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Dr. John Sherk, the founder of Operations Laboratory, joins us for the thirteenth episode of our podcast, B2B Founder Stories, podcast and explains how his two decades of experience as a local church pastor influenced his entrepreneurship and why it’s important to figure out one’s niche. He also acknowledges how realizing his missteps led to growing his client base, and identifies the challenges that arise when family dynamics mix with business.

“I spent years trying to overcomplicate, and overmarket, and overexplain, and try to define the scope of what I do in a way that somehow didn’t leave anybody out. What is scope exactly, if something isn’t left out? People would say to me, ‘What is it you do?’ Rather than just go where I should have gone in the beginning, I probably lost five years of growth just trying to not tell people, ‘I only do blank.’ It wasn’t hard to get over that once I got over myself. The people who I help, they’ve been waiting all this time for me to get over it. It was really all stuff inside of me.”

Dr. John Sherk, Founder of Operations Laboratory

Transcript of Podcast Episode 13: When Families and Business Mix (w/Dr. John Sherk, Founder of Operations Laboratory)

Julian Lumpkin: Welcome back to B2B Founder Stories, with Success Kit. My guest today is John Sherk. He is the founder of Operations Laboratory. In this episode, we discussed John’s story founding the company, how his experience as a pastor helps him navigate tricky succession planning situations for family businesses, and his take on starting a new business in today’s environment. I hope you enjoy. John Sherk, thank you for joining me.

Dr. John Sherk: You bet, thank you, Julian.

Julian Lumpkin: John, to begin, tell us a little bit about Operations Laboratory.

Dr. John Sherk: I’ve been a consultant now for about 12 years, and I was in a previous operation with a business partner. In 2017, to save our friendship, we started separate companies, and the one that I started is called Operations Laboratory. We have an emphasis on both operations and doing data driven solutions, and being able to test whether things are working. That’s where the laboratory part comes in.

Julian Lumpkin: Cool. I know from speaking with you previously, you have a pretty unique background, as a real subject matter expert. Can you tell us how you got into your field, and how you switched into entrepreneurship?

Dr. John Sherk: I’ll connect a few dots. First of all, my family is an air conditioning family. My grandfather was a technician, my mother worked for Johnson Controls for 40 years. I’m not mechanical at all, so there was no way I was going to walk on that path. I ended up writing a dissertation on technicians, and their job satisfaction, and how to retain them, and that became a platform for what I do today. There’s that side of it. The other side of it, I spent 19 years as a local church pastor. When I do family business succession work, I have this odd combination of skills, because I spent 20 years doing this stuff minus the business part of it, in a different way. All of those skills blend together, and it gives me the ability to have a conversation where there are multi generations in the business. Most people, either they can talk to the family, but they don’t know about the business, or they know the business, but they don’t know what to do with the family. It gives me a unique voice with that person.

Julian Lumpkin: I have some questions about what you see, as far as succession planning, but before we go into that, can you tell us how you transitioned from this educational background, being a pastor, to entrepreneur?

Dr. John Sherk: I inspired to it for quite a while. Even the church that I had, I started that one from scratch. I had a horribly failed business venture right after I left that, going into real estate in 2006. If you know anything about what happened in the next couple of years in the mortgage market, it was a disaster. That one didn’t go well, and I had a pretty significant failure there, and I lost some investors some money. When it came time again, I was working for a university in Mississippi, and one thing led to another, you could call it mutual, wanting to make a change. I just said, “I’ve been wanting to do this for a while, it’s time.” I was going through a divorce, and I put everything I owned in the back of a 10 year old Chevy S 10 pickup, and I had about $15,000 in the bank, and I drove to Baton Rouge, Louisiana, believing I would have one client, I think. I rented a room from a guy on Craigslist, and took it from there.

Julian Lumpkin: Wow. I’m assuming this first client was someone you already knew. How did you go about getting your first few clients? Were you already entrenched in the industry, to have the connections? How did you go about launching?

Dr. John Sherk: It was an evolution. I thought what I was going to do was philanthropy consulting. I had been a professional fundraiser for many years in different settings, so I started there. My first client was actually Catholic Charities of Baton Rouge. As things evolved, I realized, I have a knack for business generally. I don’t have to niche in that direction. It’s interesting, when you start a consulting business, in my opinion, the number one mistake, and this is probably true of multiple businesses, it’s trying to solve too many problems for too few people. It’s much more productive to solve only a few problems for a lot of people, because you can grow those accounts. To come in with your scope being, “You want me to wash your car? What do you need from me? I’ll do anything for this.” It’s the beginning, and you’ve got to have revenue, and it’s really easy to let your expertise bleed away into being some kind of generalist that doesn’t demonstrate expertise anymore, because they do everything.

Julian Lumpkin: It looks like you guys have a pretty tight and defined offering now. How did you get from there to where you are now?

Dr. John Sherk: Here’s how it was for me. I just kept coming back to, what are the things that I like doing, and what are the things that I’m good at, and that seemed to really help my clients, and they really appreciate it? What began to happen was, the clients that I wasn’t helping enough fell away. I have clients that I’ve had now for 10 years, because they’re in air conditioning. I know what kind of problems they have, I know I can help them solve those problems, they trust me. The relationship’s just [inaudible 00:06:05], and it fell away to where it was, I only want to do what I like to do. Once I was able financially to go that direction, it was easy to go ahead and say it out loud. There’s a fear that if you go ahead and talk about your niche, there are all these people waiting in line to work with you that will go, “Sorry, I guess I won’t then.” The fact is, there’s way over 100,000 air conditioning companies in the United States, it’s not like I’m going to run out of prospects anytime soon.

Julian Lumpkin: As far as building your company as it is now, what part of it was the biggest challenge, or harder than you expected it to be?

Dr. John Sherk: Everything that was hard about it was coming from inside of me. There’s a natural dynamic, if you know how to solve a problem, and someone has that problem, and you want to charge X, and they can afford X… this is like, “If I’m hungry, and you have a burger, and I have $10, business is probably going to happen.” The hardest part for me was letting it be simple. Look, there are a few problems that I solve. If somebody has that problem, I just have to make sure they know I solve that problem, that’s probably going to generate a conversation. I spent years trying to overcomplicate, and overmarket, and overexplain, and try to define the scope of what I do in a way that somehow didn’t leave anybody out. What is scope exactly, if something isn’t left out? People would say to me, “What is it you do?” Rather than just go where I should have gone in the beginning, I probably lost five years of growth just trying to not tell people, “I only do blank.” It wasn’t hard to get over that once I got over myself. The people who I help, they’ve been waiting all this time for me to get over it. It was really all stuff inside of me.

Julian Lumpkin: I’m curious how that growth for you happened? Did you have an outside consultant yourself, or was it something you just had to learn on your own? How did you personally make that transition, to figure this out?

Dr. John Sherk: In my mind, there’s a difference between a sales guy and a marketing guy. When I started talking to some marketing people, real marketing people, they asked me questions that I was stumped by. The way I would distinguish this is, a salesperson wants to keep the door open for 1,000 people, but a marketing person wants to move aside 999 of them. You know that one is the one. It’s part and parcel to what I was saying earlier. People who think marketing, they’re trying to disqualify everybody who doesn’t fit in, everybody we should not be talking to. We don’t spend resources there, we should not be doing that. We do this for that guy, let’s just have that conversation. When I started talking with those people, that’s when it started to really click for me. Sales isn’t everything. I can be selling, but I’m on a 10 speed bicycle pedaling furiously in first gear, and not getting that far. Being able to put the two together strategically, which meant essentially, going public with the niche that I had, was what that was about.

Julian Lumpkin: Can you tell me a little bit more by what you mean by, “Going public with the niche that you have?”

Dr. John Sherk: Banners on LinkedIn, statements on my website, photographs chosen to go on the website, being really clear that if you have this one problem, you should talk to me, and not trying to come off like some impressively smart person who can solve any problem. Sometimes in consulting, especially management consulting, if you want someone who can solve anything, be really rich, and talk to Mackenzie. It’ll cost you a million dollars, and that’s fine, because they have all of those solutions. If you come up with a specific problem, almost surely, there is a consultant who knows exactly how to solve that problem. When I talk about family succession in an air conditioning business, it sounds hyper niched, but I know exactly what to do, and exactly how to solve that problem. When you work in that space, you’re an instant expert, if you really know how to solve that problem. There’s not 500 of me walking around. The whole process gets fast and dry.

Julian Lumpkin: What is your long term plan for this company?

Dr. John Sherk: That’s a very intense question, because it’s changing a little bit this year. I’m in a group, Collective 54, where Julian, you and I met, and there’s a lot of talk about how to scale your business. What I realized here was, I don’t know how to bring up a team that knows how to do what I do. There are too many moving pieces in my background. The amount of time it would take to train a counselor to do business, or to train a business person to do counseling conversations, I don’t know how to build that team. As it comes to me, I’m continuing to do the family succession work, but I’m taking a left turn into the recruiting world. I am an expert on air conditioning technicians, and I have quite a bit of data and understanding of how to communicate with a technician, what goes on inside the mind of a technician, what makes technicians happy and sad. Starting in 2023, I’m leaning more into my new podcast, HVAC Joy Lab, which is for technicians, and building an audience of technicians, and adding value to technicians, and ultimately, doing some recruiting work with them as well.

Julian Lumpkin: Got it. You see that as more scalable, because it’s not leveraging just this one skill set you have, did I understand that correctly?

Dr. John Sherk: That’s right. It’s still a relational conversation, but it’s a much simpler conversation to talk to a tech about getting a job than it is to unpack what dad did 15 years ago, and how that impacts the operation of the business. That’s a very complicated conversation. Techs tend to have a certain set of problems. If you haven’t noticed, my whole world is centered around what problem gets solved in this relationship. They’re going to want relationships that work, they’re going to want respect, they’re going to want to have the freedom to do their job well. There’s some recent research I just read that said that when American workers are asked, “What causes unhappiness,” the number one answer was, “Talking to my boss.” That creates a doorway for bringing a technician by just saying, “Tell me about your boss.” If he says, “My boss sucks,” I can say, “This boss over here doesn’t, what do you think?” In the old days, 10 years ago old days, there used to be a social contract where, “This guy needs a job, I’m offering a job, and that’s going to kick off a relationship.” In this current labor market, anybody getting recruited already has a job. They have to solve a different problem in order to make that decision. The recruiting conversation becomes, “How do I identify the problem that we can solve, and use that as the bridge from there to here?”

Julian Lumpkin: It’s really interesting. You and I spoke offline about this, I think it’s a really interesting pivot you’re making. I think there is a general trend towards building communities, and connecting that with recruiting. It’s not just like, “Here, let’s place this person. Let’s build value for this group of people, and work with companies who show that they understand the values that you know are important, and connect them in this more authentic way.” I wish you the best with the pivot.

Dr. John Sherk: Thank you.

Julian Lumpkin: I want to pivot this conversation. I appreciate you sharing your story, founding the company, but you’ve worked with so many company owners that I want to just pick your brain, and get some of your advice for myself, and some of our audience that is maybe thinking about starting a company, or may be a solo entrepreneur, or a small business owner. I’m going to start really general, and you can take this any direction you’d like. What are some of the biggest mistakes you see small business owners making?

Dr. John Sherk: There is small, and then, there is really small. If we’re talking about one guy in a truck small, it’s the stuff I already talked about. Figure out what problem you solve, and align yourself with anybody who has that problem, and don’t waste your time anywhere else. If you’re saying, “I’ve got a team of 10 people, we’re doing $1.2 million,” there are a couple of things. Owners take too long to raise up someone who’s going to run the company instead of them, and it creates a hub and spoke problem. Then, they feel stuck in it. What happens in that case, the actual running of the business creates a hyper expert out of one person, and now, I don’t even know how to pass the torch. It’s like I described earlier, with my other skill set. How do I pass this torch to somebody? They would need to go through 10 years of experience. Now, what do I do? I’m stuck. I can’t sell it, because it requires me to run it. Another common mistake I see is that there’s not enough attention paid to the financials. Any business over a million dollars, maybe over $1.5, should really consider getting serious about very high level, and by high level, I mean on point, accurate, maybe audited financials. In a business, there are three languages. The front liner’s language is processes, the manager’s language is ratios, meaning, “I need Earl to do that four times in an hour, to get this outcome.” The executive language is dollars, and that language is spoken on financial statements. It takes too long sometimes for the owner to be able to interpret their business through the financials. Any bank, or any potential buyer someday, that is exactly how they’re going to interpret the business. Learning that language now puts you in a position to do more than say, “Isn’t this a great business?” You can really have certain conversations about cost of goods sold, and SG&A. I have a client right now, we’re going through this process, and she has a terrific business model, and she’s operating, including the frontline management, at a 70% gross profit margin. We’re putting her on a track that she’ll have a business that will do $5 million, but net $2.5 million, and be worth as much as $25 million when it’s time to sell. All of that is driven by conversations around the financials, and talking about SG&A, and cost of goods sold, and cost of labor, and all of that. Too many owners leave that to the CPA, and they just go, “Tell me how much is in the bank.” That’s a mistake, in the long run. Every business owner should learn the language of the financials.

Julian Lumpkin: A quick follow up question on that, the number you threw out about $1 million to $1.5 million, I’m curious why that’s the mark where you start to think about getting serious about those financials? Why not at half million, and why not wait until $3 million? Why do you recommend that number?

Dr. John Sherk: If it makes sense for the owner to do it sooner, do it sooner. Even if it makes sense for the owner to do it from the very beginning, do it then. Let’s say it’s a one person business. When I talked about those three languages, they’re wearing all three of those hats. They’ve got to manage themselves while they do their own processes, and look at financials. They’re already in everything, so they don’t need a report to tell them what’s going on. The financials become more valuable when enough is happening that you can be missing what’s happening in the business, and that’s generally about that size. That’s in more of a professional, services context. It’s about that same size in air conditioning as well, in a service business. Right around that size is when you start talking about needing to build a back office, and hiring people who are not billable to a client. The financials help you know when you get to do that, or when you can do that, because there’s a bubble there. While you’re building that office, you’re hustling to get all the revenue you need, but profit’s going to go down, but it doesn’t go down forever. The financials help you track that transition.

Julian Lumpkin: Yeah, it’s interesting. My background, before I got into professional services, was in the technology world. In the tech world, it’s like, “Start doing that from day one.” You’ll hear tech entrepreneurs describing the financials of a 5K, MRR business. Perhaps that’s just because they’re preparing to raise money, but it is interesting that it does seem that it comes a little bit later in professional services. You can just make it all work until you get to around $1 million, and then start to figure it out. It seems like in these other fields, they’re really engineering those financials from the beginning.

Dr. John Sherk: I think some of that has to do with other, third-party investors. My assumption was a bootstrap startup, but if you’ve got other investors involved, absolutely from day one, the financials have to be on point.

Julian Lumpkin: Yeah, that’s probably what it turns on, rather than industry. If you’re going to raise money, they’re going to want to see that from the very beginning. You may have already answered this question, what is the low-hanging fruit, something that company owners could start doing today, that you see a lot of people not doing?

Dr. John Sherk: Interesting. My first thought here is, it does come back to what I talked about, solving the problems. Sitting down with your team, and saying, “I want to put on the whiteboard here every problem we solve,” and start consolidating that, and saying, “Half of these problems we’re going to stop solving, and we’re not going to put our time into it. This other half, we’re going to find twice as many people who have this problem.” The reason it’s low-hanging fruit is, it’s so easy. They have a problem. Anybody who listens to this podcast has some problem they’re facing right now in their business. If they got an email from someone that said, “I solve exactly that problem,” they’re not going to go, “Another junk email.” They’re going to say, “What’s your solution? Let’s talk.” That’s what makes it low-hanging fruit, getting really clear about what that problem is that you solve, and refining it from there. When doing family business succession, one of the things, as I marketed that, I thought the number one problem they want to solve is, concern over conflict. I marketed the hell out of conflict. I started talking to people I was marketing to, and they said, “Don’t bring it up. That makes me not want to do this. I don’t want to face that.” You have to refine how you talk about it. It was a mistake for me to not have talked to them more first, before I went into it.

Julian Lumpkin: That’s a perfect transition to my next question, because family dynamics, and succession planning for business are very interesting. I’m curious, you could probably talk for hours about this, but what are the most important things, or challenges that folks in that situation are thinking about, or struggling with? Is it about money? Is it family dynamics? All of the above? What do those situations typically look like?

Dr. John Sherk: They all look as messy as families do. I have a client—two brothers owned the business 50/50—they wanted to pass it down to their kids. One brother had one son who wanted in, no problem. The other one had five kids, three of them wanted in, from two marriages, and he had to pick one. Try to imagine that. I had another situation where dad didn’t tell anybody what his plans were, left the will with the lawyer, they go to the reading of the will, and they discover that the business has been left in equal voting shares to all 11 of his children. This is now complete chaos. Whatever’s complicated in the family is going to show up in the business somehow. The more garden variety type of things are, think about the difference between selling your house to a third party, or giving it to your kids. A lot of kids are still buying it from their parents, but let’s say it’s that other kind of handoff, where they’re not paying for it. How much work would you do on your house in order to sell it, versus how much are you going to do on your house if you’re going to hand it over to your kids? You fixing these problems is the price of entry. I’m already giving you a free house, what do you want from me? All of those problems, a messy balance sheet, awkward things with vendors that’s not been finished—those are all reasons that junior can fail running the business. The transaction’s got to be handled with the level of formality that a third-party sale would have. The business has got to be valued. What is this thing actually worth? What is the owner’s nest egg number, and is it there? I’ve seen other situations where promises get made, but the owner can’t retire, because they don’t have enough money in the bank, and they just live on and on and on. Junior is starting to turn in his middle fifties, “What am I supposed to do here, dad?” Treating the thing like a business, even though it’s family, is critically important, and just agreeing that we have to have these conversations, and we have to talk to each other like adults.

Julian Lumpkin: I can really see why your experience as a pastor could be really valuable for these conversations. It’s a very interesting skill set you’ve brought together. As we wrap up here, in case anyone in the audience might need some of the help that the services you do, where can people find you, John?

Dr. John Sherk: I would reach out to me at operationslaboratory.com. Even better, you could just go to my LinkedIn page, and message me on LinkedIn, because I’m all over LinkedIn all the time. Just go to Dr. John Sherk in LinkedIn, and you’ll find me there.

Julian Lumpkin: Great, John, it’s really been a pleasure. Thanks for coming on.

Dr. John Sherk: You bet. Thanks, Julian.

Julian Lumpkin: Thanks for listening. We’ll see you back here soon for our next episode.

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