Latest / Home Service Millionaire with Mike Andes / Is Your Business Actually Ready for a Recession?

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Is Your Business Actually Ready for a Recession? · Home Service Millionaire with Mike Andes

• 0:00
  talking to some, we'll call them consultants in the trades that work with lots of owners.
• 0:05
  They're seeing a lot of companies in the industry missing their numbers.
• 0:08
  Companies that dropped 90, 95, 98%, they were growing really fast and were like stock market darlings.
• 0:14
  And then all of a sudden it's like, oh, you're losing money?
• 0:17
  Interest rates have gone up?
• 0:18
  we are slashing your valuation.
• 0:21
  And if you've kind of gone on that treadmill, like I use equipment loans, I use truck loans.
• 0:25
  Now all of a sudden that loan might cost 40, 50% more.
• 0:28
  In a bad market, when things get harder, if you're not profitable, the losses just compound the debt compounds, the trouble compounds.
• 0:36
  This is how you miss making the sales tax payment or the payroll payment thing.
• 0:39
  If you look at 2008, 2020, 2001, those were actually the years when a lot of big businesses today were started because they are at the back of a recession when a whole bunch of customers were leaving their competition and they were able to absorb all that extra demand.
• 0:55
  Living in fear just perpetually has us not hiring, not marketing, lifting our foot off the gas, and the pain and the problems continue for longer and longer periods of time.
• 1:05
  And that's why we eventually shut down our businesses or we wear out.
• 1:08
  Hello, everyone.
• 1:08
  Welcome back to another podcast.
• 1:11
  Today we are putting on our tinfoil hats.
• 1:14
  We're getting doomerism.
• 1:15
  We're going to be thinking about all the bad things that could happen in the world.
• 1:18
  We're usually pretty optimistic people, but today we're going to put that on a reverse a little bit.
• 1:23
  And we're going to talk a little bit about the economy and more importantly, what you can do to make sure you win in a bad economy.
• 1:29
  And so we don't want to be the people that say, oh, there's going to be a recession.
• 1:31
  Don't do don't invest.
• 1:33
  Don't grow your business.
• 1:33
  That's not really going to be the theme of the day.
• 1:35
  It's going to be how do we take advantage of this?
• 1:36
  How should we be thinking about an economy that might be softening?
• 1:40
  I think for most of us, we've felt pressure in the economy from customers.
• 1:44
  pressure at the pump in terms of the cost of fuel, interest rates are going up.
• 1:47
  There's a lot of different things.
• 1:48
  And so I wanted to talk about kind of three core elements of the economy, how it's going to affect the home service industry.
• 1:55
  And hopefully, JP and I can give you some ideas of how to prepare for it and make sure you win during this time.
• 2:00
  So the first one I want to kind of kick over to you, Jonathan, is really talking about interest rates and
• 2:06
  For the last year and a half, two years, interest have been slowly kind of coming down.
• 2:10
  They stayed stagnant for a while.
• 2:11
  And now, just most recently, the Fed decided, hey, we're moving interest rates back up because inflation is kind of running hot.
• 2:18
  And so when it comes to home services and interest rates going higher for longer, what are some of the implications that that might bring
• 2:27
  And more importantly, how should we be thinking of it at home service level?
• 2:31
  Because a lot of times interest rates mean if they go up, people are spending less money.
• 2:36
  They're less likely to get loans or debt to go do a home improvement project or buy a new house.
• 2:41
  So what would be something you would tell a home service business owner?
• 2:44
  And what really happens to home services with interest rates being higher?
• 2:49
  Yeah.
• 2:49
  Do you think people understand what higher interest rates means in the first place before we even talk about... Go ahead.
• 2:56
  Check that off.
• 2:57
  Go ahead.
• 2:57
  Okay.
• 2:58
  I was...
• 2:59
  thinking about this a little bit in advance.
• 3:01
  And there's a common term that people hear in the economy, or if you read financial stuff, or if you just listen to the news in the background, you'll hear this concept of a K-shaped economy.
• 3:11
  And this will sort of lead into interest rates.
• 3:13
  And I just want to define this because I do think it helps understand why interest rates matter.
• 3:17
  So if you've ever heard the term K-shaped economy, it's this basic argument.
• 3:22
  There are two economies.
• 3:23
  If you think about it, it makes sense.
• 3:25
  You could think about all the
• 3:26
  Very, very, very wealthy people.
• 3:28
  They live in their own little world, their own little economy.
• 3:30
  They have lots of income.
• 3:31
  They own lots of assets.
• 3:33
  And then there's another economy you can kind of, if you want to look at the furthest, the opposites in the market, there's another economy.
• 3:41
  And that economy would be the people at the bottom of the financial economy.
• 3:44
  Ladder, they have very little income.
• 3:47
  They live in maybe an apartment.
• 3:48
  They own no assets.
• 3:50
  They may not even own a car.
• 3:52
  And that's the two dramatic.
• 3:53
  You got Elon Musk on one side and you got the homeless person on the other.
• 3:56
  As I'm it's not really that dramatic, but it's that kind of a scenario where that's the two K's.
• 4:01
  And those are two completely different economies.
• 4:03
  You could argue there are multiple economies.
• 4:06
  More than two, because you can also think about other people that might live in your area that are way upper middle class.
• 4:12
  You could almost call that a third economy.
• 4:14
  But the K economy, you've often heard this.
• 4:16
  Now, the reason why this matters to the interest rate conversation is both are impacted by interest rates.
• 4:25
  And so.
• 4:28
  Another thing to say about the K economy, just to be clear, one group is doing better.
• 4:32
  Maybe life's getting better for them and one is doing worse.
• 4:35
  That's the argument.
• 4:36
  Now, there's also an argument right now that this is stabilizing.
• 4:39
  There's also something really important to understand because I like this topic.
• 4:44
  I can't give you the facts.
• 4:45
  I just know this to be the case.
• 4:47
  This K economy that we're having, this has happened in the 80s.
• 4:50
  It's happened in the 90s.
• 4:51
  It's like not the first time.
• 4:53
  This is not like some brand new development, but it's become worse more recently.
• 4:58
  And why has it become worse?
• 4:59
  Back to interest rates.
• 5:01
  Because a lot of times when they talk about the K economy, they are talking about the income difference, but they're really talking about the wealth difference in assets.
• 5:08
  So think about what's happened as the prices of homes have gone up, as the price of stocks have gone up, as the price of all these other investments and asset classes have gone up.
• 5:20
  The people at the top of the economy tend to be the ones that own that stuff.
• 5:23
  And so their net worth, their wealth has gone way up.
• 5:27
  While people at the bottom of the economy don't have as many stocks, they may have a smaller home or no home.
• 5:32
  They're renters.
• 5:33
  They haven't benefited as all these asset prices have gone up.
• 5:36
  So that's the when you hear about this wealth gap or you hear about this K economy, it's about income, but it's largely about assets, about wealth.
• 5:45
  OK, OK.
• 5:46
  Yeah, and one thing to speak to that, one of the notes I put is you almost have to, the economies, we can talk about a K-shaped economy for high wealth, low wealth, etc.
• 5:57
  It's almost, if you look at your service area, there's probably going to be pockets where there are people that have a lot of assets.
• 6:04
  They have experienced the biggest wealth shift in the past five years since COVID, and then the opposite in literally a neighborhood over.
• 6:11
  Yeah.
• 6:11
  And really the segmentation of no longer do I look at like my retention or my churn, of course, my whole service area, I've actually got to look at my zip code or by neighborhood, because it could be completely different based upon where are they at on that K shaped recovery.
• 6:26
  A hundred percent.
• 6:27
  And that's one of the reasons why I wanted to define this exact concept, because it's going to inform our conversation about interest rates.
• 6:34
  It's going to inform exactly what you talked about, Michael.
• 6:38
  What you're basically saying is, who do we serve?
• 6:40
  Where do we serve?
• 6:41
  It's going to inform that.
• 6:44
  There's also a general argument that this whole case shape economy thing stabilizing a little bit.
• 6:48
  Who knows?
• 6:49
  I don't know.
• 6:50
  What do you mean by that?
• 6:51
  When you say stabilize, you mean it's like coming back to me.
• 6:54
  Yeah, yeah, yeah.
• 6:55
  Yeah.
• 6:56
  So if you think about the way that the, and again, I'm pretty informed on this topic, but I'll tell you that
• 7:04
  I don't have the answer.
• 7:05
  Like when we talk about this broad theme of, is there going to be a recession?
• 7:09
  I have no idea.
• 7:10
  And nobody has any idea, no matter what they say.
• 7:12
  Just remember, everybody's selling clicks.
• 7:15
  Everybody's selling newspapers.
• 7:16
  Everybody's selling commercials on TV.
• 7:18
  That's what they're really selling.
• 7:19
  And they have to say it's all going to end.
• 7:22
  Is it going to end?
• 7:23
  I doubt it.
• 7:24
  When's it going to end?
• 7:25
  I don't know.
• 7:26
  Nobody does.
• 7:27
  Okay.
• 7:27
  I think that's like really important to say.
• 7:29
  So, but as we talk through this, I think there are reasons to be concerned.
• 7:33
  And I think we're going to talk about some of those concerns and we're going to talk about what to do.
• 7:36
  But to this K-shaped economy, it's about wealth and assets.
• 7:40
  But so as an example, if asset prices come down, like housing prices, as interest rates go up, it gets more expensive to buy a home.
• 7:50
  Or people just stay in their home, which we're already seeing that now.
• 7:52
  They stay in their home and they're not buying, they're not upgrading their homes.
• 7:56
  Normally, if interest rates were low, they'd buy the next bigger home.
• 7:59
  They'd spend more money.
• 8:00
  But now it's like, ah, interest rates are high.
• 8:02
  If I go into the bigger home, it's going to cost me almost the exact same payment I have now.
• 8:07
  or it's gonna cost me way more to go into the bigger home than what I'm paying now, and so they don't make the move.
• 8:12
  So that's an example where interest rates could impact a decision.
• 8:16
  And so if home values were to come down or asset prices like the stock market come down or any values of companies were to come down, anything that is a wealth-creating asset, if any of that starts to come down, that brings the K-shaped economy more together.
• 8:32
  Another thing that's been happening is on the lower end of the economy,
• 8:36
  incomes have been coming up.
• 8:37
  We know this.
• 8:38
  Like, we're in the business.
• 8:39
  We know that we're paying... You go back to 2020, 2019, we are absolutely paying more money.
• 8:45
  Those incomes are coming up.
• 8:47
  Now, the counterargument would be, well, interest rates are going up, food costs are going up, fuel costs are going up, and some of that's being offset.
• 8:53
  100% agree.
• 8:54
  But there are...
• 8:56
  That's an example where if asset prices come down or as wages come up, and if we continue to run a hot labor market, which we still are running a hot labor market, in my opinion, it depends where you're at in the country, but in my opinion, we are, and I think the data generally supports it, then that means incomes are going to continue to rise.
• 9:15
  And those are the things that aren't going to close the gap, but it may keep it from continuing to grow bigger and bigger.
• 9:20
  That's the gist of the idea.
• 9:22
  Yeah.
• 9:23
  can jump to interest rates but mike anything you want to add around yeah it was funny i saw a uh stat the other day it was something like more than 50 percent of current mortgages in the u.s have a industry under four percent and like those people are just not gonna gonna move like if you have a two and a half three percent mortgage i looked at this other stat it was something along the lines of a five hundred thousand dollar house
• 9:47
  if you got a mortgage at like 3% interest versus now, you'd be paying $1,200 per month more, and just interest today.
• 9:55
  And that's gonna take you from like a $1,900 a month payment to over $3,000 a month.
• 9:59
  That's like 50% more cost of living for that mortgage.
• 10:03
  And so,
• 10:04
  I think in some markets we've seen a kind of depressing, going down, downward pressure on housing prices, but other markets, that's not the case.
• 10:13
  And so I think there's this regional sort of approach to where are your best customers and who are on the top of that part of that K-shaped recovery.
• 10:22
  And then also like, can I make an offer for the person that might be on the bottom end of that K-shaped recovery that might be more price sensitive that can still make it work for me?
• 10:30
  um it's something to think about too and not always like you have to be premium you have to be premium in in a tough economy even sometimes people who have money just because of the news they're like yeah i need to cut back i need to cut some subscriptions i need to think about maybe discounting me i don't need these extra services and so i think having an offer based upon zip code neighborhood part of your service here because i think for all of us in our service areas we look around it's like there's the neighborhood that has million plus dollar homes
• 10:56
  Everyone just accepts everything and wants full service.
• 10:59
  And then in the exact same service area in our city, we have other neighborhoods that are very price sensitive.
• 11:05
  They want the truck in a truck.
• 11:07
  They want to use someone that's cheaper.
• 11:08
  They don't care about your communication or whether or not you're taking a credit card.
• 11:13
  And...
• 11:14
  being able to either A, do I serve both of them?
• 11:16
  Or do I only go after one of these markets?
• 11:18
  Because you kind of have to serve two different, very different ideal customer profiles in the event of trying to go after the high and low part of that K-shaped recovery.
• 11:28
  Yeah, and I call this going up market.
• 11:31
  Like if you want to think strategically, and there's a lot we could talk about here, and we will, but if you want to think strategically about how do you insulate yourself from this, how do you protect yourself from,
• 11:44
  then you want to be thinking just as Mike said about who is it that I'm serving.
• 11:49
  And because as again, Mike said, and as my K shaped economy concept points out,
• 11:56
  There are people in the market that even in a recession, in a downturn, will continue to have enough wealth, enough money, enough disposable income to be able to continue to buy whatever they want to buy.
• 12:08
  And they will largely not be impacted.
• 12:10
  I think we should also take a sidestep and say two other things.
• 12:14
  Like what is going to drive?
• 12:16
  There's two things that are going to drive what people do.
• 12:19
  Okay.
• 12:19
  One is what we're talking about.
• 12:22
  how much money they have.
• 12:23
  So as interest rates go up and housing expenses become more expensive, you know, and all these other things are already more expensive, fuel and food and such that are largely driven by other factors.
• 12:35
  That makes people feel like they... Or as credit card rates go up.
• 12:38
  Wow, we didn't even mention that.
• 12:39
  Credit card rates will go up on people.
• 12:43
  A lot of people have money on the credit card.
• 12:45
  All of this leaves them less money to spend.
• 12:48
  So we've kind of hashed that out.
• 12:49
  That's pretty clear.
• 12:49
  It's intuitive.
• 12:50
  They're going to have less to spend.
• 12:52
  So when they look at where they're going to spend their money, they're less likely to spend it maybe on our services.
• 12:56
  But there's a whole other side here, which is the psychology side.
• 12:58
  And I think that's one of the big areas we're actually in right now.
• 13:02
  I think we do have...
• 13:03
  My brain's going in 90 directions here.
• 13:05
  I could give you something.
• 13:07
  I think there is something going on right now.
• 13:09
  It's my personal assessment.
• 13:10
  I think we should talk about it.
• 13:11
  I think we're already seeing something right now.
• 13:14
  I'm just not like crazy worried about it, but I think we're seeing something.
• 13:17
  Okay, so I think some of what we're seeing right now is psychology.
• 13:22
  That's my theory.
• 13:24
  There's so much change.
• 13:26
  AI, talk of robotics, Iran war, still going with Ukraine.
• 13:31
  Like, just so much negativity.
• 13:33
  It's like, it feels like an almost... Midterms.
• 13:35
  Midterms are coming out.
• 13:36
  Midterms are coming out.
• 13:37
  Thank you.
• 13:37
  Like, yes.
• 13:38
  I would even made my list.
• 13:39
  And that's like almost, that almost says everything you need to know right there.
• 13:42
  So I think this psychology is a big driver in what's happening right now.
• 13:45
  So again, as you think about going up market or where do you go, you're not just thinking about who has disposable income.
• 13:52
  You're kind of thinking about psychology.
• 13:53
  One way that people are overcome, uh,
• 13:57
  psychology is they actually have lots of disposable income and wealth.
• 14:02
  Yes, they're hearing all the news.
• 14:03
  They're a little negative.
• 14:04
  Maybe they're on the side that they can't stand Trump.
• 14:05
  So they're especially negative right now because he's the current president.
• 14:09
  But they have enough money that they're still spending.
• 14:13
  And so those are the two things you're constantly thinking about.
• 14:15
  And I think within markets and then with neighborhoods and within areas, there's differing psychology.
• 14:21
  This is getting really in the weeds that you probably don't need to go here, but I think it's important to understand this concept because it does inform strategy and it does inform marketing.
• 14:31
  And so, um, boy, I've thrown so much out there.
• 14:34
  I think I'll pause any, I've got, but I've got kind of a list of things to think about around this topic.
• 14:39
  Do you have anything you'd add there, Mike?
• 14:41
  No, I was kind of thinking also to, we talked a little bit a lot about the customer, but even for the business owner, the access to capital, when it's so much more expensive, starts to make asset utilization more important, route density more important.
• 14:56
  Maybe you don't buy vehicles or trucks ahead of your growth as much.
• 15:02
  Even things like maybe I put two people in a truck when in the past I only put one.
• 15:06
  because now I'm able to get better asset utilization.
• 15:09
  I'm able to get more budget hours per week per vehicle.
• 15:12
  So CapEx or capital expenditures starts to cost a lot more, especially if you've been financing things.
• 15:17
  And if you've kind of gone on that treadmill, like I use equipment loans, I use truck loans.
• 15:22
  Now all of a sudden that loan might cost 40, 50% more.
• 15:25
  And so really thinking about how do I use what I have now and make it make that dollar stretch further or just that equipment stretch further and then cut out the really is tightening the belt and things like route density.
• 15:37
  Can I shave the 10, 15 percent of my customers?
• 15:40
  I'm driving so far away that I know I'm not making money on them, but I've just kind of gone along with it because I know I'm growing kind of hides in the P and L and.
• 15:49
  I think a lot of times rising interest rates and the lack of access to capital, not being at 0% or 1% interest rates on a truck.
• 15:56
  Now you have to really start thinking about our CapEx.
• 15:59
  For the first time, really, you know, 2020, 2021 was just like, it's money for free.
• 16:04
  You just go get money for nothing.
• 16:06
  Well, now it's 6%, 7%, 8%, 9%, 10% for some people, if they don't have great credit on equipment, even completely different calculus.
• 16:14
  Yeah, I agree.
• 16:15
  I have a whole list of things that we can talk about that you can do.
• 16:21
  And that's absolutely, that fits right into that bucket of the things that I think strategically you want to be thinking about.
• 16:30
  Maybe going back to the interest rate a bit, something I think I should put out there is what I'm seeing now.
• 16:37
  and we might have talked about this a little bit before, but in talking to lots of other business owners and then talking to some, we'll call them consultants in the trades that work with lots of owners, they're seeing a lot of their clients and they're seeing a lot of companies in the industry missing their numbers.
• 16:53
  So they might've had goals and they're not hitting the goals this year or they're not necessarily, some companies are a lot of companies are just kind of flat.
• 17:01
  That's a great way to put it.
• 17:03
  Some companies are getting a little growth, but they're not getting nearly the growth that they've been seeing.
• 17:07
  So there's something going on.
• 17:08
  I think that's valuable to put out there.
• 17:11
  Whether or not that's reality, I'm hearing it so much now.
• 17:15
  There's clearly exceptions.
• 17:16
  There's clearly other companies are still just going and going fast.
• 17:19
  Right.
• 17:20
  But definitely hearing that more than I've heard before.
• 17:24
  So I think, or recently.
• 17:25
  So I think that's worth putting out there.
• 17:26
  But I also still have this general operating theory when it comes to maintenance and repair companies.
• 17:33
  Even in a downturn, if that's what's coming, I think they hold up.
• 17:36
  I'm really not overly concerned here.
• 17:39
  I think what you might see is the amount of money they spend might contract.
• 17:43
  And clearly some people will be impacted.
• 17:47
  But on the whole, I think it holds up.
• 17:50
  I think where you get a little bit more worried is around any service that you're selling where it requires financing.
• 17:57
  That is of concern because interest rates are going up, but it also tends to mean they're spending a lot more money and it's a bigger ticket item.
• 18:04
  And so those things are going to require a little more caution on people's parts or they're going to be a little more careful about spending that money.
• 18:10
  But on the whole, for most of who I think we probably talk to, I think you probably fall in the maintenance and repair world.
• 18:17
  My positive argument here is I think you need to think about everything we're about to talk about as we continue to rattle off solutions.
• 18:25
  But I don't think you should live in a state of fear here.
• 18:28
  We just don't know.
• 18:29
  And I think living in a state of fear is a really bad thing to be doing right now because we could stay on a rocket ship.
• 18:36
  financially for several more years.
• 18:37
  And I can make arguments on that side as well.
• 18:40
  And so that's one.
• 18:42
  Another one that, going back to the interest rate thing, we've already said this, but this has a real impact, but we're already feeling this.
• 18:49
  There's less new movers.
• 18:50
  New movers are one of the single easiest ways for a company that's aggressive to grow their business.
• 18:56
  It creates movement in the marketplace.
• 18:58
  when you sell your home, you might've been indifferent, liked, but generally been indifferent to the company you had before.
• 19:05
  You weren't unhappy, but you're switching homes, so you just switch providers.
• 19:09
  It's an easy conversation.
• 19:10
  You didn't actually have to fire them.
• 19:11
  You just told them, I'm moving.
• 19:12
  I'm canceling.
• 19:13
  It's an easy conversation.
• 19:14
  There's a whole lot of reasons why less movers in the market makes it a little bit harder for many of us to grow.
• 19:19
  And then to Mike's point,
• 19:21
  what he just said is everything around this financing.
• 19:23
  It's just the other thing.
• 19:24
  It's just going to continue to cost many operators more and more money to run their businesses.
• 19:29
  And even in an indirect way, your vendors have financing costs that get added into their pricing.
• 19:35
  They can pass along to you.
• 19:36
  So costs are just going to continue to go up in a high.
• 19:39
  Even private equity.
• 19:40
  I was thinking at the highest level, like multiples have to come down because they, they use debt in order to be able to make these deals happen.
• 19:48
  Interest rates impact everything.
• 19:49
  What is the government's number one tool with the economy?
• 19:53
  It's interest rates.
• 19:54
  So when the economy runs hot, as they say, hot simply means there's a lot of inflation.
• 19:59
  Asset prices are going up too fast and they want to slow down the growth of the value of homes and stocks and everything.
• 20:06
  et cetera, assets, they can raise interest rates, which will slow down the economy.
• 20:10
  When the economy goes really, gets to a place where it's like really slow, nobody's investing, they're not buying these assets, they're not buying more homes, they're not upgrading their lifestyle, the government tends to bring down interest rates to stimulate activity in the economy, to get people buying things, to get businesses to make big investments.
• 20:29
  And so interest rates are one of the single biggest levers the government has to,
• 20:34
  to move the economy which is a positive argument possibly possibly to if we do find ourselves in a recession at some point as interest rates have moved up there's an argument that we can bring interest rates down to create stimulus the counter argument to that i know i'm getting in the weeds but if people are interested in this the counter argument of that is they can only do that if inflation is also coming down if the economy continues to run hot
• 21:00
  because of say AI in just a few specific areas or because food prices are up because of the war, things like that, they may not be able to bring interest rates down to re-stimulate the economy.
• 21:10
  But normally that's the tool they use.
• 21:12
  And so when you're making a bet about what's gonna happen, are interest rates gonna go up or down?
• 21:17
  I think you should fall in the camp of, I have no idea.
• 21:19
  Like you shouldn't plan for that.
• 21:21
  I don't think you should bet on it.
• 21:23
  You should just run your business in the safest and best way that you can.
• 21:28
  One thing that we were talking about last night in the boardroom that I had never really thought about before, and we started discussing it, and someone had a question about raising prices, et cetera, and he had several things he wanted to do with his billing as well, like changing his billing cycle and his billing terms to improve his cash flow.
• 21:47
  And I think one thing that is a really tangible thing, just to get off this topic, when it comes to just the overall fear, the psychology of people hearing all about prices going up and inflation, and it's going to become loud, very loud, over the next several weeks as we go into the midterms.
• 22:02
  is the ability to be able to change things outside of pricing with your customers.
• 22:07
  So for example, he was on where he accepted checks and did net 30.
• 22:12
  So end of month billing gets 30 days to be paid.
• 22:15
  And he said, hey, you would be very popular right now is telling your customers, we're not going to charge you higher prices.
• 22:20
  We're not raising your price, but our costs are going up and we need to make sure that we help our cash flow.
• 22:25
  And to make that possible, we're going to accept credit cards now and we're going to be billing you right after the service is done.
• 22:31
  but your prices are not going up.
• 22:33
  That's almost a very popular thing to say right now.
• 22:35
  Customers have been very receptive from what I have seen at several companies now doing this, where it's like, hey, we aren't changing your price, but our costs are going up.
• 22:43
  And everyone knows that.
• 22:44
  So they give you the immediate check and they usually get, even on social media, a lot of positive feedback by saying, hey, we're not raising prices, but we need to work with you to make this work and be able to pay our employees.
• 22:55
  And to make that happen, we're gonna adjust billing terms, whether that be how long it takes to bill or payment type.
• 23:01
  Yeah, we used that strategy back in the days of the cleaning business.
• 23:05
  And we were dealing in the commercial world.
• 23:07
  And we negotiated weekly payments on movie theaters to not raise their prices.
• 23:12
  Because everybody in commercial takes a standard 3% a year, whatever the case might have been.
• 23:16
  And it worked back then.
• 23:18
  I never thought about it for residential, frankly.
• 23:21
  But I guess maybe we've been on credit cards as long as I can remember at this point.
• 23:24
  But that's a really savvy idea.
• 23:26
  I think that's really smart language.
• 23:29
  We touched on briefly kind of about the real estate market, but another sort of trend in the economy, whether it's gonna continue or not, just to be debated.
• 23:37
  But with interest rates being so high, in a lot of markets, it's so much more expensive to own a house than just to rent.
• 23:44
  And I think back in the day, four or five years ago,
• 23:50
  if I don't want to live at my house and I own it, it's like, oh, I'll move and I'll just rent it out and I'll cover the mortgage.
• 23:55
  Well, now the mortgage is likely, if you have a 7% mortgage, you'll be substantially higher than what you can rent that place out for.
• 24:02
  And so what we're seeing kind of as a general trend right now is home ownership on the decline and more and more Americans becoming renters.
• 24:11
  How do you think that's going to affect the home service industry?
• 24:14
  And what can we do to pivot in this direction of more renters, less homeowners?
• 24:19
  I think the stigma is if they're not a homeowner, they don't care as much about their property.
• 24:23
  They don't care about repairs or maintaining things as much as a homeowner would.
• 24:27
  But what's sort of your feedback on this overall trend?
• 24:31
  Yeah, my philosophy is that statement right there is true, that if you're a renter, you're not going to invest in the home in the same way.
• 24:40
  And so I do think that's problematic.
• 24:43
  I will say the trend, I believe in the trend without question.
• 24:46
  I think the data supports it, but I'm not overly worried about it right now.
• 24:50
  But I will also say that's coming from a place of being in a pretty dang good market.
• 24:54
  Yeah.
• 24:55
  So take that with a grain of salt.
• 24:56
  And depending on where you are, maybe it's a different experience.
• 25:00
  We have tons of renters here, like in our market, no doubt about it.
• 25:04
  And I've been exposed to enough conversations to know, even though I don't run the business, that they're not the same quality of customer.
• 25:11
  But I think this is a building trend that could become more troublesome.
• 25:15
  And the reason I think it's troublesome, it's not that the work, repairs and maintenance still have to happen.
• 25:20
  Now they could happen.
• 25:21
  So it's not really like,
• 25:24
  It's more that you're going to maybe...
• 25:30
  you're going to do less maintenance.
• 25:31
  You'll cut back the level that you would do.
• 25:34
  If you owned the home, you'd spend more on the bushes.
• 25:36
  You'd spend more on the irrigation system.
• 25:37
  You'd water more.
• 25:39
  You'd fix things faster.
• 25:41
  I think we intuitively know how a renter versus an owner might operate psychologically.
• 25:47
  And so I think the repairs and the maintenance continues.
• 25:50
  It just, the volume is less.
• 25:53
  They spend less on it.
• 25:55
  And then I also theorize that it becomes more price-driven,
• 26:00
  really the worst scenario in my mind the price driven buyer is not a good buyer and the renter or the person renting the property
• 26:10
  may remain price driven.
• 26:13
  What I mean by that is, if I'm dealing with Ms. Smith and she's a new homeowner, she's highly likely to be somewhat price driven.
• 26:23
  Maybe, maybe not, because she has to go through this process that is called price discovery.
• 26:27
  She has to learn what she gets for her money and what a fair price is.
• 26:32
  So she might look at three companies and say, I'm going with the cheapest one.
• 26:35
  They all seem about the same, but then they burn her.
• 26:38
  And then she tries another one and she gets burned.
• 26:40
  And then over time, she discovers spending more generally, generally delivers more value.
• 26:45
  It's a better outcome.
• 26:46
  And as she time passes as a homeowner, she tends to make buying decisions less on price and buying decisions more and more on the perceived outcome that she's going to get the value.
• 26:58
  OK, I think in a renter's world, it's more of a balance.
• 27:02
  It's more of a profit loss statement.
• 27:04
  decision.
• 27:05
  It's like, I need this property to stop losing me money.
• 27:09
  I need this property to break even.
• 27:10
  I need this property to actually return some money.
• 27:13
  And it's more, there's not an emotional connection to the property.
• 27:16
  It's more of just math.
• 27:17
  It's like, yes, this vendor is a pain in the butt.
• 27:21
  that I'm using, they're not that great, but I need the price to be as low as possible.
• 27:24
  And maybe I don't even care because I make the vendor, the vendor problems, my property management company's problem, not my problem as the owner of the property.
• 27:32
  And so I don't think there's a solution to the landlord being more price driven than a homeowner.
• 27:39
  I just, I think that is what it is.
• 27:41
  And I don't think you're gonna market around it.
• 27:43
  So it's back to the concept of,
• 27:45
  this up market concept, like who are you serving, what areas, what type of client.
• 27:50
  That's when that becomes really important.
• 27:52
  It's already something as I've gotten back involved in the CityTurf business that is moving us slowly from, and it's been happening for a bit now, but we used to be like really hardcore on one kind of client, generally one kind of client.
• 28:07
  And we are now starting to have two kinds of clients in our business.
• 28:10
  And that's a difference.
• 28:11
  And it presents a number of problems.
• 28:14
  But it's very much me thinking about how do you go faster?
• 28:18
  How do you solve for, not just me, but other people in the company, but how do you go faster?
• 28:23
  And how do you solve some of these problems that could be coming?
• 28:26
  And so that's just how you want to think.
• 28:28
  And I'll add two more.
• 28:30
  The other thing I think that happens in a more of a renter world is more churn.
• 28:34
  It just naturally happens.
• 28:35
  It's because they're price sensitive.
• 28:36
  There's more moving.
• 28:37
  It's just churning through the vendors, trying to get a solution or properties are flipping.
• 28:42
  I think there's more churn.
• 28:44
  And also, if you think about one of the biggest things you're trying to accomplish in your business is you can grow through acquisitions, getting more clients.
• 28:53
  You go through expansion, growing the value of your client.
• 28:55
  Those are two big ways you grow your business.
• 28:57
  There's others.
• 28:58
  I think expansion kind of falls apart.
• 29:01
  The idea that I'm going to win a client for mowing lawns and I'm going to sell them a new landscape or I'm going to win them and we're going to put in flowers or mulch or whatever your offerings are that is a version of expansion of selling them more.
• 29:14
  I think most of that doesn't happen in this type of world.
• 29:18
  Yeah, one thing I can do is like the property managers and where that business model as a whole goes, even with technology, like as someone that might have properties, like I don't want to deal with tenants.
• 29:33
  So there's got to be this property management layer.
• 29:35
  Usually they take, you know, five or 10% of revenue.
• 29:39
  off the top of a landlord just to be able to maintain the property.
• 29:42
  And how I've always looked at it is like, what can I do as the service provider to make the land, not the landlord's job easier?
• 29:48
  Because they don't do anything.
• 29:49
  They don't want to be called.
• 29:51
  It's the property manager that's my customer.
• 29:54
  the tenant a lot of times will contact the property manager when they have a problem with the lawn or the hvac or they like anything they're contacting the property manager and so i've always said okay if this is a renter and a property management company is involved the property management company is our customer and we serve them by reducing their workload at this property so like things like pictures of the job site before and afters recommendations with video to say hey this is going to cause a problem down the road that's gonna be a thousand dollar issue
• 30:20
  to as a property manager, I'm now helping them to do a visual inspection of the property.
• 30:25
  I'm also ensuring that they don't have egg on their face when there's $1,000 repair that should have been caught three months before.
• 30:31
  And so I really think like pictures, video, documenting of the work if you're on a recurring basis, and looking for opportunities to prevent damages down the road, because that's when a property manager perks their ears up.
• 30:43
  Because a damage, a leak, an issue at the house, pest in the house is a huge amount of work for them to resolve something versus raising the red flag as the vendor being like, hey, there's a problem here.
• 30:56
  I can fix it.
• 30:57
  And I have found a lot of property managers, given if the landlord is wealthy enough, they've been given a long leash to operate without bringing the landlord in.
• 31:07
  So for example, my property manager, I said, I don't want to hear about it if it's under five grand.
• 31:12
  Like just get it taken care of.
• 31:14
  Put your markup on whatever you get.
• 31:15
  Get me two bids.
• 31:16
  Get the, take the lower one and put your 10% markup on it.
• 31:20
  I don't want to hear about it.
• 31:21
  And so how can I get the property manager to accept my bids?
• 31:26
  Really comes down to how can I take more off their plate and do their job for them?
• 31:30
  And they realistically just want to take their cut of revenue.
• 31:33
  They want tenants to stay inside the house and be happy.
• 31:36
  And they don't want to turn turnover because that's when they have to start doing work.
• 31:41
  And what can I do to do that to facilitate as a vendor has always been helpful.
• 31:45
  I think it's smart.
• 31:47
  I think that makes the optimistic argument.
• 31:49
  I think there's actually a couple optimistic arguments here.
• 31:51
  So one, in this scenario, you're talking about a business that feels more like a commercial business than a residential business when you start talking about property managers.
• 32:01
  And I've got quite a bit of a commercial experience.
• 32:03
  It just goes back a long ways.
• 32:05
  And that is the client, exactly as you said.
• 32:07
  Like that's who you really are focused on.
• 32:09
  So 100% agreement.
• 32:11
  Now, what's good about that is that the positive argument here is that if you really kill it with the property manager and you do everything you just said, and they love you and you make their life better,
• 32:24
  who do they wanna get their business to?
• 32:26
  Like, so it's a faster way to grow.
• 32:27
  This is one of the reasons why commercial companies can go really quick.
• 32:32
  Once they get in with the property management companies, they'll just give them so many properties.
• 32:36
  So that's the positive.
• 32:37
  And the other thing that you said, I took a more negative tone, and I still hold to my general negative feeling about rental properties.
• 32:47
  And I did say that they're going to spend less.
• 32:50
  They're going to be more price sensitive.
• 32:53
  I hold to that.
• 32:53
  I agree with that.
• 32:54
  But what you just said did make me want to say something else.
• 32:58
  I think something that happens when we're talking to a homeowner, it's a little easier for us to picture the homeowner as a human, as a person.
• 33:11
  When we're talking to a business and we're marketing,
• 33:14
  I think we suddenly forget we're talking to a human.
• 33:19
  Okay.
• 33:19
  Like you're still selling to Bob, who's the purchasing manager at Starbucks, who's going to his kid's baseball game tonight.
• 33:27
  And his wife's angry because he's been on the road for the last six days.
• 33:30
  Like he's a human.
• 33:32
  He's the same guy.
• 33:33
  He's just like Bob that owns a house.
• 33:35
  And we forget that.
• 33:36
  The same is true.
• 33:37
  This is, I wanted to bring this up because the same is true with property managers.
• 33:40
  You're still dealing with a human and a human doesn't want to have to keep finding new vendors.
• 33:43
  They don't want to deal with no shows.
• 33:46
  They don't want to constantly have to apologize to the landlord.
• 33:48
  They still, so you are still selling, just as Mike said, like all the ways you can make their life easier, which is,
• 33:55
  which done right means they won't buy the absolute cheapest price.
• 34:00
  They're going to buy somewhere above that.
• 34:02
  I just don't think they bring emotion into it.
• 34:04
  Like a homeowner will bring emotion in to their purchases.
• 34:07
  What I'm interested to see is like, does the property management model start to become more and more popular at single family homes?
• 34:16
  Like, obviously, to your point, like commercial being apartment complexes and property managers, that's very common.
• 34:21
  But like if if people that have, say, net worth of five, 10 million, have three, four homes, they have a whole bunch of low interest rate debt on that.
• 34:29
  Are they going to be the person that's going to be the landlord that is taking calls?
• 34:32
  Are they just going to have property managers taking it?
• 34:35
  Yeah, I don't know because that brings up another topic that I don't have any data on.
• 34:39
  I've not looked into.
• 34:41
  Is there an evolution happening right now where I know that we had the Black Rocks and we had other major groups come in and buy up lots of homes.
• 34:48
  That's like a whole different thing.
• 34:50
  But if you were talking about because I actually think if I've read a few articles, I think that's kind of.
• 34:56
  Not popular and fading.
• 34:58
  Yeah, yeah.
• 34:58
  It did get outlawed?
• 35:00
  It did get outlawed, and it's only 1% of homes.
• 35:02
  Yeah, yeah.
• 35:02
  I knew it was a smaller number.
• 35:04
  I didn't know it actually got outlawed.
• 35:05
  I knew there was talk of that.
• 35:06
  Okay, Idra.
• 35:06
  Okay, so now that further makes my case for what I'm about to say.
• 35:11
  The one thing both sides of the aisle could agree on.
• 35:12
  We should not have private equity involved.
• 35:15
  Pying up all our homes.
• 35:16
  Yeah.
• 35:16
  Yeah.
• 35:17
  It's now happening in the car market.
• 35:19
  And the high-end car market is just insane right now.
• 35:22
  So private equity, just like back to the dang, it's when they bring that much money in, things get out of balance.
• 35:28
  Okay, we don't have to get on that topic.
• 35:30
  So where I was going with this, what I don't know, Mike, maybe you know, is there actually a shift in,
• 35:36
  in are there more individuals buying more homes or is it still the typical thing that an individual owns one or two rental homes?
• 35:45
  Is there some dramatic change that if the Black Rocks are gone, that the individual is starting to buy a lot more homes?
• 35:52
  Because my argument on whether they use property management or not is about the size of their portfolio.
• 35:58
  If they sold their home and they bought another home and they kept that home, they're probably managing it.
• 36:02
  But if we're seeing a trend where more people are buying a portfolio of homes, that's when I think you see the property management.
• 36:09
  That's my theory.
• 36:11
  If you had a secondary house that you rented out, would you be the property manager or would you just hire a property management company?
• 36:19
  Well, I have chosen not to play that game.
• 36:23
  Okay.
• 36:23
  Yeah.
• 36:24
  Very intentionally because I think it's a business and I don't want to be distracted.
• 36:28
  But when I used to own a small apartment building, I had a property.
• 36:33
  I did it for the first six years myself.
• 36:36
  Learned all the lessons I needed to learn and then I got a property management company.
• 36:40
  So I wouldn't want to mess with it.
• 36:42
  So I'd probably get a property management company.
• 36:44
  But I know people that own these homes and they don't...
• 36:46
  I know a lot of people that don't have property management companies.
• 36:48
  So that's why I don't know what people do.
• 36:51
  That's kind of what I was saying.
• 36:52
  I don't know what the trend is.
• 36:53
  I thought maybe you would know.
• 36:55
  You know, I'm just, I'm just interested to see something like Zillow or something comes along that makes that property management layer so easy.
• 37:01
  And there's, there's still that intermediary between landlord and tenant.
• 37:07
  But as an opportunity at the residential single family house level to be able to differentiate yourself, I don't know.
• 37:14
  I don't either.
• 37:14
  But I'm interested to see, because like right now, so many houses are being bought with cash, that's the people at the top of the shape recovery.
• 37:20
  And I gotta ask myself, okay, if someone's buying a house for $1.2 million in cash,
• 37:24
  Are they going to be the person that tenant calls or the house that they still have at a two and a half, 3% interest rate?
• 37:30
  Are they going to, when they rent that out, are they going to be the one that actually is the landlord?
• 37:34
  Are they going to pass this along to property manager?
• 37:36
  And if so, what's the opportunity for a home service business that is targeting that intermediary?
• 37:42
  Yeah.
• 37:43
  I have no idea.
• 37:44
  I don't either.
• 37:45
  One thing that did come to mind, because we rent a lot of homes, and we don't always use Airbnb or VRBO, so we rent in different ways.
• 37:54
  They're never managed by an individual owner.
• 37:56
  Now, they are usually expensive homes, but I have never that I can remember ever been in one that is not managed by some kind of a property management company.
• 38:08
  Um, yeah, I don't know the answer to this, but it's, it's interesting.
• 38:12
  It also comes down to like, if let's say it's a really, really nice house and you're going to rent that out.
• 38:16
  Is the person bought renting at that house going to also be the person that wants to buy their own home?
• 38:21
  That's where like at the higher end level of the market, if I'm going to pay five, six, $7,000 in rent, am I also the same person that wants to go out and just buy the house myself?
• 38:30
  Cause I'm in that top end of the K-shaped recovery.
• 38:33
  Again, don't know.
• 38:34
  This is why I just don't know where this market's going.
• 38:36
  And it's another argument to why I'm just not that terribly worried about it just yet.
• 38:40
  I don't know what's going to happen here.
• 38:41
  I think we've been seeing this trend for a long time.
• 38:44
  I think it's been called the Uber economy or whatever, where the younger crowd coming up is not inclined to buy stuff.
• 38:53
  But I think that's me to a degree.
• 38:56
  I only want to own one home.
• 38:58
  I do not want to own multiple homes.
• 38:59
  I just want to rent homes.
• 39:00
  I think a lot of people feel that.
• 39:02
  I just saw an article today that was talking about how the vacation market in certain markets, they're sitting on the market longer and longer.
• 39:10
  And it's a bunch of people that were buying in 2021, 22 that have now had their homes.
• 39:15
  Vacation homes tend to flip every four or five years.
• 39:18
  They've now got to the place.
• 39:19
  They've experienced what it means to have a second home and how much of a pain in the butt it is.
• 39:23
  And people are exiting those homes.
• 39:25
  Whether or not that's true or factual, I thought that was an interesting argument.
• 39:27
  So I think this is something that is happening both at the younger crowd buying homes for the first time or maybe not buying.
• 39:38
  They're just wanting to rent.
• 39:39
  But I also think it's even happening in other people are doing the very same thing at different ages.
• 39:45
  So I just don't know where this is going.
• 39:47
  Yeah, one thing you said earlier about people that have been burned multiple times from like a cheaper home service provider, and then kind of coming to the conclusion, hey, I'm not gonna just look at price now, I am gonna think more about the quality and the service and consistency, et cetera.
• 40:01
  I was thinking about this the other day and I was like, well, maybe that means I only market to people like 50 and up that have been burned several times.
• 40:08
  And I don't want to deal with that person that is even like in their first, like the reason I say this, because I think, I think so many people market to the customer that is switching from doing it themselves to having a professional service, like save time on the weekends, say when reality, it's like, that's a one-time decision.
• 40:24
  And then every single year after that, or anytime they switch providers, they're not considering doing it themselves.
• 40:30
  They're not considering whether or not they're going to save time on the weekend, it's whether or not you're going to show up and be the best provider that they can get.
• 40:36
  I learned that lesson at the beginning of city turf.
• 40:38
  We know.
• 40:40
  I might've heard that from you.
• 40:41
  I'm not going to lie.
• 40:42
  I might've heard that from you.
• 40:43
  I'm not trying to get credit for it.
• 40:44
  I'm just saying, I'm just saying, I was thinking that's the type of thing I think you would have said.
• 40:48
  Oh, I mean, I, I, I, I don't even think about this anymore, but it's such a great point.
• 40:54
  If,
• 40:55
  if your lawn looks like it needs mowing, you're not for us.
• 41:00
  If your flower beds are in bad shape, not for us.
• 41:03
  If you're trying to side, like the advertisement was like, hey, you could play more golf on the weekends.
• 41:09
  The advertisement where it's like you don't have to work on Saturday,
• 41:12
  Dude, I'm not selling to you.
• 41:14
  I'm selling to the guy that's already decided this is how he lives life.
• 41:17
  That person that's making the switch from golf course, they are usually more price sensitive because this is a big thing for them.
• 41:22
  This is like another thing I got to add to the budget versus the other person like, I'm not mowing my grass.
• 41:28
  I'm not going to switch out the HVAC system.
• 41:30
  Like, what are you talking about?
• 41:31
  I'm not spending my money to convince you.
• 41:33
  I'm spending my money on people that are already convinced and we're just switching them to a better company.
• 41:37
  There's only one service that we sell that I see this differently and it's Christmas lights.
• 41:42
  That one I will legitimately argue for a first time.
• 41:46
  I'll take a first time Christmas light buyer and I'll push it.
• 41:48
  But otherwise, no, I mean, I'll take you if you come to us, but I'm not going to direct any of my marketing to that crowd.
• 41:54
  Yeah, even the copy, we've recently been working on the website.
• 41:56
  The only thing focuses us versus them.
• 41:59
  It's like, here's what you've had, here's what you will have.
• 42:02
  Here's what we're different.
• 42:03
  Here's what their trucks look like.
• 42:04
  Here's what ours look like.
• 42:05
  It's just that.
• 42:06
  And because in the past, it was so focused on save time, save money.
• 42:12
  Not say money, but save time.
• 42:13
  And it's like...
• 42:15
  once someone's made that decision one time that i'm not you don't go back after five years of having a landscaping service i'm like i am now going to trim my bushes like it's a one-time decision and after that for the vast majority of people they're not going back to deal with yourself yeah yeah i think the save time can still be a well i will use the save time maybe i don't say save time but i'll use that but it
• 42:38
  But to your point, I don't use it the way you described.
• 42:40
  I would use it as CityTurf's client stays with us on average 7.2 years.
• 42:45
  You're not going to have to fire us.
• 42:47
  we're going to save you a lot of pain and time.
• 42:49
  It's that kind of like, that's the, because you people still worry about time.
• 42:52
  They still worry about their to-do list.
• 42:54
  So it's just, we're saving them a different kind of time.
• 42:56
  I'm not taking, I'm not saving you time mowing your lawn or killing bugs.
• 43:01
  I'm saving you time in different ways.
• 43:02
  I'm saving you trouble in different ways.
• 43:04
  So I think time still matters to all of us.
• 43:05
  So it still can have its place, but just the exactly way you described it, we're not saving them that kind of time.
• 43:11
  Now when I hear stuff like that, I'm always trying to put it in copywriting terms.
• 43:15
  So I heard what you just said, I'm like tired of changing presidents, tired of change.
• 43:19
  We last longer than four years in office.
• 43:21
  All right, right.
• 43:22
  We almost last for eight or two terms.
• 43:25
  Yeah, we're almost illegal.
• 43:26
  We have such a good term, we're almost illegal.
• 43:28
  Almost three terms.
• 43:30
  all right let's wrap it up with kind of some of the specific actions that uh business owners can take if we were to go into recession and i i kind of like this topic in in perpetuity all the time because i think it just makes a better business i agree yeah and so but what are some of those specific things that if let's just say someone is freaking out and they are listening to the news uh what are the actual things in our business we should be doing to create a moat um
• 43:56
  build a wall around the defensibility of our business as we prepare for what could be a recession.
• 44:02
  Yeah.
• 44:03
  So most of it's all money.
• 44:04
  But if I think about like kind of a first few things, we'll call them financial things.
• 44:09
  If you're not running, if you're worried about this and you haven't got your place to yourself to a place of good profitability or even profitability,
• 44:17
  Like that's step one, because you went in a bad market when things get harder, if you're not profitable, the losses just compound the debt compounds, the trouble compounds.
• 44:28
  This is how you miss making the sales tax payment or the payroll payment.
• 44:31
  Like this is how it happens.
• 44:33
  And it happens way more than most people realize.
• 44:35
  And so step level one is like we just got to get to a place of real profit, profitability inside this organization.
• 44:41
  one thing i always remember like every time i think about this is the end of 2021 going into 2022 all of a sudden the stock market it turned from how fast can you grow to are you making money yeah and it was just like where there were companies that dropped 90 95 98 percent that were growing really fast and were like stock market darlings and then all of a sudden it's like oh you're losing money interest rates have gone up
• 45:04
  we are slashing your your evaluation and i still remember that like in six months even three months it just switched and i always think about that when i start hearing like it's all about growth and growth and growth it's like ice that that for me is probably one of the ones i felt the most because i was investing in the market and seeing what was happening like okay now all of a sudden profitability matters and i think to your point like getting profitable now if you think you're going into a hard time is extremely important
• 45:34
  Yeah, and that was an interesting example.
• 45:36
  And that happens based on having been around a while, liking this stuff since I've been 20.
• 45:40
  This happens, what you just said, happens every single time there's a downturn.
• 45:44
  We shift from a growth investment mentality to a value investing mentality.
• 45:48
  Suddenly profits matter, stability matters, cash matters.
• 45:52
  Same, it's, because this is where I think people get really confused.
• 45:55
  They're like-
• 45:57
  they kind of tune out because the stock market feels like a trading machine.
• 46:02
  The stock market is nothing but investing in a business.
• 46:06
  It's exactly like our businesses, except you can buy their stock and sell their stock.
• 46:11
  And you get to see how their valuations change from day to day.
• 46:15
  You don't see any of that in our business.
• 46:17
  The stock market is exactly like private businesses.
• 46:21
  The stock market is not this...
• 46:24
  thing that most people imagine it is.
• 46:25
  And so the same rules apply in our business and their business.
• 46:29
  They may have more access to capital and debt than we have.
• 46:32
  They may be able to sell stock and generate cash.
• 46:35
  We can't do that.
• 46:36
  We could, we could take on investors.
• 46:38
  It's the same, but so when you give the example that suddenly as an investor in the stock market means as an investor in companies,
• 46:49
  I now really care that they're profitable and they have cash.
• 46:52
  Why?
• 46:53
  Because I don't want to go out of business.
• 46:56
  I don't want them to go from being a, you know, a 7 billion a year revenue business to a 4 billion a year revenue.
• 47:03
  I don't want them to go from a market leader to being fifth in their market.
• 47:07
  And those things all could happen if they aren't profitable and they don't have cash.
• 47:12
  And so it's the exact same rules.
• 47:14
  And that's why that stuff matters.
• 47:17
  So get profitable.
• 47:18
  That's like level one.
• 47:20
  Then if you're really believing this is a risk, earlier, Mike, you were talking about things like being careful where you spend your money.
• 47:28
  I don't remember how you worded it now.
• 47:31
  My example would be if you've been thinking, if you're worried about this and you've been thinking about building a building, that's gonna require a big cash outlay.
• 47:36
  Maybe you don't make it.
• 47:37
  Maybe you hold that and see what happens.
• 47:39
  Or maybe you don't buy...
• 47:41
  A bunch of new trucks right now, if the trucks you got are working, you hold that cash for a moment.
• 47:48
  You make those things last a little longer.
• 47:49
  Those are examples of how you be a little more conservative with your money.
• 47:54
  So you build more cash or you keep more cash.
• 47:57
  That way, you've got some protection if the market does turn down on you.
• 48:02
  You've got cash to defend your business.
• 48:06
  And then, so these are kind of financial.
• 48:08
  And then if you've got, if you believe interest rates are going to keep going up, if you believe that things are going to get tougher, you know, you think about, of course, your debt, but you also think about clearing up your variable interest rate debt first, credit cards, things like that, like you get rid of that stuff, you can all if everything melts down, you can always go back to putting money on credit cards.
• 48:28
  but get them cleared up.
• 48:30
  And those are some of the, I've got a number of additional things, but I'll pause there.
• 48:33
  But those are the big top level things I'm thinking about.
• 48:38
  Yeah, on kind of that financial note, one thing I had noted was just doing a stress test.
• 48:43
  Like a lot of times, you know, we have a lot of fear and it might keep us up at night and we're afraid of a recession.
• 48:50
  We're hearing all these things.
• 48:51
  One way that it's been really helpful for me is like, okay, so let's play this out.
• 48:54
  Let's say 10% revenue drop.
• 48:57
  Can I sustain that?
• 48:58
  Okay, what happens if we drop by 20%?
• 49:00
  Okay, what happens if, okay, what do I have to cut?
• 49:02
  Okay, we're gonna have to sell a couple trucks.
• 49:03
  Okay, if we drop by 30%, I've gotta let some of the equipment go, I've gotta lay out some of the admin, the overhead people off, maybe the sales people I'm gonna have to let go.
• 49:11
  And having a plan to actually know, okay, if it dropped by 20%, I have to do these things.
• 49:14
  If it drops by 30%, I have to do these things.
• 49:16
  And having that plan allows you to actually almost stay more offensive because like, worst case scenario, if we're really gonna drop by revenue this much, I have a plan to cut overhead,
• 49:27
  reduce my admin staff, sell off some of the equipment we don't use a lot.
• 49:31
  And having that plan in place almost puts at ease that fear, like what's gonna happen?
• 49:35
  Because I've been growing every single year for five years.
• 49:37
  What happens if I have a year where it's down?
• 49:40
  And making sure that I can actually stress test the business and survive those stress tests.
• 49:45
  Yeah, I actually love that.
• 49:46
  So there's another benefit to what you just said that you just made me think of.
• 49:50
  Like a lot of times when we live in fear, we're living in fear of the unknown.
• 49:54
  Yeah.
• 49:55
  We're imagining things that may or may not ever happen.
• 49:59
  And...
• 50:00
  In your example, you just gave somebody a plan.
• 50:03
  And so if I think that helps reduce fear, like, yeah, this could happen.
• 50:08
  It might happen.
• 50:09
  But if we've literally thought through, here are the 19 things I need to do and think about if this in fact happens, you've got a plan, which I think for many will bring relief.
• 50:19
  It's not this open loop in your brain where it's like, well, I don't know what I'm going to do.
• 50:23
  Is it going to happen?
• 50:23
  If it happens, what am I going to do?
• 50:25
  It's like, if this happens, this is exactly how we're going to deal with it.
• 50:29
  And I think that can bring a lot of comfort.
• 50:32
  And a lot of sophisticated companies do operate with those types of plans.
• 50:36
  That way they can act really fast.
• 50:39
  Another thing that I had kind of thought about is like analyzing things
• 50:43
  if customers are not coming into my funnel, i.e.
• 50:46
  accepting an estimate, I kind of need to know why.
• 50:47
  And then if they're leaving, so if you have any sort of recurring revenue, if they're leaving, I need to know why they're churning.
• 50:55
  The reason I like to know why they don't accept my estimate is I don't want to be fighting a ghost that I think it's all about price because I'm hearing all this stuff in the economy when in reality it has nothing to do with that.
• 51:03
  And they just accept it to someone else because I'm three days late on getting them the quote.
• 51:07
  And so knowing incoming, why are you not accepting and on your going out?
• 51:13
  If you're turned, I need to know why.
• 51:15
  And so this is something recently Augusta, we every single time any recurring series is stopped, it's going to open up a trigger for them to be able to enter why.
• 51:24
  So we can aggregate that data and be like, No, this has nothing to do with your price.
• 51:27
  It's because
• 51:29
  there's a drought so like let's not face this boogeyman go discount or bring our prices down when that's not the problem and so that we can act with intentionality and data instead of the emotion that is inevitably happening during an event like a recession
• 51:43
  To dig in on that one, do you have use estimating as an example?
• 51:47
  So you send an estimate, or it could be on the phone, or you sent an estimate or online, they get a price they don't buy.
• 51:53
  How do you capture that information?
• 51:55
  I mean, clearly, you can ask somebody if you're talking to them, you may or may not get a real answer.
• 51:58
  But how do you guys have any clever method to try to get a higher number of people to give you that information?
• 52:05
  put it on the t for me it's in homework yeah we we require them you can make it where you require them to give you a reason in order to decline the estimate so that way when you go back in the estimates you have a column of declined reasons right but if you send them an estimate they you actually present them with an option to accept or decline correct big product decision right there yes
• 52:31
  Yeah.
• 52:31
  And have you seen, this is very top of mind for me.
• 52:34
  Have you seen any, you may not even know the data.
• 52:37
  This is a very hard day to get.
• 52:38
  Do you have any idea of presenting somebody with a client has any negative impact on the invoice?
• 52:44
  Like meaning- On the invoice or estimate acceptance?
• 52:46
  On the estimate.
• 52:47
  What I mean by that is if you even present somebody with the ability to say no to the whole estimate, does it drive any additional no's?
• 52:56
  Well, the thing is this, if I'm going to have an automation with the exit trigger or the off-ramp of that automation being declined estimate, I need to give them the off-ramp.
• 53:05
  Otherwise, you get very mad customers.
• 53:06
  And so I can't religiously follow up with someone as long as that estimate is open if I don't give them an ability to.
• 53:13
  So it's more like when we talk about the long-term brand, you get mad people when you call them, text them, email them about a quote that's open.
• 53:20
  But they're like, I can't decline it.
• 53:23
  You call me during the day, I'm working.
• 53:25
  and i can't decline so like please shut up so it's more of a customer experience thing for us but then we do have the decline we of course make sure it's a smaller it doesn't have a circle around it it's smaller it's there but if they click it we do require them to select from several reasons as to why they are declining
• 53:45
  Yep.
• 53:45
  And you may not know this if somebody declines it or because you, since you've been offering the decline, do you feel like you're seeing a lot of people click that versus ghost you?
• 53:56
  Do you think people are actually using it?
• 53:59
  Well, we, my opinion is you follow up until they say no.
• 54:02
  Yeah.
• 54:02
  And so like, I will just keep pestering them until they like, okay, either tell me on the phone, text me back or click the button.
• 54:10
  And we just found if we didn't have the button, there was so many mad people.
• 54:15
  Okay.
• 54:15
  And this is a big decision we made end of 2024 in the product.
• 54:20
  And as like, we need to have a decline if we're going to allow an automation to have an off ramp of decline being the reason why, uh, and otherwise at least bad online reviews, so.
• 54:30
  Which is like the worst thing that can happen in a business.
• 54:34
  Why is it top of mind for you?
• 54:35
  Are you just thinking about what you could do in your emails?
• 54:38
  Or how are you thinking about that?
• 54:40
  Well, because I've been solving...
• 54:42
  I think I've told you I'm moving all of... We're moving city turf to every chat.
• 54:48
  Got it.
• 54:48
  And so...
• 54:51
  I had been telling Riley, I've got to have estimating in every chat to make this move.
• 54:56
  So I basically designed over a long period of time the entire estimating system.
• 55:01
  And this was one of my big product decisions.
• 55:06
  I could not decide if I should have a... You can decline a package.
• 55:10
  You can decline a line item.
• 55:12
  You can do all that.
• 55:12
  But should I let you decline everything...
• 55:15
  I debated this and I had it in there and I took it back out and I have, I have, well, I don't know.
• 55:20
  And that's why it's like, as soon as you said, it's like, wait, he may have data.
• 55:23
  I'm going to ask, but I absolutely.
• 55:25
  There's a lot of data.
• 55:25
  There's a lot of data.
• 55:26
  I would highly recommend keeping it.
• 55:27
  If you're going to do a really harsh, you know,
• 55:30
  Like follow up process.
• 55:31
  Yeah.
• 55:32
  And that's, I mean, that's what the goal is here is to get better at that.
• 55:36
  And we do, I do have, why did you decline?
• 55:39
  Like we want to try to get the answer.
• 55:41
  It's in the estimate.
• 55:42
  Like, why did they not take it?
• 55:43
  We also have, why did you win it?
• 55:45
  We also track where they came from and all this other stuff.
• 55:47
  I built all that, but I,
• 55:50
  It's like kind of like when somebody cancels, it's really hard sometimes to get the real reason.
• 55:54
  And sometimes it's really hard to just get a reason at all, depending on if you were on the phone, if you're dealing through text, email or online.
• 56:01
  And so when it came to the estimate, it's like, will people click this or will they just continue to ghost the estimate like they do?
• 56:08
  And if I present it to them, is there a negative?
• 56:10
  I don't have data on that.
• 56:11
  Anyway, that's it.
• 56:12
  So I've designed the whole thing.
• 56:14
  In fact, the whole thing's built.
• 56:16
  This I took out.
• 56:17
  And so you really like, but I don't know that you're wrong at all.
• 56:21
  I really want to know.
• 56:22
  So now you got me thinking, maybe it needs to go back in.
• 56:26
  I think for people that don't follow up religiously, probably heaping it out is a good move.
• 56:31
  Religious follow-up is like...
• 56:34
  Trying to bring that, we're trying to level up on that.
• 56:37
  Yeah, if you take it out, if you take it out, you just get so many negative reviews and people feel like you're annoying them.
• 56:42
  And again, it's like the person knocking at your door.
• 56:44
  It's just like that little bit of a, they kept calling me, they kept texting me, they kept following up and I, they wouldn't let me just can't like, it was that long-term brand perception.
• 56:53
  So also along those lines, have you ever tested in your ongoing marketing?
• 56:59
  So let's just go with email marketing to a non-buyer.
• 57:03
  Do you give them a link or an out right there in the email?
• 57:06
  Like something real?
• 57:07
  So do you use a similar concept where it's like, hey, I like where they could just click something and say, I'm not interested.
• 57:12
  And that would kill the ongoing follow up.
• 57:16
  Have you ever tested that?
• 57:18
  We have them, they can unsubscribe.
• 57:20
  Yeah, but I prefer they don't do that.
• 57:22
  Yeah, 100%.
• 57:23
  Like you're saying have them say, I'm not interested, is this a button?
• 57:27
  Yeah, so I don't want to unsubscribe.
• 57:29
  I want them to just say, I'm not interested right now, but I wanna keep talking to them over time in my reactivation campaigns.
• 57:36
  But if they unsubscribe, it kills all my reactivation campaigns.
• 57:39
  So I've not tested this, but I'm inclined to test this idea.
• 57:44
  Yeah, that'd be interesting because you would improve your click-through rate, which would help your deliverability.
• 57:49
  And it would prove that they take action on things.
• 57:54
  So even though they said no, that's better than doing nothing.
• 57:56
  Yeah, I know.
• 57:57
  I have data.
• 57:58
  I have an answer.
• 57:59
  But everything comes with a cost.
• 58:01
  Yeah, 100%.
• 58:02
  You never know.
• 58:03
  I'll give you an example back to the estimate thing.
• 58:06
  You have an estimate.
• 58:07
  If you propose three things, they're zipping through it on their phone, they're busy, and they just see a button when they land on the bottom, and it says decline.
• 58:13
  And they just click decline.
• 58:14
  They just declined everything.
• 58:16
  Oh yeah, yeah.
• 58:16
  Design, very important where that decline goes.
• 58:19
  Yeah, I think so.
• 58:20
  But maybe if I had had them go through each thing and say decline, they would have kept one.
• 58:24
  I mean, I don't know.
• 58:25
  I don't know what the data would tell me.
• 58:27
  That's a very hard test to get.
• 58:29
  The other thing, the other button we found really helpful is request changes.
• 58:34
  So if you just have accept and decline, it's going to hurt you.
• 58:38
  If you have request changes and you make that from a design perspective UI, actually forefront of decline, they'll go, they'll look at accept and then below request changes.
• 58:47
  And then below that with a much more inverted color, like being decline, they'll request changes first to fix the problem of, I want that one tree gone or that mulch reduced or like that's not in my budget request changes.
• 59:01
  This is super smart and a great lesson right there.
• 59:04
  It's like I was looking at this black or white.
• 59:07
  We either give them a global decline or we don't.
• 59:11
  But that's introducing a new variable.
• 59:13
  It's like it's not black or white.
• 59:14
  It's like we could give them a decline or we could give them a request changes.
• 59:17
  And that changes the outcome.
• 59:19
  That's really smart.
• 59:20
  I like that a lot.
• 59:22
  That little idea right there would make me want to put the feature back in.
• 59:26
  I actually think it's kind of back to our topic of recession, like the ability to know why someone's declining, the ability to know what they want changed about the estimate is really, really valuable.
• 59:36
  Because if we're going to a market where people are going to be more price sensitive and we just all assume, oh, we need to be more price conscious and we reduce our prices by from $100 to $70, you just gave away all your margin.
• 59:46
  You just gave away all your profit.
• 59:47
  And so the ability to be more...
• 59:49
  If you're like, well, we got to get these numbers to keep my crew busy, keep asset utilization.
• 59:53
  Okay, great.
• 59:54
  Can we build into our estimating some way to be able to reach that audience, reach that person that might be a little more price sensitive, improve our service, get them back up to prices down the road, but not jeopardize everybody if you have a very hardcore way of how the estimate has to be accepted.
• 1:00:12
  I agree.
• 1:00:13
  And along those lines, something we've talked about many times that goes hand in hand with what you just said is we've talked about what are some of the metrics that matter?
• 1:00:21
  CAC, like what's it costing me to get a client?
• 1:00:23
  My accounts receivable?
• 1:00:25
  Is that growing?
• 1:00:26
  Is it shrinking?
• 1:00:26
  How long is it taking you to pay it?
• 1:00:29
  or get it paid down, churn, cancellations.
• 1:00:33
  Another one would be year over year, or month over month from year to year, client growth.
• 1:00:38
  Like how many leads are we bringing in, how many clients?
• 1:00:41
  These are all things we've talked about.
• 1:00:42
  All these things could be leading indicators that something could be going on in the market.
• 1:00:48
  And I think people are, as I said earlier in this conversation,
• 1:00:51
  I think people are seeing that in their data, in their businesses right now, where something is going on that, again, I attributed a lot of it to, you know what I did?
• 1:01:02
  There's a whole area I didn't even talk about that I want to talk about today.
• 1:01:05
  I attribute a lot of that to psychology.
• 1:01:08
  But, yeah.
• 1:01:10
  We can come back to this, but I actually am a little worried about consumer debt as well.
• 1:01:14
  And I think maybe that may have a place to talk about or not.
• 1:01:16
  But as we talk about these financial things, profitability, build cash, pay down variable debt if you can, be careful on where you spend your money, like your capital outlays, that's building cash, conserving cash.
• 1:01:30
  And then to what Mike said and what I just added on, the numbers, like are you watching your numbers?
• 1:01:34
  It becomes really critical to be watching those numbers on a frequent basis because it can give you...
• 1:01:39
  a leading indicator as, ooh, there could be a problem here, which might need to change my behavior.
• 1:01:44
  If you're seeing accounts receivable growing, that might tell you, I need to get more deposits.
• 1:01:49
  It may tell you, I need to actually do that idea of switching over to credit cards.
• 1:01:53
  It can tell you a lot.
• 1:01:55
  If you're seeing your CAC go up on LSA, but it's still good on Facebook, maybe you shift a little bit of your budget for some reason,
• 1:02:04
  Because you're being careful with your money, it's working better over there.
• 1:02:07
  So these are ways that you can conserve cash and frankly, then outmaneuver your competition.
• 1:02:13
  And I think that's really all of these things lead into is like, if we are going into a bad time, if we are going into recession, everyone feels it.
• 1:02:20
  And unfortunately, there will people go out of business and the people that prepared for it and taken some of the actions we've talked about today, they'll be actually in a great place to grow, a great place to take on more customers.
• 1:02:30
  And those customers that get displaced from the people who aren't doing these things will have to go somewhere.
• 1:02:35
  Yeah.
• 1:02:35
  And if you're ready, if you've been prepared, you can actually grow.
• 1:02:38
  If you look at 2008, 2020, 2001, those were actually the years when a lot of big businesses today were started because they are off the back of a recession when a whole bunch of customers were leaving their competition and they were able to absorb all that extra demand.
• 1:02:54
  And so I'm very much like when everyone zigs you zag, and if everyone's conserved, don't buy any more trucks, don't hire more people, don't market, don't spend any money marketing, don't spend, cut all your subscriptions, don't get anyone doing your advertising.
• 1:03:06
  If you can zag at that same moment, all of a sudden your cost per lead is lower.
• 1:03:09
  And all of what we just talked about is almost opposite because everyone's psychology is conserved, don't spend, don't hire.
• 1:03:16
  And all of a sudden you can hire people, you can buy trucks for pennies on the dollar because they're all getting rid of them because they're over leveraged.
• 1:03:22
  you can go out and advertise for the first time on Google and get your cost per lead way down.
• 1:03:26
  Like there's so much opportunity if you do these things we've talked about and planning for a quote recession to go on the offensive.
• 1:03:33
  I agree.
• 1:03:33
  I think one more thing I'd say, and I kind of already said it, but now is the time to really look at your collections process.
• 1:03:40
  I kind of said it when I said the AR thing, your accounts receivable, but this is the time to really get on top of that.
• 1:03:45
  Because if you're not aware of it and you don't have a process to deal with it, that thing can get out of control pretty fast.
• 1:03:52
  If I had a takeaway for you, I'd say, I don't know how to word this, like, don't lie to yourself.
• 1:03:58
  You have absolutely no idea what's going to happen.
• 1:04:01
  And that is advice that Jonathan says to Jonathan.
• 1:04:04
  Because if I go on the news or CNBC is playing somewhere and I hear it or I listen to podcasts, it is literally the end of the world.
• 1:04:15
  And I think it's been the end of the world since I was born, if I remember correctly.
• 1:04:19
  I can't remember when it hasn't been the end of the world.
• 1:04:21
  And it's just sometimes it's a little louder and sometimes it's a little quieter.
• 1:04:25
  And I don't know.
• 1:04:27
  It generally isn't the end of the world.
• 1:04:29
  And we have any, the smartest money in the world is invested right now.
• 1:04:32
  Yep.
• 1:04:33
  The smartest, they are invested.
• 1:04:34
  Taking more debt on?
• 1:04:35
  Yes.
• 1:04:36
  Like, I really believe in this concept, which is why I don't pay much attention to the news, that you only listen to people that are playing the game and have skin in the game.
• 1:04:46
  If you want financial advice, you listen to the guys that have billions invested.
• 1:04:50
  If you're a journalist, you're a journalist.
• 1:04:52
  Interesting, but you have very little vote in my mind until you put your money.
• 1:04:56
  Like, am I going to take advice from somebody on how to invest in the stock market that has no money in the stock market?
• 1:04:59
  Probably not.
• 1:05:01
  You know, they may still have good ideas, but so that's the big risk here is that we're listening to noise that will have us lift our foot off the gas pedal.
• 1:05:09
  I think it's always wise to do what we talked about, build cash, be profitable.
• 1:05:13
  Those are great ways to run your business all the time.
• 1:05:16
  But this fear, living in fear just perpetually has us not hiring, not marketing, lifting our foot off the gas and the pain and the problems continue for longer and longer periods of time.
• 1:05:27
  And that's why we eventually shut down our businesses or we wear out.
• 1:05:30
  And that's, that would be the biggest thing is just a reminder that how often are your predictions actually right?
• 1:05:36
  Because I know a lot of my predictions are not right because we have no idea.
• 1:05:39
  And so just keep going.
• 1:05:41
  My takeaway is that if you're if you're a client of CityTurf and you're getting an estimate, just click accept there's no other option.
• 1:05:50
  If you want your close rate to go higher, don't even give them the option to cancel.
• 1:05:55
  That's exactly right.
• 1:05:56
  Locked in.
• 1:05:58
  When we send estimates, we just send them already signed up.
• 1:06:01
  Exactly.
• 1:06:02
  They have to call to cancel.
• 1:06:04
  Yeah, we actually go scrub, scrub, get their credit card information.
• 1:06:08
  Just say here, set up for next Thursday.
• 1:06:09
  If you'd like to opt out, let us know.
• 1:06:10
  Just tell us.
• 1:06:11
  You're already signed up.
• 1:06:13
  Yeah.
• 1:06:13
  Awesome.
• 1:06:13
  All right, everyone.
• 1:06:14
  We'll see you all next week.
• 1:06:15
  Great seeing you.
• 1:06:15
  Take care.
• 1:06:16
  Bye.
• 1:06:16
  Bye.