The TCO Method ®
Episode 32
You’ve Been Lied To
Hosted By Andy McQuade

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But businesses are in business to get money, make money and keep money.

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They’re not in business to expose themselves to lawsuits for making stupid decisions.

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[Music]

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Welcome to The TCO Method ®, the only show focused on helping you massively increase your net operating income.

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I am Andy McQuade, thank you so much for tuning in to today’s episode.

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I’m gonna apologize, it’s been a while since I’ve done a solo show.

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I had to get paid, I’m sorry, I need to do work and make money, so solo shows went on hold for a little while.

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It is what it is.

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I’m making time, I’m trying to be good, I’m working with some marketing people who are like, you need to start doing it again.

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So here we are.

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If you’re cranky at me because I lied about having two episodes a week, I’m very sorry.

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I probably won’t be doing two episodes a week regularly, but I am going to be doing more guest podcasts where I have more speakers come on and talk about what they do to help people save money or in their operations, what do they do to save themselves money, which is sort of more relevant.

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And I’m going to continue making sure that the people I bring on are actually experts in their space and that they’re not looking to just get the name out there so they can raise capital and suck you into this indication.

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I’m going to show today I had an interesting conversation, maybe it was a couple days ago, I had an interesting conversation with somebody who just decided to reiterate a bunch of the crap that

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everybody in their brother goes out and says and it’s not necessarily completely untrue or unfounded, but there’s a lot of people out there who repeat things without actually knowing what they’re talking about.

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Okay.

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And it’s been a little weird over the last couple of years, getting out of COVID and seeing supply chains kind of spring back to where they’re supposed to be a little bit of normalization and pricing.

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Here’s what I want to talk about.

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No, there is no difference in product quality for certain things, not all things, certain things, buying them at a box store or buying them from a mom and pop distributor.

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Okay.

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You’re swearing up and down that you know it’s garbage, some things are garbage, absolutely correct.

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There are some things you just don’t buy at a home depot, lows and monards.

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So if it’s a private label product, right, like a cobalt, lows or Hampton Bay or home decorators collection or husky from home depot, those are their private label brands.

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They literally partner with in some cases, no name Chinese companies to have their product produced rigid is a home depot brand made by the TTI group.

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TTI group makes riobe, not exactly the most ringing endorsement, but you know what else TTI group bones, Milwaukee.

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Are you going to argue that Milwaukee is a crap product because they happen to also own riobe and rigid.

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Regents had their share of really good tools and really crappy tools, but it’s a budget semi-pro product.

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So take that for what it’s worth.

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Milwaukee in home depot is the same Milwaukee at a mom and pop supply house.

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If you want to know why their combo kits are cheaper, it’s the same reason the combo kits from Makita and Walt and anybody else in a box store is cheaper.

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It’s the same tool, the same guts.

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So you buy a drill kit from home depot, you buy a drill kit from a mom and pop.

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The tool number is exactly the same, the model numbers identical on the actual tool itself, the kit number may be different when you buy the box.

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The tool number is exactly the same has the same warranty has the same service.

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Okay.

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The difference is in the batteries for all those tools.

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So you buy a do Walt combo kit that comes with two drills and two batteries or two drills and reciprocating saw and two batteries and a charger or whatever it doesn’t matter.

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Same thing with Milwaukee.

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They put a lower grade lower end battery in there that costs them way less and that will quite frankly suck performance wise.

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What’s the solution by the cheaper combo kit and then buy good batteries.

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This isn’t really rocket science.

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Okay, people, they’re not putting plastic gears inside the do Walt drill just because it’s being sold in home depot.

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Do you realize the scale of these companies and the billions of dollars that they spend on R&D product development, product quality.

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All the other stuff that goes into running their business.

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Do you think that they would expose themselves to potential class action lawsuits and all this other stuff?

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Because Home Depot said we really want you to put crappy plastic gears in this. No.

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That’s why they have RIOB people.

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It’s not a different drill.

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It’s a different battery.

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That’s why.

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Quartet kits and corded power tools at Home Depot and Lowe’s are almost the exact same price as they are at the mom and pops supply house.

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Because they’re not producing them to be pieces of crap because they don’t want to replace them for free or be subject to lawsuits when they go sideways.

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It takes a little common sense to put this together.

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You don’t work in the industry. You’ve never worked in the industry. Maybe you don’t know. But businesses are in business to get money. Make money and keep money.

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They’re not in business to expose themselves to lawsuits for making stupid decisions.

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Okay. So the next time you hear somebody say, “Oh, you can’t look at a home depot of the piece of crap.” No.

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The same as every other tool. The batteries are a piece of crap.

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They’re going to say the exact same thing about their paint. I heard a guy who does conferences all over the country who’s been in business coaching landlords and property managers literally for two decades plus.

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Maybe three. Maybe since the 90s.

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And this guy got up on stage and looked out at the audience and said, “Don’t buy your paint at Walmart.”

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And it’s not something like that. I’m using it to mask who he really is. Don’t buy your paint at Walmart. It’s all factory seconds.

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No, it’s not. It’s not factory seconds. I don’t know why you’re so dumb to think that that’s the case.

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You want to go to Home Depot, Lowe’s, Walmart, sure, Williams, buy their mistense? That’s kind of factory seconds, yeah? But no. There are no factory seconds on the shelf in a retailer anywhere in America.

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Do you know why? Because they don’t want to get sued when the product doesn’t work the way it’s supposed to work.

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You find factory seconds at like a Mr. seconds, right, or a Ali’s or whatever. Any of those places that literally go to manufacturers and say, “Hey, can we buy all your junk, please?”

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Those guys, they have factory seconds because they advertise that they have factory seconds and a lawsuit’s never going to stand up in their case.

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The cheap crappy paint at Walmart is literally cheap crappy paint made on purpose to be cheap and crappy.

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It’s not like accidental. It is made by PPG, Glidden, whoever, to be a crappy paint and so it’s going to perform poorly. But it’s cheap, okay? That’s the only thing.

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There is no factory seconds. There is no, “Hey, we’re going to make all this stuff and expose ourselves to lawsuits because we just like to light money on fire.”

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No, it is a business. Just because the associates on the sales floor, who are hourly associates who are in charge of nothing other than showing up on time and taking care of the customer when they get asked a question, nothing that they do qualifies them to talk about,

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how the company purchases the products they sell on the shelf. They have no freaking idea, okay? Literally none. Do not listen to hourly sales associates, even salary associates.

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At Los Home Depot, Walmart, if they don’t have a direct job function related to purchasing products from vendors for the company, they have no idea what they’re talking about.

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Throw it out. It is absolutely 100% false. Anyway, what is true? Fossets at Home Depot, Lowe’s, Menards. They’re so cheap compared to the real deltas and the real moans and the real insert brand X, Y, or Z, like a lot of these companies now are owned by these huge conglomerates, right? Like Fortune Brands, Master Brands, whatever.

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So a lot of them use their exclusive relationships that they have with Home Depot or Lowe’s and Lowe’s will say, well, we want to pick these 15 items and we want them to be looking exactly the same as the ones you sell in your showrooms and supply houses, like Ferguson or whatever.

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But we want them to be half the price or less. We’re not talking about the Glacier Bay, cheap Home Depot stuff. We’re not talking about Hampton Bay. We’re not talking about Project Source, right? We know those are Chinese cheap, knock off brands with plastic guts and internals that fail after a certain number of years and it’s actually probably cheaper just to throw the whole thing away than try to actually repair it.

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But the deltas and the moans and whatever the world will produce product for Home Depot and Lowe’s that does not have the same quality of components. They won’t use brass castings. They won’t use real solids. They’ll steal the plate it.

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They’ll use plastic where it would be metal. They’ll use cheap plastic ball valves or cheap gate valves in their faucets and shower and tub kits instead of quarter turn ceramic.

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All these things are why the components are different. The outside might look the same. Home Depot versus, you know, company XYZ, that’s a small mom and pop or a big distributor like Ferguson. The quality of the guts are different.

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So in that one instance, absolutely correct that there are cheaper parts and pieces put into their plumbing stuff. But not on the toilets.

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Okay, so like an American standard toilet at Home Depot is the same as the American standard toilet at Ferguson.

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A cooler toilet at Depot is the same as the cooler toilet at Ferguson. There is no difference in the toilets. We’re just talking fow… you know, shower heads, faucets, that kind of stuff.

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The whole private label thing that I mentioned earlier, the, you know, Hampton Bay, Husky, Cobalt, blah, blah, blah, all that private label crap.

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They go to third party factories in China. They go to other big manufacturers like Fortune Brands and they say, hey, we want to have our brand on your product. We want it to be this and they could give specs and whatever.

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So like when you see the vanity sales and the cabinetry from Hampton Bay at Home Depot, lows, whatever it is, all that private label stuff, they’re going to China and they’re saying, we want cabinets built this way, but they need to hit this price point.

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And we want this many of them and they’ll buy them by the dozens of container loads. So they’re not necessarily the highest quality products out there. They have a place, right?

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Every product that’s sold in one of those stores wouldn’t be in that store if it didn’t have a place somewhere in the ecosystem, right?

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You just have to make sure that you know what you’re getting into when you go to buy it. That’s it. That’s all there is to it.

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You want to talk about Kitchens at Home Depot?

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Don’t, again, don’t listen to people. We’re telling you that the Kitchens at Home Depot, the cabinetry, the special order cabinetry from craft made or aristocrat or whoever it is, Home Depot lows, whatever is different than the

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cabinetry that they buy from the mom and pop supplier that buys it direct from craft made kitchen, you know, aristocrat, whoever it may be.

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They’re literally identical, come off the same lines, come off the same factory floor, come out of the same warehouses. Home Depot, the way their supply chain works, they buy stuff, and this is true for lows is true for minards.

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They buy stuff on negotiated contracts based on their whole company volume.

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So you’re talking about somewhere between one in two thousand stores across the United States, all tapping purchases and combining their purchasing power from these manufacturers.

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Yes, their price is going to be better for the exact same thing. Then the mom and pop is it an unfair advantage? Yes and no.

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Because the service level, the resolution to problems when they happen, the quality of the kitchen designers, the amount of support and resources from the manufacturer to the store is night and day different.

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The mom and pop pays more, they get a way higher level of service, they get a way faster resolution time to problems when they happen.

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So it’s six to one half dozen of another home Depot, stack it high and watch it fly mom and pop.

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I want this to go right the first time and not have to deal with it. That’s the difference in thought.

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The home Depot exclusive cabinet brands like Thomasville that master brand Thomasville exists in four or five other brands that are all just private labeled, but they all come off the same lines they put a different stick around the box.

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That’s it. There’s no exclusivity there. It’s a name brand. The colors, panel styles, features and functions, all exactly the same.

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The only difference is the name on the box. We see that in windows, silver line windows.

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Okay, vinyl window, they’re okay. Some of their stuff is better than others.

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They produce product for 15 different companies saying that it’s whatever product and they put a different sticker at the end of the factory line, depending on who bought those windows.

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So if the windows are going to 84 lumber, there’s a big 84 lumber sticker that goes on the window. If the window is supposed to be an Anderson craftsman series blah blah blah.

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And this is old. I know that Anderson doesn’t own self-align anymore. But anyway, when it when it did, they would put an Anderson, whatever craftsman window sticker on it.

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This is how factories work. They make the same thing over and over and over again because of economies of scale. The more you make of something, the less expensive it is for you to assemble that thing.

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Okay. That’s why custom would work, custom cabinetry, custom mill work, all that stuff is so expensive because every time you make something different, you have to reset all the machines to do it.

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When you have a factory system, making things in bulk mass production, everything gets cheaper. Economies of scale, right? That’s why you want to go from a whole bunch of single family rentals to multifamily because you go from if you have 150 doors, you go from 150 different floor plans with all sorts of different styles and different neighborhoods to everything in one neighborhood and maybe like three to 10 floor plans.

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This is not a hard concept. Okay. Scaling works in every single business that exists just again, just because someone who happens to work at a store says something that’s outside their scope of influence and understanding does not make it true and it does not mean you should go around repeating it to people on stage in front of 400 people.

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Just making yourself look like an idiot because if you’re up there and you’re repeating all this paint it comes from factory seconds. Okay. So there’s like 3000 something wall marks. Do you really think there’s that many factory seconds? The companies would be out of business, bro.

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You can’t possibly supply all of that stuff on those shelves by accident. No way, zero percent chance.

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Most people don’t think on that level so they don’t put two and two together and go, you know, that doesn’t sound right. But if you’re standing up there and you’re just repeating stupid crap, you’re bringing people to the point where they’re going to look at you and go, well, if that’s full of crap, what else is he said or she said that it’s equally full of crap.

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This isn’t something. This is not a business that happened by accident. Okay. If you’ve ever read built from scratch, right? Bernie Marcus and Arthur founded Home Depot. The book is built from scratch. They explain how they did it.

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Starting in the 70s, the year I was born, they went from zero to in 2023. They had like 2100 stores in every state in the country and Mexico and Canada making well over 100 billion a year in gross revenues that does not happen by accident.

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That happens by systems and processes and scaling and understanding how to do things.

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Vendors hate manufacturers by vendors. I mean, manufacturers hate renegotiating their contract with Home Depot every year. Same thing with lows. Same thing with Menards because these super power companies come in.

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And even though they might be the smallest percentage of the industry, right? Home Depot, 110 billion, lows, half of that, Menards, half of that again.

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When you look at all construction, all remodeling, all the things that those stores sell across the entire industry, commercial construction, residential new construction, commercial multifamily, small multifamily.

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Built for rent, single family. When you look at their market share of building materials, it is significantly less than 10%. For Home Depot, being the big dog in a room, it is less than 5%. I would argue.

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However, for these individual companies, Home Depot is probably their single largest customer by far.

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So in just a perfect example, I worked for both 84 lumber and Home Depot. In 2017 or 2018, Home Depot was Anderson’s largest customer, Anderson Windows, to the tune of like $500 million a year.

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I’m sure it’s way more now because everything got more expensive. Crap, glass got 40% more expensive during a pandemic and has not come back down.

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So I know it’s much more than $500 million now. Okay, Anderson’s done nothing but grow.

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Their next closest customer was 84 lumber, who specializes in new construction homes was 75 million.

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So you’re talking about from number one to number two, the gap is so massive that you would have to five, six, seven times over as the number two guy to get to that volume.

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So what do you think the buying power of these little mom and pop lumber yards and little hardware stores and aces and true values and all that stuff?

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What do you think your buying power really is? Companies hate going to the table with Home Depot because Home Depot is going to put unreasonable expectations in their opinion on lead times, product quality, turn times pricing, rebates, special deals, incentive programs, how much money are you going to give us an advertising comps to increase the amount of feet in the store that we’re going to give you for your products.

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Like those are conversations that actually happen. This is all background stuff to just bring to light the fact that people just don’t understand the scale or the scope of these businesses.

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They may have a very small piece, but when it comes to the economy of scale of being that single buyer, that single purchaser, their purchasing power is un-equivical.

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And we’re same way with Walmart, Target, like these are the big players in manufacturing when you’re interfacing on a retail wholesale basis, okay.

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It does not mean that they are the right answer from a service level from a quality level terms like their retailers.

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They don’t speak new construction. They don’t speak at scale to commercial construction. They don’t speak at scale like they’re good for their niche that they’re in for those companies, right.

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Power tools, equipment, safety supplies. I’m out of this. I need to run the store like that’s what they’re good at. They’re not good at a lot of the things that are important to production builders, commercial contractors, GCs.

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There’s a lot of angst out there too as far as like I’ll never buy from home people. They’re a terrible company. They put my mom’s hardware store out of business.

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No, your mom put your mom’s hardware store out of business because she didn’t adapt to the internet, okay. She didn’t adapt and try to join a conglomerate like an ace or true value to stay afloat.

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Like times change you have to adapt to the time so very sorry that your family business got buried by these huge companies, but that’s no different than having a one man roofing operation that brings in four or five laborers to do every roof and complaining that the guy down the street that’s got five or 10 crews that’s constantly growing and has sales people on the road selling deals is doing better than you.

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It’s part of the business so you either accept the realities of the business you’re in or you get out of the business whether you leave on your own or your forced out is really up to you.

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And I know that probably hurts some people’s feelings but that is life.

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Your business is a business you have to treat it like one.

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Anyway, back on topic don’t believe everything you hear when it comes to certain things I’m not defending home people I’m not saying to go buy stuff at home, but I don’t give a crap where you buy stuff.

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Buy stuff where you can leverage the most buying power to make the best business decision and garner the best service terms pricing relationship you can with your suppliers.

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That’s what you should be doing every single time you buy things.

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Question everything don’t just assume because somebody says it me included that it is the gospel truth but beware taking advice and listening to people who don’t do it and that applies to everything in business.

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I see people’s books I make purchases for people I recommend products for people to use I build specification sheets I do takeoffs and estimates I teach people how to do estimates and how to walk units.

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This is my full time how I make money how I get paid.

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Don’t assume just because somebody standing at a counter store walking in an aisle of the store says something that it’s true.

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Verify everything especially if it’s coming off of like Reddit or Facebook or you know at a real estate investors meeting like what do they do that qualifies them to give the information that they’re giving is it really what they’re doing what’s their background.

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Just because you buy a lot of stuff and trust me this is how I get paid if people knew how to buy stuff I wouldn’t be getting paid okay.

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That’s the reality there’s a lot more people out there who have no idea how to buy things or how to operate procurement purchasing construction project management like there’s a ton of people out there doing it who are really bad at it.

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So before you take somebody’s advice is gospel truth or believe their story maybe you should look and see what qualifies them to give you that advice.

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So there’s this entire conversation on social media about not taking advice from people in the cheap seats.

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Very true right you can’t take advice from people who don’t have skin in the game you can’t take advice from people who aren’t doing it themselves they don’t understand where you’re at as an entrepreneur as a business owner as an operator as a laborer if they’re not in your career and they haven’t done what you’re doing they don’t know what you’re doing so you have to take whatever advice they give you with a grain of salt maybe it’s a maybe they’re right maybe they for some reason have this uncanny ability to understand things outside of their personal experience.

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It is possible however unlikely but don’t take advice from people when it comes to your business who have not accomplished what you have accomplished or what you want to accomplish.

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There’s a ton of coaches right I’ve had this conversation on the show before there’s a ton of coaches consultants experts air quotes if you’re on YouTube experts.

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There’s a ton of experts out there telling people things and giving their opinions and people are believing them just because somebody says they’re an expert doesn’t really make them an expert I’m sorry it just doesn’t okay I don’t call myself an expert

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even though I belong to a bunch of expert networks who have vetted me and told other people that I’m an expert I’m still learning stuff and I still say shit that I find out later is wrong have not done that on the show so far could happen.

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I’m more than ready to admit that that is absolutely possibility that I will give say something absolutely stupid that is wrong.

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And I’ll apologize and retract correct whatever but the reality is that the guys and gals that are out there throwing themselves out as experts and then they follow it up with the I have three years experience I have five years experience what you freaking kidding me.

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Seriously three to five years is not enough time to become an expert in anything like you’re not even an expert at wiping your ass in three to five years.

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Why do you think that you’re qualified to be giving business advice that people are going to maybe sink their entire operation after listening to you similar conversation with syndications.

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Sorry if you’ve been operating in real estate as a GP for three years five years and it’s not your sole source of income and you’re supporting your family with it.

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You don’t have enough skin in the game for me to be comfortable giving you money.

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So why would I listen to you about anything else whether it’s capital raising or operations or whatever.

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Three to five years to drop in the bucket man sorry that’s my opinion and it’s also reality I think okay so the key 10 years 12 years 15 years successful track record.

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Long history of problem solving and going through the motions yeah you’re probably qualified to be a coach you’re probably qualified to be an expert air quotes but it does not mean.

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That everything you say is going to be right and there’s people out there who just drink this stuff up like the person standing in front of the Ferrari.

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That’s not theirs or on a beach on vacation somewhere like look at me I’m awesome I made all this money and I have this cool car that I’m standing in front of but it’s not my car but I’m not going to tell you that I’m going to think it’s my car.

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No dude stop that crap anyway vet everything verify everything stop repeating stupid crap.

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No one reason I even did this episode this week is because I heard the stupid crap again and I was like this is a great reason to record another podcast episode of that being said thank you so much for listening I appreciate you tuning in I love you long time please if you’re watching on YouTube hit the bell subscribe leave me a comment like the episode if it was worthwhile if you got anything from it if you don’t agree with me leave me a comment or better yet send me an email.

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Where everywhere podcasts are found so if you’re listening to the audio thank you so much if you’re on Spotify please leave us a review you can even comment and leave episodes specific reviews now Apple podcasts I heart radio wherever you get your podcasts I appreciate you signing up subscribing download these episodes helps me stay motivated to keep making more episodes I make no money off of my show I don’t monetize anything I hope you’re not.

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I hope you’re not hearing commercials because I’m not getting paid for them if there’s commercials on this episode have a great rest of your week I appreciate your time go to real estate.

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[Music]