A Few Good Plumbers

Introduction:

This week, special guest Rich Jordan tells Shawn Busse and Jay Goltz what it was like buying a small plumbing business in 2020 despite having very little experience with either plumbing or business—but having spent 10 years in the Marine Corps. “When I reflected on my time in service and what I did well and what I enjoyed,” Rich tells us, “it was when I was on a small team with high stakes, far forward, far from the flagpole, responsible for making decisions and sustaining ourselves and figuring things out. So when I thought about that—small team, high stakes, self-sustained—small business kind of fit that bill.” Not surprisingly, it took Rich some time to figure out what he was doing with the plumbing business, but in just four years, through organic growth and a few acquisitions—while taking no outside capital—he’s gone from three plumbers and $1 million in annual revenue to about 90 employees and $20 million in revenue. Which is why, Rich tells Jay and Shawn, he keeps moving the goalposts, reassessing just how big he wants the business to be.

— Loren Feldman

Guests:

Jay Goltz is CEO of The Goltz Group.

Shawn Busse is CEO of Kinesis.

And Rich Jordan is CEO of Strongpoint Services.

Producer:

Jess Thoubboron is founder of Blank Word.

Full Episode Transcript:

Loren Feldman:
Welcome Shawn, Jay, and especially Rich, our special guest today. It’s great to have you all here. Rich, maybe you could start by telling us a little about what you did before you bought a plumbing business about four years ago. Did you have any plumbing experience or business experience?

Rich Jordan:
I did not have any business experience, really. Like 14 years ago, I had worked as a plumber’s apprentice for a short amount of time before I entered the Marine Corps, and I spent all my 20s in the Marine Corps as an infantry officer prior to getting into business.

Loren Feldman:
And was that good preparation, do you think?

Rich Jordan:
I think so.

Loren Feldman:
What did you take from it?

Rich Jordan:
You know, particularly getting into the trades like I did, the Marine Corps was definitely a good testing ground and learning center for blue-collar leadership, right? One of the reasons I got into the trades is that I kind of hypothesized that tradesmen would take well to the leadership style that I developed in the Marine Corps. Tradesmen are a lot like Marines—just a different trade, same kind of guy. So, yeah, lots of lessons there. And then, of course, decentralized command and solving complex problems urgently and operating with limited information and having a bias for action. Those are all things I took out of the Marine Corps as well.

Shawn Busse:
Rich, this is really interesting. Can you catch us all up to speed? For those of us who aren’t in the military, or haven’t been in the military in a long time, what’s the going philosophy? Or at least, what was the philosophy you developed there? Because I think a lot of people think of the military, and they think: command and control. And I don’t know that that’s necessarily accurate, but I would love to hear from you what the modern military is like, in terms of leadership philosophy.

Rich Jordan:
Yeah, love the question. In some areas of the military, sure, there is more of a command-and-control philosophy. I’d say, particularly in the Marine Corps—and especially in the combat arms areas of the Marine Corps, such as the infantry or artillery, combat engineers, things of that nature—it very much is more of a decentralized command model. And really, why is that? It’s utilitarian in nature. A unit can move faster and adapt faster when decision making is pushed down to the point of influence or the point of friction.

So the guy closest to the problem, the unit closest to the problem that needs to be solved, they need to be able to make decisions and not have to look over their shoulder and ask permission or ask for guidance from somebody who may be miles away, who may be a planet away, and very far from what they’re dealing with there. So the Marine Corps, I’d say, more so than any other service—of course, I’ve got some bias—but we really do indoctrinate our leaders in this. It’s very much invested in this concept of decentralized decision making and decentralized command. And truly, that enables us to empower leaders at all levels. The lance corporal or corporal who’s in charge of three Marines is able to make the right decision as close to the point of friction as possible. And that’s generally the idea. You know, there’s this idea, if you all are familiar with Boyd’s OODA loop.

Loren Feldman:
I am not.

Rich Jordan:
OODA loop is O-O-D-A, and it’s: observe, orient, decide, act. And Boyd, who was kind of like a legendary thought leader in the Air Force around decision making, and specifically competitive decision making, came up with this loop—observe, orient, decide, act. And that, basically, is the loop of decision making. And the tighter you can get that loop, the faster you can go through that loop, the more likely you are to win in competition.

And when you’ve got to go back to a centralized authority to have a decision made and to take the next action, of course, that loop is going to be wider and longer and slower. So we can kind of tighten that loop, get actions happening at a faster pace, if we decentralize command. The Marine Corps really leans into that. I, in particular, really latched on to that. And ultimately, I spent my final two years in the Marine Corps as an instructor at, essentially, the officer leadership academy. It’s called The Basic School in Quantico, and that was something that I was responsible for teaching.

Loren Feldman:
Had you been deployed overseas, Rich?

Rich Jordan:
Yes, I had. I deployed to Eastern Europe in 2016 when Russia first invaded Crimea, and then I deployed to the Middle East, to Afghanistan and Bahrain, in 2017-2018. I was there for a year.

Loren Feldman:
Got it. So, how did you develop a plan to buy a blue collar business? Where did that come from?

Rich Jordan:
I think, like a lot of guys leaving the service, I was really unsure of what I was going to do afterward. But when I reflected on my time in service and what I did well and what I enjoyed, it was when I was on a small team with high stakes, far forward, far from the flagpole, responsible for making decisions and sustaining ourselves and figuring things out. So when I thought about that—small team, high stakes, self-sustained—small business kind of fit that bill, from what I could tell. And I had very limited visibility into what small business really was. But it’s kind of funny, I read a book that was very formative in my decision making. I left the service in the summer of 2020, and I read this book in the fall of 2019, and it was Small Giants by Bo Burlingham. My understanding is that Jay, who’s on this call, was one of the guys featured in that book.

Jay Goltz:
And I gave him the name.

Rich Jordan:
Is that right?

Loren Feldman:
He came up with the title, Small Giants. That’s right.

Rich Jordan:
That book really made an impression on me. And seeing the journey that Jay and the other folks featured in that book went through, and the things that mattered to them, and the values they were able to drive through their businesses, and things like that, was something that really, really called to me. And so that was the fall of 2019 that I read that, and I spent the next nine months sort of self-educating on: How can I get involved in that? Right or wrong, I felt at the time—I didn’t think I could make a compelling case to an existing business owner to bring me on as, say, an operations manager or something.

Now, sitting where I sit now, I think that was probably misguided. I probably could have made a compelling case for that. So basically, I came to this conclusion that if I wanted to get involved in small business, I had to do it on my own. And then, starting a business seemed like it obviously can be difficult to do. So I got kind of onto this idea of buying a business, and then read everything I could on how that process works and the search.

I read HBR’s Guide to Buying a Small Business. I read Brent Beshore’s The Messy Marketplace, and just kind of self-educated and then went after it. And I ultimately got a very small plumbing contractor under contract, just a few weeks before I left active duty, and was standing in front of those plumbers like six weeks after my final day in the Marine Corps.

Shawn Busse:
How did you finance it, Rich?

Rich Jordan:
I financed it with some cash savings that I had from deployments and an SBA loan.

Jay Goltz:
That’s interesting. So the SBA—I don’t even know. The SBA loans money to someone who’s never been in business to go buy a business? That’s news to me. [Laughter]

Rich Jordan:
Yeah, whether it’s a good idea or not—[Laughter]

Loren Feldman:
It worked for you.

Rich Jordan:
—I won’t make a judgment. Yeah, it worked out for me. I would say, there are risky propositions. In the spectrum of SBA loans, it was a small loan. It was a small company.

Loren Feldman:
I think you’ve said it was less than a million dollars in annual revenue with three plumbers. Is that right?

Rich Jordan:
That’s right. It was right about a million dollars in revenue, three plumbers, no office infrastructure. It was the owner and his wife kind of running the operation. So when they departed, there was not really much infrastructure there. I didn’t recognize this prior to showing up on day one, but very quickly, it became clear there was a lot of risk in that deal.

Jay Goltz:
Did they have any special program because you’re a veteran? Did that have anything to do with it?

Rich Jordan:
I think they would have given me the money regardless if I was a veteran or not, but they do have some programs. There’s a fairly significant SBA origination fee involved in those loans. I think on that deal, it might have been something like $25,000. That was waived for me because I was a veteran.

Loren Feldman:
What was that first day like?

Rich Jordan:
Yeah, the first two days were interesting. I took over on a Thursday morning. I’ve since kind of learned, if you’re going to take over a business, you should probably take it over early in the week, as opposed to later in the week. Give yourself some time to get your hands around it before your staff goes into the weekend.

Jay Goltz:
And doesn’t come back.

Rich Jordan:
Yeah, exactly. So we took it over on Thursday morning. It was the Thursday right before Labor Day weekend in 2020. You know, it’s just me and the plumbers in the parking lot. It’s really informal, kind of like stand up around a tailgate. And then guys had jobs to get to. So they immediately launched into their jobs. Didn’t get a terribly warm response from the team. [Laughter]

Loren Feldman:
Rich, how old were you and how old were they?

Rich Jordan:
I was 29. I was going to turn 30 soon. And I have a partner as well. He was there as well. He was also 29 at the time.

Jay Goltz:
Can you give us a little background? So the owner and the wife owned this plumbing business. Had they been trying to sell it for a while? I mean, did the employees know it was for sale? Were the employees relieved when they found out? Because, I got to believe, most plumbing businesses, like most frame shops, just go away one day and don’t sell. That’s my guess. Is that correct?

Rich Jordan:
Yup, especially at that size. The reality is, at that size, there’s just not really any enterprise value to transfer. Now, I didn’t realize that at the time, so I had the privilege of paying for that. But, yeah, you’re right. A lot of them don’t trade, and they just close their doors.

Jay Goltz:
Because basically, they’re trying to sell a job. I mean, I talk to frame shops. They say, “Oh, I made $40,000 last year.” And I go, “Well, then why would someone pay you? They could go make that in a job and not put any money into it.” So they’re trying to sell a job. In this case, the plumber was probably making more money, is my guess. Because a million dollars is not terrible. A lot of frame shops are doing $200,000 a year. So there’s something there with a million dollars.

Rich Jordan:
Yeah, especially when you’ve invested, like, no money in overhead, and your only fixed cost is liability insurance. So, yeah, he was pulling in nearly $400,000 a year. Really lived a great life, put his kids through school, had several vacation homes, rental properties, nice cars, and stuff like that. So he’d done well for himself, but hadn’t really built much business value.

Loren Feldman:
So how old were those plumbers, the employees? And what happened on that Thursday and Friday?

Rich Jordan:
Sure, so one guy they had just hired in the weeks leading up to it to sort of replace the capacity of the departing owner, he was 27, pretty junior. There was another guy who was 23. He was a pretty talented plumber and had worked for him since he was 17. And then there was another guy who was 40 and had worked in this business for 17 years at the time. And there was, unbeknownst to me, there was a sort of an unwritten understanding that that senior plumber was going to take the business over at some point. So there was a little bit of a cultural issue there initially.

Jay Goltz:
Well, I presume that he didn’t have the cash, or the wherewithal, or the idea to go to the SBA for a loan. Or he didn’t want to take the risk. Do you know which one it was? Did he not know about the SBA? Or did he not want to take the risk?

Rich Jordan:
Yeah, I think a lot of it was that neither he, nor really the seller, understood the financial tools that were available to them to get a deal done.

Jay Goltz:
Do you think he was properly marketing this plumbing business? Because from my experience of looking at people, they’re trying to sell their business, but they don’t want to tell anybody, keep it under wraps, and then they try selling it for six months or a year, and then throw in the towel. I have to believe, as a plug-in, doing a million dollars a year, that another plumbing company would have been a great thing to just buy it and hook it right on to their existing business. Did he talk to other plumbing businesses before he sold it to you? Do you know?

Rich Jordan:
No, I think he was pretty cagey about stuff like that—and a lot of guys in his position are, to your point.

Shawn Busse:
And it’s tough, too, because there’s just kind of like a gossip circle in the trades, right? So if you start talking to another plumbing shop about being bought, you’re worried that the word gets out. I mean, I’m guessing, Rich.

Rich Jordan:
And it often does get out, frankly.

Jay Goltz:
But they shoot themselves in the foot. So the word doesn’t get out, but then they don’t sell the business. So how does that work?

Shawn Busse:
The problem, though, is you’re talking a licensed trade. Rich, maybe you can talk a little bit about that. Like, in terms of what it means to be a journeyman, an apprentice, and kind of the constraints.

Jay Goltz:
Oh, interesting. I didn’t consider that.

Rich Jordan:
Yeah, that’s a good point. And that 40-year-old plumber who had had ideas that the business might be his, he had never actually achieved his master’s license. So that’s a problem. And in New Jersey—this isn’t true in every state. We have another business now in New Hampshire. That’s where I’m coming to you from right now. It’s different in New Hampshire, but in New Jersey, at least 10 percent of the company has to be owned by a licensed master plumber in the state, and that’s hard and fast. So we actually have a third partner in New Jersey that’s our master plumber. We brought him in through the process. We met him, vetted him, brought him in. So we have a master plumber on the team. He holds the license. He has 10-percent equity, and he’s also our install foreman, at this point. So he’s full-time staff.

Shawn Busse:
Did you know, going into this, that you would have to bring in somebody else in order to actually own the business?

Rich Jordan:
There was some discovery that happened in the due diligence process. [Laughter] Put it like that. Actually, if I remember correctly, we were aware of the requirement, and we thought we had a guy who would hold it for us, and then basically he kind of pulled the rug out from under us halfway through diligence, and wasn’t interested in progressing. So we then had to go find a master plumber. And the interviews I had in those days were just brutal, just absolutely wild characters who we talked to.

Shawn Busse:
How did that differ from your experience in the military, in terms of interviewing? Because, like, is this your first time interviewing people to hire for a job?

Rich Jordan:
Yeah, it was.

Shawn Busse:
What did you learn?

Rich Jordan:
You know, I think this is something that a lot of new managers fall into, too. You just don’t know. They write questions to ask and how to dig in, so you’re mostly doing this kind of vibe check, right? And that’s largely what that was at the time. You know, in the early days of that business, we made a bunch of bad hires and had to really figure it out over time.

Jay Goltz:
So the guy who was the master plumber—correct me if I’m wrong—he must be making a really good living being a plumber. I would have thought he would have said, “Okay, I’ll do it with you. Give me a third.” You both keep a third. He didn’t. He certainly didn’t get that much equity. But I presume he’s got a good job out of it. Would that be accurate, do you think?

Rich Jordan:
Sure, he’s got a good, well-paying job out of it. He’s got ownership in a business now that he didn’t have before. He’s got upside. And for him, that was enough.

Jay Goltz:
So it was a bonus, basically.

Rich Jordan:
Yeah, and he was making a decent hourly wage at his last job. But he was a union plumber, and the issue that he had is he would make $75 an hour or something as a union plumber, but then he’d go unemployed for six months. Because that’s how the unions operate. So he’d be on a big project for six months, then he’d be unemployed for six months.

Loren Feldman:
I want to make sure we get through some of the basics of Rich’s journey. Could you just tell us the nature of the relationship with your partner? What were your respective roles?

Rich Jordan:
I had just left the Marine Corps and was essentially unemployed, so I jumped in as the day-to-day general manager, wearing a lot of hats at the time. He worked in heavy maritime construction as a project manager/supervisor. He’s an engineer by trade, so he stayed at his job, doing that for essentially the first year. And he’s local to that business, and he kind of helped me after hours and things, like all the weekend stuff, to augment me. But he stayed there because the business wasn’t large enough to support us both. And then, by the time a year had gone by, we essentially doubled the business, and we felt that we could confidently support us both at that time. So he left his job and then joined us full-time.

Loren Feldman:
And he’s still involved in the business?

Rich Jordan:
That’s right. So now, the current state of affairs: We have two brands in two markets—New Jersey and New Hampshire. He runs New Jersey, and then I kind of sit as the executive over both companies, and then I also run the day-to-day operations in New Hampshire.

Loren Feldman:
Okay, so sticking with the first business you bought for a minute, it sounded like you had something to share about what happened with the employees that first weekend. Could you tell us that, and then tell us, how did you double the business over the first year?

Rich Jordan:
Yeah, I mean that first day was fine, just kind of like a whirlwind. The seller took me around to all the different vendors and distributors that he used, introduced us. We filled out credit applications and things like that, so sort of like administration. His wife was still kind of handling a lot of the phones and stuff at that point, so we had a little bit of a standoff.

We realized that we had not had the foresight to get gas cards for all the plumbers ahead of time. So my partner and I spent a decent part of the evening that night round-robining the trucks to the gas station to fill them up for the next day. And then, when I was on my way into the office the next morning, I got a call from the seller that that senior plumber was, one, upset and, two, had already received several white knight job offers from our competitors.

And so I was like, “Oh man, we’re going into Labor Day weekend. This guy’s got job offers in hand. He’s upset about the transaction. He doesn’t know me from Adam.” And at the time, he was trying to get on the road early with his family for a vacation for the weekend. And jobs were pouring in, and there was a chance that he was going to be late to that as well. So what I did is, I jumped in the truck, and I went and met him out at a job around noon and helped him put a water heater in. Basically spent two hours with him as a helper, putting his water heater into this woman’s basement, and the whole time just talking to him about his experience, ideas that he had for improvement for the business, just getting his insight on friction points that he dealt with on a daily basis and what we could maybe do to roll out improvements.

And I basically just really allowed him to feel heard and kind of gave him some confidence that a lot of things that he was bringing up, I was like, “Yeah, you know, I actually had an idea for that, and I was planning on not rolling that out for a while, but maybe we could roll it out faster.” So he went into the weekend, I think, with a lot more confidence. I certainly went into the weekend with a lot more confidence.

Jay Goltz:
Wait, did you tell him that you talked to the owner, and you heard that he was bitching about getting cut out? Did you have an honest conversation about that?

Rich Jordan:
Nope, I kept that to myself. So for me, it’s just he and I. You know, me just getting out there and helping him and having a candid conversation.

Jay Goltz:
Well, not that candid.

Shawn Busse:
I bet there’s some friction between him and the owner. Is that fair?

Rich Jordan:
Yeah, especially with the sale.

Shawn Busse:
He probably felt betrayed, right?

Rich Jordan:
Yeah.

Shawn Busse:
So if you had gone to him and said, “Hey, I talked to Bob, the former owner,” now you’re aligning with Bob, when, in reality, you need to build a relationship with him. So that’s a great move, man. That’s really impressive,

Rich Jordan:
Yeah, so I think that, ultimately, that act—that was four years ago—I look back, and I think that really was meaningful. I mean, there was really not a whole lot of meat on that business. Had we lost him, we would have been in a really tough spot. And I think that that ultimately kept him around. And he’s still with us. He’s still with us to this day.

Shawn Busse:
Wow, that’s awesome.

Loren Feldman:
You were talking about the fact that you hadn’t had experience hiring. The big difference between, I suspect, being a leader in the military and being a leader of a business is in the military, you work with the people you’re given and you can’t easily fire them. Do you think you approached this more with the attitude of working with the people you had than maybe someone else might have?

Rich Jordan:
Yeah, and I think, in ways, that was beneficial. Like, in this moment. I think that was beneficial. In other ways, I think it wasn’t. Further down the path that year, to your point, my experience led me to put up with and tolerate behaviors that today I wouldn’t tolerate. Today, that person would be terminated. We’d find somebody else. At the time, I was so used to working with what I had, making it work, trying to hold guys accountable and get them to where I needed them to be. And some people just aren’t built the way you need. So I think, ultimately, the punchline there is, I think we held on to some people longer than we should have. And part of that was fueled by my experience.

Jay Goltz:
Well, to be fair, you and just about every other entrepreneur on Earth keeps people longer than they should. [Laughter] I don’t know that I’ve ever met anybody who says, “Oh no, I was right on that one from the beginning.” So I don’t think this had anything to do with the military. It’s just getting rid of your naivete, that you can’t fix everybody. And some people just don’t belong at the business, and they belong somewhere else. So that’s kind of a 101, learning-curve lesson of owning a business.

Rich Jordan:
Sure, yeah.

Loren Feldman:
So how did you double sales?

Rich Jordan:
Oh, man, you know, wrenched on a lot of levers early. A lot of it was productivity increases. I think a lot of guys who are coming into this business without experience, they assume that they’re just gonna fire the marketing engine. You know, just turn on the boosters of marketing and it’s gonna do that. For us, that wasn’t necessarily the case. It really was all productivity, efficiency, some pricing. So for us, we went from pen and paper to an ERP that was a little bit easier to use, easier to communicate, easier to dispatch. For one, we invested in our customer service team so that we were actually answering the phones and picking up the phones.

Jay Goltz:
So you think there was some pent-up demand out there that you couldn’t get to because you couldn’t get the jobs done fast enough. So people were calling, and somebody was saying, “Yeah, we can’t see you till next week.” And they just went somewhere else, right? Isn’t that what you’re basically saying? You raised your capacity?

Rich Jordan:
If you even answered the phone at all. Yeah, I think there was a lot of demand available. So basically, that first year was really just capturing the demand. You know, in a small business that was doing a million dollars in sales, you only need another million dollars to double, right? I always kind of talk about, it’s like this sinusoidal wave. You’re capturing demand, and then you’re trying to increase demand to fill capacity. And now you’re capturing demand again. And so we kind of went through all those cycles, but that first year was largely just capturing demand and trying to do it in an efficient manner.

Loren Feldman:
Did you have to double employees to do that?

Rich Jordan:
Yeah, I think we finished that year with 12 employees. So, you could say we quadrupled employees to double sales. So we definitely saw, you know, people talk about the J-curve—like EBITDA and earnings taking a dip on those early journeys. And we certainly saw that, too. We did not clear as much money in that first year as the seller was clearing on his own.

Loren Feldman:
Despite doubling sales.

Rich Jordan:
Despite doubling sales.

Jay Goltz:
Well, let’s be fair, though. The guy was working. I mean, he was earning the money partially because he was probably a very skilled plumber, and he was out there paying himself. It’s a separation of paying yourself versus the profit of the company.

Shawn Busse:
Well, he wasn’t investing in infrastructure at all. It sounds like he was just creating all kinds of infrastructure debt. And you were basically building a system that could scale. His system could have never scaled, if you had just kept running it as it was.

Rich Jordan:
Right.

Jay Goltz:
No, but I’ll tell you something. You have explained why so many plumbing businesses are like that. Because at the end of the day, the guy was making a lot of money—$300,000, $400,000 a year. It wasn’t broke, as far as he was concerned. He didn’t have to turn into an incredible business person and scale it and everything. The guy was making plenty of money. And he had his boat, and he had his summer home. So this describes a lot of people in the trades. They make a lot of money, and they don’t ever have to really fix the business part, because they don’t have the aspiration of running a five or 10 million dollar company. And I think that’s typical.

Rich Jordan:
Yeah, it’s like, these guys aren’t stupid. You know what I mean? They’re making a great living for themselves. And the reality is, in order to scale, there’s really no way for them to scale without truly dipping into their own pockets, right?

Shawn Busse:
Yeah, they’d have to sacrifice.

Rich Jordan:
I think it’s very difficult to kind of take that next step. And we also see guys who have built $3 million businesses that we’ve acquired, and they make less money than the guy running the million-dollar business. Because there’s more volume, they require more infrastructure. And they haven’t gotten over the hump where they can really start making money. So it’s kind of like that dead zone between, say, a million and a half of revenue—at least in my business—and, say, 5 million in revenue. And that can be, really, a wasteland of people just kind of stuck, not making as much money as they were making on their own.

Loren Feldman:
Rich, I think you said that in that first year, you made some pricing changes that were impactful. What happened there?

Rich Jordan:
Yeah, I’d say we screwed it up at first. With plumbing and heating businesses, you kind of have companies split on either side of a line. So companies basically either charge time and materials. So they give you an hourly rate, and then they have a mark-up on materials, and that’s what they give you, and it’s very transparent. And those are usually shops like the one I bought, like, very, very small.

And that can be frustrating for the homeowner, because a lot of times, the bill at the end of the day is a surprise, depending on how long the job took, or whatever. You know, I’m not getting agreement on the price until I finish the job and tell you how much it is. And sometimes that can be rough on the homeowner. But other companies are flat rate, like upfront pricing companies. Typically, you’ll see any kind of scaled company is going to be a flat-rate, upfront-price company. And that’s basically every sort of task that can be performed has a set price, like menu-style pricing.

Jay Goltz:
Like going to a car dealer. They’ve got that Chilton book. They say, “Here’s the price per hour.” But they don’t necessarily put that amount of hours into it.

Rich Jordan:
Exactly. So there’s an ability for the contractor to make more margin if he’s more efficient. So now, I’m incentivized to have highly skilled technicians, as opposed to poorly skilled technicians with upfront pricing. I’m also getting agreement. Like, “Hey, at the end of this job, you’re going to have a fully functioning water heater, and you’re going to have hot water in your home. It’s going to cost this amount of money. Does that work for you?” Customer says yes, and then that’s the bill they end up paying at the end of the day. So there’s agreement upfront and then no surprises.

So that’s how we operate. When we made that change—because that initial company started as a time-and-material company at a fairly premium rate. And we took that hourly rate that he was using, and we just slapped that onto our upfront pricing, kind of math. And the reality is that time-and-materials companies are generally going to charge you for all the time that they’re at your home. Some will even charge you from the moment they leave their shop to when they get back to the shop, but they’re definitely gonna charge you for all the time that they’re in your home. The upfront-pricing price books are generally built for—because it’s really the only way to build them—the amount of wrench time that the task takes. So, you’re not getting that hourly rate for the entire time you’re in the home. You’re only getting that hourly rate for the 15 minutes that it takes to install a frost-free hose bib on the outside of the home. You might be at the house for an hour, but the task is generically built for 15 minutes.

So we took the hourly rate he was using, and we just translated it directly over to the flat-rate, upfront-price book, and we saw our margins just crater. And we weren’t really smart enough to figure it out at first. And the reality is that our billing efficiency tanked, is what happened. So now, being in the industry a little bit longer, a plumbing service company that’s on an upfront-pricing model is generally only going to bill for 40 percent of its time. So if a guy works a 10-hour day, he’s only going to bill for four hours, because he did four hours of wrench time. He had all this drive time, and he had all this diagnostic time and presentation time and explanation time and all that stuff. So basically, 40 percent billing efficiency means whatever hourly rate you needed to charge, your kind of back-of-the-house hourly rate and that upfront pricing math needs to be two and a half times whatever your desired hourly rate is. Does that make sense?

Jay Goltz:
I knew this was coming. I was waiting for the punchline because, I mean, I live through it. You know, we hang pictures. And no matter what I charge per hour, it doesn’t cover it. Because there’s no way I’m billing for anything close to eight hours a day. It’s your point: loading the van, unloading the van, coming. It’s the nature of the beast. That’s why stuff costs more, because it takes longer than you think. When you build everything else in, you certainly can’t just charge for quote-unquote wrench time.

Rich Jordan:
Yeah, absolutely. So we basically went through a very difficult two months financially when we made that choice and didn’t understand the math behind it. Ultimately, we adjusted rates to accommodate that change in billing efficiency, and then it worked. Because I talk to guys all the time now, they’re getting into the trade for the first time and taking over a time-and-materials company, and they want to switch to the flat rate. I think I’ve saved quite a few folks from the same headache that I had.

Shawn Busse:
Is there a universal book all these plumbers are subscribing to that it’s like, “Well, a water heater takes this long. And a hose bib takes this long.” Or is that your own internal experience, and you use that to determine how long something will take?

Rich Jordan:
It’s a mix of both. There are third-party services that will provide you that kind of generic time-and-materials for the book, and then you plug in your hourly rate. You plug in your material markup, and then, boom, you’ve got a price book. We use something like that now, and a lot of companies do. And then it’s like, that gets you 75 percent of the way there. And then it’s a lot of tweaking and adjusting.

At the end of the day, we’re trying to make anywhere between 12 and 20 percent. Customers and other kind of smaller contractors like to do their napkin math on what they think you’re bringing in. And what I find is that they’re almost always only taking into account the cost of goods sold. So they think you’re up-charging, you know, you’re ripping people off by 2x what the price should be. And it’s like, “Well, hey, man, I’m targeting a 50-percent gross margin. So yes, you are correct.” It is twice what the cost of goods was.

Jay Goltz:
And the guy that was your key plumber that you saved from leaving, here we are, years later: Is he happy? Nice relationship? He’s at peace?

Rich Jordan:
Oh, yeah, he is certainly a success story for us. His family’s in a good spot. He’s making a lot more money now than he was previously. He was actually grossly underpaid when we took over.

Shawn Busse:
I’m guessing you’re paying your people way, way better than they were paid in the past.

Rich Jordan:
Yeah. We take really good care of him. So he might have been making like 60 grand a year before. Now, he makes like 120.

Jay Goltz:
Well, partially because the owner was a master plumber and keeping an eye on his guys, and you need to rely on the guys. You’re paying more because you need professional guys. You’re going to need less management, because you’re not a plumber. So that makes sense.

Rich Jordan:
Yep, absolutely.

Loren Feldman:
Rich, how did you make the leap to buying other blue collar businesses?

Rich Jordan:
The very first add-on deal we ever did, really, was a guy who happened to get my cell phone number from a vendor, a shared vendor, and he called me. He was like, “Hey, I have this little, small, kind of commercial backflow-testing plumbing company. It’s just me and a truck, and I want to move to Vermont. Can you take over my accounts?” We paid him a few thousand bucks to take over his accounts. Now, that was four months after we took over the first business, and that was a success. It was small, kind of inconsequential, but it was a success.

And then, 18 months after that first acquisition, we had joined this industry best-practice group. My partner and I were at this annual business planning workshop as a part of that, and we sat at a table for three days with this older gentleman who owned an HVAC company in New Hampshire, him and his general manager. And the point of the whole thing was, we’re planning, taking all of our inputs from the previous year, and making assumptions for the next year on a seasonal basis, and mapping out our portfolio, our budgeted performance for the next year.

We were kind of picking his brain, because we wanted to add HVAC as a trade in New Jersey. And ultimately, we kind of set up with him that we were going to come visit him in New Hampshire, to see how an HVAC company runs, as opposed to a plumbing company. And we had grown sales in New Jersey to two and a half million dollars at that point. And my partner was full-time running that in New Jersey, so I had a little more bandwidth.

And so basically, the guy that we went and visited in New Hampshire ultimately kind of proposed to us. He and his wife took us out to dinner while we were up there visiting and were like, “Hey, you guys crazy enough to buy a business in New Hampshire?” And we were. So a lot of lessons learned there. Turns out running two businesses in two markets is about five times harder than running one business in one market, but that’s been a major success story for us. We took over his business. It was like 3 million dollars in revenue, like 15 employees. That business today is 15 million dollars in revenue and 65 employees two and a half years later.

Shawn Busse:
Aside from you being more experienced at that point, why do you think that business scaled so fast? What was the difference there?

Rich Jordan:
I think HVAC, in general, is a little bit easier to scale than plumbing. A big part of our growth here with the HVAC company has been really leaning into building our base of recurring annual maintenances, like annual maintenance contracts, which is just more customers go for that when they’re protecting their expensive HVAC equipment, more so than they want to protect their water heater or their plumbing systems. It’s an easier product to sell on the HVAC side. The previous owner had about a thousand maintenance plans. We have almost 5,000 now.

Jay Goltz:
Okay, but correct me if I’m wrong: Part of the reason that business scaled easier than the first plumbing guy, he had an infrastructure. He had a real business, so you just had to improve it. The other guy, you were basically building an infrastructure from scratch, because the guy was a plumber with a couple of other plumbers.

Rich Jordan:
Yeah, that’s a great point, and that’s absolutely true. He had spent the time and the treasure to build a little bit of infrastructure. He had taken a little bit of a hit on his bottom line in order to do that. And we were able to step in and kind of tweak it, as opposed to having to build it essentially from scratch.

Shawn Busse:
Well, and you know what? I just thought about this: HVAC is a growing industry. Plumbing is not radically changing, but the HVAC industry with mini splits and technology is changing radically, and so that creates more market opportunity, I would guess.

Rich Jordan:
Yeah, and your efforts on the HVAC space are somewhat leveraged, in that there’s always that ability to get that big ticket with HVAC. It’s a little bit harder to achieve in plumbing. In plumbing, it’s like sewer replacements and stuff. So it’s a bit harder to manufacture those opportunities. In HVAC, your outbound sales efforts, the amount of customer connections that you’re making, you can increase activity. And ultimately, that kind of filters down probabilistically to more large tickets at the end of the day. And we’ve been able to kind of play that game.

Shawn Busse:
And then in your state, is the licensure thing also a little more advantageous, in terms of HVAC versus plumbing? It’s a little easier, in terms of the requirements, or is it also a high requirement industry?

Rich Jordan:
As an owner in New Hampshire, it’s easier from a licensure perspective, because you just need an employee to hold the license. From a talent recruitment standpoint, in some ways, it’s harder. Because all of your technicians need to be licensed. In New Jersey, actually, none of your technicians need to be licensed, but the owner needs to hold the license.

Loren Feldman:
Rich, when you bought the plumbing business, did you have in mind that you were going to create a holding company and buy a bunch of other businesses? Were you thinking that way right from the start?

Rich Jordan:
No, no, I wasn’t. I kind of laugh, like, the goalposts keep moving. I’m sure you guys, I imagine you might be able to relate to this as well. You know, we keep unlocking opportunity, and then the goalposts move again. If you had asked me in 2020 what my goals were, I would have said, “Man, it’d be really awesome to run a $2 million plumbing business.”

Jay Goltz:
Well, since you’ve suffered through the learning curve for some basic stuff, let me help you with your age and how long you’ve been in business, to say to you: Maybe you should think about, if you were doing X millions of dollars, you’d be making a fortune, could buy anything you want and have a lovely life. Instead of doing what I used to do: grow, grow, grow, grow, grow, grow—until I finally realized, “You know what? It’s big enough.”

So I would challenge you to think about: Is there a size that’s just big enough? Or do you have some innate need to grow it to a $50 million company or something, which is going to cost you. I don’t mean money-wise. It’s going to cost you in your life.

Loren Feldman:
That was the Small Giants guy talking there. [Laughter]

Jay Goltz:
Yeah. Excellent point. That’s exactly the point.

Rich Jordan:
Yeah, feedback well taken. I’d say for me, it’s not so much about growing. Of course, it manifests this way, but psychologically, I think it’s not so much about growing revenue. It’s about realizing my potential and realizing the potential of the team. And that I think is what’s driving the growth: this desire to continue to create opportunities for talented people.

Loren Feldman:
Well, where are your goal posts now? What are your goals?

Rich Jordan:
I’d say right now, they’re sitting at 50 million dollars in revenue and 200 employees, probably. It’s probably the kind of soft goal.

Jay Goltz:
How old are you now?

Rich Jordan:
33.

Jay Goltz:
God, you’re so young. All right, I was there in my 40s, and then I finally figured out there’s a price to pay for getting bigger and bigger and bigger and bigger. My goal post is I want to be happy. I want my employees happy. I want my family happy. That’s the goal post, versus I want to do $100 million. That’s a whole other animal.

Rich Jordan:
I think the initial growth stages were largely to try to be able to afford infrastructure that allowed the business to really feel like a business.

Jay Goltz:
No, totally.

Rich Jordan:
So, yeah, I think that that’s largely what’s kind of brought us here is like trying to build for survivability and sustainability. And I think it’s only recently sort of pivoted to kind of like opportunistic. Yeah, I appreciate the pushback.

Loren Feldman:
Rich, are you planning on growing primarily by acquisition or organically?

Rich Jordan:
For us, organically, really. We find that acquisitions are extremely disruptive. Like, we did a pretty sizable acquisition in February, for us. We did an acquisition of a direct competitor in New Hampshire. It was 30 employees, the largest one we’ve ever done. And actually, it was a great success. It worked out great. But I think, fairly easily, it could have gone the other way. And you’re hiring 30 employees, sight unseen, is really what it is.

Loren Feldman:
Back to the military.

Rich Jordan:
Exactly. So for us, I think we’re still open to acquisition opportunities. I’d say we’re not in pursuit, like we might have been before. And I think that’s a symptom of, before we were kind in those wastelands I talked about earlier, that $1-to-$5 million wasteland. You can kind of feel like you’re up against the ceiling, and it’s difficult to fight out of it. You don’t have the resources to help you get over the hump and invest in the infrastructure. It can be hard. So I think, in that stage, it felt like the only way to meaningfully grow was to do an acquisition.

Now, we kind of have this meat and resources and staff, and we feel like we can fairly reliably, organically grow and continue to kind of pull these levers and tweak it and see the year-over-year growth without acquisitions. So my appetite for acquisitions has certainly diminished. Now, if someone walked in here today and was like, “Hey, I’ve got this great business, and I want to sell to you for a great deal”? Like, yeah, of course.

Jay Goltz:
Which is going to happen. I mean, that is going to happen.

Loren Feldman:
Have you taken investment dollars?

Rich Jordan:
Nope. This is all just me and my partner. Just personal cash and operating funds.

Loren Feldman:
Would you consider that to do an acquisition, if the right acquisition came along?

Rich Jordan:
If the right acquisition came along, and we felt like we had an aligned investment partner, I think we would be open to it, but I think the stars would have to be aligned. And we’d want to make sure we weren’t giving up our autonomy and direction.

Jay Goltz:
Read Small Giants again, a couple times. [Laughter] I mean, I have to tell you, anyone that goes, “Oh, he’s a silent partner.” Yeah, I don’t know that there’s such a thing as a silent partner. And I don’t care whose money you got. The fact of the matter is, you’re not in control of your own destiny at that point. And I would absolutely argue: Don’t do it. Just don’t do it, period.

Rich Jordan:
Yeah, I mean, that’s basically how I see it right now. Now, I’m trying to keep an open mind, as opposed to being like just a blanket no. But I see it largely the same as you do, Jay.

Jay Goltz:
Can I summarize? What you’ve talked about is: Hiring and firing is critical in growing and running a business—which you went through the whole process, you and everyone else. Two, pricing. People don’t look at pricing enough. Pricing is critical to fixing a business, making more money. Three, there is tremendous opportunity. There are a lot of small business owners out there who don’t know how to sell the business, who don’t want to tell anybody, and then they just die on the vine. And if you go and look for those people, there could be a good deal that could be cut. And the last one, last but not least, God bless the SBA loans. I mean, I’ve used them to buy three buildings. I couldn’t have done it without the SBA loans. So, a totally underused resource out there, no question about it.

Loren Feldman:
Well, let me add one more thing to that, which is, I think the big difference between what Rich has done and what you did, Jay, and to some extent what you did, Shawn, and more traditional business owners have done, is that Rich went into a business—he had some small experience in the underlying tasks that that business required, but wasn’t really doing that job before he became a business owner. And I guess I’m curious, Rich, do you think it was ever a problem for you that you didn’t have a deeper feel for plumbing itself?

Rich Jordan:
I think it presented its challenges, but it’s not impossible to solve.

Loren Feldman:
Clearly.

Rich Jordan:
At the end of the day, what I sort of landed on was that I needed to know enough about plumbing to understand how long jobs were going to take, and what material was required, and what support my plumbers needed so that I could price those jobs effectively, so I could resource those technicians effectively. And ultimately, that’s the level of knowledge that I needed. And I also just needed to be willing to leverage the latent talent on the team to help bridge that gap as well, until I had it.

Loren Feldman:
Do you handle the plumbing in your own home now, Rich?

Rich Jordan:
I do. To an extent, I do, yeah. I’ll clean my own drains and service my own boiler and stuff like that.

Shawn Busse:
If we’re talking takeaways from this, I think a really interesting thing here is your experience in leadership and operations. Just understanding this idea of distributed decision making is so powerful. And, you know, these large organizations really struggle to be effective, I think, because they get that loop wrong, OOPA loop? [Laughter]

Rich Jordan:
OODA loop.

Shawn Busse:
Sorry. They get the OODA loop wrong, and I think you’ve done such a good job of bringing that experience in your life into the business space. And it really illustrates how there are businesses where it’s less about the technical expertise and a lot more about OODA loops and good leadership. So yeah, thanks for sharing that, man. That was awesome.

Rich Jordan:
Yeah, appreciate it.

Loren Feldman:
Well, this was great. My thanks to Shawn Busse, Jay Goltz, and Rich Jordan.