Tuco said:
I got you a new avatar. I figured the oil on the face would symbolize the hard work you"ve put in, and the satisfied smile and pipe would symbolize your current status.
1. How did you decide if you wanted in a certain type of business? You seemed to have a diverse selection of types (landscaping to restaurant etc), what went into your consideration for the type of business that it was? Were there profitable business that you turned down because you didn"t want to be involved with it (either because you didn"t see a future in that type of business (selling A-Track tapes and encyclopedias, or possibly because the nature of the business required some advanced knowledge you didn"t have)
LOL, I like the pic. I tried to pick businesses that were either close to my hobbies (health clubs) or that I had experience in (restaurants, I"ve always wanted to own one). Unfortunately, those are the usually the first and he hardest hit in recession.
Outside of the issue of seller fraud, I did turn down businesses for other reasons - mainly sustainability and my lack of understanding of the industry. I was presented with a glut of construction type businesses - from plastering to HVAC installation. I have a friend in my MBA program who worked for a construction business, and the one thing he said they had a problem with was when work slowed down. You had to be willing to go anywhere in the state to do business, so if construction slowed down in your city, but was picking up four hours away, you were expected to drive eight hours a day to work. No thanks.
On the HVAC business, I looked at his business, and 80% of his business came from fresh installs, and only 20% of it was service contracts. This business made me nervous, because he did installs for apartment complexes, and it seemed like there was a finite set of customers. The seller also started businesses in other areas that were like this, and then he sold them off. To me, it seemed as if he would build a business up, and then sell it off while business was still good. And when sales fell off, the buyer might be holding the bag.
I also stayed away from declining businesses like manufacturing, or businesses I couldn"t understand that were of a highly technical nature that might require me to have an engineering degree.
Tuco said:
2. How did you cope with the learning curve of the business subject? Unless you were a great landscaper already, how did you manage taking up a business where a lot (all?) of the employees knew more about landscaping than you?
One thing my MBA program instilled in me is to have the crazy-ass notion that I can do anything. They stressed the notion of being resourceful, whether or not it meant finding info, getting start-up funds, or being confident in any situation. They tried to instill moxy, although I think you get that from competing on a graded curve in a t1 program. I had to compete against engineers and PhD scientists, and for me, it was a huge confidence booster. You could say that failure NEVER crosses my mind, and that even in my nightmares, I conquer them. Sometimes my wife wakes me up in my nightmare, and I ask her why. I tell her was getting ready to pull out the bazooka and blow up everyone causing the problems in my nightmare. You could say I thrive on winning and overachieving.
It is typical that the seller give 30 days of training, and anything past this, the buyer pays the seller. I negotiated for 45 days. It also helps that when the seller has gone on vacation for months at a time in another country, the Foreman has run the business and made every decision. Currently, I am only working hands on in the business three days a week, and the Foreman runs it the other two. The previous owner only worked two days a week, and the secretary, Foreman and Crew Leader picked up the slack. I am purposely hands on part of the week and hands off. I want to be able to buy other businesses, and I don"t want to make them dependent on me. I also monitor how they are doing when I am not there to see if they take advantage and screw off or screw up. I am not seeing a change in production, whether I am there or not, they production is the same. I know some might think this is crazy, but I firmly believe that I can make them dependent on me, and if the goal is to own at least two other businesses the same size, I can"t put in 80 hours a week in any one business. The staff needs to be self-sufficient. If I had to buy a business with no managers, I either would pass, or I would buy a business where I could pay a manager to run it. So there would need to be enough cash flow to support a new manager.
I know a businessperson who amassed a ton of businesses that annually did $300 million a year that he owned. And he did it by making sure he had good managers. I have this natural need for control, and I am learning that I have to give it up - its either that or I will have to be shackled to one business.
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One of my profs that taught my Ops class in my MBA program taught us that most businesses aren"t that complex. He did consulting for companies like Dell, Texas Instruments, Motorola, etc. He believed that most businesses that are highly technical can still be boiled down into simple processes.
All Ops is really is the study of how cash flows through a business. If you know how cash flows through a business, you know the majority of what is going on.
I simplified the business down to how cash moves.
1- Customers use the yellow pages, or call from references or have used the business in the past. (The previous owner was not computer savvy and did not use the Internet, I am)
2- They call for estimates and the secretary puts them on the schedule.
3- The estimator (me) goes out to meet the customer, looks at what needs to be done, and then writes the estimate. The customer either commits then, or calls the secretary.
4- My Foreman and Crew Leader are provided a list of jobs every morning. They are trained to maximize the amount of sales dollars to work on. They try to clump up jobs in one area as to maximize sales and cut down on gas expense. Some of our equipment weighs 5 tons or more, so this is a consideration (the owner does not charge gas surcharge - I plan on doing so)
5- The crews are paid a $2 an hour bonus if they each do $2,250 in work for that day. This is good for me, and for them. I pay them double the going rate for laborers in the area, so if they don"t do $1,500 per crew per day, I might not make money.
6- Crew leaders are trained to ask for checks the day the work is completed. If the customer isn"t home, the secretary bills them within 24 hours. The terms are for ten days.
7- On average, the customers pay 50% in the first month, and 50% in the second. But my staff expects to be paid every week, they will go on a mutiny if they aren"t. Hence, I asked for 150K in working capital, plus I have another 20K cash injection to cover me.
8- The big corporate and wealthy customers can pay up to 90 days late. Its what they do. We bill them the same as regular customer ($225 an hour). So they can cause a major cash crunch on the big jobs. The owner told me of a time where a big corporation agreed to pay him 90K in three months. His cost was roughly 45K. So he had to be able to outlay 45K and wait three months to be paid. His profit was about 45K, and it only took two weeks" work.
The comment that he made was that his competitors will go for the big jobs, and not realize that they don"t have the cash to do them. As an aside, of the 30 companies in the area doing what we do, only 2 of us (including my business) are fully insured. The other businesses don"t see the value in paying the amount of insurance, but the benefit is that for the big clients that demand full insurance, there is only one other bidder for the jobs. The little guys are screwing themselves.
We just did a job yesterday for a wealthy person who is worth $40B. We did about $2k a of work, the profit to me was $1k. And the only thing seperating us from the competition (other than giving good service) was being fully insured.
9- I constantly monitor the cash flow of the business on a daily basis. I know how many estimates there are to run (which is a good barometer of future business), how much work in dollars is on the schedule, and how much work the crews did yesterday. I have to monitor the sales dollars the crews did, because the previous owner paid them hourly, and not by the job. So the last thing I want to do is pay a crew $60 an hour and have them sipping Mocha Lattes for hours. We bill at $450 an hour, and I want them working 10-12 hour days. We can"t bill if they are screwing around. Maybe one day I will just pay them a percentage of the job - but right now no one has tried to screw me over for hours.
In pretty much every b-school, Benihana restaurant is used as a good case as how the whole business is structured to keep cash moving efficiently. The previous seller didn"t really watch his cash flow as much, but I know every penny spent on everything in every account and know how cash is coming in and coming out on a daily basis. Maybe it is the educational background.
At the end of the day, I have a bunch of laborers who can handle doing the work, and maybe a little ops. The Foreman and other crew leader do their best to maximize the schedule to bring in the most revenues with the lowest costs. But its up to me to finesse the regular customers, the corporate clients and the wealthy millionaires and billionaires. Right now, billionaires account for 10-15% of our total business. It only takes one or two. One of them owns 10,000 acres, and we are the only company they use for the type of work we do. They are building a park, and they are spending stupid types of money getting it in shape. We imagine we"ll get more of his business once visitors start coming in, because the person wants every inch of the park to be immaculate for guests.
Oddly enough, the regular customers tend to be the worst to deal with, as they want to cut my nuts off over $50. The corporations, millionaires and billionaires just want the work done right, they want it done now, and they want to be insured. Cost is secondary. In the last week, I have had four wealthy individuals call me and not even want an estimate. They just want us to do the work and bill them later. I have been blessed that some of these people have been the previous owner"s clients for decades. You can"t beat the type of customer that will let you bill them whatever.
