Ep. 39: Low Overhead and Infinite Scalability: Mike Townsend's Blueprint for the Next Generation of Heat Pump Contractors

Most HVAC contractors start the same way: they're skilled technicians who see an opportunity to build something of their own. But few have the chance to start completely fresh, armed with hard-won lessons from previous ventures and equipped with technology that didn't exist even a year ago.

Mike Townsend is doing exactly that. After selling his previous company to private equity and watching it grow from $0 to $15 million in four years, Mike is rebuilding from the ground up with Veteran Heating, Cooling, Plumbing & Electric. But this time, he's structured the business to operate with a fraction of the overhead costs of traditional HVAC companies—while maintaining higher quality standards and closing jobs at an 80% rate.

The key? Ruthlessly outsourcing everything that isn't core to the business, leveraging AI for customer service and operations, and focusing exclusively on high-efficiency heat pumps in a market where rebate stacking can make systems cost-neutral for customers.

Six weeks into operations, Veteran has already generated $600,000 in sales with just 10 field staff and virtually no back office. Mike's approach isn't just interesting—it's a working model for how HVAC businesses can compete in an increasingly technology-driven market.

From Military Cooling Systems to Multi-Million Dollar HVAC Companies

Mike's path into HVAC wasn't conventional. After joining the US Army at 19 with plans to become a doctor, he ended up in a different specialized field entirely: "Among other things, it had to do with the cooling systems for heat seeking missile heads. You have to keep the sensor on those extremely cold for it to pick up the heat signature."

When he left the military, HVAC was the closest civilian equivalent to his military training. What started as a temporary job turned into a 30-year career spanning multiple successful companies—and some spectacular failures that taught him equally valuable lessons.

His first company grew from a $10,000 loan (and a retired U-Haul truck with a genius hot-swap shelving system) to $3.5-4 million annually. But when he sold it in 2006 for $750,000, he never saw the final $400,000 on the promissory note. The lesson? "Get a personal guarantee on that promissory note. We did not. When the company went bankrupt, we had no recourse."

After helping other companies expand nationally and starting a second company that eventually required a fire sale for personal reasons, Mike spent five years at a $40 million Nexstar company—his first exposure to residential flat-rate pricing and white-glove service. That company was still doing everything on three-part carbon copy invoices as late as 2019.

The Fast Growth Company That Ran Out of Cash

In 2019, Mike started fresh with a business partner who had an HR background. They incorporated in September, gave themselves six months to prepare, and opened for business in March 2020—literally the day before Colorado's governor told everyone to go home due to COVID.

Despite the timing, the company exploded: $2.5 million in nine months, $7.5 million in 2021, $12.5 million in 2022, $15 million in 2024. At its peak, it had 110 employees and 60 trucks.

But that growth came at a cost. "It is very expensive to grow that fast," Mike explains. "Over that four-year period, we probably hired 250 employees to get to 110 people that we liked. For every employee you hire, it's a week or two of onboarding and training. Just two weeks of payroll times 250 people—that alone is millions of dollars."

The back office expenses were staggering:

• 12 people in call center and dispatch: $1.1 million annually in payroll
• HR manager: $100,000
• Controller: $100,000
• Permit coordinator: $75,000
• Building rent: $15,000 monthly

Mike and his partner ran out of runway to fund continued growth. They started looking for an equity partner who would come in as an equal, but could only find private equity firms that wanted majority ownership.

They chose a small Boston-based family office that promised resources without interference. The reality was different. "They almost immediately started panicking about top line revenue," Mike says. The relationship deteriorated quickly, and Mike was fired within months of the acquisition.

Reimagining the HVAC Business Model

During the months after his exit, Mike did something most contractors don't: he fundamentally rethought what an HVAC company should look like.

The traditional model is a big building filled with accounting people, marketing people, HR people, call center staff, dispatchers, service managers, and warehouse workers. Mike looked at that annual back office payroll and asked: what if we didn't need any of this?

The AI-First Operations Stack

"I started rethinking what companies like this should look like," Mike explains. "Why are business owners constantly trying to become accounting experts and marketing experts? There are people who know this way better than me."

Here's how Mike restructured operations:

HR: Fully Outsourced

• Cost: Fraction of the $100,000 annual salary, plus no vacation gaps or single points of failure.

"I had an HR guy. He was great when he was there. But when he went on vacation, we just didn't have HR for a couple of weeks."

Accounting: Outsourced to Trade-Specialized Firm

• Vendor: Out of the Box Technology
• Cost: $1,800/month versus $100,000-200,000 annually for in-house staff
• Services: financial statements, bill payment, all enhanced with AI for invoice processing

Marketing: Split Across Three Specialist Vendors

• CI Web Group for web development and AI-powered SEO that dynamically adjusts content daily
• Mixing Group for Google Ads
• Ascend Creative fo Videography and social media (films on-site every couple weeks)

Customer Service: AI Voice Agents

• Vendor: Onepath (backed by human call center)
• Cost: Pennies on the dollar compared to 12-person call center
• Coverage: 24/7 instant response to calls, texts, emails, web chats, Facebook leads

The AI answers with: "My name's Melissa, I'm an AI agent here to help you schedule your appointment. If at any time you'd rather speak to a human being, just say so and I'll transfer you."

Back Office Support: Virtual Assistants

• Vendor: Work Hero and Eli.build
• Services: Central office adminstration, warranty registrations, permit applications, inspection scheduling, rebate processing

Technical Monitoring: AI Ride-Along

• Vendor: Noso (San Francisco startup)
• Function: Monitors technician-customer interactions, compares high performers against low performers, provides coaching insights

The Position Mike Refuses to Have: Service Managers

This might be the most controversial part of Mike's model. "I don't believe in service managers. I think it's the most useless position in any company ever," he states flatly.

"What is a service manager's job really? Double check to make sure the technician did his paperwork right. Double check to make sure the technician left three options. Double check to make sure he put stickers on the equipment. You are babysitting grown men."

Mike's alternative: "We only hire adults and professionals. If I tell you that you need to present three options, and if you're struggling to find three options, call me and I will help you. If I cannot trust you to do the basics of the job, this is the wrong place for you to work."

The Multi-Location, No-Building Strategy

Without needing a building to house back office staff, Mike implemented a strategy most contractors never consider: multiple small offices instead of one large facility.

"Instead of renting a big huge building, we have rented private office spaces in co-working, shared spaces all over town," Mike explains. "At five to six weeks old, we're the only company in town that has three Google My Business locations."

The advantages:

• Map pack dominance: Google prioritizes showing companies physically close to searchers. Multiple locations = more free leads
• Minimal cost: Offices range from $500-800/month with utilities and WiFi included
• Professional amenities: Access to beautiful conference rooms and training spaces when needed
• No maintenance: Zero building repair and maintenance line item on the P&L

The warehouse is in a shared co-warehousing space for $1,700/month: "1,000 square feet, with forklifts, pallet jacks, nine dock doors — I didn't have to buy any of that stuff."

Total comparison: $15,000/month building with parking problems versus $3,000/month across multiple professional locations with better marketing impact.

The Instant Scalability Advantage

The power of this model becomes clear when you consider growth scenarios.

"If we doubled our business overnight, assuming I had enough field technicians, the rest scales automatically," Mike explains. "The accounting firm doesn't care if our transactions double. If we have twice as many phone calls, the AI call center doesn't care. If we send the marketing team twice as much money, they're fine with that."

Compare this to traditional growth, which requires:

• More call center staff and dispatchers
• Larger office space
• More warehouse workers
• Additional management layers
• Recruiting, hiring, training, managing all these people

Mike's operations manager's job is straightforward: monitor the vendors. "Did the accounting firm pay bills on time? Did they get us financials on time? Is the web design company delivering on SEO? That's his job—manage the vendors, not manage dozens of employees."

Heat Pumps: The Only Product Worth Selling in Colorado

Veteran doesn't sell air conditioning units. They're not even in the price book.

"We only install 18 SEER inverter driven variable capacity heat pumps. That's the only thing we're installing. That's the only choice you get," Mike states.

The math is compelling for Colorado customers:

Rebate Stack Example (3-ton system):

• Xcel Energy: $6,800 (based on $2,250 per ton of heating at 5°F)
• Colorado State: $1,500 contractor tax credit (Mike gives customers the full amount)
• Federal: $2,000 energy tax credit for customer

The Bottom Line Calculation:
Mike shows customers the top-line cost, subtracts the Xcel rebate and state tax credit upfront (so customers don't wait), then displays the net cost—often just a few thousand dollars. Add the $2,000 federal credit customers will receive, plus an AI-generated energy savings assessment specific to their old system, and "the bottom line net cost to the customer is a negative number."

"We're showing people that you can keep your old system if you want. It would actually be cheaper for you to replace your system than to keep your old one. You're still going to spend the money—you're actually going to spend the same money or more. And you get to live with this old piece of junk."

Result: 80% closing ratio on new equipment install quotes.

The Three-Hour Sales Process Built on Technology and Education

Most contractors spend 30-60 minutes on a sales call. Mike's team averages three hours.

"We take sales calls very slow," he explains. The process starts with understanding pain points—which requires asking follow-up questions to the standard "how does your system work?"

"You'll usually get 'it works fine, it's worked fine for 20 years,'" Mike says. "Oh really? So every room is the same temperature? Well, no, the room above the garage is super cold, and that room is always drafty, and this one's too hot."

The Technology Stack for Sales

Step 1: LiDAR Scanning with Amply

The team scans the entire house top to bottom with the customer walking along. "Without fail, I've never seen us do this and not have the customer say 'that is really cool.' Even better is when they say 'I had three other guys come before you. They didn't do anything like this.'"

Step 2: 3D Model Review at the Kitchen Table

"We sit there and just play with it. We just go, here's your first floor, and we roll it around because it's super cool and the clients love it." Then they show the actual BTU requirements: "Your whole house needs 45,000 BTUs of heat and two tons of cooling. You currently have a 120,000 BTU furnace and four-ton AC installed."

Step 3: Ductwork Assessment

The team measures supply trunk, return trunk, counts returns, looks at wall stud spaces, and does the math: "How big a system can this ductwork even support? That's a thing most companies are not taking the time to do."

Step 4: AI-Generated Savings Analysis

For each quote, Mike's team enters a prompt into AI: "Assessment of energy savings by replacing a 1993 80% single stage gas furnace with an 18 SEER modulating heat pump." The AI generates a comprehensive analysis that gets pasted directly into the quote.

"Rather than the client taking our word for it, we put that prompt into AI," Mike explains. "It gives a great assessment of what they can expect in energy savings over the next ten years."

The Single-Option Strategy

This contradicts decades of HVAC sales training about good-better-best, but Mike is committed to it.

"You're not getting three choices. You're getting a high efficiency heat pump. And here's why. That's your only choice. That's all you're getting. It's the option that makes the most sense."

The combination of thorough process, advanced technology, transparent pricing, and compelling economics creates a powerful sales dynamic. "If you are out there against competition and you're doing the work they're not doing, the client sees that."

The Marketing Strategy: Be Where Your Competition Isn't

Mike's most unconventional hire might be his brand ambassador—a full-time employee whose entire job is community presence.

"Her job is to be out doing something, some kind of event every Friday, Saturday and Sunday, every single week of the year," Mike explains. "This weekend we're doing a fall home and garden show. Next weekend might be a street fair on Saturday, farmer's market on Sunday, sponsoring a networking group on Friday."

The other recruiting and marketing innovation: geo-targeted video ads showing Mike standing in front of a truck, speaking directly to technicians about why they should work for Veteran. The ads run geo-tagged around competitor offices and every supply house.

"When technicians are at the office just scrolling through Facebook, they're seeing our recruiting ad. We're getting more responses than we can handle. I had to shut down the plumbing and HVAC ones because I don't need any more techs right now."

Budget: $10/day. 

The Brutal Honesty About Private Equity

Mike's private equity experience offers cautionary wisdom for contractors considering this exit path.

"Just because a private equity firm wants to buy your company, that doesn't mean they actually have enough money," Mike warns. "Air Pro's recently declared bankruptcy. Just because you're a private equity firm doesn't mean it's well run or has all the money in the world."

His advice for contractors exploring PE deals:

Vet Them Like They Vet You

"When you're selling your company, that person is petitioning you as much as you are petitioning them. They'll request all due diligence about every financial detail of your life. You deserve some information in return—especially if part of your compensation is equity in the portfolio."

Understand the Debt Structure

"By definition, private equity will layer that company up with debt. It will be isolated to that particular corporate unit. You will have no recourse to the overall PE fund. If it's poorly run after you leave and they can't service the debt, it will go bankrupt and you'll have no recourse."

Get the Right Attorney

"The good old attorney that helped collect from customers might not be the best guy for this transaction. You want an attorney that specializes in these agreements and understands how they're structured."

Ask the Critical Question

"If somebody handed you cash, would you use that cash to buy shares in that organization? If the answer is no, you might want to rethink that deal."

The First Six Weeks: $600K in Sales, $10M in Pipeline

At six weeks old, Veteran has:

• 9 field staff (2 plumbers, 2 HVAC installers, 2 electricians, 2 HVAC techs, 1 comfort advisor in training)
• 1 operations manager
• $600,000 in completed sales
• Booked out three weeks on installations
• $10 million in commercial and multifamily projects at various engineering stages
• 80% closing ratio on new equipment quotes

The startup capital required was dramatically lower than traditional models. "We would have needed four times the startup capital if we were trying to do this stuff in-house."

The Resources and Vendors That Make It Work

For contractors intrigued by elements of Mike's model, he shared his specific vendor stack:

• Accounting: Out of the Box Technology
• Web Design/SEO: CI Web Group (with proprietary AI for dynamic content optimization)
• Google Ads: Mixing Group
• Video/Social Media: Ascend Creative
• AI Call Center: Onepath
• Back Office Support: Work Hero
• Rebate Financing: Eli Build (provides 95% of rebate via ACH overnight)
• AI Sales Coaching: Noso Labs

"I'm not saying these are the only options," Mike cautions. "There's a million ways to skin the cat. But these have worked for us."

The Hard Truth About Transitioning to This Model

Mike acknowledges this approach isn't easy for existing companies with established teams.

"If you own an existing company and you have a call center full of people, a lady who's been doing accounting for years—going in and firing your entire office staff might have a small impact on your culture," he says with understatement.

"I acknowledge this would be hard. I think it's something you could do over time through natural attrition. But I love that it would be hard for my competition to adopt overnight because it's a huge advantage for us."

His broader advice for business owners: "Your responsibility is to the business as a living entity. And sometimes that means making hard choices. If you're not making the money you need, if you're struggling with cash flow, you might need to look at your staff and ask: is this really an expense I need? Or is there a cheaper way to do this?"

Leadership Philosophy: Simon Sinek and Treating People Like Adults

Throughout the conversation, Mike's leadership philosophy comes through clearly. His recommended reading list starts with one name: Simon Sinek.

"Read every book and watch every podcast that Simon Sinek has ever done. If you adopt that attitude towards leadership and management, you will have people flocking to come work at your company."

This philosophy shows up in the "no service managers" stance—treating technicians as professionals who don't need babysitting—and in the recruiting videos that focus on work-life balance and compensation rather than empty promises.

"If it seems like I have all the answers, it's only because I've made every mistake you can possibly make over the last 30 years," Mike reflects. "I will now go on to make new ones, but I'm trying not to repeat any of the existing ones."

Key Takeaways for Heat Pump Contractors

Mike Townsend's approach offers several actionable insights:

Focus Ruthlessly on Core Competencies: Unless you're exceptional at HR, accounting, or marketing, you probably shouldn't be doing it in-house. Specialists do it better and cheaper.

Technology Enables Competitive Advantage: AI isn't replacing the business—it's handling tasks that don't require human expertise, freeing up resources for what matters.

Heat Pumps + Rebate Stacking = Compelling Economics: In markets with strong incentives, the math can be so favorable that closing ratios dramatically improve.

Multiple Small Locations Beat One Large Facility: For marketing impact, cost efficiency, and operational flexibility.

Thorough Process Differentiates from Competition: When you're the only one doing LiDAR scans and ductwork calculations, price becomes less critical.

Treat Technicians Like Professionals: The right people don't need service managers looking over their shoulders—they need support when they ask for it.

Local, Community-focused Marketing Stands Out: In a digital-saturated world, physical presence at community events provides differentiation.

Scale Before Building Infrastructure: Traditional advice says hire for the company you want to become. Mike's proving you can grow first and avoid hiring altogether.

The HVAC industry is changing rapidly—driven by electrification, heat pump adoption, and technological advancement. Mike Townsend is building a company that doesn't just adapt to these changes but leverages them as competitive advantages.

Whether his specific model is right for every contractor is debatable. But his willingness to question every assumption about how HVAC businesses "should" operate offers valuable lessons for anyone looking to build a more efficient, profitable, and scalable operation.

For contractors who can embrace change, outsource strategically, and focus relentlessly on what they do best, Mike's blueprint offers a compelling path forward.

Timestamps:

[00:00] - Episode Teaser

[02:35] - Meet Mike Townsend: Army Veteran to HVAC Entrepreneur

[06:08] - Founding His First Company and Learning the Hard Lessons

[17:08] - The Corporate Stagnation That Sparked Innovation

[26:05] - Building the New Model: AI-driven, Fully Outsourced Operations

[41:20] - $600K in 6 Weeks: What’s Working and Why

[47:37] - Why Mike Only Sells Heat Pumps and How He Closes the Deal

[51:36] - Using AI & Amply for Precise System Design

[56:15] - Resource List: Tools, Vendors, and Hiring Secrets

[59:34] - Final Thoughts

Connect With The Guest: 

• 🔗 Mike’s LinkedIn
• 🔗 Company's LinkedIn
• 🌐 Website

Transcript

[00:00:00] Guest: Mike Townsend: I don't believe in service managers. I think it's the most useless position in any company ever. Anywhere. Because what is a service manager's job really? It is a double check to make sure the technician did his paperwork right. Double check to make sure the technician left three options to the client. Double check to make sure that he put stickers on the equipment. Double check, double check. Yeah. You are babysitting grown men. That is what you are doing. And so we only hire adults and we only hire professionals. That is it. And as an adult and a professional, if I tell you that you need to present three options. And if you're struggling to find three options to present, call me and I will help you.

[00:00:40] Host: Ed Smith: Hey everyone, we've got an awesome episode for you today. Mike is super compelling, as you just heard from that brief clip, and he is building a heat pump business from scratch, basing as much of his operations as he can off AI to make it highly scalable and highly efficient. If you're interested in heat pumps or building a business with the latest AI technology, this is an awesome episode, so definitely check it out and we've got one announcement. The US Heat Pump Summit is coming up in November in Worcester, Massachusetts. This was our favorite conference of the year last year, and the lineup this year looks incredible. A bunch of our guests and friends are going to be there. So if you're building a heat pump business, you're going to find your people here and it's going to be a great event. So we hope to see you in Worcester, Massachusetts in November. And if you're going to go use amply as a discount code, AMPLY to get that discount. All right. On to the show.Hi and welcome to the Heat Pump podcast. I'm Ed Smith.

[00:01:52] Host: Eric Fitz: And I'm Eric Fitz. We are co-founders of Amply Energy.

[00:01:56] Host: Ed Smith: We are thrilled to welcome Mike Townsend, founder CEO of Veteran Heating, Cooling, Plumbing and Electric. Mike, welcome.

[00:02:04] Guest: Mike Townsend: Hey, thanks for having me, I appreciate it.

[00:02:05] Host: Ed Smith: Likewise, especially carving out the time when you're so early in the journey of this particular company, which we'll get into. All right. We're going to get deeper. But would you give folks like the 1 to 2 minute summary of what veteran heating, cooling, plumbing and electric is and then we'll dig in from there?

[00:02:22] Guest: Mike Townsend: Sure. Yeah. We're a veteran owned residential light commercial heating, cooling, plumbing and electric service repair and replacement operation. And I know we'll dig in deeper, but the thing that I think makes us unique is our business structure, which allows us to be a little more cost competitive than our competitors and our focus on giving back to the community. Free services for veterans discounts portion of profits go back to veteran and first responder organizations, things like that.

[00:02:51] Host: Eric Fitz: Wow, I can't wait to dig a bit more into your business before we get there. We'd love to just hear a little bit more about your personal background. We know that you're a US Army veteran. I think you founded several different HVAC companies. What has been the path that got you to where you are today?

[00:03:08] Guest: Mike Townsend: Yeah. No, it's I've often thought that I would like to write a book, but I don't know if I have the time or patience for it. And I don't know how it would end. I'm still in the middle of it, I feel like. But yeah, I joined the military US Army when I was 19. I scored high on the entrance exam, and based on your scores, that determines what jobs you are qualified to do. And I scored high enough that they said you can do whatever you want. And I said, great, I want to be a doctor. And they said, okay, we will send you to medical school. You have to make a 12 year commitment. And I said, that sounds like a fantastic trade off. And they said, okay, great. So we are full in that program for the next 48 months. So every month for the next four years, you just need to let your recruiter know you're still alive. You need to come check in. And I said, wait, no, let's rethink this. I want whatever job requires the highest test scores, but that you have immediate availability. And they said, great, you're a 52, Charlie. And I said, whatever, don't care. I went in having zero idea what my job in the military was going to be, and went to basic training at Fort Knox.

[00:04:07] Guest: Mike Townsend: And then they sent me to Aberdeen Proving Grounds, Maryland, and there they started sending me to mechanical engineering courses, electrical engineering courses, thermodynamics courses, got my EPA license and ultimately came to realize that, among other things, there's a number of things that fall into that moss. But among other things, it had to do with the cooling systems for heat seeking missile heads. And you have to keep the sensor on those extremely cold and for it to pick up the heat signature, what it's tracking. And there's a thing called a BCS station that produces these high pressure bottles that release coolant across the sensor. So anyway, when I got out of the military several years later, HVAC was the closest analogous thing to what I had done, and I had never. Even when I was in the military, I had not really thought about a long term career in HVAC. For me, that was the thing that I was going to do while I went to college. I used the G.I. Bill and it just ended up being such a great career path. I never went back. In fact, I never graduated high school for that matter. So I have officially and I've there's some unofficial stuff, but officially I have a 10th grade education.

[00:05:20] Host: Ed Smith: A 10th grade education who did advanced coolant and refrigerant, work on heat seeking missiles, and is a multi-time entrepreneur. Like your resume, it's got other stuff going.

[00:05:31] Guest: Mike Townsend: It's incongruent. But anyway, when I yeah, when I got out, I went to work for a local HVAC company that specialized in commercial work, primarily computer room cooling systems. If you're familiar with old systems and that kind of thing, and among other things, a rooftop units and refrigeration and all that. And it was one of those I won't name names, but it was a small privately owned company, and it was one of those contractors that gives contractors a bad name. It was in addition to being okay with technicians and not only being okay, but encouraging technicians to rip customers off for lack of a better way of putting it. The owner was also robbing his own company. He made sure that he had one house was built, another always had the newest truck as soon as it was released each year, but at the same time wasn't paying his vendors, wasn't sending employee 401 K contributions in. Et cetera, et cetera, et cetera. And I was talking to a relative who's a very successful entrepreneur. And I said, man, I'm gonna have to go find another job. The big question is, is this the way all companies. Because I was young, I was in my early 20s at this time. And I'm thinking, is this the way all. Is this just what the industry is? And he said you should just start your own company.

[00:06:41] Guest: Mike Townsend: And I said, man, I don't know. I don't have any idea how to do any of that. And he said, look, I'll mentor you. I'll loan you some money. He asked me how much money I needed and I gave the entirely wrong answer. I said, oh, I said $10,000 would be more than enough. So he loaned me $10,000. Anybody who's ever started a business knows that was not the right answer. I bought an old, retired U-Haul moving truck, and because I knew I couldn't afford to buy a new truck, and I knew that there was a possibility it would break down. So I bought this moving truck thinking if I had a day where that truck breaks down, I could go to U-Haul, rent another U-Haul truck. So what I did is all of my shelving in that truck, all of the parts, shelving and everything was on a wheeled platform. And then I had devised this system to strap it to the side of the truck, because it's got those rails right. So I devised a system. That way if the truck broke down, I could literally back another truck up to it, roll all of my shelving onto the other truck. That's amazing. Strap it down and go on.

[00:07:42] Host: Eric Fitz: Just do a hot swap.

[00:07:43] Guest: Mike Townsend: And it actually didn't work bad. It was not the worst idea I've ever had. It wasn't terrible. So anyway, I started my own company in my early 20s, and by the time I was 30, we were three and a half, $4 million a year operation, and I had a combination of W-2 and subcontract employees, and a guy walked through the front door of my business one day and said, hey, I've got buyers that are looking to buy companies like this now. This was back before the private equity days. Long before that, it was back in, I guess it would have been 060506 somewhere in there. And he said, I've got buyers that are looking to buy companies like this. And, and I said, what do you think we could get for it? And he looked at our panels and he goes, oh, I could probably get you three quarters of $1 million for the company. And I said, no thanks. I'm like, that's a what is that, a house and a car? No, this is providing a living for my family and my no, it's not enough money. And then a couple weeks later, I'm laying in bed on a Thursday night payrolls. The next day I'll name names here. Pizza Hut Corporation at the time owed us Otis. $400,000. That was 90 days overdue. And I think Taco Bell owed us another couple hundred thousand and other commercial. Marie Callender's owed us money, and yet we didn't have the money. All the money we needed for payroll. And then you start playing that game of, okay, hopefully not everybody takes their check directly to the bank, and it's just. And so I'm laying there in bed and thinking, wait a minute, I could get rid of this stress and put 750 grand in the bank.

[00:09:08] Guest: Mike Townsend: Maybe that's not such a bad deal after all. And so we put the company up for sale. We got multiple full price offers within 30 days, which means we priced it way too low. We actually did sell it for exactly $750,000, and the guy that we sold it was a private individual. He bought my company and he, which was primarily commercial HVAC and refrigeration. He bought a local plumbing company and he bought a local residential HVAC company. And his stated goal was to merge them all together to create one of the largest mechanical companies in Denver Or relatively overnight because back then we didn't really have any. We didn't have the huge players in the market that we have today in Denver. This was 20 years ago. This was here in Denver. We've got companies like Plumbline and triple A and Applewood and things like that, and they were growing at that time, but they weren't the powerhouses that they've become over the years. And so anyway, it was a good idea. But he was not the most honest individual. What he ended up doing was he started moving the assets of my company and the other residential HVAC company into the plumbing company, and then bankrupted my company and the other company so that he didn't have to pay the remaining balance on the promissory notes that he had written for purchasing the companies. So he still owed me $400,000 at that time. Oh my gosh. Of the 750. And we sued him and it went on for years. And then he died. And then it came out that he hadn't paid the IRS. So the IRS seized everything and auctioned it off like it was a the whole thing sounds.

[00:10:40] Host: Ed Smith: Like an understatement.

[00:10:41] Guest: Mike Townsend: Yeah, it was a it. But the lesson of this industry.

[00:10:46] Host: Eric Fitz: Holy moly.

[00:10:47] Guest: Mike Townsend: I'll tell you what the lesson learned was. The lesson learned was get a personal guarantee on that promissory. If you're going to sell your company and you're going to accept a promissory note for part of that. Get a personal guarantee on it. We did not. My the attorney we hired didn't think we needed it. And so then if they just sign as if they are committing the company to pay that debt, then when the company goes bankrupt, you got no recourse. Wow. So anyway, I and during.

[00:11:14] Host: Ed Smith: Lesson for our listeners though, like that's the first time that piece of advice is on this podcast.

[00:11:18] Guest: Mike Townsend: Yeah. No, it's no joke. You need to I think sometimes when people go to sell their company, they're just so happy that somebody wants to buy it, right? And the reality is, you need to vet that person and make sure they have the assets, that they have the money, they have the backup. And you need to explore with your attorney how hard it would be to collect from them, and especially with what's going on with private equity right now. And I'll tell that story as well. But just because a private equity firm wants to buy your company, that doesn't mean that they actually have enough money. I think we all know that Air Pro's recently declared bankruptcy. So just because you're a private equity firm, it doesn't mean it's well run. It doesn't mean that it's got all the money in the world. And I'm not trying to, I don't know, air pros well enough to know what problems they encountered. I feel for them in that scenario. But when you're selling your company, that person is petitioning you as much as you are petitioning them, and they will request all due diligence from you about your. They'll dig into every financial detail of your life and your company's life. You deserve some information in return about whether, unless they're going to just stroke a check for the entire amount. But if it's going to be a situation where, well, we're going to buy it and you're going to have 20, part of your compensation is you're going to have 20% ownership in the new portfolio. Well, great. Let's see the financials of that portfolio then.

[00:12:37] Host: Ed Smith: So anyway one thing to layer on here because private equity has come up a few times on this podcast, I don't think we've ever talked about this before. Almost by definition private equities will layer up that company with debt.

[00:12:50] Guest: Mike Townsend: Right.

[00:12:50] Host: Ed Smith: That's right. It will be isolated to that particular corporate unit. You will have no recourse to the overall private equity fund. It will absolutely be boxed off. And the cash generated by that business is what will service that debt. And so if it is poorly run after you leave and they are unable to service that debt, it will absolutely go bankrupt and you'll have no recourse to anything else because like the legal teams at these private equity firms know how to wall off one particular corporation from, like the rest of the umbrella. So.

[00:13:20] Guest: Mike Townsend: Yeah. And that's the other thing I'll say is the good old attorney that the guy that you've known for years, the guy that helped collect from customers that didn't pay or whatever, he may not be the best guy to represent you in that transaction. You're going to want to find an attorney that specializes in this, that understands these agreements, that understands what you said about how that's going to be structured. And again, that's assuming that you're not if they're just stroking a check for the whole amount and you're walking away, then all good, right. But if part of your compensation is going to come in the form of shares or whatever else, like you deserve to know, just look at it this way. If somebody handed you cash, would you use that cash to buy shares in that organization? And if the answer is no, you might want to rethink that. But during that time frame where I was trying to collect from this guy, I assisted. I was trying to not step on my non-compete because that would just make it that much harder to collect from him. And so I was actually traveling around the country and helping other companies open branches outside of Colorado, because that didn't affect my non-compete. And so I helped the company open a branch. I helped two different companies open branches in Phoenix and helped the company open a branch in Detroit. And but ultimately, once it was clear that I was never going to be able to collect from this guy, I restarted I started a new company in oh eight actually the week the Dow hit 6000. I mean, my timing was phenomenal, but right in the middle of the crash. But I started a company in oh eight and within a few years, again doing three, $4 million a year.

[00:14:47] Guest: Mike Townsend: And it ended up going through a divorce, which necessitated selling the company. And in 2013, I was a little personally, professionally burned out at that moment in time. And I actually accepted a role at a local company about a $40 million a year Nexstar Company here locally that was privately owned and, you know, just a non-management role, just more of a technical role. It allowed me to just I enjoy that kind of stuff. I don't get out and do it as much as I'd like anymore, but it allowed me to recharge a little bit and think about it was my first introduction, actually, because my background up to that point had been primarily commercial, so it was my first introduction to that flat rate white glove. Put your booties on at the front door. All of that. Three options at the kitchen table. It was my first introduction to that part of the industry, and starting to understand at that point what the margins on that type of work can be. Really got my head moving. And so I was with that company for almost five years and starting to think about, man, if you could. But there was some interesting, obvious blind spots with that company. I mean, this was a $40 million a year company that was still doing everything on three part carbon copy, handwritten invoices. The way that you got dispatched to a call was they would email a summary in Gmail. They would email a summary of this is the customer's name, their address. And this is what their problem is. And you would just you would get an email. And that's how you knew what service call you were headed to. There was no I mean, it was pretty wild. And so.

[00:16:22] Host: Eric Fitz: This is in 2015, 2016. They were still they were doing this.

[00:16:25] Guest: Mike Townsend: 2015 through the end of 2019. Yes. Now, I happen to know that in the last couple of years they have transitioned to service Titan. But that, I mean, all of those years doing everything on handwritten invoices. So, I mean, even when you would give a customer a quote for a furnace, it was literally a blank sheet of paper and you would write 80,000 BTU furnace install, $6,000 or whatever, right? And then you would just draw a line and put an X there, and the customer would just squiggle there saying that was the entire agreement. That was the whole contract. It's just amazing. Absolutely amazing. But anyway, so I'm looking at that and going, man, there's some obvious gaps here. The owner of the company was an older plumber, and he had his own thoughts about how things should work. And so, like the company did not sell Wi-Fi thermostats, he was convinced it was a fad. He was convinced it would create nuisance calls when people's internet didn't work right. And so the company did not install thermostats that you could connect your phone to. So anyway, I finally in 2019, I started putting together a business plan. I had a buddy who was at a turning point in his career as well. And one thing I knew going into the company I started in 2019, one thing I knew was that I had learned, I will fully admit that my ego in the first two companies was absolutely a part of the equation.

[00:17:45] Guest: Mike Townsend: You start a company and you think, oh man, I'm going to work my way out of the field and I'm going to go sit in a big office and so on and so forth. And what I realized is that's not necessarily the part of the job that I'm best at. And it's so interesting. It's an epidemic in this industry of plumbers who start a plumbing company and electricians start electrical company and so on and so forth. And ultimately you end up with a bunch of GM's or CEOs or whatever title they take on who are really not qualified to run their own company. And certainly that's where I felt I was at. And so I knew going into it this time that I wanted a partner who could handle more of that back office administration? The things that I certainly I was I might have been okay at, but I wasn't better than anybody else by any means. And there were certainly people better than me at it. And allow me to focus on the part that I was good at, which was working with clients, working with technicians, recruiting, hiring, training, technical support. Those were the pieces I was good at, and I was okay with letting somebody else sit in the big chair.

[00:18:50] Host: Eric Fitz: Yeah, I was just going to say, before we go a little bit further, I just want to like. So you sold your first company and it was honestly, it sounds like a bit of a nightmare just trying to actually get any of the cash associated with the sale. You go into this second company, it's it's a mess you have. You end up working for somebody else. Why did you think, oh, I'm now going to try this again. Yeah. What was going on there?

[00:19:14] Guest: Mike Townsend: I sold the first company and yeah, I didn't really get paid and started the second company and fire sold it when I went through the divorce. So there was a little bit of money there, but not a ton. And I just realized I couldn't. I realized I was never going to achieve what I wanted to achieve working for somebody else. It just wasn't going to happen. I have big ambitions about what I want to do in life and, uh, that I just wasn't going to get. I was making great money. I think working at that Nexstar company, 2015 through 2019, I was I think I made 150 or 60 grand a year and great benefits and all that. It was not a bad living by any means, but it wasn't going to get me where I wanted to go. And I could give all these high ideals about wanting to start a company to better serve the local community or customer base or whatever. But really, we all start a company for the same reason. We all start a company because we either want to make more money right now, or we want to make more money down the road when we exit, or both. And anybody who says otherwise, I don't think is being 100% honest with themselves. But yeah, I started this new company. I had a business partner, super smart guy with an HR background and a master's degree and all that, and it allowed me to be out in the field and doing the things that I enjoyed. We incorporated in September 2019. We gave ourselves a six month window to get all of our branding and marketing in place and find an office and hire, buy desks and all that good stuff. So we always planned for a March 2020 opening. That was always the plan. March 2020 rolled around. We opened the doors for business literally the day after we opened the doors for business, the governor of Colorado came on and told everybody to go home. And here in Colorado, what they did is they said, if you're not. What was the word they used a critical service of some sort.

[00:20:54] Host: Ed Smith: The essential.

[00:20:55] Guest: Mike Townsend: Essential, essential worker.

[00:20:56] Guest: Mike Townsend: Essential service. You need to stay home. And we're looking at each other like, well, are we an essential service? They never to this day, they have never fully specified what businesses were considered essential. But our point of view was, hey, we couldn't afford not to. And B yeah, sure we're essential. I mean, if you need heat, you need heat. And so we just executed on the business plan we had and it worked better than we anticipated, which created problems of its own. We opened the doors for business March 2020. It was me, my partner, who had no history in the trades at all, and a lady we hired to work in the office. That was the entire company in March 2020, 36 months. Well, by the end of that year. So nine months later, we had done 2.5 million. And I don't know how many employees we had at that time. The following year, 2021, we did seven and a half. The year after that we did 12.5. I don't have any official statistics to support this, but I'm relatively certain that at least percentage wise, if not total dollar wise, we were the fastest growing service company in Colorado. I'm relatively certain, but that comes with its own challenges, and that is ultimately what led my partner and I to sell the company is it is very expensive to grow that fast. And I mean, we had 60 trucks and building big enough to house everybody, which was $15,000 a month and so on and so forth.

[00:22:18] Guest: Mike Townsend: All of this back office expense and still growing and still needing to invest more in the company, and it just became untenable for us on a personal level, to be able to support the needs of the company from a cash flow perspective. And the company just at the rate that it grew there. Sometimes people will say, well, didn't you? Weren't you guys making money? Sure, we were making money, but when you're growing that quickly, you can't make enough money. You can't fund that kind of growth out of cash flow. It's just not possible. And we had already done second mortgages on our houses, and we had already drained our 401. S and we had done everything we could and the company needed more cash. And so we started looking for an investor to come in as an equal partner, to provide the funds the company needed to move forward. And we couldn't find anybody that wanted to do that. Everybody wanted a majority stake in the company, which we finally accepted that that was the way that it was going to need to be, and we ended up with a lot of offers on the company. The private equity firm that we ultimately chose was a brand new small family office type private equity that was formed specifically to buy this company where what they told us it was a Boston it's a Boston based company.

[00:23:31] Guest: Mike Townsend: The guy we were dealing with, what he told us was, look, I don't know anything about the trades. I just want to give you guys the resources you need to move forward and succeed and grow. And what we liked about that pitch, unlike some of the other actually, er pros, was one of the companies that made an offer on our company and among others. But when you're dealing with roll up organizations like that, my concern was that it would lead to the elimination of some of my staff, if they're doing marketing on a corporate level, if they're doing call center on a corporate level, HR on a corporate level, I was concerned about my staff. And so we chose this particular offer because even though, frankly, it was not the most lucrative for my partner and I, but we chose it because we felt like it was in the best interest of the company and of our employees. And unfortunately, immediately following closing, almost immediately, they bought the closing happened mid-November. And again, dealing with somebody who does not understand the trades does not understand the seasonality of these businesses. They almost immediately started panicking about top line revenue. And I did my best to try to explain that, hey, this is that time of year, right? Nobody wants to do big projects at Christmas. That's just not a thing that people.

[00:24:45] Guest: Mike Townsend: Are looking to do. But they started talking about layoffs and all kinds of stuff, and it got our relationship because they had asked me to stay on as a CEO indefinitely. They put me on a three year employment agreement, asked me to stay on, expressed that they would like me to be a part of, or to be in that role forever. That was the express goal, and it became very obvious that we were not going to be able to work together, because I just wasn't going to do some of the things they wanted to do. And so they ultimately they asked me to step down. I refused, and they fired me. So I spent a number of months deciding what I wanted to do and rethinking, really rethinking about thinking back over that last five years and thinking about some of the things that our industry experienced in that five year time frame. Covid supply chain issues, a refrigerant changeover most recently that led to more supply chain issues and more equipment availability issues, rising interest rates on and on and on and on. A bunch of things that business owners never. I mean, who would have thought when you start a business that you're going to have to become a virologist? I don't know about you guys, but we spent so much time trying to.

[00:25:57] Guest: Mike Townsend: Okay, so you started experiencing symptoms when exactly? On Tuesday. Okay, great. Tuesday will count five days so you can come back to work on next Monday, but only if you're feeling good. If you're still experiencing symptoms, you got to go another three days. And then. Then when you do come back, we need you to wear a mask for five. I mean, who would have thought we would all have to become experts in this type of thing, right? Or the fact that you would have to make sure that there was always a way, at the drop of a hat for everybody in your organization to work remote. These are just not things, especially in this industry where we are. The traditional model for this industry is everybody goes into a big building somewhere. You've got a call center and a dispatch center and a marketing department, and that's the model for this industry. And so I really started rethinking that model and rethinking some of the challenges financially that my company went through during those times, some of those challenges self-inflicted, um, and some of them things that we never could have foreseen. So that's my journey.

[00:26:52] Host: Ed Smith: I love that journey so much because, like, it encapsulates 25 years of HVAC industry ups and downs and evolution with you being a tech entrepreneur management in the field still. And then like another entrepreneur, like you've had a private equity sale, like you're back in the seat now and the seat you're in now is also you have structured and you've set this thing up to capitalize on like the latest technology wave in HVAC. So with that, tell us more about how you're building this new company. Tell us more about that because I think it's just fascinating.

[00:27:35] Guest: Mike Townsend: Yeah.

[00:27:35] Guest: Mike Townsend: So as I started rethinking what companies like this should look like, do, look like historically look like, I looked back over my last company and I thought about the fact I had an HR guy. He made 100 grand a year and he was great. He was great at his job, but when he was sick or on vacation or whatever, we just didn't have HR for a while. I had an accounting department and the lady that handled our accounting was phenomenal, and there's nobody more dedicated than her, but she was also the only person who understood how to do payroll. And if she was sick or on vacation, it was a real problem. And she made 100 grand a year. And I had a lady that pulled building permits, and she was really the only one who really knew how to pull building permits, for the most part, made 75 grand a year. And these were all plus benefits and everything else. And so she was gone. We just didn't pull permits for a week and on and on and on and on and on. Right. The call center, 12 people in a dispatch and call center, plus a call center manager to oversee them. That's a $1.2 million a year back office expense in payroll, not to mention the building you need to rent to house all those people. Right. And it's the normal model in this industry. Every big company here in Denver, that is the model. That's if you go to their building, that's what it looks like. You got a marketing office with some people in there that make 100 grand a year, and you've got on and on and on.

[00:28:56] Guest: Mike Townsend: And so I started I was I read a lot of books. I watched a lot of podcasts. Huge Alex Hormozi fan over the last six months or so and, uh, started rethinking what this could look like. And what I ended up with is we have outsourced HR entirely. It's a fraction of the cost, pennies on the dollar of having somebody on staff. And frankly, it's an entire team of people. So I don't have to recruit them, hire them, train them, discipline them, offboard them. I don't have to worry about when one of them goes on vacation. None of that affects me. This is what they do. They just do their job. And it is $95,000 a year cheaper than having somebody on staff. We have outsourced our accounting to a firm that specializes in the trades. They're handling all of our payroll Commission calculations, uploading that information into the system for payroll. They're preparing all of our financial statements, paying the bills, all of that. And instead of 100 to $200,000 a year worth of the payroll and worrying about when and again hiring, recruiting, training, managing. It's. I think they charge us $1,800 a month or something like that. I mean, it's just a fraction of the cost. And again, an entire team of people who really know what they're doing, this is what they do. We've outsourced marketing entirely to three different companies. We've got one company that is handling web development and SEO. We've got another company that is handling Google ads, and then we've got a local company that handles videography and social media content, and they just do their jobs.

[00:30:33] Guest: Mike Townsend: That's their thing, and I can hold them accountable. I don't want to. I think it's impossible. If you're a decent human being and a decent business owner, it's impossible not to develop a relationship with the people that work for you. It's just not possible to not do that. And then when people fail to meet expectations, when they fail to meet their goals, sometimes accountability becomes hard. Are you really you're always asking yourself, well, yeah, they screwed this up, but am I really willing to fire them over just this one thing that they don't do well when it's a vendor? I think that equation changes dramatically. I don't think we're emotionally connected to our vendors so much. And so it's frankly, it's an easier business to manage. We are using AI to answer all the telephones, respond to all incoming text messages, web leads, Facebook form fills, all of that, all of the top of the funnel lead flow comes through the AI, which is capable of booking it all the way into our CRM. That company has a human call center that they employ as well. So when a customer calls in, they end up with an AI voice agent that says, hey, my name's Melissa or whatever, and I'm here, I'm an AI agent that's here. We're just upfront about it. I'm an AI agent that's here to help you schedule your appointment, but if at any time you'd rather speak to a human being, just say so and I'll be happy to transfer you.

[00:31:50] Host: Ed Smith: Can I ask which company are you using for that?

[00:31:52] Guest: Mike Townsend: So we're using a company called Onepath. It's a fairly new company. The owner, Dave, is what I love about it is as a new company. Yeah, there's challenges for sure, and we're growing with them right now. In fact, we are officially I think we are officially their first client, if I'm not mistaken.

[00:32:09] Host: Ed Smith: And good for you for taking that risk as a new and risky software company ourselves. Thank you for supporting the industry that way.

[00:32:16] Guest: Mike Townsend: Well, I mean. I think what's nice about that is, sure, we could have gone to Avoca or Hatch or a bunch of these other ones, and those are perfectly acceptable solutions to this. And I truth is, time will tell whether I made the right decision or not. But what I have liked about working with a startup is you get a voice in what this looks like and how it works. I don't know that I would be able to just jump on a quick phone call or zoom call with the owner of a vodka, I doubt it.

[00:32:44] Host: Ed Smith: Probably not.

[00:32:45] Guest: Mike Townsend: You know, if I was having a problem or if it's not working the way I need it to, or if we're missing a vertical of some sort there, you're not going to get that same level of interaction and customization and so on and so forth. And so, so far it's been great. And I like the fact that they have the human call center backing them up, because, look, you're going to have a portion of the population that is thrilled not to talk to a human being, and then you're going to have another portion of the population that finds it hugely annoying to talk to an AI. So we're able to meet the best of both worlds in that regard. But it is pennies on the dollar for what it was costing me to have my own call center. And in this industry where speed to lead is so important, it is instantaneous response to clients, whether they're coming in through Yelp or Thumbtack or Facebook or whatever. It is just instantaneous response by an agent that never sleeps, never takes a lunch break, never gets sick, never has to go pick their kid up from school. And I know people have certain feelings about AI and replacing people and people losing their jobs, and I'm sensitive to those concerns. But it's happening whether we like it or not. And we can either. We can either rail against it and get left behind. And I think our industry historically is slow to adopt technology, and I think that's to our detriment.

[00:34:02] Guest: Mike Townsend: But so we're that's been completely outsourced. It's a fraction of the cost. So once you. Well and then and lastly I this is always controversial but I don't believe in service managers. I think it's the most useless position in any company ever anywhere. Because what is a service manager's job really? It is double check to make sure the technician did his paperwork right. Double check to make sure the technician left three options to the client. Double check to make sure that he put stickers on the equipment. Double check, double check, double check, double check. Yeah, you are babysitting grown men. That is what you're doing. And so we only hire adults and we only hire professionals. That is it. And as an adult and a professional, if I tell you that you need to present three options, and if you're struggling to find three options to present, call me and I will help you. You need to leave a door hanger on the two houses on either side and the three houses across the street. You need to put stickers on the equipment. These are the basics of the job, and if I cannot trust you to do the basics of the job, this is the wrong place for you to work. And I do not intend to hire $100,000 a year babysitter to make sure that you did the basics of the job that I've asked you to do. So I don't believe in service managers.

[00:35:11] Guest: Mike Townsend: We don't have them. We will never have them. I do believe in sales trainers and managers. I do think that technicians need ongoing help and training and reinforcement on the sales process with the client. I do think that there is value there, but bottom line is by the time you put this structure together like this, what you've created is you've created a company that is instantly and infinitely scalable and that has a back office expense that is a fraction of what your competitors are. So it now allows us to pay our technicians more or run a higher profit margin, or be more cost competitive and close more jobs or a combination of all three. That is what we're attempting to do, is we've split the we've split that down the middle. But it's you also then don't need a big, huge building to put these people into. And so hopefully nobody in the Denver market's watching this podcast. But because we just don't need that big, huge building, instead of going and renting that big, huge building, we have rented private office spaces in share working, co-working, shared spaces all over town. We've been in business officially five weeks, a little before that technically, but really we've been running hard for five weeks now, going on six weeks, I guess, and at 5 to 6 weeks, we're the only company in town that has three Google My Business locations. Each one of those offices becomes a GMB location, which improves your map superiority.

[00:36:42] Guest: Mike Townsend: Google is always going to. Even if you don't say AC repair near me, they're still going to prioritize showing you companies that are physically close to you, especially in the map pack and leads that you get from the map pack don't cost you anything. And compared with the $15,000 building that I had previously that didn't have enough parking, never had enough parking. We have these beautiful offices in these beautiful co-working spaces with beautiful conference rooms and training rooms that we get to use anytime we need to. So we're still able to accommodate all hands meetings and all that, but it's one of the offices costs $500 a month. One of them is $800 a month. Our warehouse is in a shared co warehousing space, so it's a massive warehouse and they've subdivided it into little smaller warehouses inside. And it's $1,700 a month for a 1000ft² of warehouse space. And they've got forklifts to use, and they've got nine dock doors to pull up to, and they've got pallet jacks and they've got, which I didn't have to buy any of that stuff. Also, these spaces all come with Wi-Fi. They all come with the utility bills included. I don't have to worry about rebuilding. Repair that line item on your PNL for building repair, and maintenance doesn't exist anymore. The line item for utilities doesn't exist anymore, so it's a massive cost savings that also drives your marketing presence as well. 

[00:38:03] Guest: Mike Townsend: So it's this. It's been interesting.

[00:38:05] Host: Eric Fitz: This is incredible. It's incredible. I feel like there's so many different things to unpack here, but like, not only are you getting these incredible cost savings, which obviously that frees up cash flow to invest in parts of the business that really matter. What's so fantastic about it is that you're running an HVAC business. You are not trying to be a real estate business. You're not trying to be best in class trades accounting company. Right. So why are you why do you need to make significant investments in these parts of the business and you're living? It's fantastic. And I, I also I just wanted to make one comment about the the technology evolution. And certainly AI is continue to be quite disruptive, but I like to think back to in this industry, before refrigeration, we had a whole industry around cutting ice from lakes and, you know, shipping that in sawdust actually all over the country to deliver refrigeration. And it was a transition for sure, when we moved to forced air and refrigeration systems and people lost jobs. But I think we would all agree that there's a better quality of life and a lot of improvements from having folks out on the middle of a lake in the dead of winter, trying to cut ice and do everything involved with that. So that will continue to be changes. But overall net net, it's enabling people to learn new skills and do things that create better quality of life for everybody. So I generally optimistic, but in the near term it's certainly challenging with some of the the changes that are happening with AI.

[00:39:41] Guest: Mike Townsend: In regards to AI, it's in the AI. Call center is the big obvious one, but less obvious is that the accounting firm we use uses AI to read invoices, vendor invoices, and upload them into their system. The web design company that we're working with, AI, is constantly monitoring which pages clients seem to stay on longer and which ones they might jump off of quicker, and then analyzing the content of the ones that maybe aren't working as well, or which pages get a better SEO ranking than others. And then the AI is dynamically changing the website content constantly. So you could look at our website day to day, and it might look different day to day, as the AI continues to evolve that content and try to maximize the SEO ranking there. So AI is sneaking into this in all kinds of ways. I mean, we're working with a brand new startup company out of San Francisco called nosso, that there we are one of we're helping them as a test case where their AI is essentially riding along with technicians out in the field and monitoring their customer interaction, and then comparing technicians that are having better success with customers, against technicians that are not having as much success. And what are the guys that are what's the common denominator for the guys that seem to close more jobs or that kind of thing, versus the guys that are not having as much success, and then using that as a coaching tool for those technicians. So yeah, AI is is going to affect our businesses in ways that we can't comprehend at this point.

[00:41:18] Guest: Mike Townsend: But what I do love about this business model is we have my partner and I have extremely aggressive growth plans. And usually if you're going to double your business overnight, for example, it's not just finding technicians, it is I need to that's going to mean that I need more people to answer the phone, and I need more dispatchers, and I need more guys in the warehouse and on and on and on and on. For the most part, we've created a scenario where if we doubled our business overnight, assuming that I had enough field technicians, the rest of that scales automatically. I mean, the accounting firm doesn't care if our transactions double overnight. They got that. If I start sending, our marketing budget is tied directly to our revenue. So if I start sending the marketing team twice as much money, they're fine with that. There are no issues there. They'll figure out what to do with it. If we have twice as many phone calls coming in, the AI call center doesn't care. It's fine. So it makes scaling so much easier when you don't have to worry about recruiting, hiring, training, managing all of these people. And to your point, yeah. I mean, why is business owners, are we constantly trying to become accounting experts and marketing experts and all of this other stuff? I get 100 emails a day of people inviting me to watch these marketing podcasts. I mean, if the success of the business's marketing plan depends on me, we are screwed. I mean, that is a problem. There are people that should know this way better than me.

[00:42:41] Host: Ed Smith: So you're six weeks in, by the way. We're taping this, like, mid-August, and so we'll release it later. But how's it? How's it going so far?

[00:42:48] Guest: Mike Townsend: Great question. So we are six weeks in. Recruiting has been so much easier than what we imagined that I actually. So I have an outsourced recruiting firm that I hired. But the other thing we're doing with recruiting, which I will reluctantly share because I don't want to gatekeep on people. But the other thing that we're doing on recruiting is working so well, I probably don't. We are feeding more candidates to the recruiting firm than what they are finding on their own, which makes the math on having them on staff questionable. So and they're not doing anything wrong. It's a good company. They're not doing anything wrong, but we're just having an enormous amount of success without them. We have what have we got? We got two plumbers. We've got two HVAC installers, we've got two electricians, Christians. We've got two HVAC techs. I am currently training one comfort advisor from scratch. I found somebody from outside the industry, a woman who is just going to be killer background in high ticket sales. And so we've got her. And then I have an operations manager. And in this business model. In my business model here, his job when things are working the way they should be, should literally just be to be watching the whatever accountability metrics we have for each of those vendors. So did the accounting firm pay the bills on time? Did they get us our financials in a timely manner? And so on and so forth? Is the web design company delivering on what they've promised and what should be happening there? Are we seeing increasingly better SEO? Are we getting good reporting from them? So on and so forth. His job really should just be to manage those folks.

[00:44:21] Guest: Mike Townsend: And then one of the unique positions we have here, I will fully admit I hate Google. Nothing against them as a company, but you're really just it's everybody playing in the same sandbox, and it just comes down to who can spend more money game. And it just it's a losing battle. And so one of the things that I like to do for marketing is be out in the community and at a level that I have not seen anybody else in this industry do. So I have a person on staff whose entire job it is, is to be out doing something, some kind of an event every Friday, Saturday and Sunday every single week of the year. She is putting together a 90 day calendar. This weekend we're doing a fall home and garden show, but it might be next weekend. It might be a a street fair on Saturday and a farmer's market on Sunday, and sponsoring a networking group on Friday. Hard to say, but that is, you're going to get so much more brand recognition, you're going to get so much more immediacy. But just sitting around and waiting for the phone to ring, I mean, what a terrible way to run a business. So if you think about it, I'm sure people listen to this podcast. And you guys, I'm sure you've been to some of these, like street fairs and things that happen in the local park where there's tents set up or whatever. There is a common theme, at least here in Colorado. I guess I won't speak for everywhere, but I'm guessing it's everywhere. There's a common theme you can almost guarantee there's always going to be an Anderson window tent at that event.

[00:45:47] Guest: Mike Townsend: I can almost guarantee you I don't care what it is. It could be a art festival, and there will be an Anderson window tent at that art festival. And I've actually talked to some of those folks. That's a big ticket sale item, right? It's not cheap to do windows in your house, right? And I can promise you, Anderson, windows would not be doing it nationwide at every almost every event you can find. There's an Anderson window tent. And they wouldn't be doing it if the payoff wasn't there, if people were not booking appointments, if they were not selling jobs, they wouldn't make that investment. And so our industry is lazy. We've been allowed to be lazy for a lot of years. And the reality is that getting out in the community, and not just sitting around and waiting for the phone to ring is so much better. Success rate. So anyway, that's one of the things that that we like to do well, and to answer your question about how it's going. So staffing wise going great. And we have done roughly $600,000 in sales in the last six weeks, and we're booked out about three weeks on install right now. And we've got about $10 million of jobs in the pipeline right now that are in some different stages of engineering. We do like commercial as well, and multifamily. So we've got about $10 million of projects in the pipeline right now that are in some stage of engineering, whether that's a beginning stage or towards the end or whatever. So that's where we're at.

[00:47:08] Host: Eric Fitz: Super impressive. I love the this marketing person. It's almost like they're acting as like a brand ambassador.

[00:47:15] Guest: Mike Townsend: And it's exactly right. Yeah.

[00:47:16] Host: Eric Fitz: Especially in now that there's so much saturation around these like digital advertising. And most people, at least for me, I feel like I actually don't like see the ads anymore. I'm sure I do, somehow, subliminally, but like, you just move past them. But like the few times a week maybe, or a month that I'm actually, like, relaxed. I'm like out with my family at a farmers market or some kind of community event. And that's where I'm like actually like kind of open and looking around and receptive to just seeing what's going on. I'm like, oh yeah, you're totally right about the Anderson windows, because I've definitely I've seen them at different places like this. And it just makes sense to an interesting new channel for you to, to find customers and, and just be present in the community. That's so cool. I'd love to switch gears. So you're you're in Colorado, you've worked for you've started a bunch of different HVAC businesses. It sounds like you are really targeting heat pumps. What percentage of your quotes are heat pumps versus traditional systems? Just yeah, just tell us more about that aspect of your business 100%.

[00:48:16] Guest: Mike Townsend: We don't even have air conditioning units in our price book. We don't sell air conditioning units. The math doesn't make any sense here in Colorado Xcel energy is currently doing rebates of $2,250 per ton of heating at five degrees outside, and the units that we sell have almost 100% heat output of five degrees. So, for example, if you're putting in a three ton heat pump and it has to be super high efficiency and all that, it's got to meet certain requirements. But so we're actually not even putting in low efficiency heat pumps for that matter. We are only putting in 18 Seer inverter driven variable capacity heat pumps. That's the only thing we're installing. That's the only choice you get if you put in a three ton unit. Xcel energy is picking up. In that case, roughly the first $6,800 of that install. State of Colorado is doing a $1,500 contractor tax credit. So as long as we give the client at least $500 of that $1,500 on their invoice, we get a $1,500 tax credit at the end of the year on that job. And then the customer is eligible for a $2,000 federal energy tax credit. Currently, I'm sure with our current administration that may not last very long, but currently that is the deal. And then I like to lay it out for the client where I show the top line cost. We take the Excel rebate right off the top so we don't make them pay that and wait from the utility company. We take that right off the top.

[00:49:45] Guest: Mike Townsend: We take that tax credit, that Colorado State tax credit right off the top. And we give them the entire $1,500. We don't give them just the 500 that's required, because we've already got our pricing set for the margins that we want to make. So we give them the entire $1,500. And so that leaves a bottom line cost for the client. That might only be a few thousand dollars to get a brand new super high efficiency heat pump system installed in their house, including taxes, labor permits, the whole nine yards. Then we show them, hey, you're going to get two grand back from the government at the end of the year, and we use an AI prompt on each of our quotes specific to the client. So we will go into AI and we will say assessment of energy savings by replacing a 1993 80% single stage gas furnace with an 18 Seer two modulating heat pump, and rather than the client taking our word for it, we put that prompt into AI. Ai gives us a great assessment of what they can expect in energy savings over the next ten years. And then we use the number. We paste that entire assessment with all the explanation into our quote. And we use the savings number, top line breakdown of costs and almost without fail, by the time that we do all of those things, the bottom line net cost to the customer is a negative number. So we're showing people that essentially you can keep your old system if you want.

[00:51:12] Guest: Mike Townsend: It's actually going to it would be cheaper for you to replace your system than to keep your oil. If you keep your old one, you're still going to spend the money. You're actually going to spend the same money or more as it would cost you to put in a new one. And you get to live with this old piece of junk. It's created a situation where our closing ratio is in the 80% range on new equipment install quotes.

[00:51:34] Host: Ed Smith: That is super clever. It's super impressive. Now I know from our last chat you also take like the design part of this quite seriously. You talked about automating equipment selection, so like it can't be messed up. You talked about like insufficient airflow in return ducts in Colorado homes. And then the rebate process is like is onerous, right. You've got all these different layers. How are you tackling the design process for your team out in the field to make sure they're getting the homeowner the best possible system?

[00:52:07] Guest: Mike Townsend: Well, as you guys know, we use amply. We're and we're huge fans and we love what you guys are doing. It is the front end of our sales process. We walk into the home, We chat with the client. We try to understand what their pain points are. What rooms are not comfortable. Here's what's interesting about homeowners is you walk into the home and you go, hey, how's your existing system work? And you'll usually get something like this that works fine. It's worked fine for 20 years. Oh, really? Okay, great. So on a good cold day, every room is roughly the same temperature. Everything. Well well no no no no no. The room above the garage is super cold. And that room over there is always drafty, and this one's way too hot. So you got to ask the follow up questions, right? So we try to understand what their pain points are. We have we take sales calls very slow. I would say the average sales call for us about a three hour process. But we have that conversation with them. And then the next thing we do is we explain, look, we're not going to just guess what the right piece of equipment for your house is. We're going to do the math, we're going to do the work, and we start with taking the iPad with the software on it and scanning the entire house top to bottom. And usually we're asking the homeowner to walk along with us if they have the time, if they have the bandwidth. And without fail. I've never seen us do this and not have the customer at some point go.

[00:53:22] Guest: Mike Townsend: That is really cool. And even better is when they say, well, I've never seen any other HVAC guy do that. Or I had three other guys come before you. They didn't do anything like this. How were they figuring out what the right size equipment is? And my answer to that is always the same. It's a great question. No idea. Did they do any math? Did they measure anything? Well, they counted up the number of events. Okay. What did that tell them? I don't know, they didn't explain it to me. Okay, great. So we do the scan of the whole house, and then when we sit down with the client, and we also go look at what the size of their existing air conditioner and furnace is. So then we're able to sit down with the client at the kitchen table and go. And we actually even though this is completely unnecessary, we do it anyway. On the software, you go to the first floor, you click on the first floor and there's your 3D scan. Right. And we sit there and just play with it. We just go, here's your first floor, and we just roll it around and play with it because it's super cool and the clients love it. And then we show them, hey, it says your first floor needs 14,000 BTUs of heat and 8000 BTUs of cooling. And and here's your second floor. And we click on that and we scroll that around and play with that for a second. And and then when that's done we go, okay.

[00:54:30] Guest: Mike Townsend: So your whole house needs 45,000 BTUs of heat and two tons of cooling. You currently have a 120,000 BTU furnace and a four ton air conditioning unit installed. Right. So you've been paying the utility bill to run these things all these years, but you weren't getting 120,000 BTUs of heat out. Your ductwork can't support that. We go through and we measure supply trunk, return trunk. We do go through and count up the number of returns. Look at the size of the wall stud space, the returns coming through. We do the math to figure out how big a system can this ductwork even support, which is again a thing that most companies are not taking the time to do. And so it creates a situation where if you are out there against competition, you're doing the work that they're not doing. The client sees that. And while they could still choose to go with somebody else, although that hasn't been our experience, I think our the combination of our the work that we're doing in the sales process, with our low back end cost and the ability to be really cost competitive creates a great combination. But yeah, we're not. We're also making it simple for the client. We're this goes against everything that I've ever been taught and what I've taught my people for years. But no, you don't get three choices. You're getting a high efficiency heat pump. And here's why. That's your only choice. That's all you're getting. It's one option because that's the option that makes the most sense.

[00:55:53] Host: Ed Smith: Awesome explanation from start to finish. Like if I just imagine the arc of what some of our listeners were hearing, it's a little bit like, all right, this is gimmicky using AI. I don't know about this. And then like but then to hear your commitment to high quality, your experience in the field. Honestly, if I was a long time HVAC owner, I'd be thinking like, Holy crap, this is a completely different way to do this. And if I was a damn good tech who wants to go out and start my own business, I'm like, now is the time to do it, and that's the way to do it, right? It's like, I just thought, this is why we wanted to have you on. Incredible. Thank you. Our final question. You've just been spitting wisdom the whole time. But our final question is usually like specific resources. So if someone wanted to go learn more about any of the various things you've mentioned, like are there podcasts or are there people, are there seminars, are there organizations that you'd be like, go here?

[00:56:49] Guest: Mike Townsend: Yeah. So let me start by calling out here. I will acknowledge that if you own an existing company and you have a call center full of human beings that sit in your office all day, and you have a lady in your office that's been doing the accounting for years, and you have this would be a very difficult business model to transition to. Going in and firing your entire office staff might have a small impact on your culture, so I acknowledge that this would be a hard. I think it's something you could do over time through natural attrition and things like that. But I acknowledge this, and I to be honest, I love that it would be hard for my competition to adopt this overnight because it's a huge advantage for us. And as a startup company, I don't have to worry about those existing relationships. What I would say is, though, I think I would start and I'm not going to say that the vendors that we've chosen to use are the only options by any means. There's a million different ways to skin the cat, but the accounting firm we're using is a company called out of the Box technology.

[00:57:46] Guest: Mike Townsend: You'd never know by their name that they're an accounting firm, but out of the box technology, they've been absolutely fantastic. The web design company we're using is CI web Group. They're doing a that's the one with the proprietary AI that is monitoring the website and the SEO constantly. We're using mixing Group for our Google Ads. We're using a local videographer social media company called Ascend Creative. They actually they go out and film us on site every couple of weeks. They'll just ask us, hey, what job are you guys working on today? And they will go to that job and they will film everything that's happening, and then go back and splice it and dice it for content and upload it to our social media or paid advertising or whatever. We're using a back office management support company. I don't think I talked about this part, but we're using a back office support company called Work Hero and their handle. Are you familiar with them? Yeah. They're handling.

[00:58:39] Host: Ed Smith: Thurman's a great guy.

[00:58:40] Guest: Mike Townsend: Yeah, absolutely. Yeah. Actually he's going to be out here visiting with us on Tuesday. But they're handling all of our warranty registrations, permit applications, scheduling inspections, rebate processing, all of that back office junk. That again, as business owners, this is not what we're good at. We should not be trying to do that stuff. We are using a really cool company called Eli Build for. I'm familiar with them as well. Yeah. Rebates. Yeah. For rebate. So work hero puts the information into Eli build for the rebate Eli build. Once they verified that all of that information is correct, they send us 95% of the rebate amount by ACH overnight. And then they take care of dealing with Xcel Energy for the next 6 or 8 weeks to get paid on that rebate. So that way we can offer rebates upfront to the customer, but without negatively affecting our cash flow. But yeah, these are it's a great team of people. And yeah, there's been some stumbles, some hiccups, some tough conversations with some of these vendors where I'm going, hey, you told me this would be done by now and it's not done. And so there's a little bit of that, but it's frankly, it's been so much easier than if I had to try to hire and staff to do all these things. And cheaper, we would have needed four times the amount of startup capital if we were trying to do this stuff in-house. So what I would say is, as a business owner.

[01:00:01] Guest: Mike Townsend: And this is the hard part. Your responsibility is to the business as a living entity. And sometimes that means making hard choices. And if you are not having the success that you want, if everything's working great, fantastic. Then do your thing. But if you're not making the money you need to be making, if you are struggling with cash flow, if you're back in, expenses are too high, you might need to look at your staff and go, hey, is this really an expense I need? Or is there a cheaper way for me to do this? We also for dispatch, we have Philippine based virtual assistants for dispatch. So those are great. If you've ever employed people in the Philippines, you want to talk about a group of people that are just so happy to have a job and the most reliable people you've ever met, and English is the first language in the Philippines you can get folks that you wouldn't even really know are not US based, just wonderful people. And again, it's for them. $8 an hour is a phenomenal job for them. Like that is a very good job for them. And again, I know that's outsourcing or offshoring. Labor is a controversial topic. But again, your responsibility is to the health of the business. And that does sometimes require you to make some very hard choices. And look, I've made the if it seems like I have all the answers, it's only because I've made every mistake you can possibly make over the last 30 years, and I will now go on to make new ones, but I'm trying not to repeat any of the existing ones.

[01:01:31] Guest: Mike Townsend: I would tell them for leadership, read every book and watch every podcast that Simon Sinek has ever done. If you adopt that attitude towards leadership and management, you will have people flocking to come to work at your company. Oh by the way, I said not gatekeep on the recruiting. So the local videographer social media company that we're using filmed a series of commercials with me standing in front of one of our trucks, just basically telling guys, this is why you want to come to work here. This is who we are. This is why you want to come to work here. This is what it will mean if you come to work here. This is how we will take care of you. This is how we will help you with your work life balance. This is how we're going to make sure you make more money here than anywhere else. And just looking straight down the barrel of the camera and talking directly to service technicians. And then we might have geo targeted those ads around the corporate offices of all of our biggest competitors in town and around every supply house, so that when technicians are at the office and just scrolling through their Facebook, they're seeing our recruiting ad.

[01:02:40] Guest: Mike Townsend: We are getting more response on that. We're actually it's difficult to even get on screen. All the people I actually had, I had to shut down the plumbing and HVAC ones the other day because I don't need any more plumbing HVAC techs right now, and I can't respond to the amount of. But we've only I think we've got a $10 a day budget behind it or something. We have spent $0 on ZipRecruiter. We have spent $0 on indeed, we're not posting on Craigslist. We're not hanging fliers at parts houses. We're not doing any of that stuff. And I think the big thing for me is if there's anything that is taking up an inordinate amount of my day or an inordinate amount of my operations managers day, we want to look at that and go, is there a way that we can offboard this? Is there a way that that we can find a vendor to handle this? Is there a way that we can automate this in some way? That is, our ongoing goal is to create a business that runs on autopilot as much as humanly possible.

[01:03:40] Host: Ed Smith: Mike, the amount of specific, actionable, thought provoking advice in this was just mind boggling. Thank you. I learned a ton. We so appreciate having you on the Heat Pump podcast.

[01:03:54] Guest: Mike Townsend: It's been a blast, I appreciate it.

[01:03:55] Host: Eric Fitz: Yeah, man. Mike, thanks so much. Like specific actionable ideas and experiences and just incredible wisdom from like this whole arc of your career and so much fun to chat.

[01:04:05] Guest: Mike Townsend: I appreciate you guys having me. And hopefully this does help somebody out there who is at the 15 year mark rather than the 30 year mark right now, so.

[01:04:12] Host: Ed Smith: I'm sure it will. Thank you Mike.

[01:04:14] Guest: Mike Townsend: Thank you guys. Have a great day.

[01:04:16] Host: Eric Fitz: You too.

[01:04:19] Host: Eric Fitz: Thanks for listening to the Heat Pump podcast. It is a production of Amply Energy, and just a reminder that the opinions voiced 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 on your favorite podcast platform. We'd love to hear from you, so feel free to reach out! You can reach us once again at hello@amply.energy. Thanks a lot.