← Owned and Operated - A Plumbing, Electrical, and HVAC Business Growth Podcast
Owned and Operated - A Plumbing, Electrical, and HVAC Business Growth Podcast
#198 This ONE Mistake Can Tank Your First Acquisition
00:14:54
Loading summary
Transcript1 lines
- [00:00]
Jack Wish
No, marketing is not low hanging fruit. That is the hill I'm going to die on here. Buying a business without marketing, that's not a good thing because they're probably priced as a company that has marketing, they're priced at a 2 or 3x multiple. You don't have marketing if you don't have a pipeline in place. You never worked out those muscles because it's not this easy lever you pull and then money comes out the other side. It's not a small amount, it's in the tune hundreds of thousands of dollars. Guess who has to figure that out? That's you. Welcome back to Jack Wish. Today is a solo episode starring yours truly. And I have a topic that always eats away at me. I hear it all the time from searchers and we need to talk about it. And that topic is, is buying a business without marketing. Every time I hear this, it makes my skin absolutely crawl. Jack, this business has no marketing. They're running off fax machines, they're using paper copies. No marketing, that's a huge upside. There's huge potential there. And technically you're right. That being said, it is not a good thing. When you're buying a business. You're buying the systems of the business. You're buying how, how they dispatch, how they answer phone calls, how they do invoices. You're buying that entire package, which is the point of buying a business because that package drives revenue, that package drives net profit. And so when you take over the business and I hear that jacket, there's low hanging fruit, no, marketing itches me because at the end of the day, that's not a good thing because they're probably priced as a company, when they're selling that has marketing, they're priced at a 2 or 3x multiple. And when you look at that, if you don't have marketing, if you don't have a pipeline in place, you never worked out those muscles. You've never put the systems in place, you've never gotten it down. So because in some markets, for example, Yelp works, in other markets, it doesn't. Guess who has to figure that out? That's you. You have to go and spend money on Yelp to figure out, oh, Yelp doesn't work in northern Georgia. You have to go spend money on thumbtack and Angie's to figure out what actually works. You have to go pay somebody to go do branding. And so what ends up happening is, yes, there, there is an opportunity, but it is an extremely costly opportunity. It's not just this easy lever you turn on and then all of a sudden you turn on marketing and revenue shoots up. Usually what happens is there's a test and trial phase where you put a little money here. Doesn't work. You finally put some money into SEO. Oh, it's kind of working. But I don't really like the marketing agency so that we get a new marketing agency. So long story short, no, marketing is not low hanging fruit because you're going to have to try and test and get those muscles strong, start working them out, start building your branding, start building the, the brand identity and which colors you use. Yeah, they may have a logo, but have they ever gone through and generated marketing materials? Do you have an old postcard that you can look at, see what they ran, see the return rate on it, see the ROI rate on those postcards to see if you want to send them out again? Or you say, hey, these, this is not working. So you have to figure that out. And that's not a small amount. It's in the tune. I mean, me alone in figuring this out has spent probably hundreds of thousands of dollars to get my marketing down, to get my marketing producing well, so that especially with a small company, which is usually where you find these, you don't find a $10 million company without marketing. It's always like this $1 million range and it's because the $1 to $3 million range, it's because the owner never turned that on. They never wanted to deal with it. So they don't know how, they've never done it. And so it's always these smaller companies. And that's when your net is the tightest. It's like the smallest amount of net possible is when you actually have to figure it out and turn it on. And so every dollar matters, every dollar that you put into PPC matters, that doesn't return and you're inevitably going to do that. I've gone through three PPC companies and before realizing it just doesn't work. I've tried months and months. I cannot compete with the big boys dumping money. And you have people who are solely committed to PPC on their team and I have to use a marketing agency that I only get fractional ability. It doesn't work in my market, it doesn't work for me. But that means it might work for you. But the point is that no, marketing is not low hanging fruit. That is the hill I'm going to die on here. Probably one of the most important decisions you can make in your ETA journey is which SBA lender. You are going to pick a lender who will be in your corner to get you closed on the deal as well as set you up for future expansion. That is why we partnered with Alan Peterson from First Internet Bank. He and his team take a how can we approach as well as I personally know they specialize in home service acquisitions. Mention the show or my handsome bald head and receive a reduced good faith deposit as well as a detailed deal review and maybe even a buy side pre qualification, no strings attached. Head on over to alanfib.com that's a L a N F I B dot com or click the link below to get connected if you still don't believe me. Like Jack, you're full of it. This does not make any sense. Do it with vehicles, right? This business has so much opportunity. They don't run a vehicle maintenance program, right? So now we look at and say they don't run a vehicle maintenance program. All their vehicles are old. They all are falling apart. This is a huge opportunity. Yeah, you're right. Like there's an opportunity here to get all your vehicles back up to par so that you reduce all your downtime and you have the ability to run more calls. Yes, that is an opportunity. But how much does that cost to get those, all those vehicles up? It costs money. It costs lots and lots of money versus if you bought a business where the owner has taken that and has maintained that program through the that still all your vehicles are up to date. So day one. Yeah, it's not an opportunity as much, but they're running so you can focus on actually important things. So yes, there's opportunities in these businesses. But never buy or look at these and think, wow, this is great, this is an opportunity. And then don't price that in. So, right. There's really two ways as we're looking at purchases to get rid of risk. The first way to get rid of risk is by mitigating with price or mitigating risk with price. So as you run into these no marketing businesses, the broker is going to tell you, oh, it's amazing and the seller's going to tell you, all you have to do is turn this on and boom, you're off to the races. There's people out there who will tell you that's a great opportunity. But it's only a great opportunity if you mitigate the risk with price. When you sit down and say, hey, I'm going to spend X amount most likely to get this marketing program up and running because you don't do it let's take a look at repricing this and that, that actually goes for everything, every program, every system across the business. Yes, I understand that no business is going to be perfect. There's not going to be a business out there that has no hair, that's run perfectly. That's that the owner works 10 hours a week and the business generates half a million dollars in cash flow. And he's just sitting back on the beaches of Jamaica hanging out because he's not going to sell it. It doesn't make any sense for him to work 10 hours a week, make half a million dollars and sell it. Well, he's retiring. No, he's not. You die with that business. So don't believe that first off. But second off, just really understand that there's hair on all these businesses. You just need to make sure that you mitigate that, some of that, that risk and that hair with making sure your price is correct, making sure your terms are beneficial to you. So hey, revenue share agreements or earnouts, to some extent there's, there's different ways that you can take a look at that business and that P and L and say this doesn't have this in place. How am I going to make sure that as I start implementing that, that, that doesn't sink my entire business as I'm trying, testing and trying and going through that. And then like I said, that goes for every, every segment. We did it for trucks, you can do it for real estate, you can do it for your lease agreement. You can do it for just how managers. Right. I need to put managers in place. You can do it for employment, how you hire people like it. It's just, it's not only, it's not only marketing, but it's everything. The one I hear the most is marketing because people believe that they can just jump into a business and they can add a little marketing and the thing will take off. You know, maybe it does too. Like let's, let's play a game where maybe in an alternative universe you do, you turn on lsa. That's a really easy one. Usually it works for almost everybody. The cost per customer acquisition is generally the same. It's like a 50 to 100 bucks per customer. So you turn it on, it works. Congrats. There is low hanging fruit, very rare, but there is, you turn it on, there's low hanging fruit. Now you're paying for calls, but you have one office manager. On a million dollar business, you probably have one office manager, she answers all the incoming calls. She does all the paperwork, she does all the dispatching, she does all of the insurance. She just, you know, you're, you're Betty. Betty who just does everything in the back of office. She knows where all the skeletons are buried. She does all the admin work. You turn on LSA and it works. Now you're getting three, four, five calls a day. Betty's overwhelmed. So you just, you just got that quote unquote low hanging fruit, but you have no one to answer the call. So she's missing two or three of them. Google still charges you. Google charges you. If you don't answer that phone, you turn on thumbtack. Boom. I got lead aggregators coming in. I'm getting 50 leads a month, 60 leads a month, but no one's responding quick enough. So now that low hanging fruit is actually detrimental to your business because you never strengthen that marketing muscle. You can't handle the incoming calls that you're paying for. You can't handle the incoming leads that you're paying for that you have to call out. So we'll keep going on this example. So you hire somebody, there's more of your net. You've hired an office staff, which is non revenue generating staff. They are revenue helping staff because they're obviously scheduling calls that you were losing. That being said, you hired somebody, that's more headcount, hitting the bottom line, end of story. Boom. Now your net's even lower. You spent money on those thumbtack, those LSA leads. You spent money on person in place. Can you run 60 more calls a month? Maybe. Maybe you have tech sitting around. That's amazing. It's an amazing thing. But the technicians aren't, aren't trained. They're not trained well enough in the sales process and in the full evaluation process and getting them to a point where they really understand what they need to do to generate revenue. Your service technicians, because that's what their function is. Their function is to generate revenue. And they don't. They maybe have a 40 or 30% close rate, specifically with thumbtack leads. Thumbtack leads are hard because the people are generally looking for something that's cheaper or they're shopping around more. And so how do you get your team to be really, really effective? And if they're not, you've just spent money on leads, you've just spent money on a person to answer those leads. Those answer the phone call. And now you're sending leads to technicians who are not closing. So now you're wasting money, wasting money, wasting money for them to Drive out there. No revenue generation. So that's the point. Like that's the best example I could give you of why it's not low hanging fruit. Because it's not this easy lever you pull and then money comes out the other side. It does once the system's in place. So in the alternative universe, the, the old owner does have marketing. They do have an extra person who has some capacity. They do understand the sales process for their service team and they do have some capacity on their service team. Boom, you turn up the dial. Turning up the dial is much easier than pulling the lever because you, you up your marketing, you know, 200 bucks, which is going to drive you an extra four leads a week, three leads a week because you know what your capacity is, you know what your close rate is with your people and you already have the extra capacity on your CSR and dispatcher. Now you turn that up, boom, that flows through nicely. They get the four extra leads, they're answered, they're given on the schedule and the tech closes. That's the system you're buying. That's the system you want. The low hanging fruit isn't no marketing. The low hanging fruit's actually having a setup marketing system that you can pay for and then turn the dial. We want dials, not levers. And that's why low hanging fruit, no marketing is not low hanging fruit. Thanks guys for listening. I, I'll get off my pedestal now. I appreciate you all. If you like what you heard today, if this helped you out on your search journey or as you're looking at businesses, go ahead, leave us five star review wherever you listen, like comment. If you think I'm wrong, head over to YouTube and say, hey Jack, you're dummy. This is why I'm open to hearing it. I mean, I'm pretty sure I'm not wrong here, but feel free. And yeah, subscribe, head on over to owned and operated.com for more information. Peace.