#332 - Chris Hoffmann - CEO of Hoffmann Brothers - From $10M to $140M: Scaling a Home Services Giant - A Story of Family, Purpose, and Unprecedented Growth

Chris Powers: Chris, welcome to the podcast. Thanks for joining me. 

Chris Hoffman: Glad to be here. 

Chris Powers: All right, you sent in three exciting things, and this was usually; I don't even go here with guests, but I thought this was an interesting one. You said that while I was in the Marine Corps, I was most proud of my peer recognition, specifically finishing the Marine office introductory course with peer-selected leadership, standing out as number one of 288 Marine officers.

So, what did you learn about leadership in the Marine Corps? And, like, what do you know about leadership that most people don't know? 

Chris Hoffman: That's a great question. And a couple of comments on it. First, the Marine Corps is one of a few organizations left where imagine your peer evil if you had to rank people top to bottom, and then you had to tell them, like, you're number 40 out of whatever.

And yeah, but that type of honesty and openness allowed for a lot of development for young people like me. This leadership thing has been challenging, and I've stumbled many times. Still, remaining honest with your limitations is a big part of being a good leader and recognizing when you have work to do for yourself. So, in the Marine Corps, I was surprised when I got selected by my peers.

And I think about what allowed me to do that, what led them to select me among those peers and the primary school. So all new Marine officers go there. Six months of centric training, you get ranked in leadership, physical fitness, and academics. And the leadership piece is top to bottom.

You rank all your peers, one to 288, and they rank me anytime someone asks you to do something. I never nailed it in; I never did it half-ass. And if I was tagged to fill a role and fill a billet, I was committed to putting my best foot forward every time and ensuring I didn't disappoint people.

And when I committed to doing something, people knew it would get done, and not only going to get done but going to get done at a high level. And that's something that people observed over time. It compounded because I would get Picked a lot when I got selected as a company commander in a training environment, you get to pick a lot of people on your team, and I would always get picked, and it would have been straightforward at the time to be like, man, this sucks.

I want to coast. It would have been great if I had not earned it. 

Chris Powers: Was that self-taught, or was that taught at home by dad or mom?

Was that something you learned once you got there? What mind-set kind of got you there?

Chris Hoffman: I don't know if this is, I was not, like, before joining the Marine, I was in college, and you know, college, like you have to pick a degree, and that's going to dictate what you do the rest of your life. I could have been a better student.

And this was during the surge in Iraq in 2008. And I was reading the stuff in the news. I was going through the motions in college and got my economics degree. I was an A and B student, putting a little effort into it and not happy with like not wanting to work in corporate America.

And I don't know that I learned it there, but what I knew was that I loved teamwork. I loved the competition. I loved it; I played sports every season and wrestled football. I loved just being on a team and driving towards a goal. And like when I was, I watched the Marine Corps commercials.

I still haven't got to kill my dragon with the sword, you know, commercials, but I was sold on the ethos and the culture, and when I signed up, it didn't disappoint for a young person. Nowhere else can you go at 23 years old and get that level.

Chris Powers: When did you know you were attending the Marines?

Like, this wasn't like, as a kid, you always dreamt of going. It was like an average college student fumbling through, not knowing what I wanted to do. It is the next best step. 

Chris Hoffman: That's it. I would spend more time in the gym than in the classroom. I was really into fitness.

And between your junior and senior year, they had a, and it's like a fixture that the Marine Corps turns off and on based on the troop needs and the demand for officers. So they had the spigot open for officer candidate school. And it's like an internship, but it's like boot camp for officers.

It's 12 weeks, and I went there with 77 other candidates and officer candidates, and 44 of us graduated after those 12 weeks. And you have the right to have an officer commission as soon as you finish college. So I just knew going into my junior year and that summer, people were looking at internships.

I'm reading what's happening in Fallujah and what's happening in Iraq. And I'm like, and I'd instead do that and be surrounded by those people with that kind of purpose and camaraderie. And, so that's what I did. 

Chris Powers: What was being in Iraq like in Afghanistan? And how does that translate back to what you're doing today? Like, that's some real shit.

Chris Hoffman: I was only in Afghanistan; I didn't do Iraq.

Chris Powers: Okay, you didn't do Iraq, Just Afghanistan. 

Chris Hoffman: Yeah, just, Afghanistan, what was that like? It was not fun; it went everything that you had imagined. But I was a little patrol base and spent most of my time at a base with about 50 folks or so.

And you're just embedded in these communities. I spent time in Helmand province, between an area called Musa Kayla and, saying, not a very lovely area. People don't like us right down there. And, but it was what you'd expect it to be. Again, where I was part of, I was a human intelligence exploitation team leader.

So, I led the teams that would conduct interrogations and then develop informants, and that was a great career choice for me in the Marine Corps because it gives you a chance to shape the battlefield. You're not necessarily the one that's. Let's go kick in the door here and move here, but let's understand our objectives and ensure we're moving in that direction to accomplish those objectives.

Chris Powers: Alright, give me an example. You hear X in the interrogation, leading you to do Y. 

Chris Hoffman: Yeah, like the saying, right? In intelligence, intelligence drives operations, right? So you have to determine where you are going. What village are you going to go to? Where are you going to do a coordinate clear?

Where is there a weapons cache that you need to find? And so that's what you're seeing. And even more importantly, who told you where an ID is, or how can you ensure you find those things before they get us right? And it's just a neat way to feel like you're impacting the battle space beyond just kicking into wars. 

Chris Powers: So that's basically like business, like the better intelligence you get, the more strategy. 

Chris Hoffman: Yeah. I didn't even know that was a job in the Marine Corps, by the way. For example, I joined the Marine Corps thinking there was one job. It was like, everyone's an infantry Marine.

Then I went to primary school and learned there are about 50 jobs. There are logisticians, admin folks, and communications folks. And I ended up being at this bar one night, and a warrant officer for someone who's been in the Marine Corps for a long time was talking. He started telling me about this job.

And I was like, well, that sounds different. And so, I changed my selection at the last second. And that was one of two Marines who got that designation from the company. 

Chris Powers: So, all right. So you serve, when'd you get out? 

Chris Hoffman: 2014. 

Chris Powers: Okay. Did you get your MBA, or did you go to Wells Fargo?

Chris Hoffman: I jumped into the MBA program, was married, and my wife worked full time. It was a great way to test your marriage, be a full-time student, you know, in your late 20s while your wife's working full time, but it was great. It was a tremendous natural pause in your career to go back and retool. At that point, I still remembered everything I learned in undergrad.

And so it was, and when you go back to college at that stage of life, you know, I talked about not knowing what you want to do when you're 20 years old. You have more clarity when you're 28 years old and start to hone in on your interest. And so I approached the MBA program very differently than you approached undergraduates; it was like I was here to learn. 

Chris Powers: Did the idea of, eventually, taking over your father's business start while you were in the Marines? Or did it start while you were getting your MBA? Or did it begin when you were a kid? Like, was this predestined? 

Chris Hoffman: No, the contrary, we're a family business, and like so many family businesses, we have a lot of not-great stories about being a family business.

And my dad had a partner he was in business with, and things didn't go well. The week I left active duty in the Marine Corps, I sat in a courthouse in St. Louis County and watched some of that sort of watch that play out when things don't go right in the family business.

And, so I had always, on the contrary, on the heels of this, I was like, I'm going to do my own thing. I interned in private equity and banking; I was heading down a different path. And my dad, at this point, I'm the third of his four kids, my younger brother's the fourth. And we were the last two that maybe had an interest. We were both early in our careers and open to transitioning, and he approached us and said, Hey guys, I'd love it if you'd consider this business. And so we ended up, my brother, my dad, and I had a lot of just candid conversations around our vision, our role, and the family's role in stewarding this organization forward.

The conflict that we had prior in our family gave us a chance to talk about things that we might not have otherwise talked about. 

Chris Powers: So, you have two elders who were not interested, or they had moved on.

Chris Hoffman: Sister was a physician, and I was a brother and an attorney in his career, and it was just down to my brother and me.

Chris Powers: Okay. So, you took over in 2016. When did that conversation happen? Like 2015 or 2016? 

Chris Hoffman: Yeah. At 15:16, the conversation was evolving; at the end of the day, my dad wanted this to happen. And it was his goal to prioritize the interest of the business above everything else. If we didn't come into the company, he told us, I'm just going to give it to the people on the team, but that's his mind-set in our industry for background. 

Chris, it's people think HVAC, plumbing, electrical, these sleepy businesses and the residential service and retrofit side, it would blow your mind to know that some of the highest quality platforms have traded over 20 times EBIDTA, even it's become like one of the hottest sort of sectors in the PE world, this residential service space.

And in the face of that, my dad's like, I'd instead give it to the team member, our team members if you all don't want to come into the business, or I'd love to have you continue the legacy and carry the torch for us. 

Chris Powers: Okay. Two-part question. First, do you remember what you liked while shaping that conversation? These are the kinds of needs I need to do it.

And your dad's needs, like, what was the conversation? What did you need to hear or feel comfortable saying, yeah, I'll do this? 

Chris Hoffman: Yeah, that's a great question. There's the economics piece. Cause we bought the business for my dad, so there was an economic component. And by the way, he still works in the industry today.

And I hope he works in the business to it's 90. And he's fantastic. I'm honoured to be able to show up to the office every day and work with him. We talked about what the economics would look like from a purchase price perspective. Still, we talked about transition authority controlling the strategy for growth and whether his vision aligns with ours.

Candidly, you hear often in family business about the patriarch or matriarch who never takes the keys with them to the grave. They're 95 years old and retained control. They're still approving 50,000 purchases and their business. And my dad's the complete opposite. We are so blessed where he's like. I trust you. I want to empower you. You two are competent young men. You can make decisions. And so that transition happened very quickly, which was essential to us. Unfortunately, we won't disappoint them, and the outcomes were able to be created. 

Chris Powers: And be transparent. What's the partnership with your brother? Is it 50 50?

Chris Hoffman: It is 50-50 down, and everything in our operating business we've acquired since all the real estate investment, everything we do is. 50 50. 

Chris Powers: And what's the age difference, like a year? 

Chris Hoffman: I'm two years older. I'm 36. He's 33. 

Chris Powers: Okay. And then give a flavour for it: it was a 10 million revenue business at the time.

What was, what did that look like? Give a picture of a ten-million-year plumbing business at the time. 

Chris Hoffman: Step into it. Forty team members, single location. You've got your trade teams, then you've got some department leaders, trade leaders, and the business, and then you've got maybe a bookkeeper or accountant, and then you've got the GM or the leader that's running it, but perhaps some salespeople in there.

Chris Powers: Okay. And then you said. You are aligned on the growth plan. If you hit your budget this year, you will be 14 next in six years, seven years. Was that the growth plan, or was it a milder growth plan? Like, you weren't sitting there in 2016. You're saying, "Hey, we're going to 14 next," over the next eight years, and everybody's like, "Okay, go. Was that the plan?

Chris Hoffman: No, the growth plan was more around a commitment to reinvesting the fruits of our labour, the success we had back in this organization and seeing how that could compound and unlock value over time; we were blessed to join 2016. I can't take a lot of credit for what we've done.

I can take some right. The team could take a ton, but we joined a best practice organization called Next Star Network, and it's unique when I asked folks about it and other industries. But like nothing like this exists, and what it is, we're a member-owned organization. So we own one nine hundred and fifty of this organization next to our network.

And it exists to serve its members every dollar of dues. It collects it, hires business process experts, hires trainers, and creates a process playbook that touches every part of our business, from how we interact with customers in their homes to what we do in our call centre to how you prioritize calls when they come in.

So we got this playbook, which, in 2016, I remember thinking I was pretty clever. I'm like, I'm a Marine. I just figured out my MBA; I must know a lot, and who's this guy from next door saying I can learn from him? It was almost the biggest mistake of my life to let my ego not allow me to decide to join Next Star Network.

So we got this playbook, and we just started implementing with rigour, around all those processes in that playbook on what we were very clear to do is we started getting momentum and getting wind going from 10 million to 13 and a half, 13 to 18, 18 to 23, we started, as we stacked up wins for the business, we said, we got to stack up wins for the people on our team who are embracing this change and driving these results.

And so, in the year we went from 10 to 13 and a half, we started paying 100 per cent of health insurance premiums for team members and their entire families. So today, that's almost 18,000 dollars per employee that we pay just for their health insurance, and we've continued to add to that each year as we've had those successive solid outcomes for the business.

We've been able to, then, double down on our people. 

Chris Powers: What'd you call it? Did you call it Next Star Network? Is that different? Somebody brought this up, and I dug through it last night. Tugboat Institute, Tugboat Evergreen.

Chris Hoffman: Yeah, Tugboat has a special place in my heart. And, in this world, in this industry where everyone's getting consolidated, in my market in St. Louis, 14 of our competitors have been bought in the last 24 months. Like everybody is getting acquired, and at every event you go to, people are talking about, did you hear about so and so? He got 10 X, 15 X, he got a hundred million, he called 250 million. And we're sitting there like I have zero interest in these partnerships, and we want our head down, and we're going to create value over the long run.

How do I find people that think like this? And I founded the Tugboat Institute, which is another membership organization. But it's like a YPO where the common denominator is. Everybody is committed to purpose-driven private ownership. So you go to these events and are in a room with people talking about unlocking value and the value creation process, not over a three-year or five-year fund life cycle but over decades. And that changes how you think about your business and invest in your industry. 

Chris Powers: Okay. Did you always know that you say purpose-driven kind of long-term? Was this the plan from the beginning? What made you interested in this type of ownership?

Chris Hoffman: I certainly didn't have the foresight in 2016 to say this is what we're going to do, but I've observed that the landscape has changed over the last seven years since I've been in this seat.

And it's fantastic to see how the industry has evolved. The effect that consolidation has had on all stakeholders, not just looking at shareholders, but the people on those teams, the communities where these businesses are operating, and I began to think and see a path that nobody was travelling down, but a path that I think, you could build an incredible business, if you stay true to sort of this purpose-driven long term private ownership.

Candidly, many people I'm talking to in the space still need to sell the private equity who Feel the same way, and it's created a unique opportunity. I've been surprised at the level of inbound interest. We've started to get to where we tell our story. We talked about our commitment to private ownership, and some folks, like my dad, didn't have kids.

They needed a succession plan. They need an internally ready team, and some of those folks are reaching out and looking to us as an alternative to traditional private equity.

Chris Powers: We will get to MNA in a bit; I want to return. So, all right, you have a meeting with your father. It is going to make sense.

I'm going to partner with my brother, which is just incredible. How many folks and families get to do something like that? Give me the first year you show up, like day one. What did the first day of the year look like? 

Chris Hoffman: I love this question. I shadowed my dad initially, literally sitting in his office.

It's like, what do you do? How are you operating this business? And that was a great experience. I was just there to learn. And that's something I've learned in the Marine Corps: you check into a unit, too. Don't be so quick to think you have to start driving impact. Take that tactical pause; you enter a new organization.

Learn the current landscape and build trust; then, you can drive change more effectively. If you jump too quickly to drive change, that's a value-destroying proposition, so I was doing that. I was learning and then concurrently trying to understand and implement this Next Star playbook.

The first blunder I made with Next Star was that we brought this trainer on-site. We taught this and have this service system process that we subscribe to and expect all of our field professionals to follow. When they arrive at a customer's home, they deliver this uniform, high quality, excellent service.

So we sent everybody through this three-day workshop, and the trainer went home. Everybody did the process for about a week. And then a week later, I was like, everybody's not doing it anymore. But I sent them to the training, and it was a good leadership lesson that you have to equip folks with those tools and have frontline leaders. You have to have managers who can reinforce, sustain, and create a level of accountability that didn't exist in our business.

So it's a swing and a miss in my first attempt at Next Star. 

Chris Powers: So that was at the first inflexion point where you were like, okay, if we can do this, we can start growing. 

Chris Hoffman: Yeah. We saw the results immediately but didn't; we were a business with no process. I mean, you'd, we cared a ton about, and to my dad's credit, my dad, the most harrowing journey is going from zero to 10.

I tell him that all the time. I couldn't have done the zero to 10 journey, and that's much harder than the journey we've been on, but he was an engineer by background. He was an engineer who went to trade school in the eighties. After being a professional engineer, people thought he was nuts and then jumped in a service van to run HVAC calls.

So we had a business, we had this foundation of like incredible technical knowledge and expertise, but no business process, no structure, we weren't measuring abandoned call rates and wrap-up times, and we weren't looking at conversion rates and average ticket, all these different metrics, these things that we count today.

And since then, so yes, when I saw the power of Next Star, it's, you're able, you know what you need to measure. And then, you know, what processes map to those specific KPIs that you're now measuring? So you can influence them through the processes you're putting in place and become this potent engine where we could keep making these incremental improvements and processes, tightening them up.

As a result, we saw those critical drivers of our financial success continue to move in the right direction. 

Chris Powers: Is that implemented, obviously, through a process that you all have, but as far as seeing the KPIs on a day-to-day basis, is that some software that you all use, or how do you, is it an EOS system? How do you get the number? 

Chris Hoffman: Yeah, we just went through an ERP conversion. We just went live on it. 

Chris Powers: Congrats. Anybody who's been through it knows it's tough. 

Chris Hoffman: Yeah, we went live in January of 23; we went from, like, you know, driving a stick shift 1988 Camry, which was my first car, to something that's much more sexy and powerful.

And, that platform for us today is called Service Titan, which is an incredible story separately to our Armenian immigrants who came to the U. S. Uh, they're in their late thirties, their last post-money valuation was 9 billion, serving purely HVAC, plumbing, electrical, residential service contractors and garage doors. So it's a reflection. I share that to highlight the value that they've been able to create for businesses like mine by giving us something tailor-made to allow us to operate. So we have real-time visibility. I can pull up my phone and look at what's happening and what revenue we produce today.

And so is the conversion rate and average ticket and task per call. It's all at your fingertips. And that's a natural, potent tool. 

Chris Powers: From your seat, what are the top two or three, and maybe there's more? What metrics matter in your industry? 

Chris Hoffman: Yeah. Great question and it varies a little by trade. So, if you're talking about HVAC versus plumbing versus electrical, there's some nuance. But if you're on a, I'll use like a plumbing above ground. I've got a plumbing service team; I will look at their conversion rates. So, how often do they walk into your home? And leave with additional revenue beyond the diagnostic, right? So what we don't like is our service fee only call. So why did Chris Powers call us to his house? Something was broken, but we were only left with the service. Why did he not accept our repair, option, recommendation, or whatever it was? So, we want those conversion rates to be high. Then, when we do convert, we'll look at average tickets. We'll look at tasks per call, which will be things like.

I might have some field professionals who come to your house, and they go, and they just, you had a leaky fixture, they fix it. I might have another field professional who goes, and while they're there, they'll ask you good lifestyle questions. Hey, how's this work? And you know, while I'm here, can I look at anything else you have going on?

Or just understanding, you might say, I've got five kids. I run out of hot water all the time, or I've got a water quality issue, or I'm concerned about chlorine or drinking water, whatever it is, there's so many cool things and products and features that we have that if you can couple together someone who's a great technical expert.

With someone who's a great customer service professional and has some element of sales, you can create ethical outcomes that serve your customers more deeply. So, I look at the average ticket and task per call for those metrics. I might have somebody with an average ticket that's 2x the other person and happier customers because they're offering all these cool things we can do to solve their problems.

Then we'll look at things like call-back rates, like how often rework quality issues, that sort of thing. 

Chris Powers: Do you have a warranty? Is a warranty a big one? How much do we have to go back? Or I know in like the home building business, what kills home builders is they build the house, and then they get warrantied to death.

Chris Hoffman: Totally, we look at, we call it call-backs or look at our call-back rates, at the team level, and down to the individual levels.

Chris Powers: To be clear, you all do plumbing HVAC; what else? 

Chris Hoffman: Electrical, all in St. Louis and plumbing and HVAC electrical in St. Louis are in Nashville. We also have appliances in St. Louis. Those are all under the Hoffman brothers brand. Then, we have a roofing business in St. Louis. 

Chris Powers: Was it always called Hoffman Brothers? There weren't brothers at the time. What was it called before you all?

Chris Hoffman: My dad had a brother. Do you remember that family business story? 

Chris Powers: Okay. So you implemented how we talked about the first inflexion of growth, going from around 10 to 30 million.

And was that growth just organic growth where you were growing within the existing business lines, or did you take on plumbing or HVAC? And that's how you grew up. When did you start adding services and growing the lines that you had?

Chris Hoffman: Yeah. Hoffman brothers were entirely organic; when I talk about our 2024 budget, 141 million of that, 121 of it, is Hoffman brothers, that core business.

So organic 10 to 121 and then the roofing business, that last piece. I am getting into roofing. It's an attractive opportunity, and PE is pouring in. It's in the early stages of consolidation; your question again.

Chris Powers: I have been thinking of that 2016. You guys took over. You said we went to 13, 18, and 20 over there; that was an inflection point. What got you from 20 to a hundred or 30 to a hundred? Was it the same strategy just year after year, where there were things that started to change as you got more extensive and more sophisticated? 

Chris Hoffman: Yeah, next was a great playbook up to 20 million or so, and the playbook becomes more cloudy after 20, how you scale, what infrastructure looks like, and what roles you create.

And going back to those leadership lessons, I've maintained a candid outlook on like. When am I the right person for a role or the seat I'm in? And if I'm not, how do I get people on our bus who will execute these functions far better than I can? And that was, that's the story, of going from 20 to 110.

It's that we need new skills. We need L and D capability. We need a new safety outlook in how we're operating. All these things I started to say, we need to bring in expertise that can do these things that we can't currently the expertise that's not on the bus, and so that's been a big challenge.

My most significant responsibilities are building leaders and recruiting leaders into our business and the CEO seat. I've got to get the right talent. 

Chris Powers: Let's talk about talent. From what I heard, recruiting at the corporate level is more accessible.

Let's talk about plumbers, electricians, HVAC's. What you hear is nobody wants to get into him anymore. It's a dying industry. It takes a lot of work to keep people. It's becoming expensive. Let's spend like 10 minutes on labour. How do you think about this issue? It is like what makes the best—the best they can. There are a lot of things, but being able to get retained labour pays them well. It is like, this is the juice.

Chris Hoffman: Yeah. It is an opportunity for us to differentiate ourselves from our PE-owned competitors and how we can create an experience for our team members who truly value them and their contributions and invest in them.

No secret trade, skilled trades, massive shortage, giant issue, COVID only exacerbated that. It accelerated some folks leaving the workforce; these jobs are in the skilled trades today; within four years of finishing high school, you can make over a hundred thousand dollars with incredible benefits.

As I described, free health insurance, we have an 8 per cent 401k match. You start with 15 days of PTO and nine holidays in your fifth year of university at 29. So, 29 paid days off is just incredible compensation when you're 22 years old; it's unique. And it's also a function driving up the cost to customers.

Cause there's just intensifying competition over this finite pool of really skilled, talented professionals, people are solving it differently. If we're competing, we can keep trying to differentiate based on compensation benefits, fighting for the same labour pool, but we're saying we have to start expanding this pie.

And so we, 1 of the ways we're solving it now, Chris, as we bought a 40 000 square foot school, literally was a school that was next to us. They were building a new one. We're like, well, we'll take that 1, hired an 11-year veteran of Teach for America to come in as our director of learning and development or graduating our 3rd plumbing class into the trades plumbing class, that's coming out of that program, and it's 20 weeks paid where we go deep on a particular set of a narrow set of competencies that they can.

Come out, hit the ground running in a service truck. So we're solving it directly by creating these pathways into the trades. But another way you can win this, this sort of war for talent, is through how you engage and interact with them when they are on your team.

And what I like to say, Chris, is I make this number up, but it sounds directionally correct to me: your experience; if you work at Hoffman Brothers, your experience at our company is 80 per cent a function of your experience with your direct manager, with your boss, the person that's leading and inspiring and coaching you every day.

And so the question we ask is, what are we doing to ensure that those frontline field managers, the most crucial role in our business, those frontline managers throughout our whole business, know what it means to be a leader at Hoffman Brothers? How do you coach? How do you have a difficult conversation?

How do you set goals? So one of the other things we've done beneath HBU is we've created our leadership foundation curriculum, where we said, these are the competencies you need. We're going to equip you with these competencies. And here's the roadmap. Here are the classes and team members; it's incredible, rig. Re a Newfield manager or used to be an individual contributor; what made you successful as an individual contributor is entirely different than what's going to make you successful now as a leader, but don't worry. We're going to help you do that. Here's what you must do, and that's how we're thinking about retaining and attracting talent.

That 80 per cent of their experience will be from people we've said know how to lead, inspire, and coach.

Chris Powers: Is HBU, Hoffman Brothers University different from the school? That's like leadership training that you run. There's entry-level, the school you bought, and then HBU, which is like leadership training.

Chris Hoffman: It all fits under HBU. HBU has those three pillars. Enter the trades. One is career acceleration. So, for folks already on our team, how do we build and enhance their skills in their technical field? The third is the leadership foundation pillar. 

Chris Powers: Did they teach the American guy to build those other components, or did somebody else make the two elements you mentioned?

Chris Hoffman: She was a crucial part of it, Lorna. From the design and strategy stage, she was involved in saying, this is what we think this should look like. And at the end of the day, we're a good-sized business, but we're a small business, and we have a finite budget for L and D. So the question is learning and development.

So the question we're asking is. If we're going to spend whatever it is, a million and a half dollars in L and D, where are we going to get the biggest bang for our buck, and where does the business have the greatest need? Cause we can't just go a hundred miles an hour at the ten different things we'd like to do.

I'd instead do three well. And so that's what we're focusing on. 

Chris Powers: How long did it take to build the program out? A couple of years, a year. 

Chris Hoffman: Not an entire year. So, Lorna spent a ton of time. So she's a curriculum design person by background, but we had to come up with all the learning objectives, partnered with a master plumber, to go through that curriculum.

So, months, I think, but it was dedicated time. 

Chris Powers: So, you go through entry-level, and then you said the second was career acceleration. Do you have to have been, name it, a plumber for X amount of years before you can get into career acceleration? What are the different stages along the journey that you can take these classes?

Chris Hoffman: Yeah, we're building a lot of this out. We just went online with a learning management system, but don't think of career acceleration as its own, like a linear curriculum. It's more of a pool, of course, offering. So, if folks need to learn how to work on boilers or geothermal, it's like a menu where you can select three-credit-hour classes.

And enrol in those that meet a specific need or competency building. 

Chris Powers: Okay. So you all have built this. In the future, there will be more people in high school going to go. Why am I going to college and spending all this money going into debt when I can be four years old by the time I would have graduated college and have no debt?

A skill making 100,000 plus and growing career opportunities, is there any light at the end of the tunnel that this could become a new shift, and people think this is cool? 

Chris Hoffman: I hope so. But, you know, Chris, when I graduated high school, they said they were sending their graduation, and they said it with pride.

That all, whatever it was, 250 students, all we have is a hundred per cent college sort of placement rate, and everybody's going to college. We need to change how we feel about the trades and how we measure success in high school because one of the predominant success metrics right now is college placement rates.

Why are we doing it? We're sending kids to; I'll pick on Mizzou, right where my wife is. It is a great school, but you come, go, and come out of there with a general business degree. And it's, you know, congratulations. Here's a 60,000 job, and you'll get three to 5 per cent raises for the next decade.

Unless you get promoted to move, the financial outcome is it's very compelling to think about the trades. Still, we, society, you, me, and everybody else, need to change how we look at and talk about trades, and high schools need to change how they talk about them.

Chris Powers: Now that we've covered some ground, Let's talk about how you, with long-term ownership, would run a business with purpose-driven ownership versus private equity. So there's a business for sale. If you buy the business, it'll look like this. If PE buys the company, it'll look like this.

Chris Hoffman: Yeah. I love this question. A great example is HBU, too. Like it, the return for HBU, it's a long tail. It might be seven years. These are significant investments, big infrastructure investments, big people investments, graduating these students that you're paying for 20 weeks. And then there's this ramp-up period. Your payback is sometimes years away for some of these decisions.

And if you're in a fund, right? And there's this: structurally, they deploy capital, and then they have to exit those investments. And what I've seen play out, Chris, over the last five years is in preparation for these exits. I've seen operators' platforms sacrifice long-term reputations.

They will cause long-term reputational harm for short-term financial gain. In the 12 months leading up to an exit to a recapitalization, every dollar of the cost you can strip out of the system, you're going to get paid 18 times for, right? Every dollar of value you can extract from a customer.

You're going to get paid 18 times for it. And so, how does that show up for a customer? I've heard of some companies having goals where if you have an eight-plus-year-old furnace or air conditioner, the company aims to convert 50 per cent of those into new equipment sales. You can't tell me that is good for the customer in the long run, but if you're 12 months away from an exit, that long-term reputational harm, guess what?

It's the next guy's problem. And I'm seeing those types of decisions being made. So zoom back out when we're saying we're trying to build a business that maximizes value over decades. We're not playing these games of constantly preparing your business for sale and limiting the investments we'll make in our company to those that only generate a return before that exit horizon gets to you.

It allows you to think about and operate your business in a very different way. 

Chris Powers: Why do you think that every, I mean, it's the running joke, but every MBA believes they're going to get out of school and go start rolling up these service businesses like the HVAC rollup and plumbing rollup.

That's like the flavour of the week. Why do all these people think they can do it? And what is the reality that they're going to be met with? 

Chris Hoffman: Yeah, great question. One, people love talking. Everyone's heard the multiples in the space. If you're a newly minted MBA out of HBS, you've heard about the 20x exit or the.

The recapitalization vehicle returned 20 X multiple on the first money. And right, I mean, people are like these home services people. It's just that people are drooling for their footholds, but what helped me is that I stepped into this business. Thank God I had grown up working in this business.

And I remember my dad commented to me, working, like working in the business summer, he goes. Like someday you may come back to this business and make sure when you show up for the summer internship, you know, when you're 16 years old, like make sure you think about how people will think about you at the end of the summer and like your contribution.

I'm like, thank God I didn't show my ass like when I was 16 years old and quickly could have done that. But I returned to the business, and I think the Marine Corps gave me credibility. The people I had known for my lifetime grew up in the small family business. There was some credibility and trust there.

And that allowed me to move quickly. If I was a kid getting dropped in from an MBA program that didn't know these people didn't see the business, it could be a challenging environment, and this is our product, right? It is our people. It is our service. And like right now, the constraint for many companies to grow is purely a function of your ability to attract, recruit, and train talent.

And, like in a small business, you're a searcher if you're coming out. You're buying a 678 million dollar business like that is a roll up your sleeves, hands-on, you are recruiting, you have save meetings when somebody puts in their notice to quit when a truck has a bad accident, you're showing up to that accident site and fixing it.

When so, a truck finds aeroplane alcohol bottles on the bottom, and he's having marriage problems, like you're doing counselling. Like, I mean, you're wearing every hat under the sun. And, like, I think searchers do a great job and programs, these search programs do a great job preparing you to search and get right up through closing where you sign, but then the day you step into that $7 million business, I think that's something challenging to train.

Chris Powers: What's a save meeting? It is self-explanatory. How do you describe a save meeting talent? I've never heard of that.

Chris Hoffman: Talents, they're returning to talents, and somebody quits, right? And it puts in their notice, and you're like, that's a rock star. I want, like that person needs to say, I still do it. To this day, if someone reaches out to me, one of my managers says, Hey.

So and so said they're moving on, they've got this opportunity. Let's set up a meeting at 7 a.m. tomorrow. I'm going to talk to him. And that's a safe meeting. It's me saying, Hey, I care a ton about you. What are you leaving for? Like, how can we do better? What can I learn from this? And often, you can make them say, Hey, what?

I do want to stay on this team. And I care enough for some of these folks, right?

Chris Powers: So these MBAs are coming out. Have they been successful in buying these? Are they working out, or will you purchase many of these companies from MBAs that thought they wanted to run them? Because, like you said, it's sexy to talk about running these things. The behind-the-scenes of these things, significantly the smaller they get, usually needs to be revised. That's just the nature of small business.

Chris Hoffman: MBAs are entering into the trades in two ways. One is through the search fund sort of way that you're describing. The other is a lot of platforms, their strategy, right, is to, as they buy these businesses and want to exit or transition the founder out of the operating role, they're replacing them with these MBAs, sometimes in bigger, like maybe in 30 or 40 million branches, they're dropping in the Ivy MBA.

So, a lot of Ivy MBAs are coming in. Under the PE umbrella to help operate locations, a lot of coming into the search route to buy the smaller businesses, a little bit different game and a little bit other challenges there, the folks PE, who will have the most challenging time? There are several folks, Chris, who are playing. The multiple arbitrage game let me buy many of these at a low multiple. Let me put them together, and let me sell them for more. And I want to hope the music doesn't stop before this, this, I can do this and exit. Well, guess what? The music stopped in 2023. And I know of some of these platforms that are really on the ropes and some that have had their creditors.

On top of them for default, but in the leadership strategy, what determines who wins and who loses is who can operate and integrate. And I have done an excellent job bringing in veteran MBAs to think about using these businesses and building a depth of leadership bench.

But that's going to be the challenge. The Achilles' heel, Chris, the founder of most platforms, is still in the cap table. They have an incentive to make sure talent stays; people are on board. The ship stays together. It doesn't sink, but when these next bites happen, these recapitalizations or these subsequent sales and the owner's completely taken out of the cap table, what then happens to the employees who are only loyal to the guy that had been there with him for 20 years?

And that's where the metal will get tested for the light bases.

Chris Powers: Okay, you just teed up the next question. Then, if you were a seller being approached by these people, whether it's you or private equity or a search fund, whomever, what are questions that they should be asking the buyer to know what they're getting into?

You wrote something about this where you said most sellers need help understanding the roads that they're taking. What are some easy vetting questions if they're looking for who to take? If price. Suppose there were other objectives besides getting the highest number. 

Chris Hoffman: Yeah, if you're selling to private equity and you're somebody who founded an HVAC business 20, 30 years ago, like it is well worth it to get, get a bank to represent you or a broker who can, who can know this game and knows what to look out for.

But, not all private equities are created equal; they all operate very differently. And it would help if you got clear on what role you have. Post-transition, what rights will you have as a minority shareholder? Will there be a board? Will you sit on that board? What changes will they make to compensation and benefits within your team?

Understanding they're a hundred days post-closing roadmap and how they will drive value or not, there's a lot where they are in the fund life cycle. Heck, if I mentioned five-year funds, if they're already in their fourth year, and maybe you're the last deal, or they're set to sell within 12 months, but they want a quick arbitrage play, where they'll pay eight times for you.

And then they're selling 12 months later and hoping to get 18 times. Like, are you, when are they actually, where are they in their investment life cycle? Are they at the end, and you're getting bought? By the way, there are significant implications for value because if you're on the front end, and they acquire you six times, you roll into their business at 15 times, whatever their enterprise value is.

And then all subsequent acquisitions are accretive to you. The four times that they're buying in the future are creative for you. If you're at the end, you have no accretion before that next buy or exit. So, all these things have significant implications for you on the value you'll create.

Chris Powers: Okay. Then, now, let's say they're asking. So, what's your answer to some of those questions? You're starting M and A; what are you telling people? What do they get if selling you that they don't get if they sell to private equity? 

Chris Hoffman: I love the question; it'd be most helpful to share the structure of the roofing business we just bought, an 85-year-old third-generation family business. We approached that seller. I'd known for several years and cared a ton about legacy, what his grandfather had built, and who he would partner with, so we bought a majority interest in that business. We got clarity on what mattered to him.

Did he want to operate? Did he want to be the manager? What were his limitations and shortcomings? The more you can be candid upfront with each other and get clarity on, like, here's what we're going to do post-closing. Here's our playbook. We know it works. Are you going to support it?

It's going to be uncomfortable. There will be changes, but as I mentioned a while ago, we can create wins for your team. If we can execute on this thing for everybody, if we can execute on this thing, and so in this case, we brought in another GM lined up a leader because he's like, you know what?

That's not me. I want to be involved, but not in that way. That's not me. So we brought in a GM, helped them find talent, and bought that majority interest. And for him, the mechanism for him to get that sort of second bite, since we're not going to sell, there are two ways he can get a return on that, that minority interest.

One is just through pro rata distributions. We're going to grow this thing like crazy. Like we know how to do, we're going to generate a lot of cash, and we can distribute it, and you'll get your pro rata share. The second way is we just created a formulaic redemption option inside of the operating agreement.

We will use this EBITDA multiple, and anytime after a three-year lockout period you want to sell, we'll go ahead and redeem. We'll pay, we'll fund within 60 days, that remaining, you know, whatever piece of that remaining interest that you want to sell. And then you could be along for the ride for ten more years.

And again, the seller of this business is in a chief growth officer role focusing on cultural continuity, helping us drive different, different initiatives, software conversion that we're going through, so putting him in, in roles where are, that are best aligned with his skills, right? 

Chris Powers: Yeah. Okay. You said we're good at growing these things. So, how big was the roofing company? It was like 10 million. 

Chris Hoffman: Yeah. It ended up being 12 this year. 

Chris Powers: It's excellent, and you're like, we're going to get to 20 in a year and, and you're good at this, and we've already talked about it previously, but like, what's the growth plan for the roofing business?

Chris Hoffman: Yeah. So when we were doing due diligence, we were looking at those metrics that we look at in our business and saying, where are they today, and where do we think we can move them to? And I'll start with the lead gen funnel. Unlike HVAC, HVAC is hyper-competitive. If you want to get leads, you go on Google Chris and search for air conditioning contractors near me, NTFW; some contractors will pay up to 150 200 for that click.

You click there, and they'll pay 200, but just for that, click on their website. So, paid search has become prohibitively expensive. It's no longer the best marketing strategy and B2C home services, but that's a separate topic, so they were spending a quarter of 1 per cent of their gross revenues of that 12 million on customer acquisition spend.

So they're not spending any money on marketing, and they're making 12 million from being in the market for 85 years and having an excellent reputation. There is so immense low-hanging fruit around lead generation demand generation. Back paid search and roofing. What costs us 50 bucks in DFW for an HVAC lead? We might get a roofing lead for ten dollars.

Different ballgames to get those leads at the top of the funnel. Then, once they came in the funnel at Ferguson, they had about a 50% call rate, meaning 50% of the customers who called in didn't get a live person on the phone before they just hung out because it was ringing too long.

So if we have, if we just have abandoned the call rate to sub 5%. We just screwed the business 45 per cent by answering those, you know, answering the calls that are coming. And then, once we run those calls, we're looking at conversion rates and average tickets. They don't have any third-party financing in place.

That's a huge one when you show up to someone's home, and they have a 15,000 roof estimate, and you say, Oh, we don't have any financing. Can you write a check for 15,000? Well, guess what? Most folks can't write a check for 15,000. So we're already in the process of getting in place integrated financing.

So, while we're presenting on the tablet, it's right there. For the monthly payment, we can get 10-year terms. It makes it much easier for folks to say yes to everything: process, structure, financing tools. And then, oh, by the way, because we have that shared service capability, we have that in-house marketing agency, all your accounting call centre, all the things that a lot of trades folks, and sort of founder owners, they don't like to do those things that they're passionate about the trades, not all this, not the call centres, not the dispatch staff, but we can do that well.

And depending on the business and their need, we're taking all that from Ferguson Roofing. So we're taking their call centre. We're taking a dispatch function. We're taking accounting and finance, FP and A, safety. All these things are coming to HB Solutions Group, a shared service resource that will support them.

So then, they can focus on those metrics and processes. So I think 20 million may be conservative, but.

Chris Powers: I love it. We'll check in on rounds. We'll do this round two next year and check in; nobody gets into business for the back office. That's the most tedious part. Real quick then, on shared services, what does the call centre look like?

Is that what your call centre looks like so you guys aren't missing calls? I know what the small guys are; it's like a guy driving around in a truck. He's got a cell phone. If he's talking to a customer, he's not answering the lead. What do you all have?

Chris Hoffman: Yeah. Great question. We just built out a 20,000 square.

We bought the building, and my real estate business said we did a reset on the 1st-floor plate, 20,000 square feet, spent almost as much on that redo as we did on the whole property, but converted it into class super lovely, all glass opened up exterior natural light. When you walk into our office, I'm proud.

People who walk into an interview say this doesn't look like any HVAC company I've ever interviewed at, and that's what I want people to think. I want to create an environment and experience a level of pride and professionalism that accompanies working in that environment. So you walk into our call centre.

It's awesome. It's excellent, friendly, and a great space, but we have about 25 agents at our call centre. It's a tricky business to staff for because it's seasonal.

Chris Powers: And is it domestic or international?

Chris Hoffman: All of our inbound is answered onshore. We do have a global team that sits behind our shared services.

Primarily a non-customer-facing role. So, things like AP, AR, filter shipments, and many admin roles. But we do take overflow calls in Manila. And we do some outside the bounds of the schedule. If you're one of our subscribers for a monthly maintenance plan, and it's time to do your maintenance, you might get a call from somebody in our global team to say, Hey, Chris, time to schedule a maintenance visit.

What day works for you? But for all of our inbound, we keep the goal of roughly 90 per cent of that. We want to be entered onshore. So that's our staffing. North light is like we got 90 per cent of our inbound calls. We want to be onshore. 

Chris Powers: You make every call. How would you miss a call when all 25 agents are on the phone already answering calls, and that one doesn't go through?

Chris Hoffman: It's wild. I remember the worst call by, and we had almost 2000 inbound calls in a day, where freezing frozen pipes are cold weather. It's like Valentine's Day two years ago, and you can't staff to answer 2000 calls in a day. But now, with this, we have two partners. So the call comes in.

If we're at the peak, everyone, all 25 agents, are on the phone, the queue, there's a queue. But we sometimes have, during that time, up to 120 people in the queue. Once you reach a certain queue threshold, it'll roll over to our global team. That's overflow. Once they're at a certain queue threshold, it rolls over to another. The third catch-all is a company that also has a global team, but they can book calls for us.

So ideally, there's unlimited capacity for those surges. 

Chris Powers: All right. Real quick, I want to go back to Google. So you said an HVAC lead could cost 150 to 200, but that's probably not the future. What is the future? It's just having a great name in the market. Are there other ways to capture these customers?

Chris Hoffman: Page search. It's like a drug, and people built their businesses on it. I mean, Google is a live auction bid system. And you can get in there. You need calls; just more money to make up your budget and what you're willing to spend. What's your pay-per-click? Uh. But that is not sustained. It's become cost-prohibitive.

So, the best-performing keyword campaigns we run today are branded keyword campaigns. So what does that mean? We want people to search Hoffman brothers, not AC contractors near me. So take that budget where you might've been spending whatever a million dollars on a paid search a year and say, you know, we're going to spend 500 of that on getting people to search Hoffman brothers instead of AC contractor near me.

Chris Powers: How do you get them to search the Hoffman brothers? 

Chris Hoffman: By all the branding stuff, TV, radio, sports. We also do a lot of guerrilla stuff, which is excellent. Nobody in the home service world, some of my favourite guerrilla marketing tactics are with micro-influencers. So we've got mommy bloggers.

I got lovely, lucky ladies, the babbling blondes with 15,000 followers; 12,000 are in our service area, and they talk about how much they love our home service plan and the service we come out of. And that's been such an excellent guerrilla way. And it's super inexpensive, which we are now managing.

We have partnership managers who are managing all these influencers in the market. 

Chris Powers: So I love it. How critical is a Google review or review in general? You have like 20,000 plus, five stars above 4. 9 or above. Are they important? 

Chris Hoffman: Average rating 4.9. Yeah, it's a trust signal.

People that don't have a company already that they're ready to call. They're doing the research online. And if you see a company with 200 ratings and, you know, 3. 8 stars. You see somebody with 10,000 and 4.9. What's a more prominent credibility signal? But it matters. 

Chris Powers: Is B2C harder than B2B, or are they just two different businesses?

Chris Hoffman: Yeah, if you slice the trade. So, if you're a searcher and looking at an HVAC business, there are a couple of dimensions you want to look at, right? Because this is a massive determinant of value and willingness to pay by private equity and others, there's a sort of service versus new construction.

Servicing existing equipment versus building new buildings, then residential versus commercial. The most valuable segment is residential service. What did I say? Residential service side. So you want to be the service and replacement and residential. The least useful is the new construction dimension.

Why is that the case? Imagine somebody comes to me and says, Chris, I'm building 60 homes over in Fort Worth, come bid on this. I'm one of six, seven, or eight mechanicals bidding on this project. We all submit our numbers, the punishment of the spreadsheet. Who do they pick?

The lowest one every time. If I go back and want to attract the best people, best-paying benefits, and significant investments in our people, I can't build a business if I'm winning jobs because I'm the cheapest guy. I don't want to be the cheapest. 

Chris Powers: So, do you even do that? 

Chris Hoffman: Zero. 

Chris Powers: You do zero new construction.

Chris Hoffman: Right. If you're a searcher, interestingly, so like if you're looking at a business that's, you know, 50 per cent new construction, 50 per cent service and retrofit, you assign a very different multiple when determining enterprise value to that new construction component versus the service. You can get it if you're looking for a business to buy.

It's a great place except for some businesses with warts because you can get a good deal. If you're saying I only want the pure play 100 per cent residential service and retrofit. Well, guess what? Everybody wants that, and you're going to pay for it. So, there's an excellent way to get some warts with other business mixes that may be less favourable.

Chris Powers: Okay. You said in a tweet that when evaluating an acquisition, consider these two critical dimensions: more recurring versus less recurring and more recession-resistant versus less recession-resistant. I get the more versus less recurring. More recurring is good. It's like a sass business; what would make something more recession-resistant and less? 

Chris Hoffman: Great question. Dallas is a bad example because it could be a tough market, and people are still building houses here. Just keep coming along, baby. But pick other markets in the country that could be more resilient, but if you look at when.

When interest rates rise, there are economic headwinds. People might stop building houses. They might stop pulling new construction permits. Further high rises might not go up, but it doesn't matter if we're in the middle of 2008, the world has gone to hell, your air conditioner breaks, and it's July, Chris.

I'm betting you will move heaven and earth to replace that air conditioner immediately. So, it is non-discretionary and similar to plumbing. You lose hot water. You can't flush your toilet, and you have a sewer or drain backup. That is where we play in that non-discretionary segment.

So, if you look, I was doing that in the picture. Look at all these different residential services that people are looking at. And as you're considering entry into these other residential services, those two dimensions are critical. If the economy gets tough and you're a tree-trimming business.

Pretty easy to say, you know what? I'm not going to turn my trees this year. Right, but again, that same house will say I need air conditioning. 

Chris Powers: Okay. So I'm assuming, like electrical, you got to have electricity, plumbing, your toilets and bath got to work. HVAC may be the most important. People need water before they need cold air or roofing. You have to have shelter, food, and whatever people need.

Are there other exciting lines that fit that less recession that we haven't mentioned yet? Or do you want to keep the playbook? 

Chris Hoffman: No, there's a lot, and by the way, it doesn't have to be. I'll pick pools. The pool may be exposed to some cyclicality. Still, maybe pool owners are typically higher income and, you know, things would have to get pretty bad for you to say, you know what, I'm going to stop cleaning my pool right now, or, so I think there's still, I like pool service a ton, there's been some big successful players in foundation repair, pest control, that's another one.

People hate bugs; if my wife sees a giant bug in our house, she's on the phone instantly, and they're coming out again, right? So, there are a lot of good home service verticals where the demand remains strong.

Chris Powers: So the pest control sales method is to go at midnight when everybody's asleep and drop cockroaches next to the house.

And it's a low-cost way to get customers; I have a quick idea for you. And then I want to talk about growth a bit more, but I've had this idea forever. I'm sure you've thought about it. You might have something like it. Only rich people have house managers. Where they don't, like even myself, is in the real estate industry. When our plumbing breaks at the house, we have commercial contractors.

I don't have a guy who can be there in two hours, or else I'm pulling him off a job for my company, and I keep my life separate. I think there's this huge room in the market for this like house manager that you pay a subscription for, and when the appliance goes out, the heating goes out, whatever, I like text on an app, and I'm like, Hey, I need help.

I want to avoid going through the phone book. I want to prevent Google Hoffman Brothers. I want to go to my app and get this done. Is this a real business or not? Because you have all the components of it. So this is why it doesn't work. One house manager costs rich folks, like, 150,000 a year to pay them, plus all the stuff they have to do.

If you spread that out across 30 houses, I would pay 300 or 400 a month to fix my pest, air filters, and everything on demand. Is this a real Opportunity? 

Chris Hoffman: There's merit there. I just got back from Colorado, and we were in a house. We rented a house there in Breckenridge.

And they're doing it in a short-term rental. I mean, they have property. These folks that own these houses deal with everything in the house, but it sits just to that investment property sort of rental market. That model could be adapted. 

Chris Powers: Why do people not have property managers for the houses they live in that they own?

It doesn't make sense to me. I had the app and my age; everything was tied to the Hoffman brothers. And you're like, look, we'll get some recurring revenue. So we'll give them the services for a little bit cheaper. Every but nobody likes like you; you had you, and he had his whole house flood this week.

I don't know how well you probably called an insurance agent, but figuring out who you will use is challenging. So, if somebody is listening to this, the house manager for the houses you live in is a huge business. Because it's especially during peak season, getting people to your home can be challenging.

Chris Hoffman: Yeah, I buy that. You just said the critical thing for that business owner, that entrepreneur, is to curate a high-quality network. And then you'll have to, which typically won't be the least expensive. So you'll need folks willing to pay for that premium, all-inclusive.

Chris Powers: Well, I'm giving you the idea of a lifetime. You take this and call the Hoffman Brothers House Manager. And it is a front-end consumer app for all the services you'll already give them. And we'll talk about splits and everything later, but.

Chris Hoffman: My team, Chris, I love the idea. My team member rolled her eyes and told me to return to the office.

Chris Powers: Yeah, okay. Growth, you're going to do 140 million this year. You're in St. Louis and Nashville. You're in five different segments of the market. Electrical, HVAC, plumbing, roofing, and appliance. What does the next ten years look like? Do you have a playbook for what you want to see happen? You're doing M&A.

Like, what If we were sitting here ten years from now? What might have happened? 

Chris Hoffman: Yeah, great question. We just had our offsite planning for 2024. And this acquisition thing's new for us. We did the first one, but we are capital-constrained at the end of the day, right? So we're going to be very selective.

Chris Powers: So you will bring in something other than outside capital?

Chris Hoffman: We're not bringing in outside capital, which means I have, like, an internal leverage limit. And that leveraged limit for me is. Two times cash for leverage, right? So, I get a total bank debt up to two times my EBITDA on a pro forma basis. If we're looking at an acquisition, that gives me some room because there's a bank that would go up to three, but like, Hey, I don't want to, I don't want to go to the limit.

So, if I need a margin for error, right? If things get tough, for whatever reason, my capital limitation is two times cash for leverage. So, we have to keep growing if we continue to be acquisitive. We're very low, with almost no other than some vehicle debt.

So we're in a great, well capitalized to say, we've got a lot of room with those two turns to make some good things happen. But I could care less about it; it's not about picking a significant number that's way out there. We do that to have a big goal, but I would rather miss that growth goal if it means we're not.

Compromising or sacrificing the quality of businesses, the fit of those we're considering bringing onto our platform. The other piece is that even when you look at organic growth, I want to maintain that culture, quality, and reputation to avoid becoming casualties on the side of the road.

And it's easy to do that as you increase. So it's how we govern it and ensure those three things remain strong and healthy? Well, we also balance this sort of high growth. And that's a tricky thing to do. So, to answer your question 10 years from now, I hope we've stayed true to that and are still positioned as a premium, high-quality organization with a strong culture.

And we didn't sacrifice that commitment and pursuit of growth for growth's sake or ego's sake. And that's my job to ensure we're doing something other than that. We're being very thoughtful.

Chris Powers: Do you think it's more, though, market-driven, like getting into new markets, or is it more getting into new lines of business or both?

Chris Hoffman: That's a great question, it's interesting. If you look across the country, a couple of home service operators and single markets are in the 250 million range; there's one in Chicago. There's 250. There's one in Phoenix, it's 250. DFW does; they've got folks in that 150 range.

But in St. Louis, as we cross that a hundred million dollar mark in that one market, you reach a point where there will be some saturation. So if we're going to sustain that high growth, we will need to do it in other markets or with new service lines in that existing market.

So, that is what you just described: the two ways we think about growth. We have in our strategic plan. We can take our existing service lines and go to new geographies or within our existing ones; let's serve those customers more deeply, and then you can execute them. 

Chris Powers: All right. I want to spend more time returning to family for a second. So you partner with your brother, and your dad still works there. Can you explain what the organization chart looks like? There's you and your brother. And then, what role is your father in? 

Chris Hoffman: Yeah, my brother, partners or not, he's a project manager.

So when he's probably in the month, most of the year, but he'll, he does. Coaches high school racquetball does their outdoor adventure club. We'll go to Alaska for four weeks, but when he's in town, he's a project manager. They'll put bids and estimates on him. He could show up at your house to give you an estimate for an HVAC system.

And he loves it like nothing. He would change about that; my brother's one of my six direct reports in the business, in the CEO seat and the good thing in a family business is we're 50-50, and to make things simple, we say, you know what, Joe, we're going to compensate each other equally from a W2 perspective because the bulk of value creation that will happen for you and I won't be because of our status as W2 employees and because of our shareholder status.

So, let's ensure we're putting ourselves in the seat to create the most value for the organization and remove the incentive to jockey for a title or position for a different W2 outcome. Unfortunately, neither of us has a huge ego and loves our level of honesty.

I'll walk out of a meeting, and he'll jump right to it like you should have done this better—wrong words here. It would help if you fixed it. And I love the level of trust we have where it's like, we're both excellent coaches and critics in a healthy way of each other. 

Chris Powers: Do you ever have to break a tie or a disagreement?

Chris Hoffman: I love this question. We're actually in the middle of operating agreement revisions today that are like, man, you could, that's like the thing that takes forever to get done, and you want to rip your hair out reading through that stuff. But we put together an advisory board, which is not fiduciary.

So, it is not legally binding, but we agree that that that serves; we want to treat it like a fiduciary board. And if we disagree, we'll look to those folks, but part of the operating agreement revisions we're creating now is converting to a fiduciary board. We're going to agree in advance on who those directors are.

If there is a disagreement around strategic direction, we agree that these are the folks we will listen to. We're going to have more independent directors on there. 

Chris Powers: How did you put together the initial advisory board? Just people in the industry, people you knew and trusted, or were any of them people you'd never met before?

Chris Hoffman: Some that I've never met before. And what I said was, I said, okay, here's where we're sitting today. I put it together. We're like 50 million. And I'm like, here's where I aspire to go. What knowledge gaps do I have that might prevent me from getting there? Or what expertise I need to ensure we get there the right way and as quickly and efficiently as possible.

So then, knowing that's the case, these are the skills I need. I looked out and said, who has these skills and who's good? Who are the leaders in the space and our market in St. Louis or the region? And then I either called folks or through my network said, Hey, I would love to get a phone call with this person.

And we put together a board of people, and everybody but one said yes. On the first go, someone is out of town. So I'm too busy to get lost. But it's excellent, and I told them, we sat in the first meeting, Chris and I go, listen, I didn't put this board together. So you all can sit here and tell me how pretty my baby is.

Could you point out all the warts? What are the things I need to fix? Where am I failing? What do I need to do better? And that's the tone we have going into these meetings: let's challenge me. Push me. I have not received a performance review since leaving the Marine Corps, but I want it. I need someone to point those things out, challenge and push me to improve.

Chris Powers: Yup. I love it. Okay, you are a, let's call it, a permanent company. It's not going anywhere, meaning you'll have two choices. Pass this down through the family or turned into an ESOP or something of that nature. There may be more choices that I need to think of. How old are your kids?

Chris Hoffman: Four and four months.

Chris Powers: And does your brother have kids? 

Chris Hoffman: One and one due in February. 

Chris Powers: Okay. So this would be very far out of the planning, but many questions that came in were like, how does he already think about succession? The answer is that we're not thinking about it yet. When you think about this as a company we're not selling, do you have a succession plan?

Chris Hoffman: Two ways to answer that that are interesting. One is we're doing these operating agreement revisions; it's great to do them before names are in the boxes. When you're talking about what's required if a family member is going to enter the business, it's great to do that before we talk about my daughter, Penny, right before there are names in those boxes you're talking about.

So that's a fun way to think about and get aligned on those things before making those decisions. And Early is better. There's a third way. So you mentioned ESOP, and you said the other was the family taking over. The marketing team doesn't like that one except for two daughters.

If that had changed to the Hoffman sisters, it would have a lot of work, but the third is outside professional management. And there are some phenomenal businesses where you teach your family how to be great owners and stewards. And that doesn't mean you're the manager or the operator, but you understand what it means to be a great shareholder.

And that's why we have work to do to ensure we're best in class concerning governance. And if we do that, you can be family-owned, not family-operated. And there are a lot of wildly successful businesses across the country that do that well.

Chris Powers: I love it. You've been perfect. I've just picked up since here is like.

If there's something you're trying to do, you found like maybe not an institution, but a company that is good at training you on doing X. So a company that's good on preparing you to be a reasonable shareholder, a company that's good at teaching you to be a purpose-driven company. Next Star, when you have these ideas, do you go to Google and go? There must be something here that exists, or do you find out through YPO or just through people that these things exist? Cause I haven't heard of any of these. I've heard of different ones, but. Usually, I've heard of some of these, and you're talking about killer companies that I've never heard of. How do you find them?

Chris Hoffman: Yeah, a crucial ingredient for any leader who's going to be successful and build something, mainly if it's something they haven't done before, is you need to have, like, just an intellectual curiosity. If you don't have the answer, be curious, find it out, seek out these answers and look ahead.

Don't wait until you get there to say, how should I think about the business once I am there? So my wife probably hates it. I spend too much time with earbuds, reading books, and looking at this device. I need a New Year's resolution, or I need to turn it on. But I seek out those answers, and YPO is excellent because all these things together are great and add value in unique ways.

And you have to find out what your most significant pain points are. And then, what are those organizations that can fill or address those pain points? YPO is great. It's a create-your-own journey. I see. There's so much stuff you can do. Still, they have particular things that I might be at the family office structuring, such as family business events and their multi-generational events.

Like, I pick from the menu things aligned with my challenges. 

Chris Powers: You've been doing this for eight years and have built an incredible company.

If you just went back and said these, this was one or two mistakes that I would have done differently, or we learned from this. Is there something that comes to mind over the eight-year journey? You're like, God, I'm such a bozo that we did this and learn from it. 

Chris Hoffman: I would have invested more and earlier in some of those frontline leader roles.

That's like when you start to drive change, and in a couple of ways, I'll think about that. It's better to be more transparent around change than indirect or not fully transparent with our direction's intent. Getting comfortable with conflict sooner is better than just getting clarity and putting everything on the table with your team.

It is our direction, and I would like you to support it. Or and if you can't keep it, you know, I'd love to help you find the next opportunity where you can, so I think just getting alignment and clarity sooner and having more complex conversations, perhaps a little bit earlier and leaning into those uncomfortable conversations when folks are resisting change.

That's an important thing I would have done sooner. The other piece, when we started to drive the process change, I underestimated the importance of having all those frontline leaders buy-in on that change because, without that, you can send everybody to all this training. Still, without fail, it will not be sustained unless leaders on the front line have bought in and know how to reinforce and create accountability. 

Chris Powers: Okay, so real quick question then. How do you get people bought in? Because of this, you just nailed one of the most essential parts of a company: the software training process and any new initiatives.

You've got to get people bought in, and that can be someone else coming back from Dallas. I met with Chris, and he said we should do this. And because you can make it happen, you assume everybody's bought in. How do you get people bought in? 

Chris Hoffman: We have yet to figure that out entirely, but now it looks like, when we interview, we're telling folks before they join our team, this is how we operate. It is what we do. Are you aligned? Like, let's screen for this. Let's save ourselves the headache of extending someone an offer and telling them how we operate after joining our team because they have good technical skills.

Right? So you can screen better to ensure the folks you're bringing in are open and ready to do it. But then, when people do start, I'm in their first seat. I'm the first hour with everybody that joins our business. And I talked about what we do, what we're doing, what we stand for, and then what I spoke about at the beginning is what's in it for them.

I'm asking you to make all this change. It's more work to do what I'm asking you to do. It's more complex, and I'm going to challenge you. You have to push yourself. You're going to have to grow. But we have free health insurance for everybody. We have an 8 percent 401k match. You get 29 paid days off. You make huge investments in your training and development.

You can only get that in a few businesses in our industry. So, the good comes with the expectation that you buy in, deliver, and do your part. And, you know, everyone, there are a lot of companies that use that win-win framework, Chris. And everyone, you know, employees win, team members win, customers win.

When you look at our story and what we've done, that's showing up significantly. The example I give when I talk to team members is like no world exists where all three groups, team members, employees, the business, the business team members, customers, and the company are moving in different directions.

We're all going to win together. We're all going to lose together. And it's not just my job to ensure we're all winning. It's your job. It's your, it's everybody's job collectively to make sure we're moving in the same direction. 

Chris Powers: If you look ten years from now and with all the rollups happening and just in general, are there going to be any more guys in a truck servicing HVAC and PE or is, is the ten-year vision that it's not everybody, but you are going to be calling a big professional company now to come to your house and fix it. It will be someone other than some guy you met at Home Depot who will just come by and repair your air conditioning.

Chris Hoffman: Yeah, there'll always be small shops and organizations that exist. It'll be referral word of mouth. But it's getting way more challenging for those living and operating folks. And what do I mean by that? It's, used to be correct. Go back to the eighties when my dad started; you take out a page in the yellow page or the phone book.

And maybe you did TV, perhaps you did radio, you sponsored the church bulletin. Right. And that's how people made decisions; today, it's like all the paid search channels we talk about, all the media buying, and it's all getting costly with the influx of institutional capital, attracting new customers.

It's just more complex, and there's way more sophistication around these digital and other channels that if you're a petite guy or gal in a truck, it's harder to get that phone to ring and get in front of customers. The other thing is that service expectations are changing. Like we have technology where it looks, it's uber esque, you know, you get your service appointment, you see the truck on the way, you see their picture, you get their bio texted, like, all these different, these technology and service touch points that if you're the person starting, that's just harder.

And those folks can add significant value. They're often less expensive. But they're going to, it's going to be hard for that to scale. And for those folks to connect with the homeowner and DFW, who doesn't know anybody and it's just getting on Google, that's not, they're not going to join. So yeah, it's getting more and more difficult. And those folks are getting crowded out and disappearing over time.

Chris Powers: All right, man, I'm rooting for you. It has been excellent. Thanks for coming in today. 

Chris Hoffman: Hey, appreciate it, Chris. It's great to be here.