Archives for March 2019

Has anyone noticed that there’s a tech shortage out there? If not, there is! There isn’t just a shortage; the situation is getting worse as time goes on. So how are we going to fill those needed technician positions? The answer is continuous recruiting outside of our industry.

First the principle: Hire for attitude and train for service!

Face it. The great techs of this world are already working for someone else, which means we are going to have to train our future technicians, in-house, from scratch. So where are we going to find these future superstars? The answer is … everywhere! Really! They are working at Walmart, the gas station, Best Buy and every restaurant you frequent. The trick is to be on the lookout at all times.

Now I am not even going to get into the attitudes of many workers today. Poor attitudes are rampant, and nearly everyone knows it, so apply the principle: Hire for attitude and train for service. Always carry a supply of business cards with you. When you run into someone with a great attitude simply tell them how much you appreciate their attitude and how rare it is to find people like that. Then tell them, “Here is one of my cards. If you ever get to the point of thinking about changing careers give me a call.” If you start the process by handing out your business cards to individuals with great attitudes, an amazing thing will soon begin to happen. Your phone will begin to ring. “Hello, my name is Joey/Bill/Sue. We talked at the tire store/restaurant/Walmart a few months ago, and you told me to give you a call if I was ever interested in changing careers.” Bingo, you now have a possible prospect, with a great attitude, to fill that needed job.

Attitude is difficult, if not impossible, to train. Most individuals either have a great attitude or they don’t. Hire those individuals with great attitudes and then put them into your in-house training program so they can learn the technical side of the job.

There are outstanding future employees all around us. We simply need to open our eyes and pay attention. Keep those business cards handy and constantly be on the lookout for employees who have great attitudes.

If you could create something that made you unique in your market area, was a huge benefit to your customer base, and substantially increased your profitability, would you be interested? What I am talking about is offering a 10-year labor and parts warranty to the sale of all major pieces of equipment you sell … and doing it “in-house.” If it sounds too good to be true, it’s not! What I am about to share will work for any company, in any trade, that sells and installs major pieces of equipment.

Becoming Self-Insured
There is a tremendous opportunity for individual contractors to take the 10-year parts and warranty program “in-house” for profit! However, several conditions must be met:

• Pool – The pool of contributing customers must be large and growing.
• Don’t Spend the Money – We will look at the potential profitability of the program shortly, but suffice it to say at this point that you CANNOT spend the warranty money when you receive it. It must be placed into a Current Liability Account and drawn out properly on an annual basis.
• Curve – Another assumption is that repairs will occur based on the Normal Distribution Curve.
• New Equipment – This program primarily applies to the sale and installation of new equipment.
• Older Equipment – Although technically older equipment could be part of the program (if brought up to standard), it is not advisable.

The examples being used are for the HVAC industry since they are light years ahead of most of the other trades. With that said, keep in mind the “process” will work for any trade. The contractor will simply need to massage the numbers a bit to fit their equipment and the projected life span of the equipment in their trade.

As we approach this topic, there are a few other things you will want to keep in the back of your mind:

1. Warranty company failures – Multiple independent companies within the HVAC industry have offered warranty programs and, to date, all have gone out of business!

2. Check with your CPA – The approach of moving the warranty program in-house is the design of the author of this article in conjunction with his CPA. Your unique situation may be different (phasing out of business, preparing to sell the company, etc.). It is suggested you touch base with your own CPA prior to moving forward with this program to get their opinion from an accounting/liability standpoint.

Where Did the Idea of a 10-Year Parts and Labor Warranty (as opposed to 12 or perhaps 8 years) Come From?
The idea of a 10-year warranty did not just happen. HVAC manufacturers have done extensive wear testing on equipment and they “know” how many repairs to expect over the initial 10 years of the equipment’s life. They have also run the numbers. Like any business they have set pricing at $550 for the 10-year warranty based on their projected costs … and they have included a reasonable profit. I don’t know about you, but that tells me the warranty should be able to be handled in house, at a profit!

How to Price for Profit?
The formula is pretty simple. Pricing should be based on the actual cost of doing business with profit calculated at the very end. When it comes to the 10-year parts and labor warranty, the current industry providers have done their homework. Now let’s look at their costs verses yours.

• Cost of Labor and Parts – The accelerated testing has told the companies what parts are most likely to fail and when. Those costs are the same for you as they are for the current provider. As a matter of fact, your costs may be less since they must factor in everyone’s hourly rate, and yours may be less – therefore increasing your profit – and you have profit already built into your rate!
• Office Staff andMarketing – The national providers have to invest huge dollars in marketing the agreements to you. You, however, will not have those dollars and your current in-house staff should be able to handle the paperwork.
• Overhead – We must assume a national warranty company is like any other company, they have overhead in the 25%-30% range. Your overhead will change little, if at all. Bottom line is more profit.
• Profit – You can bet the national provides have built a healthy profit into their pricing. By eliminating the middle man the profit ends up in YOUR pocket, not theirs!

“Potential” Net Profit for You is Huge!
Again, using the HVAC number of $550 for a 10-year agreement, we will assume the normal overhead percentage to be in the 30% range with a projected 15% net profit. That means the actual “cost” of the labor and parts is only $302.50 ($550 x 55% = $302.50). If that assumption is true, the agreement should generate a 40% to 50% net profit. Also remember we are already making a profit on your labor rate, in addition to the profit generated by the warranty itself.

Standard Deviations
The basis of all statistics is what is known as the normal curve based on nine standard deviations. The below graph provides an example of a typical normal distribution curve. The best way to understand the curve is to assume 1000 identical light bulbs are installed in identical fixtures. The curve tells us that 4% will fail early, in the first year, with 7% failing in year two. Failure peaks in the 5th year and then has a similar failure rate on the other side of the curve.

We are going to assume our needed part failures for the 10-year warranty program will follow the normal curve, which is a pretty safe assumption. To be extra conservative, we will create a 9-year part and labor warranty program, since failure will actually occur as the nine standard deviations of our normal curve.

Distribution of Expenses
You will remember the estimated actual cost of repairs for ten years (now nine) was $302.50. That means the “rough” breakdown of dollars spent on repairs should be very similar to the yearly dollars shown below.

Year	Percentage	Cost of Repair ($302.50/9 years)
1	4.0	$12.10
2	7.0	$21.17
3	12.0
		$36.30
4	17.0	$51.43
5	20.0	$60.50
6	17.0	$51.43
7	12.0	$36.30
8	7.0	$21.17
9	4.0	$12.10
	TOTAL:	$302.50

 

Two Potential Ways to Offer the In-House Warranty Program
There are two potential ways to offer the customer your nine year parts and labor warranty program.

• Sale of Equipment – When new equipment is sold, the $550 cost of the 10-year warranty is normally included in the price. The good news, if you are in the HVAC industry, is that you are already doing this so there isn’t any real “change” in the way you are doing business. The difference will come later as we discuss how to handle the dollars.

• Premium Maintenance Agreement – If you were to decide not to include the cost of the warranty into the sale of the equipment there is another way it can be done. The idea is to incorporate the $550 into the annual maintenance agreement by spreading the cost over nine years at $61.11 per year. The $61.11 would simply be ADDED to your normal maintenance agreement program pricing. This will create a new premium maintenance agreement which will include all labor and materials. This will take all the worry away for the customer knowing EVERYTHING is covered. Of course this new premium maintenance agreement can only be offered on “newly” installed equipment….not existing equipment. Like the initial purchase of the equipment, the key to success is how you handle the money, which is part two of this topic.

*Published with permission in the May, 2015 Newsletter*

Having a positive attitude is great, and dreaming about the future is essential. But you can’t stop with just dreaming. Neither one of these will get you where you want to go, unless you roll up your sleeves and map out a step-by-step plan.

You see, goals are dreams and visions with work clothes on. I’m talking about leaving the strategic behind and focusing on the tactical. Setting goals and working toward them is the heavy lifting part of the equation. Without them, you and your business are like a ship without a rudder.

The key is to turn your dreams into individually attainable pieces that will gradually create something special down the road. If you wait on outside variables to motivate your team, or change things in your personal life, you’re going to wait a long time. You and your goals are the key ingredients. It’s your responsibility to lead, and goal setting is an important key to winning in business and in life. Goals are the process of bringing your dreams down to earth. Then, with your feet planted firmly on the ground, you must take actual, proactive steps to make your dreams and visions come true.

Components of goals
When setting goals, it is important to be very specific in what you want to achieve. Vagueness will only cause you and your team to be overwhelmed and disillusioned. As a leader, you do not want to become one of those dreamers who talks a lot and does nothing.

Let’s use losing weight as an example. You can’t simply say that you want to lose weight, because that is not specific. It may technically be measurable, but a solid goal should be both measurable and specific. A better way to set this goal would be to say that you want to lose 30 pounds, or have a waistline that is four inches smaller.

Planning a time frame will help you set realistic goals. If you don’t have a time limit and deadline in place for achieving goals, you’ll find that it’s very difficult to break your overall goal down into micro-goals that measure your progress. Putting a time limit on your goals forces you to accept the reality of what must happen in order to achieve them.

Get it in writing
Almost everyone drops the ball on this one. When I talk to people about this practice, they always say it’s a great idea to actually write down your goals. Still, few actually do this.

It’s almost impossible to accomplish anything that matters without some kind of written blueprint. You wouldn’t start to build a house without a plan, so why on earth would you attempt to build and grow your business without one?

Make sure they are your goals
Pushing through difficult obstacles is the mark of a winner. After all, big goals require lots of courage and a strong backbone. But if your goals aren’t really yours — if you’re pursuing something because someone else wants you to — the chances of failure loom large.

Goals are funny creatures in that you have to absolutely and completely own them in order to have a chance of making them happen. You have to want to achieve success and see things through to the end because you love what you’re doing — not because someone else envisioned the goal for you.

Communicate your goals
Finally, as a leader you should always share your goals with your team. Imagine someone putting you in a dark room and asking you to find certain items inside that room. I suspect you would be pretty frustrated, and perhaps a little bit scared. You probably wouldn’t do such a great job of accomplishing your task, either. Your team deserves to know what’s going on inside your head and what you expect of them. Shared goals create communication and unity. You wouldn’t just hop on a boat without knowing where it was going, so don’t leave your team clueless, either!

Many view maintenance agreements simply as a way to tie the customer to the company, and perhaps generate a little extra profit if the tech performs a repair while on the job. Those are valid points, and the KPI (key performance indicator) for repairs while performing a maintenance is $40 per hour. However, maintenance agreements on their own must be priced for a profit or at least break even. Why? Have you noticed a trend over the past few years? More and more manufacturers are offering 10-year parts and labor warranties. They didn’t just pick this number out of the air; it is based on solid numbers through accelerated wear testing. The manufacturers “know” there will be very few repairs within the initial 10 years of a piece of equipment’s life.

What does that mean to you as an owner or technician? It means the service department, as we know it today, is going to be phased out over the coming years. As the profitable service department work is phased out, what will take its place? Maintenance agreement work will remain.

What do you suppose will happen to the service/maintenance agreement department’s overall profitability when it is left with mostly maintenance agreement income? Well, if your maintenance agreements are priced for profit, there will not be a problem. However, if you are selling your maintenance agreements at a loss (which is very common), the service/maintenance agreement department’s overall profitability will be in big trouble!

Many owners are concerned that if they price their maintenance agreements for profit, their pricing will be significantly higher than their competition … and they would be right. However, ask yourself this question: When and where are most maintenance agreements sold? They are normally sold while the technician is face-to-face with the customer during a service call. Now ask yourself this: At that moment, who is the most trusted individual in the eyes of the customer when it comes to their equipment? Right again, it’s the technician.

You may not believe it, but if the technician properly presents the benefits of a maintenance agreement to the customer, they will buy it, with little consideration about how much it costs! Ask your techs how many of their customers, after being been told about the benefits of having a maintenance agreement, respond like this: “That sounds great. However, I think I will call several other companies in town to see what their pricing is.” That almost never happens.

Again, be aware of the shift that is going on within your service/maintenance agreement department and be sure to price your maintenance agreements for a profit! Ten or 15 years from now you will be glad you did.

It has been interesting to watch the evolution of how businesses answer their phones. In the old days, when the phone rang, a live person answred the phone. Over the years, larger businesses had an increased numbers of calls, and the new world of electronics rolled in, so things began to change. When the customer called, rather than talking to a real person, they were greeted with a recording that simply stated “push one for this” and “push two for that.” It was relativey simple (albeit cold) but efficient in terms of routing calls properly. I would assume it also saved money in terms of needing additional employees to answer the phone.

However, what was lost was the human factor. Older people were used to talking with Mary or Elizabeth when they called. Mary would ask how little Johnny was doing since he broke his arm riding his bike. The customer would then ask Mary how her mom was feeling after her operation. In the old days, there was a relationship between the customer and the company in the form of the receptionist or customer service rep. There were real people talking to real people.

But, technology continued to evolve. Instead of calling the company and being asked to push one, two or three, now the customer is greeted with “Please listen to the following message as our numbers ‘may’ have changed.” If that were not bad enough, we now hear “This call may be recorded for training purposes.” which is code for we are recording this to cover our backside in case the company and customer get into a “he said/she said” situation. Oh, and by the way, have you ever finally completed the series of button-pushing only to be told “We are closed, our office hours are this or that. Please call back during normal working hours.” One would think with the current level or supplication the customer could simply receive a message saying, “We really appreciate your business, however we are closed for the day.”

It’s interesting how things are changing. I now actually hear advertisements that focus on how impersonal pushing buttons is, and advertising messages such as, “When you call our company you actually get to talk to a live person.” Wow, what a novel idea!!! Yes, relationships between the company and the customer are important.

I was recently talking to the head of a plumbing franchise, who said they were surveying plumbers in a medium-sized city. They called about 200 plumbing companies and guess what they found out? At least half the companies did not even answer the phone at all. No, I don’t mean they used an answering service, or had a recording. I mean NO ONE answered the phone, period. Wow, that is scary!

Let’s review a simple system for answering the phone:

1. Answer the Phone – Sounds pretty basic, doesn’t it? However, we just found out that at least in one city, it’s not necessarily being done. I realize smaller company owners may not have the staff they would like to have, but if that is the case, at least use a live answering service or have a recorder at your office.

2. Scripting – It doesn’t matter if you have a live person answering the phone or use an answering service. You need to script what you want the receptionist to say. First impressions are important. This is often the first contact a new customer has with your company. Make it a good one. What do you want them to hear?

3. Data Collection and Entry into Your System – You not only need to have a scripted greeting, but you need to know exactly what data to collect. Maybe it’s simply the name and phone number of the customer. Maybe you want to capture their physical address, email address or cell phone number. Part of scripting involves asking for certain information and then entering it into your customer database program. Everyone who calls your office is a potential customer. So enter them into your customer database so you can include them in your marketing program.

4. Consider an “On Hold” System – I would like to strongly encourage you to consider using a professional “on hold” system. There are two reasons for this. Using a professional on-hold system instantly says “professional business” to the customer. You may be a one-man operation working out of your house, but a professional on-hold system at least makes you sound like a professional company. The second reason is marketing. When the customer is on hold, they are listening. Be sure your message is talking about a new product, service or perhaps the benefits of your maintenance agreement program.

Remember, first impressions are important. That person on the other end of your line is the company to the caller. If you are a customer calling a cable company or phone company, you might put up with bad service because you don’t have a choice. However, if the customer is calling a contractor, chances are pretty good the customer will not call back resulting in a possible lost sale or worse yet, creating some bad press if the potential customer talks to their friends.

This is part 1 in a two-part series on the importance of succession planning. Part 2 will be published in the June issue of the Grandy & Associates newsletter.

What could be easier than passing a small stick to another person?

Then why have the Unites States men and women’s track teams composed of elite athletes failed to win the Olympics in 2004 and 2008? They dropped the baton repeatedly. Some things that appear to be very simple are not simple at all. The passing of the baton in track races is a complicated and intricately connected transition process that requires planning, timing, communication, team work and preparation.

The same is true about succession planning. It appears to be very simple, but in reality is a very complex exercise that requires an immense amount of practice and preparation. The United States Olympic teams needed to hire a professional coach just to focus on the handoff. Are you prepared for the handoff off of succession planning in your business? Don’t drop the baton. Don’t underestimate the complexities involved in what seems a simple handoff.

How long do you want to continue to lead your business, and have you determined the day you will move on and pass your leadership to another person to lead your company? Have you given serious thought, planning, and preparation for the next chapter of your life? Have you prepared your successor to replace you? Will you keep your customer’s loyalty and continue to provide the same level of service to them when you are gone? Will you keep your team and your work force moving together as you exit the business? Will you need income from the business in the future? Will you be utilizing a family member to replace you as the leader? Are there other family members who want the position? Do you have clear metrics for their responsibilities and job competencies? Will this create family conflicts?

These are just a few of the questions that need consideration.

You may be thinking, “Stop, there are just too many things to think about!” You may be saying, “I just want to retire and leave and let the business continue to function without me.” You wish it were just that simple, but it is not. You may now realize that succession planning is similar to the exchange of runners in an athletic contest, it’s not as simple as one may think.

The race is won or lost in the passing of the baton; the exchange makes all the difference. Practice, preparation, communication and teamwork are essential components of the succession process. You may even need a coach for some part of your preparation in the planning and training, and preparation. The question I am often asked is where does one start the process and which component of the process is most critical? The most critical person in the process is you. You are the leader of the business and you must take the initiative to start the process as early as possible. Time and clarity are your friends when you start your succession of planning the process. Don’t wait until you are forced to retire because of health reasons or external pressures start the process now. It is extremely helpful for you to be crystal clear about the timing and your expectations of your outcomes in your planning process.

My grandfather used to say there are only two kinds of people in the world. One kind says: “tell me how to do it and I will get it done.” The other group says “I want to do it, but I do not know how to do it.” Take a moment now and ask yourself this question: do I need more motivation or do I need more education? Succession planning requires a high degree of focused motivation in that it must be sustained over a long duration of time. Succession planning also requires a solid working knowledge of change process management, communication, leadership selection, delegation and strategic planning and working knowledge of compensation models, tax incentives and liabilities and legal issues.

What is succession planning exactly and where do I start? I am glad you asked; I will define some basic terms and then address a simple process.

This simple process is focused on succession planning. It will help frame the process if you understand the terms that we are using. There is a difference between a personal exit strategy, a leadership transition plan, and a comprehensive succession plan. A personal exit strategy is simply your plan for you to leave the business, while a leadership transition plan focused only upon the successor of the business.

I want to address the planning process by making it as simple as possible by providing five major areas that you need to address if you want to be successful. I realize there are many things outside your control, but a planning process is a great start to move in the intended direction with an end goal with clear outcomes. It may be simple in some ways but is not simplistic.

I will define the five major areas with two critical questions that lead to two action steps that must be addressed to start to form a succession plan. They five categories include: Anticipation (the motivation for planning succession), Selection (selecting your successor), Delegation (empowerment and training), Orientation (evaluation of your business’s health) and Transition (leaving well with a leadership legacy).

ANTICIPATION
Why Succession Planning? The two most critical natural resources that you possess beyond your physical health are time and money. How often you have heard people say “You can’t buy more time with money,” or “If I only had more money I wouldn’t have to spend so much time working”? The first two steps in succession planning are to determine when you want to exit the business, and how much money you need to take with you. Time is more important than money, so this is step one. Determine the time frame for when you no longer want to be working full time as the primary leader or owner-operator of your business. Determine the end date of your present role and stay focused on that date.

The next step is to determine the exact amount of money you will take from the business, and how much you will leave behind. Business owners often wait too long to determine how much they will take out of the business and are not prepared to retire. This determination can create tension with the new owner, particularly if the new owner is a family member. Often I recommend an independent business appraiser to appraise the financial worth of a business as the owner exits from the company.

• ACTION STEP ONE: Determine the timing. When will I leave the business?
• ACTION STEP TWO: Decide the financial. How much will I take from the business?

SELECTION
Who will be leading the business when I exit? Jim Collins has clearly stated that “the single greatest factor that will guarantee the success or failure of your business is the selection, preparation and placement of the next leader. “ The next action step is to create a clear profile for the successor of the business. Small businesses and family businesses often neglect due diligence when selecting the next leader. Do you have a clear profile of what it actually takes to do the job of the senior leader of the company? Is it in writing, and is it comprehensive? Does it include both the operational and leadership competencies associated with the role? Would you hire the person within the company who does not have all the competencies needed to do the job just because they are an internal candidate or a family member?

The next action step is to qualify your successor with clear metrics that you have quantified, and test the potential candidate against these metrics. I use DISC assessments to test the potential new leader’s motivation, behaviors, and job competencies. This allows me to test the person against the job with a job benchmarking system. You must know clearly if the person can do the job before you place them in a position of leadership.

• ACTION STEP THREE: Select the criteria. Do I have clear leadership profile for my successor?
• ACTION STEP FOUR: Prequalify your successor. Have I assessed my successor with objective metrics?

Next month, we’ll look at the remaining three categories of consideration for your succession plan. Until then, please don’t hesitate to contact us if you have any questions about these initial action steps talked about here.