How to Get Out of a Sales Slump | Ep 900

0:01So it's like I put all my effort whenever I start any business or any product line into like why is this different? it. Like that's my full, like I don't even think about pricing. I don't think about anything until I answer that question. And I have to at least be able to articulate it to them really simply, which is like, here's the five things that happen that suck. Here's how we don't have any of those five. My name is Ryan. I have a real estate law firm and we sell real estate closings to home buyers. We did 2.5 million last year and we're on pace to do 3.5 million. First state law firm? Yes.

0:34I want to be at 10 million in revenue. And I also myself operate a marketing company. My wife operates the law firm. That's what's, I believe, stopping me. Okay. She's the lawyer. I do the marketing and business. Okay. How much does the agency make? 450 top line, 200 EBITDA. And how much does the law firm make? I know you said you're on page 445, but what's the bottom line? About 500. Oh, interesting. This year, it'll probably be closer to 750 with the 3.5. So do you not want to full-time market into your wife's law firm? She's a client. Of your marketing agency? Correct. That's smaller than her law firm?

1:16Correct. Why not join hands? It's tough to turn something, stop something that's making$200 ,000 in my pocket every year. How much time do you put towards the agency? 30 to 35 hours a week.

1:35if you took 30 to 35 hours a week and put it towards the thing that's already making, you know, seven times as much money, do you think you'd be able to find a way to get the extra 200? Yes. Cause our constraint is to get more butts in seats. I guess my, my problem is like shutting it down. How do you like how to shut something down like the right way, I guess. Yeah. No, it's a great question. So it's actually kind of like the, the example I gave with the, the price raise, which is I just give people ample time. So if I think that something's going to disrupt someone's business, you know, for your own reputation, I'd say, listen, you know, it's been an amazing time.

2:08I know that, you know, you guys have been loyal clients. I just want to let you know two things. Number one is we stopped accepting new customers. And number two, we're going to be phasing, basically phasing this out over the next six months. And so I wanted to give you guys six months. We'll continue levels of service for this period of time. Also, I have three recommendations of people who I trust in this industry, I think will do a good job. And then you negotiate deals with those guys to give you kickbacks for all this book of business. And you'll probably be able to make a hundred grand a year just from referring the business out to those guys, which they'll happily do.

2:37And then that's a very easy way for you to keep the money, get it to a hundred percent passive and then move on and help the, help your, I mean, I don't want to help your wife. It's like you guys do your business together and crush it. Would it be smart or dumb to hire an operator just to operate the marketing company instead? Yeah, I think that would be not smart. Cool. Thank you. Perfect. My name is Ricky. We have a bar cocktail mix that we sell to B2B. Cool. Country clubs, resorts. You're a partner with Ben Potts who is on the cash cast. Yeah. We do 3.5 last year in revenue. And our biggest thing that's stopping us was my father.

3:20He was the man salesman that he had a position. he's doing this full time as well as trying to focus on whether we should try to grow the business awareness just because a lot of people don't know about it unless they know us or referrals or just try to just get more accounts can you explain a little bit more about the product yeah so a pina colada strawberry daiquiri margarita stuff like that it's mainly it's a frozen product comes in frozen last two years once you thought it lasts a week but it's mainly for people who are high volume so you can sped out like through shifts and things like that yeah mainly like a frozen drink machine or like a blender so got it okay and so the question is whether you should focus on awareness oh like growing the brand because it's like it's not very public it's only mainly people that know us we talk about it or just people who guests are like this is amazing are you currently all word of mouth yeah basically okay so you have Well, you have your father who does sales.

4:21Yeah. And how does he do sales? Previous relationships from being in the industry for over 20 years. So outbound. Yeah. Okay. So what stops you from mechanizing his existing outbound motion and then getting like 10 guys to do it? We haven't done it. It's just, you know, probably lack of, yeah. So like, I mean, if I had to pick between more of that thing, right, and this brand new thing that you've never done, I definitely would mechanize the existing thing. Yeah. So, so yeah, it's going to be a conversation that you're going to have with your father. Obviously we can help, but like breaking down, like, okay, let's take this thing and break into 50 pieces because it's not like, Hey, how do you do outbound?

4:58Like that doesn't work. It's like, okay, what's initial contact look like? What's first message? What's second message? What's the script? What's the opener? What's the offer to get them kind of enticed? Once we have that conversation, what's the thing that we can increase the pain between where they're at and where they want to go so we can insert ourselves. Yeah. One of the biggest things at least is with getting them to actually try the product. because it's like, I was like, oh, it's just, it's another mix. So once they taste it, it's different. But, you know, getting to that person a decision is, you know, the hardest thing.

5:25There are so many ways to do that. But yeah, I mean, you need an outbound motion. There's probably a combination of conference slash trade show that would work really well too, especially because you are a Tate, like literally taste it. And it would probably crush in that setting. Okay. Probably be very easy to sell. Yeah. I just don't, I don't think you should go brand now, especially since you built the whole business off B2B. Yeah. I would just do more of that. for now to start okay thank you yeah no worries thank you very much for the event very well executed awesome thanks i'm max nice to meet you so we sell a variety of different like lightweight home service contractor equipment to home service contractors and industrial contractors family business we've been doing it for a couple of generations now cool we are i was gonna ask a different question but you got answered by your by your team earlier in the day so i'm gonna skip the revenue level question, just say we have two P &Ls that I have fought to very much focus our teams.

6:18We've divided and conquered one part of the team focused on one P &L, the other part of the team focused on the other P &L. And we're going very deep into the niche and really niching down to who the core avatar is for each of those core product lines. In doing that, we have a fulfillment bottleneck that's on the horizon that we have to make a call. For both or one? For one. So we started a plan to relocate our production facility to a different state during COVID because New York wasn't so friendly to manufacturing companies. Or business. It was ridiculous. So I moved to Texas and we moved the business to a different state.

6:53And now we have to decide if we want to continue that plan and move the other 50 % of the P &L and kind of make manufacturing a center of excellence that's based out of this new state and recapture some of our EBITDA by consolidating the cost structure. Why not do it? Because it's a huge distraction for the team while we're, while we're really sales and marketing constraints. So right now we need to like hack sales and marketing to take us to the next level. But we have this like over the next 24 to 36 months, we have this ticking time bomb of one of our production facilities or the buildings kind of dilapidated.

7:24Lease is going to expire. So you're going to have a constraint, basically you have an upcoming constraint in 24 to 36 months that will happen with basic manufacturing, procurement, whatever, right? But you have a today constraint of sales and marketing. Now is the constraint that you just, like, if you fix it, then the business will grow, but you are profitable today. What do you mean? So is it, so the one that's coming in 24 to 36 months is an existential threat, right? Cause like if you, if the building's falling apart and you have to find a new location anyways, that's an inevitable threat.

7:54Like if you don't solve that, you won't be able to continue that line of the business, right? The, the constraint in terms of the short term is just, I want to get bigger. And the thing that's limiting me getting bigger is sales and marketing. Correct. This is definitely like Eisenhower matrix of non-urgent and important. Yeah. And so this actually feels like a project that can be done. I don't normally say this, but like in parallel, because I do think that you'll get a lot of improvements within the business if the whole team is centralized. And so I would, I would definitely encourage that.

8:24you also have tax improvements and all that other stuff that comes with moving to Texas. And the thing, the reason I lean towards saying like, that's probably worth doing is that let's say that let's play it out the other direction. Like if we crush marketing and sales in a good way, it's like, we're just going to exacerbate how quickly that next constraint's going to come. And so I probably lean towards like, let's pull the facility in, then we can crank the hell out of this. The reason I said concurrent is like, a lot of times the leaders that are going to be in charge of one are going to be very different than the leaders that are in charge of the other.

8:55So it might be something that you can do at the same time, which again, I don't normally say it, but like you just finding, you know, basically managing the move between these two places, a pain, but not like, to me, that's like a 12 week project. Okay. And if it, and if we're capital constrained and doing both, any tips? Okay. So there is a capital constraint. That's why I asked about the profitability. So we're profitable, but to fund a move and do it securely where we're not. What would that represent in terms of percentage of yearly cash flow? From what do you mean? If you were to move, how much cash does that represent for you as a percentage of how much free cash the business generates per year?

9:3345%. Okay. So about half your profit, roughly, about half your profit would go towards the move for one year. Conservatively. Okay. Conservatively. so if we were to increase marketing and sales then we could get more cash flow and would we be able to do that without incurring the supply constraint that the existing dilapidated location would cost us sooner yeah so you're saying like max out these two facilities yes can we can we make more money faster so that we can do the move faster Yeah, probably. Okay. Then it would be sales and marketing first, free up cash, deploy the cash as the reinvestment strategy.

10:12There's a good return on capital. So it totally makes sense. Bring that in, recapture EBITDA, and then it makes sense. Okay. And take anyone who's like on the marketing and sales projects, like totally off that and just have them start planning for this move. Like have someone own that now. No, I think marketing and sales first. Marketing and sales first. Free up cashflow. Bring somebody else in who can project manage the move. And if they're a good project manager, you'll want to keep them long-term. Okay, cool. Thank you. Appreciate it. That was a fun one. That was good. Thank you. My name is Sam Tierling.

10:40I don't, I guess I sell a service. I own a transportation company. Cool. We deliver chemicals to fracking companies. Last mile, transportation. Like this. There we go. Nice. Revenue-wise, we did 10 million last year. The year before that was seven. The year before that was five. Nice. Kind of just kept growing. Awesome. And this year, decided to slow it down a little bit. but not like, well, I guess slow it down to get myself out of the day-to-day. Okay. And it's worked. Great. While doing that, I realized that I can make more money taking and selling to customers that my customers don't sell to, the same product that we're transporting.

11:21Say that last part again. All right. So I'm more of a specific type of person. I sell polymers or I transport polymers, friction reducers. SNF is one of the biggest. They make it. There's 40 % of customers they won't deal with that want to deal with me, that want to buy from us. My struggle is I figured out how to continue to replicate the trucking industry, like the trucks and grow that. So do I keep focusing on that, which is a very cash-intensive business? Like I have to put a lot of money up front? Or do I use my trucks to sell the product to the end user? but i also struggle with that because how do i balance the two cash like sorry how do i balance the two like so if i like i'm regularly floating a million and a half two million in receivables for bkt yeah and i want to start buying the product well i have to pay in 30 days not going to get paid kind of same thing is you're going to add another cash flow constraint to the business say that again so basically if you're buying the the the stuff that you're going to sell to the end users, like you're going to add cash constraint to the business.

12:29Okay. Right. Yeah. So then they would further constrain, it would basically pile on the existing constraint. So said differently, why do it versus just doubling the existing business? Cause like the way that I'll explain where my thinking is. So I had a good friend of mine from high school, actually, that's a strong statement, an acquaintance of mine from high school who had a, had a general contracting business. And in his general contractor business, he realized he was pretty good at roofs. And so he started doing roofs. And I called him up. I was like, hey, how's the business going? He's like, oh, we're growing.

13:01It's great. And so he was explaining to me, he's like, so we do roofs primarily. I was like, okay. And he's like, we also do some contracting work. And I was like, okay, that's another thing. He's like, we also kind of buy and flip houses. I was like, okay. He's like, but that's, he's like, I didn't want to leave money on the table, which is like my favorite entrepreneur statement ever. And I was like, so what stops you from being a billion dollar a year roofing company? And the answer is the general contracting and the real estate flipping. I was like, well, what stops you from being a billion dollar a year real estate flipper?

13:29The answer is the roofing and the general contracting. And so basically if you already have a winning model, to me, I'm like, there's no reason to not just become even better at the thing that you're currently doing and compound the competitive advantage that you have. There's always going to be better. There's always gonna be opportunities. I guess I looked at it as a more of a control thing, like, cause there's Real quick, guys, I have a special, special gift for you for being loyal listeners of the podcast. Layla and I spent probably an entire quarter putting together our Scaling Roadmap. It's breaking scaling into 10 stages and across all eight functions of the business.

14:07So you've got marketing, you've got sales, you've got product, you've got customer success, you've got IT, you've got recruiting, you've got HR, you've got finance. And we show the problems that emerge at every level of scale and how to graduate to the next level. It's all free and you can get it personalized to you. So it's about 30-ish pages for each of the stages. Once you answer the questions, it will tell you exactly where you're at and what you need to do to grow. It's about 14 hours of stuff, but it's narrowed down so that you only have to watch the part that's relevant to you, which will probably be about 90 minutes.

14:35And so if that's at all interesting, you can go to acquisition.com forward slash roadmap. R-O-A-D map. Roadmap. for most part our customers we've started with have been with us for six or seven years on the trucking side yes on the trucking side but they also do dictate the rates like i can you know continue to raise my prices and eliminate customers which we have done but they're only willing to pay so much and it's like well if i'm selling the chemical i'm still going to get what i want for transporting it and then you're getting paid to sell it too so i don't it's just one of those things it's like the only reason i hesitate is is like it's adding it's it adds complexity to the business again given the limited context that i have like five minutes of hearing about the business like it's a huge decision but from my personal experience when i had gym launch and prestige labs i basically said oh i've got this distribution base of gyms and so why don't i just sell supplements through my distribution base which on the service level seems like a smart idea.

15:38But what it ended up doing is that it completely slowed down the growth of my main business, which was the licensing business. And so it felt like, oh, there's this big pot of gold right here. But if I took all the attention that I put into starting this supplement company and manufacturing it and distributing it and testing it and the flavors and the marketing and all that stuff and the support team that I had to do for the product, I could have taken all of that energy and just gone double down into the thing that I should have done. It was one of the bigger mistakes that I've made. And so if you already have a business that's gone from five to seven to 10, I'm like, well, maybe next year you're at 13 year after that you're at 17.

16:15I'm like, that sounds like a pretty good business. Yeah, I guess. I guess it was more of what I wanted to do. Well, if you want to do it, that's a, that's a life question more than a business question. Yeah. But how do I, how do I make, make sense to not screw my first business up? Well, yeah, that's always the, I mean, like there's always opportunities. And the thing is, is the bigger distribution base is, which it will continue to grow, the more enticing the other opportunity will be, right? The woman in the red dress, she just always is more and more attractive. The more distribution you build, the more skills you have and the more opportunities you see.

16:49Like, believe me, the amount of opportunities that I have to turn down now is sickening, but it's just like taking to the natural extreme. Can I build a hundred million per year trucking business? If the answer is yes, then what risks that? Everything that isn't that. That's fair. I mean, it seems like a simplistic way of viewing the world, but it's also really hard. But I also think it's probably the right call. I was more or less thinking of it in transportation. Most of the time for hazmat companies, once you get to where you do 15 to 20 million revenue, you get bought out. Okay. Quantix, Hennep, Dana.

17:22Do you not want to get bought out? no no i started this because a lot of you could always just keep owning it because they can't force you to give they can't force the money down your throat like no i'm just being real like i mean a lot of people take the exit then because at that point they probably have you know between i know what are margins 20 okay yeah so 20 up 4 million in ebda maybe five right and so at that point they maybe give you eight or ten on it and so most people are like okay well for 40 million bucks i'll walk away and that's why a lot of people like usually that's i mean i think part of the reason that institutional investors come in at that five ish million is that at that point is where most business owners are like, okay, this is enough for me to be done forever.

17:58And that's probably why there's a ton of M &A activity. This is me just speaking speculatively. So I don't think there's anything inherently like, okay, if a lot of people get bought out at 20, like fine, but there's also companies that get to a hundred. And it's usually just a more stubborn founder who does it for different reasons, which I actually think is a good thing. Okay. No, that gives me peace of mind. Thank you. Yeah, you bet. My name is Chase. I own a exhausted cleaning business in San Diego. So we sell like exhaustive exhaust hood cleaning, exhaust hood cleaning. Got it. So we do like grease removal from ducks, fans, hoods and restaurants in San Diego.

18:28Cool. We're at right now just hit month six. Is that like 18 wheelers, like semis that you do that on? What is that? We just have like a van with a hot water pressure washer and something cool. Roll it, roll in the restaurants. Guy with water and truck. Okay. Oh, so restaurants. Okay. Got it. Yeah. Yeah. Yeah. So like in all the restaurants, there's a hood system above where they cook yeah grease in there it's like a fire hazard so everyone has to legally do it yeah it's a great business i it was described to me differently in a different setting so yeah it's a cool business that's why i kind of pun intended or else people are like what the hell are you talking about yeah so we just hit month six we're doing like 6k a month right now okay but we have people on it's a subscription-based business so our book right now for like yearly recurring revenue is like right around 100k cool i think what's stopping us right now is just like not a clear offer right because i deal with restaurant owners who only care about their bottom line it's like a money thing they're like business owners yeah true they're like well if you can give me a better price i'll give you a shot and right now i'm just like the hungry kid that's like yeah i'll beat your price easy right so i think what's stopping us is figuring out pricing and offer with a service that more or less is the same no matter who you go with but we have added value adders with like customer portal streamlining back in support things like that if that makes sense so you say that to the business owner say that to the business owner how so keep me there's good fast cheap pick two and so the problem is you can have somebody else who can do this like to your point like you started with the premise that this is a commoditized service I would just break, I would just erase that from your memory.

20:08Because at the end of the day, like you have to believe, you have to believe before anybody else that it's not a commoditized service. And so I would say, what are all the reasons that somebody who sucks at this sucks? And let's fix all of those things. And so what's really interesting about good, like what does good even mean? Right. So good is basically the absence of hard. Right. And so I think about this when I'm creating a product or service, and this has actually been really helpful for me in terms of like how you operationalize value in terms of quality is you think, what are all the things that suck about the existing services?

20:40What makes it hard? And so a lot of people use the term friction, right? And so something that is easy, you can't make something easy. You can only make it not hard, right? Like if I said, make it easy. It's like when something's easy, all the hard vanishes and all that's left is the outcome, right? And so if we want to make our products to services easier, which then means more valuable, we have to remove all of the elements that make it sucky. And so if we're thinking about the competition that you're competing against, like maybe a lot of them are, you know, not that personable. They may be of terrible service.

21:11Maybe they don't do a complete job. Maybe they're not willing to come back if something happens. Like, is there like, what risks does the restaurant incur if it's a shoddy job? Is there a cadence that they have to like, maybe we can treat it in a way that allows us to come half as frequently. So we're more per, more per cleaning, but they, they don't have to pay it as often. Right. So we have higher gross margins and that actually works fine for us. And it's less for them. Like you're, I'm going with this. Yeah. And then, and then from a, from an economy of scale perspective, it's like, how can we increase now you're super early on this, but like over time it'll be, how can we increase route density so that like, we don't waste as much time.

21:45And so we get more efficient with the routes and we can ultimately make more than our competitors or at least increase our gross margins. Even we keep our price fixed. Right. That makes sense. One more question. So everybody has to get it done at least twice a year. So we're signing people a year agreement anywhere from twice a year. Some people do quarterly, some people do like three times a year. So based on what you just said, would you recommend potentially going more towards just pushing semi-annually, but keeping price higher so that they feel like they're paying less over the year? Yeah.

22:13I would look at my gross margin. I mean, real, real, I'd rather sell someone more. Start at four, down sell to two if you can, and then probably play with payment terms, which is like, can I stack more of that cash upfront versus getting paid quarterly? you know. Pay in full upfront. Yeah. Okay. Gotcha. Cool. But big picture, I mean, we, I, like if I'm you, I'm putting all my effort into trying to figure out how to decommoditize my service. Um, because it is probably the most important thing. Otherwise you're right. You will just consistently be dealing with, if you are the same to the customers, the first chapter of offers, right?

22:47Like if you're the same thing to the customer, these two things are about the same. I'll buy the cheaper one. It's the worst comparison. It's not the fight you want to fight. so it's like i put all my effort whenever i start any business or any product line into like why is this different like that's my full like i don't even think about pricing i don't think about anything until i answer that question and i have to at least be able to articulate it to them really simply which is like here's the five things that happen that suck here's how we don't have any of those five and for that in exchange instead of paying this you pay this but this is why it's worth it right and then in that our only form of outbaring now is just like door to door knocking restaurants and the cold email so then building that offer out with the decommoditized that's even a freaking word and then put that into the offers the emails the text the cold outreach basically and just sell the shit out of that sell the shit out of it heck yeah

23:43kyle i sell outdoor lighting to homeowners we do 880 000 revenue about 40 is in the holiday season doing Christmas lights. The problem is we don't have enough leads in the not holiday light time of year. So the first half until basically now. I've fixed this business so many times. Do you want to just walk you through it? Yeah, for sure. Okay, cool. So basically you have one kind of existential decision that you need to make, which is, are we going to be full-time lighting, which there's nothing wrong with that? Look at the Halloween store. They're open two months a year and they just murder it and that's all they do, right?

24:14The alternative is that you basically have a home team that goes from lawn care and other home services to lighting because the lawn care guys have the equal opposite issue. They're like, okay, well, there's grass that's growing nine months of the year and then it's holiday season. And what do my guys do for three months or four months, depending on whatever geographic area you're in, right? And so I tell you which one I prefer. I prefer the keeping the holiday season business year round. And I'll explain why, but either option works. I just want to be really clear about that. I like thinking about it.

24:45How many months of the year are you doing the lights? Three? Yep. 45 days. Perfect. Yeah. So instead of, so the way I think about it is how can I take, how can I equip my existing team with as many skills as possible so that the other 10 months of the year, all they're doing is getting business. And so like the perfect business in the world is you sell all year and then you'll have to deliver for this much. It's an amazing business. You just collect cash all day long, collect cash, collect commitments, collect cash, collect commitments all year round. And then you boom, and you basically earn the living over the next 45 or 60 days, and then you go back into the sales cycle.