Sixteen HVACR industry leaders say that although the industry faces some challenges, HVACR contractors who have solid business practices and stay trained on the latest technologies have good reason to anticipate a bright future.
This year's participants:
• Michael Albertson, senior vice president, sales and marketing, WaterFurnace International
• Gary Bedard, vice president and general manager, Lennox Residential
• Gary Clark, senior vice president, Goodman Global Group, Inc.
• John Galyen, president, Danfoss North America
• Jerry Hurwitz, president, J&J Air Conditioning, ContractingBusiness.com’s 2013 Commercial Contractor of the Year
• Hugh Joyce, president and owner, James River Air Conditioning, ContractingBusiness.com’s 2013 Residential Contractor of the Year
• David Kesterton, president, Mingledorff’s, Inc.
• Mark Kuntz, vice president, marketing and engineered solutions, Mitsubishi Electric Cooling & Heating
• Rich Mathews, senior vice president, marketing, Tools Business Segment, hilmor
• David Meyers, vice president, sales and distribution, Residential & Light Commercial Systems, Carrier
• Chris Peel, senior vice president and COO, Rheem
• Ed Purvis, executive vice president, Emerson Climate Technologies
• Mark Wagner, vice president, sales, Trane
• Scott Weaver, President and CEO, APR Supply
• Steve Wright Sr., president, Wright Brothers, Inc., ContractingBusiness.com’s 2013 Refrigeration Contractor of the Year
What overriding mistake(s) do contractors make that hold them back from being as successful as they could be?
Gary Clark: First off, with the mild weather patterns experienced the past couple of years combined with the economic downturn and slow economy, we believe that the majority of HVAC contractors are successful simply by remaining in business. It’s just an example of the strength of independent HVAC dealer/contractors and the HVAC market as a whole. Perhaps one area where dealers typically hold back is within the area of sales lead generation tools. Many dealers profess that word of mouth delivers the greatest number of sales leads for their company. While this is true, a few easy marketing programs in their local community can increase both the word-of-mouth leads and customers that extend beyond the limited range of current customer interactions. HVAC dealers need to embrace fully the power of electronic, mobile and web-based sales lead generating programs. Many dealers have been early adopters of these opportunities, but the majority of dealers still lag behind in this area.
Brian Cobble: Three key success factors for most professional contractors will typically include 1) having a trained, technically competent, trustworthy and courteous staff that understands customer needs; 2) having a good understanding of business fundamentals and what is required to run a profitable operation; and importantly, 3) having an awareness and working knowledge of current and emerging technologies and products that can be of benefit to customers and prospects of the contractor’s business. It’s generally likely that contractors unable to adhere to these basic fundamentals will not have an ability to be as successful in the long run as they otherwise could be.
John Galyen: I certainly would not describe them as mistakes, but rather I see two main challenges facing contractors. First, contractors today are faced with running their business in an uncertain economic environment when new construction and homeowner investment has slowed. Here, it’s important to have a clear business model and value proposition for products and services. The second challenge is staying current on new technologies, codes, standards and regulations by investing in continual training and education.
Jerry Hurwitz: Thanks to my involvement for many years in an Air Conditioning Contractors of America (ACCA) Management Information Exchange (MIX) Group, I have had the opportunity to experience the inner workings of other contracting firms. I have found that all of the members in my group (including me) run their businesses not on pure logic, but in some part, on their emotions.
When the members of my group would go to visit a fellow contractor's site and we would see a blatant policy mistake, such as not charging enough, the host contractor would usually acknowledge the problem. In our discussion with him he would give some rationalization for why he was charging so little, and vow to make a change. Amazingly enough, we would go back and visit five years later and find that he was still under charging for what his service was worth.
But this “mistake” of running in part on our emotions has an upside. Some huge national organizations that have set policies, probably do things in a more uniform logical way and don’t experience the same things that "hold them back" that independent contractors do. However, they generally can't be responsive to unique customer or employee needs and generally cannot provide the same personal touch that independent contractors can. Those of us who run our businesses based on our guts can be very caring to our employees and offer very personalized service to our customers.
We all have a blind side that negatively impacts our businesses. One that comes to mind immediately in my case is not firing certain employees long after they should have been let go.
Some owners take too little risk, some take too much. Some owners can’t delegate and some play too much. Some owners can’t stay focused and are constantly getting into new markets or taking on new cutting edge products. There are many more examples, caused by us making decisions emotionally rather than logically.
Yes, our emotional part of our management styles often costs us money and is observed by outsiders as a mistake, but it is part of the human quality that makes our independent companies unique and attractive to work with.
Hugh Joyce: I think the biggest mistake contractors make is not marketing our business enough, not promoting enough and not working on our branding enough.
David Kesterton: The biggest mistake is getting started (opening their business) with little or no capital. Capital is king, and having adequate capital gives owners many options not afforded to others in this industry. It’s a big hindrance and can hold good contractors back from reaching their potential. If they grow too quickly, they will always be behind the eight-ball without adequate capital. Opportunities such as trade discounts will be missed and will ultimately hurt their chances to grow.
Mark Kuntz: We’d like to see more contractors getting up to speed on new technologies. Of course, our bias would be toward variable-output DX systems — the mini-splits and variable-refrigerant flow systems being classic examples of that — and understanding how these can provide new and better solutions for their customers. I think there’s a tendency for all of us to default to the things we know and are comfortable with, so when we encounter a new opportunity, there’s occasionally the tendency to put a “risk premium” on it. In the case of a contractor, if it’s a product he hasn’t worked with before there’s some uncertainty. And by putting a risk premium on it, it almost becomes a self-fulfilling prophecy: it has the potential to price the project out of the market, and so the default to the conventional is the next step and you never break out of that vicious cycle.
There’s a great example of a group up in the Pacific Northwest called the Ductless Project. This is a consortium of utilities that formed a group to really educate the contractor base on the benefits of ductless for the energy savings potential. We worked with them very closely to do extensive contractor training; several hundred contractors were trained on installation techniques, sizing, selection, it really kind of cleared away that risk premium. People became comfortable that these were products that they could successfully sell. And to date the training, the marketing, and incentives that have been put on the table by this group have resulted in the sale of more than 18,000 ductless systems over the last three years. There are numerous testimonials from contractors on the Northwest Ductless website saying, “This technology and this approach kept our business thriving through the recession and the ensuing days when others around us were withering,” and in many cases they’ve shifted their whole business model.
So by getting familiar, getting trained, and trying some new things they were able to take that risk premium out of the equation and build a new business model.
Rich Mathews: From a manufacturer’s perspective, HVACR contractors can be resistant to change, particularly in terms of the tools they use. Brand loyalty is great, but when contractors continue to use the same instruments from the same manufacturer year-over-year, they may be missing an opportunity to do their job more efficiently — either by maximizing their time on a call by using a dual-purpose tool or using a new tool that helps make a standard repair quicker.
David Meyers: There are many variables that go into being a successful contractor. A few key areas of focus would be:
• Strong business acumen with a thoroughly-developed business plan, as well as a long-term succession plan
• The ability to price/quote work with a full understanding of the margins and profitability for their business
• Being prepared and confident to quote multiple options, including the most efficient and the best overall customized solution so the customer can make an informed decision
• Association with an industry-leading brand that has comprehensive customer service, programs and product platforms.
Chris Peel: The best contractors in the industry don’t make many mistakes. Less successful contractors tend to miss two important opportunities when interacting with customers. The first is the opportunity to establish or build upon a relationship. Effective relationship building brings not only repeat business, but highly valuable positive referrals.
The second is the opportunity to market high-efficiency solutions or new technologies that bring real value to consumers, not to mention higher profitability sales.
There’s a real demand for products that give homeowners energy savings each month. According to the National Association of Realtors’ Profile of Homebuyers and Sellers, 2011, 87% of homebuyers and sellers rated energy efficiency in heating and cooling as “very” or “somewhat” important to their choice of a home.
Contractors are in a prime position to educate consumers on the long-term benefits of higher efficiency solutions. One way that they can help homeowners is to explain the lower annual operating costs for these systems. Manufacturers can provide annual operating cost figures for energy efficient heating, cooling and water heating systems, as well as standard water heating options.
In addition, contractors should share information about federal and local rebates available. For instance, the American Taxpayer Relief Act of 2012 has been extended, which continues tax credits through the end of 2013.
Ed Purvis: The most pressing issue facing contractors today is a familiar one: The workforce is aging, and it lacks the level of technical skills that it will need going forward. So the issues become, how do we bring more of the right type of people into the workforce, and how do we promote being a technician or a contractor as a job that a talented young person should aspire to?
When we look at some of the issues we as a manufacturer face, such as high reliability and maintaining our equipment, having a better contractor force is something that is in our best interest.
At Emerson Climate Technologies, we devote a lot of time and energy training contractors. We have an excellent educational services group, and over the past few years have also invested in developing electronics and diagnostics that help contractors more easily troubleshoot systems. The best example of that is the CoreSense™ compressor electronics that we’ve launched in the past few years that provide system diagnostics. We’re several years into the CoreSense program now, and the data shows that where CoreSense is being applied in systems the result is increased reliability of systems and components. It also makes system maintenance easier and faster to perform.
So training the workforce and providing designs and tools that allow technicians and contractors to more easily to work on systems are our key areas of focus.
As far as mistakes contractors may make, I think the answer lies in training. Many of the components in systems are evolving and improving, and frankly I think contractors need to invest more time to get trained on the new products out there so they can correctly apply them and take advantage of the benefits they offer.
Mark Wagner: As an equipment supplier and partner with residential HVAC contractors, we are well aware of the challenges that face these businesses every day. I would not offer a comment on mistakes, but there are some common improvement opportunities that we try to work closely with our dealers:
• Investing in business training to assist in the transition from technician to business owner as a new residential contractor grows and matures
• Utilizing resources available to them to create a support team to help them navigate the road to success (i.e., banker, insurance agent, accountant, other business owners)
• Building good relationships with their supplier and aligning with their HVAC equipment provider (like Trane) to provide insights, support, sales plans, lead generation, technical training, and more
• Managing their labor force to drive their profitability including service and installations
• Working “on” the business rather than “in” the business
• Embracing innovation in products, sales process and tools, marketing/promotion, and people to differentiate themselves in the marketplace.
Steve Wright: Losing control of cash. When the cash is gone the party is over. Most businesses fail not from a lack of profitability, but because they run out of cash. This easily can happen when you take on more business than your operation is capable of handling or by allowing your receivables to get way behind. I think you need to do a cash projection for 90 days that includes all of your cash income and cash usages for that period, it should be reviewed and adjusted every week or two.