In this interview, we talk about: content, marketing, the expansion of the Service Alliance, and the future of Residential Contracting in Plumbing, Air Conditioning, and Electrical.
Interview occurred July 1st, 2014
Todd Liles: Hey man, how are you?
Matt Michel: Good.
Todd Liles: Thank you for taking some time with me today.
Matt Michel: No problem. I appreciate it.
Todd Liles: I’ll do my best to make it productive for you. Here’s the first question that I have, Matt. The first thing would be, there’s a fair amount of my audience that are not Roundtable members. Would you start by sharing, just a little bit about yourself and the concept of the Service Roundtable.
Matt Michel: My first job in HVAC was before I even knew what HVAC meant. That was before Google, so I had to try to find out without asking anybody and appearing stupid. I started out as an engineer working on refrigeration systems, and was really trained to be a manufacturing engineer. Got that job with Lennox Industries where I was in charge of automating Lennox’s factories.
Moved from there into marketing. To be honest with you, I was a mediocre engineer and all mediocre engineers move into marketing at some point so they can tell all the engineers what to do.
Todd Liles: (Laughing) I didn’t know that. That’s good to know.
Matt Michel: I followed that path and found out I was pretty gook at marketing and in a fairly short period of time was in charge of marketing for Lennox Industries west of the Rockies and left Lennox to take over a VAV Box Division. I was rewarded, or punished by getting system controls as well.
I managed to get that into the black. This was right at the time when high-rise construction cratered and so our market was imploding. There were no excuses. We had to continue to grow. Had to get innovative, had to learn a lot, and you’re talking about marketing products that are as pure a commodity just about as you can get. With a VAV Box you don’t see it, it’s in the ceiling, and if you hear it you’ve screwed up.
We’ve got something that nobody’s even aware that it’s there, and if they’re not aware it’s there we’ve done our job correctly. From there I went and I started a contractor franchise organization. Grew that to 65 locations. We were #233 in the Franchise 500, and left there and started work as a marketing consultant, which almost like going to grad school because you worked on all these project for a lot of HVAC and plumbing manufacturers, a lot of high tech companies, even some packaged good companies.
Matt Michel: Amtrak was a big. Time and People Magazines were clients, was a wide variety of exposure to things. While I was doing that, I came up with the concept for the Service Roundtable, mostly because we looked out on the horizon and we saw that everybody was attempting to serve the top 5%. Nobody was trying to help the bottom 95%.
Everyone wanted the biggest, largest contractors, and that’s what all the manufacturer dealer programs were really geared towards, that’s what all the alliances were focused on, and it was the smaller guys that needed the most help, so “How could we do this affordably?”
I got together with some guys to raise some money. The concept was let’s use the Internet. There was a lot of skepticism initially that contractors would never use the Internet, they would never get email, which has proven ludicrous over time. We started out that way. Launched it at a $50 price point. At the time, it was let’s give them some marketing tools, some business tools, let’s have some forums for guys to bounce ideas back and forth.
That was the original concept and we kept loading up the content. The forums grew like crazy, and that’s what everybody talked about when they refer to the Service Roundtable, but really it was the content that drove them. It’s like if you go to a convention. The seminars are the reason you go there, but what everybody says they get the most out of is all the discussion in the hallways and at the parties.
Todd Liles: You had some social media even before Facebook. You were a first at offering of social media for contractors, that’s huge!
Matt Michel: In many ways, yeah. We’ve always been out in front of the game in terms of the application, the technology to the industry, and we were there. Over time we were adding programs for suppliers, and manufacturers, and consultants to be able to get involved. That eventually turned into the Roundtable Rewards Program, which has become the industry’s largest buying group.
That’s just part of their membership, and it’s at the point now where we pay rebates on purchases that contractors make. We pay more in rebates to contractors than they pay to us in membership fees. If you join the Service Roundtable and you make any attempt to use the suppliers that are in the Roundtable Reward Program and identify those then it’s almost impossible not to make money off being a member.
Not to mention being able to post something and get a reply from you or Charlie Grier, or Ron Smith, or who knows, Larry Taylor, legendary contractors.
Todd Liles: Right. The Roundtable Rewards is that open at any level? If I just came in at the $50 level would that be available to me there as well, or is that exclusive for the Service Alliance group?
Matt Michel: No, it’s available at the $50 level. The Alliance pays higher rebates and there are some suppliers or partners that only participate at the higher-level alliances, and that brings up the other point is the Service Roundtable, over time we’ve added others. Just like over time we added meetings.
Initially we never intended to have meetings, but the sense of community that development online, these guys wanted to get together face to face so we started holding them and we now have 2 meetings. One is integrated with Comfort Tech, and there’s a second one in the spring.
Todd Liles: I wanted to ask you a question about that because in many ways we do something similar in the sense of we’re an information marketing company. You guys went first with the low-cost offer and built up a huge following. Because of the nature of my business, and starting Service Excellence Training as a one-man operation, I went first with the consulting offer, which is obviously a larger investment. It was easier to scale that way.
Most information marketing would say that your approach is the ideal approach, and you built up this massive membership. From an outside perspective, I’ve often wondered, having come from the world of big shows and expos, why you decided to host the Big Event. I understand the massive expense and coordination, so I have found myself wondering when you guys started Service Alliance the big question, which was “Why?”
I don’t know if the Service Alliance members fully understand that it’s a whole lot easier to provide and serve and profit from the online system than it is to do the live shows. I found myself going holy smokes why take on that headache? That’s my question, why?
Matt Michel: To answer your question, in our original business plan we always had a higher-level alliance offering built in. The question was the timing. If you want to look at our model you can think of it this way; think of a series of concentric circles. The outermost circle was Comanche marketing. Which was an email marketing letter that actually started because I was trying to test out email lists because I was president of my Homeowners Association. I wanted to use one there, but before I launched it with everybody I was testing it.
I started writing some marketing stuff, invited a few people, and was just posting these things periodically while I was figuring out how it worked. The next thing I knew I looked up and there was 100 subscribers. I didn’t know where they all came from because I originally invited 3 people.
It grew over time. Today it’s around 8000, and it is free. The thought process on this is that people read that, they gain a sense of trust and familiarity so when I suggest “Hey, why don’t you try $50 and test the Roundtable out?” then they’re willing to do that. We’ve built up a reservoir of trust through Comanche. They come into the Roundtable.
They’re in that for a while. They see the value that’s delivered and at some point if it fits them, or if the needs are there, the trust is there as well for them to jump into the Service Nation Alliance. That’s the theory in the practical sense. There’s a lot more effort involved in transitioning from the Roundtable to the alliance, but the idea behind that was that this would make the marketing expense less, the sales process easier.
It certainly has compared to just going out and launching some type of high-level alliance, but it doesn’t mean that it’s not there.
Now regarding the meetings, I’ll be honest with you, I never wanted to do them.
Todd Liles: I don’t blame you. They’re great value, but man they’re work.
Matt Michel: Yeah, our members demanded them. That’s the reason that they’re there. Frankly, we lose money every meeting we hold. Our goal going into them is to come out of it and break even. Each meeting has gotten bigger and we’ve done more, so it gets more expensive. That’s the name of the game.
We’ve had to step up the production values, we’ve had to step up the keynotes. At the last meeting we had Rick Harrison from Pawn Stars as the keynote. Guys like that aren’t cheap.
Todd Liles: No they aren’t. A top-tier guy requires a minimum of $40 grand. I don’t know what Rick charged, it’s none of my business, but I have a little perspective. I don’t think often times the members understand that and if there’s a member reading this today I want them to understand that there is a huge commitment from you guys to do those type of events. It’s good we’re creating clarity there.
Matt Michel: Yeah, eventually there’s an economy of numbers that we’ll hit break even because at some point our marginal revenue exceeds our marginal costs. When people commit to coming to one of the meetings for each person, but we’ll eventually have the numbers to where we’re at break even or making a little money on it.
The same thing holds with the alliance. At this point, we’re still not quite at break even on the alliance side and so we’re subsidizing that, but we’ll get there. It’s growing rapidly so I’m hopeful that we’ll get there some time in the next 6 to 8 months.
Todd Liles: Awesome. You guys are doing a great job there. That’s the feedback, and from what I’ve seen. People are looking for the membership groups, there’s value there. There’s a lot of offerings, but you guys are bringing something that’s different to the table than say what the other 2 big groups are. You’re naturally going to find your place.
I’ve got just a couple more questions and then I want to ask a few of the questions that were submitted from our shared audience.
The first question is, “What do you think is the biggest value from the Roundtable.” Not necessarily what the members would say, I want to know what you would say?
Matt Michel: The content.
Todd Liles: The content.
Matt Michel: The cost to develop that content, go ahead and get a top-level copywriter and an ad agency or something to create some this stuff you’re going to spend a fortune. This is instant. A contractor can go from 0 to 60 and have a decent marketing phase, have decent direct mail, have a Facebook campaign, have supporting collateral material, have everything that he needs to run his company. Have a good service agreement. Have more marketing and sales ideas than he can enact in a lifetime all available.
The main issue is just to wade through it and select and choose the pieces that he wants to implement and it’s easy to implement. It’s download it, dropping your name logo, and you’re good to go.
Todd Liles: I would be willing to bet that folks become members, and for a very long time probably don’t wade through that content.
Matt Michel: They do.
Todd Liles: They do? That’s good.
Matt Michel: Going back 3 or 4 years ago we were concerned about it. We were checking on it, and monitoring it, but we’re in the range of 10,000 to 15,000 downloads a month. At this point it’s probably closer to 20,000.
Todd Liles: That’s awesome.
Matt Michel: Now some guys download everything and there are some that don’t take advantage of it.
Todd Liles: Sure. That’s impressive.
Matt Michel: We’re doing a lot of development on the alliance still. We’re continuing to build it out so to speak, at which point after that it’s probably going to start costing more, but we have an incredible amount of very detailed procedures for every aspect of running a contracting company. We’re moving them all online. We’re hyperlinking them to all the content that’s on the Roundtable so that when they see something it’s easy.
We’re going much more video. YouTube is already the number 2 search engine. A lot of contractors and a lot of the people that work for them are much more comfortable clicking and looking at short video than reading text on a page.
All that’s being integrated in right now. That is going to end up being the most incredible and dynamic resources that anybody in this industry’s ever seen. We’re continuing to evolve with business coaches. We’re a lot more high touch now than we used to be. It’s all going forward, along the design plans.
We’re going to increase the emphasis on electrical at some point and we’ll probably add other vertical markets at some point because we’ve proven that we can scale horizontally, as well as vertically.
Todd Liles: Now I’m going to move into some of the questions that were submitted online.
The first is from David Holt. He asked a series of questions, I’m just going to pick the bottom one here, which is:
Matt Michel: There’s 2, and it depends on which one you talk to as to which one’s at the top, but it’s making the phone ring, and it’s bodies in trucks.
Todd Liles: Yes, hiring is a massive issue! No one’s asked a question about that, which is interesting to me, but it’s probably the number 1 thing that I get asked, “Where are the good people?” What would you say to that? That was off my list, but you brought it up and it’s such a good topic, what would you say to that?
Matt Michel: The good people are out there, but they aren’t necessarily in our industry. If there’s a talented technician he’s got a job. If you can steal him from somebody else, somebody else can steal him from you. Every time you hire somebody from the outside you bring in all of the bad habits, as well as the good habits.
It’s much better if you can grow your own. The thing is that most contractors don’t have the resources to do it in house. We’ve actually put together a program called Fast Track where we’ll help with the hiring, the screening, the recruiting, final hiring decision of course is the contractor’s, and then we’ve got a training program where they go through it quick.
They’re back out in the field, they’re making money for you, and there’s follow-ups and coaching sessions that take place over the next 2 years. It’s an outstanding program and it’s meant to address this very problem. There’s an investment in it of course, but the return that a contractor will get from one technician over that period, you’re talking about a return that’s so many multiples it’s hard to imagine.
What’s a good technician going to bring you on a regular basis? Then look at your gross profit margin and that’s your return from adding that guy on a marginal cost, marginal revenue basis.
We don’t have the banner up yet. Right now you would have to be a member of the Roundtable and if you’re in the alliance you would know about it. We have not begun marketing it to the Roundtable on the whole at this point. That’ll be soon.
Todd Liles: The next question is from Eric Kjelshus at Eric’s Energy. He’s asking,
I know it might greatly depend on marketplace, your best answer with limited information.
Matt Michel: 10% is a number for growth. If you’re really aggressive about it, the retailers will spend upwards of 20%, and you just build it into your pricing. It just becomes part of your cost of business, but 10% is a reasonable number for a lot of guys who want to grow modestly. If you want to grow aggressively you’re going to need to even be higher than that, but most contractors are down to the 2% to 3% range.
I’d take getting more of them to 10%. Where to spend it? It’s interesting, you have go to make sure your social media program is working. If you are going to hire a third party to run it for you, it needs to be a local company who becomes intimate with you and it’s almost like their employees, that’s okay.
Turnkey, cookie cutter, out of the box social media is not going to work because you lose the human voice.
Todd Liles: Oh my gosh, I tell so many people that same thing, Matt. People spend a lot of money, like $3 grand a month, for folks to write a blog a week and post on Facebook. It’s cookie cutter, bland, and repetitive.
Matt Michel: Yeah, for that you could hire an entry-level journalism PR major and have that person learn about your company. They’re already trained in social media, they can write well.
I just wrote about this in Contracting Business. But here’s where I think that the future direction of the industry is heading. I’ve seen this with multiple companies in the Service Nation Alliance. Whether they call this a community engagement manager or a business development manager or some other title, they’re starting to spend marketing dollars on hiring a person whose job is social media. Whose job is to go out and do the networking because contractors are notoriously bad about it because they don’t like to do it.
This is the person that goes out and goes to rotary, goes to all the chamber meetings, and gets involved in the community. Just doing those things drives leads, but there’s more to it. You’ve also got this person managing the online reputation, and the review process by personally following up with customers. By getting them to post online reviews, and all of this put together is huge.
The companies that have been investing in this have found that this is making a tangible difference for them. Now, beyond that where would I invest the money? That question depends entirely on the market. If I’m in Dallas, Texas, I am probably not going to do radio if I’m not prepared to cover the entire metroplex because most of the money would be wasted.
Same thing for television. I might do cable because with cable I can target to my service area. The advantage of broadcast is you can get to a lot of people for a relatively small cost per person. The disadvantage of broadcast is you’re going to market to a lot of people you don’t want to serve.
If you’re driving 20 miles or 30 miles between calls your service area is probably too large, unless you’re an extremely large company. Then I would turn to direct marketing. You’re talking direct mail. Yeah, direct mail can be expensive, but I can control where it goes. I would certainly invest in affinity marketing. Again, this is where you have a business development manager that can help do that because affinity marketing is time intensive, although it’s not expensive.
That’s where you market to a group that has a common affinity. An example would be the PTA or a Homeowners Association. You get the leadership in that group to promote your company and in return every time you do a call to their constituents you make a donation to them, $10 a service call or something like that.
Todd Liles: Okay, great idea.
Matt Michel: It’s easy. It’s a powerful endorsement. We’ve got contractors that have the school districts sending out newsletters to all of the teachers and students that are telling them to use this guy’s company. Every time you do that, and you tell them you’re with the school, they’ll make a donation. Who wouldn’t do that?
You can do it with churches. The sanctuary agreement created 25 years ago still works. The other thing when we’re talking about marketing that’s critically important, and there’s some expense with it, but I think is way overlooked and under recognized in the industry and that’s vehicle marketing.
A good truck ID program can drive the brand awareness of a local contractor far higher than any brand of product that he sells and contractors don’t realize that. The case that I always use to try to explain it is what do you think of when you think of DHL? Eventually somebody in the room will say big yellow trucks and they’re like yeah big yellow trucks.
That’s about all DHL does for marketing. At one point they did some television, that’s when they first launched in the US and that was decades ago. All they’ve got is big yellow trucks and yet they’ve got brand awareness at 65%.
By comparison, the best brand awareness of any HVAC manufacturer is 30%. Just think about that. Trucks versus a company that’s in Home Depot, and who’s got the better brand awareness?
Todd Liles: That’s amazing!
Matt Michel: A contractor with a good truck ID program can drive their brand awareness high.
Here’s another one. Do a program where you’re renting a yard. Give the homeowners a $10 discount on a service call to put up one of those $5 throwaway political type yard signs in their yard for a month.
For $10 off you agree to let this stay in your yard for a month. Some will do it and some won’t. Most will and you put it up after service calls. So now you’re magnifying your brand presence in that neighborhood. You become the go-to company. Little things like that are not terribly expensive, but they can work well.
When we talk about a good truck ID program we’re talking about a minority of contractors. A good truck ID program typically does not involve a white truck. It’s a strong bold logo that’s clearly recognizable. There’s some unique selling proposition on it and a web site.
If you go to the free stuff on the Service Roundtable, and anybody can do this, there’s several things on how to do a truck ID program and how to have a better designed truck. I won’t go into all of it now, but you can go down there and download it. It’s free and there’s one that’s call Truck Evolution. It’s the evolution of the Jerry Kelly trucks. They’ve just taken another couple of steps on that, so I really should go back and update it.
There’s another one on how to enhance or improve your mobile market.
Todd Liles: Very good. I’ll provide a link to the all of the Top 10 Freebies in this interview.
The next question is from Sara Tromp of The Super Plumber. They’re new alliance member, and they’re one of my clients as well. She asks,
Matt Michel: Not knowing their numbers or as John LaPlante would say “Not listening to your numbers.” Cash is related to not listening to your numbers. Cash is not just king. Cash is king, queen, and the entire court. The cash is everything. There was never a company that closed because they still had cash in the bank.
You don’t go out of business over profitability, you go out of business over a lack of cash.
Todd Liles: That’s right.
Matt Michel: To manage that you’ve got to manage the numbers. You’ve got to be able to see what’s going on. You’ve got to follow the trends. The state of most contractor P&Ls is it’s not advanced enough to be ridiculous or poor. Most contractors don’t even have even P&Ls.
I think their CPA files something for taxes and that’s about all they’ve got. They’re running their company based on what’s in their checking account.
Todd Liles: All right, here’s the last question, and you probably are prepared for it, you may not be, but Liz Patrick (of the Service Roundtable) challenged me to see if you would share your raspberry salsa recipe. I said I’ll take a shot at it.
Matt Michel: I could share it with you, but it would not turn out.
Todd Liles: That’s what I thought. You’ve got to know how to cook it properly right?
Matt Michel: Yeah, just knowing the ingredients isn’t enough.
Todd Liles: Okay, I bet I could guess at the ingredients. Tomato, onion, raspberries, maybe a little jalapeño? (Pause. No answer.) Is that a pass on that one then?
Matt Michel: That’s a pass on that one.
Todd Liles: All right, we’ll take it. We’re going to take a pass. All right, that was officially everything that I wanted to ask you and the people that read this will really appreciate your time. I know I do, Matt. Thank you and I’d like to end this to see if there’s anything that I could do for you to return the favor?
Matt Michel: Maybe you could do a webinar for the alliance members some time.
Todd Liles: That’d be great.
Matt Michel: Okay. All right, sounds good. Thanks, Todd.
Todd Liles: Thank you. Take care.
Matt Michel: All right, bye.
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