RICH JORDAN - BUYING A SMALL PLUMBING BUSINESS - EP. 36
My conversation with Rich Jordan who just acquired a small plumbing business called Garon T Plumbing.
My guest is Rich Jordan. Rich bought a home service plumbing business only a few short weeks ago in Pennsylvania. If you’re on Twitter, you might already be familiar with Rich as he has been tweeting about his time running the business and has been so much fun to follow. If you’re not already following him you’re missing out. During the episode we talk about Rich’s first few days in the business getting his hands dirty, fighting off competing offers for his plumbers from competitors, and a few moves he’s done to grow revenue 60% in only 8 weeks of ownership.
If you liked the Collin Hathaway episode from a few weeks ago you’re going to love this one as Rich reminds me of an early-days version of Collin. He is just getting started but has made tremendous progress already and I hope you enjoy getting to hear about his short journey so far.
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Well, thanks, Rich, for joining us. I’ve been excited to have you because you’re just starting to get into your plumbing business. And following your Twitter account has been a blast. It felt like an Entrepreneur Ride Along as you get into the business and start building it up and just familiarizing yourself with the industry. So, I’m super excited to hear about that. But I want to start with your background and how you got into, eventually, small business from your previous experiences.
Yeah. Sure. Alex, first, thanks for having me on here. I’m super excited to be on the podcast about me. I was an engineering student at Rutgers back 10, 12 years ago. I was trying to figure out what direction I wanted to take. Somewhat unsatisfied, like any college freshman is, unsatisfied with my decision, trying to figure out what I wanted to do. I’m sitting there thinking, I don’t want to just design widgets.
I ended up selecting industrial and systems engineering at the end of my freshman year really to maximize optionality because I still didn’t know what I wanted to do. And industrial engineering felt, to me, like I could take that a bunch of different ways. So, a non-decision and a decision there. As I entered my sophomore year, I realized that my greatest satisfaction and successes had come in the form of leadership opportunities.
So, whether it was a sports team captain in high school, a village chief for the YMCA summer camp that summer, between my freshman and sophomore years, I really was satisfied with those things and wanted to pursue that further. So, I entered my sophomore year with that weighing heavily on my mind. I don’t know. Have you ever seen those Marine Corps pull-up challenges, like the pull-up bar out in the square or something like that?
Oh, absolutely. At the county fair?
Yeah, yeah. Exactly. So, I was at a Rutgers football game. And I see this pull-up challenge bar. I had actually recently gotten injured the previous weekend in a rugby game. And I’ve been sitting out all week, sitting out at practice. I wanted to see like, “Let me see where I’m at.” So, I jumped up on this pull-up bar. You get 25 pull-ups to get a T-shirt. I only got 23. I was a little disappointed. I jumped off the bar.
The Marine captain is like, “Man, you didn’t get the 25. No T-shirt for you.” And I’m like, “Oh, yeah. I just separated my shoulder on Sunday. So, I guess I didn’t get as many as I would have liked.” And he’s like, “Are you serious? Have you ever thought about joining the Marine Corps?” Because I guess he saw I was a fit. So, I was actually like, “Yeah, actually. I have thought about it.” So, that was a Thursday night.
Monday morning, I’m in his office in a shirt and tie and soon to be whisked away to medical screening and officer candidate school. So, I gained some direction there early in college. And that’s been great so far. Make it to the rest of college, I ended up leading the rugby team that I got injured on. I ended up being the president and captain there. I got a little bit of business taste there, the first foray into it.
But I ultimately commissioned as an officer in the Marine Corps right after graduating college. I get stove-piped in the pipeline, waiting to join active duty for about a year. I went into the corporate world to try to make some money to pay rent while I was waiting and had a very office-space experience, horrible manager, basically underemployed where I didn’t have much to do, and just really had a terrible experience.
I had to leave in there after six months with a very bad taste in my mouth, thinking to myself, I want to make sure I never have to work a job I hate ever again. That sent me down this personal finance, early retirement rabbit hole early on, right as I graduated college. And I went into the Marine Corps with that mindset, that very thrifty, frugal, saving mindset. So, I entered the Marine Corps, right, new Second Lieutenant Jordan.
I go to Quantico for training. I’ve already been through OCS and all that. So now, I’m at the basic school, which is a six-month school, to learn how to be a platoon commander, basically. Super challenged mentally, physically, socially, intellectually as a Marine. I wasn’t that great of a student in college because I couldn’t get behind. I wasn’t interested in the things I was learning. I ended up being a great student in the Marine Corps just because I was very tangible.
It was very clear that the things we were learning now were going to matter to us in a very short time. So, ultimately, I mean, I became an infantry officer through that course, went on to be a platoon commander. Man, I had some of the most amazing experiences, some of the most challenging experiences. I learned a lot about leading young men. I developed maybe a healthy disdain for bureaucracy through that time.
Through some deployments and going overseas, I realized that I’m most happy when I’m operating autonomously or in a small team. As I was looking forward to what am I going to do after the Marine Corps, if there is after the Marine Corps, if I do get out, very clear to me that I probably wouldn’t be happy at an Amazon operations job, working at a Pepsi warehouse or something. I needed to be on a small team, a small boat.
So, I returned for my second deployment. I had been overseas for a year on that second deployment. I came back. I had a little bit of cash in my pocket at that point from saving and not spending much. My entire net worth, basically, was index funds. Because I’m coming from that personal finance world, index funds are king. I was really tired of the lack of control, the ups and downs. I think throughout that year, that was 2017, 2018, I had a zero percent return on my money. I was just very frustrated.
I realized, if I wanted to move the needle, I needed to use some leverage and have some control. So, the simplest form of leverage to the uninitiated is a real estate mortgage. I ultimately read all I could find on real estate investing as I was trying to wade through the wholesaling 101 and get-rich-quick bullshit that’s rampant in the real estate world. I happen to stumble upon commercial real estate valuation, which really is like a business valuation.
Your net profit, your EBITDA, divided by a cap rate or multiplied by some multiple is going to be your value. And you have some level of control over that through increasing income or decreasing expenses. This totally blew my mind. No going back. I was like, “Oh, man, this is a game changer.” So, I found a severely mismanaged 18-unit apartment building near where my wife was going to medical school.
At this point, I had come back from that second deployment. I was an instructor up in Quantico at the school that I mentioned earlier. My wife was going to medical school down in North Carolina. So, I bought an apartment building down there. I knew nothing. Outside of the things I had read, I really knew nothing about how to manage, how to make an offer on an apartment building. So, every time I run into a new novel issue, finding the best book on it, the best article on it, ripping through it, and immediately applying those best practices.
So, in a way, I had an advantage in that I had no bad habits. I mean, I’m going in and applying the best of what I’m reading, literally like Google. How to write an offer? Google. How to conduct due diligence? Really, I had no idea what I was doing. But I had pretty decent results, continuing as an instructor in Quantico, and really acting as an asset manager for this real estate property, managing my property manager.
Fourteen months later, that building reappraises for almost double when I paid for it, which with using that leverage and only putting 25% down, that was a massive life event for me and a validation of what I was doing. At that point, I was only a couple months away from getting out of the Marine Corps. My wife’s about to graduate medical school. We don’t know where she’s going to land yet.
Anyone familiar with how med students end up going to residency might be aware of the Match system where you basically rank your preferences for programs. The programs rank the candidates that they want, and it goes into the gonkulator. It spits out where you go. I mean, February of 2020, not that long ago, we had no idea where in the country we were going to end up. We ended up matching Pennsylvania. We’re super happy with that. And we found out mid-February.
So, immediately, I launched a search for a business. I guess I skipped a couple steps here. Going back slightly, I had begun to start reading all about acquisition, everything I could find on that. And Twitter’s been super useful for that. So, I read a bunch of great books and felt fairly prepared. I had been on a low simmer on that, not able to action it, just having to sit on my hands until we figured out where we were going.
Ultimately, I launched a search in the Pennsylvania area. I developed some relationships with brokers in that area. And a couple months go by. And sure enough, I find a plumbing business in New Jersey for sale. Now, New Jersey wasn’t where I was looking, but it is where I’m from. And it’s where my wife’s family’s from as well. And I have plenty of friends there, having gone to Rutgers and everything.
I ultimately pulled the trigger on that plumbing business. I moved pretty fast on that. I just closed on that business. It’s called Garon T. Plumbing, G-A-R-O-N, space, T. The seller’s name is Tom Garon, Garon T. Plumbing. And we closed on that September 2nd. So, I’m all of seven weeks into this ordeal now, as you and I speak, at the end of October. It’s been an absolute whirlwind. We’re having what looks to be a lot of success. But I’m having a blast, incredibly satisfied, fighting the alligator from a boat every day. So, it’s been a lot of fun.
Yeah. It sure sounds like it. What’s been the biggest surprise so far in going from owning an apartment building to now buying a business that has active employees, there’s a team to manage, and all these other things going on? How’s that been so far?
Yeah. Biggest surprise. So, I’m embarrassed to say, with my background coming from the Marine Corps as a platoon commander, all this stuff, you think I would have had an appreciation for this. But really, the biggest surprise is how much of a people business this is and really thinking about the employees in the lead-up to taking over, really getting wrapped up in the spreadsheet, right? I mean, I have this ridiculous model out 10 years on what this thing would look like.
And if we grow at this percentage and we reduce this expense and increase this marketing expense, this is where we’ll be. Day one, all it became was managing the people. I mean, this is a very small team. I mean, this business was… when I put in the offer for the business, it was two plumbers and the owner, who’s a plumber. When we finally took over, it’s three plumbers plus the owner because he tried to replace himself with another plumber. So, really, we’re taking over three guys and three trucks and a warehouse. That’s it.
And these guys were a really tight team. The most senior guy have been working for the owner for 16 years. He had no idea the business was being sold. We got a super awkward introduction from the owner. He’s not the most sociable guy. So, that most senior plumber guy had been around for a while. He was upset, and he was worried. He’s got a family to support. I’m only 29 years old. I will turn 30 in a couple of months. These young guys who aren’t plumbers just bought this business. What the hell is happening?
So, it became a very… I had to get really deliberate about my messaging to these guys and getting in front of them, and stopping about the plumbing business that these plumbers are out on the road all the time. So, I could be at work every day. But I might be in the office, and they’re out on the truck. And while they’re driving around or working on pipes or working on toilets, they’re thinking about, What the hell am I going to tell my wife this week that this business got bought?
And what’s going to happen? Who are these guys? And what do they want to do? And are they just going to flip the business? And all these things that these guys are worried about. On top of that, I had competitors who found out through the supply houses and stuff that we had bought the business, that the business has changed hands. And they began reaching out to my plumbers to try to poach them to their business because it’s hard to find a skilled plumber. It can be difficult to find skilled plumbers. And these guys had a good reputation.
All of a sudden, my guys are fielding inquiries about employment opportunities at other places in town. That was a red alert for me. So, for me, I immediately switched back to basically platoon commander mode and knew, all right, guys have concerns, guys were upset. I need to get out there and get dirty with them and work with them. That was my answer. That’s what I knew. The senior plumber had the most concerns. His name’s Mike.
We took over September 2nd. It was a Thursday morning. On Friday, he had asked me in the morning. He needed to take his family on a trip that afternoon. He was going to have to get out of there at 2:30 p.m. And we got to call for an emergency water heater reinstallation at 11:30. And he had no way to take care of it, and I knew he wouldn’t get it done in time.
So, this trifecta of him being worried, him being upset, he’s a skilled plumber who’s valuable to other people. And now, he’s going to upset his wife by being late on a Friday as well. And they got a long trip in the car to go where they were going. So, it’s like, “Oh, man, I need to get out there.” So, I immediately see the address he’s at, drive out there. I helped them install this water heater. I’m working on stuff while he’s pulling things out of the basement. And I’m ultimately trying to get him across the finish line on time so he can get out to his family.
One, I think that meant a lot to him, that the owner of this company, who’s not a plumber, was willing to get in there and help him get out the door early on a Friday. And two, it gave me the opportunity for one and a half, two hours. We’re in there working on this water heater. We’re shooting the shit about who I am, who he is, ideas he has for the company.
One of the best parts about it was that I had all these things I wanted to do with this plumbing business, take it from paper to digital, increase marketing, change compensation structures for the plumbers, to their benefit and to the company’s benefit. All these things, I was worried about rolling them out too quickly because I didn’t want to shake things up and rock the boat and have guys looking for other places to go.
But through the course of this conversation, Mike comes up with all these great ideas that sound a lot like the ideas that I had had. So, like I said, it’s Friday afternoon. He comes up with all these great ideas. And I’m listening to him. “Wow, that’s great.” And I’m picking his brain a little bit, pulling more out of them in more detail. For instance, one of the ideas was the plumber should be operating off tablets.
And we should be implementing software that can track customers and what business they’ve done with us before and can update us on the location, optimize the routes that we’re driving so we’re not driving all over the place. And we can collect payment there with the tablets. Well, sure enough, one day morning, I show up with five tablets for the plumbers. And that was something I didn’t think I’d be able to do for a while.
But then, there’s Mike in the parking lot Monday morning. He sees the new owner show up with these tablets that he had put forward as an idea on Friday afternoon. So, I got to imagine that meant something to him. I know it means something to me as an employee if a new owner came in and immediately implemented my ideas. I’m the guy who’s been here for 16 years. I haven’t been listened to. I wanted to do this for a long time. And then, boom, here it is. Here’s my opportunity. And I’m being listened to.
So, stuff like that. It immediately became a people problem, a retention problem, a messaging problem. That surprised me because I have been so wrapped up in the spreadsheet.
So, did that help counter some of the offers he was getting from other plumbing companies? Or was there something else you had to do to fend off the outsiders?
Yeah. It also didn’t hurt my case that following week. Having found out about the competing offers, we gave all the guys across the board, on average, a 12.5% wage bump in their pay. That helped a lot too. I mean, they were chronically underpaid. And I think that might be true. Well, I don’t know if it’s true of a lot of mom-and-pop businesses. I think you’re probably underpaid or overpaid. When it comes to mom-and-pop, you’re probably not being paid market rate, one way or the other. So, these guys were severely underpaid.
So, the second-most senior plumber, he got a 20% increase because that’s what it was going to take to get him to a wage that was commensurate with his skill level. So, that and the promise of commission incentives to come. And that’s something I’ve had to wrestle with as well. They’re out there busting their ass for us every day. So, we want to be able to incentivize them to work hard, to do the right thing, to have customers calling us back to grow the business.
I’m realizing you have to be very cognizant of these incentives that you roll out because, one, if you roll one out and you only give it half a thought and you have to, for some reason, roll it back, well, now, you’re messing with the guys’ compensation. You’re messing with the money that they are now entitled to, basically. That’s how they’re going to feel about it. So, that’s something I really wanted to avoid.
So, seven weeks later, we still haven’t rolled out those commission-based incentives, but they are coming. But there are certain things we have to get in place first. There’s a domino effect. There’s an order of operations that has to occur before we can track the data effectively, know what’s going in and what’s going out on a per-truck basis so we can compensate these guys fairly.
I’m just reading through your Twitter account. And it’s been fun to watch the Entrepreneur Ride Along experience as you build up. And it sounds like you’ve grown quite a bit quicker than you initially thought you would. What are you at today? So, you started with three plumbers, three trucks. What are you at today? And this is, of course, June… not June… October 24th, 25th or so?
Yep, 24th. So, in seven weeks… we started with three plumbers. Now, we’re at five plumbers and two helpers. And one of those plumbers, who happens to be my master plumber, 10% owner, license holder, we’ve elevated him. He came in full time to be a plumber. Now, we’ve elevated him to the position of service manager. So now, we have a skilled service manager, four active plumbers, and four active trucks and two unskilled helpers that are really great at digging holes so that I don’t have to anymore because I have them two, but yeah.
So, we’re growing. And I mean, now, we’re looking for another one or two plumbers. I’m going to buy another one or two trucks. And that’s before we’ve increased any advertising or marketing spend, which was really a major part of the original thesis, was these guys weren’t spending any money on marketing. It was all word of mouth. They have a good customer base, but it hasn’t grown. We can spend the marketing dollars. We can advertise more of a targeted advertising approach and increase the customer base over time.
And the hope was that we’d have three plumbers and three trucks. And maybe in year two, we had a fourth plumber and fourth truck. And maybe in year three, we had a fifth plumber and fifth truck. Now, we have four active trucks, fully utilized, and still overwhelmed with work seven weeks later. Maybe before the end of the year, I think, our goal is to be at six trucks fully utilized now. I mean, I can’t even believe the words I’m saying to you. I can’t believe we’ve grown this fast.
But it’s been these little iterative changes, have had a serious impact. I mean, we’re actually not taking in any more calls than the previous owner was. But now, our flash to bang… excuse my military parlance, but the inbound lead to work performed and invoice paid has now decreased from, say, two weeks to three days or two days. It gets you today or tomorrow and maybe the next day, if it’s not an urgent call.
So, just that means we can get more work done. So, we have less leads not getting converted. We have less people calling us and then, ultimately, having to call somebody else because we can’t get to them. Everybody really take all those calls and get them in to two days. So, that has been a major change that’s allowed us to increase revenues over a short amount of time. It has required more guys working.
And then, we just rolled out this new menu pricing option just this past week. I mean, it’s been mind-blowing, the change that’s created for us as well. Our average ticket has gone up. Our average ticket before was $524 last month without any pricing changes. This month, now, we’re rolling out… we give five options for every job, platinum, gold, silver, bronze. All of them come with more work being performed.
So, that bottom option would be us coming to take care of your issue in the most economical and efficient way possible. And that’s what we were doing before because we’re trying to move to the next call because we were so overburdened with work. So now, we have that option available still for that price. But now, the customer can choose a higher option, if they prefer.
And usually, those options are centered around really more preventative measures, upgrading the entire system. The top option might be this whole area and the entire system surrounding this toilet, or the sink is completely renewed. It won’t be a problem for 20, 30 years. And surprisingly, I mean, a lot of people are choosing those options less than our calls. It’d take a lot more time.
A call that me working in a schedule could budget an hour for an hour and a half before. Now, might be a three-hour job or a four-hour job because the customer selected a more premium option. And it’s hard to tell how that’s going to go when we walk in the door. But because that average ticket price is going up, it’s worth our time to do it whereas, before, a plumber might have to do five or six calls in a day to bring in $2,000 or $2,500.
Now, I can do three calls in a day and bring in that money. But we’re still getting the same leads. We’re still getting the same amount of calls. So now, I have to hire more guys. But it’s multiplicative in that those four guys will still be bringing in the same amount of revenue per truck that we were bringing in before even though they’re each performing less calls. So, it’s been really incredible to watch. These little iterative changes that seemed to just make sense or even required just to run the business efficiently have led to massive increases in the top line.
So, this business was doing just under $100,000 a month, on average, on historicals. That’s the value that we bought it at. And that’s what we modeled for. In September, the first month, we were in operation. September was my hair was on fire. I think my gray hairs tripled that month. You know what I mean? I was the one answering customer calls while digging holes in people’s front yards to fix water service lines. I mean, it was just like a fire hose a month.
But even with that chaos, we did $130,000 in revenue in the first month, 30% increase. Anyone who would put that in a model is a fool, right, to think that that would be the case. In month two, with a couple more additive efficiencies, it looks like we’re going to do $160,000 this month, a 60% increase on historicals. I mean, absolutely mind-boggling and making me see that, in this lower end of the market, micro, small business, sub $500,000 EBITDA businesses, growth could very well be measured in multiples instead of percentages.
A couple tweaks here and there, a new, fresh face can actually double the size of the business. It’s a lesson that I’m happy to learn in the driver’s seat.
Yeah. That’s impressive. What was the business doing before that lead times from a customer calling to actually servicing the customer would take, you said, two weeks or so? How did you get that to be shortened to two to three days? Is that as a systems improvement? Or is that something else going on?
Largely a systems improvement and a willingness to push to get them done, but largely a systems improvement. So, the seller, he was a plumber on the truck every day, working 12-hour days. And he was a really productive plumber. He’s on a truck all day. So, his wife was fielding calls and would take notes on who called and their problems.
He would come back at the end of the night, 6:00 p.m., 7:00 p.m., return their calls, and get the details because he’s the guy who knows what he’s talking about. And he’d loosely schedule him for the next day on a loose-leaf notebook, pen and paper. If an update came later on in the evening, he’d add a sticky note on top of the loose-leaf paper so that they knew there was an update. And then, he’d pass those papers out in the morning.
A couple things you got to think. If someone calls at 11:00 a.m. and they have a problem that they want taken care of right now, they’ve gotten to the point where they’re going to call a plumber out to their house. They call at 11:00 a.m. And the customer service rep, the wife, tells them, “Okay, Tom. We’ll get back to you after dinner tonight.” Well, a lot of those customers are going to go elsewhere.
They’re already sitting in front of the laptop or on their phone looking at Google for a plumber near me. They’re going to go to the next guy on the list. So, that was the case a lot of the time. And then, just the nature of how that scheduling was working, fairly inefficient, like a very conservative time windows for these jobs. So, they’re doing less work in a day. And that work was building this backlog.
So, something as simple as rolling out a scheduling, CRM, invoicing software, that can immediately update on a tablet in the field. And a guy can reroute to a different job. He can have notes in that job on that tablet, giving him all the details. So, it shows up in forms, all of these things. And we’re all on the same page. We can make sure he goes out to those jobs with the materials that he needs for the job.
All those things have decreased our wait time, just operational efficiencies. And some of them, we’re still working on. We’ve still got a lot of runway. We’re still running fairly poorly as far as an industry standard, I think. Our guys are going to the supply house all the time for parts, for jobs. They’ve got these big plumbing trucks. But these plumbing trucks might as well be dumpsters. I mean, this was just stuff, pack them.
I mean, the first week, I was helping one of my plumbers out on another water heater. And he asked me to run out to his truck to grab a copper 91-inch fitting, three-quarter-inch fitting. It took me 10 minutes to find it in his truck. And I was body-surfing on top of dollies and buckets and ladders to try to find this thing. I mean, just totally disorganized. So, we got these big trucks going around that are basically useless to us.
So, these guys would run to the supply house all the time to get parts, which means a job that if you walked in with everything you needed that should have taken 30 minutes, now takes an hour and a half or two hours because you got to go spend time running to the local plumbing supply house to go get the parts and come back. So, that was the main reason we hired that first helper, was so that we could run parts to guys.
And that was the Band-Aid fix so that we can keep guys utilized in a productive manner. Now, returning towards inventory and making sure that trucks are effectively inventoried and organized and the shop is inventoried and organized, that’s been a massive undertaking that is still underway. But it looks like, over the next two weeks, we’ll probably break through on that. That’ll be a massive win.
Yeah. Now, earlier, we were talking about the huge wrench you just discovered that’s sitting behind you in this call. So, how is that inventory going? Are you putting things into shelves that were previously just scattered around? How are you organizing your inventory? Does it sync with your systems at all? Or how is that working?
It’s still very much a work in progress. What it looks like a lot of the time is us throwing stuff in the dumpster. We have this 1,400-square-foot warehouse that’s full of 30 years of junk, a lot of broken tools and obsolete tools and things like that. Things that are dangerous for people to use, throwing a lot of those out. That’s clearing up a lot of space, which is allowing us to organize things. I mean, there’s valuable parts.
I mean, we have all sorts of piping. And flue pipe, smoke pipe, take fumes out of houses and things like that, we have tons of that. But you’d never know it because you couldn’t find it because it’s buried underneath piles of stuff. So, just being able to clear a lot of the junk out, separate it in a way that it’s identifiable to the eye, something as simple as that has been useful. So, we’re having to spend less money at the supply houses. We can actually chew through some of that inventory.
As far as tracking, this is still a heartburn issue for me. And it’s the main reason we haven’t rolled out those performance-based incentives yet because the goal is to have the guys be able to make, as a bonus each week, a percentage of what we’d essentially call a gross profit on the jobs that they perform. Sales minus materials minus labor. So, that net, which really amounts to gross profit, is what they can look for as their performance number.
I can’t do that unless I can track inventory. So, we initially went with… it hurts me to say it. Six weeks ago, we rolled out that new software on the tablets and all this stuff. And it’s a good field service software, but it’s not plumbing specific. And it doesn’t offer an inventory tracking feature or anything like that. It doesn’t offer us the ability to track revenue by truck and things like that. So, six weeks later, I’m changing the software, which is painful and hard to admit.
But we’re going out with another software. We’ll be rolling that out soon. And that offers us all the functionality that we’re looking for that will allow us to keep an eye on inventory levels by part, by truck, make sure the guys are well stocked. But pulling the trigger on changing a software six weeks after you take over and add salt for the first time was not a decision I made lightly. But it looks like it’s going to be required.
Excellent. That’s wild. So, I’m thinking more about this. And in our previous call, we talked about the flow of information within your business and how it’s generally been pretty slow for some pieces of information that’s pretty important to get to you and cross around within your business. So, what pieces of information are taking the longest and are slow right now that you’re trying to speed up and get that feedback loop tighter and faster?
I think this will become harder and harder as we grow. Right now, we’re a fairly flat organization, I mean, versus a small team. And I’m right there in the trenches most days. But really, it’s feedback related to the changes we’re rolling out. And some of it’s really important. For instance, that menu pricing option that I mentioned earlier, just rolling that out recently, the guys seem to have a pretty solid understanding of what the goal was with that.
And the goal is truly offer the customer more options so that they can get what they want and not just what we tell them they need. The goal is not to sell more platinum packages or more gold packages and to hard-sell this to the customer. So, that is truly not the goal. I think that would damage our reputation, and it’s bad for business. And it makes the employee’s life, the plumber’s life difficult. Most plumbers really loathe being salesmen as well.
So, I’m not trying to put that on them. They’re like, “Oh, yeah. We understand this. Okay. Cool.” And the first couple days, gold packages and platinum packages are being sold, and silvers. And we’re in the office, fists in the air like, “Yes. This is working. Oh my gosh, I can’t believe it. This is such a game-changing revelation that we’re having.” And the guys are happy because they’re coming in the office.
We’re going, “Mike, you killed it, man. You sold two platinums today.” So, we’re encouraging this behavior, right? Everyone’s happy. I want to see these guys implementing this in the field. So, I go out and recall. I realized that they are pulling up the menu of the options for that specific job. They’re selecting. The plumber is selecting which one needs to be done today.
And of course, it’s often towards the upper half of the spectrum because that’s incentivized through the hierarchy. So, they’re selecting. “For this specific problem today, you need the gold done, okay? So, we’re going to do that, and it costs this much.” There’s steam coming out of my ears. I am horrified at what I’m seeing because this is absolutely not what we wanted.
So, I’m bringing the guys in, talking to them, “Hey, this is not what we wanted. Truly, I need you to pull up the menu. Let them choose the option. We’d be happy to perform any of them.” That was something that I realized, man, if I didn’t get out there and see it, this would have been a persistent problem. It would harm your reputation around the town. I don’t know that I can think of a good way to articulate what that is in a concise way outside of that anecdote.
But around information, feedback loops, surrounding absorption of the new changes by the team has been information that’s, one, absolutely critical to me and, two, has been difficult to gain that understanding at my level because there’s a misunderstanding all around on the team. So, I’m not getting detailed feedback because they’re like, “Oh, yeah. We understand it. And Rich is so happy with us for selling these higher packages.”
Yeah, crisis averted there. And everyone seems to understand what we’re trying to achieve with that now. But yeah, that’s a scary moment for me.
Yeah. Certainly. And to the point about your plumbers being salesmen, another thing you’ve talked about is giving them small cash bonuses for reviews on Google. So, how has that system implementation gone? Is that having any interesting feedback loops that you’ve noticed when plumbers are talking to customers about those reviews?
Yeah. We rolled out $10 cash bonus for any five-star review, particularly on Google. That’s the platform we’re really targeting right now for positive reviews. So, $10 cash any time you get a five-star review. And what’s funny is, the $10, it doesn’t really move the needle for them on a daily basis. But me tracking who has done how many reviews on a whiteboard in the office, now that really moves the needle for the team.
So, they’re all fighting with each other. Who can bring in the most reviews? And they happen to be compensated for it as well. That’s been nice. As far as any odd second-order effects there, I don’t know. I mean, I think one positive thing is the guys are just much more cognizant of how they’re interacting with the customer from start to finish, which is the goal. Our goal is to take as much off of the plumber’s plate as possible so they can really just be plumbers.
In our specific line of work, in the home service repair, niche of plumbing, it’s really impossible to get around. They’re going to have to interact with the customer. They’re going to have to quote the job, collect payment, things like that. So, there’s a lot of customer interaction. And I think these guys were being more cognizant from start to finish. Is this homeowner happy with us? Do they have a positive taste in their mouth about Garon T. Plumbing and who we are?
And do they feel that they got ripped off today? Are they happy with what they chose? I think, in a couple instances, particularly with these menu pricing options, guys have talked people down. Maybe they are feeling some pressure to pick up platinum or something like that, the very top-most expensive option. The guys have noticed that the five-star reviews seem to increase when we talk people down off of the top option and bring them towards the middle.
People really appreciate that. They appreciate the honesty. So, yeah, positive second-order effects. I don’t know that I can think of any negative ones. Maybe that’s a blind spot for me.
Yeah. I’d love to see how that one evolves. You talked earlier about how this growth you’ve had so far isn’t from any extra advertising spend or any increase in call volumes. This growth is just backfilling the existing demand you already had. So, what are you thinking about, going forward, for… once you hit capacity, what are you going to think about doing for now increasing those call volumes and trying to get more customers than you had before?
Yeah. Absolutely. So, one thing I realized pretty quickly, particularly when I was the one answering the phones for a few weeks, was that nearly all of our calls were coming in from homeowners that were 70-plus years in age, true senior citizens. It was racking my brain over. Why is this happening? Why is this demographic… is disproportionately represented in our calls?
So, thinking about it further, it’s like, Okay, well, this guy’s been running this business for 30 years. And these people are all fairly local. And when they were 40 years old with kids and a house, locally, he was the plumber. And he services their house. And he did a great job. And they were happy with him. And he’s been servicing them for 30 years. And now, they’re 70 years old. Kids are out of the house. And they live in a senior community nearby.
That’s my thesis on why we’re getting all those calls from senior citizens. Then, we have a lock on that. So, we’re looking to double down on that and make sure we maintain that edge in the senior citizen communities. We’re building out a lot of traditional advertising for those communities, like in their pamphlets that are mailed to them from their homeowners’ associations and things like that.
I recently paid to have 24,000 paper pharmacy bags that you buy your drugs in at some of the really large senior communities, to have our logo and information plastered on the entire side of those things. People see it in the store. They’ll see it as they or someone else is walking back from the store to their home. They’ll see it on their kitchen counter after they’ve gotten home. So, the hope is that we’re able to gain some relevance for people through that.
And it was a fairly cost-effective way to do it, to really just blast out into those communities further. Again, going back to the initial spreadsheet model, the thinking was that we’d have to expand geographically, expand the footprint in order to gain more customers. And that might have just been my naivete. But what it’s looking like now is that if we just expand our advertising options to some more modern platforms… so, one, things like increasing our Google reviews have been a big part of that.
That’s been something we’ve implemented early to just get a more dominant position on Google. When someone in a panic types in “plumber near me,” “plumber, Brick, New Jersey,” we want to be that top option and make it very clear that we’re the valued plumber in the area, and then having a presence on social media, having a physical presence in the town. So, right now, we have the classic white trucks with blue and red lettering, says our name, has our license number on it, looks like any other work truck in the area.
In two days, we’re sending in half of our fleet to get fully rewrapped, big, electric blue trucks, new, very recognizable logo, name easily readable from afar, phone number very prominent on the side of the trucks. So, we’re looking to be the company that has the blue trucks. There’s another company in the area that’s very successful that has the lime green trucks. And you can see him down the road coming a mile away. So, we want to be those guys in the blue trucks and just stand out a little bit.
So, all of those things coming around, I think, will increase our customer base. All the search engine optimization stuff, solid website, and things like that are going to be critical to that as well.
That’s super exciting. I’m really interested to hear how that goes. I feel like we could talk for hours. But I want to make sure we get you out of here on time. What class would you teach in college, if it could be that, any subject you wanted?
I’m going to have to give you two, I think. The first would be a small unit leadership course. No Steve Jobs or Jack Welch case studies for this one, but real lessons and anecdotes surrounding how to get and maintain buy-in from people, talking about my personal philosophy around leadership, how to actually create a culture on a small team, how to effectively reward good actions and punish bad actions, things like that. The actual nuts and bolts of small unit leadership, I’d love to teach that class.
And then, the second class would be Main Street entrepreneurship. Admittedly, this is a class that I could still be a student of, but the real tangible lessons. And you’ll notice the theme for me here is actual tangible stuff. That’s the stuff I want to learn, real tangible lessons around managing a small team, capturing data, and using it to make decisions, pricing your services effectively, all the backend items like payroll, benefits, little stuff like how to set up an LLC.
I mean, this is stuff that really hangs guys up when they’re coming out of the gate. It seemed, for those of us who may have been doing this a little while, we understand how simple that is. But little things like that can be real hurdles, things like napkin math valuation, not the crazy spreadsheet models and the DCFs and everything. But napkin math valuations, what makes sense, what is obviously a good bet, things like that, I’d love to teach that class.
I’d love to be a student of it. I’ll probably be a student of that topic for a very, very, very long time.
I think we all will be, yeah.
What’s a belief you used to hold strongly that you’ve since changed your mind on over the years?
I mentioned before, my deep dive into personal finance, that ultimately put me in a position to do the things I’ve done. But I used to think I’d be happy with just saving enough money so that I could live off the 4% safe withdrawal rate, dividends, and maybe live on a beach in South America and keep my expenses super low and just keep costs low in perpetuity.
And I’m realizing now that I’m most satisfied in the arena with a bloody nose and bruised knuckles, you know what I mean, just in there fighting, solving problems with a fire extinguisher in hand. So, if you had asked me a couple years ago, I would have told you, “No.” And I would have been insulted by the question like, “No. I’d be totally happy just living on a beach in Costa Rica, not doing a damn thing.” But the reality is, I’m really enjoying what I’m doing. And now, that’s been a mindset shift for me over the last two years.
Yeah. I totally agree with that sentiment too. It seems like a small tragedy in a lot of cases where the person who really strongly believes in the FIRE movement just hasn’t really found the work that they love doing and would like to do for longer, above the age of 35, 40 when everyone wants to retire. So, it’s neat to see that that mindset has shifted for you. And it certainly has for me as well. I wasn’t super into the FIRE stuff, but I like a lot of the principles that it talks about. So, I can agree with a lot of that sentiment.
And it’s certainly useful. The options that I had available to me and the personal capital that I had available to me to do some of the things that I’ve done, I couldn’t have done without the personal finance community leading me that way. But yeah, the overarching mindset, I think, could use a tweak. And I think if you dive into a lot of folks who really get passionate about that, they’re often at large organizations where they are a cog in the wheel. And they might be very skilled professionals. But they’re just not getting that same satisfaction.
Yeah, yeah. It’s too bad to see. What’s the best business you’ve ever seen?
I’m still kicking myself that I didn’t end up buying this business. But I came across a business. It was a home staging company. And at first glance, I was like, “This doesn’t interest me as much. And it seems like a luxury good and a little riskier.” But it turns out, when I learned more about it, the value proposition for this business was very clear.
I’ll butcher some of these numbers. But something like staging your home for sale will increase the purchase price on your property an average of 5% to 10% which, for a $500,000 home, it’s serious money, right, $25,000, $50,000. And it’ll decrease the time on the market by 85%. This is what the studies by the National Real Estate Association, or whatever, have found. So, pretty clear, pretty easily sellable value proposition to real estate agents and homeowners, the price is well below that value added.
And the terms of these deals are really interesting. So, we’ll come and stage your home. They’re going to take a fee for that. But then, they’re essentially renting you the furniture and the picture frames and the plants and all these things for you to walk people through your home. And at least, this company was going to do a 90-day rental. They were going to get paid for it all upfront. And if your home goes under contract in five days and you don’t need the home stage anymore, they’re keeping the 90-day rental fee.
I couldn’t believe that people were getting away with this. But really, great business cash conversion cycle standpoint, from a value proposition standpoint, that specific business, the owner had completely removed herself from the operations, had moved across the country. She had hired a director of operations to run the day to day. I mean, she was making a nice little enough for herself, $400,000, I think, discretionary earnings.
And the business was priced to sell for $760,000, maybe $720,000. I really liked this business, and I wanted it bad. I basically slow-rolled the LOI because I thought I should go see it first. It was a Thursday, and I was going to go see the warehouse on a Saturday. And I had my LOI already written up. I already made up my mind. And sure enough, somebody else swept in and got the LOI accepted before I made it to the warehouse. No one got swept right up from under me.
Ultimately, it landed me in a plumbing company. So, that broker is actually the one that put me onto the plumbing company when I swung and missed on the home staging business.
That’s awesome. Sounds like a great broker. You should keep that relationship going.
Yeah, yeah. Absolutely.
Well, thank you so much, Rich, for sharing your time and sharing your experience buying this company. I absolutely love this. And I’ve really enjoyed and grown to love these types of operator interviews much, much more over the last year or so. So, thank you so much for sharing a little bit about your work so far.
Yeah, Alex. I love being on here with you, man. Your podcast is great. I know I get a ton of value out of it. So, thanks for doing this, and thanks for including me.