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In this episode of 'Owned and Operated,' host John Wilson and guest Rich Jordan discuss the intricacies of running a home service business, focusing on the residential plumbing, HVAC, and electric sectors. They look into the challenges of maintaining profitability in the HVAC installation sector, exploring the unpredictability of business demands, material cost fluctuations, and the impact of seasonal changes. The conversation highlights the importance of precise job costing, optimizing gross margins, and strategic planning to stabilize and grow the business.
Episode Hosts: 🎤
John Wilson: @WilsonCompanies on Twitter
Jack Carr: @TheHVACJack on Twitter
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John Wilson, CEO of Wilson Companies
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Owned and Operated Episode #120 Transcript
John: I'm John Wilson. Welcome to Owned and Operated. Twice a week we talk about home service businesses and if you're a home service entrepreneur then this is going to be the show for you. We talk about our own business in residential plumbing, HVAC, and electric and we also talk about business models that we just find interesting.
John: Let's get into it.
John: Hey so just give me your email.
John: Hey, so just give me your email.
John: Every Friday, we drop a newsletter from Owned and Operated called Weekly Insights, and inside that newsletter, we talk about our business, we talk about lessons learned, we talk about projects that we're working on. So go to OwnedandOperated. com, enter your email, and get some drops every Friday.
John: Welcome back to Owned and Operated. To Owned
Jack: and Operated.
John: We've got Rich Jordan here for a second appearance. Welcome back, Rich. Hey, Rich. Good to have you. If you're listening for the first time check out the last episode or Rich has showed up on the pod a couple of times now. He's got an awesome origin story and, we're excited to be talking to him. So today what we're going to be talking about the last one we were talking about, you like surviving and thriving in shoulder season. And we're both sort of feeling that right now. And what I thought would be what kept crossing my mind.
John: As we were having that conversation and what I'm feeling currently in our business is I, Mike Botkin did a tweet like a week ago, a couple of days ago, and he was like, Hey what's the real business you're in? What's the one thing that if you do right, your business, And Chris Hoffman's response was HVAC install, which, what, which I would not have said was my response until about two weeks ago when HVAC installed dropped off like a cliff.
John: And then I'm like, okay, I think I get this now. Because. Yeah not even the install business, but specifically the HVAC install business. And I'll start it with we're still really new to HVAC being like a meaningful part of our business. That is That is a last six months problem.
John: And there's been so many other moving pieces and parts. We just haven't really like dove in and we get better at it every day. But HVAC in general, like plumbing has always been the big gorilla for our business. And it still is, but that gap is shrinking. Whereas like now, plumbing might do eight, 900, 000 in a month and HVAC used to do two to three and now it's doing six to seven.
John: Like I think we hit seven 50 in January. So like it's creeping up good. And the hard thing for us to deal with as we think about like growing the business and investing in marketing is. Plumbing is pretty predictable. Like I can count on that 800, 000 a month or 700, 000 a month. Like I just, we're going to work hard and we're going to get it done.
John: We might miss a little bit here and there. But HVAC install is not predictable. And some of the areas that we really failed at this year was one shoulder season and like selling through that. And we failed the entire year on gross margin. And we just got absolutely smoked with material costs and bad promotions and bad discounts and selling practices and all these different things that ended up just totally kicking our butt in gross margin.
John: So I was thinking about that last time as we were talking about this, cause I, it kept going back to really at this point in our business, electric's roughly going to produce what electric's going to produce. HVAC is, or plumbing is going to produce what plumbing is going to produce. And those are pretty predictable.
John: And now the big mover of whether or not we're profitable is HVAC install. Cause that's the only thing that like, we don't really know what's going to happen. Like it's not predictable enough yet. So is that something that you guys feel too? I'd
Rich Jordan: say I might push back on just the use of predictable there because I think it is predictable if you are extremely deliberate about the inputs, right?
Rich Jordan: Like very deliberate about the service board being full, very deliberate about how you're stacking the service board, the percentage of those that you're flipping to replacement, what your close rate is on those replacements, your average ticket. So like you actually can based on your volume of service, you can reasonably predict where those installs are going to land if you're, but the problem is you have to execute every step of that funnel and that's where it's really hard.
Rich Jordan: Oh.
Jack: Yeah. I think you were the first one that I've ever seen when I got into HVAC, Rich, that your shoulder season was smoothed out. I thought what most HVAC owners think is just, Hey, you have your peak season and then you have your shoulder season and it's going to be relatively half or a quarter of whatever you do in the summer.
Jack: And then I saw your graph and I went, Oh my gosh, this is, yeah. Absolutely mind blowing because it wasn't like that. It was relatively smooth with very light dips. So I mean that that's where we in our company killed that culture of shoulder season is going to be terrible. We just need to do the right things to make it so that it's not
Rich Jordan: hard.
Rich Jordan: John and I were just talking about this on the last episode. It's like The hard part can be those installs sometimes. So we do a lot of work to keep service like just like steady throughout the year. And really that's, it's the maintenances that do that for us. And then we try to be really strategic about how we're stacking those maintenances to make sure we're like increasing the probability that we're still going to be out, be flipping to replacement even in the shoulder season.
Rich Jordan: But some usually like we'll see close rates on sales can really fall through When that need isn't there. So that's something we're still solving for. But a lot of that variation that we still do see comes from installs, installs dropping. And we're still, and we're really still solving for that.
Jack: And so is that a deliberate move in, in the busy season to data collect? Like you say that you're trying to strategically place those older units are 22 units, kind of those maintenances in the worst months so that you can dictate a certain percentage of flips, right? So then, but how are you tracking those throughout the rest of the year?
Jack: Cause in my mind, you have to get that information first.
Rich Jordan: We were just like really Milton about that with the team. It's like constant. Reminder. So we got to be getting equipment data. I got to be getting equipment data. We do use a tool that John put me on to, um, founder of this startup has become a friend, Alex Coleman.
Rich Jordan: He runs a company called Faraday. And for us, like our technicians can just take a picture of the data plate on a piece of equipment and Faraday will. We'll pull all that data out and input into ServiceTitan as equipment data with all the ages and the warranties and all that stuff. And then for us, like the reports that we pull that populate our dashboards.
Rich Jordan: Pulls that equipment age and data as well. So we can see like what percentage of our board is.
Jack: Yeah. Back to the original question, then do you agree with John? I think that you said you push back on a certain phrasing that he gave, but do you believe the same idea as John, that what your one idea in your business is the HVAC installs, or do you?
Rich Jordan: And I actually, I didn't respond because I was like scratching my head on it. But I, I will concede that like when HVAC installs fall through the floor, people get stressed out around here. Like that is true.
John: It's also the most likely to fall through the floor. At least from our perspective, like plumbing installs falling through the floor. And maybe a different way to take this is like install in general. I just thought it was interesting that he was very specific about HVAC. I should just ask him what he meant, but
Rich Jordan: I totally see why, I totally see why you would feel it.
John: If our total, like if our total cost structure is based on everyone firing at all cylinders, like HVAC install is the one that's gonna drop off in just because of season. Like plumbing, I think had a record sales month in April. Like we're about to clear our first million dollar month in just plumbing, which is insane.
John: Like yo,
Rich Jordan: that's like
John: crazy to us, but like the loss of HVAC installs, didn't balance it out. Like the loss of HVAC installs was like, we did, we sold half, I think of our last couple of months. There's a
Rich Jordan: flash effect, where like the tail of the whip moves much further then, the pommel of the whip.
Rich Jordan: So if like a couple of variables are off in service or dispatch or close rate, and now that install whip is going to be way off, and I think that's what we all feel is like, all right I didn't stack the board with enough aged equipment. My technicians like didn't offer enough options or didn't educate the homeowner.
Rich Jordan: Didn't flip at the right percentage. And now my installs are off by 300, 000 this month. Yeah. So it's so yeah, it's this idea of it is predictable. It's just volatile. If you miss any of these little variables throughout the year. Yeah.
Jack: Yeah. Do you guys also find that the HVAC industry in general, it runs on tighter margins, tighter gross margin, tighter net margin.
Jack: So the resources that you put in, if you miss. And that's what
John: we find it's just Hey, if we miss price and equipment we mispriced it on 10 jobs and we lost and we didn't lose small. So like we really and that's been our journey with HVAC installs. As we're dialing it in, like plumbing gross margins, pretty consistent.
John: That's your gross margin pretty consistent. They might not be good consistent, but there's not like a 10 to 20 point swing, but we'll have a 10 to 20 point swing in HVAC, like depending on the month with gross margin. And I really think like, I think probably that's the point I'm trying to drive is I've been, I think about this a lot because I think about gross margin stability and like you, like our gross margin isn't as stable as it should be for exactly this reason.
John: And when I think about like, how do we get to the next level, the reality is we can't. Until gross margin gets stable because you can't confidently invest into the next line of infrastructure and you can't confidently invest into two million dollars of marketing or like more fleet or whatever it is until your gross margin is like rock solid like you always know that you're going to cover the nut like OPEX I can get being weird because you're investing you're hiring you're you know whatever like gross margin has to be what gross margin needs to be.
John: And yeah, and we just, we miss that still. And I think that's the, and we miss it because of HVAC install. How do you line that out? What do you mean?
Jack: So you're saying that, and we have this problem, so this is not something that I've solved either is you have giant swings in gross margin, depending on seasonality, depending on just the majority, environment the market itself, price increases.
Jack: So what are you doing specifically to solve that problem? If. HVAC install is, the one thing that you need to do, right?
John: Yeah, I think what do commissions look like? What do material expenses look like? Are we job costing before the job starts? Cause that's been a big problem is we're finding out we lost money after we did it.
John: And it's we knew all the inputs prior. Like, why didn't we, why didn't we just, look at them before we installed it and maybe put a secondary line of equipment or something? Which type of equipment we're putting in, packout kits has been a big part. Can we shave off five points of cost with packout kits?
John: How do we think about financing vendors and like what that financing package costs us? Like we've gone through the whole board of like top to bottom. of like flat rate install. Cause we're really like, we can't scale this department until gross margin is exactly what gross margin needs to be. Cause it all over the board doesn't help us at all.
John: Like it has to be like, it has to be perfect. Otherwise the HVAC never gets to 30 million because like you can't have a volatile 30 million. It'd be a nightmare.
Rich Jordan: Yeah. Just think about how impactful it would be for your business if you're, had dialed in gross margins on. One of the largest revenue areas of your business?
Rich Jordan: Something?
John: Yeah. So everyone that I've talked to, and the reason is a focus is aside from that tweet, everyone that I've talked to above 50 million, their gross margin is dialed. Like when I said shoulder season, I was like, yeah we took like a 15 point swing on gross margin and the person I was talking to said like they had a tough quarter, one for HVAC install, and they took a two point swing.
John: And that was their version of tough. And I was like, why am I missing? What am I missing that a two point swing? And what did you do to just make it a two point swing and not 15? That's wild.
Rich Jordan: Gross margin has been like the it's like my white whale over here in New England. So in in Jersey, We're a smaller HVAC arm, TJ, my partner who runs the New Jersey business has like gross margin.
Rich Jordan: He's like high 50s, even 60 every single month, regardless of where we're at revenue falls. New Hampshire is it's all over the place. We're We're chasing our tail on some things, first it was materials percentage, so we're adjusting pricing. Then it's labor, then it's financing and then it's materials again, but it's because of.
Rich Jordan: Inefficient use of kits or poor warranty return process or whatever. So
Jack: are you currently dumping money into the PPC pit of despair? That's how I used to feel before I started working with service scalers. I would waste money with two, three, four other agencies. Then I started working with service scalers and they were able to drive meaningful leads in my business. And now it's one of our cheapest paid lead generation platforms.
Jack: They specialize in PPC, SEO, and LSA management. So if you're looking to increase meaningful leads in any of those areas, I would give them a shout out and see what they can do for you. I know we're switching topics here mid, midstream, but we picked up that business that you sent over to me. Don't yeah.
Jack: It's small world. And, um, we, it's been almost two months. We're running that 50 day mark and it's been great. But at the same time, the headache with acquisitions and new vertical, cause we had a plumbing side, but it just wasn't. It was one guy, it was a Chuck in the truck style.
Jack: And now we're like, Hey, plumbing should be bigger than our HVAC side. We should do 2 million this year on plumbing alone which we weren't doing on HVAC last year. Interesting turn of events, but yeah, we had a killer month. We're finally on track for 5 million.
Rich Jordan: That's cause that's a real, that's a real journey from where you were to where you are.
Rich Jordan: So I imagine the last couple of months were brutal, probably
Jack: last year. And. Yeah, we had a installer come back to us the other day who's working for us again. And last year when he worked for us, we were working out of a storage unit. Like the change in where we were a year ago with three guys to today with 16, 17 people on board is just.
Jack: Night and day. But also giant headache. You know how it is. I can't even imagine running two, two separate locations. So how does that work? We've, I've shut down a deal because it was too far away, but yet you have a deal that, or a whole Another business. It's a different brand.
Rich Jordan: The the really simple a longer answer would be, we tried to do shared services for a while, shared call center, shared, every back office function, like every non Cox function, like was pretty much shared outside of Leadership. And we found that our size, which at the time was like basically 3 million and 3 million were the two businesses at the time, just two years ago just didn't work.
Rich Jordan: It's like really hard. You just don't have the resources to like, do a good job with shared services for both businesses. So it's it's just shitty.
Jack: I was just going to ask that because I think Hoffman I can't even pronounce the German or Dutch name of his holding company, Deschutman or something like that. They are, I saw his tweet the other day that was saying that they're doing a potentially looking at buying businesses with shared services as a background.
Jack: So do you think that it was a resource issue? You guys just didn't have the resources in place to be able to do it correctly? Or do you think that there's an innate issue with running
Rich Jordan: A shared
Jack: service department? I think it's
Rich Jordan: a little bit of both. It's certainly a resource problem.
Rich Jordan: That's definitely what it was for us. Now Chris's sides, he does have a lot more resources to put in that shared services. So I think he can do it well. I think it's still really hard to do well though. I think Hoffman's like totally postured to do it well, but it's it's hard to do well culture conflicts, market differences, brand differences, I think you have to force, I think like they'll find that they have to force like a lot of consistency, if you're going to do a shared call center, for instance, let's see in the dispatch fees, consistency in like how you handle certain issues after hours.
Rich Jordan: And, it's if you're doing things differently and you have the same CSR picking up. For it's simple as it's just confusion,
Jack: yeah. We get that a lot. I get the question like, Hey, can you run that? And I always say, no, I don't think you guys should even dream about that because it's just so far off. In terms of, our market that we were looking at was two hours away, but in that market, you can't run the same price and you can't run the same style on something that's even just.
Jack: geographically, fairly close on the grand scheme, but just vastly different. I wouldn't
Rich Jordan: recommend it. So interesting for us, the reason it works for us now is because, so we tried the shared services, it didn't work. And then we said, screw it, separate it completely. And then once we did that, both businesses took off.
Rich Jordan: Like we were like stagnating with this, like shared services with a lot of friction, remove that TJ, my partner, and this is the secret sauce that. My partner runs guaranteed Jersey. I run Sanford, Hampshire, and then he and I both oversee, strategy and ownership level stuff.
Rich Jordan: But but both businesses took off after that. Cause like, all right, now we have focused, dedicated resources and leadership at both locations. And then we share best practices between the two.
Jack: And with TJ, have you told the story on here of where you met him and how you met him and what he was doing? Because I think that's a great question that we get a lot as well in regards to finding your unicorn partner who can, is a great operator who you can trust and who does a decent job.
Jack: I have one I work with, obviously John has a Brandon who he works with. You have TJ who you work with. Have you told that story on here?
Rich Jordan: It, for us, it's pretty simple. Like TJ TJ and I basically lived together all four years in college. He's one of my best friends, super smart guy, mechanical engineer, worked in like heavy maritime construction in his twenties when I was in the Marine Corps, we stayed in touch, both like ambitious enterprising guys, so as we were ideating.
Rich Jordan: What we wanted to do, and I was leaving the Marine Corps trying to like, really about to take a step. Um, I had read, Beau Burlingham, small giants and went down the small business rabbit hole and, talking to him over beers over the course of two years leading up to it.
Rich Jordan: And we were like, Hey Let's do it. And guarantee plumbing happened to be like where he grew up and in his backyard. So it all worked out and we did that together and then we've, we've grown this whole thing together. So
Jack: that's neat. Yeah. It's such a hard, it doesn't sound like it was overly difficult for you to do, but I know that on the market we, that they're a unicorn of sorts to try and find someone who can trust who can really run a business like that. That's neat. I've become more and
Rich Jordan: more appreciative of my partnership with TJ.
Rich Jordan: As I hear like the horror stories of other people, it's really, it's just really unfortunate. And I think it's really easy to fall into that. I have a joke with with TJ is that like the best partnerships and our partnership is built on this foundation of mutual guilt, like mutual perceived guilt.
Rich Jordan: And it's that each part of the deal. You know, and so it's totally true on our part of shit. Like I do a lot of travel, so I'm coming up here all the time and I've certainly fought a lot of fires up here in New Hampshire and. And but while I was doing that, like TJ was fighting his own fires with a significantly smaller business in New Jersey like, big talent issue last year that he had to fight through and basically rebuild and all this stuff.
Rich Jordan: So I'm like, Ooh, thank God for TJ down there. So yeah, I think that's the foundation of a
Jack: Mutually perceived guilt. You just feel too guilty that you need to, that they're having too much trouble and you need to perform to help them out. I love that. I think that's a feeling that we all internalize.
Jack: And that, that's definitely how I feel as well. There's a guilt that, Hey, they're running operations, so I need to perform on this specific week. on creating this program the correct way so that they can worry about operations and just implement. So that, that's super interesting. And so you recently acquired this.
Jack: No. Yeah. You recently acquired this new business, right? What are your next steps? Cause let me preface this by saying, so in my mind, we are working on a deal currently where we will potentially get close to that 10 million mark if it closes. And then the goal after that, and I think John has mentioned this before as well, is that after a certain point, there's really less value in the acquisition itself because you're really just buying the customer list.
Jack: And then. It's really focused on that organic growth. Do you see another acquisition or at least hunting down an acquisition in your future? Or is this the time that you're going to go into kind of an organic growth? A lot
Rich Jordan: of the things we've done over the last year have cemented for me even further that we can do a lot organically, like we are capable of growing organically.
Rich Jordan: So I feel confident in like our ability to do that. So I'd say like right now, like our priority right now is stabilize Um, and maximize right
Rich Jordan: now, we'll still do deals like opportunistically, but only in our local markets. So like in our New Jersey service area, in our New Hampshire service area, particularly in New Hampshire, we feel like there's a lot of opportunity, but really the the acquisitions are almost like playing defense. Like I don't see that as our major lever for growth.
Rich Jordan: It's more of trying to make sure that our other acquisitive competitors don't just like bulk up in our market. So it's Hey, if I can spar in that arena and cause the problem is that like these businesses that come up for sale, like the good ones, like a 5 million HVAC company or multi trade company, that thing comes up for sale, it gets picked up by somebody else.
Rich Jordan: It's not going to come back on the market for. Basically forever, it's never going to hit the market again.
Jack: Yeah.
Rich Jordan: And in the New Hampshire market, there's really only three acquisitive players. It's me and two others. So we would do a deal to make sure it didn't fall into
Jack: That's not, yeah, that's nice. I, sorry I'm grim grinning at there's you and two other major players in Nashville. Do we have five or 600 million, companies that we're competing against. So we're trying to grab a little slice and actually.
Jack: Yeah, so you have the best of both worlds. So let me ask, I know we're jumping around a bit cause I haven't really got to interview you before. But we've talked about on this podcast before the belief would you rather be a big fish in a small pond or a small fish in a big pond and try to take market share from the big guys or just own?
Jack: a little market. And it sounds like you've had a bit of both. Which one, what's your thoughts on that? I'm not even going to preface the question. say. I,
Rich Jordan: So our New Hampshire market is us being a big fish in a small pond and our New Jersey market is us being a small fish in a big pond. I think I have more fun being a big fish in a small pond,
Rich Jordan: but I do see if I was going to have, if, if I have big ambitions for the business, it's we are, if we're going to, let's say if we were going to build a hundred million dollar business. In New England, that probably means we have to expand to Massachusetts there just isn't that much work in New Hampshire.
Rich Jordan: There's only one player really larger than I am in New Hampshire and they do 40 million total. And I think only 25 of it maybe is in New Hampshire. The rest of it's in Massachusetts and Maine. Ceiling probably but again but if you do hit 30 million in New Hampshire, it's you are a Titan, which is cool that, there's benefits to that.
Rich Jordan: Yeah. New Jersey, you're a 30 million like people might not even know who you are. Yeah.
Jack: Cause that's, I don't want to say John at 30 million is a small, a big fish in a small pond, but he's in between cause he's close enough to that. I think it's Cleveland right there. I don't know. Yeah, it's Cleveland. Yeah, that's right. So he's close enough to Cleveland to actually be the smaller fish in a big pond.
Jack: But at the same time he grew up like in the small pond and then the ponds just merged eventually. So it's an interesting question cause we, I don't know anything else from my business. Like we've always had to compete against the big guys. So whether that's good, bad, it's more, I think like you said, an ambition thing.
Jack: Do you want a giant business or? Do you want to stay small because if you want to stay three, five, 6 million, that's a great lifestyle business, but it's better in a big fish, small pond scenario versus three to 5 million in a big pond. You are fighting the hundred million dollar company around the
Rich Jordan: small pond.
Rich Jordan: You can probably more interesting if you wanted to sit at 6 million, you could probably comfortably sit at 6 million for 50 years. I've got plenty of competitors that are just like that, but if you're in a big pond like New Jersey or Nashville. Six million dollars and you get wiped off the face of the planet tomorrow, probably.
Jack: Boo.
Rich Jordan: Yeah, definitely.
Jack: We are very scrappy around here because we gotta be. It's fun, though. It's definitely fun at the end of the day. Stressful but fun. Great, Rich. I know
Jack: we're rounding out our time here. So we jumped around this pod. We talked about the one thing that you need to do or that you feel like, I don't even know what the question was per se. It was really like the one business that you're actually in. I think we all came to the same conclusion, like the biggest.
Jack: Area that we need to be in is HVAC installs doing the promise. You have to do the rest of this really well in order for HVAC install to come
Rich Jordan: in where you need it.
Jack: Yeah. Yeah. Cause right. It flows. It's like a waterfall of maintenance to service to quotes to installs. And it ends up being a numbers game.
Jack: We talk about. A little bit about Hey, our, my business, your business, big font, big pond, small pond. It's really great to actually get to, to spend this time with you. Cause I know we were in a few group chats together and it's it's good to actually sit down and meet face to face. We don't get to do this every day, internet friends.
Jack: I hope. Sweet. So if you liked what you heard today, go ahead and head on over to owned and operated. com. Sign up for the newsletter. We are hosting a workshop June 4th through the 6th where we go to John's office and we run through the whole gambit of how to get above 5 million. I know that it has significantly helped out my business.
Jack: Rich, thank you for heading out today. Where can people find you if they want to hear more? Yeah, best
Rich Jordan: place to find me, see my, daily thoughts or whatever is is Twitter. If you're looking to reach out to me, Twitter as well.
John: Thanks for tuning in to owned and operated the podcast for home service entrepreneur.
John: If you enjoyed today's episode, please hit the like button and subscribe to the podcast. If you have any questions or topics you'd like us to cover, please Feel free to reach out. You can find me on Twitter at Wilson companies. I'll see you next time.
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