Do You Own A Business? Or Do You Own A Job?
About once or twice a year, I get a phone call from a business broker retained by some plumbing contractor looking to sell his company, or sometimes it's just a contractor's accountant trying to come up with a sale price. They get referred to me because they don't have a good handle on how to evaluate the worth of a plumbing business. I'm not exactly an expert in this area, but I do my best to help.
Every time I talk to one of these people, I go away from the conversation feeling sad. That's because I've been part of this industry for more than 20 years and have grown very fond of plumbing and heating contractors. You folks are the heart and soul of this industry. It's hard to think of any other people who work so hard and deliver so much genuine value.
But in every conversation I've had with these brokers and accountants, it turned out that the clients they represent don't have a business that's very marketable. These days, companies with obvious value don't have to look around for a buyer. The consolidators and utilities go looking for them.
Yet, the consolidation movement needs to be put in perspective. Several hundred plumbing and mechanical companies have been bought up by various consolidators. But that's a drop in the bucket compared with the 55,000 or so plumbing firms that constitute the industry, plus more than 100,000 additional one- or two-man shops that operate out of homes and garages that don't get accounted for in industry statistics.
Many of those contractors would love to get a call from a consolidator and cut a seven-figure deal. But those calls will never come. The sad truth is that the vast majority of the so-called businesses in our industry have no value to anyone except the current owners. That's because they are not businesses at all, but self-employment job vehicles.
There's a big difference between owning a business and owning a job. It starts with the mindset of the owner. People who own a job are looking simply to survive, to earn enough to put food on the table and pay the mortgage. They don't give much thought to making a lot of money or building a business that will be a saleable asset down the road.
What happens to most plumbing businesses when the owner decides to retire? If the owner is lucky enough to have kids in the business, the company generally gets passed down to the next generation. Nothing wrong with that, assuming the kids know how to run a plumbing business and want to do it. But what if they don't? More and more sons and daughters of plumbing contractors are going to college and pursuing careers in other fields.
What frequently happens is the scenario I just described. A contractor will try to sell the business, maybe even retain a broker for that purpose, but then gets slapped in the face by harsh reality. He finds out that nobody is willing to pay much, if anything, for a company that is run not as a business, but as a job. I've talked to brokers representing plumbing and heating firms doing upwards of a million dollars in annual volume, who haven't found anyone willing to pay more than a $25,000 for the so-called business. Most smaller companies can't even get that much. That's when they call me. They can't believe it, because the businesses they deal with in other fields all have some value to them, and want to know what they're missing.
This is a sad situation. A hard-working, honest plumber devotes many years of his life to running a company, and in the end has to hold a liquidation sale to get pennies on the dollar for old inventory, tools and equipment. You folks deserve better than that.
That's not even the worst scenario. What breaks my heart even more is when I meet plumbers who are
way too old to be turning wrenches, but doing just that because they can't afford to retire. They may have
run their own company for decades, but they never really owned a business. They only owned a job, and
never made enough to put some away for retirement.
Give Yourself A ChoiceOne of the best books I've ever read about small business is Michael Gerber's The E-Myth. The "E" in the title refers to "Entrepreneur." Gerber spends most of the book trashing the notion of the entrepreneurial spirit, where the workaholic owner makes himself the center of the business and becomes its slave.
To Gerber's way of thinking, there's only one reason to build your own business. That's to eventually sell it. The more prosperous and better run that business is, the more control you have over when to sell it, who to sell it to and for how much. When it comes time to retire, or if someone makes you an offer too good to refuse, your company leads the way to Easy Street. You can make enough money to either retire comfortably on, or to pursue other interests, maybe even a business in some other field.
Or, you can continue to own it if that's what turns you on. The point is, you'd have a choice. I know quite
a few successful contractors who have resisted efforts by the consolidators to buy them out. They love
telling about being approached and rejecting the offers as inadequate. Good for them. They are happier
than ever being in the plumbing and heating business because they know how much value the market
places on their companies, and they've decided they're worth even more. Owning a business doesn't mean
you have to sell it. It means that the opportunity is there if you want it. Owning a job means you don't have
that opportunity, at least not on terms you would find attractive.
Outsiders Not WelcomeEvery so often I run into a plumbing contractor who did not come up through the trade. I find it refreshing to talk to people like that. Unlike many contractors who grew up in the trade, they tend not to dwell on its problems. These are professional business people who owned companies in other fields and see the plumbing business as filled with opportunity by comparison. So they buy into it strictly from the standpoint of looking at it as a business with money-making prospects.
I remember one conversation with such an individual from another state who told me he tried to join his local PHCC association, but was made to feel unwelcome. The other plumbing contractors looked down on him because he wasn't a plumber and did not have a master plumber's license - although a partner did in order to comply with state regulations. This is a classic example of how people think when they own a job rather than a business.
I felt embarrassed for our industry. It's a narrow-minded way of thinking no different than racial or ethnic discrimination. All of you would benefit from the infusion of more professional business people in this industry.
I am sick of hearing about the good people of this industry who after a lifetime of skilled labor and hard work have nothing to look forward to except a liquidation sale. And I hate those desperate calls from business brokers asking my help in trying to make a silk purse out of a sow's ear.
You are fine people with enormously valuable talents. Do not sell yourselves short. I urge you to work toward building a business that pays you back for the enormous effort and sacrifice you put into this industry.