There is no question that the marketplace is changing and becoming more competitive. For the past few months, I have been writing articles about this subject and how roofing contractors might succeed. I run an active networking group for a select group of roofing contractors. I took a moment to call some of our customers. I asked them why they were doing well. While I obviously cannot share priority information, I can share their basic message.
The overall message was “have a consistent plan and follow core competencies.” Core competencies can be the things your company does well that create value and a competitive edge. Unfortunately, many contractors talk a good game but really are not all that different than their competition. Building a solid business requires consistency and focus. It requires companies to have and stick to a solid plan. Following core practices can be much more effective but not nearly as exciting as the latest idea or fad.
Guy Poirier of Baliwick Roofing, a successful Connecticut contractor, put it this way: “Sure, the market is tougher but you have to focus on your name brand and customer base. We take extra effort to make use of this asset.”
Ovid Figueroa Jr. with Serrano II, another Northeast contractor, had similar comments. “We follow through and offer good service,” he said. “Our referral and customer base is strong.” I then commented that he probably always offered such strong service, so what was different now? He replied, “I know my costs and where I make and lose money. In the past, I probably would have been too quick to cut my price to just get the job.”
I would like to emphasize the importance of his pricing comment. There are thousands of roofing contractors who do good work, but most do not really understand their costs. They are merely using some per square price set by the marketplace. My findings have been that 20 percent to 30 percent of the roofing industry’s per square pricing practices are inaccurate. Unfortunately, as the market slows, smaller contractors tend to panic and cut prices. Knowing your cost and what you need to charge allows you to look the customer in the eye and quote a fair price. We all know contractors who are great technicians but are poor businesspeople. Doing a good job is not enough to ensure your success.
The frustrating reality is that it will take some time for these lowball contractors to go broke. Ten years of strong economic times has allowed them to succeed in spite of their sloppy business practices. It is going to take a while for them to bottom out, but it will happen. Many are not keeping up with material increases and this will further deplete their bottom line. Regrettably, suppliers tend to extend credit and let past accounts accrue. Cutting off their credit can be economic suicide for the supplier. Business is tough, so to make sales, some supply houses may extend questionable credit. One bright side of the credit crunch is that suppliers will eventually have to tighten credit extensions. Smaller contractors in financial trouble are also going to have a harder time getting a second mortgage to bail them out. Time is on your side.
Following your core competencies does not mean you cannot diversify. However, moving into a new area of work should follow your fundamental abilities and strengths. For example, if you are a steep-slope or shingle roofer, expanding into commercial roofing may not be all that easy. You probably don’t have the people and knowledge to instantly be successful in this type of work. Another example of going against your core competency might be moving from reroof to new construction or government work. You may not have the contract documentation skills and cash reserves to succeed. Moving from new home shingling to consumer reroofing might be a workable change, but that also will require new skills. While the work is similar, you will have to learn how to be more customer-responsive, market and develop sales skills. Entering the market by just being cheaper is a formula for disaster. Fortunately, reroofing generally has higher margins so there is enough money in the job to learn and practice these new behaviors.
Gary Rands with Rands Roofing in Utah emphasizes the value of intelligent diversification. “A few years ago we were mostly roofing new homes and following per square prices,” he said. “The market was hot and with a lot of hard work, we were successful. By learning our numbers and developing a consistent marketing program, we have been able to build a much more diversified and stable company.”
Brett Ruiz with Medina Exteriors of Ohio has a similar message. “Once we focused on a consistent business, our company boomed. We cut out all the going south during the winter nonsense and short-term fixes. Practicing the basics beats every other strategy.”
Assessing New VenturesThe entrepreneurial spirit is an ongoing voice in most business owners’ heads. By their very nature, roofing contractors are risk takers. Every day they gamble with weather, production crews, competitors and customers. As your core roofing business becomes more challenging, that entrepreneurial voice in your head may tempt you to consider a painful business venture that does not follow your core abilities.
I took a moment to talk with Mark Carpenter, a successful Oregon contractor. Mark used his commercial roofing expertise to develop a leading-edge green roofing system, Columbia Green Technologies. Mark said, “Seizing the opportunity and using our roofing knowledge to launch a successful roofing system did follow our core technical ability. However, manufacturing and distributing a roofing system did not. Fortunately, we have very competent key people running a sound roofing business. Columbia Green Technologies has turned the corner and is doing very well but it took over three years. It takes time to get a new venture going. This is why folks should undertake new ventures when times are good and their company is healthy.
So what’s our message? Build and run a consistent business. Focus on what you do well. Understand that diversity takes time and energy. Trying new markets and avenues to save your business is very risky. Don’t try to grow or expand your way out of slower economic times. Focus on the basics. Cut costs and fix your core business.
In slower times any business can be at risk, but two of the riskiest profiles can be the smaller tradesperson type and the older, more established business with a less active owner.
Smaller tradesperson businesses brag about building their business on word of mouth and good craftsmanship. However, they have no way to find new customers and don’t understand where they are making and losing money. As business slows, their strategy is to simply cut prices. Such price cutting simply ensures a slow and painful business demise.
More established businesses tend to cut slowly because such cuts are painful. They must terminate key people and assets that took years to build. Frequently the owner was a dynamic individual who made things happen. Unfortunately the owner may now be out of touch with past customers and process. As people mature, they also are more reluctant to change. The good news is that such businesses can have deep pockets and the financial strength to weather the storm.
Only when your core business returns to profitability should you consider changing your business plan. Don’t blame the government. Don’t blame the competition. Secure and work on your core business and move forward.