In this episode of BuiltForward, I sit down with Mike Kanaby, Managing Partner at Profitability Works, to explore why growing construction companies often struggle to scale and how better processes can improve profitability and operational performance. Drawing on decades of experience in the trades, including leading a $1.5 billion construction operation at Johnson Controls, Mike explains why contractors often hit a breaking point around $20–30 million in revenue, how small operational failures add up to significant margin erosion, and why change order management is one of the biggest opportunities for improvement. We discuss how to identify the root causes of operational problems, why involving employees in designing new processes is essential to making changes stick, and why technology implementations so often fail. We also explore what contractors need to get right before AI can deliver meaningful value, how private equity-backed platforms can balance standardization with local autonomy, and what operational excellence looks like as the industry evolves.
Mike Kanaby has spent decades in construction, from working in the field to leading a $1.5 billion operation at Johnson Controls. Today, as Managing Partner at Profitability Works, he helps trade contractors improve their processes, strengthen operations, and scale more effectively.
We get into:
00:00 – Introduction to Mike Kanaby and Profitability Works
03:00 – Why contractors hit a breaking point at $20–30M
05:00 – The three reasons owners pursue process improvement
08:00 – Why change management determines whether improvements stick
12:00 – The Building Excellence Blueprint: diagnostics, workshops, and implementation
17:00 – Why piloting new processes is essential
19:00 – Change orders: one of the biggest opportunities to improve profitability
22:00 – Finding root causes instead of treating symptoms
25:00 – Fixing handoffs between estimating, operations, and the field
28:00 – Why contractor data is often fragmented and unreliable
31:00 – Why construction software implementations fail
34:00 – Getting field-level buy-in for process improvement
38:00 – Measuring the financial impact of operational improvements
42:00 – Why contractors aren't ready for AI
47:00 – The relationship between technology adoption and operational excellence
52:00 – What private equity should standardize across acquired contractors
55:00 – Private equity's growing role in construction
58:00 – The future of ownership and the skilled trades
Jason Jacobs: [00:00:00] Welcome to BuiltForward, the podcast exploring where construction is heading over the next decade, and how AI and other emerging technologies will and won't transform the industry. I'm Jason Jacobs, a longtime startup founder, investor, and the host. Let's get into it
Today's guest is Mike Kanaby, managing partner at Profitability Works, a consulting firm that helps trade contractors improve their operations and their profitability. Mike has spent decades in construction, from working in the field to running a 1.5 billion construction operation at Johnson Controls.
Today, he works with contractors to improve their processes, build organizational capabilities, and scale more effectively. In this episode, we talk about why contractors often hit a breaking point around 20 to 30 million in revenue, how seemingly small operational failures can [00:01:00] add up to significant margin erosion, and why change order management is one of the biggest opportunities for improvement.
We also dig into why so many technology implementations fail, why getting employees involved in designing new processes is critical to making changes stick, and what contractors need to get right before AI can deliver meaningful value. Along the way, we also talk about private equity's growing role in the trades, the tension between standardization and local autonomy, and what the next decade might look like for the industry.
It's a great discussion, and I hope you enjoy it. Mike, welcome to the show
Mike Kanaby: Thanks for having me
Jason Jacobs: Thanks for coming. Uh, I'm excited to, to have you on for a number of reasons. Uh, one, you've spent a long time in the trades, uh, and as someone who's trying to learn about the trades who hasn't spent a ton of time in the trades, um, that's value. Uh, the work you do is super interesting around, um, uh, process improvement, um, uh, and [00:02:00] who you do it for, um, uh, you know, s- sizable contractors like that, and I know you work with some others as well, but, um, but spent a lot of time there and, and that's interesting to me.
And then, um, you know, some of the things you've written about and, uh, and some of the things we chatted about in our prep discussion around, well, look, like technology can, uh, you know, has the ability to bring about change, but in order for it to actually bring about any of that change, there's a bunch of underlying stuff that needs to be there, and most shops don't have it, right?
Um, and um, so all that just I think makes for a really interesting discussion, and I'm grateful for you making the time to come on and, and, and share your knowledge with us.
Mike Kanaby: All right, how do you want to kick it off?
Jason Jacobs: Well, to kick things off, maybe, maybe just talk a bit about Pro- Profitability Works and the work you do
Mike Kanaby: Okay. I'm, uh, one of the managing partners of Profitability Works. We are a management consulting firm that consults with trade contractors. Our primary focus is on process improvement. Um, we do some other ancillary things as well, but that's our primary proce- uh, [00:03:00] primary, uh, activity that we do is just, is getting process improvement in trade contractors.
A lot of time trade contractors, you know, started out with an owner and a pickup truck, and before they knew it, you know, they're, they're a $50 million conglomerate, and then they get bought or get partners, and next thing you know, they got five offices and, and everybody's doing it a different way, and they just didn't really structure the business for scaling that growth, and that's, that's where we come in and, and help 'em to do that.
Jason Jacobs: So in the, in the early days, Mike, um, it, it, it seems like, I mean, similar to the world I come from of technology startups, it's like, you know, the founder's wearing every hat, right, in the, in the earliest days, or in this case, the owner. Um, and then as that scales, right, I think the owner's like, uh, you know, working in the business, in the business, in the business, but increasingly needs to make the time to kinda step out and work on the business.
I'm curious, um, at what point do you typically see stuff start to break? What are the things that typically, [00:04:00] um, start to break, and is it pretty consistent, um, across the shops that you've seen or, or does it vary greatly?
Mike Kanaby: It, it varies. Um, it varies, and we work across, uh, just about every kind of industry in trade contracting, and, and some of them, you know, have different, different things that are consistent in a, in an industry. But we, we found that about $20 to $30 million in revenue is where that owner dependency starts to break things.
And I, I use the analogy at $20 to $30 million, an owner has his arms around everything in that entire business, and he can control it. You get to about $20 million, and it's a little bigger than he can control, and stuff starts leaking out. And then, you know, you get to 40 or 50, and a lot of stuff starts leaking out.
And, you know, some contractors just contract back where it was a safe place and, and where they could hold onto everything. You know, others, others, uh, keep driving, driving forward. And you said about the, the things that pop up. U- usually it's, you know, some missed schedules. It's, uh, just, it's a lot of little things.
You know, we call it a death by a thousand paper cuts. It's a, a bill that didn't go [00:05:00] out, a change order that didn't get submitted, um, you know, a delivery that didn't get, didn't get ordered in time, and, and all those little tiny things. But they add up where, you know, if all your projects start bleeding a little bit, that's a lot of, lot of blood
Jason Jacobs: And, um, and as an owner, um, i- is- do, do, do you see that they typically wait until things start breaking before they address them? Or do they get out ahead of it and kind of, you know, plan for two or three steps ahead along the way? And also, what, you know, how, how should they do it in an ideal world?
Mike Kanaby: Yeah. Well, they should definitely be, be planning along the way. Um, one of the things... I mean, there's two things we really see that, that are the impetus for an owner wanting to do something differently. Uh, three really. You know, one is, uh, they, they wanna retire, and if the entire business is dependent on them, you know, there's...
They retire, and it just implodes. You know, that every- everything relies on them, and [00:06:00] they, maybe they don't, you know, their kids don't want to do anything with the business. And so, you know, they have no choice but to sell it, but if that person's doing everything and wearing every hat, then, you know, they're very, they're, they're a lot less attractive to a buyer to buy that, um, because it's, it's so dependent on that person.
So you get, you get people that, you know, that, that, that are in that boat. Uh, one of the other boats we, we get is that people, you know, are... Some really smart owners just realize that, "Hey, we got a good reputation. We got a fantastic team. If we could figure out how to put some processes in place, you know, we could really grow this thing to, to be a lot bigger." And then a lot of companies that I work for are private equity backed or, you know, have private funding of some sort with a, with a heavy dictate to grow. And so, you know, once you have six, seven offices, you've gone out and bought six, seven companies that are operating, you know, 10 to 12 different ways, uh, 'cause they're not even operating the same in their own company.
Uh, but you can't really scale that, and you can't make that one plus one equal three in [00:07:00] that organization. Until you get everybody operating the same way on the same page, um, things like definitions of, you know, how... Excuse me. I use the example a lot of project managers. When you go across five companies and you interview fi- you know, the, all the project managers in each off- each office, they're all doing completely different things.
No two are doing the same, but they all have the title of project manager, and so that's not really scalable. So, you know, we gotta get that level set so that a project manager has the same roles and responsibilities, the same metrics that they're held accountable to, you know, across every office.
Jason Jacobs: Uh, and so, um, so I guess my question is, I mean, you laid out these three different scenarios of the, you know, the, the retirement and the ready to sca- or the ready to scale and need to get the infrastructure re- ready to scale, and then there's the, you know, PE-backed and, and, and some, you know, standardization and, um, repeatability.
You publish your process on your website. Uh, I'm wondering, uh, [00:08:00] how consistent is that process, um, in each of these buckets, and then how consistent is that process within each of these buckets from, from client to client?
Mike Kanaby: Are, are, are you talking about the, the Building Excellence Blueprint?
Jason Jacobs: Yeah,
Mike Kanaby: Sure. Okay. Yeah, that, that process is very consistent, so it took us about four years to develop that process until we could... We trial and errored a lot of different ways and a lot of different things until we got it to, you know, we were doing it the exact same way every time and getting predictable results.
And so that's kind of when we mapped that out and created that Building Excellence Blueprint was we knew, we knew we had it, and the process is the same. Now, we've had clients that have, have urged us to follow a different process, either to speed things up or, you know, to, to, to do something just differently, and we tell them right up front, you know, "We, we'll do that for you, but just know you're not gonna get the same results.
You're not gonna get the same ROI that you would get if you follow this process." And, you know, every time we go outside that process with a client, they don't get the same ROI as the clients that follow that [00:09:00] process completely. And a big part of that process is the change management piece. Um, so we start with change management right away.
Soon as we get engaged, you know, we're, we're scripting things for the, for the leadership team to send out to the team members. You know, we're holding calls and, and, you know, coaching the leadership teams to, to record videos and send them out so that people in the field can watch it real fast on their phone.
You know, pl- plus everybody's attention span is pretty short these days anyway, so those short videos seem to help a lot. But, uh, but that change management piece is, is really the key. It'd be easy to just, you know, go into ChatGPT and say, "Create me a sales to ops handoff process," and boom, I've got the most beautiful handoff process possible.
You know, it's check boxes and looks great, and then I email it out to everybody and say, "All right. This is how we're doing it now." But guess what happens? Nobody follows it 'cause they weren't, they weren't part of it. They didn't know why it was we needed a process. They had no hand in, in creating that process.
There was no change management. There was no leadership [00:10:00] through it. And, uh, you know, we, we call it bottoms up planning, where, you know, we have the people that are gonna use the process have to build the process. It's really hard to say, "This process is crap, and I'm not gonna follow it," when you're the one that built it.
And so it's also a lot easier for your peers when it's not, you know, a consultant like me came in and built you a process. It's Joe, the project manager, you know, built this change order log with, with two or three of his peers, and now they're going out and saying, "Hey, all the other PMs, this is how we're gonna do it."
They, they got instant buy-in because it's one of their peers that, that helped create that, and we just stand in the background and kinda coach them along on how to get to where they need to be.
Jason Jacobs: Uh-huh. Yeah, that was one of the things that struck me from our initial conversation is that it sounds like your process involves a lot of, you know, not just providing the fish, but of the, you know, teaching how to fish, right? And, and actually, um, not just doing the facilitating, but, but really getting the key people from within your clients to, to do the facilitating.
And, and, and y- I mean, you have a [00:11:00] tiny team, right? It's just, uh, it's just a couple of, um, core members. So, um, maybe talk a bit about how the process works overall, but then also from an implementation standpoint, how you manage that in terms of what aspects you're doing and what aspects the, the team is doing, and how your tiny team, you know, scales to make sure that there's the proper coverage across an engagement.
Mike Kanaby: Um, well, so the, the, the way we scale nowadays is, is we use-- we've built some AI tools that will help us scale, um, i-internally, but we used to use some subcontractor partners. To give you an example, you know, we, we do a, a process mapping exercise of current process. We design out the process for future. We used to subcontract that out to somebody that, um, you know, was an expert at Visio and, you know, I'd send it to him at five o'clock at night, and by eight in the morning it was in my inbox, you know, absolutely beautiful.
Um, same with things like PowerPoints and, and [00:12:00] da-data analytics and things like that. We, we, you know, we had a lot of subcontracted resources that we, we help, but we've since in the last year built, uh, built some-- a lot of AI tools that really help us with, with all of those things. And, you know, the only subcontractors we have now are people that actually go and do client work
Jason Jacobs: Uh-huh. And, and so what are the, what are the key phases of the proc- of the process? How long is a, is a typical engagement? And then what are the pieces that you're driving versus, um, the pieces that are being driven by the client?
Mike Kanaby: Y- y- so w- we have a three-phase process. So the first phase we have is we call it the diagnostic. That's where we go in and look under the hood. We figure out, you know, what's g- what's working well here, what's not working well here. We prioritize that into, you know, key actionable items, and we try to map an ROI to every one of those items.
And then we work with the leadership team to identify which four are gonna, you know, which four are gonna be the most critical. We usually pick two quick wins [00:13:00] and two, you know, longer term, higher ROI things. Um, but we wanna get that momentum out of the gate, and so we wanna do something that, you know, within sixty days of, of deciding that, you know, they're, they're tracking it and, and piloting it.
Um, but that, that process typically takes us about six weeks. Um, we, we usually, once the, once the client agrees to, to move forward, uh, we collect as much documentation as we have, all of their, uh, spreadsheets and, and tools they're using and any SOPs they currently have, roles and responsibilities or job descriptions, things like that.
We, we spend about a week and a half to two weeks analyzing all of that data, and that gives us an idea of, hey, when we go on-site, where-- what questions should we ask? Where are we not sure? Where is it not clear? How are they doing this today? We can't tell from this. It just makes us a lot more efficient and, and up to speed.
We typically try to go to, if, you know, if a, if a client has one office, we obviously just go to that office. But, uh, typically, most of our clients have multiple [00:14:00] offices across the country. And so we'll go-- we ask to go to their best-performing office financially, their worst-performing office financially, and then usually at, at some sort of a headquarters or, uh, a location where a lot of back office folks are housed.
Um, but it gives us a good gamut of, of, you know, what are the people doing it well doing, doing well, and what are the people doing bad doing. Um, but, you know, start to finish be- when we do our report out, it's about six weeks on that process. That's, that's our heaviest involvement. That's pretty much 100% us, uh, doing that.
Once we, once we meet with the leadership team and we finalize that, hey, this is the four initiatives that we wanna work on, we then have the leadership team pick some high-potential employees, people who they think could be leaders of the future in the organization. And this could be a superintendent, this could be a project manager.
It, it, it ranges from all over. Um, but then we have them, we call them, uh, process leads, and each, each, um, initiative that we identify gets a pro- an [00:15:00] internal process lead. And this is where, you know, we really turn into just herding cats at this point, um, because these, you know, guys and gals all have very demanding day jobs, so we just try to make them as efficient as possible.
But they've gotta go do the work. They've gotta build this. They've gotta build a collaborative team around them from other offices that are gonna help them build this. Um, but that's, that's part of the secret sauce is that, you know, them doing this and working across division lines and across different offices and, and leading an initiative like this, you know, gives them valuable experience that prepares them for the next level in the organization.
It also helps with the change management and, uh, the buy-in. We get, you know, almost 100% adoption because of this process. And we've gone back three and four years later to, to a client who we worked with, and they're still following those processes. It's in their DNA, and we usually find out that they, they built, uh, you know, 10 more or 20 more processes following our, our process.
But it's, it's really just, uh, getting, getting that buy-in and that change management [00:16:00] piece 'cause like I said, anybody could just go to ChatGPT and say, "Make me this." But it's not, it's not gonna check those boxes.
Jason Jacobs: Uh-huh. So that's phase two
Mike Kanaby: Well, phase two is in between that. So we do, we do a one-and-a-half day workshop as phase two.
So after we, after the leadership team picks out their high potentials and, and anybody else they want involved, we do a one-and-a-half day workshop called our Culture Catalyst Workshop. And what we do in that workshop is we teach these, these men and women, uh, continuous improvement and process improvement best practices.
Most of them have never been exposed to anything like this. A lot of times, you know, you, you might have a PM who, who's only worked at that company and never, never worked anywhere else, so he's never been exposed to anything, uh, outside of that. So we give them the tools so that they're able to effectively drive this initiative.
And then at the end of the-- by the end of the workshop, they have a peer review charter that basically gives them the path forward, uh, that they're gonna march on, and that puts us into phase three, which I had just [00:17:00] discussed about them building. Um, at the end of phase three, once they've built the process, we pilot it.
Piloting is huge. Um, we've, we've skipped that step in the beginning and, you know, due to, due to an owner or a, a somebody, uh, pushing it, saying, "We need to just get this out there," and, uh, and it crashed miserably. So we, we refuse to, refuse to skip the pilot phase. Um, it's, it's in the client's best interest.
But you find silly things like, uh, I'll give you an example. We did, uh, we built a change order tool with a client so that the guys and gals in the field could just go onto a quick little thing on their phone, boom, it would populate a spreadsheet in the office. Um, and, and we-- you know, in the pilot, we had about five or six guys from the field and, and a superintendent and some other folks, and we said, "All right, you know, it's a Microsoft form.
You gotta log into your Microsoft account." Well, nobody knew their Microsoft account password, and it was handled by IT. So, you know, when they got the job, it was set up, and they never needed it [00:18:00] again. And so now we had to go find an IT person to go dig up all these people's passwords or, or send a reset and, you know, it took-- it, it killed us for a couple hours.
If we had just pushed that out to the whole company, you know, it would've been hundreds of, of field people getting paid hourly to try and find their Microsoft password, but we vetted that out in the, in the pilot, and, you know, now that's part of the instructions, is before you come to the meeting, make sure you've gotten your, your login.
Jason Jacobs: And if you, if you look at those, um, you know, two or three or four key, um, key areas of focus that you mentioned that come out in the front end of engagement, if you, if you aggregated those across all the clients that you've had, um, uh, and, and then populated the whole, the whole list, is it, I mean, is it the same, you know, two or three or four things coming up again and again and again that's 80% of it?
Or is there a huge long tail where it's like, you know, 300 different things that, um, uh, that, that have ever made that short list?
Mike Kanaby: Uh, no. I mean, one that comes, I don't bl- uh, [00:19:00] probably all but one, uh, engagement that we've done, it's been change orders. Um, change orders are just typically not handled very well in a company. They're handled very differently from person to person. Um, how they store the document, how they store the information is done differently.
We... I mean, I would say ninety plus percent of the time, that's usually our number one. That's our short term. You know, we could fix this quickly and get some ROI, and it's also one of the easiest to measure as well because most companies, you know, are able to track their, their level of change orders. So we can set a baseline at the beginning and then, and then, uh, you know, track how m- how much the improvement is, and then we can put dollars behind it as, as far as what did that ROI
Jason Jacobs: Wha- uh, I mean, caveat to every question I ask is that I'm a newcomer, relative newcomer to the industry, but it, it seems like if you take change orders as an example, uh, there are some change order issues that are controllable, and there are some change order [00:20:00] issues that, you know, if a, if a GC tells you, for exa- I heard this story, um, of a GC, uh, telling the contractor, um, uh, "Hey," like, "make this change."
And then it's like, "Are you sure? It's gonna cost, you know, 500 grand," right? And it's like, "Yeah, yeah, yeah, yeah, yeah, just do it quick, do it quick, keep it moving, keep it moving." And then when they get the bill down the road, there's sticker shock, and there's fighting it, and there's, uh, controversy, and you need to go hunt through emails to find it.
And so, so I guess how much of these issues generally, um, are controllable, and how much of them, just given the nature of the industry, um, are, are outside of your control no matter how much you dial in your own tooling and processes?
Mike Kanaby: So that, that one's a controllable one, and we teach the teams how to control that. So that one is typically driven by what's called a directive clause in the contract where we can direct you to work. I've seen hundreds and hundreds and hundreds and hundreds of contracts. I've never seen one that said we can verbally direct you to work.
So [00:21:00] we teach the teams to, "Okay, we'll go do this, but, you know, send me an email at least, you know. Write it, write it on this sticky note right here at least. But write it somewhere and sign it." And then we teach them, look, if your, if your customer is not gonna put that in writing, you're not getting paid for it.
Just accept that. It-- You're doing that work for free. And if you do happen to get paid, you know, a couple cents on the dollar, well, that was upside. So even that one's controllable, but a lot of them are, a lot of them are just internal issues, things like not, not tracking it, not getting the change order submitted in a timely manner, waiting till the end of the job and then trying to go negotiate, you know, $100,000 worth of change orders and, you know, you're getting 30 cents on the dollar if you're lucky.
Um, poor documentation. You know, these are all part of the process work that we do is... And this is where our value comes in, being in construction for, you know, since the '80s and a business partner for going on 30 years. You know, we've seen a lot of this, and so we understand how to, how to fix all these [00:22:00] things.
Um, you know, plus we have the privilege of being in a different contractor's office, you know, every single week for, for the last six years and, you know, every contractor's doing one thing really, really, really well. And then that's a best practice. We could say, "Hey, that, that works really, really well." We could, you know, use that same process with other offices
Jason Jacobs: Uh, h- how often do you find that the things that owners think are their, uh, m- most impactful levers to fix are, are actually the most impactful levers to fix? That,
Mike Kanaby: Uh, almost never. Al- almost never. So, you know, when we're, when we're scoping out our process with a client, that typically comes up. We say, "Hey, we wanna go to a job site. We wanna go talk to some guys from the field. You know, we wanna sit in, in your backlog review. We wanna s- see this and that." And they'll say, "You don't need to do all that.
I told you the three, three things that are wrong. You know, let's just get to fixing [00:23:00] those." And, you know, it takes some convincing. I mean, nobody's ever, you know, said, "Forget it then." Um, and then when we're all done, they realize why, because, you know, it's the telephone game and what the CEO of a $100 million a year company thinks that the guys in the field are actually doing is very different...
or thinks what the guys in the field are doing is very different than what they're actually doing because it's gone up through so many chains to get to them. Um, and, you know, some people tell the CEO what they wanna hear, and so, you know, we, we don't do that. So we go get... dig to the root of cause.
Another thing that we find that CEOs and, and executive teams do a lot is they're, they're, they're bringing us a symptom, not a root cause. And so, you know, our guys just re- you know, they're not doing change orders. Well, what's the root cause of not doing change orders? Well, the company you bought had a culture, you know, we'll dig this out, and we have.
The company you bought had a culture of their, their book of business was national accounts, and that's all they did. And [00:24:00] so, you know, the, the leadership team was basically, you just do whatever the customer wants and, and they'll keep giving us work all over the country and, you know, we'll win some jobs, we'll lose some jobs, but the, but the net is, you know, we're gonna be profitable.
Well, that works for a privately held company, but a private equity backed company does not like volatility, and that creates a lot of volatility. So it's, you know, your root cause is the guys and gals are just... or, or, or the symptom is they're just not doing change orders. We suck at change orders. The root cause was it was a cultural issue that we had to overcome
Jason Jacobs: Mm-hmm. And, um, that's another observation that I have had in my early travels so far is that sometimes if there's an issue, you know, the field will blame pre-construction, you know, the estimating team, and the estimating team will b- blame the field, and, you know, everyone will blame finance or the suppliers or, um, like how do you h- you know, when d- when different people in an organization have different perspectives, how do you get to the [00:25:00] truth?
Mike Kanaby: So we, we-- you ask a lot of people, first of all, and, and if you start hearing, you know, if, if every project manager I talk to says, you know, these estimates are terrible, you know, you start looking at your booked and delivered and, and start seeing, you know, where was the erosion. You know, if it was, if it was all in labor, you know, okay.
But we-- the, the big key is, you know, we may not get to the root cause, but we, we typically know what the root cause is. And so, so we build processes to eliminate that blame game. It's... And it's, you know, it's having those clean handoffs. So if, you know, if I ask about, well, did the estimator and the salesperson do a handoff with you, Mr.
Project Manager? Yeah, they dump it into a folder and, you know, I pull it down off that folder, and I, I go to work. Okay, well, you don't have a process for a sales to ops handoff, so we gotta get that process built so that when you get the estimate, you, you bought in on it. You understand the logic behind, [00:26:00] uh, how it's done.
Because ultimately, the estimator is building the job. They're just doing it on a spreadsheet or in software, but they're building it in their head. You know, we're gonna do this, we're gonna do that. They're building it. Well, if that information of how he built it, he or she built it in their head, doesn't get to the person in the field actually building it, then there's gonna be a disconnect.
And so you gotta get those synced up. There's another process called a post-project review. Well, that's an opportunity for the field team to get with sales and estimating to say, "Hey, this is, uh, this is-- this didn't work. You know, we gotta change this run rate," or, "We don't, don't use this supplier again.
Every delivery we had was five days late, and it cost us X, Y, and Z." But, you know, you gotta have that feedback loop that goes all the way around continuously
Jason Jacobs: Um, and w- with any kind of change, it seems like there's this tension between, um, getting people to adapt to a process that's more efficient versus designing a process around meeting people where they are. Um, do, do, do you have a point of view on h- how to [00:27:00] navigate that tension and, and, and where things sh- which direction things should net out on when, when that comes to a head?
Mike Kanaby: Uh, I mean, we, we, we typically-- We can make a pretty compelling argument that the most efficient process is what's going to be best for them.
Um, we'll, we'll get... We just had this just happen yesterday, uh, where we, we had a initiative leader and he said, "You know, we're gonna just go with my process that I do now, and we're gonna just have the whole company do my process."
Like, you're kinda missing the point on this, man. There's a, there's a reason we do what we do and, and how we do it. And, you know, uh, he, he begrudgingly followed our process and, and we just had a call with him this week and he's like, "Wow, my process was missing a whole bunch of things." And getting the team involved and having them tear it apart, you know, we have a much better, more efficient process.
We can also use data. You know, if you say, "I'm, my process is really good for change orders," well, you have the worst change order record of anybody in the company, so your process is not very good. You know, [00:28:00] look at Joe over there, he's killing it on change orders, so maybe we should get Joe to, to help us out, fix this process 'cause it's very, very difficult to argue with data
Jason Jacobs: Well, that's a, that brings up a good question. Um, how often does that data exist when you kick off an engagement with a client, and how often are you having to go hunt it down and find it?
Mike Kanaby: Uh, more than not, we have to hunt it down to find it, and we have to rebuild it ourselves 'cause it's usually in five or six different places. We have to weed out the bad stuff. Um, the, the diligence on most of these companies... And, I mean, these are big companies. These are, you know, 100-plus million dollar a year companies that we work with, and, you know, their data is still crap.
There's no better way to say it. It's just, you know, it's not accurate. There's usually some shadow books going on with that, you know, has a little more accurate piece of this piece and, you know, maybe this piece over here. But to get all that data in one place clean is, is extremely difficult. I'm, I'm working on a big project right now, and they're initi- [00:29:00] they're installing a new ERP for the whole, for the whole business, and it's a great ERP.
It's very simple to use, but they're still using their Excel workbook on, on the side. Like, so it's, you know, you made it... You got ERP, and now you're more inefficient 'cause you're double putting data in, and the data you're putting into the ERP isn't always accurate or timely
Jason Jacobs: And when that data is poor, um, how much of it is due to data silos and vendor fragmentation versus just not captured anywhere because it lives in people's brains?
Mike Kanaby: I- it's both. So with, with change orders, I will say that's captured in people's brains. You know, you might have somebody that has it in a notebook. I've literally seen this. Or, or you might have somebody that has it on a spreadsheet on their desktop and then, you know, somebody might have it on a, on a Google Drive somewhere, uh, but it's in their template, not like anybody else's template.
And so to get a, a robust idea of like, "Okay, how are you guys doing on change orders?" It, it's [00:30:00] almost impossible. Um, same with like estimating, you know, e- estimating is the same way. I've seen so many contractors that had, you know, great estimating software. Nobody was using it. You know, they, they got 10 licenses, and nine people don't even have it installed on their, on their, on their laptop.
And so they're still doing everything with their own Excel workbook 'cause that's what they're comfortable with. They've been doing it. But a lot of that stems from, you know, the, the vendor who sold them whatever software system didn't do effective change management or a needs assessment. And so we find a lot of software that's, you know, on a, on a bookshelf, so to say, and not actually being used.
The other thing is that your, what you said about the, the software not talking to each other. That's a big one. What we see is that, is that vendors make a lot of promises. Like, "Oh yeah, this will talk to that. No, no problem." And then they buy it with that belief, but then they find out they need an API or, or hundreds of thousands of development costs to make X talk to Y, so they just scrap it and say, "Forget it.
We'll just have data in different [00:31:00] places."
Jason Jacobs: And when you pull that data together to gain those insights for purposes of, of this engagement, does that then provide them a, a s- a centralized, um, organized view of that data once you leave? Or, or is that another whole engagement that they should
Mike Kanaby: That,
Jason Jacobs: with someone
Mike Kanaby: that's a whole nother engagement there. Uh, so we, we don't, we don't help them implement software. That's not a, that's not our expertise. We like to swim in our lane, what we're good at. And, uh, but, but we will help them to pick out the right software and not get sold to. So we built another process for specifically that because we had...
You know, in the first year we were in business, 100% of the clients we went to had software that didn't work or software they were paying licenses for that we uncovered that not a single person was using. And you gotta get to the root cause, and it's they, they were sold, and they didn't know what questions to ask.
And so we built a process that we've helped numerous clients with. So, and it's, we [00:32:00] use the same approach as the Building Excellence Blueprint. We kinda use that same bottoms-up approach, the change management piece and all that. Um, but it, it makes sure that they're asking the right questions, and they're getting things like a, a demo.
"If this talks to that, then show me. Show me live on a call with the, the whole team how that talks to that." You know, and a lot of times they, "Well, you know, I can't do it here 'cause I gotta do it..." But it, it vets all that out before they... 'Cause I mean, software is a significant investment. I mean, it's, and, and most of those legacy programs are, are SaaS programs where they're locked into them for a long time
Jason Jacobs: S- so I, I ha-- I'm inf-- I'm tr- I'm gonna infer, uh, a perspective from a few different pieces that you haven't explicitly said, and I'm gonna say it back to you to see if it's right. Um, so what I think I'm hearing is that, uh, that there's plenty of software out there. There's plenty of bad software, but there's plenty of good software that then doesn't get adopted even though it's good software.
And if it doesn't get [00:33:00] adopted, it might as well be bad software. Um, and the inferring part is it-- I'm guessing it's similar around, um, process improvement, where there's firms that might have good process improvement processes, but if they don't roll it out in a way that gets people to follow them and it, and adhere to them, um, ongoing well after you've left the building, then it's not good process improvement process.
So, so when it comes to the Profitability Works process, is it the content of the process that is differentiated, or is it the ability to make it stick? Or both?
Mike Kanaby: think it's ability to stay. I, I think it's, A, it's our experience. I mean, both, both my business partner and I have so much experience in doing this that we can sniff a lot of stuff out very, very fast. And so, you know, it, it's nothing for, you know, nothing's secret. Like you said, it's on my website. It's, uh, it's out there for everybody to see.
And, you know, we, we have a book that [00:34:00] outlines it. Our, our Building Excellence, uh, is, is a book we wrote that kinda outlines how we do it. We, we basically were, we were standardizing our internal process and documenting it, and then we said, "Hey, you know, if we put this into a book, you know, smaller contractors who maybe can't afford us would be able to follow this same process and, and, and likely get, you know, some decent results
Jason Jacobs: Yeah, but I, I mean, what's getting beat into my head is, um, start at the field and work backwards. Start at the field and work backwards. If the field doesn't adopt it, right, then it doesn't matter how good it is. So like you can't, you can't force it down their, their throats. Um, I guess, h- uh, do you agree with that, and what are your tactics to do so, especially given the context that, and we haven't talked too much about it yet, but you mentioned that you work with a lot of private equity clients that are doing multiple acquisitions and trying to standardize across.
So I mean, how do you even do that in a way that starts with the field and works backwards? Is it, is it even possible in that scenario?
Mike Kanaby: It, it is. We use the same process regardless of who our client [00:35:00] is be- because like I said at the beginning, it works. Um, but, but a lot of it works because, uh, of our experience. So, you know, we, we, both my business partner and I have been in construction. We both came from the field. Um, you know, so I know what actually goes on in the field, you know?
I've been a project manager. I know what it's like juggling 50, 75 jobs and, you know, putting out fires all day long. I've been a foreman, I've been a superintendent, I've been an ops manager, general manager. I, you know, I've, I've led a, a super large publicly traded company, so... And, and my business partner's been in the same boat.
So because we've been at every level of that and, and h- that we get buy-in very, very fast because we're very credible. And, and so, you know, there's lots of other consultants out there with, you know, that, that do this type of work and, you know, they take an MBA out of, out of... fresh grad MBA out of school, and they know process inside and out.
You know, they could, uh, you know, do a process workshop, but they don't have that [00:36:00] experience to be able to apply it in a way that is, is believable to the, to the teams
Jason Jacobs: And I, I'm, I'm sure there's a, there's a range of what adherence looks like on the other side. When adherence is not as strong as you would like or as some shops are, are getting, um, uh, have-- do, do you notice any themes or patterns about, um, you know, what it is that, that, that gets in the way of them achieving, uh, the full potential of the results?
Mike Kanaby: M-m-miscommunication once we're gone. I think that's the, that's the... You know, this is, this is something we actually went through and kinda did a root cause analysis of, okay, how did this fall apart at this company? 'Cause they hired us to come back and do something totally different, and then we noticed about, hey, they're not doing that process anymore, and, and it was just a kind of a miscommunication.
I'll give you an example. You know, we built some processes. We built... You know, they didn't have sophisticated ERP system, and so we built some tools with them, you know, Excel or, [00:37:00] or, or Google Sheets or, you know, whatever it is. But then, then they get a fancy ERP, and they're told, you know, "Hey, you gotta use this now."
And it's not communicated of, "You, you gotta use this for your financials, you know, but keep doing all the other stuff." There's no change management. There's no, okay, bridge between, okay, we're using this workbook now, how do we get that put into the ERP or in some similar format so we can continue to follow the process?
Um, that-that's when I've seen it fall pieces is, is that miscommunication, and we've gotten fortunate. There's been a couple of times where a company was doing an ERP implementation at the same time we were doing process improvement, and the, the implementation manager for the software actually embedded himself with us.
He sat in on all of our calls with the teams. He, you know, sat in on all our workshops. So as he's implementing, he's understanding the process work, and he's building that workflow into the ERP, and that worked fantastic. That was-- You know, if I could, if I can wave a magic wand, that's [00:38:00] how they would all go
Jason Jacobs: So in terms of being that ongoing conductor that's thinking through, "Okay, if we make this change, what are the ripple effects and how do we get ahead of it? And, and, you know, how do we communicate properly and uniformly across and, and all that?" Um, uh, you know, is there any correlation between, um, an organization's success and having that be somebody's job or a department's job internally?
And, and if it is correlated with having it be someone or a department's job, what so- you know, what, what function or, or what department does that typically live in?
Mike Kanaby: So what-- one of the things that we do is when, when we're finished with a, with a process, we're done, it's completely rolled out. We've got sixty days of data, so we know the ROI is there. By the way, when you're getting real ROI, when you're getting... You know, you improve a chain. We did one, we-- this was about a two hundred and fifty million dollar contractor.
We improved their change order process across the company. You know, they were getting an add-additional, like seven or eight million dollars of [00:39:00] revenue in the first six months. So when you're getting that kind of return on investment, there's a lot of people making sure you're gonna continue to do it that way.
Um, but we also build a process with the team. So every six months, they're supposed to build a cadence where that internal team meets together, reviews the process, reviews the adoption. Is everybody still using it, and can we make it better? Because things change. Technology changes, um, you know, job site, maybe you do it in a different market than you were doing, and so you have different problems.
And so that continuous improvement mindset is what we drill into them. So then they're having every six, you know, six months, they're getting the team back together, and they're figuring out, you know, is this still working for us or do we need to evolve it?
Jason Jacobs: Uh-huh. And when you think about structuring these engagements, um, is it a f- is it a fixed model? Have you experimented with different models? Is it, you know, is it a fixed price? Is there any performance kicker, um, uh,
Mike Kanaby: N- no, we, we, we toyed with that a bit, uh, towards, towards the [00:40:00] beginning, and this kind of goes back to what we talked about. Usually the client's data is so crap that it's directional. Everything we're talking about is directional. You can't put a number on it and say, you know, $40 million, seven...
$40,700,000,34. It's, you know, you're trending about this much per year because the data is so bad. And so if we strapped ourselves to, to that return, then, you know, there's just not accurate enough data for that to work. So we're on a fixed price model. Um, our, our return is we've never had a client not hire us again, so that's kind of our...
That's our kicker, is that it works so well they bring us in to do more work with them
Jason Jacobs: Um, when it comes to getting that data in order, um, i- i- are there firms that help you do that? And what do those firms look like? Are they technology firms? Are they transformation firms? Are they process improvement firms? Are they-- Like, what-- Who even, who even does that work?[00:41:00]
Mike Kanaby: Yep, there, there's lots of firms. I'm working with one right now. We're building a dashboard for a client. Um, and, you know, they know the, the ones and zeros really, really well. You know, they know Power BI, they know the software side, but they don't know the construction side of things. So I'm kind of that bridge between, you know, the software guys and the, and the, uh, and the construction guys and gals so that, you know, it's usable 'cause they just don't have a frame of reference.
You know, if we talk about change orders, they are thinking of change orders from an IT perspective. Like, you wanted to add some more functionality to this. You know, they don't know what a directive change is and things like that. So we have to... We're kind of that bridge between them, but like I said before, we don't mess with the technology, so we partner with those type of companies pretty frequently
Jason Jacobs: And given that you don't mess with the technology, but you, you know, them having their act together more on the technology side would make your lives easier in terms of being able to come in and deliver value quicker. Um, [00:42:00] so, uh, do you have a perspective on, uh, you know, if you had a magic wand and could, uh, and could envision how these shops would be working in terms of the infrastructure to support, you know, having the data in a format where it can be actionable for people like you?
Um, you know, is that more vendors? Is it less vendors? Is it vendors? Is it building stuff in-house? Is it a mix? Does it depend shop by shop? Like, how do you make sense of it?
Mike Kanaby: yeah, it depends. So I, I have a client does about a billion dollars a year. They obviously have an in-house IT department with a lot of really smart people. They're, they're able to develop those dashboards. You know, we still help guide them in the right direction. But, um, you know, I, I, I would say in, in the trade contracting business, my, my magic wand would be AI is coming and AI is coming fast, and most of these contractors are not ready for AI.
And the, and the contractors that are, that are gonna figure out AI are, are gonna beat the [00:43:00] pants off them on bid day every single time 'cause they're gonna be far more efficient, be able to make decisions faster, and, and they're gonna be more profitable
Jason Jacobs: But I, I bet, and, uh, I don't wanna put words in your mouth, but I bet if someone came in pitching that they're an AI transformation firm, that the owners would roll their eyes, and that you would probably roll your eyes if you would say, "Well, good luck with that, buddy, because none of the underlying infrastructure is there, and you're gonna find out the hard way," right?
Mike Kanaby: it a, I get it a lot. My, my LinkedIn DMs are probably 75% AI gurus who are pitching some s- pitching me to sell my clients some sort of solution that they've, they've come up with. And I'm, and I'm sure a lot of them are good solutions, but what they don't understand is before any AI adoption is gonna be meaningful, th- these people have to get the data centralized and cleaned up and formatted.
All the data has to be in one place, and it has to be clean. It has to be, you know, cleanly labeled, everybody using it the same way. Once you have that, then you have to build the process. [00:44:00] If you d- if you don't have standardized process and centralized data, AI is not gonna be able to do a whole lot for you.
And so that's... You know, we preach it over and over and over again. I, you know, I, I had an article published, uh, on, on preaching this. Um, it- it's just you gotta get that data centralized and cleaned up. Then you work on building your processes so everybody's doing it the exact same way. Then you can work on some automation where, you know, certain things are getting routed to certain people for approval, things like that.
Now, once you're at that point, now AI could be powerhouse for you because now it's gonna recognize those trends. I, I saw a demo of one the other day, and it was, uh, it was a change order process. And what's funny is I, I wrote about this once and, and I actually got to see it in action. But, um, you know, this, this AI tool was able to go through the history of their change orders.
They submit a change order, and it would h- help them to come up with the best negotiation techniques for that change order based on historical [00:45:00] data and, you know, win rates and things like that. But you can't get to that point until you have data in one place and, and processes down pat
Jason Jacobs: N- now, I mean, if you're a big shop, you can have an in-house team that can go and lay this foundation and help you get ahead of all this, or you can hire expensive vendors or, you know, acquire a firm with that expertise. I mean, you have lots of options. Um, and if you're a small shop, I mean, you know, maybe, you know, the owner's-- you know, you haven't about functionalized anyways, the owner's already, you know, wearing every hat, and so maybe business as usual is okay, at least for some, you know, for a longer period of time.
But if you're in these mid-size shops, uh, I would think that you have some of the same urgency that the larger shops feel, but you're much less equipped from a DNA standpoint, from a, um, resourcing standpoint, and from a cash flow standpoint. And you're so busy on the treadmill, like trying to meet payroll every week, that to think about allocating for this like future world that AI promises, where you're [00:46:00] actually spending in a way that takes away from your short-term cash flows for some, you know, undetermined amount of time, for some undetermined amount of gain that's hard to quantify and might be BS anyways, um, uh, you know, what do you do?
Mike Kanaby: Hire us. Uh, it, it is hard to navigate, and I field a lot of questions from, you know, e- either peers in the, from my construction days or clients I've worked for. And, you know, they might say, "Hey, is, is this, is this for real or what?" You know, and I'll, I'll give you an example. Um, they, they had somebody trying to sell them contract, uh, AI contract software that would analyze their contracts and, and blah, blah, blah, do all this magical stuff.
You know, and I explained, "You, you don't have a current contract review process. Like, you need a checklist on what you're reviewing. You need, you know, what clauses are you accepting and not accepting. Like, you've gotta build that infrastructure to train that AI to then do it. If you just throw it in, you know, some random, some [00:47:00] random AI, you're gonna get some random answer that may or may not fit your business, but it's, it's luck."
Jason Jacobs: Ho- how correlated in your experience is, um, strong, uh, operating execution to technology sophistication?
Mike Kanaby: Oh, the, it's hands down. I mean, the, the teams that have adopted technology and are using technology and had the, you know... And to, in order to use technology, you're gonna have to have some sort of structured process for it to be effective. Uh, and so, you know, it's kind of a correlation of, yeah, we have structured process, so we're good.
But now because we have structured process, software works really, really well for us, and we're able to, to get even, even faster
Jason Jacobs: Well, it's a chicken and egg that I haven't quite wrapped my head around yet in the sense that on the one hand people are like, "Well, good luck building a technology that can like make things better because it's a, you know, it's, it's not a technology problem, it's a people, process, and workflow problem, right?
And so until you fix the people, processes, and workflows, then, you know, good luck introducing that technology." [00:48:00] And it's like, all right, but like what's gonna get the people, process, and workflows to change? And maybe if you'll hold the carrot of you could do this thing that would make our lives so much easier, but in order to do that we need to get our house in order.
Maybe it's a rallying cry. So I don't know the answer, but it, it seems like, it seems like in some ways, like people, process, and workflow is an excuse for technology inaction
Mike Kanaby: Y-yeah, it's also an excuse to not use technology.
Jason Jacobs: Yeah, exactly. Exactly
Mike Kanaby: where, you know, y-you... I've seen, seen it in the last thirty days where there's a foreman in the field that is filling out a paper form for a daily ticket, taking a picture of it, and then sending it into the office. And, you know, you just look at that and you go, "This is two thousand and twenty-six."
There are so many software programs out there that, that will do this, that you could just talk into, and it'll, you know, it'll write your daily ticket for you. I mean, there's, there's hundreds of them. I mean, hell, at least go to like, uh, Microsoft Forms or something where, you know, it's all [00:49:00] digitally cataloged because now maybe, maybe they didn't even send.
He doesn't know. Maybe the PM missed it in his email. You know, you don't know, and so the information isn't as, as disciplined and actionable as it would be with some technology. And you'll see the companies that have that figured out are, are, you know, light years ahead. I'll give you an example. We, we work with, for two fire alarm companies.
Their headquarters were about seven miles apart, and we did an engagement for one. The following year, we did the engagement for the other. We went to the other one, new, and they said, "X, Y, and Z down the street is just giving away work. You know, they're, they're, they're buying work so cheap that they're just trying to scoop it all up, and they're, they're losing margin."
And, you know, I can't tell them, but I'm thinking in my head, "They're killing-- they're making better margins than you, and they're cheaper than you because they, they went through a process improvement. Now they have processes. They went out and found technology to drive efficiencies in those processes. And it's not that they're, you know, buying jobs and giving away work.
They're just better than you."[00:50:00]
Jason Jacobs: Yeah. I mean, the, the, the counterargument or the inverse or whatever you wanna call it is, um, I've heard some people grumble that some of these larger firms that are just pumping out AI press release after AI press release, um, I think the words that people have grumbled is like AI theater, where it's like, you know, there's all these fancy press releases and not a lot of action and not a lot of results.
Um, how, you know, how, how do you tell the difference between the firms that are leveraging technology to actually drive results and the ones that are just like, uh, chasing every shiny thing and, and trying to get, you know, and, and, and doing it out of their marketing budget so that they can get the media halo without, you know, without anything substantive under the hood?
Mike Kanaby: Yeah, that's-- You just gotta talk to the people. That's the only way you're gonna know, and then the people will tell you whether that's really how we're doing or that's not happening at all. I, I just got off the phone right before, before this call, I just got off the phone with a lady who was telling me, uh, she's the executive [00:51:00] VP of a company, and we were on a call with another technology provider, and they said, you know, "Hey, we got some new AI features that we can bolt on to your ERP and it'll do this, this."
And she said, "Don't put any AI." She's like, "My bookkeeping c-company talked me into putting AI to our financial software, and my books are a complete mess now, and we're gonna spend weeks fixing that." You know? But that'd be a great shiny press release of, you know, we were able to automate this with Claude bolt on to this and save X, Y, and Z money on there.
But in reality, you know, you're watching somebody scramble and losing two, three weeks of productivity to fix something that that broke
Jason Jacobs: Um, Mike, I wanna s- I wanna switch gears to another topic that I think is important given where you sit that we haven't touched on yet, and, and that's that you mentioned you do a lot of work in the private equity world, um, with, uh, you know, with companies that are acquiring multiple shops. Um, w- are, are there themes in terms of what it makes sense [00:52:00] to standardize and what it makes sense to leave alone?
Um, uh, and, you know, how much of that, how much of that depends on the specifics of the f- you know, of the holdco and the model and the, and the individual shops versus just like absolutes of, of right and wrong in, in your view?
Mike Kanaby: So the, the two that private equity are non-negotiables are gonna be any of your financial metrics and your cash flow. So if, if there's any s- any way to improve your billing and cash flow, they're going to jump on that whether, you know, whether you like it or not, they're, they're gonna go after that one.
One where I, I see that probably is left alone the most is, is business development. And, you know, that, that branch that they bought in, you know, Arkansas has built relationships maybe for fifty or sixty years, they've been building relationships in that community. And so, you know, you're not gonna pull that out and say, you know, we're doing an [00:53:00] automated campaign going forward.
No, this is, you know, Joe going and talking to Fred, you know, on the last Thursday of every month and sitting down and having a coffee and thinking of how things are going, and most of the time PE doesn't wanna break that because they're all about growth, and you don't wanna break the growth engine
Jason Jacobs: And, and what's an example of, of one or two that are, that are more nuanced where maybe it depends on the situation?
Mike Kanaby: It depends. I mean, a lot of private equity firms, you know, when we talk about change orders, they don't understand the impact of it, how change orders can impact their bottom line. And so they're like, "You know, let's, let's focus on this instead." And, and once we explain it to them that, hey, if we get this right, you know, that's a growth engine in itself, plus you're losing margin right now because you're not going after those change orders.
And so, you know, that's an area where we have to a lot of times convince them to, to go chase. Um,
Jason Jacobs: But sh- should that be standardized across shops with it, with it, you know, within a, a single holding company?
Mike Kanaby: Yeah. I, I, I think any of the [00:54:00] execution processes should be standardized, and the reason I believe that is, is twofold. If you have a project manager go down in one office, another project manager can pick up their workload until you backfill that because everybody's doing it the same way. Everybody uses the same logs, everybody uses the same process, the same tools, so it's very easy to, to expand that.
The other reason is it l- allows promotion opportunities. So if I'm a foreman in, in, uh, Tampa, Florida, and, and a, uh, a, uh, project manager roles opens up in Orlando, you know, I, I can move over and take that position and get that promotion because the processes were the same at his office in Tampa as they're gonna be in Orlando.
So that person's up and running really, really fast
Jason Jacobs: What, what do you think has driven the increased private equity interest in the space, and do you think it's here to stay?
Mike Kanaby: I mean, everything's cyclical, so every- everything is cyclical. But, uh, um, you know, I, I guess it'll depend on how, [00:55:00] how some of these monster roll-ups that have, have come through recent- I mean, multi-billion dollar acquisitions and platforms, you know, we'll see, we'll see how they go. I mean, there's been some that have gone really, really bad already.
Um, but I, you know, it'll, it'll go until the next shiny thing, but it's definitely here. Certain, certain, certain industries definitely more than others. I mean, if you've got a good service business, that reoccurring revenue is definitely a shiny object for, for private equity. They, they love that reoccurring revenue, and so those are ones that they go after big time.
Um, you know, they're, they're all smart bankers, so they're, they're investing other people's money, and they need to do it wisely. So, um, you know, they make, they make smart, smart plays
Jason Jacobs: And it, and it seems like at least in certain circles in the trades, um, you know, private equity has a, you know, gets kind of a bad rap. Um, you know, how, how much of that do you think is justified? How much of that is overblown? And, and also, what's the difference between private equity done [00:56:00] right in this case and, and maybe, um, uh, you know, what some of the bad actors might be doing?
Mike Kanaby: Yeah. So there's, there's, uh, you know, a lot of different types of private equity philosophies, and the ones that are going in and slashing and burning are the ones that give private equity the bad, bad rap. So, you know, they go in, lay off half the people, sell off some equipment, get the, get the P&L, you know, and balance sheet looking all shiny, and then flip it to the next person.
We personally will not work for those type of private equity firms. We re- we refuse probably monthly to, to be part of that. That doesn't help the construction industry. It hurts it. Um, but then there's others, who are mainly the ones we work for, who they're seeing that if I buy these portfolio and I invest in them, they're gonna grow and, you know, and we'll get the multiple we want on exit because it's, it's a well-oiled machine that somebody else is gonna wanna buy.
Those are the ones we work for. So those, those are kind of opposite ends of the spectrum. And then obviously you got ones in the middle that are, [00:57:00] they're just buying companies and just letting them run the way they've always run. Um, you see that a lot in residential HVAC where, you know, they may buy so that an owner can get an exit and, and retire, but, you know, they put a general manager in and just run it, run it like it always has run and, and just mail the checks to headquarters, maybe, maybe centralize some back office things like billing or something like that.
But, uh, but, um, you know, that's kind of the middle-of-the-road, uh, acquisition there
Jason Jacobs: Uh, g- given the, the amount of owners that are replacing retirement age, let alone just, like, senior tradespeople, um, uh, and the, the lack of young peop- I mean, the young people replacing them is, is far less than, than one-to-one. And then the demand, you know, keeps growing through, you know, AI and data centers and, and otherwise.
Um, w- what's your point of view on, um, the best ways to address that shortage directionally? And, and do you think we're heading towards a world where, um, you know, the trades will always be [00:58:00] fragmented? Will there be more c- consolidation? And what, what should there be in a, in a perfect world if, if you had a wish?
Mike Kanaby: Well, you're seeing, you're seeing a shift. So much has happened in corporate America since COVID that, you know, I really think, you know, the, the dream of, uh, you know, your corner office after 25 years and your, you know, your Rolex at retirement is dead. Um, you know, peop- people know that corporations don't care about you, and they're gonna do whatever's best for the bottom line and, you know, there's no loyalty anymore.
I think a lot of people see that, and they understand that, and so it's not quite as sexy as it, as it used to be. So I, I'm seeing a lot of peers who are leaving corporate America, and, you know, they're going out and buying, you know, a mom-and-pop shop in their, in their town that they live in and, you know, taking over that, that business.
Um, we're seeing also a lot more young people getting out of high school or in high school wanting to go into the trades because, you know, maybe they've seen their mom or dad get laid [00:59:00] off and go eight months without work and having trouble to find a job, and they're saying, "Screw that, you know, I can, I can go be an electrician."
Uh, you know, funny story. My, my son, he graduated college, went to college for five year- Right out of high school, went to college for five years, and after he got out, he met up with a group of buddies. And my son was trying to find a job, you know, an entry-level job with a bachelor's degree in marketing.
And, you know, that's pretty tough to do with, to get any meaningful sort of job. And they met up with the buddies and, you know, his buddies went to, two of them went to, uh, into the electrical trades, and one went into HVAC. They're all journeymen now 'cause they did their five-year apprenticeships, and they're all journeymen.
You know, they're, they're making killer money, you know, more money at that time than my son's still making today. Um, and I think, you know, that's kinda spreading. Like, "Hey, you know, five years at college, and I'm in an entry-level position making damn near minimum wage," or, "I put in my time for five years in the trades, and I'm earning money the whole time, getting no student loans.
Uh, and then, you know, [01:00:00] I, I... at the end of five years, I'm making serious cash
Jason Jacobs: Yeah, I
Mike Kanaby: a tons of opportunities."
Jason Jacobs: I was talking to a friend last night and his son... He was telling me his son never went to college, went straight into the union, and he's 22 and he's making 175 bucks an hour, and he's not even allowed on site, you know, without a senior. Uh, so
Mike Kanaby: Yeah. Yeah. But I think m- more of that's getting out and the disillusionment, disillusionment with corporate America, I think that, uh, you know, that's gonna, that's gonna help turn that curve. And then one of the things I've seen, or two of the things I've seen, one is, you know, that's why process improvement is so much more important than technology.
Because i- if you get that process improvement, you're using technology, you're gonna be far more efficient. You're just flat out going to get more done with less people. So you're gonna be able to grow the business without having to add a whole bunch of headcount. Um, and, and I think that that's, uh, pretty critical.
The other thing I'm seeing is we have several clients where, you know, an, uh... I'm old, so I can say [01:01:00] this, you know, an old-timer's ready to retire, and they're, they're keeping him on part-time as a consultant. And so that knowledge base doesn't go away, you know? And, and the guy or gal maybe didn't wanna quit, it's just, you know, you can only hump a bundle of shinglers up a ladder so many...
till you're so old and, and, you know, be out in the cold and the hot and all that, and the elements, you know. Gets kinda old when you get, get, get my age. But, uh, you know, they're, they're being smart. They're saying, "Hey, I need this guy's knowledge. I don't need his back. I got pluns of- tons of people for that."
And they're keeping him on as a consultant. You know, they're having him build training. We, we have a client who, you know, the guy retired, and they brought him back on as a consultant to, to build all this virtual training for the team members. And so, you know, it's pretty cool. They, they wear these goggles and, and, you know, they might see, like a, a, a boiler and, you know, they're troubleshooting it, and they're showing them where to put the wrench and all that kind of stuff.
And, you know, they're using these experienced people to help build that stuff.[01:02:00]
Jason Jacobs: Uh, Mike, this has been such a wide-ranging discussion. I, I wanna, I wanna end with a bit of a personal question if it's, if it's okay. Um, and, uh, and if it's too personal or whatever, f-feel free not, not to answer. But when we talked, um, in the prep call, you-- we were talking about how, um, you know, l-looking at whether the right people are, um, uh, are on the squad is outside of the purview of your responsibilities and focus.
And you, you mentioned how, um, at one point in your career you had, um, uh, you know, b-been, been part of implementing a layoff and how you never wish to do that again. Um, I'm, I'm curious, um, uh, when it comes to that people stuff and driving process improvement and efficiency, um, you know, is, is that just a-- is that an impactful area for that purely from a business standpoint?
Um, is [01:03:00] not including it, um, you know, more of a, like a moral thing, uh, than a, um, you know, not strategic for what I'm trying to do thing? And, and, and kind of attached to that, as an owner, how should an owner balance, um, the moral obligation to the humans that are, you know, in his or her care, if you will, with, you know, doing the responsible thing as a fiduciary to the bottom line and strength of the business?
Mike Kanaby: Yeah, I mean, look, there's going to be times where layoffs are, are, you know, necessary. You, you might have a huge job that you've built up, you know, you brought in a lot of extra people for. That's not a repeatable event. You know, nobody did anything wrong. It's just a matter of we don't have the work to sustain this.
That, that every business owner has to, has to make. That's just smart business. But you should be able to have a good, honest conversation about why you're doing it. One of the things that owners should be doing is better performance management, because if they're doing good performance management, [01:04:00] they would figure out where the poor behaviors that they didn't wanna put up with are coming from.
They could be able to coach and train that person to, to fix those behaviors and still be a, a, an asset to the team
Jason Jacobs: And, um, uh, is, is, is that in the purview of a Profitability Works engagement, or is that the type of thing you would also bring in another firm to help with?
Mike Kanaby: Uh, we, we'll help with roles and responsibilities 'cause what we find is a lot of people have a job description that, you know, they post it on Indeed or wherever they post their job descriptions, and that's what... You know, when I ask for roles and responsibilities, it'll be, "Here, here's the roles," and that's the job description.
Let's figure out what this person's responsible for, how they're gonna do it, and how they're gonna be measured and, and where they, where their inputs start and where their outputs end. Um, so we, we will help with that because we found that, that you, you can't measure somebody's performance if they don't, they don't know what they're expected to accomplish and how they're being measured on that.
Jason Jacobs: [01:05:00] important is having the right people, um, to enabling having the right processes and, um, and, uh, how frequently are you finding that that is a, an inhibitor to the engagement being a success?
Mike Kanaby: It, I mean, it's obviously come up. Y- you know, humans are humans and, and, you know, some people just hate change. Um, you know, we, we had one-- So one of the things that we do a lot is we say, when we're doing our interviews with people, we ask everybody the same question. And we'll say, "If we start implementing new processes here, who is going to be the biggest detractor?
Who's just gonna absolutely refuse to participate?" And if, you know, if seven out of ten people tell us Fred's that guy, we bring Fred in and say, "Fred, we got a big, big thing for you. We want y- we want you to be part of building this new process. You know, you've got really good processes. Everybody talked to me about how well you're doing X, Y, and Z.
Let's, let's use you to help drive this with the rest of the company." And, you know, [01:06:00] make some tweaks, like I said, you know. Let's-- 'Cause they always think their process is the best 'cause they've been doing it for twenty years, and then they start, you know, sharing it and seeing other ways, and then they change.
But you put them in charge of it, it's kinda hard for them to, to, to not adopt. Um, and then we've had people where we just said, you know, process improvement isn't for this person. Like, they're a good worker, and they, they're, you know, good project manager or superintendent or whatever, but they're not, they're not process improvement team member material.
Like, they're just not getting it. They're not participating. They don't see the end, and so we'll just have them replaced. And, and we usually will have a, a, you know, a, a script for why that person's being removed from the team. But that's-- I think that's happened maybe twice out of six and a half years we've been doing this.
More often than not, we, we bring the person that's gonna be the detractor in and try to nip it in the bud at the beginning
Jason Jacobs: Uh, and a bit of a fun one to end on, Mike, but, um, if you look 10 years out and put [01:07:00] on your futurist hat for a moment, um, what elements of construction do you think will be operating exactly the same, and, uh, which ones do you think will be the most different? And, and, um, and if different, how?
Mike Kanaby: I, I think, uh, I think that in 10 years very little will be, be done the same. Um, the reason I, I say that is, uh, I've been up, I've been up to the Oracle Innovation Center up in, uh, up in Chicago, and this was about four years ago now, and I mean, some of the stuff they were working on was just blowing my mind.
Absolutely blowing my mind. You know, I, uh, obviously being in here so, in the construction industry so long, I'm, you know, h- that's all I'm interested in is new stuff and technology, and the stuff I'm seeing, I mean, they've got a, you know, this, uh, like patio paver roads, you know? The roads with the cobblestones or whatever they're called.
You know, they've got machines that are just dropping the sand, pounding it, and then those things are sliding out into place right behind it. If you'd asked me 10 years ago if I thought... That would've been one of the things I s- I would've said [01:08:00] never is gonna be done. Uh, we went to a demo down in, in So- South Florida where they 3D printed a house.
I mean, they're just, zhoo, things just driving around, just printing this stuff up. It's just absolutely amazing. I saw there's a, there's a tool out there, so part of in construction framing is you gotta do the layout. So they put the deck down, and then somebody has to go and snap chalk lines on the floor to where all the walls are gonna go.
This machine just, you fed the blueprints into it, just drove around and drew the lines on the floor. I mean, again, 10 years ago, I, I would've said there's no way a machine could do that. So who knows where we're gonna be in 10 years from now
Jason Jacobs: Do you think the incumbents of today will be the incumbents of tomorrow?
Mike Kanaby: I don't understand that question
Jason Jacobs: Uh, so if you look at the biggest players in the space, do you think if the industry's really gonna change that much in a decade, if you look a decade out,
Mike Kanaby: that...
Jason Jacobs: will the big players still be the big players?
Mike Kanaby: Yeah, for the most part, I do believe so, and the reason being is that they have the financial means to adopt more and more and more and [01:09:00] experiment more and more and more. And so, you know, the, they have the money to be early adopters of technology and, and all the other things that are going on.
Whereas, you know, a normal, a normal mid-market shop, you know, they're, they just, they, they're more hindered by capacity than they are by cash, which is, you know... That's where we come in, is we pay... We're, we're just an extra set of hands to help you get this. 'Cause like you said earlier, you know, you're on the treadmill.
So if they can't do the basics because they're running 1,000 miles an hour, you know, they're never gonna be able to experiment and adopt, you know, new technology just on their own, um, or experiment. 'Cause a lot of this stuff is experimental, and I think the big difference in, from now to 10 years is gonna be code enforcement.
So building codes have not adopted, and so this technology is leapfrogging building codes. You know, it's taken years and years and years to get, to get building code and building inspectors to adapt modular construction. Um, you know, and now, now it's finally starting to take off. But now you get into 3D printing and [01:10:00] all this other stuff, how...
That, that building code is what's gonna inhibit that from being faster
Jason Jacobs: Uh, well, this was really great, Mike. I, I enjoyed it. I learned a ton. Um, is there anything I didn't ask that you wish I did, or any parting words for listeners?
Mike Kanaby: No, no, I would just, you know, I would say if, if you've got kids, encourage them like crazy to, uh, to go into the trades. You know, I started out wearing a tool belt and, uh, and it served me pretty well over, over the last, you know, 30 years or 28 years or however long it's been. Uh, it's, it's gave me an career.
I wish, I do wish I had talked my son into, uh, into going into the trades instead of college, 'cause sure as heck not using that degree right now.
Jason Jacobs: Well, and that conversation last night really shook me. It's like not only is the 22-year-old making 175 bucks an hour with a ton of room to, to make more, but with no college debt, 'cause he didn't go to college. He went straight into the union, you know, to the electrical union. So
Mike Kanaby: Yeah, that's again, this, [01:11:00] you know, somebody listening to this that has kids, encourage them to go to the trades. You know
Jason Jacobs: Well, gosh, that's a great point to end on. So thanks again for coming on, Mike. And, um, yeah, always a pleasure and looking forward to keeping in touch.
That's it for this episode of BuiltForward. I hope you enjoyed it. If you found it useful, share it with someone building in the industry and follow the show so you don't miss what's next. Thanks for listening, and see you next week