It’s Cool! – Transcript – Scott Needham with Kurt Baker
Written by Kurtis Baker on June 24, 2018
Our host, Kurtis Baker, is joined by Scott Needham, President of Princeton Air Conditioning, Inc! Find out how to ensure your company’s future sticks to its founding morals and more!
04:51 Kurt Baker: You’re listening to a podcast of Master Your Finances with me, Kurt Baker, a certified financial planner professional. Sunday mornings at 9 AM on 1077thebronc.com.
05:00 Announcer: The financial views and opinions expressed by the host and guest on this program do not necessarily reflect the viewpoints of 1077 The Bronc, Rider University or Certified Wealth Management and Investment. The material discussed is not designed to provide listeners with individualized financial, legal, or tax advice.
05:15 Announcer: Planning your financial future does not have to be overwhelming, 1077 The Bronc presents Master Your Finances with Kurt Baker, a certified financial planner professional with Certified Wealth Management and Investment. For the next 60 minutes Kurt and his expert team of financial guests will help to decipher financial terms, navigate market trends, interpret federal and state regulations, and more, so you can make smart decisions with your money to increase your personal wealth. Missed an episode, go to 1077thebronc.com and Apple iTunes to download and listen to previous shows. Just look up Master Your Finances. Master Your Finances is underwritten by Certified Wealth Management and Investment focusing on personal financial and small business planning, for more information about all Certified Wealth Management and Investment Services Online, it’s cwmi.us. Now here’s Kurt Baker with this week’s edition of Master Your Finances.
06:10 Kurt Baker: Good Morning. And welcome back to another edition of Master Your Finances, presented by Certified Wealth Management and Investment. I am Kurt Baker, a Certified Financial Planner professional. I’m hosting your show today, my office is located in Princeton, New Jersey. I could be reached through our website which is www.cwmi.us or you can call me directly at 609-716-4700. This week we are very pleased to have with us Scott Needham, who is the president of Princeton Air Conditioning, which was founded by Joseph Needham in 1971, he attended Roger Williams University in Rhode Island where he studied architecture. He is Building Performance Institute Certified BA Envelope AC heat pump and heating and his company has been an accredited BPI business since 2008.
07:05 Kurt Baker: Mr. Needham serves on many local non-profit boards and chambers of commerce, and is past president of his Rotary Club appointed by the Mercer County Board of Chosen Freeholders since 2013, Scott serves on its workforce development board, the WBD launched in 2013. Mr. Needham is co-chair of the Princeton Regional Chamber of Commerce Independent Business Alliance, which helps educate consumers about buying decisions, helps businesses grow by creating jobs and creates more visibility for independent businesses. And also he was the very first champion for business for the Princeton Regional Chamber of Commerce. Congratulations, you’ve got lots of accolades, we had to boil it down a little bit otherwise we’ll take the whole show just talking about all the things you’ve done but we wanna talk about… Kinda your story, which I think is really cool. So, I believe Joseph is your father. Is that correct?
07:58 Scott Needham: He is. Yep, yep. Founder and CEO and we just realized a few months ago, that while the business is 47 years old this year, we’ve been working together side by side for 31 of them, so that’s pretty cool.
08:13 Kurt Baker: That’s pretty amazing working with your family. So he was there when AC began. Because I know I moved to Florida, my parents moved to Florida in the 60s which was when Florida got its toe hold as a place to actually go ’cause nobody wanted to go there unless they had air conditioning. Even today most of the residents stay indoors where it’s cool as opposed to going outside. I’m assuming he was on the beginning of the whole growth of this whole air conditioning idea.
08:39 Scott Needham: What was interesting is, he and his father owned and managed the trucking company. And that they decided to sell to a food producer and he started looking at what businesses were going to be sustainable over the long haul. He did a lot of market research and realized that air conditioning which was very… Not very prominent in the built housing stock currently, at that year was going to be about 90% of every home, so he figured that would be a good business to get into. 34 year old guy with a big family mortgaged the house, and everything and went into the air conditioning business when he was 34 years old, so I give him a lot of credit for that and the rest is history.
09:22 Kurt Baker: Yeah, you named a couple of things that are really really cool. ’cause he was doing something else, he was keeping his eyes and ears open for opportunities. Because people our age remember this, but you used to buy a car, it was an option. You can’t get a car without AC even if you don’t want it anymore. And then houses, especially up north they’re like, “Why would I want an air conditioning?” My wife when I first was dating her they had fans. So you just walked in the house, they ran the fans through, they had these whole house fans where they ran air, that was it cause you only needed it for a couple of months out of the year. But nowadays, you can’t buy a new house typically unless you ask for it not to… I don’t who you would. But they’re in everything now.
10:00 Scott Needham: No doubt, no doubt. It is quiet an industry and we’ve been having fun participating in that industry ever since.
10:05 Kurt Baker: Yeah. So what was it like growing up through this having a family business and things like that, and how did you get introduced to all of this? How did your father… Cause you’re doing it now. How did your father get that love of business with you?
10:16 Scott Needham: So, what was interesting watching him do a 180 when he was 34 years old, with a family, six kids and a wife. And that to me seemed kind of a normal course of business. You can do something for a while, and then spin it if it’s not working or things change and you can do something else. So I went to school for architecture, thought I would be a famous architect by this age. And I realized working up in Rhode Island for a firm, after school for a couple of years it just didn’t make a lot of sense for me and just I didn’t enjoy it like I thought I would do it and seeing my dad pivot when he was 34, I was 27 at the time. I said, “You know what, this is not working out for me.” His business was growing astronomically, right about then in the late ’80s and I made the decision to get out of architecture, and come back to New Jersey to connect back up with the family business.
11:11 Kurt Baker: That was probably a good decision because I just know a couple of architects myself where it used to be a really really successful business model for most people, it’s a lot tougher now, because a lot of it’s automated. You got these CAD machines, so there is a lot of compression in that professional service so to speak.
11:27 Scott Needham: Absolutely.
11:27 Kurt Baker: But we still need air conditioning. [chuckle]
11:28 Scott Needham: Yeah, yeah. No doubt about it.
11:29 Kurt Baker: So I think you’re pretty safe for quite a while. I don’t see that going away anytime soon.
11:33 Scott Needham: We’re betting the farm on it.
11:35 Kurt Baker: I guess so, I guess so. And you continue to grow. So your father was 34, how old were you at that time?
11:42 Scott Needham: Oh goodness.
11:44 Kurt Baker: Do you remember?
11:46 Scott Needham: I was probably, I don’t know, 15.
11:48 Kurt Baker: Okay. So you were old enough to know what’s going on at that point.
11:51 Scott Needham: Sure, sure. And I would work summers after school to help out and do some menial tasks around the business. I’d wash trucks, I’d go out in the field with some of the mechanics and do some kind of laborer type activities. So I got a little experience in that area. In fact in ’87, I came on board as a manager, and I was running a major part of the operation of the business and then moved into sales and had my experiences in all different aspects of the business and currently, I’m the president, and my dad who’s 84 years old who’s CEO and founder is still working every day. He’s in the office right now as we speak, Kurt.
12:33 Kurt Baker: Wow! That’s good. Somebody’s minding the store, I guess.
12:37 Scott Needham: He’s loving it, yeah.
12:38 Kurt Baker: So how did your father… So you started at 15, so he started you off with some relatively minor tasks but obviously, at some point you needed to be trained in the business and the sales, so you did these things. So how did your father… ’cause family businesses, sometimes they do really, really great and sometimes the family just says, “I have no interest.” So he kept you in it, so how did he teach you, so to speak, ’cause that’s a common issue for family businesses. To bring in the children to be involved.
13:04 Announcer: Absolutely. So I think what was key, going to school for architecture, I would do more sales jobs outside of working in architecture and growing up and going to college. I was a bartender. I was a ski instructor way back in the day, so I was developing people skills, but not necessarily business management skills. And one of the first things he did when I decided to come back to the business, was sent me for a few weeks to a business management development course down in Virginia, as an institute that focused on family businesses and entrepreneurs, and they taught you the business side of running a family business and also laid out some of the challenges that might be present as you grew up in a business, and that was a good start to it. And then I jumped into the operation and I was managing I think 14 different crews on new construction sites. We were doing a lot of new construction, heating and air-conditioning work at all the new developments that were being built in this central part of New Jersey.
14:19 Kurt Baker: Well, there’s definitely been a lot of developments.
14:21 Scott Needham: Oh yeah. [chuckle] No doubt. And then from there Kurt, it was all about on the job training, and beyond that, we decided that early on that obviously we did not know everything there was about running this business nor did my dad, even though he was tenured in it. We decided to join some different contractor groups and peer groups, and one of the most beneficial groups that we joined was something that the association, Air Conditioning Contractors America Association was promoting back in the day and it was called a Mix Group, Management Information Exchange whereby 10 contractors relatively same revenue size around the company and non-competing areas, got together every six months and we’d go to the different contractors location. We’d analyze their financials, we’d look at their balance sheet, we’d interview their employees, and we would get a pulse on the business and see what was going well, what was not going well, and then the next day we’d have an industry best practices meeting.
15:31 Scott Needham: In the final day, we would critique the owners of that operation, and we’d give it to ’em right between the eyes. We were essentially a team of unpaid consultants that would descend upon these businesses and just tear ’em apart. Tell them what they were doing good, tell them what they were doing bad at, and I can confidently say the time we’ve been involved since ’89 with this group, every time they’ve come to see us, we have always made the tough decisions that the group has brought to bear, and including terminating our long time employees that were just not performing well, correcting inventory imbalances and business process, and redefining what the sales process was. We did a lot of those changes and I think that’s a key to our success, so back to your original question, that was more of a learning… Continues to be a more of a learning experience than any schooling I’ve ever gotten.
16:27 Kurt Baker: That’s amazing. Nothing like having your peers come in and help analyze it, because they have a similar experience. You can learn from each other, and when you’re not competing regions, that’s just amazing.
16:35 Scott Needham: Yeah. It’s been wonderful.
16:38 Kurt Baker: Fantastic. So we’ll talk a little bit more about your business experience, growing up and how we’re doing these days, when we come back from the break in just a few minutes.
16:43 Announcer: We are talking finances, so you can make informed choices for a better financial future. Missed an episode? Go to 1077thebronc.com, and Apple iTunes to download and listen to previous shows. Just look up Master Your Finances. Now back to Master Your Finances with Kurt Baker, a certified financial planner professional with Certified Wealth Management and Investment exclusively on 107.7 The Bronc, and 1077thebronc.com.
17:10 Kurt Baker: Welcome back. You’re listening to Master Your Finances. I’m Kurt Baker here with Scott Needham, the president of Princeton Air Conditioning. We’ve been talking about his interest here and where his father started the business back in ’71, got him involved doing some relatively menial jobs. What I think is really fascinating here, is even though it’s a family business and theoretically can “learn on the job,” his father recognized that you need to do real training. And the first thing you did was that business management development training, he sent you off, he said, “Go learn about the business. Learn what it is to manage it. There’s a lot of things that you don’t necessarily learn on the job that you can learn, like in more of a classroom atmosphere where you get the structure, like what this is all about.” And I thought was really into fascinating, was this Mix thing of Management Information Exchange, I think is what you called it?
17:52 Scott Needham: Yup, the Mix Group, right.
17:55 Kurt Baker: Yeah, The Mix Group is fantastic. I wish every industry had something like that. I know we have associations, but to actually come in and look at the balance sheet and actually critique another business in “a non-competing area”, I can’t think of a better way for a business to learn from other peers so to speak. And that’s just amazing.
18:09 Scott Needham: That’s been huge for us.
18:11 Kurt Baker: That’s just amazing. And especially with all the changes. You were literally there, your father was there, kind of in the infant stages of this whole climate controlling your house. Who ever thought, you open the windows up and that was it and he kinda grew with this and he recognized something very, very early on. And I’m assuming that this mix thing, you guys also talk about kinda the next generation, what happens next? Because there’s a lot of things going on with housing, so now you’ve got the business developed and you do it and sent it. Now you’re running it. So what’s the difference between when you were working for your father and then that whole… That transition period where he’s kinda… He’s still there, involved, but you’re kind of more of the main person these days. Correct?
18:47 Scott Needham: Right. I think the thing that I think about often is how many moving parts there are to any business. But in particular, ours. And while that’s daunting, it’s also the thing that gets me up in the morning and running to work, because I can’t wait to get in there to see how things are going, to see what impact I can have on the operation without micro-managing. I always think about all the different moving parts and then I think about this thing called ‘owner dependency’ and how much does the operation need from myself or my father on a day-to-day basis. And we try to remove ourselves as best we can because that adds value to the operation. No doubt. We aren’t planning on selling at all. We are having fun doing what we’re doing. But you figure, if you ever did sell, the business would be that much more valuable if the owner was not that plugged into it. You could remove that person and have it operate and continue to produce profits. So we think about that. We gauge that and we try to hire the right people, we try to document our core processes and we try to put things in place to allow our team to succeed.
20:14 Scott Needham: So back to your question, moving parts is what I think about daily and getting the right people to handle all those things and then for me to look at the financials, to understand what’s happening is key. And that was one thing I used to struggle with early on, the financials. I was more of a customer-facing, more on the sales side, more of the relationship and development side of the business. And to be burdened by looking at financials every month was difficult, but it was one of those necessary things to run a business. You gotta be able to do that. And what struck me as cumbersome was the fact that there are so many buckets of costs that a typical set of financials have, like right now we’ve probably got 50 or 60 buckets of costs on our statements and to me that’s… Can be construed as overwhelming, but your eyes tend to glaze over and you tend not to look at any particular things you find yourself. At least I did in the beginning. Just looking at top line revenue and bottom line, do we make money?
21:23 Scott Needham: And there’s so much more to it. And we developed some different strategies over time where you talk about leading and lagging indicators. Well, financial statements are a lagging indicator. That is after the fact. So you can’t really change what just happened last month depending on whether you’re getting the statements. So we have moved to scorecard, the scorecard concept where every week at our leadership meeting and at our other team meetings that the companies are having weekly, we are looking at scorecards and we figured what are the key drivers and activities and behaviors that we need to have happen every week in order for us to have those financials look good at month end. And so every team has a different scorecard and it all rolls up to a company’s scorecard. And one way to look at it is if I was out on an island in a retirement phase and what were the key numbers that someone would email me every week, so I could know the business is healthy and it’s producing. And so we boiled it down to that. That’s really been helpful.
22:29 Kurt Baker: Well, I found that interesting. You rattled through a lot of important facts there that I kinda heard there, which I thought was pretty amazing is one, you have no intention of ever selling the business, however you are documenting your processes and you’re actually building the business in a way that it’s not dependent on you because we don’t know where we’re gonna be tomorrow. You could have a health concern, you can have things that happen that pull you away for many, many, many, many reasons. You have every intention to be there tomorrow but for some reason you’re not there tomorrow, you in theory could… The business could run itself or if it became necessary or it was something you wanted to do, you could then sell it. And now what you’ve done is you’ve got the processes in place, you’ve got the employees are set up in such a way it can run itself.
23:12 Kurt Baker: You mentioned that you document your core processes which a lot of small business don’t understand how important that is because when you go to sell a business, unless the purchaser of the business understands how are you making money and why does this actually work, they can say, “Well yeah. I’m making all this money”. And I’ve heard this a lot when I’ve done the financing things, “Oh well, I make a lot of money”. I go “That’s great.” And they’ll tell you how much money they make. I go, “But how did you make that money?”, and they don’t really have an explanation. They can’t really explain how they made it. They just know they’re making it. But a buyer is not gonna be convinced by you made money. They wanna understand, Okay this is what we did and this is how we did it and this is why it works. I thought that was great. And then also you’re managing the financials and the fact that you’ve mentioned that you were pretty much a sales person which a lot of business, especially entrepreneur type people are not… They don’t tend to be really good numbers people, they tend to be very… And I noticed what you said is I love getting up in the morning to work, which is obviously key. You gotta like what you do otherwise, you’re gonna be miserable your whole life. [chuckle] So that’s fantastic.
24:09 Scott Needham: No doubt.
24:10 Kurt Baker: The fact that you have trained yourself to look at it in a way. And the last thing… I mean the next thing I thought was really cool is you’re breaking it down, and I love the scorecard thing, where you’re breaking down because at the end of the day you see the top line and the bottom line. We have to understand, what are the tasks involved? It all comes down to tasks, right? Every day we get up and we do tasks. But you’ve actually defined the tasks that are necessary in order to end up with that bottom line at the end of the month and you know what that is and you’ve actually broken it into, if I’m understanding this correctly, into the team. So they have a scorecard, so you understand how each team is producing, right?
24:42 Scott Needham: Correct.
24:43 Kurt Baker: So that you can go back and critique.
24:44 Scott Needham: Yep.
24:44 Kurt Baker: I’m assuming, right? So what happens… Yeah, that’s the part where I’m really interested in. So you’ve got the… Can you tell us a little bit about what that scorecard looks like, like the things you look at…
24:52 Scott Needham: Sure.
24:52 Kurt Baker: In your business, and then how you respond, good or bad?
24:57 Scott Needham: Yep. So at the leadership level, the scorecard, the numbers that we’re looking for is new customers. How many new customers did we earn this week? What were sales in commercial this week? How many club memberships did we sell this week? And those are probably the biggies and what’s the closing rate of the sales team is another one. And our average day’s receivable or my CFO chimes in on that number. [chuckle] So those are…
25:29 Kurt Baker: Yeah, they are always concerned about that number. [chuckle]
25:31 Scott Needham: Oh, yeah, no doubt about it. Those are the top line numbers that we’re looking at weekly and when they are off we… At our meeting, we move them down to our issues list and we talk about the ones that are off and then we create action items if necessary. Sometimes it’s just simply seasonality. And we adjust our scorecard items seasonally but now we’re really killing it now, ’cause it’s the cooling season and it’s quite frankly, very easy to make money on our business in the cooling season.
25:56 Kurt Baker: Everybody wants AC right now when it’s 95 degrees outside. [laughter]
26:00 Scott Needham: Yeah, it’s not that challenging. So we’ll put them down to issues. We’ll walk through the stumbling blocks that are causing that number, it could be subpar and then if necessary we’ll create some action items around them and then have what we call cascading message to the other team members, “Here’s what we need to do to change it up, to get these numbers back on track before the end of the month.”
26:21 Kurt Baker: Okay.
26:22 Scott Needham: So we’re proactively self-correcting before the end of the month.
26:27 Kurt Baker: Now I heard a lot that the top line stuff, do you ever look at the cost side of it? Is that part of this analysis, too ’cause I’ve noticed like the income side of it seemed mainly what this was. So do you look at the other side of it like you know…
26:37 Scott Needham: Sure, sure.
26:40 Kurt Baker: As well?
26:41 Scott Needham: So one thing we’ve got on one of the scorecards is the Big Five and…
26:46 Kurt Baker: Big Five, okay.
26:46 Scott Needham: The Big Five is what we affectionately refer to the biggest buckets of costs on our statement. And they are: Direct labor, that’s the wages and benefits we’d pay to the people doing the work in the field.
26:58 Kurt Baker: Right.
27:00 Scott Needham: The next one is material expense, which is the net cost of those materials that we’re selling to people. Then we look at office overhead salaries, all the people that support the field folks, we look at that. We look at the advertising, we do a ton of advertising every year in radio, TV, pay-per-click, all the SEO, and then we look at our vehicle expense. Those five buckets, if they are… We wanna keep them in and around 70% of sales. Now the first two, direct labor and material expense will obviously vary with sales. So in the summertime, it’s gonna be less of a number. In the winter time when we’re a little slower that number, that percentage is gonna be higher. But the bottom three, the office overhead salaries, advertising, and vehicle expense, we look at those and we look at, how did we do this month? How was that compared to last month? How was that compared to last year this month? We wanna keep them flat, or try to reduce them a bit. And so those are the big things that we look at on the scorecard weekly.
28:05 Kurt Baker: And that’s great that you actually defined those very much so and I appreciate that. So when we come back we’ll talk a little bit more about how you run the business, and we’ll get back in just a few minutes.
28:14 Announcer: We are talking finances, so you can make informed choices for a better financial future. Missed an episode? Go to 1077thebronc.com and Apple iTunes to download and listen to previous shows. Just look up Master Your Finances. Now, back to Master Your Finances with Kurt Baker, a certified financial planner professional with Certified Wealth Management and Investment, exclusively on 1077 The Bronc and 1077thebronc.com.
28:39 Kurt Baker: Welcome back. You are listening to Master Your Finances, I’m Kurt Baker, certified financial planner professional here with Scott Needham, the President of Princeton Air Conditioning, and Scott’s been really fantastic. I mean, most family-owned businesses are not as detailed as Scott is. I have to tell you, you guys have taken it to a whole new level, it’s pretty amazing. Your father started off training young. You guys belong to this mixed group which is really about a constant back and forth really… You’re staying, literally you’re staying on the cutting edge because you’re talking to other people in the business and a lot of people, especially when you have some kind of a service business, which people think is… I mean, me as an outsider would think, “Air conditioning?” It sounds pretty mundane to me, right? You put an air conditioner and you take care of it. But there’s a lot more to it and I’m sure you… You’ve got many more levels beyond that, things have changed, freon change, this change, regulations change, all things are changing, which we as consumers don’t think about.
29:25 Kurt Baker: But you now because you’re talking to people all over the country, you’re staying on top of it from, what’s happening next? What are the opportunities out there? What are the things you have to be concerned about? I’m sure you talk about both of those things and then also you’ve got this great process in place, and I love this scorecard thing that you’re doing within the company where you’re really boiling things down to like the task level in the team level, and you’re seeing who’s performing, who’s not performing. So in a way, you’ve got a little bit of competition going on there. I’m sure…
29:55 Scott Needham: Yes, yes.
29:55 Kurt Baker: Because each team is kind of seeing what the other team’s scorecard is…
29:58 Scott Needham: Indeed.
30:00 Kurt Baker: And how they are doing and things like that. I’d be curious kinda how that plays out when you’re having your meetings, how do you use that to your advantage so to speak, to get everybody to move ahead?
30:06 Scott Needham: So you hit it. You hit the nail on the head. Competition. Everyone wants their numbers to be on track or ahead of the plan and when they’re not, they seem to hustle to make sure those things are different for the following week report and that’s kinda fun to watch and it doesn’t need me to be flipping the switches or pushing the buttons everyday. The team had created the scorecard numbers, so there’s accountability in there when they designed them and again, seasonal flow. We change them every quarter depending on the business but… So you get the buy-in because they design them and then when they manage the numbers weekly, it’s fun to watch that happen without my pressure on it. It’s kind of a self discipline, self policing activity that takes place. So it’s kinda fun.
31:00 Kurt Baker: And it’s great because they know their expectations, right?
31:01 Scott Needham: Right.
31:01 Kurt Baker: Some employees, one of the biggest complaints about employees, that are “not performing”, is they’ll say, “Well, I don’t know what my expectations are, I don’t know what you want me to do. You want me to do well, but I don’t know what that looks like.” But you’ve actually given them a template and they’re actually involved in creating that template, which is kind of a win win. You’re really partnering with your employees is what it sounds like to me.
31:22 Scott Needham: And we often have to drive home the fact. Although most people get it that this will eventually relate to increases in your salary, merit increases and ultimately profit sharing. So if we’re hitting these targets on the scorecard items, they should translate well to the financials at the end of the month and at the end of the year, there should be profits there that we often share with employees, depending on what the profit level for the company is. So we gotta remind them that, hey, all the work you’re doing today should be equalling profit sharing at year end.
31:56 Kurt Baker: You just mentioned something that’s very interesting, which is more typical of larger companies. So how is it as a smaller business and when did you… I’m curious, when did you decide, “Hey, we should be doing a little bit of profit sharing”? What was kind of the motivation or the thought process behind that? Why do you do it and what have you seen as far as the results of actually doing profit sharing? ‘Cause a lot of small businesses are afraid to do that.
32:13 Scott Needham: Good question. Yeah, so we do what we call discretionary profit sharing, ’cause when we have good years, we wanna share.
32:22 Kurt Baker: Right.
32:22 Scott Needham: The thing that got us to think about that as I remember, I don’t know, 20 years ago we started doing some surveys for our team. Embarrassingly we never did surveys of our existing staff until 20 years ago and now we do it every year. And we discovered back then that many of the folks felt like they were working in a vacuum, they didn’t know what their job, duties did to relate to the end game of the business and that’s when we decided to do what we call utilizing open book management philosophy and we developed… We started these quarterly meetings, all hands meetings where we would bring every employee, the entire team in, we’d cater a breakfast and we put our financials to the quarter up on the PowerPoint.
33:10 Scott Needham: And we wouldn’t get all 60 buckets of cost, but we would put the most interesting categories with percentages up on the screen and we shared them with people and we figured that would be a great time when people are gonna be watching what kind of profits we’re making or not making. And to get them to buy into the mission of the company, let’s let them share in the profits when we have them. So, it was tangential to the time we did the meetings, open book management philosophy sharing, how we’re doing as a company and letting them share in the profits at the end. The one thing we were nervous about, the first quarter of every year, we lose money, we’ve been doing that for 47 years.
33:54 Kurt Baker: Right.
33:57 Scott Needham: It’s just a thing that happens in our industry. And the first time that we showed those numbers to the team, they got a little nervous. They were expecting the pink slips. The following week we said we have a business planning process, we know we’re gonna lose money, we design our cost structure and our profit structure to accommodate for that loss in Q1 and half of Q2. So it’s all good. But we had to educate them on the way we did the planning.
34:23 Kurt Baker: That’s incredible. I mean very few small businesses are willing to put their financials literally up on, on, on…
34:29 Scott Needham: It was a little scary.
34:30 Kurt Baker: Because that’s one of the things… Everybody I know that does… Not everybody, but many people I know that have small businesses, their employees have no clue like what they’re making. They could guess but they have no idea. But if you’re confident enough… Were you there the first time you made that decision? I’m sure that it’s got to be very nerve-racking. And then how did you kind of say “Yeah, we really need to do this”? And at what point did you realise, yeah, that was the right decision?
34:52 Scott Needham: I think, I give my father a lot of credit for being a guy that grew up in the trucking business and he always had this entrepreneurial spirit and you would assume he’s old school and doing it this way like his father used to do it. But I think my dad handed me a book back then and I think it was titled something around open book management and it was a whole different philosophy. Everything was close to the vest back then and still is for a lot of companies, but we figured we’ve got nothing to hide and if we share that information with the team that can only embolden them to do better in most cases. Some people didn’t get it, didn’t wanna be involved and said “That’s your problem. You worry about it. I just want my hourly rate and my paycheck at the end of the week. I don’t care what you do.” And we’ve moved those people out of the business ’cause we want more engaged folks. So, I think it was my dad and a book we read way back in the day that caused us to think like that.
35:52 Kurt Baker: ‘Cause sometimes people… The big thing that I hear, “I don’t wanna share that ’cause I don’t want my employees knowing how much money I make.”
35:57 Scott Needham: Right. Yeah, that’s a little daunting.
36:00 Kurt Baker: Right, so they’re like, “Well, you know I’m making whatever an hour and you’re making blah, blah, blah.” I mean, obviously public companies, everybody knows what the CEO makes, right?
36:07 Scott Needham: Sure, sure.
36:10 Kurt Baker: So you’re kind of a quasi-public company in a way with your own employees.
36:12 Scott Needham: Yep.
36:12 Kurt Baker: I mean, you’re not public, but you’re…
36:13 Scott Needham: Yeah.
36:13 Kurt Baker: To them you’re public, right?
36:14 Scott Needham: Yeah, now to that point. We don’t get as granular as showing my salary and my dad’s salary, but it’s all…
36:20 Kurt Baker: Right, but they’ll see top line, they’ll see what the business is earning then.
36:23 Scott Needham: It’s… It’s in the bucket of overhead…
36:24 Kurt Baker: Right.
36:24 Scott Needham: Salaries for office people…
36:25 Kurt Baker: Okay.
36:25 Scott Needham: They’ll see that. And the bottom line Kurt is when they see profits…
36:30 Kurt Baker: Mm-hmm.
36:30 Scott Needham: At the end of the quarter, and they know they’re gonna get a piece of it because of all the good work that they did, that’s really what they focus on. And then when we have an unprofitable quarter, when we… We have reasons as to why that happened, they like to be involved in that. They say, “Boy if I can change what I do in the field or in the office one iota that can improve that, if we have a break-even first quarter, wouldn’t that be awesome?” You know that’s that much less we have to dig out of the end of the year.
36:58 Kurt Baker: So you got a little more… A lot of more brains working on the problem…
37:00 Scott Needham: Yeah.
37:00 Kurt Baker: And especially at a business like this where it’s service and they’re out in the field, they can see where the costs are, right?
37:04 Scott Needham: Yeah.
37:04 Kurt Baker: They’re out there…
37:05 Scott Needham: Yep.
37:05 Kurt Baker: And they can have input into that. I mean that’s just fantastic, I mean getting the employees involved, you know open book management, having a meeting quarterly with everybody on deck, so to speak, and getting everybody’s feedback. And then you also kind of got the people out of there who weren’t really worried about the profits, because as a business you need to be worried about profits, you have employees that aren’t focused on that, then it’s just not a good match for your style which is to be as efficient as you can, make as much money as you can. So thank you very much. We’ll be back in just a few minutes, we’ll talk about what you guys are doing next.
37:34 Announcer: We are talking finances, so you can make informed choices for a better financial future. Missed an episode? Go to 1077thebronc.com and Apple iTunes to download and listen to previous shows. Just look up Master Your Finances. Now back to Master Your Finances with Kurt Baker, a certified financial planner professional with Certified Wealth Management and Investment, Exclusively on 1077 The Bronc and 1077thebronc.com.
38:00 Kurt Baker: Welcome back, you’re listening to Master Your Finances. I am Kurt Baker, a certified financial planner professional, here with Scott Needham, the President of Princeton Air Conditioning. And we’ve been on quite a journey here. Scott quite… It’s a family owned business but it’s run extremely professionally, which is fantastic. Do you run it like a business that could be sold tomorrow if necessary? If people could come in and review the whole concept, they’ll understand exactly how you’re earning the income, or if you had to be separated from the business for a period of time for any way, whether it was by choice or you had to be by an illness or something else that might occur, your business will run itself, which is really the ideal thing. And what I think is great is you have this open book management where you really are engaging the employees in the process, and you’ve got this really kind of granular way through this score card to help people to really understand what their job is and when they’re doing it well, and when they’re not, and then the teams are kind of competing against each other so everything is really fantastic.
38:54 Kurt Baker: And then of course you got this outside, this mix program where you kinda analyze each other. You just got every layer kinda covered there, which is I think is amazing. So basically, keep up the good work. But in… In the break you handed me this card that I wanna talk about, I think it’s really cool. So these are, these are the Princeton Air core values, I’m gonna go through these real here. So he’s got six of them here; thirst for knowledge, whatever it takes, embraces change, relentlessly positive, eager to serve, and no jerks. So how did you come up with this and how do you use it? I’m just curious.
39:26 Scott Needham: Well, so…
39:27 Kurt Baker: I think it’s great. [chuckle]
39:27 Scott Needham: Good question. Everybody gets a chuckle out of number six…
39:30 Kurt Baker: Oh yeah.
39:31 Scott Needham: But, so we, we sat in a room, the leadership team, and then we took the next level down into the meeting as well. And we had… We, we had one… Everybody had a blank piece of paper and we asked them to write down the top two people in the company that you feel exhibit, all the good that this company is about. Write them down and then we let, gave them a couple of minutes. They wrote two people, three people down and then we said, “Alright, underneath of that, write the attributes or the reasons why you selected them, and all the things that go along with your selection of those two or three people.” And we had 40 things that we took from those sheets and put them up on a whiteboard.
40:19 Kurt Baker: Mm-hmm.
40:20 Scott Needham: And the group worked for a few hours to cross this out, “No, this is redundant, this means this, get rid of that because that lines up with this,” and we boiled this all down to these six core values. And right now Kurt, it’s, it’s amazing to watch. We are hiring, firing, rewarding and recognizing around those six core values. And you know, you don’t even get to the next… You don’t… You don’t pass the telephone interview if you can’t talk about a few of these things in that short 10-minute dialogue on the phone, you don’t get to the next step in the interview. And as we have our quarterly reviews with our team we have this score card again, and we have plus-minus notations in each of these core values. And we ask the employee to rate themselves on where they fit. A plus would be “I exhibit this core value most of the time here at work.”
41:21 Kurt Baker: Mm-hmm.
41:21 Scott Needham: A plus-minus would be I’m right in the middle, or a minus would be, “I don’t exhibit them at all.” And we’re having them rate themselves and we rate them and we have a discussion about why. And it’s fun to see the company kind of prosper in terms of team spirit when we’ve gotten rid of the jerks in the company. Highly talented people who knew what they were doing, really good at their jobs, but they were just difficult to work with, we’ve moved most if not all of them out of the company. It’s kind of a fun…
41:49 Kurt Baker: Yeah.
41:49 Scott Needham: Place to be.
41:50 Kurt Baker: And I’ve heard that before, in larger corporations, you’ll hear people complain like, “The person though is brilliant, but they’re bringing down 10 employees, so they’re really not that… ” I mean they maybe doing their job twice as good as anybody else, but if you’re bringing down to 10 employees, you are actually negative, right? So that’s… And that attitude like prevails, it kind of works its way through the system, right? If somebody’s negative, they’re gonna, other people would become more negative, if somebody’s positive, people are gonna become more positive. So you mentioned, kind of interesting, but I’m wondering how do you… Either self-ranking, which is, which is good ’cause I understand that. So how are you ranking them if you’re not necessarily… How do you get that information back? Or you just, because they might be in the field all the time, or how you… How are you doing that, or getting that information as far as… ‘Cause you may not know them, you may not see them, right?
42:36 Scott Needham: You check in with their supervisors. So their supervisors have these meetings with them, supervisors have a pulse on what’s happening, supervisors will ask their co-workers. So you get a lot of feedback that way. And that’s probably the most help in evaluating those.
42:53 Kurt Baker: So it’s really more of a peer review in a lot of ways.
42:55 Scott Needham: Yeah, you can call it that.
42:56 Kurt Baker: You got self review and you’ve got some peer involved as well, because they’re kind of feeding this back and it’s at kind of a high level. Do they know what they’re doing? I mean, are they willing to go beyond what they need to go? I mean, so these are really things and I’m assuming reading every one of these are things that make a business more profitable, right?
43:14 Scott Needham: No doubt.
43:14 Kurt Baker: Your customers are gonna like this, right?
43:15 Scott Needham: No doubt, they do. The problem was you know we’re a 47-year-old company. We figured out our core values, maybe two years ago, which is a little embarrassing, but we knew they were there.
43:25 Kurt Baker: You’re still ahead of most.
43:26 Scott Needham: Yeah right, and so you have to give your existing employees six months to a year to step up to the plate in terms of these core values. You can’t just launch everybody that doesn’t fit them. So we gave a lot of berth to a lot of people to get to it, and if they didn’t have any interest or weren’t willing to change a little bit to exhibit more of these on a consistent basis, we would offer them opportunities outside of our business.
43:55 Kurt Baker: Okay, that’s good. So did you see, I mean just with people that were kind of marginal, I’m sure, some went one way and some went the other way, right? So did you see some kind of stepping up?
44:03 Scott Needham: We turned over 30% of our team…
44:05 Kurt Baker: Oh wow!
44:06 Scott Needham: When we laid these out. So it was a bit difficult, but necessary.
44:12 Kurt Baker: Okay, but it sounds like you were able to find people because you’re obviously still growing and you’re still doing what you need to do.
44:15 Scott Needham: Absolutely.
44:20 Kurt Baker: So anything you learn from that process that maybe somebody else says, “Hey I wanna go do this process with the plus and the minus of the whole thing,” how did it…
44:26 Scott Needham: There’s only upside to it. There’s only upside. If you could figure out, you have core values today, in any company, you probably just don’t know what they are, you haven’t written them down, so you’ve got them, they exist. To find them, articulate them, print them, and right now, you see it’s on the back of my business card. Everybody’s business card has them on there. And they should be, you can run into any of my co-workers anywhere and they should be able to recite all six of them to you instantly.
44:56 Kurt Baker: That’s great.
44:57 Scott Needham: Check that when you see.
44:58 Kurt Baker: It sounds like the boy scouts, the motto or something, right?
45:02 Scott Needham: Good one. [laughter]
45:03 Kurt Baker: You got your own motto here going. That’s fantastic. Alright, so you guys are running your business well, so what can you tell us I guess about the business in general? What, you got, to me there’s a lot going on. So where do you see it headed?
45:16 Scott Needham: One thing that plagues our business is the seasonality. Right. So we do heating and air conditioning, we do humidification, we do dehumidification, air filtration, all that stuff. And way back in the day when I first joined as a manager, I got so tired of the seasonality of it, so my job since long ago has been trying to de-seasonalize the business, so applying products and services that don’t have a season to it. So we launched plumbing two years ago. Plumbing, there is no season to plumbing. We launched whole house back-up generators. There’s no seasonality to that. 25 years ago, I was enamored as a young person when this whole thing of recurring revenue you know, and then I figured we need to design a recurring revenue service business and you do that through the sale of automatically renewable club memberships or maintenance agreement.
46:17 Scott Needham: So that was another thing that we embedded into the business as an early stage. So, we, our core mission is to sell club memberships both residential and commercially and then all good things will come as a result of that. We’ve got customers locked in… We’re hopefully doing a good job day in and day out and so seasonality, we are trying to make it a non-seasonal business and recurring revenue as a club membership.
46:44 Kurt Baker: I think the club membership is a great idea because most of us don’t realize we need to change our filter and we need to do this, and you come in and you got to clean it and because you’re gonna have less cost long-term, it’s gonna run more efficiently. Most of us don’t really think about that but I think this is a great idea and then you’re being proactive, “Hey by the way, this needs to happen, you need to do this” and then they don’t have to think about it ’cause many people especially around here are very busy and it’s like it’s great that the business is proactively saying, “Hey let’s take care of this, so you don’t have a break like on a day like today,” which 95 degrees… Actually today is pretty nice, but yesterday I’d say.
47:16 Scott Needham: Not too bad today. That’s another score card item on a bunch of different teams is that club memberships net every week. So we keep an eye on that.
47:25 Kurt Baker: Well, amazing example of a family owned business done right, you got the children involved young and now you’re running it. Your father took you for structured professional training, which I think is missing in a lot of small businesses and you’re part of these groups, where you analyze each other, you’ve got your employees engaged on the metrics of how the business runs, what works and they’re involved in the solution process as well. What’s that?
47:50 Scott Needham: I just wanted to add one more thing. Somebody asked me the other day, “Hey Scott, you’re 60 now,” just had a 60th birthday, “What’s retirement look like?” And I said to him, “Hey you know, if I can continue to do these things, if I can continue to do what I love, do it with the people I admire, make a decent living in doing it, all the while creating time for other passions, if I can do all those things I’m never gonna retire, I’m gonna continue to work in the business.” And that, he was shocked to hear that. I just wanted to share that with you.
48:18 Kurt Baker: I agree with you and I feel the exact same way. Your father’s 84, still doing it. My opinion is, what is retirement’s doing what you wanna do, if you love what you do is work, then you set it up in a way that you can do the work and you can do the other things as long as cognitively and physically you’re able to do it, you have to do something, so you might as well do what you enjoy and if you can work at the job you enjoy, that’s a double plus, you got everything going there. Scott, thanks again for coming on, I seriously appreciate it.
48:42 Scott Needham: My pleasure.
48:44 Kurt Baker: You’ve been listening to Master Your Finances. I am Kurt Baker, certified financial planner professional, and we’ve been with Scott Needham, the President of Princeton Air Conditioning right here locally in Princeton, but works all over the place. You can reach me at either www.cwmi.us or call me directly at 609-716-4700. Our Facebook page is facebook.com/masteryourfinances. You can also view this podcast and all of them on masteryourfinances.us and together we can master your finances, you can enjoy financial peace of mind.
49:15 Announcer: The financial views and information provided by Master Your Finances and its guests are intended for general informational purposes only. The material discussed is not designed to provide listeners with individualized financial, legal or tax advice. Always consult your financial planner for professional advice.
49:32 Announcer: You’ve been listening to Master Your Finances with Kurt Baker, a certified financial planner professional with Certified Wealth Management and Investment, exclusively on 1077 The Bronc and 1077thebronc.com. Tune in every Sunday morning at 9:00 to learn everything you need to know about personal and small business financial planning including investing, estate planning, insurance, employee benefits, 401k, 403b plans, retirement planning and more. Missed an episode? Go to 1077 The Bronc to download and listen to previous shows. Master Your Finances is underwritten by Certified Wealth Management and Investment, focusing on personal financial and small business plan. For more information about all certified wealth management and investment services online, it’s cwmi.us. Be sure to listen every Sunday at 9:00 to master your finances exclusively on 1077 The Bronc and 1077thebronc.com.