My guest on this episode is John Wilson. John purchased his 3rd generation family business, Wilson Plumbing, which was started by his grandfather and has grown it from 4-5 plumbers to 20 and still growing strong. I’ve had guests with just one company and those with a half dozen companies or more. John’s in the middle and we spend some time talking about his evolution into a holding company role and desire to build a portfolio of companies.
We also talk about building his plumbing business, hiring and training new plumbers including how to walk up to a customer’s house, why plumbers often don’t make good managers, and how to scale a home services business. I learned a ton about the nuances of operating in this episode and I hope you take away a few great lessons from John’s experience so far.
Live Oak Bank – Live Oak Bank is a seasoned SBA lender focused on search funds, independent sponsors, private equity firms, and individuals looking to acquire small companies. Live Oak has closed billions of dollars in SBA financing and is actively looking to help more small company investors across the country. If you are in the process of acquiring a company or thinking about starting a search, contact Lisa Forrest or Heather Endresen directly to start a conversation or go to www.liveoakbank.com/think.
Hood & Strong, LLP – Hood & Strong is a CPA firm with a long history of working with search funds and private equity firms on diligence, assurance, tax services, and more. Hood & Strong is highly skilled in working with search funds, providing quality of earnings and due diligence services during the search, along with assurance and tax services post-acquisition. They offer a unique way to approach acquisition diligence and manage costs effectively. To learn more about how Hood & Strong can help your search, acquisition, and beyond, please email one of their partners Jerry Zhou at [email protected].
Oberle Risk Strategies – Oberle is the leading specialty insurance brokerage catering to search funds and the broader ETA community, providing complimentary due diligence assessments of the target company’s commercial insurance and Employee benefits programs. Over the past decade, August Felker and his team have engaged with hundreds of searchers to provide due diligence and ultimately place the most competitive insurance program at closing. Given August’s experience as a searcher himself, he and his team understand all that goes into buying a business and pride themselves on making the insurance portion of closing seamless and hassle-free.
My guest in this episode is John Wilson. John purchased his third generation family business Wilson Plumbing, which was started by his grandfather, and has grown it from four to five plumbers to 20, and still growing strong. I’ve had guests with just one company and those with half a dozen companies or more. John’s in the middle. And we spent some time talking about his evolution into a holding company role and desire to build a portfolio of companies. We also talk about building his plumbing business, hiring and training new plumbers, including how to walk up to a customer’s house. Why plumbers often don’t make good managers, and how to scale a home services business. I learned a ton about the nuances of operating in this episode, and I hope you take away a few great lessons from John’s experience so far.
Thanks John, for joining us. I’ve been looking forward to having you. It’s been really fun watching you talk about your business on Twitter, and you’re kind of in that middle of growth stage that we’ve talked about before, where you’re beyond just the one single company, but you’re not yet at the six, seven, eight portfolio companies. And you’re trying to make that transition. So I’m really looking forward to talking about that with you. But first, I want to hear about your background and how you got to the business you’re in. And you’ve mentioned before, it’s a family business. So I’d love to hear about that too.
So my background is pretty straightforward. It is a family business. We’re third generation. My grandfather Ralph Wilson started it in 1958, which is pretty cool. I think he started it before that, but he’d just come back from the war. And I think he incorporated it in ’58. He ran it for I think, 30 years. And then my dad bought it in the ’70s or ’80s. And then my dad, he really didn’t grow it very much. It was kind of a lifestyle business thing for him. So I think when my dad bought it, there was two or three technicians. When I bought it, there was four or five. Pretty stagnant for 30 years. But it was just a lifestyle business for him. And really his main gig ended up being his real estate portfolio. He had like 100 multi-family units or something like that. So the plumbing was kind of, he used it as a pseudo property management company/maintenance, so he didn’t have to do it. And oh by the way, it’s a full-fledged company.
So when I bought it, I bought it in 2016, I bought half. And then I bought the other half last summer. And then with it being a family company, most people who’ve worked in family businesses probably can relate to this. You kind of end up working in, around, near it pretty much your whole childhood. So from when I was 10, I was doing stuff around the shop, moving tools, or kind of occasionally helping the guys on jobs or whatever it was. I started working full-time as a technician when I was 18 as an apprentice. And I went through our apprenticeship program. It takes about two years. And I started plumbing and installing heating equipment and that type of thing.
I tried going to college a couple of times. I’ve actually dropped out three times, so still no degree. But the third time, I went for accounting and I got two years in. And I felt like that was enough for me to run a business. So I think I was in my early twenties at that point. And I bought my first half at 25. And that was four and a half years ago. So that’s the up to business ownership story.
Did you have a sense that you were going to work in the family business from a pretty young age? Or do they involve you and they wanted you to get some business experience in the company, but they weren’t setting you up for only taking over the business? They kind of let you do what you wanted and you decided to just come back to the business?
That’s a good question. We’re facing that now with my kids. Not imminently, because they’re two years old. But I’m thinking about how to handle that. My family, so I’m one of seven kids, and my dad was one of seven kids. My dad was the only one that wanted that company. And I was the only one that wanted this company at the time too.
But with seven kids, my mom was kind of a hippie. So wherever people wanted to go, they were kind of okay with it. Both very educated, like multiple degrees each. But they didn’t really push the college thing on us super hard because I think we owned a trade company. I honestly never thought that I would end up in the family business. And for most of my life, I fought against it, which is very funny I think that I’ve now ended up owning it at an early age and have liked it so much that I’ve acquired others. But my whole life, I was like, “Yeah, there’s no way. There’s absolutely no way I’m going to end up in this business.”
And I think they kind of pressured it, pushing me. I don’t know if it was just me, I should ask the other siblings too. But if it was just me that they kind of pushed into ownership or not. But I did end up with it obviously. And this is a unique thing in my specific scenario, but I’m super grateful that it happened. My father happens to be an older father, both of my parents. So I’m 29. My dad is 72. So that’s multiple generations essentially in between each other. I’m 26 years. Apart from my son, my dad’s 40, something apart from me.
The whole point of all that is when I wanted to buy into a business at 25, I felt like that is an uncommon scenario for the seller to say hell yeah. My dad was 68, and he needed an exit from his business. So I felt like a lot of it was accelerated beyond maybe what it should have been. I’m looking at my kids and I’m like, “Oh my God. When Jack, my oldest is going to be 25, I’m going to be 50. I don’t think I’m going to be ready to give him,” not give him, sell him a business. Will he be ready? Was I ready? You go through all these different mental gymnastics, and you realize how blessed I was to be given that opportunity because my father was older.
Whereas I’ve met a lot of guys where their dads are only 20 or 30 years apart. And they’re super hesitant to sell the business. The parents are still really controlling. You can’t really get it away from them or get power, do what you want to do with the business. So I was very fortunate that I did not have that.
Yeah. And is that because the owners or the parents are still in their mid fifties, maybe early sixties, and they’re not ready to be done yet. Whereas in your case, your father was ready to be done just because of that age difference. And you’re of course young in your career. So you have a longer runway to width the business than someone with maybe a father that’s closer in age.
I think it’s definitely age. He was almost hitting 70. And I think he just wanted to do … he didn’t like most of the business. He didn’t like the growth, at all. He’d kept it a lifestyle business, just kind of printing off his money to do whatever for 30 years. So he didn’t like dealing with all these new hires. He didn’t like dealing with marketing. He didn’t want to have to make all these decisions and investments. And he just didn’t like it, mainly because of where he was at with his career. So it was a lot easier to negotiate the sale roles, all that stuff when you have one person who is very clearly coming into his career, and the other person who’s very clearly on his exit from his career. That made things a lot easier.
And I also think the size of the company. When I bought it, we had just broken a million for the first time ever. It was $1.1 million. Which that’s probably not very intimidating to hand over. And the way we did the sale was I bought half and then I bought half. So we worked together closely for four years. So he wasn’t really concerned that I was going to run it into the ground because he was still an active member. He moved over to sales, but he was still in the company.
Yeah. I remember saying something like small businesses stay small for a reason. So it sounds like part of this was hiring. But were there other elements that your father, and it sounds like your grandfather to an extent too, they didn’t want to push the company towards growth for reasons beyond just the hiring element?
I don’t know about my grandfather. But with my father, there was a lot to it. But he always summarized it very well. Again, real estate was his main thing. And this 10 person plumbing company over here on the side was kind of what got the lights on or something. So he was always very clear that he only wanted the company to be not so big that he couldn’t bail it out with the real estate. I think he had seen, I’m not sure when he saw this, because it wasn’t 2009 or something. Because that’s when I started working in the business. I would think he would have seen it back in the ’80s or something where people got overextended, they went bankrupt. So he likes the idea that he could bail out the company from his real estate if something weird happened. Like if they didn’t get paid by a customer, or they lost a guy for X amount of time.
Obviously, I don’t agree with that mindset for a lot of different reasons. But I think that people can only grow to their own level of comfort. I haven’t hit mine yet, but I sense it in the distance.
You’ve obviously taken the total opposite track in growing this business, pretty quickly too. I think you were saying something about having 20 techs at this point. Is that about right?
Yeah. 20, give or take a few.
Yeah. So that’s obviously much, much larger than the four to five. So of course being young, that gives you a long runway. But what are some reasons you chose to take the opposite turn and decide to grow this business pretty quickly? And to a large extent. I mean, obviously hiring, the thing that your father didn’t like doing the hiring new team members, it’s still hard. It doesn’t make it easier the fact that you’re growing. But what made you get over that hump and decide we need to grow this business?
I feel like there’s probably a longer story in there. I don’t know how deep we need to go into it.
As deep as you want, that’d be awesome. Take your time. There’s no rush on my end.
This is going to go into a personal finance realm. Okay. If you’ve read anything about personal finance, usually you hear money mentality, or money mindset, or whatever the hell. Depends on who’s writing it. And a lot of it you get from your parents. You’re raised and instilled in some type of mindset.
So in my early twenties, I dropped out of college a couple of times by that point. My credit score was I’m pretty sure in the fours, maybe threes. It was really bad, because I defaulted on my student loans. I had stuff in collections. It was just a total mess. I was a total mess financially.
So I start going out into this journey of okay, I don’t want to be this. I don’t want to be this irresponsible person. I want to be a man of means. I want to be whatever, benevolent boss in my own mind. So I started just reading, and researching, and trying to figure out what that looked like. And it took me down most of the rabbit holes that people usually go down like the Dave Ramseys of the world, Rich Dad, Poor Dad, Millionaire Next Door, all that stuff eventually into Warren Buffett. So that is honestly kind of the journey. So I started off with pay off your debts. I started off with build your six month nest egg, just all the basic personal finance stuff. And then I was like okay, I want to … this was at 22. I was like, “You know what? I think I want to be worth a million dollars at 30. How do I get there?” And that sounded like such a big goal because I’m pretty sure I was worth negative 1,000 or something like that. So I was like, “How do you get from zero or less than zero to a million dollars?” It sounded like such a big number, net worth at 30.
And it became very clear very quickly that it was you buy assets that make you money. And that started the whole journey of growing the company. So you read anything about Warren Buffett, you read anything about even the entry-level stuff, Rich Dad, Poor Dad, you buy something that makes you money. So I was like, “Okay, I’m going to buy some real estate. I’m going to buy some companies.” I did that. I did both. Real estate is fine. I had opinions. It’s not going to probably get most people from zero to a million in eight years, or seven years, or whatever I was trying to do. Whereas companies, you can create value every day just by going in, by increasing profit, by increasing revenue, by making that company better. So it was really this drive on a personal finance level. I wanted to be a millionaire by 30. And it seemed like the fastest way to do that was to very quickly grow a company, and make a company better, and more profitable.
So that was it. It just seemed like the most direct paths. I tried stocks and I was like okay, this isn’t going to get me there. I did real estate. That wasn’t going to get me there fast enough. So the only way was a company.
What made you decide to look to your family’s business versus just going out and buying a totally different business? Was it just the fact that you already knew it so well, you’d worked in it before? Or is there something else that was attractive specifically about the business that was in your family?
I think it’s industry probably. I really liked the industry, and I liked what you could do with the industry. Growing up, I was not really attracted to the opportunity because it was a million dollar or less business. And my dad was working six days a week. And he was the mechanic often, which that wasn’t really something that I was super interested in being for the rest of my life. So it looked more like a trap than a business. It looked like you’d be buying a job.
But when you work in anything, any industry or any business, you start to see opportunity that outsiders just don’t see. So in this case, I was like, “Oh my gosh, we’ve got a million dollar business. If we just implemented this pricing change, we’d have a million and a half dollar business. If we added more techs, we’d have a $3 million.” And it kind of like, what are we doing? This could be more, and it doesn’t have to be the trap that I thought it was? So I would say that working in it, not necessarily the availability of it. If my parents happened to own a convenience store, I don’t know that I would have wanted to buy that, just because I don’t like the model. And I don’t think that you can go very far with it. But plumbing and HVC, I feel like you can do a lot with. So I was attracted to it.
Can you walk us through the first initial month or so, and then take a higher level look at the growth beyond that in the last year?
If it’s okay, I’ll actually go back two months. Because I feel like something that’s not talked about very often is how to buy a company from a family member.
Most people assume that it’s given, which is kind of weird. The IRS would not participate in that. But I feel like that was something I had to overcome very early on is people thinking that you just got handed a company. It’s like no. I mean, maybe that works for some people, I don’t know. But certainly not here.
But with seven kids, we had to really go above and beyond to make sure that we communicate effectively what was happening and have valuations. We really did not want it to look like I got some type of sweetheart deal that no one else could have gotten, because I had worked in the business for a few years. And then there’d be a brawl on our parents’ death beds or something like that. We’re very conscious of the optics when it comes to the family. So I just wanted to insert that because I feel people don’t get that vision of what that transition looks like very often.
But you have to communicate a lot. It’s really difficult, because you’re dealing with family members and something worth money. And you have to be as fair as you can to everyone, even if they have no horse in that race. Because their name is still on the building.
So after transition, I had already been working kind of as the service manager. I’m trying to think what we had done at that point. We had already started to go digital because we were on paper. It was just a lot of turnaround stuff. What I would do now if I went out and bought a million dollar underperforming business, it’s all the same stuff. So it’s getting them off paper onto iPads. It’s getting them on to proper pricing. It’s getting them into uniforms instead of jeans and tee shirts. It’s looking at our branding. It’s creating our website. That was kind of the first month. I had a unique position where I bought the business that I was already working in, so I didn’t have to re-introduce myself. People knew who I was. They knew my strengths and my weaknesses probably more so. And a lot of the stuff that you have to do when you first buy a business, I got to kind of skip. I was already operating at a manager level by that point, because I wanted to start integrating my own ideas into how to run the company. So it was a pretty smooth transition for that first month just as far as getting buy-in from other people. And we were still so small. There was four techs, maybe three and a half.
So once you had enough of your systems, and to your point, your turnaround kind of elements completed, when did you kind of have a sense that you were ready for new hires, and to really start growing the business now that you had a solid foundation?
It was October, 2016 that I bought. I started making changes in early 2016. And I was already probably hiring at that point, because we had begun the conversations. And also, I felt like we could do better. And I was young. I was like 23 or 24 or something. And I was like, “Man, we can do better.” So I had started making hires as soon as we could, as soon as I was allowed at that time, to start adding guys in and kind of experimenting with what the different roles would look like. So I hired new salespeople. We tried a bunch of new techs.
It was a challenge though. Mainly coming from I didn’t have a business education, and I had never worked in any other company except for the local ski resort. So I didn’t know what any of this was supposed to look like, which was an issue five years ago, and it’s still an issue now. That I don’t know what a good onboarding system looks like. Because I’ve only ever been through a bad onboarding system. And I don’t know what effective hiring and recruitment looks like. So a lot of it was creating it as we went, which was really messy and so many mistakes. So many. In hindsight, I wish that I had had someone on the team that knew what the hell they were doing, because I didn’t. And my father didn’t either, because we were already running a company that was larger than anything that he’d had.
But the hires started fast, and we experimented with a lot of different roles. And we really didn’t get our shit figured out until maybe 2019. So it took me three years because we were both growing aggressively. I had no idea what I was doing. And then we bought a company in 2018 and doubled, to really make a good mess of things. To really prove even more that I didn’t know what I was doing. Yeah. Yeah, It was good.
You talked recently about how you shouldn’t waste time trying to come up with your own best practices. You should try to go find them somewhere else. Did you eventually find a couple of best practices that worked really well for your business? That to that point, you kind of stopped trying to come up with new things and just decide to apply some others that had already been working somewhere?
I say that just from my own … I’m sure that someone out there is an amazing organizational planner. That’s not me, like at all. I’m a total mess. So I know that I spent years trying to build out HR practices, recruiting practices, onboarding videos, job descriptions. All this stuff, I tried to do it manually, just my own sweat.
One, it was never that good. And it took so much time. So in late 2019, we ended up moving the company over to a program called SGI, and they gave all that stuff. It was worth every penny. We paid maybe $30,000 buy-in and $10,000 a year or something like that. Which is a small price compared to the years that I have spent toiling trying to get that stuff right.
So in that time when you’re looking at all these best practices, were there probably one or two that you found really transformed your business and started taking it to the next level?
I would say it was the HR side of it, which is a little vague. So I’ll go back a little bit before that. I had discovered right before we went on to these best practices, the importance of people. Which should not have taken that long, but it did. And just what people in the right seat could do. So we joined SGI in late 2019. And also in late 2019, we replaced our then ops manager with our new ops manager. We started making just better people decisions for our business. I don’t know that SGI really helped that, but I know in the last 12 months, that has been what has taken our business to the next level.
Where SGI has helped is onboarding those people, giving them accountabilities, giving them better descriptions of what they’re supposed to do, giving them reporting functionality, and all of that stuff we gained with SGI. So two-part answer I guess, but it was the way that we could hold people accountable and the way that we can bring on new employees, train them to be very effective, and then teach them how we were going to hold them accountable. That’s what we got out of STI. And it was great. The two of those things helped take our business to the next level. We grew 35% this year. Last year I guess, 2020.
What does a new hire’s experience look like a few years ago with your father’s company versus what does that look like today?
I think like I already said, the only onboarding experience that I’ve ever had was a bad one. But I didn’t know it was bad. I thought that’s just how you did it. So when we used to bring on employees, they would pretty much walk in the door. We didn’t have a handbook. So you might hand them a uniform, but usually you handed that to them a month or two later, when you kind of remembered. You talked to them, maybe you had them fill out some payroll paperwork, and then you threw them on a truck for a week to see what they could do. Really good stuff.
So what we do now, which is way better, is someone comes in. Their first three days is just in the office, and it’s going over training videos. What it’s like to be here, kind of explaining our company. Why we do what we do, why we price the way we price. And it goes extremely granular. Like where do you park? How do you walk up to that customer’s door? Where on the door do you knock? And then what do you do after you knock? There’s six steps for everything. So here’s the six steps to walk up through a door. Here’s the six steps for apartments. Here’s how you present pricing. Here’s the sales presentation material. Those first two weeks now, the goal is that somebody exits that and they’re not only bought into us as a company and they’re bought into where we’re going and their future in our company. But they also are really understanding of our business model. And they’re going to succeed as a technician.
My worst onboarding ever, because I used to be the onboarder. And I’m not a great detail person. So I don’t know why I got that job. But I had someone, he’s one of our top techs now. And I’m so grateful that he stayed beyond this, but I onboarded him in 2018 in the summer. And six months later, he still didn’t know how his benefits worked. He had no clue how to take a vacation. I don’t he knew he had retirement. And it was like, “Oh my God,” I have failed so badly at this. This is terrible. Why is anyone still here? He was kind of the shining star example for me of holy crap, this is terrible. We’re never going to be able to take our business anywhere if our employees don’t even know how this company works. And then we started diving into that weakness and quickly found a better way to do it.
How do you walk up to a customer’s door? And how do you park? If I’m a new hire, what do you tell me?
Well, it’s usually videos, and there’s a checklist, which is kind of fun. I haven’t participated in those ones for a while. So I’m probably going to miss one or two of the few steps. But most of it’s what not to do. Like parking, you never want to park in someone’s driveway. Oil spills, whatever. You don’t want to stain their driveway. So you always park in front of the street. You always have to get out within 30 seconds, because they’re watching. So if you’re on the phone or something, you park around the corner before rolling around to the house. So you have to get out promptly. You don’t wear sunglasses. You have to wear a mask now, obviously. You never walk on their grass, and you only take your small tool bag, it has three things. Your iPad. There’s four things that you take right up to the door. It’s a mat, your tool bag, your iPad, and your sales presentation material. That explains how the call goes. Those are your six things.
I like it. And then where do you knock? Where do you knock on the door?
You knock on the frame only, because it’s the quietest section. You don’t want to ring the doorbell. You don’t want to knock on the glass or anything of the storm door because you don’t want to wake up the kid. You assume that there’s a kid or a dog, always. And then you step back, step at an angle, arms at your side, smile, and wait for them to come answer.
That’s fascinating. I had no idea there was so much depth to such a simple thing.
There’s depth to it, but it’s also one of the issues that you run into very quickly when you’re trying to grow a service company is continuity. Is this customer going to receive X experience every time? And you want them to receive X experience, because you want that experience to be good. So like Chipotle, or Chick-fil-A, or whatever, insert X customer service example in here. When you go to Chick-fil-A, everyone’s like, “I’ve personally never been,” but they always say, what’s the thing that-
Yeah, exactly. So everyone knows that they say my pleasure. So that’s the Chick-fil-A thing. We’re not Chick-fil-A, but you want people to know what the Wilson experience is. Because you want them to say, “Yeah, that was great. That was a great experience. I’m going to call them back.” And it’s kind of irrelevant what tech went out. If it’s too personalized and if you don’t really control that experience as well as you should, then bad hires become even more noticeable. And bad experiences become even worse. Whereas if you have a system for them to follow, it’s a little brainless. And obviously, you have to allow for some personalization. You don’t want your people to be robots, but you want a good, controlled experience.
I like it. And then you’ve also talked about going from variable to flat rate pricing. Can you talk a little bit about why you did that, and perhaps some of the benefits you’ve seen from going to a flat pricing model?
There’s a few different ways that people price in the trade. So I’ll start with that. One is time and material, and the other is flat rate. A lot of different names for flat rate. I’m trying to think of all of them. Task-based, upfront pricing, whatever. It’s all basically the same thing. So I’m going to do X job. Here’s the price beforehand. And it’s not a bid job. Flat rate is there’s usually a book or a price list of some type.
So it’s a really interesting dynamic. For some reason when people start off, it’s a lot of old school businesses. But I have seen guys in their twenties buy a plumbing company and run it flat rate for a while. And I’m like, “What on earth are you possibly doing? You’re not 80 years old. You can change this. You can do it. I believe in you.” But they don’t. Time and material’s really weird. Because Rich talks a lot about this. I think he just did a feed on it, why he didn’t like it. The only thing he didn’t touch on was the misaligned incentive.
So as a company, if I’m on time material, then you charge a rate plus a markup on material. So let’s say that markup is 50%, and I’m going to charge $100. So some companies like it because a customer can call in and say, “Hey, what do you charge?” And the contractor can say, “We’re $100 an hour, plus material.” Maybe it’s easy. I don’t know. But the downside is because you’re paying by the hour and charging by the hour, you are incentivized to send your worst tech to every job, because they’re going to take longer. So your worst tech gets you the biggest tickets, and your best tech because he’s the best, he’s super experienced, and high paid, and all that stuff. He’s going to blow through calls and bring you your worst average ticket. And then that makes it so one, the business is incentivized to send terrible techs out. And two, you can never pay your best techs that well because they’re blowing through calls, and you can only compensate people based on how much money they bring in.
Those are the big ones that I don’t like about time material. That, and you can’t scale, or advertise, or ever charge enough. So flat rate is, I don’t have a book with me, but flat rate is basically a book that you pick your desired gross profit. And usually you have your top two to 400 repairs, or replacements, or whatever. So fixing a faucet, or replacing a water heater, changing out valves, whatever it is. And there’s a set price. And then you walk in and you can show the customer and say, “Hey, replacing this toilet is 600. Yay or nay, do you want to do it or not?”
And I like that it changes the entire experience. It ends up being better for everyone. The reality is it is more expensive, flat rate. That’s one of the purposes is that companies are able to charge more without it being grossly, minutely focused on that per hour charge. But being able to charge more helps the customer as much as it does the contractor. I think I talked about this on a tweet thread. Because I charge more using a flat rate system, I’m able to hire the best techs in the industry, which are the people that you want working in your homes. I would be much more concerned about someone who’s charging time material. We’re able to give them a great wage. We’re able to make sure that they’re happy working for me, which means that they’re going to be happy walking into your home, being around your kids, and your spouse, and your dog, which is everything that you want. You want somebody happy. They will be background checked, clean, non-smoking people. They didn’t drink their breakfast. You’re just able to do all of that because you’re able to charge what you’re worth and what their time is worth.
It works out for the company because we were able to invest more in marketing. We’re able to invest more in our people. We’re able to grow, hire new people, buy safer equipment, just run a better business. And it’s better for the techs because they make more money. And you’re able to pay them effectively, which you have to be able to do. I just talked about this in another tweet. But in plumbing right now, I don’t think people understand that plumbers can make $100,000 any day of the week. Any day of the week. It’s starting to get out there because there’s some competitors in my area that are straight up advertising on Facebook. “Hey, do you want to make $100,000? Come work here.”
But technicians can make $100,000. There’s only a couple different ways you can do that. One is a company charging flat rate and paying ethically, or the other is a full commission plumber. So that’s the Roto-Rooters of the world. You don’t normally want them out there. It’s kind of like an eat what you kill system. Really misaligned incentives. But a flat rate with a good incentive comp helps to even that out and provide a good experience for the customer. So long story on time material, flat rate, like flat rate is better for everybody.
Yeah. And you’ve talked about making sure that your technicians are well-paid, and especially your best ones are highly paid. How do you make sure that you’re paying them what they’re worth? So do you have … Rich in our episode talked about having kind of a base salary, and then he would add small raises for certain skills. What’s your system for paying your techs fairly and based on how good they are within your company?
Rich’s system was interesting. He shared it with me. I have the spreadsheet. It’s good. Mine looks a lot like that. So it’s not as granular. There’s basically a $10 an hour difference in base comp. I think it’s anywhere from 25 to $35 an hour. Some of it’s years of service, some of it’s a rolling hourly dependent on average tickets over the course of a month. Some of it’s skills. And then there’s an incentive piece on top of that.
So most of our guys’ base comp earn somewhere between 50 and 75. And then it’s the additional incentives, which are pretty diluted because we don’t want a customer to be taken advantage of. But basically, they get a piece of their own performance back. That gets them the rest of the way.
Got you. And then you also talked about technicians not being very good managers. That’s evidently a trend of plumbing companies taking their technicians and turning them into managers. And seeing that as kind of career progression for them. When it sounds like from your experience, a lot of the time they don’t want to become managers. They don’t want that progression. They enjoy what they do.
Well, the problem is that they want to become managers. It’s just that they’re not usually very good at it. So a whole discussion developed from this, because I think it happens in every industry. But if you take someone who’s your top performer, we look at top performers through a rosy lens. We’re like, “Man, they can do no wrong. There are a top performer, they’re our whatever. They can handle anything that we throw at them.” And then you throw at them a new job that they’ve never dealt with. And you put eight people under them and say, “Hey, instead of your performance, we don’t really care about your performance anymore. What we care about is the eight people underneath you and their performance. So go enhance that, and train them, and recruit, and all the things that you have to do as a manager.”
And they usually flounder. They don’t know how to do that. They’re not used to managing or leading, and they’re not used to helping coach people to be better, which is the purpose of a manager. You’re out there not pushing pencils. You’re helping people to become better and achieve the goals that they want to achieve in their own lives. And I have just yet to find a good technician that can really transition into that role very well. I’ve met a lot of terrible ones. Really bad, like really bad. And the companies that I see that do this, it’s back to that small businesses stay small. They stay small.
Usually it’s companies that only have a few managers, maybe one or two. And that is such a key hire, that first service manager or that first ops manager. That’s the big moment. That’s the moment that the owner is saying, “We’re doing a million and a half dollars. And okay, we’re becoming successful. I feel like I need a manager to help me grow this business so I can take a step back and focus on the business, not in the business.” So that’s the hire that we’re talking about. This huge game-changing, let’s take this thing to the next level. And what do we do? We look at our current staff and say, “Hey, you know how to turn a wrench effectively. Come and manage and grow my business for me.” It doesn’t make any sense. I just don’t get it. I just don’t get it.
So I’ve never seen it work out, and I’ve seen it fail probably 20 or 30 times. I’ve seen a lot of people do it over and over again. I was on a conference call earlier this year with somebody out in California. And this guy was about to promote his fourth or fifth ops manager in three years from his technicians. And I’m like, “What happened to the last one?” He’s like, “It didn’t work out.” I was like, “What about the other one?” “It didn’t work out either.” I was like, “Dude, stop. Maybe it’s you.” So yeah. Strong opinion, but I’ve never seen it work. I just haven’t.
Got you. Yeah. I think I misunderstood your message there. So then they do want to become managers. So then do you have any sort of training program where you help them eventually become managers? How do you handle that desire to become a manager if a technician has that?
I have a pretty frank conversation with them and tell them almost identically what I just told you. “I’ve never seen it work. But, if you want to try to make this work, I will help you.” So no one’s taken me up on it, but I give them the steps that I would need to see them perform, which is basically just becoming an equal to anyone that I would hire from the outside. If I was hiring an outside manager, I would expect some leadership experience in some capacity. Give me a team that you’ve led to do anything. I would expect some type of education. I was having a hard time requiring college degrees given that I don’t have one. But some level of education, because I don’t want to have to teach you the basics of how business works when you’re handling a $2 million division. What’s a P&L? What does a balance sheet look like? Some of this is just classes, and I’ve even referred them to classes. And then we often put them as leads that way they have a few techs reporting up to them. So we have lead techs in between the service manager and the kind of standard tech. So we put them into a lead tech position to see how they perform with a little bit more responsibility.
I’ve only been doing this for four and a half years, but the amount of people that … everyone thinks they want to move up, and everyone thinks that they’re management material. I’m doing air quotes for the listener. And everyone thinks that they’ve had leadership experience in the past. So there’s no shortage of people that want that position, but there’s an absolute shortage of people that will actually take the steps necessary to be worthy of it.
So taking a step back and looking at this, you have Wilson Plumbing. And you’re starting to actually this week I think, remove yourself from the day-to-day operations. So now you’re at more of a holding company level. Can you talk a little bit about that transition and what got you comfortable to eventually step out of the way of more of the daily operations of the company, and now assume your new role here?
So I actually stepped back from most probably 80% of daily operations about a year and a half ago. I’ve built a leadership team back in 2018 when I acquired another company and kind of smashed them together. We had six managers that really ran almost all of the company. So for me, it wasn’t a big transition out. And then I talked about the manager who I hired. His name is Brandon. He’s probably in a list of this. He is amazing. No one’s allowed to try to hire him. He came on in late 2019, and he was kind of that missing piece of someone who was extremely accountable, able, and willing to jump in and take over the company. So over the past 12 months, I’ve been working closely with him. Not really closely with the company, but closely with him in preparing him to run daily operations.
He has been running most of the company since April. So none of this is really new. None of this is a big surprise to the staff or anything like that. And everyone at this point is very aware of how often I work on my other projects. Whether it’s a new company, a new acquisition, or a real estate deal. So it’s not going to be a surprise.
As far as the transition goes for me, it’s been super weird. It’s weird to go from daily ops or daily crisis management to a portfolio level view as your daily view. It’s a lot of figuring out what am I supposed to be doing. A lot of self-doubt probably, about whether or not this is the right decision and whether or not this is what I want to do with my life. And then a lot of what is next, what does next look like? Next is more acquisitions and more launches. We launched the company in June that’s been doing okay. I had a super weird partner issue. I don’t know if we want to dive into that, but it was terrible. So terrible.
You can if you want.
Yeah. I mean, it’s interesting. It’s terrible. It’s interesting. And then we did a small acquisition a few weeks ago. And then in the first half of ’21, I’m trying to do a million to a million and a half dollar acquisition in plumbing. That partner problem, it’s a funny, horrible story that people should be cautious of when they’re bringing on partners.
Do you feel comfortable sharing it?
Oh yeah. No, I have no problem sharing it at all. I’m happy to tell anyone about my myriad of mistakes. So we decided to launch a new concept. It was a restoration company over the summer. The reason it ended up happening was I had launched a concept in late 2019. And looking back, I was like, “Man, I made 15 mistakes.” And they were kind of unsalvageable mistakes because one of the mistakes was the industry. So I was like yeah, this just isn’t going to go anywhere good. So we ended up shutting it down.
But I was like, “Okay, all of those things that I learned, I want to transition into a new business,” and I wanted to get into damage remediation for awhile. So COVID hits, a bunch of people get laid off. Some really big companies in our area go bankrupt in the damage remediation space. And I’m like, “This is my moment. This is my jam. Let’s do this. The talent’s out there.” Because it’s just talent that you need. So I got a really great ops manager. Her name’s Holly. She’s awesome. She runs that company. And then I got, I need to come up with a fake name. Samantha. How about that?
Go for it.
Samantha. Not her real name. Samantha came on as an equity partner, and she was like an outside salesperson. Biz dev and outside sales, which in that industry you thought was the lifeblood. Somebody has to go close the sale when the lead comes in, and you have to go network with insurance agencies and whatever to make sure new jobs come in.
So we got this person who we thought was a rainmaker who really going to change the business for us. And this was my first time accepting junior partners in a launch. I’d never done it before. And my only experience in working with other people on an equity level is my father and my sister Anna, who we own a few million dollars of real estate together. So I’m like I’m family only. So this time that I bring in non family. And I’m like, “Yeah, this is fine. Normal, whatever.”
So we go through the process. We spend all the money on origination, and we get going. And then I find that she’s doing a terrible job. Just so terrible. And I’m like, “Oh my God, she’s an equity member. What do I do?” So I keep trying to talk to her like I would talk to anyone else that is reasonable and an equity member, thinking that our incentives are aligned, and that we both want this company to grow, and that we’re both there to move our lives along. That was a mistake.
So she was terrible at her job. The results were awful. She would disappear for literally days at a time. I had no idea where she was. She’s claimed that she was working on networking or something. I don’t even know. And then it turns out that she was working directly for a competitor, two jobs. One of them she owned a portion of, and she was siphoning leads off of us and taking them to the competitor, and closing them over there in a company she didn’t own. It was really weird. It was just so terrible. And then because she was an equity member, you can’t just fire her. So we had to buy her out and go through this whole two month process that just ended on 12/31.
So I think the rule there is when you’re ever going to partner with anybody, and this was my rule beforehand and apparently I broke it. I thought I knew her or something. I always compared a business partner to a spouse. You better know and trust them like your spouse. And I broke my own rule, and it hit me pretty good.
Man, that’s brutal. That’s a brutal one.
I still can’t even believe it. I don’t know. She literally paid money to be a part of this business. And then she directly worked for a competitor. It was just so weird. I’ll never understand.
What steps are you taking now to start building out the portfolio of company? So adding new acquisitions in. How is your role changing? What does it look like on a day-to-day basis now versus 12 months ago say?
So we have three operating businesses. That’s probably the first place to start. So we have plumbing, we have restoration, and we have a decent real estate portfolio. So what we’re doing is we’re segueing into a management company called Mint Resource Group. We’re taking four employees, myself included. Myself, my wife who does our marketing. Bookkeeper and our CFO. And we’re shoving us all there. And we’re going to effective January 1st. And we’re now operating at a holding company level where we start to basically build out the systems into how to run this thing like a micro private equity firm.
And there’s not very much information out there in how to do that. There’s maybe Twitter. But all the books out there like Warren Buffett, and that’s unrelatable, or Brent Beshore who is a little bit more relatable, but still not very relatable. So a lot of what we’re trying to do now is figure out what this is actually supposed to look like. A lot of decisions that you don’t even really think that much about become really important. Like what do you do with cash? Which I would’ve never thought was a big deal, but suddenly you have a lot of cash. And you don’t want to do anything with it because you have a potential acquisition in the next year or two. But then the cash keeps building and you’re like, “But that’s a lot of cash. Shouldn’t we invest it into anything?” I don’t know, it’s all this basic stuff, but you have to figure it out.
A lot of the last probably three or four months has been figuring out how to operate at holding company level. What members do we need on the team? Right now, we’re looking for an associate to be on the team. And what does the search look like? We ended up signing on with a company called CAPTARGET who’s going to help us locate companies for sale, and basically just deal flow. And then we have to start working on our own internal how do we buy? Who do we finance with? Who’s going to manage? How do we build our bench? It’s all the basic stuff that is common, but it’s hard to tackle at this level. If we were doing maybe 50 to 100 million in enterprise revenue, you could have a larger bench for managers. But that becomes a pretty big deal. I think even permanent equity has a big problem with it. They have a whole section of their website devoted to finding competent operators. Because it’s such an important, who’s going to operate the business once you buy it? I’m not going to do it. So it’s a pretty important piece.
So we’re trying to figure out what’s our lead flow on our operators. And right now, we’re thinking kind of like an entrepreneur in training thing. And we bring someone in as an associate, and turn them into an operator over the course of a year or so.
Do you think these would be MBA associates, or are you thinking more along the lines of someone who’s kind of operated part of the business or maybe they were a manager of a team within a company, and now you’re going to bring them into your model and holding company?
I really don’t know. We’re looking at both. I could see the benefits of an MBA. That being said, I have liked the managers that I’ve hired in the past year. I’ve made some mistakes. But the ones that were not mistakes I’ve liked a lot. And most of them really just fit that humble, hungry, and smart. They didn’t have to have an MBA, but maybe they ran a company when they were 21. And they’re smart, and they understand how accounting works, and they understand leadership. And it doesn’t take an HBS kid to know that. I mean, maybe it does in some industries, but certainly not in the ones I’m in.
Well, this’ll be a fun one to watch. Moving into some closing questions, what class would you teach in college if it could be about any subject you wanted?
So for this one, I would teach something on strengths. I think that I got really good at what I was doing when I started focusing on the three things that I was good at, and stop trying to do all the things I was terrible at. Which is mainly operations. I’m not a good detail person, and I tend to work in three month energy bursts. So project based work is very effective for me. Financial and strategy, those are my strengths. My big weakness is glaring our details and day-to-day operations. Yet, I kept finding myself in details and day-to-day operations. So I think that I would do a class on what are your strengths? And then try to really hone in do what you’re good at. Yes, work on your weaknesses. But I’m a big fan of betting on the fastest horse.
That’s true. That makes a lot of sense. What’s the belief you used to hold fairly strongly that you’ve changed your mind on?
Real estate. I think real estate is inherently decent. I think when people get involved in real estate is bad. I used to think that you should get involved in real estate as soon as you possibly could. And it’ll build wealth, make you rich, or whatever. But real estate kind of sucks. It does. At the very bottom, when you’re first getting into real estate, you are buying crappy properties. If you want equity, you could go and get partners and own none of it, and have A-class properties or something. But you’re getting in on these properties that barely cashflow, they’re probably deferred maintenance, that you have to property manage. Or if you go hire a property manager, you’re giving most of the profit away to a property manager. It just doesn’t make any sense. And I think unless you’re doing something really creative and really outside of the box, real estate is just this race to the bottom, where you get X amount of dollars in rent, you have expenses, and you have to really tightfistedly hold on to any penny that you can keep. Whereas a small business, you can just go launch a small business, make a few hundred thousand dollars. You can grow that thing to the moon and back if you want. And there’s nothing holding you back from doing whatever you want.
So I think real estate is good in a portfolio, but I think that people should wait until they’ve made their money. Because you can be so much more effective with reinvested dollars inside of a small business. Just so much effective.
Was there any experience or deal that you looked at, or building that you saw, maybe a friend get involved in that really switched your mind on real estate?
It was owning real estate. I own millions of dollars in real estate. And I’m like, what am I doing here? The money that I put into that, if I would’ve done that inside of any company, any small business, we would be making 30 to 40% internal returns versus not making anything on our real estate. I just don’t get it. I think that real estate if you’re worth 10 to $20 million and you just need some recurring cashflow, and you can go buy a 500 unit apartment complex, all good. But if you’re starting off at the bottom and you’re using that as your way to make money, I would rethink it.
That’s a good one. What’s the best business you’ve ever seen?
Training. I have two examples. One I’ve tried to buy and he said, “No, not yet.” And I hope he hears this. But I think training is a great business. So one, in plumbing, there’s a thing called backflow certification. I think Rich talks about this a little bit, but you have to test [inaudible 00:55:04] every year. When I went down and got my certification six or seven years ago, this guy, I don’t even remember his name. He runs this course once a month, 12 months a year. It takes three days out of his life. And he charges you $4,000. So he’s making probably two to $300,000 doing three days a month of work. And the overhead was almost nothing, because he rents a 1,000 square foot commercial thing with some desks in Columbus, Ohio. So I mean, that was crazy. So if you’re looking for a lot of money and a lot of time, maybe a great retirement gig, that was pretty good.
Or just kind of the same thing with teaching. But online courses. I think online courses are crazy. I wish I had the detail focused to do them. You just go make a course apparently, and then it makes $100,000 for the next 10 years because you shot some videos. I think that’s crazy. Those are my best businesses.
What do you think you would make a course on?
I thought about making a course on the stuff that I’m tweeting about. Because I think it’s interesting. I just got into Twitter I think three weeks ago. And despite the fact that I’ve proven myself to myself and to the world, I think that there’s still a little I didn’t complete college. So I’m not sure that I have the authority to speak on even what I do for a living. It’s kind of a weird thing.
So Twitter was kind of my first, “Okay, I’ve been doing this for five years. I’ve made a lot of money. I think I’m going to start telling the world about what I do, and just see what happens.” And the response was kind of like crazy. A lot of people are interested apparently. So I was like okay, maybe I’ll do a course on that. But I always kind of wanted to do that. But there was that you don’t want to look stupid.
I’d be interested. I don’t see why folks wouldn’t do it. There’s been courses on dumber things. So I’m sure something like this would have a lot of interest.
I think I might one day. The Twitter thing has been kind of funny, where the audience has developed pretty quickly. And it definitely makes you wonder what else you can do with it. I mean, I’m able to talk to you because of it, which was really cool. And I’ve admired your podcast for seven months. So thinking back to a month ago, would I have thought that I would be on this podcast? Probably not. I’ve always kind of kept to the shadows on what I do. So I don’t know. We’ll see where that whole thing takes me. Because now that there seems to be an audience for what I’m doing, I’m sure I’ll get more ideas on how to monetize it.
Yeah, certainly. Well I’m glad you’re on the podcast because part of the podcast’s purpose is to find these operators who are kind of operating in the dark. And if you were just an outsider wanting to learn about how they ran their business, there’s nothing really available to tell you how they run their company. Often they don’t write blogs, they don’t write books or have podcasts. So I wanted to find those people and get them to open up a little bit, and share their story, and then create this effectively a database of information around running a small company and trying to buy one as well. So it’s been really great having you on the show. I’m going to let you go here. But thanks for sharing your insights here. And I’m really excited to continue seeing them pop up on Twitter. And really, really hope you keep sharing. This has been a lot of fun.
Great. Thanks Alex. I appreciate you having me on.
John purchased his 3rd generation family business, Wilson Plumbing, which was started by his grandfather and has grown it from 4-5 plumbers to 20 and still growing strong.