Owned and Operated #73 - Damon Chlarson and Tackling Construction Challenges

Construction Is Always Building.
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In this episode, John and Jack interview Damon Chlarson, an entrepreneur who shares his experiences in the construction industry. Damon openly discusses the financial challenges, industry fluctuations, and even instances of fraud he encountered. His story provides valuable real-world lessons for aspiring business owners, especially those considering the construction sector.

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John Wilson: @WilsonCompanies on Twitter
Jack Carr: @TheHVACJack on Twitter

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John Wilson, CEO of Wilson Companies

Jack Carr, CEO of Rapid HVAC

Owned and Operated Episode #673 Transcript

John Wilson: I'm John Wilson. Welcome to Owned and Operated. Twice a week, we talk about home service businesses, and if you're a home service entrepreneur, then this is going to be the show for you. We talk about our own business in residential plumbing, HVAC, and electric, and we also talk about business models that we just find interesting.

Let's get into it.

If you like what we talk about on our social media, on Twitter, on this podcast, then you should be signed up for our newsletter. Go to ownedandoperated. com where every Friday we break down our business, we break down insights, things we're learning, things we're working on, and it's good stuff. Check it out, ownedandoperated. com.

Welcome back to Owned and Operated. Today we have Damon Clarkson on. So Damon we met a couple years ago. He's a great guy and he bought an insulation business and in this episode we talk about his journey over the past few years, which has been a difficult journey as he has ended up shutting the business down. So we dive into what that looked like, how the process worked over the past few years, what were the pitfalls that he found in entrepreneurship, And the lessons to take away for the listener. It was a great episode and we really appreciate Damon coming on, especially as there's a lot of dialogue out there right now about how tough it is for businesses in this current environment.

I know I say this in the show, but the past 18 months has very easily been, the hardest 18 months of my professional life. It has been a real challenge and interest rates ever increasing material costs, labor costs. It's been, you know, sort of a nonstop roller coaster and Damon walking into that got bumped around a little bit.

So it's a great episode. We're very thankful he came on and he had a great message for us. So thanks for tuning in.

Welcome back to Owned and Operated. Today we've got Damon on with us. Welcome, Damon, to Owned and Operated.

Damon Chlarson: I'm glad to be here, a long time listener.

So excited

John Wilson: to be on. Yeah. Cool. We brought you on today to talk about your business and some current challenges that you're facing. So do you think you could get us started with just a minute warm up on sort of your background and the business and talking about where it's at today?

And then we'll just deep dive from there.

Damon Chlarson: Yeah, for sure. My background before I bought this business, which I closed on it in two years ago, in November of 2021 my background was just in sales, primarily in technology, software, that sort of thing. And I've been searching for businesses for a couple of years, just looking at different deals and things that kind of came my way.

And then this kind of fell into my lap. And so what it was essentially was drop shipping business that sold insulation. So you have these big national suppliers that supply insulation to contractors. And usually it's a pretty good deal if you're a contractor and then you mark it up to your client.

And so instead of selling to contractors, they would sell to us and then we would usually sell to, smaller businesses or homeowners, that sort of thing. So, It was drop shipping in a way, but you use local delivery to do it. And the year before I bought it, it had, two or three record years in a row.

And then I took over in November, 2021.

John Wilson: Gotcha. When I'm thinking about insulation, is this like blown insulation or rolled up insulation or both?

Damon Chlarson: technically both the bulk of our business came from batted insulation, like rolls or bats. They come in like big sections that come with bags.

And then yeah, we pretty much just sold bags for the most part. Selling other installation like spray and that sort of thing. Foam, you have to have a certain like license to purchase it. And so we didn't sell very much of that.

Jack Carr: And it was all to be right. So it was all to GCs who are doing this or were you selling to other installation contractors or who was the main focus of your buyer?

Damon Chlarson: So primarily it was like, I kind of identified it as our ideal customer was a guy who was a general contractor. And maybe he had two or three crews, any bigger, and then he could go directly to our suppliers and get both pricing. And then obviously we would have homeowners, but they were a smaller part of the business.

Usually it's small businesses, very small trucks.

Jack Carr: And then compared to like the big guys you can go down to home Depot and grab insulation or a hardware store. Were you guys cheaper than them? Or what was the value proposition? Was it that you guys were just direct to them? You could be better service than home Depot. What did that look like?

Damon Chlarson: Yeah, so really that's where some of the challenges come into play. We did compete against Home Depot and Lowe's and usually we were about 25 percent cheaper, at least when I took over and then slowly, but surely that margin started to get smaller and smaller and smaller and smaller, and pretty soon it was.

Pretty much non existent.

John Wilson: Because your cost of supplies was going up?

Damon Chlarson: Yeah, so installations had quite a few price increases. And really what we saw was we would get hit, our suppliers would get hit first. And usually Home Depot, Lowe's, Menards, these like big, you know, national guys, They have price guarantees in place for a certain amount of time.

So it'd be like a 90 day lag, so we would get hit with a price increase. It would hit us, September 1st and then they wouldn't hit it until December. We dealt with some of that along the way as well.

Jack Carr: Can we take a step back here, Damon? You said that this installation business fell into your lap.

You were looking, you were searching for two years and different things. talk about that search time? How did you focus and what industries were you focusing on? And then how did you fall upon the installation? How did that kind of come to fruition? For anyone who's not watching on YouTube.

There's a rave going on in David's back.

Damon Chlarson: My seven year old son is flickering the lights. Yeah. honestly, this is one thing I would have done a lot differently. Now. I searched primarily geographically based. I wanted to buy something here in Utah. I live just outside of Salt Lake City.

And so I was looking for something that was pretty much Utah based and I didn't really care what it was. . I searched that way. I didn't really want to do something HVAC or plumbing, anything too service or like trade oriented because I just don't know it.

Like I'm just not smart enough. Like I would have someone calls out, I can't hop on a job and go do it. And so , you know, I was pretty hesitant to do something like that. So then this kind of fell into my lap. It had a combination of sales with a little bit of customer service mixed in, like something I could tackle.


Jack Carr: And then, so you, did you find it through like biz by cell? Did someone bring it to you?

Damon Chlarson: Oh yeah. So I made a pretty good relationship with a broker and he actually let me check it out. Like maybe two days before it went live on like their site and like he blasted it out to all of his contacts. And so I had like a head start, which was really helpful in terms of getting in under a lie.

But yeah,

Jack Carr: Stop us if we ever overstep, but in terms of like, what does multiple look like on a business like that? On drop shipping businesses? I have no idea.

Damon Chlarson: Yeah, it's definitely different than what you would see in the service business.

I ended up buying mine for about two X. He had about 600, 000 in that you know, and even though the year before or 2021 I bought it for 1. 1 million. Pretty good deal in that regard and looked like it should be, even if we went back to 2020 revenue, which was less than 2021 we would have been clear in debt service and, coming away with a pretty healthy margin at that point.

It was around 350 to 400 in those days. Yeah.

John Wilson: So the customer that you're serving, it was like mainly homes or commercial properties, or what did that usually look like?

Damon Chlarson: Mostly homes, yeah. Primarily residential installation. And then from there, we had some commercial stuff, but that was it.

John Wilson: Yeah, and you bought at the tail end of 21?

Damon Chlarson: Yeah, right at the very end.

John Wilson: So we had a business that we bought at that time. And It was a real journey they B2B so we would like work with GCs, same as you, right? And ended up shutting all of it down, like millions of dollars of revenue.

Because all the customers went bankrupt. Which like was one vertical. So we were doing a bunch of car washes. It was in our electrical business, so we were like wiring up car washes. . And then all these GCs that were like doing the construction, they all just stopped working one day.

It was like mid August of 2022, just randomly stopped. But all that to say that is a tough time to grab it, cause right at the beginning of 22 was like month over month material increases. And that was our issue too.

For people not familiar with selling to businesses or like how construction works is you have these super long sales cycle. The GCs have these like six to 12 month sales cycles, maybe even longer where they're like selling a home or selling a project or whatever it is. And they typically aren't adding escalators for material price increases.

No one expected. Copper wire to quadruple in price in four months at the beginning of 2022 that had never happened, right? So a lot of businesses myself included Were really caught unprepared by like month over month Like 10 15 20 percent price increases that just kept coming and not slowing down at all paired with gas price increases that doubled and this wasn't even interest rates yet.

It was just like material scarcity. So yeah, that was a crazy time, especially with long sales cycles with contracts that don't allow you to change price. So we learned our lesson and we like change the contracts and we were like, Hey, yeah, now we can, change price. But the problem is we still had six months of a backlog of work to complete.

So even though we made this great change today. It wouldn't go live until august or september .

Damon Chlarson: It was a really weird time and like even still like the business and i'll check the phone and we'll get texts from people. Hey have insulation prices come down.

I want to buy something But I don't think they're coming down anytime soon. Yeah, I don't foresee that happening. So yeah, the price increases were huge. But really I bought it and I guess going back. It really was interesting. The first two, three months were phenomenal.

We made, you had record Decembers, record November. Even the January was pretty good. And so I was thinking like, oh, this is easy. This is so easy. Why doesn't everyone just buy a business? This is so simple. This is the easiest way ever to get rich. What are you thinking? And then I noticed we had some challenges, just like normal challenges, but everything was pretty much running smooth until around May of last year.

And that's when I got, I would say scared. That was when may of 22 was when I was like, okay, maybe something could go wrong.

I just noticed we got hit with a pretty big price increase and we were really competing on margin and we went from, selling our product at 28 percent margins to 22%, which doesn't seem like a huge difference, but you know,

John Wilson: That's a difference.

If you only have 28%, that's 30 percent of your margin just disappeared,

Damon Chlarson: right? And then you're doing two and a half million, 3 million in sales. That 6 percent goes a long ways. And then, right around the same time, interest rates start rising. And people start slowing down builds in general, canceling jobs, postponing jobs.

And so I would say our monthly revenue went from around 250, 000 in sales until May was probably 95, 000. Yeah. And then like we had some rebound in the summer, maybe up to like one 20, one 30, but nothing really that great. And we just survived. It's basically shuffled cash owed one supplier, borrowed from Peter to pay Paul basically owed one supplier.

This, okay. We paid that supplier. Now let's pay this supplier. Oh, it's SBA loan day. I got to pay the SBA loan and


kind of shuffled that around. And so we were making things work. It wasn't pretty, but it was working. And so I just thought, you know, if we could float a little longer to get back to like where interest rates, maybe level out a little bit and people get a little more calm about building, we'll probably be okay.

And we just kept floating and we just kept floating. Back in November of last year, I went back to work. I was like, okay, this isn't going to support me and pay the debt service. So I'm going to go back to work. So I went back to tech doing sales for a software company. luckily I still had that in the bag.

That helped, being able to kind of run both. And so I have one screen keeping my eye on the business, making sure everything's getting replies, see what invoices are being paid, my emails open, and then I have work on like a different screen for the company and they knew that I owned the business, so it was fine.

But yeah, that was definitely a challenge.

John Wilson: Yeah. And since then I don't know if we've said it yet on this episode while recording, but since then you've shut that business down. Yeah. So that's the current state of the installation business is it's no longer functioning. So what was the journey from last May to, I mean, you shut it down.

So was it a continued sort of down spiral or you just dropped off?

Damon Chlarson: it kept going down, but then we would have these upticks. We'd have these random upticks where like, okay, like we had a really good November and December of last year. So now we're good for another few months.

And so it's like, all right, now we've got something going. And so we kept doing that back and forth.

John Wilson: And that sort of feels like it's prolonging cause you'd probably resigned yourself to like, all right, maybe this isn't working. And then you got, I don't know. There was an uptick and ' cause before we started, you were like, Hey, maybe we didn't shut it down soon enough.

So is that a part of what it was you had these like couple months and you were like, all right, maybe, and then,

Damon Chlarson: yeah, and I would go back and forth. Basically, we'd have these good few months and then we're, okay, we're surviving, we're making it work. Yeah. And then I would say. We get to a level place about February of last year.

And then that's when things really went off the rails in a completely different way. So we gotten to the point where we're doing okay. Sales wise, we're surviving, I have a job, so my family, we're getting a little bit of money from the business, but not much. And then in March of this year.

We got hit with just a ton of fraud. So basically, yeah, fraud. So basically what happened, people are stealing credit cards, buying insulation, having it shipped to a random location. It gets dropped off there to them. They put it in the truck and then they run off and then I get hit with the chargebacks.

I got hit with about 50, 000 in chargebacks in the month of March last year. And the thing is, you don't know they're bad until 30 to 45 days after you deliver the order.

Jack Carr: Yeah, that is not a turn. I expected on the podcast that's what sunk. Yeah.

It was fraud.

Damon Chlarson: It wasn't just 50. It kept going for like three months, three, four months.

Jack Carr: Yeah. And especially the time when you're like relying on that 50 to get you through and you're paying everybody off immediately and then all of a sudden, oh, that money was gone.

It goes backwards. It disappears.

Damon Chlarson: Yeah. So now I've lost the money plus I owe my suppliers. What I did was I structured it with my supplier. Hey, can I get longer terms on these deals while I figure this out? I just explained to him, we got fraud issue here. He's like, yeah, no problem. I was pretty close with the credit manager that I work with. So he was like, yeah, we'll help you out on it. we kind of pushed it out. And come June. It's like, all right, now they've given me an extra 60 days to figure this out. And so then they were going to let me finance it over three years. They were like, Hey, you got hit with this.

We'll finance this over three years. I was like, okay, I can probably find a way to swing that. And so then that was just a matter of getting sales back to a regular place where it's running consistently again, and then pay that off slowly. And that's the thing that you don't realize.

When you start a business from scratch and you can shut it down and there's really no harm. No foul most of the time yeah, maybe I lost some money but like when you buy a business and you leverage your home against it and all of everything you have You can't just fail like you really can't you've got a like scrape and scratch and fight and do everything possible to get to survive and I think I don't know I didn't really fully understand what that would look like until I was in it You know,

John Wilson: Yeah so the note is being covered by your job. is that right?

Damon Chlarson: So no, so the plan now is like the business is going completely bankrupt.

John Wilson: Okay.

Damon Chlarson: That's where we're at. Yeah. That's really the only solution at this Between money we owe suppliers, money we owe the SBA. And credit cards, trying to make things work. There's really no other option at this point.

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Check out service scalers. If you're a plumbing HVAC or electrical home service company, that's what they knock out of the park and they did a great job for me.

How did conversations with the lenders go?

Damon Chlarson: The biggest thing is nobody really wants to work with you in times are It's kind of what it seemed like, it was really difficult to spin this story in a way like, they're not gonna just. How do I say this? There was no way to sell this business to them and like a, Hey, you should invest in this or you should help me keep this going. Okay. Does that make sense? And so that's where I was at. I was trying to figure out a way to make that work. And yeah, I knew if I couldn't get this, if we couldn't finance all the fraud, it ended up being about 120, 000 total. Once it was all said and done, just insane and,

John Wilson: crazy. Over the course of 90 days.

Damon Chlarson: It was, yeah, from March until the last time I got hit with fraud was in July.

John Wilson: Yeah, that's insane.

Jack Carr: Did they come up with the resolution on how to prevent that in the future. Or they're just like, yeah, Figure it out.

Damon Chlarson: So I ended up getting a, an insurance company like a fraud insurance provider. But this ended up being not very helpful because we aren't a traditional business where people are checking out online, which was their skillset was like, Oh, we're going to identify risk factors based on the way that they go through like their checkout and like information on that card.

But the cards that we were running were good cards still. And so there was really no way for them to catch it. That ended up not being super helpful. But really what I did was I implemented like number one, we were just having lots of fraud and like a couple of different areas. So I was just like, Hey, we're not going to sell.

It was an El Paso, Texas. We're not going to sell in El Paso anymore. And in Chicago. We're not selling in Chicago anymore. So we just like stopped running ads there, didn't sell there at all. And then also we would make people send them pictures of their ID. If it was an order over 5, 000.

And then that seemed to eliminate it quite a bit. So we actually haven't had fraud for four or five months now. But yeah, we said so much. And so basically my supplier let me know essentially, they weren't going to be able to keep that agreement going long term.

A couple of my suppliers merged, and the new supplier that took over. It was like, yeah, we're not gonna honor that. You guys need to pay it. And I was like I can't. And when I was looking at different lenders, it was like last week I was talking to different lenders on the phone, trying to get some money to pay these off.

And I realized this is not working like this. Isn't it going to work? We are trying to keep something alive that has been dead for a year and a half. Once I made that realization, it was really peaceful. I was like, all right, I'm good to go. We can move on.

It's dead, we took a big swing, sometimes you miss.

John Wilson: Yeah, I think I would have never guessed and obviously you didn't either but like that exposure to fraud, That wouldn't have even crossed my mind that would be never a problem

Damon Chlarson: before either Yeah, it's like in due diligence.

He had never had any real fraudulent. He'd have maybe some bad debts, but not very many.

John Wilson: Yeah.

Jack Carr: You think that fraud issue that you'd be in the same position you're in today or would you think that just sped up the inevitable?

Damon Chlarson: I think it sped up the inevitable to a certain degree because I think the model wasn't working anymore because we had lost our margin cause we kept losing our margin.

And so pretty soon, like I got to the point where we were marking things up like 11 or 12%, which is barely anything when you have to your entire operating income comes from that margin. Honestly, I do feel like it just sped up the inevitable. But like this probably wouldn't happen for another couple of years.

If we had an extra 100 120, 000 to operate with.

John Wilson: Yeah, this is like early stages 2008 to me, it is what all this feels like, and any business that touches, including mine, like including portions of our business that we have shut down, it's just that we happen to have other parts of the business, but like we've shut down in the past 12 months, we've shut down 4 million of revenue that was exposed to construction in some capacity.

And like in shutting those down, we took some punches. Like one of them was a million and a half dollar a year business line. And it cost us 300 grand to shut it down. That my last payment was December. It was crazy. It's suppliers. It's the same issue that you went through as suppliers.

The only difference is, that's a portion of my business. But it still had a big impact. And then the remodel portion of the business, same thing. Payments started getting slow, interest rates going up. We shut it down. We were able to reallocate them into other parts of the business.

But that team went from like 20 some people to there's three on that team now. And by the end of December, there will be none. And it's all just like exposure to construction. I don't know. My point is it doesn't really matter which section of the industry you're in. This is that reality of this construction side of the business.

It eventually it gets you eventually it's everybody. And there's no like It ain't personal like it. I don't know comes after you came after me like we lost a ton of money shutting ours down this year. And it was a yeah four million dollar a year top line. Two business units that made that up that are now like fully gone.

Damon Chlarson: Yeah. That's insane. And when I was shopping around for SBA loans originally. I remember live Oak has such a large presence. I was like, Oh, I'll just talk with live Oak. And they were like, Oh yeah, we don't touch construction. And I was like, Oh, you don't touch construction. Like, No, not at all.

We don't do anything with construction.

John Wilson: But I think the problem is it pencils, so construction is good for eight out of 10 years, every eight out of 10 years. And I think that's the argument is like, Hey, yeah, it worked.

It penciled the last three, four years, five years, whatever years you're looking at, but like out of eight of 10 years, it's always going to pencil. It's just those two. That really get you.

Damon Chlarson: Yeah. And that's unfortunately where I landed in that last six months of it or so. And there's some things that I definitely should have caught that I would know to catch now that I didn't at the time.

There was a really big customer concentration issue which I caught, but I justified. So okay this business made up a ton of revenue in 2021, but they were non existent for years prior. So I'm going to let that slide. But it did come as a shock. I was like, okay, these people are like 30 percent of your revenue.

This is a lot of money. The other thing is the guy that I bought it from wasn't properly paying sales tax in every state. So what he was doing was he was collecting sales tax, but then counting that as like more like revenue. Basically EBITDA for 2021 would have been overstated by like about 120, 000 and there's no way for me to really find that out. I don't think until I got like my fingers in the business, I really started figuring things out when when I started pushing orders out myself and I realized like, Oh, why are we marking this up? But not giving it a tax code and quick books.

Oh, cause we only do that in these two States. I said, Oh, that's doesn't see him above board. And then I realized like, Oh, he's a

Jack Carr: Good old tax.

John Wilson: It's not.

Damon Chlarson: It's a little bit of tax fraud. I've never heard anybody. Yeah.

Jack Carr: If you were to do this all over, I know going back in time and the what ifs is not really healthy, but from a standpoint for people listening to this that are going out and acquiring what do you think you'd do differently?

Right out the gate.

Damon Chlarson: I think the number one thing I would do is I would go bigger cause if you're gonna strike out, you're going to lose it all anyways. Might as well go as big as you can. So we bought a 1. 1 million business. I would have tried to buy a three or 4 million business.

I would've gone to any as big as I could and I would have done it with a partner who offsets my weaknesses. I'm not a finance guy. I'm not a numbers guy. That's not my thing. I'm good with people. I'm good with sales and I would have focused on doing that aspect of it. And I would have let them do all the integrations, make sure that we're cash is being managed the way it should be effectively.

So I would have gone bigger. I would have gone with a partner. And then probably the last thing I would have done is I would have listened maybe a little more closely to the banks that told me no and why. I was so dead set on getting a yes that the banks who told me no, I was just like, these guys are idiots.

They can't see a good business when it falls into their laps. And then of course that ends up being what kind of takes us to the fact that we're in this construction industry. I say those kind of three things are where I would look. And then also just assume that it's going to go wrong.

If you're an entrepreneur, you're probably optimistic by nature and that's great. But like you need to have somebody in your corner, like telling you it's going to go wrong, telling you it might go wrong. And if you're not that person, then you need to find that person.

John Wilson: Yeah, there's a book .Honestly, I think it's like right behind me.

Jack Carr: We're going to all wait here until you find it.

John Wilson: Oh, I see it. I see it. It's called " it's only the paranoid survive". And it's a fascinating book. I'm trying to remember who it was. It was like Xerox or was like a fairly large tech company and like fortune 500 now, but, written from the time that it wasn't fortune 500.

It owes data chips Intel. It was Intel. A fascinating book about not understanding that there will be a punch you in your face risk there will always be one or many and how you have to keep reinventing yourself. Good book, but sort of pushes that point deeper of, I think you have to be always optimistic Assume success. That was the phrase I saw somebody use the other day. Assume success, but be ready to be kneecapped. That'll probably help.

Jack Carr: What's the next steps for you? Is there any way that the Twitter community or our community can help you out? What do you have going on here moving forward?

Damon Chlarson: Yeah, honestly, I'm excited to just be an employee full time. I'm. I'm excited to clock in and clock out and just leave work at work. But no, honestly, it's been great. I'm not sure if you guys have come across Hunter.

He's also going through bankruptcy at this point. So we talked for about an hour and a half on the phone last week. He just volunteered his time just to walk me through the process. And honestly just, it feels like a big weight off my shoulders. Like I said, making the decision wasn't the hard thing.

The hard part was the way down. So at this point I feel really good. But yeah, no, nothing really. I'm excited to just see more people. I don't view it necessarily as a failure either. I always wanted to acquire a business, even since my early days of college and I went out and did it, didn't go the way I wanted it to, maybe the next one will, you never know.

John Wilson: And I think I don't know that I see as a failure either. Anyone with exposure to construction right now is feeling what you felt. That's the reality. And that was the purpose of me sharing. My same exposure was like, we took a real punch to the face. We just happened to be a larger business.

So maybe pointing back to you're like acquire larger idea, but I agree. Anyone exposed to construction right now is feeling it. I've had over the summer five or six friends that were either actively going bankrupt or preparing to go bankrupt. All with significant construction exposure. And the only reason that we didn't is because our construction exposure was limited to 20 percent of our total revenue.

But like, all that to say, I don't see it as a failure either. You happen to be on the wrong end of a cycle. But like, anyone in touch in construction is getting kneecapped right now.

Jack Carr: Way to end on a great note there.

Damon Chlarson: It's the reality.

Jack Carr: The offer sounds after saying that if you're in construction, you're going to get kneecap be prepared. I think this is also a good point to bring out, if you do have a lot of construction exposure I see it. We were buying right. Plumbing and HVAC companies are trying all the time.

You see this and the owners can't wrap their head around or the sellers can't wrap their head around why you won't accept their 40% of work that is, construction and it's the explanation that, hey, this is not a stable industry right now. You can't promise me that this construction works going to come back next year, so I'm going to give you 20 percent 10 percent of it.

If you're lucky. That being said, hold tight buyers, hold tight on that. Don't fall into a buyer's trap on this. I think this is a really important point to drive home is behind every construction company, there is a service company that all being said, when you're buying, be careful of the construction side, definitely.

Damon Chlarson: Honestly, yeah, it's been a really interesting experience. Just seeing the way that how hard is this to make a profit? Like it really is so hard to make a profit and I think the world population at large doesn't necessarily appreciate how difficult it is to actually run a good business.

So now that I've run one, I'll see a good business and I'm just in awe by it. I'm like, these people are raking in cash and it's not easy to do at all.

John Wilson: Yeah, it's not. I think more and more people are feeling that now. I don't know. I think there's a lot of pain. I know we're feeling it.

Honestly, almost everyone I know is feeling it. It's been earning for us, but the construction thing was a real hit for the past two years. But, you know we did a secret shop today, which is you have a competitor out to a property that you own and you send somebody out there and you're like, Get a feel for their service and pricing and so we do it pretty regularly to gut check But also like we want to check you out see how you do right and Today was really interesting. This is back to just like pain and how everyone's feeling this i'm not trying to go off on a tangent But today was really interesting because we had a former market leader Someone that i've looked up to most of my career as a brand and they fumbled the ball at literally every single block and then they get out there and we find out that their company is down 80 percent from three years ago, 80, like eight zero they're an HVAC, not like only service. Residential services replacement repair not construction and I'm just like holy freaking smokes. Yeah Because they were the like market leaders most expensive in the market the one that never messed up It was these guys and they fumbled the ball at every turn and then they're down 80 I don't remember how I got onto that.

But yeah, it gives you a lot of really interesting information, and then It's nice, because then you can see where people are weak and try to be strong. It was funny, like one of the balls they dropped was call center which obviously we talked a lot about on this show and like the booking process was a nightmare.

So they booked online, which is meant to be seamless. And then they called in to reconfirm the appointment and it was a 12 minute phone call that they were on hold for 10 minutes for an online instant booking. There was a followup 12 minute call with a 10 minute hold. that's the worst ever.

And when they tell me that I'm like, what's our hold time. Per CSR per day. Cause I bet you, we dropped the ball there too. I bet our whole time is like four or five minutes, like an hour per CSR and ours ended up not being as bad as theirs, but it was still pretty rough. But yes, I do recommend you try it out.

All that to say pain in the market's happening all over. People are feeling it across every spectrum, including market leaders or former market. Yep.

I appreciate you coming on the show today and sharing your journey. This was good. It's challenging to do this and this is an especially challenging time. Easily the last 18 months. I know how we talk about it, like we are growing and all that stuff. But the last 18 months of my professional life has easily been the hardest 18 months of my entire career. It Is a challenging business environment.

So I appreciate you coming on and sharing your story about it.

Damon Chlarson: Yeah, no, I'm happy to do it. And I hope it doesn't discourage people from going after it but hopefully. It has a couple more questions come up for them.

John Wilson: Yeah, I think size is valuable. We talk about that a lot.

I know rich has talked about that. We've talked about that here. Like size is really important especially at that million to 2 million range, like any drop in a person or in revenue is a meaningful drop in dollars, which is what you experienced.

And like Jack, he bought a. It was a sub a million, right? And like the first day, your key person quit. And you had three people. So one third of your company quit. It was the same experience for Rich. Yeah, size matters a lot. And I think that's a big one.

And then, yeah, banks telling you no.

Jack Carr: Listen to banks.

John Wilson: Why? Maybe dive deeper. Maybe dive deeper into why. Sometimes they're wrong.

Jack Carr: I don't know. Have you ran into a bank that's been wrong before?

John Wilson: Yeah. So anything touching construction is a dirty word in banking. That's anything, including plumbing, HVAC and electric.

So we share the N A I C S code for plumbing and heating contractors, which when they get above a certain exposure and your account size is above a certain size, whether it's a credit facility, debt operating balances they start looking real hard. Late last year, as more companies in the industry were going bankrupt we had some real conversations with banks.

Not because of business performance, like everything was still moving as it needed to through our business. But because the industry and that NAICS code, they felt that they were overexposed to construction. So we had credit lines slashed by 80%.

I have 80 vehicles on the road. And one day our fuel cards credit limit went from 100 grand to 10. 10 grand is a day of gas. What am I supposed to do with 10 grand? So it was crazy. And that just happened one day. And I'm like, what the hell just happened? I get a letter.

It's Hey, we're, we're concerned about your NAICS code. We had our credit card facility, not renew and they gave us two weeks to switch 110 pieces of plastic because we were exposed to the construction industry. It's crazy. Anything that looks like construction, even if you're not actually construction like, we're not. That one portion of our business was, but 80 percent of our revenue wasn't. We have a story to tell. But because we look like construction we got hit in a bunch of different ways.

Jack Carr: Interesting.

John Wilson: I would say, yes, they were wrong in that we're not construction, but I get that it doesn't really matter, and it's a risk tolerance thing for that specific bank.

How they think about their overall exposure.

Jack Carr: Yeah, so I think it goes back to David's point, just ask more questions. That would make sense. I've just always been in a situation where the banks have been fighting to buy, to finance the business for you.

John Wilson: Some of it is account size. So what's their total exposure. Some banks just don't deal so we have a bank that we use for our like commercial properties. They don't touch anything but three business types of lending. They have a billion under management. It's not like a tiny bank, but it's still small. Regional at least. But they're like, all they want to talk about is machinery, heavy equipment and real estate. Yeah. Yeah. Yeah. So they like our septic business because of the septic tankers. But besides that, they don't want to touch anything else. They don't even care what it is.

Jack Carr: I'll tell you, David, if I would go back in time. It wouldn't be HVAC jack, it'd be Septic Jack.

John Wilson: Yeah, I think it depends on that specific bank, like their current balance sheet, their desired exposure, like what their risk team feels about that industry, and like how big your business is.

The bigger the business and the bigger exposure that they're taking for you, the closer they're going to watch. Yeah. What we were experiencing last year was When I talk to other people about it, they're like, what are you talking about? We're not like, no one has done that to us. And we might even have been using the same facilities that they were, but then we find out that our account size is five times, 10 times the size of theirs.

So all our account size got reduced to their account size, which just doesn't work for our size of the business. So yeah, like it is real, like banks can bone you in half a second and they don't care in any way.

Jack Carr: Damon, we really appreciate you coming on today. I know it's a hard topic to talk about and so it means a lot to us and I hope a lot to the community that you're willing to put your story out there for others.

Damon Chlarson: Yeah, for sure. And I'm more than happy to talk to anybody who has questions or is in dire straits and wants a listening ear. I know how lonely it is, when your business starts to fail.

John Wilson: If folks want to talk to you, how can they find you?

Damon Chlarson: They can find me on Twitter, @damon_chl.

John Wilson: Thanks everyone for tuning in to own and operated. Make sure you check out own and operated. com sign up for the newsletter. We have episodes coming out a couple of times a week.

Thanks for tuning in to Owned and Operated, the podcast for home service entrepreneurs. If you enjoyed today's episode, please hit the like button and subscribe to the podcast. If you have any questions or topics you'd like us to cover, feel free to reach out. You can find me on Twitter at at Wilson companies.

I'll see you next time.

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