Profit & Grit with Tyler

The Home Services Masterclass: Profit, Apprenticeships, and Exit Strategy - Lou Hobaica

• Tyler Martin • Episode 21

Share episode

Lou Hobica built a multi-trade home service company from the ground up, achieving 30% net profit margins before selling it for a life-changing amount. His journey showcases how focusing on profitability metrics and customer experience can transform a traditional trades business into a profit powerhouse.

• Transformed his father's small refrigeration business from 5% to 30% net profit
• Created a streamlined 8-week apprenticeship program to build the right team culture
• Focused on selling themselves first—"You'll like a Hobica"—not just their services
• Discovered $1 of labor carries $3 of overhead while parts/equipment only carries $0.50
• Used flat-rate pricing and strategic subcontracting for labor-intensive work
• Built a multi-trade model to level out seasonal revenue fluctuations
• Focused on revenue per employee ($400K/employee correlates with 30% net profit)
• Marketed aggressively to existing customers (130+ touches per year)
• Prioritized selling to existing customers who already like and trust you over new leads
• Shared the emotional reality of exiting a business after 40 years of building it

Book a meeting with Tyler at cfomadeeasy.com to discuss how these strategies can apply to your business. There's no heavy pitch – just a conversation about your challenges and potential solutions.


🎙️ Profit & Grit by Tyler Martin
Real stories. Real strategy. Real results for service-based business owners.

🔗 Website: ProfitAndGrit.com
📍 LinkedIn: linkedin.com/in/thinktyler
📸 Instagram & TikTok: @profitandgrit
📅 Want to grow your business with smarter financial strategy?
Book a free intro meeting

Speaker 1:

Now you're back in the dating mode. Your wife kicked you out, right? She got tired of you. You're old and you're beat up and lazy. So she kicked you out and now you're in the dating mode again. So you know as well as I do the worst type of date you can go on with, the lowest success rate, is the first date. Right, first dates are always tough. The second one gets a little easier, the third one's better. By the fourth or fifth date. You kind of like get along, you like each other, you got something going on. It gets better and you grow with it. So no different than dating customers. When you're looking and prospecting for new customers, that first date is really tough right.

Speaker 2:

Welcome to Profit and Grit with Tyler, where blue collar owners and insiders spill the real story behind their hustle, building businesses that thrive through sweat and smarts. We'll dig into their journeys, from scaling chaos to growing the bottom line, with lessons and grit that pay off big. Here's your host, the blue collar CFO, tyler Martin.

Speaker 3:

Hey, welcome back to another episode of Profit and Grit. This episode, guys, is a little different. What you're about to hear is more of a masterclass than a conversation. My guest is Lou Hobica. He built a multi-trade home service company from the ground up, took it to 30% net profit and sold it for a life-changing number. Lou's a machine. Once he got going, I mostly just got out of the way because the value he was dropping was just too good to interrupt.

Speaker 3:

In this episode you're going to learn why revenue per employee is the most underrated metric in the trades, how Lou cut his apprenticeship program from one year to eight weeks, and why flat rate pricing and subcontracting labor intensive work changed everything for his bottom line. He also shares the emotional side of exiting a business after 40 years. It was really a humbling part of the conversation where you could just tell Lou really got broken up there for a minute or so and what it's like to walk out the door one last time. It's a very emotional process and Lou shares that in this episode. Stick with this one. It's really dense but it's real, and if you're trying to build a home service company with serious profit, this is a blueprint. Let's get into it with Lou. Hey Lou, welcome to the Profit and Grit podcast. How are you doing?

Speaker 1:

I'm fantastic. Thanks for having me on. Pleasure to meet you and be here, Tyler.

Speaker 3:

Thanks. This is the first time I've had a family duo on the show. I had your son, Andy, on the show a few weeks back. He introduced you to me, so super excited to get to the next generation.

Speaker 1:

Yeah, Andy's a fabulous young man.

Speaker 3:

I'm proud of him. He's a great guy. Hey, I'd love to start out First. Tell us a little bit about what you do these days professionally, and then I'd love to know a personal tidbit about you.

Speaker 1:

Yeah. So I exited from my trade service business as a multi-trade business and now I have a coaching consulting business. So basically I'm utilizing my 40 years of trade and business ownership and growth and profitability experience to be able to now share with other business owners. I focus on primarily residential any trade type service business be able to grow, but mainly to grow profitably. Type service business be able to grow, but mainly to grow profitably. So I share my expertise in any from A to Z anything in the business, because I've been doing it for the past 40 years and just enjoy helping other contractors, business owners, to be able to grow their businesses wisely and profitably.

Speaker 3:

Yeah, and then how about a personal tidbit about you?

Speaker 1:

Yeah, personal. I've been married for, let's say, 42 years. I dated my wife for four years before that, so we've been together 46 years. I have three boys 32, 37, and 39. I have six grandchildren. I restore vintage muscle cars as a hobby, so I'll have anywhere from four to eight at a time and I really enjoy doing everything because I'm a hands-on. I'm a mechanic at heart but had to give up my tools, like year 2000, to be able to focus on growing the business, just leading the business, growing the culture and growing for profitability. So I hung up the tools and was able to do my hands-on mechanical stuff at home, you know, building cars and things. I'm a gardener, so I garden. I've been doing that for 30 years. I'm a professional jam maker, so I I make all my own jam with my fruit. I got an acre property so I grow a lot of stuff, have a greenhouse. We have a lot of fun activities, so have fun in life.

Speaker 3:

Very cool. So here's. Here's what I want to cover in the show. I definitely want to hear the. What intrigued me by talking to you is about the family dynamics of a family business. Like I want to kind of go through that, just how you started in and just some of the dynamics of it. Then I'd love to spend a little time talking about profitability. You just have such a wealth of experience. I think you can offer us as listeners a lot, and so I want to kind of get into that. Like, what do you see commonly among your clients within your own business previously around profitability. And then the last thing I want to cover is the exit, because I think that's really important the staging of the exit, how you thought about it. You always know you're going to do it and then to ultimately exit. So if that sounds good, I'm ready to rock and roll with you.

Speaker 1:

Yeah, that's good, fantastic. Let me start at the beginning a little history about the company. So we're based in Phoenix, arizona. My father came here in 1921, was a Lebanese immigrant his mom and dad and two sisters, and he came here in 1921. He was two years old at the time and basically was drafted. World War II broke out in 1939.

Speaker 1:

I was in the army, got out of the army under the GI Bill, came home and went to Phoenix College and my dad was a radio operator. He was really mechanical, hands-on, electrical, building, plumbing. He could pretty much do everything as a young man. So he came back, he goes to the local college, phoenix College, and talks to the counselor and said you know, I want to be an electrician. And the counselor said Paul, my dad's name was Paul, said Paul, you know, I'm sorry, the school's full. You know we don't have any room for you, but you can wait until maybe next semester. My dad wasn't a waiter, he just liked to get things done. He says no, no, it's not going to work, I need to get started now. And the counselor said well, we have this is remember. This is 1945. We have a new and upcoming industry called refrigeration, wow, okay. And you know it involves mechanical, electrical and plumbing, so a little bit of everything. I think you'd fit really well and you could open your own business with it. My dad said okay, so he took refrigeration and business graduated.

Speaker 1:

Now understand that this was before air conditioning was even around. So Phoenix was a small city, maybe you know 30, 35,000, over five and a half million today. So a little small city. 5,000, over 5.5 million today. So a little small city. And in the desert. So even if it gets hot in the desert, if you don't have all the concrete, the asphalt, all the heat retaining material, you don't create that oven effect. So at night it cools off.

Speaker 1:

So air conditioning wasn't needed. But the city started to grow and my dad, ted Astey, working for a few small refrigeration companies by 1952, he said you know, I'm going to do this myself. So out of this garage he opened whole bike as refrigeration sort of grocery stores, dairy farms, meat markets, butchers, things like that, and so started to grow his business. But then Phoenix just started to blow up and as the city blows up, concrete, asphalt, getting rid, putting grass in for the moisture so that oven and humidity, that oven effect comes on. You know, putting grass in for the moisture, so that oven and humidity, that oven effect comes on. So at night it didn't cool off anymore.

Speaker 1:

So air conditioning was born, the need for it, so, he started to shift his direction towards more air conditioning because there was a big need there and a lot of opportunity. Now, no different than today. My dad in the late 50s and early 60, sixties and seventies even he had a hard time finding, you know, good, honest, ethical, hardworking people. It was no different than today. He just couldn't find anybody. So and then my mom say, like in the late fifties and sixties, they said, you know what? We're going to start our own apprenticeship program. So good, catholic couple, they just had a boatload of kids. So we had seven kids right and we all worked in the business. So all I knew was I go to school. If I wouldn't have been in school and playing sports, I was working. So nights, weekends, spring break, summers. So I was always working from 10 years old and on up.

Speaker 3:

So I got really hands-on. Good question. Did you always know you were going to ultimately go into this business as you were growing up, or how did it Did?

Speaker 1:

not so actually. So I became very hands-on talented, could fix anything. I was in my own service vehicle at 16 because I was. I could work on chillers, refrigeration systems, air conditioning, any size. I mean, I was very skilled by the time I was 16 and had my driver's license. So I had my own service vehicle at a young age.

Speaker 1:

But I go to college and you know, I knew I wanted to do my own thing and be in control of my future, my destiny, and I wanted to be an attorney. So I go to college and I go through, get my pre-reqs done and I'm leading towards, you know, getting going towards becoming an attorney, the legal type field, and I didn't really want to work out in the field my entire life, what I had been doing and that's what I seemed to as it's hot, it's, you know, it's miserable. It gets nasty in Phoenix, I mean, it's like, you know, it's like hell here. You know good, you know, five, six months out of the year, but six months out of the year is beautiful, but six months out of the year is beautiful. So, anyways, so my junior year I got a jury notice and I had to sit on a jury and it was a guy in a cotton chaining facility, young man with three kids, that that he bypassed all the safeties and he got his arm chopped off. So I was the perfect kind of a technical mechanical field working with machinery, outside the stick on the jury.

Speaker 1:

So I got stuck in this jury for two weeks and all the people on the jury were older than me and I'm this young man, you know, like 20, 20 years old, 21. And you know I I'm like no, he doesn't deserve, you know, any retribution. You know he, he doesn't deserve anything. I mean he bypassed all the safeties. I mean, if I bypass safeties, I'm taking my life into my own hands. So I was the only one thinking common sense. So I sit on this jury for two weeks and I'm watching these attorneys and you know I'm like I couldn't do this. I couldn't. This is just ridiculous. This is just so common sense and we can't even cut to the chase and get this thing done and the jurors won't make their mind up and I couldn't see myself in a courtroom doing this, you know, on a regular basis, being part of the problem. Basically, I'm not going to be an attorney, I'm not going into that field, I'm just going to stick with the family business.

Speaker 1:

So at that point I focused on business accounting finance degree and then graduated from that and then, you know, joined the company full time. At that point in 1983. I had an older brother who got an engineering degree and he had already joined the company. He was seven years older than I, so the two of us you know were in the company were able to finally convince my dad to retire. So that was 1983 for me, 1989, finally convinced him to retire. Now he had built, you know, a nice business, maybe 800,000 top line revenue back then, so whatever that equates to today. But it wasn't super profitable. It was just making enough to make a living for the family. And we had a nice living, took care of us and our families and you know everyone was fine. But it was a business just to make a living. That's all it was. And you know he put us all through college and made a good living and you know that was all good. But he didn't have, you know, the focus really heavily on profitability.

Speaker 1:

So I got out of college and I look at his pricing model because I had never looked at it before how he priced his jobs, and I'm saying, okay, dad, show me how you price your jobs.

Speaker 1:

And he's showing me. He says, okay, take all my costs, my direct costs, my equipment, my parts piece materials and then I take my direct labor, my direct costs, my equipment, my parts piece materials and then I take my direct labor you know at this rate and how many hours, you know how many man days and then I take that total and I multiply it by 1.3. That's my final price and I'm like, wait a minute, you're adding 30% to the total cost. I said so, out of that 30% you're paying all of your overhead operational costs, rent, utilities, anything and everything, and you got to pay yourself out of that or any distributions and bonuses you know to be able to build a better future for you. You're getting all that out of 30 percent and I'm like, ok, that's the first thing I'm going to change. You know so when I bought the business, I went and I totally revamped and put a good pricing structure in and focused on profitability. So anyways, if that answers your question of why I went that route, yeah, that's great.

Speaker 3:

That's great, Lou. So you just brought up a good point. When you bought the business, was it you and your brothers, or was it just you?

Speaker 1:

One brother and I, the engineer, paul, and my brother Paul and I bought it in 1989. My father retired and it was 800,000. There were eight people in the company. And my brother and I bought it in 1989. My father retired and it was $800,000. There were eight people in the company and my brother and I were two of them. So a really small $800,000 top-line revenue company. And he was an engineer, I was a business guy and we were both very mechanically inclined because we had grown up in the business.

Speaker 1:

We just wanted to grow this thing. We wanted to grow it and we wanted to grow it. I wanted to grow it profitably because I knew how to, so profitably because I knew how to. So a couple of key things I saw was the pricing model. My dad was pricing incorrectly. So first of all I needed to focus on okay, what kind of a gross margin do I want, what kind of overhead am I carrying right, and then that'll lead to my net profit of whatever I deem, whether it's 10, 15, 20, 30%, whatever it may be so I could focus and be able to drive for my profitability my profitability. So at that time we used some old arcade calculators to be able to do this a lot easier today, but this was pretty much. This is before computers right, nothing technical so yeah yeah, I mean your computer was your.

Speaker 1:

What was the high-tech calculator back then? But you know you had um, whatever it was I know texas instruments was one, and then it was a Commodore 64. Yeah, Texas Instruments had one of those. That was pretty much it.

Speaker 3:

There was a Commodore 64, and it just kind of kept going on, yeah, yeah.

Speaker 1:

So you know, I mean it was a lot of long-hand type, you know, quoting and coming up with their pricing, but anyways, figured out how to do that to be able to change a, say, 5% net profit profit company, which that's about what my dad ran and he'd be happy with that and that's all his 1.3 multiplier would provide. And then, as well as if I'm going to mark something up, let's use the divisor method. If you use the multiplier method, you're never going to get the true 30% right. You're only getting a 30% off the base, not the end result. So use the divisor method to get your full markup that you want to be able to get, to get that margin.

Speaker 1:

So the second thing that I saw was we were too limited in the services and basically in Phoenix Arizona we got six months of hot to really hot weather and six months of just beautiful, beautiful weather. Barely gets cold here. I mean you can count the number of days we get down to freezing, no snow. I mean it's just gorgeous weather here, gulf weather in the wintertime. So we had three months where we'd make a lot of money, three months where we'd make okay money, three months where we'd break even and three months where we'd lose a boatload of money and it's like this is no fun. I need to expand my options to be able to level out these hills and valleys. So I went to work on getting my plumbing license. So I got my plumbing license for plumbing, drain, sewer. I get my electrical license for the electrical trade and also security. So we added all these services and also I built a wine cellar division. So we were HVAC, little refrigeration, plumbing, drain, sewer, electrical, wine cellar and security. I ended up dropping security because it's a totally different business model. It's not do the work and get paid right, you're building agreements and then selling the agreement. So I couldn't make money in that, so I dumped that after about three years. But my goal was to own the home of all the services that a homeowner may need.

Speaker 1:

And what I did see is growing up in the trades it was all about the task at hand. It was never about the experience, the customer pleasing, it was just getting the job done and the customer was happy when you got the job done. But what I started to see in the late 80s and early 90s is that that was no longer good enough. People wanted more. They expected clean, tucked in shirt, smelling good, clean van parking, the street booties just a great experience. So they expected this customer service and I started to see this. So I started to see this. So I started to transform the company. Okay, we're going to focus no longer on the products, the services that we offer. Our main focus is going to be on the customer experience and selling yourself. So we were all about selling ourselves. And then, late nineties, my brother and I came up with the theme of you'll, like a whole white guy, we're the most likable people.

Speaker 3:

You'll ever meet. So, lou, hold on, hold on, just to kind of take you back when you went through that transformation I guess I'll call it where service really really became key. How many technicians were you at that point? And it just roughly. And then was that hard to get people to all of a sudden go hey, you know, you got to shave and you got to put on booties and stuff like that.

Speaker 1:

Yeah, yeah, yeah. So this was yeah, you're right. Yeah, tattoos, cover up, shave, look good. Right, had a spare shirt. You know, greet the customer, first name. So that was probably, that was late nineties, say 98. And I'm going to say we had six technicians, so it was still a small crew.

Speaker 1:

Okay, we were building and trying to multi-trade. You know, building in the direction of multi-trade, but you're right. So you had technical guys that knew how to do their job, their work, and they didn't want to deal with all this filly-frilly stuff. So that's another realization. I found that anybody with experience wasn't going to do the Hobica like a Hobica. You know most likable people, this great customer service experience, all these jumping through hoops and the customer falling in love with you, selling yourself. They buy you, they like you and trust you. They're going to want you to take care of their needs. They didn't buy into that. So I quickly realized that and I said you know what? I'm not going to hire Tyler who has, you know, 10 years experience. Right, I'm going to create my own apprenticeship program and I'm going to just create people from scratch. Wow. So in the late nineties I had an apprenticeship program and it took one year to push somebody through my apprenticeship program and I would work on one or two at a time. Try to push them through, but it'd take me a whole year. I was able to drill that down to nine months, six months and then I'm going to say the last five years of running my company. We were able to drill that down to eight weeks. So I could take Tyler, who knew nothing.

Speaker 1:

Young man, you know, has a dream, the American dream wants to get married, wants to have kids, wants a house. You know he wants this. You know grandiose future. And he didn't want to go to college. You know he's not a blue collar type guy. So we wanted to get into some type of hands on and I can get you into HVAC, plumbing, drain, sewer, electrical, wine, cellar, any of those trades in eight weeks I can have you out on your own. So that's what we're able to evolve that to.

Speaker 1:

But it started back with. You know what, if I want individuals to do this like touchy feely stuff and sell themselves and create a great experience, it can't be the highly technically trained guy. They just don't want to do it. So when I start from scratch, I find a likable person that I like being around and wants a better future and they want that American dream. They're the perfect fit for some trade. And then what I do is I bring you know Tyler in and maybe it's into the HVAC apprenticeship program in eight weeks. So at three months I introduced him to another trade as a basic inspection, maintenance, checklist, right. And so I introduced Tyler to all the trades and I'm going to say 90% of the time Tyler's main trade isn't the one he came in on that he thought he was going to be, you know, in HVAC or plumbing or whatever they always seem to.

Speaker 1:

I allow an individual and Phoenix is kind of we're kind of blessed because I hold all the licenses and everybody can work under me. There's no journeyman or master you know plumber or electrician that everybody needs to be. So I just have to have the master you know plumbing, electrical, hvac, general contracting and everyone works under me. So that means we can have multi-trade technicians so that I allow free reign for you. Come in my company, you go through my HVAC apprenticeship program and then you may veer to plumbing or to drain and sewer or to wine cellars or to electrical you may do all of them, but you'll probably have your favorite. So I allow individuals to own their career as well as own their income.

Speaker 3:

Yeah, that's pretty powerful. And then I think Andy mentioned your son that even when it comes to like sales, your internal sales team, they have to start, and at what point did this happen? They have to actually start as technicians, is that correct? And then they grow into a sales role. Did I understand that correctly?

Speaker 1:

I wouldn't say have to, but we do a lot of growth internally. So I prefer that. I prefer to some somebody that grows within our company and comes up. And you know as well as I do, being in the trades, most technical people aren't good at selling themselves. They're not good salespeople. So we focus. That's why in my apprenticeship program we focus on selling yourself. That's the primary, most important attribute to be able to attain and to get good at. So that's why we don't want the technical guys.

Speaker 1:

I can teach anybody technical stuff. I just can't teach Tyler how to be a nice, anybody technical stuff. I just can't teach Tyler how to be a nice, likable guy. So I hire Tyler because he is nice and likable. I teach him how to better sell himself and be a great communicator and just be the guy that a customer wants in their home. They trust them, they like them, they know Tyler's looking out after their best interest and then I can teach him the technical stuff to whatever degree he wants.

Speaker 1:

So something up from within works better. But I have hired for the outside sales, like you know car salespeople, cell phone sales, all different types of you know sales type industries and brought them in and taught them what they need to know about HVAC or plumbing and brain sewer or electrical to be able to be good at sales. But those are, you know, sales professionals. So we've gone both ways. It works better, like Andy's perspective. Coming up growing up in the trades, he's more well-rounded. I mean Andy can walk in and he can diagnose, he can see exactly what's going on mechanically as well as design and what the customer may need, and you know system applications and layout and you know the engineering side of it and heat load. So it's the best of both worlds.

Speaker 3:

Stop chasing cold leads and start marketing to the ones who already trust you. Lou Hobica said it best His customers heard from him over 130 times a year. That's not overdoing it. That's smart marketing. Too many times home service businesses dump all their money into new leads and forget the gold mine they're already sitting on. If someone's paid you once, they're way more likely to buy from you again if you stay in front of them.

Speaker 3:

Try this. Build a 12-month communication plan for existing customers. That's email text, mailer, seasonal service tips, promos you name it. Mention your other trades services, cross-sell, without being pushy. That's really important.

Speaker 3:

I can't tell you how many times clients of mine we talk and let's say they do. You know they're known for HVAC or something and they do some other service and their client doesn't even know they do it. So make sure you're mentioning those other services. And then last thing would be make it feel like value, not spam. Be helpful. Too many times we feel like we're just getting things shoved down our throat. So create value. Deliver value that will pay off. It'll pay off like unbelievable, like you won't believe.

Speaker 3:

This isn't theory. This is how Lou built a multi-trade company with 30% net margins. That's pretty phenomenal. You know most clients that I work with we're trying to get them to the upper 20s. You know, occasionally I'll get someone outside of that 20% range. 30% is pretty spectacular. Lou was dialed in that level of profit has to start with smart retention, smart planning, smart systems, smart process, and Lou nailed it. So, hey, if you want help dialing in this kind of marketing for your business, I encourage you go check out Service Scalers. They're the pros at making your brand stick. And be sure to tell them Tyler sent you so they roll out the red carpet for you. Thanks, this is Service Scalers Marketing Tip inspired by none other than Lou Hobica. None other than Lou Hobica.

Speaker 1:

He can diagnose, he can see exactly what's going on mechanically, as well as design and what the customer may need, and you know system applications and layout and you know the engineering side of it and heat load. So it's the best of both worlds.

Speaker 3:

Yeah, that makes a lot of sense. So I want to shift gears a little bit. Talking about profitability, I know you coach clients, you work with clients. You've probably seen a fair amount of owner operators. What do you typically see? Is there a common theme of what they're not doing or why their businesses might be underperforming or what's bottlenecking them?

Speaker 1:

100%. So this is another thing I learned very early, graduated from college, bought the business. Then I could see what we were doing, focusing on my business, being able to break my business down to different profit centers to see exactly what money I was making in each type of you know trade, each type of activity. And I learned very quickly that refrigeration I couldn't make any money I mean not the money I wanted to, you know, in the single digit right Residential new construction which we were doing like in early 2000,. Maybe you know three, four million of that. It was custom home type stuff Couldn't make any good money out of it. So, you know, it was still in the single digits, maybe 10%, but it was typically in the upper single digits. Commercial work typically under 10% in the single digits. And so I was able to identify all these areas. We weren't making good money. And I said you know what I'm going to eliminate refrigeration, I'm going to eliminate commercial work. The only commercial work I'm going to do is it's commercial, that looks like residential, it's owner occupied, owner run and we're going to treat it just like we are residential and it's flat rate pricing. You know nothing broken down, no hour plus parts and materials and equipment, nothing like that, not hourly, so everything's flat rate. We priced it at our margins and worked that way.

Speaker 1:

So I figured that we want to focus on the home, the residential aspect, because the bottom line was is the science behind it or the facts behind it? Is homeowners. You know you care about your wife and your kids at home. It's your castle, it's what you want to protect. So money isn't the ultimate deciding factor. You want someone you like, you can trust, you know looking out for your best interest, going to be there when you have a need. You know a confidant somebody to advise you. You want somebody on your team. Now, when it comes to business, you know there's budget. You know there's market fluctuations up and down. You know we have market crashes and it's. You have different people transitioning. You know CFOs, accounting, maintenance coordinators so the relationships change all the time as well, as it comes down to okay, if we need to get three bids, low bid's gonna win. So it comes down to price. There's not a lot of emotion or human interaction and connection with it, but in residential it's all about that connection selling yourself, taking care of the home, doing things that nobody else does in the home.

Speaker 1:

When you're there Like, wow, lou, I've never had somebody in the home like you that you know went and inspected all these things and showed me and, you know, just gave me an update and you really have no benefit from any of this stuff. You just did this out of the goodness of your heart. You're just a good guy, I like you right, so that's somebody you're going to buy into and want to use for anything and everything. So I come in for a track and you have a toilet problem or a slow drain. You're like Lou, by the way. Can I ask you? I'm having a problem over here and I'm like, well, no, that's not my expertise. Oh, lou, will you please do it? You know, I know you can do it, you're so good at everything, or you know people right, so you want that type of a relationship to where they want you. So that led me in the direction of owning the home and maximizing all the services we could offer.

Speaker 1:

A couple other things when you are multi-trade and you can own the home of multiple services, it may not be everything, but for the things that you don't want to bring in-house, use a third-party provider, another contractor, use their cost basis. You create your pricing. You sell their services with commissions and SPFs and bonuses built into them for your team. You sell them and then schedule. Have your third-party your sell them and then schedule. You know, have your third party, your subcontractor, schedule with them. But making sure that that third party is going to, you know, do the same type of quality work that you're going to and stand behind it. So finding partners to be able to do things like that is super important if you don't want to get into that.

Speaker 1:

Another thing that really hit me hard and I uncovered was we were performing very labor-intensive jobs and, on the financial aspect, being financially qualified and knowledgeable and digging into the numbers, in trade service, home service type business, $1 of labor carries with it at a minimum $3 of overhead, so that's $4 total cost. $1 of parts pieces, materials or equipment carries with it maybe 50 cents of overhead, maybe at most just $1.50. And so would you rather be selling more stuff at $1.50 cost at the same margin, or would you rather be selling a bunch of labor at the same margin, which you know created all that overhead? So I mean you got a 50% gross margin and it's labor-driven and you're running a 40% overhead company, you end up with 10% net. So it makes sense, right, because I have 10% net company. That's how you price yourself net. So it makes sense, right, because I have 10% net company. That's how you price yourself. If you're running a 50% purely material equipment, at that point maybe you have 50 cents or maybe you got 5% of overhead, so you're in the 40, 45% type profitability.

Speaker 1:

So what I found that subcontractors are just like parts pieces, material equipment. It's a fixed cost. You know I hire Tyler to do like excavating for me because I don't want to be a digger. It's labor intensive. Digging, backfilling, concrete insulation, duct cleaning, these are all labor intensive type work that we don't want to do. So I sub that out. But you give me a flat rate cost of a thousand bucks to do that excavating and backfilling. It's just like I bought a piece of equipment and I plugged it into my calculator at my 60% gross margin, whatever it may be. What happens is that I double your cost, any subcontractor. It's either 100 to 125%, but I'll just say double it, so we double that cost. But basically the majority of that less 5% maybe falls to the bottom line.

Speaker 1:

So that was how I was able to change and grow a multi-trade company by focusing on maximizing the stuff that we sold, using subcontractors, on labor-intensive things, and just being very intentional about our labor to be able to be as efficient as possible and use as minimal labor as we could. So our portion of the job like we'd have a $30,000, $40,000 sewer job and we'd have maybe 16 hours into it that I'd'd have, you know, digger, backfiller, concrete, I'd have a liner come in and they would do all that stuff and then basically you know we'd have very little labor. So the majority of that say 60% gross margin, you know maybe 50 to 55% is going to fall to the bottom line. So through that activity and you know, understanding financials and balance sheets and having correct financials, accurate and timely, and utilizing prepaid and carrying your inventory on the balance sheet so you can have accurate P&L I was able to change our profitability from 5% to maintain a 25 to 30% net profit on a consistent basis.

Speaker 3:

Yeah, good stuff by utilizing.

Speaker 1:

You know those simple activities and managing the labor and multi-trade. And one other thing was you know companies as they grow, they're always looking for new clientele and you know let me give you an example Say you're in the dating mode. I don't know your personal life, but I'm going to say that you're single, married 20 single. Now you're back in the dating mode.

Speaker 1:

Your wife kicked you out, right, she got tired of you. You're old and you're beat up and lazy. So she kicked you out and now you're in the dating mode again. So you know as well as I do the worst type of date you can go on with, the lowest success rate, is the first date. Right, first dates are always tough. The second one gets a little easier, the third one's better. By the fourth or fifth date you kind of like get along, you like each other, you got something going on, it gets better and you grow with it. So, no different than dating customers.

Speaker 1:

When you're looking and prospecting for new customers, that first date is really tough. Right, it's all about price. You're trying to get in the door, trying to sell yourself, trying to get them to like you, whatever the case is. So that's tough. So I don't look at prospecting and 80% of my marketing is to my existing customers, because what a lot of multi-trade companies do, even that offer two trades is they don't maximize the utilization of their services to their customers, that their customers use the majority of all their services. So getting your customers to utilize everything you offer, that's key because they already like you and trust you. Oh Lou, I didn't even know you did.

Speaker 3:

To your point, Lou, you're electrical. You didn't even know that.

Speaker 1:

It's like it's on my band, it's on all our marketing, it's on our mailers, right, I didn't even know it, right. So you have to really promote it. So market that heavily. And in my company, if you were a brand new customer of ours, tyler, you would hear from us, see us be kept top of mind about us in some way, over 130 times over the next 12 months. So I heavily marketed my existing customers to maximize all the services we offered. You know that they would utilize so we would own the home and own that customer a great referral program to get referrals from all their friends, family, neighbors, because if they love you right and what you're doing for them, they're going to tell oh, my guy, you got to call a whole bank of services and ask for Lou, he's my guy. So that's the best way to be able to grow your business. It is consecutive and continuing a relationship and building that human connection, owning them and their home referrals from that. And then as well, you know, a good online presence with a lot of Google reviews. Google still is king when it comes to reviews. I think Kobaika is at like 63, 6400, but we're always, you know, working on maximizing our review content and, you know, 4.95 star. So that's super important your reputation online but back it up.

Speaker 1:

Focus on existing clientele and if you're going to grow, okay. So another example Phoenix is 5.5 million 165 zip codes and I have a lot of competition there's. I have 40,000 other licensed HVAC, plumbing, electrical, residential contractors here in Phoenix, so I have 40,000 competitors. So if I just sell my stuff, they sell all the same stuff. So stuff doesn't differentiate me. So what they'll do the majority of them will do is they'll differentiate themselves by how. How do they typically differentiate themselves? You know?

Speaker 3:

Yeah, most people make the mistake of differentiating on price, or they try to always. Yeah, 100%.

Speaker 1:

It's price. So quit doing that. Right, I just priced where we need to be priced and to make the money and provide our team and our company and our future and the families of our team members. You know what they need, so I price for that way and basically, we don't sell products and services. We sell ourselves first. They like us, trust us, we are the most likable people you'll ever meet. We have a jingle you'll like a Holika. So we created that back in the 90s when I saw that, okay, we need to really create just a kick-ass customer experience and get them to like us and trust us and become their friend.

Speaker 1:

I'm all about truck rolls. You hear a lot of companies that say let's minimize truck rolls right, if you minimize a truck roll, right, okay, it's good, you're going to save money on that truck roll. But what are you eliminating? You're eliminating that face-to-face human connection.

Speaker 1:

So I was at the gym with a buddy of mine today and it's a roofing company that came out with a virtual clothing system, right?

Speaker 1:

So you know, you need a quote on your roof. So, virtually, they're just going to go and they're going to take a look, you know from Google Maps and look at your roof and they're going to be able to give you a pretty accurate quote on a new roof and they never have to see you. And I'm like, well, that's stupid. I said they cut the most important piece out of the sales process and and that is selling yourself, getting them to buy you, differentiating yourself, your company, is because they bought you, they liked and trusted you, they want you to take care of them and their family and their home. So you know, that was a big learning lesson as well, and starting with an apprenticeship program to be able to ingrain that and then teach them skills after that. And it doesn't really matter on which trade they go to or if they're multi-trade or at what level of expertise they become, because they need all different levels of expertise.

Speaker 1:

You're going to have your from a 1 to a 10, an expertise level 10 being top-tier technical. You're going to need that top-tier technical to figure out the difficult stuff, diagnose and take care of the difficult things that are problematic. But you also need the one, twos and threes and fours and the under fives to be able to create that great customer experience, that likability, to be able to then get people to buy them and sell lots of stuff. And then you can have your technical people take care of warranties, quality controls, take care of the actual hands-on work. So you need all different levels of expertise, not just top. You know eight to 10 technical guys. I need the threes and the fours and the fives and if they stay there technically, you know, like Andy's one of them, you know he's maybe a five technically but he's a 10 when it comes to the sales side, right?

Speaker 1:

a five technically, but he's a 10 when it comes to the sales side, right, customer service, getting them to like you and trust you.

Speaker 3:

So you need all those different levels in a mix in a company to be able to be successful. Hey Lou, so got about five more minutes. I definitely want to spend a little time talking about the exit. So what I'd love to just start out with you obviously are dialed in on numbers, so I think this was less of an issue for you. But that prep to getting to the exit, how much thought was put into that. And then, as you were considering getting out of the business, selling the business how big of a process, how many different suitors did you potentially have? Was it very emotional? Was it very seamless, Like how did it take us through that? A little bit, Because I think that could be a stumbling block sometimes for people to think about exiting their business.

Speaker 1:

Yeah, I completely understand. Okay, so I'm going to go back. So, first of all, my mentality when I'm in business is I'm all black and white, non-emotional, and black and white. We're all there to run business to make money for our families and our futures. That's what we're there to do. So, make money for our families and our futures, that's what we're there to do. So I'm the black and white type guy. When I'm in business, aside from the personal life, you can get the emotional side built in with kids and family and such. But black and white. So this is like 2018. And I had already gone through.

Speaker 1:

I mean, there were acquisitions, consolidations in the late 90s that happened. That mainly all failed. Then it came back around in like 2004 or 5, 6, and most of those failed. And then there were some spots here and there in between, but they failed because the consolidators they didn't call them peonies back then. It was consolidation timeframe, but the big corporate company would come in and they would totally just change the structure of the company, change comp plans, change benefits, change culture, bring in new management. And I said you know, I just knew you couldn't do that. You're going to ruin the company when you do that. So they ruined the company's learning lessons.

Speaker 1:

And then market crashes in 2008,. Phoenix was hit hard. We were at like 65 people in our company. In three months we went down to 28 because, just, it was just disappeared. 75 of the companies in phoenix went out bankrupt, out of business. They just couldn't keep up. Because it was a long period.

Speaker 1:

My brothers and I um, I had another brother that joined in 2000, so there were three of us now um, we didn't take payroll for two years in that time frame, just because we needed to get the company back on its feet. It was a tough time. I mean, business needed nothing. There was no business. Consumers were just skating by and not doing things Residential, you know it's just nobody had any money. They were scared to death in that time. So it was a tough time but it was a good growing experience to go through the pain. It was a good growing experience to go through the pain so fast forward.

Speaker 1:

My brother, paul, my original partner, had developed Parkinson's, say 2012, diagnosed with Parkinson's, and it started to wear on him right. It just started getting worse and worse and say like 2018, it was starting to wear a lot more and I knew I was going to need to plan for an exit. You know we're all getting in our he was already 60 at that time and you know I'm in my probably I don't know maybe I was mid fifties at that time yeah, mid fifties at that time and my younger brother that joined was two years behind me. So we're all getting in that fourth quarter of our career and my brother's Parkinson's wasn't well, so I knew I needed to plan for exit. So I'm a very structured black and white SOPs. You know structured process, job descriptions, proficiencies tied to the job descriptions you name it. The whole company is structured. We're process driven. We're on service, tight and so good CRM Financials. We're up to date, accurate, timely. So we know daily how we're operating.

Speaker 1:

So I looked at that and I said you know what. I just need to clean a few things up, meaning profitability you know I'm not going to say we were skimming money off the top, but you know, as owners, you can do some things to be able to reduce your profitability. You didn't hear me say anything and so that's all I've said, but anyway. So I cleaned that up and I said you know what? My goal in 2018 was? To pay as much in state and federal taxes as I could. It's kind of a stupid goal, but in reality everything's a bug board and if I'm paying a lot of taxes, that means my bottom line profitability is going to be pretty good. So I needed to make everything as clean and visible and black and white and above board as possible. So I started that in 18, made sure all my processes were up to date.

Speaker 1:

Then COVID hit in. You know it was April of 2020. And you know everyone's like, okay, disaster, the world's coming to an end. And I'm like, no, world's not coming to an end. It's great for us because everyone's fucking home. They're just going to want to take care of their home and I was hard set on that. So we started virtual services and ways to be able to get into the home without interrupting their lifestyle or compromising them. So I mean, like a lot of companies, we killed it Best year in 2020.

Speaker 1:

And at that point my brother's Parkinson's was getting much worse and he needed. He needed out. He didn't want out, but I could see that, you know it was. It was best to be able to get him out so he could spend some time in his personal life with his kids. He's got a lot of grandkids and kids and just have some joy in life. So my goal was to get him out and we have a bite salad between the three of us and if any one of us want out, this is your number.

Speaker 1:

So we sat down and talked about getting my brother Paul out and he didn't really want to, but he knew it was a good idea. We looked at the exit number and he looked at the number and he said, well, I don't want that number. I want the number out there, meaning all these big numbers that are starting to come in, because a lot of businesses are selling at that time from the trades. They're getting 5, 6, 7, 8, 9, 10 plus multiples. He says I want that number and I said, well, the only way we can get that number is we have to go to market and whatever the buyers are going to pay for us, whoever's going to pay for us at that number, that's what we're going to get. The value of the market will provide. So I went to I know that. So 2020,.

Speaker 1:

I went to market in November of 20. And I'm going to say I had 75 deals come to the plate and it was just like mind blowing, like I can't go through all these things. So I started to narrow them down, like wouldn't go with them, wouldn't go with them. I know most of the you know the companies and P&Es out there and the groups out there, and so, you know, narrowed it down and basically went through a four-month really tough due diligence.

Speaker 1:

Because I'm dealing with Ivy League really smart, educated people and I'm educated but blue collar, hands-on business guy. I know how to make money, I know how to build a team and a culture. You know I didn't go to Harvard or Yale and you know, get my doctorate or master's or anything like that. So I don't know all this school driven type stuff, but anyways, they're running circles around me and they're lingo and such and I'm like, hey, I said just stop this, I don't want to make money in my business. So four months of due diligence comes down to like I said we need to close. This is April, april 1st. We need to close, this is April, april 1st. I said hey, I'm in the season, I need to close. I can't keep doing this because daily calls the student diligence it was just getting old.

Speaker 1:

I said we're on the 99 yard line, we close this next week or I know they come back and they said well, you know, talk to the investors and we're kind of thinking last year was, you know, kind of like a one-off, you know, may not repeat itself. So we're going to put the LOI didn't have a contingency, we're going to put a contingency in the LOI, add that to it. I'm like the hell, you are changing the LOI, you're not putting a contingent. I have to do this to get this. That wasn't the deal. I said come back with the same deal as the LOI by five o'clock today, or I'm looking. Came back five o'clock, Kim Todd. Well, lou, you know they're not coming back with it.

Speaker 1:

So I walked, went back to my broker and at that point you know they have a funnel, a whole funnel of interested parties that are coming through. That would be a perfect fit. You know he had another, you know 40 or 50, but I said I don't want 40 or 50. I just want the top ones, right? And he gave me the names and I said I want those three. So I looked at three. Champion Group was one of them. It was Service Champions.

Speaker 1:

At the time we renamed the Champion Group and I knew Leland Smith, I knew Frank DiMarco and the Service. Champions was just a solid company in California, a lot like Koleika how we ran our culture, how it's driven, profitability, structure, but much larger. So I said that's what I want to go with. So I met with them and I said, you know, everything went well.

Speaker 1:

I said I have one stipulation I want to close in 30 days. I said because you know I need to work on my business. This is our season, I need to. We need to capitalize that. You know I need to work on my business. This is our season, I need to. We need to capitalize that you know what's in front of us here. So basically they said, okay, we can do that. Closed in 30 days, and that was May of 2021. I continued with had an employment agreement for two and a half years through the end of 23. My brother, paul, with Parkinson's. He got him retired at that time when he was old and got him a good all his exit money and some bonus money, and so he was able to retire and take care of himself and the good news about that is he was able to spend time on himself and therapy and exercise, and that's just great.

Speaker 1:

And he was able to just to turn around 180 degrees.

Speaker 1:

So he's doing much better. He's happy, he's healthy in life. You know he's enjoying life again. So he was able to regroup and bring his health back. So he's doing well.

Speaker 1:

And then my other brother and I I convinced him to stay. He wanted actually to exit, thought about it and I said hey, mike. I said you know what, if I said hey, mike, I said you know what, if I stay, we're going to get this number. If I leave cause I could leave today we're going to get this number. So I'm going to stay because I want to get this number, I want all of us to get this number. And it would be really helpful if you stayed on our team. You know, working with me on the management team, doing what you do. That would be super. I don't want to have to replace you. I said, because you're going to get this number if you stay with me. He says, okay, I'll stay. So he stayed with me.

Speaker 1:

We finished end of 23. And then at that point I had written into my non-compete that I could coach and consult, which I had already been coaching and consulting for about five, six years. Just free, gratis, free bono, just helping contractors. You know anything and everything all the time. But January 1st of 24, I started my ProfitMax Consultants LLC. Coaching, consulting, other trade service type contractors, multi-trade, anything in the home, focused primarily on residential.

Speaker 1:

Looking back, you said was it emotional? The process for me was unemotional because it was all black and white getting to the finish line and it wasn't until, I'm going to say, the day december 31st of 2023 brings back some emotions. Wow, yeah, but so excuse me a sec. So, after 40 years walking out the door just hit me Just like flooded, like, oh my God, my whole life, I built, done all this. Now I'm walking away. Walking away, but it was a good thing, you know, because I had talked to my wife like they wanted me to stay another two years and give me another employment contract, and she's like no, like you're done with that, like I want you to myself let's, let's do this.

Speaker 2:

you choose what you want to do when you want to do.

Speaker 1:

But you know the emotional thing didn't come to me till that last day walking out the door. I walked out, just hit me, wow and uh yeah that gives me the chills, as you.

Speaker 1:

Yeah, yeah, anyways, yeah so you know that's a lot of investment in your time in your life and you know, just, you know, like you said, grinding, you know, uh, you're grinding for profitability and you know we're talking about profit and grit and it was all for me about just grinding and hotline revenue wasn't super important to me. Sure, I wanted to grow the business, but I wanted to grow it profitably because I had been high revenue and low profit. I wanted to be. I didn't want a large adult daycare center and make just a little bit of money. You know, I wanted a small adult daycare center and make a lot of money.

Speaker 1:

So there's one other key component that came into this and it was in the late 90s. It was revenue per employee. So revenue per employee back then, 150,000 revenue per employee in a freight service company back in the 90s and early 2000 was pretty good. So what I learned to realize is 200,000 revenue per employee in today's type business will bring you about 10% net profit. In a trade service business, 250 revenue per employee would be about 15, 300, you're at 20, 350, you're at 25, 400,000 revenue per employee, you're at 30% net profit. So I was able to maximize our revenue per employee at 400,000 revenue per employee for that 30% net profit. But it was really the key factor and it was all about minimizing labor. So, you know, at 50 people we could, you know, produce 20 million in you know service, retrofit type, you know work. But another company, comparatively, would have 100 employees. They'd have double the amount of employees. So that's what kills the company, it's that labor and that labor drives that overhead. So if you can control that, sell more stuff, utilize subcontractors, can take care of your labor-intensive work, reduce your overhead, your team count, maximize anything and everything of what you're utilizing within your company, pay your people more money than they can make anywhere else so they don't leave. You have very low turnover. You got a great culture.

Speaker 1:

Everyone just loves getting up in the morning and what it ends up evolving to is a want-to mindset. So in life people get out of bed in the morning and it's Monday through Friday. Oh shit, I have to go to work today. I have to because I have bills, I have kids, I have family, I have these responsibilities. I have to when you can create a wake up smile on your face, man, I want to go to work today. I want to go do what I do best. I want to meet with the team, I want to work with these customers, I enjoy what I do and you're also providing for your future. So it's that want to versus have to, and we created a want to attitude in our company with our team members, and if there was ever a have to, then that individual would usually end up edging themselves out. Yeah, yeah, and it's important to work out in our culture. So hopefully that helps.

Speaker 3:

Hey, that's awesome, lou. I'm going to wrap up here. I want to make sure I get your link. So you have a LinkedIn. It's Louis Hobica is your LinkedIn URL, and then on Facebook it's Lou Hobica, if you want to check out Lou on on Facebook. And then your company is Profit Max Consultants Profit Max Consultants and you do do coaching. Now, of course, no more it's. It's no more pro bono, so to speak. It's more of a. You know, it's a. It's a paid relationship where you're going to help people out and the wealth of knowledge you have is insane. I mean, I feel like I've got to sit here and take notes after when I re-listen to this, because it's just, we scratched the surface, but there's so much knowledge there, so can't thank you enough. I feel like there should be a part two of this, so maybe in the future we'll do a part two.

Speaker 1:

Yeah, maybe we can. Yeah, there should be. Like I said when we started this call, I think we got through it pretty well.

Speaker 3:

You did a great job, hey, thanks Lou. I appreciate you being on the show.

Speaker 1:

All right, take care. Thank you, tyler.

Speaker 3:

Man, that was a ride. Lou is just a wisdom bomb. Here's my biggest takeaway from the conversation he didn't just build a business, he built a system, one that ran on culture, numbers and people who wanted to be there. There's a lot of talk out there about scaling, but Lou showed that how you grow is just as important as how fast you grow. He focused on revenue per employee, not just top line. He built apprenticeship programs instead of chasing resumes, and when it came time to exit, he had clean books, strong profit and zero panic.

Speaker 3:

So if you're in the trenches building a home service company, this episode is a reminder that profit isn't luck, it's intentional. And hey, if you're feeling like you're working harder than you should be and the numbers still aren't adding up, it might be time to zoom out and take a Lou style approach to structure, systems and culture. And I encourage you to book a meeting with me, because this is the type of thing that when clients reach out to me, initially they're just stuck. They're at a point where you know I had someone reach out to me recently doing 3 million a year, losing money, and he's trying to figure it out. And so we sat down and we have set up a strategy now and a plan, and I'm pretty sure he'll be at 20% net profit margins, probably in the next year. Maybe it might take a year and a half, but we're turning the ship around and we have a list of things we want to work on to get that turned around. So I encourage you to book an intro meeting with me at cfomadeeasycom.

Speaker 3:

Cfomadeeasycom, let's chat. It's an intro meeting. There's not going to be any heavy pitch. I'm not going to try to sell you anything. I just want to hear your story, learn about you and then see if potentially, I could support you. As always, thanks for listening and I will see you next week. I got another great one next week, take care.

People on this episode

Head Shot

Tyler Martin

Host