Patrick Baldwin: I canceled my service two weeks ago. You've got my credit card and you ran it one too many times, I can't believe you did it. I need my money back, I need it back now, and I don't know what you're going to do about it, but I'm pissed.
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Patrick Baldwin: Seth Garber, welcome back to The Boardroom Buzz.
Seth Garber: How are you, Patrick?
Patrick Baldwin: I'm good. You sound like such a robot whenever you say that.
Seth Garber: It's my unauthentic episode voice that I use just for you, Patrick.
Patrick Baldwin: That's terrible. I was asking you, Seth, the last time you were on The Boardroom Buzz, we hijacked it. Paul is out of the country and has asked Seth to come step in. What was the last episode you were on, which one was it?
Seth Garber: Honestly, I am not sure, it was a while ago.
Patrick Baldwin: You said it was the one with the most downloads, in your humble opinion.
Seth Garber: Sorry about that. I didn't say that publicly.
Patrick Baldwin: That's true. I've repeated it.
Seth Garber: I might have.
Patrick Baldwin: Episode 116 Revenue Plateaus was a great one. It's been helpful because I've had a lot of people call in and email in and I've said, “This is one that's going to help you get to the next level.” I appreciate your expertise on that one. Now that we have taken over The Boardroom, Seth, I do have some questions that work up between these every fifteen or so episodes that you decide to show up and help co-host. I've got this list here and one of these came to me as a big shock.
Naturally, for whatever reason, I’m just a guy, maybe it's a peacemaker, that says, “I'm sorry.” Whether it's at home or business and a customer calls in and I didn't meet their expectations, I would right out of the gate deflate this and say, “I'm sorry. I'm sorry you're experiencing that problem or that pest or our technician left your gate unlocked.” I don't know why but, “I'm sorry.” Like Seth Garber, what do you do? You tell me I'm stupid? What was the word?
Seth Garber: Maybe too nice.
Patrick Baldwin: I can live with that. I've never thought of another way to handle this.
Seth Garber: You're surprising me with these so I'm glad. That makes it a little bit better. Before we get into that question, weeks ago, I was up in Michigan doing a mini-conference. One of the operators who's brand new and building a company asked an interesting question. He goes, “We all know the customer's always right.” I laughed quickly and I was like, “Really?” Other people in the room were like, “Nope.” The other people in the room were large organizations. He was a growing company.
The fact is that this all ties together. The question is the customer always right? The bottom line is that if the customer was always right, why would they be calling a professional to take care of their problems to begin with? Why would we allow the customer if they're right to tell us what to do and how to do it? That's always resonated with me.
When I looked around the room and we saw all these operators who had growing companies running from $1 million, the largest one in the room was probably a $16 million or $17 million company, the people that were growing the organization were immediately turned off and they said, “Guy who's growing a brand new company, that's going to help you.” More importantly, when we get to this question that you asked, why don't we apologize and think about it for a second? If I said to you, “Patrick, this is bothering me,” and you immediately said that you're sorry, are you accepting responsibility for what I'm saying even though you may or may not have done it?
Patrick Baldwin: I'm thinking about how to answer this. Can you say that again?
Seth Garber: Let me rephrase the question for you. For example, if I asked you a question and all you wanted to do was appease me but in order to appease me, all you did was immediately apologize, what's happened there? If we think about it in a deep way, what's happened?
Patrick Baldwin: I feel like I'm getting pinned into a corner because I don't know another way to answer or get myself out of this other than to accept responsibility.
Seth Garber: That's it. No matter what, the second that you say, “I'm sorry,” you've accepted responsibility immediately. What we found over the years is that a lot of times, when we apologize to a customer, we didn't do what the customer's saying we did. Alternatively, the customer may have done something that didn't help us be successful.
We've studied this for a long time and what we've typically seen is a customer calls into an office and says, “I'm having a bunch of issues.” The CSR immediately goes, “I'm sorry. We'll get that taken care of for you.” We send a technician out, we take a look at it, and their bunch of issues is a dead roach, or their bunch of issues is they didn't clean their house up correctly. What we've done is accepted responsibility and created a level of inefficiency for our business. The same thing with billing and the same thing with a multitude of other things. What do you think?
Patrick Baldwin: It's definitely a paradigm shift for me. That's what is ingrained in me and that's what we trained our CSRs to do the same thing. I'm even sitting here thinking, “Your technician didn't show up today.” “We had GPS in the vehicle.” CSRs don't have the GPS right at their fingertips. It was almost like a stall or buying time or like, “I need to do some research,” or, “My service manager needs to do some research to get back to you”.
It's like, “I'm sorry about that. I'm going to escalate this effectively. Long story short, we'll reach back out to you and let you know what happened,” or, “We'll come back out,” or whatever. The inefficiencies like that are screaming at me though. This does sound like every call is going to sound like an extra callback or trip.
Seth Garber: It's lots of other things too. Think about billing, the customer calls in and says, “You build my account too frequently,” or, “You build my account but I didn't get service.” For example, let’s a lot of clients or a lot of companies are on subscription models. Let's say that you're a company that bills half your customers on the first of the month and a half on the 15th of the month, which lots of companies do, your phone is blowing up on the first of the month with customers who forgot that they're paying a subscription.
The customer says, “You build my account,” and the CSR immediately says, “I'm sorry.” What does that do? It puts your company immediately on the defensive. What happens? We're then saying, “You're right, we did do that.” The fact is that the customer has a subscription and they're supposed to pay that way. The customer is expecting some type of benefit or some type of offer for them to feel happy again as us as a company.
It's interesting. It's the same thing in the field. It's the same thing all over the place. There's a lot of tactical training that goes around this. When we get into it, if a customer calls in, the reason we push CSRs into playbooks is that it controls this narrative and it stops us from refunding the money, it stops us from doing extra services, and it stops a lot of these things. We teach them a little bit differently at the front end, which is powerful.
Patrick Baldwin: Are there scenarios in which this doesn't apply? Would a company ever say sorry?
Seth Garber: It is okay. The clients that we work with probably wouldn't hear it too frequently simply because we ingrain this in as part of the training culture because we would rather solve the true scenarios than apologize. There is a time and a place. In our world today, we've become accustomed to immediately apologizing. The word, “I'm sorry,” has lost its authenticity.
In certain scenarios, if you have truly made a mistake, and in your heart of hearts, even if it's in that moment of the three minutes you're on with the customer, if you truly believe that you're sorry and you've caused a bad experience for that customer, I do believe it's necessary. If not, it's just a word that we overuse in our society today and it's an easy way to check a box and feel better for ourselves versus accepting the responsibility and trying to make things better.
Patrick Baldwin: Naturally, we're inclined to say no right off the bat. My older son’s go-to word for a long time was, “Sorry,” and now, it's, “I love you.” It's interesting, over time, if he misses part of a conversation because he's got an AirPod in or something, he goes, “Love you.” He has no clue what's happening.
Seth Garber: Smart kid.
Patrick Baldwin: It used to be. What if billing happens, they get billed on the first of the month, they call in, and they say, “I canceled service.” What is the first word out of the CSRs mouth when it's like, “I've got billed. I'm mad. I canceled my service and you need to refund my money.” The CSR answers the phone, what is the first thing they do to de-escalate and solve a problem?
Seth Garber: Let's get right into the playbooks. Based on the training we do, I would suggest any company employs this is that I'm a big believer that every phone call starts with gaining control of the discussion. The reason I say that is because when a consumer calls in for any reason what so ever, they're calling in under a level of stress. When they call in under a level of stress, we don't know what's causing that stress. The faster that we can take control of the discussion, the faster we can support getting them off the phone and back to their life and stop thinking about pest control.
Regardless of the reason they're calling, regardless of how aggravated they are, I always simply tell the people when we train, “Let's not interrupt them. Let's get out everything they want to get out,” and then it's simple. “Mr. Customer, I'm more than happy to help you out. Would you mind if I ask you a couple of questions so I can pull your account up in front of me?”
Patrick Baldwin: Say it again. I've just vomited all my vile and angry reasons. You build my card one too many times and you're saying you're going to sit there and listen to it. Say it again.
Seth Garber: Do you want to go ahead and role-play it on The Buzz?
Patrick Baldwin: You do like this role-play thing.
Seth Garber: I'll answer the phone. Are you ready? Bring the heat, Fat Pat. We did hijack this whole entire show from Paul. He's going to listen to this and go, “Oh boy.”
Patrick Baldwin: I hope he listens.
Seth Garber: Thank you for calling Fat Pat's Pest Control. This is Seth. How can I help you?
Patrick Baldwin: Seth, I can't believe you did it. I canceled my service two weeks ago. You've got my credit card on file, you ran it one too many times. I can't believe you did it. I need my money back and I need it back now. I don't know what you're going to do about it but I'm pissed.
Seth Garber: I'm more than happy to help you. If you mind, let me get a little bit of information from you and I'll pull your account up and I'll be able to get you taken care of. Would that be okay?
Patrick Baldwin: Yeah.
Seth Garber: What was your first name?
Patrick Baldwin: Fit.
Seth Garber: Your last name?
Patrick Baldwin: Pat.
Seth Garber: I've got your address here, it's 123 Main Street, Waco, Texas. Is that right?
Patrick Baldwin: Yeah, that's close enough.
Seth Garber: Tell me a little bit about why you called again.
Patrick Baldwin: You ran my credit card. I want my money back.
Seth Garber: As we progress through this, we're going to get into different methodologies and things like that. The reality is that what happened is I was able to de-escalate you and maybe you're going to keep yelling but I'm not going to move forward in our discussion until you hand the conversation over to me. That way, I can do my job, help you out in whatever the case that might be and then help you get back to your regular life and stop thinking about pest control. All I'm going to do is simply get permission, you're going to transfer the call over to me, you're going to hand me control, and then we're going to move forward. That's it.
Patrick Baldwin: I do feel calmer even though my anger was fake but thank you.
Seth Garber: Does that feel better for you?
Patrick Baldwin: You didn't say sorry. Is it a magic word or is it an emotion that they've got to evoke to get control?
Seth Garber: No, I don't think it's an emotion or a certain statement. The biggest component is understanding that the most important thing you can do for that customer is to get control of this discussion so they can get back to their life, it's the most important thing. That doesn't mean accepting responsibility for something that you're not sure is accurate yet.
The fact is, with this customer, what they may be saying could 100% be accurate but we're not going to accept responsibility until we know it's accurate. Our obligation as a CSR, whether we're selling or any of this stuff, is to get control of this discussion so we can help this customer get back to their life in the fastest way humanly possible. The longer we let them rant and rave, the more we apologize, the longer they're going to be on the phone and the more aggravated they're going to get.
Patrick Baldwin: If you were to interrupt me while I was talking, that would probably aggravate me more in the sense of I'm angry and calling and I feel entitled to get my money back. You told me don't interrupt. How do you know when you have control of the conversation?
Seth Garber: As soon as they say okay.
Patrick Baldwin: I finished my rant.
Seth Garber: I'm more than happy to help you. Would you mind if I ask you a couple of questions first? Would that be okay?
Patrick Baldwin: Sure.
Seth Garber: Psychologically, you've transferred control of that telephone call over to me and now you're going to answer any questions that I want.
Patrick Baldwin: Try me.
Seth Garber: Do you want to do it live, are you sure?
Patrick Baldwin: Yeah.
Seth Garber: Should we do it again?
Patrick Baldwin: No, keep going. Now what? You asked me for my name and my address.
Seth Garber: That's okay. You might be correct. My point here is that you might be correct. We might have overbuilt you, we might have charged your card, and you might have canceled the service. Now we have a chance to take a step back and take a look at your account without the pressure of you being angry with us and now we can make the right decision for the business. Maybe I do need to refund your money in this scenario. I'm going to try to save your business ultimately. The fact is, in this scenario about not apologizing, that's the critical part.
Patrick Baldwin: If you had apologized, then what?
Seth Garber: I've accepted responsibility immediately. In that scenario, I'm refunding your money basically no matter what we do moving forward.
Patrick Baldwin: You're right. You're doing your research and you're adding notes. Let’s say Fat Pat was in the wrong, would you accept responsibility by saying you're sorry and move on?
Seth Garber: This comes into that killer instinct of how good your CSR would be. We've been doing this for years. Let’s say we did overbill you. I'd probably be good at the thing. I'd probably say, “You're correct, we did overbill you. I'm happy to refund your money. However, what I'd like to do for you is XYZ and make you feel good about potentially staying with our company.”
The reality is if we boil it down, the customer acquisition cost in our industry is high to generate a customer. Right now I've got someone on a call who not only is a past customer but we also know that they have the propensity to buy pest control service. Why wouldn't I take another shot and try to convert that customer? I'm going to push pretty hard to try to convert that customer back to stay with us in some capacity even if I have to eat a service to do so.
Patrick Baldwin: The internet and cable provider, when you get to the point where you are escalating to cancel service, it sure feels like it's some of their best salespeople that are the most empowered to save that account. I don't know if I've seen that done in our industry.
Seth Garber: I would agree with you. I have seen it done in our industry. It's uncommon. Some people may like what I'm going to say and some people may not. Sometimes we don't necessarily understand the value that a CSR is to the company. Too often or not, we try to rush training with CSRs. We've got clients who I know are friends of yours and they have a nine-month training program for their CSRs, it's probably the most elaborate one that I've seen. They have stages 1, 2, 3, 4, and 5, and their CSRs earn the ability to do different things within the organization over a nine-month period, it's unbelievable.
Most companies aren't willing to commit to that type of resource. We could typically get a CSR selling at around a 70% close ratio on inbound sales within about a 4 to 5-week period and we can get them trained within about a 13-week period to be proficient. If you think about that, coming from me, we do training all the time and build these companies all the time, what I'm describing to you is the best in practice is a nine-month program, which is three times as long as the programs that we define. Companies are doing it.
When you look at the cable companies, they put their people answering the phones that are new on the phone and they escalate, escalate, and escalate. They utilize a queuing process in order to escalate and they hope that you get off the phone and leave it as is through that whole process. In our industry, some companies do it, a few do it incredibly well because we tend to hire A CSR, put them on the phone, and hopefully they do a good job. In most instances, even larger companies.
Patrick Baldwin: Sticking with this thought, upset customer Fit Pat calls Fat Pat’s about this billing issue. Once you answer it, maybe you're five weeks in, you don't have the ninth month of training, the ninth-degree black belt there. Are you handing it over? Are you escalating it and you're giving it to the next person that's equipped to handle it? Are you trying to do it on your own? If you were consulting fat paths, what would you train new CSRs? They're not equipped to handle that call out of the gate.
Seth Garber: Due to the nature of our business, every company has its own culture and its own things that we have to take into consideration. However, if I had to paint what I would call a good model, maybe not the perfect model but something good that somebody who may be reading this episode could think about, I would look at it as two separate approaches. The first approach would be that CSR has got to have certain things that they can do and certain things that they cannot do. That may be, as an example, customer calls to cancel.
A cancellation is that CSR would have somebody else in that office to who they could transfer that call and have the discussion to try to save the account. A lot of companies that have inside sales teams may transfer that person to an inside salesperson or the more sophisticated companies would have retention managers. You've got to be pretty large to validate having retention managers. That would be one. I'll give you the way that I like to utilize in a second but the other way would be that CSR, which a lot of companies do, essentially tell them to take their best shot and that's what happens in most companies.
If I went and called companies today, I would bet that 75% of companies I called, that CSR has the ability to cancel. In that same group of 75%, I would tell you that 90%, if not more, and I'm making these numbers up, doesn't even attempt to save my business. A lot of times, that's what happens. Some of the readers are going to think I'm crazy here but if I had to build a model that helped with cancellation, from a strategic standpoint and what I would probably consider, is that the CSRs are not allowed to cancel the customer. It must be canceled by somebody else in the organization.
The process would look like a cancellation call comes in, the CSR takes the cancellation, the CSR says, “Unfortunately, I can't handle the cancellation but I'm going to have someone reach back out to you today and give you a call or in two days and give you a call.” I would pass that on to potentially our senior-level CSR or a service manager or whomever, someone who could earn that customer's business. Give that customer the time to cool off and then have the discussion.
There are two reasons I would do that and the first reason is that a good portion of those customers are going to stay with you after that call. Another good portion of those customers are going to decide that they don't want to cancel because you may not have been able to get in touch with them for 4, 5, or 6 days, and you may be able to get another service. You'll have some that will cancel. I like the model because now what we've done is we've said, “You're important to us, the customer. We've earned your business. You've paid us.”
Now we have a second step that we need to do. Some customers are going to get incredibly pissed off here. The trade-off is that you're going to keep a lot of customers. I'll give you some examples outside of our industry. When we were in the tech world, part of our retention strategy is that we would build queuing processes around cancellation. What that would look like is the customer would call their customer success manager and they would say, “Customer success manager, I want to cancel my program.” The customer success manager was trained in order to save that customer.
The customer still says, “I want to cancel.” The customer success manager then says, “Let me walk you through the process of cancellation because based on your agreement, you have a cancellation clause. However, we can help you out with that.” The customer gets super mad about the cancellation clause. We then say, “Within the next three business days, we will call you.” By design, we slowed down the cancellation process and built a queue around it to give that customer a chance to cool off, as well as to give our team members to look up the account before having that discussion.
Our leaders on the client success side or retention side would come back in with some type of a potential offer or some type of one-extra that we could offer to them, and it worked like a dream. We deployed that. The percentages are going to be a little different for the readers here. The churn dropped substantially by almost 40% once we deployed that process in the tech world, which was pretty amazing.
Patrick Baldwin: How much later would that call come back to a customer? They've called to cancel and then you're saying it goes through this queue.
Seth Garber: In that model, three days. We've done different variations of this but it was a fully automated process. Client success would essentially mark the customers wanting to cancel and then three days later, it would trigger a flag in the system of the client success retention people, and then they would follow up with them. We would describe that to the customer. Honestly, we saved a lot of clients that way.
Patrick Baldwin: Would you deploy that in pest or have you?
Seth Garber: We made a big mistake with it. I'll tell you what the big mistake was. When we originally did it, we did it in the wrong service type. Originally, we attempted to do it on the lawn side or fertilization. Where we screwed up when we did this was that fertilization cancellations are due to things that are visually impacting a customer. A customer calls in super pissed off because their lawn is brown, super pissed off because it was scalp or whatever. They have this visual reminder every single day of how pissed off that they're waiting for that call.
The first time we did it, we did it in the fertilization space, it was an absolute mess. The second time we did it, we did it in the mosquito space and it was an absolute home run. I'll explain why. In the mosquito space, mosquito is a fairly luxury service. It's an expensive service for a lot of homeowners because we tend to sell mosquito to not necessarily our ideal customers, we tend to try to sell to everybody. What would happen is the customer goes out and the cancellation would be because we're getting bit up in our backyard but we have a mosquito service.
The mosquito company comes out and attempts it again. It rains on the property. Historically, we would try to rationalize with the customer and talk about rain and all these things and how they should help us out and CSRs would try to do that but it would fail. What we found with Mosquito, which I found interesting, is that when we made the customers wait three days before they got the phone call, and it might have even been four days, now we had an opportunity to control the mosquitoes again or the weather shifted and the customers would stick around.
I don't have the math right now but we were able to reduce the churn to mosquito, which is always something people talk about. The pest industry worked fairly similar to mosquito. However, the one hard part is when you're dealing with a big volume of this, if you don't have a retention team, you've created a tremendous amount of work. A lot of companies will try to do this with their service managers. Frankly, the service managers are simply too busy to follow up with the customers when you get to scale. There are probably a million ways of creatively doing this that I'm not even thinking about right now.
Patrick Balwin: I heard the creative way in mosquito service. If they're still getting bit by mosquitoes in the next three days, you have to go make a service call unannounced.
Seth Garber: Frankly, we did it in a couple of markets. We did it in a Florida market and we did it in a Texas market. If I looked at it, Florida didn't work as well. Texas worked pretty well. The one that we had deployed was in the Dallas market. In the Dallas market, you do have pretty good temperature swings from time to time and in South Florida, you don't. We may have gotten some winds there simply due to the weather swings too.
Patrick Baldwin: I don't know if you know that about Texas weather but if you don't like it, stick around. It's always changing. I've lived here for years and years and it's always been the case. A question, going all the way back, I'm sitting here racking my brain, been in the industry for over fifteen years, and a call comes in from a prospect, “I've got ants in my kitchen,” or, “I got bedbugs,” or whatever that is.
In the sense of training and instilling empathy in the CSRs, it was like, “Sorry you're having that problem,” or Sorry to hear that,” or, “Sorry you've got ants in your kitchen.” That might have been the first word out of their mouth after they said, “Thank you for calling. This is so-and-so.” I don't even know where to start now. I feel like I'm starting all over. Thanks. I don't know what to do.
Seth Garber: Let's put it out there. Does anybody ever want to hear the word I'm sorry?
Patrick Baldwin: I do.
Seth Garber: If you're a brand new customer calling a company, do you ever want to hear sorry?
Patrick Baldwin: I wasn't talking about business, I was talking about in general. Come and tell me you're sorry.
Seth Garber: If I'm going to teach a CSR team without going way into the sales process, if a customer calls in, would they rather hear, “I'm sorry,” or would they rather hear, “Not a problem. I'm happy to help you.” Think about it. The customer calls in, “I've got ants in my house. I'm freaking out. My wife's yelling at me.” All I hear is, “Not a problem at all. I'm happy to help you out. Would you mind if I ask you a couple of questions first?”
Patrick Baldwin: That is different. My rule of coming from no problem is when someone says, “Thank you,” and instead of saying, “You're welcome,” it's like, “No problem.” That's different. We're an expert. I've been here and done that. You go into your questions, “Mind if I ask you a couple of questions to get control?”
Seth Garber: Fat Pat, you got to get back on the mic.
Patrick Baldwin: I'm back. I said sorry. I'm right now processing what you're saying. You and I have these conversations. We're coming from two different directions. We're wired very differently. This is one that's throwing me and I'm now wrapping my head around it and how this would work and implement this in the business in the future. We've talked about sales processes and other conversations we've had and I still can't wrap around it. You've developed some world-class sales processes and I'm still learning them and still trying to understand them.
Seth Garber: What we can't control is the level of empathy somebody has in a conversation. We have a team of CSRs. We can't say, “We want you guys to pretend to be empathetic.” We can't do that.
Patrick Baldwin: You can't fake that.
Seth Garber: That's the point I'm making about, “I'm sorry.” The term I'm sorry is overused in the world today. If you're not looking at someone and you're on a telephone with someone, does it ever come off as super authentic If you don't know that person?
Patrick Baldwin: You're correct.
Seth Garber: Maybe it works. It works, which is what I care about when we start talking about building these companies. The second question is that if the answer is yes, how do we ever create scale? The fact is the concept that I’ve given you or that we talked about can create scale because we can teach someone how to do that. We can't teach someone how to sound authentic on the phone, we simply can't do that.
If you think about someone like me who's Incredibly regimented. We won't go into my whole daily routine but I'm incredibly regimented. I don't differentiate in any aspect of my life at any point in my day, for the most part. If I get hired as a CSR, how in the heck is someone going to come to me and say, “Seth, we need you to seem authentic when you talk to the customer.” I'm simply not going to sound authentic. I'm going to say, “I'm sorry,” and they're going to say, “That guy is not sorry for me at all.” That's the first thing they're going to feel.
Patrick Baldwin: It's right. This is cognitive dissonance. You saw me grimacing over here. I am unwinding years of this. We would hire our CSRs almost based on the empathy scale. We went through different personality profiles and all that stuff but I'd be looking for empathy. You're saying that's hard to scale, that's hard to find that personality, and that you can't train empathy to everyone. You're saying that based on that playbook, you could scale the business.
Seth Garber: We can get way into personality profiles. Paul is going to listen to me jump on here and hijack The Buzz and go, “Really?”
Patrick Baldwin: He'll never travel again.
Seth Garber: He's never going to travel again and go, “I've got all kinds of thoughts around this stuff.” I like CSRs closing business for most companies up until a certain size, I like that model. If you think about the person who's going to close business, do you necessarily need to identify that they have a high level of empathy? I don't think so.
I want to know that they're trainable, that they're coachable, that they want to work hard, and that they understand how our business is moving forward. What's important? How do we make money? I want someone who can learn that versus do they sound good on the phone. Do they, by profile, have a high level of empathy? I would get it. If I could get someone that's highly empathetic and understands that, that's a huge win for me. We've seen them out there. We've seen people like that. That's a hard model because the profile is the opposite.
Patrick Baldwin: It's eye-opening. I probably represent what happens in the industry.
Seth Garber: What's going to probably happen is readers are going to come and all of a sudden, they're going to realize how often we say I'm sorry in their offices and personal life and things like that. People will start to think about that, which is important. You and I talk all the time and the reality is that if I screw up, I'm going to apologize. If I don't screw up, I'm not going to apologize.
Patrick Baldwin: I don't remember the last time you screwed up.
Seth Garber: I screw up a lot, let's be honest. The rule of thumb is we've gotta get 1 out of 10 right in the company. Organizations grow like crazy and people always laugh when I say it but it's the truth. If we get one thing right, we get to grow fast.
Patrick Baldwin: Seth, we went and spoke at WolfPack, which was a conference, they're in Florida, and both home inspectors with some pest control experience. There were some there that have pest control experience but a lot of the attendees were home inspectors that were looking into pest control or looking at, “That's an attractive business. It's worth a lot,” and all that stuff. Interestingly enough, I had a conversation before we started recording in which a pest control owner is using a software that will allow a home inspector in his area to go out in their state.
The home inspectors can go out and inspect for termites. They can be licensed that way. They could give a termite proposal while they're doing a home inspection and also give a pest proposal. It would feed into the CRM. All of a sudden, it's now a good lead, a good proposal estimate for the pest control owner. This is a sizable home inspection business. His question to me is, “They're asking me for equity and he's asking me, ‘What should I do?’”
Seth Garber: I don't usually skirt around this but I'm going to skirt around this a little bit. I know you know this but we support some of the most powerful home inspection companies in the US that have pest control operations. I do know these businesses intimately. Let's start with that question first. Giving up equity in your pest business, from my perspective, is a personal decision. Let's talk about the landscape for a second because that's going to paint a better picture. For our home inspection clients that have pest control companies, don't worry, I won't say anything too crazy here, maybe a little bit.
Patrick Baldwin: We'll see.
Seth Garber: Paul would have a much better way of saying this but the landscape right now is the economics are changing. The economic conditions are changing tremendously. People were concerned about the real estate market slowing down. Home inspection companies as a whole, unless you're powerful, this is the time when your business can slow down. Home inspectors are looking for recurring revenue opportunities to diversify their businesses into other industries. Frankly, pest control does make a lot of logical sense.
The interesting thing about my perspective here is that I did address this 4 or 5 years ago. One of the things that we were facing is a lot of certified operators were essentially renting out their termite licenses to home inspection companies, which is illegal in most places. I was pretty adamant about my feelings on that. When I saw that, it hurt the industry that I care about the most, which is the pest industry, which is where we grew up.
As things have progressed and I've watched home inspection companies become more and more sophisticated and do “real partnerships” with pest companies or start their own pest control companies, I'm pretty supportive of it. Now they're running bigger businesses, better businesses. The other component is that they're doing it right. Years ago it wasn't being done right and today, it's being done right.
The question I would ask myself is if I'm a pest control owner and a home inspection company and a sizable company comes to me, if I can get those leads over, and if I'm playing in a legal ballpark where what I'm doing is legal where it's not in cahoots and everything is by the book, that's a whole lot of cheap leads. If the pest control company knows the methodologies, which is what we tend to develop for these companies on how to convert those leads before those people move into the home or directly after they move into the home, this is an incredibly lucrative business for our friend who asked that question.
As relates to equity, I probably would say that unless it's an incredibly close friend, I probably wouldn't give up equity immediately or I would have some type of an earnout to where they're earning equity over time probably makes logical sense based on can they produce the amount of leads that we had talked about? If they can, maybe equity is okay. If not, I probably would start with some type of revenue share relationship.
If I did that, I would be sure that it's contracted. I would be sure that we've clearly defined the methodology for tracking and then we clearly define how we're going to report. That's how I would probably start. If it turns out to be a lucrative relationship, maybe equity is okay. A revenue share opportunity here is probably better for both parties, in all honesty.
Patrick Baldwin: It was interesting because he listens to The Buzz. I said, “What does Uncle Paul say is the most expensive form of capital?” He got it, equity. I feel like answering this now with Paul listening, I feel like Paul is going to do his homework and listen to this episode. Paul, this is my answer. There are 5,000 leads and 5,000 home inspections getting done a year by this company.
He referenced across the country, “This home inspection and pest control setup generate roughly 70% from the home inspection to some pest or termite lead.” They're like, “If I did 35%...” That's pulling a number outta your butt and I don't like that. I don't like that math, personally. I said, “Instead of going to equity, let's go from the other direction. Slow down. You sound super excited. It's a great opportunity. I'm not trying to take away from it. You can think more rationally if you're not jumping to conclusions here getting all excited. Hold on.”
Slow down to start with. I said rev-share, that's my number one, and that's where I'd start. I know when we sold termite and pest control, we'd beat 10% sales commission on one time and 15% on recurring. I know right out of the gate, I can safely give 15% rev-share, which would've replaced 15% sales commission. Apples to apples as close as possible to me. They're not paying another salesperson. There's 15%. That's where I said to start.
I said, “You set some annual or semi-annual review. Maybe it's a six-month reporting or a one-year review out in which you are looking at those numbers.” He said, “We thought 5,000 leads, 35%, and we're expecting 1,500 roughly leads to come in. We're going to close. How many of those are we going to close? Open book, here's everything. I'm going to tag all these in the CRM. Here's everything.” Now we can have that conversation about rev-share and we can review it a year from now. They have not done business before.
In this case, the home inspector company is giving leads to someone that service is not good. They're getting bad reviews. They don't have a CRM that supports their home inspector. It's labor intensive as far as admin to get all this data transfer back and forth. By switching from one pest control company to the next, they're already going to improve the level of service for the home inspecting clients and their people. I said, “Let's start with rev-share.”
The home inspecting party is asking for equity so I said, “There are other ways of doing it.” Profit share is one. I would start with rev-share. Profit share might be the next but that home inspection company doesn't have anything to do to control other than revenue. They can fill the top of the funnel but after that, they don't have anything to do with chemical costs, labor costs, vehicle costs, or admin costs.
If the pest control company wants to and they're not all excited about paying tax so they reduce their profit, they have minimal net profit and there's no red. There's nothing to come out of there for profit share. That was my similar take. Rev-share start, reviewing in the future, and get it all documented. I connected him with Phil Reinhardt.
Seth Garber: Phil could put that deal together. A couple of components here. The other way that they could be also considered as I'm processing it is, because there's an unknown relationship, they could pay-per-leads. A pay-per-lead could be even easier. If I was the home inspection company, that would probably look better for me initially. The customer needs pest control, I can pay-per-lead, and I get a few bucks per lead even if it's $10.
The other component about rev-share is that home inspection company is now also counting on the fact that the pest control company has an incredibly good conversion or sales process in order to get that business. There's a risk share there that's probably adverse to the home inspection company because now they're betting on a sales process. When I hear a number, we'd started the discussion out with 70%, that's an incredibly high number. In the home inspection business to conversion to recurring pest control, our target is 40%, and it's rare that companies ever get to 40% recurring.
Maybe there are some small organizations out there that are doing it or some growing ones that have dialed in processes. We shoot for 40% of someone who gets a home inspection to buy recurring pest control. It's hard to do that. There are a lot of touchpoints that go into that. There's a lot of work that goes into making that conversion rate at that point.
Patrick Baldwin: 70% of home inspections turn into a proposal.
Seth Garber: That would make sense.
Patrick Baldwin: These two companies don't work together. At WolfPack, what I saw were the ones that did pest control, it was like, “Home inspection business is called XYZ and then you got Fat Pat's Pest.” At the end of the day, Fat Pat owns both or is part of both. This case is more of a joint venture. Have you seen it work between home inspectors and pest control?
Seth Garber: I have. It's pretty common. One of the things in the home inspection world is that there are a lot of rules related to who can own what and how these leads get passed. In some places, you're not allowed to do it because it can hurt the home inspection company from a conflict perspective and we see that a lot too. At the end of the day, people have figured out how to work around that. I've seen it work. There are deals where large home inspection companies have joint venture deals all over the country with pest companies. That's a common practice for the powerful ones.
Patrick Baldwin: Have you ever seen equity between home inspection and pest control?
Seth Garber: I have.
Patrick Baldwin: When they're not related parties going into it.
Seth Garber: I have seen joint venture deals done between home inspection companies and pest control companies that are equity deals. Over the last 24 months, I've seen them be successful and I've seen them become painful. It comes down to the owner's drive like any other business. If I'm venturing into this thing for the first time with an unknown entity, I'm probably not doing an equity deal.
Patrick Baldwin: They haven't even worked together before. They've had conversations. You have the opportunity to give it time and prove it. It's a very dynamic real estate market. There's a lot of variability there. There's not a lot of asset value in home inspection. I'm not saying there's not. We've seen the private equity-backed home inspection. I'm not downplaying it. Overall, you've got to get to scale to make the home inspection business worth anything. You've got the pest control company that is worth it. Thanks to Uncle Paul, we know the value of pest control companies pretty well.
It is a very big exchange when you are getting equity from a pest control business as a home inspector. It’s super helpful. I'm not crazy. I don't think I steered them the wrong way, especially by telling them to contact Phil Reinhardt. It gave him extra counsel. Seth, one thing I know about you and one thing I appreciate is you have a knack for killing sacred cows. I feel like this would not be a real Boardroom Buzz episode with Seth Garber unless you kill one sacred cow for me today.
Seth Garber: I'm going to put something else out there and we'll see if this is good for the readers. I've been on this big kick over the last probably four years. What the big kick has been is the elimination of all noise. Anything that takes away progression of our client’s success or progression of us accomplishing goals, not financially but the bigger picture goals, we eliminate it. It's probably been the single greatest business decision I've ever made in my entire life because there's so much noise not just in our industry but out there.
There are so many things out there that drive your decisions and make you start making decisions that you don't need to stay on track to whatever you want to accomplish. Let's call it a sacred cow. What people say doesn't necessarily matter in the big picture. I hear all the time, “This person said that. That person said this. Social media said this. I'm comparing myself to this person.” One of the biggest things that's changed for me that is powerful is that none of it makes a difference.
It's interesting because I've been on this kick and somebody had sent me a quote and it resonated a lot. The Winston Church cool quote said, “When you're 20, you care what everyone thinks. When you're 40, you stop caring what everyone thinks. When you're 60, you realize no one was ever thinking about you in the first place.” I was having this discussion at WolfPack because his company's been growing rapidly. What happens when your company grows rapidly is you start to get these outside pressures.
We had this discussion today and this quote showed up on my phone and I would tell you that it's 100% right. I'm in my 40s now and through my 20s up into my 30s building companies, I always was listening to all these people who didn't have too much of an impact and I've eliminated that now. Now we stay focused on accomplishing things for our clients and accomplishing our bigger picture. Anything that distracts us from that, we'd get rid of it. We turn it off. If people were distracting us from a social standpoint, we turn them off. They don't have access to our accounts anymore. If they're in our systems, we take them out completely and we make it so they don't even exist. We've done that.
I don't know if that's killing a sacred cow but I would say that one of the most impactful decisions I've ever made is that I stay laser-focused on the bigger picture of taking care of our clients and celebrating their successes and then staying laser-focused on accomplishing our internal organizations on how we can build the greatest pet control companies in the country. That's the only thing we focus on. Anything that distracts us from that, we stop. I don’t know if that's killing a sacred cow but it's something that's been on my mind.
Patrick Baldwin: It is interesting and it goes to what I was thinking about you earlier and that of put away the naysayers and you have focus. If you have anything going for you, it’s Seth Garber is focused all the time.
Seth Garber: Sorry, man. You got me to say sorry because I was authentically feeling bad because I know you have to hear it all the time.
Patrick Baldwin: Have you read Atomic Habits?
Seth Garber: Of course.
Patrick Baldwin: I don't know if you signed up for his email newsletter but this is the only newsletter other than Paul's, Paul's got a great newsletter at Potomac.
Seth Garber: And Pest Daily.
Patrick Baldwin: I'm sorry, I was getting there.
Seth Garber: I want to be sure you heard that. I want to be sure you listened. Don't worry, we're going to be sure that you're on the email list now every single day.
Patrick Baldwin: I've got it. Are you ready?
Seth Garber: Yes.
Patrick Baldwin: James Clear, I don't know if you get his email or not. This one stuck with me, The Pareto Principle, the 80/20 Rule, Pareto principle. Live the Preto Principle lifestyle, I've read this a couple of times when this came in. In addition to what you're saying, this helps in a different way, what you said, live the Pareto principle lifestyle, “Relationships, who are the few people that have the most positive impact on my life? Spend more time with them. Priorities, what are the few actions that have the most positive impact on my life? Prioritize them. Learning, what are the few information sources I learned the most from? Focus on them. Stress, what are the few sources that cause most of the stress and friction in my life? Eliminate them.”
Seth Garber: I love it. How powerful was that? I've never heard that. Was that in the book? I don't remember reading that.
Patrick Baldwin: It's in his email newsletter.
Seth Garber: I got goosebumps listening to that. I appreciate you reading that.
Patrick Baldwin: My pleasure. Seth, hopefully, we can get you back in The Boardroom soon. This is mind-shifting for me and thinking everything that's been ingrained from CSRs and helping talk through a scenario with a Boardroom Buzz listener that's going through a live conversation right now, lining himself up with a home inspection company, and then killing a sacred cow, at least mortally wounding it. Seth, thanks for stepping in today. I hope you have a great week. We'll have you back soon. What do you say?
Seth Garber: I'm looking forward to it. We'll see what Paul thinks after he listens to this episode. We'll see what he has to say.
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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.”
As part of giving back, we have this podcast, but more than that, Paul and I have been working our tails off over at POTOMAC TV. We've spent a tremendous amount of time, energy, and resources to build out that platform to bring you market updates, to bring you visual breakdowns of the merger acquisition process, and to tell stories and present information in ways that, frankly, it's not possible for us to do on The Boardroom Buzz.
Adding the visual element takes it to the next level. I want to invite you to go to YouTube and find us, it's POTOMAC TV. Potomac.tv will get you there. Go there and subscribe. Check out some videos and leave some comments. Let us know what you like and let us know what you don't like. Let us know what you want to see more of and we'll see you over there.
Episode 116 Revenue Plateaus
Atomic Habits
Potomac.tv
