Dashboard: Turning Tradespeople Into Business People

Welcome to another 21 Hats dashboard. I'm Lauren Feldman and I'm here with Julian Scatteren who is president and CEO of NextStar Network, a memberowned community of home [music] service businesses, plumbing, HVAC, electrical businesses. Welcome to the podcast, Julian. >> Lauren, thank you for having me on this podcast. Pleasure to be here. >> My pleasure. Um, Julian, I love your mission statement. Could you tell us what it is? Nextar's mission is to help the world's best trades people become the world's best business people. >> I think that's a terrific mission, a terrific goal. How do you do it? >> Well, we're 33 years in the making. Our founder had a deep, deep passion about really, you know, what you find in the trades is that you have folks who are great at the skill, but not necessarily great business people. And there's no shortage of great great amazing trades people who simply spent their time learning their craft, learning the trade, learning what they love, and didn't have enough time in the day to really understand the business mechanics. And we surround them and support them with great business practices, not only from professionals on staff, but their peers as well. >> How long have you been with NextStar? >> Well, I love that question. It's a little loaded, so I'm going to, you know, self-indulge here. Yeah. Well, I I was a member I was a member of NextStar for about six years, but I've been an employee for 13 13 years as an employee. >> And when you say you were a member, does that mean that you had your own business, home service business? >> That's right. I was that trades person who was very unsure how to be a great business person. And NextStar gave me the confidence to run a good business and they did. They helped me not only grow the business, go through a successful exit. So much so that I said, you know, the life of a consultant is probably a lot easier than running this business. And [laughter] and I chased Nextar for about 18 months saying, "Whenever you want to hire somebody, please hire me." And eventually they did. >> What kind of business did you have? >> Uh all residential plumbing, heating, cooling, and electrical services in a suburban Atlanta. >> And how did you get into that? >> Well, it's it's a long story, but I'll make it very short. Uh I was a high school dropout who was digging ditches for a plumbing company and really became a plumbing apprentice from there. Then got interested in the business. Uh worked for a few corporations, a few family-owned businesses. Then I worked for someone who was part of the Nextar network. And I realized that they were different from any other business I had worked for at that point. So I knew when I wanted to start my own business, I knew that there was this thing called NextStar that could help me do it. And and that's this the condensed version of how I ended up at Nextar. Oh, that's interesting. So, it it sounds as if you knew you wanted this help before you started the business. It wasn't that you were struggling and needed to find this help. >> Yeah, that's that's fair. It's a little bit of a different path than many of our prospects and members today, but I did have those same I I witnessed those same failings as an employee of these businesses. So, when I mentioned I worked at a at a large corporation, uh very well-run operationally, very uh toxic culture, a culture that I didn't relate to or understand. Then I left that culture and I went to a family-owned business who boy they couldn't get out of their own way operationally. So I I did I saw these different how does the saying go uh smart people learn from their own mistakes and wise people learn from the mistakes of others I think. So I did I saw these failings in other businesses that and I don't know you know I'm going to be really direct here Lauren. I don't know if I would have had the courage to start my own business or the passion either without NextStar just because I saw what it did culturally and operationally and that just made sense to me. When you talk about the common issue of trades people being really skilled in what they do but not at running the business, what are you talking about there? What are the biggest problems that you tend to see? >> Yeah. And you know, of course, I want to going to put a little disclaimer here. I'm making a stereotype and I think we all know that you do have some folks who are really great business people that are trades people. It's just not doesn't tend to be um you know in in general the majority of people you see. Well, you know that that's not just trades people, I don't think. Um, >> there you [laughter] go. Yeah. I see bakers do it. I see restauranteers do it. You're right. >> Most people go into business because they're really good at some skill. Something gets them passionate about doing it. That doesn't mean they know all the things they need to know about running a business. >> Well done. Well done. And there's a, you know, a famous book called the E-Myth that really talks about that that uh progression from technician to manager to owner. Um but when we say ownership and business principles and practices, it it's everything is you know as basic as lead generation, marketing best practices, uh actual processes behind the scenes, workflows, documentation, data collection, um sales strategies and techniques, pay plans, pricing correctly, literally everything from A to Z. We have experience in in helping a business owner in residential home services. Um, so there's nothing that you can show us that we haven't seen. Some things that you can show us that we haven't seen that you shouldn't be doing, but relative to running a good business. Uh, we can walk you through anything from the process, workflow, people needs, uh, attraction, retention, marketing, sales. Now I'm just repeating myself, but it's holistic. Lauren, >> and how do you help people? Is it through uh a software platform? Is it through consultants who actually go on site? What what's your technique? >> Yes, thank you for that distinction. Well, we have uh a website, a member website or a member portal. some members call it and that's a little bit like a library and that can be overwhelming but it's in there I can tell you if you don't know the Dewey decimal system though it's going to take you a while to find what you need but we have the website it's got everything you need from templates to processes to videos and training and and that's pretty much the foundational baseline but from there the ways that we serve is we actually offer in-person and online training classes to help shift perspectives or provide insights but the real rubber meets the road with the coaching what we call coaching which is consulting and coaching ing where you do you have a onetoone professional who would work with you in your business really take on an assessment of where you're at in your business because Lauren you know this sometimes a business owner will tell you what they need and that's not what they need you need you need an assessment we kind of have to look and we have to have some tough love conversations but you have onetoone coaching you have the repository of the website and you have these uh online and in-person trainings as well >> can you give me a sense of what that might cost >> well I think to introduce and I'd hate to be wrong here but there's a commencement fee as well as the annual dues. So, when you first join, you're going to spend close to $50,000 just to join. But I tell you what, if you want to be effective, you're going to probably spend around $100,000 a year. And um we used to have a coach who would say, "Well, you know, when somebody said, "Well, how much is it going to cost?" And he'd always say, "Well, it's free. What do you mean? I thought you just told me I got to [clears throat and laughter] spend, you know, $20,000 here to, you know, just just be part of the network." He'd say, "Yeah, but if you do what I tell you, you're going to make more money than you ever made and you ever would on your own. So, essentially, it's free." So, it [snorts] is it's it's a significant investment in your business. I will say as a percentage of your business now, depending on where you're at revenue-wise, though, it we we will drop a member if they're not using us. If we think that we're a financial burden to them or we go through pretty extensive financial review before we'll bring you on, we we don't want you for the volume numbers. We want you to join to make an impact. But it is it's a significant investment for smaller businesses and as [snorts] you get larger, you know, many businesses, they don't even notice it. The other thing that they can be part of is our strategic partner program which gets them rebates and discounts with vendors, manufacturers, service providers. We have members. They make more money off of those strategic partner alliances than they ever spend with us. So, it really is almost a profit center for them. >> I think it's fair to say that most business owners are are not looking to throw around that kind of money at the drop of a hat. Um, what what do you find gets them over the hurdle? what what convinces them that this is worth doing. >> Yeah. I really just think it's the way that members are referred and it's and it's reference. You know, we don't very rarely does someone, you know, just look us up on the website, but we will support and we will showcase, you know, the results that we have for our members that engage with our services. And it's pretty undeniable. Our members very consistently grow year-over-year at a double- digit rate, but more importantly than that, they keep double- digit profits at a year-over-year rate. And the members that are highly engaged, they actually understand cash flows, financial stewardship, and how to invest back into growth or an exit strategy. And that's ultimately, you know, it's usually one of those two things that a business owner is looking for. How do I grow, and how do I grow profitably, or how do I position myself for my eventual exit? And we can help with both. And you can't put a price on that. What's it like out there right now for your members? Are they confronting much the same challenges as any small business that we're reading about every day or is there a particular flavor of challenge that they're facing? >> Yeah, I No, I don't think our members are immune to the challenges that everyone is facing right now and you know that can be everything from consumer confidence. You know, consumers are really double-checking, getting a few bids. They've always done that, but in these times we're seeing more of that. They're raising costs of everything. you know, we can't really run from that. That's happening. The uh you know, the talent shortage or in the labor pool, we can't run from that. But I can tell you our members tend to navigate those challenges a bit more quickly than those without a network or support because whether it's your Nextar coach or a training that you attend, you also have your peer network and we have found that Nextar members are are very giving. They're always open, willing to open their doors, welcome you in, hop on a phone call with you. So what I see is the speed to solution and the diversity of solutions that you can tap into at the next network. That's where I see even though we wrestle with these issues, I see members overcome uh these types of concerns more quickly than others. Tell me about the labor issue. I I you hear a lot these days about people deciding that a college degree might not be worth what they thought it was going to be worth and that there are alternative routes and those routes might be safer from artificial intelligence for example. Where do things stand in terms of labor and the kind of trades uh we're talking about? >> Yeah, Lauren, I hate to tell you it's not getting any better. It's really not. I think that I think awareness is starting to turn a corner here. Uh as as you're mentioning there's articles and there's young folks and I always I think it's funny when you know I see an article that says you know more gen whatever whatever generation [laughter] you want to fill in you know these younger generations have interest in the trades and and you know that that's that's okay but you know that's window dressing because guess what I have interest in. I have interest in dating a supermodel doesn't mean I'm going to do it. Okay. So the the issue remains and what our members are are really learning and taking action on. You now have to start building your own apprenticeships. You now have to deal with the reality of the high attrition rate, low retention rate of apprentices. But if you don't take this into your own control, if you are waiting for the government to step in and fix this, or if you're waiting for young people to find this industry sexy, you're going to probably go out of business. So, our high performing members, they're they're already highly involved in their communities, but they're getting out there and they're not afraid to say, "Hey," and I've heard this term before, so I'll just throw it out. Come to a ride and decide. A ride and decide is very different from showing up at a career day and saying, "Here's all the money I make, and I get to meet interesting people every day." No. A ride and decide is putting a face and a smell and [clears throat] a temperature on what interesting customers means. It means get out there in the field. Realize that a lot of this equipment is either in the attic crawl space, hard to access area that the interesting people you meet, they're upset. You know, they people don't call us just to stop by and see how they're doing. They're calling us because something they need is broken. And so do a ride and decide. Actually, I used to say this uh to one of my sons. One of my sons knew from the time that he was a toddler that he was going to be a mechanic. Loved cars, you know, and he'd play with his little car set. And I'm going to be a mechanic. I'm going to work on engines. And I'd always say to him, "Son, until you bump your knuckles, we don't know." And I didn't say it to be dismissive. I didn't. I just said, "Son, please get an apprenticeship as soon as you." And guess what he's doing today? He's 22 years old and he's a mechanic. >> That's great. >> He loves it. And he's got the scarred knuckles and he's got the bruises and sometimes he swings by for dinner and he smells like oil and we all make fun of him, but he he does understand because he got out there and he he you know, it became real for him. And that's what I would encourage folks to go beyond interest. Go on a ride and decide. get out there and and companies start opening your doors to these people. And here's the other thing, the talent pool that we need to fill. Yes, it is the technicians turning the wrenches, the service professionals out there, but there is opportunity on the business side as well. Take it from a guy who wasn't good at bumping his knuckles, but saw business opportunity. I'm talking about myself. I [snorts] was not a good technician. I was a slow technician. And there was somebody who cared about me and he said, "Julian, you're a good guy, but you're not going to make it in the field, buddy. we need revenue producers and you're just too slow, you're too meticulous and you don't seem to be getting as quickly as we like, but I think you're a smart guy. Why don't you come in and start to learn the business side? And that's where my skill set was. So, there's opportunities for all in this industry. >> Is AI starting to have an impact on the way your member companies are run. >> For sure. For sure. And many of the businesses that we serve are not as uh you know they're not at the maturation stage of some enterprise businesses that can have data analysts and scientists that really show you how to leverage it. So my [snorts] greater fear at the at the size of businesses that we support which is 100 million per location and under it's a distraction almost Lauren it is because you'll you'll have these people selling you and telling you these tools if you just take it on it'll make your life easier but they don't know how to implement them or connect them effectively. and we do help members with that but it can almost be a distraction. So I think at our size there are some solutions that make sense but really understand the problem that they're there to solve and then understand how to connect them and then understand how to extract the data that you need to make effective decisions and boy this that sentence right there even though I said it in layman's terms that's that's some mature business stuff there and you probably need a partner to help you with that. Um but it it it it's here. Uh there are some immediacy. There's some immediiacy in inventory and ordering. We're seeing uh quick penetration here in call center and call capturing and follow up on unclosed leads. Things like that for sure. It's here. One thing we've been hearing a lot about the last few years is the interest that private equity firms have taken in home service businesses. you know, having a huge impact with with rollups that that affects not just the businesses that they buy, but also the ones they compete with. You took an interesting step recently in terms of your membership. Tell us about that. >> Well, the step that you're uh teeing me up for is Nextar made a decision as an organization as our members our members are very successful and as any wise investor would do, they would look for the types of businesses that we are uh privileged with supporting and they're wise investments. these are great businesses to get into. You know, the interests that they have were the same interests that I had as a young man when I said, "Wow, there's a lot of money going through this business. I should probably learn this business." And um our members, they they run extremely well-run businesses. Uh and so, Private Equity uh made an opportunity for many of our members to have a financial exit that they probably couldn't have had in another time in history. And you know, they're bringing some really sound technology and support resources to these businesses. And so Nextstar wrestled with this idea. So now we start to have members that are backed by private equity. Started a few years ago and they made up about 10% of our membership. And most recently it's made up about 30% of our membership. And what we realized pretty quickly we are a memberowned business. And what we realized is these businesses were operating at an enterprise level and we didn't have offerings for them at the scale, the size or exactly what they needed. So simultaneously we had these members that were needing enterprise solutions saying Julian you're not paying attention to us. We had our existing members that are still coming in at the lower dollar amounts and less business um maturity and acumen saying Julian you're not focused on us. And so we had to make a decision sitting with our senior leaders at Nextar, our board of directors, which is made up of members in Nextstar. Uh we either needed to start creating enterprise solutions for these private equity groups and what they needed or we needed to say we're not going to do that. Ultimately where we landed is our mission if our mission is and it is and it if it's to remain helping the world's best trades people become the world's best business people. Well, just by that sentence alone, serving private equity is not in our mission. So then we can either create a new business. >> Why is that, Julian? >> Well, they're not trades people. They they're probably the world's best business people, >> but they employ trades people. >> Yeah. And they have the resources of the world's best business people. They have actuaries. They have data scientists. they have FNA or you know they they have the resources that we believe it's our mission to get you to the point of either developing those yourself or partnering with them as they did. So no they're not trades people even though they employ trades people but the resources that they can help with they already exist they already have them in their portfolio so there's no need for nextar to go out and redevelop those things. >> So you said goodbye to 30% of your members. We said that you will have to the end of this calendar year to get your affairs in order with the things that Nextar provides. And then yes, we are suns setting your membership so we can welcome in people who don't have the resources you have and we can help them get to the levels of success either financially or uh business acumen wise that they have achieved. And that's our mission is to we're more of an accelerator. We're not an incubator, but there is also a level of graduation for these businesses. And this was the first time in our 33 year history where we had to wrestle with that. So, it took us a few years to decide what we would do and who we would serve. >> What percent of your revenue did that cost you? >> Well, it represents 50% of our revenue. And um you know, actually, >> Julian, I thought you said you were a smart business guy. >> I Well, that'll [laughter] tell you a lot right there, won't it? Well, before you all tune out to this 21 Hats [laughter] podcast, I'll tell you that Lauren did his homework. Um, so yes, uh, the headline is a third of our membership, 50% of our revenue. And if you read carefully, it says they represent 50% of our revenue. So what we did being member owned and being as thoughtful as we believed we could be, we reached out to these members in in the summertime and we let them know that we would be sunsetting their memberships. Um, and we know that we're deeply entrenched in these businesses and they needed time to transition off of the Nextar offerings, but simultaneously we said we will open your markets. Next, our network has proprietary markets, meaning if we have a member in a certain market, we cannot add another member per population standards. And so what we did is when we told these members that we would be suns setting their memberships, that we would also open their market so we could bring new members in. So Lauren, I'm very pleased to tell you that our team, our operational team did some really great work that uh the budget as projected to close this year is short of what we thought it would be because we made this decision, but the budget that we've created for next year will actually have some slight growth in it from this year. So said differently, that's tremendous growth. Tell tell me any other business that can cut a third of their population, 50% of their revenue, and even be flat the next year. But that's only because of the operators at NextStar started hyperfocusing on the new members we could bring in while serving the members that were transitioning. Our staff has done a hercule and lift of serving the existing members that are suns setting and bringing in new members at the same time. But it's because we're so mission focused that I know these folks are doing the great work that will help us remain a wise company for the future. But I also want to shout out our our predecessor my predecessors and our founders. Nextar has a very healthy cash reserve and we also have a very healthy investment reserve and if we needed to dip into it to continue to serve our members at the rate at which we do today we were prepared to do that too. Our operators just said Julian let us give us give our best swing at this and see if we don't have to dip into that reserve and we shouldn't have to. So yeah I'm surrounded by great business people Lauren it isn't me. I I attract great talent and I hang around great talent and I get to ride the results. You had said earlier that uh you tend to get business through referrals primarily. It sounds like you did something here to generate uh a lot of new business. What did you do differently? >> Well, we did and and you're going to start to see more of this from Next Door in the future is we just started to tell our story to the public more than we ever have. Uh you all maybe you became aware of me. I'm sorry I don't recall exactly but many [snorts] who are now aware of me about you know around the beginning of the year I started posting on LinkedIn and I started writing stories [laughter] >> I started posting stories for the small business owner I wrote them for the small in mind with the small business owner and you know what I realized that I had not been representing Nextstar from my seat in a way that would bring visibility to the organization. And I always believed if we did good work that we would have a good business. But these are changing times, my friend. And I realize that I sit here in the president and CEO seat and I'm not saying anything. And sometimes saying nothing says a lot. And and I mean that to say that's not good. I owed it to our organization to first talk about the great things we're doing. I owe it to our members for them to hear the way that I think. And I owe it to the prospects to get an idea of the type of business offerings and the way that we think as they would consider us versus hopping on a call with one of our sales professionals. They can start to pick up some of the cultural aspects and the business value ads that we bring through me preaching the word. And that's grown into podcasts and me writing long form articles. And so just telling our story a little bit better. I'm talking about the things that I'm doing, but you will start to see more videos from us, more member success stories than you've ever seen in the public eye because we know it's important that we get the word out. >> You've made a couple references to the organization being memberowned. Can you tell us what exactly that means? >> I would love to. Thank you so much for the window to do that. It's important to me. Uh, as we were founded or the founding story is that Frank J. Blau Jr., here a plumber out of Milwaukee was going around and he was writing plumbing and mechanical articles back in the '9s, late 80s, early 90s. I used to read that stuff to learn about business, but he was also doing these tours. He would go around and call people up and say, "Come to my seminar." And he would force them to share. You know, I know your competitors, but we're going to raise the whole industry. Bring your marketing strategy. Bring your inventory sheets. Let's let's share. Let's learn from each other. Well, he got cornered one day by 12 founding members at one of his seminars. And they gave him $4,000 each. And they said, "You're going to start an organization. You're going to start an organization here that teaches all the things you've been doing." Well, he was smart enough to know that's not the type of business he runs. So, he went out and found an executive director to lead Nextar back in the day. And I promise I'm getting to the point here, but I think context is important. Those 12 members that gave money for us to start, what we did or what Nextstar did from there, they created the bylaws of this organization that said we are memberowned. That every member of this organization holds one equal share in value. No matter how many locations you have, no matter how much revenue you have, your share equals one value. But guess what? It has no cash value. All you get to do is vote on the board of directors which will govern and oversee NextStar to ensure with fiduciary responsibility that we are conducting the business of the members as we should operationally. >> Is that who you report to? >> I do I do I report to the board of directors and the my role is the only role that can be replaced by the board of directors. Uh the rest is you know an operational business that I have the privilege of overseeing. Um but member owned literally means that it and it also means this and if you want to um you know confuse a few private equity minds here because I've done this in explanation uh there are no dividends there are no distribution there is no equity for anyone no one myself board members founders no one every dollar of profit that we make must go back to our members in the form of goods and services and if we can't do that we pay taxes on it and then it goes into investment reserve which I alluded to before which always goes back into creating developments, anything at all that we need for our members to help them perform better. And that sometimes that's bringing in talent, sometimes that's putting on big shows, and sometimes that's just, you know, aligning with other innovations in the industry to help our members be ahead of it. But that's what we get to do. And that's what member owned means. >> That's really interesting. >> It keeps us pure. It keeps us pure. I'll tell you, Lauren, I know at the end of the year, I would make different decisions on our profitability if I knew I was getting a cut of it. I I I would. You know, there's some things I I could delay a year or I might expedite or depreciation I would look at differently. Um, you know, if I thought it was going to pad my pockets, but it doesn't. Next takes very good care of us. We we take care of our employees benefits, not only for the employee, but their full family, premiums and all. We have a ton of benefits that we offer because we want you to be happy here and live a good life. We our profit sharing when we're profitable and we have been every year that I've worked here goes back as a contribution to your 401k and we want to make sure that you're taken care of in in the most long-standing ways. So, I'm sorry I got off on a tangent there. No, it's a great place. >> Have uh those uh private equity guys tried to buy NextStar? I I get tons of uh calls and and you know I I I I don't they can try but they would have to convince um currently you know 900 members that this is the right thing to go to do and then I I couldn't I don't think there's enough money that could be split enough ways that it would ever make and then you know beyond the money aspect culturally it would change and I don't know that our members want that. >> Okay. Okay. So the last thing I want to ask you is you talked about the issue of somebody being really good uh in terms of the skills of what they have to do to to earn a living but not necessar not necessarily being good at the skills of running a business. There are a lot of people coming into these kinds of businesses now from the opposite direction. uh whether it's through PE or the search community, people who may have an MBA, it's gotten kind of cool to buy one of these, you know, bluecollar jobs, uh you know, a dirty business. They got they have all kinds of nicknames and uh it's it's it's a trendy thing to take over. There are two very distinct paths to to ownership of one of these business. One focuses on actually knowing how to do the stuff the business has to do for customers and the other focuses on how to run a business and you know probably has people who are more familiar with processes and software platforms and and that kind of thing. Which is the better path? [clears throat] >> Oh no better. There's no better. I I think of NextStar in many ways in the same way that I think folks the reason why folks are interested in franchises is they can tell you the playbook on how to run the business but you still have to be an operator. So, the reason I throw that analogy out is I can go out, you know, and I know I'm being a little flippant here, but I can go out and join a franchise or purchase a franchise for the most part because they're going to teach me how to do it. Well, here's the reality. You still got to operate it. And so, either I have to then learn the business and execute it daily or I have to hire somebody to be the operator. And so, I I don't know that there's better being relative because you're both going to have a great business that has payout. I just would offer if you're coming from outside the industry and actually I want to give two pieces of advice the more I think about this. If you're coming from outside the industry, you need an operator that's going to be there every day and run the business. This is not a cash cow that does not need attention. This is a high high human touch point business. And I'm speaking about residential service here. So, you know, get that. But on the other [snorts] side, if you're a trades person, forget everything you know about the trades because you're going to know how much each part costs and how long it should take to do each job. But as you start to hire other people, you'll see the time on task varies and you know that you need to run a great business here to understand how to be profitable. So I think there's pros and cons to each. I don't know that there's better. Lauren, >> that's uh kind of the answer I expected. But uh but interesting clearly you're saying you can do it either way. >> You can and you just you have to be aware of your blind spots. You have to be willing to to humble yourself on either in any business in my opinion in any business. You know it's the old saying if you're the smartest person in the room you need another room to join. So, and we've had that. We we had some really outstanding members. I'll never forget one of my favorite people in the world. Uh he came up through agriculture and he was an accountant and he was a well-known member. And then one day I found out found out he was an accountant. He had never even been in the trades. I go, "What the heck are you doing?" He goes, "I don't hell. I don't know Julian." He said, "It looked like a good business and it has been." But he surrounded himself with adviserss who can really help him understand the industry. And I found times where he's advising others on his strengths. So, you know, it's this really uh synerggetic community of of good business. >> Did I miss anything that I should have asked you about? >> No. No. You you've been so thoughtful in just allowing me the platform to share a little bit more about these amazing opportunities in the industry and in the trades. I just thank you for the time. >> My pleasure. Julian Scatteren is president [music] and CEO of NextStar Network. Julian, thanks for taking the time. >> Lauren, I appreciate it and continued success with your podcast. I love what you're doing. >> I appreciate that. Thank you. Thanks for listening everyone. [music]