Spread risk in your trade business and survive ANYTHING!

Ange
That’s a massively big question. It’s such a tough one because whilst we don’t wanna get caught up with the Dublin gloom, we do need to be realistic and prepared to get through any potential tough times.

Andy
This is no different to any other times in business, to be honest. I guess the latest news just makes such a big deal about the current state of affairs, and yes, everyone’s starting to panic. I absolutely hate feeding into the drama and the media that they create. Every single day. But you know what, I do definitely get it. It’s their job to create big headlines and hence make a mountain out of a molehill. And I get they’re just trying to sell a story, but seriously, it does just shut me. But don’t get me wrong, there is certainly truth to what they are reporting about around the world, but we have to keep our head in the game and not give into the bullshit sometimes.

Ange
Yeah. Look, I totally agree. The world is facing a little bit of turmoil at the moment. With Russia and Ukraine, China and Taiwan, and like there’s another wave of covid at the moment that’s been caught in a pandemic. There’s inflation and interest rates rising, both of which are increasing the cost of living and the cost of doing business.

Andy
Yeah. And petrol costs that absolute bomb. Yeah. You know, groceries are at an all time high. And for trade business owners, this is compounded with increased staff wages and the rise of material costs.

Ange
Sure.

Andy
You know, even Albanese came out and recently said inflation has hit an all time high at 6.1% and said the consumer prices are rising faster than wages. You know? Isn’t that absolutely crazy?

Ange
Yeah. Look, it is crazy. We spoke all about this in, uh, season five episode, I think it was called, how to Navigate the Rising Cost of Living. Okay, so if any of your listeners out there, if this is of interest to you, I definitely suggest you go back and take a look because I guess in summary, the world is pretty unsettled.

Andy
Definitely.

Ange
But that doesn’t mean that anyone needs to panic. What we need to do is stay cool, calm and collected. What’s that saying when there’s a fire, Andy?

Andy
Stop, drop and rock.

Ange
Yeah. Yeah, that’s the one. It’s a bit like that. You just need to have a plan in place and the right setup for when an emergency does happen.

Andy
Right. That’s it. There’s no need to be scared or worried. Just keep your head on straight and just understand what is potentially around the corner and prepare yourself for it.

Ange
Right. So that’s interesting. So Andy, if you could give trade business owners out there some strategies off the top of your head on how to prepare themselves, what would you say?

Andy
Yeah, good question. But I think the first thing is, I’d say don’t go out and make any rash decisions, like spending big dollars on new equipment for your business. If you don’t necessarily think the funds are there, then don’t go out and buy it. And I’d also say pull your debt in as fast as you possibly can. That is your money, that is yours. Get in as fast as possibly. And also if you’ve got any outstanding invoices, make sure you hit those customers up straight away and get that payment ASAP.

Ange
Yeah, look, they’re really good points. I remember back in Dr. Drip when we had very little understanding of financials. I suppose at one point we had 188 grand outstanding, which for us was massive. And we did actually struggle talking.

Andy
You’re talking about 15 years ago or, yeah, 18 years ago. It was all a lot of money.

Ange
Yeah, absolutely. And I remember we did actually struggle to pull it in, so I dare say a lot of trade business owners out there,

Andy
Just saying that we didn’t pull in.

Ange
No.

Andy
We only put in about 130 in the end. Yeah. So we lost 50 grand then.

Ange
Yeah. Ouch. Yeah. And when that was like 15 years, a lot of money years ago, a lot of us, that was a lot of money.

Andy
And I guarantee you if anyone that has outstanding now, they’re not gonna pull it all in.

Ange
No.

Andy
And we used to, I used to have a bit of a buffer of, oh, okay, there’s gonna be a percentage that we’re not gonna pull in, but that’s not the way to run a business.

Ange
No. That’s not a way to run a business. And I reckon there’s a lot of trade business out there who are completely in the same boat. And if you’re kind of going, oh, but a thousand dollars here or $5,000 there, it actually all adds up and it really starts having this huge effect on your cash flow in your business. As Andy said before, this is your money and you need to pull it in. So hopefully there’s profit in that money that you’re pulling in, like what we talk about. And you should be using this as a cushion if things start to go a little bit pear-shaped.

Andy
Yeah, I think it’s nice to have a bit of money tucked away outta the side just in case there is a recession or another pandemic or whatever it may be. Because if you are sitting here right now thinking, I’m not sure my business can survive to go through something like this again, and I’ve got so many people out there that owe me money, well, guess what? They’re struggling potentially themselves. So are they gonna pay their bills when they can’t afford it? No. They’re going to use your money to get them outta trouble.

Ange
Which means you are still stuck being out of pocket.

Andy
Nah, this is it. Yeah, this is it.

Ange
Look, another thing I would add to that is actually prepare yourself so that you don’t have all your eggs in one basket. I see this a lot.

Andy
Yeah. We, and we talk about it a lot. There’s so many trade businesses that we talk to, and they’ve got all the eggs in one basket, and they say to me, oh no, I’ve got such an amazing relationship. It’ll never happen. It’ll never happen, you know what? Every client you have at some stage will fall away. For whatever reason. You make a mistake, they go bad, whatever it is. So if you’ve got all your eggs in one basket, it is super, super dangerous. And you know what? You need to work with more than one customer and more than one market segment.

Ange
Yeah. I remember back in the day with Dr. Drip, we got ourselves in this little trap and just kept accepting work, because the opportunity was there, I suppose.

Andy
Well, that’s right.

Ange
And we ended up with 80% in strata. And it was mainly with one company. It was super dangerous.

Andy
Yeah, it was dangerous. But how do you knock back work when it was freely coming in? And that’s something we talk about a bit later. But you know, I hear a lot of trade business owners fall into this same step, you know, they start their business out, they’re super excited, they’re rip roaring, ready to dive in, and whatever work comes their way, they are all over it.

Ange
Yeah. Well, they’re within the problem, right? They’re saying yes to everything that’s coming their way, and naturally they grow their business, but in actual fact, there’s no real direction or plan because it, I guess it’s just kind of happened.

Andy
And it’s really easy to keep saying yes to that one style of work, like a strata company, builders, whatever it may be, property managers. But it is super, super risky and you could end up with 80%, like we were a Dr. Drip, even more with one company. Yeah. You know what? You don’t wanna be stuck with that. You’ve gotta spread your risk.

Ange
Yeah. Look, that was a great sentence. I just wanna stop you there and touch on that for a sec, because firstly I wanna ask the listeners. Have you actually built your business by default or by design?

Andy
Wow, that is a killer question. Have you built your business on default or design?

Ange
Yeah. So let me just explain what I mean by that. Meaning, have you only said yes to work that you want to actually do? Is it super profitable? Are you across a few different market segments to ensure the model is right? What I’m talking about is a business based on your intentions, not built by default, simply by saying yes to everything.

Andy
Yeah. Crazy, isn’t it? I bet. I bet. I know that a lot of the listeners out there are saying that question, woof, geez, I actually built my business on default not design. I reckon 99% are saying that.

Ange
Yeah, I agree. They just e everyone, and I say this respectfully, most trade business owners just get so caught up just turning the wheels every day that they never elevate themselves to actually think about this stuff. So the other thing I wanted to mention that you brought up was, Question for you guys, the listeners, have you actually spread your risk? So do you have too many eggs in one basket and you’ve never really stopped to think about how this is affecting your day-to-day business with the challenges that you face? And you perhaps definitely haven’t given thought to where you’re gonna end up and perhaps that’s gonna be getting backed into a corner.

Andy
Yeah, great point. I mean, listeners, if you are thinking that’s me, you are definitely not alone. As I mentioned, the majority of trade business owners out there. Doing the same thing and it’s wrong to be honest. Yeah, it’s actually wrong. And it affects everything that you do in the future. It affects your profitability, it affects your mindset. It affects you so much. Cuz some people are just dabbling in the wrong markets and they can’t work out why they can’t make any money.

Ange
Yeah, agreed. So if we go back to that original question from that listener about preparing our business for the future, or even just how do we weather the storm in the short term? Then we need to actually stop now and be aware of the risks that we face today in our trade business so that we can actually do something about it.

Andy
Yeah, we just ran our event for Lifestyle Tradie up there in Brisbane, and um, we had 200 of the best trade businesses from all around Australia. And we talked about this topic at length.

Ange
Yeah.

Andy
And it was a real eye-opener to some people in the room that just started falling into trap of default and not design of their business. Although they’d been with us for a while and you’ve fallen into this trap. But I can guarantee you everyone needs to look at their business. Look out for red flags. Understand what’s going on and what troubles could happen to you in the future. It was absolutely gold.

Ange
Yeah, actually, this conversation is really important to a point that I wanna actually strip this back here at this podcast. So what I’m actually about to take you through is actually a model called the Power of Three versus One. They’ll actually be a download in the show notes, and I definitely recommend you get your hands on it, but I will talk you through. So this is gonna be a bit of an education, I suppose. So please stay with me. It’s gonna be super important. So for a quick overview, we actually taught our members how to be aware and hence reduce their risk exposure and therefore build a profitable business model. And by implementing what we taught, they’re essentially designing a business that can withstand anything because they’ve reduced their risk in operating business. So as I said, this comes back to a model called the Power of three versus one.

Andy
So the power of three versus one is basically the rules of business that stop you from putting all your eggs in just one basket so that the business is simple, scalable, and saleable.

Ange
Yeah. So as I said, it’s a diagram, so I’m just gonna verbally take you through it. So imagine a triangle with eight levels, and each level has its own risk exposure that relates to the levels both above and below. Still with me? So the first level at the very bottom is industry.

Andy
And this is super basic. It’s not really any risk here, but it needs to be said. And that is, what industry are you in at the moment? You’re basically just responding with plumbing, electrical, building for example. And for some that offer dual trades. I just want you to pick one of the others at this point.

Ange
Yeah. So super basic. So then we move to the next level, which is where it all gets really interesting. Mm-hmm. . And this one is a market segment. Which means who do you work with? This is generally, but not always the industry you did your apprenticeship as an example. So like I’m talking about strata, real estate, residential, industrial, that kind of thing. And this is where the power of three versus one really kicks in because lots of trade business owners only work in one market segment, and that is ridiculously risky, especially when you start thinking about cash flow peaks and troughs of revenue throughout a year. The sales cycle of those clients, Payments, you know, that type of thing. And to spread your risk, you want to work with three different market segments. This is about the power of three versus one. So for you, that might look like 50% residential, 30% builders, and 20% real estate, cuz that equals a hundred percent. Still with me?

Andy
So let’s just imagine for a while that you’re just working with the residential customers. Sometimes it can be really good, like during the pandemic when everyone couldn’t go on holidays and suddenly had all this money to do renovations and fix their homework. But sometimes the segment suddenly drops off. They’re no longer spending their money. Instead they are saving it or going on holiday. Yeah. So at least if you’ve got another two market segments, it keeps you operating in the meantime.

Ange
Yeah, it could mean no scheduled work for the team. And that’s a scary thought. That’s a hard one that, yeah, by spreading your risk across three market segments, you can at least ensure there’s a flow of work all the time, which leads on to the next level being customers, and that’s specifically the customers within this segment. So if a large portion of your work is the residential segment, I don’t want you to list every customer you’ve ever had, no . Um, cause what I’m talking about here relates probably more to like the strata, the builders, and the real estate.

Andy
Yeah, I can imagine every single one of you listening could literally name the customers you work within your market segment. For example, in Strata you might work with companies like, you know, in Sydney, Laman Waters and Mason & Brophy. But the rules of three versus one applies here too. Having only one strata manager is super risky.

Ange
Yeah, totally. If one of your regular strata managers moves companies and can’t take you with them, not only have you missed out on the opportunity of a new property portfolio, but you perhaps will lose the one you had seen. The new strata manager comes in and they bring their own preferred suppliers.

Andy
Bad situation to be in, isn’t it? To have a mountain of work one day and literally no work the next.

Ange
Yeah, sure. Time.

Andy
And this brings us to contacts and again relates back to the market segment and the companies you just mentioned, but just go one step further and name the actual strata manager like Sarah or Jackson.

Ange
Yeah. It’s important to ensure you, again, don’t have all your eggs in one basket. So let’s say you’ve got a strata company that you do a lot of work for, but you only speak to one person in the business. And to me that screams trouble. It does. So if I were you, I’d be reaching out to the company and seeing what other strata managers you can work with from within the same business. You might only work with one, but maybe there are seven other strata managers within that business.

Andy
Yeah, I remember always going to my strata manager, the contact I had and asking for recommendations within the company. And I’d be dropping off morning tea and chocolate Easter eggs and bottles of Moe, and you name it. I did it all. And there’s nothing like building a good relationship through food and alcohol. They loved me.

Ange
Yeah, look, it’s true. Cupcakes do go a long way, especially if it’s a Friday.

Andy
Wait, wait, wait, wait, wait. What about the moi? That goes a long way on a Friday. I can tell you.

Ange
You know, they’re not allowed to accept gifts from a lot of them, but they do. They are allowed to accept morning tea.

Andy
They didn’t.

Ange
Yeah, just saying. So, what I wanna make specifically here is again, going back to this power of three versus one. These are the rules. So having one contact is risky. It’s better to work with three within each of those companies so that you can actually spread your risk effectively.

Andy
So with eight levels in total of the power three versus one, we’ve only just covered four. Yep. Industry, market segment, customers and contacts. The fifth level is your products and services, and specifically which ones are the most profitable for you in your business. Yep. Like a plumber, I’m not talking about taps and toilets. It’s the big items like block drains, hot water heaters, pipe relining, or even electricians, it might be switchboard replacements. Whatever it is for you, you need to know your top three most profitable products and services that are required by that market segment.

Ange
Yes. Notice the relationship now back through these levels, connecting the level of the market segment. This all connects, so it might take a little bit of investment in equipment or training of staff to get you to this point, but having three of these when we’re talking about profitable products and services, Will ensure that you’ve got flow of profitable work all the time. And this is then gonna dictate the skill set required from the team. Because like I said, it might take some training for your staff literally to master the services that you provide. That market segment.

Andy
Yeah. Or do you already expect your staff to have this knowledge before you hire them? I know in my plumbing business, Dr. Drip, you know, I had a certain level of knowledge that I wanted my team to have before I even considered hiring it. But when you add new services, like we’ve added in our business, like pipe patching and pipe relining, it’s expected that you have to give staff some training or stuff like that. Because back in my day, we didn’t have any of this high technology stuff.

Ange
Back in my day. God, it makes you sound like you’re 80 or something.

Andy
Oh, not 80. And the next level is the team. Yeah. So who do you need based on your market segment and hence the style of work that you do on a day-to-day basis. You know, are you okay with an apprentice or would you only employ a qualified tradesman?

Ange
Yeah. Look, there’s lots to think about. And as you move from startup phase to scale up and then into sell up, yes, it’s going to be important to have a minimum of three trades people too. So imagine one’s off sick or someone’s on holidays, then you’ve got two others to complete the work that’s coming in.

Andy
Yeah, it’s really hard when you’re running a one man show and it’s just you and you can’t work for whatever reason. The business definitely is at a standstill. Yeah. And there’s no money coming in. And with a small team you can still get the work done, but having that money flowing into the business day in, day out really, takes the stress levels away.

Ange
Yeah. Agree. Great point. And lastly, at the very tip of the triangle when we’re talking about this model, the power of three versus one is pricing. So do you charge hourly rate or flat rate, which is basically quoting. So do you charge all your customers across your market segments the same? Like really ask yourself that question because the power of three versus one affects this level two, to reduce your risk. So what’s important here is knowing your hourly rate and what is profitable for your trade business. Are you actually using this number on every single job?

Andy
You know what comes into my head when people are working and they’re not making any money.

Ange
Yeah. What’s the point?

Andy
It’s that simple. Why would you do that?

Ange
Yeah, look. I would say our listeners are probably feeling a little bit overwhelmed right now. You guys are still with us? I wish you could respond , but that’d be good.

Andy
Well, listen, I know it is a lot to take in, but it’s really important to make sure you remember reducing your risk exposure across all of your business. Yep. You know, we want every single trade business out there right now to feel confident about their decisions now and moving through the next few years.

Ange
Yeah. So interestingly, when you look at your business through this lens, it becomes really clear that every issue in business is connected to the market segment in which you work.

Andy
Exactly.

Ange
And that decision has often been organic. And that’s why we asked this question, did you end up doing this work by default or by design?

Andy
And you know what? I would say most of you out there are by default. Mm. And that is why I love this topic. It’s super practical and just makes sense that we as trade business owners understand the game plan moving forward to reduce your risk and ultimately survive anything.

Ange
Yes, survive anything. Now, so when the news comes on late at night and you’ve had a little bit of a rough day, you won’t actually get caught up in the doom and gloom, and instead your mind is going to be at ease knowing that you are on the path to setting your business up to deal with whatever life may throw at all of us.

Andy
Yeah, it’s crazy. And when you are having those bad days, you start thinking of negative thoughts and then you start hearing negative thoughts from people around you and you’re like, oh my God, it’s gonna be terrible. Stop it.

Ange
Yeah, totally Stop it. Nothing beats being proactive and having a plan. Instead of being reactive, and stressing yourself out, not knowing what to do.

Andy
Yeah, agreed. You know, the one thing that everyone needs to know is that awareness of the current situation is important, and I’d say most trade businesses have never stopped to think about their risk, you know, their business does face on a day-to-day basis. And what would happen if something went wrong and how would they fix it? They’ve pretty much got no idea.

Ange
Yeah, that’s the hard part, right? They don’t have any idea how to fix it, and that’s what we are here for. So not only to make every trade business owner stop and elevate their thinking, but to teach them how to fix it today, it’s definitely one of the key reasons why members love Lifestyle Tradie. But you know what? Don’t take it from us. Have a listen to what they’ve got to say.

Member’s testimony
Don’t wait. These guys are very honest and open. They share so much information, personal as well as, um, business. Uh, it’s a holistic approach to life, not just, uh, how to run your plumbing business.

Yeah, definitely join Lifestyle Tradie. The amount of support and knowledge which is within the program is valuable. Um, the other thing is, The community that Lifestyle Tradie has developed is amazing. There’s been so many times where I’ve learned on the community’s advice, where we’ve had certain issues that we’ve been able to bring up in our, you know, Facebook group. You get plenty of answers that you can actually take. You don’t know what you don’t know.

Lifestyle Tradie has a huge sense of community, just a great group of people just hanging out, helping everyone out, and they help you. Just hanging out after the events is always fun as well. Some great speakers come along and definitely always, always learning stuff from every event we go to.

Do it. Like don’t hesitate every year that you put it off, there’s just an extra year that you’re losing. You don’t get this time back. That’s one thing that we can never buy as time, so you need help, get it.

Andy
And if getting some help with your trade business is something you’re really interested in, let’s jump on a free strategy session with me and we’ll have a chat about your business goals and how we can help you get there. The world is a crazy pace and you cannot put your head in the sand.

Ange
Yeah, and you know what that said, you also don’t need to panic. We just need to make some tweaks. So you are working to build a profitable business by design.

Andy
Now it’s your turn. Listeners head to lifestyletradie.com.au/strategy-session to book in a call with me. And on that note, that was a pretty heavy episode. I think it’s definitely time for a quick caffeine pickup. Care to join me?

Ange
Yep, absolutely. Coffee. Here we come. Bye everyone.

Andy
Catch you next week. Hell yeah.