← Owned and Operated - A Plumbing, Electrical, and HVAC Business Growth Podcast
Owned and Operated - A Plumbing, Electrical, and HVAC Business Growth Podcast
The 3 Stages of Building a Home Service Business From $1M to $20M and Beyond
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I was being driven mad by the fact that I wasn't a $10 million business. Yes, we achieved our vision. My obsession became reality. We hit the $10 million revenue mark and it was as messy as it could have possibly been. Everything broke. Everyone, I am John and we're going to be talking about the stages of what it was like to build a real business in the trades. Over the last 10 years we've gone from around eight people and a million dollars of revenue to today we're just about to cross 200 people and are preparing to eclipse 40 million revenue. So it's been a long decade and we're going to talk about each of the three big stages along that journey, which is the 1 to 5 million stage, the 5 to 20 million stage and the 20 plus stage. What's different about each one? How to navigate it, Mistakes I made and how you can build a business to that size too. As we start diving into this story a little bit, the important thing to understand and as you think about your own life and the business that you're building or preparing to build, I didn't start off with a grand master plan. I started off with aspiration. So I, I remember 10 years ago thinking to myself, hey, one day we're going to build this business so that we're in multiple states and one day we're going to build one of the largest business in this section of the state and we're going to have multiple locations. And I was a 23, 24, 25 year old and I had absolutely no real plan to get there. I had no 10 year whatever. I thought that was possible and I wanted to chase it. So if that resonates with you, if you've got these grand aspirations of what you think you can build, I think you're in the right place. Because for the last 10 years we put one foot in front of the other and we have built one of the largest businesses in our state. And we have done everything that we hope to do. When we first set out, but it was chaotic. When we first started, the first business we bought was eight people on the team, including myself, and it was a million dollars of revenue. And we didn't really know what we were doing. We were just trying to figure out like what's the basics of business, like how does a P and L work, how do you hire people, how do you bring on leaders, how do you hold people accountable and how do you actually drive revenue in a way that makes sense and we didn't know how to do that. So a lot of that first year or so was picking it up and figuring like, hey, who can I rely on? What are the levers to performance? How do we train our team, how do we market, how do we get new customers? You know, that's hard to do when there's not a lot of resources to do it with. You know, we were coming from a small business where there's eight people on the team, like I said, and maybe 60,000 to $80,000 a month of revenue. Like, there's not enough money to really make mistakes on marketing, there's not enough money to make mistakes on hiring. And, and there's definitely not enough money to bring on managers. So the big thing that was really concerning and what kept me up at night was cash and resources and how do we continue to invest into our growth and how do we grow at all? Like, where do we find the resources to grow, to market, to hire? Some of those early decisions as we, as we started getting our bearing in this zone were pricing dynamics. You know, we went from being a time and material shop to being this flat rate shop. And that was a really big difference. We started focusing a lot on our digital presence, like our Google reviews and our Google my business profiles and our website. And in 2015, 2016, that was made a really big impact. Like we started driving real leads very quickly. We worked on Google Ads for the first time and I fired up Google Ads and figured out how to market it. And we invested a lot into the sales training for our team. There was a few sales programs out there at the time and we brought them on for our team and then helped our team figure out how to go from 10, 15, 20, $25,000 a month to more. And we installed a commission plan alongside. So those were those early decisions that we didn't have the resources. So we had to create our own resources. If we need cash to grow, if we need cash to hire, to market, whatever, we have to go create that cash. That first year we grew 70%, so we grew from a million to 1.7. On one hand, 70% is a really big number, but on the other, 1.7 didn't feel like that much money. And it didn't feel like we were pushing at the pace that I wanted to push at the time. Someone locally bought another competitor and I was like, holy smokes, I guess you can just do that. I guess you can just go out and you can buy competitors and you can just grow very quickly. So I got on Google and I searched plumbers. Akron, Ohio and we started finding every plumbing company that had under a hundred Google reviews. And that was the qualification for whether or not I thought I could afford that business. I think we found 50 different plumbing companies. I sent 50 different letters. I explained who we are. I'm sure we can still find the letter. It's like, hey, I'm John. We're growing the business. It's exhausting to run these businesses. Do you want to sell to me? Basically, we got four or five responses, and we bought one of them in early 2018. And what we learned in that acquisition is that you can just go out and buy a business and you can just go out and double. The four lessons that we took from our early merger and acquisition journey was one. You want to buy broken businesses. You want to do some weird deals, you want to avoid banks when you can. And cash flow is everything in buying broken stuff. When you're a small business and you're trying to figure out how do you get to that multistate operation, how do you get to wherever your aspiration is? Broken stuff is kind of the only things you can afford. Buying broken businesses is the hardest way to do it, but it is the way that you can do it. So if you're not coming from money, like I didn't come from money, then you have to buy what you can afford. And that usually means businesses that are losing money are losing customers. Revenue is going down, not up. It's not a pretty picture. In the 12 businesses that we've bought, nine of them have been broken. We also did really weird deals. So if a business had no earnings, that was fine. We did a lot of seller notes, we did a lot of cash only deals, we did a lot of acquisitions at that time that really, if the math worked for the seller and the math worked for me, like that was enough. We didn't need external approval, which to my next one is avoid banks when you can. Look, if you're private equity backed and you're running around with a pool of resources like pop off, pay premium, buy great businesses. But if you were like me and you had to bootstrap your way up to this, then just pretend like banks don't exist and pretend that you have to figure out a different way of pulling off deals. The big reason to avoid banks when possible is one. I generally like a permissionless life. If I think something's a good idea, I just want to go do that thing. And if the seller thinks it's a good idea too, then like, why do we need someone else's permission like a bank or anybody else. I also like the speed that comes with a non bank transaction. If you're able to come in and do a non SBA, non bank transaction, you can close in like 20 to 30 days. If it's SBA, that might be 90 to 120 days. It's crazy. On top of that, there's a ton of extra costs, not just like above market interest rates for SBA, which is like 11% right now instead of 6 or 7 from a bank. For anything else, you also have to pay extra for lawyers, you have to pay extra for closing fees. It's just a bunch of wasted money for something that you never really needed in the first place. And finally, like, really focusing on cash flow. Look, we're a small business. We're in that 1 to 5 million range. We're in this first zone. And most of our work is figuring out, like, what are we actually doing here? And what is business supposed to feel like? How are we supposed to hire people? How do we work with our first manager? How do we, like, get that cash in the bank at every opportunity? And really just focusing on cash in the bank. The early stage for me probably looked different than what it looks like for most entrepreneurs. Something that I was really determined to do from the beginning was to never be the guy. So if you've ever read the E. Myth Revisited, they talk. The story is built on someone that loves to bake. So they open up a bakery, they open up this bakery, and they get overwhelmed by the daily minutiae of running a bakery. They love to bake. They didn't know that running a bakery required covering payroll or ordering materials or hiring people or filing taxes on time. They didn't understand any of that. They frankly didn't care about any of that. They liked to bake. And the idea that I think it's Michael Gerber drives into the book is, hey, a craftsperson, a baker, a plumber, H. VAC technician, an attorney, whatever, has had an entrepreneurial seizure is the word that he uses. And they decided to launch a business in this thing that they love doing, not realizing that business is its own separate discipline from the task itself. Running a bakery is not being a baker. Those are two different things. Running a plumbing company is not being a plumber. And fortunately, I read a lot in my early 20s. So as I was entering my entrepreneurial seizure, the biggest difference that I had going into it versus what I see a lot of other people is I was very determined to know how to run the bakery. And not be the baker. Whereas a lot of entrepreneurs that I see are very. They're the baker and they don't know how to get themselves out of the weeds. The vision that I had is, hey, at year five, I want this business to be saleable. Obviously we didn't sell it. We're 10 years in. But that crystal clear vision of, hey, I want to build a big business and I want to never be that important to the business. And that was my early mantra, and that's what helped us grow so fast over the last 10 years, was I knew that I could never be the baker because if I was the baker, I couldn't figure out how to run the bakery. What that meant for me was hiring people and figuring out how to bring on managers and train team members to take on tasks that I either didn't want to do or felt that I shouldn't be doing or that I was bad at in general. So I kept trying to find who is the person that I can hire that can resolve this issue for me. In order to get from stage one to stage two, you have to be able to have a couple things in place. So one, can you take a vacation for a couple of weeks and the business survive? Do you trust the numbers that you're being given? Do you have clean financials? Is revenue covering up weak margins? And if you stopped pushing, would growth stop? It is really hard to run a $5 million business if you are the only person with their foot on the pedal. There has to be other people doing it. And if you haven't built a system yet, then you're not moving into stage two because stage two is structure. Stage two is this five to $20 million of revenue. It stops becoming a hustle, and it becomes more of a process. Back in 2020, I had a treadmill in my basement. And I would get on the treadmill and like, right above the treadmill, there was this, like, a wooden beam. And it's. It's probably still there. And on the wooden beam I wrote. And this is the thing that's probably still there. I wrote $10 million. And every day I would get on that treadmill at five, whatever in the morning, and I would just walk or run or do whatever I was going to do. And I would look at that beam and. And it would say, $10 million. And I was like, oh, my God, I have to hit $10 million. It was like the only number in the world that mattered to me was achieving this $10 million revenue goal that I don't Know why I was. I was being driven mad by the fact that I wasn't a $10 million business. And I don't know why that bothered me so much, but it really bothered me. I obsessed over hitting this number in, like, probably an unhealthy way. And I listened to every podcast and watched every YouTube video that I possibly could on how. How do I do this? Like, how do I get the business, which is at 3 or 4 million dollars a year right now? How is 10 million dollars within reach? And how is it within reach in a way that will keep me sane? Because I was so obsessed that I had to hit this number. The way that we did it was we. We built systems and we bought businesses. I just thought back to my earlier lessons, all right, what did I do last time? Okay, well, last time, I got on the Internet and I looked up a bunch of companies and I sent a bunch of letters. So we did that again. We reached out to brokers on the Internet that we could find. We looked at biz by sell. We sent hundreds of emails, and we ended up buying three. And that was in 2021. We went from 32 employees to 105 in about five months. Everything broke. Yes, we achieved our vision. My obsession became reality. We hit the $10 million revenue mark, and it was as messy as it could have possibly been. What we spent the next couple of years doing was putting everything back together in a way that made sense. And we built the structure. We built the platform of our next stage of growth. Later, the platform was hr, marketing, accounting, and leadership development. Hr. We had to figure out how do we hire people, how do we retain people, how do we grow from within? What's our compensation structure look like? What's our hiring standards and firing standards? Do we have onboarding systems, and are they good? The next is similar marketing discipline. How are we, in a repeatable way, driving new customers for an affordable amount of money, tracking that roi, and continuing to invest into more marketing sources? You have to be a marketing machine, and you have to be a sales machine. Like, those are the two things that matter, right? Like, you have to get new customers, and you have to sell those new customers something. I should have done this one first, but it was third. We got our accounting in order. If there was one lesson that I would have done totally differently, my next time around, I would have brought on a controller five years before I actually did. I would have had cleaner financials. I would have had better data, because data became a superpower. Knowing our gross profit on a daily Basis became needed to steer the business every day. And finally, as your business grows, your leaders become the bottleneck in each of those accounting and HR and marketing. The leader that we brought in was the most important piece of the puzzle, but for our field operations, it's the same. And how are you hiring and promoting new leaders inside your organization so that as you have new teams or new locations or new whatever, you have someone that can plug in and take on that team and take on that opportunity. So leadership development became a really core part of us building our structure, our platform in that five to $20 million range because we had to place more leaders than ever. Suddenly it wasn't just two or three managers, it was 20. And we had to be able to help make those managers better and promote them from within, but also create a career path for everyone else inside the organization so that they could see this as a long term home. Stage two was structure and the platform. And that's how we saw it too. As we were in this stage, what we were focused on is, hey, what we're building is the path to 100 million. And the things that we do here might not be exactly what it looks like at 100 million, but it's going to be the baseline. And when we go and launch into a new market or into a new department or new whatever, we need to have our hr, marketing, accounting and leadership on point. Because without those four things is the platform of what we're doing. We're just not going to get that far. As we continue to grow and grew past 20 million. We entered what we think of as stage three and stage three went from hey, we're building the platform to the platform is built. And we are now adding incremental revenue and incremental gross profit dollars on top of the plat that we have built. We stopped thinking about revenue as the scorecard and we started thinking about EBITDA or profit as the scorecard. And our guiding metric was, hey, is yes, we are driving a lot of dollars to the top, but are we actually creating value? Is the business valuable or are we just really busy? Stage three is what a lot of businesses want to be. It's you're north of $20 million, you're a market leader probably in your space and you sort of shift from this day to day operations head to, you have to be thinking of whatever the next opportunity is that's going to drive additional ebitda. Are you going to open up that new location? Are you going to spread to a new market? Are you going to go on an acquisition spree. Now that you've built this platform, is your team and is the platform ready for you to do that? We've been in this stage for two years now and most of it for us on a day to day basis is really focused on can we buy that new market, what does it do to ebitda? Can we launch that new, that new department, what does it do for EBITDA? And imagining how does this business go from this 30, $40 million business to a hundred million dollar business over the course of four or five years? We're focused extremely tightly on ebitda. We're focused very tightly on the platform itself, the process and the structure, and we're doing much less firefighting every day and we're focusing on the big opportunities. What has been really helpful for us as we're in this stage now is each decision and each project is no longer just tied to revenue, it's tied to return. So, hey, should we do this warehouse project? Well, how much even though will that warehouse project give to us? Should we embark on this marketing effort or this new location? How much incremental EBITDA will this give to us over the course of six months, a year, two years? Years? Is it worth it? Does this add profit right away? Does this add profit in several years? Stage three is adding ebitda. It's expanding the platform that you've already built and it's engineering your way to that hundred plus million dollar mark. The sentence I always liked when I thought about developing, growing the business was I can only carry as much as I'm strong enough to hold. And the way that relates to a business is business growth is the same as personal development and investing in yourself and learning and helping yourself figure out what's next for you is the same way that your business grows. And that level of obsession and figuring out how to move through the stages is all a part of the process. And it doesn't really matter if you're at stage zero or stage five and you're way larger than I currently have the aspirations to be. But it's all about knowing where you are, putting one foot in front of the next and trying to figure out how to get to the next stage. If this was helpful to you, make sure you like and subscribe. We're going to be putting out more stuff like this. And if you're a couple steps ahead of me, like, let me know what's coming next. I'm still here to learn and I'm still here to develop and try to figure out how do I get to stage four and five and six, and I would love your input on how to get there. Thanks for tuning in.