David Dart: I love my HR person, they're so awesome, and they do everything I want them to do. Sometimes that might not be in the best interest of the long-term health of the company or the shareholders.
Patrick Baldwin: Paul, how many CHROs of publicly traded companies do you know?
Paul Giannamore: Maybe one.
Patrick Baldwin: I was going to say that I can count on this one finger.
Paul Giannamore: What is a CHRO, Patrick?
Patrick Baldwin: Chief Human Resources Officer. Tony DiLucente mentioned him on his episode and I was like, “I've got to track this guy down.”
Paul Giannamore: Tell us about him.
Patrick Baldwin: When I called him and scheduled this, I felt like I was talking to a CEO. This is not an HR guy. At the end of the day, I was like, “This guy knows his stuff.”
Paul Giannamore: He's sharp, articulate, and well-spoken. We're about to step into The Boardroom with David Dart, who had a lot of interesting positions at a lot of interesting companies over the years. He was with ServiceMaster for four years roughly. He was the Chief Human Resource Officer at ServiceMaster.
Patrick Baldwin: He is at Caliber, a private equity-backed body shop headquartered here in the Dallas area with 1,600 locations or something. That thing is blowing up.
Paul Giannamore: What made you want to talk to an HR guy?
Patrick Baldwin: I feel like the Mexican talks to me in a way that's abusive and belittles. I was hoping David would come to my rescue. I can't wait for the Mexican to hear this and tell me what to do with myself.
Paul Giannamore: Yes, he certainly will. It'll be colorful, I'm sure. It was an interesting discussion. We've been relatively light on HR and we've talked about some HR-related issues. To get somebody like David, who's extremely well-spoken and also has direct experience in the pest control industry, hearing some of his tales of the Terminix-ServiceMaster reorg during that period was interesting. I appreciate you tracking him down and getting him on the show, Patrick.
Patrick Baldwin: People are going to have to read all the way to learn about some of that juicy stuff at the end but it's interesting what he thinks about b Brett Ponton.
Paul Giannamore: Yes, it certainly is.
Patrick Baldwin: How's that for a tease?
Paul Giannamore: It's in there.
Patrick Baldwin: Paul, what do you say? We step into The Boardroom with David Dart.
Paul Giannamore: Let's do this. Patrick.
Patrick Baldwin: David Dart, welcome to The Boardroom.
David Dart: It's good to be here. Thank you for inviting me.
Patrick Baldwin: From two people that need to know a lot about HR, David, you're here to teach us. We're getting a free lesson today. Paul, who's your head of HR? I forgot.
Paul Giannamore: The Mexican is the head of HR here and the head of Puerto Rican affairs. He should be sitting in on this session perhaps. I'm not going to tell the audience what he was doing today.
Patrick Baldwin: I wanted you to add him.
Paul Giannamore: It reflects poorly on me.
Patrick Baldwin: David is already regretting this. That is a nervous laugh.
David Dart: You need HR roles like mine in your larger companies. The funny thing is the smaller you are, the more everyone has to do their own work so it's interesting.
Paul Giannamore: David, what years were you at Terminex?
David Dart: I joined ServiceMaster in August 2018. Nick Vardy joined his team in part because of ServiceMaster's strategy that they laid out in the recruitment process. They had a great idea and a great strategy that they had built. It was about encircling the customer, both residential and commercial customers. We knew we were under-indexed on the commercial side. We were a residential company pretty much through and through at ServiceMaster with all the brands.
The strategy was to grow commercial and then provide them with multiple opportunities for revenue generation because you're delivering a wide variety of services that they need. Commercial restoration, as an example, was an area that we were under-indexed in. It was a huge opportunity and it's a great business.
The fact of the matter is none of those businesses that we owned, the franchise businesses, were anywhere close to as good as pest management. Terminix was the crown jewel of the ServiceMaster portfolio and as Terminix residential went, so went ServiceMaster. It was critically important for us to make sure that not only were embarking on a different direction from a strategic perspective with acquisitions on the commercial side but we had to make sure that we were running our base operating most valuable business well and that was Terminix.
Paul Giannamore: How the heck did you get into HR?
David Dart: I didn't grow up saying, “I'm going to be a Human Resources professional.” I didn't even know what that was. My dad was a Union guy as a UAW person. He retired from General Motors. Now I make sure that we don't need Unions. He's ashamed of me. It's one of those things where I got to business school after serving in the Navy for seven years and I didn't know what I was going to do. I got there and I thought I was going to be the CEO of Enron. My goal was to be the CEO of Enron.
It didn't work out for a variety of reasons. I got to the University of Michigan to get my MBA and they touted themselves as a general manager school. I got there and they don't hire general managers out of business school. I had no idea. I was transitioning from the Navy so I didn't understand what the impact was going to be on my career and where I was going to go. I looked at finance and marketing and investment banking and consulting.
I didn't know what I was going to do but I kept hearing over and over that people are the only true competitive advantage. I heard that from a wide variety of business strategy professors. They were all saying it. I then thought, “What did I like about my last job?” I loved the last job I had in the Navy. I was running the Navy's largest spoke petroleum facility in Europe, in southern Spain. I loved that job because when I first got there, I had 55 local nationals, 16 militaries, and 4 US civilians.
Each employment group thought the other one was a bunch of idiots. Getting them to work together as a high-performing team and get them mobilized around excellence because we were spraying fuel was a leaky pipeline issue. I was under an NCIS investigation when we did our accountability turnover. It was not in a good spot. Creating a high-performing team was the most difficult and most rewarding and led to us being recognized by the American Petroleum Institute as the best large Navy facility in the world. I realized I did that through people.
I started looking at HR as a potential opportunity at the business school. Out of 480 in my class, 8 went into HR, 1 went into corporate HR, and that was me. I was the only one who ended up in it. Once I got there, I realized if you're in these larger companies, if you're a business-oriented HR leader, you can have a significant impact on the business so I've been doing it ever since.
Paul Giannamore: It was the exact opposite. I went to Cornell ILR if you're familiar with the School of Industrial and Labor relations.
David Dart: Absolutely. Yep.
Paul Giannamore: Everyone went into HR except for me.
David Dart: There you go. We’re the opposite.
Patrick Baldwin: I thought you were going to sit there and talk about the Unions for a second. You both like Union Busters.
David Dart: You don't need them if you treat your employees well And that's what my dad and I have come to common grounds on.
Paul Giannamore: I tend to agree with that.
Patrick Baldwin: I think of HR being this feel-good, warm, fuzzy, and everybody's best friend role. You're like, “I am anything but the Chief Coddling Officer. Let me tell you how it is.” When I'm thinking about HR, it's on the CEO's plate until it's not like anything else. You had a CSR, you had a service manager, and you had a salesperson. There's a certain point in time when it makes sense to add an HR position to my organization. When am I adding an HR person to the organization? Also, why would I add one?
David Dart: It's an interesting question because it would take me to the growth of a business. When do you answer one? The role I play is a little bit different than the role that you might have in a small business. HR at a small business might be much more administrative because you got to pay people correctly and on time. That's the responsibility of HR oftentimes but not always, sometimes it resides in finance. There are certain laws and regulations that you need to make sure you're compliant with and they can help make sure that that administration is there.
As long as those basics are being done, you don't always have to add a head of HR. Depending on the size of your company, you can outsource a lot of those functions. When you need someone like me, I make sure the strategy of a company is executed through human systems. The way I explain that is any business, even small businesses, should have a vision for what they want to be, decisions around where they going to play, that helps also where they're not going to play, and then how are you going to win? Where HR creates a lot of value is in key capabilities.
What key capabilities do you need to build and what's the operating model on how you're going to accomplish all that, which is the who, what, when, and how work gets done? Lastly, culture. Culture is all about execution. HR people add a lot of value in key capability building, operating models, org design, and mobilizing the team with pay plans, and those things, they add a lot of value to that, and operating model, mobilizing the team, and then culture.
When you're a small enough business where everyone sees that as their responsibility, to build capability, to make sure they have their people positioned in the right way, to make sure that my people are trained, it's when you get at scale where you need someone who's focused on doing that across 50 or 100 locations as opposed to, “I have 10.” That should be your responsibility as a business owner and every branch that you have needs to staff their branch, train their branch, and schedule their branch. If they don't view those three things as their most important responsibilities as branch managers, you probably got the wrong branch manager because that's what it's all about.
When you're trying to operate at scale, you're trying to get consistency across 300, 400, and in Caliber's case, nearly 1,600 locations. How do you do that at scale? That's when you have to have usually someone who's solely responsible for thinking about that every time they get up, multi-unit HR leadership. The answer depends on when you put in an HR professional because it depends if you want to elevate and escalate the capabilities at scale.
If you have ten locations, maybe you can do that as a leader because you've embedded in the general managers or branch managers that that's their responsibility, they're the head of HR. We shouldn't be there supplementing their capability. We should make sure people are paid correctly and on that time and we're looking out for the laws and regulations that each state might have in front of them. Outside of that, talent acquisition is another thing that's an HR responsibility. You set up the capabilities and then the branch manager should be the one who's executing it through the hiring process.
Paul Giannamore: It appears to me that the HR profession, particularly over the last half a century, has become more and more of a compliance role in a lot of ways given the fact that not only are there federal laws or state laws but now we have municipal laws and county laws and everything related to wage and hour. It’s a myriad of policies that you have to deal with. How much of your day at ServiceMaster and in your current role is spent tooling around with public policy as it relates to your workforce?
David Dart: Very little. Most of where I spend my time is with the business because, in these multi-unit distributed service operations, the value creation is done by people. I'm thinking about capability build. Do they have the training tools and technology to get done what they need to get done? Are they enabled to execute the strategy?
I certainly have a legal team that I leverage for a lot of these things. Most large companies might have an employment lawyer on their staff. We did there, excellent. A couple of people had the responsibility for employment law and we worked in partnership with them to create the right policies and make sure that we were compliant with all the laws and regulations. You leveraged your partners for that too.
It's not like we had to create within the workday or with any payroll management software any small or large business has. You rely on them to make sure they're updating the software so that it makes sure it keeps you out of trouble. I don't spend a lot of time on that. Where I do spend my time as the head of HR for larger companies is I spend time with HR Policy Association, which is the lobbying group for businesses in DC around employment and labor law.
They do most of the Fortune 500 participates but they represent all of the business and trying to say, “This is crazy. If you put this in, you're going to hurt the business in a way that doesn't make a lot of sense.” It’s like saying with gig workers, you have to give them benefits and afford full-time things that you wouldn't normally be providing in a part-time situation.
You say, “Certain states are going to do what they're going to do but at least we have a governing body that helps shape policy in DC.” That's where I will spend some time on some of those committees. Within the company or at ServiceMaster, fortunately, I had a group that could help us with that. That's their responsibility, to make sure that we're keeping everyone out of trouble and working in partnership with them.
Patrick Baldwin: In terms of guiding principles, you mentioned incentives, are you involved in shaping compensation from the frontline? With Caliber, you've got people that are performing the work all the way up to your executive, your general manager, or your branch managers. Are you involved in shaping incentives and compensation for them?
David Dart: I'm pretty new here at Caliber but I was heavily involved in that at Terminix. It is an area of pretty deep expertise that I have. I started in compensation. It's an area where I do enjoy the work because it is about mobilizing people. You can have the world's greatest strategy but if you don't mobilize people to go out and execute it, it's useless. Pay plans, oftentimes, do that. There are unintended consequences to the pay plans if you're not careful about what you're doing.
Patrick Baldwin: Let's talk about it. What I've learned over a couple of years of The Buzz and listening to Paul closely, the closer that person is to the employee, the shorter you've got to think about the incentive structure. That's daily, weekly, and monthly. The branch manager might have an annual goal or something that's tied closely to the owner. I also think about those perverse incentives. Take us down that road.
David Dart: You do have to certainly take a step back and understand what it is you're asking them to do and then you have to think about all the things that are associated with the incentives that you're putting in place that they could try to get around and the unattended consequences of them. You have to make decisions as a company, “Strategically, what do we want to do?” Let's say you're a business in the pest management industry.
Probably if you took a step back and understood the strategy, which is why Brett was so great for Terminix because he came in and helped us focus on the Terminix business as we became a pure play pest company and make sure we understood the key levers and drivers. In a route-based business, you want density as a good example. You also want to drive household penetration more than likely because you have multiple services as a pest company and you want to maximize the utilization of the products that you do have with existing customers.
You want to make sure you're putting incentives to help sell and advise on the things that the customer may or may not know they need because you're the expert. In that model, you want them to have the ability to take the time to advise. If your pay plan is focused solely on production, get as many houses done in a day as you can. You're not going to stop and advise so that you can sell additional services or you're not going to go next door where you don't have that home or up and down the street making sure that you go to one neighborhood and you stop ten times as opposed to going to one neighborhood and then drive to another neighborhood.
You have to create an incentive program that a trusted advisor would say, “A big part of my compensation is variable based on how much I'm selling.” Also, incentives around density within your area. A lot of people will say, “I want an hourly plan and then I want a production plan.” In a trusted advisor model, you'd want someone to be initially based on maybe 80/20, their compensation, 80% fixed, and 20% variable. As they get much better at their job and they have an opportunity to expand their own wealth creation opportunities as an individual of their pay, they can do that through additional incentives.
Over time, as they become experts in their role, maybe that would be a 70/30 or as high as 60/40 where 60% is hourly or their salary fixed and then 40% variable. That's the model for the trusted advisor. If you're in a commercial business and you don't necessarily need advising, you're going to walk a 2 million square foot warehouse on a daily basis that might be more hourly. With incentives, it’s based on quality and net promoter score from the customer.
That might be a different measure for them but it's impractical to have too many variables because what are you going to pay them variably on? In each case, you have to make a decision about, “What's my strategy?” You design the plan around that strategy and you put the controls in place to make sure you're monitoring the quality of the program so that it doesn't get too far ahead of you. When we changed the pay plan in early 2019 at Terminex and they had changed the pay plans multiple times in 2018, when you do that over and over again and the pay plan is too complex, you drive turnover. If you drive turnover in the pest industry, you drive customer turnover.
The beauty of a pest business is that it's a recurring revenue business. It's like software, the cost of switching is high, and that's why their valuations are so high. An enterprise software company have incredible margins if they're large companies because it's too hard to switch. The inertia takes to switch. This recurring revenue model is incredibly valuable. Pest management is a recurring revenue model and it's an incredibly profitable business because of that. When you start to drive turnover of your customer base because you've driven turnover in your own employee or teammate base, that's a recipe for a disaster. Turnover in this industry is a killer.
Patrick Baldwin: Did you say that you don't like paying on production? Did I hear you say that? I'm judging you.
David Dart: I do think it's good to pay on production. In the 60/40 or 80/20 that I had mentioned, you could have production be a part of the incentive but it depends on what you're doing. It's fine to play in production but if all you want to do is produce, then pay them on production. Pay them on the number of stops they do well. If you're not taking into account the need for route density and household penetration in that model, that's a different situation.
For us, in an autobody business, you got to think about, “What are the things that are critical for us to grow?” Make sure you're incentivizing the team on that, which is certainly, for us, the turnaround time is important as an example. You want to make sure that you're incenting them to have high quality but turn the car around as quickly as you can so they can go on with their lives. It's disruptive to have your car in the body shop.
Patrick Baldwin: Set in and forget it. You got to get the compensation dialed in because people don't like their compensation getting messed with, that's how you tick someone off. Also, keep it simple so that they can quickly explain it and make sure that perverse incentives aren't occurring. What guides you as you're thinking through that compensation before you roll it out? It’s like, “We got to get this dialed in before we start implementing it.”
David Dart: I should probably also caveat that a lot of what I'm saying is my opinion and my opinion only and it's how I'm trying to help the business look at things differently. I'm not always going to get my way. I don't get the final say on what the pay plan design is. I might have an opinion and I'm going to do the best I can with data and insights and then put some actions in place to make sure that we're putting the right plans in place. Ultimately, it's the business leader's decision.
What helps to guide me is the data and the facts. First of all, the strategy, then data and facts. Are we getting, out of the current plate plan, what we need, and what we had desired? Is it financially viable? From a turnover perspective, are we retaining the right people? Are we staying market competitive? There are all these things that you have to think of when you're designing a pay plan. Grounding yourself in the strategy of the company is the number one most important thing that you want to do.
It’s understanding what you want them to get out of it because that's going to be the best thing for the business. That's what should ultimately guide you. If you're doing that, you're more than likely going to do the right thing for the teammate as well. You do want to be competitive. You do want to have retention.
Let's go back to turnover being such a problem. The turnover is already high in service-related industries for the first year. If you can get people past that first year, it's a real benefit because they oftentimes stay a lot longer. At the beginning of their tenure, they have to feel like they can make enough money and they have a pathway to have a productive annual take-home pay.
When their seasonality is factored in, some of that becomes complicated. If you're just paying production, then you might have the seasonality and then that's a problem, which could drive turnover. If you hire someone late in the season and then they hire on, then they go, “I can't make any money here. I'm out of here.”
Now you're hiring somebody else, you got to train them, and then that takes four months, and they're unproductive that entire time. It's hitting your profit line because you're starting this whole process all over.You have to have a pay plan that can understand and weather the seasonality in the situation of a pest business as an example to help reduce turnover. If you're going to pay solely hourly, how are you going to make sure that they are as productive as you need them to be? You have to have that consideration as well.
If you start to performance manage because they're all hourly, that might not be the best environment for them, especially in a route-based business because then you're chasing them around all the time and that's not effective either. You got to find the balance no matter what your model is. There are so many factors that go into it that it's hard to answer them cleanly. What's best for your business? It goes back to the strategy.
Patrick Baldwin: I was looking for the easy answer. Thanks, David.
David Dart: There isn't one.
Patrick Baldwin: In terms of turnover versus retention, there's got to be the right metric there. Do I measure employee turnover or do I measure employee retention? You've had some experience there.
David Dart: You want to measure both because you want to communicate how the retention of your teammates is important to you and you share that with the broader base. You should be calculating turnover from a business leadership perspective because retention is not taking into account how many times you're filling the same job over and over again.
You can retain 62% of your teammates throughout the course of a year and you might think you're doing pretty good. A lot of people think that turnover is 38% but that's not the case because that 38%, you might've had to fill that job five times this year because you can't keep anyone beyond 2 or 3 months. You've got to calculate turnover, which helps you understand.
Also, you should do it in phases too, “What's my 90-day, six-month, and one-year turnover?” Especially, when you calculate first year turnover, that's helpful to educate the business. Let's say your first-year turnover is as high as, and it's oftentimes in these industries, above 70%. That means you have to hire 10 people to get 3. I interviewed someone who ran the largest porta potty business in the United States and it's over a billion-dollar business.
Patrick Giannamore: That's a lot of poop.
David Dart: I interviewed him and I asked him about his first-year turnover. Think about the summer in Mississippi at one of these festivals, you have to clean 65 porta-potties a day if you're a porta-potty technician. That's a huge number. This is what he shared with me. I asked him what his first-year turnover was and he said it was over 80%, especially if he hired in the summer when he first took over the business. He said, “Now, our first-year turnover is below 50%.”
At the time, this is years ago now, at ServiceMaster Terminix, our technician’s first-year turnover was higher than that. They had been measuring retention and hadn't turned the focus to turnover and then specifically first-year turnover. I said, “What did you do?” He goes, “Some of it was pretty simple. I created a rockstar experience on their first week on the job. We started everyone on a Monday. We had a big celebration about them starting on Monday with the rest of the other technicians.”
They were provisioned correctly on the first day. They went to lunch with their branch manager on the first day. They received training that was designed in the first few days of their tenure, which wasn't overly extensive but it did include driving safety and the emphasis on safety. On Friday, the president called every single one of their new hires on Friday and asked them, “How was your first week? How was your first day? Did you feel like a part of the team?”
He said those things alone quickly when all the branch managers realized that the president was going to check up on their work, he said the turnover plummeted dramatically if you’re calculating your first year of turnover in a porta-potty business. Our jobs in the pest management industry are amazing jobs, they're phenomenal. You get to interact with customers and you get to work independently. Oftentimes, you get a truck to drive. There are so many positive things about our industry. There's a career path. It's a great industry.
If they had better turnover than many people in the pest industry, what can we do to make that better? When you think about that productivity in that first year where you're filling the same jobs over and over again, it's a leaky bucket of profit that's going out the door because they're never productive. That's why turnover is such a passionate thing for me, including in this industry as well. It takes even longer for people to get productive in the current industry I'm in. We think about turnover here all the time and turnover is the right metric in this industry too.
Patrick Baldwin: With Caliber, there's a lot more, in terms of training, before a technician there becomes independent and can do their own work. In pest management, we're somewhere two months if we're pushing it, maybe 3 months or probably 4 months is healthy. Yours, I would guess, is closer to a year upward.
David Dart: If you have no experience in the industry and supply and demand economics in this industry, you’re not in any collision center’s favorite today because demand far outstrips supply. The pandemic did contribute to that because after the world closed down, everyone went off the road and there weren't a ton of cars going into collision centers. People had put food on the table so they migrated to other industries even if they were qualified body technicians.
HVAC was a good example of a pretty skilled group of people who came and rated a lot of the centers. Not all the centers survived in this industry. Body techs are as important as pest techs in that industry. The key skills and abilities of our technicians just as in the pest industry are what creates value for the company, those interactions every day.
In this industry, if you got to build it as opposed to going out and buying it because there's a plethora of talent out there, you got to find a way to build and also make yourself an attractive employer. I do find it's very similar. While our tail is longer, it takes much longer. In the pest industry, four months is still a pretty long time to carry unproductive labor. It's analogous across these industries. Multi-service companies oftentimes have the same issue.
We had a significant issue certainly at Terminix, everyone experienced that. When we turned the spigot back on in 2021, we were surprised to find that our candidate flow had dropped over 60% year over year. People were sitting on the sidelines and not coming back to work so we had to get creative about how we were going to draw in talent.
Chris Elmore, who ran what we called a full talent pipeline there, did a great job of creating the right programs with his team to help assist the field in increasing our input in what we call the top of the funnel for people coming into the hiring process and converting at a higher rate each step through the process so that we could meet our needs.
In our industries, you can't book the revenue till you complete the work order. You can't complete the work order until you have the people. We had to make sure that we adjusted around that. It still takes time. Hopefully, you're attracting as many licensed pest techs as you can so that's one of your target markets.
You also have to make sure that you have the training tools and technologies to take people out of high school, out of different industries, out of retail, or out of construction that might want to change, might want to work outside, or might want a different lifestyle. Find a way to attract those people too and then get them licensed and productive as quickly as you can.
Patrick Baldwin: I'm curious about the first year of turnover or the cost of turnover in general if you've done a cost study on that because you've got talent acquisition costs, you've got licensing cost, and overtime to cover someone that's out. Missing technician, I'm covering their work. Have you studied that much?
David Dart: That was part of the business case to get the team focused on turnover at ServiceMaster. I wasn't the head of HR for Terminix, I was the head of HR for ServiceMaster. There was an HR person who reported to me that was responsible for HR for Terminix. Sometimes it was a little bit of me trying to help the different brands that we had in our portfolio of companies to help increase their capability. That was one of the items that we identified, which was, “We're hiring an awful lot of people and we're not growing to the degree that you would want to hire that many people.”
I've been at high-growth companies where we were hiring 5,000 people a year but we were growing crazy on the base that made sense to have that many people coming into the organization. For us, to hire the number of people that we were hiring at the time, you could tell we had a turnover problem. At the time, they were only measuring retention. They didn't understand that we were filling the same jobs over and over again.
When we flipped the metric to turnover, it became evident. On top of that, we did spend the time to quantify what we thought the profit impact was on turnover. It wasn't just the cost of hire, it was the cost of a vacant role, and it was the cost of unproductive labor throughout the whole year. If you have a branch that needs 10 technicians and only has 7 the entire year, that three-technician gap that you keep hiring and you keep losing, you've paid for 10 people but you only got production out of seven, you can calculate that.
You can say, “The cost of this to the company was a lot.” For a company our size, it was millions and millions of dollars. You're never going to get to zero. Each percentage point that you do reduce, your turnover drops directly to the bottom line especially considering how valuable our revenue is, it's a profitable revenue base. Especially if you keep them after 18 or 24 months, right after that, it becomes incredibly profitable. Once you put the business case together, it was like, “Yep.”
The turnover reduction program is our number one project for 2020. You finally get everyone there and then you get the whole leadership team mobilized around onboarding, leadership, training, pay plans, and making sure that you have everything in place to create the best possible environment for the teammates so that you can attract and retain better than anybody else in the industry. You have to calculate it. It's not just the cost hire. It's not just my indeed cost, my training, or my licensing fee that I have to pay. It's the other softer things that you're like, “I've paid for three people the entire year and I've got zero productivity outta them.” In this model, you can't support that.
Patrick Baldwin: There's a lot more than feel-good and cheerleaders, I'm hearing it. It hurts to even think about three unproductive bacon seeds. What advice can you give as far as preventing HR problems if we can get ahead of this and not just react?
David Dart: Making sure that you do have appropriate policies in place to guide you is important. You do want to document. whether you're a small business or a large one, you have to have certain things in place, that's your guidepost. That's the direction you're heading. If it's a law, it's a law. If it’s a regulation, it’s a regulation. Put the policies in place that are going to create a nice sense of belonging in the organization.
It gets people what they need but it gives you the ability to protect yourself and help you make decisions when something does happen. This is a human environment so you're going to get people from all walks of life and not everyone works incredibly well together and there are going to be issues that come up. My advice as a business owner or as an HR leader is you have to have common sense and courage.
Number one is you have to have common sense because we are in the human environment. Each situation that comes to you is going to be different. You have to take into all factors and not just go to the policy. Oftentimes I say, “Who wrote the policy?” “We wrote the policy.” I'm like, “Change the policy.” If it's not something that's legal or compliance or that we have to comply with, maybe we oughta use our best judgment here.
You got to have a lot of common sense because you got to know when to make the call. Sometimes it's like, “This isn't in line with our values. It doesn't violate the policy but it's not in line with our values.” You might have to make a certain call. In certain situations, you might be like, “Look at all the factors that are associated here. Let's keep the person on and let's put a letter to file and let's give them another chance.”
You can't just be black or white, yes or no in every single situation. You got to apply common sense. You have to have the courage to do the right thing, that's critically important. Sometimes that's not so easy to do and that means sometimes you do have to let somebody go. That's going to reduce your number of available technicians. That's going to impact your monthly take. If you look the other way, you're eroding the culture of the organization. That makes it a great place to work because if they're not behaving in the right values, you have to have the courage to do that.
Oftentimes there's addition by subtraction. If you take people like that out of the equation, it can be helpful to the organization. When I'm thinking about HR and the issues that I deal with on a regular basis and when I have HR business partners, I tell them the same thing. You can get high in HR in big companies if you have a lot of common sense and no courage because you're never going to push back on the business leader. You can do whatever they say and they'll be like, “I love my HR person, they're so awesome, and they do everything I want them to do.”
Sometimes that might not be in the best interest of the long-term health of the company or the shareholders. They have to have common sense and they have to have the courage to say, “This is a bad idea and this could put the company at risk in the long term,” or, “This could erode our culture,” or, “This isn't the right decision.” that's where I think HR can add some value if they have those two elements and any small business owner needs to have the same thing.
Patrick Baldwin: As you say that, this one sticks in my head. I've always told myself when that time comes and I have to let someone go not to tell them because it's going to put fuel on the fire for whatever reason they're not performing. Do you find that to be the right approach or does someone deserve to know why they're being let go outside of a layoff?
David Dart: It's important to tell them why you're letting them go. Reiterating, of course, that you're an employer. It is important to talk about, “Here are the things that happened and this is why we've made the decision to end your employment today.”
Paul Giannamore: What if you're firing somebody because of their gender? Would you let them know that?
David Dart: I would never do that. That's the reason why you better tell them why you're doing it because they might jump to some conclusion that's erroneous.
Paul Giannamore: That's why I bring that up because you hear that all the time, like, “He fired me because of my race,” or, “He fired me because of my gender,” or, “He fired me because of this, that, or the other.” An absent providing solid reasons, people's minds race.
David Dart: They jump to conclusions. You better have a good reason if you're terminating someone. My advice is to make sure they know the reasons why. I've been in HR for over 23 years and when I've conducted terminations, I can think of only off the top of my head right now, which is saying something because there's been a lot. I've been in companies that were not doing well. I did companies that we did restructurings so we’ve let go of a lot of people. I can only recall one that went awry and it's because if you treat them with respect and you tell them person-to-person why you're making the decision you're making, they oftentimes will respect that.
If it goes the other way, it might be because they might have other issues related to how their brain is processing. You do have to take that into consideration at times when you're letting somebody go, there's no question. In those situations, you might have security somewhere around the building. I've done a lot of those too and they've all turned out okay. It's about treating them with respect and being honest with them about why you made the decision you made. They usually move on in good stead usually, by and large. That's my experience.
Patrick Baldwin: Maybe I find the unusual in my experience. When I do tell them, I've lived to regret it.
David Dart: You open yourself up to further scrutiny if you aren't clear about why you're letting them go.
Patrick Baldwin: There's almost this equilibrium or this pendulum shift of demand and it has to do with unemployment. We saw where it was hard to get a job and now we can't get enough employees. I don't know the way it's headed today or tomorrow. It seems like it's always changing. Years past, I would think that you would come in, David, and be like, “Tell me why you want to come work for $8.55.” Seeing if you researched the website, if you went and google searched about our business, and then it's almost like, “I need a warm body with a pulse today.” How do you control that and what are the right questions to figure out if someone is a good fit for your business now?
David Dart: There are a lot of ebbs and flows to the hiring market and we're in one of those where the prospective employee has an awful lot of the leverage in the current employment market because many people have left the market. You do have to orient around what's in it for them. You have to make sure that you're conveying your candidate value proposition incredibly effectively and reaching them where they are so you have to track them in.
After that, if you do have a business sizable enough, there are a few pre-hire questions that you can have them go through, assessments if you will, of whether or not they're going to be a good fit, and that's something that larger companies are employing. There are many candidates that might come through the funnel and your manager's time is valuable, they're already stretched with all that's going on.
You want to do your best at weeding out those that you know for a fact because they might not be service-oriented and you can ask a few questions, “Do you love serving others?” You can ask the right questions to get to the point where it’s like, “If you don't like that, then you shouldn't be in the pest management industry. If you don't like serving others, don't bother.” That's the assessment part that can help narrow that down.
As the ebbs and flows occur in this current situation, differentiating yourself by investing in the hiring process all across the board is how you're going to have the best chance of success. I'll give you an example and I'm sure everyone in the pest industry has experienced this. Our dropout rate also skyrocketed in 2021. We interviewed them, they had an offer, they accepted the offer, and then they didn't show up for work. In a hiring environment similar to this one, it's getting in a little bit better, you have to engage that candidate throughout the entire process as if they're already hired.
You are making them feel like, “This is a place where you can be successful. What's in it for you? Let me tell you. We're going to make you feel important and we're going to connect with you. We're going to maintain that relationship all the way through the hiring process. Once you're here, we're going to onboard you correctly. We're going to make sure that you are provisioned and that you have the things that you need to do your job well and you have good training.” Even if you don't have it well documented, at least you have a mentor or trainer that can do the job well. Depending on the size of the company, those are the things that improve your success rate.
When unemployment is high, you have a better chance of being maybe lazy at that and you shouldn't be. You should always want to drive the right candidate experience because they could also be customers at some point as well. That’s why you should even double down on that in this industry because whomever you're taking through that process might, one day, need pest management services even if they didn't get the job in a positive light.
There are all kinds of reasons to keep the things up that we are doing today to improve our opportunity to get the best talent. You should continue those things on even if the market changes and unemployment goes way up and everyone should be lucky to have a job. If you treat them in this consistent way where it's like, “What's in it for you?” It can have a big impact on the overall capability of the company because you'll continue to get the best people in the door.
Patrick Baldwin: Continuing on that train of thought, we think about the roles and responsibilities.
Technician, you're going to show up at this job, you're going to treat for these pests, you're going to show up on time, treat your customer well, turn the money in, keep licensing, and be responsible with the chemical, the list goes on and on. Day in and day out, here are the things you need to do.
It's the soft things that get overlooked that I want to ask you about. Outside those defined roles and responsibilities, how do you have the conversation, or how do you define the outside of our work such as responding to emails, texts, phone calls, and interacting on social media? How do you lay out those expectations well for new hires?
David Dart: In the pest industry, you do have to be clear about the importance of customer retention. Therefore, understanding that your route is your business. You have to lay out the expectations that retaining these customers is productive for you because it does help with your compensation and it's important.
You put the emphasis around that and make sure you explain the importance of retention and then say, “The thing that you need to make sure that you’re doing effectively is putting the customer first. Call them every time and do it beforehand. Make sure that you tell them what you did after you were there.”
All those things will create a better environment for you to have high retention numbers. If for some reason they do end their service with us, follow up with them and save them. It's those things. You have to teach them how important it is to retain their customers because it's so much more valuable for them as well.
When you think about bringing them into the organization, one of the things that get overlooked, and this is simple too, if you're interviewing, be likable. That's why you should interview everybody before you hire them because a lot of people are like, “I don't need to interview. We just need bodies. Go ahead and we'll do direct hire.” You might want to have a conversation to understand if they can have an element of customer service related to their role because not everyone does. They might say, “I can do that.”
That's why we put in our revamped job postings emphasis on, “This is what you're going to do every day.” It wasn't a realistic job video where you're like, “We're following technicians around.” We certainly had some of those out there for them to watch. In the job description, in and of itself, in the job posting, you're marketing the role but you're telling them what's expected. You start that process early on.
“If you don't want to serve others, you shouldn't work at ServiceMaster,” that's one of the things that we said. It's the same thing for anyone in the pest services business. You can start marketing that right at the beginning. Make sure it's clear in your job posting. This is a huge part of the job, you're here for them.
Patrick Baldwin: What about the communication between the employer and the employee? If they've already clocked out for the day and I call them or I text them or I email them, do they need to respond to those? Do I define that upfront? Is there an expectation there?
David Dart: You do need to define it upfront or it's going to drive turnover and you've wasted your time again. If there is an expectation that’s special or is going to get done, you can have great annual take-home pay in this industry. There are some nuances to it because it is a service-related business. You have to be honest with them upfront, “In the busy season, it's not necessarily an eight-hour day. It could be a 10 and 12-hour day, maybe five days a week for a while. Here's the benefit of that on the other side.”
If you run your folks ragged by making them work 10 or 12 hours, the quality starts to suffer, safety incidences go up, and turnover rises. You always have to find the right balance of how often are you pulling them in. Being upfront about some callbacks they have to do and you might not get paid for those callbacks, which is why you have to do a great job and not get called back because that's unproductive service. You're not getting paid for it but you got to go and do it because the service wasn't done correctly.
Make sure that you're communicating upfront what the expectation is. It's not for everybody. The more you can explain it upfront as an employer to an employee, the better the chance is that they're going to accept it later on. If they feel like they've been baited and switched, that's when you lose people. There's so much available right now for them. They can go across the street and go get another job in this industry, especially if they're already licensed tech.
Patrick Baldwin: You're changing brands. You've got a new business. Right now, I'm a new employee. I'm putting on my Terminix shirt Monday morning. What does that look like from your seat in terms of culture and making sure that the former business now integrates into this larger corporation?
David Dart: The things that I need to provide are the ability to communicate benefits effectively and to make sure that they are provisioned and they have the safety equipment and the branding that they need and partnership with the business and operations. It relies on the branch manager that the branch manager understands that it's critically important to, number one, retain the teammates that we acquired. Number two is you got to retain as much of that customer list that you acquired as well.
If it's a business that maybe is in a new market that you're acquiring, that's a little bit different of a situation. Looking at the tuck-ins where you're absorbing them into an existing branch, you do have to make them feel pretty special on their way in because there are things that are going to change. As larger employers, sometimes we had the benefit of some additional benefits that they might not have otherwise had. There was a different approach to some of those.
The ones where there's a lot of pride in the brand and it's not a tuck-in and is one that you're going to rebrand, that's something certain companies do well and others don't. I would say that the pest industry as a whole, me being an outsider now, they're creating some issues by not integrating them more effectively on day one and building the capability of how to do that well. Friday, the deal closes. Monday, you open up shop as Terminix with the Terminix Green and that's where you're going. We occasionally did that but it was pretty rare.
Other companies in the industry have like, “It's not broken. Don't fix it. We bought it for a reason. Let them still operate their brand.” What happens over time is you start to grow all these branch networks but they're not tied back together from a systems perspective, a capabilities perspective, or a training perspective. You're diluting your brand in a lot of those markets too because you're now competing against each other.
Do you truly know what their SEO and SEM capabilities are and their Google Star ratings? Are you stealing from each other in the local market? When you go to google, “Pest management near me,” was talent consistent across both brands? Eventually, that scale becomes too much for that infrastructure that's not being built for scale. It can start to slow the company down. My personal opinion is we should be doing more preparing for an excellent day one where you do switch the brand over, that's mostly my opinion. It's hard to let go of some of these good local brands.
Paul Giannamore: When you first came into ServiceMaster, of course, that's an amalgamation of a variety of different businesses. When you looked at Terminix and when Nick came in, there was a big focus on a variety of different things but one being the comp plans and incentive structures and so on and so forth. What were some of the surprises that you saw when you walked into there or were there any?
David Dart: The complexity of the pay plan was a surprise. If it's hard for smart people to understand it without hearing it multiple times over and over again, then you'd probably have an overly complex pay plan. The way I learned our pay plan was connecting with the front line and talking to technicians to understand it. “Do you understand your pay plan and can you explain it to me?” Many of them couldn't.
There was one in particular up in the northeast, Joe Benedict is one of our top technicians, a five-star technician year in, year out. He's the one who initially taught me the pay plan. He took me to school, “This is how this works. Here are the things. If they change this, this could be a problem. If they changed that, that could be a problem.” He did understand the positives and negatives of the pay plan and helped teach me.
You have to make sure that you're connecting with the people who are also experiencing it every day. You can't sit on high and make decisions on how you're going to change the pay plan without understanding how they're experiencing it today. We used to use the term Brett the Tech. Anytime we were thinking about a pay plan, we needed to sit Brett down and explain it to him because he would drive it to, “I don't know anything about this. I'm starting today. How does this work?”
He's one of the smartest people I've ever worked with, ever. If it wasn't clear to him, he's like, “What are you getting at? This is way too complicated.” Those things, you practice that. Practice Brett the Tech. We would do that with each other to make sure that, “How are we making sure that we're making the right decisions around the pay plans?” That was a big surprise when I first got there.
Nick was big on servant leadership, that was something that he wanted to put in and he encouraged me to reach out to the technicians. He was adamant about that. Even though I was up at ServiceMaster, he was saying, “David, you go meet with anyone you want to in any business you want to learn as much as you can about how they operate.” I spent a lot of time in the field thanks to his encouragement.
The surprises were more around the variability in the model, the number of pay plans, and the complexity of the pay plans, those things I found out quite early. The turnover was probably the biggest a-ha moment. It didn't take very long to figure that one out that we were calculating retention in that turnover. Those were, in short, some of the big surprises that happened.
Patrick Baldwin: When you talked about the policies and the handbook, you used two words. You're going to define this for the whole industry so no pressure. Are you ready? You're looking for help. You're like, “Crap.” Fraternization and nepotism. How do they fit into the handbook?
David Dart: We hate when the answer is it depends but it depends. You do have to use common sense and when it's okay and when it's not. You'd have to be careful. If it becomes clear that nepotism is in play and you're putting incompetent people in roles that it's over their heads, you're going to lose credibility with the rest of the organization. I've been in a wide variety of different businesses and some of them privately held, including this one and a couple of others.
You can get exposed to situations where you might have someone in a role that's put in the role because they're part of the family or we acquired a company and you have to keep them because the husband is here and the spouse is there. The spouse is here and the husband is there. How do you explain that? In small businesses, that's oftentimes how it works, it's a family-owned business.
You have to understand that is certainly going to happen. If you're a business owner, you have to be also pragmatic about the capabilities of the person you're putting in the role. If you put them in a position where you have to do too much for them in order for them to be successful, you're going to lose credibility with the rest of your organization.
With respect to fraternization, you want to make sure that people are having appropriate relationships in the workplace. That's where you meet people. We spend a lot of time in the workplace. Romantic relationships pop up all the time. You should disclose them in certain situations if it could potentially become a problem or a conflict of interest. You have to use common sense on those things.
If you do have a subordinate-boss romantic relationship, it's inevitably going to go awry. Those things shouldn't typically occur. The policy should be like, “We're not going to have that in general.” If you acquire a company where the husband reports to the spouse in that branch because he does all the back office and she's the branch manager, what are you going to do? They're in the local market. You got to go somewhere else.
If you have enough scale, you can do it. You have to be practical about it. That's not the world's greatest answer. You got to use common sense. I'm not black and white on that stuff. I'm not like, “Absolutely not.” I don't like subordinate-boss relationships but in certain cases, you make an exception because of how the company was acquired and how the company operates inside your larger entity. You do your best to put some safeguards in place to make sure they're not making decisions that are not in the best interest of the company.
Patrick Baldwin: I was hoping for some black and white there. I got a little bit of gray.
David Dart: You're definitely going to get gray from me on that one. Being at companies where we've acquired a great four-location company and brought them into the broader entity where you can make logical moves where they don't have direct reporting lines, you do that, and you should. You don't want them approving each other's expenses and those things. You don't do that. You do your best to separate them but understand how they got there.
If it happens inside the workplace and it's your business and something else is happening below, I feel strongly that you should disclose personal relationships if they become more than casual friends because it can make other people feel alienated. That includes like, “I'm a service manager, I'm going golfing. I'm a male, I got three technicians who are male. We're a foursome.” That's not fair to the rest of the organization because that does become intimate.
It's a different kind of intimacy but you guys are close friends and will you be favored over for promotions and other better routes and those things? It's going to have the impression. You have to make sure that if those things are happening, you have to be careful about it. It's more prevalent than people see but you got to make sure that you're talking about it and that you have the ability to raise your hand if you don't think it's okay.
Paul Giannamore: David, you have a long and varied experience base. You were in the US Navy and you've done a lot of things since. You did spend a few years in the pest control space. What's one piece of advice that you can give your typical owner out there from an HR perspective? This is a broad question, you can go anywhere with it. The average guy out there has ten employees and those businesses are too small to have HR professionals. As you said earlier in the discussion, a lot of times, the management almost abdicates some of its responsibility to HR when its line managers and general managers should be getting out there, assessing recruits, and managing. Any advice in your mind for these small guys?
David Dart: It applies to both small and large companies. It is about training and building the best training program. Write stuff down. It's not a single point of failure one technician who's good at transferring knowledge because your best techs don't always transfer knowledge well. It's making sure you're documenting, “This is the way we do things at our business and I'm going to train you our way.” You think it's probably a differentiator for yourself.
There are 19,000 pest management companies in the US. How are you going to differentiate yourself? You should do that through excellent training if you set someone up for success. When they get their route and they have that first interaction with their customer, are they prepared and confident to do that? It's training.
Paul Giannamore: You would go all the way to, “What do we say when we answer the phone? What vernacular do we use when we greet somebody at their door?”
David Dart: That's right. Spend the time. What do you do when you drive up? Where do you put the cones? How do you approach the door? Do you take a step back? For every single thing that you do, you want to make sure that you're giving them a guide. It's what we call freedom within a framework, “Here's how we expect you to do it.” Not every time are you going to do it the same way every time. You're going to have to adjust to the customer. There are a lot of variabilities. There are route density, traffic patterns, and weather patterns.
If you're a small business owner, you don't have some of those complexities that you're dealing with because you're in one location or you're in a couple of locations and you're driving business there. You should spend the time to write it down and make sure that they can consume it. That's a good investment. You can hire someone from the outside to help you with that so that it's well done and well documented.
That's the advice that I would give any small business owner and any large business. It should be clear about what your first six weeks look like and what's their road to success because it'll drive turnover if they don't feel confident when they get out, “I can't be successful, therefore I can't make money, and therefore I need to leave this place.” It provides them a sense of belonging as well because they feel like they've been invested in it. It's not worth it to say, “Ride along with so-and-so and ride along with so-and-so.” Invest in the training and you'll see a step change in the performance of your organization if you haven't done it already.
Paul Giannamore: It's a great point. If there's one takeaway from this entire discussion, that might be the most important one.
David Dart: It leads to a lot of other things. It leads to turnover if you don't train well. Turnover is a killer. It’s the worst thing in this industry, pest management, and autobody.
Paul Giannamore: Any industry, I guess.
David Dart: It's probably worse in ours, in autobody, because it does take so long for people to get productive and there's not enough so you want to retain them.
Patrick Baldwin: Paul asked one question and he says that was the best answer. I'm like, “Wow.” Paul, do you need someone, an HR person, to put on your staff and replace the Mexican?
David Dart: You guys are trouble.
Paul Giannamore: He does a good job as a matter of fact.
Patrick Baldwin: Anything cringeworthy that you've heard on The Boardroom Buzz so far outside of today's recording?
David Dart: No. You guys do an amazing job with this. You guys are knowledgeable about this industry. I don't have any major regrets but if I had to do it all over again, I'd go back to high school. As soon as I graduate high school, I'd go get a pest license and start my own pest management business because it is an incredible business and it was great. You got to be humble because you're serving others.
All the small business owners or even pretty large business owners, their net worth, I'll never touch. Some of these people that I met with, I'll never touch their net worth. As hard as I've tried to work and try to build my own capabilities, I'll never approach their net worth. They're humble. In order to be successful in this industry, you need to be humble.
They're phenomenal businesses and you get to deal with people every day. I got a lot of time for this industry. It's amazing. You guys represent it incredibly well. They're very fortunate to have a vehicle like this to talk about the industry and share some best practices and insights. Everyone should feel good about what you guys are doing. It's great.
Patrick Baldwin: I appreciate it, David.
David Dart: The last two years of my career have been the best two years of my career and that's hard to say because I've worked at amazing companies. Amgen was a great experience there, a biotechnology company. It went from $3 billion to $15 billion in seven years almost all organically. 5,500 employees to almost 20,000 almost all organically. That was an amazing experience. I enjoyed the last two years at Terminix more than I've enjoyed any other time in my career.
It was what we were building towards the team we had put together. Brett Ponton’s leadership was critically important for us. We were building Terminix toward its full potential. I made some comments about how I've never been more excited about creating shareholder value at any company I've been at than I am at this one right now, today. This is September 2021. The next month, a few of us get called in to say, “We're starting a due diligence process with Rentokil.”
While I believe in that merger, I believe Rentokil is a great partner to us because they bring certain skills that we were building still and we bring a lot to the table for them too. Also, the markets that we exist in and all the positives that are with that. I was disappointed that we were starting that process because the opportunity was huge for Terminix.
I'd at least like to convey that because I believed in it. It was disappointing for me because these were the best two years of my entire corporate career. It was hard to swallow that we weren't going to get a chance to see the full work through. Hopefully, a lot of that stuff will continue on with Rentokil and as a combined entity, they’ll be even better together. That would be my anticipated outcome.
Paul Giannamore: Terminix got to the point where this time might have been the actual when they were able to pull it off. We'll never know because now it's part of Rentokil. It does seem like the era of stability had been ushered in after Nick's departure and Brett coming in. They're focused on the pure play Terminix brand. It seemed like there was a lot of promise in the future for Terminix, finally, after a lot of floundering around.
David Dart: It was the crown jewel, always. Over a long period of time, in part, it was used as a cash cow to help fund some of the other businesses and some of the other interesting ideas. It's nice to have a blend of backgrounds that come out of multi-unit as opposed to only manufacturing or those things. Brett and I, at one point, three months into his tenure, were up on the whiteboard talking about things.
We said, “From an executive standpoint, we will never hire another executive that doesn't have at least 1 of these 3 things. Do they have multi-unit? Do they have recurring revenue? Do they have route based?” If you don't have 1 of those 3 things, you won't get the model fast enough. If we can get someone who has all three, great. There's not a lot like this and that’s why it's awesome. It's such an awesome business.
We're like, “That's it, we're not hiring anyone else. Unless you've had multi-unit, unless you had a recurring, and unless you've had route base, you can't work here.” Unfortunately, I had worked for Ecolab so at least I had a clue but I had a lot to learn. Brett taught me an absolute ton. We all learned together and we all got focused on a strategy. Rentokil did buy us at exactly the right time because we would've been too expensive two years from now. They wouldn't have been able to afford us.
Paul Giannamore: you made the comment that had you had the opportunity to do it over again, you would've graduated high school and got into pest control. Got your license and started a pest control business. Back then, in those days, of course, there wasn't a whole lot of competition. There wasn't a tremendous capital flow into the space.
I'm wondering if the same is true now. If you think back to when you graduated high school, there was a duopoly in the US, Terminix, Orkin, and then a bunch of private players. If you think about it now though, there are many financial sponsors blowing all sorts of money in this industry. I got to wonder, relative to other industries if pest control has somewhat peaked and now it has begun making its descent due to its competitive nature.
David Dart: First of all, the model is valuable that you're always going to have an opportunity to build a great business because it's resilient. It’s an essential service if you will. There are many things related to it. The biggest issue, this is a speculation of course, but where's the roll-up happening? I'm surprised the roll-up hasn't started to become an avalanche in this industry. I do think there will always be an element of, “I want to support the local business owner.” Their barriers to entry will always remain low in this industry.
There are some unique ideas out there that could continue to allow it to be an attractive entrepreneurial. I worked for AAA student painters when I was in college. I was a franchise owner if you will and that's how I paid for my spending money and that kind of thing. I was a production consultant for them for a year. I had to go do Navy service so I could only work for about a month and a half so I couldn't take on it.
Those things, there are painting businesses, pool cleaning, and all these route-based. There are always going to be low barriers to entry but there's always an element of the bigger players do add a lot of value. There is a competitive advantage to that. That's why the top 100 in the pest management industry are exceptional companies in general, the ones that I met at least.
I'm super impressed, they are well-run. They have great training. They have great benefits for their teammates. They're recognized as an employer choice in South Carolina. They were recognized as an employer of choice. There'll always be room. I'm surprised that the private equity industry hasn't rolled more of these and stroke big checks because the opportunity is big.
Paul Giannamore: They're certainly in the process of doing it right now.
David Dart: I'm surprised it took so long. The collision industry is about nearly $40 billion so there's a lot more from a dollar's perspective than in the pest industry in the US. They're great businesses.
Paul Giannamore: David, I can't thank you enough for joining us here. We enjoyed the discussion.
David Dart: I appreciate the invite. I know it's a little bit different to have an HR guy because of most the people who read.
Paul Giannamore: Curse you, guys.
David Dart: I didn't grow up saying, “I'm going to be a human resource specialist.” Here I am. I'm not that kind of HR. I'm here to add value. You do have to watch out for yourself and have the compliance there but it's about enabling the only competitive advantage, people. It's the only true competitive advantage, that's it, particularly in this industry. I appreciate it.
Paul Giannamore: David and Fat Pat, till next time. Take care. See you.
Patrick Baldwin: Paul, I did not give you any warning on that nepotism or fraternization question. You didn't see that one coming.
Paul Giannamore: I didn't think about that.
Patrick Baldwin: You’re still wondering why I asked. We had hard and fast rules about it. When I came into Bugs, our office manager and technician were married. Not owners in this case. It was an issue. We set a hard and fast rule starting in 2010, “No nepotism other than this existing.” We didn't terminate over it. We grandfathered them in. It became all-consuming. These were not owners. It’s an unhealthy relationship in which their whole lives were consumed with the business in a way that they weren't owners.
Paul Giannamore: I remember you telling me these stories. They would go home and, at the dinner table, they’d even have fights over work-related stuff.
Patrick Baldwin: It was unhealthy. Great people.
Paul Giannamore: What did you do then if two people met on the job, fell in love, decided they were gonna get married, and the rules are already in place? One of them would have to depart?
Patrick Baldwin: After that, we did set a nepotism rule in place. That's different. I think about it in two different ways. The relationship, that's one. We had an exception for brothers. On the ones where the relationship develops, we figured out, “This is a relationship that we want to pursue and one of us needs to find a job elsewhere.” Let's make a plan. Let's help you find another job. Thank you for bringing this to our attention. It's best that we either get you in two separate branches apart from each other or help you offboard yourself.
We had that one issue with the husband and wife. We were anti-family relationships in the business. There was one that became so apparent that Eric brought his brother Chad and he's like, “If Chad's terrible, I'll be the first one to fire him. I'm putting my name out here, he's good at what he does.” As Eric got promoted, Chad reported to him. That was an issue once. Terminix took over if you remember that.
Paul Giannamore: I do remember that. What ended up happening then once Terminix took over?
Patrick Baldwin: They had to reorg the org chart and Eric could not be Chad's direct boss. There was an extra manager that got put in place to separate the two. It’s probably unnecessary at the end of the day. When it comes to approving reimbursements, which I don't even think much of like at Bugs, you got a fuel card if you're a technician. All the chemical and other ordering were done elsewhere.
Going all the way back to 2010, it was an issue when it was this technician only. The customer calls into the office and says, “I only want that technician.” The office manager begins to have this cycle of, “Only my husband. He's the preferred technician.” Do you know what Bobby and I did? We said, “If a customer calls in and says they only want him as a technician, anyone but him can go.”
Paul Giannamore: I remember you saying that.
Patrick Baldwin: Cut the head off of that. It wasn't despited but we couldn't let our business be defined by that one technician and our customers go that route with us so we had to maintain control. That's where the whole nepotism thing came from. Fraternization and nepotism play together. I thought it'd be fun. Why not? Buzzwords.
Paul Giannamore: What else should you take away from the chat with David?
Patrick Baldwin: I don't know if we said this but he's like, “I'm not the Chief Coddling Officer.” I was like, “That's what I'm talking about.” Some HR with a backbone. He limits himself by putting himself out there with courage. How much are you dealing with HR in the process?
Paul Giannamore: Usually, with the big firms, they'll have HR heads that focus on M&A and integration or special projects HR. If you think about Rentokil, Rentokil got a person in North America that focuses on the onboarding process, the harmonization of pay plans, and those things. Rollins doesn't have one that does it, particularly for transactions. Each division within Rollins has its own head of HR that works up to the Chief Human Resource Officer. They're pretty active. For the most part, it's pretty low on the rung. As many deals as I've done over the years with ServiceMaster, I never even had an opportunity to meet with David because they're typically not involved in the M&A aspect.
Patrick Baldwin: I remember there were a few due diligence meetings with HR specific to payroll because it was like, “How do we line up this compensation to this compensation?” It was tough.
Paul Giannamore: There's always a handful of HR calls and meetings during the deal process and a lot of it is, “Are there employee issues that we might have to deal with? Did so and so ever work for Terminix or Oregon or those sorts of things?” We're taking them from production and putting them on hourly. How's all this going to work? There are a lot of those things.
There's the legal review. Wage and hours always are important in these transactions. It's always diligence by the HR team like, “Are we paying our technicians the right way might we get hit with a claim?” These Chief Human Resource Officers for these large publicly traded companies, as we heard in the discussion, is a different thing than sitting down and dealing with wage and hour compliance and those things.
Patrick Baldwin: It's interesting. That is culture, vision, and mission value oriented. He's sitting on the right-hand side of the CEO helping execute human capital. That's the differentiator. It's a big darn deal.
Paul Giannamore: I remember sitting up in Liberty, New York, maybe about three hours or so outside of Manhattan a couple of years ago with Bruce Davidson who sold his business, Pestech. He was a shareholder in Copesan. He sold his business to ServiceMaster some years ago. Over the years, I spent a lot of time with Bruce. He’s a great guy and a good operator and he's a pilot. He had offices all over the state of New York. I come to fly his own plane out there.
I remember years ago sitting there having a drink with him and he said, “My biggest regret is not having hired somebody to focus on HR years ago.” If you think about it, the most important aspect of your pest control business is your people. He said, “Had I had my act together and hired somebody who was good to be able to go out and recruit and put together policies and put together incentive structures and retain these people and help me, my biggest regret is not having done it sooner because I would've been able to grow the business more.”
I listened to David and probably he's right on maybe the recruiter side because you always want to get additional people in the door. I do firmly agree with David and I'm glad he said it. At the end of the day, it's the manager's responsibility. It's the Chief Operating Officer's responsibility to do all of these things whereas HR should be there to push back on the executive if they're going down the wrong path. At the end of the day, building capabilities should be driven by management and not by human resources because a lot of it could be abdicated.
Patrick Baldwin: That was interesting to think about the branch managers fulfilling an HR function and then working alongside an HR manager and then you've got to have the consistency across the whole brand to make sure that it's executed well. Big shoes. Paul, speaking of these one-off topics, we talked about HR, we don't do that often. We also don't talk much about family, maybe a little bit. It drips in here and there. There's a lot of family in this industry. I'll tell you what, Mat Rogers, that interview you put out, was incredible. Mat is an awesome guy. I love the whole family. That was an awesome conversation.
Paul Giannamore: Patrick, I haven't added an opportunity to watch it. I don't often watch these after they were recorded and this is one that I do want to watch. It was very funny, his amazing homeschool and all.
Patrick Baldwin: He has an amazing homeschool?
Paul Giannamore: Yes, amazing homeschool. It was an interesting dialogue, for sure. Mat Rogers is a great dude. I'm happy he got the opportunity to come down to Puerto Rico and spend some time. I had a nice dinner with him. We went out to Dorado. Of course, I sat him down. That particular discussion was less business and more family if I remember correctly.
Patrick Baldwin: We tend to avoid some of these woke or anti-woke conversations. You are clearly apolitical, at least that's how you identify. Mat has taken one for the team having that conversation. Mat, I can't imagine what you went through. He and I have had phone calls when he was going through that and I can't even stomach it.
Paul Giannamore: It's what's going on in the USA today. If you haven't had an opportunity, go to Potomac.TV and take a look at Mat Roger's interview here in Puerto Rico at Monte Cristo. It was a great discussion. He brings a lot of energy.
Patrick Baldwin: I love it. Guess what?
Paul Giannamore: Yes, sir.
Patrick Baldwin: Guess who I get to see?
Paul Giannamore: Who?
Patrick Baldwin: You.
Paul Giannamore: I will be there. I'm flying in, Patrick.
Patrick Baldwin: I'll see you in Tampa.
Paul Giannamore: I'll see you in Tampa, Patrick. Until then, have a good night.
Patrick Baldwin: See you, Paul.
Paul Giannamore: Bye-bye.
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