Episode 96: An Alternate Way To Scale Your Company Without Private Equity

Chris Hoffmann is President of Hoffmann Brothers, and he’s enjoyed great success growing his company with something special in the mix—an evergreen business model. While the current landscape of the trades is filled with giant M&A deals, PE funds and fast-paced action, Chris and his team at Hoffmann Brothers have steadily, organically grown to incredible heights without any outside financial backing.

That’s not all that’s special about Hoffman Brothers, either. In addition to an ACCA Contractor of the Year award in the trophy case, they’re perhaps even prouder of the St. Louis Business Journal Best Places to Work Award. This combination of happy employees and a somewhat unusual growth strategy made Chris a guest we simply had to have on To The Point!

A Family Tradition

Hoffmann Brothers was started by Chris’ father, Robert Hoffmann back in 1988. Robert was 29, and working as a mechanical engineer for Anheuser Busch. One of his projects involved designing air conditioning for some facilities, and he fell in love. Robert, with 3 of his eventual 4 children, put in his two weeks and enrolled in a local trades school. He was the first person with an engineering license to go through the program, and this foundation of an engineering background continues to play a big part in the high quality and high standards of the work performed by the company.

Chris spent summers working in the business, performing a range of duties such as being a CSR, installation apprentice, and just about everything else before he was old enough to drive. He would join the Marines, and after his exit in 2014 used his GI Bill for business school. In 2016, Chris officially joined the family business. Hoffmann Brothers had long been HVAC-only, but added plumbing in 2011, and electrical services in 2015.

2016 would be a pivotal year for Hoffmann Brothers, and not just because Chris joined. This was the year where they joined Nexstar, and started to see fast growth year after year. Using Nexstar’s roadmap, the company saw 30% organic growth every single year after joining the organization.

Continued Growth

Before Nexstar, Hoffmann Brothers was still a sizable company. In 2011, they were around 7-8 million in revenue. In 2016, they had grown to about $10 million. Once they joined Nexstar, things really ramped up. Today, Hoffmann Brothers is at $55,000,000 in revenue…and that’s 100% organic. Completely greenfield, no acquisitions, and they’ve managed to get customer acquisition down to 8% of gross revenue.

Hoffmann Brothers has expanded into Nashville, launched in 2020. They anticipate the Nashville location to be at 10 million in revenue by 2022, and just like the home location, this is through a completely greenfield strategy. Of course, Chris and his team have no intentions of slowing down. They continue to look at new markets as well as expanding into new verticals, using the same strategy that has served them well for many years.

What Makes The Best Place to Work?

Winning the St. Louis Business Journal’s Best Places to Work Award is no small feat. It’s not the result of paying for advertising, or petitioning for your own company. It’s a reflection and validation of the way Hoffmann Brothers treats its employees.

So, what has Chris and his team done to keep their team happy? For starters, they are now paying 100% of health insurance premiums for their employees and their families. They’ve added new workplace holidays including Black Friday and Christmas Eve. Most importantly, they made the decision to eliminate on-call. This might seem a bit crazy, and most home service companies wouldn’t dare to stop offering 24/7 services. The reality is, no one likes it. No technician wants to stay by their phone until 1am hoping they don’t get an on-call. The decision was as simple as asking the team what they care about as they grow the business.

Most on-calls aren’t really emergencies to begin with, Chris points out. When you couple that with the fact that a few unhappy customers are nowhere near as important as the huge win for their employees, it was a no-brainer.

Hoffmann Brothers also has an incredibly low turnover rate, with many employees serving on the team for many years. On January 1st of 2021, they were at a 90% retention rate. When that retention rate dipped to 88% in August, Chris didn’t blame the economy, COVID, or any other external factors. Instead, he turned inwards. Most people quit their boss, not the business, Chris points out. When you have effective leadership, good communication, and create a genuine relationship that makes your employees feel valued and cared for, they won’t leave for a higher paycheck somewhere else.

A Greenfield Strategy

What exactly does “greenfield” mean? In simple terms, Hoffmann Brothers isn’t buying anything as they look to grow their business. No acquisitions, no client databases, etc. It’s a completely organic hiring and marketing process, starting with nothing and building up from there. You may be wondering, especially with all of the PE firms out there throwing cash around, why they would take this approach? It’s not random; it’s a calculated decision that has paid off in spades.

Hoffmann Brothers did a careful analysis, comparing PE and a greenfield strategy. Their real test was the new Nashfield location. Asset prices and enterprise values are very high in our industry right now. They had a plan to get a $10,000,000 business with an 8% customer acquisition spend with a $2,500,000 initial investment. From an acquisition standpoint, this 10 million dollar business is probably going to cost around 9 million dollars. It might be faster, but a greenfield approach is a much lower investment. Hoffmann Brothers achieved their goal with a 2.5 million dollar investment, has kept their marketing spend to roughly 3.5% gross revenue, and now has the confidence to replicate their success in other markets.

Part of the success comes from keeping things in-house. A greenfield approach means not inheriting another company’s culture, and it also means that they are using the same brand and marketing. They’ve also utilized centralized support services; keeping call booking and marketing teams in St. Louis, for example. The new location uses the same software integrations, processes, and systems that have served the St. Louis office well. Chris points out that the key is having a core leadership. Once you have the leaders that can execute your plan, anything is possible.

What Is An Evergreen Business?

As evidenced, Hoffmann Brothers is a stark contrast to the PE-fueled companies that are common in today’s trades landscape. Chris believes both strategies are viable, of course, and doesn’t speak ill of a PE approach. However, having an “evergreen” company best aligns with the values and goals of Hoffmann Brothers. So, what defines an evergreen company? There are 7 “Ps” that evergreen companies are marked by.

The 7 Ps of an Evergreen Business

• Purpose
• Perseverance
• People first
• Profit
• Private
• Paced growth
• Pragmatic innovation

A bit of context is required to understand why Hoffmann Brothers is going the evergreen route. It all starts with Robert Hoffmann, who is an incredibly selfless person. Robert is a big reason so much of the Hoffmann family has stayed onboard for decades. When Chris and his brother Joe came into the company, Robert told his sons to be good stewards for the stakeholders of the business. He was excited about the changes they were making, and more or less handed over the keys to the company, encouraging them to build in a manner that is more than creating a win in their pocketbooks. The Hoffmanns have focused on growing the company in a way that creates opportunities for their employees, and is a place that people take pride in working at.

Evergreen companies are designed with a long-term strategy, and are focused on people. These types of businesses don’t plan on selling, taking on outside investors, and view success as measured by achieving their internal goals.

Being an evergreen company is the best way to continue their father’s vision. Evergreen companies commit to remaining private, taking advantage of a longer-term view over investing and decisions. There is more flexibility with this approach. If you’re a financial-backed organization (Chris makes special note that he loves the work these organizations do in the industry), the reality is that you do have a limited number of sponsors to return the capital to. Your investment horizon is finite, generally focused on a 2-5 year period of time. Hoffmann Brothers is thinking of things in terms of the next 20 years, making investments that wouldn’t make sense if they were transacting in the short-term.

Defining Success

What does success look like to you? Is it achieving the most profitability in the shortest amount of time? Is it leaving behind wealth for your children? For Chris, at least in his professional life, he simply wants to be a good steward of the business his father started over 30 years ago. People have called him crazy for not considering PE funding, but if he suddenly had an extra 100 million dollars in his bank account tomorrow, he would drive the same car and live in the same house.

Being a purpose-driven, evergreen company is important to Chris. He wants to see his team be able to get what they want out of life, and do things for their families they’ve never been able to do. Aligning growth for the business and achieving their goals for the next 20 years and beyond is what he’s focused on.

From Chris and all of us here at To The Point and RYNO Strategic Solutions, we wish you and your family a Happy Thanksgiving!