200 to 400 Doors: The Profitable Path and the Expensive One

Pete Neubig: All right, welcome everybody to our webinar. We're going to get started in about a minute and let other folks join in. I see some new names and some old names, so thanks for being here.

We have Phil Mazur, CEO of The CFO Mission. He's a fractional CFO. Now that we're getting near the end of the year, we've started to bring on all of our partners who are the financial guys, and at the end of the year we'll have my personal CPA, Chris Picciurro, talking about year-end tax strategies.

Today we're going to talk about 200 to 400 Doors: The Profitable Path and the Expensive One. Phil, I wish I'd had this about 10 years ago, because I can promise you, I took the expensive path when I grew my company.

Phil, I'll let you start from here. If you have questions, feel free to use the Q&A or the chat. They're both open. I will rudely interrupt Phil and ask your questions. All right, Phil, the floor is yours.

Phil Mazur: All right, thanks, Pete. I really appreciate the opportunity to speak to everybody today. I'll chit-chat for a minute or two while people are still logging in to the webinar. I'll start by recommending Chris Picciurro, the CPA, for later this year. I use him as well. I've known him for several years, and he's been my CPA for probably the last 5 or 6 years. It is year-end. I've already sent him my information, and I have a tax planning call I need to get scheduled. He keeps sending me reminder emails, but I will get it scheduled.

I'll get into what I do a bit more throughout the webinar, but since you mentioned taxes: I'm not a tax person. I'm not a CPA. I'm trained in accounting and finance, but I'm a business person. I love business, and I love numbers. All the experience I'm going to share with you today comes from working in business. My company does accounting and bookkeeping, what I would call operational accounting, which means I don't have to be a CPA, but I do get the numbers prepared for the CPA. My main role, though, is to get them prepared for people like you: business owners, executives, leadership-type people, so that you understand your numbers. I like to tell people that your numbers tell a story, and my job is to make sure you understand that story. So I'm going to tell a story today. It's hypothetical, but it's based on my experience, which I'll talk about in just a second.

As you have questions, like Pete said, drop them in the chat. I'm happy for this to be interactive. My presentation is not super long, so I want to leave enough time for you to ask me questions. I don't know who's all property managers and who's not, but the same things I'm going to talk about for property managers apply to really any small business. We do work with other industries, though primarily we're in the property management industry. So I'm going to jump in. Let's go.

Today's story is titled 200 to 400 Doors: The Profitable Path and the Expensive One, and I will say that I have seen both. I've seen a lot of them. Honestly, probably more of the expensive path. That's not to talk badly about anybody. It's really just the reality of what small business owners go through. It's easy to look back in hindsight and say, "I wish I had done this, I wish I had done that." You're probably all in different phases of your business, some newer, some older. Some of you have probably already experienced this, maybe come through it and changed things and improved. But regardless, you are where you are today, and you have an opportunity to go forward. Hopefully I can give you a little bit of wisdom as you try to grow your businesses and become more profitable.

All right, I want to start here with a little bit of wordsmithing. Delegate. I call it the most expensive advice property management owners will get. This is tongue-in-cheek, because we do have to delegate, we have to have team members. But when I talk about the 200 to 400 path, most of the time there was some level of delegation that didn't work, or over-delegation, or delegation that worked for a period of time and then, inevitably, the owner is back in the weeds. It just happens. It's happened to me in what I do, and in businesses I've worked in. I'll talk a bit later about how you hedge against the risks that can come with delegating.

That's a little tongue-in-cheek, but the follow-up is that there's no right or wrong way. I'm going to give you two different hypothetical paths with some examples, but the way that matters is your way. You're the one who sets goals for your life, your business, and your family, and eventually for your employees, if you have team members. Today you're going to get one example, two different paths, two different results. It's a hypothetical built on my experience working with dozens of property management companies over, gosh, more than 12 years now that I've been working in this industry.

A little about my background. I started in the corporate world. I worked for a big billion-dollar company and did all the accounting roles in that business. I got sick of working in a big business, and I had a couple of roles as a chief financial officer for what I thought were small businesses, doing a little less than $100 million a year in revenue. Then I ended up in the property management industry. I worked for a company called Evernest. You may know them, you may not. They weren't even called Evernest when I started working for them. They're based in Birmingham, where I live. I'm originally from Pittsburgh, but I moved down here in 2008, and after a few other jobs I landed at Evernest.

Their owner was implementing a system called EOS, based on the book Traction, which is posted up behind me. Some of you may know about it. It gets a lot of fanfare, but it's an operating system for business. The reason he was looking to fill the Director of Finance position was because of what the book says: you have to have a leader in three specific roles in your organization. You need a head of operations, a head of sales and marketing, and a head of finance. For most businesses, by default, the owner becomes the head of all of these. If you read the book E-Myth, it talks a lot more about how, as you grow, you have to let go of certain roles. What Matthew, the owner there at the time, was doing was saying, "I'm going to hire somebody." So I chose to go work for him, went into a meeting the very first day, and was blown away by the effectiveness of it. That company was at 800 doors when I got there, in one location. My job was to take ownership of the finance function.

Moving into The CFO Mission, that is what I do: I take ownership of the finance function for my clients. There's strategic work there, consulting as a quote-unquote CFO or leader of that function, and then there's everything required to support that person's role, which is the bookkeeping and the accounting systems and processes underneath. That's what my company does, and we've been doing it since 2018.

Going back to that experience at Evernest, it was like, we don't even know our numbers. We have no idea. All we know is the cash in the bank account. A lot of you might be in that position, managing the business based on what you see in the bank account. What I try to do with people is get them advanced to a level of accounting, financial control, and strategic decision-making that matches the company they want to be, not the company they currently are. That's a little about me and my company.

Let's talk about this: what does growth mean for you? This is something I want you to be thinking about throughout the call. Something I always ask people I work with, or may work with, is what growth means for them. Does it mean more doors? This example today is more doors, 200 to 400. With more doors, we hope, comes more revenue, so do you really just want more revenue? Or is it more specific than that? Do you want more money in your pocket? Take it even further: do you want more time? Do you want to be able to do other things? Do you want to enjoy your life more? Growth is not just about economics, so I want you thinking about that today.

In this hypothetical, we have two companies. I'm not going to show a ton of numbers. I built a bunch of spreadsheets to back all this up, and if anybody wants them, let me know, but I'd rather stay out of the weeds and talk through a few bullets. Here's the example. We have 200 doors under management. Revenue per door is $250 a month, which is what each unit pays us. Annual revenue is $600,000. The goal is to double the doors and get to 400. Let's talk about the two paths.

The first path is "I want to grow fast." To grow fast, we're going to do what I said at the beginning, which is delegate. In this example, we hire a salesperson. A BDM, business development manager, is a title that's used a lot in the industry. So we hire a BDM in year one. We pay for leads, because if you're going to have a BDM, you need leads, so we invest $60,000 a year. We add people, because if you're going to have more doors quickly, you have to add staff. And as the business owner, you start to step out of the sales role and the operations role. You're doing that through delegation.

One of the things I've seen over the years that tends to happen here is you lose clients, and you don't realize you're losing them. In the model I built, one out of four clients leaves every year. That's 25%, a term we call churn: the clients rotating out through your system. One in four leaving every year is not very good. Also, in this hypothetical, the business development manager quits around month 12. Why might they quit? Maybe they're not getting paid what they thought they would when you promised them this great job, because your company was growing up to 200 doors and you thought that would just continue, but it didn't actually happen. So here you are, 12 months down the road, recruiting again. You might have to pay a recruiter $5,000, $10,000, $15,000 just to replace that person.

With all that churn, you have to sell more doors just to get where you want to go. In this example, you're selling 702 doors, only to end up at the end of year five with 488 doors, which I'll show you. And doing the math on the financial results, you actually lose money in four of the first five years. This is a kind of extreme example, because I'm trying to contrast two things, but I've seen this kind of thing happen. As a different example, I've seen people hire a head of operations because they want somebody else to take over the day-to-day. Maybe the owner decides, "I'll go sell full-time. I'm going to put a bunch of money into marketing." The same issue can happen, where the director of operations isn't quite able to steer the ship like the owner did, and the company continues to lose clients through quality of work.

So here's the other path. I call this one "fix the issues first, and then grow." What does the owner do in this situation? The owner starts with getting real numbers and understanding the business through the numbers. They focus on keeping clients. Why do we have clients in the first place? How long are they staying? What do they like and dislike about what we do?

They put AI and automation into every single role. They're not just putting somebody in a job, giving them a couple of days of training, and saying, "Here's your job, go do it as well as I did for the last five years since I started the business." They make sure every role is fully supported. In the examples I'm using, the owner is the one who knows everything. There's institutional knowledge inside your head, and a way of doing business that really only you know, and you need a way to transfer that to your people.

This owner keeps sales. They keep the responsibility of being that BDM, and they let referrals do the rest. A lot of you have probably grown primarily through referrals, and that's great. It's not going to get you to thousands of doors, so be realistic about that. But keep letting what's working work for as long as you can, until you really have to invest money to get across another tipping point. In this example, the owner didn't hire a BDM until year three of a five-year plan, and did it based on data that said, "Hey, it's time."

So what happened? The churn wasn't 25%, it was only 8%. You paid people more and had fewer people. What that really means in my example is that you invested in your people. You paid above average, so they were more inclined to stay. It also meant they were more adaptable and willing to grow and change with you, which means they'll do additional things you ask of them after you hire them. How many people have hired remote team members? That's a big thing in our industry, and we're on here with VPM Solutions. But oftentimes remote team members are hired for very specific roles, and it's very task-oriented, so it can be difficult for them to grow into significantly better roles that would let you scale what they do by 1.5 to 2 times. So give people opportunities to grow inside their jobs and make more money.

In this example, they only had to sell 480 doors versus about 700 in the prior example, because they're losing a lot less. They had a small dip in the first year, and then they were profitable afterward.

These are real numbers placed into a spreadsheet, guys, but they're not real companies. I talk to people about facts. When they tell me what they want to do in their business, and what they've already done, I ask, what do the numbers actually say? I don't want to hear about your feelings. I want to see what the numbers say. Here's a side-by-side comparison of the two models over five years. Total revenue in the first example was $5.4 million, and the second was roughly the same. Doors at the end of the fifth year are very similar, 488 versus 520. But look at the churn: 25% versus 8%. How many doors do we have to sell to get to that $5.4 million? About 700 versus almost 500. How big is our staff? In the first example, 11 people. In the second, 8. What is your profit per door? 15 versus 54. These are huge differences. And the one that matters the most: what is the net profit after you pay yourself a salary? A loss versus a nice, big gain.

So, cash to the owner, including your salary, over the course of five years: you can see the gap between the paths in these examples is very big. There's an $800,000 difference over five years just from taking these two different paths. Now, I want to be realistic. Is Path B that easy? No. It could ramp up slower, you could still make bad decisions, you could still have some setbacks. Is Path A that bad? No. But even if you squeeze both of them, they're still significantly different, especially over five years like I did in this example. Where are you going to be at the end? The same number of doors, but Path B has fewer problems than Path A still has to deal with at that point.

Here are a couple of things I want you thinking about today. I'm going to go through these questions, and I don't necessarily want you to answer them with exact numbers. I want you to ask yourself: do I even have access to this information? Am I close? Do I generally know what these answers are? Some of you might think it's crazy that people don't know some of these numbers, number one, for example, but a lot of business owners don't know how much money they're taking home. They're waiting for the tax accountant's call at the end of the year, or that report, to say, "Oh, this is what I actually made," and a lot of times they're surprised. That always blows my mind, so I like to help people with that first and foremost. So, do you know these, yes or no? You might want to give yourself a point for each one and score yourself out of 10.

Number one: what's your take-home pay? Do you know what you made last year? Do you know what you're going to make this year? That's your salary plus the income of your business, if you're the business owner.

Number two: what is my revenue per door? That's how much money every door I manage brings into my company. This is the top line when you're talking about accounting, per year and per month.

Number three: what is my profit per door? If you're not making a profit per door, you have a serious problem that you need to solve as soon as humanly possible, because you're going to run out of money, and your business is going to be done.

Number four: what is my cost per lead? Some of you might not be spending any money and still getting leads, which is great, because that means your cost per lead is pretty low. Some people are probably throwing money at things that might not be working, and I advise you to be very careful with that. If you're putting money into things like Google Ads, Facebook, [unclear], and things like that, know how much you're spending and how many of those things you're using at one time as you explore new options. These things can get out of control, and you could be paying a lot of money and not getting much in return.

That's why point number five is: what are my diminishing returns on lead spend? If you put $500 a month into Google Ads and that gets you 30 leads, and you put in another $500, are you still going to get another 30? Or are you only going to get another two or three? These are important things to understand when you're investing in and growing your business.

Number six: what share of my leads are actually qualified? If you're putting money into lead generation, are you getting good leads? Are you getting calls from people who aren't even interested in property management?

Number seven: what's my close rate? Are you actually closing deals at a reasonable rate?

Number eight: how many doors can one manager or pod handle? I don't know if you use the term pod, but it's a group of people on your team who handle leasing, property management, communication, all those things. A lot of people use pods. How many doors can those pods handle?

Number nine: how long do clients stay with me? This is very, very important. There's a statistic called the lifetime value of a client, and you need to know it, because if I'm putting $500 into acquiring a client, how much am I going to get back? If I only get $700 back, you're probably not going to be profitable. You need to be making four to five times on something like that.

And number ten, lastly: why do clients leave me? You need to know if there's controllable churn, meaning, can I improve what I'm doing to reduce that churn, or are people leaving for market conditions, like selling their house? It's a tough one. There's some subjectivity to it, but you need to keep an eye on it.

All right, guys, zooming out a little as I wrap up the presentation. Anytime you're looking at numbers, it's important to have context around them. This is where you should ask yourself: where are you going, and why? You need to set objectives for your business. You need to set objectives for yourself personally first, and then translate that into the business. So I put it here below: you must set a destination for your company, or your company will set it for you, which means whatever happens, happens, and you're just going along for the ride. That's not good. You might have some good times, you might have a few good years, but ultimately you need to set the parameters around what you're trying to do. Once you do that, you can compare yourself against it, and when you do, you pivot faster. That's what business is all about: making the right changes at the right time, as much as you possibly can.

My advice to you is to set a plan and use real numbers. You have to start by knowing your numbers. Get your metrics automated as much as you can. It shouldn't take a ton of time to gather your data every week or every month. This is stuff we do for people, so if you need help, let me know.

Number two is max your profit at your current size. This is about perspective. If you're at 100 doors, what is your max profit? You're going to be able to scale to 200, 300, 400 doors, but you can't be losing money. So know where you are, what's reasonable, and what you need to do, because you'll have to make some really hard decisions, especially when you're smaller. Hiring one person has a huge impact on your profitability, so be prepared for that.

Number three is plug those buckets, which means anywhere you're leaking, you have to address it. The benefit of being small is that you have fewer problems. You might have the same types of problems, but fixing them is a lot easier. If 10% of your owners are angry but you only have 10 owners, well, that's one person. So do that early, and put in processes, core values, standard operating procedures. All of those things are way easier to do when you're small.

Number four is grow organically. This is the best way to grow. If you're growing organically, I tell people, that means you're doing something right, because people are talking about you and you're getting referrals. Make sure that's working for you before you put money into marketing.

And lastly, you make strategic bets. This is when you hire with intent. You know your numbers, and you know you're running a good operation. That's when it's time to pour a little gasoline on the fire, within reason and within your own plan. If you need to, quote-unquote, invest to grow, maybe you'll trim your profit margins a little. Just be careful. Don't hire the ops person and the BDM at the same time if that's going to take you from 20% profit down to 5%. That's very risky, and it's a lot of change for one company to take on at once.

Whew. I talked really fast there. I want to open it up for questions. This is available to anybody who wants to talk after this, specifically about your company, anything more in-depth than your questions for me today. This is my contact info. You can schedule a call on your own, or you can just email me and we can set that up.

Pete Neubig: We have a quick question from Phil Christofaro. I noticed you had selling off doors in both scenarios. Is selling off doors an essential element of a good growth plan? I had never heard of or thought of that piece. What is the purpose? Is it to prune off the less profitable property owners in a portfolio?

Phil Mazur: No, I probably misled you with the words I used there. I didn't mean selling off doors. I meant selling to a customer, meaning acquiring doors as a salesperson. Sorry about that, it was a little confusing.

Pete Neubig: Got it.

Phil Mazur: Let me speak to that again. In my example A, I think I had 700. Let me go back to my sheet. This one here. That's 702 doors sold to get there. That's probably bad language. That really should mean doors acquired, new customers acquired.

Pete Neubig: Yeah, good catch. All right, thanks, Phil.

So, Phil, what is the difference between a bookkeeper and a CFO, or a financial analyst? We hear about bookkeepers all the time, but I never hear about CFOs or financial managers.

Phil Mazur: Yeah. When I think about the book Traction that I referenced earlier, I put a box with an F in it when I'm drawing this on the board, F for finance. Under finance, there are a lot of functions. Ultimately, finance should be responsible for the financial plan and the execution of that plan, and for supporting it with real data and analysis. Think of bookkeeping as the lowest level in the finance organization. There are hundreds, if not thousands, of transactions happening every single day. You swipe your credit card, you write a check, you do payroll, you pay yourself, or you take in money from your customers. All of that is happening all day, every day, so there have to be systems and processes for it. If I'm the CFO in charge of strategy, I can only give you good strategy if I have good data. Bookkeeping is what allows that to even happen, so you have to have solid bookkeeping. That's where most of the volume of work actually happens in your businesses, and you have to make sure somebody is equipped to do it.

Then there's a role you've probably heard of, called a controller. Think of a controller as the level above the bookkeepers. Bookkeeper and accountant, I'd use those kind of interchangeably inside your company. If you were talking to Chris Picciurro and he's talking about accountants, those are CPAs, and I like to put them in a tax category that's not really relevant to this discussion. But the controller is more sophisticated. They're educated, they'll have a degree, and they know debits and credits really well, because they have to put controls in the system to make sure your data is actually right. I wouldn't rely on a bookkeeper to do that. I don't want to talk badly about bookkeepers, but you have to know what you're doing. If you're just pushing the button on payroll, gathering somebody's hours, or typing a bill into the system and paying it, that's bookkeeping. The controller understands how all the money moves and knows how to prove that all the data is right.

One of the things we do for companies is reconciliations. You all know about reconciliations if you're in property management: you have to prove that the cash in your bank account is the same as what's in the system. When we talk about trust accounting for property management, that's a huge deal, because you're regulated by the real estate commissions in your states. The same thing happens with your company, with what we call your corporate accounting. If you're not validating that data and making sure it's right through some level of control, you could be looking at profit reports that are wrong and telling you the wrong things.

So it's bookkeeping, control, and then strategy. From a CFO perspective, that's more about setting the plan. This is where people say, "If I want to go from 200 to 400, Phil, help me figure out how to do that profitably," or "What is the next hire I need to make?" This is where we build out financial models with spreadsheets, and now with AI, to go through different scenarios and say, "I'm going to set my business plan for next year, or for the next five to ten years. What do I need to do? Who do I need to hire? What systems?" All of that is based on a CFO-type person, whether it's you by default or somebody like me helping you put that plan together.

Pete Neubig: Thanks, Phil. Does anybody else have any questions? We are over time, but Phil said he'll stick around if you have any questions for him. So far, nothing? All right, if you have any questions, pop them in there. Our next webinar is December 4. If you were part of AEO Unlocked Part 1, or you saw that one, and if you didn't, you can go to our webinars and review it. We're going to do Part 2 on December 4, and Heather Park and Julie Durante will be back. They're super knowledgeable in the world of AEO. I can barely spell AEO, but they know all about it.

All right, Phil, I think we have a couple of thank-yous coming around. Thank you, everybody, for being here. I appreciate you. And Phil, thanks so much for spending your time with us.

Phil Mazur: Absolutely, thanks for having me.

Pete Neubig: And reach out to Phil if you need some help with your numbers, or some help with "Hey, what are the next steps I need to take?" Phil and his team can definitely help you with that.

Phil Mazur: Absolutely.

Pete Neubig: And somebody loves all your books. I'm sure we have some Traction fans out there.

Phil Mazur: Yeah.

Pete Neubig: All right, thanks, everybody. See you, Phil. Take care, everybody.

Phil Mazur: See ya.