“There was no work,” recalls Mike Delaney, president of Marion, Iowa-based Delaney Concrete Construction. “I remember going to the building department in Marion with my dad, and there had only been three building permits taken out all year.”
This was in July. Today, permits are averaging 30 a month, so it’s wise to keep lean times in perspective.
But it’s also wise to plan for them. Contractors interviewed for this story say they have survived—and even thrived —during lean times for the industry by finding innovative ways to generate revenue and keep their resources productive.
For Delaney, the dearth of residential foundation work in the early ’80s required the company to do whatever its capabilities permitted—even a parking garage—until the market picked up.
“We did a little wading pool for the city, and there were other odd things we picked up to get through it,” Delaney says. “We did three quarters of the permits the city let that year.”
For Westfield, Indiana-based Custom Concrete, expanding its presence in the slab foundation market and ramping up its activity in commercial markets has been part of a larger strategy to diversify and become less reliant on the residential market.
Even more basic, according to president Brad Schrock, is the need to build and nurture relationships to help sustain a company when times become lean.
“No matter what the building climate is, good or bad, long-term we’ve seen the need to fortify the relationships we do have, and to try to make those stronger than they’ve ever been—with all stakeholders, customers, vendors and suppliers,” Schrock says. “That’s hugely important.”
Schrock agrees that the early 1980s were the toughest period in his company’s experience. “In the early ’80s, the recession was very tough,” he says. “Interest rates were around 18 or 20 percent and hardly anyone was building homes during that period. For our market conditions here in central Indiana, that was probably the worst of times.”
A brief downturn in the early 1990s and the post-9/11 period were Schrock’s other picks for toughest downturns. Because Custom Concrete survived all of them, the company learned the lesson of diversifying its activity.
“We’ve replaced lost revenues on the residential side with some commercial things, and we’ve also gained some market share because we started doing a good number of slab foundations, which leads into town homes and apartments and things like that,” Schrock says. “We’ve also taken on other aspects of flat work. We’ve started doing a lot of exterior flat work, which in the past we didn’t do, so we’re doing driveways, sidewalks, patios and porches. They’re all related things. You’re just trying to pick up and replace revenues by doing more parts of the process.”
Paul Gintonio, president of Springdale, Arkansas-based Foundation Specialties Inc., says his company expanded its foundation-related services in the late 1980s in response to the down market of the early ’80s.
“In 1989, we went into the foundation repair business because the concrete wall business was nonexistent,” Gintonio says. “We wanted to multiply our revenue streams, and they go hand in hand and back and forth. We do pretty much high-end residential around here, and we have gotten into a lot of light commercial. If residential slows down, usually the commercial is going stronger, and when the commercial is slower the residential is doing better.”
At present, Foundation Specialties is doing a major project for the American Museum of Art—a project funded by the Walton family of Wal-Mart fame, and is busy with commercial wall projects and foundation repair on everything from commercial buildings to $100,000 homes.
Sean Smith, president of Pittsburgh-based MPW of Pennsylvania, is facing his first major downturn since starting his company in 2003. But he gained a few years of experience before that working for the Ohio-based company owned by his father Scott Smith, also named MPW. His father is a shareholder in MPW of Pennsylvania, and offers advice and insight, but Sean Smith has to find solutions to the downturn just like everyone else in the industry.
A key strategy for Sean Smith—something he says his father has emphasized—is to watch costs and be smart in vendor negotiations.
“It’s important to keep a real close eye on costs and do as much cost-control and the best purchasing possible,” Sean Smith says. “Negotiating good deals with suppliers and vendors has been really beneficial. If a vendor says, ‘This is the best I can do,’ you ask him for a little bit more, in the hope that they can, and you’ve got your best deal. Of course, it’s also important that I deliver on my end of the bargain and be timely on payments.”
The Pittsburgh market has not been as hard hit as some others, Smith says, because it didn’t experience the same overheated growth in recent years.
“It’s not the same peaks and valleys,” Smith says. “It’s more gentle. If you’re looking at a wave chart, it’s more like a wave.”
Innovation Sensation
Some contractors have gone further outside their comfort zone than others to generate revenue. Schrock of Custom Concrete has developed and begun marketing project management software designed to aid the rest of the industry.
“We’ve started a company called Oakridge Solutions,” Schrock says. “We market CAD software called Custom Tracker. It’s a total operating system that we run all of our jobs through—estimating, scheduling, job reporting. We hired various (software) developers to work with us. There are some generic-type products out there, but they are geared more toward commercial applications.”
Custom Tracker is designed to eliminate much of the paperwork associated with building a house and to better organize the process.
“If you’re a contractor that’s building a house, it’s a long drawn-out process. The typical residential foundation is a week-and-a-half to two-week process, broken down to five or 15 steps or phases, and I guess with the old way we managed all of that internally, with paper files and all the different phases and crews reporting back in with their own checklists and worksheets, there was a lot of duplication and mistakes.”
Custom Concrete has been operating the Custom Tracker system for four years, and has found a welcoming market since it began selling it to other contractors.
“With a paper file, it’s in one place at one time in front of one set of eyes at any given time,” Schrock says. “With the Tracker system, it puts it in front of everyone’s desktop or laptop at any given time.”
Another innovative way Delaney deals with the downturn is by cutting costs with a $30,000 piece of surveying equipment called the Total Station.
“Generals use them for bigger buildings,” Delaney says. “These houses are pretty good size, and you can go out and one guy can take this tripod prism and basically shoot points, and you can get them as close as you can possibly get them. It’s accurate to so many arcs per second. You can lay out footing and walls that way, and most of these walls aren’t just simple cracker boxes. It works on those, but it’s excellent for complicated walls.”
The Total Station represents a significant labor cost saver, which Delaney sites as one of the few cost variables smart contractors can control.
“Anything you can do to get things done more quickly and efficiently,” Delaney says. “Everybody’s paying about the same for concrete. I get it cheaper than some, but there are a lot of big guys who pay the same that I do. So the place where you can make the difference is in labor costs.” Delaney has had the Total Station since fall 2005, and he believes the investment is on track to pay for itself within two years.
Other companies acquire equipment that helps them broaden their business model. Foundation Specialties has invested in equipment that has allowed it to take on geothermal drilling work.
“It’s direct exchange because we only drill 100-foot holes, but it’s expanding us because it’s a good market,” Gintonio says. “We wanted to be in the micropile and earth regeneration soil nailing industry, and that allows us to get into this business – which is a little harder to get into—and keep our equipment busy. And it provides income because you’ve typically only got two men working on these jobs. Their work per man hour is pretty high, and it doesn’t take a lot of labor to do their work. It’s pretty equipment-intensive.”
More With Less
Even the most successful contractors have had to eliminate jobs during difficult periods. Such moves have often been accompanied by regret, but they are inevitable when the market gets soft.
“We had to let go of a lot of good people,” Delaney says of the early ’80s downturn. “At the time it was sort of based on seniority. If we had it to do over we wouldn’t have done that again.”
Today, Delaney maintains two wall crews and two footing crews, instead of the four of each he used to run.
Smith has also cut his payroll, although he hasn’t yet decided if he wants to rely heavily on subcontractors as projects come along.
“We have 15 employees now,” Smith says. “We used to have 30. We’re doing more with less.
Relationships and Riding It Out
Delaney says there is no substitute for cash in the bank to help a contractor ride out tough times. But a close second is definitely the value of solid relationships built up over many years in the business.
That is why he believes that few established contractors will be put out of business by the current slow market, although it’s possible that some newer ones will. And of course, a reputation for quality work is ultimately the best strategy for marketing, growth and survival.
“It seems like we do more upper-end homes,” Delaney says. “When times are tough, people who have money still have money. In a way, that helps. Quality-wise, you’re expected to do better quality, and if push comes to shove, even if prices come down, why not use someone who does better work?”
Issued: June 28, 2007
Page: 6
Copyright: Copyright 2007 R.W. Nielsen Company