[NOTE: This is the first installment in a two-part series. Check this space next month for Part 2.—Ed.]

There are two ways to learn how to run a profitable business. The first, and most common path, is to simply start the company and learn as you go. A better way is to find a very successful company, get to know the owner, and allow him or her to mentor you. In other words, learn from their mistakes and find out what works for them. Most business principles are pretty generic; therefore they work in most businesses. Don’t worry about mentoring taking all the problems out of your business. Chances are, even with mentoring, you will still make a lot of mistakes all by yourself.

   I have shared the following true situation with contractors for years. Sometimes it’s during a keynote address, perhaps a live webinar and I nearly always share it during our three-day “Basic Business Boot Camps.” Let’s call the business “Joe the Plumber.” You might remember hearing about a different “Joe” during the recent presidential election—this story isn’t about that guy.

   This month I am going share the true story of our hypothetical “Joe the Plumber.” Next month we will discuss eight things we can learn from Joe’s story.

   Think way back to 1995. Joe was having a tough time. He was doing service, new construction and remodeling. The bottom line was pretty clear. Joe was working really hard but not making any money.

   They say necessity is the mother of invention and that’s what spurred Joe to make a change. After taking a close look at his company Joe realized he was not doing any of three things well, so Joe made a decision, a decision to be profitable! Joe decided he was going to become the absolute best service plumbing contractor in his city.

   Joe took a couple months off. He needed time to think and he needed time to plan. If he was going to make the switch to 100 percent service work he also knew things would have to change dramatically.

   Joe began to look at his company through different eyes. He decided to address each weakness he had so he could do his new company the right way. To do what Joe wanted to do also made another fact crystal clear. When it was all said and done it was going to cost a lot of money to run the company the way he wanted it to run. That meant he would have to switch to flat rate pricing.

   Joe took some time off, found a quiet place to think, and began addressing the problems he currently had in order to “correct them” in his new service company. Joe addressed the following items:

 

High Employee Turnover Rate—Joe was experiencing high technician turnover. His techs would stay a year or two and then move on down the street for an additional $1 hour. That had to stop. The new company was going to pay the techs well. The plan was for the average tech to earn between $50,000 and $100,000 a year and the company would pay all the medical, dental and vision insurances. Joe decided also to include a 401(k) plan and profit sharing. With that kind of program he could surely attract and retain the top techs in the area.

 

Junky Looking Trucks—Joe’s vehicles looked bad. He had pickups, vans and a mishmash of old, grungy vehicles. The new company would have only new (very expensive) box vans. Box vans can serve as moving billboards which would help market the company. Since they would be new and kept clean, their initial impression on customers would be good. The move to box trucks, however, was a little more foundational. Joe was well aware of the cost of non-billable time and he didn’t want his techs driving back to the shop, or distributor’s facility, to pick up parts. The new box vans could carry everything needed on the job, from the most basic parts right on up to and including water heaters, toilets and sump pumps.

 

Poorly Trained Customer Service Techs—Customer service is a huge part of being highly successful. The initial impression the tech gives the customer can make or break the relationship and guess what? Joe’s guys were not very good at customer service. If Joe was going to meet his goal of being the best in the city he was going to have to continuously train his techs in customer service, customer relations and add-on sales. The new business plan included massive amounts of training dollars!

 

Poor “Response Time”—Joe had another problem. Customers would often call his company only to find out it was going to be several hours, or perhaps days, before he could send out a service tech. Well everyone knew, including Joe, that the customer wanted service when they wanted it, not in two days. The new company model would include one additional tech and one additional box van. Joe wanted extra capacity so when the phone rang he could provide “immediate service.” The customers would love it. An idle tech, with all the related overhead costs was going to be very expensive. That didn’t bother Joe. If he was going to be the best in town he would do what he had to do and would charge what he need to charge. He simply built the extra tech into the cost of running the company, just like rent and utilities.

 

Too Many Customer Complaints—Joe’s current company was getting way to many customer complaints. He not only had too many but they were poorly handled. Additional training in customer relations would definitely lower customer complaints but Joe knew there would still be complaints. Soon Joe had his, “100% Customer Satisfaction” plan. Joe would handle all customer complaints himself. Solving each complaint would cost money so Joe built 3 percent of his projected gross sales into the overhead of the new service company. With money in hand, and time to talk to the customer, complaints would be solved quickly and efficiently.

 

Charging $250/hour today on flat rate is not all that unusual, but back in 1995 it was downright scary. However, Joe made the changes and charged what he had to charge. Today Joe truly is the best plumbing service company in town and today his rate is well over $300/hour! Customers love him and Joe is making a nice profit! Next month we are going will talk about eight foundational principles we can learn from Joe the Plumber.

   By the way, Joe attended our three-day “Basic Business Boot Camp” and fine tuned his company a bit more. If you would like to attend a boot camp we will be in Stanton, Calif., Nov. 4-6, 2009. To find other dates and locations check out our Web site .