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Ep. 4: Hal Smith on the keys to building an enduring business

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Hal Smith followed his passion and ignored  his teachers' advice by going to trade school. He founded Halco 40 years ago. By listening to his customers and helping them "fix their old homes" in upstate New York, he gradually added new service offerings. From plumbing and HVAC he added electrical. Then insulation and air sealing. Then solar and geothermal. Windows and doors. Now basement waterproofing and finishing. 

Through trial and error, hard-earned business savvy, and a relentless focus on doing right by his customers, Hal now runs a $40M end-to-end whole-home performance contracting business with 180+ employees, 100+ trucks, and 10,000 annual service agreements. 

Hal does a lot of heat pumps, which is why we're delighted to have him on the Heat Pump Podcast. But he focuses on the home as a system. That gives him insight into what is required to make heat pumps perform well, even in frigid upstate New York. 

Join us for Hal's technical insight on home performance, his business insight on operating a profitable company, and his entrepreneurial insight into how to come from nothing and build a $40M contracting business with wildly happy customers. 


Show notes



[00:00:00] Hal Smith: My competitors would come in with a blower door only if it was necessary. And we believe that it was part of the process. If you don't determine the leakage of the home, you're just guessing.

And what we would say to the customer is, we refuse to play guesswork with your hard earned money. 

[00:00:21] Ed Smith: Hi, and welcome to the Heat Pump Podcast. I'm Ed Smith, co founder of Amply. The Heat Pump Podcast covers all things related to heat pumps. The business of heat pumps, the science of heat pumps, the policy of heat pumps. Today we go deep on the business. We've got Hal Smith, founder of Halco, a $40M whole home performance contractor in upstate New York.

Halco does a lot for their customers, which is why they have 40 million in revenue, over a hundred trucks, 180 employees, and 10,000 annual service contracts.

We cover a lot with Hal in this episode. How he founded Halco, how and why he added services over time, how he got into whole home performance contracting and exactly what that means, as well as a bunch of technical stuff. Technical on the business side, where he talks about why revenue per hour is one of his most critical metrics, and how he uses that to look at job performance and job profitability, as well as a bunch of technical stuff around why he offers the services he offers and how they fit together to deliver a healthier, better performing home for customers. It's a great episode for anyone looking to build a heat pump business or a whole home performance contracting business. Enjoy the show Hal would you start just by telling us a little bit more about Halco, just to give folks a sense for the business you've built.

[00:01:42] Hal Smith: HalCo this is our 40th year in business. We started as a plumbing HVAC and electric company. We got into renewable energy in a pretty big way. We got into insulation and air sealing type work. All of that plays into this whole electrification move. We're installing a lot of heat pumps of all shapes and sizes, ground source heat pumps air source heat pumps, air to water heat pumps, But, all of those houses need to be made heat pump readyThe insulation and air sealing piece plays in. A lot of the homes need electrical upgrades of some sort. There's a lot of other things that we do at Halco that just tie into fixing old homes.

So some of the other things we do, basement waterproofing. We have a lot of old basements here in upstate New York. A lot of them are very wet.

If we're going to go in and air seal and tighten up a home we have to make sure that there's no moisture present. Otherwise we're going to be growing mold. We recently got into basement finishing. There's no wood studs, no drywall used in our basement finishing process. We produce a beautiful finished basement product without the worry of growing mold.

We have flooring products that go along with that. We have ceiling products, lighting. 

[00:03:04] Ed Smith: you really are a whole home performance contractor. 

[00:03:06] Hal Smith: We are, yeah, and we continue to, expand. When we're doing basement waterproofing and we see that a bad gutter system is contributing to the moisture problems in the basement, we solve that. Do some windows and doors A lot of HVAC products, indoor air quality, healthy home type products. 

Everything to do with fixing an old home, making the home healthier and more efficient. And over the 40 years we've been very fortunate to establish a very large customer base. We have over 10,000 maintenance agreements that we service on an annual basis.

Those customers know us and trust us and it just makes all the sense in the world to continue to bolt on different services that we can offer those customers that already trust us.

[00:03:55] Ed Smith: I want to get into the story of how that evolved over time. But before we even do that, can you give folks a sense of the size of Halco, whether it's trucks or employees? When I went to the Building Performance Association event in Saratoga Springs, it felt like every other car in the parking lot was a Halco wrapped car.

[00:04:14] Ed Smith: We're big on all of our vehicle wraps. So they're a big part of our advertising package. We have just over 100 vehicles total. 

[00:04:22] Hal Smith: Another service that we offer that I didn't talk about a second ago is we do lots of solar and then along with the solar, we're doing, the EV chargers and the battery storage. So, when we electrify a home a lot of times we take the next step And, a lot of our customers never pay another utility bill again.

[00:04:40] Eric Fitz: Hal, I just wanted to jump in. There are a couple of things that popped out as you were telling about the, all the different services that you're offering. It's incredible for the work that you're doing. You're addressing some of the biggest barriers to helping homeowners move forward with these type of upgrades that really improve the comfort and efficiency of their homes. Classically problems with like knob and tube wiring or a wet basement. Those are things that are big snags in projects. And either you discover those problems as part of, an interest in upgrading the HVAC system or doing some weatherization and a lot of companies just don't offer those solutions to address those challenges.

And man, it's fantastic that you have this one stop shop to address those challenges. And then you reminded me, the three biggest challenges in a building envelope. It's water, water and water. I think you're the first home performance contractor that I've talked to at least that is also doing water quality as a service in addition to air quality and indoor health. So it's fantastic. 

[00:05:38] Hal Smith: Yeah, we have currently about 180 employees.

[00:05:42] Ed Smith: wow.

[00:05:43] Hal Smith: we're doing 40 million in volume. And I'm proud of that 40 years in business and build it to 40 million in volume.

And we're not stopping. We'll certainly surpass our 50 years and 50 million in business. We continue to grow. 

[00:05:58] Ed Smith: That's incredible. 

[00:05:59] Eric Fitz: Hal can you go a little bit deeper into the origin story of Halco? I feel like every entrepreneur has some kind of unique story of how you got into the space and how you got started. Just would love to hear more about that.

[00:06:13] Hal Smith: I was very fortunate. Let me start by saying that I was 12 years old. I was attending a church youth group conference in Niagara falls. There was a chaperone for this church youth group that he was a licensed plumber. And he was currently working for the New York state department of agriculture experimental station in Geneva, through Cornell University. And he took a liking to me and he took me under his wing as his apprentice. So I started working with him every weekend vacations from school. and, was a great way to get a very early start into this business. When it come time, I was a junior in high school, the guidance counselors were saying, Hey, you don't want to go to this BOCES plumbing program. Your grades are way too good. We don't send kids with good grades to, to BOCES.

I was bound to determine I was headed there. The plumbing was the closest program that they had available to the trade I wanted to be in. And so I took two years of the BOCES program of a plumbing course. And then, I got out of high school and one week later, I, Got a job with a local company that was a plumbing and HVAC company, and I started as a plumbing service technician right out of high school. And immediately I started taking night courses at the local community college for four nights a week. And I was taking classes on HVAC. So I took those for four years, four nights a week. 

[00:07:47] Ed Smith: while working a full time job.

[00:07:49] Hal Smith: Yeah, I come from a large family and I was the oldest of five kids and, the son of a sharecropper story. my dad, a wonderful man. He just passed last year at 90.

He worked two jobs his entire life to support the family and there was no extra money.

I laugh at the story. My mother come home one day with sneakers from Kmart. And, I said, ma i wanted Nike she said, hell, I wish I could buy you Nike's, but the other kids need clothes too. And these Kmart sneakers are the best we're going to do it. So I said I get it, mom.

I'm going to work some extra hours. And I was 14 at the time cause I want Nikes. 

[00:08:25] Ed Smith: Wow. 

[00:08:26] Hal Smith: for this company it was called Victor Plumbing and Heating. We actually took over their customer base as the owner of that got to retirement age.

But I worked there for four years while I took night school four years and then went in business at 22 years old. This fella, Pat, who is my mentor, He was a big part of encouraging me to go in business at 22 years old. He had a customer base that he was elderly and can no longer take care of. So I started taking care of his customers. And I was just myself starting to do this work and I was doing plumbing and HVAC and electric work. And it wasn't very long where, I started to take on an employee and then another employee and didn't know what the heck I was doing.

I knew nothing about running a business. Probably the best thing that, a God given gift was I'm not a guy that quits, cause it would have been a lot easier to throw in the towel many times, but I just not a person to quit. I keep driving ahead and I find solutions and Make lots of mistakes.

In 40 years, we've made tons and tons of mistakes, but then we've done some really great things. One of the things that I did way, way back was I started a maintenance agreement program and nobody even heard of it at the time, but we called it our Easy Pay program. So all of our maintenance agreements, our customers pay on a monthly basis and they can choose the first of the month to pay or the 15th of the month, but it's an electronic transfer out of either their checkbook or their credit card or their debit card, whatever they choose.

But, now we have 10,000 maintenance agreement customers that are sending us, 30 a month, 40 a month electronically. It's a wonderful thing. We never have to renew these if somebody wants to cancel, they simply notify us and we cancel, but, we have very few cancellations unless somebody dies or moves. Franklyand we continue to build that and those customers are customers again, that trust us. And then, when I take on a new product or new service, we send out email blasts and the phone start to ring. So it's a great thing. 

[00:10:37] Eric Fitz: a little bit more about how your various services evolved over time? how did you layer on the additional services that you added? 

[00:10:44] Hal Smith: Yeah, it was just trial and error. Again, I had no formal training on how to run a business. Tried to hire good peopleand did hire lots of good people and then hired some that weren't so good and, learned as we went on work became, a necessity because I was putting in heating and air conditioning, you had to do your own electric work. Took a lot of classes on that night classes and such. We got to the point where we had taken over another company that was an electric company. So we brought on their, six electricians at that time. And we started doing electric work and then shortly after that, when we decided to get into the solar business, it was a great fit because, the bulk of the work with a solar system is electrical.

And so you, we had to have licensed electricians to do that. I was fortunate to buy this company and bring on these electricians and most of those original six are still with us today. 

[00:11:43] Eric Fitz: You had no formal business training and yet I've now heard early on, multiple acquisitions or mergers. Where did you go for business advice or coaching? Like where did that knowledge come from? 

[00:12:00] Hal Smith: Some of the trial and error, again, this fella, Pat, he was a wise old fella, and he truly was a mentor and give me a lot of advice. Now, Pat had always worked for somebody. 

He was my support. And a lot of it was trial and error and just guts and determination.

[00:12:17] Eric Fitz: And what was driving you beyond the sort of guts and determination? Like why whole home performance? Why did you think, okay, I've got electricians on staff, let's do solar now? 

[00:12:28] Hal Smith: Yeah. Solar came before whole electrification thing. I had an opportunity young. girl approached me and she was just a brilliant young girl and she was working for a competitor that was doing solar work and she wasn't happy with where he was headed in his customer service and outlook.

And she actually sought me out and helped us get our solar, part of our business started. Some of it was just pure luck to, be at the right place at the right time. But then, I think, and I say luck, but then a lot of it is, I think I've always done the right thing for the customer, haven't always made money every year there's been years we've lost money, there's been years we've struggled. I remember a lot of years ago and I hope they never come again. I remember the time of having to make payroll with a credit card because there was no money from anywhere. Not always been an easy street and again not, having a family or any. Backing of money, it's we've built it as we've went, but the New York is where BPI is from, and they got started and there was a big push back in the early days with the. BPI, the Building Performance Institute. And they're, you got this new way of doing business and introducing blower doors and all of a sudden the heating contractors around Rochester are starting to buy into this and they're, the competitors andmy brother at the time It was working for me and he was our main salesperson and I sent him to one of the, the early BPI classes and he came back and he said, Hal, this is a lot of work.

This is a bunch of nonsense. We don't want to get involved in that. And he just, cause he was my, my brother. Paul was a, he was a salesperson and he didn't want to drag out the blower door and go through all of that. Paul actually left us and he he became a competitor, frankly. He went in business and still is today.

[00:14:32] Ed Smith: oh

[00:14:32] Hal Smith: but one of the rewards there, we have a sister company that's a supply house. So about 15 years ago, I bought a local supply house, a plumbing, heating, electric supply house. Even though my brother Paul went out and he's a competitor, he buys all his material from PBS Supply. So it's okay.

[00:14:50] Ed Smith: And Is his Paul Paul co.

[00:14:53] Hal Smith: no, he named it after his two children Halle and wife. So it's HWS Smith Plumbing and Heating.

[00:14:59] Ed Smith: Sorry. That was a bad, that was a bad joke. Hal we'll cut that one out. But

[00:15:03] Hal Smith: funny you say that. Shad Cook, who's the president of our company and Shad's been with us, I think 29 years, Shad started right out of high school, a young guy, his dad was working for us as a foreman and Shad come and joined us, but and Shad jokes all the time, maybe we should call this Shad Co.

[00:15:20] Ed Smith: there we go. All right. I'm not the only one who makes that kind of bad joke. But but Hal, I'm intrigued. Your brother comes back from the BPI seminar and says, we shouldn't mess with this and now you're maybe the most end to end home performance company I've ever met, especially doing basement refinishing.

And. From hey, we shouldn't touch this thing with a 10 foot pole, to like now Halco being where it is what happened in there?

[00:15:48] Hal Smith: shortly after taking those classes, my brother Paul decided to go off on his own and I'm still seeing some of our, we had some pretty large competitors in the Rochester area and I'm seeing them, talk about BPI and start to run ads and, home energy audits.

As a heating contractor who does a home energy audit, but I saw the competitors doing that. And so I, I took the BPI classes myself. And I bought in hook, line and sinker. I said, this home whole home as a system is the right way to do business. A heating contractor going in with a blinders, just going to the furnace or the boiler and not looking at.

All the surroundings is not the right way. And I just thought it was the right thing to do. A big difference between what I did in the competitors in Rochester. And these are some big companies in Rochester who have recently sold out to private equity firms. But, and I'm going to be the last man standing.

I'm about to be that. I get at least 10 calls a week to sell a business and I'm just not interested, I did was I immediately said, look at, if we're going to do this, we're going to do it. So my sales guys, we renamed them to be energy advisors and they're all going to carry a blower door. And where my competitors kept all of their commission salespeople and they would come in with an energy advisor. Afterwards, with a blower door only if it was necessary. And we believe that it was part of the process. If you don't determine the leakage of the home, you're just guessing.

And what we would say to the customer is, we refuse to play guesswork with your hard earned money. We're going to come in and we're going to know what the leakage is. We're going to know whether we need to fix it. Fix the envelope of your house. And if we do, we're going to do that before we put in this new heating system.

There's no sense of putting the same hundred thousand BTU furnace back in when you really only need a 40, if we improved your installation and air sitting a little bit. So we just, we bought into that hook, line and sinker and it just separated us. And even when we had All I want is a furnace replacement.

I don't want an energy auto, we would send our guy out and they all had, blower doors and thermal imaging cameras in their vehicle. they would a lot of times use those, even though that wasn't a part of the appointment, right? Because they would see how. When, if the customer had two other prices on a furnace we weren't probably going to beat their price. the only way we were going to get the job is to show a bigger value. And when we pull out the blower door and a thermal imaging camera and talk about we shouldn't put that a hundred thousand BTU furnace in.

If we insulate an air seal, here's all the benefits. And now we can put a 40, 000 BTU furnace in. , it separated us and we've just never veered from that path.

[00:18:43] Ed Smith: roughly when was that like founded in 1984, 2024 now, when was it that you switched their names

[00:18:49] Hal Smith: I would say that's probably, 20 years ago.

[00:18:53] Ed Smith: Okay, so around 2004. 

[00:18:54] Hal Smith: we were doing that. 

[00:18:55] Eric Fitz: It's so important, how amazing that like you, you figured this out very early on that, home is a system. We got to go in and identify the problem and offer the right solution as opposed to looking at it from the viewpoint of I have the solution and I need to sell these solutions.

Let's really understand what we're dealing with and figure out the right application for the right situation. And that just leads to amazing outcomes for everybody. It reduces callbacks for you as the various options that you're installing leads to happier customers. It's just, it's fantastic. 

[00:19:30] Hal Smith: no question. And again, I think a lot of our success is that happy customer, that customer that telling others we've always been there. been company that does the right thing for the customer, and frankly, as some of our larger competitors sell to these private equity firms, that's one thing that I stand on, when there's a warranty issue that maybe is a little on the gray side, I'm going to always rule them in the customer's favor because, we're all about that customer for life.

So I'm not going to worry about That 100 service call today and try to beat the customer up on it because I'm going to be working for him for the next 30 years or, whatever. Those private equity firms, because they've got investors to answer to next week, next month, that gray warranty decision doesn't get made in the customer's favor. And now what we're seeing is. The employees of those companies that used to be able to say to the customer, don't worry about it. You're covered are now saying, I'm sorry, you're not covered. And they become, disgruntled employees. We have gained so many employees from these companies that have sold out to private equity firms because their employees just don't like how the customers are being treated.

[00:20:47] Hal Smith: grabbing talent from these private equity acquisitions is a great source of talent. It seems like that's a pretty common thing. yeah. And, again I don't fully understand their strategy. They want to come in and do, I guess they do understand that they want to answer to their stockholders and they forget about the customer and they forget about the employee and, when you do that for very long It gets

[00:21:08] Ed Smith: you lose your customers, you lose your employees.  They're a good thing for some people that are looking to, they're at the point where they wanna sell their business.

[00:21:15] Hal Smith: I'm not saying those acquisitions aren't the right thing for the right, but for me I'm in it and I'm having fun. Everything. And one of the best things is that this world of the internet. I can do what I do anywhere. As long as I can take the computer and have internet service, my day all day is, I meet with the different departments of employees every day of the week, a different department. I'm not running the meeting, but I'm sitting in and giving input. But I can do that from anywhere,

So I'm not strapped to one place. I love what I do every day. 

[00:21:49] Eric Fitz: Amazing. 

[00:21:50] Ed Smith: From the outside, it looks like you almost have the golden touch given the diversity of services you've been able to add to the business and have a successful, profitable, growing business. 

Not to make you relive the scar tissue, but would you tell us about Trying to add a business that didn't necessarily go well, or like one of those tricky moments.

[00:22:10] Hal Smith: let's talk about the solar industry. we had a lot of local programs that were called solarize and, in our local New York state, NYSERDA had some very nice incentives to promote people putting on solar but solar became a big race to the bottom.

How much per watt, how cheap can you be? Most of those companies are out of business now, they didn't survive and we wouldn't have survived if that was our only line of business and, so the solar work we do right now is for our existing trusted customers. And we're certainly never the cheapest people, but our customers understand that we're not the cheapest.

We're going to be there to take care of it, to service it. Everything we do, we offer a 10 year bumper to bumper, no exception parts and labor warranty, as long as the customer maintains the equipment with us on an annual basis, we give them a complete bumper to bumper, no exception warranty. Solar is one of those businesses that, you know, and then you had big, Panel manufacturers that were promising you the world and then pretty soon they're out of business and then they're competing with, all these companies from China and such that, we're selling cargo loads of panels from a company that was already out of business, it's, and it ended up being not a pretty thing, but we've persevered it and, Have stayed in the solar business.

We went from, having four full time crews pumping out lots and lots of work, and we actually went for a number of years right down to just one crew, but now we're back and growing that business again You can't get sucked into that.

Who can be cheapest? Because if you're going to service that customer longterm and be there for them, we answer our phone live in house, 24, seven, three 65. I have somebody answering the phone gets cold here in upstate New York.

If they got no heat, if it's 2 o'clock in the morning, we need to find a way To provide that service. So we're not only answering the phone, we have staffed technicians and we can talk a little more about that, how we do that, but we're always there for the customer and, they're not calling and getting an answering service ever, so that's another, reason for our success is because, we believe in some of that old fashioned customer service, you dial our phone and somebody answers all the time.

[00:24:34] Ed Smith: Somebody who's an actual Halco employee answers all the time.

[00:24:39] Hal Smith: Sure. Yeah. For a short while we tried these answering services and try to have no heat at two o'clock in the morning. And you're talking to somebody from the Philippines, answered your phone. It just doesn't work. 

[00:24:52] Eric Fitz: That doesn't give you the warm fuzzies at all though.

[00:24:55] Hal Smith: It doesn't work.

[00:24:56] Eric Fitz: This is a perfect spot to transition to get into the heat pumps. So you mentioned already that you're doing all flavors of heat pumps ground source, geothermal air source, heat pumps, air water. What's roughly the kind of the mix that you're doing between those three types of technologies and why all three? 

[00:25:14] Hal Smith: doing ground source first we believe ground source is the best it's the least expensive to operate it's the most reliable, the life expectancy of a ground source is double that of an air source, so they're wonderful, but they cost a bunch more, so it's not the right solution for everybody, Actually, the only thing in our business that we subcontract out and don't self perform is the drilling. If we have a ground source and we have to drill a 500 foot hole, we subcontract that drilling. But, many of our ground source we're doing in a horizontal fashion, and we do all of that work in house. We have the big excavators, the dump trucks so we're able to go in and bury these ground loops.

But when it comes to drilling, that is the only thing, we haven't had the best of luck with reliable subcontractors. And so we've chose to self perform things in house. And I'd say, the air source heat pump really come about when this whole cold climate thing, really emerged and it was like a perfect solution for us.

So a lot of times it is about. Electrifying and eliminating fossil fuels and doing the right environmental thing. A big part of our businesses in Ithaca, New York, where Cornell university is, and the Cornell professors are all about the environment and so they're asking for these products, It's been a wonderful thing because it solves so many distribution problems that existed in these old homes, and here in our marketplace. We have homes from the 1700s, 1800s, we have hardly, any homes from the 1970s, 1980s, we, they just don't exist here. We have all old homes and there are drastic Distribution problems, especially when you're talking both heating and cooling, because these two and three story homes, because heat rises, getting heat up to that 2nd and 3rd floor isn't that challenging, but trying to air condition at 2nd and 3rd floor is a big challenge.

And so these cold climate heat pumps have solved many of those problems. We do a lot of systems where, the existing ductwork is not. Anywhere near large enough to carry the entire home for a heat pump. So we use that ductwork to its full capacity, one of the zones becomes an air handler, and then we supplement with a ductless unit.

So we'll take that master bedroom where they want a more precise temperature control and put a ductless head in the master bedroom, or maybe a big living area that isn't being able to Be serviced totally by the ductwork. We'll serve with a ductless head. We've been able to combine these systems and come up with solutions like we never could with just straight forced air, conventional heating, cooling. Through a whole phase of zoning, and we tried to zone these forced air systems and it's a bandaid. You're trying to redirect air and you end up with a lot of air noise because you're bypassing air, and it's just not a good solution, but these cold climate heat pumps and now we can do the geothermal with the same ductless or combination, ducted and ductless they've got those systems out that you can do that.

So it's made solving the comfort problems within these old homes very doable, whereas in the past with the cooling, it was challenging to solve some of those problems.

[00:28:48] Eric Fitz: God. Yeah. you mentioned the duct balancing issue is like a careful choreographed dance to get that right. You have make a small adjustment here and it affects these rooms over here. You try to make, correct for that issue. And now we've got imbalanced issue in this other space and, yeah, the beauty of the ductless units where. You don't have any of those duct issues let alone like running new duct work to, you're not worrying about balancing. You don't have the duct losses. It's, yeah, it's pretty, pretty amazing how flexible they are.

[00:29:16] Hal Smith: Yeah, and one thing, what you have to do is a very detailed heat loss, heat gain, blower door assisted heat loss, heat gain, duct design, duct site, equipment, Manual S you've got to the engineering behind these. Has to be very detailed and very precise. There's still, there's a bunch of contractors out today that are, because the incentives are paying so much per 10, 000 BTUs here in New York, every house gets a five ton system because we get a bigger incentive and that just makes me sick.

And we continue To fight against that practice. And I think we're making some progress. I do we, I started a group. I started out as a peer group, but it has turned into the Building Performance Contractors Association of New York. 

I'm the president of that. I founded this peer group. It's a bunch of contractors that believe in doing things right and not cutting the corners. So it's, we're real proud of that.

[00:30:17] Eric Fitz: Awesome. 

[00:30:21] Ed Smith: Hal, I've seen one presentation from you. I think Eric's seen another one where you talk about revenue per hour as a critical metric for understanding your business and making important decisions about. For customers and for your business.

Can you tell us what that metric is, why it matters, what insights it leads to?

[00:30:42] Hal Smith: Sure. I'll start out by telling you a story and how it come about. And again, it was by accident. We've over the years departmentalized and we job cost every job And we track every department. And we have weekly departmental meetings, right?

So we're sitting in our meeting and we've got our electrical guy. His name is Ralph and he's running our electrical department. Ralph's a licensed electrician, wonderful guy. Ralph's margins were low. 35 percent margin. It's about a breakeven. It's not enough to make a profit. And week after week 

[00:31:21] Ed Smith: So that's gross margin. So then by the time he gets a net it's breakeven. 

[00:31:25] Hal Smith: yeah, 35 percent gross margin, our overheads run in 32, 33%, 

[00:31:31] Ed Smith: Yeah.

[00:31:31] Hal Smith: Ralph got tired of getting beat up every week because his margins were lower than any other department. And all of a sudden, Ralph starts to come in. And Ralph was a little, he was smarter than I was. He outsmarted me. He started coming in and his margins were 55, 60, some weeks, 65%. And we're high five at Ralph that we're bored and a boy.

Awesome. What Ralph did was Ralph went out and. found a company that would he was basically just doing time and material work, which they provided most of the material. So he was selling labor. When you look at labor and you're paying your guys, say you're paying them 30 an hour. And you can sell them at 50 an hour. You can show or 60 an hour. You can show a good gross margin on labor only.

Problem is labor is the one thing that you can't go get more of, there is just such, if you want more skilled labor, you have to build it yourself from within.

You don't just go out on this. It's easy to go buy more material, right? So Ralph was using. All of his labor force selling it at let's call it 60 an hour, where we really needed to sell it. If we were selling labor only with no material that, that you could mark up the material, we would need at least 150 an hour to sell that labor.

But Ralph was selling it at 60 and we were high fiving him because he was bringing in great margins. 

I'm going like, how does this happen? How did I not realize that when you sell labor only? You could show a great margin because every class I took, that's how they teach you how to, your job costs and you keep track of your gross margin works well when you have a good balance of material and labor.

When you have a job that is very high labor and low material, you don't want to look at it by gross margin because you're going to fool yourself. You're going to think this is profitable work. And all you did is just suck up all your skilled labor and you got none left to do the other work.

So what we started to do, we started to say, we have to start tracking these jobs, not only by the gross margin, we also have to track them by how much did we make per hour with every skilled person on the job, every field labor. And it's really, once your job costing, that's just a little bit more math.

So now when we report out and our energy advisors are all paid on profitability, so their pay is on a, if they sell something at a book price, they're going to get the top commission. If they discount it, which is going to come in at a less profit, they're, they're going to take a bit of a haircut right along with the company.

And that, that's a conscious choice they make. so when we send out these job costs, every job has a gross margin and it has a how much per hour. And so as we track all of our energy advisors, they're all scored on here's your weekly average.

Here's your year to date averages of both gross margin and how much per hour. And it's just led to us not doing these labor intense. No, no profit jobs, where you would find it necessary to sell your labor at 50 and 60 an hour and you can't survive. 

[00:35:01] Ed Smith: Tell us an example of a high labor, low materials job that you would stay away from as a result of this.

[00:35:06] Hal Smith: duct work.

[00:35:08] Ed Smith: Yeah.

[00:35:08] Hal Smith: And what a wonderful thing that we've now got all these ductless heads at our disposal because we used to have to go in. In an old house to properly serve it with ductwork, you can spend two and sometimes three weeks running proper sized ductwork. And it's, and ductwork isn't a lot of dollars in material.

It's relatively inexpensive. You might have a thousand dollars worth of ductwork and, two people for three weeks worth of labor trying to run this duct work throughout this old house.

[00:35:40] Eric Fitz: Holy cow. 

[00:35:41] Ed Smith: Yeah.

[00:35:41] Hal Smith: Take two guys for three weeks, that's 30 man days. And, and 30 times eight is 240 hours. And if you really Need to charge 150 an hour plus your duct work costs. Nobody's getting anywhere near that amount of money to put duct work. It duct work is put in way too cheap and it's okay. When you got a one run here, run there, it's okay. But when you have to renovate a whole duct system it's a loser in this business.

So today we stay away from it and we supplement with ductless. Makes a lot more sense

[00:36:14] Ed Smith: Great.

[00:36:15] Hal Smith: Super helpful. And very great story and very well explained Hal on that topic we're both friends with Peter Troast. I was texting with Peter actually on this topic and he said sometimes that's not the best answer for the homeowner.

[00:36:28] Ed Smith: Do you agree with that? Or why would you disagree with that?

Yeah. If you don't service the ductwork, if you don't do the two to three weeks of work on the ducts, and you supplement with a ductless system to avoid that high labor, low materials job, is that a negative impact on the homeowner at all?


[00:36:55] Hal Smith: You just have to charge properly 

[00:36:56] Ed Smith: Clear.

[00:36:57] Hal Smith: because now each energy advisor is being tracked on how much per hour and if they're having jobs coming in that are we're getting 50 and 60 an hour and then we meet every week, every Friday morning we have, our meeting with our energy advisors and all those numbers are shared every single week. It's hey, Matt, what are you doing? You're taking all of our labor. We're not getting anything in return for it. So now I don't have enough labor to go do all these other profitable jobs because you've just. So we're glad to do that work. We will give the customer the choice.

Because sometimes customers don't like that high wall head. we can get duct work there. It's just going to take us a bunch of time and money to do it. either run the duct work or put a ductless in for less and get the customer to choice. it's all about giving the customers the choice and realizing what you really have to charge to do these things. you have to put, a number like that on that labor. It's probably for a lot of companies on the low side, that 150 an

[00:37:58] Ed Smith: Yeah. 

[00:38:00] Hal Smith: would, I say, I'm saying 150 an hour. That's for every hour they're paid. If I was only counting on the job site time, that there would be a lot higher, higher number per hour.

[00:38:11] Ed Smith: Spectacular answer. 

[00:38:13] Eric Fitz: it just speaks to the power of thinking about the home as a system and also like keeping the customers. interests first and not being like, I think there's a lot of people out there that say, I'm an expert. I'm going to tell you what the best option is. I just, I think it's so fantastic that you are looking at the home as a system.

You're identifying the problems, you are offering solutions, but the homeowner is part of the discussion. you can figure out what are the right trade offs to make. if they really value, the aesthetics And they just really want that duct work run. Great. Let's pay for that. We'll do that the right way. We can make that happen. But if they're like, Whoa, I don't want to spend 20, 000. rerouting the ducts in my attic. I just want air conditioning in this bonus room. Let's throw in a ductless head. That's great that everybody wins in that situation.

[00:39:08] Hal Smith: Yeah. We have customers that want warm floors. They want radiant heat. It doesn't do a darn thing for air conditioning. absolutely. We can install that. But. Please understand that you're paying for a radiant floor distribution system, as well as either a ductless head or a ducted, air conditioning solution. And that's going to lead to why we need software that isn't available on the marketplace? Because we have to give these customers a lot of options and have them part of the decision. And you have to be able to very quickly. Price and put these options together so that the customer can make the decision that's best for them. We can't take all day to price out a radiant floor system. We have to have software help us price it out and have it at our fingertips.

[00:39:56] Ed Smith: Tell us more about the software you built and why you felt like you had to build it from scratch.

[00:40:03] Hal Smith: The answer of why we had to build it was very simple. Because it doesn't exist, we're currently using a software called service Titan. It's Probably one of the best in the industry. But. It's got lots and lots of limitations. It's great for running a service department, a service company.

It's not so great for going out and, giving all these options and, radiant floor and ductless and, geothermal and, all you got to, the different pricing is just endless of all the things you have to have at your fingertips. And service Titan doesn't have anywhere near that capability. So we've had to build a software to work along with, we haven't tried to build a complete CRM software, we use service Titan for that, but we've built on the pieces to use along with service Titan that do the things that service Titan doesn't do prior to This we had a we went through a time where we had a fella that had been working on a software package.

It was a good friend of mine. I knew him a long time. And he spent his whole life building software for the HVAC business. In fact, back in the day, he worked for Goodman Manufacturing and built what he called at that time the world's. Fastest heat loss, heat gain program for Goodman 

Goodman paid that and he continued his whole life to build this and he come to work for us and spent three years in, we were continually building and refining software to work for us. And again, one of the mistakes I didn't realize and never thought to check was a self taught. Programmer and he was using a programming system that was over 30 years old. That was no longer service. It was way back was owned by Microsoft. We spent three years building this only to find out that. There was only one guy that could service or fix this thing. And then I'm going like, Oh my gosh, after three years of investment to build a software, it was a wonderful software, but it would constantly break because every time you add something new, it breaks something else and he would be up all night. Come in the morning and he looked like, heck, because he'd been up all night, fix what had broke the day before and we're trying to run our business and it's oh my gosh, this, it's just, I can't continue to go down this road. And he wasn't willing to bring in, programmers to totally rebuild and repro.

He was, at this point he was of retirement age and he just wasn't interested in going down that path. we had to start out in we've been now the last three years building on this program to work with ServiceTitan. And again, I don't want to be in the software business. I don't, that even remotely but I do it out of necessity.

You, have to be able to, we have to be able to, the way we function to give the customers all of these options, we have to have this pricing at our fingertips and it's got to be accurate. We had no choice but to build it cause, cause I can't go buy it anywhere.

[00:43:20] Ed Smith: Perfect answer.

[00:43:22] Eric Fitz: Building software is not for the faint of heart, for sure. We've heard of a number of other companies that have, the same situation where the challenge that the pain is just so big that for whatever you need to do for your business that you just had to go out and try to roll your own software.

And it's so impressive that you're running this whole home performance business and then you're like, okay, we're going to do custom software as well. that takes serious determination and. it's very impressive.

[00:43:51] Hal Smith: And I expect a lot out of my energy advisors, right? And they do a fantastic job and I can tell you the story about them. Remind me and I'll, we'll talk about Matt. Best energy advisor I have. And I'll tell you Matt's story, cause it's an impressive story. But Matt brings in, he does 5 million a year in sales for us, right?

It's amazing. he doesn't have the use of his legs. He walks around and he drags his legs behind him with two hand crutches and he sells 5 million a year. But

[00:44:18] Ed Smith: Wow.

[00:44:19] Hal Smith: that aside, I expect a lot of Matt. But he expects a lot of me, and he challenges me every single day. Hal, I need to be able to have this price quicker. I need to, and so if I'm going to expect high performing energy advisors, I've got to get them the tools to perform.

[00:44:38] Ed Smith: Makes complete sense. 

[00:44:40] Eric Fitz: I'd love to hear a little bit more about Matt's story.

[00:44:41] Hal Smith: Yeah. Matt come to us he was a jewelry salesperson in a mall jewelry store. And that was his career. And we ran an ad for an energy advisor in Syracuse. And Matt answered the ad and just a wonderful young guy. And Matt at that point, had no health issues, and we brought him on and it wasn't, it was less than six months.

Matt got this spine disease and immediately, Lost the use of his legs.

And even today, he still goes to, physical therapy and he's been to Mexico, trying all kinds of treatments and

But Matt is a guy that you want to talk about determination and won't give up. So he literally has these hand crutches and he still gets down in basements. He doesn't get up in attics on ladders, but he's got this super extended selfie stick that he pokes up at the attic and he gets all the pictures. He gets better pictures that our advisors are

able to get up in the attic. And he just does an amazing job. But what Matt does best is. He follows up and he follows up and he doesn't stop following up until the customer says, I'm either not going to buy that or I bought it from someone else and until Matt, here's one of those two things not to the point where he's overwhelming, but every couple of weeks expect the call for Matt.

Hey, just check it in. And that's why Matt's so successful. And he,

[00:46:12] Ed Smith: Wow.

[00:46:13] Hal Smith: the last two years, he's brought in 5 million each year in sales, which in that arena is, our other energy advisors are bringing in a million, million and a half, some of them, 2 million.

Matt's bringing in five. 

[00:46:26] Ed Smith: That's incredible.

[00:46:27] Hal Smith: Yeah. 

[00:46:29] Ed Smith: that's my approach to sales. just gave that away a little bit. Like until you hear yes or no, figure you should reach back out again. Cause they're still thinking about it. Yeah.

[00:46:38] Hal Smith: no question. And he gets so many sales and sometimes those sales don't come in until six months later, but it's because he didn't give up on it.

[00:46:46] Ed Smith: It's a long sales cycle.

[00:46:49] Eric Fitz: People go on vacation. People have life events that just, for whatever reason, they just can't engage with that moment. So yeah, stay with them

[00:46:55] Ed Smith: Yeah.

[00:46:56] Hal Smith: we're more of a, an educational sales company. We sell by educating the customer. We're not, we don't want to be the slickster hard close. if we can close a job same day, because we were able to give them all the information they needed to make a decision and we're able to print a proposal or email them a proposal, and we can make the sale right there.

Certainly. We encourage that. But if that means, Arm twisting and Slickster type stuff. No go. 

[00:47:27] Eric Fitz: on the continuous improvement piece. I heard you mention in a previous conversation, you do three blower door tests. So a test in, test out, and then you have a QC step as well for almost all of your jobs or some of your jobs. 

[00:47:41] Hal Smith: Yeah

Let me explain some of that. So our energy advisor would do a blower door and that's how he's, gauging the improvements that are needed. If we're doing shell work, insulation, air sealing, that. crew comes in and does a test in blower door because they've got to verify, I want them to see for themselves, hey, this is what the energy advisor said the blower door was.

I want them to take their own so they know their starting point. if there's a discrepancy, then let's figure out what the discrepancy is, but they're starting off and then they have to do a test out before they leave and they have a must hit number that we're doing. As we model the job and send it through we determine a must hit number and that they have to hit that.

So that sometimes is three blower doors right there. The energy advisor, the. insulation air sealing crew that test out and then what would happen is our energy advisors, we pay them a fee. We pay them 100 to go back and do a quality assurance test on every job and they do sometimes a blower door, and sometimes we leave that up to their discretion, whether that's necessary or notDepending on the work scope a lot of our work goes through NYSERDA because there's some rebates and such, and they have their own quality assurance inspectors, and they're inspecting about 10 to 15 percent of our jobs.

So we never know what jobs are going to expect. And sometimes we know that they're coming. Most times we don't we just get a score later. Hey, we were at Mary's house the last week and here's what we found. you have to get good scores or you'll get booted from the program or put on probation or whatever.

I used to have a guy that was doing our QA and, as we increased our business, he couldn't get to all the jobs and all of a sudden, he's not hitting them all. And then our QA score started to go down. Now I've got to have my energy advisors go back and I pay them to do it. But our referral program has now went through the roof by the energy advisor, going back at the end and getting the customer referrals. And we actually offer the customer what we say to them is we actually take 500 out of our advertising budget. If you can give us a referral of a friend, a coworker, a family member, That would like work done and they have us do it. We'll give you a 500 referral fee for referring us to that person. And so we try to spend a bunch of our advertising. Budget with our customers 

That's great. That's a great idea. I'm surprised more people don't do that. I've only heard of a couple of people who the energy advisor goes back, but it's such a great way to get referrals. I think that's brilliant. We talked about advertising in I read read a statement here recently and it was the purpose of marketing is to make selling unnecessary,

If not unnecessary, Make it a lot easier.

And I got, when I read that, I said, that's exactly what we do. We put a huge emphasis on several things. One, the truck wraps, we talked about that, all of our trucks are wrapped to the hill. We have a huge yard sign, sign program. So in, in every department, every technician is scored every single week by how many yard signs.

And they get spiffed. They get 10 to put a yard sign in. You can't go down any of our neighborhoods and not see, Halco dominates the area with yard signs.

[00:51:10] Ed Smith: That's great.

[00:51:11] Hal Smith: But every week at every one of our meetings here's all of our technicians for our electrical service department, here's our plumbers, and everybody scored with how many yard signs.

So we're putting about 125 yard signs per week.

We ended up with 500 yard signs being put in monthly. That's a big deal. So when they're seeing the yard sign, they're seeing the trucks, and then we put a. Big emphasis on our Google reviews. And again, everybody's measured by how many Google reviews they get.

And they get, again, they get spiffed. If they get a Google review that the customer wrote something nice about them, just didn't give them a review only, they get 10. If they get a review only, they get 5. Every week we report out on those and we're getting about 35 new Google five star reviews every week.

We actually compete with five of our competitors and our competitors don't even know we're competing with them, but we report on how many new Google reviews they got every week

Almost every week but there's one competitor that we go back and forth in about every other week, they get more than 35.

And they don't even know we're compete with them, but it makes it fun, but we, currently right now we have I don't know, close to, I think it's about 3, 800 Google reviews that with a 4. 9 average.

[00:52:31] Ed Smith: Wow.

[00:52:31] Hal Smith: And then on top of those 3, 800 Google reviews, we were doing, website reviews and ranked them, so we have 8, 500 website reviews. With a five star average and all of those 8500 are totally searchable by zip code.

So they live on our website and can be referenced. When you add all that together have close to 13, Five star reviews, if you will. But every week we're making a big deal out of that. So when people say, Advertising is, making it. The sales side of it is unnecessary.

If a customer is already checked out our Google reviews and see, we dominate our competitors on Google reviews, if they've seen our trucks, If they've seen our yard signs, all of a sudden it makes that buying decision a lot easier. 

We still stand a pretty darn good chance of getting that sale once we can show them the value that we bring.

[00:53:26] Ed Smith: That's awesome. we can't leave without asking about your house and the background. You sent us that video and the background behind you is spectacular.

Tell us a little bit about your house and the Halco experiment you've run on it.

[00:53:42] Hal Smith: Yeah. So we bought this house about three years ago and we weren't really looking But this house come for sale. It was local. It's in Newark, New York. People think, Oh, Newark, New Jersey. No, it's Newark, New York. It's a little town in Wayne County.

[00:54:00] Ed Smith: I grew up next to Newark, New Jersey. So that's, I understand why people might not be so psyched about that.

[00:54:05] Hal Smith: it's right on the Erie canal, it's about halfway on the Erie canal. So the Erie canal is a big part of their culture. And then we're right in the central part of the Finger Lakes region. So it's a great place gorgeous place to live. But this house was the Jackson Perkins home and Jackson Perkins is a company that started with a roadside stand in the late 1800s and they started selling roses with a roadside stand and they got their big claim to fame.

And I guess 19, the 1930 world fair, where they figured out how they could ship roses around the world. So back in the 1950s and 1960s, Newark, New York was considered the rose capital of the world. And there would be a big rose parade every year. And they had huge greenhouses. Miles and miles of greenhouses, which have now been sold and they're growing hemp in them. Go figure. But anywaythis was their home and it's a magnificent home, but it was built in 1910. It was fired originally with a coal fired boiler, steam boiler. And then it was the steam boiler was converted to gas. And I had to change that, and so we decided to put a geothermal system in the home and we chose a, an LG geothermal system. It's a BRF system. And with that, and it's actually the house is large enough.

We're looking to eventually make this a bed and breakfast or an inn. There's actually 16 bedrooms, 16 bathrooms. so we actually had to go to the commercial version of the LG system.

But what that did was that give us total heat recovery. So we not only totally heat and cool the house, but we also. Make all the domestic hot water. So we have 320 gallon storage tanks that we reclaimed the waste heat from the geo loop and make our domestic hot water and store it in these 320 gallon storage tanks to serve the 16 bathrooms.

[00:56:07] Ed Smith: Amazing. 

[00:56:07] Hal Smith: heating, cooling and, we have a big backyard.

We were able to bury this geothermal out in the backyard. So you don't see it. There's no units on the outside. Every room has its own ductless head every bedroom can, set its own temperature being a commercial system one room can be heating, the next room can be cooling, whereas a residential system has to be all heating or all cooling, that doesn't always work out, for a bed and breakfast or an inn, because people like different temperatures and, they'd be fighting each other.

So just, it made a perfect system. So LG Come here a couple of months ago and did a total filming. And then they just released this the filming, which I had sent to you, it turned out amazing.

[00:56:50] Ed Smith: And replacing the system. Made a big impact on how accessible all the floors are, right? 

[00:56:57] Hal Smith: Yeah. So we had this big chimney going up the middle of the house that served this coal, original coal fire boiler. So this chimney was four foot by seven foot. I wanted to put an elevator because, our basement is very dry and accessible and I wanted to be able to use the space there.

We've got, I had 20 window wells. So I got great natural light coming into the base. It's not like a basement. It's just a, it's another level, right? and the attic is amazing. The attic has all these dormers out this clay tile roof, just beautiful views. And I wanted to be able to use the attic.

So we're actually, there's four, four floors of living area. With four floors, you need an elevator. We'll try to, figure out how do you put an elevator in an old house without cutting up the house without or putting a big elevator shaft on the side of the house, which would just ruin the aesthetics.

What we did was we took this chimney down because we didn't need it anymore because we took the coal fired boiler out and we took it down brick by brick from the roof all the way to the basement which was a chore. it give us a natural elevator shaft.

Then we were able to put an elevator in that served all four levels. So it's awesome. 

[00:58:13] Ed Smith: That's very cool.

[00:58:15] Eric Fitz: I love that this project to, come back to the conversation around, geothermal, like ground source, heat pumps versus ductless versus ducted. This, you're doing a VRF system, which alone provides a bunch of flexibility. You've got ground source, for your, where you're pulling the thermal energy, you're dumping the thermal energy, but then you're distributing With ductless units. It's just, it's so cool that we have all these options now. It allows us to create so many different solutions for unique problems. And this is an incredible, 120 ish year old house that you were able to put a whole new system in. And It's awesome.

[00:58:51] Hal Smith: The funny part was when we were looking at this home, I go up in the attic and here's this, cause it was a two pipe. Steam system, right? And there was no air conditioning originally, but on the second floor only where these ceiling vents and I go up in the attic, Halco sticker was on.

And I went back to the office, looked it up. We had put an air conditioning system in this attic 25 years

[00:59:17] Ed Smith: Oh, wow.

[00:59:18] Hal Smith: system, but all we did was serve the second floor bedrooms. And then that cool air naturally found its way down to the living level, this huge house, we were able to put a five ton air conditioning only system and they got by with it, 

[00:59:32] Ed Smith: That's funny. That's amazing. I think last question. The one we'd like to end with is tactical recommendations. If anyone out there is starting a business and looking to have Halco as the example of what they want to achieve, what's one tangible resource you'd recommend people to tap into to learn more, to get smarter, to build a successful business? 

[00:59:59] Hal Smith: Join groups, join organizations, over the years I've been early on, I was part of. The ACCA and I was part of a mixed group and then I got to the point where I outgrew the mixed group. I was headed down the home performance path and the rest of my mixed group wasn't. But I learned a whole bunch from them prior to, deciding to leave because I was more of a home performance contractor and they wanted to stay HVAC contractors. We, through this building performance contractors association that we are doing here in New York, we provide tons of mentorship and coaching. I just became a board member of the building performance contractors, the national organization. And that's another resource. I am I'm part of the group of what's called Contractor Nation. They're out of Connecticut. And they're a, an amazing group. I originally joined in, there's a bunch of different branches within Contractor Nation. I joined what was called Dr. Energy Savers, and that was their insulation air sealing piece. They actually, their specialty and where they started was basement waterproofing. So when we decided to take on basement waterproofing, they were the perfect partner to, to learn from because that's what they had been doing. And they have 400. Plus dealers across the country doing basement, waterproofing basement, finishing the same way.

They do that. They have a gutter solution. So a lot of the pieces that I've been able to bolt on is because I partnered with Contractor Nation and, and how that works is you basically you're part of this network of contractors and there's all kinds of sales classes and there's all kinds of technical training. But you get all of those resources because you buy your products through them. So as a Dr. Energy saver dealer I buy all my spray foam from them and I buy all my cellulose from them and I'm paying market rate prices. I'm not overpaying for the product but in return, I get. All of this technical training, sales training, and the basement finishing the same way, the basement waterproofing, that's how they make their living is by they, they sell their products to all their dealers.

So it's been a wonderful partnership. Amazing people. All very ethical businesses that they promote. they're not about the shysters and trying to, it's just not what they do. And so it's been a great group. In fact, I look forward to diversifying. We actually have a motorcycle group called the Sons of Thunder. I'm hosting that this year at the Finger Lakes. I'm going to get my Harley out of the garage, which I don't get to get out much, but we're going to have about 40 bike riders here. And we're going to ride the Finger Lakes for a week, the week after Father's Day.

Last year we were in California with this same bike group but it's my turn to host them here this year. So yeah, you have a motorcycle club out of your Contractor Nation group. It's just, it's amazing.

[01:03:02] Ed Smith: I did not expect a question on tactical recommendations to end with motorcycle group, but I love that. 

[01:03:10] Hal Smith: Yeah. 

[01:03:11] Ed Smith: Hal Smith of Halco. Thank you so much for being on the Heat Pump Podcast.

[01:03:16] Hal Smith: I appreciate you having me very much. Thank you.

[01:03:19] Eric Fitz: Thank you. It's been so fun.

[01:03:22] Eric Fitz: Thanks for listening to The Heat Pump Podcast. It is a production of Amply Energy. And just a reminder that the opinions voice, were those of our guests or us, depending on who was talking. If you like what you've heard and haven't subscribed, please subscribe in your favorite podcast platform. We'd love to hear from you.

So feel free to reach out. You can reach us once again at