Attul Gawande is a general surgeon, MacArthur Fellow, contributing writer at the New Yorker and leads a WHO program. He has more degrees and letters after his name than this poor journalist will ever have.
In his latest book, “The Checklist Manifesto,” Gawande talks about how simple checklists have helped doctors in ICUs across the country reduce infection rates to statistically zero. They make sure doctors remember stuff like wash your hands before operating and cover the patient in sterile cloths before you cut him open. Not rocket science, but easy enough to overlook in a crowded operating room.
The checklist programs started with nurses, the people doing most of the hands-on work with patients day to day. They really caught on after hospital administrators gave nurses the power to call out doctors when they missed key steps on the list.
Gawande describes three types of problems these lists help solve: simple, complicated and complex. A simple problem is like replacing a light bulb. It has a few steps that anyone could accomplish, and repeat. A complicated problem is one that involves lots of people and decisions, but can be divided into many simple problems – like launching a rocket.
A complex problem is one that has hundreds or thousands of variables that require many decisions and experiences and specialized knowledge, but that aren’t easily predictable or repeatable. Like building a business.
This month, Allan Davis writes for us about the overwhelming mountain of tasks that every landscape contractor faces when he’s building his business.
Not what he has to do to run the business – schedule crews, buy equipment, pay people, sell – but what he has to do to build it. The stuff that’s so easy to push into tomorrow or next week, especially when you have all those fires to put out.
The key, as Allan explains, is not to try to do all of it at once. Pick one thing and do it, then do the next one. As long as you can articulate what the most important stuff is, and you work on the most important stuff, the most important stuff will get done.
It’s not a perfect system, and you won’t get everything accomplished overnight, but the only way to tackle a complex problem is to get started somewhere.
– Chuck Bowen
When the right numbers are at your fingertips, you gain better control over where your business is going. You can gauge whether you’re on track to hit the destination you plugged into your budget, or you’re veering toward a detour that will stall your performance.
“It’s like a dashboard,” Steve Pattie says of benchmarks and key financial reports. “Am I running out of gas here? Do I need oil here?”
Pattie, CEO of The Pattie Group in Novelty, Ohio, says the problem is, many landscape professionals wait until November to analyze their financials for the year. They spend the prior months plugging away, selling and doing, too busy to deal with deskwork. By the time they realize that the numbers aren’t stacking up favorably, it’s too late to act.
At The Pattie Group, weekly management meetings take place where this simple question is asked: What is the biggest problem you have in your department? And then, how do we solve it? “That is how you keep from being the Titanic,” Pattie says. “You have to move quickly. I don’t care if you are a $500,000 or $5 million company, you have to move fast to solve problems.”
Cut overhead fast
Don’t delay in trimming areas that can help your bottom line.
The phones aren’t ringing like you hoped. Sales are behind big-time, and if you don’t make some adjustments, your profit will take a serious dive. There’s a reason why the balance sheet gets its name. When numbers are out of whack, it’s your job to review areas of concern and make changes to reset the equilibrium.
Overhead is a tough area to cut, but it represents about 25 percent of your costs. (The other 65 percent is direct costs, and the remaining 10 percent should be profit.) Of that 25 percent, 12 percent is paid out in office salaries including the owner’s take-home pay. The rest includes expenses like your building, advertising phones and other operational expenses. If you need to trim back overhead, here are some ideas.
Pare down part-timers. If sales drop, part-time help in the office could be the first to go, Huston says of making difficult personnel decisions. Or, another option is to reduce full-time office staff to part-time hours.
Take a paycut. When overhead is too high, the owner takes a pay cut, plain and simple, Huston says.
Weed out weak links. Keep your team sharp and avoid a mass layoff by evaluating the team every year. Steve Pattie, CEO, The Pattie Group, Novelty, Ohio, suggests an exercise introduced by business guru Jack Welch. Say you are allowed to keep one person in your department – who is it? Now, say you can keep one more. Continue this exercise to identify the weakest link in every department. “Every company has dead weight,” Pattie says. “Is everyone really looking around them in the department to see where the inefficiencies are?”
The extras. Do you really need a meals and entertainment budget? Steve Rak at Southwest Landscape Management in Columbia Station, Ohio, decided: not really. “When things started getting tight for the maintenance business, I cut the meal budget to save money,” he says.
Also, Rak cut employee uniform expenses in half by moving from a uniform company to T-shirts. “We ask employees to purchase their T-shirts, and we still pay for half of the laundering fee for pants,” Rak says. The total savings adds up to a couple hundred dollars each month.
Work the phones. Talk to providers such as your phone company and find out if you’re getting the best “bundle” deal. Be sure to cut unnecessary telephone lines – those costs can add up.
Understanding your numbers and how they compare to industry benchmarks will help you quickly identify those problems that need attention. And you don’t have to hole up in your office for hours every day to figure this out, says Jim Huston, president at J. R. Consulting. “We don’t want to make a bureaucrat out of you,” he says. “We want you to know what you are doing and whether you are on track so you can go out in the field and make it happen.”
This is possible by zeroing in on key indicators in your financials. Ultimately, Huston says, an owner should be watching whether the company is following this mantra: price it right; produce it right; produce enough of it. That boils down to watching sales (volume), gross margins and overhead.
Sell it, do it. Pattie doesn’t need to pull up his financials to figure out if sales are lagging on the design/build side of his business. He listens for the phones. In fact, he analyzes how these calls progress from query to close. In essence, he is monitoring new sales – ensuring that the volume is there to reach the company’s budgeted goals. (Huston points out, “If you don’t have enough volume, you can’t pay your overhead costs and other expenses.”)
For example, if Pattie gets 500 calls, those are divided among four salespeople so each gets 125 leads. Of the true leads in that batch, about half are written up into estimates. From those, the company will sell 30 to 35 percent.
Those sales numbers are compared to the company’s annual goal, and Pattie works backward, dividing that volume by the number of salespeople, to determine how many jobs each salesperson should close each month.
On the maintenance side of the business, the key sales indicator is renewal rate, Pattie says. He assumes a 10-15 pecent loss each year. So if the company’s goal is to go from $1-1.3 million in sales – figuring in that loss of about 15 percent – the company needs to sell $450,000 more this year in maintenance jobs.
With these targets in mind, Pattie can look at weekly sales reports and determine whether the company is on track.
The amount of sales volume a company needs depends on a company’s overhead structure, Huston explains. He analyzes a firm’s history and projects a realistic volume for the year – a reasonable increase in sales given the market, economy and other factors. “I’m going to look at the profit and loss (P&L) statement from last year, all of the expenses and then put together a budget,” Huston explains, noting how the budget is essentially a roadmap. “Then, I’m going to ask the owner, ‘How much money is each crew generating?’”
A volume benchmark for a two- or three-person design/build crew is $600,000-900,000 per year. That means each crew member needs to generate about $300,000 minimum each season (assuming a nine-month working year). Maintenance crewmembers should generate about $55,000 per person per year for a fulltime employee, Huston says.
Strike a balance. You can sell a million jobs, but if you aren’t pricing them properly and producing them efficiently, you’re no better off. “If you’re having a bad year, it’s usually because sales are too low and/or you’ve had some bad jobs that ran over in hours,” Huston says. Then, the ratios get out of whack. Your equipment, labor and other costs are higher than they should be. And the point here or there really adds up.
“Construction labor should run 20 percent plus or minus 2 percent,” Huston says. “So if it’s 25 percent, something is wrong. The crews in the field aren’t producing.” Maintenance labor should fall in the 30 to 30 percent range.
All these costs figure into a company’s gross margin. This shows how much a company is earning after costs. It’s a good indicator of how profitable a company is at a base level.
To understand how the wrong price or poor production can affect gross margins and your financial big picture, consider this: Your direct costs are about 65 percent of sales. Overhead is about 25 percent of sales. That totals 90 percent, leaving a 10 percent profit for you at the end of the day.
“If your equipment costs are a couple percent higher, labor is a little to high, etc., the next thing you know, you don’t have a lot left over,” Huston says. “This is why benchmarks are so important to review so you have some simple rules of thumb to monitor.”
For a fast look at whether your company is going to have a profitable year, Huston suggests eyeing the bottom line. What is your monthly debt? What is the annual debt? “In a seasonal business, you usually start in the hole in March, April, May and June,” he says. “But gradually, you should see that negative number on the bottom get up to zero where you are at your break-even point. After June, in the months of July, August, September and beyond, you should see your net profit on the bottom start to grow.”
In over your head? Companies get into trouble and have “a bad year” when overhead and sales volume are not in proportion. It’s easy for overhead to get too heavy, especially when sales aren’t rolling in as expected. Sales feed the business. If the business costs you more than you can feed it, then there’s a problem.
Ultimately, keeping the business balanced between expenses and income means watching costs, and getting out to sell and do the work.
“If your sales look good and your production looks god and the bottom line is on track month to month, you know your net profit is improving, then it’s pedal to the metal to sell more and produce more,” Huston says.
Start improving the way you manage and review numbers.
1. Update records. Regularly update all expenses and income, and keep those numbers updated so the information you gather is timely. “A lot of times, contractors will work and jobs don’t get billed until the end of the month,” Huston says. “Not all invoices are put into the accounting system. So, revenues are inaccurate and expenses are inaccurate.” Stay on top of bookkeeping, or hire someone to help out.
2. Compare numbers. Review the benchmarks provided in the charts on pages 14 and 15 and see how your numbers compare. Be sure that your chart of accounts is organized in the same manner because where numbers appear (below or above the “top line”) will affect outcomes.
3. Start at the bottom. Review the bottom line and look at monthly debt and annual debt. This is a big-picture look at how your business is doing.
The way Bill Dysert describes his website is like this: “We had a nice, clean 2009 Chevy Malibu with 30-40 percent tire life left on it,” he says, referring a major overhaul that will result in a brand-new site launch in March 2012. “It was clean, presentable. But not cutting edge – not that Ferrari we wanted.”
Faster, smarter, more attractive – Dysert wants the best for his Chardon, Ohio-based company, Exscape Designs. What owner of a small business doesn’t strive to present that image of class and luxury, especially in a business dedicated to creating outdoor spaces that deliver that vacation-at-home feel?
“Part of my character is that I always want to work with the best and have the best technology,” Dysert says, relating how his high standards and limited bank account to spend on website and Internet marketing momentarily red-lighted his plans when he initially chose a firm that catered to companies with that Ferrari budget.
He just couldn’t foot the bill. But more importantly, he recognized that he needed to partner with a marketing expert that could relate to his small business and deliver a practical, workable strategy.
Ultimately, Dysert needed to reset his search for a marketing consultant and focus on finding a firm that matched his business size and scope. “The (other firm) was very talented, but I felt like there was no way I could financially make it work,” Dysert says.
Test-driving an alternative resulted in a happy union, a robust marketing strategy, an e-newsletter that reels in business and a website that has double the traffic it did before. Now, Exscape Designs is poised for future growth and preparing to use its website as a real business driver and lead generator.
“The need to make a good first impression online is critical because 65 percent of individuals under the age of 35 will search on Google and look for a company’s brand long before they pick up the phone or go into a storefront,” says Christian Klein, president of Company 119, the firm Dysert partnered with to refresh and reinvent Exscape Designs’ marketing strategy.
A marketing match. Dysert went into his search for a marketing firm with the notion that he needed a brand-new website to boost traffic and get the results he was seeking. He figured his current site just wasn’t cutting it.
But that’s not the feedback he got from Klein, who took a careful inventory of Exscape Designs’ existing marketing efforts and resources and analyzed how each component was working to drive traffic and, ultimately, convert those hits into customers.
“We evaluated the site and we thought it wasn’t embarrassing the brand, and it was helping him out,” Klein says. Company 119 recommended that Dysert wait a year before investing dollars in a total site rebuild. Instead, Klein suggested that Dysert invest in photography so the existing website could be spruced up with compelling images of completed projects.
“We took a different approach than what (other marketing firms) were telling him at the time,” Klein says, noting that a good firm will focus on matching a business’s budget and sales goals with a program rather than pushing a company into expensive marketing projects, such as building a new site, that might not deliver the type of return on investment the company needs to see.
So Dysert’s website got a refresh, and an e-newsletter was launched with great success. Company 119 holds a conference call with Dysert monthly to discuss the newsletter content so the firm can produce the editorial. Exscape Designs maintains the email list – specifically, the office manager is responsible for logging new customers and prospects, people Dysert meets at networking events, into the computer system.
The e-newsletter paid off on the first round. Within one hour of sending it out, someone from the local chamber of commerce Exscape Designs is involved with called for information. “That resulted in a nice backyard patio project,” Dysert says.
Aside from the newsletter, Exscape Designs invested in pay-per-click advertising to draw people to the site. “It’s hard to tell how much traffic we got because (customers) forget how they found you exactly,” Dysert says. But all of these marketing efforts work together.
And some efforts don’t work so well anymore, such as direct mail. In the past, Exscape Designs sent postcards to a list of potential clients. “The last few years, the results we were driving from were very poor,” Dysert says.
“We got very small projects, a very small return on investment. We were lucky to cover our cost with the amount of work we sold.”
On the other hand, the work his e-newsletter is raking in will justify the expense of the new websites. “Quite a bit of work was generated right off the bat from email marketing,” Klein says.
Klein also emphasizes the importance of a 360-degree program that includes traditional media like print advertising, an area where Exscape Designs readily spends each year.
That can also mean that some “cutting edge” methods are not a fit, such as social media. “It’s not for everyone,” Klein says.
For more Business Builder, visit www.lawnandlandscape.com/newsletters.
Find a firm that fits
While vetting a consultant, consider these points.
There’s no such thing as a one-size-fits all marketing plan. The answer to your advertising problems is not to just build a new website or to begin Tweeting every hour, on the hour. Before revving up to blast out e-newsletters, a consulting firm should take the time to understand what makes your business tick.
Marketing is personal, after all.
But with the unlimited webinars and seminars designed to steer you into social media, or pay-per-click advertising or the marketing buzz of the minute, it’s easy to feel overwhelmed.
“Businesses today are inundated with new opportunities,” says Christian Klein, president of Company 119, an Internet marketing strategy firm in Cleveland, Ohio. But what you really want to know is how many customers will call you if you add X, Y or Z to your marketing plan.
“Businesses throw money at a new website and then the phone doesn’t ring and they don’t understand why,” Klein says.
The marketing plan should be aligned with a company’s sales goals. And a consulting firm should understand exactly what those goals are before making any recommendations.
Klein offers these pointers for vetting a consulting firm so you can be sure you’re partnering with a pro that is focused on your best interests.
Talk numbers. What new sales do you want to achieve, and what are your current sales? Ask the firm how they can help you accomplish that number, because ultimately a marketing program should drive business.
Introduce clients. Who are your customers? Be sure the firm fully understands your target market.
Share the past. What marketing efforts worked before? What failed? How much website traffic do you draw? “Talk to the firm about what your online brand is now, Klein says.
Trust your gut. Bill Dysert, president of design/build company Exscape Designs, felt confident that Company 119 was on board with his goals after the firm performed a thorough analysis of Exscape’s existing marketing tools. “They came back with ideas to improve (our strategy) and let us make the decision based on what fit our budget,” Dysert says.
In July 2008, John Rennels almost missed payroll. He had just paid off his $37,000 long-term debt, and was still running his growing business on a cash basis despite its size. “I didn’t have a handle on my expenses,” admits the owner of A Plus Lawn and Landscape in Lawrenceburg, Ky. When he came scathingly close to not being able to pay his team, “I realized there was a big problem,” he says. “I had to figure out what I was doing or not doing and get it fixed.”
Rennels says the incident was “self-inflicted” because he had not mapped out expenses and was making decisions on whether or not there was money in the bank. “I was still working in the field at that time, putting in 80-plus hours a week, and I think a lot of business owners find themselves in that role – no time to take a look at what is going on,” he says. “Then you end up making snap decisions.”
Fortunately, some accounts rolled in just in time for Rennels to cut paychecks – but that close call was out of his comfort zone. “It was enough to scare me to pay attention and learn,” he says.
That’s when Rennels joined a peer group called The Leaders Edge, led by consultant Jeffrey Scott. Rennels had been in business since 2003, grown the organization from maintenance to include lawn care and design/build services, and hired several employees. And he had taken a green industry accounting class a few years prior – when he realized he was actually paying 40 percent of his clients to maintain their properties. (Switching them to monthly flat-fee payments fixed the problem, and no one got upset.)
Over the years, he had been working to fine-tune his business practices, but work in the field continued to draw him away from number crunching. But 2008 was a wake-up call for Rennels, he says. And joining The Leaders Edge has made all the difference for his business. “We have been very blessed to grow every year since we have been in business,” he says. “But now, it’s more on purpose than an accident, I guess.”
Total exposure. Rennels was a bit apprehensive when he attended his first meeting of The Leaders Edge. He was one of the smallest companies in the group in terms of revenue. “I was worried that I might be looked down upon, as in, what do I have to offer?” he says. He quickly found out this was not the case. A Plus Lawn and Landscaping was ahead of the game in the marketing and advertising department, but the company financials were straggling behind. This didn’t surprise Rennels.
Rennels’ Leaders Edge group includes about 10 companies that take turns meeting at each others’ businesses twice a year, and they gather via phone conference two times each year. There are a number of mentor groups in The Leaders Edge program. In between, “team” meetings with a few companies are held via phone to work out problems one member company may be experiencing. And the group members are constantly checking in with each other as they meet target goals throughout the year. Jeffrey Scott is facilitator.
By taking turns meeting at different companies’ facilities, members gain an intimate understanding of each operation. Those meetings generally last several days, with one full day dedicated to the host company, and the other days split among the group as members review progress, discuss business issues and set goals.
Right away, Rennels and his peers assembled standardized financials so they could easily compare numbers. “If I see that one company is paying 8 percent less for insurance than we are, I can investigate…are we getting a bad deal?” Rennels says. This is an example of how standardized reporting illuminates numbers for the entire group.
“Getting our financials straightened out and into a format where I can get feedback has been huge,” Rennels says. “It’s a situation where you get totally naked with these people – not literally, but figuratively. Everyone’s information is totally exposed.”
Developing the team. After the meeting, Rennels instituted rapid improvement plans, where key employees who want more responsibility in the company set one-, three- and five-year goals. “A lot of times, employees just sit back and expect things to happen instead of taking an active part in making them happen,” Rennels says.
He adds that as an owner, he was not doing anything to show them a path. And that has changed dramatically. “You have to train employees so they understand, ‘For you to grow, the company has to grow,’” he says. “We have to actively create opportunities for people – it doesn’t just happen by accident.”
Rennels adds that in this economy, everyone must be a salesperson every day. “I’m trying to teach that ownership thinking of if you want extra you have to do extra,” he says.
Mainly, three key employees are involved in the rapid improvement plans. These are workers not currently in management who would like to be in leadership roles.
Based on those goals, Rennels is reviewing the company’s numbers and what it will take to push those employees into manager roles.
Ultimately, the business will need to do more volume. So, if a lawn care client’s average annual contract is $400, how many clients must be added net year to achieve a goal? And if 250 lawns must be added, how will this happen?
“We are rolling back those numbers and figuring out what we need to do to get where they want to go, and coming up with an advertising and marketing plan, looking at internal practices and seeing if there is anything we can do different,” Rennels says.
Find more ideas from maintenance companies in the A Cut Above newsletter. www.lawnandlandscape.com/newsletters
Implement those ideas
The follow up to trade shows is as important as going to them.
Conferences, trade shows and small-group meetings with industry peers can become a huge brain dump. You’ll take notes on more ideas than you can count. With your motivation and mojo for the business completely stoked, you head back to the office to deal with the daily fires, and all of those great ideas are filed away for “later.” John Rennels, president, A Plus Lawn and Landscaping, knows the feeling.
Here are some tips on how he deals with the problem.
Prioritize the ideas. Go through your notes and decide which ideas could be implemented in the short-term, and which are more visionary, long-term concepts. From there, choose a few ideas you’d like to implement right away.
Ask for feedback. Consult with trusted advisers, whether industry peers or an informal board. Gather their input on the priorities you selected. Can they be implemented? What must be done to take action?
Set some deadlines. By sharing your ideas with others, you create a system of accountability. Ask those individuals to hold you to your promise to implement the ideas, and set a timeline. “Perhaps you meet with them regularly in person or over the phone to discuss your progress,” he says.
Zech Strauser showed up late to an estimating class I was teaching in January of 2003 at the Cook College Campus, part of Rutgers University in New Jersey. Zech was late because his office was 90 minutes from campus, and he was pretty spent from plowing snow all night after a big storm. But to his credit, he made it – physically. Mentally was another story as I had to help keep Zech (and many of the other students) awake during the day.
Zech, an admitted workaholic, founded Strauser Nature’s Helpers in 1998 at the age of 20. As a kid growing up in northeastern Pennsylvania, he was home-schooled and loved being outdoors. He played in the woods and helped his parents in the garden. He started landscaping in 1991 at the age 13 mowing fairways and greens at a local golf course. His working in the landscape industry was a natural extension of his love for the things green and natural. He says, “I started this company with a $25 push mower. I learned that if you get help from the correct people, good things can happen.”
And it worked. He hired new employees, rebuilt his team and pressed ahead. By the end of the year, he was well on his way. A solid foundation was in place upon which to plan for future growth.
Today, just nine years later, Strauser Nature’s Helper, is the dominant full-service landscape company in its market. Strauser Nature’s Helper has a staff of 20-22 at the season’s peek and five full-timers.
As for product/service mix: 60 percent of revenue comes from commercial maintenance and snow, 15 percent from residential maintenance and snow, 22 percent from commercial and residential installation and 3 percent from Christmas decorations.
Robin Petras is a landscape designer and in charge of horticulture services and sales. Duane Walck is the maintenance services supervisor and account manager. Stephanie Stashluk is in the office manager and in charge of accounting and human resources.
What makes Strauser Nature’s Helper unique? Per Zech, “In our market, we are the largest and most service-focused company. We can meet the needs of any kind of client for all phases of landscape and snow work.”
Why should you do business with Strauser Nature’s Helper? Zech adds, “We offer a full service option for clients and are great at meeting client’s goals. We offer more services … than other companies while being price-point competitive.”
The main goals for the next five years are: to grow sales by taking advantage of their reputation and broad product/service mix, and to improve the bottom line through training current staff to work more efficiently and take advantage of technology.
Zech is committed to improving his technological base. Strauser Nature’s Helper is currently implementing a new computer system that totally integrates accounting, estimating, work orders, scheduling, job costing, etc. Full implementation will take some time but the new system should provide many of the tools necessary for Strauser Nature’s Helper to grow more quickly and profitably.
JIM HUSTON runs J.R. Huston Consulting, a green industry consulting firm. See www.jrhuston.biz; mail firstname.lastname@example.org.