In this episode Josh talks with John Fairclough, President of Resicom. They talk about how John has organized his business in a unique way centered on adding the services his customers need.
John Fairclough (FAIR-clow) founded The Resicom Group to help retailers optimize the way they improve and maintain their store environment.
Under his leadership, the company has evolved from a local construction company into an international provider of facility maintenance and construction services. Now John enjoys sharing his story to inspire others.
In today’s episode you will learn:
- What is the horizontal growth strategy?
- Difference between focusing on the service you provide and your client’s needs?
- What’s the cost of offering several different services?
- How to make sustainable recurring revenue?
- How to make roll up strategy works for you?
Narrator: Welcome to The Sustainable Business Radio Show podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. In The Sustainable Business, we focus on what it’s going to take for you to take your successful business and make it economically and personally successful. Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he’s learned through his 40 years of owning, running, planning and thinking about what it takes to make a successful business sustainable.
Josh: Hey, this is Josh Patrick. You’re at The Sustainable Business. Today, my guest is John Fairclough. John is a really interesting guy. He’s got tons of businesses going on. The thing that I found most interesting during our pre-show conference was the way that he organizes his business. It’s what I call a horizontal growth strategy. We all know what a vertical growth strategy is, you’re in the same pocket and keep buying it. A horizontal thing is you start offering your customers businesses that are allied to what you do. As we talk about it, we’re going to talk about why that’s a really good strategy and how John actually does that. So instead of me wandering on and talking about something John does, we’ll let him talk for himself, so we’ll bring him on.
Hey, John. How are you today?
John: I’m great, Josh. Thank you.
Josh: So, John, tell me about this growth strategy you have. I mean, the growth strategy which is the way you run your business. So, talk about that for a bit. What makes it different than what may be the average guy in your industry does?
John: I believe that most people spend a lot of time on a service. And so, you’re branded a certain service type or provider type. And then, that’s the business that they operate in. For me, I’m more client-centric so I think about the company that I want to do business with and then what services I would need to provide for them. My main company is a contracting company that provided a bunch of finish work. We were painting, and flooring, and things like that, fixing things that break. We evolved that business into providing significantly more services in a much larger geographic area. So, if my clients wanted me to go to Western Europe, I went to Western Europe. We started off local. Then, we went regional. Then, we went national. Then, we went international just concentrating on what our clients needed.
Josh: What kind of extra services would somebody need from you that you would want to offer them or they would want to buy from you?
John: If you’re providing a single trade, this is in the construction services world, and so the difficult piece is to find somebody that knows how to communicate for retailers. We primarily work with retailers and restaurants. Their businesses are spread across sometimes multiple countries. How do they keep that same consistency everywhere? And so, what we’ve figured out was our ability to communicate, our ability to solve a project and then provide documentation and support for people that are executing it anywhere – basically, US and Canada, that then had some value. And so, we just focused on what the customer needs are and we add the expertise to be able to service. That’s how we grew from local into international.
Josh: Well, specifically, what type of services did you add to— you’re doing painting, and flooring, and ceilings, and re-fitting. Okay, that’s a service but I own a fastfood place and I have a thousand units, what else do you do for me?
John: We mentioned some of the trades that are there and it’s based on like the construction model. If you think about the way a store is built, it’s built using– obviously, it’s in the construction world. Now, once that it’s built, it needs to be maintained. And so, you’ve got that aspect of the construction of the unit. Separately, these places are finding new ways to connect with their customers. Whether it’s a kiosk within a store, or instead of it being traditional marketing in the window, now they want a digital sign – like a television screen where they control the marketing from home office with a click of a button rather than sending out a thousand posters that need to get hung, put in a roll, unrolled, flattened, then installed to hang in the front of the store, or the restaurant, or whatever it may be. These are some of the other services that we provide.
These locations have leaks. Sometimes it’s a roof leak. Sometimes a tenant up above has a leak. Well, there’s no trade called leak management but that’s what we do. We built a leak management team within our company that worked with insurance companies to figure out, “What’s the right way to document things? How does it need to organized? What’s the right communication rhythm?” So, we built a service just called Leak Management. That’s an example of a new service for that client.
Josh: The typical interior subcontractor will just do interior work and that’s it. What you’ve done is you said, “Okay, here’s other things my customers need. And if I can provide them two, or three, or four, or five of these other things they need, it pretty much makes it difficult for people to compete with me.”
John: If you’re defined by the trade, you’re a commodity. If you’re defined by the customer, you’re of high value. That’s where we want to be. We want to be in that partnership level.
Josh: Right. Are you able to get higher prices as a result of offering several different services?
John: Actually, by offering more services, it reduces what my costs are to carry that. If we’re able to do the same, it actually grows our margin. We like to be competitive. We are probably able to get more money than someone else could give but we don’t really test the market in that way. We’re comfortable with the margins that we make and how we go about it. We like the way that they count on us and that we count on them. It’s more of kind of like a marriage than it is– we want to be in difficult-to-remove relationships just like we want to be key that they use us all the time, that we are the contractor of habit for them.
And then, we want to be strategic in that we come in and solve the new challenges that they have coming up. And so, we don’t want even a sniff of being a high-priced provider on that. We don’t mind passing on those efficiencies and driving more value. I believe that if we’re not better, faster or cheaper, we’re probably really not an option so we have to make sure that with what we’re offering, it delivers good value.
Josh: One of the problems I see with construction companies is they’re basically as good as their last bid. One of the things we teach people in creating a sustainable business is you have to have recurring revenue of some sort. The typical contractor, I teach recurring revenue as a sales system not as a real recurring revenue. It sounds like you’ve actually built a construction business that has recurring revenue because your customers stay with you year after year and do things with you every single year. Am I correct with that?
John: Sure. The same concept applies. We don’t want to be that contractor that bids everything out. We don’t want to get sets of blueprints and bid on tons of blueprints. And then, off of that, we land 1%, 2%, 3%, or 5% of the things we bid on. We land somewhere around 80% or 90% of what we bid on.
We have an incredible close rate because we do have that ongoing relationship. We negotiate very good service-level agreements (SLAs) with our customers. We do take things that would be ordinarily purchased ad hoc and turn them into a program that does create recurring revenue. Our recurring revenue is probably— we fix things that break. We won’t call that recurring revenue even though it comes back. What we call is our program work and that’s the number that we look at that’s like recurring revenue. It’s probably 40% of our business is recurring with maybe 35% being fixing things that break as needed. And then the balance of it is discretionary. And so, when we get into construction and CapEx projects that aren’t discretionary projects that aren’t required. Those are the ones that they typically shut off when they have to tighten their belt or the economy takes a turn in the wrong direction. This is the way we’ve kind of built our moat.
Josh: It sounds like a great moat as far as I can tell. I think that you probably should be pretty proud of yourself for what you’re doing. In fact, I don’t know of many contractors that do what you’re doing so it’s kind of an interesting thing. This is sort of an out-to-lunch question but I’ll have to ask you. There you have it. Have you thought about your exit strategy at all?
John: Sure. Right now, we’re working on a seven-year plan that gives us a certain set of options. If we’re successful in hitting the things that we’re trying to do over the next seven years which we actually think we can do in five years but if we get to that position then there’s a lot of options that are on the table for us.
Josh: When you’re thinking about next owners of your company, are you thinking about a sale to an outsider or a sale to your managers?
John: Actually, I think we would go to a sale to outsiders.
Josh: Okay. So that fits in well. I assume you’ve got a lot of folks sniffing around, trying to buy you guys right now?
John: Every couple of months or so I’ll get a call. Probably, three times a month, I get an email from different folks. I believe that when we get closer to our goal, we would probably accelerate some sort of a roll-up strategy where we’re buying at a lower multiple and then selling at a higher multiple to increase the return.
Josh: Yeah, those are really hard strategies to make work. The history of roll ups is not a great one.
John: Well, in our industry, the neat thing is basically if we hired a salesperson or sales team that came in with and they had a bunch of clients, we’re already providing the services, the nuts and bolts of what they do, the pieces that we provide that they don’t so that we kind of productize our service. That recurring revenue piece is not common out there because it’s just our industry is built on the construction industry and not on the facilities industry. That’s kind of where we’re cutting our path here. And so, if we are able to acquire those accounts, we don’t need their manpower. It’s not like we’re looking for all of their carpenters and all of their painters and all of that. That’s not our model. But we do need the accounts. So, a roll up, for us, would be much simpler in us acquiring competitors because of our infrastructure.
Josh: A roll up typically is you’re bringing in the management team from the company that you’re buying. They’re part of your company and they sort of run their little piece of that. Eventually, you get to a certain size and you sell it to a bigger fish down the road. Is that what your plan is?
John: Certainly, you want to keep the key players in place but the companies that we would go after would be smaller companies, $10 million in sales, $15 million in sales, $5 million in sales – whatever would be strategic, wherever we would be acquiring the accounts that we’d want. And then, we would like to keep those key people around because, when a company sells, all their key people leave, the service goes down and the customers leave. The whole point of us acquiring it would be related to the customer acquisition. Or, if they handled a certain service that we don’t, like we currently don’t handle equipment maintenance. So, if we acquired an equipment maintenance company for fryers, and ovens, and everything else for restaurants, if we brought that on board, we wouldn’t want to lose that piece. So, whoever we would go after – and we’re currently not exploring anyone. If we were, these are some of the things we would be paying attention to.
Josh: I’ll give you some free advice. You can take what you will. One of the reasons roll ups don’t work is because when they bring in the management team from the old company, the management team is allowed to run their company pretty much the way they used to or the acquiring company that’s doing the roll up wants people to conform. As you probably are aware, private business owners are not the best employees and they don’t take directions specially well so these folks tend to kind of wash out pretty quickly in a roll up so the value that people thought they were going to get, they didn’t get.
Now, the exception to that rule is Cisco Systems. Cisco knew how to acquire companies. They had a system in place where they would Cisco-ize them from day one. Your company, The Resicom Group, would buy somebody and they would become Resicom right out of the box. They would adopt your systems right out of the box and you’ll have a system for how to do this and do it successfully. That makes a roll up work well.
John: We explored this with a company two years back. Basically, what happened was we dated for a little while where I went in and I instituted a lot of the pieces that would be core to us. We don’t have to have everybody put their shoes on the same way but we do want to have our meetings organized a certain way. We do want to have certain things executed properly. We do want to have the same core values and other things. I worked with that company for a couple of years before we were going to acquire them and got them aligned, got them to really support and look forward to that future where they were going to be with us. So, if we were going to do anything, the piece with me, I’m very thoughtful about what I’m going to do is I don’t just pull the trigger. Whatever the situation is, I wouldn’t reveal it. Our plan for our growth for the seven years is 100% organic. None of it is through acquisition. Acquisition only speeds up the timeline.
Josh: The other thing is that when it gets time for you to actually sell your company to a third party, most buyers are going to look at your company as a financial opportunity to buy. I actually think you’re an intellectual capital sale which means you should get a much higher multiple. What intellectual capital sale is, and if you know – John, I’m going to tell, for our audience what it is, is that you’re basically the valuable asset the buyer is buying is the way you run the business, not the cash flow from the business. Your business setup is so unusual and so interesting that a buyer should be paying you a large multiple because of the way you have your business organized and not so much because of the cash flow from your business although I’m sure the cash flow from your business is very strong.
John: I hope you’re an advisor to whoever would acquire me.
Josh: I will be better as an adviser to you to help your M&A people structure you properly [laughs]. I do this stuff occasionally. It’s something I’ve always enjoyed doing.
You know, when you sell a business, it’s important to know who the target buyer is and why the target buyer will be interested in you, what about you is attractive and how do you handle the warts in your business because we all have them. Too many people go to market without thinking about the warts or thinking about what it is an acquirer would really want about their business. Those who do that get significantly higher multiples of sale than those that don’t so it’s really that simple. You really have some really interesting stuff.
How did you get started in this business? I mean, I’m just curious about that.
John: Well, I believe that the ugliest items are the ones that can make us very distinct. Those are the things that we really need to work on.
John: I worked with different uncles. My great grandfather was in the trades and all of his kids were in the trades, and their kids were in the trades. I needed to go to work. I didn’t have any money. I was a young guy so I went to work for an uncle. Then, went to another one. Cut my teeth there with him. My first year, I made $13,000 working my tail off. The next year, I doubled his business and we were off to the races.
I was in my early 20’s. I started my company when I left my uncle which was really a difficult thing for me to do but when I did it I had no money, I had no equipment. I didn’t have anything. Eighteen months later, we had 80 employees so we were cranking.
Josh: Wow. How many employees do you have right now?
John: We’ve changed our model from being where we self-perform everything. We’re under a hundred now but we have companies that primarily only work for us so they might have 10 guys or eight guys, each of the different companies. There are like 25 or 30 of them where we are their only client. A bunch of them are former employees of ours that evolved and maybe relocated and hired their own team and we’ve helped them train them and things like that. We try to keep our staff a little bit more nimble and outsource a lot more but outsource in a dedicated way.
You had mentioned earlier how you’re only as good as your last project or your last bid. In construction, we have a completely different philosophy, “I want to be my vendor’s favorite client, I want to be my team’s favorite employer, and I want to be my client’s favorite vendor.” And so, we have to make sure that we’re paying attention to those things and taking the steps that help build a really good relationship such as paying them quickly, investing time in them, training them, being committed to giving them the work, making them a priority in their area, being available to answer their calls when they run into trouble. Having the ability to answer the problems that they’re facing and support them. There’s a bunch of things that we can do become someone’s favorite client with the vendor side. We’re pretty committed to getting those things done.
Josh: There are two things you had to learn along the way. You had to learn probably pretty quickly when you’re new in the business and the overarching thing is how to delegate. Delegation requires two things – trusting your people and an understanding that people are making mistakes. I’m assuming you had to deal with those issues when you first started growing. How did you learn how to delegate?
John: I like to be given my space. There’s been a bunch of times in my life where I wasn’t given enough space to succeed. It’s probably kind of natural for me to want to have a little room to move around and fool around with something to figure it out. And then, the other thing is probably just out of sheer need. I grew up extremely poor so we were always dependent on other people. I’ve never taken it as a hit to my pride because I need help. If I wasn’t going to eat, I’m not going to be too shameful in asking for some food. This might be a by-product of a very difficult upbringing is the ability to see that everybody can make a difference.
Just because I didn’t have any money, it didn’t mean that I should be overlooked. I had something good to say or I was smart or whatever the case is. I always valued other people and I knew that I depended on other people as well. And so, I’m comfortable with people depending on me and depending on them.
Josh: So, John, if somebody wanted to find out more about you and your company and what you do, how would they go about doing that?
John: The easiest way is just to shoot me an email, firstname.lastname@example.org.
Josh: Again, email@example.com. Can you spell fairclough?
John: Sure. JOHN F as in Frank, A-I-R-C-L-O-U-G-H.com
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This is Josh Patrick. We’re with John Fairclough. You’re at the Sustainable Business. Thanks a lot for stopping by. I hope to see you back here really soon.
Narrator: You’ve been listening to The Sustainable Business podcast where we ask the question, “What would it take for your business to still be around a hundred years from now?” If you like what you’ve heard and want more information, please contact Josh Patrick at 802-846-1264 ext 2, or visit us on our website at www.askjoshpatrick.com, or you can send Josh an email at firstname.lastname@example.org.
Thanks for listening. We hope to see you at The Sustainable Business in the near future.