In case you’ve been living under a rock for the past few months, you’ve heard that Brickman is buying ValleyCrest. Well, technically, the private equity group that owns a majority stake in Brickman (KKR) is acquiring a majority stake in ValleyCrest from its private equity owners (MSD Capital).
It’s easy to sit back and think it has no bearing on you, an average landscaper in an average market. But it does. Here’s why.
This isn’t the case of a strong company buying a weak one to grow its market share or acquire key talent. This really is a merger of two strong and growing firms – strong enough to go public once they get their house in order.
This combined company will be a truly national snow and landscaping powerhouse. Andrew Kerin and Roger Zino and their management teams are very smart. They know enough to realize what’s working and what’s broken inside each organization, take the best parts and put them together.
This merger is a great opportunity for them, and despite what you might think, it’s a great opportunity for you.
Why is money so uncomfortable to talk about? Most of us were taught by our parents that it’s one of the things (along with politics and religion) that you don’t talk about in mixed company. This article puts the topic of money on the table, and explains why it’s so important as you get older and start thinking about selling your company.
When I work with business owners and we talk about selling their company, I ask them to think about what the rest of their life might look like. It does not include cutting back on their lifestyle. Why would anyone do that? You’ve worked hard and earned a quality of life that you enjoy. Maintaining that lifestyle in retirement requires a certain level of money.
I had a career goal of being financially fit by the age of 55, which I accomplished. My goal was to have a financial foundation that would accommodate my family in retirement. Along with that foundation came a level of freedom that was very liberating. While I still create income in my retirement, the money chase is behind me.
Regardless of your personal philosophy around money, the bottom line is you must have a certain amount to live a good life. The definition of a good life varies greatly, but at its core, it means the financial freedom to do whatever you like. For me, that means a second home, travel, fast cars, charitable giving and providing for my family.
But the real definition of a good life is a life without compromise – the foundation of a good life and a life without compromise should be everyone’s life goal.
Last August, I was driving to Montana with my wife and family. The phone rings and a buddy invites Pam and me to Hawaii. Without hanging up the phone we committed. We never had a discussion about money – the question never entered our mind because we have worked to build a solid financial foundation for our retirement.
In October, I emailed my friend Bob and told him I’m speaking in Oregon and am skiing Mount Bachelor after. It’s a cheap trip. Bob has the wheels and a house. But he emails back: “I have no money for that. Just bought new skis.” My initial response was, “So what? What has that got to do with a quick and easy trip to ski Bachelor?”
Committing to Hawaii is living a life without compromise and being unable to take a quick ski trip is living a life with compromise. But it won’t happen unless you are disciplined and have a plan. If you don’t have it mapped out today, it’s time to start.
Most financial planners will tell you to plan on a five percent return on the money you invest. A five percent return on $1 million is $50,000 per year. Add Social Security, and maybe you will net $60,000 if you are lucky. There will not be any European vacations, second homes or fun cars in your retirement.
A five percent return on $2.5 million will provide an annual income of $100,000. That’s certainly a better scenario but it will not have you living large in retirement. Health care, insurance, utilities, travel, greens fees at the club all add up. Five percent on $5 million earns you $250,000 annually and it gets better as the number gets bigger.
When I throw out $5 million to many green industry owners, they cringe. They have not built an organization that produces that level of profit. They are stuck either working in their business and not on their business, or they have built more of a lifestyle business and not a highly profitable, best-of-class organization.
Landscape contracting operations, generally, net 10-20 percent profit. Under no circumstances should you be satisfied with a profit level below 10 percent. If one of your profit centers is underperforming, get help to fix it. If you can’t fix it, get out of that business. That’s how you focus on earning.
To get help, you’ve got many options. Join a peer group, Vistage or the Young Presidents Organization. Hire a consultant. Attend the Green Industry Conference. Network with other contractors around the country and visit their operations. Keep reading Lawn & Landscape.
Once you get your business in order, engage a financial planner and your network to help you focus on the saving and investing of those earnings.
It doesn’t matter how old you are or where you are in your career. Commit to becoming a best-of-class operation and you will reap the financial rewards. It takes a certain amount of money to live a good life and retire without compromise. Get your life and finances on track now to make this a reality.
Tom Fochtman is the founder of Ceibass Venture Partners, an M&A consulting group. He can be reached at email@example.com.
The Old-Fashioned Guarantee at Ecolawn promises that the company’s customized lawn care program will leave lawns so lush that customers will brag. President Don Zerby gives his “personal promise of complete satisfaction” to “do whatever it takes,” offering either refunds or re-applications at no cost.
As a small firm in Eastlake, Ohio, with only five employees, Ecolawn can afford to offer this type of personalized attention.
Zerby’s first company was a full-service landscaping design, build and maintenance firm he started in 1977 at age 13. Realizing that a tighter focus would allow more attentive service, he closed it down to establish Ecolawn in 1993, focusing exclusively on lawn, tree and shrub care, fertilization, aeration, weed and grub control.
“I decided that, by offering a premium level of service, we’d always be a small operation,” he says. “We want to stay very focused on what we’re doing. So any growth that we’ve incurred is happening because we’re very clear with regard to our methods and our culture. Growth is very slow, very controlled, and keeps that culture as its core.”
The five employees on Zerby’s team have been carefully selected and trained to uphold the old-fashioned, customized experience Ecolawn guarantees its customers.
That experience often begins with a free estimate, as it does at most lawn care companies. But at Ecolawn, the estimate is more than a measurement.
When PLANET introduced the STARS Safe Company Program in 2004, Don Zerby signed up immediately. The program, an acronym for “Safety Training Achieves Remarkable Success,” provides safety guidelines and training materials to help green industry companies reduce workplace risks and hazards.
“As a small company, we didn’t have time or resources to create and implement an effective safety program,” Zerby says. “I saw the STARS program as a solution. It’s a comprehensive safety program that outlines how to be a safer company, conduct training, record accidents and meet OSHA requirements.”
Using the checklists, guidelines and best practices offered through the program, Zerby puts employees through extensive safety training at Ecolawn. New hires receive instruction from experienced mentors to learn how to operate equipment, lift heavy loads, read labels and complete the rest of their lawn care duties safely.
As a result, Ecolawn has received PLANET’s safety awards each year since the program’s inception. Specifically, in 2005, 2010, 2011 and 2012, the company received gold-level recognition – the highest awarded – to celebrate zero accidents, injuries or workdays missed.
“Employees and customers are attracted to a company that puts their safety and that of their families at the top of its priorities,” Zerby says. “The STARS safety awards add credibility and help make customers confident in choosing Ecolawn as their lawn service provider.”
“Lawn care companies in recent years have employed satellite technology to provide lawn measurements. Then they respond by providing the lowest quote, so whoever produces the lowest price gets the job,” Zerby says. “We already know we’re not going to be the lowest priced service provider, and we don’t want to be. What we’ll do is learn what the customer’s experience has been with their lawn and find out what their expectations are. We begin by learning the customer’s objectives, then we do an old-fashioned, on-site inspection.”
Instead of assigning a one-size-fits-all program based on yard size, Ecolawn customizes its approach. A lawn that hosts the neighborhood kids’ ball games will receive a different treatment than a showcase lawn, just as an environmentally conscious customer may get a less aggressive program than one who wants neighbors complimenting his pristine turf.
In addition to understanding customers’ experiences and expectations with their lawns, the other piece of the puzzle is discovering the customer’s willingness to get involved. While it’s up to Ecolawn to create and communicate legitimate expectations, the customer also has a role to play.
“If we can show the customer the value of using the right agronomic techniques, like mowing and watering, they end up having a much healthier lawn that’s far less dependent on repeat chemical applications,” Zerby says. “There is no magic potion. Their lawn’s not going to turn emerald green two days after a single treatment. But over a period of time, by employing the right techniques – both them and us – we will grow a healthy lawn they can be proud of.”
Ecolawn builds collaborative relationships by educating customers about cultural practices that contribute to a healthy lawn. For example, regardless of Ecolawn’s treatments, customers can actually invite weeds by mowing their grass too short.
So Zerby’s team makes an effort to explain how taller grass shades the crown of the plant to protect it against stress and weed growth. Ecolawn can then apply organic nutrients to stimulate deep root growth and maintain moisture for a healthier, more disease-resistant lawn.
In addition to the lawn care tips provided on Ecolawn’s website, newsletters and hand-outs, the crews are encouraged to communicate these cultural techniques to customers verbally.
“We spend quite a bit of time educating customers, and that’s where the culture comes in,” Zerby says. “Our honesty and integrity have to be absolute, our core values have to be obvious, in order for our message to be credible. It’s critically important that our technicians know and understand this philosophy, because they play a critical role in helping the customer learn these things.”
Although, with low turnover, Zerby doesn’t have to hire often and he uses an exhaustive screening process when he does. Rather than testing technical skills, which can be taught, he looks for a fit with the candidate’s core values. He may ask about childhood chores and extracurricular activities to identify whether people have the self-motivated initiative and responsibility to take ownership at Ecolawn.
“We work hard to find the right people who have the same values that our company does,” he says. “We’re looking for a track record that mirrors a positive, professional culture from the beginning.”
New employees go through extensive training, which spans two days of classroom learning, followed by instruction in the shop and the field. Veteran technicians mentor new hires up to three months before they begin treating properties on their own.
“We make sure service technicians are prepared to offer competent service,” Zerby says. “There is no micromanaging. They’re empowered to make service decisions on the spot.”
Sometimes, those decisions involve staying to educate a customer about proper watering techniques – even if it means missing the daily quota.
“Our technicians have daily goals, but the careful, conscientious servicing of our customers’ properties is the most important objective,” Zerby says. “Our technicians won’t hurry to meet a quota. They know that the financial parameters are critically important, because without them we won’t have a business. But the customer is far more important, because without the customer, the same thing happens, only quicker.”
So, instead of micromanaging his team, Zerby relies on feedback from customers.
“Customers have told us that our culture is why they continue to buy from us,” he says. “Apparently, it’s not the norm anymore.”
William (of Ockham) was a 14th century logician and Franciscan friar. He hailed from the village of Ockham in the English county of Surrey where he was born; hence the title, “William of Ockham.” He gave us the principle referred to as “Ockham’s Razor.”
It states, “Entities should not be multiplied unnecessarily.” Scientists often employ Ockham’s Razor in a morphed version to simplify their theories. This version states, “When you have two competing theories that make exactly the same predictions, the simpler one is the better.” Or “the simpler, the better.”
Many of the landscape contractors with whom I work make their lives far too complicated. Many have business degrees. Unfortunately, most such schools teach you about Fortune 500 companies, not how to run a small business.
How it works. John had a $750,000 residential landscape company in Indiana. His net profit margin from his landscape operations before taxes was roughly 13 percent or $97,500. He had two divisions (we won’t include his snow and ice management operation, or his landscape subcontracted work with its markups) as follows: 1. Landscape installation with one 3-man crew billing roughly $450,000 per year and achieving a 40 percent gross profit margin (GPM). 2. Lawn maintenance with five men billing approximately $300,000 per year and achieving a 35 percent GPM.
John had accurate financials showing the direct costs (materials, field labor, field labor burden, field trucks and equipment, rental equipment and subcontractor costs) for each of his divisions. As a result, he could identify his GPM quite accurately.
However, John wanted to know how to measure his gross and net profitability more accurately so that he could establish benchmarks, against which he could use to measure the profitability of his company’s crews and jobs.
John called me at the end of the year to help him find answers to his questions.
The process. Prior to my arrival at John’s office, I had him tally up all of his field-labor hours for the previous year. When I arrived, he knew to the man-hour how many man-hours were used in each of his landscape divisions.
1. Calculating the gross profit margin per man-hour (GPMPH)
The installation crew had 5,261 paid man-hours. It totaled as follows:
2. Calculating the net profit margin per man-hour (NPMPH):
In order to calculate the net profit margin per man-hour, we have to subtract the general and administrative (G&A) overhead from the gross profit margin per man-hour. G&A overhead for the landscape divisions was roughly 25 percent of sales.
It is here that we make an important assumption regarding G&A overhead. It is, “If the G&A overhead is 25 percent of sales for both landscape divisions combined, it is reasonable to allocate 25 percent G&A overhead to each division separately.” You may argue with this statement but after analyzing thousands of landscape budgets and financials, I’d say that this is a reasonable assumption. To calculate the NPMPH, subtract the 25 percent G&A overhead from the gross profit margin per man-hour as follows:
a. For the landscape install division:
b. For the landscape maintenance division:
The analysis. John’s installation division was achieving a GPMPH of $34.85 and a NPMPH of $13.07.
His maintenance division was achieving a GPMPH of $10.16 and a NPMPH of $2.90.
The installation division made 4.51 times more net profit per man-hour than the maintenance division. $13.07 ÷ $2.90 = 4.51
Does this mean that John should scrap his maintenance division and do more installation? Not at all. And that’s not John’s question. It just means he makes almost five times as much net profit per man-hour doing installation work than he does doing maintenance work.
John now has the benchmarks he needs in order to establish gross and net profitability goals for his crews and his jobs. These benchmarks are reasonable and extremely simple to calculate. If his crews can beat them, all the better.
Q: What sorts of information could a landscape contractor provide to you that would be helpful to you in your job role? (choose all that apply)
Q: What one thing could a service provider do to instill your confidence in their company?
Source: Lawn & Landscape research