What actually happens in a quarterly planning session?

Kaustubh: Weekly or monthly P&L, like I worry that people are gonna over-correct because small business P&Ls are so noisy. Brakes fail on a truck, suddenly you spend 10K on that, and like your repairs and maintenance budget for that month got blown. So like I don't want us to suddenly over-correct and be like, "Oh, God, like we blew our budget that month. Like we gotta like cut back here." When it's like, no, no, no. Like, so my gut is it's quarterly is like what will actually smooth out a lot of that. Like, 'cause the problem is if you wait too long, they don't have enough time to react and fix stuff.

Sam: Okay. Trimesterly, quarterly, it doesn't really matter. When you get to the start of the quarter or the trimester where it's slow because of the off-cycle season, that's where you say, "Okay, guys, our P&L objectives are less the importance here. It's more about like improvements on how the business runs so that when we get to the busy season, it runs smoother." So you do like HRIS improvements in the winter, not the freaking summer.

Kaustubh: All right. Welcome back to The Intentional Owner.

Sam: What are we doing?

Kaustubh: I think we're gonna record a podcast, but I did write up some notes. It's my turn.

Sam: I am so glad you're leading today.

Kaustubh: Yep. I agree. I am glad as well. But good. Maybe we'll get some good takes from you today. Okay, so we are doing our Q4 planning session at Blooma on Tuesday. And which, like, Flavia and I have done together, like, kind of just me and her coming up with project plans and kind of quarterly goals and stuff like that, and these are more, like, work on the business goals, right, business improvements, not like, you know, revenue goals and stuff like that. And so I was curious to hear how you've thought about kind of quarterly rocks or planning and, like, you know, assigning big project initiatives and, like, allocation of that between your day-to-day versus your, you know, for your team, for yourself. That's it. That was kind of, like, the broad topic I had in mind.

Sam: Yeah. So it's a really good one, and to be clear, like, as of a year or so ago, I would've given you some, like, vague, "Yeah, this idea, that idea." Not until, let's call it a year ago did we, at PSG, hire an implementer to help us implement, like, EOS throughout the org.

Kaustubh: So you guys are actually running EOS, like, through the org now?

Sam: Totally through the org. Each of the locations have an implementer, so it's a little bit of a challenge logistically.

Kaustubh: You must be spending a lot on implementers.

Sam: No comment. But I actually don't know the cost, so I can't actually opine on that, but I assume it's not cheap. It's not cheap. The problem is, is, you know, it's so important for us to integrate our business over our capital partners' hold period that, you know, like, the cost of that implementation is... I'm not saying it's nothing, but, like, at our scale it's really hard to do that. What are we gonna do, fly around to every location? And, you know, we're talking about everything. So we run EOS, so it's, like, two-day annual planning meetings, full-day quarterly planning, weekly level 10s. Like, can you imagine how that cascades down?

Kaustubh: Oh my gosh, yeah. You could almost in-house an entire EOS implementer to just run your EOS.

Sam: I bet you could. Yeah.

Kaustubh: Maybe you might have one and you might just not know.

Sam: No, I would know that. Ours is great. We do it here in town, in Tampa, Florida, where, like, I'll call it our HQ is located. I think maybe half our leadership team sits here. So yeah, like, it's been a fantastic start. Now, we have done it probably a little bit backwards insofar as, like, ideal EOS implementation would be, like, a bit of a gradual process. You seriously take your time to lay out your strategy in the VTO and then, you know, work your way down to more of like the quarterly rocks. And we kinda jumped in midyear last year, so we kinda went rocks, not rocks first, but we had to start with more short-term goals than we otherwise would have.

Kaustubh: Interesting. Okay.

Sam: So I would've said again, like, I'm a part of so many smaller companies that almost have no annual planning function whatsoever. And EOS is just a tool, and so it's just a tool to do the broader activity of creating like a big long-term strategic plan, and then to boil it down into shorter and shorter chunks, objectives, goals, whatever you wanna call it, that gets you all the way down to like the weekly level, where so long as you're like achieving your weekly performance objectives or KPIs, in large part it should lead you to your like long-term strategic goal. And so I think like the discipline and the tool of having to think really big picture about what matters in your case to like literally you, the owner, and your big broad vision. And then boiling it all the way down into like 10 year, maybe three year, maybe one year, and then quarterly goals is, it's one of those things, it takes so much time and energy, most people just kick it off. Like, or kick it off meaning they defer forever.

Kaustubh: They punt.

Sam: Yeah. They punt. So I mean, I'm also like an insider to your guys' business. So I get to see behind the scenes a little bit. You do an amazing job of like not overdoing it, because you can overdo this strategic planning, and it's a perfect amount. So tell me about what you're actually doing tomorrow.

Kaustubh: Well, so yeah. So I mean, the challenge with EOS for me, where... 'Cause I've thought about should we use EOS, I've always had this issue of like we're not big enough. But obviously there are companies that are implementing EOS with like five people, so like there's different ways to do this. But so like two years ago I hired Flavia as our operations manager, who as of today actually is now promoted to director of operations, which is exciting, as I will announce it to the team on Monday. But by the time this podcast comes out it'll be known to the team. And so like for the last couple of years, Flavia and I have been the only people that are kind of actively working on the business per se, other than our PHC leader who's kind of building out that service division, Plant Health Care. But now, you know, on Tuesday when we have our kind of Q4 planning session, we actually have some functional leaders now, where, I mean me and Flavia obviously, but then we have a production supervisor who's sort of like tasked with day-to-day dispatch and trying to make our crews better equipped, more efficient, all of that side. Alan, who was our PHC leader, he's still kind of in that role and building on our PHC systems and processes. And then Roseanne, who's in the Philippines, is our customer service manager, and really kind of the client facing side. She manages the team who are answering calls. Right? And so we actually have like real managers now, which is crazy compared to even two years ago. And so I have this hope that, and Flavia and I have started to build out an agenda and some like ideas we have for the goals for the quarter. But like my hope is to basically come out of that where each of these people have at least one project that they are championing that are like make the business run better or more profitable or more efficient or grow or whatever, right? Something outside of like how do we run day to day.

Sam: Right. And to be clear, more than how do we do our specific role better or like achieve more from it? So it's some broader strategic project is what you're talking about.

Kaustubh: Correct. Like, so the examples we're considering are, like, as one example this is, like, the smaller version of an example is we get a bunch of questions to this customer service team about a quote, right? Like, "Hey, the arborist said this, like, I actually wanna do that. Can they update the quote accordingly? Can you make this edit to the scope?" And blah, blah, blah. And like, so these happen constantly throughout the week, and we're giving out a lot of quotes a week. And so it just like, you know, like you don't need a high percentage of people to have questions for there to be a lot of questions. And our arborists are driving around all day, right? So like they're checking Slack on their phone from time to time, but they have chunks of computer time, and they have chunks of, like, driving time. And so we just don't have a great system yet for helping the arborists keep track of all those follow-ups. And, like, we have some systems. Like, we have created to-do lists for them in our CRM that they can kind of work through. But we don't have a really clean way for the customer service team to know, "Hey, like, did you ask Kyle that question? Has he gotten back to you yet?" We don't have a view. Those to-do lists, the way our CRM is built, like, the to-do lists are only visible by the person who has them. They can't be visible by the whole org. And so we're thinking about, okay, do we build out a dashboard in Slack, right, where people can see all the to-do lists, who's assigned, who's assignee, where they've done. So that's like what I would consider a small example is, like, task management to improve, like, visibility and communication internal. So that's a small version. A larger version that I think we might kick to Q1 is for our plant health care division. Like, we kind of need to just rethink through our customer journey, right? And how... Like, we're building that business well, it's growing well, but it's becoming more and more chaotic, and the number of questions we get from clients keeps going up, which means, like, we are not communicating something to them well. Like, people are getting confused. And so we need to kind of take that one back to first principles and be like, "Okay, given the client base we have now, given what we've learned to date, how should a PHC job move through a system?" And like what are all the little pieces that should happen? And we did this with the tree business, like the actual normal tree care last year, and it's been much better this year, where, like, I can see, like we're growing, but our total, like call volume is actually down, right? Which is like, that to me is a signifier that it's working.

Sam: Yeah, yeah.

Kaustubh: And so, but PHC right now, our call volume, I don't have exact, you know, splits, but like anecdotally I can tell our call and question volume is keeping up with exactly as much as we're growing and like that's a brutal way to live, 'cause it's just like the volume keeps going up, and so we gotta make that better. So that's like a bigger undertaking. That's like rebuild the entire journey of a PHC job A to Z.

Sam: Okay. So I think this might be more helpful because we are running more like pure EOS, super very clean framework. We try to stick very rigorously to the format of EOS. But I would agree that it probably would feel like overkill for most, you know, searcher bought and acquired businesses that are now, you know, between two and 10 of revenue. So you said next week is a one-day offsite quarterly planning?

Kaustubh: We're only doing a half day, but yes. So I've rented a meeting room in like a kind of a WeWork kind of a space.

Sam: Yeah. Okay. So I wanna like get into the weeds. Are you all right with that?

Kaustubh: Yeah, yeah. Let's do it.

Sam: Okay. So you guys are going offsite. I think that's really important, right? Because like, not only does it mean you're together in person in the same place, but it means you're also away from like the dings and the pings and the trucks and all the stuff that distracts you when you're in the office.

Kaustubh: Exactly.

Sam: A lot of value to that. Who was invited?

Kaustubh: It is me, Flavia, our production supervisor, Zane, our PHC leader, Alan, and our customer service manager, Roseanne.

Sam: Got it. So essentially, your right hand and her three lieutenants.

Kaustubh: Correct. And the customer service manager still reports to me, but yes, effectively.

Sam: Okay. And, like, what's the agenda? How do you actually... Do they have an idea of what you're trying to do ahead of time, other than, like, we're planning for the quarter?

Kaustubh: Not a ton. I mean, Flavia's drafting the agenda right now, so we will give them something to react to in advance, like, but, like, on Monday, right? Not, like, a week in advance. And so I'm imagining an agenda, something along the lines of, we come together, we kind of clarify what we're doing, and then we kind of go through our laundry list of potential projects. Like, we do kind of an ideation phase of, like, Flavia and I are coming prepared with several projects that we think are probably worth doing. But opening the floor to, like, other things that might be up there, and then sort of whittling those down. And I think the outcome we're trying to get to is a project champion for each one.

Sam: Okay. So, like, in our quarterlies, we take stock. So, like, we'll say, "Hey, this past quarter," and we'll go through, you know, the measurables, right? Like revenue, earnings, whatever our KPI measurables are, and take stock of the last quarter. Will you do that with them?

Kaustubh: I wasn't planning to, but I could.

Sam: Yeah. Well, I mean, and I know a big one, a discussion we've had in the past is, like, how much visibility do you give people into both P&L and KPIs?

Kaustubh: No, that's a good question, and actually Flavia and I were talking about that today, where, like, I give Flavia full P&L visibility, but I give the rest of the team kind of, like, effectively gross margin visibility. But as we are building this out, like, I mean, like Zane as the crew supervisor, like he is now managing a lot of below gross margin spend items, like around fleet and maintenance, right? So, like, he does need to see more and more. I haven't quite figured out yet what format I'm gonna display that in.

Sam: Got it. So like even if, so in our meetings we have, I think there's nine of us, and, you know, generally we all have our own coverage areas, and everybody sees everything. So you'll do the same thing. You'll just sort of maybe the everything is a little less.

Kaustubh: Correct. Yeah. I think that's right. But yeah, I mean, like, Flavia and I were talking about, like, what is the right cadence? 'Cause what I worry about is if you give weekly or monthly P&L, like I worry that people are gonna over-correct because small business P&Ls are so noisy, right? And like I don't want them... Like, you know, we have whatever, like brakes fail on a truck, suddenly you spend 10K on that and like your repairs and maintenance budget for that month got blown, right? Like that doesn't mean we did something wrong.

Sam: Five payroll weeks.

Kaustubh: Yeah, exactly, right? And so that's where I'm like, I don't want us to suddenly over-correct and be like, "Oh God, like we blew our budget that month. Like we gotta like cut back here." When it's like, no, no, no. Like, so my gut is it's quarterly is like what will actually smooth out a lot of that while giving our team... Like, 'cause the problem is if you wait too long, they don't have enough time to react and fix stuff.

Sam: Totally. Okay. So I'm getting granular here because I think I used to wonder what this was all about. Like, okay, I get it. We're gonna go plan for a quarter, but nobody talks about specificity here. Okay. So you're gonna go take a little stock. You're gonna talk about like, hey, these were the quarterly goals or whatever financial metrics, yada. Did you have special projects last quarter?

Kaustubh: We did, but it was just me and Flavia working on them. So we can give some readout on that, but this is the first time I'm doing it with more people.

Sam: Okay. And then are you gonna set financial or KPI goals in that room for the next quarter? Measurables per se, or is this really just a, like, special projects discussion?

Kaustubh: Yeah, that's a good question. I have envisioned this as more of a special projects discussion, but I do think over time we need to evolve to have quarterly, like, effectively, like, board review, right? But like it's internal. So I don't think I'm gonna do... Yeah, but I'm curious to hear more on that.

Sam: Well, no, like what has surprised me is one, how intense and long our quarterly plannings are. It is legitimately 8:00 to 6:00 and we use every second of it. But it's also because we spend, you know, two-thirds of it identifying issues, prioritizing the issues, and then trying to solve and create, you know, the plan around how to solve.

Kaustubh: And that's like, there's a lot there. In EOS, like that's the L10 format, right? Is like you start by identifying issues. Am I... Well, no, 'cause I've read the book, but it's been a long time.

Sam: The L10 is like, it is a... It's meant to be a weekly hour-long check-in meeting that's very structured and on point. That's like you come with a scorecard and you have reported to your weekly scorecard objectives. Did you hit? Did you not? Why? Was it an issue? Drop it down. We'll cover it in the next section, then get to the issues. Here are the issues for the day. Try to resolve and solve. Is there a to do? It's like very, very structured.

Kaustubh: Right.

Sam: In the quarterly though, I think where I've landed is, as PSG's gotten bigger, I'm surprised I didn't use more of its, like, framework when I was spending more time in small business, 'cause it's so useful, right? It's a chance when you're away from the office for, like, your key lieutenants to see more of the big picture. And my guess is, like, these special projects that you have are not there for the, just the sake of being there. They're there to achieve objectives like, you know, maybe employee retention because life is better if you have some of these projects that are smooth. You know, customer retention, repeating customer base, ultimately, like, just revenue profit. And to sort of connect the special project objective to the end goal, pretty useful, in my opinion.

Kaustubh: No, I like that, right? Like, what is the... It's not just what is the project. It's like, what is this actually, what KPI is this impacting? And, like, presumably that we've picked that KPI 'cause it matters.

Sam: Right. And then why does that matter? Because it drives, you know, growth in the business. And if there's growth in the business, well, then guys, like, we're gonna need seven people in this leadership meeting, and that probably means you four are even more senior and will have more people reporting to you. And so I don't know. I've been doing it that long.

Kaustubh: Okay. And so you guys go through, you do the take stock, then you start to put together from that the issues list?

Sam: Correct. We will actually then, so we'll, like, revenue, earnings, and measurables, we will take stock. And we try to come with an agreement around the next quarter's goals for revenue, earnings, and measurables. So that's kind of, like, baked when we walked in. But then what we'll do is we'll go back to last quarter's Rocks, right? Quarterly goal. And we'll say, like, "Did we hit it? Did we not?"

Kaustubh: What's an example of a Rock for you guys?

Sam: Like, for one that I'll impact, for example, it'll be something like let's say we have a geographic hole in our business. It'll be execute an LOI with a business above a certain size in that geographic market.

Kaustubh: Yeah. Okay. Got it.

Sam: But it's quite tangible. It's gotta be SMART, right? Like, a Rock is a goal. It's gotta be SMART. But most of the goals relate to the business themselves, right? Like, and we've spent some time where our Rocks historically have gotten a little off from, like, just the core of driving revenue and earnings. It's like we spent maybe, maybe our Rocks were, like, two steps away from, three steps away from revenue and earnings. It needs to be more in line.

Kaustubh: Right. Yeah. I mean, we've made that mistake too. Well, I mean, like, as an example, we have one for this upcoming quarter that'll definitely be on our list, which is Flavia's owning us moving onto an HRIS platform. Like, we're putting all... Like we're, that's just like we have to do that as a business, right? Like we just, we're too big now to kind of run off of like a bunch of Dropbox folders, and so we need to do that properly. But that's one that it's like, it's kind of hard to connect the dots to the end there. So I don't quite know how to articulate that one.

Sam: Well, I mean, what do you mean you have a hard time articulating it? The why you're doing it, or?

Kaustubh: Or like if you were to make it a SMART goal, right?

Sam: Oh, I mean, you know, the measurable, we kind of just say if it's not like a numbers-based thing, it just needs to be a yes no.

Kaustubh: Right. Okay, yeah, that's fair. Which is, yeah, we can definitely do that.

Sam: So like launch HRIS operationally by 11/27.

Kaustubh: Yeah, that's right. Okay. That's straightforward enough. Okay. And so then you would go through last quarter's rocks. And then, okay, what's next? Yeah, keep rolling through.

Sam: Yeah, so like we'll try to recraft... Sorry, the rocks will actually, if I remember this right, again, like this is the hard part, is I wouldn't be able to implement this if it were myself. A big one is like, okay, did we... Revenue earnings measurables, did we miss? Why? Go through rocks, the quarterly goals, did certain of them not get achieved? Why? And then another sort of broad brainstorming session around issues, and it all turns into like a, for us, it's like 30 to 40 issues on a whiteboard. Just rip issues on a whiteboard. And then like going through and the process of consolidating issues, you know, 'cause sometimes three of us might say like the same underlying issue three different ways. And then you have a much shorter one, so maybe it's 15 core issues. And then we will end up at the end of the day trying to prioritize five to seven of them as like the fundamental issues that we are going to turn into quarterly goals for the quarter.

Kaustubh: Yep. Okay. But these are issues... I guess, let me think about this. I guess the solution to issues are different than the issues. But yeah, those are the issues you're gonna attempt to address.

Sam: Yes. Yeah. And to be clear, like we don't necessarily leave these planning meetings saying, "We know exactly how we're going to address X issue."

Kaustubh: Right. Oh, okay. I see.

Sam: And so that's the hard part. Like for you, the issue of HRIS was like something was going on that was causing chaos. And the solve was to identify an HRIS.

Kaustubh: Yes. Which we've done now, yeah. But now we have to implement it.

Sam: Yep. So the nice thing is, is like in smaller business, there's probably not 100 issues in the business, right? Like maybe there's 20. And it's probably fairly easy for you to prioritize at this point.

Kaustubh: I think so. And then you are assigning them to people?

Sam: Yep. And then that's largely it, right?

Kaustubh: Right. And so I have blocked off another half day, like the following Friday, like kind of like, whatever, 10 days later, where I was thinking we would use that as more of a like, okay, now that we know what project everyone is leading, let's make this a little bit more of a working session on actually like operationalizing a project plan. Because I do think our team's a little bit different than what I imagine your team is, where it's... I mean, we're just a lot smaller and scrappier, and like our leaders are less used to this method and this motion in the business. So I was thinking we would sit down and like go through each project plan as a group, and actually sit down and think through all the milestones and the achievables to get to the end. Which like, I think ideally, obviously everyone would come to that meeting with a draft of that probably, but regardless, like the goal I think of the second half day would be to come out with more of a project plan for each of the initiatives.

Sam: Okay. That's great.

Kaustubh: Right? Yeah, okay. I'm sort of thinking out loud with you. That's good.

Sam: Yeah, yeah. No, I think that's right. I would say we probably leave those meetings very clear about the issues, the quarterly rocks, and why we've chosen them. Maybe not so clear on how this all will exist, but that's what the experts are for, like of each functional area.

Kaustubh: Right. Like, they're really supposed to go figure out, how are we gonna solve this, not just what are we solving.

Sam: Correct.

Kaustubh: Yeah. That's interesting. I imagine we will spend more time on how we're gonna solve it. I think the like what we need to solve will be more obvious.

Sam: Sure. I mean, I'll get your titles wrong, so I'll leave them alone, but like you don't need the person who's going to have to own the HRIS implementation to like involve somebody that's in marketing.

Kaustubh: Right. No, that's right. Okay. And then when do you actually do these in the year?

Sam: So like the annual, which is actually two days offsite, is happening at the very beginning of October. So our annual planning will be at the beginning of Q4.

Kaustubh: Right. So like this is the part that's a little funky to me, right? Like, for example, like Flavia and I are starting to think through next year and what we need the business to look like, and like I haven't built a budget yet, right? And I'm not planning to for a while, but like, yeah, like you have to build the budget before your full year is done. There's these weird overlapping periods for planning that I haven't quite... I don't think there's like a secret answer here, but it's a little strange. It's like at your annual meeting at the beginning of October, like you will maybe be able to present Q3 results, assuming your team can close fast.

Sam: No, we won't. So that's a good point, like... And also I forgot, like our annual planning is also gonna be our Q3 review, Q4 planning. So it serves a dual purpose.

Kaustubh: Right. This is kind of my point. So it's like one day is effectively the Q4 and one day is actually the annual planning.

Sam: I don't know. It's actually our first time doing like a proper annual, so.

Kaustubh: Right. And then will you do a Q1 planning session in January?

Sam: Yes. Yep. One day, offsite. So we kind of pre-plan those really far in advance.

Kaustubh: Right. So it's basically January, April, July, October.

Sam: Correct. And now that I think about it, we tend to have these really soon after a quarter ends because you're planning for that current quarter. In our business, where, like, you know, the POC accounting takes a lot of effort, our month-end closes take longer than most. So in large part we don't know exactly where rev and earnings land yet.

Kaustubh: So when you're doing this quarterly review part of it, are you just showing like flash numbers kind of?

Sam: Yeah. Our CFO will usually do that. And so it's close enough, right? Like in large part we know, were we on track, did we whiff, did we kill it. We just don't know specifics. And I don't think that's the point.

Kaustubh: Right? That's fine. Okay. Got it. And so like we're doing this, I guess I planned it for the beginning of September thinking that okay, like then we are ready to hit the ground running, so to speak, October 1. But obviously we have no financials yet. We still have September to go.

Sam: Well, I mean, to be clear, like you came into this, this feels more like a strategic special projects meeting.

Kaustubh: It's true. Yeah. But I like the idea of this turning into a quarterly thing, right?

Sam: Yeah, and you could probably do that. Like for all the small business owners out there listening, not a huge lift to like turn that special projects meeting into a take stock. And also like set some rev, whatever you're willing to share. Rev, GM, net profit, and maybe the measurables too, 'cause like you can lay out measurables in a way that's fine to do. And just do some like high level financial planning, and then maybe some issue identification that leads you to, "Okay, this is why we're doing X, Y, Z."

Kaustubh: Right. And then I guess the corollary here is, like, I think I'm struggling maybe more than I should about the timing of all this, where, like, in my head, I almost want our planning year to be different than our calendar year. You know what I mean? 'Cause it's kind of like, like I kind of want us to say, "Okay, like we will be done with our annual numbers, our calendar annual numbers, like we'll know them exactly sometime in January, early February." And so it's like I feel like our Q1 should really start Feb 1, right? And like I'm splitting hairs here obviously, but like that just makes more sense to me, and even if our financials are still on the calendar year, like our planning should be offset by a month or something.

Sam: I guess. There's also just like the practical reality of time, like how many set-aside off-site days can you afford?

Kaustubh: Totally. And the other element of it is we're seasonal, right? And so, like, for us, the best time of year to work on big projects that are really changing how the business operates is between January and April, right? And so to me there's... Right, but then the problem obviously is like in December you lose momentum, even though in December, like you could in theory start then. But I think the nature is we kick stuff to January once we were thinking about it in November, right? And so like to me, I'm almost thinking like, okay, if you take December as a wash, and you're just trying to get to the end of the year, and then you really have like November, October, September is your Q4. Or like call it trimester three, right? And then like our middle trimester is like when we are pushing, like and we are not actually changing too much in the business. And then our first trimester, which is like that Jan, Feb, March, April, that's when we can actually like do big changes.

Sam: So then now that I hear you, I wonder... So when you go to do your quarterly or trimesterly, like quarterly is just arbitrary.

Kaustubh: No, of course. So that's why I'm like, maybe I should be doing the trimesterly.

Sam: But the point is, is like, okay, trimesterly, quarterly, it doesn't really matter. When you get to the start of the quarter or the trimester where it's slow because of the off-cycle season, that's where you say, "Okay, guys, our P&L objectives are less the importance here. It's more about like improvements on how the business runs so that when we get to the busy season, it runs smoother." So you do like HRIS improvements in the winter, not the freaking summer.

Kaustubh: Correct. No, exactly. Yeah, and I guess maybe I'm like too easygoing about the P&L side. Like, I really think of the P&L as such an output, right? That like I don't really get the point of saying to a team like, "Yep, hey, we're missing our revenue numbers. We gotta work harder." It's like, well, I don't know. Like it's not really what drives revenue, it's not working harder, right? Like I don't really get that.

Sam: That's a good point. Well, it's because also too, like you can't go tell your crews execute more efficiently if it's a lead flow problem, right?

Kaustubh: Exactly. Like there's so many intricate, like interwoven pieces here. Every tree crew in Seattle that I've spoken to is having a tough year this year with lead flow, like most trade contractors are. We're doing fine actually, but the season took much longer to come back, and now the last month it's really come back strong, which is great. But like I don't know that there's... it's not like anyone on the team was doing anything wrong when our sales were slow. In the same way, like now our sales are much stronger, it's not like they're doing anything different now either, right? And so like I don't really get what I'm... like to what end I would manage them to a P&L.

Sam: But it depends on who's in the room, right? Like at a certain point you need all of your lieutenants in the room no matter what the topic is.

Kaustubh: Yes, this is true. I mean, I agree on that. It's more of the like when you're saying sort of special projects versus quarterly review, right? Like to me, the way I think I'm contextualizing running a business is the special projects is the whole thing.

Sam: What do you mean?

Kaustubh: Like how our company performs revenue, GM, EBITDA, all that, that's almost like that just happens to be what happens.

Sam: Oh, yeah, yeah. Right? Okay. Right. But you still take stock, right? You still lay out because I mean, I think ideally in a perfect world, and this is where I stand, like whoever that core group of leaders is, I think they should see the full picture. And maybe like we've talked about before, like they don't have ownership for the balance sheet. They have ownership for the P&L. Because it gives them the visibility into like, okay, your functional role while you spend your time only here and not, you know, so let's say you're in sales and marketing, you're not in ops, you're not in admin accounting. Doesn't matter, like you play such a large role into the broader picture, that's why we're all aligned towards that north star.

Kaustubh: Yeah. Yeah, I guess the like... I agree, right? And I want my leadership team to see that so they kind of understand what's happening in the business. I think the part that I get, maybe I'm getting spun around the axle for no reason, is like if we miss our revenue and EBITDA for Q3, like, what's the so what? Right? Like, what do we say? Like, I say like, "Yeah, we gotta do better in Q4." And everyone's like, yeah, but like we didn't do anything wrong. Like, unless there's something obvious we did wrong in Q3, then we will talk about that. But like oftentimes we did all the things we're supposed to do. And so that's when I think about like our June, July, August on the sales front, like we didn't do anything differently in any of those months. August was a way better month than July.

Sam: And yet, like it was an issue. And so while times are slow, you put extra energy into the fundamental issue, which is in order for you to achieve your annual goals, Q3 needs to be at a better pace than Q2, and Q2 was slow. So the issue was the slowness, and maybe, you know, there's a little philosophical difference here around, like, might have been the market being slow, yes, but, like, we're not the market. We're trying to generate alpha here.

Kaustubh: Totally. No, I agree with that, right? And so I guess... And I'm 100% on board with the idea that we have to beat the market. I guess the way I think we beat the market is by doing these special projects.

Sam: Oh, okay. Yeah.

Kaustubh: You know what I mean? Like, that's where it's like it's not...

Sam: But your special projects are not... Where are they generating revenue to make up for your revenue shortfall, if you had one?

Kaustubh: They're doing it on a, like, five-year basis.

Sam: Okay. Yeah.

Kaustubh: Right? Like, I think maybe that's where I'm getting at. It's like, if Q3 was weaker or Q2 was weaker, like, you can't make it up in Q3. You have to make it up on a multi-year scale.

Sam: Yeah. I think we're probably saying the same thing, which is you wanna make up... Q3 was slow. What could we do about it? But what I would say to the group is, "Well, what we wanna do is make sure in Q... Sorry, Q2 was slow. Q3 outperforms to make up for a slow Q2 so we hit our annual goal still."

Kaustubh: Right. Right. Like, you say, like... But I guess, yeah, like, what levers are we pulling to do that, I suppose, is the question. And then, and I guess, like, maybe one way you would consider it is, like, okay, let's say... Like, if your leaders are not revenue generators per se, right? And like, their time is, in theory, not already being spent on trying to make revenue happen. I don't know. Maybe I'm missing the point here, but...

Sam: Well, here's another thing too. I would say, like, because of the seasonality in your business, that's like a pro and a con. Financially, it's a con. You have to manage to that. But you can see it as a pro, which is many of these, like, operational efficiency, operational improvement fixes are so much easier to do when things are not so crazy. Right? Aren't they?

Kaustubh: Yep. Yeah. Oh, absolutely.

Sam: So, like, in a way, in the wintertime, you already know, and you budget and plan and set goals around sort of a slower revenue earnings number. But maybe you push the throttle on, like, special projects. This is where four out of six of your special projects are related to things that won't short-term improve the P&L.

Kaustubh: Right. Actually, yeah, so maybe the right way to think about this, right, is as we're doing our Q4 planning, and I'm like, "Hey, we gotta make up a little bit for Q2, right? To get to our annual goals. Like, we should be less ambitious on the special projects for Q4 and say, 'Hey, like, I would rather you take some of that incremental energy and, like, use it to figure out how to just drive revenue.'"

Sam: Yes. Yeah. Or like I got a good question for you. So I'm saying this not because I think it's a good idea, but because I think it's, like, an interesting ask. So as you contemplate, like, a commercial division build, do you make that a special project in the summer or the winter?

Kaustubh: Yeah, it's a tough one. I mean, I started the push on it in Q1 'cause it was the winter and I had time. And then when we got to Q2 and our sales were slow, I kind of had to pivot away to things that are way more actionable, right? And so, like, it was good in that, like, I started the snowball in Q1 and it's slowly rolling, but it definitely is not rolling as fast as it should because I haven't dedicated the effort to it. And so I think, yeah, like, come Q1 again, when I again have time, like, I think I will again make a strong push on it. And so like, whether it should be in the summer or should be in the winter, I don't know, but, like, the practical reality this year was I just didn't have the time to do it in the summer.

Sam: Yeah. But maybe also, too, like, there's a bit of a... In your business, B2C, the sales cycle is uber short, right? So, like, in the winter you have more time to deal with the stuff where, you know, you can work on the business. The problem is, is that the time of year where the sales cycle for commercial work comes in? Where, like, the RFQs tend to come out in the summer for next year, or late fall for next year. And maybe you have to plan around the sales cycle a little bit.

Kaustubh: Right. Yeah. What I have seen so far with the commercial side, 'cause, like, for us we're not, it's not a big HOA type of a place, right? And, like... So there's not so much of these, like, contract year type contracts. It's a lot more commercial clients having tree work come up, and it's more are you gonna get the call to put in a bid when they come up.

Sam: Got it.

Kaustubh: And so the sales cycle for commercial, what I have seen, is, like, because they have more decision-makers it's slower than B2C. But, like, if a residential sales cycle is, like, four days, right? Like, a commercial sales cycle is, like, four weeks. It's not four months.

Sam: Got it. Okay. So then ignore. You essentially then have to make sure that you're prepared to deal with an RFQ when it comes in year-round, which means even during the busy times.

Kaustubh: 100%, right? So that's, like, to me, all summer, if a commercial client reaches out to us, I'm being super responsive, right? Like, that you have to do. It's the how much am I doing the outreach to build relationships in the... that is harder to do in the summer for me. I can do it in the winter. And frankly, like, our commercial clients, like the landscaping type of clients, the property manager clients, they're also busier in the summer, and they're less interested in the, like, chitchat conversation in the summer anyways, like the relationship building.

Sam: True. I guess, well, so much of this is business specific because, like, right now part of the reason you're sorta, like, working on these questions for your plant health care folks is because it creates chaos in busy season, right? So, like, that's ideally when you would be creating and implementing the solve, but it's probably too late. Like, you're not gonna actually get that solve in place.

Kaustubh: It's too late for this year. Yeah, which is why I'm like, "Okay, my gut is the PHC thing will be a Q1 project such that we are done with it in advance of the next busy season."

Sam: Yeah. Or, like, this is again why you do it, because, like, let's say you're trying to either push rev up next summer, or you're trying to anticipate another slow cycle. Let's say, I don't know, I'm trying to pick a sales channel you haven't tackled yet. Angie's List or Meta ads or whatever is new. Like, when... By the time, and this is something I've learned the hard way, and I've been in short sales cycle businesses like yours, like the dumpster rental business where it's, like, freaking Google ads and it's it, all the way to today where, like, we'll have bids that go out, and they won't get awarded for a year. And my whole point is, especially in my business, but even in yours, if ever you get to a point you're slow, it's probably too late to fix it. You know? Like, and that's always been my experience. Once you're in the slow period, the only way to get out is gonna... you're gonna sacrifice something in your P&L.

Kaustubh: Correct. Yeah, 'cause like the short-term lever you have is like Google Ads, which is like your highest cost, right, way of getting new leads.

Sam: Or cutting price once you have a lead.

Kaustubh: Or cutting price, right. Which impacts your P&L regardless. So it immediately... Correct. Exactly. Whereas, yeah, like the commercial relationship building I'm doing that I did in Q1 has slowly paid dividends all year, right? Like, we would've had an even slower Q2 had I not done that back in Q1, right? But like if I had not done it in Q1, I couldn't have solved that in Q2 when Q2 sales were slow. That's a good point. And so I think like... But the strange thing in our business, or at least the way I try to manage our seasonality, is I really let our backlog build up, right, going into the winter, which is another way of saying I hold back our growth, right?

Sam: Yeah. You're trying to smooth your seasonality.

Kaustubh: I'm trying to smooth my seasonality. And so what that means is in Q1 we actually have a pretty... We have good P&L months in Q1 because we don't have a lot of other activity, and we actually have a lot of built-up revenue to go execute on. So that's actually... Yes, it is less busy from new leads, but it's not less busy from revenue. So it's actually a good time for me to go do that commercial relationship building such that come Q2, Q3, when the new leads should be coming in and replenishing backlog, like that flywheel has been started.

Sam: Why do you do that?

Kaustubh: Yeah. I mean, I have a lot of thoughts on this. Like the option B is you keep staffing up to keep hitting the amount of volume you have, and then you staff down as you go into your quiet seasonal period. And so the problem is, like, staffing down is incredibly expensive in a different way, right? Like, it is expensive culturally, it's expensive morally. It's expensive from like a just, like you have to keep staffing up, staffing down. Like, there's all these like training and HR costs associated with that. Every time you do train somebody to be good and then you have to let them go, and then you hope they come back next year. Like, there's a lot of sort of like hidden costs there that artificially throttling our growth. I think I have basically taken the view that, like this is how you build a stronger business long term, but it takes longer.

Sam: It's almost one of those decisions that might not even show in the data, so you have to just have a philosophical belief around it.

Kaustubh: Totally. And I think I hear it. It doesn't show up in the data, you're right. Or in the ways it does, it's quite hard to see. But you hear it when you're in like peer groups with other owners, right? And you hear the difficulties they're having with their employees or with their staffing or HR or whatever, and you're just like, oh. Like, I mean, like, don't get me wrong, we have plenty of issues also with staffing and HR, just like any small business, but I am like 95% confident that we have structurally fewer than other companies of our similar ilk and size and blah, blah, blah, like holding all else equal. And I think what that means is, if I have less headaches related to that, I have more bandwidth to do other things in the business that are good, right? And so, yeah, like we're not gonna hit our growth as easily or as obviously, but I actually have more bandwidth to go do other things with the business that help it grow in other ways.

Sam: Yep. One way we dealt with a corollary to this is just using a bit of a hybrid of like in-house and sub crews.

Kaustubh: Right. Yeah. It's tough with the sub crews and tree work, 'cause so much of our work output is subjective, right? Like tree removal, that's different 'cause like either the tree was removed safely or it wasn't, and it's like no longer there. Tree pruning, which is like 75% of our revenue, is quite subjective as to like what is good tree pruning. I mean, we don't think it's subjective. We have our own standards for it, but the industry writ large, it's a subjective measure of quality.

Sam: Is the commercial work tree removal largely, or is it pruning, or both?

Kaustubh: We're trying to do mostly pruning. I mean, it's actually a good example recently where one of the big universities here, like they put out an RFP for a couple big removals and a bunch of pruning. We lost the removal bid to our biggest competitor, but we won the pruning bid, which is like kind of perfect in my mind. Like they're doing the removal this week. Like they've got like a million dollars of equipment out there. And so like, yeah, like they probably should win that bid, right? I don't know what they bid on it, but like they're definitely cheaper than we were because they have all this equipment so they can be more efficient as long as they can keep that equipment utilized. Whereas on the pruning side, like I think we should be able to beat them on pricing, and we did.

Sam: Interesting. They split that up.

Kaustubh: Yeah. It was interesting. We bid on both, and it's like, obviously like the hard thing is like when you think about it from our team's perspective, the tree removal is kind of like the sexier work 'cause it's like cool big equipment and a big... But like I feel pretty confident that the pruning, that's the work that's gonna come back. Like that tree's gone now that's been removed. So like I don't know. I'd rather... You know, and like the pruning, we bid a big number. It was like a five-figure project, and they picked like 25% of it that they're gonna do this year. Hopefully the next 25% will happen next year, and then so on, right? Like, so yeah, like we're not doing nearly as much as that one big removal was, but like it'll be across multiple years and like good repeat revenue.

Sam: Yeah. Higher quality revenue. Probably a much higher margin. Maybe the gross margin dollars at play were about the same.

Kaustubh: Yeah. I think that's probably exactly right. The problem is like I don't have to go figure it out again next year. Whereas like our tree removal competitor does.

Sam: Good point. It's a really good point. Interesting.

Kaustubh: Yeah. All right.

Sam: All right. So it's Friday afternoon for you, evening for me. What are you doing this weekend between trying to get away from work and are you gonna spend time on work?

Kaustubh: I'm not gonna spend much time on work this weekend. So I'm a member of our little municipal golf club here, which is, you know, like it's like 80 bucks to join, to be clear, right? But they have all these fun little like summer tournaments and stuff. So they have a match play, non-championship match play tournament, and I'm in flight 4 of four, but I'm in the finals tomorrow morning.

Sam: Cool. Yeah. 9 or 18?

Kaustubh: 18. Yeah. So I won the first round. The first round was super fun. Like, the first guy I played, we went 18 holes. We're tied up. We played two more before I won on the 20th.

Sam: Wow, nice.

Kaustubh: And then I played the second round where the guy I was playing... That was less like, the victory was less satisfying 'cause the guy I was playing with had a harder day. So that one I won. I think I won five and three. But then, and so they, there's only, I think that was the semifinals, and like the finals are tomorrow. So that's what I'm doing.

Sam: That's awesome, man. Good luck. Send me a picture if you get the trophy.

Kaustubh: Sounds good. I don't know if they have a trophy for flight four. That seems unlikely. Maybe... I do, though I will say because I am a semifinalist, I'm in the prize money. And so like I think I have like... Yes, I think, but the money goes into your like book at the club. You know what I mean? So like I can use it for like other things.

Sam: Oh yeah, gift credit. Yeah, exactly, gift credit.