Why Expanding Stores Needs Local Operators — Transcript

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1. 0:00I do auto hail repair, very niche, hail
2. 0:03storms, hail damage on cars. Yeah.
3. 0:04Similar to roofing. Uh do 5.5 million. I
4. 0:07want to be at 15 million next year.
5. 0:09>> Cool.
6. 0:09>> Uh my biggest constraint is being under
7. 0:1110 million is people leadership. Um so
8. 0:15my question is if I'm hiring basically a
9. 0:18leadership you know seuite bench COO uh
10. 0:21CMO that type of thing what have you
11. 0:24seen as the most effective way to design
12. 0:26compensation and decision-m structure
13. 0:29for a team like this so that performance
14. 0:31scales without eroding owner control or
15. 0:34margins. So I think first off you might
16. 0:36be mistitling
17. 0:37>> because at five-ish million you're
18. 0:39probably not truly looking for seuite
19. 0:42like actual seuite. Um you're probably
20. 0:44looking more for like a a VP or director
21. 0:48um in terms of like titling.
22. 0:49>> Sure.
23. 0:49>> Um that might help with the comp stuff.
24. 0:52>> Um so thing one titles thing two um
25. 0:56which role you want what what roles are
26. 0:58missing right now? I would say uh I need
27. 1:01a a better operations person
28. 1:04>> like a right hand like you're the
29. 1:05visionary and you need somebody who
30. 1:07likes
31. 1:07>> Yeah.
32. 1:08>> Okay.
33. 1:08>> Uh so you need an operator.
34. 1:10>> Is that the main one that you need to
35. 1:12hire right now?
36. 1:13>> I would say right now that's probably
37. 1:14the biggest constraint because
38. 1:16everything seems to come back to me in
39. 1:17terms of operations.
40. 1:18>> Yeah. So I think it's somebody anybody
41. 1:20who's done any kind of auto um even
42. 1:24Yeah. Anyone who's done any kind of auto
43. 1:25repair stuff might be helpful. Um, in
44. 1:28terms of looking for my search, you'll
45. 1:30probably do well,
46. 1:33you there's a there's obviously a bunch
47. 1:35of different sources you can do for
48. 1:36getting getting talent. My bet would be
49. 1:39the two most fruitful would be LinkedIn
50. 1:41outreach.
51. 1:42>> Okay.
52. 1:42>> Um, and as silly as this may sound, even
53. 1:44like simple like indeed ads, um, you'll
54. 1:47probably get lower quality candidates
55. 1:48from the indie ads. You could still get
56. 1:49lucky. Um, right at the level that
57. 1:52you're hiring for is kind of the
58. 1:53transition between when you run ads and
59. 1:54when you start doing targeted outreach.
60. 1:56uh for the level of person that you're
61. 1:57looking for. Um
62. 2:01and so I think you'd be targeted
63. 2:02outreach. I would look for people who
64. 2:03are in auto size as what you're
65. 2:05currently doing who are in basically in
66. 2:07that role and you say, "Hey, you want to
67. 2:09do that thing that you did there over
68. 2:10here." And that's probably like honestly
69. 2:12that's what's going to be. And so from
70. 2:14an outreach effort perspective, it's
71. 2:16like you'll probably want to reach out
72. 2:18to 500 or so. Um and if you're in
73. 2:22struggling with your local area, you can
74. 2:24offer a relocation package. um it's kind
75. 2:26of like a signing bonus to encourage
76. 2:27them to come there. Um and that would
77. 2:30probably help you solve um the personnel
78. 2:33issue. Uh in terms of what I'd be
79. 2:36looking for, you want someone who is a
80. 2:37leader, not someone who because
81. 2:40oftentimes you'll have people who are
82. 2:42they they will trick will trick us
83. 2:44entrepreneurs and they'll be like it's
84. 2:45all about processes and systems and it's
85. 2:47like those people hate talking to people
86. 2:48and that's not what you need relief from
87. 2:50right now. You need probably more people
88. 2:52to handle um which means that when
89. 2:54something bad happens, they go to them,
90. 2:56not you. And so you need someone who you
91. 2:59think your team would admire and look up
92. 3:01to their character. Um because if you
93. 3:04find leaders, then they can lead almost
94. 3:06anything. And the auto is just like a
95. 3:08bonus. But a really good operator can
96. 3:10just come into just about any business
97. 3:11and money because they're usually two
98. 3:13levels above. Like they're not fixing
99. 3:15cars, they're fixing people. And that's
100. 3:17the same.
101. 3:18>> Sure.
102. 3:19>> Appreciate that. And in terms of
103. 3:20compensation for something like that, at
104. 3:23level where I'm trying to go,
105. 3:25>> it's going to be it's kind of like a
106. 3:27reverse sale. So the offer that you're g
107. 3:29giving is going to be proportional to
108. 3:30the leverage you or they have over the
109. 3:32role. Right? If you have someone who has
110. 3:34less experience, they're younger,
111. 3:36they're going to have less less leverage
112. 3:38and so you wouldn't have to give up as
113. 3:39much. If someone's done this scaling
114. 3:41process two other times before that and
115. 3:43taken someone from 5 to 50 times, then
116. 3:46they'll probably want more and it might
117. 3:47be justified, right? And so I have hard
118. 3:50I have a hard time saying like this is
119. 3:51the hard and fast way that you should,
120. 3:53you know, should do this. It's going to
121. 3:54depend on the talent, but I would say
122. 3:56like run-of-the-mill generic, you know,
123. 3:58VP ops or director of ops, uh, role,
124. 4:01maybe a GM, general manager, depends,
125. 4:03like I'd have to know a little bit more
126. 4:04about what the day-to-day is going to
127. 4:05look like. Um, but for someone like
128. 4:07that,
129. 4:09having a small tie to the overall
130. 4:11profitability of the business is not a
131. 4:13bad idea. Um, so a good way of doing
132. 4:15that is like you run a a profit pool of
133. 4:1810 to 20% that you distribute amongst
134. 4:20the leaders and then as the business
135. 4:22grows that 10 or 20% that percentage
136. 4:24stays the same but the pie increases and
137. 4:27so they think like owners like you do
138. 4:28which is like well we're going to bring
139. 4:29this other guy in who's also going to be
140. 4:31a leader and they have to be willing to
141. 4:33bring cut some of their pie up the same
142. 4:34way you do because they think it'll
143. 4:36expand the overall pie. So it gets them
144. 4:37thinking more like an owner in that
145. 4:39perspective. But I like 10ish 15
146. 4:41sometimes in terms of uh profit share
147. 4:43pools. And if you want to tie them in to
148. 4:47the overall value of the business, the
149. 4:49way that I have this conversation, this
150. 4:50will go for just about everyone here. Um
151. 4:52is that you have uh cash flow, you've
152. 4:56got sale,
153. 4:58you've got risk, and then you've got
154. 5:00control, right? And so these are the
155. 5:03four things that come with equity. And
156. 5:05most people say they want equity, but
157. 5:07you're like, "You want risk?" And
158. 5:08they're like, "No, no, I don't want
159. 5:09risk." And you're like, "Okay, do you
160. 5:10want control?" Because I'm not giving it
161. 5:11to you. And they're like, "No, I don't
162. 5:12want that." Like, "Okay, cool." Um, so
163. 5:14that's off the table. That's off the
164. 5:16table, but you do want cash flow and you
165. 5:17do want the potential for an exit. And
166. 5:18they say, "Yeah." You're like, "Okay,
167. 5:19cool." So we'll have a profit share pull
168. 5:21here to help you with this. And then
169. 5:25what we'll do is we'll, you know, you'll
170. 5:27have a call it a 4%
171. 5:30um profits interest in the business.
172. 5:32you'll get 1% uh per year. I'm making
173. 5:36numbers up. 1% per year. Um it's phantom
174. 5:39though, which means if they leave, it
175. 5:40comes back and then in the time that a
176. 5:42sale occurs, they would get to recognize
177. 5:45whatever percentage they have. Or you
178. 5:46could accelerate the whole 4% if you
179. 5:48wanted to um in the event of a sale. But
180. 5:50it's only if they're there during the
181. 5:52sale and they'd been there for at least
182. 5:5312 months or 24 months or something like
183. 5:55that. And that gives them the best of
184. 5:57both worlds. The only downside of that
185. 5:59setup for an employee is that they have
186. 6:01to pay regular income taxes on the sale
187. 6:03bonus because it'll be structured like
188. 6:04an option. If they didn't want to do
189. 6:06that, they would actually have to pay
190. 6:08taxes on the equity that they got and
191. 6:10not get anything else, which most people
192. 6:12don't want to do.
193. 6:12>> Gotcha. And that that you're you're
194. 6:14specifically talking about like a COO.
195. 6:16That would be like managing multiple
196. 6:17shops or upper ops under them type of
197. 6:20thing.
198. 6:20>> No, you want I mean, if you're going to
199. 6:22do this, this is somebody who's going to
200. 6:23drive,
201. 6:24>> right? For sure. And then for the ops
202. 6:26managers themselves, would you still do
203. 6:29that?
204. 6:29>> You could do that on a you could do it
205. 6:31on a on a shop basis. Yeah.
206. 6:33>> Okay. So that would be separate from
207. 6:35>> Do you have separate LLC's?
208. 6:36>> I don't.
209. 6:37>> Okay. Well, something to consider. Um
210. 6:39you can still as if you run the P&L
211. 6:40separately, which you probably do as
212. 6:42long as the P&Ls are separate, you could
213. 6:44still calculate it that way. But and
214. 6:45they're I'm assuming they're brick and
215. 6:46mortar, right? Um I have found So who
216. 6:50hears brick and mortar? Can I get your
217. 6:51hands raised real quick? Okay, perfect.
218. 6:53Yeah. So, this will apply to more than
219. 6:55just two. Um, if you are if you are
220. 6:58doing private expansion, which you are,
221. 6:59right? You own all the shops. I have yet
222. 7:01to see someone do like an exceptional
223. 7:03job expanding without having the
224. 7:06equivalent of a an operator boots on the
225. 7:08ground in each store that has no tie to
226. 7:12the bottom line. So, I would strongly
227. 7:15encourage because that and that doesn't
228. 7:17mean that you go to all the people you
229. 7:18have now and say here's profit share.
230. 7:20Um, it's more like what type of people
231. 7:22do I need to what caliber of person
232. 7:25do I need to actually have this run so
233. 7:27that I don't need to have all this
234. 7:28handholding happening and that type of
235. 7:31person might require profit share which
236. 7:33then allows you to truly decentralize
237. 7:35these and actually have them run kind of
238. 7:36more independently which will allow you
239. 7:37to expand.
240. 7:38>> Gotcha. And then when you talk about
241. 7:39like a 10% to an ops manager so they
242. 7:42have that is that of like revenue
243. 7:44increase or the total amount.
244. 7:45>> So there's two ways that I like
245. 7:46structuring these. We're going to go as
246. 7:47deep as you guys want. So there's two
247. 7:48ways I like structuring these. Number
248. 7:50one is if you have a which I don't think
249. 7:52will be the right one for you because in
250. 7:54a so for the people who have fast growth
251. 7:56businesses that are not geographically
252. 7:58constrained I like doing this which is
253. 7:59that you can have a much higher
254. 8:01percentage say I'm going to give you 30%
255. 8:03of the growth that we had from last year
256. 8:05and that becomes the watermark for next
257. 8:07year and then you got to grow it again
258. 8:08but I'll give you a fat percentage of
259. 8:10whatever you grow it in a in a
260. 8:12geographically constrained business like
261. 8:13a local business I don't I don't do that
262. 8:16because they can't it's tough for them
263. 8:17to actually grow then they get really uh
264. 8:19discouraged And so I'd rather have them
265. 8:21have a profit share percentage profit
266. 8:24share of the profit not revenue um that
267. 8:27they're going to get and
268. 8:30I reverse engineer what I think OTE on
269. 8:33target earnings should be. So if I think
270. 8:35that the cal of person who I would need
271. 8:37to hire for this role should make
272. 8:39$150,000 a year because I get questions
273. 8:41like should I do 5% or 10% like I don't
274. 8:43know what the profit is and you know how
275. 8:45how much effort like there's a lot of
276. 8:46variables.
277. 8:47>> 10% would be a lot.
278. 8:48>> Okay. So what's the what is the profit
279. 8:49for 10% for one store?
280. 8:51>> I mean margins are 40%.
281. 8:53>> Okay.
282. 8:54>> Well, no like what's the
283. 8:55>> Yeah. So well I have I have four
284. 8:57locations but one of them is where 80%
285. 9:00of the revenue is coming from right now
286. 9:01because it's storm related.
287. 9:03>> Yeah. Okay.
288. 9:03>> Sense. So um monthly we're talking
289. 9:07monthly dividing.
290. 9:11>> I won't tell.
291. 9:13>> I'm just thinking in terms of that one
292. 9:14store.
293. 9:15>> We'll do the other three. Whatever.
294. 9:16>> Okay. Over three. So
295. 9:26So close to 200 a month
296. 9:28>> in profit.
297. 9:29>> Yeah.
298. 9:29>> For one store.
299. 9:30>> Yeah.
300. 9:31>> Okay.
301. 9:33You said you were doing 5.5 million,
302. 9:35right?
303. 9:35>> Yeah.
304. 9:37>> Huh? It's 5.5 million. Four stores. Each
305. 9:40one's doing $200,000 a month in profit.
306. 9:42>> No, I was just I was picking one. I said
307. 9:44a cumulative
308. 9:45>> Oh, cumulative is 200. Yeah, that's
309. 9:46okay. Got it. So, let's say divided by
310. 9:48four, you've got $50,000 a month in
311. 9:50profit that's coming in per store. Okay?
312. 9:53So, $50,000 a month in profit um per
313. 9:56store. If they had 10%, they would get
314. 9:58$5,000 extra a month. They get 60 grand
315. 10:00extra.
316. 10:01>> If they're making 100 and they can make
317. 10:03160
318. 10:05great
319. 10:06>> two to 400 would be average next year.
320. 10:08The only reason why I have the four is
321. 10:10because they run without me and it's
322. 10:12just there.
323. 10:14>> Fundamentally, we just reverse engineer
324. 10:15OT. It could be 5%. I like the
325. 10:18percentage doesn't matter. I just want
326. 10:19to reverse engineer how much money do I
327. 10:20think this person should make. If
328. 10:22they're bad, they'll get fired. If
329. 10:23they're mediocre, they make on target.
330. 10:25And if they crush it, I want them to
331. 10:27make this much money.
332. 10:28>> Sure.
333. 10:28>> So, I just put those lines in the sand,
334. 10:30take that money, and reverse in
335. 10:31percentages. And then that's what I
336. 10:32present.
337. 10:33>> Okay, makes sense.
338. 10:35>> No, I appreciate you, man.
339. 10:36Congratulations.
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352. 10:56enjoy.