HVAC service has traditionally been reactive: something breaks, a customer calls, and a technician gets dispatched to figure out what went wrong. Brendan Hermalyn, founder and CEO of Thalo Labs, believes that model is about to change. Thalo builds connected sensors for commercial HVAC equipment that continuously monitor performance, diagnose problems, and help contractors identify potential failures before they happen. In this episode, Brendan and Jason explore what happens when HVAC service becomes much more data-driven — from fewer emergency calls and higher first-time fix rates to more productive technicians and potentially much higher-margin service businesses. They also discuss the fragmentation of the HVAC equipment market, why installation quality matters so much to heat pump performance, how technology could reshape the economics of HVAC contractors, vertical integration between equipment and service, and whether the industry ultimately moves toward selling heating and cooling as a service rather than selling equipment.
Brendan Hermalyn is the founder and CEO of Thalo Labs, which builds connected technology that helps commercial HVAC contractors monitor equipment, diagnose problems, and identify potential failures before they happen.
In this episode, Jason and Brendan discuss how technology could transform HVAC from a reactive service business into a predictive one — and what that could mean for technician productivity, contractor margins, equipment manufacturers, and the future structure of the industry.
Episode highlights:
02:00 — What Thalo Labs does and why HVAC is ripe for change
06:00 — Why Brendan chose HVAC and the role of electrification
12:00 — Hundreds of millions of HVAC units vs. hundreds of thousands of technicians
14:00 — Why Thalo started with commercial HVAC maintenance
17:00 — How installation quality can make or break heat pump performance
19:00 — Why selling energy savings isn't necessarily the best way to sell new technology
24:00 — Moving from individual projects to fleet-wide HVAC monitoring
27:00 — Escaping "pilot hell" and getting contractors to adopt new technology
31:00 — Why a sensor needs to become a "robot technician," not just another source of data
32:00 — How an air conditioner actually works
37:00 — Predictive maintenance, first-time fix rates, and the future of HVAC service calls
39:00 — Could HVAC ultimately be sold as a service?
41:00 — The fragmented HVAC equipment landscape
44:00 — Why third-party technology can have an advantage over individual OEMs
47:00 — Vertical integration: could contractors start making their own equipment?
50:00 — How Thalo sells into a fragmented, relationship-driven industry
53:00 — The emergence of higher-margin, technology-enabled service businesses
55:00 — Private equity, innovation teams, and who actually adopts new technology
58:00 — What separates forward-thinking HVAC contractors from the rest
1:01:00 — Regulation, refrigerants, electrification, and what could accelerate adoption
1:04:00 — Why HVAC infrastructure is hiding in plain sight
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 Brendan Hermalyn, founder and CEO of Thalo Labs. Thalo Labs builds connected sensors for commercial HVAC equipment that continuously monitors how systems are performing, diagnoses problems, and helps contractors identify potential failures before they happen. But what interested me most about our conversation wasn't really the sensor.
We talked about what happens to an HVAC service business when it becomes much more data-driven, how predictive maintenance could change dispatching and technician productivity, why some contrac- contractors are starting to think about making their own equipment, and whether the industry ultimately moves [00:01:00] from selling and servicing HVAC systems to simply selling heating and cooling as a service.
We also get into something I've been thinking about a lot lately: how much more efficient a traditional MEP contractor could actually become by applying technology to both the field and the back office. Here's my conversation with Brendan. Welcome to the show Okay, Brandon Hermalyn, welcome to the show
Brendan Hermalyn: Thanks, Jason. Pleasure to be here
Jason Jacobs: Pleasure to have you. Um, you might be the first roaming guest that, that I've, I've ever had where, uh, um, you're, you're outdoors and, and a- and at least until, uh, a few seconds ago, you, you were in transit, which, which I appreciate. I feel like we're living adventurously here
Brendan Hermalyn: Not just in transit but on a roof. If you get into a show on built environment, you're gonna find a lot of people on roofs and basements moving around, uh, 'cause we're living in the, in the real world rather than just sitting behind a, a computer most of the time. So hopefully I won't be
your last
Jason Jacobs: well now I'm curious, uh, what kind of roof and what were you doing up there?
Brendan Hermalyn: Well, you know, we work a lot with HVAC. Uh, that's our, our main [00:02:00] push these days is how do we help, uh, all of this, uh, electric heating and cooling stuff get installed properly from day one and get it maintained from day two. And it turns out you-- if you do that, you find yourself on a lot of roofs, uh, a lot of basements and, uh, uh, a lot of places in the middle. Uh, and we were just down here, we're based here in, uh... We're from New York City, and I was just, uh, here, uh, on 7th Avenue at a big building that has what are called VRFs for Variable Refrigerant Flow. These are heat pumps that are electrifying a building that up till just a few years ago, were kind of almost impossible to electrify 'cause they ran on boilers and steam pipes and other things.
And it's a pretty neat application of heat pump technology in, you know, a pretty challenging climate re-regime up here in New York and, and, you know, the Northeast in general. Um, and it's bringing that sort of electrification to bear across, across its pretty wide swath of the, the US
Jason Jacobs: Well, that was a nice little teaser, uh, and kinda sets the stage for what we're here to talk [00:03:00] about, uh, today. But, but for starters, um, Brendan, maybe just give a quick overview on, on Thelo Labs. What do you guys
Brendan Hermalyn: Yeah, happy to. Beta Labs, we're a, a company based here in, in New York City. Uh, we make, uh, we make really, really good products, uh, for HVAC mechanical builds. And these are the people who install and maintain, uh, all the heating and cooling equipment that keeps us not just alternately hot and cold, but also safe, right?
You know, H-H-HVAC is one of the most human, uh, trades to deal with because we actually need it. And we'll increasingly need it as, as climate continues to change. Um, most of our products are built around this really cool concept of platform, right? Where you can, for the first time really in forever, you can, uh, install a tiny robot technician, uh, box on the things that heat and cool our buildings.
That can be the outdoor units if you have an air conditioner, can be these [00:04:00] big, uh, heat pumps, can be large rooftop units. It's all the stuff that you look at and kind of-- and most people will glaze over their eyes and say, "Oh, yeah, that's the, that's the thing that heats and cools." And, well, we're on those. And we leave behind that, that sensor, and it's kind of like a little robot technician that reports over, uh, a wireless signal, mostly cell. Uh, and in real time, you're able to tell not just how all of this stuff is working, um, but predict how it will be working into the future. Um, this has a really cool effect because it turns out there's a lot of this. We in the US have about three hundred and fifty million pieces of serviceable HVAC, uh, uh, equipment that's out running right now. And roughly half is residential, and the other half is commercial. Um, and yet we only-- And of course, that three fifty keeps going up when we talk about electrification. Uh, that, uh, that number is gonna probably go up by maybe another two hundred million to five hundred million in the next, say, ten to twenty years. When we talk [00:05:00] about electrification, we're literally pulling things that burn gas and replacing them with refrigerant-based, uh, electric appliances. Um, and yet, and yet there's only like, uh, four hundred thousand, uh, people who work in this trade in the US. So you can see that that number is kind of a tough one.
That means one person is, is dealing with kind of a lot of, of, uh, numbers of pieces of equipment. And they're pretty complicated, right? Electric heating and cooling, uh, actually is a, is a pretty challenging thing to keep running perfectly. It's much more challenging than just burning natural gas, uh, or oil. So, uh, we make these products and are able to sell them to our HVAC providers, and we can, uh, entirely change, uh, how they do business. We can make a lot of the emergency calls, which we've all known, like that's when, that's when you walk into a room and it's hot in the summer. It's like, well, that's a, that's an emergency call, right? Someone has to come out and fix the AC. Um, we can, um, reduce the number of those very, very significantly, which means that those providers can offer a better product to their customers and also [00:06:00] be doing the stuff that we really need them to do. How do we install more, uh, electric heating and cooling equipment?
Jason Jacobs: And, uh, how, how did you find your way into, uh, this space, and how did, uh, Thelo Labs find its way into this problem/opportunity?
Brendan Hermalyn: Yeah. And those, I mean, obviously somewhat related, uh, since I'm somewhat associated with Thalo. Uh, well, I found it... You know, I'm, I'm from New York originally, and, uh, a lot of my family is sort of in the-- in, in and around the trades. Um, we, uh, uh, I just have always been excited about the concept of, of working in buildings.
And one of the main reasons that drives me, and therefore drives Thalo, is, um, one of the greatest lever arms in sustainability is, uh, heating and cooling. It's widely regarded as the, the single largest source of greenhouse gas emissions globally, is heating and cooling our buildings. Whether that comes [00:07:00] from all of the energy that goes into them, oftentimes they're the largest energy drain in a building, um, uh, to and including the fact that when this stuff leaks, the refrigerant leaks, it is a very, very high greenhouse gas potential, thousands of times worse in most cases than CO2. Um, so between those, it, it feels like it's a really great place to spend your time if you're gonna work kind of at that intersection of making really good products, uh, and, and sustainability. And, and that's kinda how we found our way into this is, uh, how do we help make sure that these things are working? Um, I think almost everybody... I usually do, like, a show of hands. It's like, "Who's had a problem with an air conditioner?" And almost e-everyone has had something, right? It may be at your hotel, could be your, your home, could be apartment, your, your car. Almost everyone's had a problem. And the fact that that is so ubiquitous tells you the size and scale of this problem that we need to solve. Um, and as we go forward, uh, it's, it's so [00:08:00] exciting to think about the future of electric heating and cooling because it has to be connected. It has to be smarter. It has to be predictive. It's the only way we're gonna get from where we are today to a world where actually we can survive with electric heating and cooling appliances.
So that's kinda how we, we ended up backing into it. We've been working in, in and around the built environment, um, with Thalo, with a number of different types of products. We've helped, um, and, and had worked for a while on gas, uh, appliances to try to help, uh, reduce leakage and rate. Um, that went really well for a while. Um, we, uh, we've even dabbled, um, with how we can be further into the HVAC side where we could help strip that air of CO2 and contaminants, um, which has both a load reduction capability, but also, uh, has a nice effect if you do it correctly of reducing the total amount of CO2 entering, let's say, on the actual. Um- In general, we found that this angle, uh, the moment of, uh, electric heating and cooling is, is certainly right now, and it's an amazing intersection [00:09:00] of, of like demand, where we keep installing these things really, really fast. Like the, the heat pumps have overtaken boilers for the last few years in terms of installations in the US which is, I think, a great thing. Uh, but that means that we're like doing a lot of it. And, um, the other thing that's cool is the technology in some ways has, not necessarily in this space, but in other adjacent spaces, made it so that you can do this in a cost-effective way. You know, ten years ago, you wouldn't be able to put a cell phone on every, uh, air conditioner.
It would be hellishly expensive, right? And you wouldn't be able to have cloud costs that were low enough to be able to compute all these statistics on it. Um, but now you can. Actually, like some of the stuff we use just came out last year, like it was brand-new tech. Um, and a lot of it comes out of surprisingly different industries.
We use a lot of the techniques and technologies that we had developed when, when I was most recently working in self-driving cars. A lot of that same stuff is applied into HVAC, [00:10:00] whether that's on the machine learning on device, whether it's the hardware components, whether it's just how do you get cloud infrastructure up and have a really reliable cell link. Um, and I think that's fantastic. I love it when we can take technology out of other adjacent areas and bring it to markets that maybe would never have been able to develop it from a unit economic standpoint to start, but once it's available, it can transform it. Um, so there's been a-- it's been a route to, to get to this point, but what we've seen recently is that the, the value for making sure you know how all this stuff is working, um, it's, it's very, very high, and it has the-- my, my favorite type of combined value where our customers really love it and we're able to achieve the mission of sustainability that the company's on. 'Cause
just to, to make that very clear, it's like if you can go tell someone it's leaking, and you tell them it's leaking before it leaks too much, uh, you just saved an enormous amount of energy because there's nothing less efficient than a, uh, a [00:11:00] compressor that's running undercharged. Um, but you've also saved all the emissions from the refrigerant, which is, again, thousands of times more emissive than CO2. Um, and on top of it, uh, you just made everybody's life a lot better because you didn't have to wait until someone says, you know, "Hey, it's the, the current like refrigerant leak detector is the tenant calling you and saying, 'Hey, it's hot in here.'" Like that sucks, right? Like that's a, an incredibly, uh, non-technically advanced, uh, way to deal with that.
And we, we just don't have to do that anymore. So that's kinda how we found our way into this particular sector and, and it does feel like it's, uh, that this sort of unique triangle of time, the moment and, uh, and technology.
Jason Jacobs: Uh, and y- you mentioned all those, you know, hundreds of thousands of, um, you know, units that are out there in the, in the wild in this category across, um... And I think you had said residential and, and commercial. I mean, the built environment is so broad and, and even within residential or within commercial, there's, you know, wildly different, um, [00:12:00] you know, t- types of r- residential customers or, um, commercial customers.
So, um, h- how different is the landscape across that spectrum? And, and where and why, uh, do you focus as your initial market?
Brendan Hermalyn: That's a great question. The only thing I'll say is it's not hundreds of thousands, it's hundreds of millions. Hundreds of millions of pieces of equipment just in the US, billions globally, and increasing with time.
Um
Jason Jacobs: Well, that's an important thing to say.
Brendan Hermalyn: It's important, it's important because that, that, that puts the... There's hundreds of thousands of technicians, but there's hundreds of millions of pieces of equipment, and that's scary, right?
Because how do we-- like, how do we do it? And the answer is actually sort of obvious, is we need to bring a technical layer to bear that allows those technicians to, uh, become nonlinear in their time, right? How do we make it so... And, and we've done this in a lot of other industries. We know how to do this, right?
Automotive is a good example where, um, [00:13:00] if everyone kept buying cars and everything was still really manual, we'd never have the time to catch up. So what we do, we develop a certain set of tools. The cars start alerting, uh, ahead of time. There's OBB2, so you can plug in and read all the sensors and be really smart and fast about it. Um, so we know what to do. We just need to do it. Um, but that's a great question that you had on the sectors and how different things work in different places. Um, and we do see in particular like a, kind of a, a split across, um, the building type, the, the geography of the building, um, and, um, and who's owning and operating it.
So I, I, like, have this kind of dumb spectrum, but I will... Go with me on this, which is on one side you have, uh, commercial on one side, residential on the other, and then you have people who install things on the top and people who maintain things on the bottom. And, um, if you talk to any given HVAC group, [00:14:00] they may say, "We'll do all of that." That usually means that they, they're either awful at all of it or, or they actually do four different things. They do commercial installations, commercial maintenance, residential installations, residential maintenance. And, um, where we have focused most of our energy to start has been on squarely in the bottom, bottom corner of this, which is commercial, uh, maintenance. And the reason we do that is because, uh, economically that is the most aligned with making sure that all this stuff was running really well. And the-- these are, these are the people who go and operate the HVAC in office buildings and, uh, industrial plants and data centers and hospitals. And as a result, they have a great incentive to make sure that they can be more efficient and have everything work very well. Um, we-- that difference is very stark because the same tool may not make a lot of sense, even though it will-- does, does work technically, [00:15:00] may not make very much sense since you have a residential maintenance group who may charge, you know, you know, you've probably seen these ads for fifty dollars a year, you know, annual cleaning.
Well, that's really just a trick to get you in so that, you know, they can make sure that they sell you the new one once every four or five years. Um, so, so it's been very interesting to watch kind of across this, uh, across this spectrum. But, but the other part that I find really interesting is the geography side of it, right?
So like here in New York, we have a lot of tall buildings. So as a result, the way you do electric heating and cooling is kind of, kind of weird, right? Compared to the rest. We, we didn't think it was that weird, but, uh, we started here. Um, if you go to the south, um, rather than having, you know, large banks of modular heat pumps, you'll often find a single large or several large rooftop units, which are different systems because, uh, it's-- and it's because of ducting.
I don't know how much we wanna nerd out on this, but we go a little bit into it, [00:16:00] right? Most large buildings were not designed with ducts inside. So to put ducts inside the building and move air all the way throughout the building would be, you might as well build a new building, right? It's gonna be hellishly expensive or, or very uncomfortable.
Very uncomfortable because then, like, the ceiling's gonna come down and there'll be other problems. Um, so instead, uh, what we do in large buildings is usually we're shipping the refrigerant around And i-in individual rooms or in certain areas where basically using that as an air conditioner heater. Um, and if you design your building with ducts, well, then you can do a lot of stuff 'cause then you can just move the air around. And that's what we see a lot more in the south, southeast, southwest. Um, and then of course, you know, the specialized applications of data centers, like the secret is, it's not actually as specialized as anyone thinks. The, all this stuff kind of looks the same. It all relies on the same physics of the refrigerant. Um, oftentimes, you know, if you peel off one sticker, there's another sticker underneath and go, "I know that name." [00:17:00] And, uh, it's kinda, it's kinda interesting to see how, how a lot of this is specialized in terms of its application, but it's not necessarily specialized in the physics of how it works. Um, so, uh, we've also seen like a very big push further and further away, uh, from, from natural gas in just the last few years. And it's been heartening, obviously, as someone who cares about sustainability, to see that. Uh, but it also, I think, speaks to the, the technology progress of a lot of the manufacturers where, you know, for a long time it was like, "Oh, a heat pump that doesn't work in the cold weather." And the, the answer is, it does work quite well in cold weather, you know.
It does. Um, one of the things that's most important, though, that I can't emphasize enough, is oftentimes when people hate their heat pump, usually because it either is not working very well or because their energy bill is very high, the culprit frequently is not the heat pump, it is the quality of the [00:18:00] installation and maintenance. So if you're, if you don't have enough refrigerant in there, and it should not should be, it should not be consumable, right? It's just like when it was installed, it didn't have the right amount from the maintenance, maintenance team. Um, you routinely can pay two, three, four, five X, um, what you should be paying in energy 'cause it's, it's the hardest working compressor in show business. And that sucks because, that sucks because you, when you, you think about all of these things we've installed, if a solid like quarter of them are installed improperly, and our data shows it's somewhere between half and a quarter, depending on what type of unit.
Yep, are, uh... It's, it's crazy. Um, that really stinks 'cause that's a very bad marketing campaign if you install something and, you know, one out of two or one out of four people are like, "Ah, that thing's awful. My bill's through the roof." Like, yeah. And there's nothing wrong with the heat pump. It's like working really great. So it's, it's been really interesting to watch, watch that across the, across the [00:19:00] US.
Jason Jacobs: Um, s- s- so it, it seems that there's the, there's, there's different stakeholders in this equation for you. Uh, you've got the firms that are doing the maintenance, right? And then it's one value proposition for them. And then you've got, um, uh, you know, the owner of the building, the property manager, right?
You know, whatever other layers I'm not, I'm not thinking about. So
how, w- what are the key stakeholders that matter for you? And, um, you know, how, how is the, how is the story different for, for each of those? And, and where does the ultimate decision lie?
Brendan Hermalyn: Yeah, man. Built environment's hard, right? Like it, it stinks. Like the road, the road to top tech nirvana is just paved with dead startups and like all with good ideas and really good people and nice products and all the money in the world. And it just stinks 'cause a lot of times it's just really hard to figure [00:20:00] out how something that creates value is mapped to everybody's ROI calcs or whatever else they use to make a decision. Um, and of course, the built environment, particularly in the commercial sector, like it is... Yeah. You remember the old saying is like, "You never get fired for buying IBM,"
Jason Jacobs: Yeah, I use that all the time
Brendan Hermalyn: you never get fired for buying IBM. Well, you also probably don't get fired for not trying a new thing, right? Like that is a lot safer to just be like, "Wow, why would I try a new thing and stick my neck out?" This energy bill, if you save me twenty percent, I already had that budgeted, right? Like, if you save me then I-- that's like annoying. Like I have to figure out what to do with all this extra money. So the cost of, the cost of annoyance in built environment is very high to those stakeholders, almost all of them. And that is, I think, one of the main things that prevents cool new pieces of technology that may save money and may save emissions and may be the best thing since sliced bread, [00:21:00] um, if they're like a little annoying or it's outside of what used to happen, uh, oftentimes dead in the, dead in the water. Um, so, you know, you asked the question, which is how do you figure out how to map your way in to getting a new product and a new piece of tech, uh, in the right places?
And, um, we, we have f- we have found kind of a unique and, and I hope smart way of doing that, which is, um- By default people think, especially like tech, and I say this gracefully, tech nerd types are like, "Well, obviously the ROI is in, uh, the energy savings." And that's because it's usually the easiest to, you know, make up some fake spreadsheet on ROI calculations for. And then you're like, "Oh, you can see, look how much you save, and then how much I cost, so why wouldn't you do that?" And, and I basically don't think that works. Uh, I, I just don't. Like it, it-- everyone has been, [00:22:00] especially in the build environment, sold those sheets full of lies and misdemeanors for, like, twenty-five years, thirty years, and they're mostly lying, right?
It's always twenty percent. I don't know why. So even us, we probably say twenty percent, but it's like, how do you prove that? It's really hard. Um, so instead, what we have found is, even though this is like probably one of the best things you could do to save a bunch of energy, like we're routinely saving people like half their bill, right?
If you can just make sure all of your-- uh, we should get back to, like, what this means from a total energy perspective in a, in a second. But we're routinely saving a huge amount of energy. And we, uh, basically don't realize any of that for our customers because we sell to the people who are doing the work. And we found that those guys actually have real problems. They have real problems because they need to be able to install these things faster. They need to be able to make sure that they're working, and, uh, they need to go and move on to the next job and still provide that sort of service. And w-we found that that angle, um, and of course, it [00:23:00] sounds brilliant that we found this, but we, we found it the hard way, um, which is by talking to a lot of people and, and trying the standard way. Um, we found that that, that angle of selling into the providers who actually do the maintenance and the service and, and the installation themselves, um, that's a much more tangible problem for them and one that's much more immediate. Um, so, so it's been much more about like finding and, and being willing to like as a, as a technical, a technical founder and a technical person, like being able to give up what might be the greatest ROI part and just pure dollars and cents to say, "Yeah, nobody cares about that," but they really care about having those extra set of eyes, and that alone is enough to sell your product. So that's kind of been our walk into this, is like, how do we just make sure we're doing something that is valuable enough to, to someone that they want it and they can provide it? Um, it was a long-winded answer to how do you align that. I think the answer is like a lot of times you don't. [00:24:00] You gotta find, gotta find someone who's already aligned. Um, and, uh, I don't know how to, I don't know how to fix that more globally other than just repeatedly doing that over and over again, where you find the, you find the angle that does work, and then you use that. Um, and if you don't do that, then you end up In the Sisyphean task of pushing a thing that nobody really wants that much.
You, you can take a long time to do it and eventually it may become a standard, um, but boy, that's a tough way to do it
Jason Jacobs: Do, do you think about it in terms of, um, you know, finding shops to embrace it and then presumably they'll use it on all their projects? Or do you think about it more on a project to project basis within a shop when you think about how to sell?
Brendan Hermalyn: Um, we have found that our customers mostly try to use it more of in a blanket approach. You know, think, uh, a good a-analog for us is the concept of fleet management, right? So, uh, [00:25:00] idea of, of knowing where all of your trucks are, how are they operating, how are they being operated. It really makes sense only if you do it all the whole way, 'cause if you just do like one or two, then that's not-- that's like kind of a waste of energy and time and money, um, as opposed to doing it more broadly. Um, so we found that our, our customers usually are applying it pretty broadly across their, their portfolios, and that's how they start to achieve significant margin improvements. 'Cause then when you are doing it across your portfolio, that's when you can use the tool more broadly. Otherwise, it's like a one-off or something like that.
Like, "Oh, well, I care about this one project. I care about that a lot." Um, it starts usually project-based or, or customer-based, where like, "Oh, got this one problem. How do I, how do I fix this?" And that's, you know, sort of the gateway, uh, drug into, into the concept of fleet management for, for these systems. Um, and I think, and I think the, the reason that makes sense to me is that just don't see any future in the next [00:26:00] decade where every single one of these heat pumps and electric appliances is not connected to the internet. Like, it's insane. It's like, it's, it's so incredibly obvious that we're gonna do that. We're gonna do it from manufacturers. The OEMs are gonna do this. The, uh, all the stuff that's already out is gonna do this. There's just no way we... I don't know how we manage it without being a little smarter about it. Um, so why don't we just, why don't we just go do it?
Jason Jacobs: And then w- do you find that it's a consistent hook from client to client in terms of what gets them to try it? And then what does trial look like? Is it a consistent structure in terms of how you run the pilots and, and how do you balance like, uh, getting a thorough assessment with, you know, introducing any distraction or risk, um, you know, to the shop or to their end clients?
Brendan Hermalyn: Yeah, yeah. Um, you know, we-- this is getting into kind of the weeds of, of how to, how to run the business side of it, but I, I hate the term pilot, right? Um, we're just ending New Climate Week [00:27:00] here. I went to a number of events as, as one does, and the number of times I heard the, the phrase pilot hell was stark.
Like, there's a lot of those 'cause everyone's like, "Well, let me see it first." And I've always found like a lot of people want to be first o-once someone else has done it And that's like an interesting, an interesting problem for, for the industry. Um, we try to avoid the concept of a, of a pilot and more think about like, where is your, where's your first, first light?
The first light is like, well, how do I make sure this works, right? And oftentimes shops have HVAC units on their own shop. So what a nice low risk and easy way to test out like, how does this work? How do I get this installed? Do we hate this? Do we love it? Um, and then we oftentimes will work with them to help them figure out, okay, so what's next? Oftentimes it's either their favorite customer or their least favorite customer that's causing them the most problems. It's usually one of the two. It's probably not in the middle. Um, [00:28:00] and that's a really good example of being like, okay, so we can go from here, let's go and expand to here. And then what is a mapping that allows you to start scaling this across?
And, and, uh, I think it's, I think it's in-incumbent upon tech, tech companies and tech providers to help these customers scale fast, right? Like, um, it's part of our job to help, help those customers, uh, seeing savings. So we should do some work to make sure that it's easy to be like, all right, well, this is how you're gonna go deploy it. Um, and then for the larger customers that have gotten pretty wide deployment, uh, it's been really healthy because what happens is they'll usually run into like, "Hey, you know, I'd really like to do this." And we say, "Oh, that's what we call a new product feature." And that's really cool 'cause then they say, "Well, I really wanna measure the pressure across the filter on your rooftop units."
And if enough people ask me, uh, that or, or God willing, someone pay me enough, um, we can go do that and add to a platform that becomes even, even more tunable. And that's on the hardware side, not the software side. It's [00:29:00] really, of course, most of what we sell is a software product, is really making sure that Um, we want to build a platform that is very, very useful. Um, and I think that this is actually where a lot of things fail, is that the way to make something useful is let a customer set their own preferences, right? It's like, let them make a tool. Make a tool and, and allow them to use that tool, as opposed to potentially being like kind of too smart for your own britches of like, "Well, I'm gonna alert on these things because this is a problem."
Like, yeah, but, you know, we installed... We have a pretty big install base out in Las Vegas, and there's a maximum temperature that above which the compressor manufacturers are like, "That's bad." Your, your-- What happens in these, in these systems, of course, is you, you have oil in the refrigerant, and oil is a lubricant on purpose, right? And that oil, if you get the refrigerant too hot, kind of boils off and it's, it's stripped from there. When you take out the lubricant, you break the compressor, right, and, [00:30:00] and almost everything else downstream. So, well, what's that temperature limit? I don't know. It's a couple hundred degrees, two hundred degrees Fahrenheit. So, uh, we installed it in Vegas and every single one of them started over-alerting and, uh, and they were like, "This is the most annoying thing ever." And I was like, "Well, you know, all of it is, you know, pretty critical." And they're like, "Yeah, dude, it's a hundred and twenty degrees out." Like, they all just run like that. And I was like, "Ah, okay." And that was the advent of, uh, us opening up the, uh, the preferences so that they can bump up that limit. 'Cause they know their buildings, they know how to operate them. They know they're not running the way they should be, and there's nothing you can do about it because it's really, really hot. So, so I, I do think it's very important, uh, especially for platform companies or anybody, uh, who's trying to help, help the trades and help, help groups in this area, uh, to make sure that you make a tool for very... These are very smart people. They really understand their jobs. They know all the stuff. Um, make it so that they can actually use that tool.
Jason Jacobs: Uh, so, um, [00:31:00] before you came on, I was expecting you to talk about it like a, like a watch guard of sorts, but you actually described it as a robot technician, um,
which w- which is different. It'd be great to understand, um, what's the difference between a watch guard and a technician in this context? And it, and it'd also be helpful to understand what you're watching and fixing today versus what that roadmap looks like directionally.
Brendan Hermalyn: Yeah. Well, that's a good existential question for us. Um, I find, like, the concept of just watching things to be, um, low, low value, right? Because if... You know, this is kind of where, like, IoT stuff sucks most of the time. Like, IoT stuff is, "I'm gonna show you all this data." And then you're like, "Great. What am I gonna do with all that data?
Now you've just, like, you've just given me more problems and more work. You haven't solved anything for me except made my life harder." So I have this, this, [00:32:00] like, concept of, like, you know, Maslow's IoT hierarchy, and, like, just getting people more data doesn't solve anything. It's, uh, you have to actually at least interpret it, and ideally do something that is high value for them to save time, save money, be smarter, do something to it. So that's why I don't think of it as a watchdog or a data logger. It does that, but we do quite a bit on top of it. Um, and maybe it's good. Do you, Jason, do you know how an air conditioner works?
Jason Jacobs: I mean, I,
uh, to, to, to some degree, probably not to the depth that, uh, um, that you do
Brendan Hermalyn: I, I think most people should know kind of how it works. We're gonna do it like-- this is like thirty seconds. So how does an air conditioner work? Well, we have, uh, we take a gas, and we've tuned this. We've made this gas ourselves. It's the refrigerant. We've made it with very specific properties. And we take this gas, and we compress it. And when we compress it, it gets hot. Um, so now we've gone from a cold [00:33:00] gas to a hot gas, and that compressor is called a compressor, right? Like, that's the main piece of the electric heating and cooling, uh, ecosystem. And if you've ever, uh, had an air conditioner that broke, it probably was the compressor that broke, right?
And then you get a new one because they're, they're really expensive and annoying to change. So we take this cold gas, compress it, we make hot gas. Hot gas is kind of hard to move around, so then we put it through something called a condenser, and it changes from a hot gas to a hot liquid. That's the thing, like, outside your house that, you know, when you get blown past it, it's like hot. That's it. That's the thing. It's condensing a hot gas to a hot liquid. So we take that hot liquid, and we, uh, move it somewhere where you wanna, wanna change the temperature, and we squeegee it through this little tiny pinhole called an expansion valve. That pinhole sometimes is literally a pinhole.
Sometimes they're pretty complicated. But on one side, you have this really hot, high temperature, uh, high pressure liquid, and on the other side, it's low pressure 'cause it's a little tiny pinhole. [00:34:00] And that does two things. One is that when it squeegees through, it expands really rapidly. So when it expands from the ideal gas law, it, uh, drops in temperature, and it also changes back to a gas. And as you know, when you're sweating, changing from a liquid to a gas actually pulls a lot of heat out of the system. That's how humans don't, don't cook themselves. So now we've gone from, uh, a hot liquid to a cold gas. Great. Now we're probably inside, and we want to take some of the heat out of the air that we're breathing and living in.
So we blow it over that cold gas with a little heat exchanger, and that absorbs that heat, and it gets a little warmer. So now it's like a warm gas, um, and the air that we feel is colder. And that warm gas goes back to the compressor, and it just keeps doing that forever, right? And that's the whole thing.
It's like this really cool little physics trick with just electrical power. You're able to move heat from one place to another in a really efficient way. [00:35:00] Um, this works great until something happens. So the refrigerant is not supposed to leak, right? It's a fixed amount. If you have too little refrigerant, that stinks.
Now it gets the-- all the, all the pressures are wrong, and the temperatures, and it doesn't really work very well. There's too much refrigerant, you-- also doesn't work very well. You can clog the compressor with liquid, and liquid doesn't compress, so then it doesn't do the thing. If you, uh, block all the air that's flowing around the condenser or the inside unit, like that doesn't work very well.
So there's a lot of things that can go wrong on these systems, but it really comes down to measuring, in our opinion, the power and the, uh, and the temperatures of the system. And if you have a really nice physics model, which we do, of how these systems operate, you can tell pretty clearly what's wrong. Not just that something is too hot or too cold. That's kinda boring. We can do that too. But what we've done is taken heat pumps, and we've taken these in our lab. We've drained the refrigerant and taken data. We've overcharged it. We broke the compressor, and we took out the [00:36:00] capacitor and clogged the filter.
We did all this stuff. We took data the whole way. And that's the difference, in my opinion, from a watchdog to a technician, because those models are running all the time, and they can help interpret what's wrong. So the-- we've gotten from a thing that takes, you know, some data and sends it over a cell to a tool that a provider can look at, an HVAC provider can look at and be like, "Oh, I see what's going wrong, and it's getting worse with time." "So we should probably jump on that." And that, for me, I think is a much more valuable and useful product in, in a world that has too much data, um, to, to take that data and try and turn it into, into something useful.
Jason Jacobs: So, and then in that example, um, what does jumping on it actually mean in, in practice? Do they... And is that done on site at, at the equipment? Is that a human job? Uh,
yeah, like what, what does that process look like from there today and, and, and what, what do you predict it'll look like in the future if, if, you know, if it'll [00:37:00] change?
Brendan Hermalyn: Yeah, that, that-- the future is a great question. Well, like today, without us, what it looks like is someone says, usually someone on the, in the building is like, "Boy, the air conditioning's not working today." They call the HVAC group and they go, "Hey, it's, it's really sweaty in here. Come out, fix it." And someone on the HVAC group says, "I'll jump right on it."
They're gonna dump something, so whatever they were gonna do that day out the window, they get in the truck, they go roll out, they look at the unit, they're like, "Oh, I think this is wrong, and this is wrong." They drive over to a distributor. They'll pick up the stuff that they need to go try to fix the unit. Drive back, watch some TikTok videos in the way, maybe some Instagram, maybe Facebook if they're a little older. Um, then they go, they try to fix the unit. And if they're lucky, it'll get fixed the first time. Um, and, uh, that completes what we do today. Um, the first time fix rate, by the way, in the industry is, is remarkably, uh, low.
It's, uh, uh, the most recent average was seventy-seven percent is the first time [00:38:00] that someone goes in, fixes it on the first time. Um, so that means twenty-three percent of the time, so twenty-three out of a hundred times, they have to go back and do it again 'cause they didn't work that first time, which is, like, insane, right?
Like, that's, that's a tough way to run a business. Um, with us, the idea and any other preventative tool, the idea is that those guys can see that this is coming from weeks if not months in advance. This can be a scheduled visit on a reasonable time. You know what you need to bring in the truck, and therefore, you don't even wait for someone to complain about the temperature.
You just go out and fix it. I think that the future looks like that probably on steroids. I think, I think the, I think the future of this also changes the way, uh, this equipment is sel-sold and maintained. Um, it may well be that much like, you know, sort of what... I like the analog of the electric water heater, right? Like, almost no one's bought an electric water heater recently. They, they lease them. [00:39:00] They lease them from usually the utility company. Um, why? Well, 'cause this makes much more sense. I don't wanna buy the damn thing. Just put it in. Like, you, you, you deal with it, right? Um, I think we're gonna see that increasingly with HVAC products, which I think means that we're gonna be building HVAC in a way that is designed actually to last longer as opposed to last shorter. And, uh, you know, as there's a number of people who talk about the, the Tesla of heat pumps, I think we want the Volvo of heat pumps. Like the Volvo 240 that goes for forty years from no oil change to no oil change and just keeps working. And I think that we're gonna see-- I think we're gonna see that because that's what I think the market is gonna effectively demand. Um, where, yeah, that-- there's a, there's a guy that has to run out, usually a guy it would be, uh, anybody in the HVAC community has to go out and physically lay hands on it. I don't have a stro- strongly held opinion yet on the role of robotics in this way. [00:40:00] Um, but, uh, sorry, I didn't... You were gonna ask me a question
Jason Jacobs: No, no, that's a good, that's a good thread to, to pull on. Ke- uh, keep going if you're not done
Brendan Hermalyn: I don't think anybody's done. I don't think we've figured out what we're gonna, we're gonna do, you know, the concept of having a humanoid robotic technician to take care of some of this. I think it will look like much more specialized robotics, um, at least in the most near term, where it allows someone to spend a lot less time on that job and maybe very specific features are, are fully automated, maybe filter cleaning or some other process that would allow you to go there less. Um, and then I think a lot of it will also come down, down to designing smarter and smarter, potentially self-healing systems that can get around a lot of the current problems that require manual intervention. Um, I think that that's coming very soon. I've seen... Yeah. Uh, I've, I, I [00:41:00] think, I think the speed of innovation is both like underplayed and overplayed in this industry, where everyone wants to put an AI assistant on their, their app. Uh, but at the same time, like the heat pumps are getting pretty darn good to do a lot of cool stuff.
Jason Jacobs: Uh, so in terms of the, the equipment itself, um, uh, i- is it a very fragmented landscape? Are there a few key players that, that have the lion's share of the market? And then also within a shop, um, does it tend to be one brand of equipment or one type of equipment standardized, or is it heterogeneous? Um, and then you know my f- my natural follow-up from this is gonna be, and, you know, are, are, are they doing what you do for th- for their own equipment?
If not, why not? And isn't it inevitable that they do it? But I haven't asked that yet.
Brendan Hermalyn: Yeah.
So boy, the landscape in HVAC is like pretty, pretty remarkably fragmented. [00:42:00] And like there's many, many... I don't know the total number, but there's many different, uh, brands of HVAC equipment. Um, there's a conference that is pretty stunning. It's called AHR, American Heating and Refrigeration. And you just go in for what feels like miles just keep watching new white boxes and gray boxes with different logos, all kind of look the same, uh, kind of perform the same, uh, because it's just, it's just the physics, right?
Like, that's, that's the cool thing for what we do, is we just look at the physics of the refrigerator, and there's only so many ways that that goes. Um, there's a lot of, uh, consolidation, particularly around manufacturers who, uh, may white label other people's. That, that's actually a pretty considerable portion of the industry, which is where you might see ten different name stickers on it, but it's all coming from the same factories.
And there's a relatively small number of those, those factories, and that relatively small number are all very, very large because they make a lot of the stuff. [00:43:00] Um, so if you're in Home Depot buying something, like most of that stuff probably came out of the same factory despite that it has a different sticker on it, right? Um, across installers, uh, there's obviously the-- the people who are making this would love it to be much more heterogeneous, right? Like they're the default. And certainly there's a spread from the market from highest to lowest in terms of both price and, and in some ways quality. Um, but I don't-- there's not a single, uh, technician that can afford to just specialize in one type because they would limit their market so much.
And in fact, even on a given roof, you routinely will see five or six different brands, um, because they were installed at different times, different... And it's like, "Well, I need this thing right now, and my favorite one is out of stock, so I'm gonna get that one," 'cause they need it right now. So it, it is just a very, very heterogeneous landscape. Um, yeah. The OEMs, like a lot of what we're doing, [00:44:00] one of the reasons that we're so effective is because we work across all these different brands. So we in many ways have much better data than the OEMs themselves on their particular pieces of equipment because we know how, uh, it operates, not just for their use case, but all the other, all the other brands, uh, and all the other pieces. Um, yeah, as I said, I think it's inevitable that OEMs will, will, will have some version of connectivity and some version of connectivity. Um, I also feel very firmly, as with, as with many other industries, uh, the single OEM that will not, much as they would like, will not dominate the market. So that means that there needs to be third-party tools that can work on everybody's stuff. And that's sort of where we're going, right? It's like, yeah, of course, of course, we're gonna need to work with all these different groups because no one technician... That's kind of how it is now. Like, a technician has to go buy the tool for a Daikin and the tool for an LG and the tool for Mitsubishi, and they have all these things. [00:45:00] They'll take enough space in the truck, and they need to be trained on them. Um, that is like the hallmark of a, of a, uh, of a, a indus-industrial scale problem that gets solved with third party, third party resolutions. Um, which we'd like to think we, we can be for, for that ecosystem. Getting locked into any single OEM is, uh, I think impossible these days.
Jason Jacobs: And, and when you, when you look at what's hardest and most defensible about what you do, does it, does it come down to, I mean, is it the openness and then the investment in device integration? Is it the, the data and the scale that becomes a network effect that enables you to, you know, have to have better insight with more reps?
Um, like how do you, how do you think about, um, strategy and defensibility longer term?
Brendan Hermalyn: Yeah, data and scale is a big one. Data and scale. Um, I think, uh, a lot about how we... You know, I say this to our customers is like, we-- this isn't a product for [00:46:00] something else. This is for you. We made this for you. And having highly tuned products for an, an industry, I think is a really good way to do it. Um, we also developed kind of a considerable amount of intellectual property around doing it correctly, and we use quite a number of tricks.
That means we can do it, I think, you know, more or less better than almost anybody else on the market. And, uh, we're very proud of that. And we have been in m-multiple head-to-head competitions with either, you know, similar or, or adjacent tools, and we're the ones they end up buying, which we feel really good about. Um, that's not something to rest on, uh, and it's not necessarily dependable for all time, but a lot of it comes down to how can you have that data and scale across the, across the markets? Um, and, and how do you keep going with new products and new developments to keep that so that it is very much locked in?
Jason Jacobs: Uh-huh. Well, well, it's interesting. I mean, um, the l- I, I agree that, I mean, fr- from the cheap seats, that the landscape seems super fragmented [00:47:00] and, and complicated. So on one hand, having the breadth to work across everyone becomes, uh, a strategic differentiator. I think the other side of it is a much more Apple-like approach where you, you know, where you have your own tooling in-house that's purpose-built for your stuff, and you just provide a seamless end-to-end experience that's just fundamentally better than an open system.
Um,
uh, how, how do you think about that, that dichotomy? And, and is there... I mean, it sounds like you guys are the Android. Is there, is there an Apple who's, uh, you know, who's, who's making a run at it, or do you think that that's coming?
Brendan Hermalyn: I think we're the case manufacturer that can go on either of those, right? Like, I think we're making the cases that go on those, both of those types of phones right now. Um, I, I definitely see the potential and likely occurrence of consolidation. Um, I also think, and a thing that we think about quite a lot is there are companies that are vertically integrating either very, very visibly and [00:48:00] loudly, um, or companies that are vertically integrating without really saying it out loud. And depending on if they are vertically integrating from being a HVAC group that is like, "Actually, why don't I just make my own? 'Cause I'll-- I'm only gonna install my own thing, I'm gonna have a better margin on it. I know how these things work, and that means I can... And I'm gonna go put something that gives me data on it, um, so I can do that trick." We see that a lot. Um, and we work with a lot of partners to enable them to do that pretty quickly. Um, the other version, of course, is that a number of OEMs, uh, start at the high end and be like, "Oh, I'm gonna make all this stuff, and wouldn't it be nice if I also could pick up all the maintenance on, you know, my equipment or other people's equipments too?" So I, I, I think especially as we get to the larger and larger volumes of stuff sold and, and the reality that, like, maybe the way we're financing these things is not optimal for everyone, that is probably gonna sort of clap a little bit. Um, I think, I think it's gonna be a hard [00:49:00] slog. There's just a lot of stuff.
It is such a fragmented market, and unlike a phone that you toss away somewhere between, um, once every few years and when the last time you dropped it too hard, uh, the, the HVAC equipment lasts a lot longer. A lot of its stuff is supposed to last fifteen or twenty years. So that turnover is, like, not quite the same and is not really aligned with what you'd see in consumer electronics.
It's just so much longer. Um, there's another point that I think is to be made, which is, you know, this equipment, it's not really the purchase of the equipment that dominates the cost, it's running it, right? Like HVAC, i- if you, you can buy a car for twenty grand or you can buy a heat pump. Just that over the course of the lifetime, that car is gonna be m- mostly the cost of buying a car, and the heat pump is gonna be mostly the cost of the energy and, uh, and maintenance to run that over that twenty-year period.
It's a, it's an energy and operationally dominated, uh, cost. [00:50:00] So, like, the actual, like, which one you pick matters a hell of a lot less than making sure that it was installed correctly and that you're using it well, because it's do- You could spend five grand more, um, or five grand less, but what actually counts is how you've run it for the last fifteen years. Um, so, so, like, that's where I think the, the Apple, Apple-Android concept is a little bit, is a little bit, um- Is a little bit more aligned, I think, in the verticalization of the whole ecosystem, which has to include, I think, the maintenance and, and install. And that's what I definitely think we're gonna see a lot more of. Uh, I think it's a good idea, in fact
Jason Jacobs: Um, one thing we didn't talk about is just the go-to-market engine, given the nature of the fragmented landscape and, uh, and also just, you know, kind of the human and the trust and the word-of-mouth nature of the, um, the industry. What have you found that's been most effective, um, you know, in these early phases, [00:51:00] um, uh, as far as go-to-market?
And then, uh, how do you anticipate that that will evolve over time?
Brendan Hermalyn: Yeah, I think it's kind of related to what we talked a little bit about earlier, right? It's like, how do you, how do you find an angle in with all these? Um, the, uh, built environment is hard to sell into in general, even for people who are involved in it. Most of... This is one of those industries where most of the stuff is sold usually through dis- distribution, distribution partners. And if you see widgets or things that come into this, this world, most of it is sold through, uh, the distributor partner. And that makes sense, right? Because the, the distributors are adding quite a bit of value, because they're the ones who everybody's going to and can have all those, uh, third-party relationships and, you know, the OEMs or people who are making technical products, they can just sell to a couple of people. It makes a lot of sense. Um, we've, we've found-- we have not really gone down that route as [00:52:00] of yet, uh, because we have found a lot of traction just doing direct, uh, partnerships and closer to what you'd see in more of an enterprise arrangement with these large HVAC groups. And we've been very lucky to work with some of the, the best ones and the largest ones in the, in the country to, uh, uh, to scale our product. And I think a lot of that comes down to those groups being very, um, very advanced in their understanding of their own business and how they can apply these sort of products. Whereas in different sectors of that market, they may be like, "Ah, why do I wanna-- Like, I, I make all the money when they, when they call me late at night on a, on a Sunday."
It's like, well, you make money, but you don't make margin, right? And that's, that's the difference in, in keeping a actual business running. So our go-to-market has largely been like, how do we go and find talk with these-- find and talk with the right people in these companies? And we've found that almost all of the large HVAC companies are, uh, uh, they have [00:53:00] people in there who are thinking very, very hard about, "How do I do this?
How do I, how do I bring technology to bear so that we can improve our, our company?" Um, I have this, I have this concept that I think we're gonna see more and more of, particularly with the advent of, you know, AI is overused as a term in this case, but I think that will bring quite a bit of it to bear, is the concept of high-margin service businesses. I think that's gonna be the, the story of the next ten years, high-margin service businesses. Because HVAC companies, depending on how good they are, they're usually operating between an eight and twelve percent, uh, profit margin. Which is not a very high percentage, right? You know, compared to Apple and Android that you mentioned earlier. Um, it's a pretty low margin business. But the very, very best ones in the industry are operating closer to thirty. So what's the difference? Most of the time it's technology. Technology training people, like they've, they've made a distinct effort to, to get to that point. So [00:54:00] we want to be part of that, that future of high efficiency service businesses and to support them. Um, and I think that there in ten years, there will be two types of, uh, service companies, whether that's in the, in the trades we're talking about in HVAC. I think, uh, electrical work, uh, plumbers, pipe fitters, everyone will kind of be in, I think, similar, similar paths. There'll be two types, and there'll be the ones who are high efficiency and therefore are operating at a higher margin and doing a lot of work. And then there'll be the ones out of business, um, because it'll be very, very hard to operate efficiently enough to not just have all of your lunch stolen by somebody who is able to come in and, and offer a better product for a lower cost.
Jason Jacobs: Uh, you, you mentioned, you know, finding the people whose job it is inside the organization to figure out, I forget your exact words, but it was essentially how to incorporate technology or how to drive efficiency with, with technology. Um, uh, I have t-two follow-ups to that. One is, where does private equity fit into all [00:55:00] this?
And do you, do you tend to find that you're d-dealing mostly with the independent shops or with the ones that are, you know, roll-ups or backed by private equity? And then in terms of those technical buyers, I did an episode with a very seasoned, um, you know, construction tech go-to-market person, Kevin Halter, and he warned to stay away from the innovation teams because, you know, they might be the ones whose charter this is, but they don't have budget.
So, um, what are you finding on, on each of those
Brendan Hermalyn: Yeah, I mean, don't talk to the ones that... Don't talk to somebody who doesn't have budget. Like that-- So that's kind of the story of sustainability teams, I think, is like, yeah, you're talking to somebody who does not have the budget to roll this out. Like that's-- that they might love it, and we might not be able to do it. Um, we, uh, and, and there are a lot of like corporate innovation that definitely falls into that camp. Um, we've, we've just found that that hasn't been that big of a deal because these guys really wanna change things. Um, it's, it's been very, it's been a very positive, positive take. Uh, the [00:56:00] role of private equity I think is still a little bit of as an open question.
We tend to work with groups that are, um, usually either publicly traded, um, or are very large and private. Uh, and we do some work with very forward-thinking PE firms, but we have found that, uh, PE is relet-- And I'd like to be wrong, and if anyone listening to this wants to, wants to give me a call, I'm super down. But we found that a lot of PE thinks about, um, margin improvement as, "How can I buy five of these and fire four accounting departments? And then that's my margin improvement. And I know how to do that, right? I don't... There's no question on how I'm gonna do that. I'm just gonna go do that." Um, whereas saying something like, "Oh, I'm-- we're gonna totally change how you can run your business," um, that's scary to them because that involves getting pretty deep into the weeds of how the business is run. Um, now by the way, firing four accounting departments is usually a bad idea because you find out that, you know, you just hired two like mortal enemies that, uh, [00:57:00] did not work well together, and, uh, by the way, the accounting department might have been the owner's wife. So now it's like actually a problem. Um, so like there's other problems with how PE likes to do this rollout. Um, but at a large scale, um, we, we're-- I think we're going to see the trickle down from the large groups that are public down to the tricks that will happen in PE. I, I think that that will happen more and more as time progresses. It's not the forefront. Uh, I think, I think in many ways, uh, PE groups are usually a little scared of being at the forefront of technology, which to me feels like the ones that we're working with and the ones that are, that are, uh, eagerly embracing it will, will, uh, be dominant.
Jason Jacobs: Um, you, you mentioned that, that the, the, you know, that it's been a low margin business and that there's been some higher margin entrants and that you think that essentially the higher margin will get more high margin and the lower margin will go away. Um, uh, I'm curious, uh, as you're talking to different [00:58:00] shops, um, can you usually tell on paper before you get there whether they're gonna be, um, uh, you know, on the ball and seeing the potential where this can take them or, like, lights are on but nobody's home?
Or, or do you have to wait until you get inside to see what you're dealing with philosophically? And, and what criteria, if there are any, have you f- or that you've been able to identify are the best predictors that, um, you know, that someone is, is more inclined to play offense with something like this?
Brendan Hermalyn: Yeah, that's a great question. I mean, um, I mean, I don't-- I-- There's very few people who aren't pretty sharp that are running these sort of groups, regardless of scale. Um, but oftentimes they're motivated in different reasons, whether they've already been rolled up and therefore will never really realize that higher margin themselves, um, or if they are incentivized to keep their heads down, um, and just, like, keep on keeping on. Um, the best predictor I've [00:59:00] found is that the ones that are most successful are probably most successful for a reason. So if you drift towards the top of market, it's a very good way to identify people who are already top of market. And there's probably a reason they're top of market, it's probably 'cause they're investing in this sort of, this sort of stuff. Um, we have found there were groups that were developing a, uh, an internal solution that looked a lot like ours, and they were delighted that they didn't have to make it. They're like, "Thank God, I don't have to make that. That's annoying. I have to go make all this stuff." Um, but that's like kind of when when you have groups that are that far in advance of others, uh, that, that's a very, very useful, very useful, uh, foot in. Um, we, we... Because of, like, how many conversations happen before an enterprise sale, like what we're making, like, we don't-- we're, we're not, like, sort of blindsided very often because oftentimes, like, you can sense pretty quickly, it's like they don't... These guys don't know why they're buying it. And if you have to explain [01:00:00] why, it's probably not gonna go...
It's like explaining a joke, right? Probably not that funny now. Um, so we, we kind of have found that to be a good indicator is if, if th- if there's a lot less talk about the sale and a lot more talk about how it gets implemented within that first meeting, not like, "Hey, do you want this?" It's more like, "Yeah, yeah, this is great.
Of course, we want this. How do you get this implemented? How is this getting solved?" That's, that's like my best indicator that it's gonna go forward and relatively quickly.
Jason Jacobs: Uh-huh.
Brendan Hermalyn: Which doesn't happen all the time. Doesn't happen all the time, but it does happen enough of the time.
Jason Jacobs: Uh, and, and looking forwards, um, w- what do you feel like is the... What's the best way to ask this? If, if you could change one thing outside of your control that would, uh, most impactfully unlock fa- faster progress for you and DataLab Labs, what would it be and how would you change it?
Brendan Hermalyn: It's always a good back check. Um I think, [01:01:00] uh, there's a few things that are stymieing, um, the speed at which we can improve this industry. Um, there were, for a while, considerable government incentives, whether at the local or the, the federal level, that dramatically bumped up the number of heat pumps that got installed. Uh, which is good for us, and it's good for everybody. Um, those are largely not in place anymore, and you can see what happens. That means that everyone who wanted a heat pump has one, and everyone who doesn't may not make as much sense. Um, that certainly would help. Um, there's-- there are and continue to be actually some pretty interesting things that are happening with the EPA, where, uh, significant losses of refrigerant are now need to be reported. And that level for significant has dropped a lot recently, [01:02:00] where what we would previously consider a relatively small leak now must be reported with pretty hefty fines. So this sort of regulatory infrastructure in general does help the industry move forward towards more preventative tools. It will come at a, a great deal of pain. Most people don't like getting regulated in these spaces, but, but that pain is also being felt every time that we have, we have forced a change to, uh, refrigerant requirements, right? The original, original re-refrigerant freon, uh, no longer is, uh, you're not able to make any devices that use freon anymore. And that was great. That's actually one of the greatest and potentially one of the only huge climate wins we've had in the last fifty years, is, uh, outlawing freon. But we've continued to force manufacturers and technicians to change the type of refrigerant that they are able to use every few years.
Most recently happening just a couple of years ago to what are called A2Ls, which is a new generation. Um, those sort of [01:03:00] things are all, in some ways, good for our business, but are, are very challenging for our, our customers. Uh, so having some stability in that sense would be pretty good. Um, I also think, uh, I also think that the, the interplay of cost of energy is really interesting, um, where as, as grid energy will peak and then eventually start decreasing, that me-means that, you know, electric heating and cooling will be like, in some ways, the only thing that you can, you can do.
So I think we're going to see that as time progresses. And lastly, I think it's a, it's an awareness, right? Is how do we bring, how do we bring awareness of new technology and the, the desire to u-use these new tools, um, to the market, um, in a market that is generically very hard to access, right? Like, a lot of these things are not on LinkedIns, they're not on looking at ads, they're not looking at- Cool podcasts like yours, although I'm sure some will. Um, so it's, it's [01:04:00] definitely, it's definitely a, a, a, an industry that, um, is, is excited and interested in moving forward, but is relatively hard to access, uh, to, to show them what, what's next
Jason Jacobs: Well, all good food for th- for thought, Brendan. Uh, t-thanks so much for making the time to do this. Is there, is there anything I didn't ask that you wish I did, or any parting words for listeners?
Brendan Hermalyn: That's my favorite interview question. Uh, is there anything I forgot to ask? Um, the, the main thing I'd like listeners to think about is, um, as you go through your, as you go through your life, uh, and your day-to-day, look around and see all the HVAC techs that are driving around and look at the roofs and say, "Oh, what is that?
What's that thing? What's that thing?" And what you'll be seeing is the infrastructure that keeps us hot and cold. And, uh, and I hope that it, it has a little bit of the red car problem. Once you start looking for the red car, you'll see it and realize just how important that is in our day-to-day lives of being able to exist.
Jason Jacobs: Well, great point to end on, Brendan. Thanks again for making the time, especially [01:05:00] outdoors in the middle of New York City, and, um, best of luck to you and to the Thalo Labs team
Brendan Hermalyn: Thank you so much, Jason. Appreciate the opportunity
Jason Jacobs: 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