Industry Voices: M4 Investments' Colin Martodam

Intro

We sat down with Colin Martodam, owner of M4 Investments, to talk about how he assesses and operates HVAC businesses, and what big trends he thinks about.

Below is a summary of our conversation, edited for clarity:

How did you find yourself in the HVAC industry?

So I grew up in a small town in Canada. I didn’t like school that much, but I was okay at it. I was business-minded and did a bunch of jobs growing up through high school. I didn’t end up going to college and instead got a job at a neighbor's plumbing and heating company.

In Canada, it’s required to enroll as an apprentice after ten months of working for a contractor, so once I hit that point, I started getting schooling and did that for four years until I got my journeyman’s certificate. I worked for eight to ten years as an installer before getting into management.

Now you own M4 Investments. What is that?

I’ve bought and run different service companies, and M4 is the investment vehicle I use when I do that. It gives me tax benefits, personally, but it’s just the vehicle I use to operate the companies I buy.

How do you assess different areas of the HVAC business?

There are two decisions that need to be made in this business: are we residential or commercial? Then, do we focus on new construction or service and replacement?

Residential allows you to deal with the end user, which I like. The homeowner is making a decision for themselves, and they want value, safety, and peace of mind. In commercial, you usually deal with a property manager or facility engineer who’s making decisions with colleagues and there are longer waiting times to approve work to be done.

With construction, you deal with big builders and margins are thin. A pro is that the relationships can yield recurring revenues, but because builders will bid jobs out for their own margin, it can become a price battle. You can drop 5-10% to the bottom line.

On the other hand, a well-structured service business can net 15-20%. There’s much more marketing there, but you can sell add-ons to offset that.

What are the growth drivers for those different areas?

Service and Replacement

• Customer retention is huge. Membership plans serve as the backbone of the business because you don’t have to market to those customers after you’ve added them as a member. Marketing is expensive and competitive to get new customers.

• The other parts are labor efficiency and employee retention. Blended technician costs (incl. installers) are around 18%, and when you add CSRs, support staff, and managers, it gets to about 30% of your total costs being labor. Managing that labor is a big deal.

New Construction

• Relationships. Over time, relationships with builders can lead to recurring business.

• Technology and putting together better package proposals. Meaning, add in UV lights, remote monitoring, and humidifiers on top of what you’re already selling to add to your overall ticket and gain some margin.

• The case is that there’s an extra $5-10k per house to be made.

What do most people get wrong when running their business?

An old saying I’ve hung onto is “paid right, priced right”. The basic takeaway is that if you’re not charging enough, not buying right, and overpaying employees, you’re not going to succeed.

Most owners have a mechanical background, not a business one. For example, when I bought my previous company, they were paying $10k a month for three billboards in locations that weren’t worth the cost and had no way of measuring it. Some people have 14 trucks and only 8 people in the field. Like, why? Are you looking at every category of expenses? Because that can make or break things.

What big developments in the residential service and replacement market do you think about?

Two things: heat pumps and in-house training programs.

1. Right now, there’s a big push for heat pumps to overtake gas systems. Even though it’s more expensive to produce heat with electricity, you get a lot more out of them from an energy efficiency standpoint. As the technology improves so that heat pumps are effective in colder markets, mass electrification could actually happen, and that includes other systems like appliances, too.

2. The labor problem is a nonstop conversation, but I think companies must have a training center or full-time recruiting system in place every day. For example, a place where you can pay greenfield talent $800 a week to come in and learn, and in six weeks they can be running entry-level maintenance calls. Then six months down the line, maybe some diagnostic work. The days are gone when you just place an ad and qualified people show up.

If you could have dinner with anyone in history, who would it be?

There are so many that come to mind, but Malcolm Gladwell is definitely on my list. He's a best-selling writer who has single-handedly made me change the way I think. His books challenge how you look at yourself, others, and the world in a way you never would. It would be a great experience to have a one-on-one conversation with him to find out how else he can get my mind to journey to places it hasn't gone yet.