From Tradie to Business Owner: The Four Stages of Growth

In This Episode

• Intro

  Good day. I'm John, and on today's episode of Trade Business School, I'm going to take you through the four stages of business, from stage one where you are the owner operator and you are doing everything, right through to stage four where the business runs without you.

  It's not as daunting as it sounds. It is going to take a period of time, and in my view there are four distinct stages you're going to go through. Each stage has a number of things you need to learn, and the quicker you learn them, the quicker you're going to get through to the next stage.

  There are going to be some resources at a link at the bottom of this podcast that you can get access to that will put what we're talking about today into a couple of concise pages so it makes sense. There's also going to be an offer there for the few of you that will actually take it up, where you can give me a call and I will go through with you how to do it, not just what to do.

  So what are the four stages? The first stage is owner operator. The second stage is getting off the tools. The third stage is getting out of the day to day. And the fourth stage, the main stage that everybody wants to get to, is the business working without you. I'm going to go through each of these stages and talk about the basic revenue, the structure, some positives and some negatives, and one specific thing you need to learn to help you get to the next stage.

• Stage One: Owner Operator — $100,000 to $500,000

  What tends to happen here with most of us is we are working for somebody else and one day we figure, you know what, I could actually do this myself and I think I could do a better job. I also think that culturally in Australia there is a tendency to want to go into business. It's something that isn't generally present in a lot of other countries, but it's something I've noticed about Australia. So we end up becoming the owner operator. We go out, we get a van, we've got some tools, and we start to build a business.

  As far as structure is concerned, at the beginning it's just you. You will be doing everything in the business. You'll be looking for new clients. You'll be in charge of the marketing. You'll be doing all of the quoting, you'll be converting the quotes, you'll be doing the work, and then you'll be making sure that you get paid. It's a lot of hats to wear. The structure is generally you, and at some point you are probably going to put on an apprentice and or another tradesman to help you with some of the doing of the work. You are going to be on the tools and in the office, which is challenging.

  The positives here are that you get to keep most of the money that you make, you get to set your own schedule, and the big one for most of us is you're your own boss.

  The negatives are that you actually need to do everything, and after a period of time that's going to lead to overwhelm. Another big negative: you are going to learn that people just don't pay. For whatever reason, people just do not pay their bills.

  I remember when I was first starting in business I had a person, it was a really strange job. He called me up and said, I've just purchased this house. I'm aware that the previous owners used it for drug manufacturing and I believe they've stolen power off the mains before the meter. So I rocked up and had a look at it. One of the things that struck me as a surprise was that he knew exactly where they had stolen the power. They'd driven a couple of nails into the mains cable coming in. He needed me to disconnect all of that, make sure everything was safe, and issue him with the certificate of electrical safety so he could get power connected.

  So I went and did all of that. Do you think this guy paid his bill? The answer is no. The reason this guy knew exactly where the illegal power had been stolen from was because he did it himself.

  What I learned from this is that on jobs like this, it would be really, really good if you accepted payment on the day. This was a new client, I'd never worked for him before, there was something a little bit unusual going on, and in hindsight I should have given him a quote and said I needed a deposit prior to starting and payment once we completed at the end of it. One of the things you're going to find at this particular stage of business is you're going to come across things like that, not so much on a regular basis, but enough.

  The advice I've got for people at this stage is to start building some systems, especially around debt recovery. When I start with clients at this particular stage and I look at their aged receivables, almost always they've got a lot of people that are 60 days plus, quite often 90 days plus, and on some occasions regularly over 120 days. A lot of these are just small items, a couple of hundred dollars here or a thousand dollars there. If it's 90 days and over, you are very, very unlikely to ever get that money.

  What you need to learn to get to stage two: You need to learn to be a business owner, not a tradie. You've taken the skills you learned becoming a tradesperson working for somebody else and gone into business for yourself, but the skills aren't transferable. It's a completely different set of skills that you need to learn, acquire and put into practice to build a successful business.

• Stage Two: Off the Tools — $1,000,000 to $2,000,000

  Getting off the tools is quite a milestone for a lot of tradespeople, and it's one of the things they set out to do. What does this look like? The revenue is going to be around one to $2 million. The structure is you're going to have three to four vans, which means three to four tradespeople and maybe a couple of apprentices.

  You are in the office. You're still getting the work and making sure the work gets done, but you're no longer doing the work. The work is done by your tradespeople. An average day for you would be talking to new clients, maybe doing some networking, going to a networking breakfast, coming into the office, doing some quotes, following up other quotes, scheduling the work for the guys, making sure the guys have done the work correctly, answering some calls from clients, dealing with some complaints, dealing with questions from your guys out in the field. Generally making sure that the ship is running.

  At this particular stage you're also going to want to have an admin person. This person is going to be in charge of all the basic admin of the business: logging jobs into your job management software, making sure all the accounts receivable and accounts payable are up to date, making sure payroll goes through properly, dealing with any potential HR issues that pop up, ensuring that you are compliant with everything you need to be compliant with, dealing with any issues that may happen with the vehicles, making sure petrol cards are all up to date, and so on and so forth. You want to hand off all of that non-critical stuff to somebody else and just focus on getting the work and making sure the work is done.

  A critical point at this juncture is that you should also have a system in place for debt recovery, and this becomes the job of the admin person. Over the years I struggled with debt recovery because I was so focused on the actual growth of the business. At times I got ahead of myself and I didn't focus on making sure that we got paid.

  A really good system that we put in place was this: every single Monday, everybody that was overdue received a statement via email. If anybody got overdue by 30 days, they received a phone call every Monday as well. We logged all of that in SimPRO so we had a really good track of what was happening. After two months, if these people still hadn't paid, they generally got a phone call from me and sometimes a visit, depending on how much money was at stake or depending on the way it was progressing. The last resort was to hand it over to a debt collector because it's very difficult at that point to get your money back. Generally speaking most of the people paid under that system because we were the squeaky wheel that got the oil.

  The positives at this stage: you've still got relatively low overheads. You are still in direct control of what happens to the business so you can fix issues whilst they happen and control what's going on on a day-to-day basis with your clients and your staff.

  The big negative: you're stuck. You can't leave. At best you're going to get a long weekend where you can maybe take a Friday and a Monday off. Even then the phone's probably going to ring. It's not going to bother you being stuck here for a little while, but after a couple of years of never being able to escape, it's going to become a real problem. Don't stop here. It's important that once you get to this stage you keep going. Otherwise you're really going to face burnout within a couple of years.

  What you need to learn to get to stage three: You need to learn your numbers, and you need to learn them intimately. Because you're going to step into the next stage where you don't have direct control over the business, and if you don't understand these numbers, things can get out of hand pretty quickly.

• Stage Three: Out of the Day to Day — $3,000,000 to $5,000,000

  Moving from stage two to stage three is actually the most difficult stage to move from, for a couple of reasons.

  The main reason is you need to change your identity. You need to change the way you view yourself.

  I'm going to give you an example from my life. At this particular stage, I was driving around in a dual cab Hilux. I had a canopy on the back with some tools and some cable and various things in it, and even a couple of ladders on the roof. I was probably driving around like that for over 12 months without even opening the back of the car to get a tool out or any material out. One day one of my mates said to me, do you know you look bloody ridiculous driving around in that Hilux, you need to get yourself another car.

  I went away and thought about that. I don't know whether he was right about me looking ridiculous. What I do know is that I was hanging on just a little bit to still being a tradie, and I needed to take a big leap if my business was going to go to the next level. So what I did was go out and buy a Land Cruiser. It was pretty scary to have a vehicle where I didn't have any tools and I didn't have any materials and I didn't have any equipment. But that helped me make the mindset change from stage two to stage three and ultimately stage four. That is very, very important.

  The other reason why this is the most difficult stage to move from is that there's a lot of work that needs to be done and you need to bring new people in and you need to find the right people.

  Stage three, out of the day to day. From a revenue perspective it's somewhere between three to $5 million. The structure: you're going to have somewhere between five to ten vans on the road. The management team is now getting built. You're going to add an operations manager, an estimator, and a business manager.

  One of the things I realised is that I wanted to have a billable to non-billable ratio of three and a half to one. So for every one person I had in the office as a non-billable, I wanted to have three and a half billables out in the field.

  Your role at this particular point is to create and modify KPIs. Remember I spoke about needing to know your numbers? This is where you drill right into them and you figure out what numbers you need as KPIs for all the different areas of your business. You need to set up your business goals and drive them through the management team, and you are still focusing on bringing in new clients.

  The positives at this particular point: you do have freedom. You're not locked into the day-to-day of the business anymore. You've got the operations manager running all of the service people. You've got the estimator doing all of the quoting and running the larger projects. And you've got your business manager who probably has an admin person making sure the back end of the business is all working properly. You've given up the three main areas of business. You're keeping new clients and managing those particular managers.

  Now, I've spoken about how I believe this is the most difficult stage to get to and to get through. I'm not going into detail on how to do it right now, but if you'd like to know how to do it, I'm offering a free call. Just reach out to us and I will step you through how to do this.

  How long is it going to take? It generally takes two to three years to come through this stage. It's hard to do it any quicker unless you have a big rush of work, and if you have a big rush of work you're generally going to have a bit of a mess behind the scenes. It is better to do this over a two to three year period.

  One of the things people always ask me is where do you start? Generally speaking, you start with getting rid of what you don't like doing the most. For most people that's the operations.

  The big positive at this particular point is freedom. You can now take a week off, two weeks off, you might be able to push a month out. I probably wouldn't recommend it until you've had this set up and running for a couple of years, but the business doesn't rely on you.

  The negatives at this point: your overheads are high. You've now got a bunch of people in the office and you really can't afford to have a couple of bad months in a row. Your overheads are going to be running at around about $100,000 a month minimum. So if you have a bad couple of months, it really, really affects cash flow.

  Another big negative: you're now employing somewhere between 20 to 30 people, and when you've got that many people, almost on a daily basis someone is going to be messing something up somewhere. I remember one of the issues we had at this stage. I went to work in the morning and my business manager came in and said, I want you to know everything's okay, but there was an incident last night. One of our guys had driven his van back from the pub drunk, lost control of the car, drove the car through the front fence of a school. Got out and ran. The police officer sent to the scene happened to know my business manager very well. The police officer rang her at about three o'clock in the morning. She found out whose vehicle it was, they went around to his house, arrested him and took him to the police station. One of the good things for me was I didn't know about that until the next day because I had a really good staff member who sorted it out. But it's an indication of some of the things you're going to walk into when you walk into the office on a Monday or Tuesday morning. You're going to find out that one of your staff members has done something really, really silly.

  The advice I've got for people at this stage is to make sure you set up the correct meeting cadence to deal with the managers. I'm not going to go into detail on this one right now, but I am going to do another podcast about it because it is actually critical and there are so many businesses that don't do this properly. I didn't do it properly for a number of years, and then one day I realised that for me to take the business from this level to the next level, it's the managers that have to do it, not me. The correct meetings, which means the morning huddles and the weekly meetings, and also you need to mentor your people and grow your people so they can grow the business.

  What you need to learn: Your identity needs to change. It is difficult for a lot of people. And you also need to learn how to spot the early warning signs.

• Stage Four: The Business Runs Without You — $5,000,000 plus

  This is the stage that I hear a lot of people aspiring to get to. From a revenue perspective it's going to be around $5 million plus. The structure: you're going to have a minimum of 12 vans. You're going to have a general manager, an operations manager, an estimator, a business manager, perhaps even a project manager. You may even have two operations managers or two estimators depending on the kind of work you are doing.

  What's your role? Your role at this point is to mentor. It's also to assist the general manager with setting the business goals and making sure the general manager has someone to be accountable to. But it's the general manager's role to ensure all of the KPIs are met, not yours.

  What are the positives? You've got free time. You literally have almost nothing to do in the business.

  The negatives: you're going to get the real big problems. Your senior technicians will deal with the small problems. Your operations managers and project managers will deal with the medium sized problems. Your general manager will deal with the big problems. All of the really, really big problems end up on your desk. You're not going to have many of them, but the ones you do have will be quite stressful.

  The other thing you're going to realise is that even though you are not in the business working on it every day, you're always going to feel the weight of the business on your shoulders. The responsibility. Because at the end of the day, if something goes really wrong, it's not the general manager's financial stability on the line. It's yours. That particular pressure never goes away.

  A good example of this from my own life was during COVID. The world just went crazy during that period and there were a lot of challenges. I had to get back in and get involved on a day-to-day basis. At one point I needed to take my own money and put it back into the business to keep it moving. That was a genuinely stressful time. And anybody with a business at this particular point during COVID, it's almost guaranteed you dealt with some major issues that were very stressful.

  What you need to learn: What to do next. Because generally speaking you've still got a lot of years ahead of you, and if you've worked really hard to get to this point, you're probably a hard worker and you're not going to want to sit down and do nothing. So you need to figure out what comes next in your life.

  What are the options? First, you can go and start another business. Second, you can look at the business you've got and create another division, or decide to build it to another level above this. Third, you can sell it. You've now got a business that operates under management. If you've got some really good historical financials, it'll probably be quite easy to value, and there would be people out there interested in purchasing a business under management. So you can sell your business, and then you've got the problem of having nothing to do.

  It's a good problem to have.