Mark: Today on PowerTips unscripted, we talk to our very own Michael Hodgin, consultant and owner of Maestro’s Toolbox. Most people would be convinced that if a company went from 1.5 million to $3 million in revenue, it had experienced growth. However, when we look beyond grow sales, those numbers don’t necessarily mean a company has grown. It could even mean that it is less profitable and ultimately less successful than it was before.

Mark: Michael is here to explain how. Tiered increases are a better strategy for deliberate healthy growth, and we’ll hear his process in just a second.

Victoria: Hi, I’m Victoria Downing and welcome to PowerTips Unscripted, where we talk about tips, tactics and techniques to help you build a strong, profitable remodeling company. And I’m here with my co-host, Mark Harare.

Mark: Well, hello, Victoria.

Victoria: Hello there, Mark. How are you?

Mark: I’m doing well. How are you today?

Victoria: Good, good. And I’m excited again, as I always am when we do these podcast, because we get to talk about growth and how to do it right. And you know, we also often have roundtable members come in to our organization and they’re all they’re focused on US growth, growth, growth, but they’re talking about revenue. Right. And is that really the right strategy?

Victoria: You know, I’ve never been convinced that was the right way. And I think our next guest agrees with me, which is kind of wonderful.

Mark: It’s always good to have the guests agree with you.

Victoria: No kidding. Although I know that controversy’s a good thing for these, but I guess.

Mark: That’s what I’m here for.

Victoria: Yeah, that’s right. Right. So. So, shall we dive in?

Mark: Yes, please.

Victoria: Michael Hodgin is a general contractor and business consultant living in the Rogue Valley of Southern Oregon. He started his first construction company as a one man show in 2000. Eventually growing Coleman Creek Construction to include a successful team of 15. Michael joined Remodelers advantage in 2016 in an effort to deliver the greatest possible value to his clients. And now at this point, he is a Roundtable’s group manager and one of the remodelers advantage are stellar consultants helping other remodelers be successful.

Victoria: And he does that through his own company, Maestro’s Toolbox. Welcome, Michael.

Michael: Well, thank you very much.

Victoria: Sure. Definitely. We’re delighted to have you now. We had you do this presentation at last year summit that we held in Orlando for nearly 600 remodeling professionals. So I’ve asked you to resurrect it and repeat it on this podcast, because I think it’s a powerful message.

Michael: Yeah, well, thank you. I mean, the the presentation about the growth was an overall topic that I felt like a lot of general contractors like me that started as a one man show, as a craftsman who turned into businessmen as they grew, didn’t really have a lot of resources, and the administrators and the business side of the world and in the field, when you start doing some of them on a jobsite, there’s always an older craftsman and somebody there to see you doing something and suggest, Well, here’s a better way to do it.

Michael: And then you learn. And then the same contractors would go to the office and get the office and try to do business strategy, business planning, business, administrative stuff, and not have anybody over the shovel to help them think about things in a way that is going to actually facilitate growth and profitable growth. So because I went through it as a one man band who built the company and I got to do that a couple of times, I got to really get deliberate about how I would do that.

Michael: It was good to share what I’ve learned and people can take the pieces of it and apply it to the company and be more successful than makes me happy.

Victoria: Good. Great. You know, so I’m looking forward to hearing this. But there was this there’s a gentleman that was in the industry a long time ago, and he’s since passed away. But he had a saying that resonated with me and it was all about is growth the thing? Right. And it was volume kills, profit, thrills. It’s not about just growing for the sake of growth.

Victoria: It’s growing profitably, as you just said. So dive in and tell us what is tiered growth is.

Michael: The concept of the growth is that there’s certain marks in a company is to grow infrastructure. You need to run your company and growing your company means getting personnel and team members. And if you do it in a tiered system to where you you you take a step to a particular volume of work and then prove that success.

Michael: The second year, onboarding the personnel, you need to take the next step during that period of having things stable and understanding your business, you can take these steps out and each step can become profitable and deliberate. And basically you’re proving a concept that the team you have people that are wearing the habits that you’re taking on their own in those hats and you have the ability to count on them to do what they need to do so that you can focus on taking up another hat.

Michael: So but the basic principle is, is take a sales goal and hit that goal and then head off again the next year. And when you’re hitting that again the next year, you’re looking ahead to the next step and you’re onboarding the personnel and you’re creating systems and processes and you’re looking at the metrics that are going to tell you if you’re ready to take that next step.

Victoria: Well, so you obviously experienced this. Can you tell us a little bit about those steps and how you set that those sales goals and just how it worked in your experience with Colman Creek? Yeah.

Michael: Absolutely. I mentioned earlier I got to do it twice because when I started, market was good and I grew and I had all of a sudden had three crews and but what I also had was a lack of understanding of the people I needed to run the show. And I ended up with a lot of volume and of problems.

Michael: But then when I only had one crew, so when the market crashed and for me it was about 910 where really things hit bottom. And I had a lot of time to think about it. And I put together a strategy of how I wanted to come out of that. And, you know, each market is different. So sales goals are going to be a little bit different.

Michael: But for our small town of 27,000 people, I targeted $1.5 million as a as a goal that I wanted to hit. And I knew that to hit that end goal, I was going to need a full time office administrator. So that was for me the first step. And when I got that off the operations administrator into the office work on the systems and the processes.

Michael: When we hit the $1.5 million goal and we had people calling us and we had a long list of opportunities to to grow the company. And but out of that, I said, I don’t want to grow the company. I want to hit the $1.5 million again, and I want to do more profitable with happier clients, with less callbacks.

Michael: And I know to go to the next step. For me, that was a $2.5 million step, and I knew that as the production manager and the owners and sales to do two and a half million, I was I was going to need a production manager and I didn’t want to be on board and a production manager at the same time.

Michael: I was doing $1,000,000 more business stuff, son the year before. So halfway through the the $1.5 million two year window, I onboarded that production manager and it shadowed me for months. But then we worked with them for almost an entire year to get to where we hit our sales goal and our profit goal at 1.5. And then he was on boarded and we said, We’re ready.

Michael: We’re going to take the governor up and we’re going to aim for 2.5.

Victoria: Well, so when you were doing that right, so you’re you’re hitting your 1.5 the first year with just the administrative office manager, the second year you want to make more money. Same revenue is right and that same general range you want to be more profitable, but you’re adding a an expensive key manager. So how so were you still able with that additional overhead, were you still able to increase your profits as you had hoped?

Michael: I did. I think the the overall trend was as you’re onboarding across just a little bit. But then in the second year of proof of concept that you’re ready for that step, profit would go up because then that person would be trained. The other thing about deciding to make these steps is to have the metrics become a up that you’re ready to do that.

Michael: So part of that is having a good sales plan, a sales cookbook, way that you interact with your clients, but above and beyond that is a complete understanding of of your profit and loss, the job and your labor burden. Because at those lower tiers you kind of need to know that stuff to make sure you’re being profitable. But as you grow, if you don’t have a really good foundation, you can find out that you’re adding overhead and not charging the money you need to be doing.

Michael: So one of the signs that you’re ready to jump to that next tier me that tier was 2.5 was I had a really clear understanding of my job costs and my labor burden. And when I did jobs, I was making sure that all of those costs were being accounted for, so that when I charge an overhead profit at the end of the job, the overhead was actually covering my overhead and the profit was actually there.

Michael: I think that’s one of the key steps that get miss when people grow is, you know, a lot of contractors say, well, in our neck of the woods, contractors charge as a percentage.

Victoria: Right.

Michael: From an overhead. And it’s more of an arbitrary thing and it’s more like, well, that’s what everybody else is charging. So that’s what I have to charge. But to be able to grow your company and ensure that you’re profitable, you can’t do what everybody else is doing. You have to decide how you’re going to run your company and you have to say what your overhead is and the services that you want to provide is going to cost a certain overhead.

Michael: It can be arbitrary compared to what everybody else is doing. It has to be what you want it to be and what do you need it to be to provide the service. And then you if you have that in there, when you build the jobs and your production manager brings them on time and on budget and the overhead is covered.

Victoria: Okay, great. You know, this is going to be a little bit off, a little bit off to the side of our main topic. But one of the reasons that people are not as profitable as they hope oftentimes is, like you had mentioned that you really had your job costs nailed. And I think that lack and inability to estimate properly and to include all the costs is a huge problem for people who think they know what they need to mark up, but they’re not able to bring the jobs in on budget.

Victoria: How did you conk or that or did you mean to, you know, avoid slippage? Is it estimating properly? Is it better management or what did you do so that you knew that you were going to bring the job in on target?

Michael: It’s kind of difficult to pinpoint one thing because it’s kind of everything. So for one thing, everything is always changing and you can’t you can’t take your eye off the ball. And as you move through and you onboard people and you get newly carpenters and other people retire, everything is always shifting. So what we found is that tracking is the most important thing.

Michael: So if you can track where it is, your costs are coming from, and then you can draw correlations to why a job slipped. You know, at the end of the job, you reduce all the paperwork and you find out where it is. You can begin to notice the trends and you can start looking at the lowest hanging fruit of what you can do to shore it up.

Michael: And, you know, perfect example in our company is is about June of this year. Starting at the beginning of the year, I gave all the reins of production to my production manager. So you’ve been here for years. You’re now or for hiring a buyer and you’re you’re responsible for pay wages. And I’m going to step away and I’m going to work on this sort of part of the business.

Michael: And at the same time, our two best interpreters decided to go out on their own since we train them so well to be able to do it when we got some new newly carpenters. And our estimate here was estimated as if our trucking through the carpenters that we had known for five years and train and the guys in the field who were used to on those guys weren’t in rooms to kind of step up and fill the hole.

Michael: And newly carpenters we had came from other companies that did things, other ways that it was bad habits that we had to tread. So come our mid-season review in June, we looked at slippers and, you know, we hadn’t had slipper issues in years and all of a sudden we were everywhere. So, you know, called the company meeting State of the Union.

Michael: And I said, you know, here’s where we’re losing. And, you know, is it is it the sales problem? Because I’m not getting expectations high enough when I start. Is it the estimating because the estimate isn’t estimating, Right. Is it the lead carpenters because they’re not being prepared, Is it the Lakers on the job site? You know not not given us.

Michael: They’re all on a day in and day out. And the answer is yes. It’s it’s all those things because it takes the team, you know, to do this and I said, you know, I give bonuses every year Christmas and I would love to give bonuses again this year. But we all have to step up and like the team did.

Michael: So the idea that if I hadn’t been looking at where we were slipping and hadn’t been analyzing the information of where things were going through, you know, with reporting job costs and labor burdens, I might not have had that needed in the middle of the year, but could have just kept rolling along and got to the end of the year.

Michael: So by being able to keep these metrics, you can really head some things off the pace and then get your team engaged to be part of the solution.

Victoria: Okay, great. Good.

Michael: It’s not like you get this stuff that big. Yeah, it’s not like you get the stuff, figure it out, and then it’s figured out forever and it’s ever changing and ever evolving.

Victoria: And and it’s a constant review process.

Michael: And the numbers, there’s feedback loops happen all the time, and you have to look at those feedback loops and there’s so many feedback loops and you, you can’t take enough time to think. It’s always more time to look at those feedback loops because the more that you look at them, the more you’re going to find things that are going to make your company more profitable.

Victoria: Okay. Corbin’s Now, Michael, we talked about your hitting philosophy. What is your hitting philosophy?

Michael: As His philosophy is just based on the idea that, that you have to set goals to be able to hit them right? If you don’t have your goals in place, you’re going to get them. So it starts all the way down from the labors that you know, they’re going to get to the job site and their goal is to hit this.

Michael: They’re going to be in the field by, you know, 745 and the league carpenters are setting up these these whiteboards on the job site says this is how many hours you have to do this and this is how much how many hours we have to do that. Well, here’s our three week outlook. We’re going to stay on that schedule.

Michael: So everybody in production are hitting. We’re hitting those goals on the administrative side. And it’s the same thing. Your sales team has to have goals to hit and your all your different office has to have things that they’re looking at daily, weekly, monthly that they are working towards because it’s really well proven that if you set goals and you and you hit them, it’s again that positive feedback loop.

Michael: If you don’t have those set and you’re not really focused on hitting those goals, but the day is in the weeks can just roll along. So in our company we just really try to break it down to have goals that you’re always hitting. And what I tell my daughters when I tell my team that, you know, we’re all humans and humans are prone to make mistakes and we’re looking for not perfection, we’re just looking for a very high batting average.

Victoria: So I thought it was kind of interesting that you mentioned that you’re the lead carpenters on each job have a whiteboard on each job and have broken down tasks for that day, that week so that the everybody on the job can see where they stand. Is that right?

Michael: Yeah, exactly. So if you know a particular space. So we do all of our jobs in phases. So there’s a certain amount of hours allocated for each phase of the job and then it goes on the whiteboard and then we get our junior leads and our laborers involved in the process to understand what the target was so that they have a chance to hit it and when they hold on board to look at and they’re looking at their hours and motivations and we’re in that little game for the day or for the week involved, and then you know, for a junior league, it gives them an opportunity to say, okay, you know, let our

Michael: estimate or decide how many hours that phase will be. Then they need us with the lead. CARPENTER And then they put their heads together and then they finalize the number. And we need subcontractors on board on that. Then our junior leads actually get to write the hours they things on the board, okay, before the week after what we put in.

Michael: So it’s kind of training them to think about how long it is. And inevitably they always think it’s going to take less time than it is, right. Which is always good when the lead says, Well, that’s great. You think you can do it in 80 hours. We got 100 hours in for it, but then a lot of it, they still take one and I still try to do an 80 because of that 80.

Michael: So we’re kind of training them to estimate hours. That’s the biggest possibility for slippage is in how is LaGRAVENESE doing work?

Mark: My God, you know, what would you like to do The Lightning Round now?

Michael: I sure. And now here’s a reminders.

Mark: Advantage Lightning round.

Victoria: It’s a proper reading.

Mark: I do this, we’re going to put 60 seconds on the clock. What’s your favorite business book and why?

Michael: A great game of business. The first thing that comes to mind because of the the games and the targets.

Mark: And if you weren’t a consultant and owner of Maestro’s Toolbox and a Remodeler, what do you think you’d be doing there? Music Producer What do you not very good at?

Michael: I am not good at being impatient and want everything to happen right away.

Mark: Your room, your desk or your car. Which do you clean first?

Michael: no. Room, definitely.

Mark: What do you think of wind chimes and.

Michael: I am particularly sensitive, so it would depend on the tone of the wind doing something in terms of love. And some would tell me.

Mark: Do you play games on your phone?

Michael: You know.

Mark: How often do you buy shoes?

Michael: Once every six months.

Victoria: Wow, that’s quite a bit. Hey, Michael, this is great. Thank you for sharing your philosophies of, you know, tiered growth and step by step and really following a process, not getting ahead of yourself and making sure that you’re prepared to grow your business profitably at each step. So that’s awesome. So thank you for sharing that. Now, before before we leave, before we let you go, I want you to share with our listening audience your five words of wisdom and why they resonate with you.

Michael: All right. Most important, like work life balance. As your batteries are charged in your personal life, you will drain your self and won’t be able to enjoy your personal life or your work.

Victoria: No kidding. Hear, hear. I’m with you there, buddy. All right. Well, thank you again for being here, being part of Power Tips unscripted. And we’ll be seeing you at a lot of the Spring Roundtable meetings, won’t we?

Michael: Absolutely. Thanks for having me.

Victoria: All right. Appreciate it, Michael.

Michael: Taking it.

Victoria: You know, I think Michael shared some really good practical tips for remodeling company owners.

Mark: Do you?

Victoria: Yes, I do. You know, again, the whole idea, it’s over and over and over. People are like, I want to grow to be 5 million. I want to go to be 10 million. I want to grow to be 3 million, whatever. Without really having mastered where they are now.

Mark: It’s so often that is the number one. It’s a vanity metric. Right. Just kind of like being able to puff out your chest and saying, I owned a $10 million company. Right. I lost $300,000 last year. But I’m a $10 million company. You know, it’s how many times have we seen a $2 million company out perform a $910 million company?

Mark: Yeah, it’s it’s not uncommon because it is It’s just vanity. Or it could be if you’re not doing it right.

Victoria: Right. And again, I love the concept of making sure you’re seriously profitable. Your systems are dialed in and like to think about it. He onboarded his production manager for nearly a year. How many people take that sort of patient know to get somebody up to speed? I know. It’s. Yeah, it’s nuts. Great. Good. Because it ensures that profitability, which is really what this is all about.

Victoria: The scorecard of small business.

Mark: Absolutely. Well, we want to thank Michael for taking the time to share his tiered increase strategy. And we want to thank you for being here week in and week out. I am Mark Harare.

Victoria: And I’m Victoria Downing. See you next week.