How one company becomes many.
The method I used to turn one property management company into a group of businesses, boiled down to five steps you can start with your next vendor bill.
Your customers already create the work. Your company should own it.
Some call it vertical integration. I call it owning the work.
Five steps. In this order.
Get the first company solid
It has to run without you. If it can’t, a second company will break it.
Every second company borrows from the first one: its cash, its people, its reputation and your attention. So start with the 30-Day Disappearance Test. If you vanished for a month, what would break? If the answer is everything, you don’t have a growth problem yet. You have a foundation problem.
In our group: We once took on condo management with the same team and no training. I was fine with the chaos. My team wasn’t. We pulled back.
Read your vendor bills The Red Pen Audit starts here.
What you pay other companies is work your customers already created.
Pull last year’s P&L and a red pen. Circle every vendor you paid more than $10,000. Your team already schedules that work, takes the calls when it goes wrong and pays the bill. Someone else keeps the margin. That margin is the Middleman Tax. The goal isn’t a cheaper vendor. It’s to become one.
In our group: In 2013 we were paying $250,000 a year to landscaping and snow vendors. We bought the franchise.
Pick one trade
Not the most exciting one. The one that fits.
Your biggest line isn’t always your best one. Before we build anything, I run the trade through five filters. A trade can make money and still be the wrong one for you. Pick the one that passes, not the one that excites you.
In our group: Concrete made money and failed on people. We got out.
Build it as a real business
Its own leader and its own numbers. Not a department of the first company.
A department borrows everything and owns nothing. A business has its own name, its own leader, its own P&L, and it charges your first company market rates. Start small: one licensed technician and a truck. Licensed trades hold their margin. Grow by adding trucks, not buildings.
In our group: Maintenance started as a department in 2011. Today it’s a services company with six trade divisions.
Make it stand alone
It serves your first company, then wins outside customers too.
Your first company is the new company’s first customer. Not its only one. A business that lives on work from its parent is a department with extra steps, and buyers don’t pay business multiples for departments. Move it through three stages, on purpose, until most of its revenue comes from customers you never sent it.
In our group: The day we changed the name on the maintenance vans, other property managers started sending us their overflow work.
How much of its revenue still comes from your first company.
Three stages of independence. Protected: 80 to 100% of its revenue comes from your first company. Hybrid: 40 to 70%. Independent: under 20%.
Then repeat from step 2 with the next bill. Revenue measures size. Independence measures strength.
Before and after.
Three from our own group. One we bought, one we built, one we bought into.
Landscaping and snow removal
2013. Sold.
Before: We paid a vendor $250,000 a year to cut grass and clear snow on the properties we managed.
After: We bought a landscaping and snow removal franchise in 2013. Three years later, it was twice the size of the property management company.
Maintenance
2011. Running.
Before: We paid outside contractors for the repairs on the properties we managed.
After: We brought maintenance in-house in 2011. Today it’s a services company with six trade divisions, working for outside clients too.
Pest control
We hold a stake.
Before: A local pest control company treated a few of the buildings we manage. Within a year it had the whole portfolio.
After: We didn’t start our own. We bought a stake in the vendor we already trusted, and it has grown since.
Not every trade fits.
We bought a concrete company in 2018. It did well for three years. Then staffing got hard. The work was brutal, and in one year we went through seventeen workers. We got out.
A trade can make money and still be the wrong one for you. That’s the lesson I paid for.
- Labour pool.
- Can we hire, train and keep the people?
- Margin profile.
- Will customers pay professional prices?
- Operational footprint.
- Can it run from what we already have?
- Cross-pollination.
- Does it send work both ways?
- Partnership potential.
- Is there someone to build it with?
The five filters, on one page.
The Ecosystem Fit Checklist is the list I check every trade against before we build it. It’s free.
Which bill is yours?
Free. About six minutes. You see your number before I ask for your email.
Run the free Red Pen Audit