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Chapter 3.
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Lockdown Mode Our first cure for seasonitis is lockdown mode.
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It's a good fit for people who like the freedom of having an off-season.
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Basically, you shut down during your typical Q4 collapse.
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This cure might also be a particularly good fit for people who work other jobs with a seasonal component.
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Teachers are busy for nine months each year, but in summer, they have time to run a home service business.
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Business owners with other careers may also enjoy CURE One.
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Finally, if you have most or all of your trucks and equipment paid off, if your business has low levels of debt and loans, CURE One could serve you well.
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If you have massive debt payments, those won't stop when you close down the business for the off-season.
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you'll have negative cash flow even without payroll expenses and jobs getting completed.
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This may prevent you from closing down and going on an extended vacation or hiatus from the business.
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Lockdown mode works best for certain business situations.
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Consider this approach if you have another seasonal job like teaching or firefighting.
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Workers in the oil fields may also enjoy Cure One.
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You might have a few months off, making it a good fit.
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Your business should be debt-free with all equipments and equipment paid in full.
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If you check all those boxes, lockdown mode will likely serve you well.
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Otherwise, this might not be the perfect solution for your business.
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For Cure One to work, we need to identify your fixed expenses.
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Fixed expenses are the enemy of the lockdown approach.
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If you have too many fixed costs, you will not be able to use Cure One to solve seasonitis.
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Fixed expenses include rent, lease payments, software subscriptions, and auto and liability insurance.
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These costs don't fluctuate with your revenue.
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If your revenue drops by 50% next month, your lease payments stay the same.
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Insurance bills still come in.
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Your shop space rent doesn't change.
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Your debt payments are still due.
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These fixed costs continue to drain your resources even when you're closed to the season.
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Think of fixed expenses as costs that aren't tied to your revenue.
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They will be the same every single month, no matter how much money your business brings in.
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Find your total monthly fixed expenses.
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This is the amount you would pay next month if you didn't work.
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Include loan payments, licensing fees, insurance, rent or mortgage, and staff who receive salaries.
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List all these expenses in your worksheet and then add them up to find your total monthly fixed expenses.
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This number matters.
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Lockdown mode gets tougher as your fixed expenses rise.
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Lockdown mode won't work if your fixed cost in Q4 are higher than your profits from Q1, Q2, and Q3 combined.
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Let's say from April to December, you make $100,000 in profits.
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Your monthly fixed expenses are $40,000.
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You have significant debt, expensive leases, office salaries, and costly facility rent.
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Your off-season is January, February, and March.
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In this case, Q4 collapse is the first calendar quarter of the year.
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In this case, lockdown mode will not work.
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The math is simple.
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Your fixed monthly expenses, $40,000, multiplied by the three months you shut down equals $120,000 in cost.
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But the profit you make during the other three quarters is only $100,000.
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You would lose $20,000 for the year by implementing lockdown mode.
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If you aren't sure what to do about your fixed expenses, consider enlisting help.
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Write down all your outgoing cash sources.
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Give that list to someone else, like another business owner, spouse, or your general manager.
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Ask them how they would cut your expenses in half.
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Don't let pride get in the way.
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Get curious about their perspective.
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This is an exercise.
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You're not committing to anything yet.
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Like exercising in the gym, there are times you lift heavy weights.
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It is not a practical movement or weight for functioning in normal life, but it makes you stronger.
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This exercise is the same.
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Imagine if you had to cut your fixed expenses in half.
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Where would you start?
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Could you downsize your shop rent?
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Could you negotiate better lease terms?
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Could you get more savings on your insurance premiums?
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This can help you gain clarity in your thoughts about lockdown mode.
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It's also generally a good mindset for managing business expenses.
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You can start in small steps.
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Select one expense category and assess the feasible amount for reduction.
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Is it 20%?
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30%?
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Even 50%?
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Often, I find the most effective approach is paying off debt.
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If you've taken on a lot of debt from truck payments, equipment loans, bank loans, and credit cards, paying it off can lower your fixed costs a lot.
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Once you pay off the debt, those monthly payments disappear completely.
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Not only will this help you prepare for lockdown mode, but it will also improve your margins throughout the rest of the year.
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Variable costs change based on your business activity, unlike fixed costs.
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If you sell more work and revenue increases, variable costs go up.
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In home services, we refer to your main variable costs as cost of goods sold, or COGS.
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These include three key areas, materials, direct labor, and subcontractors.
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If you sell more jobs next month, you will need to hire more people.
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That is why wages are a variable expense.
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If you sell more jobs next month, your office rent will not change.
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This is why people consider rent a fixed expense.
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Variable costs vary depending on your revenue.
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If I double my landscaping revenue next month, I would likely need more materials.
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I would also need more direct labor hours or subcontractor help.
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We cannot consider these fixed costs because they increase as revenue increases.
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Think of it like making a chocolate bar.
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The ingredients include cocoa, sugar, milk, a wrapper, and cardboard boxes.
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These are the materials used to make the product.
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You also need direct labor.
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This includes people who mix ingredients, run the factory, and package the product.
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You may subcontract the transportation of the bars to a trucking company.
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Materials, subcontractors, and direct labor costs increase when you produce more chocolate bars.
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If you are unsure about your cost of goods sold, you'll find a helpful worksheet on page six of the workbook.
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For most home service businesses, the gross profit margin falls between 40 and 70%.
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We usually spend 30 to 50% of our revenue on COGS.
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This mainly covers the direct labor of our field workers.
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Now that we have figured out our monthly fixed expenses and COGS, we can see if lockdown mode works for your business.
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To find your monthly break-even revenue, which covers your fixed costs, use this formula.
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Monthly fixed expenses divided by your gross profit margin equals monthly break-even revenue.
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This formula is a rough guideline.
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It shows how much revenue you need each month to break even and cover your fixed expenses.
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You must pay them no matter how much money you make.
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Why is this important?
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Calculating your break-even revenue stops seasonitis from hurting cash flow and profits.
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Reaching this monthly break-even amount will protect you from facing seasonitis.
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You may see changes in revenue, but you won't lose money.
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As long as you can earn more than your breakeven amount each month, you'll stay profitable.
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If they're months with lower revenue than we calculated, you will lose money.
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This could lead to seasonitis affecting the business.
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To improve the accuracy of this calculation, subtract your material markup from your monthly breakeven revenue.
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If you spent $100,000 in materials and charged $150,000 to customers, you made an extra $50,000 from markup.
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Subtract other fees too.
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This includes estimate fees, dump fees, or revenue from sources beyond actual labor.
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We want to find out your break-even labor revenue.
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This is the amount of labor revenue you need each month to cover your costs.
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The workbook on page seven walks you through this calculation step by step.
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Now, do not get hung up on the exact numbers if you don't track them.
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Estimating is fine.
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Go over this part a few times.
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The math can be a bit dense.
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To find your break-even labor revenue, divide it by your average man-hour rate.
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This rate is how much you charge customers per hour for each employee.
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This gives you the number of monthly labor hours you need to sell to break even.
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For efficiency calculations, I use an average of 120 hours each month for every employee.
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This represents about 30 billable hours per week in a 40-hour workweek, a 75% efficiency score.
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This efficiency score accounts for travel time, setup, and other non-billable activities.
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In other words, employees spend 75% of their day generating revenue.
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They complete billable or budgeted hours during that time.
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Number of monthly budget hours to break even divided by 120 equals number of full-time employees needed to break even.
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This calculation shows how many full-time employees you need to break even in your off-season.
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The result will likely be a decimal number like 2.4 or 3.6 employees, giving you a clear target for smallest staffing.
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The goal is to know how many employees and how many labor hours you will need to hit to break even.
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The lower this number, the easier it is to use Cure One and close down the business for the off-season.
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Seasonal work demands seasonal labor.
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This presents the primary challenge with lockdown mode.
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What happens to your team when you close operations?
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Consider these alternatives.
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advertise for short-term positions with clear details.
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Many people look for temporary work.
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This includes students on break, people moving soon, or anyone facing big life changes.
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As business owners, we often forget that not everyone wants year-round employment.
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Second, consider geographic flexibility.
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The H2B program allows businesses to hire foreign workers on short-term visas.
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Taking this concept further, could you hire from areas outside your immediate region?
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A town over?
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The next county?
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In areas where living costs are lower, workers may accept $25 an hour with enthusiasm.
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Meanwhile, your local market may demand $35 an hour to get a decent worker.
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Can you run recruitment ads to these lower cost areas?
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Could you relocate workers for your busy season?
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Could you pay for their housing?
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Could you offer company-provided transportation?
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This approach lets you match your seasonal demand with your labor supply.
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The goal is to adjust your staffing to match your break-even number of employees.
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For lockdown mode, we assume we will close down and have zero workers.
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This forces us to look for temporary and seasonal labor.
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This means laying off our team at the end of the busy season.
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But what if no one wants to return after the company lays them off?
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This is a serious concern.
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Experienced team members are very important.
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This is especially true when the spring rush begins and you need to train new employees.
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My labor strategy for lockdown mode is to offer a comeback bonus.
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If you get your best employees to come back to work after laying them off, pay them $2,000.
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You could pay them a few installments throughout the spring rush.
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You might think, I can't afford $2,000 per returning employee.
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but consider the cost of replacing them.
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First, calculate the cost of finding a new employee.
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Let's run some hypothetical math.
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A scheduled interview takes 30 minutes.
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Only half the people show up.
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Only one-third of the interviewees receive job offers.
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Only half of those accept.
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This means you might spend six hours finding one new hire.
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Assume your time is worth $120 an hour as the CEO of the business.
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Note, this is reasonable since we charge customers $80 per hour for fuel workers.
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It takes six hours of your time to find a new employee.
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That means it costs $720 of your time to find a new employee.
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You have a new recruit.
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but they haven't even started work yet.
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First, let's figure out the numbers for your business.
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Then we can calculate the cost of training and onboarding that new employee.
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In your workbook, note the interview time, for example, half an hour.
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Then estimate the fraction of candidates who show up, like 0.5 or 50%.
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Calculate how many of those who interview receive job offers, 0.33 or one-third.
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Finally, determine what percentage of offered candidates accept the job offer, 0.5 or 50%.
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Run this math and you will discover how many hours you spend hiring one employee.
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Multiply that by your hourly value to find the actual cost of recruitment.
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Let's examine the cost of training a new employee and compare it to the cost of paying a comeback bonus.
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Let's assume that a new hire in a home service business requires 60 hours of training.
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Many businesses need much more time.
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In these 60 hours, the new employee works at about half the efficiency of a trained worker.
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The trainer's productivity drops to about half when they have to teach.
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This reduces their earning potential.
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Finally, consider your retention rate.
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What percentage of new hires lasts a full month?
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Often, it's only about 50% for entry-level labor positions.
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Reduced efficiency affects both the trainer and the trainee.
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Plus, many new hires may leave.
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So you're spending around 120 hours to ensure each team member is well-trained and stays for one month.
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Assume that you charge $80 per hour of crew time to customers.
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That means that $9,600 is the cost to train that new employee.
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That is in addition to the $720 cost to find and recruit them.
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I prefer paying employees $2,000 to return instead of spending $10,000 on training, interviews, and lost productivity to replace them.
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Employee turn affects your finances, but it doesn't appear as a separate line on your profit and loss statement.
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There's no off-season churn expense entry, but it makes your crews less efficient.
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It also wastes your time during spring hiring and training seasons.
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This can keep your business smaller than it could be.
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Let's shift our focus now.
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We've talked about fixed expenses, variable expenses, and the real cost of replacing employees after the off-season.
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Let's continue discussing Cure One, lockdown mode.
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Revenue targets to maximize profitability is a math problem, not guesswork.
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This is what we call capacity-based growth.
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There are three capacities to consider, labor capacity, asset capacity, and personal capacity.
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Let's start with labor capacity.
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How much should you grow your business revenue to maximize profitability?
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It's about how much revenue your employees can generate without going into overtime.
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They shouldn't work more than 40 hours a week.
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How much revenue can you generate with your current workforce?
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You also have asset capacity.
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Think about how much money your trucks and equipment can make if they operate full time.
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Finally, consider your personal capacity.
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How much revenue can you make without feeling overwhelmed, without physical, family, or spiritual breakdown?
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How big can you build your business before you can no longer maintain your well-being?
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In short, how big a business can you build without losing your marbles?
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Let's examine labor capacity first.
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On page 9 of your workbook, you can calculate your monthly billable hours per employee.
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We usually estimate 120 hours.
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This equals about 30 billable hours in a typical 40-hour workweek.
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00:17:11.460 --> 00:17:18.103
This assumes they spend about 25% of their week, 10 hours, driving and doing tasks that don't generate revenue.
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This could include safety meetings, equipment maintenance, or material loading.
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Multiply these 120 hours by your hourly rate charged to customers.
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00:17:28.248 --> 00:17:31.410
Then multiply that by the number of employees you have.
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This shows how much labor revenue you can earn each month without going over capacity.
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Remember, this is labor revenue only.
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00:17:40.929 --> 00:17:44.915
If material costs are a big part of your revenue, you should increase this number.
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To find asset capacity, multiply the monthly labor revenue per employee by the number of employees in each truck.
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Then multiply that by your total number of trucks.
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This tells you our asset capacity.
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It's the monthly revenue we can make without overworking our trucks.
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We avoid running them seven days a week and neglecting maintenance like oil changes.
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This ensures high asset utilization.
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I don't want trucks sitting idle throughout the week.
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Personal capacity refers to the revenue you can generate while staying sane.
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This is a subjective personal assessment.
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00:18:24.754 --> 00:18:29.377
It is hard to create an objective measurement or equation for your personal capacity.
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Only you can answer this.
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You might also ask key employees, your spouse, a therapist, or others for honest feedback.
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they can help you see how big you can grow this business.
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00:18:41.822 --> 00:18:46.906
You can boost your personal capacity by learning new skills and increasing efficiency.
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Reading this book helps you do that.
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Max profit happens when you earn the most money sustainably.
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This occurs near full capacity in all three areas.
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You're getting the most out of your employees, trucks, and equipment.
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You're using your skills and pushing yourself to your full potential.
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00:19:08.063 --> 00:19:12.926
What you do when you hit capacity determines whether you're in growth mode or profit mode.
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In my experience, it is hard to optimize for revenue growth and become more profitable at the same time.
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These are different strategies.
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If you're in growth mode, you're buying trucks and hiring employees.
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00:19:26.936 --> 00:19:30.218
If you're in profit mode, you're not expanding equipment or staff.
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You're raising prices.
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You hope to lose some customers.
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You hope to reduce your close ratio.
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You do not increase capacity.
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You cannot serve all the customers coming in.
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You use price increases to stay under capacity limits.
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When you hit capacity, with the maximum number of customers you can serve, you have two options.
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You can either grow by adding trucks, people, and equipment to boost revenue, or you can raise your prices.
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This may result in fewer customers accepting your bids, but it can boost your profits without needing to grow capacity.
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00:20:09.151 --> 00:20:14.955
Exceeding your capacity limits leads to short-term profits but long-term burnout.
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In the short term, you can run your truck seven days a week and grind them into the dirt.
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I miss oil changes, I don't grease the bearings, I forget to rotate the tires, I neglect the squeaky brakes.
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In the long run, this will come back to bite me.
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Unexpected repair costs or worse yet, on-road accidents could occur.
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00:20:35.338 --> 00:20:42.120
With labor, I can force people to work weekends, holidays, and 50 to 70-hour weeks in the blazing heat.
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In the short term, this will increase profits, but in the long term, they'll burn out.
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00:20:48.422 --> 00:20:54.043
Working your employees harder this weekend will boost your numbers, but over time, they will leave.
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They might not show up to work.
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They might complain.
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They might stage a mutiny with other employees.
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Exceeding your personal capacity will cause your relationships to fall apart.
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Your physical and mental health will deteriorate.
283
00:21:08.840 --> 00:21:13.585
In the short term, exceeding personal capacity will increase profits.
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00:21:14.406 --> 00:21:16.408
In the long term, you will burn out.
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Burnout, personal, physical, and emotional, causes many failures in home service businesses.
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00:21:23.936 --> 00:21:28.162
To be conservative, use the lowest of your three capacity measurements.
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You've calculated your labor capacity, asset capacity, and personal capacity.
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I recommend growing your business only to the lowest of these three numbers.
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Exceeding any single capacity can lead to system failure over time.
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00:21:44.299 --> 00:21:48.543
This lowest capacity figure becomes an excellent monthly revenue target.
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00:21:49.204 --> 00:21:55.829
You can boost asset capacity by buying more trucks, increase labor capacity by hiring more employees,
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Also, enhance personal capacity by gaining new skills and knowledge.
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00:22:01.034 --> 00:22:05.698
But the lowest capacity number provides a realistic revenue goal.
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00:22:06.719 --> 00:22:12.264
Subtract your lowest monthly revenue during the off-season from that lowest capacity number.
295
00:22:13.144 --> 00:22:17.108
This calculation shows your excess capacity in the off-season.
296
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It's the gap between your current monthly revenue and your max revenue capacity.
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00:22:23.665 --> 00:22:33.608
Equation, lowest capacity revenue, personal asset or labor, minus lowest monthly revenue equals excess capacity.
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Excess capacity will keep you poor.
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If your trucks and employees aren't utilized to their maximum capacity every day, you're leaving money on the table.
300
00:22:45.110 --> 00:22:45.430
Why?
301
00:22:45.991 --> 00:22:50.674
Because you don't need any more fixed expenses or assets to grow to capacity.
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00:22:51.234 --> 00:22:52.455
You already have the trucks.
303
00:22:52.976 --> 00:22:54.297
You already have the employees.
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00:22:54.577 --> 00:22:56.478
You need to maximize their use.
305
00:22:57.199 --> 00:22:58.780
You find all your profits here.
306
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When you reach capacity, your net profit nearly equals your gross profit.
307
00:23:04.744 --> 00:23:05.004
Why?
308
00:23:05.024 --> 00:23:09.588
You don't have to buy more trucks, rent a larger shop, or raise insurance
309
00:23:14.431 --> 00:23:21.603
You're paying for the fixed expenses of $100,000 per month business, but only generating $40,000 a month in revenue.
310
00:23:22.445 --> 00:23:25.610
That extra $60,000 difference is hiding your profit.
311
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Grow to capacity.
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00:23:28.220 --> 00:23:29.881
Reduce excess capacity.
313
00:23:30.401 --> 00:23:31.681
Make more money.
314
00:23:32.581 --> 00:23:35.642
But during the off-season, excess capacity soars.
315
00:23:36.222 --> 00:23:39.223
You're still paying for your trucks, equipment, and fixed expenses.
316
00:23:39.783 --> 00:23:41.943
Enough for a $100,000 per month business.
317
00:23:42.483 --> 00:23:47.184
But now you're only bringing in $15,000 to $20,000 in monthly revenue.
318
00:23:47.744 --> 00:23:50.925
Your excess capacity skyrockets in the off-season.
319
00:23:51.725 --> 00:23:55.349
This is why many home service businesses face financial struggles.
320
00:23:55.789 --> 00:23:56.530
So what's the fix?
321
00:23:57.131 --> 00:24:02.796
For Cure One, lockdown mode, the solution is to reduce labor capacity during your off-season.
322
00:24:03.517 --> 00:24:04.438
Lay off your employees.
323
00:24:05.199 --> 00:24:07.701
Sell off trucks to reduce asset capacity.
324
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Only hire seasonal and temporary workers.
325
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Let's now look at Q4 collapse through something I call the 4L framework.
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00:24:16.940 --> 00:24:20.262
Liquidity, leads, labor, and leadership.
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00:24:20.922 --> 00:24:26.766
Every business, whether it has five people or is a Fortune 500 company, goes through this cycle.
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00:24:27.426 --> 00:24:29.007
Liquidity is money.
329
00:24:29.708 --> 00:24:36.212
You take that money and you convert it to leads through Facebook ads, print marketing, Google ads, and other advertising channels.
330
00:24:36.932 --> 00:24:40.675
But once you have plenty of leads, you can't do all the work yourself.
331
00:24:41.415 --> 00:24:45.978
The next constraint becomes labor, finding people to do the actual work.
332
00:24:46.758 --> 00:24:52.082
When you grow past 10, 15 employees, leadership becomes your next constraint.
333
00:24:52.722 --> 00:24:55.304
You need a crew leader, general manager, or a C-suite.
334
00:24:55.644 --> 00:25:00.967
But as you add this management layer, your profit margins shrink because of the overhead costs.
335
00:25:01.528 --> 00:25:06.070
The constraint becomes liquidity again, and the cycle begins anew.
336
00:25:07.031 --> 00:25:09.573
This is the constant growth cycle in business.
337
00:25:10.633 --> 00:25:13.135
One of those four L's constrains you.
338
00:25:13.956 --> 00:25:16.578
Fixing the next constraint unlocks growth.
339
00:25:17.358 --> 00:25:21.641
This is what business owners mean when they say they are taking the business to the next level.
340
00:25:22.443 --> 00:25:31.952
When they buy more trucks, hire employees, find general managers, and open a second location, they are completing the next cycle of the 4L framework.
341
00:25:32.572 --> 00:25:35.095
But this creates an exhausting game of whack-a-mole.
342
00:25:35.695 --> 00:25:39.479
When you solve your leads constraint, you may struggle to hire enough employees.
343
00:25:40.019 --> 00:25:41.521
You now have a labor constraint.
344
00:25:42.081 --> 00:25:45.183
Once you hire enough workers, you realize you need someone to manage them.
345
00:25:45.504 --> 00:25:47.645
You now have a leadership constraint.
346
00:25:48.126 --> 00:25:53.790
Once you find a great management team, your profit margin drops due to the extra overhead expense.
347
00:25:54.370 --> 00:25:56.832
You are facing the liquidity constraint again.
348
00:25:57.533 --> 00:26:02.796
As your business grows, the constraints on growth shift often within the 4L framework.
349
00:26:03.677 --> 00:26:07.706
Now apply this 4.0 framework to a business suffering from seasonitis.
350
00:26:08.407 --> 00:26:10.291
This business has a Q4 collapse.
351
00:26:11.013 --> 00:26:13.157
During winter, leads disappear.
352
00:26:14.016 --> 00:26:18.238
With no leads coming in, you have excess labor capacity.
353
00:26:18.939 --> 00:26:24.261
When spring rush comes, you've either let everyone go or they've left due to not having enough hours.
354
00:26:25.002 --> 00:26:28.504
During spring, you find yourself with no experienced labors.
355
00:26:29.324 --> 00:26:31.085
An influx of leads is pouring in.
356
00:26:32.006 --> 00:26:33.606
You're forced to turn away business.
357
00:26:34.207 --> 00:26:35.627
You don't return customer calls.
358
00:26:36.148 --> 00:26:37.969
It takes weeks to provide estimates.
359
00:26:38.649 --> 00:26:38.949
Why?
360
00:26:39.189 --> 00:26:40.410
Because you have no labors.
361
00:26:40.710 --> 00:26:45.072
And you don't have labors because back in winter, you had no leads to keep them busy.
362
00:26:45.352 --> 00:26:47.093
You had to lay them off or fire them.
363
00:26:47.593 --> 00:26:51.375
This creates a leadership vacuum during summer and fall.
364
00:26:51.835 --> 00:26:55.597
With no tenured employees, no one is ready to become a leader or manager.
365
00:26:56.337 --> 00:26:58.758
Nobody can take responsibilities off your plate.
366
00:26:59.399 --> 00:27:00.419
You can't delegate.
367
00:27:01.160 --> 00:27:01.620
The result?
368
00:27:02.437 --> 00:27:03.518
No liquidity.
369
00:27:04.378 --> 00:27:09.362
The 4L framework experiences significant disruption due to your off-season.
370
00:27:10.143 --> 00:27:12.665
Without money, you can't afford to grow the business.
371
00:27:13.385 --> 00:27:18.769
Without liquidity, you can't invest in more leads next spring to take your business to the next level.
372
00:27:19.770 --> 00:27:21.851
Off-seasons will keep you poor.
373
00:27:22.652 --> 00:27:27.816
The goal must be to fix the off-season, to get steady leads all winter long,
374
00:27:28.481 --> 00:27:31.222
By doing that, you'll keep your labors through the winter.
375
00:27:31.702 --> 00:27:35.344
When spring comes, they'll be ready, trained, and experienced, not newbies.
376
00:27:36.124 --> 00:27:39.485
These employees have prepared to handle the busy season.
377
00:27:40.366 --> 00:27:45.988
Since you kept your team all year, you can delegate tasks in the summer and fall as your business grows.
378
00:27:46.588 --> 00:27:50.270
You can hand off sales, operations, and administrative tasks.
379
00:27:50.830 --> 00:27:53.351
You can develop leaders within your organization.
380
00:27:54.240 --> 00:27:57.404
You can't grow your business if you run out of cash in the off-season.
381
00:27:57.744 --> 00:28:00.487
You can't reach the next level in the 4L framework.
382
00:28:01.048 --> 00:28:03.030
You need leads during slow months.
383
00:28:03.571 --> 00:28:07.295
Losing your best employees and leaders during downtime makes it even harder.
384
00:28:07.816 --> 00:28:11.600
This vicious cycle will impose ongoing restrictions on your growth.
385
00:28:12.201 --> 00:28:15.543
you won't be able to progress to the next stage of the 4L framework.
386
00:28:16.063 --> 00:28:17.784
You will remain stuck.
387
00:28:18.364 --> 00:28:20.105
You will remain poor.
388
00:28:20.765 --> 00:28:24.607
I didn't write this book to tell you to shut down your business for three to four months.
389
00:28:25.208 --> 00:28:29.030
Cure One, Lockdown Mode for Seasonitis, is a patch of job.
390
00:28:29.410 --> 00:28:32.051
It's like wearing a mask during the COVID-19 pandemic.
391
00:28:32.432 --> 00:28:33.372
You can still get sick.
392
00:28:33.752 --> 00:28:34.593
You can still die.
393
00:28:35.413 --> 00:28:39.815
Shutting down the business for three months sounds awful, especially for those like me.
394
00:28:40.495 --> 00:28:45.077
If you can keep your fixed expenses low in the off-season and shut down, well, that's great.
395
00:28:45.757 --> 00:28:51.400
If you can lay off your team and get them to return during the spring rush using a comeback bonus, that's fantastic.
396
00:28:52.236 --> 00:28:54.697
But my approach is all gas, no brakes.
397
00:28:55.257 --> 00:28:56.558
Aggressive by default.
398
00:28:57.018 --> 00:28:58.698
Do not accept an off-season.
399
00:28:59.118 --> 00:29:00.619
Never lose money.
400
00:29:01.359 --> 00:29:03.880
Cure One concedes victory to seasonitis.
401
00:29:04.380 --> 00:29:09.742
We bow down and say we can't overcome this challenge, so we'll lay everyone off and lock down.
402
00:29:10.202 --> 00:29:14.204
Building anything more than a lifestyle business in lockdown mode will be tough.
403
00:29:14.884 --> 00:29:17.365
Letting all your employees go will hurt your business.
404
00:29:18.085 --> 00:29:23.487
If your revenue falls to zero for three to four months, your business value will also drop a lot.
405
00:29:24.147 --> 00:29:29.589
No one wants to buy a business where revenue drops 100% for any period of the year.
406
00:29:30.349 --> 00:29:32.650
Buyers must take on debt to buy the business.
407
00:29:33.150 --> 00:29:35.090
This raises their fixed cost.
408
00:29:35.671 --> 00:29:39.312
They can't afford to close down for three to four months each year.
409
00:29:40.092 --> 00:29:42.374
The off-season is the time to go all in.
410
00:29:42.994 --> 00:29:48.519
In the next four years of seasonitis, our goal is to step on the gas when your competition is slowing down.
411
00:29:48.959 --> 00:29:52.362
We want to hire employees when your competition can't afford to.
412
00:29:52.762 --> 00:29:55.265
We want to run ads when they can't afford to.
413
00:29:55.865 --> 00:30:00.068
We need to figure out how to buy equipment when your competition can't afford it.
414
00:30:00.669 --> 00:30:04.132
They're selling their equipment because of cash flow issues from seasonitis.
415
00:30:04.692 --> 00:30:07.435
This means you can buy it for a fraction of the price.
416
00:30:08.095 --> 00:30:10.746
When they play defense, we go on the attack.
417
00:30:11.228 --> 00:30:12.272
Full offense.
1
00:00:00.131 --> 00:00:00.873
Chapter 3.
2
00:00:01.534 --> 00:00:06.684
Lockdown Mode Our first cure for seasonitis is lockdown mode.
3
00:00:07.426 --> 00:00:11.534
It's a good fit for people who like the freedom of having an off-season.
4
00:00:12.505 --> 00:00:15.909
Basically, you shut down during your typical Q4 collapse.
5
00:00:16.690 --> 00:00:22.958
This cure might also be a particularly good fit for people who work other jobs with a seasonal component.
6
00:00:23.839 --> 00:00:29.366
Teachers are busy for nine months each year, but in summer, they have time to run a home service business.
7
00:00:30.327 --> 00:00:33.688
Business owners with other careers may also enjoy CURE One.
8
00:00:34.709 --> 00:00:43.552
Finally, if you have most or all of your trucks and equipment paid off, if your business has low levels of debt and loans, CURE One could serve you well.
9
00:00:43.932 --> 00:00:49.094
If you have massive debt payments, those won't stop when you close down the business for the off-season.
10
00:00:49.754 --> 00:00:54.937
you'll have negative cash flow even without payroll expenses and jobs getting completed.
11
00:00:55.678 --> 00:01:01.542
This may prevent you from closing down and going on an extended vacation or hiatus from the business.
12
00:01:02.282 --> 00:01:05.124
Lockdown mode works best for certain business situations.
13
00:01:05.704 --> 00:01:10.087
Consider this approach if you have another seasonal job like teaching or firefighting.
14
00:01:10.788 --> 00:01:13.669
Workers in the oil fields may also enjoy Cure One.
15
00:01:14.630 --> 00:01:17.432
You might have a few months off, making it a good fit.
16
00:01:18.272 --> 00:01:21.994
Your business should be debt-free with all equipments and equipment paid in full.
17
00:01:23.075 --> 00:01:26.637
If you check all those boxes, lockdown mode will likely serve you well.
18
00:01:27.377 --> 00:01:30.439
Otherwise, this might not be the perfect solution for your business.
19
00:01:31.598 --> 00:01:35.620
For Cure One to work, we need to identify your fixed expenses.
20
00:01:36.561 --> 00:01:39.723
Fixed expenses are the enemy of the lockdown approach.
21
00:01:40.503 --> 00:01:46.146
If you have too many fixed costs, you will not be able to use Cure One to solve seasonitis.
22
00:01:47.307 --> 00:01:52.949
Fixed expenses include rent, lease payments, software subscriptions, and auto and liability insurance.
23
00:01:53.729 --> 00:01:56.070
These costs don't fluctuate with your revenue.
24
00:01:56.830 --> 00:02:01.492
If your revenue drops by 50% next month, your lease payments stay the same.
25
00:02:02.372 --> 00:02:03.993
Insurance bills still come in.
26
00:02:04.713 --> 00:02:06.794
Your shop space rent doesn't change.
27
00:02:07.434 --> 00:02:09.234
Your debt payments are still due.
28
00:02:09.974 --> 00:02:15.516
These fixed costs continue to drain your resources even when you're closed to the season.
29
00:02:16.316 --> 00:02:19.997
Think of fixed expenses as costs that aren't tied to your revenue.
30
00:02:20.697 --> 00:02:25.218
They will be the same every single month, no matter how much money your business brings in.
31
00:02:26.442 --> 00:02:28.463
Find your total monthly fixed expenses.
32
00:02:29.144 --> 00:02:32.206
This is the amount you would pay next month if you didn't work.
33
00:02:33.466 --> 00:02:42.011
Include loan payments, licensing fees, insurance, rent or mortgage, and staff who receive salaries.
34
00:02:43.092 --> 00:02:49.134
List all these expenses in your worksheet and then add them up to find your total monthly fixed expenses.
35
00:02:49.954 --> 00:02:50.834
This number matters.
36
00:02:51.655 --> 00:02:55.236
Lockdown mode gets tougher as your fixed expenses rise.
37
00:02:56.136 --> 00:03:04.738
Lockdown mode won't work if your fixed cost in Q4 are higher than your profits from Q1, Q2, and Q3 combined.
38
00:03:05.519 --> 00:03:08.339
Let's say from April to December, you make $100,000 in profits.
39
00:03:10.160 --> 00:03:12.803
Your monthly fixed expenses are $40,000.
40
00:03:13.805 --> 00:03:19.752
You have significant debt, expensive leases, office salaries, and costly facility rent.
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Your off-season is January, February, and March.
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In this case, Q4 collapse is the first calendar quarter of the year.
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In this case, lockdown mode will not work.
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The math is simple.
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Your fixed monthly expenses, $40,000, multiplied by the three months you shut down equals $120,000 in cost.
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But the profit you make during the other three quarters is only $100,000.
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You would lose $20,000 for the year by implementing lockdown mode.
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If you aren't sure what to do about your fixed expenses, consider enlisting help.
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Write down all your outgoing cash sources.
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Give that list to someone else, like another business owner, spouse, or your general manager.
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Ask them how they would cut your expenses in half.
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Don't let pride get in the way.
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Get curious about their perspective.
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This is an exercise.
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You're not committing to anything yet.
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Like exercising in the gym, there are times you lift heavy weights.
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It is not a practical movement or weight for functioning in normal life, but it makes you stronger.
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This exercise is the same.
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Imagine if you had to cut your fixed expenses in half.
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Where would you start?
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00:04:36.634 --> 00:04:38.334
Could you downsize your shop rent?
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Could you negotiate better lease terms?
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Could you get more savings on your insurance premiums?
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This can help you gain clarity in your thoughts about lockdown mode.
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It's also generally a good mindset for managing business expenses.
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You can start in small steps.
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Select one expense category and assess the feasible amount for reduction.
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Is it 20%?
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30%?
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Even 50%?
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Often, I find the most effective approach is paying off debt.
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If you've taken on a lot of debt from truck payments, equipment loans, bank loans, and credit cards, paying it off can lower your fixed costs a lot.
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Once you pay off the debt, those monthly payments disappear completely.
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Not only will this help you prepare for lockdown mode, but it will also improve your margins throughout the rest of the year.
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Variable costs change based on your business activity, unlike fixed costs.
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If you sell more work and revenue increases, variable costs go up.
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In home services, we refer to your main variable costs as cost of goods sold, or COGS.
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These include three key areas, materials, direct labor, and subcontractors.
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If you sell more jobs next month, you will need to hire more people.
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That is why wages are a variable expense.
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If you sell more jobs next month, your office rent will not change.
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This is why people consider rent a fixed expense.
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Variable costs vary depending on your revenue.
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If I double my landscaping revenue next month, I would likely need more materials.
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I would also need more direct labor hours or subcontractor help.
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We cannot consider these fixed costs because they increase as revenue increases.
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Think of it like making a chocolate bar.
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The ingredients include cocoa, sugar, milk, a wrapper, and cardboard boxes.
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These are the materials used to make the product.
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You also need direct labor.
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This includes people who mix ingredients, run the factory, and package the product.
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You may subcontract the transportation of the bars to a trucking company.
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Materials, subcontractors, and direct labor costs increase when you produce more chocolate bars.
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If you are unsure about your cost of goods sold, you'll find a helpful worksheet on page six of the workbook.
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For most home service businesses, the gross profit margin falls between 40 and 70%.
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We usually spend 30 to 50% of our revenue on COGS.
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This mainly covers the direct labor of our field workers.
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Now that we have figured out our monthly fixed expenses and COGS, we can see if lockdown mode works for your business.
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To find your monthly break-even revenue, which covers your fixed costs, use this formula.
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Monthly fixed expenses divided by your gross profit margin equals monthly break-even revenue.
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This formula is a rough guideline.
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It shows how much revenue you need each month to break even and cover your fixed expenses.
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You must pay them no matter how much money you make.
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Why is this important?
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Calculating your break-even revenue stops seasonitis from hurting cash flow and profits.
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Reaching this monthly break-even amount will protect you from facing seasonitis.
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You may see changes in revenue, but you won't lose money.
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As long as you can earn more than your breakeven amount each month, you'll stay profitable.
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If they're months with lower revenue than we calculated, you will lose money.
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This could lead to seasonitis affecting the business.
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To improve the accuracy of this calculation, subtract your material markup from your monthly breakeven revenue.
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If you spent $100,000 in materials and charged $150,000 to customers, you made an extra $50,000 from markup.
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Subtract other fees too.
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This includes estimate fees, dump fees, or revenue from sources beyond actual labor.
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We want to find out your break-even labor revenue.
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This is the amount of labor revenue you need each month to cover your costs.
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The workbook on page seven walks you through this calculation step by step.
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Now, do not get hung up on the exact numbers if you don't track them.
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Estimating is fine.
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Go over this part a few times.
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The math can be a bit dense.
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To find your break-even labor revenue, divide it by your average man-hour rate.
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This rate is how much you charge customers per hour for each employee.
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This gives you the number of monthly labor hours you need to sell to break even.
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For efficiency calculations, I use an average of 120 hours each month for every employee.
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This represents about 30 billable hours per week in a 40-hour workweek, a 75% efficiency score.
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This efficiency score accounts for travel time, setup, and other non-billable activities.
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In other words, employees spend 75% of their day generating revenue.
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They complete billable or budgeted hours during that time.
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Number of monthly budget hours to break even divided by 120 equals number of full-time employees needed to break even.
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This calculation shows how many full-time employees you need to break even in your off-season.
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The result will likely be a decimal number like 2.4 or 3.6 employees, giving you a clear target for smallest staffing.
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The goal is to know how many employees and how many labor hours you will need to hit to break even.
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The lower this number, the easier it is to use Cure One and close down the business for the off-season.
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Seasonal work demands seasonal labor.
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This presents the primary challenge with lockdown mode.
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What happens to your team when you close operations?
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Consider these alternatives.
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advertise for short-term positions with clear details.
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Many people look for temporary work.
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This includes students on break, people moving soon, or anyone facing big life changes.
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As business owners, we often forget that not everyone wants year-round employment.
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Second, consider geographic flexibility.
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The H2B program allows businesses to hire foreign workers on short-term visas.
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Taking this concept further, could you hire from areas outside your immediate region?
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A town over?
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The next county?
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In areas where living costs are lower, workers may accept $25 an hour with enthusiasm.
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Meanwhile, your local market may demand $35 an hour to get a decent worker.
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Can you run recruitment ads to these lower cost areas?
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Could you relocate workers for your busy season?
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Could you pay for their housing?
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Could you offer company-provided transportation?
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This approach lets you match your seasonal demand with your labor supply.
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The goal is to adjust your staffing to match your break-even number of employees.
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For lockdown mode, we assume we will close down and have zero workers.
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This forces us to look for temporary and seasonal labor.
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This means laying off our team at the end of the busy season.
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But what if no one wants to return after the company lays them off?
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This is a serious concern.
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Experienced team members are very important.
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This is especially true when the spring rush begins and you need to train new employees.
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My labor strategy for lockdown mode is to offer a comeback bonus.
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If you get your best employees to come back to work after laying them off, pay them $2,000.
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You could pay them a few installments throughout the spring rush.
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You might think, I can't afford $2,000 per returning employee.
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but consider the cost of replacing them.
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First, calculate the cost of finding a new employee.
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Let's run some hypothetical math.
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A scheduled interview takes 30 minutes.
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Only half the people show up.
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Only one-third of the interviewees receive job offers.
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Only half of those accept.
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This means you might spend six hours finding one new hire.
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Assume your time is worth $120 an hour as the CEO of the business.
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Note, this is reasonable since we charge customers $80 per hour for fuel workers.
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It takes six hours of your time to find a new employee.
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That means it costs $720 of your time to find a new employee.
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You have a new recruit.
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but they haven't even started work yet.
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First, let's figure out the numbers for your business.
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Then we can calculate the cost of training and onboarding that new employee.
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In your workbook, note the interview time, for example, half an hour.
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Then estimate the fraction of candidates who show up, like 0.5 or 50%.
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Calculate how many of those who interview receive job offers, 0.33 or one-third.
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Finally, determine what percentage of offered candidates accept the job offer, 0.5 or 50%.
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Run this math and you will discover how many hours you spend hiring one employee.
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Multiply that by your hourly value to find the actual cost of recruitment.
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Let's examine the cost of training a new employee and compare it to the cost of paying a comeback bonus.
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Let's assume that a new hire in a home service business requires 60 hours of training.
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Many businesses need much more time.
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In these 60 hours, the new employee works at about half the efficiency of a trained worker.
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The trainer's productivity drops to about half when they have to teach.
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This reduces their earning potential.
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Finally, consider your retention rate.
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What percentage of new hires lasts a full month?
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Often, it's only about 50% for entry-level labor positions.
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Reduced efficiency affects both the trainer and the trainee.
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Plus, many new hires may leave.
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So you're spending around 120 hours to ensure each team member is well-trained and stays for one month.
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Assume that you charge $80 per hour of crew time to customers.
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That means that $9,600 is the cost to train that new employee.
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That is in addition to the $720 cost to find and recruit them.
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I prefer paying employees $2,000 to return instead of spending $10,000 on training, interviews, and lost productivity to replace them.
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Employee turn affects your finances, but it doesn't appear as a separate line on your profit and loss statement.
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There's no off-season churn expense entry, but it makes your crews less efficient.
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It also wastes your time during spring hiring and training seasons.
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This can keep your business smaller than it could be.
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Let's shift our focus now.
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We've talked about fixed expenses, variable expenses, and the real cost of replacing employees after the off-season.
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Let's continue discussing Cure One, lockdown mode.
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Revenue targets to maximize profitability is a math problem, not guesswork.
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This is what we call capacity-based growth.
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There are three capacities to consider, labor capacity, asset capacity, and personal capacity.
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Let's start with labor capacity.
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How much should you grow your business revenue to maximize profitability?
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It's about how much revenue your employees can generate without going into overtime.
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They shouldn't work more than 40 hours a week.
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How much revenue can you generate with your current workforce?
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You also have asset capacity.
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Think about how much money your trucks and equipment can make if they operate full time.
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Finally, consider your personal capacity.
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How much revenue can you make without feeling overwhelmed, without physical, family, or spiritual breakdown?
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How big can you build your business before you can no longer maintain your well-being?
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In short, how big a business can you build without losing your marbles?
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Let's examine labor capacity first.
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On page 9 of your workbook, you can calculate your monthly billable hours per employee.
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We usually estimate 120 hours.
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This equals about 30 billable hours in a typical 40-hour workweek.
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This assumes they spend about 25% of their week, 10 hours, driving and doing tasks that don't generate revenue.
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This could include safety meetings, equipment maintenance, or material loading.
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Multiply these 120 hours by your hourly rate charged to customers.
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Then multiply that by the number of employees you have.
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This shows how much labor revenue you can earn each month without going over capacity.
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Remember, this is labor revenue only.
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If material costs are a big part of your revenue, you should increase this number.
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To find asset capacity, multiply the monthly labor revenue per employee by the number of employees in each truck.
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Then multiply that by your total number of trucks.
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This tells you our asset capacity.
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It's the monthly revenue we can make without overworking our trucks.
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We avoid running them seven days a week and neglecting maintenance like oil changes.
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This ensures high asset utilization.
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I don't want trucks sitting idle throughout the week.
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Personal capacity refers to the revenue you can generate while staying sane.
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This is a subjective personal assessment.
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It is hard to create an objective measurement or equation for your personal capacity.
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Only you can answer this.
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You might also ask key employees, your spouse, a therapist, or others for honest feedback.
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they can help you see how big you can grow this business.
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You can boost your personal capacity by learning new skills and increasing efficiency.
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Reading this book helps you do that.
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Max profit happens when you earn the most money sustainably.
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This occurs near full capacity in all three areas.
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You're getting the most out of your employees, trucks, and equipment.
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You're using your skills and pushing yourself to your full potential.
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What you do when you hit capacity determines whether you're in growth mode or profit mode.
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In my experience, it is hard to optimize for revenue growth and become more profitable at the same time.
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These are different strategies.
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If you're in growth mode, you're buying trucks and hiring employees.
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If you're in profit mode, you're not expanding equipment or staff.
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You're raising prices.
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You hope to lose some customers.
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You hope to reduce your close ratio.
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You do not increase capacity.
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You cannot serve all the customers coming in.
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You use price increases to stay under capacity limits.
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When you hit capacity, with the maximum number of customers you can serve, you have two options.
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You can either grow by adding trucks, people, and equipment to boost revenue, or you can raise your prices.
269
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This may result in fewer customers accepting your bids, but it can boost your profits without needing to grow capacity.
270
00:20:09.151 --> 00:20:14.955
Exceeding your capacity limits leads to short-term profits but long-term burnout.
271
00:20:15.656 --> 00:20:19.878
In the short term, you can run your truck seven days a week and grind them into the dirt.
272
00:20:20.679 --> 00:20:26.643
I miss oil changes, I don't grease the bearings, I forget to rotate the tires, I neglect the squeaky brakes.
273
00:20:27.184 --> 00:20:29.545
In the long run, this will come back to bite me.
274
00:20:30.186 --> 00:20:34.449
Unexpected repair costs or worse yet, on-road accidents could occur.
275
00:20:35.338 --> 00:20:42.120
With labor, I can force people to work weekends, holidays, and 50 to 70-hour weeks in the blazing heat.
276
00:20:42.820 --> 00:20:47.441
In the short term, this will increase profits, but in the long term, they'll burn out.
277
00:20:48.422 --> 00:20:54.043
Working your employees harder this weekend will boost your numbers, but over time, they will leave.
278
00:20:54.463 --> 00:20:55.624
They might not show up to work.
279
00:20:56.144 --> 00:20:56.884
They might complain.
280
00:20:57.424 --> 00:20:59.585
They might stage a mutiny with other employees.
281
00:21:00.792 --> 00:21:05.217
Exceeding your personal capacity will cause your relationships to fall apart.
282
00:21:05.817 --> 00:21:08.159
Your physical and mental health will deteriorate.
283
00:21:08.840 --> 00:21:13.585
In the short term, exceeding personal capacity will increase profits.
284
00:21:14.406 --> 00:21:16.408
In the long term, you will burn out.
285
00:21:17.587 --> 00:21:22.995
Burnout, personal, physical, and emotional, causes many failures in home service businesses.
286
00:21:23.936 --> 00:21:28.162
To be conservative, use the lowest of your three capacity measurements.
287
00:21:29.183 --> 00:21:33.509
You've calculated your labor capacity, asset capacity, and personal capacity.
288
00:21:34.250 --> 00:21:38.534
I recommend growing your business only to the lowest of these three numbers.
289
00:21:39.455 --> 00:21:43.639
Exceeding any single capacity can lead to system failure over time.
290
00:21:44.299 --> 00:21:48.543
This lowest capacity figure becomes an excellent monthly revenue target.
291
00:21:49.204 --> 00:21:55.829
You can boost asset capacity by buying more trucks, increase labor capacity by hiring more employees,
292
00:21:56.610 --> 00:22:00.634
Also, enhance personal capacity by gaining new skills and knowledge.
293
00:22:01.034 --> 00:22:05.698
But the lowest capacity number provides a realistic revenue goal.
294
00:22:06.719 --> 00:22:12.264
Subtract your lowest monthly revenue during the off-season from that lowest capacity number.
295
00:22:13.144 --> 00:22:17.108
This calculation shows your excess capacity in the off-season.
296
00:22:17.908 --> 00:22:22.653
It's the gap between your current monthly revenue and your max revenue capacity.
297
00:22:23.665 --> 00:22:33.608
Equation, lowest capacity revenue, personal asset or labor, minus lowest monthly revenue equals excess capacity.
298
00:22:34.409 --> 00:22:36.869
Excess capacity will keep you poor.
299
00:22:37.690 --> 00:22:44.372
If your trucks and employees aren't utilized to their maximum capacity every day, you're leaving money on the table.
300
00:22:45.110 --> 00:22:45.430
Why?
301
00:22:45.991 --> 00:22:50.674
Because you don't need any more fixed expenses or assets to grow to capacity.
302
00:22:51.234 --> 00:22:52.455
You already have the trucks.
303
00:22:52.976 --> 00:22:54.297
You already have the employees.
304
00:22:54.577 --> 00:22:56.478
You need to maximize their use.
305
00:22:57.199 --> 00:22:58.780
You find all your profits here.
306
00:22:59.420 --> 00:23:04.164
When you reach capacity, your net profit nearly equals your gross profit.
307
00:23:04.744 --> 00:23:05.004
Why?
308
00:23:05.024 --> 00:23:09.588
You don't have to buy more trucks, rent a larger shop, or raise insurance
309
00:23:14.431 --> 00:23:21.603
You're paying for the fixed expenses of $100,000 per month business, but only generating $40,000 a month in revenue.
310
00:23:22.445 --> 00:23:25.610
That extra $60,000 difference is hiding your profit.
311
00:23:26.400 --> 00:23:27.720
Grow to capacity.
312
00:23:28.220 --> 00:23:29.881
Reduce excess capacity.
313
00:23:30.401 --> 00:23:31.681
Make more money.
314
00:23:32.581 --> 00:23:35.642
But during the off-season, excess capacity soars.
315
00:23:36.222 --> 00:23:39.223
You're still paying for your trucks, equipment, and fixed expenses.
316
00:23:39.783 --> 00:23:41.943
Enough for a $100,000 per month business.
317
00:23:42.483 --> 00:23:47.184
But now you're only bringing in $15,000 to $20,000 in monthly revenue.
318
00:23:47.744 --> 00:23:50.925
Your excess capacity skyrockets in the off-season.
319
00:23:51.725 --> 00:23:55.349
This is why many home service businesses face financial struggles.
320
00:23:55.789 --> 00:23:56.530
So what's the fix?
321
00:23:57.131 --> 00:24:02.796
For Cure One, lockdown mode, the solution is to reduce labor capacity during your off-season.
322
00:24:03.517 --> 00:24:04.438
Lay off your employees.
323
00:24:05.199 --> 00:24:07.701
Sell off trucks to reduce asset capacity.
324
00:24:08.642 --> 00:24:10.964
Only hire seasonal and temporary workers.
325
00:24:12.117 --> 00:24:16.320
Let's now look at Q4 collapse through something I call the 4L framework.
326
00:24:16.940 --> 00:24:20.262
Liquidity, leads, labor, and leadership.
327
00:24:20.922 --> 00:24:26.766
Every business, whether it has five people or is a Fortune 500 company, goes through this cycle.
328
00:24:27.426 --> 00:24:29.007
Liquidity is money.
329
00:24:29.708 --> 00:24:36.212
You take that money and you convert it to leads through Facebook ads, print marketing, Google ads, and other advertising channels.
330
00:24:36.932 --> 00:24:40.675
But once you have plenty of leads, you can't do all the work yourself.
331
00:24:41.415 --> 00:24:45.978
The next constraint becomes labor, finding people to do the actual work.
332
00:24:46.758 --> 00:24:52.082
When you grow past 10, 15 employees, leadership becomes your next constraint.
333
00:24:52.722 --> 00:24:55.304
You need a crew leader, general manager, or a C-suite.
334
00:24:55.644 --> 00:25:00.967
But as you add this management layer, your profit margins shrink because of the overhead costs.
335
00:25:01.528 --> 00:25:06.070
The constraint becomes liquidity again, and the cycle begins anew.
336
00:25:07.031 --> 00:25:09.573
This is the constant growth cycle in business.
337
00:25:10.633 --> 00:25:13.135
One of those four L's constrains you.
338
00:25:13.956 --> 00:25:16.578
Fixing the next constraint unlocks growth.
339
00:25:17.358 --> 00:25:21.641
This is what business owners mean when they say they are taking the business to the next level.
340
00:25:22.443 --> 00:25:31.952
When they buy more trucks, hire employees, find general managers, and open a second location, they are completing the next cycle of the 4L framework.
341
00:25:32.572 --> 00:25:35.095
But this creates an exhausting game of whack-a-mole.
342
00:25:35.695 --> 00:25:39.479
When you solve your leads constraint, you may struggle to hire enough employees.
343
00:25:40.019 --> 00:25:41.521
You now have a labor constraint.
344
00:25:42.081 --> 00:25:45.183
Once you hire enough workers, you realize you need someone to manage them.
345
00:25:45.504 --> 00:25:47.645
You now have a leadership constraint.
346
00:25:48.126 --> 00:25:53.790
Once you find a great management team, your profit margin drops due to the extra overhead expense.
347
00:25:54.370 --> 00:25:56.832
You are facing the liquidity constraint again.
348
00:25:57.533 --> 00:26:02.796
As your business grows, the constraints on growth shift often within the 4L framework.
349
00:26:03.677 --> 00:26:07.706
Now apply this 4.0 framework to a business suffering from seasonitis.
350
00:26:08.407 --> 00:26:10.291
This business has a Q4 collapse.
351
00:26:11.013 --> 00:26:13.157
During winter, leads disappear.
352
00:26:14.016 --> 00:26:18.238
With no leads coming in, you have excess labor capacity.
353
00:26:18.939 --> 00:26:24.261
When spring rush comes, you've either let everyone go or they've left due to not having enough hours.
354
00:26:25.002 --> 00:26:28.504
During spring, you find yourself with no experienced labors.
355
00:26:29.324 --> 00:26:31.085
An influx of leads is pouring in.
356
00:26:32.006 --> 00:26:33.606
You're forced to turn away business.
357
00:26:34.207 --> 00:26:35.627
You don't return customer calls.
358
00:26:36.148 --> 00:26:37.969
It takes weeks to provide estimates.
359
00:26:38.649 --> 00:26:38.949
Why?
360
00:26:39.189 --> 00:26:40.410
Because you have no labors.
361
00:26:40.710 --> 00:26:45.072
And you don't have labors because back in winter, you had no leads to keep them busy.
362
00:26:45.352 --> 00:26:47.093
You had to lay them off or fire them.
363
00:26:47.593 --> 00:26:51.375
This creates a leadership vacuum during summer and fall.
364
00:26:51.835 --> 00:26:55.597
With no tenured employees, no one is ready to become a leader or manager.
365
00:26:56.337 --> 00:26:58.758
Nobody can take responsibilities off your plate.
366
00:26:59.399 --> 00:27:00.419
You can't delegate.
367
00:27:01.160 --> 00:27:01.620
The result?
368
00:27:02.437 --> 00:27:03.518
No liquidity.
369
00:27:04.378 --> 00:27:09.362
The 4L framework experiences significant disruption due to your off-season.
370
00:27:10.143 --> 00:27:12.665
Without money, you can't afford to grow the business.
371
00:27:13.385 --> 00:27:18.769
Without liquidity, you can't invest in more leads next spring to take your business to the next level.
372
00:27:19.770 --> 00:27:21.851
Off-seasons will keep you poor.
373
00:27:22.652 --> 00:27:27.816
The goal must be to fix the off-season, to get steady leads all winter long,
374
00:27:28.481 --> 00:27:31.222
By doing that, you'll keep your labors through the winter.
375
00:27:31.702 --> 00:27:35.344
When spring comes, they'll be ready, trained, and experienced, not newbies.
376
00:27:36.124 --> 00:27:39.485
These employees have prepared to handle the busy season.
377
00:27:40.366 --> 00:27:45.988
Since you kept your team all year, you can delegate tasks in the summer and fall as your business grows.
378
00:27:46.588 --> 00:27:50.270
You can hand off sales, operations, and administrative tasks.
379
00:27:50.830 --> 00:27:53.351
You can develop leaders within your organization.
380
00:27:54.240 --> 00:27:57.404
You can't grow your business if you run out of cash in the off-season.
381
00:27:57.744 --> 00:28:00.487
You can't reach the next level in the 4L framework.
382
00:28:01.048 --> 00:28:03.030
You need leads during slow months.
383
00:28:03.571 --> 00:28:07.295
Losing your best employees and leaders during downtime makes it even harder.
384
00:28:07.816 --> 00:28:11.600
This vicious cycle will impose ongoing restrictions on your growth.
385
00:28:12.201 --> 00:28:15.543
you won't be able to progress to the next stage of the 4L framework.
386
00:28:16.063 --> 00:28:17.784
You will remain stuck.
387
00:28:18.364 --> 00:28:20.105
You will remain poor.
388
00:28:20.765 --> 00:28:24.607
I didn't write this book to tell you to shut down your business for three to four months.
389
00:28:25.208 --> 00:28:29.030
Cure One, Lockdown Mode for Seasonitis, is a patch of job.
390
00:28:29.410 --> 00:28:32.051
It's like wearing a mask during the COVID-19 pandemic.
391
00:28:32.432 --> 00:28:33.372
You can still get sick.
392
00:28:33.752 --> 00:28:34.593
You can still die.
393
00:28:35.413 --> 00:28:39.815
Shutting down the business for three months sounds awful, especially for those like me.
394
00:28:40.495 --> 00:28:45.077
If you can keep your fixed expenses low in the off-season and shut down, well, that's great.
395
00:28:45.757 --> 00:28:51.400
If you can lay off your team and get them to return during the spring rush using a comeback bonus, that's fantastic.
396
00:28:52.236 --> 00:28:54.697
But my approach is all gas, no brakes.
397
00:28:55.257 --> 00:28:56.558
Aggressive by default.
398
00:28:57.018 --> 00:28:58.698
Do not accept an off-season.
399
00:28:59.118 --> 00:29:00.619
Never lose money.
400
00:29:01.359 --> 00:29:03.880
Cure One concedes victory to seasonitis.
401
00:29:04.380 --> 00:29:09.742
We bow down and say we can't overcome this challenge, so we'll lay everyone off and lock down.
402
00:29:10.202 --> 00:29:14.204
Building anything more than a lifestyle business in lockdown mode will be tough.
403
00:29:14.884 --> 00:29:17.365
Letting all your employees go will hurt your business.
404
00:29:18.085 --> 00:29:23.487
If your revenue falls to zero for three to four months, your business value will also drop a lot.
405
00:29:24.147 --> 00:29:29.589
No one wants to buy a business where revenue drops 100% for any period of the year.
406
00:29:30.349 --> 00:29:32.650
Buyers must take on debt to buy the business.
407
00:29:33.150 --> 00:29:35.090
This raises their fixed cost.
408
00:29:35.671 --> 00:29:39.312
They can't afford to close down for three to four months each year.
409
00:29:40.092 --> 00:29:42.374
The off-season is the time to go all in.
410
00:29:42.994 --> 00:29:48.519
In the next four years of seasonitis, our goal is to step on the gas when your competition is slowing down.
411
00:29:48.959 --> 00:29:52.362
We want to hire employees when your competition can't afford to.
412
00:29:52.762 --> 00:29:55.265
We want to run ads when they can't afford to.
413
00:29:55.865 --> 00:30:00.068
We need to figure out how to buy equipment when your competition can't afford it.
414
00:30:00.669 --> 00:30:04.132
They're selling their equipment because of cash flow issues from seasonitis.
415
00:30:04.692 --> 00:30:07.435
This means you can buy it for a fraction of the price.
416
00:30:08.095 --> 00:30:10.746
When they play defense, we go on the attack.
417
00:30:11.228 --> 00:30:12.272
Full offense.
