Up until 1993, Hot Rod & Yox, Plumbing, Heating and Solar (the company my husband “Hot Rod” and I owned) had done only new construction work. Every Holiday Season was a total nightmare. All the houses we worked on seemed to have Christmas Eve for the finish deadline. So every December we found ourselves miles behind.
Christmas Eve 1992 was a turning point for us. Hot Rod and I sat on the living room couch. We had both worked all day long and there were several urgent messages waiting on the answering machine. The rewards that business ownership brought seemed very small. I realized that Hot Rod would spend Christmas Day, like he always had, attending to at least one plumbing emergency.
Our financial mentor Frank Blau had been urging us for several years to develop a service department and to wash our hands of low-profit new construction work. Christmas Eve 1992, Hot Rod and I agreed to raise our prices, switch to more profitable service work and commit to getting a reasonable financial return for our hard work. We did not want to spend the rest of our lives on the treadmill that we were running on.
The Breaking Point: Frankly, as we decided to revamp our business that night, I hoped that raising our prices would put us out of business altogether! I had had it. I had been crunching numbers and understood why we weren’t making any money. Surprise! We were charging less than half of what it cost us to run the business!
I suspected that tripling our selling price for labor would probably scare away even our most loyal customers. And at that point, that seemed like a fine alternative to what we had going. If we were going to continue in the business, I refused to keep selling ourselves short. The next working day, we told our four employees about our plans to switch to service work.
Frank Blau had convinced us that a newly formed group, Contractors 2000, would be instrumental in developing our service company. I had no idea who any of the members were. There were no programs or manuals. It was a leap of faith to join. The first meeting was in Anaheim, CA, in January 1993. Super Meeting 1 absolutely blew me away. We toured Mike Diamond’s and George Brazil’s companies. It was like coming from a Third World country and landing in Disneyland. Contractors from all over the country were there to share and help each other be successful, profitable and professional. It was so exciting.
The keynote speaker at the convention was Michael Gerber, author of the terrific book (The E-Myth.) His words hit me right between the eyes. He said that a successful business was one you could leave ... and have it still run. I decided that building and selling a profitable business was a very appealing goal. At that time, we did not have a business anyone would want
Major To Do’s: After the meeting, Hot Rod and I came home with a list of more than 100 things we wanted to do: buy land, build a new shop, all new trucks, uniforms, pagers ... the whole nine yards. Our employees were skeptical, but they understood that none of us were moving forward financially with the old game plan. I tried to communicate what would be in it for them in terms of money and benefits if they wanted to play the service game with us. I know it was rough making all the changes and I was pleased that our team decided to hang in there with us.
Now, don’t think for a minute that everything went smoothly! There were lots of bumps in the road. The very first day of flat rate pricing we dispatched the three techs to their first calls. All three calls turned into angry-customer-who-wants-your-head-on-a-platter-along-with-full-refund calls. But, we dusted ourselves off and kept going.
Even with all our mistakes, one thing was clear from the first month of beginning service work with flat rate pricing: We were making more money. There were lots of headaches but we all had beefier paychecks, our cash flow was improving and there was — gasp — money left at the end of the month.
Over the next two years the total sales generated by our three trucks went from $420,000 in 1992 to $846,000 in 1994. Gross margin went from 34 percent to 55 percent. Net profits went from a loss in 1992 to 8 percent in 1994. We took out owners’ compensation of $30,000 in 1992. In 1994 our combined salaries were $84,000 plus new vehicles, health insurance and retirement contributions. Our employees literally doubled their paychecks from 1992 to 1994.
I understand that there are folks in this industry who have much better numbers than these. But certainly we were improving. We weren’t losing all of our customers. We were busier than ever and finally profitable!
Negative Aspects: Making more money helped a lot. But a few issues remained. Some negative aspects of the business were not improving.
In a town of about 5,000 year-round residents, we ran three trucks. Pretty impressive truck-to-population ratio. I really couldn’t see us growing much larger without a drastic change in market area. The Salt Lake City metropolitan area was close by, but the million-plus population was a big leap.
Staying small may have been an option except that we didn’t have enough people to delegate the tasks Hot Rod and I hated the most. Hot Rod was still the guy going out on emergency late-night calls. I was the one answering the phone at all hours and handling the customer complaints
We could delegate these tasks if we grew the company. Even a couple more trucks would give us the billable hours we needed to add another layer of personnel. But did we want to grow the company?
Only One Boss: We looked at what that would entail. Certainly expanding to Salt Lake City was an exciting option. But as Hot Rod and I argued over this issue, I came to an important realization: There can be only one person at the very top of the organization. The buck has to stop somewhere.
Although I can be, well, bossy, I did not want to be the boss. My goals were along the lines of work less, be a good mom to our son, have fun. But I certainly didn’t want my husband to be my boss. Throughout our working relationship, we argued. It seems like we both saved our very worst behavior for each other.
Hot Rod and I discussed the future of the business and our relationship. We both really loved the idea of not working together. I know a few — and I mean a few — couples who work well together. We were not one of them.
I also knew that if we could survive and prosper as PHC contractors, we could do absolutely anything. I think maybe only the airline industry is more difficult and risky than plumbing and heating. As I approached middle age, I got excited thinking about the other things I could be when I grew up!
Over the course of a weekend, we decided we would sell the business. (I tell you we don’t take long to make major life decisions.) We recalled Michael Gerber’s words. We now had something worth selling and it seemed like the right time to move on. As Park City was getting more and more crowded, we agreed that when we sold we would also move. Somewhere nice and quiet with lots of land between us and the rest of the world.
The next business day, we told our employees that we wanted to sell. They were getting used to us dropping these bombs on them, I suppose! After a bit of deliberation, the three techs formed a corporation and bought the company. (I promise to answer another FAQ with a report on the buyout and how things are going for our successors in a future article!)
And most importantly, Hot Rod and I decided we would have two separate careers. While we still co-owned MAXROHR, our hydronics specialty company, we agreed that Hot Rod would take over the manufacturing component. I approached Jack Tester at Contractors 2000 about a job there. I felt that C-2000 was the greatest resource available for improving your business. (Still do!) I now work as an independent contractor and help C-2000 with membership sales and training program development. I love writing for PM and thank Dan Holohan for suggesting that I write this column. Jim O. and the PM staff give me a long leash, yet lots of care and support. Plus, I have a separate division of MAXROHR for my business.
So, I don’t regret our decision to sell one bit. I am not the least bit tolerant of folks who whine about their company because I know that there is life after contracting. You choose everyday to do what you do and be what you are. If you are going to have a PHC business, do it to serve your life. Don’t sacrifice your life to your company.
I love this industry and the talented, generous, fun-loving people in it. I’m grateful for the opportunities I have as an “industry observer.”
That’s my story.
Thanks for asking.