As tempting as it can be to run a questionable organization, you can compete legitimately.

Competing with unsophisticated contractors has always been an issue and every time the economy tightens it gets to be even more of one. The trunk-slammers, fly-by-nighters, station-wagon warriors and pick-up truck bandits have always been here and always will be. After 27 years of consulting to contractors, I have seen all kinds of strategies to deal with them. From licensing laws to consumer education, most national efforts fail. Why? Well, it is very difficult if not impossible to legislate economics. Contracting is a straightforward, low-capital business to launch. Frankly, many of the contractors who complain about unsophisticated competition started out as just that, but as they stabilized, so did their practices. As tempting as it can be to run a questionable organization, you can compete legitimately. So here are some thoughts on how to beat unsophisticated contractors.

Marketing

Be glad trunk slammers are doing business. Why? If it were not for the crummy, illegal contractors, customers would have little contrast to a first-class company like yours.

The small illegal contractor can only do so much and take so much market share. You must work hard to differentiate your company from the cheap guys. Do you tell a good company story? Do you utilize a professional presentation packet? Do you take time to make an educational presentation to your customers, or do your merely drop an estimate in the mail like a stealth bomber on a hurry-up mission over Baghdad? Be professional and seek customers who want professionals.

Remember: It is not the customer’s responsibility to interpret the difference between estimates. The customer may not know if you do a good or bad job, but they can see quality in how you present your company, the job and yourself.

Differentiation is the key to all good marketing. Take a moment and list all the ways you are different from the fly-by-night contractors. Be specific. “We do good work” or “We have good employees” is not unique enough. Some points to consider:

  • How long have you been in business?

  • What is your insurance coverage?

  • How long have your employees been with you?

  • Do you drug test?

  • Do you use subs or your own employees?

  • What manufacturers certify you or give you special status?

  • How many jobs have you done?

  • What type of associations or other credentials do you have?

If there is little difference between you and the cheap guys, the customer is always going to pick price.

Insurance

Insurance is a huge issue. People read the papers; they know insurance costs are up. Communicate the fact that insurance is an essential benefit of dealing with a professional company. Make sure you show the customer your insurance certificates and all coverage information. Also clearly explain the risks of dealing with an uninsured contractor. Let the insurance company be the bad guy and explain how your rates are skyrocketing and while many contractors claim to be insured, many have let their coverage lapse. Also point out how others use subs that may or may not be adequately covered.

Don’t only emphasize the importance of liability insurance and protecting property, but also focus on the value of worker’s compensation. Make sure the customer understands that if a small contractor is disabled and he or she is not insured, the contractor may try to claim employee status and sue the homeowner.

Emphasize that you are a safe company, but should something happen, insurance protects your workers, the homeowner and themselves. See if your insurance agent can provide some type of documentation that demonstrates the potential troubles of dealing with an uninsured contractor.

Another important piece of the insurance equation is ensuring the customer that you check the backgrounds of your employees. There have been highly publicized kidnappings and other crimes where contractors and handymen were prime suspects. Make sure you emphasize the quality of your workforce, drug testing, background checks, the stability of your workforce, etc. Such precautions can offer real peace of mind for which most homeowners are willing to pay more.

Illegal vs. Legal Contractors

What about contractors who cheat? Contractors who use illegal subs, pay cash and cheat the system can be a real problem. We know cases where these contractors even approach another company’s employees and offer to pay them cash. Such contractors can grow quickly and take market share from an honest contractor. So what do you do?

If you saw someone rob a bank, what would you do? What if someone was attacking your neighbor? Of course you would call the police. So why not turn these competitors into the IRS?

Sorry, I am an American and I pay taxes. Different societies have laws and society decides what those laws are. So if you are trying to operate a legal business, make sure everyone else is playing by the same rules. If not, well they can vote to change the laws, move to another country or go to jail if they get caught.

Since childhood there has been a reluctance to squeal on cheaters. And all of us have tweaked certain legal boundaries, whether it’s by going 62 mph in a 55-mph zone or maybe making an illegal U-turn.

These are not the behaviors I am talking about. What I am talking about are the growing businesses that are breaking the law. These illegal operations can put so much pressure on legitimate businesses that going illegal is very tempting. But just like driving after having had a couple of drinks or speeding 40 mph above the limit, is it worth the risk? What happens if you just happen to have an accident and kill someone? Is the gain worth the risk?

One of my contractor customers had a foreman on an off day drive just a few miles after a couple of beers. He was barely over the limit and the high school kids who hit him head on were technically at fault — until his blood test was taken. Now is the half-mile ride to get cigarettes worth 10 years in jail? I doubt it.

So how do you turn in the obvious cheaters? Be as specific as possible with the details and document your claim to your regional IRS criminal activity group. Remember: You are reporting criminal activity, not a tax cheat. These folks are busy (the drug dealers, corporate frauds and others make this a hectic job). These IRS law enforcement officials are busy and you are reporting a crime, you need facts, not broad or hearsay claims. The same rules apply to people who are abusing labor department rules and not paying overtime. Just call the labor department with the facts.

What if the customer asks you if you offer cash discounts? You can say yes, but let them know that if they are insinuating that you take cash to avoid taxes and thereby offer a discount, emphasize that you are a legitimate business that reports income and pays taxes. Another great thing to add is, “Mrs. Jones, we don’t cheat the government or our customers. We found it best to do what we say we are going to do and be as honest as we can with everyone.”

Conclusion

In summary, there is no magic formula for dealing with fly-by-night contractors, but being a legitimate business is something to be proud of. When all is said and done, don’t you want to be a contributor to your community by employing good people, supporting your government and being a professional to your customers?

Monster.com did a great commercial where kids where quoted saying such things as, “When I grow up, I want to be a yes-man” or “I want to learn to be good at kissing butt, so I will succeed at work.” What do you want your kids or tombstone to say? “Here lies Dad, a man who was always the cheapest, risked the customer’s house by being uninsured and cheated his way through life.” I don’t think so. Being legit and first class is never as hard as it appears. People prefer to go first class, just make sure they understand what they are getting.