"Am I Wasting my Money?" - How to use Financial Projections to increase your Revenue (with Young Han) | The KeyHire Small Business Podcast

Description

This week, we're joined by Young Han, Founder of Forever Young Agency and Host of The Girl Dad Show, for an in-depth conversation on the power of financial projections in driving business success. Young shares his wealth of experience working with small businesses and startups, breaking down the often-overlooked importance of financial forecasting in setting a roadmap for revenue growth.

We're diving into the specifics of how financial projections can help business owners make data-driven decisions, avoid common financial pitfalls, and identify growth opportunities. He discusses how entrepreneurs can use projections not only to set realistic financial goals but also to stay agile in the face of market changes.

Whether you’re a new entrepreneur or an established business owner, this episode is packed with actionable strategies on how to utilize financial projections to unlock potential, improve decision-making, and ultimately, increase revenue. Don’t miss out on this insightful conversation with one of today’s leading business strategists.

Learn More about Young: https://www.foreveryoung.agency

Listen to The Girl Dad Podcast: https://www.thegirldadshow.com

Schedule a Call with Corey: www.keyhire.solutions/consultation

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Transcription

Speaker #0
We're getting close to Q4 and I'm sure everyone is getting ready to do their budgets, their financial projections. How did it go last year? Did you hit? How do you do a financial projection? What is the voodoo to make it meaningful, to make it make sense, and to use it to generate revenue? We're going to talk about it today. Welcome to the Key Hire Small Business Podcast, your go-to resource for tackling challenges and empowering small business owners to scale successfully. Our mission is to help unlock their businesses full potential. My name is Corey Harlock, and I'll be your host. Welcome to episode 28 of the Key Hire Small Business Podcast, where we cover the issues that help owners scale their small business. I'm Corey Harlock, creator of Key Hire Solutions, where we grow Texas small business with our talent, and I'll be your host. Our guest today is Young Han, and he's the owner of FYA, which is Forever Young Agencies. which is a fractional CFO business. He's also the owner of the owners club, which is coaching for small businesses. And this is going to start making a lot of sense because he has designed an operating system that allows him to open you to run your business well and allows him to open businesses and run them. In fact, he's opened a business a year for the last four years and they're all doing well working on his operating system. One is a pool cleaning company, which he's quite proud of. He also has the Girl Dad Show podcast and is a proud father of two daughters. Let's bring on Young. How are you doing?
Speaker #1
I'm good. How are you? Thanks for having me.
Speaker #0
Did I get this even close? Was I even in the ballpark with that?
Speaker #1
I think so. Yeah, it sounded good. Just the one different. It is a lot. And I apologize. It's very confusing. It's been a busy, busy four years.
Speaker #0
I love it. Like you're just, you're willing to try anything, which is wild.
Speaker #1
Yeah. I've, I've done quite a bit of failing. I, I had a, I mean, midlife crisis hit me really weirdly. I think most guys just get a, you know, sports car or a motorcycle. I just, yeah, I didn't get a Corvette. I just started all these random businesses. Yeah. It's pretty neat. But I will say the one thing that is just a quick correction is I didn't do one business every year. I did. I did about four every year for the last three years.
Speaker #0
Oh, wow. Even more.
Speaker #1
Yeah. Yeah. So it was one a quarter and a lot of them are failed. So, I mean, I have a 67% success rate so far, but it's still a pretty good percentage. If you think about it from the macro, it's just painful to think about because it's all my money. It's not an investor's money.
Speaker #0
What would be your daughters?
Speaker #1
Five and seven.
Speaker #0
Okay. I got a 16 year old and an 11 year old son. So.
Speaker #1
Oh, nice. You're, you're, yeah, you're neck deep. I love it. You're at the, uh,
Speaker #0
knee deep. My son is a hockey player and my daughter's very involved at our high school. So like there's multiple activities every weekend.
Speaker #1
I love it. That's awesome. Yeah. We're just starting that. Uh, we're starting that whole caravanning part of our journey where we're like the, uh, the, uh, unpaid Uber drivers. Uh, we're starting that this year.
Speaker #0
It's funny you say that because I, we were at a dinner party like last year.
Speaker #1
Yeah.
Speaker #0
I have two jobs. I do my day job. And then I have my uber shift at night people leans over to my wife and they're like is corey really driving uber and she's like no just yeah we're talking about financial projections and how to utilize them um to create revenue or measure revenue i guess we'll get into a little deeper but it is we're we're just wrapping up q3 getting into q4 where people are starting to to do all that financial voodoo putting all that targets and projections in place. So yeah, I always like to start with the definition. So let's talk in your world as we go through this definition around what is what is a financial projection?
Speaker #1
Yeah. So for me, financial projections is something that helps you take what you've done in the past and then take the stuff that you know will happen and project out what you think will happen based on your risk aversion and the things that you want to test. It's a fancy way of saying use your P&L and use the numbers and the historical data, use your insight and obvious common sense, and then use your goal setting to merge it to basically create with some guesstimations on what you think you could do for the business in the following year, and also sometimes just in the future quarters, or even sometimes just for specific projects. The reality is sometimes, so many times as business owners, we just try things without numbers next to it. It's very qualitative and emotional. reactions and they're not steeped in reality or numbers. And so you're doing these things and going, I wonder why that didn't work. And the reality is you should always have some qualitative and some quantitative analysis before you embark on a project. And for me, financial projections is just that. It's helping you put some quantitative guesstimations and analysis steeped in as much accuracy and data as you can to project out the future.
Speaker #0
So I have two questions. The first one is, can you give us an example of what maybe putting a projection together without data would look like in your experience, like a simple example. But the other one is, I think what I'm hearing you say is, you know, you're talking about the basics, like, okay, what do we do this year? What did we do last year? What do we do the year before? Kind of what is our growth been? What's in the pipeline? What do we think growth is going to look like next year? Kind of using that. that hard fast data plus a little voodoo like what's happening in the future plus some other stuff to create that projection so maybe you could um then go into detail maybe some of the actual the actual numbers or or data you're pulling to create the the projection i
Speaker #1
i can give you a very to answer your first question i can give you a very specific example of something that i hear all the time when i work with small business owners uh they always say i feel like i spent so much money on marketing and i have no idea what i did And that's like the number one thing that everyone says, or I spent a lot of marketing and sales, right? And they have no idea where that money went. And so for me, a financial projection, a simple way of explaining that would be, what do you have in your coffers that you're willing to risk? So let's say you have $50,000 in your checking account and you're comfortable with your risk aversion. It may be different for you. And then it is for me to say, I'm willing to invest $10,000 into trying to generate $20,000 in revenue. So two for one. Maybe it's three for one. I'm not really sure. But you're basically come up with these guesstimations or theses of what you want that to do. And so you can start projecting out what that's supposed to do and what tactics you're going to employ for $10,000 to get what desired result. And you should be able to calculate that and start to reverse engineer it. So you can actually say, this is possible. This is not possible. This is a good idea. This is a bad idea. The probability of this happening is high or low. You can do a lot more analysis that's steeped in data in reality if you have those numbers in front of you. I'm not saying you can't take a risk and go pie in the sky. There's also the opportunity to do that as well, too. I'm just saying that you should always do that with eyes wide open. You should have the numbers in front of you and still make that decision eyes wide open. Another thing that you can use, a simple answer to say, like, what does it look like to use this for small business owners, is when you're thinking about budgeting, right? So when you're thinking about, like, how do I... How do I budget for these growth? Like how do I budget for this growth? So I did like, let's say I did $10 million this year, and I'm really trying to do $20 million. And I really want to grow that there is a sense of reality that needs to come with that. Obviously, if you want to switch the entire company infrastructure and process to go from 10 million one year and 20 million the next, you could do it, you could do it. I'm not saying you can't do it. But you have to change a lot of your business, a lot of who you are as an owner, a lot of the leadership skills and the competency pilots and just complete restructuring of the company to do that in one year. And that's the brutal reality. Whereas if you have a financial projection that says, hey, listen, we all want to be billionaires. So like, yeah, I would love to say I'm going to make double the revenue next year, which is what everyone says in strategic planning, right? Everyone's like, we're going to increase sales by 2x or, you know, 50%. Financial projections will help you actually have those goals and then also steep it into reality. Like what would we have to do to back into that number? And I'm not saying you can't do it. I'm not. discouraging you from doing that. But it helps you understand how much you have to change and how much you have to risk to achieve those audacious goals.
Speaker #0
So when you said, to me, it sounds a lot of this might come under the heading of initiative. We're going to try a new initiative. We have this much money to put at it. Let's see if it's viable, if it's going to work, and we want to get all this as much information in front of us. 60 seconds you said you have a 67 success rate with your using this this um process yeah so two out of three ain't bad right uh i think both sinda right but um yeah but you want to make sure it's i guess i'm trying to understand is this big business like your entire budget or or are these kind of projects within that budget or can it apply to both you
Speaker #1
They can apply to both. And so I think that the success rate thing is a little bit tricky to say, because it'll also help. The reason why I know that I wanted to fail those businesses that I did fail is because I have a financial projection for it. So I basically have a calculation of how much my time is worth and how feasible I think this business is to be salvageable. Should I continue to work on this for a year, spending another 15 hours a week? an additional $20,000 in capital to do X, Y, and Z, what is the chances of that actually making this amount of money versus me spending this $20,000 and this 15 hours a week for six months in other places? The net return seems lower on this one than that one, then I'll stop this one, I'll shut that business down. So does that mean that business couldn't have been a success? Absolutely not. I probably could have forced it to be successful, but the opportunity cost wasn't there for me. And I would have never been able to make those decisions in a rapid succession if I didn't have a financial projection.
Speaker #0
Cool. All right. Awesome. So when people are kind of doing their budgets and their projections, what are some of the biggest mistakes you see them making, especially our small business owners? What are the common mistakes or even the sneaky mistakes that people don't, a common practice that you think that might not be the best way to do it?
Speaker #1
Yeah. I mean, it depends on the sophistication of the business. And most businesses that are thinking about doing financial projections have clean books, but You can't actually do good projections unless you start with clean books. So hire a good bookkeeper, hire a good accountant, get your taxes done right, get your books cleaned up, because that is the foundation to actually start building out financial models and projections. The second thing is...
Speaker #0
It's not because you don't really know what you have until you do that. It's not like we're going to throw 50 grand at this and then someone might say, you don't have the 50 grand.
Speaker #1
Well, it's not just about the 50 grand. It's also understanding what your cogs are and what your profits are. It needs to come from some level of reality. So meaning like, let's say best case scenario, this 50 grand bet works. How does that actually compute into profit for you as a company? That could be a very different number for me as it is for you, because I have a different business model. I have different cogs. I might even have different team members that process it faster than yours. I'm not really sure what all those variables are. That's why it's so important to work off of your actual business numbers, because there's so many variables to this as it relates to the ROI of that expenditure. There's no expenditure that's going to be equal across all businesses. So when people ask me for a silver bullet, they're like, oh, you're good at making successful businesses. What's the secret? It's like, it's not like you do some TikTok dance and then you do this thing in this sequence and then all of a sudden you make money. There's no secret bullet. There's no silver bullet, sorry. There's only systems and testing and data analysis to basically keep testing until you figure out what works for you. Because the way you look, the team composition that you have, The way you manage your business, the way that you're softer to employees than I am, or the way that you are more lean. There's all these different variables that sum up to the culture and operations of your business that add fat. You need to steep it from actual P&L. So you need to have P&Ls, solid P&Ls that you can pull from and make assessments based on those numbers. The second thing I kind of already alluded to it, which is a little cart before the horse, but I apologize. is that you do need to put into consideration your team composition. So you need to be very realistic about what your team is able to do. So when business owners always say, well, I just want to make 30% more money this year. And it's like, okay, well, what are you willing to bet on that? And do you have the right people that can even do that? And that's the other thing that people don't consider is that there is a realistic assessment of their own skills and the skills that they have inside of their team. They need to start looking at those things as well because even though that's not numerical, historically calculatable, they can assess that. They should be able to know that that's not realistic expectations to put on themselves or people.
Speaker #0
Yeah. If you're struggling at your current limit and your goal is to increase your output by 20 percent, can your team do that? And you need to understand and some business owners think, yeah. But when your only input is time, when all you can do is work longer and work harder.
Speaker #1
Mm hmm.
Speaker #0
It's not a process that's set up for you to be able to scale responsibly or for very long.
Speaker #1
That's right. And then there's two more things that I'd love to share with your listeners. One is don't ever forget about seasonality, especially if you're a small business owner, because most businesses have seasonality, whether that's external or internal. I mean, meaning like, does back to school impact you? Does the winter impact you? Does the holidays impact? you. There's different things that might impact your business. So like for a wellness company, you know, it gets slow in Christmas and Thanksgiving, everyone's starting to get fat and then they get super busy in January and February. You should know that, right? You should incorporate that into your models and plans. If you are a flower company, obviously the big holidays are important for you, right? If you're a pool cleaning company, like I have, yeah, like it's a very seasonal business and you should really understand those seasonalities because you can have these high pie in the sky projections and goals. But if it doesn't equate to the seasonal impacts of your business, you're not being realistic to your projections and goals. And then the last thing I was going to say was making sure that you are using the projections not only to give you the data to make these bets. Oh, I want to take this bet and do this because the numbers say this is a reasonable amount of money that I'm willing to risk to make that bet. But it also allows you to stop midpoint. So as you go through this process and you have a, let's say you have a quarter long project, let's say I'm going to hire this marketing agency for six months. They're going to try Facebook ads for me. I'm willing to invest $10,000 a month into it. So for a total of $60,000, my goal is to see results in, you know, of 3x return on investment, blah, blah, blah. You come up with this thesis and you project it all out. In month two and month three, you should look at your projections and see with the actual and how they're comparing. And it gives you the ability to say, hey, this isn't working as fast as I wanted to, or it is working, I need to give it more time. Or it basically gives you the ability to start understanding where your money went and start to fail things faster. So you could say, hey, I'm not too happy with the velocity of this project. Let's fail it now, and then let's optimize it into another test or do another test completely.
Speaker #0
So I love the way you use the word velocity because that's I often talk about the difference between speed and velocity, right? Velocity is the rate at which something changes as it moves.
Speaker #1
That's right.
Speaker #0
Speed is just the speed of like how long it takes you to go from A to B.
Speaker #1
Yeah, I love that.
Speaker #0
I think velocity is such a more impactful word because your business does have to change. And. morph as you're moving towards your destination.
Speaker #1
Agreed. Yeah. I mean, if I could just piggyback off of that, the beauty of being in a small business is that almost everything you do will have a very big impact on it, good or bad. And the reality is once you start getting into a rhythm of change and you start making some movements and you fail a couple of things really quickly, one of those things will eventually succeed. And the moment you start to succeed on one thing, it starts to change the entire dynamic of the business because... you're not a 2,000 person company where it's super insulated. That will have a massive impact on your business. And now you have a brand new business in a lot of ways. So my pool cleaning company is a very great example of this.
Speaker #0
I wanted to ask you at the beginning, right? Tell me about it because you're like, I love this company. So let's go.
Speaker #1
Yeah, I mean, I hated my pool guy, right? So I was just so frustrated with this guy. And I'm like, oh my gosh, how hard is it to just... just show up on time, do the job and like, and just like stay here for longer than seven minutes. And I was just so frustrated. And so I went through like four different service companies and I finally asked my neighbors for recommendations. And I kid you not, one of the, one of the recommendations was try this guy. He's awesome. He shows up 75% of the time. That's the best.
Speaker #0
He's the best.
Speaker #1
I know he's like, that's, that's how I was pitched. oh they're great they show up 75 percent of the time yeah it's something you're scratching my head going wow the barrier to entry is so low so are you telling me that in order to be the best and be referred confidently and proudly by your customers is to show up 75 percent of the time and so anyways long story short i started researching the industry i don't know anything about pool cleaning i still don't know how to clean a pool to this day um but i realized that there was this very very untapped market and so we started the business with um One service tech and my business partner. And so I recruited my pool builder to be my business partner in this effort. So he had pool industry expertise, which is where I compensated for my lack of expertise. And then I brought in the operations and finance. So I run ops and finance. He runs the day-to-day and the staff. And the company is wildly different from when we first started that. And we were all kind of hands-on doing a little bit of everything to, you know. last year where we started to hire for specialists and we started hiring for different departments and people that were really good at repairs versus people that were really knowledgeable about renovations or mechanical or different elements right started specializing and now in year three this is our year two we're in two and a half years now so we're in year three right now and now we're in a completely different state where we're hiring for leadership and experience because now we're having department heads because our company has grown so big and we have almost we have 20.
Speaker #0
And Logan, we show up 80% of the time. That's right. We're 5% better than the next best guy.
Speaker #1
That's right. That's right. Oh, it's so funny. I will say that, you know, if people always ask me like how I built it, it's like one of the most commonly asked questions. Everyone gets a kick out of me having a pool cleaning company because it's so random and I'm from tech.
Speaker #0
Is this a great segue into what advice would you give a business owner or is this separate?
Speaker #1
Sure. Whatever, whichever way you want to do it. I'm happy to give advice to a business owner, but I just, I was going to say was the pool cleaning company. Oh, I can't even remember what I was going to say. So yeah, you tell me what was the advice.
Speaker #0
No, no. Cause you're going to talk about, it's a funny story and how we actually came to build it. And then the next segment of the podcast is what advice would you give to a business owner about forecasting and planning? So I was just wondering if it would tie in or if they were two separate times.
Speaker #1
Oh, I'm not sure. Yeah. I don't even remember what I was going to talk about anymore. Yeah.
Speaker #0
So if it comes back to you, please tell me because I wish I hadn't interrupted you.
Speaker #1
I wanted to.
Speaker #0
So let's talk about, we've talked about defining what forecasting is and how to utilize it. We've talked about some of the mistakes you've seen people make when they're kind of attempting to do this, whether it's a project within the business or it's the business.
Speaker #1
Yeah. So.
Speaker #0
Maybe let's talk about other than calling you, Jan, what advice or best practices or cool, neat ideas could you give someone about thinking about this differently and maybe getting to get a better result?
Speaker #1
I would highly recommend using the online tools that are available to you. Any of these AI language learning models are very, very powerful now where you don't actually even need sophisticated, like experienced. financial modelers to help you anymore. You could actually even just start working on it yourself, load up your current P&L and talk to it and see where it's at and have it start building you out models. And there's plenty of platforms out there that are tapping into AI to help you build models. And just like everybody else, everyone's jobs are getting augmented. So I'd assume that that's one good resource that you can immediately start using is that. Two, I highly recommend that you, if you don't have a good grasp of your numbers, I would start there. So it's like, there's like 30 minute courses on different platforms like Coursera, Udemy to learn basics of like QuickBooks or bookkeeping. It'll take you literally 30 minutes. Some of these are, some of these classes are free, but if you just understand the fundamentals and the basics, you could, you can at least get that under your belt and you could start to manage a bookkeeper much more effectively and, or do it yourself to make sure you have clean books. Then you can start using that to start playing around with numbers and how that works. But I will tell you, like 75% of our growth has been modeled. This has been financially modeled. So it Blue Ocean specifically. So there's really cool things you could do if you invest. Pool cleaning company,
Speaker #0
Blue Ocean.
Speaker #1
Blue Ocean Pool Service. Yeah. So like, for example, like I'm like 90% confident we'll do just under 7 million next year in annual revenue. And just because I have financial models. And. It's fairly predictable. And if we continue the growth rate that we have and everything kind of elongates, and then I know that there's a lot of predictability because I have three years of business history now. And so whereas last year, I was like, oh, if we do really, really good, we'll hit 4 million. And if we do it conservatively, small, medium, large is like two to four. Okay. And so next year, I'm like, it's going to be seven. Whether I work or not, it's going to be seven. And so like, you can't do that without some sophisticated modeling. And that's the power of modeling. It allows you to start planning versus budgeting.
Speaker #0
Okay, so that's a great distinction because in my mind, I'm hearing a business owner say, I don't know how to do financial models. You know, we have our budget and we are budgeting for a 10% increase. So we plug in 10% and it's on my Excel spreadsheet and it spreads it out, right? Yeah. And I can break it down by category. So now we start a whole new show. But what's the difference between a financial model? in a
Speaker #1
2025 budget? Yeah, I'm not big into budgeting until you're like sizable mid-market or enterprise. I feel like-Or in your world. I'd say like upwards of 50 million a year. Yeah, like when you really are solidly in a mid-market and you're like a couple hundred employees and you're a little more insulated, I think you need budgets and controls. But if you're like- you know, if you're like up to like the $20 million mark trying to get to that mark, I would still say that you could heavily rely on projections. Obviously, you should have a budget, but budgets are like a double-edged sword, right? Because then you have departments and you have to scale it out to different people that feel like they own this budget. And the incentives for employees, if they're not owners, are naturally to spend their budget versus, you know, being agile with it. And, you know, oh, this didn't work. So I'm not going to spend the rest of the $100,000 allocated to me, and I'm going to put the other $80,000 to something that will work. Oh, that didn't work. I'm going to allocate the rest of the 60. Because as a small business owner, you could be very agile and frugal with that spend and risk and test a lot. That starts to dissipate as you get larger. And so you do need to start putting budgets and controls in place. But up until that, as much as you can fight it, I would try to encourage a flatter organizational structure so that you can project test. and just let everybody know we're all one team, one purpose. Even if you have other executives and managers now, encourage them to think about it as one team, one purpose, and really create a flat organizational structure for as long as humanly possible. So you can continue to project and plan and also budget, but project and plan. And so you can maximize those dollars versus thinking about it from like a budgetary standpoint. Do I think that budgets are important? Absolutely. I think that budgets are absolutely important, but Yeah. The biggest thing that I want you guys, anybody listening to take away from this is that what I'm recommending is not your accountant to be your financial modeler. That's not what I'm saying. So don't walk away immediately saying, hey, you know that financial, your fractional CFO service you wanted to sell me on, I'll take it now. That's not what I'm saying. There's a difference between strategic finance and modeling than accounting and controlling. So one is very reactive and reality-based and one is storytelling and assumptions-based. So it's and it's going to fail. Like you're going to do a lot of rapid testing and failing and adapting and testing.
Speaker #0
OK, so what I think I heard was you're talking about instead of having a budget, have these kind of models ready to go and let people know I'm going to versus a budget. We have one hundred thousand dollar marketing spend. We got to spend that all or they're going to reduce our budget next year. Yeah. shift the mindset to, I'm going to give, we have two departments here. You're each getting $50,000. Here's, here are some, here are some things we've all worked together to think are going to work, test it. Let's sit down every week and review. And as soon as we get to the point where we say, it's not going to bear the fruit we want, we're going to shut it down and we're going to move to the next one.
Speaker #1
That's right. And, or the inverse, which is ideally what happens is that That person learns a lot from it and says, hey, we need to optimize and tweak X, Y, and Z, and then it'll work. Great. Let's try that. And then they tweak X, Y, and Z. And by the second or third iteration, it makes it work. And the really powerful thing about not having or being more of a projections based versus a budget is that you really should be able to, as a business owner, until you get really, really big, double down on it. That's right. If it's working, you should double down on it, right? So you found something that works, you should absolutely double down on it. And- Like exactly.
Speaker #0
Spider hose as you can.
Speaker #1
That's exactly right. And you want that agility and you want that ability to do that. And, um, having a budget helps because you know where you can move money around and test things, but having, um, having that, um, ability to understand when it's working better than you're expecting is also really, really powerful.
Speaker #0
So young, I was wondering like, it, it feels really, I understand the concept and it's very abstract right now. We'd be able to drill down, like you mentioned paid advertising, Facebook ads, right? You tweet ads and you're getting that 6% click-through rate, which is resulting in, and you can track that, I get it. Could you use this for outbound sales calling? Could you use this in manufacturing for quality or on-time delivery or innovation?
Speaker #1
Totally.
Speaker #0
Is there any constraint and can you maybe give us a couple kind of really different? examples of how we can use this. So a business owner might say, oh, okay, now I understand what's happening here and how to leverage the strategy.
Speaker #1
Yeah. So again, Blue Ocean Pool Service, I apologize. It's like my go-to for today, but I could talk about an example of any one of these businesses, but I'll just use Pool Service since we already started.
Speaker #0
What pretty country do you live in?
Speaker #1
Austin, Texas.
Speaker #0
So they need pool cleaners up there too. People need a good pool service in Austin.
Speaker #1
Oh, it's bad. Yeah. It's so bad. Yeah. We need so many service providers. Oh,
Speaker #0
awesome.
Speaker #1
So.
Speaker #0
For example, we started to expand and grow and we had the choice of saying, do we keep taking more customers and purchase more trucks and equipment? Or do we slow this down, let the profit come in so we can actually afford the trucks? And so we had to do that analysis of like, when does it make sense to buy new trucks to expand the customer pool? Second thing is when we buy the trucks, do we buy them used? Do we buy them fleet? Do we buy them? Do we lease them? All of those things are questions. Right. Because they have different costs and different variables as it relates to payment terms and a cost effectiveness as it relates to ROI. And so that payment,
Speaker #1
the cost is a trickle down, too, because a new truck versus a leased truck versus a used truck, the insurance on that's going to be different. Then you have to have a fleet. So who's driving that truck? Older truck might be worse on gas. What is it? What is it? What is it? So there's a ton of variables there.
Speaker #0
Yep. You're answering my question for me. So that's literally another use case of it, right? So instead of thinking about it for growth, we were able to use that analysis and basically say, based on our analysis, financial analysis, we can plan that this is actually the best course of action. So we ended up going through a used lease program. So we lease our trucks. I'm sorry, we don't lease our trucks. We buy our trucks, but we do a payment plan and we go through used trucks because we're just going to destroy them with acid and chlorine anyways.
Speaker #2
Hey, it's Corey. And if you like what you're hearing, give this episode a thumbs up and subscribe or follow to get reminders of new episodes of the Key Hire Small Business Podcast.
Speaker #1
Right. Because the guys you're hiring aren't probably, you know, they're going to get dinged and nicked up.
Speaker #0
It's a cleaning company. At the end of the day, I don't care how fancy I make it. It's a cleaning company. It's a dirty job. Right. And so these, the equipment's going to get messed up. Your shirt's going to get messed up. Like it's just a, it's a dirty job.
Speaker #1
You go buy at least a beautiful brand new truck and by the first week there's going to be a dent in the door.
Speaker #0
Oh, yeah. And if not acid on the paint. And you know what I mean? Like it's just part of the process. So so we made a lot of those decisions based on numbers first and then we put in our layers of external knowledge. And then we put in our layers of like all the different elements of our team composition, who we have. And then we made that financial decision.
Speaker #1
So this is an example where you said double down. Right. Like you can't double down on trucks, I guess it would be hard. I mean, obviously you're going to say, did this work? And then it'll be the go-to, right? We need more trucks. So let's, this model works just fine.
Speaker #0
I can give you another example of double down. So for example, we, there was our second year of business. We said, hey, let's grow and let's try to grow really, really fast because there's a lot more customers and there's workers right now. And I'm not sure how long that will last. So let's double down on getting as much market share as we can, even if we lose money. So that way we can make money off of the repairs, off the routes and all. The moment you build a pool. there's there's costs and so we figured that out by ourselves yeah by the second year i didn't know this by the way so i'm i i literally knew nothing about the industry i mean it's so dumb to think about it now that i didn't know my first year but by my second year i realized that you could lose money on the cleaning you literally could lose money to grow and so that's what we did we lost money and we doubled down and we grew our our route count so that we had all these pools and then we raised the raise the rate back to market rate we lost 20 or 30 percent of our customers but now we had this massive market rate sorry, massive customer count of routes, 30% of them on average need something repaired. And that's where you make your money on.
Speaker #1
Okay. So you said something in there that I think is really interesting. Double down on acquiring customers. I have a bunch of questions here. This is going to be a stream of consciousness.
Speaker #0
Sure.
Speaker #1
You doubled down on acquiring customers. I'm assuming you were doing, you probably were doing that through like. uh hitting people with mail through postal codes you're probably doing facebook ads you're probably doing a lot of gorilla stuff there to acquire and probably i don't know if you got your guys in the neighborhood just to go drop flyers at doors while they were there right the million things you could have been doing yeah and you knew the cost what you were charging your clients was going you were going to lose money but you made a calculation that said once we hit critical mass we'll do a price increase And 70% of those people are going to say, yeah, totally worth it. 30% are going to go bargain hunting. And that 70% now made you profitable and overcame that loss that you had been generating previously.
Speaker #0
Faster than growing slowly. Yes, that's exactly right. You hit it right on the head. That's doubling down. But I mean, you could literally monitor the cost of it. So for example, like I know it cost me roughly $40,000 to get a new truck going. right? So the cost of the truck, the vacuums, the equipment, the cost of advertising to load up a full route, the cost of training for a tech, the recruiting cost and the training. We have a high attrition rate in dirty jobs. So, you know, we'll hire six people to have like two people after three months. And so, you know, all these costs we know now, like to a science, to like 80% accuracy because we've been tracking all these models. So we know all these numbers. So I know it cost me about $40,000 to get this truck and I won't make money off that truck for about 14 and a half months. So that's awesome. Yeah. So I know this already. Right. So now if I know this information, I could literally calculate how fast I want to grow and how much it's going to cost me and when I'm going to make that money back.
Speaker #1
And I'm sure you're you're the way you acquire clients because you obviously are doing a route. You want to make sure this is the coolest case study ever, by the way. So, you know, you're going to buy a truck. And I after talking to you, I'm assuming you're thinking here's an underserviced neighborhood. or quadrant of our town. And we need X amount of routes to pay for the truck and pay for the labor. So you target marketing, boom, into that neighborhood to fill up that route and then say, good, we got it, hit it.
Speaker #0
Well, so yes. And so we're always testing for top of funnel and bottom of funnel tactics, right? So I call it the stars and duds method. And you basically want to test a bunch of things to figure out what you can get to convert at an 80% consistency. The goal is consistency. It's not efficacy. So again, it goes back to data and math and financial modeling.
Speaker #1
Find the difference between consistency and efficacy because I've never heard it compared like that. Well,
Speaker #0
I'd rather have, and this is going to sound crazy and a lot of business owners are going to balk, but I would rather have a return on investment of three to one that's 80% consistent than 10 to one that's like 30% consistent. Right. I want to predict. Yeah, because the moment I can get 80% consistency, I can hire someone to go do that job and say, hey, I'm a really bad marketer. I don't know how to do marketing. I figured out three ways to get $1 in, $3 comes out 80% of the time. You have three months to come up with three new ways to beat this or you're fired. It's very simple. Your job becomes very, very simple. You can put it into a standard operating procedure. You can delegate it. You can hire specialists that have quantitative measures to perform against. I'm not a great salesperson, but I figured out a way that I can convert 40% of the customers using this sales script. Once I get them from top of funnel to bottom funnel, using these assets, these sales scripts, these things, I can close them within two weeks for 40% conversion rates. I'm not a good salesperson. So if you're a good salesperson, you have to beat my conversion rate, time to close and volume in the next three months or you're fired. Is that cool? Like you could literally start to outsource all of these components of your business and then you can start to control it through the numbers. because you know these predictable numbers and you can start calculating what will happen when you start levering these things out.
Speaker #1
You are obviously a data and a detail which you're an extrovert but you love testing and tweaking and doing all that stuff. You're like a mad scientist.
Speaker #0
Yeah I'm a systems builder. I'm an operator. Yeah I like finance and operations. Yeah I like processes.
Speaker #1
Yeah it's nutty. Okay. So this has been such a fun conversation. I've enjoyed everyone listening has too. This has been great. So I always say, give us some advice other than calling you. But if someone's listening to this and thinking, I want to open a pool cleaning company. I want to know how Young did it. Or they're a small business owner looking to understand some of these systems or want some coaching. How can we get in touch with you?
Speaker #0
Yeah. So for coaching, just go to alwayshan.com. So alwayshan, H-A-N is my last name, always plural. And from there, yep, you can get access to all my portfolio companies, different ways to work with me. I do a fractional CFO, COO work. So I work inside of your company if you need it, if you want me to do it for you and with you. And then I also offer business coaching through owners.club, which is my small business coaching service. That's the ways to work with me. And then just general advice that I would give without working with me to business owners is don't be afraid of brushing up on the numbers. You don't have to be great at it. You just have to be good enough. Mediocrity will scale. So just be good enough at everything, but don't be bad at anything. That's the trick. You don't have to be great, but you have to be good at everything. Good enough that you know how to hire someone better than you.
Speaker #1
Very cool, man. This has been great. thanks so much for your time. I appreciate it. It's been a blast.
Speaker #0
Oh, thank you so much for having me. It was very fun.
Speaker #1
All right, man. Thank you.
Speaker #2
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