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How To Start A Sleazy Plumbing Company

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            “I am a survivor. I am like a cockroach, you just can't get rid of me.”

(This is from my work in progress, "Kitchen Sink Confidential" 
Looking for a lucrative business opportunity? Have you considered starting a sleazy plumbing company? Some knowledge of plumbing would be helpful, but it’s not essential. If you believe in business ethics, just stop reading right here. Begin by renting a small shop with a fenced parking lot in a low-rent part of town. Lease twenty trucks and equip all but two or three of them with some broken-down old drain cleaning equipment and a minimal assortment of tools and materials.

Hire eighteen trainees who know nothing about plumbing or drain cleaning. Tell them they’re going to make a lot of money if they follow your commission-based compensation system. Few of them will, but it will take them a while to figure this out. The kinds of people who take these jobs tend to be fairly desperate, so most of them will stick with you even when they get their meager bi-weekly paychecks. The trainee turnover will be about 100% a year. You’ll always be running employment ads. The eighteen trainees will go on call after call with practically no tools or training. They will mess up a lot of jobs. But you won’t waste money on training, or send them to an apprenticeship school.

You will need two or three people to answer the phones and handle paperwork. It doesn’t matter what they look like, but they must have friendly personalities and pleasing voices. They don’t need any experience because they will be working with phone scripts that contain set replies to any questions the customer might ask. You will also hire someone, hopefully honest, to manage your small warehouse of inventory and tools. You will have no trouble finding all of these employees.

Now we come to something a little harder. You will need to hire two experienced journeyman service plumbers and a heating technician. It will not be easy to find them because well-trained, ethical, responsible workers will be unlikely to work for your operation. There are shops where the proportion of unskilled laborers to journeymen is ten to one. You will probably have to settle for PWPs (plumbers with problems). Perhaps they are skilled, but drink and are unreliable. Or they are drug users, or unstable, belligerent or lazy types who have worked for half the shops in town. In any case, you’re going to have to pay them well (no games with their wages or commissions) because the trainees are incapable of doing the larger, profitable jobs they bring in.

The journeymen will drive the remaining trucks, which will be the only ones well-equipped with tools and materials. They will supervise, or do entirely, the profitable jobs. And they will do callbacks on the jobs the trainees have bollixed, which will happen several times a day. You may even deduct some of the correction cost from the trainee’s paychecks.

Finally, you need your most crucial employee, the service manager. He is going to be the most difficult to find and will be the highest paid. You might have to pay him more than you pay yourself. He will make or break your operation. As an industry veteran he knows how to juggle a constantly changing flow of work, problems, crises and disasters caused by your unskilled work force. He understands the mentality of your employees and knows how to motivate them to sell jobs without crossing so far over the law as to get you into serious trouble. He knows how this kind of business works from every angle and how to play the angles. He can placate angry customers, when the situation escalates beyond something the phone people can handle. For obvious reasons, you will make yourself about as reachable by phone as God. He can sense which employees are cheating you by selling jobs to your customers and doing them in the evenings or on weekends, using your tools and materials. Or collecting money that never reaches the shop. Or selling drugs in the back of the shop and not cutting him in.

Your calls will come from a plethora of advertising. Search Engine click ads, phone books, web sites, cable television, junk mail, major newspapers, free newspapers, community newspapers, magazine inserts, coupon books, paid services that recommend contractors, radio, sponsorships of school teams, ads in movie theaters, church bulletins, and all kinds of publicity and promotions. You will give away tons of advertising specialties such as pens, mugs, notepads, caps, key chains, magnets and mouse pads.

Customers will never, ever be quoted prices over the phone other than small trip charges and drain cleaning or furnace tune-up specials. Your office staff will deflect questions about your prices by saying that it's impossible to know the conditions until the “technician sees the job”.  And that once the technician sees the job he will give the customer a firm price to do the work.

So, how much do you charge? There are a variety of menu pricing systems that have more or less standard pricing with a (very high) hidden underlying labor rate. The software allows you to produce attractive printed price books that cover almost any service job your workers are likely to encounter. The printed book adds credibility because people tend to believe things they see in print. Especially those who never read anything but the Bible. But some bottom feeders have no system at all, they just let the plumber quote prices as high as he thinks he can get in the situation.

There are all kinds of commission arrangements too complicated to discuss here, but they amount to this, those who bring in a lot of money get to keep a good deal of it. And those who don’t get to keep diddly-squat beyond minimum wage. Most of the trainees will never make very much money because they will not have the drive and the personality of a successful salesperson.

Prices also vary, of course, according to how busy the shop is and how desperate the worker is. Taking typical prices charged by reputable plumbing companies as a base, the customer might pay about the same amount, or even less, twice as much, or ten times as much, depending on how much the plumber feels he can get, modified by how badly he needs to sell this particular job at this moment. If the shop is swamped with calls he is likely to give a big number, and either sell the job or move on to the next sucker. On the other hand, if calls have been few, and this is the only job the worker has gone out on in the last few days, he might quote a very reasonable price.

From your point of view, as the owner, it doesn’t really matter, because you have so little invested in the outcome, as long as there are a steady stream of calls. You aren’t paying your employees for jobs they fail to sell.  It becomes a numbers game. X number of calls equals Y amount of gross sales.

You will have little expectation of developing a steady clientele -- because the prices of your shop will be so high and the quality of your work so low. This will be an advertising driven business and it can only flourish in a large metropolitan area. Sprawling suburbs with endless subdivisions are fertile territory. Americans move on the average, around every six years, so there is an endless supply of new homeowners.

Does this sound cynical? Here is how someone in the business put it to me: In good business practice you have a pyramid. At the top are the interests of the customers, below that those of the company, and at the base are those of the employees. But in the bottom feeding universe (could also be electrical, siding, windows, landscape, roofing) the pyramid is rearranged. At the top are the employees, below them the company, and at the very bottom, the customers. By employees, he meant not the disposable trainees, but the small number of skilled workers who make the whole racket possible. In other words, the interests of the customer most definitely come last. Ayn Rand would approve.

Your trainees go after commissions for selling larger jobs such as replacing sewers, plumbing fixtures, furnaces, and plumbing, gas and water pipes. The reason they have broken-down drain cleaning equipment is so they will not be very good at clearing drains. You want them telling people their drains and sewers cannot be cleared and must be replaced. One thing they do have are video cameras they can run through your sewer -- which is likely to seem worse in the video than it actually is. A few small roots in a sewer video look like Sherwood Forest.

The trainees are your entry to the profitable sales. Your large jobs will be priced very high, in comparison to more honorable companies. You will try to get in and do the job before the customer starts shopping for other prices. Your workers need to establish trust with the customer to sell them big-ticket items like a new furnace or sewer. When you get a large job the journeymen will be immediately sent out to supervise or to actually do the work before the customer has second thoughts. Or talks to more knowledgeable friends or family members. If you make any investment in training it will probably be in bringing in a good sales trainer from time to time.

The trainees who can consistently do this, and there won’t be many, will make a fairly good living and rise to the top of the pyramid with the skilled ones. There will be a large board in the office displaying everyone’s name and their sales for the month. There will be bonuses, vacations and prizes for the top producers. The bottom producers will be on their way out the door. Your commission-based system could be straightforward, or not. There are all kinds of ways to monkey with commissions by making the system complex, and deducting various charges from the commissions. The intention being to pay as little as possible without losing your best workers.

There is always an enormous need for plumbing and heating services. A large metropolitan area might have three hundred companies doing various types of service and construction work. A minority of them, but not an insignificant minority, are sleazy businesses of this type. They can be very profitable for hard-nosed owners who stay close and watch everything.

You would need the stomach for dealing with a steady stream of angry customers, complaints to the Better Business Bureau and License Board, troublesome employees, lawsuits, collections, lost and stolen equipment, fake Workman’s Compensation claims, very high insurance premiums, and every other imaginable kind of aggravation. One owner hired so many people who were in and out of jail that he let it be known that he carried a concealed weapon. But the government is likely to be the least of your problems. Enforcement of laws designed to protect the public are practically nonexistent. And if you do get in more serious trouble, there are fixers and well-connected lawyers to deal with these matters.

If you’re this kind of business person you are likely to not be paying a lot of taxes. Service businesses of all kinds often show the smallest profits the taxman will swallow. The IRS is always lusting after high-priced services like plumbing companies, but it isn’t easy to audit businesses that do thousands of small jobs a year. Double and triple books are not unusual (one for the government, on for yourself, and one for your wife).

A cash cow? Very likely. But the exit plan? There is ease of entry at the bottom feeder levels of the plumbing industry. And with no steady clientele, an unsavory reputation and a low quality workforce, leased trucks and shop, sometimes there is not much value being created. But like everything else in life, it depends.  

Here are a few examples: The first was quite large and profitable for a number of years, but then had problems with a franchise agreement that was suddenly canceled. There was a legal battle, which the owners lost, and they retired on nothing but their savings and social security. The second owner, the epitome of sleaze, retired prosperously with his real estate investments and passed the business on to his son. The third managed to sell to a national home services company because although they had a terrible reputation, they had a very well-known name  and skillful publicity. And another is still in business, rumored to be extremely profitable, and with a reputation that appalls even the othe sleazes.

Still interested? Let’s do lunch and we’ll talk about my commission.