn't I um I kind of laugh like you know the goalpost keep moving I'm sure like you guys can I imagine you might be able to relate to this as well you we keep like unlock blocking opportunity and and things and then the goal post move again if if you had asked me in 2020 what my goals were I would have said like man it'd be really awesome to run a $2 million Plumbing business well since you've suffered through the learning curb pick for some basic stuff let me help you with your age and how long you've been in business to to say to you maybe you should think about if you were doing X millions of dollars you'd be making a fortune could buy anything you want and have a lovely life instead of doing what I used to do grow grow grow grow grow grow grow until I finally realize you know what it's big enough so I would challenge you to think about is there a size that's just big enough or do you have some innate need to grow it to a you know $50 million company or something which it's going to cost you I don't mean MoneyWise it's going to cost you in your life that was the small Giants guy talking there Rich yeah excellent point that's exactly the point yeah feedback well taken I I I'd say um for me it's not so much about growing of of course it manifests this way but um it's not psychologically I think it's not so much about growing Revenue it's about uh like realizing my potential and realizing the potential of of the team that I think is what's driving the uh the growth is like this this like desire to like continue to create opportunities for talented people well first where where are your goal posts now what are your goals uh i' say right now they're sitting at you know 50 million in revenue and 200 employees probably probably the kind of soft go how old are you now 33 God you're so young all right I was there in my 40s and then I finally figured out like there's a price to pay for getting bigger and bigger and bigger and bigger my goal post is I want to be happy I want my employees happy my family happy that's the goalpost versus I want to do a100 Million by that's a whole another animal I think the initial growth stages were largely to try to be able to afford infrastructure that allowed the business to really feel like a business sure no totally yeah I think that that's largely what's kind of brought us here is like trying to build for like survivability um and sustainability and I think it's only recently sort of pivoted to kind of like opportunistic yeah no it's good uh yeah I appreciate the push back Rich are you planning on growing primarily by acquisition or organically for us um organically um really we we find that you know like Acquisitions are extremely disruptive and you're essentially like we did a pretty sizable acquisition in February for us we did a acquisition of a direct competitor in New Hampshire there's 30 employees largest one we we've ever done and actually it was a great success it worked out great um but it I think you know fairly easily it could have gone the other way and you know you're you're hiring 30 employees like sight on scene is really what it is act to the military right exactly so for us I think like we're still open to acquisition opportunities I'd say like we're not in Pursuit like we might have been before and I think that's a symptom of before you we were kind of like you know in those Wasteland I talked about earlier right that like1 to5 million Wasteland you can kind of feel like you're up against the sealing and it's difficult to fight out of it you don't have the resources to like help you get over the hump and invest in the infrastructure and just be it could be hard so I think like in that stage it felt like the only way to meaningfully grow was to do an acquisition now like we've kind of have this like meat um and like resources and staff and we we feel like we can fairly reliably organically grow and you like kind of pull these levers and tweak and see the year-over-year growth without an Acquisitions my appetite for Acquisitions has certainly diminished now if someone walked in here today and was like hey I've got this great business and I want to sell it to you for a great deal like yeah of course which is gonna happen I mean that is gonna happen have you taken investment dollars nope this is all just me and my uh me and my partner just personal personal cash and uh oper funds would you consider that to do an acquisition if the right acquisition came along if the right acquisition came along and we felt like we had like an aligned investment partner uh I think we we would be open to it but I think the Stars you know would have to be aligned and we'd want to make sure we weren't giving up our autonomy and uh Direction read small Giants again a couple times I mean I have to tell you anyone that goes oh he's a silent partner yeah I don't know that there's such a thing as a silent partner and I don't care who's money you got the fact of the matter is you're not in control of your own destiny at that point and I would absolutely argue don't do it just don't do it period yeah I mean that's basically how I see it right now um now you know I'm trying to keep uh an open mind right um as opposed to being like just blanket no um but I see it largely the same as you do Jay can I summarize what you've talked about is hiring and firing is critical in growing and running business which you went through the whole process you and everyone else to pricing people don't look at pricing enough pricing is critical to fixing a business making more money three there is tremendous opportunity there are a lot of small business owners out there that don't know how to sell the business that don't want to tell anybody and then they just die in The Vine and if you go and look for those people there could be a good deal could be cut and the last one last but not least God bless the SBA Loans I mean I've used them to by three buildings I couldn't have done it without the SBA Loans so a totally underused resource out there no question about it well let me add one more thing to that which is I think the the big difference between what uh Rich has done and what you did Jay and to some extent what you did Sean and and you know more traditional business owners have done is that rich went into a business he had some small experience in the underlying tasks that that business required but wasn't really doing that job before he became a business owner and I guess I'm curious Rich do you think it was ever a problem for you that you didn't have a a deeper feel for plumbing itself I think it presented as challenges um but it's not impossible to solve you know clearly at the end of the day what I sort of landed on was that I needed to know enough about Plumbing to understand like how long jobs were going to take and what material required and what support my plumbers needed so that I could price those jobs effectively so I could resource the technicians effectively um and ultimately that's that's the level of knowledge that I needed and I also just needed to be willing to leverage the latent Talent on the team to help bridge that Gap as well until I had it do you handle the plumbing in your own home now rich I do to an extent I do yeah I um I'll do uh you know clean my own drains and and uh service my own boiler and stuff like that you know if we're talking takeaways from this I think a really interesting thing here is your experience in leadership and operations you know just like understanding this idea of distributed decision- making is so powerful and how you know these large organizations really struggle to be effective I think because they they get that L oal Loop sorry I can't ooop they get the ooop wrong you know and I think you've done such a good job of bringing that that experience in your life into the business space and it really illustrates how there are businesses where it's less about the technical expertise and a lot more about udal loops and good leadership so yeah thanks for sharing that man that was awesome yeah appreciate it well this was great my thanks to sha busy Jay goz and Rich [Music] Jordan one thing before you go everything we do at 21 hats is created by entrepreneurs for entrepreneurs to help us all learn together if you get something out of listening to these podcast episodes consider joining the conversation you can do that by joining the 21 hats sounding board a slack Channel where you can tap the wisdom of a very smart crowd or by becoming a founding member and joining our monthly Zoom Forum where you can be part of conversations much like the ones we have on the podcast you can sign up for both by subscribing to the morning report if you have any questions you can email me at Lauren 21h hats.com and if you get something out of this podcast or out of the morning report please tell a friend tell an enemy tell every business owner you know your word of mouth owner to owner will always be the most effective way to build this community for all of us thank you it means a lot this episode was produced by another entrepreneur Jess ston founder of blank word Productions thanks for listening everyone [Music]