In this episode, we discuss how to use capital planning to help supercharge our BAS sales.
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Phil Zito 0:00
This is the smart buildings Academy podcast with Phil Zito episode 315. Hey folks, Phil Zito here and welcome to episode 315 of the smart buildings Academy podcast. And in this episode, we're going to be talking about capital planning and answering the question, is capital planning the ultimate path to sales success? I mean, that's a pretty leading question. So you could probably guess to where I'm going to lead this conversation. But welcome all of you. So let's talk about capital planning. For those of you who don't know what capital planning is, I've talked about it in a couple past podcast episodes, but capital planning is the act in which a company or organization plans, their capital projects. Now you may be okay, great, but what is a capital project? What is a capital budget? Well, there's no necessarily defining factor at which something switches from an operational budget to a capital budget, there's no like monetary limit. For some companies. It's large, some companies, it's small. But what I tend to see in regards to capital versus operational budgets and capital versus operational projects, are that operational budgets and operational tasks, they reoccur pretty much every year, so our facility staffing or maintenance costs, etc. Whereas capital costs tend to be one time events, they don't tend to reoccur every year. So if you're trying to sell analytics, you're selling to an operational budget, not the capital budget. That is, by the way, one of the mistakes people make when they try to sell things like analytics, they try to sell to people who hold capital budgets, but do not hold operational budgets, and then they wonder why it never gets approved. But with that segue aside, let's talk about these capital budgets of capital projects. So capital budgets and capital projects come about as part of capital planning. Now, capital planning is typically part of a five to 10 year capital plan, what will happen and one of my favorite places to go to look at Capital Planning and see really good examples of it, are the universities. So if you ever want to understand how capital planning happens, if you want to potentially provide one of your customers with a capital planning template, which is something I will suggest later in this podcast episode, that could be beneficial for you from a selling perspective, if you're ever trying to figure that out, one of the best things you can do is you can just type in site colon.edu, capital planning. And you will see a bunch of things pop up right site colon.edu. This isn't Google search. And that, by the way, if you don't know how to use Google primitives, or Google dorks as they're called, then what you need to do is learn that because if you're in sales, and you're doing any form of research, on an opportunity, which I've done, quite often, when I would do capital projects, when I would do major projects, large, you know, 510 $20 million projects, I would go and use Google primitives to search for information about the project, I would know the site, I would know, kind of the name of the project. And these primitives can help really narrow down the Google results, which then can give you some really interesting information. And I remember I'd be sitting, you know, with some of the sales team, and they'd be like, how do you know this? How do you know this about this customer, and it's simply because of using those Google Search primitives. But as I type in site colon.edu, space capital planning, for me, the first thing that pops up is capital plan templates, University of Wisconsin System. And if I click on that, what I'm going to see is kind of a whole web page dedicated to capital planning and it gives you a really good snapshot of how capital how capital planning goes, basically what happens is there is a capital planning committee typically, and this committee will accept submissions from the in the capital planning process, and these submissions will be evaluated. And then based on several factors, different projects will be approved or denied and will be added to the capital plan and prioritize accordingly. So if you ever want to figure out how do I get my bas project kind of ramped up and really go
Phil Zito 5:01
and kind of in to a budget, that maybe it wasn't in before or you're like, hey, I really want to kind of figure out, how can I solve someone got a $50 million grant, how can I take advantage of that the capital planning process is usually part of that. And this stretches across universities K through 12, with all of the federal grant money they're getting right now, public sector, if they get, you know, bond money, local, public companies, as well as private companies, they all typically have a capital planning process. Now, if you've followed our podcast for any amount of time, you know that my philosophy on selling, especially if you're new is called the circle approach to selling which you basically draw a circle around a Metroplex. So like Houston, Dallas, Los Angeles, whatever. And usually within 10 to 20 miles of the epicenter of that circle is going to be the point at which major OEMs and system integrators stop pursuing customers. And that is a good beachhead, to establish a base of kind of sales operations for a new sales rep or a new systems integrator. And what you do right is you go about kind of establishing that beachhead. And one of the things you'll realize as you start to serve customers, and the suburbs and rural communities is their capital planning processes are weak, to limited to non existent. So your ability to literally go like to the University of Wisconsin System, copy their templates, change them to fit your needs, and then deploy those templates to your customers, you are essentially providing them a capital planning process that they may not have had before. And when you are able to provide let's focus in on K through 12, through first second, a capital plan to the school board and to the superintendent, you are more likely to get selected and get your project approved, and be ahead of the game. Now, unfortunately, with most public work, you're still gonna have to go through the bid process. But if you're the one setting the standards for the specifications for the capital projects, you can definitely set them in your favor. And that can be perfectly legal. As long as you're not like flat specking yourself, things like that. But a capital plan. Alright, it's gonna start with several things. So if you go to a site that I'm going to link into the chat, just don't leave the video. And I'll link this by the way, if you're listening to the podcast, down the road on like our site, I'll link this at podcast smart buildings Academy comm forward slash 315. But if you go to the site, it's one of my favorite sites to refer to whenever I'm trying to explain capital plans, whenever I'm trying to execute capital plans, because it has so many deliverables that you can use. So you can click in on it. And when you click in on the image that's kind of on the center of the page, you're going to be able to see like all these different documents that this plan has. And throughout this webpage, that I linked to you there are going to be links to each of these individual documents. But you'll see right, there's a project priority sequence summary and chart. So that's typically where projects that have gone through the capital project request process, have then been budgeted, and have been approved by the Capital Planning Committee, they then are going to go into this priority sequence summary chart, and then are going to basically start to get executed. And you're going to see that the prioritization of projects is going to move up and down, up and down, based on whatever key metrics are trying to be achieved by your customers. So if your customers focus on IQ, then projects with IQ outcomes are going to most likely be a higher priority, if they're focused on energy or, you know, carbon reduction, or tenant engagement, tenant retention.
Phil Zito 9:25
That's a very important and we talked about this in multiple episodes now about really understanding the key metrics that drive business success for your customers. Because when you understand those key metrics, and how they drive business success, then you're going to understand by which measure the projects that you input into a capital plan are prioritized and accepted. Additionally, the project budgeting worksheets This is where if you think back a couple episodes, we talked about working with utilities, retro commissioning utility incentives, I just mentioned to you how in K through 12, there's still a ton of investment money from the government that you can utilize. So understanding these monetary sources, that can be seen as a way to offset your cost in your budget worksheets. So if you're able to do that, you can actually bump up your project as well. So that's another kind of trick to bump up your project is by going and actually finding funding sources. And this is something you'll see a lot of the large OEMs do either through an ESCO, an energy savings company, or through like, some sort of p3 public private partnership approach, where they find you know, private investment, to basically provide a funding vehicle for the project execution. So the nice thing I really like if you were to scroll down from that image, and I know some of you are listening to the podcast. Basically, like I said, Go to podcast, smart buildings Academy calm for slash 315 When this podcast is posted, I mean, if you're watching YouTube, right, now you're watching it. But if you go to the podcast page, then you'll find a link to this web page that I'm referencing. But if you scroll, scroll past the submittal guide, you'll start to see where they call out, you know, Project solutions, Project priority and sequence documents, template documents, project budget worksheet documents, and they have them in all sorts of forms. So I'm a big advocate, you know, back when I did a lot of systems engineering, integration engineering,
Phil Zito 11:39
I was a big advocate of, you know, don't reinvent the world world, don't reinvent the wheel. Don't reinvent the world, either. That's quite an undertaking. But don't reinvent the wheel, because there's most likely what you're trying to do is out there. And from a capital planning perspective, you can see everything you would be trying to help your customer do is out here. So we've got this project committee, they're going to evaluate a submission, right, so that submission is going to come through in the form of a capital project request. If that request is, you know, approved, then they will move that request into the priority and sequence chart. Now attached to this project request, if we were to actually open it up, if we were to open up the guide or sample document, you would see that there's all sorts of information. There's project type, right? There's priority, there's a project intent, and description and scope. This is basically a project narrative if you've ever done project management. So you'll have that information, you'll list out some important details, given analysis of the project justification, alternatives, and project budget. And then you'll go into remember how I mentioned the funding, you'll see that in this funding source checklist, this project schedule, fee and rate impacts, etc. So you're going to see a lot of information that's going to be requested. So you can imagine, right? Put yourself in the schools of like empty swamp Independent School District in the middle of nowhere. And they're sitting there trying to plan out their projects, they probably don't have all of these resources. And if you're able to bring this kind of resource to them, you're then able to guide the conversation, potentially work with the local utility to get some rebates potentially help them to get some bond funding, and you literally are going to create your own work. Now, this is not something I would use for, say, a $50,000 project $100,000 project, I would just go owner direct, I would sell to them via how I told you all to do in a previous episode on owner direct selling. But if you're looking for $500,000 Plus projects, if you're looking for you know, million dollar projects, big capital projects that you want to execute, this is a way to get those created, because oftentimes, these projects are planned several years in advance and if you're able to be part of the project team. Granted, as I've mentioned in previous episodes, I always feel like I'm saying I mentioned in previous episodes, I hope you all are listening to the previous episodes. But as I've mentioned in previous episodes, if you are going and working on public work as a potential consultant or design partner, just be cognizant of the contracting laws and how that may preclude you from actually actually executing the work. So just be aware of that. Understand that. It's not always the case, but it's sometimes the case and you would hate to put in all this work and then not be able to execute it. That being said, I've seen plenty of times when you're able to put in this kind of work. work, and either through creative contracts or through creative procurement, they're able to sole source you. So be aware of that. And definitely use that to your advantage. Alright, so let's get a little tactical, on how we would deploy capital planning to a customer now that you kind of understand I feel like you understand what it is, I feel like you have a good grasp on it, how would we actually deploy this? Well, what we would do is we would first target a customer who would be a good fit for this, a good fit customer is going to be one with aged infrastructure, or rapidly expanding tenants stoon It patient base, right, maybe if we're in healthcare, so you're in a demographic and in a geography that is expanding the like, for example, I live in Prescott, Arizona, there are like no medical services here. And there's no housing here. So we have a a demand that is much greater than the capacity, right? So that's what you're looking for is a vertical market in which demand is greater than capacity for some reason, or infrastructure is not able to meet a critical mission. So for example, in the educational space, you're at, like Yale, and I don't know what Yale University does, but I'm just using their name here. So got no association with them. This is just an example. But you're actually probably not even use now, where you're at ABC University, and ABC, hopefully, there's not an ABC University. You're at ABC University,
Phil Zito 16:38
and this university's student housing is absolutely crap, right? It's crap housing. The air conditioning doesn't work. The pipes are busted. You know, it's almost like slum housing, basically. But this is a super prestigious university. Parents pay a lot of money for their kids to go there. One of the parents who like his big donor comes visits and is like, holy crap, my kid is going to school in a dump. There's then makes a big stink about it. Well, guess what now just became a major priority. When donors and people like that start to get upset. Yes, student housing, right. So there's going to be a student housing capital project. So if you're able to pay attention to vertical markets and customers, and understand like, Okay, that's a pain point, or a K through 12, right? Maybe you're in the Dakotas, when the big oil boom, hit, and all these people are working, and they're bringing their families out there. And the schools had to rapidly expand, they had to build new schools, because they had all these kids, and they're having to use trailers. It's actually a really interesting news story, if you don't read up on it. They're using like trailers and everything, to try to keep up with all the families that were moving to the Dakotas during the big oil boom. So guess what, what would be a good capital project and probably a quick hit capital project, a school expansion, right? going and building new schools? So guess what, if you're able to help people do capital planning there, you're able to meet a need. So I hope you're kind of the wheels are turning here, and you're starting to look at your geography and starting to say, Okay, we have a shortage of this, or this is degrading, or this is an issue. And based on that, then you can go to those people. And you can help them either by stepping into their capital planning process and understanding, based on what we've discussed so far, the terms like are they in project requirements? Are they in budgeting? Are they in just needs analysis? Where are they in their capital planning project, so that you can step into that. Additionally, if they don't have a capital planning process, then you can also step into that as well. And you can start working with them on developing and deploying the capital planning projects. So my hope is that by hearing that you are doing phase one, you're starting to make a list of customers, you could potentially bring this to. Alright, so phase two. So now we've figured out who we're going to go to, we need to figure out where they're at in the capital planning process. Do they have a capital planning program? Or do they not? If they don't, then you know that they're probably nowhere in the process? In which case we have to start doing our basic sales questions. Do they have funding? Do they have an interest in a process? Who makes the decisions? What is the process of setting this up? What is my opportunity cost to potentially try to deploy this to a customer base? If I have, you know, 50 customers who want service work, versus three customers who want potentially a capital plan, but they don't even have a capital planning process? I may lean towards the service work. But if there's a lot of potential growth in a community, and people need to plan that growth, then And I'm going to be steering myself towards those from a opportunity cost perspective. Now, if they do have a capital planning process, then you need to understand where are they at in this capital planning process? And how do you determine that? Well, if it's public sector, then it's usually disclosed. And they will have terms like we are in this phase of the capital planning process. This is, you know, we're in budgeting phase, we're in Project submittal phase, we're in Project analysis phase. So understanding what phase they're in, and realizing that people can be in multiple phases at the same time. So for maybe their high school campus, a school district may be simply in the budgeting phase. But for their elementary school, they may actually be in Project prioritization, or project execution phase, from a capital planning perspective. So understanding what phase they're in. Alright, and then step three, this is going to be our final step, we're going to go and engage. So if they do not have a process, and we've evaluated the opportunity cost, and we've determined that it makes sense for us to engage, then we're going to go and engage and help them build a capital planning process. How do you determine that
Phil Zito 21:16
I typically look at if I were to hit the lowest likely clothes on this organization based on their historical project expenditures? Would that be worth it to me? So if historically, they've spent somewhere between a million to $20 million on capital projects, then I'm going to say, if I were only to hit a million dollars, would that be worth it to my business? Okay. And so then you're like, Alright, no, that may not be worth it to my business, because I have all this plan and spec and owner direct work. Or you may be like, Yeah, that would be worth it to my business, because I'm just getting started. And, you know, I've got some plan and spec work. But this is something I can work on on the long term and do some, like part time working on it. So that is something I would evaluate. Additionally, we have to go. And once we've evaluated whether we want to engage there, we also step three, right? We figured out where they're at, we have to engage, we have to go and step into it. That may be like getting them funding from utilities, bond funding tax funded, or, you know, whatever that may be going in helping them review projects submittals that may be going and actually submitting some potential designs and suggestions. My only caution to you is be careful in what you give away for free without a project development agreement. Ideally, you would have a project development agreement, anytime you engage with a customer that is, hey, if you use us, then you don't pay for anything. But if you choose not to use us, then you pay for our engineering costs. So that would be a way to reduce my cost of sales, as well as to make sure you get some revenue from your efforts. So that is something I would consider almost every time I engage in a capital planning or owner direct process. Once you've done all this, then it's just basic salesmanship, right? You're just gonna go and work through selling understanding customer pains, building those pains into actionable desires that the customer is then going to say, Okay, this pain is so much I need to take action on it. And then you're going to address you know, any blockers, any influencers, you're going to address the technical and economic decision makers know all your basic sales 101 stuff. Alright, folks, I hope you enjoyed this episode. I hope it gave you some insight into capital planning. I firmly believe that it is a great way to make money and solidify yourself in a marketplace. It's not the only way. There's definitely many other strategies. But this is definitely one of them that I would use if I were trying to start a controls business. So thanks so much for being here. As always, everything will be available at podcast smart buildings academy.com Ford slash 315. Once again, that's podcast us smart builders academy.com For slash 315. Thanks so much. And I look forward to talking to you in our next podcast episode. Thanks a ton and take care
