Beyond $1,000,000 Podcast

Scott: [00:00:00] My name is Scott Lollar and I'm a 35 year veteran of the painting industry where I've been part of growing several multi-million dollar painting companies. I have worn all the hats and have experienced everything you have experienced, are experiencing, or will experience.

There is lots of chatter about getting to a million dollars.

But what very few focus on is what it takes to blast through Death Valley and create the multi-million dollar company of your dreams. We don't focus on fads, tricks or shortcuts. We focus on solid foundational business principles and data that deliver results. This is the Consulting4Contractors Beyond $1,000,000 Podcast.

All right. Welcome back to another C4C podcast. Today we have some Q and A with Mike Katounas, some questions that we've gotten from people in our community and outside. And just to let you know, if you have something you'd love to hear our feedback on we'll put a. Link in the show notes, but you can send it to scott@c4c.team, scott@c4c.team, and be [00:01:00] glad to talk through it and give you some feedback see if it might help you.

So today we had a question about employees versus subs. We know that it's become harder and harder to find qualified people that are either trained or even untrained. The workforce has been all over the place. So, We thought we'd just start there and talk a little bit about the difference of each and then following maybe the sub route, some things to look out for how to best structure that.

Mike, give me your feedback. What's your philosophy or your thinking on the employee versus the submodel and what do you follow and what's your feedback?

Mike: Sure. Well it's good to be back on another podcast.

In terms of using employees or subs? We do both. We get the best of both worlds.

Probably the biggest reason why we do it is for flexibility. Certainly, I like having my own guys who are employed by us that I've gotten to know and built relationships with. So when we have certain customers that need a little bit more handholding they can go in and take care of them really [00:02:00] well, give them the white glove treatment.

You know, With that, there's also. Different personalities, different. You're managing different different needs, different lives going on and different things that they're dealing with every day. And can be a lot to juggle, especially the more employees you have the more it is to juggle.

And when you have one guy or another guy call out it can certainly throw your schedule off. But, with subs, the nice thing is we can kind. Bring them in as needed. we slow down a little bit during the wintertime, usually from December through early March we get a little bit of a slowdown with the cold weather.

We can't work outside and our subs understand that too. And they're available, when we need them, which is great. So when the spring comes, we get them going And they can bring in sometimes two guys, sometimes four guys. It really depends. We use as of right now, we have four different sub crews of different sizes.

We have sub crews that of three guys and up to about seven guys and anywhere in between. It just gives us a lot of [00:03:00] flexibility. We don't have to worry about, Can when they call in or call out and it just it, it makes scheduling a lot more easier.

Scott: So what do you say to people that are completely resistant to thinking about anything but an employee model?

I think about Mark Black. So tell me, were you that person ever, or did you ever have a moment where you said, 'You know what? I'm gonna pivot. I'm gonna start opening myself to something different'?

Mike: Yeah, there's a lot of guys out there who are very resistant to using subs and I think there's a misconception out there that subcontractors are going to be sloppy or that they don't care.

But, looking at it logically, they wanna work just like the employees do, and they wanna make money. So if they're gonna be sloppy and do a bad job, I'm not gonna bring 'em back. So they wanna make sure that they're making our clients happy so that it makes us happy, we get [00:04:00] them paid on time, and then they can do more work.

So I don't subscribe to the idea of they're sloppy or that they don't care. I think it's just the same with employees as it is with subs. You're gonna get some good ones and you're gonna get some bad ones. And I think we've all, and if we've been in the painting industry long enough, you, we've dealt with bad employees as well, and it's just about, treating them with respect like you would your employee, giving them work and managing that as well and managing the expectations and what we need them to do and getting it done in a timely manner.

And if they do a good job, we give them more work.

Scott: Yeah. So one of the things you've touched on that I talk about in in my coaching or in our coaching is that, It depends on if you are what I call a flat company or if you have seasonality like Mike addressed.

So if you're strictly a residential painting contractor, repaint contractor, and you live in a cold weather climate, you eliminate a good chunk of your capacity when it [00:05:00] snows or when the cold weather comes.

The challenge there is to have sufficient lead flow in sales to keep all of your employees busy year round. So if you're a flat company and say you're doing a hundred thousand dollars a month, 12 months out of a year, then you're what I call a flat company. And if you can staff that and you have lead flow for that, I love that.

But what typically happens is because of all sorts of reasons, cold weather, one of them, holiday is another one, is that most businesses have some peaks and some valleys, and sometimes the peaks are extreme. Spring is extreme. Second and third quarters typically are pretty extreme. So how do you ramp up from say, seven painters to 14 or 20?

And I think the answer is at least at some level to begin looking at a sub model and flattening your peaks and valleys with some subs. So you have your core employees, you keep busy year round, you have nice [00:06:00] culture there. You have your benefit packages, all that type of thing. And you supplement that workforce with some subcontractors in your busy season.

And like Mike said, then when you don't need them, then they go on their way and find other things to do and they're available when you need 'em again. So I think it's really something if you're not looking at, that, you should consider some of it just to soften because I we have a cookbook that we use with our clients to help them project the whole year.

And sometimes you're looking at double or tripling your workforce. In the warm weather months. And we all know that's just a challenge. And so you're never gonna have really the business that you want consistently if you don't solve this workforce problem. And I think subs are one of the ways to do that.

So Mike, tell me a little bit about where you find your subs. How do you onboard 'em? What are the rules? how do you get what you need out of them? While maintaining some autonomy because of the legal ramifications of hiring subs.[00:07:00]

Mike: It's very important for us to try to be kosher with the IRS and how we manage our subs.

I know a lot of guys will say, oh, they get paid under the table, that kind of thing. We do not do any of that. I actually encourage our subs to find other work on their own. And I'm totally fine with, even in, during the peak season, if they tell us ahead of time saying, Hey, I need a certain week off because I've got another project for someone else to do.

I want that to happen. I want them to find work in different directions, especially when it comes to the wintertime. If there's maybe they do some new construction work and whereas we don't do that, but it maybe there's gonna be some new construction work to do during the wintertime that'll keep them working and keep their guys getting paid.

It's great to me. In terms of finding them, we use Craigslist or an online ad. I'll reach out to my vendors, Sherwin Williams or Benjamin Moore and see if they've got any clients that have been coming into their [00:08:00] stores that have been looking for work that they think would be a good fit for us.

And even some of my own employees have got friends who do their own thing. Maybe they're a small outfit and maybe are looking for some work. So we kind of run the gamut there and try to see what works. We do bring them in for an interview. Usually it's with one guy. On a, on some occasion it's been maybe a couple of people who are running the company and we do an interview with them like we would do with an employee and ask them about how long they've been in business and are they licensed.

And we do require that they're insured. Our insurance company has required that for us. They won't cover any worker's comp type of thing which is fine with us. That actually saves us on our insurance cost as well. We do background checks on usually the lead guy.

And one of the things we do require is that they have vans that are unmarked because we don't wanna, send mixed messages to our clients. Now that's not to say that we don't tell our clients, because [00:09:00] our clients do know that we run a employee and sub model, and you're gonna have some clients who are not comfortable with the idea of using subcontractors.

But I am very open to engaging in that conversation and explaining what the expectations are and that the process will still be the same. And honestly, they would not know it was a subcontractor or employee unless we told them just from the way the guys are performing the work. In terms of getting them started, like doing a first, couple of jobs. We do try to find some very easy jobs. Nothing with too much complication. Maybe a couple of bedroom interior repaint. A lot of times we'll start actually with an exterior job if possible.

That might be not a very large home, and kind of see how that goes. Are they getting there on time? Are they communicating with us with the daily reports and not having any trouble with the materials or making sure they're getting the materials that we spec in the quotes. So we check all of that, see how the communication goes, see what the [00:10:00] quality of work is.

I'll get our operations manager to go out there a and check on the job and make sure everything's looking good and clean and it's a clean site. And, know, if that goes well, then we just little by little start adding a little more here and there.

Scott: Excellent. So a couple things. Tell me a little bit about how you schedule them or how they onboard into your scheduling system. And then you just mentioned reporting. So do they report like everybody else? How do you get from them what you need for your day-to-day operations?

Mike: Yeah. For scheduling jobs, we use a combination of monday.com and Google Sheets.

And with Google Sheets we do like a layout of the schedule a week by week schedule and we have separate Google sheets for the employees and for every separate sub crew that we use. And we don't combine 'em just because we don't want any possible jealousy of one crew having a big job and another crew having a [00:11:00] small job and them being able to view each other's jobs and just creating some tension there.

So we really only let them see their own schedule. We can email them the work orders either straight out of Paint Scout or through monday.com.

And we do the daily reports through monday.com and it's, a similar concept as having a spreadsheet in, in Google Sheets and then creating a form out of the spreadsheet.

It's a board that we use in Monday. We create it into a form, it has a URL, we can text the URL to them and it's reusable every day, so they don't need a new one. And what we ask them to do at the end of every day is to, put the customer's name, pick their name on the list of who's running the job, what was done. Are they on schedule, ahead of schedule, behind schedule, or was the job completed?

What's tomorrow's plan? And then there's an area where they can attach some pictures of the job for that day. Once they submit it, I get an email and can [00:12:00] see where they're at in the progress that they're making.

Scott: Yeah. Excellent. And so let's talk a little bit about the need for project management here. I'm pretty widely known as saying, I think project managers are not a necessary position because I would prefer pushing that responsibility to the crew leaders. But. I think if you're gonna use a fair amount of subs, this is a place that I do concede that a project manager does have a place because we need maybe more touch, higher touch with these jobs, quality control.

And I think there is that tension sometimes when someone else is running their own business versus working for you specifically, that we gotta just make sure that the customer's thrilled that we're doing what we say we're gonna do. So I'm in agreement with those that think a project manager is necessary especially in if you're a heavy sub.

Mike, is that the way you run your business and do you agree with that?

Mike: Yeah I've always had a [00:13:00] project manager, especially, since we got to maybe close to the $1 million mark several years ago I just. I don't know about if it's like this in other parts of the country. I feel like we definitely have clientele who have some certain needs and want things addressed, then they have questions and I don't want my phone blowing up all the time, or my estimator's phones blowing up all the time.

So having one central person in charge of all the projects has really helped. And especially when we bring on a new sub and we don't know the type of work they do, but honestly, at the same time, this is fairly similar with a new employee as well. We wanna have an idea of what are they capable of doing? Do they have a good work ethic? Are they getting there on time? Are they staying the whole day and not leaving early? That kind of a thing. In that sense, a new employee or a new sub, there's really not a lot of difference from our point of view.

As we build trust and see a good quality of work and the communication's good our ops manager can definitely, step back a little bit. He's always checking in [00:14:00] on the jobs but he's not going to, every job site every day. And there's even some days where he may not go to a job site at all cuz he is, scheduling work and ordering materials and that kind of thing.

So, It's just a matter of build a relationship over time and trust is formed from there.

Scott: Tell me a little bit about how you communicate the payout or their compensation. How do you address that? And I know that we've talked before in coaching calls, in masterminds, about being careful to talk about percentages or hours because that can really kind of be skewed depending on the contractor. Tell me how you avoid problems with that kind of payout and percentage type of issue.

Mike: I think back to some ads we've put in Craigslist where we have put in the advertisement, here's the percentage of the job we pay, and some of the emails, responses I've gotten back have straight up cussed me out.

And I just learned to chuckle at 'em [00:15:00] because every contractor's different and, we typically pay our subcontractors 45% of the job, but that does not include them buying the materials. We are buying the materials there. So, we discuss that at the beginning with them, but we show them, a few samples of our work orders and contracts to give them an idea of the level of detail we're gonna provide them.

And some of the remarks I've gotten back cuz our ops manager is the one who typically handles those interviews. I don't do them anymore.

But he's told me several times that he's seen subcontractor's eyes get real big because they're pleasantly surprised at the level of detail we provide.

And there's no ambiguity in the contract, which they're, that's what they want. They don't wanna get to the job, and it's real vague, and then next thing you know, they think it's gonna take two days to get the job done based on what they're seeing in the work order, but next thing you know, it takes four days because something was left unclear and we're just gonna throw this in at no extra cost and this is free and that's free.

And, then all [00:16:00] of a sudden they're losing out. So they really appreciate that side of it. They know what they're gonna get paid ahead of time. And to your point earlier, some of those people who have not been as thrilled seeing 45% of a job what they don't understand is we're probably one of the higher priced contractors in the area.

And so you're not comparing apples to apples when, maybe they've done some work for somebody who charges, half of what we charge. 60% or 70% of job, that's half of what we charge is still gonna be less than 45% of one of our contracts. So, unfortunately they don't take the time to think about that in some cases.

And it's probably better off that they did cuss me out because it's probably kind of cut that off before it even became something.

Scott: Yeah. And how do you pay them? Do you pay 'em electronically? Do you pay 'em? And how often do you pay 'em? Uh,

Mike: We pay 'em every week uh, every Tuesday. They we pay them, we usually start with just they come by the office and pick up a check for the work that they did the previous week.

[00:17:00] But we have been able to pay them electronically now so that they don't have to make a trip out to the office. Cuz some days they may be working. Half hour to 45 minutes away, and they don't wanna have to drive all the way over here to get paid. So we've been able to handle payment electronically.

And speed that up for them. And some people may have a question of what if they're doing a huge project that takes more than a week to get done? Are you paying them ahead of time? Or that kind of thing. And we really just look at it like, if it was a two week project that they're working on and they got through one week and they've still got another week left, we're gonna pay them for half of what we owe them just so that they can make sure they're keeping their guys paid and that they're not, struggling to make ends meet.

Scott: Yeah, I think that I would say that anyone that is going to do this or does do this, your paperwork needs to be in order. So you need to immediately get a W9. You need proof of insurance, COI, you need everything before they dip their brush the first time for you, because once they're on the field, you know how that goes.

Secondly is I do encourage people [00:18:00] to pay quickly. I understand there's different things you might wanna hold some back if there's touch up. I get all that part, but I tell clients that you need to do the best you can to make your company the best one to work for. So they have other opportunities and if they are getting strung out by somebody, then they're gonna go work for the people that are quickest to pay 'em are the easiest to work for, and I would be that person and there are tons of electronic payment options that will meet any IRS requirements. Bill.com you could do that. You could fund that. They can get direct deposit. Even the payroll companies are paying subs now for you on your behalf, and you just fund it like normally.

So there's so many options where they can do electronic payments. In fact, I typically will tell people if someone doesn't have a bank account where they can receive that, I'm probably gonna tell you to steer clear of them because it's just a hassle. So I need to come pick up a check. I need to come pick up a check.

When can I come pick up a check? It just gets old. So we're really looking for [00:19:00] someone that is running a little bit more of a business than is a self-employed individual. Although that could work too, so, great.

Consulting4Contractors: Well, thanks again for joining us on the Beyond $1,000,000 Podcast. If anything you heard on the show today intrigued you, or if you're just interested in getting in touch with Scott, please visit the show notes.

You can click on the discovery call link to get started. We'd love to find out more about you, your company and how Consulting4Contractors can help you grow your business to a million dollars and beyond.