Grandy

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.

*Published with permission in the April, 2015 Newsletter*

Running a business can be scary. You put your heart and soul into your company and can’t imagine doing anything else. Then, you realize that no matter how successful you are, you might be just a few bad decisions away from losing your dream and disappointing your team.
Luckily, it doesn’t have to be this way. In my EntreLeadership Master Series I teach people to face their fears. I talk about how, years ago, fear paralyzed my decision-making abilities until I came up with a system. In fact, one of the core values of my company today is that decisions are never made based on fear.

So, how can you conquer your fear of failing?

1. Face up to it
You’re going to mess up at some point, and that’s okay. Own up to it, and realize you’re likely to stumble many times before you achieve success. Henry Ford, Bill Gates and Thomas Edison all screwed up numerous times before they hit it big. As Eleanor Roosevelt said, “You gain strength, courage and confidence by every experience in which you really stop to look fear in the face.”

2. What’s the worst that can happen?
Always take into account a worst-case scenario when exploring new projects or options for your company. Ask yourself, Will we be able to survive if this new idea falls apart? When the answer is yes, the decision is no longer so frightening. Once you realize you’re not going to die from making a decision — even if it turns out to be the wrong decision — it releases you to make the call.

3. Talk it out
Remember how it was always better to have a friend by your side when you faced something scary as a kid? The same holds true for adults.
Find a business mentor who has been through tough times. Discuss your biggest fears with them. Once those concerns are out in the open, and you’ve gained insight through another person’s point of view, you just might find that they’re more manageable.

4. Always have a contingency plan
Having several options is a great fear killer. For example, use several vendors so you aren’t relying on just one. That way, if something goes wrong, you already have a back-up plan. Options give you power, and power lessens fear.

Now, understand this. There will always be some fear associated with your endeavour. Whether it’s being scared of losing customers, revenue or even being sued, these are all legitimate concerns. But it’s how you handle them that can mean the difference between success and failure.

It’s wise to recognize that some fears may be well founded, and you should not ignore the potential consequences of the decisions you make. But never, ever allow the spirit of fear to drive you!

It’s time to think way back to your eighth-grade science class. Do you remember studying Newton’s Laws? Do you remember what Newton’s 3rd Law says? If not, let me refresh your memory. His third law says, “For every action there is an equal and opposite reaction.” This law is exemplified by what happens if we step off a boat onto the bank of a lake. As we move in the direction of the shore, the boat tends to move in the opposite direction (leaving us face down in the water, if we aren’t careful!). How does that apply to technicians or small business owners? Actually there are some direct parallels.

Have you ever gotten angry with a friend, family member, or even a customer? What is the “other” person’s immediate reaction? They generally get defensive and/or become angry in return. That is Newton’s 3rd law in action. Remember, “For every action there is an equal and opposite reaction.” It works every time! Remember, to the customer you are the company. Your negative (as well as positive) reactions to the customer are forming a direct reflection of the customer’s image of who your company is. When your wife, or child, does something that irritates you, have a choice. You can instantly react in a negative way, therefore further weakening the relationship, or you can stop, take a deep breath, and react calmly. It makes a huge difference in the relationship and will surely affect the customers understanding of who your company is as well.

When it comes to the business side of your business, the principle is the same. Have any of your costs of doing business changed over the past 6-12 months? Maybe your insurance went up, the price of gas changed, you added a cell phone, or perhaps hired an addition technician or office worker. Like Newton’s law, any change in your cost of doing business is going to necessitate a change in your pricing. If you decide to pay yourself an extra $10,000 per year somebody has to pay for that. That somebody would be your customer! The bottom line is the customer pays for everything. The principle is again clear. Any change in the cost of doing business will necessitate a change in your pricing!

Receivables are a major problem for nearly every contractor. It’s not unusual for contractors doing gross sales in the $1 million range to have anywhere from $100,000 to $200,000 outstanding at any point in time. Of course it depends on the mix of business. If the company is heavy commercial the $200,000 range could easily be exceeded since payment, by contract agreement, is often 30, 60 or 90 days. If the company is primarily residential replacement and service the number should be well under $100,000 for a $1 million business.

When times are busy the paperwork often gets left undone. We’ve all thought the same thing: “Yes, I know I should collect on the job, or at least bill immediately after the completion of the work. But I’m busy! We are behind schedule, the parts are late, and I have three jobs to quote this evening. I will invoice my customers when things slow down a bit.”

Nothing wrong with that logic except for one minor detail: things never slow down! So when do we bill? Typically when we are out of money and payroll is coming up and/or it’s time to pay our distributor!

Keep your customers current and paid up. Why? So they have the freedom to continue to buy from you. Let me explain with an example. Let’s assume I am a handyman around the house, and I like to do small projects around my house on weekends. Each weekend I purchase my materials from the same local hardware store. A typical weekly purchase is $30 to $50 worth of materials, and I always pay with cash or credit card.

Now there is a three-day holiday weekend coming up. That means I can tackle that really big job I been putting off for lack of time. In order to get a jump start, I stop by my local hardware store on Friday evening on my way home from work. The bill comes to $200; however there is a small problem. I don’t have $200 cash on me and my do-small-jobs-around-the-house credit card is at the house. However that is not a major problem. I’ve been buying from this store for a number of years. I know the owner and most of the employees. Bottom line, they allow me to charge the $200 worth of materials.

A week or so later the bill comes and I put it with the other bills to pay later. My long weekend project drags on for a few more weekends; meanwhile I have not paid my hardware bill. Maybe I was low on funds or perhaps I simply just never got around to paying it. Now I need a hammer. What are the odds of me going back to my same hardware store to buy it? The odds are slim since I owe them $200. My fear is that if I go to that store the clerk will jump up and holler out “Mr. Grandy, Mr. Grandy, you owe us $200!”

The reality is that the clerk probably has no idea who owes them money and who doesn’t, but I don’t want or risk it. Instead, I went to another hardware store to buy the hammer I needed. When I went to the other store they might have a better selection, lower prices and/or better informed employees. Bottom line, I ended up liking the new store better than the old one!

Now think about what just happened. I stopped buying from the original hardware store for one reason only – I owed them money and did not want to risk being embarrassed over my unpaid bill. Not being paid up just cost the old hardware store a customer. The best thing you can do for your customer, and yourself, is to keep your customers current and keep them paid up!

Before we wrap this up let me share one other tidbit with you. Be sure your business is customer friendly. In other words, understand exactly when customers are most likely to want and/or need you. I’ll give you another example. My wife has been going to a natural food store downtown to buy honey. The honey was $17 a jar, but my wife considered it worth it. A few weeks ago, we got 12 inches of snow, which is a LOT of snow for our area. The day after the storm, the main roads were clear so my wife and I drove down town to buy some overpriced honey. The store was closed, presumably because of the weather. The next day we called, but were greeted with an answering machine telling us to leave a message. Finally, on the third day, my wife was out of honey and needed some to make granola. Since our downtown store was still closed, she went to the organic section of the local grocery store and found organic honey for $12 a jar. She got home, sampled the honey, and liked it. The grocery store’s organic honey just replaced the $17 a jar honey we had been buying downtown. Get the point? The store where she wanted to buy the honey was closed and she was forced to purchase elsewhere and guess what happened? Just like our hardware store example, the end result was a lost customer.