Building out your BAS team for growth is one of the key factors for success
Having people in the right roles at the right time will give you the ability to flex with your customer's needs and to address new potential work opportunities.
In this episode, we are going to discuss how to structure your BAS Team.
We are going to look at $1M, $10M and $50M in revenue
We are also going to look at structuring for Construction (we will cover service in the next episode), when to separate teams, and how to position for scale and growth.
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Resources mentioned in this episode
Show notes
Phil Zito 00:00
This is the smart buildings Academy podcast with Phil Zito Episode 217 Hey folks, Phil Zito here and welcome to Episode 217 of the smart buildings Academy podcast. And in this episode I will be talking through how to structure your building automation team. So this is going to be another one of our episodes that is focused more on the managers and owners of controls businesses, as well as people who are trying to move into management at a controls business. So all of you technicians out there who messaged me asking, Hey Phil, how do I move into management? How do I get a leadership role in building automation? Well, this is going to be the episode for you because this is one of the most important things and concepts that you need to understand in order to drive a successful business to growth and profitability because you can grow and not be profitable, and you can be profitable and not be growing to achieve both is a very important thing. And it's not that hard to do once you learn how to do it and the steps required to do it. I know I say that and folks are like, I'm trying to grow my business and it's not growing. And I will tell you, there are a couple key things that you can do that will really impact that. Before we dive into Episode 217. I do want to remind you that for those of you listening today, today is the last day to take advantage of our construction season closeout discount, so you can save 20% off the MSRP of our courses by going to course dot smart building academies.com. All right, I had to think of that I want to give you the podcast URL there did I want to give you the store URL Also smart buildings Academy, podcasts and today's podcasts are all at podcast dot smart buildings Academy calm. And in this case podcast smart buildings academy.com forward slash 217. All right. With that being said, let's dive through how to structure your VA s team. Now building out your VA s team for growth is one of the key factors for success. There's other key factors for success like proper training of your team, proper talent management, making sure that you keep people on your team and they don't quit and go to someone else. Their sales strategies picking the right vertical market to serve, making sure that you have ways to capture increasingly more share of wallet from your customers. But all of that depends on having a properly sized team and having a properly staffed bench of talent in order to flex with work as it comes available. You know, we recently added countered this with the Coronavirus issue. There are a lot of people who are heavily invested in the construction market and they didn't have a robust service solution. And because of that, when all of the construction projects started to close down, they had to let people go or put them on furlough. I mean, the more ideal is furlough, so you keep them technically employed with you. But they had to go and reduce their team. And then when the economy started to open back up, and all this backlog, needed to be executed, they didn't have the team members to execute, whereas the people who had a service organization were a little bit better positioned to go and have something for their people to do especially if they were serving central businesses. Then they could go and flex their people into a different area, and then pull them back to execute backlog. When the construction world started to open back up. So having people in the right roles at the right time is going to give you that ability to flex with your customers needs. And it's also going to enable you to address new potential work opportunities, which is really important as you're starting to grow your business. And we're going to look at how to create a team structure for 1 million 10 million and 50 million in revenue, kind of the three thresholds that people seem to get stuck at, because they require different business structures. They require different processes and different procedures. But in order for you to be able to flex into those revenue targets, you are going to have to have structure and you're going to have to have things set up. So the first thing we need to explain are what kind of roles exist
Phil Zito 04:47
so we're going to look at structuring for construction, and we're going to discuss service in our next episode. So in Episode 218, we're also going to be looking at when to separate our teams and we're going to Look at how to position our teams for scale and growth. But we really need to understand like I said, what roles exist and on the construction side, we will have an admin this person is usually like 50% billable to projects and then 50% billable to overhead. They're handling parts orders Billings, etc, etc. And then we have installers. This is something that is I don't wanna say controversial, that's way too strong of a term. But installers are a role that some people have them, some people don't. And it really depends on how your market is structured. It depends on how your competition goes to market. It depends on the risk that you're assuming based on what type of verticals you serve. It depends on how aggressively you want to grow your revenue. Be all of those will determine whether you have installers who do electrical installs And wiring. Or if you sub that out, I'm of the mind personally that I prefer to sub out electrical work, I tend to find that risk associated with electrical work can be high and because of that I like to pass that risk on to subcontractors. Now whenever you pass risk on the subcontractors you're going to pay through pay for that through Mark margin degradation if I can speak today, and margin degradation What that means is because you are paying basically for an installer but then you're also paying for the profit. On top of that, you're going to reduce the effective margin that you can have the executed margin that you can have in a project and then your revenue stream. Then we have technicians these are the folks who are usually doing Point to Point check out uploading controllers setting up front ends, configuring graphics, etc. etc, we have our designers, this role is typically for creating submittals as well as as builds as well as functional tests, and point to point checkout documentation. Then we have our programmers, these are the folks who are going to create programs that are going to then be rolled out to the field. And then we have our project managers. And these folks are typically responsible for the execution, both the project's operations as well as the projects finances. So from kickoff to close out, they're involved on the service side. It's a little simpler. We have admins, we have service technicians, and then we have senior technicians. I mean, that's usually how things are structured. Because as we'll see in next week's episode, service work is much more fluid. It's much more variable. It is not as process driven. That's why very early on in a business, it is easier to do construction work and To set up the processes to execute construction work, the problem with construction work is it is capital driven, it's cyclical. And it is harder to build predictive, Predictable Revenue Streams that are high enough margin to support growth off of construction alone. But also, problem is is the technical aptitude, the processes and the skill to execute service work is usually higher due to the troubleshooting nature, as well as due to the variability of service the unpredictable pneus. So you often have to have higher cost employees for service and you have to have higher skilled employees for service. That's why you typically see folks starting construction and either move down that path towards a program or project manager or they switch over to service it really depends. If they want something different every day or if they want the predictability of construction alright so first thing we're going to look at is 1 million in revenue This typically equates to 10 to 20 projects over the course of the year the typical project size being 50,000 to 100,000 now throughout this episode we're going to use some round numbers there are going to be some things that are geography specific whether you're in a metro or if you're in the suburbs or if you're in rural project size obviously will flex amount of projects will flex margin will flex costs will flex, so please don't email me telling me well our average projects is 10 mil ers 10,000. Okay, that's fine. That is working for you. But I will say on the
Phil Zito 09:47
macro level, this is what usually plays out across the board. Are there exceptions to this? Absolutely. Nothing is exactly the same, but these are good guiding numbers. And principles for what you should be expecting to do at that 1 million revenue mark. So 10 to 20 projects, usual project size is 50 to 100,000. That means you're most likely doing commercial real estate, you're doing some school district work, stuff like that may be some buildings on a college campus. You're kind of starting to push that but definitely most likely not healthcare unless you're doing like an M ob, and most likely not corporate campuses. This is usually plan and spec work. Its margin is anywhere between 12 to 15%. And I want you to pay attention to that that is one of the biggest barriers to people getting out of the $1 million revenue area besides for the fact that they're usually executing everything themselves. But what is usually going on, that stalls people in this 1 million revenue number is their margins tend to be low, because they're going after smaller projects that are Ready have low capital investments, and also are usually planning spec projects. So you're usually a third tier contractor. So the margin erosion, as you are separated from the owner obviously grows, the further away you are from the owner, contractually, the more your margin is eroded because there's going to be margin added to your quotes and so thus you can not get as much margin. A lot of people tend to complain, they're like, man, why do we get you know 12% margin from our controls contractor, but then we get, you know, 40% margin and service Why is why is the cost difference? Well, in reality, if you really follow the money and you look at what is going on, when you have that Mergent stacking, you can be up to the 20 30% by the time all the margin Get stacked on top of that cost, because it kind of just gets buried in there. And so the service work, yes, it is higher margin work. I agree because it's direct to owner. And it's usually dealing with a more immediate pain that impacts business functionality. That being said, just because you see construction work for a third tier contractor at 12 to 15%, does not mean that that's what the owner is seeing. And that's what's hitting the budget of the owners project. It's usually higher than that once all the margin gets stacked on top of it. One concept I want to talk to you as we move through how to structure your team is the principle of thirds. And it's the principle that on most projects, a third of your cost will go to subcontractor a third of your cost will go to labor, and a third of your costs will go to material. Now what that means is that if we do the numbers, right, if we say we have A million dollars of revenue, and it is 12 to 15%. So let's just say 15%. I'm gonna pull up my calculator here. And you know, we type in 1 million, and we times it by point eight, five. And that should give us 850,000. We divide that or we multiply that times point three, three, that should give us 280. So 280 K, we divide that by 2080, which is 40 hours a week across the period of the year. And that gives us $134 of cost that we can allocate to labor. And as we look at that $134 of cost that realistically comes out to be about one to two tax and usually one of those texts is the business owner, because million dollar business is usually not always sometimes this is a controls group that was started by mechanical, but it's usually a controls tack, or some controls professional who decided they got tired of working for a company and they want to start their own business. And they're gonna run some projects with some customers they have relationships with. So that gives you $134 of cost, right of burdened cost, that you can go and pay your technicians and yourself. So what that usually comes out to is 122 tax. One of them is usually the programmer, the other is usually going to be the technician slash setup person. And if you're using
Phil Zito 14:42
the rule of thirds, and you've got a third allocated to the subs, then you're not going to need an installer. That's what I recommend personally when you're growing this if you can float it with your cash flow. Sometimes you can't because often it's paid unless you get paid when paid contract that ssible except, then you're going to have trouble funding your subs. So you're going to need cash flow to fund them. But that being said, if you have the sub then it's usually just technician work and programming work, and not very much project management work. So you're looking at 10 to 20 projects across a period of a year, you're looking at 40% of those projects probably hitting during summer, and the rest of them just hitting across the period of the year. Sometimes that flexes to 60%. If you're dealing a lot with K through 12. But usually at a million revenue, you're not really doing a lot of K through 12 work, you're mainly doing commercial real estate work. Now, obviously with no one building buildings right now, or the construction being limited except for the existing funded projects. This is going to be a hard place to get out of if you can't find a way to shift to other work and this is going to kill a lot of Start up building automation companies, because they're going to be stuck in this 1 million revenue mark, they're going to be highly dependent on commercial real estate for their work and plan to spec work, and no one's going to be giving them that work. And it's going to become increasingly rare for that kind of work as we go on, at least at the time of this recording, which is August 31 2020. Now, let's say you're in the 10 million revenue mark, this is anywhere from 20 to 50. projects, typically, the usual project size increases or it should increase to 200,000 to 500,000. You should be stepping out of that plan and spec starting to move towards more design, build or design bid build. Maybe still a little plan in spec, but what you really want to be driving towards is maybe some regional health care work, maybe some corporate campus work, maybe some major retrofits, maybe some larger scale. school districts, high schools etc. and really be driving your project size larger, the larger the project size, the easier it will be because your cost of sales, your effort of sales, largely at this area is going to be the same for 20 projects as it is going to be for 50 projects. So if you close 20 projects that are 500 grand and you hit that number, or rather, let me restate that the cost for a cost of sales that cost of pursuing a sale for a $200,000 sale is going to be just as hard as a $500,000 sale is what I meant to say. So at this point, typically, your 2.8 million, using that rule of thirds is what you're going to have of that 10 million to allocate towards labor. Now this is typically at a margin of 15 To 18%, so you're gradually increasing that margin slightly as you move up to that higher level work. And you're now going to start seeing a dedicated project manager, you're usually one branch office at this amount of revenue, you're going to see one to two project managers. They're going to be responsible for managing the actual projects, the cash flow, the Billings etc. And they're going to work with an admin who does that. You're gonna have one designer who's responsible for all of your submittal generation, one designer should easily be able to handle 20 to 50 projects going on across a period of a year. I mean, that comes out to be about two to five projects a month, which if you have some middle templates, you can knock those out pretty fast. You can also go and sub out some of that designer work if necessary, but I don't recommend it. I really recommend building up a template library, which by the way you should have been doing at 1 million mark. One of the barriers to growth at the million mark is people not building up program templates, graphics templates, submittal templates,
Phil Zito 19:08
not starting to establish relationships with their customers and being like, hey, if we're going to repeatedly do work for you, let's create some templates so that we all can be more efficient. And that's something you really should be considering. Also, at this point, you'll most likely have four technicians, I'm still assuming that you're subbing out your install. Obviously, if you're not subbing out your install, that changes the numbers quite a bit. But my experience is at this project size 200 to 500,000. That's a gigantic amount of risk if you are doing self install. And I would highly recommend just using technicians and subbing out install and then getting your panels done by a distributor that builds panels. That would make life a lot easier. Alright, moving right along into the $50 million mark. This is where you most likely have multiple branch offices. This is typically 50 to 200 projects, average project size is 250,000 to a million dollars average margin is 15 to 22%. You're starting to get into more of that owner direct work, you're starting to be able to influence owner design. Starting to get more collaborative, you now have about 14 million of that 50 million of revenue that can be focused on your staff. Now what that means is you typically will have multi office, so at 50 million, it's typically 10 million per office right about so each office would still have that kind of stack of one to two project managers. Obviously this is going to flex depending on if you're dealing with like a Houston or Chicago or New York which are large metropolitans they're gonna have different office sizes, than if you're dealing with you know, a suit smaller city. That being said, the rule kind of plays out that for every one to two project managers, you're gonna have one designer, one programmer and for tax that's a really nice stack that you can have for your team. The designer can typically as I mentioned, handle 20 projects, 250 projects depending on when the project's hit, and depending on whether or not you're using templates. So my hope for you having gone through this episode is that you have an idea of where you are revenue wise. This gives you an idea of how companies are typically structured and the strategies they take to grow. And it gives you an idea of where you need to start positioning your team as far as talent development, and recruiting and building out a bench in order to grow towards your revenue goals. I encourage you to reach out in the comments at Pog cast out smart buildings academy.com forward slash 217. I encourage you to ask anything you want clarification on there. Also, if you are looking to build out your team, then definitely reach out to us. We provide quantitative skill assessments that will help you determine exactly what people on your team know and what they don't know. So that you can have a managed talent and development plan for your team. And we provide turnkey training solutions that enable you to close the gaps identified by that assessment. And then we validate the training with a post assessment that ensures that knowledge was retained and that there was impact to the profitability of your business. So I encourage you to reach out to us at smart buildings Academy comm to learn more. Thanks a ton. Please make sure to take advantage of our construction season closeout discount by using coupon code au g 2020. At our storefront when you checkout out. We don't offer discounts very often, so I encourage you to take advantage of this. Thanks a ton for listening and I look forward to talking to you next week when we discuss how to structure your service team for growth and success. Thanks ton and take care
