CAN WE GET OFF THE ROLLERCOASTER YET?
While we all know the low points of the economy in 2008— with the media attempting to whip us into a frenzy on a neardaily basis—there were also some bright spots. Some companies in our industry found areas to grow over the past 12 months.
In this special Year in Review article, Services magazine assembled a cross section of industry professionals for a roundtable discussion and asked pointed questions about their thoughts on the industry and the economy in 2008.
Many thanks to the following building service contractors, consultants and suppliers for their input and knowledge: Stan Doobin, 2009 BSCAI President and President of Harvard Maintenance in New York City; Jamie Van Vuren, President of Bee Line Service and Supply in Schaumburg, IL; Frank Trevisani, Manager of Building Service Contractors for Spartan Chemical Company in Maumee, OH; Tom Morrison, Vice President of Marketing for Kaivac, Inc., a manufacturer of cleaning equipment and products based in Hamilton, OH; Barney Gershen of Gershen Consulting, LLC in Bellaire, TX, a consultant to the building service contracting industry; Dick Ollek of Consultants in Cleaning, LLC in Camdenton, Mo, a consultant to BSCs; Lance Tullius, a partner with Portland, OR-based Tullius Partners, a firm that offers strategic planning and financial advice to BSCs; and Chuck Strobel of Strobel Properties, LLC, a consultant to the industry based in South Mills, NC.
HOW DID THE BUILDING CONTRACTING INDUSTRY DO IN 2008 ON BOTH A REGIONAL AND NATIONAL LEVEL?
Stan Doobin: Like most industries, BSCs started 2008 in good shape on both a regional and national level. As the year progressed with the financial services crisis, collapse of the residential real estate market, and the depression of the American auto industry, BSCs were negatively impacted on both a regional and national level. Cleaning costs are a large operating cost and most of our clients feel that this is an easy target to reduce costs in.
On a regional level, New York City cleaning contractors felt the collapse of the financial services market, as this industry was headquartered in NYC. Michigan and other areas that rely on the auto industry, both domestic and foreign.
Jamie Van Vuren: Yes, this was a challenging year as many of our customers experienced setbacks, which in turn affected their budgets, which of course leads to the re-evaluation of contracts.
Dick Ollek: We saw some of the regions of the country take a hit, but as I talk with some of the contractors in those difficult areas, I find them in a pretty positive mood. Many have stepped up their marketing and sales efforts to make up for the losses and are actually seeing an increase in business.
Tom Morrison: From the feedback we received from our distributors and large corporate accounts, 2008 was certainly not a banner year for the industry, but still a relatively good year. It was not until the last quarter that concerns about the economy really set in. Our distributors did report a slow down in sales, especially in October, but things have picked up somewhat since then. When economic pressure increases, oftentimes organizations react by cutting back on their cleaning resources. Contractors who were able to prove their value have fared better. Those that have been able to communicate their impact on health and other important business outcomes can actually gain ground in this type of climate.
Frank Trevisani: I think 2008 was an adjustment year and those companies that had a good business structure and a solid business plan grew and took advantage of the ever-changing contracting market. Those that were not positioned properly and did not look for additional services to provide their customers did not have a good year and only accelerated their demise.
Lance Tullius: Relative to most other industries, the building contracting industry did quite well in 2008. As years go, however, 2008 was very challenging, and as the fallout from economic developments of 2008 continues, 2009 could prove even more challenging. As it concerns the building contracting industry, we will see rising vacancy rates in 2009 and mounting pressures from building owners and property managers to cut costs. On the bright side, those contractors that can weather this storm and find creative and efficient ways to, in fact, strengthen their relationships with customers, will improve their competitive position as we come out of the recession. Along these lines, facilities still need to be maintained and outsourcing the maintenance function remains the most cost effective alternative to service that need.
WHAT WAS THE LARGEST CHALLENGE YOU PERSONALLY FACED IN THIS INDUSTRY?
Van Vuren: The competition by far has been the largest challenge. It seems that in our area [Chicago, IL], the prices our competitors are submitting are getting lower and lower. Customers’ concern for quality has been overshadowed by bidding wars.
Doobin: The gross profit margins continue to be squeezed like never before. Clients that are not even negatively impacted by the severe economic crisis are using the economy as a reason to reduce cleaning costs. The biggest challenge is to meet the client’s expectations at the new service levels they can afford to pay.
Trevisani: I think [my biggest challenge] was trying to get over the frustration of getting BSCs to be more proactive in providing additional services to their customers. The hardest part of doing extra services is finding the labor to do it. Most contractors have the labor pool—they just have to be trained on how to do the extra services. The BSC who wants to thrive in the next few years must go beyond providing “trash and dash services” and look into other additional services such as drain maintenance, pest control, wood floor maintenance, etc.
Gershen: I’ve observed that contractors may be tightening their budgets in the wrong areas. Growth strategies are not areas that need to be sacrificed. Personally, I’ve found it difficult to explain to contractors that budget cuts should be “fat and not muscle.” An example of cutting fat may be to eliminate a Christmas party, while you don’t cut muscle for instance, in the area of sales commissions. This is the time for owners/CEOs to avail themselves of the counsel that has kept the industry alive during other recession periods and apply those same concepts to make their businesses thrive in a down economy.
WHAT IS THE LARGEST CHALLENGE THE INDUSTRY FACED AS A WHOLE? HAS THIS BEEN OVERCOME OR HOW CAN THIS BE OVERCOME?
Doobin: The economic crisis is the largest challenge for BSCs and we are not alone. Every industry is feeling the impact. The economic crisis is requiring BSCs to reexamine their businesses and ring out every dollar of waste and non-necessary expenses. BSCs should be looking at every cost now, make the reductions now and be ready if their clients come back and ask for any more cost reductions. Also BSCs must carefully monitor accounts receivables and the financial health of their clients.
Trevisani: The largest challenge was figuring out the green movement and how cleaning as a whole is being challenged. What is green cleaning, what is high-performance cleaning and what is the science of cleaning? We have educated customers asking us these questions. I don’t think most BSCs were able to handle this. I think up until recently cleaning was a commodity and BSCs and the entire cleaning industry worried more about productivity and cost per square foot and cleaning was a commodity based on “what is your price.” Now cleaning is looked upon as more of a health issue than a commodity. Until people invest in cleaning for health and the environment, we will always have this issue to overcome.
Morrison: I think our biggest challenge has been defining our purpose. This came to a head when it became clear that green cleaning was not only here to stay, but the new direction for our industry. I am personally very supportive of Green cleaning and believe our industry must do what it can not only to protect the environment, but also reduce its impact on the environment. However, this is not our industry's primary purpose. Our purpose—a message that must be repeated—is to protect human health. Our industry, though, needs to do a much better job of connecting the dots between cleaning, science and health. That’s when the public will truly appreciate our value.
Penrod: It has always been and remains a difficult task for any business to perform well even without the added challenge of immigration/labor problems, burdensome governmental policies, management/labor union problems and dealing with the sheer number of employees that are employed by a typical building service contractor. Obviously, all of this has and can be dealt with effectively. However, it takes constant guidance and alertness to stay ahead of what every company faces. This is vital in the current economic climate.
Gershen: As a whole, building contractors have faced the same challenges that all business owners have—the rising costs of fuel, increased competition, more knowledgable customers, inability to pass along price increases, the suffering economy, and the lack of optimism in both customers and employees. These dilemmas are cyclic in nature and should have been either overcome or in the process through good strategic management.
HOW DID THE ECONOMY AFFECT YOUR BUSINESS PLAN?
Doobin: We tossed our business plan out the window. The fast contracting economy has made us look at every cost and pull back on our growth plans to 2009. Our budget for 2009 is very conservative regarding revenue growth and anticipates margin reductions.
Van Vuren: We had to accept some cut backs and some losses. However, we simultaneously gained new business and achieved our goals!
Strobel: The first knee-jerk reaction is that because the economy has been bad the business plan needs to be scrapped and new plans implemented, which will include major price reductions to customers and “making lean” the operations of our companies. While it is true that reductions may be in order, shouldn’t that have always been part of our business plan? When we show our customers ways to reduce their cost, it helps make us a partner and not a commodity. Shouldn’t this process have always been part of any progressive company’s business plan?
Trevisani: I have always been a firm believer in sticking to a game plan. My game plan has always been to get BSCs to understand that good cleaning practices and a working relationship with your customer of what the cleaning expectations are and providing them additional services at reasonable costs is the way to go.
Morrison: Our systems have always delivered a rapid return on investment. We will be featuring these aspects more prominently in the coming months. In addition, we will also be introducing new equipment that are more cost competitive.
Ollek: We were blessed with a tremendous year. With the new podcasts and videos we have coming, along with the book we released in 2008 and the one scheduled for release in late 2009, we anticipate another great year. The economy provided the motivation to do some things differently than we have in the past and the new concepts provide new opportunities. We are very excited about 2009. I must say that in the 45-plus years I have been in this industry,my very best years were when the economy was in the tank because it forced me to think “outside the box” and develop new ways of doing things that proved successful in the long run.
WHAT WAS YOUR BIGGEST SUCCESS IN 2008?
Doobin: We expanded our services from 10 states to 24 states and added several large national accounts. We set this as our major goals several years ago and it has taken a long time to bear fruit.
Van Vuren: We opened our construction company, Bee Line Construction, last April and have booked over $1 million in business in the new company in its first year! This is a great new venture for us, with much better profit margins!
Morrison: Advancing the movement of bringing more science to cleaning. Being able to scientifically determine cleaning effectiveness is going to be paramount in our industry, if it is not already. In particular, tying those cleaning results to outcomes, such as reductions in absenteeism or disease, will be very important. We have worked with the Cleaning Industry Research Institute (CIRI) and other organizations promoting the need for science in our industry and in 2008 we began to see our efforts blossom.
Tullius: Not withstanding the level of conservatism seen from the capital markets, our greatest success in 2008 was the level of attention and interest that industries we specialize in drew. Investors, both private and institutional, are searching more than ever for industries that are proven sustainable and have a history of successfully weathering recessionary times. I expect that the amount of attention that industries like the building contracting industry will continue to draw in 2009 and beyond will only increase.