Buyers and Builders
00:28:46 · Nathan Lindley
[00:28:46] S1: Yeah. So due diligence was a little bit of an evolution as we're just trying to refine our thesis of what it is we're actually buying. Because there's obviously... There's the opportunity cost. If I can go buy a company or I could advertise or, you know, do do all these other uses for your capital. And so I was always having to defend the acquisition strategy in my mind and instead of just going out and and spending $30.00 on Google and so, there's there's kind of rationale that evolved in my mind. Initially, it was just, well, these guys are, you know, doing 2,000,000 a year in revenue. So, if we buy it, we'll also do 2,000,000 a year in revenue. As the idea has evolved, what it has turned into and what I've really refined the the core value driver to is what I term buying at bats. And and the the... It's kinda like, I don't know if you ever read the book or seen the movie Moneyball, but it's a really similar thought process to to that. And that we we have KPIs that we know. And I I refer to them as our batting average. And so we know that if we go out and run 10 calls in a day, we'll sell something on on five or six of those calls. And those five or six calls will have an average transaction value of about $3,000 And so so those are those are the performance metrics that I know that we can control for. So then what I'm buying when I'm when I'm going out and acquiring another company is I'm I'm buying the opportunity to get my foot in that door. And so, like, we're a baseball team. I know that we'll hit half of the pitches that are that are swung at us or that are thrown at us.
00:30:29 · Mikk
[00:30:29] S0: Is it really that high, the conversion? Yeah.
00:30:32 · Nathan Lindley
[00:30:32] S1: Yeah. So we we have... Last year, we had an an average transaction or an average call value of $1,477. That was for every call that we ran. Every time we knocked on the door, we averaged $1,477. Now, of course, there's a bunch of those calls where you you walk away with nothing, and then there's, you know, a handful of calls where you make $40.00, right? And but the the blended average across all of those was $1,477 for the year and so, so now, I can overlay that on their call volume and I can say, okay, if you ran 2,000 calls last year and you and you generated a million dollars in revenue, then, you're averaging $500 but I know based off of our performance metrics that we would have done $2,954,000 off of that off of that call volume. And so I have I've distilled it and distilled it and distilled down to just like what what am I actually acquiring here? And why would it be better for me to buy this business than to put money into Google? And and that's ultimately what I've distilled it down to is is that I am buying the opportunity to come into this customer's home and look for problems that I can then provide solutions for. And so that's the distillation of my M and A strategy. But that, you know, that took an iterative process. You know, every time you you do a deal and some aspects of it works really well and some aspects of it didn't work as well. And like, you know, one one thing for us now is if the owner has a very strong customer facing role, that's a that's a a a big issue for us. Not that we won't still do the deal but it's going to be a we know that there's gonna be a high customer attrition due to that fact. Because all the customers are are accustomed to to engaging with the business owner. And and when he steps away, there's gonna, that's gonna be felt. And so, not that we won't still do the deal but that is a strong consideration for us. Versus if the if the owners maybe involved in the like in the in the office and and managing things but he's not on the phone talking with the homeowner on a regular basis. That's a that's a totally different level. If he steps away, the the homeowner might not even ever know. Mhmm. And so that's a that's a big consideration for us.
00:32:51 · Mikk
[00:32:51] S0: You mentioned putting money into Google. How does your funnel work if you if you can share? And who does the calls? Is it technician? Is it people in the office? How are people incentivized? And maybe you can share more about your incentive structure because it's Yeah. It's... It seems to be working so well.
00:33:07 · Nathan Lindley
[00:33:07] S1: Yeah. Yeah. So so first of all, we don't do any advertising. And part of that is because back when I had my publishing company, that was kinda one of the things that ended up kind of ending our publishing company was that we were spending a lot of money on on marketing that didn't really yield as efficient return. And so I just kinda have, like, a bad taste in my mouth about it. But also, there's some really large private equity backed companies in in my markets that I have to compete against, you know, dollar for dollar and it just seems like a horrible way to try and compete for business. And so, oh, so what we do then is there's... So there's that initial layer of value that we're acquiring, which is the active customers. The number of calls that you... That that guy ran last year. Like, let's say he ran 2,000 calls. K? But let's say he has 5,000 customers in his database. Well, that means that at least 3,000 of those customers did not call him last year. And what nobody ever does, going back to the advice that I was initially given when I got into this space was you just wait for the phone to ring. That's terrible advice in this space. And because what can happen is you you just don't get the call because the the homeowners feel like they they need you. So, what we do is there's a there's a second tranche of value that we extract from our acquisitions where we go through and we call all of the customers in the list particularly the ones who haven't called us in the last twelve months and we offer them free service. So, we'll we'll offer em a free tune up or a free maintenance plan. Just to get a foot in the door and so, one of our one of our value drivers is reactivating as large percentage of that list as we possibly can. And and so, you know, to your to your question about incentives, we have 11 CSRs. Four of them are designated for taking inbound calls and then seven of them are full time outbounders And their job is to call everybody in our database and offer them a free tune up, particularly as things are getting hot or cold, that can be a large percentage of our call volume, is the calls that we're able to generate ourselves just by calling the customer who maybe is you know, not even aware that it's that time of year and saying, hey, you know, with... You know, it's been a while since we've been at your home.
00:35:21 · Nathan Lindley, Mikk
We'd love to give you a free tune up just on the house just to say thank you for being a loyal customer, and we're able to fill our board for about eleven months of the year that way. There... February is always just hard. I... We still haven't really been able to crack a note in February. But the other eleven months of the year, any holes we have on our board, we're able to fill by calling people who haven't used us in a while and offering them a free tune up. And the thing is too, this part of the reason this works is because we're very diligent with technical training. And so our technicians are able to spot opportunities better than most. And so that's a key factor in our ability to give away the service. Because if you go into a home for free and you don't find a problem to solve, then that's, you know, it's gonna cost you a lot of money. But our our technicians are are really well trained on spotting problems that might not be obvious to other people. And so we we do full heat load calculations, you know, and and ductwork calculations and know how to, you know, read amp amp draws and things like that that a lot of other people miss. [00:36:27] S0: How did you come up with this?