If One Business Makes 45% Net Margins, I'd Go All In — Transcript

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1. 0:00Hey, Alex and Scott, how's it going?
2. 0:02So, we have a couple weeks of cash
3. 0:04runway left.
4. 0:06Operators are on their way out and I
5. 0:07need to take over operations.
6. 0:09It's a commercial locksmith and door
7. 0:11hardware business and I run the sister
8. 0:13company.
9. 0:14Uh in my situation with 1.8 top line and
10. 0:1880k bottom line and we have 280,000 in
11. 0:21AR, what strategy or offer would you
12. 0:24employ to save the business?
13. 0:26What's stopping me is a clear path that
14. 0:28I would like to execute myself. Having
15. 0:30to operate two companies and deal with
16. 0:32the operator leaving.
17. 0:33>> Why are you Why do you have two
18. 0:34companies?
19. 0:36>> So, I got placed into run the security
20. 0:39side of it, but now the locksmith side
21. 0:42is going down, so I have to take over
22. 0:45ops there.
23. 0:46>> Do you own the business?
24. 0:48>> No.
25. 0:49>> Oh, okay.
26. 0:50Um
27. 0:52>> Yeah, the owner has given everything to
28. 0:54me though. Like, I have full signing
29. 0:55authority, all that.
30. 0:56>> Yeah. All right.
31. 0:59Well, I mean, dude, I I'm going to guess
32. 1:01your model is broken.
33. 1:03Um and you it's very very difficult.
34. 1:06Like, you can have the owner play this.
35. 1:08Like, one person does not run two
36. 1:09businesses. It does not work.
37. 1:12Uh you can have like Elon Musk, he owns
38. 1:14multiple businesses, but he has
39. 1:15presidents and CEOs of those companies.
40. 1:18Um and so, you basically it's like you
41. 1:21have split focus. It's very difficult to
42. 1:22get ahead. Um
43. 1:25but the model itself is also broken, but
44. 1:27you have barely enough bandwidth to fix
45. 1:28anything. You're just trying to keep
46. 1:29everything afloat. Like, that's the
47. 1:31that's the issue.
48. 1:32Um
49. 1:33that being said, what are the margins?
50. 1:34So, you said 1.8 is one business. What's
51. 1:36the other business?
52. 1:38>> Uh 600,000 top and 250 bottom line.
53. 1:41>> Okay, that sounds like a much better
54. 1:42business. Which one's that?
55. 1:44>> Uh the security business.
56. 1:46>> Okay.
57. 1:48Um so, which one are you taking over?
58. 1:50The locksmith one?
59. 1:51>> Yeah, I'm taking over the locksmith.
60. 1:52>> Okay.
61. 1:53>> 20 to 1 cap.
62. 1:55Uh LTV cap.
63. 1:57>> Okay.
64. 1:57>> Yeah.
65. 1:58>> So, then why are you why are you making
66. 2:00no money?
67. 2:03>> I don't know. We're losing
68. 2:05big accounts. Like, they're no one's
69. 2:07doing BDR. Like, the sales motion is
70. 2:10just broke. We're sending out quotes and
71. 2:13>> Well, you should never send quotes out
72. 2:15in general. Quotes should always be
73. 2:16delivered over the phone and then asked
74. 2:18for the sale when the quote is
75. 2:19delivered.
76. 2:21And then only if they do not say yes,
77. 2:22then you book a follow-on meeting where
78. 2:24you then have them make the decision on
79. 2:25that meeting, but you should bamfam
80. 2:27everything.
81. 2:28>> Okay.
82. 2:29>> So, there's fix number one.
83. 2:31Um but again, if you're at 21 LTV to
84. 2:33CAC,
85. 2:35like, you have to be trying to spend
86. 2:36money to to lose money in that
87. 2:37situation.
88. 2:39>> Right. Yeah, the with with the the other
89. 2:41operator, um
90. 2:43OpEx went up 150,000 as revenue dropped.
91. 2:47>> Yeah. So, I mean, it sounds like you're
92. 2:49fat right now and you have to cut from
93. 2:52the bottom.
94. 2:54Cut some expenses. I mean, well, one, if
95. 2:57your revenue drops, then you're a
96. 2:58service business, which means you have
97. 3:00you have utilization. Like, you have
98. 3:01excess capacity. That's if you were at
99. 3:04your pre-revenue numbers, but your OpEx
100. 3:07went up by 150 and your revenue dropped.
101. 3:10So, you have like extra extra capacity,
102. 3:12which means that you have people that
103. 3:13you can probably let go.
104. 3:15Um and I'm not like a navigator like,
105. 3:18okay, let's just let you know, let
106. 3:19people go, but at the same time, if the
107. 3:20business doesn't survive, everyone get
108. 3:21everyone gets let go, right? Um and so,
109. 3:25the
110. 3:26team that is there, you probably need to
111. 3:28look at who are the weaker people in the
112. 3:30team. And I'll tell you this, like, when
113. 3:31you actually cut from the place that
114. 3:33you're in right now, you'll be able to
115. 3:35just keep all the stars anyways and
116. 3:36they'll be happy because it's all the
117. 3:37people who actually like the work and do
118. 3:39the work and they will be happy to see
119. 3:40the B you know, the B and C players
120. 3:43uh not there. And so, the whole team's
121. 3:45culture will lift because you're getting
122. 3:47rid of the
123. 3:48the people who are just doing nothing.
124. 3:50>> Right. I think that was the big issue
125. 3:52cuz in last year we had four techs quit.
126. 3:54>> Mhm.
127. 3:55>> Two were fired and we're left with two.
128. 3:57>> Okay.
129. 3:58>> Now the the owner and the estimator have
130. 4:00gone out on the road.
131. 4:01>> Okay, so so then again, where where's
132. 4:03the OPEX? How did it go up?
133. 4:07>> Um
134. 4:08>> Like if you again, if you have 20 to
135. 4:10one, that is the core economic engine of
136. 4:12the business. And so like expenses
137. 4:14either like either you're calculating 20
138. 4:16to one wrong
139. 4:17uh like
140. 4:18like or you're not spending anything,
141. 4:20which is actually a different
142. 4:20possibility. So you're spending nothing
143. 4:22to get 20 to one. Are you saying 20 to
144. 4:23one cuz you it's all word of mouth and
145. 4:25that's how you're getting 20 to one?
146. 4:26Like or is it 20 to one like from Google
147. 4:28Ads or whatever?
148. 4:31>> It's it's 20 to one on the big
149. 4:33uh kind of accounts.
150. 4:35>> Okay.
151. 4:35>> Cuz we're our ICP is property management
152. 4:38and all the smaller accounts are $5,000
153. 4:41LTV.
154. 4:42>> And what's CAC?
155. 4:44>> Uh we're doing nothing for marketing
156. 4:46right now.
157. 4:46>> Well then yeah, you don't have 20 to one
158. 4:48LTV to CAC. You have you have
159. 4:49functionally have unlimited LTV to CAC
160. 4:51because CAC is zero. Um
161. 4:53but that that's not helpful for for our
162. 4:55discussion.
163. 4:56Um and so
164. 4:59you probably need to eat pick one of the
165. 5:01following. You either need to do
166. 5:02outbound to property managers to do the
167. 5:04thing
168. 5:05uh or you can run PPC. I would bet
169. 5:07outbound would work pretty well
170. 5:10because they're almost always property
171. 5:11managers are almost always looking for
172. 5:12good vendors
173. 5:13uh and almost are always dissatisfied
174. 5:15with their current vendors.
175. 5:16Um and so I I would I would just fully
176. 5:19focus on that channel if I want to
177. 5:20increase
178. 5:22uh how much money we're making
179. 5:24and basically do nothing else.
180. 5:25>> Now, would you do LinkedIn or cold call?
181. 5:27>> I'd probably cold call cuz they'll pick
182. 5:28up the phone.
183. 5:30>> Okay.
184. 5:31Okay.
185. 5:36Yeah, I I appreciate it.
186. 5:39>> Dude, you're right like
187. 5:40you're running two businesses. Yeah, I
188. 5:42mean it is tough. Um the owner should
189. 5:44also like
190. 5:50This is a small business.
191. 5:52And so, it's up to you to make the
192. 5:54money, right? Which means that you're in
193. 5:56charge of marketing and sales for this
194. 5:58business.
195. 6:00Like if the delivery part is kind of
196. 6:01handled right now because owner and
197. 6:03estimator and the other two techs or
198. 6:04whatever are there,
199. 6:06then we just need to go get business.
200. 6:09And if we know the accounts that are
201. 6:11good, then just go target those accounts
202. 6:13for outbound.
203. 6:15And you can always do like drive by
204. 6:17their office. Like I mean like there's a
205. 6:18lot of ways to do this.
206. 6:23>> Yeah. Yeah, I appreciate it cuz I built
207. 6:25what I built on the security side the
208. 6:27last 11 months just watching your stuff.
209. 6:29>> Yeah.
210. 6:29>> I think I trust a lot more with the
211. 6:31marketing thing.
212. 6:32>> Yeah, and so are you marketing on that
213. 6:33side and it's working?
214. 6:35>> Oh, I'm all I'm all good. We're
215. 6:38We made 250k in 11 months.
216. 6:40>> Yeah.
217. 6:41I think I think there's something to be
218. 6:43said there of like I mean when again, if
219. 6:46two kind of unrelated I mean they're
220. 6:48semi-related, but they're very different
221. 6:49businesses, right? Um
222. 6:53If you've got a business that's that you
223. 6:55did on the side that's making 45% net
224. 6:57margins
225. 6:58and cash flowing and you already have an
226. 7:01established acquisition channel,
227. 7:03then it would make more sense to just
228. 7:05say, "Let's 4x this business and forget
229. 7:08about this one and fully focus."
230. 7:12You know what I mean?
231. 7:12>> Yeah.
232. 7:13>> Trying to do like what
233. 7:15Said differently,
234. 7:16you could fix this other business.
235. 7:19But with all of that effort, you could
236. 7:204x the other one and have a million
237. 7:22dollars in profit.
238. 7:24And so, you lose a million dollars by
239. 7:27doing whatever you're going to do on
240. 7:28this side to take it from negative or
241. 7:30you know, from basically no margin to
242. 7:31$200,000 in margin.
243. 7:35It's an $800,000 delta.
244. 7:37For the same effort. And it's also way
245. 7:38less of a headache to do one thing
246. 7:39rather than two.
247. 7:41>> I'd like to do that. Only thing is if
248. 7:43the locksmith goes under
249. 7:45>> Yeah.
250. 7:45>> the
251. 7:46owner actually goes bankrupt personally
252. 7:48cuz he personally guaranteed on
253. 7:49everything.
254. 7:50>> Yeah. Um
255. 7:53I don't know what he's personally
256. 7:54guaranteed on.
257. 7:57But if he Does he also own the other
258. 7:58business?
259. 8:00>> Yeah.
260. 8:01>> Well, then he probably he could not
261. 8:02necessarily go bankrupt. He could make
262. 8:04more money in another asset
263. 8:08and then pay.
264. 8:09>> Totally switch focus.
265. 8:10>> Yes.
266. 8:11Rather switch focus, I would just say
267. 8:13the word is focus.
268. 8:15Because think about it like this.
269. 8:17You have the same resources that you're
270. 8:18working with. If we're saying this is
271. 8:20his personal stuff, right? There's X
272. 8:22amount of John's
273. 8:24If we can reallocate John's to make
274. 8:26a million dollars rather than work on it
275. 8:28to make an extra 200, we should
276. 8:30reallocate the to make a million.
277. 8:32And then if there's fixed costs on the
278. 8:33side, then we say, "How much are truly
279. 8:36fixed, right?" Labor is not truly fixed.
280. 8:38Software subscriptions are not truly
281. 8:40fixed. You might have leases and you
282. 8:43know, like payments on trucks maybe that
283. 8:45are truly fixed. But when you actually
284. 8:46add only the truly fixed costs
285. 8:48up, it might be I don't know, $10,000 a
286. 8:51month, something like that.
287. 8:53In which case, great. Then let's just
288. 8:55gas the hell out of the security side.
289. 8:57It covers the net on that on the other
290. 8:59way and then you're you're off to the
291. 9:00races. You basically just have a
292. 9:02a 10K baseline you got to overcome and
293. 9:05then you're you're good.
294. 9:07>> So basically steal the A players from
295. 9:10the locksmith side, bring them over,
296. 9:11utilize them there.
297. 9:13>> Yeah, just run one business that's good
298. 9:16rather than two businesses that are
299. 9:17mediocre.
300. 9:19And if you run if you take if you steal
301. 9:21all the A players, that business will
302. 9:22grow.
303. 9:25If all you did, let me ask you the
304. 9:26question. Let's say if I said, "Hey,
305. 9:29uh
306. 9:30if you can get that business to a
307. 9:31million dollars in profit per year." So
308. 9:33you 4X the business from 600K to 2.4
309. 9:36million, all right?
310. 9:38And I said, "I'm going to give you,
311. 9:40operator, a million dollars if you do
312. 9:42that.
313. 9:43And you have nothing else to do. Could
314. 9:45you do it?"
315. 9:47>> Yeah.
316. 9:48>> Okay.
317. 9:50Let's do that.
318. 9:55>> So, figure out that that's the only
319. 9:56thing to do and run with that.
320. 9:58>> Yeah, and to be fair, there's nothing
321. 9:59wrong with the locksmith business. It's
322. 10:01just that you have two, one is crushing,
323. 10:02one is not.
324. 10:04One has way better contribution margin.
325. 10:06And you said you already have an
326. 10:07established acquisition channel, which
327. 10:09means that we just need to do this, turn
328. 10:10it up.
329. 10:13But you can't turn it up because you're
330. 10:14splitting your attention. And so, take
331. 10:16the good guys, turn it up, crank it,
332. 10:18make the money. It's still the same like
333. 10:20they're both LLCs, they both roll up to
334. 10:21him. And so, if all of the LLCs in total
335. 10:24make more money,
336. 10:25great. Even though the other one has
337. 10:26more top line, it makes it makes it
338. 10:28makes no bottom line.
339. 10:29And so, again, I want to see like what
340. 10:31are the true hard costs of that
341. 10:32business?
342. 10:34If the hard costs are smaller,
343. 10:37like the true hard costs, right, are
344. 10:38less than?
345. 10:40>> Yeah.
346. 10:41>> Then I would probably focus there. But
347. 10:42this happens all the time. Like this is
348. 10:44why I make so much content about focus
349. 10:46cuz it just happens literally
350. 10:47constantly.
351. 10:49But you're in a rock and a hard place.
352. 10:50You've got one operator doing two
353. 10:52things.
354. 10:55Otherwise, the
355. 10:56the alternative is you just got to go
356. 10:58ham. The alternative is you got to go
357. 10:59ham on on on getting a bunch of whales
358. 11:01and then hope the other business doesn't
359. 11:02drop cuz you're not paying attention to
360. 11:03it. And then that one starts going down
361. 11:04and you're like, "All right, I got to
362. 11:05fix this one."
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