Paul Giannamore: The problem people run into is when they're providing Ritz-Carlton services at Courtyard prices.
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Patrick Baldwin: Morning, gents.
Seth Garber: What's going on?
Paul Giannamore: Morning, Fat Pat.
Patrick Baldwin: I feel like I'm playing catch up getting all fit, riding the Peloton, and working out because Hawaii is a week away.
Paul Giannamore: Gotta look good for these Hawaiian chicks, Fat Pat.
Patrick Baldwin: There are a lot of sweets out in Hawaii so I'm going to get fatter. I'll be Fatter Patter.
Paul Giannamore: What do we have on, Fatter Patter?
Patrick Baldwin: Thanks, Paul. I had a conversation at breakfast with a pest operator here in Texas talking about accommodations. It's serviced on different frequencies, call ahead for this, text for that, one day before, or five days before it gets spread out. He's realized, “I wish I could go back and have offered one service and one way to communicate then things would be a lot easier for me.” I thought this was something we should chat about, guys.
Seth Garber: Before we dive into this, Mr. Patrick, do you have a Stanley Cup in your hand?
Patrick Baldwin: This is YETI. Why do you gotta be judging like that?
Seth Garber: I felt like you might be a Stanley Cup kind of guy.
Patrick Baldwin: I don't know a guy that has a Stanley Cup. Is that even a thing?
Seth Garber: I was getting a little concerned about it for you. I know there's no way that Paul nor I would ever own a Stanley Cup.
Patrick Baldwin: You've got one in the mail.
Paul Giannamore: I've never played hockey in my life so I'm not sure why I would have one. I'm not particularly athletic. I don't even know what a Stanley Cup is outside of an award.
Seth Garber: A Stanley Cup is one of those things that all of us wish we invented because it became the kind of cult following for all of the moms and 20 or 30-something ladies in the country. Everyone has a Stanley Cup, they‘re these obnoxious and large like YETI cups with a handle on them. They cost $50 or $60 bucks. I couldn't tell you how much money I've spent on Stanley Cups for staff members and internally in my house now. I thought Fat Pat might have one. I've never used one of them but I do have twelve of them in my house.
Paul Giannamore: We can't see down below but I bet he's wearing yoga pants.
Patrick Baldwin: This is wonderful. Good morning.
Seth Garber: Are you talking about Fat Pat because he's getting ready to come to Hawaii so he's been on his yoga pants or are you talking about me? I do wear yoga pants.
Paul Giannamore: I'm talking about Fat Pat.
Patrick Baldwin: I did see those cropped pants that you wore, that's wonderful.
Seth Garber: It's good. Exceptions.
Patrick Baldwin: Speaking of exceptions to dress code, what about exceptions to pest control?
Seth Garber: There's a bunch that I kind of think about right off the top of my head and this is what we see all the time. We see stuff that's like, “Give me a special type of reminder. I want a preferred technician. I've got a special billing request. Remind me of whatever it may be. I need you to schedule me around XYZ. You need to send me a quick note before you come to my house.” There are a ton of different ones that we deal with. Companies inherently want to try to please the customer but they forget about the concept of building the right business that makes them the most profitable. That's the first thing that I start to think about around it.
Patrick Baldwin: One that I thought of now as you were saying that list of things was preferred technician. When we got a preferred technician, we said, “You can send anyone but that technician.” Call us jerks, but we wanted to build a business and not build that direct friendship and relationship and see if we could grow the business without having a preferred technician and it worked.
Seth Garber: It's pretty neat. If we start thinking about it at the highest level, a customer is going to call into a company and they're going to talk to a CSR. Typically, the profile of a CSR is they want to be pleasing to that customer. What starts the challenge is the customer says, “Can you do this? Can you do that?” The CSR says, “Yes.” Sometimes it's okay to say no because it creates a huge amount of inefficiency over time as companies scale up.
Patrick Baldwin: Do you disagree with my preferred technician?
Seth Garber: I hate the concept of a preferred technician. Let's think about this in terms of growth, size, and scale. Companies start up in business and they want to do anything they possibly can to get customers. People will reach out and say, “Should we be the low-cost leader or should we not? Should we get paid what we're worth?” Frankly, people have to be able to pay their bills. It starts there. As companies start to grow, they have all these nuances to what they're doing for customers in order to get the customer.
The preferred technician, when they get a little larger, they've got a handful of technicians. Typically, what we would see is a preferred technician starts as the owner. The company gets to the 2nd route, 3rd route, 4th route, and the customer is like, “I want Pat to be my technician because Pat's the owner and I've always reached out to Pat directly.” That's where the problem all starts. I hate preferred technicians because the reality is that I want customers to buy the business and buy the service, not buy the technician because it causes problems.
Paul Giannamore: When I think about what Fat Pat is saying with exceptions, this is a business strategy decision. It's almost, in my mind, like, “What company do you want to run?” If I think about the Marriott brand, there's a myriad of Marriott brands, you've got Courtyard, Ritz-Carlton, TownePlace Suites, and the whole nine yards. You can draw a distinction between a Courtyard, which probably everyone in the United States has stayed at one point in their life.
There's a box, so to speak, and there's only so many things that you can get within that Courtyard versus Ritz-Carlton. In Ritz-Carlton, you walk in, they remember what you had for breakfast the last time you were there, you want X number of slippers in your room, and you can make any requests that you want at the Ritz-Carlton. To Seth's point, the CSR or the woman at the front desk will make any attempt to satisfy you. That's not going to happen at Courtyard, it's just not their business.
In the service space, there's an opportunity to be systematic and repeatable. There's a box in which you operate and you don't deviate from it. There's also an opportunity to go out there and be accommodated but there's a price for that. If we think back to our discussion with Jim McHale, one of the things that he did at JP McHale way back in the day is they started their high-level concierge service, so to speak.
If your average pest control customer was paying $400 a year, at the time, if you had this concierge service, you were paying $1,000 a year. With that, you got at the drop of the hat, two-hour dispatch, and a technician will come out. You want a reminder, you want this, and you want somebody to wash your car while they're doing your pest control. They would do it right. There were not a whole lot of requests that were off-limits but you were paying for it.
To me, it's a business strategy decision. What sort of business am I running? Am I running a Courtyard? If you are, that's great. The majority of them are running Courtyards and that's what you should do because it's easier to get scale when you're running a Courtyard. You're running a Ritz-Carlton, you're more boutique, but you're able to charge more. In theory, you should have higher profit margins. The problem people run into is when they're providing Ritz-Carlton services at Courtyard prices. That, for me, is a simple guideline as to how you should think about your strategy.
Seth Garber: That's the best analogy I've ever heard around these exceptions. It's as true as it gets. If we took a look across all the companies that we work with, and we do have some that run these concierge programs, it's exactly it. They get sold on the phone. The customer calls in and it's called platinum or whatever service we're selling and they sell them at crazy high values and a certain percentage of the population will take them.
The thing that I found interesting about it is the population that's buying them is not the richest population. The population that’s buying it is probably a lower-level customer and it's sold well and they are a lot more profitable. I still prefer to run a business that fits nicely into it, a nice, clean little box that has multiple types of services but they have one type of communication process. They schedule the technicians in a specific way and the customer either fits their business or they don't.
If they don't fit their business, they don't take them. If they do fit their business, great. If they don't, they just go to another customer. The Ritz-Carlton example is a great example. The biggest thing is that too often we're thinking about going, “We need to give the customer that experience,” that you're describing because it makes them happier not because it's right for our company. That's what it comes down to. What are your thoughts, Patrick?
Patrick Baldwin: I'm curious if you can share the demographic of that concierge-type service. I assumed it was a higher discretionary income but, apparently, it's not.
Paul Giannamore: Martha Stewart was one of the customers of JP McHale who would get that concierge service.
Patrick Baldwin: I would say she's doing well. She makes extra money on the side.
Paul Giannamore: She's got a lot of side hustles going on.
Seth Garber: I would think about it, right? You sell to a high-profile person like that. We're never talking to Martha Stewart. Whoever their house manager is calling in and buying whatever service you tell them, which is great. The interesting thing is we have concierge services, people who sell concierge services in Texas, Virginia, and New York, and there may be another one that I'm forgetting about. In all those markets, there are high-value markets with the exception of Texas, they're definitely the upper-income level markets.
The people that are buying tend to be in the neighborhoods, we'll call them the bougie neighborhoods. The people who are super sucked into the Jones effect sales process where everyone's got a fancy car, and the homes are medium expensive. I know off the top of my head and one of the markets that I told you, there is a neighborhood that's a little over a hundred houses. In that house, we've got fifteen people that buy this three $399 a month service. It's crazy, $399 a month. It's fifteen people small.
The interesting thing about the $399 service is any pest control issue you have, any animal issue you have, you call them and they get somebody out there the same day. The funny thing about the whole thing is these people would never call. They get signed up, they buy the service, and Paul's going to love the economics of this. They do a quarterly service that they come out for but they'll come out the same day, any day.
They never get phone calls but the people call in, they take the call, they're identified in the CRM, and they make them feel good, “You're a member of such and such program. Thank you for your business.” To your initial analogy, Paul, if you think about when you walk into a Ritz-Carlton and you're walking around, it still blows my mind that they refer to you by name as you walk by them. It's almost that kind of level of service. It's pretty interesting. That's how they do it.
Paul Giannamore: I would say on the topic of Ritz-Carlton though, the South Florida Ritz-Carlton are dumps. I was in Florida and it's Coconut Grove and I went to this Ritz-Carlton, it was horrendous. There are multiple Ritz-Carlton in the Miami Metro and in recent years, I've now been to all of them and I have not been impressed by any of them. I'm assuming you've been to one of them, Seth?
Seth Garber: I have.
Paul Giannamore: Have you been impressed?
Seth Garber: It's funny you bring up South Florida. This is going to get all crazy bougie. If I go to South Florida, we won't stay there anymore. My favorite one in Florida is the one in Sarasota, it's an unbelievable experience. The ones in Miami are dumps. We prefer to go to the addition down there.
Patrick Baldwin: Being a Courtyard guy, I'm going to live vicariously through y'all for a second. How are y'all judging Ritz-Carlton's here? Is this because they're dirty or because they don't know you by name?
Paul Giannamore: No. I can give you specific examples.
Patrick Baldwin: Let's do it.
Paul Giannamore: I booked this Ritz-Carlton on the Marriott app. I have stayed in Marriott's now for decades so I am Titanium for life I'm supposed to get automatic upgrades and all sorts of stuff. I booked on the app and there was a problem with the app and it double booked me. When I showed up, the woman at the front desk said, “You have two reservations.” I said, “I just booked one.” She said, “You're going to have to call Marriott to get that canceled.” I said, “Why do I have to call Marriott? I am at a Ritz-Carlton. Shouldn't you guys be handling that?” She's like, “I'm sorry, I can't do that.” That was just the start of the ordeal.
There was a massively long wait. She then ran my credit card for the deposit. Instead of putting $250, she put an extra zero so the authorization was for $2,500. I looked at it and I'm like, “This is for $2,500.” She’s like, “I'm going to have to take it for $2,500 but it'll go right back.” I'm like, “I'm not letting you take a $2,500 authorization because you don't know how to use the computer.” We had to get the manager down there and the manager's like, “I'm going to take care of the reservation. It'll be a quick phone call for me. Sorry. Here's how you cancel out.” Very poor training.
The thing about it is I realized it's a difficult market to hire in. They're taking trainees and putting them up at the front desk. I showed up late, I arrived at 10:00 or 11:00 at night. Patrick, for me, it's more service. The South Florida Ritz-Carltons are old and they haven't been remodeled in a long time, some worse than others.
When I go to a Ritz-Carlton, not only do I want a nice place, but I want service, that's what I'm there for, and to make my life easier. When I walk into the front desk, it shouldn't be more difficult. The conversation that I had with them was, “Last night, I happened to be at a Courtyard and I got far better service at the front desk than I'm getting here at a Ritz-Carlton. This is a problem for you, guys.”
Patrick Baldwin: I'm glad she didn't tell you to call Marriott because she ran your card for $2,500.
Paul Giannamore: Yeah, I'm glad too.
Patrick Baldwin: I'm thinking about the Ritz-Carlton. Even if it's hard to hire the right people, there should be a certain standard there.
Paul Giannamore: When you go into a hotel like that, you expect extremely friendly on-the-spot service. You expect them to anticipate your needs before they have them, especially if you've built up a relationship with the brand over the years. Before I moved here in Puerto Rico, we took a trip down here and the Ritz-Carlton Reserve at Dorado is one of the nicest Ritz-Carlton on the planet. They boast a seven-star rating. I don't even know if that's real but that's what they say. It is phenomenal.
During high season in COVID, you'll pay $5,000 a night for a room there and I'm just talking about a regular room, not a suite, they don't have those. Your standard night there outside of a busy season is even about $1,000 to $1,500 a night. However, you go there and you sit down and in the morning, let's say they bring a coffee and breakfast, they remember at what time you ordered it.
I was there on the second day they called me and said, “Would you like some breakfast?” They looked at the fruits that I picked off the plate, they doubled down on that, which I ate, and gave me less of that, which I didn't eat. I asked, “Are you guys paying attention to this?” They said, “Of course.” That's Ritz-Carlton delighting a guest. It’s not like, “Sorry, the app screwed up. You're going to have to take care of that yourself. I've got to do some Facebook posts here in the back room.”
Patrick Baldwin: That's interesting. Going back to the pest control side or service side of things, in the past, we've talked about residential or commercial technicians. If you roll out a concierge program, does that call for a dedicated technician? I don't know if I would send all my technicians to a $399-a-month quarterly service.
Paul Giannamore: My opinion on all of this for everyone, in general, is before you start thinking about high-end concierge services and taking every customer request at a whim, there are trade-offs in life so you have to determine what it is that you're going to do as a company. You have to think about how you are setting up routines that are repeatable and easy to train people. You can train anyone to be courteous. Being courteous doesn't mean that you have to honor every customer request, being friendly, courteous, and helpful.
I do think it's a good practice for people who are scaling a pest control business, a lawn care business, or whatever, to determine, like, “This is our service protocol. This is our standard protocol. This is how we take payment.” There's a lot of companies over the years that said, “We're only going to take credit card payments.” You might scratch your head and say, “I want to give you cash. Why won't you take that cash? It’ll make it easy for me to pay you.”
There are a lot of folks that have the philosophy, “If a customer wants to pay us, we'll take a wire, a check, an ACH, it doesn't matter, or a courier pigeon.” However, there are companies that make the decisions that say, “We are going to streamline and standardize everything.” There are restaurants down here in Puerto Rico now that will not take cash, they only take credit cards. I'm sure it's more prolific in the US. You walk in there and that's it. The only way you're paying is with a credit card.
If you determine what it is that you're doing and what you're not willing to accept, the more standardized the businesses, the easier it is to scale because you can train team members to perform within those little boxes. The majority of customers out there, what do they want? They want somebody who shows up when they say they're going to show up. They want them to be clean, polite, and not a threat to the family. They want them to take care of whatever the issue is and then be on their merry way. They want to be able to deal with the office through a myriad of communication channels in an easy and efficient manner whether that's on the phone, text message, or online chat.
If you get the basics down, over time, you can develop a playbook for a more sophisticated and more accommodating service that folks have to pay for. From my perspective as an observer of these industries, the ones that have repeatable and scalable businesses are easier to scale by definition. It's more difficult to scale a high-end service like that. Although a high-end service is more profitable. It depends on what it is that you want. Fat Pat, that's my perspective on it.
Patrick Baldwin: Are there certain companies that are eligible to do this? Do they need to be of a certain size or caliber of service before they can roll out concierge?
Paul Giannamore: No, you can start that on day one. In fact, a lot of companies start that on day one with one technician. They're willing to do anything a customer asks at any time, day or night, in order to get the business going. It takes time and maturity to say, “We're going to streamline this thing and make decisions where we're going to put our foot down and not do certain things.”
Patrick Baldwin: With the concierge service, you were talking about the Ritz-Carlton service at the Courtyard pricing. Out of the gate, when you're willing to scrap and take whatever business you can, it's hard for me to think of someone's going to charge $399 a month on day one.
Paul Giannamore: They're charging those standardized prices for high-end white glove service or in order to get business in general. Clearly, there are things that McHale was doing that are not something that your average one-man operation is doing. You have a dedicated CSR that you would build a relationship with over time. He had folks that worked 24/7. Martha Stewart's got a cricket in her kitchen and she's making pot brownies for Snoop Dogg, she needs that taken care of. You call JP McHale at 2:00 in the morning and somebody goes out there, that's how that works.
Seth Garber: Years ago, we ran that for our high-end commercial clients. They could get in contact with us 24 hours a day for the ones that were good but they did pay for it, they paid a premium for it. There are a lot of people who read these episodes and what you hear is people want to attempt things. There are probably a lot of people rolling out concierge services in the next week or two and trying it out. In certain markets, it's going to work well.
At the end of the day, the path looks like this, the company starts up new, and they do anything they want and anything they can to get business at whatever price, fair enough. The company gets to scale, they've got a hot mess of all these things that they thought were good ideas baked into their company, and then we have to unwind them. I get handed the time to unwind to make these things profitable.
What we always come back to, especially on the residential side, is how fast can we take a company that has all these good ideas or all these exceptions buried into it and bring it all the way back to show up, walk around the house, get in your car, build a customer, and come back in a quarter. The faster we can get to that, the faster we can make these things super profitable. The companies that I described who have these higher-level services, and I can't speak to JP McHale but my assumption is the same, is that it's probably the same.
This was something they added on at some point in the future. They wanted to try it out and it started to work. The ones that we work with, that's what's happened, they said, “Do you think we could possibly pull this off?” Of course, I'm the one that goes, “We could probably sell anything on the phone. Let's try to sell it on the phone. If we can do it, let's go for it.” That's how those concierge services got going.
Patrick Baldwin: What do you find is the hardest to convert? Is it billing? Is it the frequency of service? Is it the preferred technician?
Seth Garber: The hardest one for the customer to understand is when you tell the customer, “We're not going to give you a four-day notice when our process is a one-day notice,” or, “We're not going to give you a special notice to tell you to come and unlock your gates. We're not going to do that anymore.” The customers tend not to understand that. What I found is going to probably make people go and do crazy things but we put a lot of time and thought into it.
What I found is that if we communicate to the customer that we're going to change that process, it creates a bigger problem than it needs to be. If we just put that process in place without communicating to the customer, we intend to have better results. What that looks like in practical application is you have a handful of customers, hundreds of customers that have all these different communication methods, and your CSRs are taking all this extra time to text them, call them, and verify you're going to be out there, whatever they're going to do versus us reaching out to the customer and saying, “We're no longer going to do that.
Our new process is we're going to show up and do your service.” That tends to cause all the problems if we reach out to the customer ahead of time and notify them. When we just change the process and start doing it is when we're the most successful and I'll tell you why that's the case or why I know it's the case now. A lot of the exceptions that we've been servicing these customers and doing for these customers were because the customer had an idea at that time when they called in and it might have been years ago and the customer doesn't have that requirement. The customer thought they needed that at the time.
As they progress and they become a good customer, that requirement goes away. They don't even realize that requirement exists as a customer anymore. We find that if we just start changing it, it works a lot better than if we start notifying the customer. The same thing with price increases and all these other things we've talked about over the years.
Patrick Baldwin: The inside and outside service is another. I've seen that conversion. That's one that needs to be communicated ahead of time instead of showing up. Maybe the technician shows up and says, “We're not doing inside service anymore,” but it could be a difficult conversation.
Seth Garber: Let's talk about that one because that's difficult. In certain markets, it's been easy in other markets and in other markets, it's been difficult to make that conversion. Some of the Midwest markets where we would work with clients, especially Midwest, I'd call them like B-level markets and C-markets where they were high touch companies, it's been difficult to make that conversion. We've done it but it's taken a lot more time.
One of the ones that we did years ago became a disaster. We attempted what I described. We did communicate, “Mr. Customer, we're going to be doing outside-only calls if you have any issues.” We had this big elaborate way of doing it. We got substantial pushback and we've always gotten substantial pushback and that middle Midwest markets. We did the same thing about years ago in a Florida market with tens of thousands of customers and it went incredibly well but that is difficult in those Midwest markets. For whatever reason, we struggle in some of the Midwest markets to do that.
Patrick Baldwin: Are you saying that Midwest and Florida were communicated differently?
Seth Garber: It was communicated roughly the same but we found in the Midwest, it was much more difficult. Companies are roughly the same age. The company in the Midwest was a smaller business. The company in Florida was a much larger business. We've done a couple of them now and we've always had that struggle in the Midwest compared to Florida or even out in the West Coast, it's been tremendously more difficult for whatever reason.
Paul Giannamore: Way back when, when I was at American Capital, we were a private equity firm that would go out and buy and invest in portfolio companies, which now is happening at a dramatic clip in pest control. One of the things that we used to do is we focused back in the day on middle market companies and a lot of them were run by founders who were entrepreneurial and had different ideas. Every man wanted to do all sorts of crazy stuff. One of the things that we would do is look at the client flow.
In a service business, you get the president in the room, you get the finance guy, and you get some CSRs. You get your team together and you say, “Number one, how do customers find us?” They find you online and they get referrals. You start with, “How do they know about you to begin with?” From there, how do they get in contact with us? You do some research, online, telephone, and so on and so forth. You walk through from attention all the way up front to execution and getting paid on the back end. You run through the entire stream or flow of that customer through your organization.
When you get to certain aspects, you might have customer onboarding. What routines are we creating around onboarding? What can we standardize? What are we not willing to do on onboarding? From a sales perspective, how do we sell this? What are we not willing to do? You can build this customer flow document. It's a whiteboard but that exercise gets everyone on the same page. You're then able to talk to CSRs that are in there and they're like, “Jim Smith called the other day and he wanted his pest control and plus he wanted a prostitute.” “We don't do that.”
There are all sorts of crazy things that CSRs can bring into the mix and you can determine what's acceptable or not acceptable for your company. There's a myriad of different ways that customers want to pay, you can talk about that. You can define what it is that you want to do as an organization and how you can make that repeatable. If the team owns that, then they own it and that's what they're going to do.
I do encourage those helpful and sometimes quite boring exercises. I'm not a consultant and I don't do anything with systemization. I do know that in a lot of companies, over time, there's entropy, they just exist, and there's no immediate reason to have those discussions. If you at least once a year focus your team on, “Let's look at the customer flow throughout the organization. What points do we need to tie down?” That could be a valuable process. I would imagine, Seth, you guys do stuff like that, that's your type of business.
Seth Garber: 100%. What you walked through is a pretty typical process. We start the discussion. Anytime we look at a new product or a new service offering, it starts with, “What is the first interaction with the customer? What does that look like? How do we use these systems?” All the way down to what's being put into a CRM, and how it's being put in. Do we have the right fields? Whatever it may be. That's the best way to describe it the way you did.
I'm going to speak to probably more of a mid-market company, a company that's $10 million to $20 million. A common practice that we have is that we would go through like we would rerouting cadence, quarterly or every six months, depending on the structure of the business. The other thing that we do is that roughly every six months, we look at this. We say, “The experience of the customer and is the experience of the handoff from the CSR to service operations, are we consistent with what we believe?”
I was in this discussion with a company that's in that size. One of the things that we also have identified with someone has to own the approval process of the additions of any of these. What that looks like is that in a typical organization, a decision is made quickly. A customer needs something and a decision is made. We're adding a different product. They go to a manager and a decision is made. What I found is if we eliminate that ability, it makes a huge difference like the big nationals would.
We put somebody in charge like a systems administrator and it's typically a head of service operations or a COO, depending on what it is. No service and no process has changed. Nothing gets added to that CRM unless it's approved and signed off on by this single person within the organization. That's been incredibly valuable. It used to be that a manager can make the decision or a director can make the decision depending on the size of the organization but then it started to create all these good ideas that are happening within the business processes. The good ideas create inefficiency.
The second we identified a single source that has the approval methodology and we looked at it roughly every six months, it became incredibly strong. They had to have a business case. You guys heard me talk about the idea of the silos. People have silos that they have to operate day to day but then we pull somebody out of a silo and have a discussion around something. As part of that discussion, a decision gets made. Once that decision is made, it then gets put into the business operations so these people then begin the process again. That's the way I look at it.
Paul Giannamore: That's helpful. The other thing, Fat Pat, while we're on this topic, and this is something near and dear to your heart, is I do appreciate those service businesses out there that come up with their own particular vernacular. Hotels, for example, Hilton, and Ritz have their own dictionary of words that they use so does your local Chick-fil-A. Every time you say, “Thank you, Patrick.” What do they say?
Patrick Baldwin: “My pleasure.”
Paul Giannamore: There's a guidebook.
Patrick Baldwin: A lexicon.
Paul Giannamore: That's correct. That's consistent throughout the organization. I have seen home services businesses do that as well. That way, you don't have a technician out there, “Teah, this, and that.” There's a specific way that you answer a request. There's a specific way you deny a request. To Seth's point, for example, you're at a Courtyard and you forgot your toothbrush, which happens all the time. Most Courtyards are not going to send somebody up to your room.
The Ritz-Carlton, you call the front desk. Hopefully, by the time you hang up the phone, somebody's at your door with a toothbrush, toothpaste, mouthwash, and some floss. A Courtyard, they're unlikely to leave the front desk at 2:00 in the morning and walk up to your room. They'll say, “Sir, we do have this available at the desk. Unfortunately, we can’t leave the desk at night.”
You're like, “I want the toothbrush. I got to go down.” My point is when you're making those decisions as to what's acceptable for your business or not, there's a good reason to have a lexicon. You can explain to your team how to nicely let a customer down as opposed to, “That's not corporate policy,” or, “That's not how we do things,” or, “Go somewhere else.”
Seth Garber: One of the funny lexicons, Paul, was a couple of months ago, I was down in the Miami Ritz and I came walking into the door and they said, “Sir, would you like the Giannamore suite?”
Paul Giannamore: I can't believe they're renting that out when I'm not there, Seth.
Seth Garber: I couldn't believe it wasn't painted and up to date. I felt like you hadn't been there in a while.
Paul Giannamore: I hadn't been there in years.
Patrick Baldwin: What was in there?
Seth Garber: There was a picture of Franco. It was odd when I walked in the door. I got a little sidetracked. Sorry about that, Patrick.
Patrick Baldwin: As you're saying this and what you're limiting the CSR to do and not to do, two things came to mind. One, how do you not squash creativity? They have ideas and you want to hear these ideas. If you put them in a box and you say, “Maybe 3 or 6 months, we'll discuss them. Write them down.” It might limit what they want to provide and put into the business as far as their ideas go. Two, would you follow a similar process for cancellation requests to come in and it has to go to one person at the end of the day?
Seth Garber: This is going to come off probably a little different than I mean it but I'm going to say it anyway. I'm not super happy with creativity from a CSR. Do I want them to listen to the customer? Do I want them to keep track of different ideas? I do. Do I want them to run a systemized playbook? Yes, because I want to build a company that can scale.
It's more of a leadership discussion on how you handle that and ensuring that whatever your company culture is, whether you're a culture of learning or a culture of creativity, your leaders have to be there. Your leaders have to lead that way, manage that way, and create that opportunity. If your culture is one where we're going to talk about growing top line and we're going to talk about how to become the most profitable, I'm probably not going to hire CSRs that are super creative.
In our company, the people that work with us, Patrick, we give them the opportunity to be creative and the opportunity to think but we don't encourage it to happen 24/7. We encourage it to happen at very specific times. In a service business, that's important. This is from my perspective. You have to pull them out and put them into that ability to say, “What have we learned?” That systems operator needs to make the decisions with leadership teams to help make those decisions and then put them back into the role to be successful.
I know it sounds pretty brash but the reality is that that's how I'd want to operate a service business. From my perspective, there are a million ways to handle cancellations. If my team that's handling cancellations is trained, they understand how to overcome them, and we've done a good job of doing it, sometimes it's okay. For the companies at scale, I like a queuing process around cancellation. We had spoken about how in the technology world, that's how we handled cancellations of subscriptions.
We would handle it by having a queuing process around cancellation. A customer calls to cancel, “Mr. Customer, unfortunately, I can't take care of that for you. Such and such will follow up.” We put a time frame around queuing because what we understood was that if we gave them X amount of days, and it was 72 hours at the time before we ever reached out, is that we were able to save that customer more effectively. That's not necessarily in the pest industry but we do these different things. There are a bunch of different components around that for services industries.
Patrick Baldwin: Going back to the culture, you said culture of learning and culture of creativity back to back. I would say you're pro-culture of learning. I know that of you. Are you saying you're not pro-culture of creativity from a CSR? It’s like, “I don't want to hear it at all,” or, “There's a time and place for it and we're going to have scheduled dialogue around that.”
Seth Garber: I've got to be agnostic to people the way people want to run their companies and I have to be that way. In my business, if I went to start a pest control company today or we bought a pest control company today, it's going to sound bad, I don't know if I want creativity. It’s not that I don't want to create a place for it but the thing is, at the end of the day, I want them to be able to take a customer in, and I want them to take a call of a lead coming in. I want that person to become an auto-paying customer in under seven minutes and I want them to pay us in perpetuity.
I want that handoff to happen. That's what I want to have happen. Because we understand how to do that, anything that takes us away from that creates inefficiency. Do I want to give them a good place to give us ideas and thoughts and we're going to come up with innovative ideas? Yeah, I do but I don't want that to happen every day because it's going to create inefficiency. What happens is too much creativity gets us off the ability to scale but it also creates levels of stress.
What happens is that CSR comes to me and says, “I've gotten six customers that say that they want to have monthly service versus quarterly service.” The second I say to the CSR, “Let's start selling monthly service.” I've created an inefficient business. If our model is quarterly service residential, I've created an inefficient business. That's an example. If we went back to exceptions, I've got a CSR that says, “I've got this customer who wants us to call them three days out and then text them one day out.”
It's not a big deal, I'm just going to start doing it. I've just created a huge amount of inefficiency based on them wanting to serve as a customer, which is ultimately creativity. That's the way I think about it. We do work for companies that have incredible ways and have creativity. For one of the companies that we support, is there a completely flat structure? They're a $2.5 million business with a completely flat structure, they have a place for creativity, they let their CSRs come up with all kinds of cool ideas, and they let them try them out. Some of them work, some of them don't.
If we look at the ones that work, they're still not nearly as profitable as if we keep them nice and regimented. That's the way I think about it. In our companies, in Pest Daily, and our other companies, we allow tons of creativity but we don't have to keep things super regimented as much as a service-based business does.
Patrick Baldwin: That makes sense. On the cancellation side, you said technology, 72 hours, and 1 person, but that might not fly as well in the service industry. Is there a happy medium or a hybrid of that concept that you've pulled off?
Seth Garber: There are many different methodologies for cancellation and there are many different ones that work for different companies. It's a training component and it's more training than anything for the CSRs. If we went back and listened to calls related to customers that cancel, the reality behind it is the CSRs, in most cases, don't even try. I'm not beating up CSRs, I love CSRs, and I love inside sales, I love all of it but they don't try. They're very busy and they're taking tons and tons of calls.
The phone's ringing off the hook. The customer calls to cancel and they simply say, “It's okay, Mr. Customer.” A lot of them don't attempt to save it. People are going to be reading this episode and they're going to go, “My CSRs do a great job.” They might. If we look at large CSR teams, the reality is a lot of them want to get back to work. They've got a lot more calls coming in, they're busy, and they say, “Mo problem, Mr. Customer.” They take care of it.
I'll talk about training for a second. Where we found CSRs become the best performers is when the leadership learns to teach the CSR how valuable that conversation is and describes to them how expensive it is in our industry to acquire a customer. That CSR understands that and understands what it takes.
If it costs you, I'll make up a number, $100 to acquire a customer, which is typically more, and that customer is going to pay us for the next seven years of our life, when that CSR starts to understand the economics around that and starts to understand how important that decision is that they're going to cost this company thousands of dollars by not attempting to save that customer, that's when we start to see the learning happen. I would tell you that the trust, from my perspective, starts to get built up with that CSR with that team that we feel comfortable having them handle cancellations.
Up to that point, I do tend to like a queuing process to where if they're new CSRs, it has to go to somebody else to approve the cancellation. The person who's approving the cancellation, who's talking to the customer is highly trained in how to communicate with that customer effectively and try to save that account, I tend to like that the best if you're not focusing on the economics behind saving a customer.
Patrick Baldwin: Paul, if we take out these accommodations or exceptions, we said it gives the ability to scale. A lot of this might already be baked into the cake. I imagine if you're taking a company like that into a process, then you're going to get a lot more demand from the buyers. Am I mistaken?
Paul Giannamore: There was a time years ago when the pest control M&A world was a duopoly, Terminix and Orkin. If you had a business that was outside of their standard protocols, it was hard for them to deal with it. For example, if Orkin runs quarterly in Virginia and you were selling annual services or you were selling monthly services, just something as basic as that, it would impair the business or at least impair the value of the business because Orkin would look at it and say, “I've got to make significant changes to the relationship with the customers. There's going to be some attrition and it's going to be problematic.” Now there's less of an issue and concern with that.
Way back to our episode on why you shouldn't care what acquirers want, I always look at it and say, “All that I have to sell is that stream of cashflow, that's where the value comes from.” If I can make that stream of cashflow more durable and grow at a more rapid clip, I've got a more valuable business. I don't put a lot of guardrails around clients as far as what they want to do, I just say that you have to think through how repeatable and scalable it is when you get too far off the track and what you're willing to accommodate.
I don't think it makes your business unsellable but it might impair the growth rate of that stream of free cashflow, which impacts value. If you're a manager and an owner and you can look at your business in a way, what will this do to cashflow over time? Will it make it grow quicker or slower? Will it make it more durable or less durable? Was the business inherently more risky or less risky? If you can start to think about your decisions with that mindset, it'll answer a lot of these questions.
Patrick Baldwin: With JP McHale and the concierge service Anticimex platform, traditional acquirer, the former duopoly didn't have to force it into their existing protocol. At a certain business size, they're able to make it a platform and not necessarily change the service scope.
Paul Giannamore: Agreed.
Patrick Baldwin: I wonder if concierge at a smaller level might not work.
Paul Giannamore: If you had a small company doing $2 million in Winchester New York that was charging $1,000 or $2,000, this was years ago but nowadays, let's call it $3,000 or $4,000 a year for service, but you were offering them a tremendous amount of value for that. It's hard for Orkin or Terminix to put that into their system. That's just not the way they do business. That becomes problematic.
For JP McHale, that concierge department was a $26 million business on the day it sold. The concierge section made maybe it was less than $1 million per annum. It was extremely profitable but it was a relatively small portion of the business. The bottom line, Patrick, is everyone out there should start at the core. What are we willing to do? What are we not willing to do? Try to systematize it and standardize it as much as possible.
Once you get good at it and you know how to play the music, then you can get a little bit creative with it. To Seth's earlier point, folks are willing to do whatever they can in the early years, which makes a lot of sense. At that point in time, you have to think about scale and repeatability. If you don't do that, you end up with the dumpster fire ten years later.
Seth Garber: As Paul was talking, I'm thinking about something because I know there's a lot of growing companies reading the episodes. If someone's out there reading and they're a single operator and they want to build a cool lifestyle company where they don't care if they get employed a couple of times a year and they want to make a bunch of money, I would love it if somebody would go out there and try to offer a concierge level of service to their customers as an individual operator.
If you're planning not to get a lot larger, see what happens. I bet there are some markets out there where you could charge $399 or $299 a month and say, “I'm here no matter what. Call us no matter what.” I bet there's an individual operator out there that can make an astronomical amount of money and probably work fifteen hours a week and build a quarter-million-dollar business. I bet someone could do it out there.
Paul Giannamore: I probably get woken up at 2:00 in the morning quite a bit.
Seth Garber: I wonder because I sit there and think about the companies that do it and they don't get a lot of calls. You might be chasing a raccoon around an attic at 2:00 in the morning once a year but maybe you could work twenty hours a week and make a quarter million dollars too, I don't know.
Paul Giannamore: Or you could not do that and you could scale a systematized business and make millions of dollars a year and not work at all.
Seth Garber: Which I would obviously prefer. Some people want to go work on their own and hang out, which is good.
Patrick Baldwin: Alright guys, I’ll see you all soon in Hawaii. I appreciate you making an exception and talking about the exceptions in there.
Seth Garber: Thanks, bro.
Paul Giannamore: Sounds good, Seth, and Fat Pat. I'll talk to you guys soon.
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Dylan Seals: Thank you so much as always for supporting us at The Boardroom Buzz. We know your time is valuable and the fact that you spend 45 minutes or an hour with us means the world. All the media that we put out from Potomac is meant to honor and celebrate you, the service industry owner. As Paul would say, “Yee who toil in the pest control vineyards.”
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