Catch Steven Knight of Mosaic Home Services Ltd. in this episode of Beyond the Tools as he discusses the things you should know about sustainable scaling.

For the full show notes, head on over to:

https://reflectivemarketing.com/podcast/Steven-Knight-Using-the-Franchise-Model-to-Scale

Krystal Hobbs 0:04

Welcome to Beyond the Tools, the podcast that helps contractors attract more leads, grow their business, and finally get off the tools. In each episode, you'll discover marketing tactics that work. You'll get actionable insights from other successful contractors, and connect with experts to help you grow. I'm your host, Krystal Hobbs, owner of a social media agency that helps contractors attract and convert more leads. Get ready to take your business to the next level so you can finally enjoy the fruits of your hard labor. Ready, let's go!

Krystal Hobbs 0:46

Krystal Hobbs 3:07

Welcome to the show, Steven. So excited to have you here.

Steven Knight 3:11

Thanks. I'm excited to be here.

Krystal Hobbs 3:13

Amazing. So I am super curious about Mosaic Home Services. And I love that your goal is to become Canada's largest home improvement franchise network like that's a big deal.

Steven Knight 3:28

It's kind of a big goal.

Krystal Hobbs 3:30

So tell us a little bit more about that. How did you guys get started? And what kind of businesses are you working with now?

Steven Knight 3:39

So it's a little bit short-sighted, but we made it work. It was a business that did screen windows and screen doors and slowly but surely we just began to either acquire an equity position or start-up on more brands, we started with screens and we grew into holiday decor and Christmas decorating into fencing and painting and maid service window washing. Now, today, six years later, we've got seven different brands under a corporate umbrella that provide a wide array of different types of services predominantly to homeowners. And we've developed a team that is highly focused on continuing to iterate continuing to acquire scale, and then franchising these brands.

Krystal Hobbs 5:31

Amazing. And I mean, when you talk about some of the businesses under your umbrella, or we're talking about screens, and we're talking about holiday decor, like pretty niche stuff, so what would you say a franchisable business looks like?

Steven Knight 5:50

Krystal Hobbs 7:01

So what do you think that businesses that aren't in a franchise can learn from the franchise model?

Steven Knight 7:11

The biggest thing to the franchise model, the thing that makes it scalable, when no matter what size or sub-segment of the industry you're in, is that there's a standardized system, I like to look at the quick service restaurant franchise as a bit of an example if I walked into a McDonald's here, or I walked into one in Phoenix, Arizona, or one in Mexico, I'm gonna get a very similar level of service, oftentimes the same product, we're gonna have the same user experience. And that's a really important piece, especially if you're in a sub-segment of the home improvement industry, where customers come back to you over and over again. So a good example that I can off the top, of my head is window washing, right?

If you own Joe's Window Washing and Pressure Washing and you started that from your garage, and you're working your tail off to grow it, that's an industry that oftentimes is heavily seasonal, spring and fall, if a customer hires you in spring, and they receive, five-star service and they hire you again in fall, you've got some, maybe some staff turnover or you've had some changes, all of a sudden that customer experience becomes completely different. And now it's a three-star experience. Well, that's the trick to maintaining customer expectations that you don't really need to worry about with a franchise because the way in which things need to be done is outlined, it is written in stone, and this is the way it's done. If you don't have that to fall back on, it's not to say that you can't create it for yourself and your own little Operations Manual. But a lot of entrepreneurs just don't you get too busy, you're trying to run around, do a million different things, find new customers take care of the books in the afternoon in the evening, you're trying to do up quotes and manage staff and hire and do all this, you don't have time to standardize the process, and you don't have time to enforce standards process. When you invest with a franchise, you get that as part of your purchase, and oftentimes helps entrepreneurs really focus on what they enjoy doing, which is opening to customers and doing things that they're they're great at in their trade. You're not running around doing a million different things, trying to put a process manual together.

Krystal Hobbs 9:14

That makes total sense. And I think for a lot of our listeners, there's probably quite a bit of interest in the franchise model. And for some, they're probably happy doing it on their own. But I think there's so much to learn from franchises because of how systematic things are. And like you said, for a lot of business owners, their business is an extension of them as a person which makes it really, really tough if you eventually want to retire or sell your business. So Steven, in your experience, I know you guys have taken a number of Home Improvement brands from zero in revenue to 100 million plus. Where do you see Start, if you're trying to figure out a growth strategy for a company,

I guess the first 100 million plus one days, we're focusing very hard on our model to scale brands quickly. And we do that through a variety of channels. But the most important, the most important piece to start with when you start to scale, your business, whether it's home improvement or not, is to focus on who your actual customer is. And if, if your response to that question is, well, it's homeowners, I challenge you to say, no, not all homeowners are cut equal, not all commercial property managers are cut equal. Not all customers are cut equal. And it's important to really understand, given the service offering that I have, or the product that I sell, who do I actually really, really, really want to sell it to, who's my best customer today? And who do I want to do more of this service or deliver more of this product to if you can't start with that step, you're never going to scale in a profitable way, at least? I see it happen all the time, where entrepreneurs say, look, I want to grow and want to scale and COVID, did you know a lot to help this because everybody was at home and they were doing renovations and things were happening. And a lot of people learned the hard way that the person who hires a plumber to come to fix a problem with their million-dollar home is hiring a plumber for a lot of different reasons than the single mom who hired a plumber to unclog a drain. There are two different ways in which that customer wants to interact with your business. There are two different willingness to pay in terms of price point. There are differences in terms of how the customer wants to be treated if they want service. Now, if they want service later, if they want to be treated like the queen of the world, or if they just want the problem. So there are a million different boodle intricacies that are going to serve us in each type of client. And when we look to scale any of the brands under our umbrella, we really have to dig deep and ask ourselves, what is the perfect picture of the perfect customer for this brand? And oftentimes, it's not just one it's Avatar, an avatar be avatar See, once you narrow that down, then you can start to fill in the hard parts of how do I go find more of those people? How do I make my service better than anybody else for that person, once you start to walk down that path, scaling your business becomes a lot easier because you know what to expect from your client. If you don't burn hardest said the best he said your customers will make you broke, your customers will run you're broke. It's because you're going to have a plumbing company where you're trying to service, Sally and Joe and Tammy and they've all got different expectations, different willingness to pay, and all of these different, a wide breadth of things that they expect. And you're going to try and service them all and you just can't, you got to narrow in on who your customer is who you want to serve, and then start to put plans in place to scale.

That makes sense. And I know that looking at okay, how do I get more customers is a smart place to start. But I often hear a lot of business owners that look at, okay, I'm going to add a new line of service like maybe I'm a plumbing company, now I'm going to do a trek, or I'm an A truck company. Now I'm going to do electrical. Does that ever make sense? And if so, like when should you look at doing that? Or should you really just be sticking to one thing?

Well, so it's a matter of personal opinion. There are many companies that have grown by adding new product lines to their existing brand. And they do quite well. So who am I to say yes or no? In my personal opinion, we focus very heavily on segmenting our service offerings into individual brands and devoting resources to those brands. So when I say brand, I mean actual business incorporated company ready to go offering this widget to this person. The example that I like to use is window washers in Canada who often can't wash windows 12 months a year. So what am I going to do depending on your postal code? October through March, what am I going to do? A lot of them say, Well, we're gonna hang Christmas lights, because we've got the ladders, we've got the trucks, we're doing it anyway, that's what we're gonna do. That can work for some people. And oftentimes, that's an opportunity to make your customers more sticky, right?

So I'm already there washing your windows, I'm gonna get you to hire me for another service where I'm doing kind of the same thing. I'm climbing the ladder, I'm installing some lights, and I'm going to come back again in the fall, I'm going to take them down and probably gonna wash your windows at the same time we're going to get some efficiencies. For us. That didn't make sense. And we didn't make sense because if we wanted to actually be professionals in both of those things, they had to be separate. We can't say, “Hey, we're going to be the best window washers in our market and we're also going to be the best Christmas light people in our market.” Because those two things are drastically different skill sets. And if you don't, for us, at least if you didn't break up those two things, you always found yourself in this battle of, okay, it's the fringe season, it's warm enough to wash windows, but we got a lot of Christmas light work, what are we going to devote our resources to today, because there are only so many trucks and there's only so many people. And now I'm going to play this tug of war between my customers. And for us, we just didn't feel like doing that. We didn't feel like that was a fair representation of how to treat our customers or how to run our business. So we look at it we survey our customers a lot. We ask what they want, and what kinds of services they're looking for. And then we develop brands that fit those needs of the market. We don't try and just say, “I'm a plumber, I'm gonna do a check tomorrow because I think it's going to work. No, we do our homework,” and we say, “What is the market's willingness to pay for that service? What are the holes that we're going to fill in?” Then we go filled.

That makes a lot of sense. And, talking about that customer research piece and figuring out who you're trying to serve? Or should you ever be turning down customers? Like, what do you say no, to once you've got that information?

Absolutely. There are, you're not for everyone. You can't be in your business, you cannot be for everyone. This is something that my sales team and our marketing team, often challenged me on because we could go do more than answers. I wanted to sell more, I want to go do more. I want more, more, more. And I am constantly pumping the brakes, to say, are we going to do this thing better than anybody in our industry? Are we going to fill a need that isn't currently filled? Or are we just chasing dollars, it goes back to that old adage of your customers will bankrupt you with their wants. Oftentimes, people who are entrepreneurs or sales team members, they're programmed to say, yes, your program for a customer to come with a problem. And for you to solve that problem. The reality is, if you're not careful, you will quickly find yourself like that plumbing company, all of a sudden, now I'm a service plumber, a new construction plumber, and each HVAC maintenance person and I'm doing some commercial work in the side, you are trying to run so many lines of business, that it becomes muddy, where your actual profit comes from. All of those different lines of business have different cash flow cycles require different skill sets, oftentimes different tickets and training, different equipment on vans, there's a whole bunch of variety there, which you can fill. But you've got to make that conscious choice to do it well. Otherwise, you're going to find yourself doing all of these different things.

So that's your question. Yes, we say no to customers all the time, instead of saying no, here's a great industry partner, here's somebody that I met in a networking event or a BNI group, or whatever it is, they're going to take great care of you. They're great at this thing that's going to build enough loyalty from your customer, that whether that person provides a good service or not, they're going to come back to you because you tried to solve the problem. And I know a lot of people get you to know, worried, and I want to give a referral for someone, I don't know, I get it. But you are solving that problem for that customer at that moment. Tell them “Look, here's Joe's service. I've never used them before, but I think he might work for you.” Good luck, that customer is going to come back to you again, you don't need to worry about sending the work away. People who respond to that comment say, well, I don't want to turn a customer down, I want to say no. My question to you would be how much revenue or profit could you go generate with the time that you're going to spend trying to figure out this new thing for that customer? If you just said no, you dealt with it in 15 minutes, and you spent the next three hours that you're going to deal with this problem going to find a customer that you actually can service? How much better off would you be, which sleep better at night? Would you be in a happier place? You're not trying to figure out this whole new industry? I guarantee the answer is yes. Don't be afraid to say no, go find another customer because that's what you're good at.

I think that's so important. I love that. And I know that you've worked with all sorts of different business owners and helped them in this process of figuring out how to scale their business. So what are some of the other big mistakes that you see business owners make when it comes to their growth?

I see it very frequently in the home improvement sector where management of cashflow becomes a problem. A lot of people in the home improvement industry jump into this industry because they have some unique expertise. They're a great cabinet maker. They're a great painter, whatever they might be. And oftentimes you sit down with your accountant and your accountant says look, you made 100 grand this year. And the first question you ask yourself was great, where is it? Because it's not the bank, where to go. Oftentimes management of the cashflow cycle is the downfall of the home improvement business. These businesses don't go bankrupt they simply run out of money. And it's because you are putting cash out more quickly than you're receiving it back from your customers. So some of the frequent, things that I see and ways to get around that would be simple things like charge deposits to your customers, get a little bit upfront to cover your material costs, go to your suppliers, get a credit account, setup, talk to your bank, get a line of credit, but most importantly, the critical thing.

Do not sit back and wait to pay yourself when there's money. You put your blood, sweat, and tears into your business, you deserve a paycheck, cut it every two weeks along with everybody else, and pay yourself first. I know a lot of people kind of cringe at that. And I don't know if we're going to be able to support the money and I don't know what we're going to do. I'm going, to be honest with you, your business doesn't care if you have groceries on the table, it just doesn't. But your kids and your wife or your husband do. So pay yourself a regular wage. And I guarantee you the problems will solve themselves because you are as an entrepreneur a program to solve the problem. That's your whole job. That's all you do to solve problems. It sounds like you're kind of creating one for yourself here. But I guarantee you, it's the best problem you could possibly create. Pay yourself every two weeks, do your company a good service by making sure that you've got a paycheck coming in, and you will figure out how to manage cash flow. Because you always do you always figure it out. But you've got to make sure that you pay yourself otherwise you're doing your company a disservice outside of that, manage your cash flow, sit down once a week, and do simple cash in and out report. How much money do I have in the bank? How much money is coming in? How much money is going out? What are the next seven days look like next 14 days look like next 30 days look like? Help me understand what the inflow and outflow of cash are. And really understand, hey, this customer owes me four or $5,000, it's 60 days overdue. Wait, go collect your money.

Those are such important points, anything so practical, too. But I know I hear from clients all the time, especially in commercial work. I'm waiting for 60,000 100,000, several $100,000. And that makes a big impact if you're just sitting around waiting to get them money. Definitely does. Awesome. And I know, Steven, that you mentioned earlier that, a lot of business owners start because they're good at a particular skill. And then they start to build a business around that. What are some of the ways that you see entrepreneurs getting in their own way when it comes to their growth?

Oftentimes, if you're the expert, you can become the bottleneck in your business, which is not necessarily a bad thing. So I want to be clear about that. You need to when you start your business, or once a year, or once a quarter, establish a rhythm where you really sit down and ask yourself, what do I want to do with this business? Kind of similar to what your employees would do to say, what do I want to do in my career? What do you want to do with your business? Do you want to grow? Do you want to stay the same size? Do you want to shrink? Start to ask yourselves, this question. And a lot of people start by simply asking, How much do I want to make next year, personally? What is my personal income that I want next year and start to reverse engineer the math from there? Look, if I want to make $100,000 this year? How much work do I need to do? Do I need to hire more staff? You can start to reverse engineer that question from the simple answer to how much I want to make.

But really, if the answer is I want to grow, which oftentimes it is, you need to ask yourself, where's my time going? Sit down for two weeks, take five minutes a day, sit down, and journal, every minute of every day. This is an exercise that I do at least once a year to say where did my time go today. And then ask yourself the question, look, how much of my time am I spending on things that somebody else could do a little bit cheaper, or even better than I can? I'm terrible at data entry, my brain is all over the place. But when I was growing my business, I found myself like three hours a day entering data. Well, it wasn't until I kind of woke up and smack myself say, “Well, I probably should have somebody else do this, who's probably better at it because I'm not that great at it.” The only reason I'm doing it now is that I haven't put in the time to find someone else to do it. And I know that a lot of entrepreneurs will sit back and say, “Well, how do I afford that person?” The answer is what else are you going to do with that three hours of time because that's when you go generate the income to pay for that person? That's when you go find efficiencies in your job sites to make them more profitable.

Yes, and I think on the hiring front a lot of people don't think about the mental bandwidth that frees up even not having to do those things. And to have a little less stress and time to think in your day. Like there it's hard to assign a $1 value to those things, too. But they make a big difference. They do. So on the hiring front, of course, across the trades in Canada, the US beyond, all we hear about is the labor shortage. So how do you scale without labor?

How do you scale without labor? Well, it's, again, it just goes back to the customer. For us, at least in our lines of business. When we identify that we want to scale. It's about identifying what style of service we want to offer and allocating labor resources depending on how we want to grow. So a simple example. So we look at window washing as a market, there are a million different little things that go into Window Washing, and every company is going to offer a slightly different service. So some window washers are windows and gutters. Some are Windows gutters and interior windows, some are windows, gutters, interior windows, we're going to repair the gutter, we're going to pressure wash, and you start to get all of these different kinds of skill sets and all these different little pieces. And you really need us, we had to understand what the labor market looks like if we offer all five of these things. For three to one?

How specialized of a skill set do we actually need in this role? We see it off in the home improvement industry as well, where it's in expectation of the role when you hire a technician to perform a service, oftentimes their door knocking on the neighbors to say, “Hey, we're here already can, can we do this for you?” That's a whole different skill set. If you want to scale, you got to look at the skill sets that you actually need for the job. Make them as narrow as possible and hire for that. The more things you look for out of a person, the harder time you're gonna have to sell. If I can relate it back to salespeople as well, if you expect your salespeople to meet with a customer, give them the warm fuzzy feeling, estimate the job measure technical specs, supplier relationships, and all the technical elements that go into estimating a job, go hunt new customers to go to networking events, attend to BNI, go find new customers all the time and project management where they're they're on board managing the work that they sell. That's for big things that that person now needs to be good at. You got to ask yourself, am I better off having two people do two things really well, or one person do four things really well? And that comes down to your local labor market. You can find one person to do all those things great. If you need to start segmenting, that's the do that. But don't expect the world. If the market doesn't if the labor market doesn't have that don't throw responsibility and accountability on folks that, maybe they're really only good at those two things, find somebody else who can complement them. Don't expect them to be great at everything because they just can't it's just unrealistic.

Hmm, that's a really interesting way to think about it that I've never heard before. I've never really thought about so. That's awesome.

We make that mistake in marketing all the time. Now that's huge, you want them to be good at social media content creation, SEO paid search advertising, and traditional media buying like there are a million different things going on in the world of marketing. You got to pick and choose. It's kind of I relate it back to football. You can't have a quarterback who's also a wide receiver who's also a left tackle. You can't do all of those things. You got to figure out who are the players on the bus that actually need to make some compromises because you're never going to get exactly what you want. But you got to put the pieces of your team together in a way that works for your local labor market.

That's an incredible analogy. So So I know for some businesses like you were starting them from scratch, but also you guys acquire. So what is it that you? I know, you talked a little bit about it, but what is it that you look for in a franchisee or someone to partner with?

When we're looking to acquire a business? Frankly, in the home improvement sector, it all comes down to customer acquisition and customer stickiness. So what I mean is, how easy is it for this business to find new customers? And how sticky are the customers they currently have? Do they come back and buy once a year, once every three years? once a quarter? What does that look like? For us, because we've amalgamated this suite of services, it really comes down to can this next service that we aim to bring on or partner with. Can it complement what we have under our umbrella? So, I've mentioned window washing and Christmas lights, they work perfectly together, we've got screen windows and doors and painting because oftentimes we walk in window frames are all busted up. We've got you to know, different services that we'll have that largely the same style of customer that we can begin to cross-sell to in terms of ideal attributes that we look for out of a sellable or viable home improvement business.

We look for customer stickiness and customer acquisition. And then we start to ask the really tough questions about how integral is the owner operator or founder of this business. Have they liked I started this talk? Have they made themselves so integral to the business that if they walked out the door tomorrow with thin clothes? And if the answer is yes, then there's not really much of a business to buy. They might have some trucks and some tools that are worth a little bit of money. But if that owner-operator has to be there every day, in order for that business to make a profit, it's not really worth anything. So we challenge the people who come to us to say, look, we want to partner with you, or we want to you want to be bought out. We challenge them that answer the simple question. If you weren't here tomorrow, would the company generate a profit? And a lot of times the answer is no. The sad fact is that's just not a viable, viable business. If the answer is yes, then we say does it make more money for you? They're not there? And if the answer is looking, it makes the same amount. Either way. That's a great viable business. If it's, Hey, Mike, the owner is relied on for 75% of the sales. Okay, that's a little, that becomes a little bit more challenging. So it comes down to that kind of core key things that need to be sticky customers with a good cross-sell between the brands that we have, and, not solely reliant on the order to operate.

Amazing, that makes sense. Well, Steven, I feel like you've given such incredible insights here in terms of building a scalable business that can someday be acquired, or essentially having something that you can retire from or move on from, which I think is so important. For all of our listeners, I'm sure they're going to want to learn more about you and what you're up to with mosaic home services. So what's the best way that they can connect?

You can connect with me in the best ways on LinkedIn, actually, I highly encourage anybody in the home improvement industry to start using that platform more. And keep an eye on our website at getmosaic.ca. That's where you learn a little bit more about the new brands that are coming on the franchise territories that we're selling and, connect with me a little bit more to learn just about what we're doing and where we're going.

Amazing. Thank you so much, Steven. This has been awesome and I really appreciate you being on the show.

Great. Thanks for having me.

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