By Ron Coleman
It has been 39 years since I started my own business. Reflecting back over those years, I asked myself the question, “Was I a poor businessperson, an average one, a clever one, or a wise one?”
I haven’t answered that question about my own business yet, but I do believe that I am in one of the latter two categories. Even though my specialty has been helping skilled trade contractors increase their scale in terms of money, lifestyle, and exit strategies, I have often found it difficult to take my own advice.
To get a clearer answer to the question, I reflect back on the contractors whose lives touched mine and see what traits put them into one of those four categories — poor, average, clever, or wise. I’ve named them all Joe: Poor Joe, Joe Average, Clever Joe, and Joseph Wise.
Poor Joe
To set the stage, Poor Joe has just turned 64 and is contemplating retiring. He has run his own business for 28 years. His back aches a lot these days. His enthusiasm has waned, and bending down to change a thermocouple is about as exciting as a wet week. He’s become a lot more cynical. He’s also frustrated with the lack of money that he has put away for retirement. It’s not going to be as rosy as he hoped. His relationship with his kids is not the best and his wife complains that he puts all his energy and time into the business, keeping none for her and the kids.
Poor Joe is an HVAC contractor. He services and replaces residential systems, mainly single-family homes and some townhouses. He has always had at least one helper and at one point even had two other journeypersons working for him. Now, he is back to himself and one apprentice and bills out around $450,000 a year. He makes about $90,000 in wages and puts lots of expenses through the business. He’s his own boss and the business makes a small profit most years.
Now that Poor Joe is thinking of retirement, he realizes that there isn’t much to sell. His apprentice certainly won’t buy the business. Poor Joe realizes that after all these years, he didn’t really own a business, he had bought himself a job.
Joe Average
Poor Joe phones up Joe Average, a former employee. Joe Average worked for Poor Joe for seven years and even did his apprenticeship with the company. Shortly after getting his ticket, he started getting frustrated with the work environment. Poor Joe always seemed to be on top of him, criticizing the way he was doing things, and claiming not to be making money on his jobs. Joe Average decided he could do better on his own. He knew the mistakes that Poor Joe was making and wanted to learn from them.
So, he leased a truck and started out on his own. He found a good apprentice, trained them well, and developed a good working relationship with him. Joe Average made some decent money, not great, but decent. He had four journeypeople working for him. One stayed for 15 years and the others tended to turn over every five years or so.
Joe Average kept in contact with Poor Joe and knew that he was doing better than him and would be able to retire and have a reasonable lifestyle. He was able to put his kids through college and his wife worked part-time in the business. Joe Average felt like life was pretty good. He was quite surprised when Poor Joe approached him about buying him out. Joe Average liked the idea, but he didn’t feel he had the cash to finance the deal and the extra work, so, very reluctantly he passed on the offer.
Clever Joe
Clever Joe was one of Joe Average’s best apprentices and stayed with Joe Average for seven years. He then launched his own business, feeling that he was not being fairly rewarded for all the effort he put in. When Joe Average passed on the deal with Poor Joe, Clever Joe snapped it up at a bargain price. He had money put away (after all, he was making an average of 10 per cent pretax profit on sales each year) and also had systems in place to manage the work.
Clever Joe had grown to eight mechanics and was taking about six weeks of vacation a year. At 48 years of age, he felt that he had established a very nice residential service business and that Poor Joe’s addition would be an added bonus.
Clever Joe was great at troubleshooting, he knew that there would be problems in Poor Joe’s company, but he knew that he was clever enough to overcome them. He was about a year into the process when Poor Joe let it drop that Joe Average recommended he talk to Joseph Wise about buying the business instead of Clever Joe. After some deliberation, Joseph Wise turned down the opportunity and encouraged Poor Joe to approach Clever Joe. Clever Joe couldn’t figure out why Joseph Wise had passed on the deal. He felt that he had gotten one up on Joseph Wise.
The new addition was working out fairly well. It was more work than Clever Joe thought but he would get through it and get his margins back up.
Joseph Wise
Joseph Wise looked at the opportunity to buy Poor Joe but decided that it would take more effort than it was worth to make the acquisition.
When Joseph Wise heard that Joe Average had passed on the deal to buy Poor Joe, he knew that the next company coming up for sale would be Joe Average. Clever Joe wouldn’t be able to buy him because he would be too busy digging himself out of the Poor Joe mess. This meant he could approach Joe Average and make a fairly low offer. He did this and was able to purchase Joe Average’s company for only a little bit more than what Clever Joe paid for Joe Average’s company.
By combining the two operations, he got his pretax profit up to 14 per cent of total sales. Joseph Wise adopted one technician who was threatening to quit and start his own business, but instead, he gave him the opportunity of running the new acquisition, with a bonus package for getting good results. This was a real win-win situation.
So, what’s the difference between clever and wise? A clever contractor will work his way out of a situation that a wise one wouldn’t get into in the first place.
I know in my business I do a lot better than Poor Joe and Joe Average, but I am not sure whether I am clever or wise. You are now clever enough to know the difference. Are you wise enough to make the right decision and take the necessary actions? Without action, there is no change.