Home based service business how you can make millions with Tommy Mello - Part 1

Transcript

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Hey guys, James Ross here from Marketing Secrets for Electricians and today we've got a special guest, Tommy Mello, who is a service-based contractor that has taken his business from basically negative 50 grand into the multi-million dollar company. It is today and I know I wish I could have done that when I had my electrical business. That would have been a very good goal to get that multi-million dollar mark. If you want to watch the whole episode and this is recorded online, you can go into the marketingsecretsforelectricians.com, you go to the membership area and we've got the whole video there for you guys to see the interview live and what we did. Other than that, let's have a look at how you can basically work on your business instead of in it.

That's the question. Join me and follow along as we search for the answers. My name is James Wrest and welcome to Marketing Secrets for Electricians. [Applause] [Applause] [Applause] [Applause] So I'll tell you what, I want to be in all 50 states in most areas of Canada within the next five years. So people say, how do you get your timeline?

How did you get there? The best way to do it is to take a piece of paper, just a blank piece of paper and what I want you to do is write down your goal and really decide where you're going to expand to if you plan on expanding. So there's two ways to expand. You could go into new markets or you could go into new categories. I prefer being a specialist.

See, a lot of electricians, they go into HVAC plumbing, HVAC and plumbing as well. I decided only residential garage door repair and installation. I'm not going to do a bunch of new construction. I'm not going to do commercial. I'm not spreading on my AR.

I like to focus. I like to be a specialist. So you write down where you want to go and you figure out how many employees you need in each market and really understand your organizational chart and you want to understand the depth chart. Most people understand what an org chart is, but a depth chart teaches us what if this person doesn't show up? What if this person?

So it teaches other people how to do the same job, like a CFO, a CEO, a COO. Everybody should be cross trained to where if they're on vacation, the company still runs. And the good news is with A1 garage door service, if I'm out of town and my manager, my general manager, my COO is out of town and my CFO is out of town, we still don't skip a beat. We're more in charge of this than the vision, the growth, the culture. We've got people to run more of the operational side and to tell you really what's going on is the technology runs most of our operations these days.

We use a company called Service Titan, which is a CRM, it's a customer relationship management system. But we're running so much technology right now that a lot of the stuff like the reviews that are generated come from a different software. We've got all these softwares that we use Power BI, we use QuickBooks, we use Paylocity, we use this thing called HireVue, we use another one called Greenhouse for recruiting and technology is the main deal. But anyway, you started with the question of how am I going to expand? Well, I know exactly what needs to happen when I go into a new market.

I know exactly what I need to do to Google. I know exactly what I need to do to my mailers. I know exactly how many people I need to hire. You've got the core concept of like, I need this stuff to go into that area. Basically, you've got the basics.

Well, then there needs to be, is it systematized? So who's accountable for each and every thing? So we've got a process management system. We use Zoho and a couple other things like Basecamp or any one of these. But there's certain deadlines.

I need to get licensed right now. I'm about to take my organ contractor's license. So I'm responsible for about four things. He's responsible for 10 things. I've got, there's probably 80 emails that go out when we go into a new market and everybody's got responsibilities and deadlines.

And I'm notified when they're not done by a certain time. It sounds crazy. So also accountability there. So if it doesn't happen, they have to answer to you or whoever's the responsible person has to answer to somebody. Yeah.

And I don't wait till the absolute deadline. There's a deadline that has enough time to get it done if they can't. Yeah. Yeah. Well, I think, I think with electricians, the only thing that you've got that that's a little bit different is I know that my best friends that are really successful, they do HVAC is the big money and they use electric, electrician and plumbing to kind of offset the peak.

So they go through the summer and they're just slammed. So they, they slow down the other ones. But I always thought I'd rather be a specialist than be a jack of all trades. So yeah, I would say get really good. You see, especially when you go into commercial versus residential commercial is different accounts receivable.

There's different tools, different loads you're working on. There's all kinds of different requirements, different truck. You need to drive around. It's just, I say pick one, be the best you could be. And if you're ready and you're killing it and you're amazing at residential or commercial, then you can start a whole new division, but it's not managed or ran by the same people.

It's giving enough time, effort and energy to be ran by someone that's completely different that that's got a whole different set of key performance imitators. Okay. So that's like, it's a way to like, so for someone, so for, for an electrician, say they're being in the game a year and they're like, Hey, I mean, I actually made this mistake. I was like in it for a few years and like, I want to expand, but I didn't have the systems in place. So I was making lots of money.

I expanded and then went, boom, you know, I like lost money. I was like, I've got more men. I've got more money coming in, but I'm making less money. Yeah. Well, that's an important thing.

You talk about revenue and the old saying that I always talk about on my podcast is, uh, revenue is for vanity and profit is for sanity. So you want to stay profitable and that should come first. You need to have at least three months of all your bills put in the bank for a rainy day. You know, we just had COVID-19 hit and a lot of people, there's going to be a lot of winners and losers out of this. I'm setting records like I've never set before.

I mean, we played it exactly right. We did a whole case study on my own company to see how we dealt with it. And I've got, I mean, we've probably only got 15 people. Then I've got a bunch of people that are trading here, but normally this base has 70 people here. We're down to about a fifth of that.

So, um, definitely focus and systematize the business. I'm going to talk a lot about systems, standard operator procedures, key performance indicators, KPIs. This is the stuff that's going to, it'll build your company. And it'll pull you out of it. You know, the e-myth it's a work on the business instead of in the business.

Um, I've interviewed Michael Gerber. He's a really smart guy, but he's right. How do you take yourself? All of us start out with great technicians. We need to become less.

I'd rather find a guy to run my business that never fixed a garage door. That's not, you don't need to be good at the technical side. You need to be good at culture, training people, retaining people, motivating people, delegating properly. Marketing, sales, there's so many different things we've got to talk about. And just because you know how to fix an electrical box doesn't mean you're qualified to own a business.

And in my book, I write about this, the home service for millionaire. If your why is to not work for somebody else, that's not a strong enough why to be in business because there's going to be a day you wake up and you're going to be sick of it. The weather's going to be crappy. You're going to have an employee quit and you're going to have to go back out in the field and the gal that answers your phones are the guy that answers your phones. Is going to is going to complain that day and you're going to want to walk out of the why the Simon Sinek finding your why that needs to be so strong that it will push you through those bad times.

Yeah. You have to have a strong motivation to do the thing you're doing. If it's just, I mean, I found when I was doing my apprenticeship and the guys around me, like they want to do their own business just because I could get a little bit more money, you know, like more, but it's not, it's not necessarily that's also not going to be a winning point to drag you out of bed when all hell breaks loose. You're right. You got to figure out, you know, when you go into business, you have a lot of goals.

You say, you know, if you're married, you tell your husband or your wife, I'm going to become a better person for you. I'm going to spend more time. We're going to go on more vacations. I'm going to become a better father or a mother. And unfortunately, that usually doesn't happen for most entrepreneurs.

Usually they go you know, six, seven years and they find themselves getting in the tax debt. They find themselves working harder than they ever hurt. And they're working harder and they're not getting a lot of vacations and they're not getting a lot of sleep. And the sad part is, James, this is the worst part is they go to sell their business one day and someone like me says your business is not worth anything because you don't make any money. You make one hundred and twenty thousand dollars a year.

And all it is is relationships. That money is going to cost you that to replace you. You don't have anything that this is not worth anything. And that's your retirement. So that's when you feel bad.

You go, wait a minute. I've worked so hard. You don't know how hard I've worked. And I'm like, no, I do know how hard you worked. But that doesn't mean that's like saying you took your old car and you buffed it out real nice and you cleaned it real good.

Now it's worth a million dollars. No, your old piece of shit car is not worth anything to me. No, that's that's I suppose that when you went into this just slightly, did you like go into it with an endgame? You know, like I'm going to go in, I'm going to make X, Y, Z and sell because I've heard that as a concept. Was that something on your mind when you went into it?

You know, there's only three ways. Here's a long answer to that. There's three ways you sell your company. Yes, you you pass it on to your kids or someone in your family or you die. Usually in the home service business, the real way to make money is to take a business, create a lot of value, sell it and do something even bigger because you're big paydays when you sell it.

Now, what happens is they take your your your profit is called even its earnings before interest tax, appreciation and appreciation. Even that is what the multiple is going to be on most home service businesses. Usually if it's under 10 million, about three to five times. So let's say you do a five million dollar business, you're bringing in five hundred thousand and that includes after you pay yourself. So five hundred thousand, you get four times.

You got a two million dollar paycheck coming. The problem is most business owners aren't just going to say, hey, here's two million bucks. They're going to want to make sure it runs without you. You're going to have to pass it on correctly. So me personally.

I didn't know enough when I got started in 2006. I was 23. I didn't know to think about the end in mind now. Now I'm going to get to a billion. So my plan is within the next five years.

I took a number. I take a billion dollars. And then I said my average technician does five hundred thousand. So I need two thousand technicians. So then I took 12 months times that by five, which is 60 months.

And I said, I'm going to get better at this later in the process. So where do I need to go this month? And then how do I progress to this? So it's all about hiring technicians. Those are the people that are going to run the calls.

The byproduct of the technicians are I need phone calls for them. So what kind of marketing can get me the phone calls I need? And then I said, then I figured out ratios for every tech seven technicians. I need one CSR to answer the phone calls for every 15 technicians. I need a dispatcher right now.

I have two full time recruiters and four full time trainers. I've got this whole thing, but I had to start with the end in mind. So I get to a billion. What do I need to do? So if I get to a billion at 20 percent even done, this is fun for me.

Just follow my mind. Sure. And I know I go a million miles an hour. So sorry for everybody that that is an order. I didn't slow you down a bit.

So just rewind it. So you got a billion dollars times 20 percent. That's two hundred million. Now, my multiple at that's going to be about 12 times. So what's 12 times two hundred million is two point four billion.

And then they're going to want me to buy back in. See, this is how it's going to work. They want to want me to buy back in at least 40 percent. So I'm going to take 40 percent of two point or two point four billion, which is nine hundred and sixty billion, nine hundred and sixty million. I'm going to put that money back in.

And then what I'm going to do is run the company for a few more years. And then I don't know what the hell I'm going to do, because at that point, I'm going to be doing stuff like this all the time. I enjoy teaching other people. And that's one of the pieces of advice I'd give is go find somebody that's better than you and get them to be your mentor. And I've got a lot of mentors.

I've got a lot of great people that have helped me along the way that I call them on a daily basis and they're still helping me. I think that's also an important point. You want to be twofold. You want to be teaching somebody like below you and also teach you learning from somebody above you. It's like, you know, give and take.

It is. And when you teach somebody, have you ever you ever trained anybody at the gym? You ever gone to the gym? It's like all of a sudden you're like you're better at working out. You know how to do it.

You're like, no, you got to exhale. And you're like, where did I just come up with that? But you tend to start seeing things more with more clarity when you're training somebody. And when you're learning, you're also picking up little cues that you might not unless you're teaching at the same time. So that's a good point.

And like that. Yeah, that's read that in numerous books and numerous different people who have kind of pointed that out. And it's fun. Like it's you get to grow in both processes. Yeah.

Like and that's what I like to be about as well, trying to share and grow. Partly a reason why I'm doing the podcast yet to help other electricians who are going through the similar thing that I went through when trying to start out and grow and run into all these headaches and nightmares that you mentioned earlier. So but OK, so you would sell your business for basically a lot of money, a couple billion, and you would get that invested back in. So you would still own part of it. And then when they say two, three year rollover period is over, would you sell out completely or you just like this have back off and own a percentage of the company kind of like just stock or shares kind of thing?

So here's what happens is private equity comes in and they're going to evaluate your business. They're going to call it's called diligence. They're going to do their diligence. They're going to do quality of earnings. They're going to look at a lot of things.

I've already made it through two recessions. So that's a plus. I'm documenting everything. They want to know you have a plan that we do personality profile. And they want to know that I'm a well rounded team.

You know, I'm over in this quadrant over here. If your whole team is in the exact same spot, it's not a very dynamic team. So ultimately, my plan would be to buy back in. And then what their goal is to do is pour fire on it. They're going to go.

We're going to invest another billion into this thing. We're going to take all the earnings. We're going to take you into four other industries, take your process and quadruple it. So then we another opportunity to be another company that would buy an maybe a strategic partner, most likely. And they'd say, if we buy you, then they'd probably give me another opportunity to buy back in.

You know, at that point, it just depends on I don't have any kids. I don't have a wife yet. So if I've got four kids in a life that wants to travel around the world, I don't know how good of an owner I could be for them or a CEO, but I think I could do it. I just would have to let them know that you're going to get 20 hours to 30 hours a week, but it's going to be quality hours. I can't imagine my life like that because I get on the phone all the time.

I'm always in meetings. I try to get here at a good time. I try to leave a little bit later because I enjoy working. I don't look at it as work. It's hey, I'm on vacation.

If you don't like your life, then you should go and change it. It's called vacation. And it's a really good song because I love what I do. And that's and that's key. There's a stat like most Americans, I think 70 percent don't like their jobs.

They hate it. Well, 80 percent of people will leave their jobs in the next year or at least consider leaving their jobs. Eighty four percent. You know, most statistics change all the time. But I think that makes sense to me.

And you know what? I've got people here that probably would change their job because answering the phone all day. But I pay for performance and they enjoy working at the company. They might not love, say, answering the phone all day. But, you know, some of my CSR's make thirty five dollars an hour because it's performance pay.

Yeah. No. But I love that. Yeah, performance pay for everything. Given the reason to be motivated other than.

Yeah, that's. But so with that, like, shall we dive into the kind of next areas? Like, how did you get to where you are? So in your book covers like you were fifty thousand dollars in debt and then you went from that to 30 million, was it? Have you ever wondered how that electrical contractor came to be so popular, have so many customers and what they did to get there?

And let's face it, a bit jealous that your business isn't quite there yet. Well, I'm doing an interview video series where we're interviewing these electrical contractors, getting the gems of knowledge and what they've learned over the course of time that they've run their business to get it to that point. We're not only going to cover how they got there, but what what pitfalls they ran into along the way. So you don't have to go through them yourself and you can go straight to ideally having that success or implementing things straight away that lead to your business growing a lot faster than it otherwise would have. So if you're interested in getting and listening to this video series course, you can go to marketingsecretsforelectrician.com and I'll see you there.