247. The Secret to His $200M Home Service Business

0:00Ryan Atkinson:Hey, Upflippers, we have a great show for you today. If you've ever wondered how to scale a home services business, today we are going to find out how. I'm Ryan Atkinson, and you're listening to the Upflipped podcast, where we learn how great businesses are built, how they're run behind the scenes, and how you can replicate their success. And today we have a special guest in Tommy Mello on the show. He's the CEO and founder of A1 Garage, which is worth more than$220 million. They're in 22 states, have over 700 employees, and he's been named a top entrepreneur in Arizona under the age of 35. Tommy, welcome to the show.

0:31Ryan Atkinson:I'm super, super excited to have you on. Glad to be here. Let's rock this thing. You are bringing great energy, and I always appreciate that. So this is going to be a great episode. But we're going to start in college. Let's go back to Tommy in college at the University of Arizona. And you get involved with painting and then fixing garage doors. How did you say, like, hey, I'm actually going to paint garage doors as, like, a college gig? Yeah, that's a great question. So I'm from Michigan. Originally, mom and dad got a divorce when I was seven. So only thing I knew how to do back then at that age was shovel, snow and mow lawns.

1:02So I've always been a hard worker. And I lived in this house and the rent was$700. Me and my other roommate paid$200 each. And the other guy paid$300 for the master. And Sean was like managing this garage door company. He goes, dude, I can't find a good painter. And I was like, garage doors break. I just kind of always made fun of him. And then he's like, listen, Tommy, you're a hustler, man. and you work your butt off. I was bartending. I was flipping bow flexes. I was flipping cars. You name it, I was doing it. I sold shoes for women at Dillard's. I just always was doing jobs, working double shifts, whatever I had to do to make a lot of money.

1:36The harder I worked, the more I made. But I didn't have a real business. But he's like, listen, would you consider painting garage doors if I got you$100 a door? You got to cover the paint. And I'm like, how many can you do a day? He's like, yeah, two or three. So I hired a painter to teach me this old man. He was a pro painter, had all those machines. So he taught me how to feather on the paint after three tries. I went to Home Depot, bought a Magnum 5, bought Speed Coat, which is a glitted. It was$12 a gallon. And I got to the point where I could paint 10 doors a day. So after it cost, I was making$8.50 a day.

2:04I drove a G20 Infinity, 96 G20 Infinity, put everything in the back so it was good on gas. I had a whole process. I do it Saturdays and Sundays, make about$1 ,700 profit. I was meeting up with these technicians. This is 2006 and 2005 and 2006. These guys were making like 80, 90 grand. This is before the housing crisis, right? This is when it was like the peak market in Phoenix and Vegas and everywhere. And so me and my other roommate decided to start a business. And we realized really quickly that it wasn't as easy as it looked. Got into the yellow book because it was like the last year they were actually meant something.

2:38And it was tough, man. We made every mistake you could think of. But now, you know, the business is actually worth$1.4 billion today. We're going to do north of$260 million in revenue. Wow. And really what it is is we're at 24 % profit. And when you look at that number, there's a multiple of that. It's called EBITDA. And so we're going to ride this thing up over$2 billion. And I always tell people in my playbook because they're like, oh, I'm going to get into garage drawers. Then they do. There's no company that I think can outperform what we're doing. We're a technology company that happens to do garage drawers.

3:07I mean, we're playing in a different league. We're like five moves ahead in chess. And these guys are just trying to get on the checkers board.

3:13Ryan Atkinson:I love that. Well, I want to add context, layer context onto this as well. How old were you when you started this business? because obviously first business, people are going to make like a crap ton of mistakes. Like they don't even know what they don't know type of thing. But how old were you when you started this business and started to scale it? I formed the LLC when I was 23. I'm 41. It's almost two decades ago. And so you're making a ton of mistakes at the beginning here, but you are developing this playbook to actually scale it. And let's talk about that playbook. What have been like the two or three most important things within that playbook to like really grow A1?

3:42What we did was in 2008, I met this guy. I was his friend, but he was a CPA named Aaron. And he goes, he only worked with 10 clients. He was like, he fired all of his clients and only worked with like these massive, massive, massive, you know, multi, multi, multi-millionaires, very wealthy, affluent clients. And I met him and he goes, why don't you come into my office? He goes, you know, I probably wouldn't even take you out as a client, but for some reason I like you. Like, I feel like you got a lot of potential. Like I see something in you that I don't see in a lot of people. And I think you're going straight to the top.

4:11I really believe you'll be on a rocket ship. And so he handed me this book. He said, this is called The E-Myth Revisited. He goes, what's the last book you read? I was like, maybe To Kill a Mockingbird or Lord of the Flies. I don't know. It was an article. And so he handed me the book. I devoured this book. I gave it back. It was like I bought it for myself, too. It's like the Bible of home service or just business in general. Run it like a franchise model. Michael Gerber, he was amazed. So he said, this is our red Bible. This is called The Ultimate Sales Machine by Chet Holmes. Read that overnight.

4:38Then I read The Richest Man in Babylon. lot. And he got me like reading every week, every day. That was the beginning. 2014, read a book called Rocket Fuel. Gina Wickman and Mark Winters figured out I needed an integrator, hired Adam. My mom and stepdad work for me. Amazing people. This is 2010. They moved out to help the business. I separated from my partner, got a master's degree. 2014, got the right hand, the integrator, Adam Cronenberg. Went through five CRMs, finally pleaded to get with service type. They would not let any other industry on. I got ahold of the CEO, the founder, and Ara said, I'm going to take a chance on you like everybody else seems to take a chance on me.

5:14I don't know why, but they take a chance. They take a calculated risk. And I told Ara, you bet on me, I'll have more technicians than all the other garage door companies combined. Give me a chance. And he believed me. He sent out 10 success managers, got on a service title. Then I started my podcast, The Home Service Expert. This guy named Al Levy came on, the seven power contractor. I got the book. And Al Levy, I was 17 million when he found me and he said there's no systems there's no manuals there's no standard operating procedures you're running this business kind of blind you're not making a lot of profit he's like let me help you so we built the manuals the standard operating procedures the checklist we put systems in place and i stopped being a firefighter and he comes to me one day he gives me this black and white piece of paper he goes i took a picture of your truck he goes it's black and white tell me what you even do from this picture it doesn't scream what you do and i said you're right.

6:02It's not very good, is it? And I had a lot of pride. And so I got to 40 million and I went to this guy, Dan Antonelli. He wrote a book, Branded Not Blanded. And I redid my logos and my website and made everything match. And my ticket average went through the roof. I was 40 million and I decided to rebrand. And people lined up to work for me. Clients started knowing that I'm the best value, not the lowest price. Everything changed after I rebranded with KickCharge. And since then, I'm on Power BI. I'm using Rillo Voice. I'm using Chirp, all these technologies, this AI, this machine learning. Like I said, now I care so much more about the people that I work with because if I focus on them, I wrote the book Elevate, build a business that everybody wins.

6:42I feel like if I put them first and I focus on their dreams, my dreams come true as well.

6:47Ryan Atkinson:That's what I think with Spacebar Visuals as well. My own agency is you win if your people win. It's not the other way around of I need to win first and then everyone else wins. It's like, no, my employees win and ultimately our business wins. So I feel like it's putting their needs in front of like your needs almost to make sure like they're set up for success in the most ways. And I feel like a lot of synergy is there with like what you've done and like how you lead. There's this old story you probably heard of. This guy shows up. He's got a pool company. His guys are putting in this pool and he pulls up with this brand new Ferrari and they go, man, that's a beautiful car, man.

7:18I wish I could have a Ferrari like that. He goes, listen, you work hard every day. You show up. You just put all in. You work when I need you to work. You pick up a weekend shift. You do everything I need you to do in one year. I'll have a new one. And that's what most owners think, man. You work hard for me. I'll continue to live great, but you're going to stay in the projects. You're going to be on section eight. You're going to be struggling. I created a path for true wealth in this business. I got 25 technicians that are like my boys, my brothers that have equity in the company. And there's a chance for everybody to get equity in this business.

7:51Ryan Atkinson:Yeah. I'm curious. So when did you start doing that equity in place? Was this from like zero to 1 million? Was it after 25 million? Or like, when did you start to identify, like, if I'm going to scale this thing to the next level, like my employees need to have ownership in this as well. So everybody that I've ever met does equity after they do their first deal, when they get a sponsor, when they get a PE company, when they do a strategic partnership. It's easy to take this profit and say, I want to give you money so you stay on, right? I did it pre-doing a deal. So I did it when I was 12 million of EBITDA, ran up past 27 million after I gave equity.

8:22I wanted everybody rolling in the same direction. I wanted to have a stake and the outcome. I wanted the sprinting of my goals. And that's one mechanism to do it, but it's difficult. Like you need a great lawyer and I've got a plan through home service freedom that it's a 10th of what I paid, but it's expensive. And the way that it works is there's this threshold. Like let's say your company's worth 10 million today. The equity incentive program, if I gave you 1%, let's just say I gave you 1%, you're my CFO and the business goes to 100 million. You'd make money on that 90 because the 10 automatically, like for tax reasons, belongs to like me.

8:53And then now you got to stake in the growth. So 1 % would be of$90 million is, you know,$900 ,000 if it got to a hundred million. And I gave away over 20 % of the business to 25 people and lots and lots of millionaires came out of the first deal. I should have a hundred millionaires come out of the next deal.

9:10Ryan Atkinson:Dude, that has to be so like rewarding as a business owner, as an entrepreneur to like make so many millionaires, essentially. Some people are just like, I'm happy to pay people's paychecks, but to make someone actually a millionaire, I think is super interesting. And I want to kind of hone a little bit more on like how you scaled your business at each stage. So could you kind of elaborate on like some of the key marketing strategies that helped you guys become like a national leader? Because some people listening are like, holy heck, I want to do this. Like, how do I do this? But like, how should I market this?

9:37Ryan Atkinson:So can you talk about some of those key strategies that helped you scale at high level at like each stage, essentially? Yeah, well, I became infatuated with Google right after the yellow book failed. I learned there's four algorithms on Google now, pay-per-click, local service ads, the local GMB, Google My Business page, or GBP, and then there's organic search. I'm obsessed with every single one of those things. I'm obsessed with review, user-generated content. I'm obsessed with reputation management. I'm obsessed with figuring out the algorithm and feeding it what it needs. I've got this company my buddy started called PinParrot, pinparrot.com, and I started to work with him six weeks ago and he pulls out of my CRM and posts this content automatically from service site onto my page.

10:18And I've doubled the phone calls. Like I've doubled the calls from my GMBs. If you look at the pins of my rankings, it's spreading out. It's all green in the number one spot. Like these are the things I'm the early adopter. I test things at AB test, but Google's where you go for demand. You don't go to Facebook when your toilet doesn't work. You go Google plumbing repair or whatever your city. So I became obsessed with marketing. I'm a marketer. That's my number one thing. I'm a marketer, number one. Number two, I love sales. And then right equal to sales, I'm a leader. I'm a culture. I'm the glue.

10:47I'm the good cop in this company. And I've got the vision. And people are following that. So I think I AB test. People say they tried Valpac and they say it didn't work. But I went all in for years and figured out how to make it work. And AB tested hundreds of variations of different offers. And I still do that on a monthly basis. TV, radio, billboards. Once Google's doing its job and all four algorithms at the top, Then you do TV radio billboards for brand awareness. And what happens from there is you get a higher click-through rate. You get more people searching your name. You get people. It's just this omni approach to being kind of everywhere.

11:20But a lot of people, what they do is they spray and pray. They're like, try this. We'll try that. And they get so much of this ego. Oh, yeah, people are talking about me on the radio. But nobody remembers who you are. You did it for two months. You didn't go all in. And they kind of sprinkle stuff around. And they never really get focused. They don't have the KPIs. They need these four KPIs to win. What's your booking rate in the call center? What's your conversion rate? When I knock on your door, how many of those are you converting to sole jobs? What's your opportunity job average? And what is your cost per click, your cost per acquisition?

11:49You got those four KPIs. This is how I buy companies. This is how I build my budget. This is how I can fix any company on the planet with those four KPIs. And my numbers are down to a science. Like I know my booking rate down to the decimal. I know my conversion rate. We just did our meeting with Cortec, who's our sponsor. 99 pages of data looking at what's our turnover rate per market how many guys we hire what's our capacity planning how's every single source of our marketing working in my call center what's my booking rate what's my average time to book it was five minutes and 47 seconds that's my booking to average time on the phone like the data i took advanced calculus it's not crazy i used to carry a ti-83 in my back pocket like it's all a formula it tells me where to be working today and a lot of people are like as long as there's money in the account i guess i'm doing good i'm like i'm a data guy.

12:34Ryan Atkinson:That's interesting. I feel like what I'm hearing from there is like, know your metrics, know those four KPIs and like live and die by those KPIs and always looking to improve them. When it comes to like the conversion rates one, I'm curious, like what are the numbers that you are looking for? People are like, yes, like those are the numbers I will live by. If Tommy's living by them, what are like good numbers for you? So on service, if I'm going to ring the doorbell, which I never do, I always say friends knock the door, strangers ring the doorbell. But on a service call, I'm getting more than 90%.

13:02We only consider over$100 a conversion. We put our conversion rate as over$100 because the service calls 39. So I'm looking for a 90%. We're at 94.3 % right now. I don't even want to walk away from that other 5%, but not everybody's our client. Not everybody's like make a deal, Charlie. So like we're marketing more to the affluent, the people that actually want to fix it the right way. They're not looking for a bandaid. And then in sales, for door sales, we're looking for a 60 % plus. That's new sales, new equipment. And I always tell people when you get far above 60%, raise your prices because you can't service everybody.

13:36So that's what we're attempting. We've got a whole eight-step process to make the customer satisfied, but it works every time to convert the client and it ends up helping the client out and helping us. And we got a five green lights to convert service to sales. And we're at 73 % conversion on service to sales when we do transfer it to our product specialist. If it's a better opportunity for the customer to replace their door, we bring it up because there's some really beat up 15 year old doors that are falling apart. It's not worth fixing it.

14:02Ryan Atkinson:Let's talk a little bit more about like a small business owners looking to expand. What like key advice would you give to them that are wanting to expand like their operations geographically? Because you're in over 22 states, like you have done this successfully many times, you advise people, you've consulted people. How would you advise people to expand that are looking to expand? Well, everybody's like, I want to be like you, Tommy. And I'm like, well, I lived in an apartment for five years. I own the apartment complex. I drove a used salvage title titan with 180 000 miles on it i decided everyone will have a new truck before i get one you know it takes delayed gratification i just want to tell people this isn't like you start a business you're going to spend five years just to sweat equity like it's not easy your chances of failure are over 90 your chance of getting over a million dollars are slim to none so it's not for the faint at heart but what i can tell you is as far as when you're trying to expand own your own market own where you go to church own where you have friends a lot of people they don't have any market share and they decide to expand.

14:56If I could go back in time, I would have said when people say garage doors or if you do hot water heaters, like your name is like, that's the hot water heater. That's the plumbing company, right? Like don't be small before you expand. Own the market. You're not going to take lots of market share from where you live because it's harder when you're two hours away. That's the next advice. Pick your next market that's big, that's close, that you could drive to if something goes wrong. So I did Phoenix, then I did Tucson, then I did Milwaukee because I spent a lot of time there with my sister. She's six years older, So I'm like, I spent a lot of time in Phoenix.

15:25Where's the next time I spent time with my niece and nephews is in Milwaukee. So I was flying out there all the time. It just made sense. But if I go back in time, I would have said, own the market, be big, be the number one player in that market before you expand.

15:39Ryan Atkinson:So how did you identify like markets you want to go to? I know you just said like two hours away in Milwaukee as well. You had family there. You're spending time there. But was there actually your data guy? Like what numbers were you looking at? Well, before it used to be, I wear a blindfold, go to a map and do pin the tail on the donkey. Now I'm like very, very analytical. I look at how many new home bills, what's the average credit score, what are the competitive analysis, what can I do on Google. We pull in 20 data streams to kind of identify like we're not going to a market unless we can get to 3 million of EBITDA.

16:05And we look at the competitive analysis and quite frankly, if there is competition there, it's better for us because we kick the competition's ass. There's a lot of private equity guys getting in, these white collar guys, these Ivy Leaguers. They do not know what they're doing when it comes to blue collar. They're great at numbers. They understand the right decisions to make, but they have no heart. They have no EQ. They have no passion. They don't know how to talk to somebody that didn't have a mother growing up or to have a father growing up. They don't know how to talk to somebody that never knew how to build a budget.

16:30So they kind of think that it just doesn't stink. And I don't believe that. Like, I know I am a blue collar guy. I was the guy fixing the garages for eight years. So that's the missing piece that everybody doesn't understand if they're super smart. They're just personalities suck. They care about themselves only. Yeah. They're just trying to win. They're trying to get ahead in the rat race. They got to look out for other people. And that's why the smart guys getting into this, they don't stand a chance. and the blue collar guys, they got to learn some of these white collar ways of like using numbers, using data, looking at financials and you got to kind of mesh them both.

16:59I'm like a hybrid of both.

17:01Ryan Atkinson:Yeah, I feel like you have to like walk that line of being blue collar because this is like a blue collar business at the core of it. But like you also are using data like everywhere and like using technology where that leans a little bit more like white collar. So I think it's super important for any entrepreneur that's wanting to get started. Like you have to one, have EQ as what you talked about, but be able to walk on both sides of the line and be able to see both of those sides. It's going to be tough. Listen, if you guys think I'm going to do garage doors, we're on an island. There's HVAC companies.

17:25There's about 25 HVAC companies that are doing well over$100 million. The garage door companies that are doing great, they do commercial. Other than that, there's nobody doing what we're doing because it's a small average ticket. You've got to understand, we're taking 20 ,000 calls a month, running 16 ,000 opportunities. 16 ,000 a month. You get to the point where you could run. It's not easy to rebuild. If I could go back in time, I would have said, what has the biggest average ticket? Like flooring, HVAC, plumbing, electrical, roofing, solar. I want Windows. I want to go after things with a massive average ticket because there's 500 competitors to get groceries.

17:56People are like, oh yeah, you don't know my industry. It's more competitive. I'm like, yeah, BS. It's all competitive. It's all tough. Money will find a way. Google pay-per-click. You know what to search because you know where people are spending money. Money kind of shows you where the money's going. If you see an ad in the Yellow Book and it's a big company, that ad's working. They have attribution. Success leaves clued. You see the number one guy on Angie's list? That dude's making money off of Angie's list. You see a guy posting a thousand ads a day on Craigslist, that guy figured out a way to make money off Craigslist.

18:23It all works. It just depends on your playbook.

18:26Ryan Atkinson:I feel like a lot of times what we do here at Spacebar Visuals is like we look at like, what are our competitors doing? Because like we're in video production, like we're not the first mover in this industry by any means. But when we look at our competitors to see like what they're doing, we get a good idea of like, oh, like maybe they have done this successfully and we should consider doing this as well. So I feel like it's super important to like kind of evaluate like what the competitive landscape looks like? Where are people spending money on Angie's List, Craigless, and find ways to make it work for you as well?