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Choosing the Right Niche—Follow a Business Startup Journey From Day 1

The BiggerPockets Business Podcast
45 min read
Choosing the Right Niche—Follow a Business Startup Journey From Day 1

J Scott isn’t just the host of this podcast—he’s also a serial entrepreneur, who has a passion for starting businesses. And with 2020 now underway, J is finally ready to announce the launch of his latest endeavor, which he does right here on this episode of the BiggerPockets Business Podcast.

In this episode, J talks about his criteria for choosing an industry and a specific business, he details the new business that he’s launching this week, and he dives into the nitty-gritty details of his financial projections and growth strategy.

J tells us why “sexy” isn’t always the best choice for picking a business niche and how focusing on your existing strengths and expertise can help you create a “barrier to entry”—something that gives you a tremendous advantage over your competition and over others who might try to compete with you in the future.

Best yet, J has promised to come back every few months and update us on this new business journey, so that our listeners can learn from both his successes and his mistakes!

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Listen to the Podcast Here

Read the Transcript Here

J: Welcome to the BiggerPockets Business Podcast show number 37. How’s it going everybody? I am J Scott, welcome to the BiggerPockets Business Podcast. Welcome to 2020. Happy New Year everybody, I am joined this week and I guess this new year with my lovely co-host Mrs. Carol Scott. How you doing today, Carol?

Carol: Doing awesome. Thank you and Happy New Year. Welcome to 2020 everybody. And before we kick off this episode in this new year, we want to give a huge, huge, huge shout out to each and every one of you. Thank you so much podcast listeners from the bottom of our hearts. Thank you for your support. Thank you for continuing to tune in week after week. Thank you for all the feedback, for the suggestions for the ideas and just thank you for going out there and doing awesome things.

Carol: We couldn’t do this without you. Thank you. Thank you. Thank you for being such an awesome part of this show and we appreciate you more than you can imagine. So as we launched this new year, you may remember just a couple of weeks ago, J interviewed me about a new business that I’m starting right? Well, guess what, J, My awesome, wonderful, amazing husband has a new business as well. And this week I’m interviewing him and he’s going to dig into all the nitty gritty details. Tell us about what his new adventure is. It give you all kinds of actionable tips along the way. It’s going to be very, very cool.

J: Absolutely, I’m looking forward to it. Now, if you want to find out more about this episode, more about what I’m going to be doing in 2020, check out our show notes at biggerpockets.com/bizshow37. Again, that’s biggerpockets.com/bizshow37. Okay, now before we jump in, let’s hear a quick word from our sponsor. Thank you so much to this week’s sponsor. Now, without any further ado, let’s kick off this episode.

Carol: Hi, J. So good to have you here.

J: It’s so good to be here. I’m going to be awesome, I’m a little bit nervous I don’t think I’ve ever done this before.

Carol: I know you, it’s a whole new deal for you and all reality though you are on the other side. So that’s always an entirely different dynamic but we’re going to have fun. This is not bad.

J: Actually, I liked the side of the microphone better, I don’t have to figure out the questions to ask, I just need to answer them.

Carol: Exactly. So let’s talk a little bit about, for anybody who may not know what you’re all about, other than the real estate world, can you please share with us a quick backstory? Who is J Scott and why in the heck are you deciding to start a new business now at this point in your life?

J: Yeah, absolutely. So for those that don’t know me, I basically come from an engineering background, I have an MBA or almost an MBA, I’m a couple of credits short of an MBA, so I guess I can’t say I have an MBA. But I did the corporate thing for a long time and in the last decade I’ve done the real estate thing and most people know me best for the real estate stuff that we’ve done, but the truth is my passion has always been for business I’ve started businesses since I finished college.

J: My first business out of college, we raised money and we filed some patents and ultimately we didn’t get those patents because Google beat us by about six months for some really cool technology. And actually I’d love to come back and talk about that sometimes because that was a cool story. I had some internet marketing and internet affiliate businesses, I ran some small businesses for some large companies, I’ve served on the board of advisors for a number of businesses, I started a tech education business back in 2014 where we invented a really cool product to teach kids about programming and electronics.

J: And I partnered on a bunch of different businesses over the last decade since we got into real estate. And the truth is, what I’ve found is that while I love business, my successful businesses have been those that I’ve run with full focus. When I try and run a business in the background, when I try and do too many things, when I don’t focus on something, it tends not to be successful. So the best example is our real estate business, we’ve kind of focused on our real estate business for the last decade and we’ve been tremendously successful.

J: In that time, I’ve tried to start a couple of other businesses but they didn’t get my full focus and those didn’t go as well. So my goal heading into 2020 was I really wanted to start a new business but I knew that to be successful I had to give it my full focus. So moving into 2020, my goal is to, we’re still going to be doing the podcast, we’ll still be doing some real estate stuff, we’ll still be doing some stuff on the side. But my main focus heading into 2020 is that I really want to start a new business and I really want to scale and grow that business.

Carol: Fantastic. So now that we’ve established 2020 is all about focusing your time and attention 100% on this new business, help us understand what is it that you were looking for in this business?

J: Yeah, so unlike a lot of people I’m not one of those people that needs to build a business based on my passions, so I have things I really enjoy doing but I know that if I tried building a business around those things, I probably wouldn’t enjoy them nearly as much. So for me, really the thing that excites me about a business is just the challenge of growing and scaling something.

J: So I didn’t care about like starting something that was related to my passion. Also, I didn’t care about starting something that was “sexy”. And there are so many people out there these days that want to start a sexy business, they want to start a nightclub and they want to start an internet business or they want to start something that like they can tell their friends about and their friends will be like, “Oh, that’s a cool business. I wish I were doing that.”

J: Personally, I don’t care about that like my goal is I get satisfaction out of making money, out of growing something, out of being successful in whatever I’m doing. So for me it wasn’t about starting a sexy business. So I guess you look at that and you say, “Okay, he doesn’t care about doing something around his passion. He doesn’t care about doing something that’s sexy.” What does he care about? Well, it turned out there were four things and I sat down I made a list of four things that I cared about when it came to starting my new business.

J: Number one, I wanted it to be something related to my expertise and basically I have two areas of expertise, I spent 20 years in the technology world, I spent a decade in the real estate world. Those are the two things that I know about. So when I started out this whole plan around building a new business, my thought was I’m either going to do technology or I’m going to do something real estate related.

J: Next, anybody that’s listened to me for the last year knows that I am a little bit concerned about the economy, the economy works in cycles, we’ve had a strong economy for 10 years and so we’re likely heading into a downturn at some point in the next year or two. So I wanted a business that was going to be what we refer to as recession resistant. Meaning, even if the economy turns down, even if things get bad in the economy, this business would still continue to do well.

J: Third, I was really interested in starting a business that had what we refer to as a high barrier to entry, which means not everybody in their brother could just jump in and start the business in a day or two. So anybody can go out there and write an eBook, anybody can go out there and start an Amazon business. There are a lot of businesses that are really easy to start, they don’t require a lot of expertise, they don’t require a lot of money, they don’t require a lot of time, they don’t require a lot of risk.

J: The problem with those businesses, nothing wrong with those businesses but the problem is that you have a lot of competition. Everybody wants to start a business that’s sexy and fun, everybody wants to start a business that doesn’t require a lot of money, everybody wants to start a business that doesn’t have much risk. So if you want to avoid competition, you need a little bit of that barrier to entry, you need something that’s either going to cost some money or expertise or time. So I was looking for a business that had somewhat of a barrier to entry.

J: And then finally I was looking for a business that was scalable, something that I could build, I could grow, something that in a couple of years we can either franchise or we could start a number of corporate owned locations, whatever that might be. So something that we could eventually have a nice exit strategy we can sell or we could bring in a partner or we could merge with a bigger company.

J: So those were kind of the four things I was looking for. So first something I knew, well something that was recession resistant, something that had a decent barrier to entry and then something that could grow scale pretty big.

Carol: Excellent. So I think that’s a really good tip for our listeners is if you are thinking about starting a new business, it’s really important to really put some thoughtful effort around what are those things that you are looking for in a business, and what are those things that are not important to you? Because that will really help very clearly define and hone the type of business that makes the most sense for you. So you’re not kind of just running off, you have this big great idea, let’s just go and do it without really analyzing what are the things that do work for you? What are the things that do not work for you?

Carol: So I think that’s a great thing to keep in mind for all of our listeners as you start something. So you took the time, you defined all of those things, the parameters that would be a successful business for you. So please tell us, how did you find your new business and what the heck is it?

J: Yeah, so it’s actually been a long process. We moved to Florida in June of 2019 so about eight months ago and six, seven months ago. And the goal was I wanted to find a business that I could launch in 2020, so I knew I had about six months to look around. Certainly I wasn’t going to rush it, but six months was kind of my timeline. So I started, I thought about should I be buying a business, should I be starting a business from scratch? Should I be partnering with somebody that already has an existing business? Should I buy a franchise there? There are a lot of things that I was considering.

J: And so I spent the summer in the fall and you know this and you saw what I was doing but I was spending a lot of time basically talking to everybody I knew that was involved in any kind of business that was related to either of those two areas I was interested in, technology or real estate.

J: And last summer I met a guy, his name’s Cliff Terry here in Florida, and he is a house flipper. And we started talking and we ended up partnering on house flips and Cliff is an awesome guy, I mean, literally we hit it off the minute we met. I knew he was somebody that worked hard that I could trust that was super smart. And so Cliff and I had been flipping houses here in Florida for about six months together.

J: Well, I had known that he had run or was running a side business but I didn’t really know too much about it until a couple months ago when I started talking to him about this idea that I wanted to start a new business. And so we dug in and I started asking him about the business he runs, and he runs this business. It’s a real estate niche, it’s a business that deals with water, fire, mold remediation.

J: So for anybody that’s not familiar with that niche, it’s basically a company that if your house gets flooded, they go in and they clean up the water. If your house burns down, they’ll go in and make sure everything is safe and boarded up. And if you have mold in your house, they’ll go in and clean up the mold. And basically it’s a lot of emergency work and then insurance work to rebuild houses for homeowners after they’ve experienced some type of water, fire or mold type emergency.

J: So anyway, he’s run this company for about a decade and he had a partner that kind of split with him a couple of years ago, and so he was kind of losing some motivation, he was losing focus, he really wanted to do the real estate thing as opposed to continuing running this company.

J: And so he was kind of running the company on the side, he wasn’t focused on it but still doing decently. So I started talking to him about this company and I said, flat out, I said, “Hey, would you consider selling the company or would you consider teaching me how to start a company like this?” Because honestly, it fit all four of those things that I was looking for in a business. First, it was related to something I knew it was real estate related contractor-ish type related. It’s a very recession proof business because people are going to have floods and fires and mold in any economy, and typically it’s the insurance companies paying to fix these things.

J: And so we’re going to get paid regardless of the economy. Decent barrier to entry because a business like this, I mean you’re doing 24-hour emergency water cleanup, you’re doing a fire response, you’re doing mold stuff. So that’s basically not something that a lot of people want to do or are good at doing, it’s not a sexy business. So you’ve got that barrier to entry and it’s also something that’s scalable.

J: I mean, you’re going to find this type of service business in any town, in any city, in any state in the country. So it kind of met all of my check boxes. So I said to Cliff, “Hey, would you be interested in selling your business? Would you be interested in teaching me how to start this business?”

J: And so we sat down and we chatted for a couple of days and ultimately what I realized was Cliff was really good at this business, really knowledgeable, he had had a successful business, but he just wasn’t interested in the business piece of it. He wasn’t interested in the scaling and the growing and figuring out how to kind of turn this into a big business. He loved the operation side, he loved the day to day like figuring out how to optimize the margins and schedule the contractors and get the work and do the marketing.

J: And so I thought, “Huh, this is a perfect fit.” So I liked the business side. He likes the operation side, maybe there’s an opportunity here to partner. So we worked out a deal where basically we would go in together, we would start a new business in this space and we would partner and the goal is basically to scale and grow this new business.

Carol: That is awesome. And I must say, I’ve obviously been with you for a very long time and it is so much fun watching you be so energized and excited and engaged because you’ve found something that really, truly does meet all of those four criteria that you’ve established and that you found the perfect partner to do it with your skill sets.

Carol: Just complement each other so beautifully, you’ve got you who likes to build the business and the vision, Cliff who likes to do the operations. So it’s just such a complimentary skill set and it’s very cool to watch you doing this. So talk us through some of the logistics, what are kind of those little even in an unsexy business, what are the really very unsexy things that have truly just had to happen to get this business started?

J: Yeah. So this was somewhat of a surprise for me because again, I’ve started a bunch of businesses but most of the businesses that I’ve started have been, they’ve kind of come about organically like I sit down and I start working on something and before I know it, like creating something or selling something. I never really sat down and said, “Okay, I’m going to build a business from scratch and really created a plan and then executed on that plan from the very beginning.”

J: So this was something that we originally decided back in the beginning of November to kick off, and the goal was to have something launched by this week, so first week in January of 2020. And so a lot of the stuff that went into starting this business was the same as starting any business, we needed to create an entity, we needed a name, we needed to have some bank accounts, we needed a logo, we needed a website. All those sorts of basic things that any business needs.

J: But in this business, there’s a lot of very specific stuff as well and this is where that whole barrier to entry comes in. So this is a business that has 24-hour response, so if somebody has a flood in the middle of the night you can’t basically say, “Wow, we’ll be out there tomorrow when our contractors start at 9:00 AM, you need to be able to respond 24 hours a day.” So we needed somebody that could answer the phone 24 hours a day. We needed contractors who would be on call 24 hours a day. We needed vehicles, we needed equipment. A lot of this work is insurance work so we needed relationships with insurance companies.

J: So there’s a lot of stuff that went into starting a business like this that people don’t even think about. And that’s frankly, it’s pretty daunting and pretty difficult. But again, this is where that barrier to entry comes in and this is why a business like this doesn’t have as much competition. So now, what’s interesting about this business is that there’s kind of two sides to the business, there’s the emergency cleanup stuff, somebody has a fire or water emergency and this company comes in, and we will remove the water from your house and we’ll kind of start drying things out or we’ll board up a house that had a fire in it.

J: But then the second half of the business is basically going in after the emergency is taken care of and then doing the rebuilt for the homeowner, for the insurance company. And so that’s half of the business is basically just a construction company. So we were building this emergency response business but at the same time we’re building this traditional construction company they can go in and can remodel a house and you have a house they call them fire, we’ll replace the cabinets and the countertops and the flooring, we’ll paint and do the carpentry.

J: So again, very much like a traditional construction company, which this is right down our alley. We’ve done a real estate business, we’ve done remodeling, we’ve done ground up construction for a dozen years. So for us it’s a decent barrier to entry but it really fits in well with what we know and what we’ve been doing for a long time.

J: So again, we started beginning of November in the last two months up into our launch this week. We’ve basically done all the entity formation, all the legal work, insurance has been a big thing for us in a business like this.

J: All different types of insurances are needed, you need vehicle insurance, you need liability insurance, you need workers’ comp for the employees. Anytime you’re dealing with mold and construction, you need some additional licenses. So the last two months have been really eye-opening to start a new business like this and it’s been a really busy but fun two months.

Carol: Seriously. You’ve totally hit the ground running, right? I think it’s amazing. You talked about the fact that we just moved to Florida at like seven-ish months ago and then you found Cliff, you started this and it just two months, you’ve done all of those things. And I think it speaks really well to, again, it’s finding the right partner, it’s finding the right type of business and it’s just being determined and laser-focused to really make that thing happen, which is again, just another great tip for our listeners.

Carol: Commit to being dedicated, commit to being laser-focused, putting all your time and attention into a business, just make steps every day toward that goal. So it sounds like this business which again, it’s also nice to see that it has so many synergies with the things that you’re familiar with, the construction and that whole part of the business. It sounds like with the 24-hour response and everything’s there are a lot of employees that are needed right off the bat, right from the get go. So what kind of staff is required to launch a business like this?

J: Yeah, absolutely. So that’s again, another barrier to entry, a lot of us like to start businesses that we can do on our own and we can kind of launch in a day or two. And I knew that while it made launching a business like this, a little bit more difficult, one of the competitive advantages we have is that we know how to hire employees and we know how to manage employees.

J: So a business like this on day one, some of the things we need, we need somebody to answer the phones. So remember a lot of those businesses, emergency response. So we need somebody to answer the phones 24 hours a day. Now, that could be me, that could be my partner Cliff, that could be a receptionist, that could be an answering service, frankly. I mean basically in the middle of the night you don’t necessarily don’t want to have a full-time receptionist, staffing a desk, answering phones in the middle of the night. But luckily we have answering services that can do that.

J: So the first employee that we need is basically somebody to answer the phones. And again, that could be me, that could be Cliff or that could be somebody we hired to do that. Second, you need a supervisor, you need somebody that can kind of manage the contractors, manage the technicians that are going out and dealing with the emergency calls, dealing with the rebuild work. And again, that could be me, that could be my partner Cliff, we could be that supervisor that kind of manages everything or you can bring in a supervisor.

J: Now, where Cliff and I can’t do all the work is we actually need somebody when we get that first phone call or that second phone call or that 10th phone call saying, “Hey, we need an emergency cleanup, we actually need a couple of technicians, people that can go out and that are trained in doing water cleanup, doing fire cleanup, doing fire safety and boarding, doing mold remediation. So we actually have to hire a couple of technicians.

J: Finally, because half this business, at least for us is going to be doing the rebuild, remodeling work on the backend after the emergencies fixed. We needed a general contractor on staff, so somebody that can pull permit, somebody that can pull in subcontractors, somebody that can manage those subcontractors. So we needed a general contractor on staff.

J: Now moving forward, we may end up hiring those contractors ourselves, or we may end up selling the workout, we could end up bringing on a project manager, we could end up bringing on more technicians. There are a lot of people we could bring in. But on day one you basically need somebody to answer the phones, somebody to kind of manage the employees. And then you need two or three employees that can actually do the work.

J: So this is one of those businesses that even before you get your first phone call, before you get your client, you’ve got to be willing to and able to hire a couple of people who are standing by ready to answer that first phone call.

Carol: Very cool. So it’s really neat as you listen through all these details and all of the little ins and outs and all the little components that are thoughtfully placed into making this a successful business that like you said, will be scalable from day one so that you can do it anywhere in the country. So that it is something that’s truly recession-proof. And the nice thing is to remember that as new business owners, if someone else wanted to do this, the beauty of this is you are working really hard from the gecko from day one to establish this with systems, with processes so it is easy to duplicate.

Carol: So you can take that binder of information if you will, and pass it on to the next person and duplicate the same thing in another location. So it’s all in the approach from the gecko, from the day you establish this to make sure that all of those pieces are in place so that it can be carried out by the next person who wants to do it, who wants to take on this type of business.

J: Absolutely. And let me point out and we’ll talk about this I’m sure later in the interview, but let me point out that for us, this whole growing and scaling and having multiple locations thing was really important. And in fact we’re going to be launching the first location where Cliff lives, which is about an hour South of where we live and that’ll be the first location. But we are already expecting that within about two months, within about two months probably March, April of this year, we’re going to be launching a second location up near where we live.

J: So we’re already thinking about that second location and we have some plans for third, fourth and fifth location. And we can talk about that more later. But yeah, big, big piece of advice for anybody out there that’s thinking of starting a brick and mortar business, a service business like this. When you put your processes, you put your systems, you put your plans in place. Don’t think in terms of just this one business. Think in terms of how can I start a second location or a third location or a fourth location and build things correctly and optimally from the beginning so that when you go to build that second location, you already have it written down how you’re going to do things.

J: How is your receptionist going to answer the phone? How are your technicians going to dress? What are your vehicles going to look like? What’s your project management software look like? How are you going to do estimates? What kind of contracts you may use? And if you do things right the first time, you can basically replicate each of those pieces in every location, every time you build a new business. Think about how McDonald’s works, I mean they don’t have to create new systems around grilling a hamburger or using the cash register or what type of uniforms to wear every time they open a new McDonald’s, they’ve got a really well-defined process that every location follows.

J: And so we had decided early on that we wanted to kind of focus our time on building these processes, building these systems so that the first, second, third, fifth, 10th location, basically we call it, I’ll leverage that, that work we did up at the beginning.

Carol: Awesome. Thank you for clarifying all that. There’s so much work that goes into it and I love how you’re approaching it. So let’s switch gears a little bit to the more sexy part of the business that these are the types of things that really excite me. I want to talk about branding, marketing, that type of stuff. So let’s start with branding, I know that you and Cliff had a lot of discussions about the pros and cons of keeping the name of Cliff’s existing company or not, and you also really decided to do that.

Carol: So tell us about the name, what went into the decision around the naming of the company? Talk to us more about the whole brand.

J: Yeah. So Cliff’s company was named Ameri-Dry. And they’d been in business for about 15 years, he came in took over the business I guess about five or six years ago but one of the… I liked the name and there were a lot of reasons to keep the name. First of all, like I said, I liked the name, it had good name recognition, so he was only in one city, but in that city people recognized his trucks, they recognized his name, they recognized his brand.

J: So having that brand recognition was something that was tremendously valuable. They already had some insurance agents that were feeding them work, a lot of the work in this business comes through insurance agents and insurance carriers. And because they had been getting work from insurance agents in a business with this name, keeping that name would allow us to kind of transfer some of that business over to our new company.

J: They had an existing client base, they had a set of phone numbers for the business, and there’s some benefits of like just being able to take… When you keep a name you can keep some of the same relationships with your insurance companies. So there are a lot of benefits to keeping the name. Now there was one big downside to keeping this name and that was that Cliff didn’t have the dot.com URL, he didn’t own a Ameridry.com.

J: So one of my first things was, okay, we want to keep the name, let’s go out and try and get access to the URL. And I found the company that has the URL, they actually don’t even use it anymore, it’s forwarding to a different URL, I sent them an email, I know I had you try and call them for me. I tried to call them, we reached out, they wouldn’t respond to us. So there was no way to get Ameridry.com, and if you don’t have the URL for your brand name for your company name these days, it can make it a lot harder to drum up business and worst case, it can actually make it confusing for the customer.

J: So Cliff had Ameridry.net but most customers aren’t going to think to go to dot.net and obviously it doesn’t have the sexiness of having the dot.com URL. So that was the one big downside. So you and I know brainstorm on this for a little while and ultimately what we realized was, well, does it have to be Ameridry.com, can we come up with another URL that makes sense, that people can remember and so that we don’t have to change the name.

J: And ultimately what we realized was a lot of times in a business like this, the URL is actually a slogan, it’s not just the company name. And we had always talked about, and you and I, Cliff and I had talked about potentially using the kind of the slogan rely on Ameri-Dry. And we realized that if we focus all of our branding kind of on the slogan, rely Ameri-Dry, we could use the URL, rely on Ameri-Dry, we could use a vanity 800 number 1-800, rely on Ameri-Dry. We could basically use that as our slogan on the trucks, on our business cards.

J: Basically the company’s name is Ameri-Dry, but everybody thinks of us as rely on Ameri-Dry. So the first thing I did was I jumped on the web. I tried to find rely on Ameridry.com, it was available, I registered that. I went to a company online that registers vanity phone numbers and I looked for a toll free 1-800, rely on Ameri-Dry, phone number that was available so I registered that. And basically we decided, “Okay, we can keep this Ameri-Dry name as long as we kind of branded around this whole slogan, rely on Ameri-Dry.

J: So ultimately we’re keeping the company name, we’re changing the branding to this rely on Ameri-Dry, that way we get the URL, we get the vanity toll free number and basically best of both worlds. So ultimately that’s what we decided to do.

Carol: I absolutely love, love, love that story. I think it is just the greatest thing that Cliff had this company, he had the dot.net register, but dot.com was not available. And so many people would’ve just been like, “All right, let’s just come up with another name.” But you all realize that there was so much value in that brand recognition and you just got clever about it, it would’ve been so easy to walk away then you would have been kicking yourselves later that you went through all this re-establishing your brand. But again, another great tip for listeners that could easily be a barrier, but get creative, get some clever people around you, sit around in a room throughout different ideas and see how you can come up with a solution to keep things that work working and make them even better.

Carol: So rely on Ameri-Dry worked out beautifully, so major kudos to you guys for figuring that out. That was really cool. And you give me credit for that one but guess what? It was 100% you and Cliff, who figured that out, I had nothing do with it, it was awesome. So we talked about branding. Talk to us about marketing on a bigger scale. What does marketing look like in a business like this?

J: Yeah, so I’ve talked a number of times about liking a business that has high barrier to entry, and this is another area where this business has a higher barrier to entry than a lot of businesses. A lot of people out there, they think about, “Okay, we market to consumers,” and that means sending out direct mail, that means creating a website, that means putting up billboards and advertisements. And there are a lot of ways that we’re all familiar with to market to homeowners that might need our services.

J: But in this business a lot of the business isn’t coming directly from the homeowners, think about it, if you walk into your house and you have a flood in your house, so the water heater, let’s say a broken and started flooding your basement, what is the first thing you’re going to do? You’re probably not going to pick up the phone and call a company like mine. You may not even be familiar with a company like mine. What you’re going to do is you’re going to call your insurance agent, you’re going to call a plumber, you’re going to call your insurance carrier the 800 number on the back of your insurance card.

J: You’re going to call somebody else that you feel like they can help you with this problem. Ultimately, they’re going to tell you to call somebody like us, or they’re going to say, go to the phone book or go online and find a company like us. And so you’re going to get referred to us not through a billboard, not through marketing flyer, not through something you find on the internet, but by somebody like an insurance company or a first responder or a plumber.

J: And so for us, the marketing involves basically going out and making sure that those people, those first responders, those insurance people that they know about us, that they trust us and they tell homeowners when the homeowners call in, these are the people you need to call to come help you clean up this emergency.

J: And ultimately at the end of the day the homeowner, even if you go through your insurance company to do emergency cleanup, to do remodeling after a fire or after water damage, ultimately the homeowner is the one that’s going to make that final decision on what company to go with. But when your insurance company or your plumber says, “Yeah, this company is really good and you really want to work with them,” that goes a long way towards getting the business.

J: So a lot of our marketing involves us getting in good with, again, the plumbers, the insurance carriers, the insurance agents, the first responders. So that’s where a lot of our marketing is being concentrated.

Carol: Very cool. And is it safe to assume that as you’re defining all of these marketing channels and how you approach these insurance companies, these other contractors, so on and so forth, that that process as well is being documented into your overall business plan in your binder, if you will, so that it can be replicated easily in other locations?

J: Absolutely. And literally we spent a good week just sitting down and mapping out all the different types of marketing channels, we can do all the different ways to reach those marketing channels. Because again, it’s everything from if you can get the fireman who’s responding to the fire, to tell the homeowner, here’s a company that can come boarded up to, let’s say a property management for your rental property. So if your rental property floods, you want your property manager to think of you first.

J: You want the insurance agent and the insurance carrier to think of you first. There are so many different marketing channels, there are so many different ways to reach those marketing channels that we literally spent a week kind of building this matrix of how to hit all the different marketing targets, all the different ways to hit those marketing targets. And yet we’re creating an entire binder on how to do that so that as we replicate locations, each of our operators in those locations, whether it’s us or a franchisee or a partner can basically just implement those same processes in every location so that they don’t have to rebuild things from scratch.

Carol: Fantastic. I love, again, absolutely love how you’re approaching this whole business. It’s very cool. So talk to us about something that, of course a lot of listeners I would suspect are very curious about the financials. What does the money aspect of this look like? What are your financial targets? What kind of margins do you expect? All of the finance related components of Ameri-Dry.

J: Yeah, absolutely. So well let’s start with like I mentioned, there are kind of two sides to this business. There’s that emergency cleanup stuff, so you get called in the middle of the night because somebody has a flood or you get called because somebody has a fire and you need to go board up the house and make sure it’s safe.

J: And then there’s the second half of the business which is after the emergency is taken care of going in and doing the remodeling, doing the rebuilding, fixing up the house. And so they’re very different sides of the business. And from the, let’s say from the homeowners standpoint or from a property manager standpoint or whoever’s hiring the company, they don’t see it as two sides of the business. But for us it’s really, it’s two different sides, we need different staff, we need different policies, we need different types of equipment.

J: And then there are very different financials and margins on each side of that business. So if you look at the emergency stuff, that’s actually a tremendously high margin business. So you can get called in in the middle of the night, you’re going to get paid extra for that kind of fast response, it’s mostly labor intensive, so it’s very little equipment. You don’t have to go in and buy a lot of materials to clean up water or to clean up or to board up a firehouse.

J: So it’s a really high margin business because it’s mostly labor, the insurance companies are paying for it, they’re paying retail. You’re never going to have the insurance company try and low ball, you don’t have to worry about competing on price. That’s the nice thing about working with insurance companies in this business is that you never have to worry about competing on price because the insurance company is going to pay out.

J: They use a piece of software called Xactimate and that kind of spits out a price for this work, and whether they hire you or one of your competitors or another competitor, everybody’s going to get paid the same. So we never have to compete on price, that’s really nice. So for the emergency side of the business, it’s mostly labor, it’s really high margin, like 70, 80% margins. Then on the rebuild again, that’s like a typical construction company. You have a GC, you have a project manager, you have subcontractors coming in and just kind of doing a remodel job on a house.

J: Now, the nice thing is for general contractor or a remodeling company that works for homeowners, that works investors. Again, they often have to compete on price because homeowners are going to shop around, they’re going to look for the best price, investors obviously are going to look for the best price. But the nice thing about being in this business again is that a lot of the work is going to be paid out by insurance companies.

J: And again, insurance companies are going to hand the homeowner a big pot of money and I’ll ensure that the homeowner may shop around and find somebody that can best use that pot of money. Typically speaking, I’m sorry, the homeowner is going to be willing to spend all the money. The insurance company gives them on the remodeling work. So it’s still for a construction company, decent margins, probably somewhere in the 35% to 45% range. So again, on the emergency side, you’re probably looking 60%, 70%, 80% margins. On the rebuild side, you’re probably looking at 35% to 45% margins. And again, when I talk about margins, that’s for every dollar that you take in, that’s how much you’re going to keep after your expenses.

J: Now, we also have those overhead expenses, we have an office, we have phone lines, we have internet, we have employee costs, we have to pay for electricity at our offices. We have to pay for our vehicles, we have to pay for the fuel maintenance and cleaning of those vehicles. So lots of other expenses. So even though we have really high margins, it doesn’t mean we’re keeping all of that money. Now, at the end of the day, we expect in this business that our net margins, what’s referred to as our operating margins, meaning at the end of the day, for every dollar that we charge out that we take in and revenue, we expect our margins to be somewhere around 20%.

J: So for every dollar that we invoice out and that we collect about 20 cents of that $1 is going to actually go to our bottom line. That money is going to come back to us in terms of profits.

Carol: Excellent. Thank you for all that information. I love, once again, I’m loving it and I’m suspecting our listeners are appreciating too, that you’re always so incredibly transparent and all of the businesses that you take on and that you’re being transparent and very open about this business as well. So I think it’s just really great, awesome, valuable information. I want to loop back for a quick second. You’ve been talking about the insurance companies an awful lot and my take on that as well is that I just think that’s such a powerful thing to remember as you’re starting a business, especially a service business like this one, right?

Carol: Similarly, in our brokerage there’s the in our real estate brokerage, of course there’s your ongoing marketing to individual homeowners, individual buyers, individual sellers. But where the real power comes in is where you can identify organizations or other enterprise solutions to market to, so that you’re getting many deals all at once, right?

Carol: So with an insurance company for example, you’re not necessarily getting many deals all at once, but you’ve got one bigger, more influential entity that’s advocating for your company, right? So I think that’s a really important thing. So can you talk to us more about this whole strategy of why the insurance companies in marketing specifically to them really works well in this business?

J: Yeah. So getting in well with the insurance companies, the insurance carriers, the insurance agents is really important in business because again, that’s where a lot of your business is coming from. At the end of the day, they are your “customers” because they’re the ones paying the bill. Now obviously you have to focus on the homeowners because they’re the ones you’re serving, but at the end of the day, the people paying the bills are typically the insurance companies.

J: And that’s good for a lot of reasons. One, you get standard pricing. I mentioned we don’t have to compete on price, the insurance company is going to pay us the same as they pay one of our competitors or a different competitor. So going in and saying, “Well, we can do this less than, than one of our competitors.” The insurance company doesn’t care, they’re paying the same amount either way.

J: So we don’t have to compete on price, we don’t have to cut our margins just to get business. That’s great. Second, when you’re dealing with big insurance companies, typically, and not all the time, but typically you’re going to get paid on time. So there have been situations where insurance companies go out of business or insurance companies refuse to pay for some reason, but 95% of the time the insurance company is going to end up paying. And so you don’t have to fight like you do a lot of times with homeowners or with other vendors or other businesses to get paid at the end of the day.

J: So those are the good things about insurance companies. You’re going to get paid well and you’re going to get paid on time. Now the bad part is that you’ve got a lot of big companies, we have a lot of big competitors in the space and we’re all competing for that business from the insurance companies.

J: Now, the insurance companies have this thing called program worker programs where we as a company can get on their list and they will send us work, but getting on that list can be difficult. Staying on that list can be difficult, getting higher up on that list and some of our big competitors can be difficult. So that’s where we really have to be strategic about our marketing, about getting in good with these insurance companies, giving them great service, making them comfortable that we can deliver to their customers, to homeowners.

J: And that’s the difficult part. Again, we can’t just go advertise on billboards or have a great website because at the end of the day, it’s not consumers that are calling us or paying us, it’s these big insurance companies.

Carol: Excellent. That’s an awesome clarification. Thank you. Okay, so I remember two things that we haven’t talked about yet. What are the startup costs? This is a big operation, right? This isn’t some little rinky dink deal going on. So talk to us about startup costs.

J: Yeah, so this is something that’s still evolving and I look forward to coming back in a couple months and talking more about actually launching the business and what we’ve learned. But for startup costs, we’re thinking so far we are somewhere in the $100,000 range as kind of shoestring budget, bootstrapping like just getting things going. And so people often ask, “Well it’s $100,000 for?” So we want to start this business, we want to have two vehicles, so two trucks, excuse me. We need a bunch of equipment. So how do you do water cleanup? Basically you need a generator and you need a pump and you need air dryers and you need dehumidifiers.

J: And then you need a whole bunch of equipment for the rebuild side, and then again, because we have all this equipment and these vehicles, we either need warehouse space or office space we’re planning to have a receptionist, so we need someplace for that receptionist to “live”. We had those minimum number of employees, we have two or three or four employees that we have to hire on day one. So even if we’re not keeping them busy on day one, we still have to pay them something, we’re not going to be able to convince them to leave their jobs or to come over and work for us if we tell them, “Yeah, day one, you’re not going to get paid. You’re just going to be sitting around waiting for that first phone call.” So we have employee costs.

J: We have insurance costs, so again, insurance is pretty high for a business like this. So there are a good number of costs in the business between the vehicles and the equipment we’re probably at about 80,000 to 90,000 then you add on the office space, the employees, the insurance and the technology, the internet, the phone system, all of that. That’s probably another 10 or 20 or $30,000. So we’re probably somewhere in the 100 to $120,000 range at a very minimum.

J: Now, that assumes we’re not scaling, as soon as we start getting more than one or two phone calls at a time, we’re going to need more technicians, we’re going to need more trucks, we’re going to need more equipments, we may need somebody in the back office that’s dealing with collections and paperwork. So all of this could scale quickly but right now, yeah, somewhere in the 80 to 120,000 range is probably the bare minimum of startup costs and that’s kind of what we’re looking at for starting up.

Carol: Very cool, and I think it’ll be really cool when we come back in a few months or six months or however long it is and give an update on how that worked itself out and what that has translated into from a business standpoint. So speaking of moving forward, what are the longer term plans for the company?

J: Yeah, so like I said at the beginning, one of my forming goals for starting a company was that I wanted something that could scale, something that could grow. And a business like this, there are a lot of ways it can go. Some of our competitors have corporate owned offices all around the state, all around the country. Tens, dozens, hundreds of offices. Others of our competitors are kind of doing the franchise model, so there are a number of our competitors that have literally hundreds and hundreds of franchises around the state in the country.

J: So for our growth, we could go the corporate own route, we could go the franchise route. Well, we’ve actually decided to do for our first couple locations, and again, we have one location that launched this week, we have another one that’s launching probably in another month or two and then we have a couple more planned for this year.

J: Our strategy for those first locations is that we’ve actually found a partner/operator for each of those locations. In other words, what we’ve done is we’ve brought in somebody from the industry independent of Cliff and myself who is going to run each of the independent offices. We’re going to give them equity in the company basically, they’re going to be an equity partner, they’re going to have stock in their branch of the company. And then their goal is to come in and run that location, start to finish.

J: Now, the people that we’re choosing to bring in, at the beginning our people that have worked in this industry for a long time so they know how to run a location, they know what the economics are, they know how to deal with customers, they know how to do with contractors, they know how to deal with scheduling and project management. They know how to do the ordering of equipment and they know how to deal with setting up the trucks and all that stuff.

J: So it makes it really easy for these first couple locations, we’re basically bringing in a partner to do all the work, we’re setting up the systems, we’re doing kind of the 800 number all into a back office. So we’re taking all the phone calls and then kind of referring those customers or insurance agents out to the different locations.

J: But then we have partners in each of those locations that are going to actually drive the business day to day, and they’re getting equity in the company for that. And so we think this will allow us to scale. We can probably open three or four or five or 10 locations in the first or second year, bringing in a partner in each of those locations, giving them equity, letting them run that piece of the business while we focus on building the systems and the processes and dealing with all the back office stuff, the collections and the phone calls on our own.

Carol: Very, very, very cool. And I must say that it is the most awesome thing in the world to hear how hard the two of you have worked together with your first business partner, your first location to take this very, I guess, unsexy business and make it sexy by really injecting all of these components in it so that it is scalable, is it replicatable or replicable? Whatever the words.

Carol: It’s easy to replicate in lots and lots of locations and for instant, for such entirely, it’s important for the time that we’re in, it is recession proof, right? All of those things together, you’re taking a non-sexy business and making it super attractive, making it super sexy because it does have so many qualities and so much potential to be absolutely amazing.

Carol: So, again, kudos to you guys for working this all out and figuring out an amazing plan so you can grow a huge company and move forward together. You’ve done an outstanding job.

J: Well, that’s the goal. Thank you. I appreciate that. So now it’s time to execute and the next few months should be interesting to see how things go like they say, the best laid plans. If everything goes well, I’m very excited, I expect that there’ll be some roadblocks and some hiccups and some things that we learn along the way.

J: But hopefully I look forward to coming back in a few months, maybe I can get Cliff to come sit down with us as well and talk about like what we’re learning and who knows, they will come back every six months and just talk about how we’re scaling and growing the business and all the issues that we’re running into and how we’re dealing with them.

Carol: Love it. Okay, well, thank you for all of that amazing information. Honey, what do you think? Is it about time to jump into the four more part of our episode?

J: Oh, I have to do the four more.

Carol: You have to do the four more. Nobody is exempt from the four more, especially not you.

J: I’ve been asking about the four more for 37 episodes now and I don’t think I’ve ever thought about my answers to the four more, but yeah let’s jump into it.

Carol: Okay, let’s do it. So listeners, if you’re not aware, a brief synopsis is, this part of the show is called the four more and there are four more questions that we ask rapid fire style to each one of our guests. So four questions and then a more at the end about where we can find out more about you. So J, question number one is, what was your first or your worst job and what lessons did you learn from it?

J: So I had a lot of worst job, so I think this is part of why I so much enjoy being an entrepreneur and why I work so hard not to have a job anymore, to kind of work for myself. My very first job was I worked as a snack bar attendant on the ninth hole of a golf course at a country club, and it was very exclusive country club and while I don’t want to bad mouth anybody, I did find that some of the kinds of people that play golf at exclusive country clubs don’t always treat service people very well. So I learned very early on, like how when you treat people well and how when you’re nice to service people, how much of an impact that can make.

J: And let’s just say I got treated very poorly as the snack bar attendant at an exclusive country club, and so it stuck with me anytime somebody came and really treated me well, tipped me, just talk to me like a human being. And so kind of everything I do in my daily life, I try and do with empathy and I realized that that everybody has their own struggles, everybody’s dealing with their own thing. And you have to treat everybody the way you want to be treated, regardless of whether they are playing golf at the country club or working in the snack bar.

Carol: That is excellent, and I can absolutely attest that you live by that today, for sure and then some. Okay, question number two, what is the defining moment where you realize that you J Scott had the entrepreneurial itch?

J: Yeah. So this is funny. A lot of people talk about how they had like they were selling candy bars in school in third grade or they had the lemonade stand or they were doing that thing really early in their life. For me, it didn’t happen until after college, I had another job full time and a good friend of mine said to me, “Hey, let’s start a consulting company. This is back in the mid ’90s when computers and networks were just starting up and I knew a little bit about computer networks. And so we started, I didn’t realize what we’re doing at the time.

J: He was just like, let’s start a consulting company and try and make some side money and we started this little computer consulting company doing networks and running internet lines for small companies. And it was the first time in my life that I realized, “Hey, I could get paid money for doing something that’s I’m not working for an employer, I’m actually getting business myself, I’m actually soliciting customers. I’m actually doing my own thing, I’m controlling my own destiny.”

J: And really it had never occurred to me before until I was like in my mid-20s. And the minute we started doing that, it like a light bulb went off and I said, “Oh, wow, I like this.” One day I’m just going to work for myself, I’m going to start my own business or maybe I’ll start a bunch of businesses.

J: And I went into the corporate world and I was in the corporate world for about 15 years but every day I was just thinking about like that day that I could finally like, leave the corporate world, leave working for somebody else and start my own business. And you and I did that back in 2008 and that was the best decision ever made.

Carol: Love it. Okay, so third question is, what is the worst advice that you’ve been given or the worst advice that’s common in one of the industries in which you’ve worked? And what would you say is the way to turn that around and make it good advice?

J: Yeah, I think I addressed this early on. I think the worst piece of advice I hear a lot of people get as entrepreneurs is do something you love, do something you’re passionate about. And too often we find that the stuff that we love and that we’re passionate about isn’t the stuff that can make us money.

J: Yeah, it’s great to go out there and do something you absolutely love every day and I’m not saying anybody should do something in their business that they don’t enjoy doing, but if your benchmark if your criteria for a business is something you absolutely love, that’s just not enough. You need to do something that can make you money, you need to do something not just that you love, but that you’re good at. There are a whole lot of things that I absolutely love, but I’m not good enough to start a business.

J: And there are a whole lot of things I absolutely love that nobody would ever pay me to do. So I recommend that anybody out there that’s looking to start a business, don’t focus on your passion. Don’t focus on what you love doing, focus on what you’re good at, focus on what people will pay you for. And then hopefully you can find something that you enjoy doing as well. And what you’re going to find is if people start paying you a lot of money for doing something, you’re probably going to end up liking it a little bit more than you thought you.

Carol: Awesome. Okay, here’s the fourth and of course, my favorite question, what is something you J Scott have splurged on in your personal or professional life that was totally worth it?

J: Let’s see. So back when I was working before I was an entrepreneur, I used to find it really hard to like spend money on things like coffee, like I drank a lot of coffee and going out and spending like five bucks on a cup of coffee twice a day was always considered a really big splurge for me. But the best splurge I ever did was back in 2006, I decided to get some coffee at Starbucks with my friend Bill Watt and splurge a few bucks and it was at that Starbucks on that day in 2006 that I met you and so that was the best $5 coffee I ever spent.

Carol: Okay, I’m trying to catch my breath here. Why did you do that? You’re the best. Oh, honey, you’re the sweetest. Oh, my gosh. Thank you. Okay, huh, breathe. Okay, I’m good. Wow. Okay, those were the four and now to the, oh wow. Trying to gather my thoughts here. Now to the more part of the four more. Where can our audience find out more, oh my gosh, this is awful.

J: I wouldn’t have given [crosstalk 00:54:08]-

Carol: I know.

J: … if I thought you’re going to cry about it.

Carol: Oh, my gosh, I’m crying. Audience, see? You didn’t think it was possible for me to be speechless? I’m known for just cutting people off and interrupting at the time because I always have something to say. But right now, I’ve got nothing, it’s amazing. Okay, to that more part of our four more. J, here’s the more question, where can our audience find out more about you, what you’re doing and connect with you?

J: Yep, so you can go to my website jscott.com, I am on Instagram. Jscott_123flip, I’m on Facebook. J Scott Investor BiggerPockets at J Scott, if you want to find out more about Ameri-Dry, we’re actually still working on the website, we’re using the legacy website while we rebuild the new website. But you can go to rely on Ameri-dry A-M-E-R-I-D-R-Y dot com, relyonameridry.com, and you can always contact me [email protected], and you can send me messages on BiggerPockets on [email protected]

Carol: Awesome. J, honey, love, darling. All these other terms of endearment that are so controversial, I don’t mind. I’m going to say them anyway, I think you are incredible and you inspire me each and every day. So thank you so much for sharing all of this great information about your new and awesome business venture. I am so incredibly excited for you and Cliff to work together on this and create another thing that is yet absolutely awesome.

Carol: So thank you for being my husband, thank you for being such a hard worker, thank you for teaching so many other aspiring entrepreneurs the different things that they can do to be successful in their life. So do you think it’s about time to wrap this up?

J: Absolutely, and I look forward to coming back like I said, in a few months and hopefully be able to provide a whole lot more information and education about what we’ve learned in this business. So are you ready?

Carol: I’m ready.

J: Okay, she’s Carol. I’m J.

Carol: Just go do something amazing and awesome today, go start a business or whatever it is, identify something cool that you’ll love, put a plan into action and make it happen in 2020.

J: Happy New Year, everybody!

Carol: Thank you. Listeners, Happy New Year.

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In This Episode We Cover:

  • J’s backstory
  • Why sexy businesses have a ton of competition
  • The 4 things J looks for in a business
  • Plans to start a service business in the real estate industry
  • The kind of staff required to launch this business
  • Why redoing the existing website has been low priority compared to other marketing
  • The 2 sides of this business: emergency and rebuild
  • J’s long-term plan
  • And SO much more!

Links from the Show

Books Mentioned in this Show

Tweetable Topics:

  • “It’s not about starting a sexy business.” (Tweet This!)
  • “Commit to being dedicated.” (Tweet This!)

Connect with J

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.