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Owned and Operated - A Plumbing, Electrical, and HVAC Business Growth Podcast
HVAC vs. Security: If You Had $5M, Where Would You Invest?
00:55:06
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- [00:00]
A
If someone gave you $5 million, would you buy an H vac business or a security business?
- [00:06]
B
I'm planting my flag. Security industry all the way. We're getting very close to where our service is going to outpace our project work. And that's a place that we want to be.
- [00:15]
A
That's beautiful.
- [00:16]
C
If you're looking at a $5 million purchase price, 50% reoccurring. I feel like I would sleep better than I would buying a $5 million purchase price. H vac.
- [00:25]
A
What's EBITDA?
- [00:26]
C
I would say it's maybe 800K.
- [00:28]
A
So like, what, what's some, what's some shitty stuff?
- [00:30]
C
Because right now I'm, I mean there's just.
- [00:41]
A
Welcome back to Owned and Operated. I'm your host, John Wilson. During the day, I run a large plumbing and H Vac company out of Cleveland, Ohio. And for fun, I run a podcast where I talk to my buddies about how to grow their businesses. It's a ton of fun. Today I have my good friends Stephen and Colin on from the Entry and Exit podcast where they talk about growing their security and alarm company and in Texas. Welcome guys to the show.
- [01:05]
B
Thanks for having us. Happy to be here.
- [01:07]
C
Thank you.
- [01:08]
A
Yeah, this, this will be, this will be an interesting one. It's sort of like a head to head. You know, we'll, we'll, we'll see how we feel. But what we're going to be diving into today is if somebody gave you $5 million, which first off, I'll take it. Like I'll take, I'll take 5 million bucks. Yeah. If someone gave you $5 million, would you buy an H vac business or business.
- [01:36]
B
Don't get me in front of the whiteboard. I'd have some things to write down. This is reminiscent of Stephen and I's first meeting before we purchased Alarm Masters because I went through this very exercise to explain why I'm all in on the security industry. Stephen can kind of share some of the details of what we wrote on that whiteboard, but as expected, if I had to put my chips all in, I would go chips all in. In the security industry. I think there's a lot of great things about every industry. Ups and downs, pros, and to each one, maybe familiarity plays, plays a big role into that. I think you're good at what you know. Yeah, but I'm, I'm planting my flag. Security industry all the way.
- [02:18]
C
I would specifically say commercial security, which I think is. Yeah, you know, we, we do have about 80, 20 today, so about 20% of our customer base is residential. But yeah, as we continue to, you know, we're three years in, you know, we really just heavily focus on the commercial side of our business. And so I would say, are you buying a residentially focused H VAC business? Are you buying a residentially focused security company? Is commercial, you know, in the mix on that? I think that changes, you know, how I might think about it. But overall, I would kind of debate along the lines of recurring revenue and the percentage of your revenue that's recurring. I mean, I know the membership model has gained some popularity in the home services space, but you're, I don't think
- [03:13]
A
it's anything like security.
- [03:14]
C
No, it's, I mean, what are you touching? 10% of your total gross revenue and membership?
- [03:19]
A
Yeah, I think there's a good, a good moment to like, sort of define both industries. So for H Vac, most people are going to be talking about residential H VAC service and replacement. There is a MEM, there's a membership component, but it's probably like 20 bucks a month. What we find is that the recurring revenue from that is not very significant, like 1% or less of revenue. But what it does do is it, it allows for, like reoccurring revenue to happen from that because the company, the customer, calls us, I think, very similar to how corporate works for you guys. Yeah. So the membership fee is like 1% of revenue, but the revenue driven from our members is like 60. So it's an overwhelming number driven by a sticky customer, which I think is probably the same for you guys. And so your distinction here is there's residential security, which, you know, we've had you guys on the show before, so maybe we can ping the other episodes in our notes here. But there's residential, which is like, I don't know, I've got some alarms on my house. Probably super competitive. Really rolled up, I would imagine, like, pretty. Just a couple big players. Yeah, yeah, that's how it feels as a consumer. And then there's this commercial side, which is new builds. Like we're putting in a new security system or someone's remodeling a building they just moved in. Whatever. We got to put in access control, cameras, monitoring, sort of those different fragments. So, so you're, you like the commercial side, which to me makes sense.
- [04:58]
B
Yeah, I would say the magic is in the way you guys describe for us. Like, we, I, I, I want us, we place a bigger priority on growing the commercial segment. We want the majority of our revenue to come from the commercial Segment, but we do not shy away from residential and we love residential when it comes in and we love the customers that we have that are residential. And I think that they're, I think there's a lot of value in marrying both together given some of the seasonality differences between both. They have a very weird like when it's low for commercial, it's high for residential. And so the other thing about residential is it's pretty consistent from a service perspective. But they're also tougher to collect on. It's harder, you've got more emotions. It's their home versus on a commercial side. It's usually auto pay or auto check, ach, whatever. So there's pros and cons of both. We specifically want to target. Our sweet spot is the commercial. That's kind of how our organic growth strategy and our inorganic strategy works. But honestly we like both and there's a lot of companies that will go and roll up and they get a segment of, you know, 20, 30% of their businesses, the residential and they sell it and because they want to be exclusively focused on commercial. And I think that's a path. But for us the beauty and the magic is in both. They complement a little bit each other. I think it's kind of like a diversification strategy, if you will, from a revenue perspective. So like both but, but yeah, we, we focus a lot on the commercial
- [06:24]
C
side and oftentimes the it, the residential customers are also, you know, clients on the commercial side. And so that creates a little bit of stickiness there, little greater ltv. So it just, it kind of makes the switching cost that much worse for them.
- [06:44]
A
For too long I was letting the wrong marketing agencies set my money on fire and their marketing looked pretty good. On PA the reporting was attractive, but at the end of the day it just wasn't driving leads. That's why I started using service scalers at Wilson Service Killers is a marketing agency built specifically for home service companies. They focus on the channels that actually drive leads like targeted ppc, local service ads, SEO, Google business profile. So that you're showing up in front of your customers that are actively searching. They'll help you see exactly what's working so you stop wasting ad dollars on low quality leads. Right now they're doing something crazy and they're giving the opportunity for one entrepreneur to get up to 12 months of marketing on them. So that's up to $100,000 in services for the right operator. If you are serious about tightening up your marketing in 2026 and want to see what this could look like for your business, go to service scalers.com and book a free strategy call and let them know that I sent you. We're a part of this like local small business networking group. They have lunch every Thursday or Wednesday or something. And there's a, there's a security business in there. And you know, we've been a part of this group for like 30 years. And, and my dad texted me like a month ago, he's like, hey, like I think these guys want to sell. And I thought of you guys. He's like, do you want it? I was like, I mean, no. Like, I mean if we had a platform, sure, but this is like a two tech operation. I don't even know what I would do with this. But it's a good example of exactly what you're saying where, you know, my dad's used these guys for like 20 years. It's in his house, it's in every real estate rental he's ever had. It's in some of the commercial buildings. I don't know how many accounts he has with this security business, but it's quite a bit.
- [08:22]
B
Yeah, no, I think that it's great. I think also the beauty of it in the commercial side is the barrier to entry is a little bit higher on residential. So you have to have licensing for both. Right. So like no matter what, you have to have a security license in Texas to be able to install, service or even market, which is an interesting nuance about the security industry. You can't throw up a webpage and market and try to sell and then try to farm those leads out to a security company. In order to market, you have to have your license. The difference though is if you get the license, the same license applies to both commercial and residential, but because of where residential is, with all the DIY stuff kind of coming in, the, the work complexity is pretty low. So you get a lot of competitors that are like you just said, a two tech or one tech operation that does a lot of the, the maintenance and the service for your home versus the commercial. It's, it's big. There's a lot of devices, there's a lot of like critical operations and it makes up a smaller percentage of their income. Right? So like if you if think about what $50 a month is to a homeowner versus $50 a month to a commercial, they're just not. Yeah, they're not, they don't need the switching cost has not. Is just inconvenience for them. Right. To save $5 a month because they found somebody else. So there's some interesting nuances between both, but you're absolutely right. Like we, we, we tell customers that come through that are shopping for residential, hey, we're not the cheapest. Never going to be. But when you look at things from a total cost of ownership, long term, from who's servicing and the quality of the install, like we're going to win every sing, really target. And where we love it is we go do a commercial installation and then we give everybody that works there a month free of monitoring. So we say, if you want to switch over to us, we'll give you a month free monitoring.
- [09:57]
A
Oh, yeah.
- [09:57]
B
And it's just additional, you know, recurring revenue that comes into the business. And they know who we are. Right. Like, I think people want to work with people they know. And so I think there's some, some benefit there.
- [10:07]
A
Yeah. Can you remind me how much of the business is currently rmr, like, what percentage of revenue is.
- [10:14]
B
So we, we would define RMR as just our subscriptions. And Stephen could hold me accountable to this, but I think we're right now at about 35% of our total is RMR. And then when you talk about reoccurring, so that would be service plus, our subscriptions were like over 50%, so probably like closer to 60%.
- [10:33]
A
And the balance is like new builds.
- [10:35]
B
It's funny, it's really not new builds. So we would say we specialize in renovation or retrofit is what we would say. So it's a lot of existing customer.
- [10:44]
A
I just moved in. We need security.
- [10:47]
B
And that applies for both commercial and residential.
- [10:49]
A
Okay, okay, so that makes sense. All right, so 35%, that's a lot, you know, just in comparison to H vac. Like 1%. Now, I think the total dollars is roughly the same as far as like probably 50 to 60% of revenue comes from the member group. But 35% of yours is like shows up in your bank account every month.
- [11:13]
B
Yeah.
- [11:13]
A
And that's incredible.
- [11:14]
B
And 90% of our revenue comes from our subscribers. So only 10% of our revenue is coming from a new logo customer.
- [11:25]
A
Yeah, I mean, that would be. The headlines for H Vac are kind of funny. There's a really great, like blog news blog called Home Pros where they talk about the H Vac industry. I think they have a plumbing segment, but I, I don't know what it's called, but it, it's a fascinating read. If you ever want to just like feel bad for your friends in H Vac because like 2025 was. I mean, the headlines are just outrageous.
- [11:55]
C
Hard year.
- [11:56]
A
It's. Oh, it's crazy. It's like 40% less equipment shipped. All of the, you know, Lennox and Carrier and Train, all these big public companies are just like. It was a shit show. You know, we did layoffs for the first time ever. And it's just like, oh my God. And I'm saying that because I'm thinking about this like, recurring thing, this, and I think that like that would be. A lot of people would have probably preferred that. Right. Sort of this. Hey, 40% of our revenue is just coming in on the first of the month. Like that sounds great. Yeah. Versus, like, you know, a weather driven, sales driven process. Okay. And like, very sticky.
- [12:36]
B
Yeah. Particularly on the commercial side. Yeah.
- [12:38]
A
All right, cool, let's dive into this a little bit more. So security versus H Vac. Security's being rolled up. Right. Just not with the same fervor of H Vac.
- [12:48]
B
Yeah, I would say it definitely is getting rolled up. And I would say there's a lot. It used to be. It's funny, if you would have asked this question 10 years ago, it would have been everyone wants to buy residential accounts. That's like the hottest of hotness was residential accounts. And now it's flipped. It's really commercial security and commercial fire alarm is the two fire, like the biggest multiples. That's what they're trying to roll up. And we actually see more roll up. The commercial security and commercial fire alarm industry are. Are very intertwined. And so as a result of that, yeah, you're seeing a lot of companies getting rolled up on the commercial fire alarm, but that As a result, 50% of the revenue is also commercial security. So by default there is some roll up happening in the commercial security play. There's not a tremendous number of people that are rolling up exclusively commercial security and not looking at fire as well. And so we're at a little bit of an advantage here from an availability on the commercial security side. But on.
- [13:46]
C
But.
- [13:46]
B
But again, it's all just a matter of time because a lot of these companies that are private equities that are rolling up the commercial fire, they're starting to see the value in the service work that's coming from commercial security. And so now they're buying some accounts too and pulling them in. So I think we're going to see a bigger wave of that coming very soon. And honestly for us, that's sort of our thesis is it's happening. There's definitely Roll ups happening. It's just not to the extreme that you see in H Vac. But what we've noticed is what's funny about in the H Vac industry is so much of yalls revenue is obviously service work and not new build. Obviously. I know you do new build too, but like the service work is a big piece of what y' all are doing. In our industry, the service work is an afterthought. People don't want to target the service. They think of it as a nuisance. If I could get rid of my service department, I would. I can't figure it out. It's too hard. They're really focused on recurring revenue and project work and that middle ground is just to retain their customers. We're the opposite. We are exclusively trying to build. I would love. And we're getting very close to where our service is going to outpace our project work. And that's a place that we want to be.
- [14:56]
A
Yeah, that's. That's beautiful. I remember thinking this like five, six years ago. I've changed my perspective on it a lot over the years. But you know, earlier we mentioned like home service versus security. I think people tend to like, I think you could say home service versus anything really. People tend to navigate towards home service and. I know, I did too. I think it's kind of a mistake. Like if you look at landscaping, that's a great example, there was a few other ones, but yeah, landscaping is like residential landscaping kind of sucks. But like commercial landscaping is the shit.
- [15:30]
C
Yep.
- [15:31]
A
And I think just like getting really tight on like which side of the markets you want to be on. I also do think H Vac is crazy. Right. So I don't know if you guys saw this, but yesterday the largest investment in H Vac was announced. It was two and a half billion dollars. It's the largest platform sale. I think the previous largest was 1.8 or 1.9. So it was almost a 19 times EBITDA.
- [15:56]
C
Let's go.
- [15:57]
A
You know, 140 million of EBITDA. Yeah, it's insane. It's insane. And it was Blackstone. So. So Blackstone came in and you know, planted a flag which was pretty interesting. The. The other one previously was Goldman. So like big names really entering the space. So I think what a lot of people are looking for is like one. What is the next one? And I keep hearing about more and more like I'm hearing about like remediation is going crazy. Roofing seem to have a thing there for a couple years. I don't know if it's still crazy hot. I'm sure there's others, but it. It's. We're like, trying to find it. But the. The one I found interesting. I might have said this on the show, but landscaping specifically, there was a. A buddy of ours got a 10 times on 500, 000.
- [16:47]
C
Wow.
- [16:48]
A
Whoa.
- [16:49]
C
Yeah.
- [16:50]
A
That's crazy. Yeah, we could have.
- [16:54]
C
We could have bought that with our 5 million. Theoretical. 5 million.
- [16:57]
A
Yeah. With our. Yes. Yeah, yeah, yeah, we could have. We could have. Yeah. No, it was. It was unreal. So. So I'm all that to say I'm sure that, like, security becomes more and more invested in. Because what it feels like after, especially after seeing that, like, loi of the landscaping company is like, how does that make sense? Right? Like, how does a 10 times on 500,000 make sense? You either have to, like, come in and completely remove the labor force and do, like, lawnmower robots, which I think those exist now, or like, you're trying to make the biggest bet you possibly can into things that AI won't disrupt. And it feels like home service had this, like, Covid bump, or home service. I don't mean just home service. I mean, like, the trades in general, which I would include security in.
- [17:47]
B
Correct.
- [17:47]
A
Yeah. So, like, we had this, like, Covid bump, and then now there's like an AI bump where, like, hey, the numbers are remaining irrational because we look undisruptible by AI. Like, someone still has to unclog a toilet. Someone still has to install the wire for your security system.
- [18:06]
C
Correct.
- [18:07]
A
I mean, someone literally has to build the AI centers. Like, it's like almost the greatest example of, like, GDP growth is purely coming from we don't have enough electricians to build our AI centers.
- [18:18]
C
Literally. There's like, a huge labor shortage in that industry. Like, I was actually reading about that.
- [18:23]
A
It's hilarious. Yeah, yeah. It's a wild. It's a wild problem. It's like generators and H vac and cooling and plumbing, and they're like, to build AI.
- [18:35]
B
Unbelievable. I know a guy who worked at a security company. He was a large. He was like their coo. One of their biggest segments was data centers. He left, started a security company, and they exclusively work in security and fire alarm and fire sprinkler, all in data centers. And they. And. And it's. What's wild is he said for them, it's. The price is literally not a question. It's all about speed. Who can get out there the fastest? It's fastest speed to Lead. So he's got guys that like, they'll literally get a call and the next day their mob mobilizing a crew in New Mexico or whatever to go build it. And that's all they focus on, is data centers. It's pretty wild, but yeah, so.
- [19:11]
A
So maybe your industry gets even hotter and hotter over the next couple years because they're. Yeah. The only thing that makes sense to me here is someone's got a thesis on robots or they're trying to find somewhere to park money that AI can't touch.
- [19:29]
C
Yep.
- [19:30]
A
Which I mean, makes sense. Like, I think AI is eating the world. Right.
- [19:35]
C
On top of that, like you have what, what is the business? Is it disruptible also? Where is it?
- [19:40]
B
Right.
- [19:41]
C
So we talked about like 5 million bucks. Well, buying an H Vac company residentially focused in Cleveland versus DFW versus Tulsa also has different dynamics. Same thing. Like for us, we are really, not surprisingly, you know, very biased on the Texas triangle. We think it's the greatest place in America to build business and, and do a roll up. Like, we just think it's the best. I think there's a lot of good data to support that. So that $5 million, you know where.
- [20:13]
A
Yeah.
- [20:14]
C
Where are you going to deploy that in and into what? I think the geography and demographics are a huge part of the answer to that too.
- [20:21]
A
I would, I would almost imagine that's even more important for security than it is H Vac because like you need businesses and you need businesses growing. And I met a guy, I met a guy a year and a half ago, he's a 30 million dollar plumbing H vac electric business in a town of 30,000 people. And I have never heard of that.
- [20:48]
B
See, the only plumbing saturation in my
- [20:51]
C
life is, is, is it, is it a luxury market?
- [20:54]
A
I don't think it was highly luxury. It's like western New York. It's like near Buffalo.
- [21:00]
C
Disgusting.
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A
It was crazy. It was crazy.
- [21:02]
C
Love that.
- [21:03]
A
No, yeah, me too. And I think we had someone on the show maybe six months ago and they're just south of Toledo. They're $10 million business and maybe like 15,000 people in that town. Now granted, your upside is absolutely capped, but I mean they're, they're producing, which is I think really interesting, I think for security for any business. I agree, like the more population the better. But I think as far as like impact, it probably impacts you guys more than like an H VAC plumbing business just because everyone's got a furnace. But not everybody, not everyone needs a security system in Business if there's no businesses there to serve.
- [21:41]
B
Yeah. The difference with that would be on the fire alarm side. And that's one thing why folks really like fire is you are required to have a certificate of occupancy. You have to have a fire alarm system. In fact, they take it so serious, at least here in Texas, that for every, for any time that you go past 12 hours of your fire alarm system not being monitored, you have to have what's called dedicated fire watch where somebody is standing and watching to make sure there's no fire so they can call 911. So there is a lot of that. One thing that I think is an interesting nuance about security that I love is it is technology. So there's some pros and cons to that. Right. Because the technology is always evolving. So there's some investment in having to learn the new standards of technology and how they apply to physical security. But on the flip side of that coin is this technology is cycling over. So if somebody has a camera system for five years and it's the same camera system, they're usually going to be replacing that. We see the cycle time is about three and a half years on average for security products. So even if you have an existing business, theoretically, if there's three or four scopes of work in the physical security industry, you're cycling one of their physical security products every year to year and a half, no matter what. And so it's not on this like just break, fix, model. It's like, hey, they may need something, right. So we, we have retail customers who now with AI, they can do hotspot analysis with their cameras and figure out where people are, you know, like hovering and staying and so they can make business decisions. They're wiping out all of their physical security cameras that they just installed two years ago to get the hottest thing with AI that's built into it. So there's a little bit of a technology driven business decision that's interesting. Yeah, demand that happens there that I think is unique to the industry.
- [23:23]
A
People have tried to do that type of deployment into H vac. It doesn't seem to work. Like there's like monitoring and like some companies do it, but I mean it wouldn't work nearly as well as it would on a commercial facility. We're like, hey, you know, fuel is a 500, 000 line item. Like, yeah, we're gonna put some monitoring on that. If, if a customer's like engineering focused, maybe they want it. But like for the most part, like I Don't know. I'm in the industry and I don't give a what my H VAC equipment's doing.
- [24:00]
B
Yeah, right.
- [24:01]
A
Like, I wouldn't, I wouldn't want to monitor it even if I had the tools to do it. So I definitely think that is a, that is a big difference on. We've got some big, like, revenue stability. I think we covered that a little bit with. You guys have 35% just like coming in. Like, that feels way better than H Vac, which is going to be weather driven, weather enhanced. However you want to think about that. The technology changes or adaptations are probably good for you. So like your example of like, hey, this new camera came out, so we're going to install a bunch of them. Like that's a good thing. That's a win. The counter to that in H Vac is they just change refrigerants. And it was an absolute epic level shit show that I think even has like Congress talking about, like, do they delay the deployment of this new standard because it just flopped so miserably. So, like, no one won in that scenario. Like, nobody. Whereas, like technology changes or like upcoming things are wins for you guys. So revenue as a whole feels less spiky. Does that feel fair?
- [25:12]
B
Like, yeah, I think especially on the, especially when you're doing a lot of service focus for a lot of these companies that are very project oriented, they do feel the spiky nature of the revenue. The other thing I think that's important to call out on the flip side of the technology coin is, and this is something that I actually think is a chip in the bucket of, you know, H vac, plumbing, electrical. Your scope of work has a defined end point, meaning you go in because the toilet's not flushing. The very end is. Does the toilet flush? Does the, does the water run out of the faucet? Does the electrical out? Like, is the power back on? Is the H Vac blowing cold? In the security world, it's very blurry. And the reason why it's blurry is is it doing everything that the customer's expectation was from the beginning of the sales process? And so that could be something like in their brain, they wanted to get these cameras to pick up license plates. And yeah, you, you could use these cameras to pick up these license plates, but you didn't communicate that. And so then at the end they're like, well, I want to have a list of all the license plates. Well, it's like, well, you didn't pay for the specific license plate camera and so there's this like, okay, this tension of. So that's where you have to get scope of work has to be really tight. And also training has to be tight because if they haven't been trained on the thing then they feel like the feature doesn't exist. And it's like well no, it does exist, but you got to read the manual. Of course they don't want to read the manual. So there's. There's a little bit of like a gray area. We call it the last 10%. It is the hardest part of any project is did you get the closeout and the sign off from the customer saying this meets everything. Part of the scope of work And I'm going to pay you that deposit at the very end versus and I'm just making the assumption from being a consumer is like when my plumbing guy comes in, my toilet now flushes. I don't really know what he did. I just know that it's fixed and I'm happy that it's fixed and I'm happy to pay the bill because it didn't work and now it works. So I think that's one interesting nuance about technology specifically that is unique to our industry.
- [27:11]
A
Walk me through labor. How does labor work?
- [27:13]
C
There's just so much of it. It's just so readily available. We just never have a problem with labor.
- [27:18]
A
It's so easy. Never. It's never been an issue.
- [27:21]
C
We're drowning in candidates where it's the traits is.
- [27:26]
A
Is this like low voltage? Is that typically like people with low voltage experience? Is that a good candidate or like who's the ideal candidate for you guys?
- [27:34]
B
Yeah, you said it. Low voltage. And usually they have some level of fire and some level of security experiences because those again those two indust are mapped. And it is very challenging to find good sources of labor. I would say being in a major market or tangential to a major market is beneficial to that. So we're in Houston.
- [27:54]
A
Yeah.
- [27:54]
B
And so we find that that is helpful. The other thing that is a benefit to us, especially on the project side is we don't use this as much, but there is. That does free up labor is there's a lot of subcontractors that are out there that exist. So for companies that are ramping up for a project and then coming down, they can leverage more subcontract labor. They pay a premium for that obviously, but it does exist. But that kind of indirectly frees up a little bit of the free which versus I would imagine it would be challenging if you're an H Vac to send a contract technician just for a simple service call. They've never been out there at that location or whatever.
- [28:34]
A
Yeah, I talk to a lot of home service business owners and if you are anything like the many shops that I know know, you're getting flooded with AI pitches right now. Most of them sound great, but then they fall apart the second they hit the real world. The one that I've kept coming back to is Evoca. What impressed me is they actually get how contracting businesses run. And it's not just some AI answering service. Avoca is going to handle inbound calls, outbound follow ups, texts, web leads, dispatching, and Even coaching your CSRs inside of one system that's built for growing home service companies. And if you're on service titan, this matters. Their integrations go deep so you're not duct taping five tools together and hoping nothing breaks during your busy season. I also like that they're honest about what AI should and shouldn't do when a call needs a human. They have a 24. 7 live transfer built in. No drop balls, no awkward customer experience. Owners using Avoca are seeing hold times basically disappear and booking rates jump, sometimes by more than 30%. And that is real revenue, not just a vanity metric. If you're looking for the one AI partner that actually helps you book more jobs without creating more chaos, this is worth taking a look. Book a demo at the link below. Yeah, I wouldn't land. There's, there's like Tradesmen International is around. So I think on like big commercial applications, that makes a lot of sense. But yeah, like some dude's house makes a lot less sense. I think some of the. We probably have like the same challenges with hiring. I think one of the challenges with H Vac, it's actually if, if I compare it to like other industries, it's not that bad, like landscaping or power washing. So there's, there's a power washing company up here in Cleveland and I don't know if they're still the largest, but at one point they were the largest in the U.S. like $40 million of power washing. One. One business. It's crazy, and I think 11 or 12 locations, but in the spring they have to hire 400 people to go fucking power wash and train them how to power wash. And then in the first 30 days they expect a 50% attrition. So they go from 400 to 2 and then over the dude, it's, it's miserable because like, I'm about to describe H Vac. And I'm like, it's nothing like this, right? Or like landscaping, I feel like, is similar. Like a lot of companies, a lot of companies up here, like, they just do layoffs for six months. So like, hey, you're working for six months, you're laid off. For six months, you're working, you're laid off. That's just how the business works. H Vac is, is nothing that extreme. It's like you need like 30% more staff during the summer than the winter. And like, there's a lot of strategies in how to. We've done a few episodes on that of like, hey, do you actually need 30% additional staff or are there ways to drive 30% more output through your existing staff? And that's what the best operators tend to do, is just drive more through their existing process. But yeah, obviously like labor, I think for any trades, business is a challenge. Do you guys see that? Like, are people attracted to security, like young professionals?
- [31:55]
C
Yeah, I mean, it's not as much as we'd like, I would say, but there are some programs even at like local universities. Yeah, you know, things like that that are encouraging, like directionally speaking, that, you know, I think people are aware it's like a large industry. But if you look at like our average age technician, you know, overall, like, we still, you know, are older than we'd like, but you know, when you're trying to do really high quality work and we have over the last few years gone further and further up market and so that just requires a level of skill and experience typically. And so we're trying to like train people up, but yeah, not, not as young as we'd like as the, the average age of our technicians.
- [32:47]
A
One of the, that might be an advantage for H Vac is like, there's just an interest in it and I think it's big and it's known. Yeah, there's a lot of school programs, there's a lot of high schools, a lot of trade schools with a big focus on it. I think our average age is in the 20s.
- [33:05]
C
That's awesome.
- [33:06]
A
High 20s, but 20s, which is. Yeah, it's kind of annoying, to be honest. Like, it's good and bad, but it's annoying because like, I'm not, I'm telling this to myself and you guys have to agree because you're going to be nice to me. But I'm not that old.
- [33:22]
B
Right?
- [33:23]
A
Like I'm like 34. Thank you. And so I'm like, I'm not that old. I'm. I'm one of the oldest people in our freaking business. Like, there's one person older than me in our senior leadership team. Eight people. And I'm like, okay, when the hell did this happen? That's cool. A little. It's a. It's good and annoying. And then, yeah, in the business, like, I'm four or five years above average age, which is kind of. Kind of crazy. All right, Licensing, or like, moat, I guess would be a better way to say this. So. So for H vac licensing is a moat. Well, depending on where you are, there's some places that you'll need a license for H vac. Wild West. Yeah. Tennessee. There's, like, essentially no licensing in Tennessee, which is kind of funny. So all the PE firms stand up a branch there because it's. It's easy.
- [34:13]
B
Yeah.
- [34:14]
A
You know, there's. There's no moat. There's licensing. There's. You need something to touch refrigerant. There's like some EPA licensing you need. But what is there like that on security?
- [34:26]
B
We have really. There's a lot of different types of licenses, but there's two primarily that you need. You need a private security license, and there's a lot of things that fall under that bucket. Like you could do security guards. We don't. But that is the same license. And so underneath, that license enables you to do what they would say all of the physical security scopes of work. So that would be video access control, card readers, Burglar alarm allows you to do all three of those scopes. The other one would be your fire alarm license. And so that's a separate license for. And what's interesting is there's an individual in a business license, so the business has to hold a fire alarm license and a security license. The technicians have to hold an individual license for the security and for the fire. But the difference with the fire is there's multiple levels of individual fire licenses that you have to have that allow you to do some different things. So there's like a residential fire alarm license, and then there is a commercial fire alarm license, and there's one that does both. So it's a. It's a combo license. And then there's one that's like a senior fire alarm. And so there's. There's some different levels within the fire alarm. So there's a. A big moat from that perspective. One thing that switched big time in our industry, which was great for us, is a lot of IT companies and AV companies used to do video cameras as sort of an Like IT technology. And then Texas private Security board said, hey, no longer can you do that. You have to have a secure private security license. Which was great for us. It created moat and made it a little bit more challenging. The other thing that's happening too on the access control side is the access control now has to be inspected and tied in with the fire marshal and inspected by the fire marshal. And the benefit to that is you now have to pull in fire. And so companies that do both fire and security end up getting a lot of the access control work because they have to be familiar and has to be tied into the fire alarm. So there is definitely some licensing hurdles to jump over.
- [36:28]
A
But. Yeah, but sounds like it. I mean especially, especially with fire. That's. It's crazy here too. Fire is like its own. There's like the government and then there's the fire and like there. It's kind of wild. And we had no idea when we.
- [36:41]
B
Dude, it's like, it's like down here. I don't know if you'll have this. Like game wardens, it's like the most powerful government. They can come onto your property for any reason that they want to come onto your property.
- [36:50]
A
Oh yeah, that's. Fires can do. They can do whatever the hell they.
- [36:54]
B
Fire marshals can literally dictate. Like there's a code. So there's a standard. Yeah, it's called NFPA 72, which basically says, hey, this is the state level code for fire alarm systems. And then the ahjs get what's called a local interpretation of that. And so their local interpretation of that could mean anything. They could literally say, yeah, I know that the code doesn't actually require a smoke detector in this room. We're requiring that and we will not give you your permit if you don't have it. And there's no justification needed.
- [37:19]
A
Yeah, that's crazy. Yeah, that's funny. You know something that my industry was like kind of butthurt about like six, seven years ago is the security guys. So this is kind of funny. We can, we'll dive in. But every, you know, smart thermostat started becoming a thing and like the interconnected home. And I just remember like everyone was like, all these security guys are going to start messing with my H VAC systems. Like, is that a thing? Like I would assume it kind of is. Right. Like the interconnected home, like you're tied a little bit in, but not that
- [37:58]
B
it is a thing. Especially because we would call that home automation. And for the security, residential security companies that are really doing residential security. That's actually the biggest piece of their revenue. So there's some. They're selling the smart thermostats.
- [38:13]
A
The H Vac.
- [38:14]
B
Yeah, the smart thermostats. They're selling the AAV stuff, the home locks, the garage door opener, your sprinkler monitoring center, like, or monitoring station. Like, they want all of the pieces of technology that can be interconnected. So you see, just like in commercial security, you have a fire element tied in. In the residential world, it's tied in with home automation and. Or av. Right. So you see a lot of AV security. Residential companies that do both because they're kind of interconnected.
- [38:43]
A
Interesting. So they were. Right. You guys were. I don't.
- [38:46]
B
My technicians do it because I know we're going to screw something up with a thermostat. So I'm like, do. No, we do not do that. We do not do thermostats. Call your H VAC company. That's the last thing I want to screw up.
- [38:57]
A
Well, I mean, maybe the answer is, hey, if you have $5 million, maybe both. I think that's. That's where I was coming from, is like, is there a play for like a commercial H VAC business that ties into the monitoring? Because I think commercial H Vac, honestly, a lot of people got into it last year with how depressed the residential market was, so they pushed deeper into commercial because it's similar, like big recurring maintenance contracts. There's monitoring. The businesses care less about the dollar or the sale. They just want the equipment going. So, yeah, I think it's a big part of it. Give me some bad. Because right now I'm leaning security. So, like, what. What's some. What's some shitty stuff?
- [39:40]
C
Life safety. Like, yeah, just.
- [39:44]
A
I mean, the pressure of it.
- [39:45]
C
There's just, there's.
- [39:48]
A
Because if your fire system doesn't work
- [39:49]
C
more on the line, you know, like, oh, I'm sweat like Texas, you know, like, yeah, I'm sweating, I'm hot, I'm angry. Wife's angry, no one's having fun. Fire alarm doesn't go off at a K12 school.
- [40:04]
A
Yeah.
- [40:05]
C
Different levels of risk. Different levels of. Yeah, you know, just at any given moment, you could get like a pretty bad phone call.
- [40:13]
B
Yeah, that's a really great point. Particularly on fire alarm, you see, and commercial security, because they don't need security until they need security. And so their level of desire to fix a broken alarm system when the keypad's beeping and ignoring that for six months is okay. They don't care. And then when they get broken into and then something gets stolen and the alarm system didn't work, there's a lot of frustration that's like, hey, we've been notifying you that your system doesn't work and you've been rejecting the service call. But the perception is the reality of the customer and so that's, that is tough. I will tell you like my biggest pain point is what I described earlier which is the like non binary finish of the work. So like this scope and you can have the tightest scope of work. And I would say we have project managers that have the highest level of communication in our industry. Daily touch points, insane levels of communication. And there's still a struggle at the end. Not for every customer but a lot of customers. And that's hard. And then I would say the other thing is there is some commoditization on certain elements of our industry, particularly in the video services, surveillance and in the commercial burglar alarm. Because a lot of that the video is very DIY driven now. So there's a lot of DIY solutions for video. There is DIY solutions for alarm that's less permeated into the commercial space a little bit. But everybody posts their prices online and so it's very easy to go shop and get low balled on the monitoring side which I would say that we don't try to drive our value on being the lowest price operator. But it can be frustrating because does cut you out of. Yeah, it's like I don't know, I would imagine most H Vac and you know, electrical and plumbing companies are not posting their quote labor rates on their website. So like it's going to require a customer to call y' all and say hey what's. And they're just like oh yeah. They're just going to say yes, let's get it. I'm done. I'm on the phone. I don't really want to call and shop around versus on the website. It's, it's on five different websites. They can go and just select oh yeah, sign me up. You know. So there's a little bit of commoditization on some elements that I think is tough.
- [42:24]
C
I think too like H Vac versus security. If you take from like you think about it as like total addressable market or like 100 potential jobs. Yeah, you probably have more, more scenarios where someone will lean to a DIY fix or try to do it themselves in security. Security than you would on the H side I would assume Obviously you've got, you know, Handy Andy out there that's going to just try to do everything. But I think more times than not, security probably loses out on a job because someone decided to watch a YouTube video and wanted to figure it out themselves.
- [43:04]
A
I think that makes sense. Like, we've done in our buildings here, we've done a mix. Like there's a security company we've used down the road. And then we've also, like, we have someone who's like, tech friendly and like, figured out videos. So, like. Yeah, I think that. I think that is.
- [43:22]
C
It is funny when that comes back around. I actually kind of love that. Like, we had this church that we had a personal contact at, and they're like, hey, you know, actually, thanks for the quote. But we have this guy who's like, really into this stuff and he's gonna do it. And then six months later we get a phone call, hey, can you. Can you come back out? So that's fine. It doesn't always work out.
- [43:46]
A
Yeah, that's funny. Yeah. I mean, it's the same with. It's the same with plumbing. And yeah, like, plumbing has a lot more DIY electric. Like, people don't like touching their electric and people don't like touching their H Vac. But plumbing is apparently the thing that people are like, let's full send this and just water it. It can make for some. It can make for some comical phone calls. Yeah, it's plumbing up to gas. That's like, okay, I won't touch gas. Everything else, gas is the least destructive of the different things that you could deal with in plumbing. Yeah, that's funny. I think, okay, if I had 5 million bucks, I think what I would be. I think it would depend on, like, what's my motive. I think one of the advantages that H Vac has, if I go back, you know, I don't know, 20 minutes is there are. And I know that this is the same with security too. I just don't know how it works. And maybe you guys can educate me. There are big buyers spending a lot of money for an H Vac business. So if the goal is like build it and sell in five years, it may be maybe that because it seems like the security business is still like maturing on that, whereas, like, H Vac is mature. So I don't know what your reaction to that is, but I think from, like, if I'm going to own this thing forever, I. I really like the amount of revenue that's coming stably from this recurring Model. Like I think that's amazing and I think that like basically covers your freaking overhead every month. Like that sounds incredible. Yeah, yeah, I mean that sounds incredible.
- [45:32]
C
I think a five million dollar purchase price of security business of one that we would entertain. Like obviously there are people that are like we only do multi family new construction and that's like. And it's just very. They're a construction company essentially. This is not that. And so if you're looking at a 5 million dollar purchase price where the business has 30, 40%, you know, recurring and 50% reoccurring, like that type of profile that I feel like I would sleep better at night than I would buying a five million dollar purchase price. You know, H Vac business.
- [46:10]
A
No, I, I totally would. I totally would. I mean, and, and last year. So yeah, if this was like me owning it, I'm sure there's ev. Because I know there's really big players in security that like, like there's a, there is a buyer somewhere along the line, which I just think like, I don't know, I think people should have on their brain. Like if I grow this thing huge, like who's there to take it over? Maybe it's your kid or whatever. But like ideally there's an outside party as well. But yeah, I agree. I think that reoccurring mix is like, is really attractive. I think if you're built for the seasonal stuff, I think like run it. But like that's one of the reasons I've always liked plumbing so much is it's fairly just like.
- [46:59]
B
Yeah.
- [46:59]
A
Sort of up into the right. Like it's kind of a beautiful. It's kind of beautiful. I mean almost none of it's recurring, but it is stable. Which, which I'm a big fan of. Okay, cool. All right. So apparently I'm gonna go, I'm gonna call my dad. I'm gonna say, hey dad, you know that company that you told me was jump in, I got it, I gotta do it. Target acquired. Yeah, I mean I do think, I do think there's a play if, if, if I wasn't, if we were just like determined to stay local, like one market. I think it makes a lot of sense for an H VAC company or security company. I think it makes a lot of sense for that to cross pollinate just because of how interconnected that you could make.
- [47:40]
B
You could make a mega home service
- [47:42]
A
maybe primarily on commercial.
- [47:44]
B
Both. I mean you could mega home service business with all this, basically all the trades right at that point. So then you're you've got everything from security all the way down to plumbing and electrical and H Vac.
- [47:53]
A
I think there's a few examples.
- [47:55]
B
I think you're right.
- [47:56]
A
I don't, I don't know if Milestone has security, but they, the, they did
- [48:00]
C
they try to break into security and I think they did it for a while and kind of backed out, I believe.
- [48:05]
A
Yeah, yeah, the. I know. I pretty sure it's the Lee company in Nashville. It's like the Governor's plumbing and h vac. It's $150 million. It's gigantic. But I think that they have secure. I mean they do everything. It is literally the mega business. It's, it's, it's kind of funny to look at. I'm gonna, I'm actually gonna google it right now.
- [48:26]
C
It would be interesting from our perspective, like the customers that we have. Like so much of our sales strategy is mining our ever growing number of accounts and like.
- [48:36]
A
Yeah.
- [48:37]
C
To have even further things to cross sell and that are lots of kind of like high ticket, you know, kind of one time project type stuff. Just a cash injection on that. That'd be fun. I could, I could see it. Don't get me excited. Don't make me lay out.
- [48:53]
A
So these guys, these guys did do this.
- [48:55]
C
All right.
- [48:56]
A
They did 150 million dollar business. I'm on their website right now. And in their services, they have facilities serve. They have home and facilities. So home is like heating, air conditioning, plumbing, electrical and other home services. I'm curious what else they're doing. Like garage doors probably. And then facilities is facility services, management, maintenance, smart buildings. Which is probably pretty tied into what you guys are doing. Facility construction. Maybe it's inside facility services. Yeah, they're doing backflows.
- [49:28]
C
Okay.
- [49:29]
A
Yeah. That's interesting.
- [49:30]
B
That is a lot.
- [49:32]
A
No, it's, it is ridiculous. Yeah, they're doing appliance repair. They have a handyman department, garage door crawl space service. They are literally the mega homes. It's, it's wild.
- [49:44]
B
Are they privately held?
- [49:46]
A
Yeah, the governor of Tennessee owns it.
- [49:48]
B
Well, listen, learned, I think one of us, Governor Lee will be governor of our state. And then probably.
- [49:53]
A
I know. Well, honestly I thought when I, when I found out, when I found out about that, it seems like kind of a really big reputational risk. Like people tend to not like calling their plumber. So to also be the governor, like hey man, your guy charged me 50 extra dollars. He didn't use these parts. And you're the governor, like that feels like kind of a tough I don't know that. I don't know that I would want that problem.
- [50:24]
C
You're not going to run that play in certain states.
- [50:26]
A
Yeah. But in Tennessee, apparently it's fair game. Okay, so we're all in on security. This was really interesting. It was fun direct to directly compare it. Now the last thing we didn't ask, and this would probably help answer a lot too, what does 5 million get you in security? Because in H Vac that's starting to become a smaller and smaller thing.
- [50:46]
B
That's like a, that's like on the smaller end of a mid size independent security company. So I would say if you're a midsize business, 5 million, you'd be at the very, very low end of that range, which you wouldn't really be in like a. The small guys, like a lot. Honestly, a lot of the smaller operators, I mean there are guys out there that are doing a million and a half a year in top line revenue because they have so much rmr. They're selling for two, two and a half million bucks because a lot of their rmr because a lot of the revenue is rmrs.
- [51:19]
A
Yeah.
- [51:19]
B
So I think you could get something. You're definitely going to be a step above a two tech operation. A $5 million operation is probably 15 to 20 people. So you've definitely got maybe, maybe 12 to maybe a little lower than 20, but like in that range. So you're definitely buying something with a little bit of size and scale.
- [51:36]
C
Yeah, you're.
- [51:37]
A
What's, what's EBITDA like? Is it like a million?
- [51:39]
B
Yeah, probably about a million on five.
- [51:43]
C
Yeah.
- [51:43]
A
So five times.
- [51:44]
B
No, I'm saying. Sorry, I'm saying a million dollars of EBITDA and you're. Yeah, correct. I think I thought you were saying $5 million of top line. If it's a $5 million business, probably. What do you think, Stephen? 500 to some 50?
- [51:56]
C
I would say it's, I would say it's. I would say it's maybe 800k to a million of EBITDA. And then I would also say you, for the type of business we would buy, you're probably looking at 100 to 125k of RMR or recurring revenue. And so then you're looking at, in that scenario, probably 30% recurring.
- [52:17]
A
Yeah, that probably boosts up values quite a bit. I think it's about the same with H Vac. I think it depends. It's very easy to. A million of EBITDA is kind of a funny number. I think because it is very easy to figure.
- [52:33]
B
Yeah.
- [52:34]
A
Which, which might sound astonishing to some people but like for, for our search
- [52:38]
C
really for a searcher. Friends, you know, fire.
- [52:41]
A
Yeah, it's, it's really easy to like get there on a spreadsheet because a million's just like I remember when people told me this and I was just like shut the up. But like a million is just like not that much unfortunately. So like, like you can if you're actually profitable at like 20,000amonth in like true profit, but you've got a four million dollar year business, you can make the books look like they've got a million. So I think it depends. I think you know, for H Vac you might get like 1 to 1.5 EBITDA. If it's a really well run company, like a 5 times could be achievable. More likely than not.
- [53:21]
C
Not.
- [53:22]
A
I would assume it's not achievable. We did a. I mean and depends on the buyer. Is it strategic? But I, I want, I would want to say it was a million of EBITDA to 1.5.
- [53:30]
B
Yeah.
- [53:30]
A
Depending on how true that million V. But it is not going to complain about that. Most businesses don't lose jobs because they're bad. They lose jobs because they're busy and a customer could not get a quick answer. One missed call, one forgotten follow up and the job goes somewhere else. Quo helps solve that by putting every customer conversation, calls, texts, voicemails into one shared thread that your whole team can see. So whoever picks up next already knows what's going on. There's no scrambling for context, no more botched communication and nothing gets dropped. Quo helps keep your team aligned, helps you respond faster, and makes the customer experience feel way more consistent. If you want cleaner communication and fewer lost leads, check out quo@quo.com. you'll get a free seven day trial plus 20% off your first six months.
- [54:23]
B
Hey, if you do end up buying a security company, I know a really awesome podcast you could listen to that's like pretty informative. Yeah.
- [54:29]
A
Yeah.
- [54:29]
B
I could learn handsome bros that run the podcast and.
- [54:32]
A
Yeah, very handsome bros.
- [54:34]
B
They help out.
- [54:35]
A
Matching hats.
- [54:36]
B
Exactly right.
- [54:37]
A
Yeah. No, this is great. Yeah. We'll add a link down to the entry and exit show. You guys are on a YouTube channel, you're on Spotify, you're on anywhere that people can listen to shows, so make sure you check it out.
- [54:48]
B
Thanks for having us on.
- [54:48]
A
Yeah, this was terrific. For all those listening, make sure you like and subscribe and then leave any comments here. If you want to know more about security and alarm business. Or if you want to go buy one with $5 million. Or if you want to give me $5 million, I will accept it.
- [55:04]
B
Me too.
- [55:04]
A
I will accept it.