Plumbers' Success International, LLC (PSI) has revealed details of its program in three recruitment meetings during the month of June, where they picked up a total of 154 firms as founding members.
PSI is a new business and marketing organization conceived by Jim Abrams and John Young, founders of the similar Contractors Success Group (CSG) on the HVAC side of the industry. Technically, Abrams and Young are employed by St. Louis based VenVest Inc., their venture capital firm of which PSI is a subsidiary. Brought on board as CEO of PSI is Mike Diamond, one of the country's top PHC service contractors doing $16 million in annual revenues throughout the greater Los Angeles area.
Abrams and Young were masterminds of the industry's first roll-up consolidation, when they formed Service Experts by merging selected firms within CSG. CSG still exists as a subsidiary of Service Experts, but Abrams and Young no longer have ties with either organization.
Their long-rumored foray into the plumbing field came about a few months ago when Diamond agreed to join them. Diamond, who also was a founding member and former director of Contractors 2000, runs one of the most sophisticated PHC service firms in the country. His operations will serve as a blueprint for PSI members.
In trying to duplicate the CSG success story, PSI's game plan is as follows.
- The organization is designed with a maximum three-year life span. Abrams said he anticipates rolling up selected PSI members into an IPO within 18 months at the earliest, but no more than 36 months from the startup.
As with Service Experts, PSI will buy out the best of its willing members into a consolidated organization yet to be named. If there is a demand by remaining members for PSI to continue beyond that point, the organization may go on, but there is no promise of doing so. The main intent of forming the group is to consolidate and take it public.
- Cost to join is $9,700 up front and $197 per week (a little over $10,000 a year) for the next three years. Contractors who signed up as founding members received discounts off the buy-in price. PSI offers a money-back guarantee contingent upon members implementing nine key facets of their program. For its part, PSI promises to increase the wealth of the company by at least $100,000, or they "will refund every penny invested in PSI," said Abrams. The guarantee is hinged to a valuation formula members fill out when they first join.
PSI's fees are about half of what it costs to belong to CSG. This reflects the smaller revenues of plumbing firms as a whole compared with their HVAC counterparts, whose big-ticket equipment sales tend to drive up volume.
"PSI is not about building a $20 million company in a market of 100,000 to 200,000 people," Abrams told me. "That was possible in HVAC. With PSI, we're more about running a profitable business."
John Young told the audience at the June 19 recruitment meeting in St. Louis that PSI's focus would be on what he called "the double-double - double-digit growth each year, with double-digit profits." He identified PSI's goal as at least 15 percent net profit for its members.
- Their goal is to sign up 1 percent of the eligible firms in the plumbing service industry in the U.S. and Canada, which PSI calculates at 57,700. Hence, a maximum membership of 577. Territorial restrictions have them shooting for "one or two" PSI members for every 500,000 population.
Abrams told me he was gratified by the early response "given that it took us almost two years to sign up 100 members at CSG."
- PSI will absorb members in batches. They expected this year's June recruitment drive to bring in approximately 150 members. At this writing, a few days after the final meeting in Charlotte, they had 154 signed up. It's possible that a few may back out or be determined ineligible due to territorial conflicts, but otherwise it appears they have reached their goal.
The first meeting of those "founding members" will take place in September, one of three annual member meetings each year. Their plan is to step back from recruiting until fall in order to get these "founding members" absorbed and implementing PSI systems. In October they will hold three more recruiting meetings aimed at signing up another 150 firms, who will be known as "charter members."
What They Have To OfferPSI itemizes 21 benefits to members, and several more to come in the ensuing 36 months, as follows.
1. Access to proven talent. Abrams, Young and Diamond bring considerable expertise to the organization. They also promise to hire top-rated business specialty consultants and a large enough staff (eight at this writing) to offer needed help to members.
2.Advertising & marketing. Members gain exclusive access to copyrighted ad materials with a track record of making the phones ring. PSI also has proven methods for buying advertising at discounted rates.
3.Mike Diamond's model truck. He will share his knowledge collected over 23 years in the business about the setup and inventory going into the ideal service truck.
4.Mike Diamond's inventory system. Ditto for his state-of-art warehouse inventory system.
5.A "Right Way" manual. Diamond's company will also serve as a model for the PSI operations manual.
6.Business controls. Centered around a proprietary "SuccessWare 21" software package, PSI provides a host of standardized forms, contracts, financial reports, inventory control and other management assistance.
7.Improved community image. PSI members are encouraged to participate in activities of the Better Business Bureau and other groups that identify them as pillars of the community.
8.Model company. At the time of this writing, PSI was negotiating to buy a small plumbing firm in California that would implement all of its programs and serve as a model for the rest of the membership. Members will be able to visit this model center at any time.
9.Acquisitions expertise. Between them, Abrams and Young have acquired over 200 HVAC companies. They are available to help PSI members grow through acquisitions.
10.Mike Diamond's call center. Diamond has built a service call center that is almost certainly the most sophisticated in the industry. He will share its particulars exclusively with PSI members.
11.Access to any of Diamond's businesses. They are spread throughout his Southern California territory.
12.Setting up multiple locations. When and how should a service firm consider doing this? PSI claims to have the answers.
13.Legal SWAT team. PSI has vowed to protect all of its copyrights in court if necessary to protect members' proprietary interests. A few years ago, CSG successfully sued a major HVAC manufacturer that was found to be using one of its copyrighted sales letters.
14.Trade secrets. PSI has specific profit strategies that they reveal only to members.
15.Hiring top people. PSI claims to have the answers to how to hire top people, and an employee handbook that "retains instead of repels the best employees."
16.Idea sharing and rewards. They pay for ideas from members that get incorporated into the PSI program.
17.Employee contests. PSI claims to have ways to energize co-workers.
18.Straight Forward PricingT. It sounds like a flat rate system to me.
19.Be part of an elite. Only one out of a hundred plumbing service firms will ever be able to join PSI.
20."Success Summits." These are what they call their three full membership meetings a year.
21.Business brokerage. PSI will help members sell their business, if that is their wish. "Heck, we might even buy it," reads their promotional literature, referring to the upcoming IPO.
Other programs in the planning stage but not yet implemented include: a consumer credit card, exclusive products, group buying, branding, a training school, a 52-week planner, Tom Hopkins' sales system, customer newsletter, "Master Level Business Skills" and, of course, the chance to get in on the ground floor of an IPO.
These are the facts behind PSI as revealed by the founders. People in the industry have many other questions, which I will attempt to answer as forthrightly as I can.
Is PSI For Real?Unequivocally, yes. Over the years this reporter has talked with about a half-dozen CSG members about that experience, and haven't heard any say they haven't gotten their money's worth and then some.
Also, the Service Experts roll-up resulted in the most successful of the residential HVAC service consolidators to date. Although their stock took a nosedive early in the year when they failed to meet Wall Street financial expectations, for most of their existence Service Experts has had the highest share price of any of the industry consolidators, and it has been steadily recovering throughout 1999. Their relative success generally gets attributed to more cohesive operations than the other consolidators, thanks to their grounding in CSG systems.
There is no guarantee that PSI can duplicate the CSG/Service Experts experience in the plumbing field, but neither is there any compelling reason to doubt that they can.
How Is PSI Different Than Contractors 2000?C-2000 was patterned to a large degree after CSG, so the two organizations have more similarities than differences. I am very familiar with
C-2000 and have great respect for the organization. I am less familiar with the CSG/PSI program, but am led to believe it involves more detailed involvement in running the members' business. Adopting the PSI software package is a big step toward establishing common ground among the members.
Clearly, a rivalry is budding. While CSG puts no restriction on its members belonging to other groups, the C-2000 Board recently notified members that they cannot belong to both C-2000 and PSI, the rationale being to protect C-2000 proprietary information. C-2000 has lost a handful of members to the upstart, most prominently Mike Diamond.
However, they have steadily been losing members to consolidators the last several years and always managed to replace them from a list of contractors waiting for territories to open up. C-2000 membership has held steady at between 250 to 300 members for several years. Moreover, I'm told the C-2000 Board has taken steps to upgrade member services in response to the PSI challenge.
What Are The Down Sides To PSI?A $40,000 investment is not insignificant, and there are hidden costs that come from implementing PSI programs and attending three annual meetings. Also, members who wish to remain eligible for the money-back guarantee will lose considerable freedom in the way they operate their business.
While the founders and chosen members stand to make millions from the promised roll-up IPO, most will be left with more modest paybacks - although improving the value of one's business by at least $100,000, as promised in PSI's money-back guarantee, would not be a bad consolation prize.
Some industry traditionalists feel uncomfortable with the aggressive "get rich" atmosphere that permeates PSI.
The recruitment session I attended resembled a revival meeting, with visions of wealth replacing spiritual salvation as the focal point. "Converts" from the CSG network warmed up the crowd with testimony, and the audience was masterfully manipulated to a fever pitch before being asked to come forward and be saved.
It worked, judging from the impressive percentage of attendees who signed up at those meetings. Keep in mind that quite a few CSG members have gotten rich through their association with the group, and seem not at all to mind being so manipulated.
Also, to PSI's credit, some of the early sign-ups were able to back out of the agreement after having second thoughts. Abrams informed the St.
Louis audience that PSI "is not looking to 'fire' anyone, and doesn't want to 'hire' anyone who doesn't think we're right for them."
Some people have pointed fingers at CSG/PSI's aggressive marketing tactics as pushing the ethical envelope. I have seen some of their marketing materials that rely on outright fibs, although it should be noted that white lies and exaggerations can be found in 90 percent of marketing pitches. According to Abrams, PSI will not force members to use any tactics that make them feel uncomfortable.
Critics have also charged that CSG firms emphasize sales over service to a fault. I put this question directly to Abrams, who replied that "I never heard such complaints, except from competitors."
He pointed out that many CSG firms have been honored by the Better Business Bureau and won quality awards from the Air Conditioning Contractors of America. Their ranks include several past presidents of ACCA.
Automating The BusinessPSI's philosophy resembles that of "E-Myth" author and small business guru Michael Gerber, who sneers at the notion of entrepreneurial glory in favor of building businesses that run on automatic pilot and whose main purpose is to be sold for a lot of money. Said partner Young to the St. Louis audience, "Our goal is to make you rich."
They are what they are and make no apologies for it. Hey, it's easy to put other peoples' 40 Gs at risk, but I think this group has the ingredients to do what they say they will.
PSI can be reached at 800/524-1954.