Why one of our acquirers is exiting his business

Hey everyone!

I have a lot I want to talk about today.

Topics:

1. Why one of our members is exiting his business
2. Cash crunch
3. Accountability Systems
4. Home services video social media content, and why it’s a waste of time
5. Home services technician recruitment

Before I begin, please know that as I continue to write this newsletter, I want to give you information that is extremely hard to discover anywhere else.

But I might air drop a ton of it all at once because this is a monthly roundup of conversations happening in our peer groups, and we have over 50 members in groups, and another 40 in our online community.

It might not always be organized, but it will be super valuable for you to see what is happening in the broader SMB/ETA community.

Okay, let’s get started!

1. Why one of our members is exiting his business

Sometimes the most valuable conversations in our peer groups aren't about growing a business, they're about when to exit one.

We’ve got this member who acquired a commercial cleaning business a couple years ago, and has nearly doubled sales since then. He acquired a franchise and is almost the top 10 performing franchisees in their network now.

He plans to exit next year… Why?

His words:

"I've networked my way up to probably five owners that are between $30-50 million in revenue in the industry and they're all miserable as fuck."

That seemed to be the root of it, it’s the same phrase people use to offer career advice to W2 employees – “look at the person 10 years ahead of you who has the job you’ll have then, is their life a life you want to have?”

In this case, no, commercial cleaning is tough to scale.

Is it impossible? No. But I think someone needs to invent a “Juice:Squeeze Scale”. A way to measure if the juice is worth the squeeze.

In this case, for this business owner and the other opportunities available to him, it’s not.

There are a few other reasons he mentioned,

- The franchise model has made it difficult for them to be price competitive compared to other vendors, they lost a couple big jobs that could grow their business 30%+ because of this.

- The business model revolves around revenue per employee being ~$45K - $55K. So running a business at $10M in sales means having 200 employees. That’s a lot of people and a lot of problems. A plumbing business can do $10M with ~50 people.

- Competition is everywhere. Mom and pops, SMBs, enterprise cleaners. Unless you get into a niche like surgery room cleaning or something, you’re always in a red ocean.

He’s still happy he acquired this business, it’s taught him A TON about managing people, setting expectations, hiring/firing, creating systems, balancing service fulfillment with sales/marketing, etc.

It built his operating chops massively, and cut his teeth. Now he’s going to level up in a better industry worth scaling in.

2. Cash Crunch

I’ve had 4 conversations just this week with business owners in cash crunches

Here’s 3 of them and why they’re in cash crunches:

1. Signage business acquirer

   He had his largest revenue month in history. HUGE WIN. But it came at the cost of selling larger bid corporate signage jobs with net 30/net 60 terms. He pays all of those job expenses in cash today, then collects it ~45 days later. Or longer with late payments. We had a conversation around “factoring” as a finance option and it’s worth doing your own research on.

2. Accounting business acquirer

   He acquired another accounting firm recently and the previous culture around collecting money was… Relaxed… To say the least. Now he has to get aggressive, collect cash, and fix the problem/systems creating this issue.

3. National construction business acquirer

   His business is taking off like a rocket ship, growing ~50% this year, but that growth comes with all the pain of funding it. Similar to our signage guy.

Cash crunches are a recurring theme in our peer groups, we’ve even had one member say:

“Every year for the last 3 years, I told myself we’ll never run into a cash crunch again. Yet every year it still happens.”

So despite everyone in our groups being smart, highly ambitious problem solvers, using cash flow forecasts, etc. These issues keep happening and there isn’t a pill you can take that solves it.

If anyone has a pill, or maybe just some advice, I’d love some input.

3. Accountability Systems

2 members recently have implemented some interesting accountability systems for their employees

1. Manufacturing business owner

Started implementing morning and evening checkins with his lead manager, quick check ins in the morning where they talk about what they’re going to accomplish that day, then a check in to see what was accomplished

2. Another Commercial cleaning business owner

Started implementing a “team accountability call-out.” Previously, if an employee wanted to call out of work (usually on mondays or fridays) they would text their manager.

Since then, they created a team chat where 2-3 cleaners and their manager are all included, and there’s an implicit feeling of “I’m letting my team down and making their job harder if I don’t show up.” This discouraged them from calling out.

So far, results have been incredibly positive, callouts are down significantly (~50% if I remember correctly, could be higher or lower)

4. Home services video social media content, and why it’s a waste of time

We have one member in our group who owns a large residential pest control franchise

He brings up this other company (Nice Pest) where he really admires their social media content. He wants to add social media content to his marketing stack but has these obstacles in the way:

- He wants to do more social content because it’ll grow his business
- He doesn’t have the desire to learn it/do it himself
- He definitely doesn’t want to be the face of it

Luckily, we have another peer group member in his same cohort (he owns a pool business) that absolutely crushes social media - tiktok and IG specifically.

He’s on top of trends, adapts them for his business, and delegated most all of the work to his team which uploads almost daily, high quality, funny, relevant content. It’s reallllly good.

But what’s the actual impact on his pool business?

Not significant.

It’s okay for top of mind awareness, but it doesn’t really drive business in a measurable way.

We’ve had this same discussion in several peer groups now, here’s my take:

a. Social media content is not a significant growth lever worth investing in if you run a B2C home services business and your goal is to grow sales.

It can be helpful from an employee and talent recruitment perspective, but not so much for driving leads. Though there is an argument for how top of mind awareness impacts branding.

b. When you see a successful social media presence, the founder is almost always the face of it. People browsing on social media want to see the founder.

If you start investing in social media, just keep in mind that removing yourself as the face is very challenging, and will likely lead to significantly less impressions.

There’s certainly exceptions to the rule, but this is just what I generally see.

c. When you build on a social media platform, your content is distributed nationally, so be mindful of how many qualified leads you actually get by marketing on a national platform.

There are some exceptions, Instagram for example is really good at local presence, and if you still want to start doing content and get local leads, there are other opportunities like starting a local newsletter, or an instagram page like “Things To Do [your city here].”

I met a guy who owns one of Toronto’s largest “Things To Do” IG pages with >700,000 followers and it’s a good marketing tool for his events business.

5. Home services technician recruitment

Recruiting skilled HVAC talent is hard. No surprises here. We talked about this in our plumbing/HVAC peer group.

But I did find the following items interesting:

a. Indeed inbound applications are "trash"

Multiple members agreed that there are far more bad technicians on indeed looking for a job rather than good technicians. If a good tech wants to leave their employer, they can easily line up a new job without needing a platform like Indeed.

The strategy that works: outbound recruiting using tools like Indeed's sourcing features to find people who aren't actively looking but might be open to better opportunities.

b. Speed beats everything in hiring

One member responds to applications within 1-2 minutes and gets candidates in for same-day interviews. Most techs aren't running a sophisticated job search process, so being first often means being only.

c. Technical skills matter, but sales skills matter more

One member hires for "60% technical, 100% sales" because HVAC is really a sales business disguised as a technical trade. They give every candidate a technical quiz, but optimize for people who can sell IAQ systems and equipment upgrades.

Lastly, If you want to engage with the Scalepath community, here’s a few options:

1. Join a peer group

   All of our peer groups are built around members who share a similar revenue size and business model, we have peer groups in HVAC/plumbing, manufacturing, B2B services, Professional services, construction, and more

2. Join our business owner retreat in Atlanta in September

3. Join our Costa Rica surf retreat in January (just reply to this email and I’ll send you more info, we’re in the planning stage now).

As always, if you have any feedback from this letter, I’d LOVE to hear it. I read and respond to everything myself.

See you next month

Rand Larsen