Building a Business That Thrives Without You with Mike Andes

Summary

Summary of "Building a Business That Thrives Without You" with Mike Andes

The Home Service Expert Podcast, hosted by Tommy Mello, features an insightful discussion with Mike Andes, a renowned entrepreneur in the landscaping and home services industry. Released on March 28, 2025, this episode delves deep into essential business strategies, franchising challenges, systematization, pay-for-performance models, leadership, growth tactics, discipline, and the unique hurdles faced by young entrepreneurs. The conversation offers valuable lessons for home service entrepreneurs aiming to scale their businesses sustainably.

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Introduction and Background

The episode commences with Mike Andes reflecting on career planning and long-term commitment:

Mike Andes [00:00]: "Think of your career in 10 year swings... if you actually committed yourself for 10 years... you would have learned so much more and gone so much deeper in that industry."

Tommy Mello introduces Mike, highlighting his success with Augusta Lawn Care and Anytime Fitness, alongside his own podcast, the Home Service Millionaire Podcast. Mike shares his entrepreneurial journey, starting Augusta Lawn Care at 18 after leaving medical school and franchising the business within five years.

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Franchising in Home Services

Mike provides a candid perspective on franchising:

Mike Andes [03:34]: "If you're doing it just for the money, usually it's actually not the best and fastest route to money."

He emphasizes that franchising requires more than financial motivation—system robustness and extensive training are crucial. Mike warns that out of over 400 new franchises started annually in the U.S., fewer than six achieve 100 locations, highlighting the industry's high failure rate.

Tommy concurs, noting the complexity of franchising:

Tommy Mello [05:54]: "You're no longer in the landscaping business. You're in the turnkey business."

Mike discusses his strategy to make franchises "dummy proof" by standardizing successful practices from the top 20% franchisees to ensure consistent performance across all locations. This approach aims to alleviate the challenges of training and maintaining quality control in a rapidly expanding system.

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Building Systems and Process

A turning point in Mike’s career was a personal accident that exposed the vulnerabilities of a personality-dependent business:

Mike Andes [13:53]: "I realized that the business was personality dependent and not system centric."

While recovering in the hospital, Mike recognized the necessity of implementing robust systems. This realization led him to create a landscape business course and produce instructional videos, focusing on systematization to ensure the business could operate independently of his presence.

Tommy shares his experiences with systematization, illustrating how standardized procedures enhance efficiency and scalability:

Tommy Mello [17:40]: "We service 20,000 homes a month because we built these processes... there's a process for everything."

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Pay for Performance (P4P)

The conversation shifts to compensation models, with Mike discussing the complexities of implementing Pay for Performance:

Mike Andes [29:04]: "There’s always a reason why you can’t do it. But is it just laziness?"

Tommy offers practical advice on introducing P4P, suggesting starting with a single key employee to pilot the system before broader implementation:

Tommy Mello [30:53]: "Start out with one guy, the most important person... Once he's making more money, but you know you're making more money..."

Mike emphasizes aligning compensation with business ownership principles, advocating for open-book management to foster a sense of ownership and accountability among employees.

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Discipline and Leadership

Tommy and Mike explore the importance of discipline in personal and professional growth. Tommy emphasizes that discipline surpasses motivation in sustaining long-term success:

Tommy Mello [39:31]: "Discipline is discipline with consistency... how do you apply discipline in your life?"

Mike relates discipline to delayed gratification, stressing the need to prioritize long-term goals over immediate pleasures:

Mike Andes [40:12]: "It’s like, what do you value more, the temporary pleasure or your goals?"

They discuss strategies to cultivate discipline, such as setting specific, measurable, attainable, realistic, and time-bound (SMART) goals and creating systems that support disciplined behavior.

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Growth and Profitability

Balancing growth with profitability is highlighted as a critical challenge. Mike advocates for maintaining healthy profit margins even during expansion:

Mike Andes [51:40]: "I'd rather have a 49% margin business than running a 10% margin business, but being five times larger."

Tommy advises entrepreneurs to establish a minimum profit margin during growth phases to ensure business sustainability and enhance enterprise value:

Tommy Mello [52:00]: "If you're into growth, don't ever fall below 10% profit. Don't ever fall if you fall below 10%."

They discuss the importance of strategic pricing, efficient operations, and avoiding the pitfalls of perpetual growth without adequate profitability.

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Challenges as a Young Entrepreneur

Mike shares his experiences navigating the biases associated with youth in entrepreneurship:

Mike Andes [53:53]: "If you're really young, sometimes it's easy to default to the age thing."

He underscores the significance of surrounding oneself with supportive influences and the necessity of sometimes breaking away from limiting social circles to achieve entrepreneurial goals.

Tommy adds that humility and a continuous learning mindset are vital for overcoming these challenges:

Tommy Mello [55:16]: "I have a lot of consultants... I need mentoring all the time."

Mike praises Tommy’s dedication to personal growth and mentorship, reinforcing the value of learning from others regardless of one’s own success.

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Book Recommendations and Final Insights

Mike recommends "Made in America" by Sam Walton for its practical business ethos and strategic thinking:

Mike Andes [56:41]: "Like, he’d fly in his plane around and just look for traffic patterns of where to put a Walmart."

Tommy and Mike conclude by emphasizing the continuous pursuit of knowledge, mentorship, and the application of disciplined strategies to build and sustain a successful business.

Mike commends Tommy’s personal and professional growth over the years:

Mike Andes [57:37]: "The man I met three years ago... is different than I see today."

Tommy emphasizes the importance of maintaining a learner’s mindset and the benefits of surrounding oneself with knowledgeable mentors.

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Conclusion

This episode of The Home Service Expert Podcast offers a comprehensive exploration of what it takes to build a resilient and scalable home service business. Through Mike Andes’s experiences and insights, listeners gain valuable knowledge on franchising wisely, implementing robust systems, fostering disciplined leadership, balancing growth with profitability, and overcoming the unique challenges of young entrepreneurship. The conversation underscores the importance of strategic planning, continuous learning, and disciplined execution in achieving long-term business success.

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Notable Quotes:

• Mike Andes [00:00]: "Think of your career in 10 year swings... you would have learned so much more and gone so much deeper in that industry."
• Mike Andes [03:34]: "If you're doing it just for the money, usually it's actually not the best and fastest route to money."
• Mike Andes [13:53]: "I realized that the business was personality dependent and not system centric."
• Mike Andes [29:04]: "There’s always a reason why you can’t do it. But is it just laziness?"
• Tommy Mello [39:31]: "Discipline is discipline with consistency... how do you apply discipline in your life?"
• Mike Andes [40:12]: "It’s like, what do you value more, the temporary pleasure or your goals?"
• Mike Andes [51:40]: "I'd rather have a 49% margin business than running a 10% margin business, but being five times larger."
• Mike Andes [53:53]: "If you're really young, sometimes it's easy to default to the age thing."
• Mike Andes [56:41]: "Like, he’d fly in his plane around and just look for traffic patterns of where to put a Walmart."

These quotes encapsulate the core themes discussed, offering listeners memorable insights to reflect upon and implement in their own businesses.

Transcript

[Mike Andes]

Think of your career in 10 year swings. And if you think of that way and you're in your 20s, you have five, six solid swings left in you. And if you actually committed yourself for 10 years and let's just say it didn't work out, I happen to believe you would have learned so much more and gone so much deeper in that industry. Your second swing would be that much more precise.

[Tommy Mello]

Welcome to the Home Service Expert, where each week Tommy chats with world class entrepreneurs and experts in various fields like marketing, sales, hiring and leadership to find out what's really behind their success in business. Now your host, the home service millionaire, Tommy Mello. Before we get started, I wanted to share two important things with you. First, I want you to implement what you learned today. To do that, you'll have to take a lot of notes. But I also want you to fully concentrate on the interview. So I asked the team to take notes for you. Just text notes N O t e s to 888-526-1299. That's 888526. And you'll receive a link to download the notes from today's episode. Also, if you haven't got your copy of my newest book, elevate, please go check it out. I'll share with you how I attracted and developed a winning team that helped me build a $200 million company in 22 states. Just go to elevateandwin.com podcast to get your copy. Now let's go back into the interview. All right. Welcome back to the Home Service Expert. I got a special one for you guys today. Mike Andes is here. I've known Mike for a long time now. Spoke at your event, I don't know, six years ago.

[Mike Andes]

Yeah.

[Tommy Mello]

Has it been that long?

[Mike Andes]

I think it's been three or four.

[Tommy Mello]

Three or four time flies. The funny thing is, is Mike's a, a badass when it comes to landscaping. And I, I had a landscaping company in Michigan and Arizona and I love landscaping because there's a lot of money to be made in landscaping. It, it, it's kind of hard if you're just mowing lawns with a 22 inch Honda. But once you really master it, it's something that a lot of people could get into and you had a lot of successful people at the event. But you, you're a busy man. You've got your own CRM, you've got Augusta Lawn Care, you've got Anytime Fitness. And you're the host of your own podcast called the Home Service Millionaire Podcast. Very Similar to mine.

[Mike Andes]

Yeah.

[Tommy Mello]

But mine's a home service expert. Yeah.

[Mike Andes]

I still remember way back in the day, listening to your podcast when I was just my first location, before we franchise, did the software, anything like that. And I remember very specifically one time, I think I might have shared this when you went on my podcast. And that was I was at a camp, and the only thing I wanted to do, though, was go, like, listen to your podcast. I just found it, and so I was just binging on it. And so I appreciate everything you've done for younger guys like myself in the industry.

[Tommy Mello]

How old are you these days?

[Mike Andes]

29.

[Tommy Mello]

29?

[Mike Andes]

Yeah.

[Tommy Mello]

Well, that's awesome, because to get started and be as passionate as you were. When did you get into the business?

[Mike Andes]

So I was 11 years old when I first started pushing a lawnmower.

[Tommy Mello]

Around 11 when you started pushing it. And then you started Augusta in 2014, is that right? Yep.

[Mike Andes]

So I was 18 when I started. I dropped out of medical school because I went to college when I was 13. That's when I started. So I dropped out of Medical School, 18, and started Augusta Long Hair then. And five years later is when we franchised.

[Tommy Mello]

Okay, so you've been in the franchise industry about five or six years.

[Mike Andes]

Going on our sixth year now.

[Tommy Mello]

There's a lot of people that want to do franchises. Everybody and their brother's like, I think I should franchise. I'm like, why? Yeah, like, you better be the best of the best in, like, five markets. Take market share. What would you tell somebody, knowing what you know now?

[Mike Andes]

Yeah, like, I would say, if you're doing it just for the money, usually it's actually not the best and fastest route to money. Usually if you have a good model and you don't have a huge amount of startup capital that is required to start in the service industry, it's actually just faster to cash. In terms of just corporate expansion, you have more control. You don't have to worry about the aspect of training new franchisees and that whole aspect of liability and insurance and the legalities of it. Also, for anyone that's, like, tempted by it, I would also caution, like, look at the stats of the number of franchises that actually succeed. There was over 400 that were started last year in the United States. And let statistically speaking, less than 6 of them will get to 100 locations. And the vast majority of franchises will not be profitable until they pass 100 locations. And anyone that says otherwise usually is stripping a lot of profits in terms of royalties away from the franchisees and not Supporting them at the level that's required for them to be successful. So it's just one of those industries. Very difficult. The reason I got into it is because I wanted to get as much expansion and just the. Our goal was to change the level of professionals in the industry. And as you know, we talk behind a microphone or make videos, people just don't listen, even if it makes perfect sense and we have all the data. And so I only found that when I competed with them, they would listen. So when we talk about pay for performance and P4P or we talk about estimate videos, we talk about knowing numbers, et cetera, it was like, hey, that's a nice influencer or consultant or someone who puts on an event. But once we start competing with people, we can actually see who's joining the software. We can see the impact that we answer our phone 24 7. And so like that puts pressure on them to do the same thing. And to your point, like with landscaping in general, we have a bad rap. You know, we are the guys who show up if maybe we show up, and if we do, it's in cutoff short shirt and, you know, beat up truck. Can we change that level of professionalism? And I think the only way to do that is change the expectation of the customer. And the only way to change the level of, you know, what the customer's expecting is much faster expansion. That's why we went franchising model. But I would just say for most people, like, it took me three years to make as much revenue in the franchise system for me personally than took me three years to get just my revenue from my first location was making. And so if you're in a sprint to make more money, franchising is many times it's a completely different business than usually what you're actually doing the service 100%.

[Tommy Mello]

You're no longer in the landscaping business. You're in the turnkey business. And by the way, what I've noticed and I've spoken to probably 20 different keynotes for franchises. And when I talk to the franchisor, they're like those four companies there are bread and butter.

[Mike Andes]

Yeah.

[Tommy Mello]

The other 60 or whatever it is, they're barely getting by.

[Mike Andes]

Yeah.

[Tommy Mello]

Because they're not bought in. Blah, blah, blah, blah, blah. But here's the thing. It would be very hard to get into my franchise. I would not sell you a franchise. You know what McDonald's does? They make sure you're a millionaire.

[Mike Andes]

Yeah.

[Tommy Mello]

You got to go to their McDonald's school for a long time. Like, you can't just say, hey, I'm worth a billion, I want to buy a bunch of stories. They're like, no, you got to learn everything from A to Z. Which, what would you say about how, how many franchises do you have?

[Mike Andes]

Just under 160. 160, right? 100.

[Tommy Mello]

So you got 160. How many of those would be, would you consider just murdering it, like just out of the park like you would. They're emulating what you've, what you build.

[Mike Andes]

It's the classic 20. 80, right?

[Tommy Mello]

80. 20. Well, yeah, the Pareto, you have 20%.

[Mike Andes]

Of the owners that are probably making 80% of the profits. And so what we've really focused on the past year is how do we make it dummy proof? And I don't mean that in the way that people that use the systems are dummies, but rather how do we take all the variables of their success away? Because what you're doing is, you're like, what is the 20% doing? And then can we make that enforce it for everyone else? So whether that be okay? Answering your phone is important. Well, we're going to answer your phones for you, we're going to run your payroll for you, we're going to run pay for performance for you. And then matter of like most recently we've really been going after like we know from getting someone just from 0 to 500,000 is the biggest hurdle. If we do that, we have exactly zero people have ever quit the franchise. So getting them to that level is like the activation point that we have to focus on. And so the number one thing from 0 to 500,000 is like, sell, sell, baby, sell.

[Tommy Mello]

And but marketing requires that are they outbounding or they do or not get what, what do you do as far as marketing to get them to sell? Because you can't have a sale without marketing.

[Mike Andes]

Right? And so what we've done in the past is more or less, here's the guide for your Facebook ads, here's the guide for your Google Ads, here's the templates that you use, and we have it all there. But it's more like done for you. It's not as much done for you. What they want is we want to pay you and we want you to give us customers. And so really the thing we're focusing on the next couple years is how do we actually, can I actually tell you, like, hey, when you start, you're going to get 200 customers within the first 60 days and here's how much it's going to Cost. And then we have to, like, we take on the shoulder the burden of actually figuring out the customer acquisition cost, your cost per click and your cost per lead, because that's the part that most people come into this business and they don't know. And so even though we have the tutorials, I can track and see, still half of them don't put up their Google, their Google tracking code. Still half of them don't do their Facebook pixel, even though I show them how to do it. And so we're really trying. Franchising is a matter of, like, you're giving up some control for the constraints that hopefully is leading to success.

[Tommy Mello]

See, you know what is hard for me is you just said we're going to handle the payroll, we're going to do the call center now we're going to handle the marketing. It's like I'm going to. We're going to do the purchasing. You're going to buy my stuff, you're going to buy my best soil, my best fertilizer, you're going to buy from our vendors. At what point are you like, man, if I did this on my own, Number one, you got all these CC and R is like this covenants and restrictions, and you got all these things where there's like, someone does something wrong, runs over a dog or a cat, and like, you're getting your whole franchise gets screwed. You're the franchise, or gets busted.

[Mike Andes]

Yeah.

[Tommy Mello]

Is that really, like, going back? And I know what you mean by changing the client's perspective of what to expect from a really good landscaper, but I think what you're going to realize is, wait a minute, now I'm doing their hiring.

[Mike Andes]

Yeah.

[Tommy Mello]

Now I'm training them on a corporate level from the franchisor that we're flying them out to the franchise. And I think every year that goes by, you're going to be saying, well, now we're doing all the purchasing of the vehicles, and now we're actually offering financing through the SBA and doing. Handling that for them. And now we're actually doing, like, after all this is said and done, and it's still going to be the 8020 rule, by the way. It's just, it's the way it is. Is it worth it? And I'm not saying if it is or not. And I don't think you know that yet because I think it's going to take you a decade, and I think you're going to be successful no matter what you do, but I think you're always going to wonder, hindsight, man, was the juice worth the squeeze? But either way you're going to do very, very well.

[Mike Andes]

You know, I would 100% agree. Like the corporate expansion route is easier because I don't have to worry about all the other parties involved in the decision. So like when I make a decision for the franchise level, I'm not thinking about what's best for my locations because I own personally locations in the systems. I have to think about 160 other people and their opinions and get their buy in. Even though I might have all the data and know 100% this is the right way, the way I have to roll that out is completely different. And so I think it comes down to like, what is the goal of franchising? And if it's simply the money, I don't believe it's the right path. It's much more a matter of I don't believe I could have the level of like 150 locations, 160 locations now that we've done in five years if I was doing all my own capital. So the advantage of a franchisor's perspective is I can access the capital of other people and they actually pay to be in that system.

[Tommy Mello]

What percentage you take of their revenue?

[Mike Andes]

Just a flat, flat monthly fee.

[Tommy Mello]

So it's not a percentage of revenue?

[Mike Andes]

No, correct. So it really is incentivizing the scale up, you know, because it's a flat monthly fee of twelve hundred bucks. And so anything in addition to that is simply what they would we charge per minute at our command center for all those backend admin tasks. But those are all completely optional.

[Tommy Mello]

So the way I picture franchise, by the way, this podcast is not all about franchise. I think it's a good starter point. So I think about franchising and I go, okay, if I charge you 6% of revenue, that's fair.

[Mike Andes]

It's less than most, usually 6% and like a 2% marketing fund.

[Tommy Mello]

And then what I would charge them is a bunch of shared services. Like, you're going to pay me for my call center, but it's better than yours. You can have your own, but ours is better, right? You're going to pay me for the CRM, you're going to pay me for this, you're going to pay me for the vendors, you're going to pay me for this. And you know what I'd probably do too is you're going to use my real estate, I'm going to buy the real estate, you're going to put it like McDonald's does, but that's next level. That's expensive to do.

[Mike Andes]

Yeah.

[Tommy Mello]

But, yeah, I thought a lot about this, because people are like, would you do a franchise? I'm like, yes, I would. But I was too far down owning a one to want to do that. But if I did a franchise, I'll go, I need to own payroll, I need to own recruiting, I need to own merchant, serve every aspect. I just tap into the money.

[Mike Andes]

Yeah.

[Tommy Mello]

Because I could scale the people that do franchising. Well, like, I happen to know very well the new CEO of neighborly.

[Mike Andes]

Okay.

[Tommy Mello]

Seems Mike Davis.

[Mike Andes]

Yep.

[Tommy Mello]

And we were on the phone the other day, and he was asking me about a few tools we use. He used to be the CEO of Outpack. That's how I knew he had me always come speak at his events.

[Mike Andes]

Did he come in recently after the kkr?

[Tommy Mello]

Yeah, he just. He just onboarded, like, two or three months ago.

[Mike Andes]

Okay.

[Tommy Mello]

Okay.

[Mike Andes]

Cool.

[Tommy Mello]

Dude is sharp as attacked. And he's like, you realize, Tommy, out of all my franchises, we only control less than 1%. He goes, if we get to 2%, we're worth 24 billion. And he was explaining to me all these things, and I'm like, yeah. You know that the home service is well over a trillion dollar industry.

[Mike Andes]

Yeah.

[Tommy Mello]

Just H vac climbing. Electrical is 200 billion. That's crazy.

[Mike Andes]

Yeah.

[Tommy Mello]

When you include home improvement and home service, it's nutty.

[Mike Andes]

Yeah.

[Tommy Mello]

And that's what. And it's the golden years for us.

[Mike Andes]

Yeah.

[Tommy Mello]

So we talked a little bit about franchising. Landscaping is a tough industry. What do you think was the key? And landscaping is really open. If you're talking about just cutting lawns versus. I know guys that charge $90,000 for landscaping, they just. They deck it out. They do, like, they're arborist, they set up the trees, and they do the bushes and the rocks, and sometimes they even interact with the pool and whatnot. It's the curb appeal of the home. But what was that stepping point that you were like, this is more than just a career. This is actually gonna be a massive, massive company.

[Mike Andes]

Yeah. So it was at about three years in to starting Augusta Lawn Care. I was the classic working 80, 90 hours a week situation. Didn't have systems and procedures. I got underneath the dump truck and was turning on the PTO of an old dump truck. His manual line had broken from inside the cab. PTO is a power takeoff. Makes the thing spin, dumps the bed. My hoodie got caught in that. And so basically, I was in the hospital for two weeks recovering from that and realized my business had no systems. And fortunate enough, I didn't have a family, I didn't have kids, I didn't have dependents, but if I would have, I would have gone bankrupt. And so I realized that the business was personality dependent and not system centric. I was on the hospital bed with my phone facetiming my crew to walk through the next project. And so from that time, two weeks later, I started a landscape business course and just started making videos online about like, hey, here's what I'm doing. This is what worked and this is what didn't work. And so that's really why to me, even when it comes to franchising, yes, the money is not the fastest way when it comes to franchising, but being able to see these owners that don't have systems in their business, get the systems and then turn things around is like that's all I care about. And so, you know, to your point, there's landscapers that do $90,000 projects. But sometimes like I'm labeled as the guy who just, just tells you to do the simple services when reality it's just, I want you to be able to build a business that has systems and procedures and for the vast majority of people it's easy to create systems for simple and standard. Standard services instead of complex and custom services.

[Tommy Mello]

Yeah.

[Mike Andes]

And so I'm speaking more to the masses when I speak about like systematization and like build a business. Like Build to Sell is a great book I think about like Build to Leave.

[Tommy Mello]

John Warlow.

[Mike Andes]

Yeah, right. Build to leave that thing and let it run without you. And many times the systems built to do that is through simplification and standardization, 100%.

[Tommy Mello]

That's when I met Al Levy, the Seven Power contractor. You know, I'm building a house right now. I'm building two houses, one in Idaho, which is Sandpoint on Ponderay Lake, and then one just on the north side of Paradise Valley Mountain. I'm sorry, Camelback Mountain. And my brother in law came into town and he goes, listen, I think we need help. He goes, there's this company I heard about, they're called Advocates. The company is called Advocate and they're lawyers, but they also. I met this guy several months ago and he's like, there's a process in how you build a house. He goes, you're going to have every single price in advance. There's going to be a contractual agreement, we're going to get five bids for every sub. He goes, I'm going to save you millions and millions and millions of dollars. There's going to be a lot of money they have to pay. If they don't start on time. We're not going to get held up. We're going to use people with an ROC that have been around 20 years, with a proven track record that's going to make your house more valuable because they're sought after. And I'm watching this process come together, and I should have known this, but I thought building a house, man, you know, you just. One brick at a time. You start and you get the next. And I'm not a subcontractor by any means or a contractor that subs out. I wasn't going to be the guy. But when I watched the precision and the process, and he's like, you got to have a interior designer after you pick the architect, but before you pick the builder and the order of operations. I mean, I'm blown away.

[Mike Andes]

Yeah.

[Tommy Mello]

And I'm like, man, a lot of me feel stupid for not finding this guy sooner and walking like we're already halfway done with my, My, My process here in Idaho. And the guy's doing great. It's my buddy Mitch. But ultimately, I still did not have a price on the final project, which is an issue.

[Mike Andes]

Yeah.

[Tommy Mello]

And he promised me 800 a square foot. We think we're going to be at a thousand now. So there's got to be some type of. You know. You told me this.

[Mike Andes]

Yeah.

[Tommy Mello]

So we're redoing the contract. It's complicated. But that's a good example is it's a hard process, but once you've done thousands of them, it becomes easy.

[Mike Andes]

Yeah.

[Tommy Mello]

And grasshoppers. We service 20,000 homes a month because we built these processes. We've got manual standard operating procedures, checklists, a checklist on everything with a CRM that captures the proof with a data integrity team to make sure everything was right. Some clients say, I don't think. I don't think you replaced my mom's springs. I think it's the old springs. We got pictures of the before and after. We've had that happen a dozen times. We don't think you did the work. We were out of grandma's house. Oh, no. Here it is. Timestamped and everything. So there's a process for everything, including how do you do PTO are. You ought to have tattoos on your face. What happens if there's an issue with your payroll? So you had all the answers before. Now someone else has the answers when you're not there, they could run the playbook.

[Mike Andes]

Right?

[Tommy Mello]

Yeah, I love that. What other pivotal things did you learn? Just. Just that. That third year in business when you were in the hospital for two years or two months, two weeks.

[Mike Andes]

Yeah. Like, ultimately, you know, you talk a lot about the importance of the people. Without the one or two key people that I had at that time, the business would have gone under. And so realizing that I had to build a business that I could not be there for a week, two weeks, I could indefinitely not be there and it still run was really what was right for the business, but also right for the team. Because I think for someone that wants to be a good steward of whether they're religious or not, what God has given you or what you are responsible for, it is a matter of build the business in a way that if you did get hit by a bus or in my case, like, almost died, that the team doesn't have to worry about their job. Like, is that really being a good steward of what you have?

[Tommy Mello]

Well, you know, there's a lot of people that think it's Jim Collins Built to last, where certain CEOs, founders, owners, whatever you want to call them, they want the business to crumble without them there. They want to show that they're the most important person. I think most business owners want people to be like, without me, you guys can't function. And I think that's a weakness. Why do you think a lot of people are like that?

[Mike Andes]

We're looking for meaning and purpose. Right. And that's why we started our business many times. But if the only purpose for you going to work is to simply keep turn the lights on and punch in timestamps and make sure your crew shows up on time, the business will likely not scale. And so the reason we build systems and procedures is for it to A, run without you and B, to scale the thing. And so if you have the desire to either have the business not run your life and you're able to actually run your life inside of the business, or you're trying to scale the thing, it is in your best interest and the best interest of your team and of the business to be able to have these sort of sops and standards, and it becomes where once a business can run without you, then you can step away from it. And we get locked up in manager mode of like, okay, you do that and you do this and you do this and okay, you make sure the truck is done and we're constantly managing. But really, if you're gonna to Your point? Build a house, it's the architect that steps away from the house. Yeah, they're not managing, they're not managing. The laborers, they step away from the house to architect. And so if you're actually gonna build massive infrastructure and a massive skyscraper, you need architects, you don't need as many laborers as the people actually thinking about how do we build this structure? And that can only be done once the systems are in place. That allows the business to run without you.

[Tommy Mello]

How do you maintain that the systems are being followed to your point?

[Mike Andes]

Like technology is a huge leg up.

[Tommy Mello]

That's what technology was, the next thing. Yeah.

[Mike Andes]

And so I truly believe like the past, like if you look at the 2010s, a great home service business, many times the distinguishing factor is do you have a great looking website and do you answer your phone? If you did that, you are ahead of like 95%, 98% of home service business owners. And so I believe like in the 2020s, it'll be the determining factor will be technology and software. And I think in 2000-30s is where robotics and AI will actually impact our industry the most because so much of our work is manual. And I believe that the software and parts of AI on the admin side will be really important in the next five years as we head to 2030. But as we go into 2000 and 30s, like, it will be the robotics companies that will start to take over this very fragmented market.

[Tommy Mello]

Oh yeah.

[Mike Andes]

This is why like, you know, venture capital and private equity are just salivating at home services. Because it's so super fragmented.

[Tommy Mello]

Well, it's fragmented. And the fact is, during COVID we were deemed essential when hotels, nail salons, movie theaters, everything was closing down.

[Mike Andes]

Yeah.

[Tommy Mello]

And they looked at us and they said, maybe these guys have a business. And service titan just went public last week. I mean, literally looking at this, we're looking at like, wait a minute, they show up, they have key performance indicators, they have outcomes and key results, they have training. And if you look at my service titan, it, it goes like this every year. It's, it's never gone down, it's never had a bad year, never had a bad month. I mean, 31 days is better than 28, I figured out. And I look at working days versus weekends, even though we work seven days a week.

[Mike Andes]

Right.

[Tommy Mello]

Yeah, you're right. Technology is going to be a change. I was talking to my C suite today and I go, I'm kind of worried about AI. Not, not in a bad dark way, but I'm Like, I think it's going to be like, whoever wins and I got. There's a strong, strong possibility A1 will be. Continue to be the largest. Because people come to me because of what we've done online and our Facebook groups and the way we've spoken at events. They come to me when they've got something.

[Mike Andes]

Yeah.

[Tommy Mello]

And I'm the first one to research and implement.

[Mike Andes]

Yeah.

[Tommy Mello]

And I do think there's not going to be a whole lot of winners. There's going to be a couple winners and a whole hell of a lot of losers. And you better join the winners quickly. That way you can participate.

[Mike Andes]

And if you look in history, like technology, whether you're talking 200 years ago with like steam engines or just the.

[Tommy Mello]

Way war is fought.

[Mike Andes]

Yeah.

[Tommy Mello]

Bow and arrow and then cannons and then what? Yeah.

[Mike Andes]

And even more recently, when it comes to business, like you look at the. In 2005, 2006, 2007, the cab industry, no one had more than 1% of the market.

[Tommy Mello]

Yeah.

[Mike Andes]

Now 76% of the U.S. market is by two companies, Uber and Lyft.

[Tommy Mello]

Yeah.

[Mike Andes]

And so this is what technology does.

[Tommy Mello]

Well, what happens, a big disruptor, the.

[Mike Andes]

Iphone came into 2027, 2007, and in 2014, these companies started just grow and scale and grow and capital came in with it when. Once the technology was ready for it. And so that's what I think will happen in home services because, like in landscaping, for example, there's 600,000 landscapers in the United States. And so the biggest company is public. It's Brightview. They do primarily commercial, almost 100% commercial, and they control less than 2% of the market. And so I truly believe, like, consolidation will happen once technology and capital meet. And so, like, even when it comes to the franchising, like, I'm not really in it for the software side or the franchising side. It's like, I think it'll take the capital and it will take the distribution with software to be able to actually take the market share. And it's exactly the same thing you're doing.

[Tommy Mello]

Well, yeah, that's what's so nice is like when you win at the capital game and you've got access, it's so easy. Like right now, our database is probably one of the largest in home service. Not to mention, like, I'm already looking at electric vehicles. There's so many opportunities, but I'm jumping on all of them right away. With AI man, there's so much the call centers and the way we dispatch and, and like the marketing, like the power BI thing we built, it cost millions of dollars, but it's. We've got more data to make decisions. We're now we're applying the same things towards recruiting, and it's like we're playing a different game.

[Mike Andes]

Yeah.

[Tommy Mello]

More people are, like, worrying, like, how they're going to buy their parts better. I'm like, how are we going to do regression testing of all the data?

[Mike Andes]

Right.

[Tommy Mello]

That's why I'm like, listen, I. I don't really worry about private equity because private equity sucks at blue collar industries because they don't know how to treat people right. And I think they need us more than we need them because there's a lot of PE out there. There's a lot of money, but there's not a whole lot of people that know how to treat people that didn't have a mom. You know, like some of our. My co workers, you know, some of them didn't have the greatest upbringing. And I don't think white collar people are going to get into home service anytime soon. Like to go do the work.

[Mike Andes]

Yeah. No.

[Tommy Mello]

And that's why, you know, a lot of my guys make six figures.

[Mike Andes]

Yeah.

[Tommy Mello]

And I think that's okay because no one else wants the jobs. Before, they were a dime a dozen. Now very few people are getting into the industry, so now you got to pay them more because there's not a lot of them out there. I mean, don't get me wrong, I was a landscaper. I know it's hard to make pay some landscapers six figures, but why put a cap on what they could make if they could outproduce anybody? You know, the paper performance side of it is don't limit it.

[Mike Andes]

Yeah, 100%.

[Tommy Mello]

Hey, I hope you're enjoying today's podcast. Quick update. Last week we put out a surprise bonus for Freedom 2025, the $10 million exit case study. Some of you grabbed it. And now you have the full breakdown of how a home service business can be sold for millions and millions of dollars in cash. Just think about how that can change your family's future. If you miss the bonus, it's gone forever, unfortunately. But you can still get our $5,000 bonus bundle when you lock in your Freedom 2025 tickets. Now, here's what's inside. Freedom 2023 sessions. Proven strategies from guys like Dan Antonelli from Kick Charge, who will show you how to charge more and keep your customers happy so you're not stuck competing on price. My marketing playbook. The exact strategies that I use to scale my $240 million company and keep my phones ringing off the hook. My ebook plus audiobook of elevate. My book on becoming the greatest leader, hiring eight players and building a business that runs without you. And here's the big one. Surprise time sensitive bonuses that will be rolling out leading up to the event. When you sign up now, you lock in every single bonus we release from here on out. By the time you show up to Freedom 2025, you'll already have the tools to keep your phones ringing and dominate your market. Go to freedom event.com and grab your tickets. Now that's freedom event dot com. Now let's get back to today's episode. What did you find out when you started paper performance? What were your takeaways?

[Mike Andes]

So yeah, paper performance was basically a matter of when I first started, I did it as a necessity. We were basically break even at best, you know, seven figure company, but nonetheless break even at best. And it came as a result of one of my employees coming asking for a raise because of course I did not have a system around how do you actually give raises to somebody? It was just simply a matter of like when I needed more people to stick around, I'd probably give out raises to keep people around. He asked for a raise, he probably deserved it. He was making less than other people inside the business. And I just walked away from that conversation. No, I did not have the money, could not give him the raise and said, we're doing this because it's something that I think everyone wants to do. It makes total sense logically. But then you have 10 different reasons why it won't work for you. Everyone has that. And so in landscape it's like, well, if you go too fast, if they go too fast and they even start making mistakes, then now you're incentivizing them to start making mistakes and say, okay, well then let's fix that. That's a yellow slip system. If they make the mistake, they have to go back and fix it. Also, it can come out of their bonus if they do damage cases. If they lose, the customer can also come out of their bonus. Okay, well what happens if there's they got to sharpen the blades or they got to change the oil? Okay, well then we're going to have non billable time. Okay, let's bake that in. Okay, what happens if there's one person's really, really skilled on the crew and the other people are less skilled? How are we going to handle that? So there's all these little variable that people have as to why they can't switch to P4P. And many times that's what keeps them from going that direction. And they just switch back to hourly because it's honestly lazy.

[Tommy Mello]

Well, there's another problem. I will say this. With data like when you're doing pay for performance, if you screw up the data at all, then they don't trust you and they're gonna quit. Cause they're gonna think you're disingenuous. I think people have a hard time tracking, right.

[Mike Andes]

But I would go back to. I still think it's lazy because the reason you don't have the data is not because there's software not to do it, not because you're incapable of doing it. It's cause you don't wanna do the work to go get the data or build the systems to collect the data, or you don't wanna spend the extra two minutes a day to track the data or create a report. And so yes, it is easy to say how long did you clock in for today? Multiply that by an hour late and give someone a paycheck. And because of that we keep doing it the lazy way. And then we wonder why we don't get any better results from our team. And if they're not compensated like an owner pay for performance and they don't have the information of an owner, that is open book management. How in the world do we expect them to work like an owner?

[Tommy Mello]

Yep.

[Mike Andes]

Cause that's what they lack is information and compensation. And so that's the part I get fired up about. Cause like for example, we have the P4P software to track this sort of thing to help them save the time and track this stuff. And so I can see that less than 15% of people that sign up will actually implement it. And you give them all the tools and everything. But there's always that one thing. Well, we do some jobs by the hour and so we can't really do pay for performance. Or we do some jobs where it's like by the square foot. Or we can't necessarily adopt pay for performance because these multiple. Or we do commercial, 20, 30% of our work is commercial. We can't really mix that in. So there's always a reason why you can't do it. But is it just laziness? Cause that's why I find many times instead of just creating a system, I.

[Tommy Mello]

Think it has a lot to do with incompetence. Like I don't think people have the brain they don't even know how to use an Excel sheet. I mean, no offense. They just weren't schooled to do this stuff. Like, literally, if I look at a pivot table, I'm not the guy to go create this complex pivot table. I'm not gonna go redevelop and code something.

[Mike Andes]

But I would argue that you'd probably be the type person to go on YouTube and figure out if you knew your business depended on it.

[Tommy Mello]

I would. But look, at the end of the day, I can't say that about everybody. I mean, I'm the biggest fan of paper performance, but I made a lot of mistakes. Here's the deal.

[Mike Andes]

Yeah.

[Tommy Mello]

I've made really, really big mistakes. So here's what I've learned. When you do pay for performance, start out with one guy, the most important person. That'll get the rest of the people to follow and say, this is not permanent. We're going to test this stuff. I went over the last three months of your work, and I got an idea. We're going to try out, and I'm going to pay whichever one's more each week.

[Mike Andes]

Yep. 100%.

[Tommy Mello]

And then once he's making more money, but you know you're making more money and you knew, you. You know this. It's. It's got tried and true. We tried it for 90 days. Everything's working out great. You have him deliver it to the team, and they're going to figure out a way to break it. And that's okay. I. I used to call two guys in my company every time I wanted to break the way we pay, and they figure out a way to break it. Like, I pay them to figure out how to break it.

[Mike Andes]

Yeah.

[Tommy Mello]

And now I watch pay for performance, and they're like, what if a guy makes more than you? I'm like, there's a lot of people that make more than my salary.

[Mike Andes]

Yeah.

[Tommy Mello]

Like, they make more than me.

[Mike Andes]

Yeah.

[Tommy Mello]

And in sales, you're allowed to.

[Mike Andes]

Yeah.

[Tommy Mello]

But I get the enterprise value of the company.

[Mike Andes]

Yeah.

[Tommy Mello]

And by the way, I don't care what. I've never logged into payroll to see how much I make. In fact, I've never looked at my W2 or 9 or whatever. I don't know how to look at how much I make. I just trust that it's coming through. Payroll.

[Mike Andes]

Yeah.

[Tommy Mello]

I don't make any draws anymore either.

[Mike Andes]

Yeah.

[Tommy Mello]

I literally am building the enterprise value of this company. That's what I think a lot of business owners screw up is they live off the business. They Take these draws, they join these clubs, they got the cars, they got their wife and their kids on payroll, and then they go to sell them. Like, why is my business worth anything? Yeah, well, you should have built the sell like John Warlow says.

[Mike Andes]

Yeah.

[Tommy Mello]

So what would you say about that? Instead of divesting out of the business and picking up that nice house and having the nice vacation house and having two Mercedes and having a Harley and going to Sturges and everything else. What if you just said, I'm gonna build this business as fast as possible for five years, sell 70% of it, roll the 30, work there for another three or four years, I'm gonna walk away with millions and millions and millions and millions and millions of dollars. And then I learned so much during the process, I could go start five of these businesses because now I got money to work with. Everybody that I know says, oh, no, I'm gonna do this for at least 10 more years. I'm like, okay, so you're gonna miss your kids growing up.

[Mike Andes]

Cool. Yeah. Yeah.

[Tommy Mello]

What do you think?

[Mike Andes]

It's the instant gratification part. As soon as the first level of that success happens is usually when people take chips off the table. And so people aren't willing to hold their breath for the five or 10 years. And so I really encourage, like, think of your career in 10 year swings. And if you think of that way and you're in your 20s, you have five, six solid swings left in you.

[Tommy Mello]

Yep.

[Mike Andes]

And if you actually committed yourself for 10 years and let's just say it didn't work out, I happen to believe you would have learned so much more and gone so much deeper in that industry, your second swing would be that much more precise. And if you think of it that way, in years two, three and four, when you have no evidence of success and things aren't working out and you aren't making money, you'll stick with it. And then when you're in years six, seven and eight, when you start to see success and have money, you'll stack it aside. Because every time I see the Mercedes or the boat or whatever that someone's purchased, I know that 30 to 40% of every dollar they made before they made that purchase went to the government.

[Tommy Mello]

Yup.

[Mike Andes]

And if that money would have just been kept in the business and build the enterprise value, what would have been a dollar extracted? 30 cents gone to the government and then they keep 70. 70 cents is now a dollar invested in the business. That becomes $5 in 10 years or five years.

[Tommy Mello]

Yeah, I will Say people overestimate what they can do in one year, underestimate what they can do in five. And I will be. I just want to say a little caveat here is most people say I reinvested in the company. The fact is they're not profitable.

[Mike Andes]

Right.

[Tommy Mello]

They invest in the wrong things. They're on cash accounting. You should be on accrual accounting when you're sophisticated. Otherwise you can't even get a loan. You can't get an SBA loan, you can't get a loan to grow. You can't get a loan on your building to buy a building. You can't like if the financial side is what most entrepreneurs are missing if they knew the facts with an FPA financial planning and analysis. I got three full time people that do that and I think it's so important to understand the numbers. And I'll tell you this, compared to my cfo, I'm useless when it comes to financials. Like he'll understand below the line. Above the line. Capex. All this random stuff that just beyond me he's with. He goes every six months for three days with a hundred other CFOs. Once a week he hangs out and learns the newest what's going on with the gap accounting and everything. Like there's no way I can keep up. He's way smarter than me. And I, I like this. Imagine if you walked into a room and you had a big business and you said I'm smarter at every one of the people that work for me in every single aspect. You. That means you fail as a leader.

[Mike Andes]

Yeah.

[Tommy Mello]

What have you found when you hire people that are better than you with certain things?

[Mike Andes]

Yeah. Well, so most recently with the software, I made massive errors in trying to scale a software company without a huge amount of experience. And I did that with a team that had never done it before. And so I kind of think of it as like if someone is a cultural fit, that's like 101. That's like hiring 101. That is culture 101. Business 101 is cultural fit. Then if they have experience 201. But the 301 level of hiring in my opinion is been there, done that. And then what I always say is like expect to pay accordingly.

[Tommy Mello]

Yep.

[Mike Andes]

Right. And that was the mistake I've made always in the past. Instead of I have always taken someone at the 101 level and tried to invest and pour into them and go. And that can take five, six years and it's painful. Or you just pony up and you Pay what they're worth and you go to the 201 level, or better yet, you go to the 301 level. And so that was the painful thing I had to learn this year was instead of trying to cobble this thing together, make it profitable immediately, I need to go get someone who's taken done an IPO as a CTO and bring that person into the company. And that's not going to be cheap.

[Tommy Mello]

No.

[Mike Andes]

You know, I remember signing like for on their wage agreement and like I made less than this this year. Like my take home pay was less than what I'm offering this person.

[Tommy Mello]

Oh yeah.

[Mike Andes]

And they're giving equity away, etc. And so like the idea. Like when you look at Elon for example, he owns 20% of Tesla. And you look at Bezos, he owns 9% of Amazon.

[Tommy Mello]

Yeah. 8.6. And then even Mark Zuckerberg owns like 13% of Facebook. Yeah.

[Mike Andes]

Jensen Yang of Nvidia owns 4%, I think it is, of Nvidia. And so it's like, do we think so small that we don't get the big person that's done it before? We don't give away stock options, we don't give away equity. We don't give these other people the opportunity because if you don't give them that opportunity, that 301 level, you will lose them. And that was the thing I had to learn. I made so many mistakes around this time and time again.

[Tommy Mello]

Equity, it's called an EIP Equity Incentive program. It could be called phantom shares, it could be called profit units. There's lotto names, could be called stock options if you go public. But every smart company on the planet knows this. But in home service and home improvement, in the blue collar industries, we're like, no, it's all mine and we'd rather have the whole pie, but it's tiny. I'd rather take a small sliver.

[Mike Andes]

Yeah.

[Tommy Mello]

And give these slivers away and give away 30, 40% of the business. In fact, once you sell and take chips off the table, There's a company in town called Parker and sons. He does 300 million a year. He's on his fifth turn. I mean, it's crazy to me. And once you learn how to buy and sell businesses, it's like everything I invest in, I have a rule. Three to five years max. Typically I want to do three years and it's all in the contract. But we'll get them the resources they need to scale quickly. And some people are like, why are we waiting three Years, like a year and a half through, they're like, we're worth $80 million. And I'm like, no, no, no, you're going to be worth 200 million. We are just starting to rock and roll. We're not even in that 12 months period yet. When we turn it on, this is when it's like when you plan to go into that 12 months and you're like, you know, what levers to pull and what knobs to turn. It's so much fun. If people only understood how fun it is to sell businesses. I mean, the first time, you'll lose some hair, you won't sleep, you'll probably be stuck on alcohol. But. But once you get through the first one, it gets to be fun on the next one.

[Mike Andes]

Speaking of alcohol, are you. You've been off for a while, right?

[Tommy Mello]

Yeah. So I. I will do like once a month, but not a lot. Like, I'm really, really focused right now on fitness.

[Mike Andes]

Right.

[Tommy Mello]

And like, I'm gonna go to the next. Next, Next. Next. Next level. Breathing techniques. I was with Jako Willick and Mark Divine.

[Mike Andes]

Okay, okay.

[Tommy Mello]

The seal.

[Mike Andes]

Yep.

[Tommy Mello]

And just discipline, consistency. This idea of creating a new me in 2025. Breathing techniques, believe it or not, yoga. I'm not a yoga guy.

[Mike Andes]

Really.

[Tommy Mello]

I want to be able to, like.

[Mike Andes]

Put more flexible, flex. Yeah.

[Tommy Mello]

And just eating, like, I want to see just. This is crazy, but I want to see just how disciplined I could be.

[Mike Andes]

Yeah. Well, it's like Jocko says, discipline equals freedom.

[Tommy Mello]

Discipline is the most important thing in someone's life. I think discipline is more important than motivation. Discipline is discipline with consistency, because discipline for four days and screwing off three days, you're not going to get any results.

[Mike Andes]

Right.

[Tommy Mello]

It's hard, man. How do you apply discipline in your life?

[Mike Andes]

I think it's one of those things, like the opposite of gratification today is simply putting it off for an expected future that you would rather have than what would otherwise feel pleasurable. And so whether that, to your point, drinking, it is nice to have that, or the Cheetos or the pizza or ever vice you might have, but is the ability to basically offset that temporary pleasure for the goals you have. And so it's like, what do you value more, the temporary pleasure or your goals? And every time you are making a vote, you're making a decision on do I want the temporary pleasure or do I want to have the goals that I've set out to say I've put on my wall, I put in my journal. I've Put it in my New Year's resume vision board.

[Tommy Mello]

Yeah.

[Mike Andes]

It's like, really, how? Like the deciding factor of how much that actually is worth to you is whether or not you're willing to discipline yourself and set aside the temporary pleasure. And I think most people have great ambitions of what they want to accomplish, but then their actions don't actually line up with it. It's like if you're not willing to actually work an all nighter, if you're not willing to work a weekend, do you really, really want this? Like, I wanna be a millionaire. Okay, great. Do you realize that a small fraction of people are going to do that and that means that the 98% of people that won't get there, you'll have to do what they weren't willing to do?

[Tommy Mello]

Yeah.

[Mike Andes]

And it's just like, how, how much do you love your goals?

[Tommy Mello]

Well, a lot of people to me say the only thing that matters in my life is my family. And I'm like, show me your calendar and your credit card statements because I don't see family on there on any of them.

[Mike Andes]

Yeah.

[Tommy Mello]

So you keep telling yourself, my family is the most important thing. But you don't show up to your kids games. And when you do show up, you're on your phone the whole time. You don't take your wife on dates anymore, bring her flowers or tell her how much you love her on a daily basis. So you say these things, but you lie to yourself. I mean, you lie to yourself. Your brain can't even trust who you are. You see, you get up at 6am you haven't got up at 6am all year. Except for once.

[Mike Andes]

Yeah.

[Tommy Mello]

Because I will say sometimes nighttime Tommy wants more than morning time. I think we all have that little nemesis and I call it delayed gratification.

[Mike Andes]

Yeah.

[Tommy Mello]

And I think that it's important to, to really. But you got to stay away from your Achilles heels too. Like, if you know, you drink, don't go to the bar with the people you drink used to drink with all the time.

[Mike Andes]

Yeah.

[Tommy Mello]

If you know that you got a problem with social media, figure out a way to stay away from that block. Like, I have a hard time staying in the cold plunge for four minutes.

[Mike Andes]

Yeah.

[Tommy Mello]

So I always invite somebody over to do it with me and I'm like, dude, four minutes. Yeah. I've never got out early when there's someone there to like witness me.

[Mike Andes]

Yeah.

[Tommy Mello]

You know, like we're going to do this together and that they're like, go to get out. I'm like, no, you're not, you little punk. You better go the whole time. And like, we. So you set your. This is the best cheat code I have is set yourself up for the. The things you know are tough for you. And if you set yourself up for that, which few people do, like when you got a plan in a system and you want to be better, like, it's a reward system, Small goals, specific, you know, measurable, attainable, realistic, and time bound. I think some people, they just set these goals, like, I'm gonna work out two hours a day. And I'm like, but you don't even work out 10 minutes.

[Mike Andes]

Yeah. Yeah.

[Tommy Mello]

Why? How does somebody get started? With discipline.

[Mike Andes]

Yeah. Like, one of the things that has served me really well when it comes to goals in the past couple years has been, especially for business owners, the type of person listening to this podcast. I like to simplify it because a lot of times, like, well, I wanna spend more time with my family or I wanna be able to do X, Y and Z, like, these are my goals. Then I always tie it back to, like, how is that gonna be accomplished? And then that's usually when people start following.

[Tommy Mello]

So reverse engineering.

[Mike Andes]

It always comes back to one thing for us as business owners, and that is we need to make more money. Because, see, if you actually cared about your family and you wanted to spend more time and get to their games, you would make enough money in the business so you could hire a general manager and you weren't having to work and be on call 24 7. If you actually cared about spending time and having date night for like less than $25,000 a year, you can have someone clean your house, do your laundry, and get all your groceries for you. And so if you spent that time instead of doing those things with your spouse, that would actually align with, I want to spend more time with my spouse and have date night. And so it all comes back to if you really want to simplify it, make the business more money. Because if you did that, you'd be able to then use those economic resources to then buy your way into and buy back your time. To the point of that book.

[Tommy Mello]

You know, Diane Martell wrote Buy Back youk Time. And one of his best lessons that I've learned is when you buy back time, there's so many good things you could be doing to make you the best version. There's this thing called the law of the lid. And the business only grow and your relationships only grow as far as you take them. As your lid grows, the opportunities grow, the Potential of growth for the business, your relationships, your faith, the relationships you have in your family grow. And most people don't spend enough time on themselves. So when people come to work with me, I say work on yourself more than you do at the company. Like, what do you ever. You want to learn? I'll put you through classes. You want to go to a seminar, I'm paying for it. Listen to a podcast. I'll get you introduced to the podcast host, whatever it is. But you got to want it. I don't want to have to force it. One of those things that Jocko says, it's got to be intrinsic. You got an intrinsic discipline. Meaning you can't. Even though I have people help me, I still got to show up to the gym.

[Mike Andes]

Yeah.

[Tommy Mello]

I can't say my. My trainer drives me to the gym and makes me work out. Like, no one makes me do anything.

[Mike Andes]

Yeah.

[Tommy Mello]

If he had a gun to my head, he would be making me. But no one lives in that life in America.

[Mike Andes]

Right.

[Tommy Mello]

Your book, Total Business Turnaround documents the systems and the Playbooks that transformed your business. Thousands of home service businesses have used the 13 playbooks. Which one do you think is the most immediate impact for struggling businesses?

[Mike Andes]

It's the first chapter of the book. So basically, the turnaround show we do on YouTube, and then the problem with the YouTube channel is in order for me to go out, fly out and do a turnaround show, they have to get a bunch of cameras in their face. And no one wants that when you're in your lowest moment. So we just left the company here, did 1.2 million in revenue or is doing 1.2 million revenue. We've been in business for 40 years. They have 22 employees. They're charging 40 to $45 per hour. And so the fact of the matter is, it's extremely embarrassing to have cameras show up in your face and talk through the fact that you have a 3% margin business and you have $170,000 in receivables from projects.

[Tommy Mello]

3% of 1.2 is like 30 some odd million. 30 some thousand a year.

[Mike Andes]

Yep, exactly. That's on the bottom line. And they're not taking much out as owner distributions. And there's $170,000 in overdue invoices you haven't collected on. And so that's not fun to have me come out and have the world see what's going on in your business. And so what we did with the turnaround book is like, hey, here's the manual. If you don't want to be embarrassed. Cause it is embarrassing. And so the number one most important chapter in that book is the first one. And it's just about cash. Because ultimately if you run out of cash, the business will die.

[Tommy Mello]

Cash flow cash.

[Mike Andes]

And so there's simply two factors. You can have a very, very profitable business on your P and L and be completely broke on your balance sheet because you're not collecting the money fast enough. And you can also, you can have plenty of cash from a balance sheet perspective. But if you're losing fuel in a car, eventually you'll run out of fuel. And so if you're running an unprofitable business model, you will eventually run out of cash. So there's two factors of cash. It's like, how much do you have and how fast are you burning it or are you collecting more of it? And you're a profitable business. And so that's like the number one thing. Just cash is top of mind. Make more money is like such a. It's so simple. But it is ultimately the fix for so many aspects. Like, well, I'm just working like the gentleman I was with. Him and his wife are fantastic people. But working seven days a week, and every single day he wakes up at 4 o'clock with dinging of his phone, hoping that some people aren't going to not be showing up to work that day. The fixes make more money. Like $45 an hour. You're never gonna be able to scale this. You're never gonna afford a general manager or an operations manager to take those calls for you.

[Tommy Mello]

No, the deal is with them is they feel bad about it. But if you were to add up, this is a simple thing that someone taught me. The guy from Australia, he called it the break even analysis. And he sent me this stuff. This was 2017 and it had pagers and yellow pages. This is like from like the 90s. And he said, add up every bill you have. And when you add it all up, back then he used to have to charge $400 an hour.

[Mike Andes]

For what? Service.

[Tommy Mello]

This is for H Vac, plumbing, electrical.

[Mike Andes]

Got it. Okay.

[Tommy Mello]

Because literally you got to think for us to show up to a job sales just. Just to ring the doorbell. Yeah. Tom Howard did a great job of this. I've done a pretty good job of this. It costs about $270 to ring the doorbell.

[Mike Andes]

Yep.

[Tommy Mello]

Because you got overhead.

[Mike Andes]

Yeah.

[Tommy Mello]

You've got air conditioning, you got service time. You got your trucks, you got your fuel, you've got. We run about 15 softwares here, insurance run intact. We got insurance, we got workers comp. We've got recruiters, we've got trainers, we've got dispatchers, we've got warehouse guys. We've got like the overhead. There's a lot of money.

[Mike Andes]

Yeah.

[Tommy Mello]

And people think. Here's something that's funny. If. If you said a check unit cost $2,500 and you guys saw it for five and you said, I make $2,500 profit if you're working out of your house, your wife's working for free, and that you didn't have a truck, like someone gave you the truck and you had a free gas card and you had no insurance, you didn't have to pay any ein update, any, any licenses. It still wouldn't be that.

[Mike Andes]

Yeah.

[Tommy Mello]

I don't think people understand 45 an hour. If you're paying 20.

[Mike Andes]

Yeah, that's what it was.

[Tommy Mello]

You're really burning. If you look at your complete. There's costs that you don't even realize.

[Mike Andes]

Yeah. Like working 80 hour weeks.

[Tommy Mello]

How much do your blades cost a sharpen. How much of your equipment breaks down? Your gas, your oil, your truck use.

[Mike Andes]

Yeah.

[Tommy Mello]

Makes no sense.

[Mike Andes]

So many bad business models are hidden by an entrepreneur that's working 80 hours a week.

[Tommy Mello]

I, I worked at a couple of my buddies, I helped them start a Christmas light business after the first year. I said, guys, I'm looking at this. We gotta double prices.

[Mike Andes]

Yeah.

[Tommy Mello]

You're kidding. I go, no. They're like, we can't do that. Did I tell you the story?

[Mike Andes]

No.

[Tommy Mello]

We doubled the prices. Guess how many people canceled?

[Mike Andes]

Less than 10%.

[Tommy Mello]

It was 40%.

[Mike Andes]

Oh, really?

[Tommy Mello]

But hey, you double prices, you double you 120% collected. So if you were collecting a million dollars, now you're collecting 1.2 million.

[Mike Andes]

Yeah.

[Tommy Mello]

And you were only doing a little more than half the work.

[Mike Andes]

Yeah, yeah, yeah.

[Tommy Mello]

So I said, guys, this is amazing.

[Mike Andes]

Yeah.

[Tommy Mello]

I said, you got rid of the worst 40%.

[Mike Andes]

Yeah, yeah.

[Tommy Mello]

And most of the people I tell to raise their price, I don't tell them to double it. I say just add 20%. Doubling is pretty sharp. If you're paying $1,500 for lice, now you're paying 3,000. Clients are like, dude, but, but 60% said you guys did a great job. It's Christmas. Yeah, we'll do that.

[Mike Andes]

Yeah.

[Tommy Mello]

I thought you guys were giving a smoking deal anyway.

[Mike Andes]

Yeah.

[Tommy Mello]

And that's the deal. So what do you do with somebody? How do you fix their. You said they've been doing this 40 years, they're charging 40, $45 an hour. How do you. That's a mindset. They're broken.

[Mike Andes]

It's tough because I don't like to go in there like the Gordon Ramsey and yell at people.

[Tommy Mello]

Yeah.

[Mike Andes]

Although it's like, so how I approach it, honestly, Bar Rescue is. I. Yeah. Well, John Taffer's coming to our event here in a couple weeks. I'm looking forward to that.

[Tommy Mello]

He's the best.

[Mike Andes]

That's not my. My usual genre of dealing with it. But my thought is I get mad at the problem for them. Cause I know what it's like to be in that situation. And I remember the pain that I went through. And I hate to see someone in their 60s going through that pain because they have not dealt with the problems of the business. And they still are clouded with the mindset that I can't charge more and everyone else is more expensive. And like, wait, wait, wait. What's your close ratio? Almost 100% of my jobs get accepted. I said, I don't care about the cost of what you charge versus your competitor. Or if a customer says it's too expensive. If you're closing 100% of your jobs, you are too cheap. The market is yelling at you to raise your prices 70%.

[Tommy Mello]

Raise your prices. If you're closing anything more than 70, raise your prices 100%. And I had a buddy, I told this to. He's like, I've already tripled my prices. I like to keep going. Because guess what? You're booked out three months.

[Mike Andes]

Yeah, exactly.

[Tommy Mello]

There's no limit. Yeah. Like, I guess what he got to 49% net.

[Mike Andes]

Let's go.

[Tommy Mello]

But his service was that good.

[Mike Andes]

Yeah. I think the problem, too, with home services is when we hit that capacity, instead of booking out three months, we just go buy more trucks and equipment instead of raising our prices. And they extend it out further.

[Tommy Mello]

Yeah.

[Mike Andes]

And that's the fallacy of being stuck in growth mode for so long. And then people are like, well, it's an unprofitable industry. Well, yeah, you stay in. You got stuck in growth mode for 10 years. You just kept buying more trucks and equipment instead of raising your prices when you hit capacity. And I think I'd rather have a 49% margin business than running a 10% margin business, but being five times larger.

[Tommy Mello]

Well, the deal is, I tell people, if you're into growth, don't ever fall below 10% profit. Don't ever fall if you fall below 10%. And by the way, I've been at 10%, I've been at 20%, I've been at 30%. I think there's a happy medium when you're trying to take market share. Yeah, it's kind of like I tell that, like I tell the best story is when you're trying to gain muscle, it's very hard to get cut. You know, Arnold will tell you, listen, during the off season I used to gain a lot of weight and right before three months out, I'd cut.

[Mike Andes]

Yeah.

[Tommy Mello]

And I think cutting means becoming extremely profitable. So planning on selling means I'm cutting 18 months in advance going into that 12 month spurt because that's what I get valued on as a multiple of EBITDA.

[Mike Andes]

Yeah, in software they have the 40% rule which is, yeah, you got to.

[Tommy Mello]

Grow good benchmark EBITDA and you got to grow growth.

[Mike Andes]

Yeah, it's like, look, you have 40%, but if you're grew by 20% then you should have a 20%, you know, profit margin. And if you grew nothing last year, you have a 40% profit margin. And so it's kind of like a healthy kind of, you know, rule of thumb.

[Tommy Mello]

I love that software is how sticky is it?

[Mike Andes]

Yeah.

[Tommy Mello]

What's their change cost? Service site is really hard to change. Yeah, I mean we've been using that since the last seven, eight years. It's going to be very hard to change. But I told them straight up because I talked to their investment committee, I said, have you guys doubled my prices? I seriously start looking at another opportunity because what's stopping you from doing it again?

[Mike Andes]

Right.

[Tommy Mello]

And the thing is, is that's why.

[Mike Andes]

They got valued at five, six billion dollars.

[Tommy Mello]

Well, yeah, I mean they look at, they got 12,000 companies on. Yeah, I, I'm going to see what the market does. I did pretty well with the stock already, but now that I think about it, it's going to continue to go up, it's going to have a little bubble, it's going to fall and then, I don't know, don't ask me about stock. Well, listen, let's go through a couple more here. What has been the largest challenge you faced as being a young entrepreneur in business?

[Mike Andes]

I think if you're really young, sometimes it's easy to default to the age thing. I think being young is, it's like, so when I went to college when I was 13 and everyone always asked like, was that weird, was that strange, et cetera, ultimately because like the way my parents raised me and the way we never mentioned it was never A thing we never talked about me being young. In hindsight, a kid going through puberty in, like, college and university seems really strange. And so I do think it's like, who do you surround yourself with and what are they telling you? Because if they tell you it's weird that you're young and that it's strange that you're hiring people that are older than you, then you will believe that. But, like, I was very privileged to have parents that, like, we never talked about it.

[Tommy Mello]

Yeah.

[Mike Andes]

It was like, I'm just going to school. I took the bus and I went to school. I couldn't drive, so I took the bus. And I think the same thing is true. If you're in a circle of friends or even in your family, you might have to break away from them. And like I've said, sometimes, sometimes your goals will outgrow your friends. And in the event that you're a young entrepreneur needing to hire and interact with people that are older than you, you might have to break away from your friend group and your age group. Yeah. In order to chase the goals you.

[Tommy Mello]

Have, I think you should break away. I told. So I just did my orientation the last three and a half hours. I told the whole group. I said, you know what people tell me is that they feel like I'm in a time machine because I'm able to pivot to different circles and I stay humble. I never look at an entrepreneur that's ahead of me and say, I'm going to beat you. Wait, just wait. Just wait till I get started. I'm like, look, teach me.

[Mike Andes]

Yeah.

[Tommy Mello]

Like, yes. I've had some successes in my life. I'm very fortunate. I've got great parents that love my family. I just respect you so much. I want to learn more. I've read y'all your books. I'll buy you lunch. I'll buy you dinner. I'll always pay it forward. Any stage I talk on, I'll tell them what you taught me. And I take notes, meticulous notes.

[Mike Andes]

Can I say something on that? Yeah. I really respected you a lot more. Although I've always had a lot of high regard for you. When I saw the Dan Martell vlog and the way that you interact with him and that of a student instead of that of a teacher.

[Tommy Mello]

Yeah.

[Mike Andes]

And to me, proved the fact that what you teach, you actually do yourself.

[Tommy Mello]

Yeah.

[Mike Andes]

And that is when you went into to learner mode and student mode. And there's certain aspects you have potentially even surpassed him in, to be honest, in terms of, like, dollars amount, certain industries, et cetera. However, you were able to slip into learner mode, student mode. And that. That I really respect.

[Tommy Mello]

I have a lot of consultants.

[Mike Andes]

Yeah.

[Tommy Mello]

And I ask them questions. I never speak up. I never tell them what to do. I hired them to teach me something.

[Mike Andes]

Yeah.

[Tommy Mello]

And that's when I ask questions and I write stuff down and I go, all right, and by the way, I need those people.

[Mike Andes]

Yeah.

[Tommy Mello]

I need mentoring all the time.

[Mike Andes]

Yeah.

[Tommy Mello]

The day I stopped eating. Mentoring. I mean, you should bury me.

[Mike Andes]

Yeah.

[Tommy Mello]

So I do go to student mode all the time. I mean, when I'm around my parents, I still like to listen to them and learn from them. But do you got any few books that you'd recommend that people starting to try to kill it. A business other than the myth? Some of these books on the wall.

[Mike Andes]

Yeah. Like, one that I actually really like is Made in America from Sam Walton.

[Tommy Mello]

I like that book a lot.

[Mike Andes]

It's just. It's just the general ethos of, like, the way that he, like, even looked for new properties. He'd fly in his plane around and just look for traffic patterns of where to put a Walmart. I think that's the coolest thing.

[Tommy Mello]

Yeah.

[Mike Andes]

I like the stories. I just enjoy that more than just the theory sometimes.

[Tommy Mello]

That's great.

[Mike Andes]

Yeah.

[Tommy Mello]

Made in America. And listen, if someone wants to get ahold of you, Mike, what's the. What's the best way to reach out to you?

[Mike Andes]

Just go on YouTube, Mike Andes. You'll find stuff. There's.

[Tommy Mello]

YouTube's your favorite way.

[Mike Andes]

Yeah. Watch the turnaround shows. They're fun.

[Tommy Mello]

And if somebody wants to call you and get, like, coached or just reach out to your ass, a question.

[Mike Andes]

Well, there is a way to do that. You can go to mike.com but usually not the best way to do it.

[Tommy Mello]

Okay.

[Mike Andes]

It's just I don't have that time yet.

[Tommy Mello]

Okay. Yeah, you're a busy man. And finally, we talked about a lot of things. Mike, is there something we missed? I would just want you to take the time to close us out with whatever we might have missed or not talked about.

[Mike Andes]

I just want to acknowledge you for all the work that you've done on yourself in the last three years.

[Tommy Mello]

Thank you.

[Mike Andes]

The man I met three years ago when he came to Ferndale at that or Bellingham at that event center is different than I see today.

[Tommy Mello]

Thank you very much. I appreciate that. And by the way, you'll see somebody else in hopefully another year. And you keep it up, man. You're doing great. Congratulations on everything.

[Mike Andes]

Thank you very much.

[Tommy Mello]

Appreciate you brother.

[Mike Andes]

Yes sir, absolutely.

[Tommy Mello]

All right, thanks for listening guys. Leave a review and like this channel. Hey there. Thanks for tuning into the podcast today. Before I let you go I want to let everybody know that Elevate is out and ready to buy. I can share with you how I attracted a winning team of over 700 employees in over 20 states. The insights in this book are powerful and can be applied to any business or organization. It's a real game changer for anyone looking to build and develop a high performing team like over here at A1 garage door service. So if you want to learn the secrets that help me transfer my team from stealing the toilet paper to a group of 700 plus employees rowing in the same direction, head over to elevateandwin.com forward/podcast and grab a copy of the book. Thanks again for listening and we'll catch up with you next time on the podcast.